485-b Filing

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WthDzBQCU2ghvuF1feSRrYREdVnWQx9YIOdAP/kqb3XqFZ5EHKXl2srU65euUC9T spH5KThB/a/Jaz6sJB3Q7A== 0000728889-04-000894.txt : 20041026 0000728889-04-000894.hdr.sgml : 20041026 20041026113505 ACCESSION NUMBER: 0000728889-04-000894 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20041026 DATE AS OF CHANGE: 20041026 EFFECTIVENESS DATE: 20041026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER CAPITAL INCOME FUND CENTRAL INDEX KEY: 0000045156 IRS NUMBER: 840578481 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-33043 FILM NUMBER: 041095777 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 303-768-3200 MAIL ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19830428 497 1 pspsai497.htm PROSPECTUS AND SAI 485-b Filing

Oppenheimer
Capital Income Fund

Prospectus dated October 25, 2004

Oppenheimer Capital Income Fund is a
mutual fund that seeks current income
compatible with prudent investment. As
a secondary objective it attempts to
conserve principal while providing an
opportunity for capital appreciation.
It invests in both equity and debt
securities.
This Prospectus contains important
information about the Fund's
objectives, its investment policies,
strategies and risks. It also contains
important information about how to buy
and sell shares of the Fund and other
account features. Please read this
As with all mutual funds, the Prospectus carefully before you invest
Securities and Exchange Commission and keep it for future reference about
has not approved or disapproved the your account.
Fund's securities nor has it
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.

CONTENTS

A B O U T TH E F U N D

The Fund's Investment Objectives and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

ABOUT YOUR ACCOUNT

How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class N Shares

Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Website
Retirement Plans

How to Sell Shares
By Wire
By Mail
By Telephone

How to Exchange Shares

Shareholder Account Rules and Policies

Dividends, Capital Gains and Taxes

Financial Highlights

A B O U T T H E F U N D

The Fund's Investment Objectives and Principal Investment Strategies

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? The Fund's primary objective is to
seek as much current income as is compatible with prudent investment. The Fund
has a secondary objective to conserve principal while providing an opportunity
for capital appreciation.

WHAT DOES THE FUND MAINLY INVEST IN? Under normal market conditions, the Fund
invests 65% of its total assets in equity and debt securities that are expected
to generate income. The Fund focuses its investments in both debt and equity
securities. Equity investments include dividend-paying common stocks, preferred
stocks and securities convertible into common stock, of domestic and foreign
issuers, of different capitalization ranges. Debt securities include corporate
and government bonds and debentures of domestic and foreign issuers. The Fund
can hold debt securities having short, intermediate or long maturities. The
relative amount of equity and debt securities the Fund invests in may vary from
time to time.

HOW DOES THE PORTFOLIO MANAGER DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the portfolio manager mainly relies on a
value-oriented investing style for equity securities. Value investing focuses on
companies that may be currently out of favor in the market, or on opportunities
in cyclical industries. The portfolio manager looks for stocks trading at lower
prices relative to the market and what is believed to be their real worth. They
may offer higher than average dividends. Value investors hope to realize
appreciation as other investors recognize the security's intrinsic value and the
stock price rises as a result.

The portfolio manager generally uses a fundamental approach to analyzing
issuers (for example, price/earnings ratios and current balance sheet
information), to select stocks he thinks are undervalued. While this process and
the factors used may change over time and its implementation may vary in
particular cases, the portfolio manager typically searches for:
o stocks of established issuers that have under-performed the market for
a year or more, but have begun to recover
o stocks that have high current income and are believed to have
substantial earnings possibilities
o stocks with low price/earnings ratios relative to other securities
o stocks with a low price relative to the underlying value of the
issuer's assets, earnings, cash flow or other factors

In value investing there is always the risk that the market will not
recognize a security's intrinsic value or that the portfolio manager has not
correctly assessed the relative value of the issuer's securities or the issuer's
worth.

In selecting debt securities, the portfolio manager looks for high current
yields without taking undue credit risks, although the Fund can invest in debt
securities below investment grade.

While this process and the factors used may change over time and its
implementation may vary in particular cases, the portfolio manager typically
searches for:
o Debt securities in market sectors that offer attractive relative value,
o Investment-grade securities that offer more income than U.S. treasury
obligations with a good balance of risk and return, high income
potential from different types of corporate and government securities,
and
o Broad portfolio diversification to help reduce the volatility of the
Fund's share prices.

WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking current income with the opportunity for some capital growth in their
investment over the long term. Those investors should have a longer investing
horizon and be willing to assume the risks of short-term share price
fluctuations that are typical for a fund with substantial investments in equity
securities. Since the Fund's income level will fluctuate, it is not designed for
investors needing an assured level of current income. Because of its primary
focus on income and long-term growth secondarily, the Fund may be appropriate
for moderately conservative investors and for retirement plans. However, the
Fund is not a complete investment program.

Main Risks of Investing in the Fund

All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors described below. There is also
the risk that poor security selection by the Fund's investment manager,
OppenheimerFunds, Inc., will cause the Fund to underperform other funds having
similar objectives.

RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because the Fund typically invests a
substantial portion of its assets in common stocks and other equity securities,
the value of the Fund's portfolio will be affected by changes in the stock
markets. Market risk will affect the Fund's net asset values per share, which
will fluctuate as the values of the Fund's portfolio securities change.

A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly or
at the same time. Different stock markets may behave differently from each
other. In particular, because the Fund currently focuses its stock investments
in U.S. issuers, it will be primarily affected by changes in U.S. stock markets.

The Manager may increase the relative emphasis of the Fund's investments
in a particular industry from time to time. To the extent that the Fund does so,
its share values may fluctuate in response to events affecting that industry,
such as changes in economic conditions, government regulations, availability of
basic resources or supplies, or other events that affect that industry more than
others.

Other factors can affect a particular stock's price, such as poor earnings
reports by the issuer, loss of major customers, major litigation against the
issuer, or changes in government regulations affecting the issuer or its
industry. The Fund currently invests primarily in securities of mid-cap and
large-cap companies for their dividend income but can also buy securities of
small size companies, which may have more volatile prices than stocks of large
companies.

RISKS OF INVESTING IN DEBT SECURITIES

PrePayment Risk. Mortgage-related securities are subject to the risks of
unanticipated prepayment. The prices and yields of CMOs are determined, in
part, by assumptions about the cash flows from the rate of payments of the
underlying mortgages. Changes in interest rates may cause the rate of
expected prepayments of those mortgages to change. In general, prepayments
increase when general interest rates fall and decrease when interest rates
rise.

If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund might have to reinvest the prepayment
proceeds in other securities paying interest at lower rates, which could
reduce the Fund's yield. The impact of prepayments on the price of a
security may be difficult to predict and may increase the volatility of
the price. Additionally, the Fund may buy mortgage-related securities at a
premium. Accelerated prepayments on those securities could cause the Fund
to lose a portion of its principal investment represented by the premium
the Fund paid.

When interest rates rise rapidly, and if prepayments occur more slowly
than expected, a short- or medium-term CMO can in effect become a
long-term security, subject to greater fluctuations in value. These
prepayment risks can make the prices of CMOs very volatile when interest
rates change. The prices of longer-term debt securities tend to fluctuate
more than those of shorter-term debt securities. That volatility will
affect the Fund's share prices.

CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a security might not make interest and principal payments on
the security as they become due. If the issuer fails to pay interest, the Fund's
income might be reduced and if the issuer fails to repay principal, the value of
that security and of the Fund's shares may be reduced. While the Fund's
investments in U.S. government securities are subject to little credit risk, the
Fund's other investments in debt securities, particularly high-yield lower-grade
debt securities and debt securities of foreign governments and of domestic and
foreign companies, are subject to risks of default. A downgrade in an issuer's
credit rating or other adverse news about an issuer can reduce the value of that
issuer's securities.

Special Credit Risks of Lower-Grade Securities. The Fund can invest up to 25%
of its total assets in "lower-grade" securities commonly known as "junk
bonds." These are securities rated below "Baa" by Moody's Investors Service,
Inc. or "BBB" by Standard &amp; Poors Ratings Service or having similar ratings
by other ratings organizations, or if unrated, assigned a comparable rating
by the Manager. However, the Fund cannot invest more than 10% of its total
assets in lower-grade securities that are not convertible.

While all debt securities are subject to risks of non-payment of interest
and principal, debt securities below investment grade, whether rated or
unrated, have greater risks than investment grade securities. There may be
less of a market for them and therefore they may be harder to sell at an
acceptable price. There is a relatively greater possibility that the
issuer's earnings may be insufficient to make the payments of interest and
principal when due.

INTEREST RATE RISKS. The values of debt securities are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall, and they may sell at a
discount from their face amount. The magnitude of these fluctuations will often
be greater for longer-term debt securities than shorter-term debt securities and
at times the average maturity of the Fund's debt investments may be relatively
long-term. The Fund's share prices can go up or down when interest rates change
because of the effect of the changes in the value of the Fund's investments in
debt securities.

HOW RISKY IS THE FUND OVERALL? In the short term, the stock markets can be
volatile, and the price of the Fund's shares can go up and down. The Fund's
income-oriented investments may help cushion the Fund's total return from
changes in stock prices, but fixed-income securities have their own risks and
changes in their values can also affect the Fund's share prices. In the
OppenheimerFunds spectrum, the Fund is generally less aggressive than growth
stock funds, but may be more volatile than investment-grade bond funds.

These risks collectively form the overall risk profile of the Fund and can
affect the value of the Fund's investments, its investment performance, and the
prices of its shares. Particular investments and investment strategies also have
risks. These risks mean that you can lose money by investing in the Fund. When
you redeem your shares, they may be worth more or less than what you paid for
them. There is no assurance that the Fund will achieve its investment
objectives.

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An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the last ten calendar years and by showing how the average
annual total returns of the Fund's shares, both before and after taxes, compare
to those of a broad-based market index. The after-tax returns for the other
classes of shares will vary.

The after-tax returns are shown for Class A shares only and are calculated using
the historical highest individual federal marginal income tax rates in effect
during the periods shown, and do not reflect the impact of state or local taxes.
The after-tax returns are calculated based on certain assumptions mandated by
regulation and your actual after-tax returns may differ from those shown,
depending on your individual tax situation. The after-tax returns set forth
below are not relevant to investors who hold their fund shares through
tax-deferred arrangements such as 401(k) plans or IRAs or to institutional
investors not subject to tax. The Fund's past investment performance, before and
after taxes, is not necessarily an indication of how the Fund will perform in
the future.

Annual Total Returns (Class A) (as of 12/31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

Sales charges and taxes are not included in the calculations of return in this
bar chart, and if those charges and taxes were included, the returns may be less
than those shown.

For the period from 1/1/04 through 9/30/04, the cumulative return (not
annualized) before taxes for Class A shares was 0.88%. During the period shown
in the bar chart, the highest return (not annualized) before taxes for a
calendar quarter was 18.21% (2nd Qtr `03) and the lowest return (not annualized)
before taxes for a calendar quarter was -12.70% (2nd Qtr `02).

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Average Annual Total Returns 5 Years 10 Years
for the periods ended (or life of (or life of
December 31, 2003 1 Year class, if less) class, if less)

12/1/70) 25.80% 2.89% 9.43%
Return Before Taxes 24.26% 0.73% 6.89%
Return After Taxes on 17.07% 1.28% 6.76%
Distributions
Return After Taxes on
Distributions and Sale of
Fund Shares

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S&amp;P 500 Index (reflects no
deduction for fees, expenses

or taxes) 28.67% -0.57% 11.06%1

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

Class B Shares (inception 27.33% 2.97% 9.55%

8/17/93)
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Class C Shares (inception 31.38% 3.29% 9.21%

11/1/95)
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Class N Shares (inception 32.11% 3.02% N/A

3/1/01)
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1 From 12/31/93.

The Fund's average annual total returns include applicable sales charges: for
Class A shares, the current maximum initial sales charge of 5.75%; for Class B
shares, the contingent deferred sales charges of 5% (1-year) and 2% (5-year);
and for Class C and Class N shares, the 1% contingent deferred sales charge for
the 1-year period. Because Class B shares convert to Class A shares 72 months
after purchase, Class B "life-of-class" performance does not include the
contingent deferred sales charge and uses Class A performance for the period
after conversion.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The performance of the Fund's Class A shares is compared to the S&amp;P 500
Index, an unmanaged index of equity securities. The index performance includes
reinvestment of income but does not reflect transaction costs, fees, expenses or
taxes. The Fund's investments vary from those in the index. The Fund also
invests in debt securities, which are not included in the index.

Fees and Expenses of the Fund

The following tables are provided to help you understand the fees and expenses
you may pay if you buy and hold shares of the Fund. The Fund pays a variety of
expenses directly for management of its assets, administration, distribution of
its shares and other services. Those expenses are subtracted from the Fund's
assets to calculate the Fund's net asset values per share. All shareholders
therefore pay those expenses indirectly. Shareholders pay other transaction
expenses directly, such as sales charges. The numbers below are based on the
Fund's expenses during its fiscal year ended August 31, 2004.

Shareholder Fees (charges paid directly from your investment):

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Class A Class B Class C Class N
Shares Shares Shares Shares
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Maximum Sales Charge (Load) on 5.75% None None None
purchases
(as % of offering price)
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Maximum Deferred Sales Charge
(Load)
(as % of the lower of the None1 5%2 1%3 1%4
original offering
price or redemption proceeds)
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Annual Fund Operating Expenses
(deducted from Fund assets):
(% of average daily net assets)
Class A Class B Class C Class N
Shares Shares Shares Shares
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Management Fees 0.53% 0.53% 0.53% 0.53%
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Distribution and/or Service (12b-1) 0.23% 1.00% 1.00% 0.50%
Fees
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Other Expenses 0.13% 0.23% 0.19% 0.25%

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Total Annual Operating Expenses 0.89% 1.76% 1.72% 1.28%

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Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses that the Fund pays. The
Transfer Agent has voluntarily undertaken to the Fund to limit the transfer
agent fees to 0.35% of average daily net assets per fiscal year for all classes.
That undertaking may be amended or withdrawn at any time. For the Fund's fiscal
year ended August 31, 2004, the transfer agent fees did not exceed the expense
limitation described above by more than 0.01%, for each class.

1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for certain retirement plan accounts) of Class A
shares. See "How Can You Buy Class A Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge gradually declines from 5% to 1% in years one through six and is
eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
4. Applies to shares redeemed within 18 months of retirement plan's first
purchase of Class N shares.

EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.

The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:

If shares are redeemed: 1 Year 3 Years 5 Years 10 Years
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Class A Shares $661 $843 $1,040 $1,608

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Class B Shares $679 $854 $1,154 $1,6321

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Class C Shares $275 $542 $933 $2,030

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Class N Shares $230 $406 $702 $1,545

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If shares are not redeemed: 1 Year 3 Years 5 Years 10 Years
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Class A Shares $661 $843 $1,040 $1,608

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Class B Shares $179 $554 $954 $1,6321

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Class C Shares $175 $542 $933 $2,030

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Class N Shares $130 $406 $702 $1,545

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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B, Class C or Class N contingent deferred sales charges. In
the second example, the Class A expenses include the sales charge, but Class B,
Class C and Class N expenses do not include the contingent deferred sales
charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses because
Class B shares automatically convert to Class A shares 72 months after purchase.

About the Fund's Investments

THE FUND'S PRINCIPAL INVESTMENT POLICIES AND RISKS. The allocation of the Fund's
portfolio among different types of investments will vary over time based on the
Manager's evaluation of economic and market trends. The Fund's portfolio might
not always include all of the different types of investments described below.
The Statement of Additional Information contains more detailed information about
the Fund's investment policies and risks.

The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one company. Also, the Fund does not concentrate 25%
or more of its investments in any one industry. However, changes in the overall
market prices of securities and the income they pay can occur at any time. The
share price of the Fund will change daily based on changes in market prices of
securities and market conditions and in response to other economic events.

Equity Securities. The Fund's investments in equity securities are mainly common
stocks but also include preferred stocks and securities convertible into
common stocks. The Fund currently focuses on securities of issuers that
have mid-to large capitalizations. They may pay higher dividends than
small capitalization companies and their stock prices have tended to be
less volatile than securities of smaller issuers. However, the Fund can
buy stocks of issuers in all capitalization ranges.

The Fund may invest in equity securities both for current income from
dividends as well as secondarily for growth opportunities. The mix of
equities and debt securities in the Fund's portfolio will vary over time
depending on the Manager's judgment about market and economic conditions.

Equity securities include common stocks, as well as "equity equivalents"
such as preferred stocks and securities convertible into common stock.
They can include securities issued by domestic or foreign companies.
Preferred stock has a set dividend rate and ranks after bonds and before
common stocks in its claim for dividends and on assets if the issuer is
liquidated or becomes bankrupt. The Manager considers some convertible
securities to be "equity equivalents" because of the conversion feature
and in that case their rating has less impact on the investment decision
than in the case of debt securities.

Convertible Securities. Convertible debt securities pay interest and convertible
preferred stocks pay dividends until they mature or are converted,
exchanged or redeemed. Because of the conversion feature, the price of a
convertible security will normally vary in some proportion to changes in
the price of the underlying common stock. In general, convertible
securities:

o have higher yields than common stocks but lower yields than comparable
non-convertible securities,
o may be subject to less fluctuation in value than the underlying stock
because of their income, and
o provide potential for capital appreciation if the market price of the
underlying common stock increases (and in those cases may be thought of
as "equity substitutes").

The Fund does not invest only in securities of issuers in a particular
market capitalization range, and at times the Manager might increase the
relative emphasis of securities of issuers in a particular capitalization
range if the Manager believes they offer greater opportunities for total
return.

What is a "Convertible" Security? A convertible security is one that can be
converted into or exchanged for a set amount of common stock of an issuer within
a particular period of time at a specified price or according to a price formula

Preferred Stock and Convertible Preferred Stock. Unlike common stock, preferred
stock typically has a stated dividend rate. When prevailing interest rates
rise, the value of preferred stock having a fixed dividend rate tends to
fall. The right to payment of dividends on preferred stock generally is
subordinate to the rights of the company's debt securities. Preferred
stock dividends may be cumulative (they remain a liability of the company
until paid) or non-cumulative.

Some convertible preferred stock with a mandatory conversion feature has a
set call price to buy the underlying common stock. If the underlying
common stock price is less than the call price, the holder will pay more
for the common stock than its market price. The issuer might also be able
to redeem the stock prior to the mandatory conversion date, which could
diminish the potential for capital appreciation on the investment.

Debt Securities. The Fund's investments in debt securities include securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and foreign and domestic corporate bonds, notes and
debentures. These are selected primarily for their income possibilities
and to help cushion fluctuations in the Fund's net asset values.

o U.S. Government Securities. The Fund invests in securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Some of those securities are directly issued by the U.S. Treasury, such as
U.S. Treasury bills, notes and bonds. They are backed by the full faith
and credit of the U.S. government and are deemed to have the highest
credit quality. Some securities issued by U.S. government agencies, such
as Government National Mortgage Corporation pass-through mortgage
obligations ("Ginnie Maes"), are also backed by the full faith and credit
of the U.S. government. Others are supported by the right of the agency to
borrow an amount from the U.S. government limited to a specific line of
credit (for example, "Fannie Mae" bonds issued by Federal National
Mortgage Corporation). Other s are supported only by the credit of the
agency that issued the security (for example, "Freddie Mac" obligations
issued by Federal Home Loan Mortgage Corporation).

Forward Rolls. The Fund can enter into "forward roll" transactions (also
referred to as "mortgage dollar rolls") with respect to mortgage-related
securities. In this type of transaction, the Fund sells a mortgage-related
security to a buyer and simultaneously agrees to repurchase a similar
security at a later date at a set price.

During the period between the sale and the repurchase, the Fund will not
be entitled to receive interest and principal payments on the securities
that have been sold. It is possible that the market value of the
securities the Fund sells may decline below the price at which the Fund is
obligated to repurchase securities, or that the counterparty might default
in its obligation.

Securities of Smaller Companies. Securities of smaller, newer companies may
offer greater potential for higher returns, but their stock prices may be
volatile, and for debt securities, they are also subject to greater risks
of default than larger, more established issuers. They may have unseasoned
management, they may lack established markets for their products or
services and may be dependent on only a few customers or suppliers for a
greater amount of their business. Also, they may not have the financial
strength to sustain them through business downturns or adverse market
conditions. These securities may have less of a trading market than
securities of larger issuers, and it might be harder for the Fund to
dispose of its holdings at an acceptable price when it wants to sell them.
As a result, the Fund's investments in securities of these issuers have
greater risks. The Fund might not achieve its expected returns from them
and its share price may fluctuate more to the extent that it holds these
investments.

In selecting securities for the Fund's portfolio and evaluating their
yield potential and credit risk, the Manager does not rely solely on
ratings by rating organizations but evaluates business and economic
factors affecting an issuer as well. The debt securities and convertible
securities the Fund buys may be rated by nationally-recognized rating
organizations such as Moody's Investors Service, Inc. or Standard &amp; Poor's
Rating Service, or they may be unrated securities assigned an equivalent
rating by the Manager. Credit ratings evaluate the expectation of
scheduled payments of interest and principal, not market risks. Rating
agencies might not always change their credit ratings of an issuer in a
timely manner to reflect the events that could affect an issuer's ability
to make timely payments on its obligations.

The Fund can invest in debt securities and convertible securities that are
above or below investment grade in credit quality and at times will invest
substantial amounts of its assets in securities below investment grade to
seek higher income as part of its goal. "Investment-grade" rated
securities are those in the four highest rating categories of national
ratings organizations. The ratings definitions of the principal ratings
organizations are included in Appendix A to the Statement of Additional
Information.

Credit Derivatives. The Fund may enter into credit default swaps, both (i)
directly and (ii) indirectly in the form of a swap embedded within a
structured note, to protect against the risk that a debt security will
default. The Fund pays a fee to enter into the trade and receives a fixed
payment during the life of the swap. If there is a credit event (for
example, the security fails to timely pay interest or principal), the Fund
either delivers the defaulted bond (if the Fund has taken the short
position in the credit default swap, also known as "buying credit
protection") or pays the par amount of the defaulted bond (if the Fund has
taken the long position in the credit default swap note, also know as
"selling credit protection"). Risks of credit default swaps include the
cost of paying for credit protection if there are no credit events, and
adverse pricing when purchasing bonds to satisfy its delivery obligation
where the Fund took a short position in the swap and there has been a
credit event.

CAN THE FUND'S INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objectives are fundamental policies. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy or technique is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.

OTHER INVESTMENT STRATEGIES. To seek its objectives, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have risks, although some are designed to help
reduce overall investment or market risks.

Zero-Coupon and "Stripped" Securities. Some of the debt securities the Fund buys
are zero-coupon bonds (including U.S. Treasury bonds) that pay no interest
and are issued at a substantial discount from their face value. Others are
debt securities that have been "stripped" of their interest coupons, such
as Treasury Securities whose coupons have been stripped by a Federal
Reserve Bank. They may also include securities issued by private issuers.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-paying securities. The Fund
may have to pay out the imputed income on zero coupon securities without
receiving the actual cash currently.

Foreign Securities. There is no limit on the amount of the Fund's assets that
can be invested in foreign securities. However, the Fund currently does
not invest a significant portion of its assets in foreign securities and
does not intend to invest more than 35% of its total assets in foreign
securities. The Fund can buy foreign equity securities as well as debt
securities issued by foreign companies or governments and their agencies
in any country, developed or undeveloped.

o Risks of Foreign Investing. While foreign securities offer special
investment opportunities, they also have special risks. The change in
value of a foreign currency against the U.S. dollar will result in a
change in the U.S. dollar value of securities denominated in that foreign
currency. Foreign issuers are not subject to the same accounting and
disclosure requirements to which U.S. companies are subject. The value of
foreign investments may be affected by exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes,
delays in settlement of transactions, changes in governmental, economic or
monetary policy in the U.S. or abroad, or other political and economic
factors. Securities in emerging market countries may be more difficult to
sell and their prices may be more volatile.

Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities. The Board can increase that limit to
15%. Certain restricted securities that are eligible for resale to
qualified institutional purchasers may not be subject to that limit. The
Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.

Derivative Investments. The Fund can invest in a number of different kinds of
"derivative" investments. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value
of an underlying asset, interest rate or index. In the broadest sense,
options, futures contracts, and other hedging instruments the Fund might
use may be considered "derivative" investments. In addition to using
derivatives for hedging, the Fund might use other derivative investments
because they offer the potential for increased value. The Fund currently
does not use derivatives to a significant degree and is not required to
use them in seeking its objective.

Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As
a result of these risks the Fund could realize less principal or income
from the investment than expected or its hedge might be unsuccessful. As a
result, the Fund's share prices could fall. Certain derivative investments
held by the Fund might be illiquid.

o Hedging. The Fund can buy and sell futures contracts, put and call
options, forward contracts, interest rate swaps and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund has limits on its use of hedging instruments and is
not required to use them in seeking its objectives.

Some of these strategies would hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call
options, would tend to increase the Fund's exposure to the securities
market.

There are also special risks in particular hedging strategies. Options
trading involves the payment of premiums and can increase portfolio
turnover. If the Manager used a hedging instrument at the wrong time or
judged market conditions incorrectly, the strategy could reduce the Fund's
return.

o Mortgage-Related Securities. The Fund can buy interests in pools of
residential or commercial mortgages, in the form of collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage
securities. They may be issued or guaranteed by the U.S. government or
its agencies and instrumentalities or by private issuers. CMOs that are
U.S. government securities have collateral to secure payment of
interest and principal. They may be issued in different series, each
having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or
guaranteed by a U.S. government agency or instrumentality or mortgage
loans insured by a U.S. government agency.

The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying
mortgages. Changes in interest rates may cause the rate of expected
prepayments of those mortgages to change. In general, prepayments increase
when general interest rates fall and decrease when interest rates rise.

o Private-Issuer Mortgage-Backed Securities. CMOs and other
mortgage-related securities issued by private issuers are not U.S.
government securities, and are subject to greater credit risks than
mortgage-related securities that are U.S. government securities. The
Fund can invest in mortgage-backed securities issued by private
issuers. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks,
savings and loans, mortgage bankers and other non-governmental issuers.
Private issuer mortgage-backed securities are subject to the credit
risks of the issuers (as well as interest rate risks and prepayment
risks), although in some cases they may be supported by insurance or
guarantees.

Temporary Defensive and Interim Investments. In times of unstable adverse market
or economic conditions, the Fund can invest up to 100% of its assets in
temporary investments that are inconsistent with the Fund's principal
investment strategies. Generally they would be cash equivalents (such as
commercial paper), money market instruments, short-term debt securities,
U.S. government securities, or repurchase agreements. They can also
include other investment-grade debt securities. The Fund might also hold
these types of securities pending the investment of proceeds from the sale
of Fund shares or portfolio securities or to meet anticipated redemptions
of Fund shares. To the extent the Fund invests in these securities, it
might not achieve its investment objective of current income.

Portfolio Turnover. A change in the securities held by the Fund is known as
"portfolio turnover." The Fund may engage in active and frequent trading
to try to achieve its objective and may have a high portfolio turnover
rate of over 100% annually. If the Fund realizes capital gains when it
sells its portfolio investments, it must generally pay those gains out to
the shareholders, increasing their taxable distributions. The Financial
Highlights table at the end of this prospectus shows the Fund's portfolio
turnover rate during the past fiscal year. Increased portfolio turnover
creates higher brokerage and transaction costs for the Fund (and may
reduce performance).

How the Fund is Managed

THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to certain
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that the
Fund is responsible to pay to conduct its business.

The Manager has been an investment adviser since January 1960. The Manager
and its subsidiaries and controlled affiliates managed more than $155 billion in
assets as of September 30, 2004, including other Oppenheimer funds with more
than 7 million shareholder accounts. The Manager is located at Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008.

Portfolio Manager. The portfolio manager of the Fund is Michael Levine. He is
the person principally responsible for the day-to-day management of the
Fund's portfolio. Mr. Levine became a Vice President and portfolio
manager of the Fund on June 1, 1999 and has been a Vice President of
the Manager since June 1998. Mr. Levine is a portfolio manager and an
officer of other Oppenheimer funds.

Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines as the Fund's
assets grow: 0.75% of the first $100 million of average annual net assets
of the Fund, 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 its last fiscal year ended August 31, 2004 was
0.53% of average annual net assets for each class of shares.

PENDING LITIGATION. Six law suits have been filed as putative derivative and
class actions against the Fund's investment Manager, Distributor and Transfer
Agent, some of the Oppenheimer funds including the Fund and Directors or
Trustees of some of those funds, excluding the Fund. The complaints allege that
the Manager charged excessive fees for distribution and other costs, improperly
used assets of the funds in the form of directed brokerage commissions and 12b-1
fees to pay brokers to promote sales of Oppenheimer funds, and failed to
properly disclose the use of fund assets to make those payments in violation of
the Investment Company Act and the Investment Advisers Act of 1940. The
complaints further allege that by permitting and/or participating in those
actions, the defendant Directors breached their fiduciary duties to fund
shareholders under the Investment Company Act and at common law. Those law suits
were filed on August 31, 2004, September 3, 2004, September 14, 2004, September
14, 2004, September 21, 2004 and September 22, 2004, respectively, in the U. S.
District Court for the Southern District of New York. The complaints seek
unspecified compensatory and punitive damages, rescission of the funds'
investment advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

The Manager and the Distributor believe the claims asserted in these law
suits to be without merit, and intend to defend the suits vigorously. The
Manager and the Distributor do not believe that the pending actions are likely
to have a material adverse affect on the Fund or on their ability to perform
their respective investment advisory or distribution agreements with the Fund.

ABOUT YOUR ACCOUNT

How to Buy Shares

You can buy shares several ways, as described below. The Fund's Distributor,
OppenheimerFunds Distributor, Inc., may appoint servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.

Buying Shares Through Your Dealer. You can buy shares through any dealer, broker
or financial institution that has a sales agreement with the Distributor.
Your dealer will place your order with the Distributor on your behalf. A
broker or dealer may charge for that service.
Buying Shares Through the Distributor. Complete an OppenheimerFunds new account
application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If
you don't list a dealer on the application, the Distributor will act as
your agent in buying the shares. However, we recommend that you discuss
your investment with a financial advisor before you make a purchase to be
sure that the Fund is appropriate for you.

o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.225.5677 to notify the Distributor of the wire and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
you pay for shares by electronic funds transfers from your bank
account. Shares are purchased for your account by a transfer of money
from your bank account through the Automated Clearing House (ACH)
system. You can provide those instructions automatically, under an
Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to
"AccountLink," below for more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund automatically each month from your account at a bank or other
financial institution under an Asset Builder Plan with AccountLink.
Details are in the Asset Builder Application and the Statement of
Additional Information.

WHAT IS THE MINIMUM AMOUNT YOU MUST INVEST? In most cases, you can buy Fund
shares with a minimum initial investment of $1,000 and make additional
investments at any time with as little as $50. There are reduced minimums
available under the following special investment plans:
o If you establish one of the many types of retirement plan accounts that
OppenheimerFunds offers, more fully described below under "Special
Investor Services," you can start your account with as little as $500.
o By using an Asset Builder Plan or Automatic Exchange Plan (details are in
the Statement of Additional Information), or government allotment plan,
you can make subsequent investments (after making the initial investment
of $500) for as little as $50. For any type of account established under
one of these plans prior to November 1, 2002, the minimum additional
investment will remain $25.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.

AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Colorado, or after any agent appointed by the
Distributor receives the order.

Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of The New York Stock Exchange ("the Exchange"), on
each day the Exchange is open for trading (referred to in this Prospectus
as a "regular business day"). The Exchange normally closes at 4:00 P.M.,
Eastern time, but may close earlier on some days. All references to time
in this Prospectus mean "Eastern time."

The net asset value per share for a class of shares on a "regular business
day" is determined by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class
outstanding on that day. To determine net asset values, the Fund assets
are valued primarily on the basis of current market quotations. If market
quotations are not readily available or do not accurately reflect fair
value for a security (in the Manager's judgment) or if a security's value
has been materially affected by events occurring after the close of the
exchange or market on which the security is principally traded, that
security may be valued by another method that the Manager believes
accurately reflects the fair value. Because some foreign securities trade
in markets and on exchanges that operate on weekends and U.S. holidays,
the values of some of the Fund's foreign investments may change on days
when investors cannot buy or redeem Fund shares.

The Board has adopted valuation procedures for the Fund and has delegated
the day-to-day responsibility for fair value determinations to the
Manager's Valuation Committee. Fair value determinations by the Manager
are subject to review, approval and ratification by the Board at its next
scheduled meeting after the fair valuations are determined. In determining
whether current market prices are readily available and reliable, the
Manager monitors the information it receives in the ordinary course of its
investment management responsibilities for significant events that it
believes in good faith will affect the market prices of the securities of
issuers held by the Fund. Those may include events affecting specific
issuers (for example, a halt in trading of the securities of an issuer on
an exchange during the trading day) or events affecting securities markets
(for example, a foreign securities market closes early because of a
natural disaster).

If, after the close of the principal market on which a security held by
the Fund is traded and before the time as of which the Fund's net asset
values are calculated that day, a significant event occurs that the
Manager learns of and believes in the exercise of its judgment will cause
a material change in the value of that security from the closing price of
the security on the principal market on which it is traded, the Manager
will use its best judgment to determine a fair value for that security.

The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets. The Manager's fair valuation procedures
therefore include a procedure whereby foreign securities prices may be
"fair valued" to take those factors into account.

The Offering Price. To receive the offering price for a particular day, in
most cases the Distributor or its designated agent must receive your order
by the time the Exchange closes that day. If your order is received on a
day when the Exchange is closed or after it has closed, the order will
receive the next offering price that is determined after your order is
received.

Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of the Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that
day's offering price, unless your dealer has made alternative arrangements
with the Distributor. Otherwise, the order will receive the next offering
price that is determined.

- ------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or lesser amounts for
certain retirement plans). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
- ------------------------------------------------------------------------------
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within 6 years of buying them, you will normally pay a
contingent deferred sales charge. That contingent deferred sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B Shares?" below.
- ------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within 12 months of buying them, you will normally pay a
contingent deferred sales charge of 1.0%, as described in "How Can You Buy
Class C Shares?" below.
- ------------------------------------------------------------------------------
Class N Shares. If you buy Class N shares (available only through certain
retirement plans), you pay no sales charge at the time of purchase, but
you will pay an annual asset-based sales charge. If you sell your shares
within 18 months of the retirement plan's first purchase of Class N
shares, you may pay a contingent deferred sales charge of 1.0%, as
described in "How Can You Buy Class N Shares?" below.

WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.

The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares and
not a combination of shares of different classes. Of course, these examples are
based on approximations of the effects of current sales charges and expenses
projected over time, and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice.

How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced sales
charges available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares
of Class B, Class C or Class N. For retirement plans that qualify to
purchase Class N shares, Class N shares will generally be more
advantageous than Class B and Class C shares.

o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you have a relatively short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
most likely invest in Class A or Class C shares rather than Class B
shares. That is because of the effect of the Class B contingent deferred
sales charge if you redeem within SIX Years, as well as the effect of the
Class B asset-based sales charge on the investment return for that class
in the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there is no
initial sales charge on Class C shares, and the contingent deferred sales
charge does not apply to amounts you sell after holding them one year.

However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.

If you invest $1 million or more, in most cases Class A shares will be the
most advantageous choice, no matter how long you intend to hold your
shares. For that reason, the Distributor normally will not accept purchase
orders of $100,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor. Dealers or other financial
intermediaries purchasing shares for their customers in omnibus accounts
are responsible for compliance with those limits.

o Investing for the Longer Term. If you are investing less than $100,000 for
the longer-term, for example for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
appropriate.

Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B, Class C and Class N
shareholders. Other features may not be advisable (because of the effect
of the contingent deferred sales charge) for Class B, Class C and Class N
shareholders. Therefore, you should carefully review how you plan to use
your investment account before deciding which class of shares to buy.

Additionally, the dividends payable to Class B, Class C and Class N
shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A shares, such as the Class B, Class C
and Class N asset-based sales charge described below and in the Statement
of Additional Information.

How Do Share Classes Affect Payments to Your Broker? A financial advisor may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B, Class C
and Class N contingent deferred sales charges and asset-based sales
charges have the same purpose as the front-end sales charge on sales of
Class A shares: to compensate the Distributor for concessions and expenses
it pays to dealers and financial institutions for selling shares. The
Distributor may pay additional compensation from its own resources to
securities dealers or financial institutions based upon the value of
shares of the Fund owned by the dealer or financial institution for its
own account or for its customers.

HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.

The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as a concession. The Distributor reserves the right to reallow the
entire concession to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:

------------------------------------------------------------------------------
Amount of Purchase Front-End Sales Front-End Sales Concession As
Charge As a
Charge As a Percentage of
Percentage of Net Percentage of
Offering Price Amount Invested Offering Price
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$25,000 or more but 5.50% 5.82% 4.75%
less than $50,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$100,000 or more but 3.75% 3.90% 3.00%
less than $250,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
------------------------------------------------------------------------------

SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that a special condition
applies.

Can You Reduce Class A Sales Charges? You and your spouse may be eligible to buy
Class A shares of the Fund at reduced sales charge rates set forth in the table
above under the Fund's "Right of Accumulation" or a "Letter of Intent." The Fund
reserves the right to modify or to cease offering these programs at any time.

Right of Accumulation. To reduce the Class A front-end sales charge
under the rates in the table above that apply to larger purchases, you
can add to the amount of your current purchase the value of investments
currently being made by you and your spouse (or previously made by you
and your spouse and still held) in Class A and Class B shares of the
Fund and other Oppenheimer funds (a list is in the Statement of
Additional Information under "How to Buy Shares - The Oppenheimer
Funds"). You may not include Class A shares of Oppenheimer Money Market
Fund, Inc. or Oppenheimer Cash Reserves on which you did not pay a
sales charge for this purpose. In totaling your holdings, you may count
shares held in your individual accounts (including IRAs and 403(b)
plans), your joint accounts with your spouse, or accounts you or your
spouse hold as trustees or custodians on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust,
estate or other fiduciary account (including employee benefit plans for
the same employer) that has multiple accounts. To qualify for this
Right of Accumulation, if you are buying shares directly from the Fund
you must inform the Fund's Distributor of your eligibility and holdings
at the time of your purchase. If you are buying shares through your
financial intermediary you must notify your intermediary of your
eligibility for this Right of Accumulation at the time of your
purchase.

To count shares of eligible Oppenheimer funds held in accounts at other
intermediaries under this Right of Accumulation, you may be requested
to provide the Distributor or your current intermediary (depending on
the way you are buying your shares) a copy of each account statement
showing your current holdings of the Fund or other eligible Oppenheimer
funds, including statements for accounts held by you and your spouse or
in retirement plans or trust or custodial accounts for minor children
as described above. The Distributor or intermediary through which you
are buying shares will combine the value of all your eligible
Oppenheimer fund accounts based on the current offering price per share
to determine what Class A sales charge breakpoints you may qualify for
on your current purchase.

o Letters of Intent. You may also reduce the Class A front-end sales
charge on current purchases of shares of the Fund under the rates in
the table above by submitting a Letter of Intent to the Distributor.
A Letter of Intent is a written statement of your intention to
purchase Class A and/or Class B shares of the Fund (and other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund and Oppenheimer Cash Reserves) over a 13-month period. The
total amount of your intended purchases of Class A and Class B
shares will determine the reduced sales charge rate that will apply
to Class A shares of the Fund purchased during that period. You can
include purchases made up to 90 days before the date of the
Letter. Submitting a Letter of Intent does not obligate you to
purchase the specified amount of shares. You can also apply the
Right of Accumulation to these purchases.

If you do not complete the Letter of Intent, the front-end sales charge
you paid on your purchases will be recalculated to reflect the actual
value of shares you purchased. A certain portion of your shares will be
held in escrow by the Fund's Transfer Agent for this purpose. Please
refer to "How to Buy Shares - Letters of Intent" in the Fund's
Statement of Additional Information for more complete information.

Other Special Sales Charge Arrangements and Waivers. The Fund and the
Distributor offer other opportunities to purchase shares without front-end or
contingent deferred sales charges under the programs described below. The Fund
reserves the right to amend or discontinue these programs at any time without
prior notice.
o Dividend Reinvestment. Dividends and/or capital gains distributions
received by a shareholder from the Fund may be reinvested in shares of
the Fund or any of the other Oppenheimer funds without sales charge, at
the net asset value per share in effect on the payable date. You must
notify the Transfer Agent in writing to elect this option and must have
an existing account in the fund selected for reinvestment.
o Exchanges of Shares. Shares of the Fund may be exchanged for shares of
certain other Oppenheimer funds at net asset value per share at the
time of exchange, without sales charge, and shares of the Fund can
be purchased by exchange of shares of certain other Oppenheimer
funds on the same basis. Please refer to "How to Exchange Shares" in
this Prospectus and in the Statement of Additional Information for
more details, including a discussion of circumstances in which sales
charges may apply on exchanges.
o Reinvestment Privilege. Within six months of a redemption of certain
Class A and Class B shares, the proceeds may be reinvested in Class
A shares of the Fund without sales charge. This privilege applies to
redemptions of Class A shares that were subject to an initial sales
charge or Class A or Class B shares that were subject to a
contingent deferred sales charge when redeemed. The investor must
ask the Transfer Agent for that privilege at the time of
reinvestment and must identify the account from which the redemption
was made.
o Other Special Reductions and Waivers. The Fund and the Distributor
offer additional arrangements to reduce or eliminate front-end sales
charges or to waive contingent deferred sales charges for certain
types of transactions and for certain classes of investors
(primarily retirement plans that purchase shares in special programs
through the Distributor). These are described in greater detail in
Appendix C to the Statement of Additional Information, which is also
available on the OppenheimerFunds website, at WWW.OPPENHEIMERFUNDS.COM
(under the hyperlinks "Access Accounts and Services - Investor Service
Center"). To receive a waiver or special sales charge rate under these
programs, the purchaser must notify the Distributor (or other financial
intermediary through which shares are being purchased) at the time of
purchase or notify the Transfer Agent with at the time of redeeming
shares for those waivers that apply to contingent deferred sales
charges.
o Purchases by Certain Retirement Plans. There is no initial sales charge
on purchases of Class A shares of the Fund by (1) retirement plans
that have $10 million or more in plan assets and that have entered
into a special agreement with the Distributor and by (2) retirement
plans that are part of a retirement plan product or platform offered
by banks, broker-dealers, financial advisors, insurance companies or
record-keepers that have entered into a special agreement with the
Distributor for this purpose. The Distributor currently pays dealers
of record concessions in an amount equal to 0.25% of the purchase
price of Class A shares by those retirement plans from its own
resources at the time of sale, subject to certain exceptions
described in "Retirement Plans" in the Statement of Additional
Information. No contingent deferred sales charge is charged upon the
redemption of such shares.

Class A Contingent Deferred Sales Charge. There is no initial sales charge
on purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more, or on purchases of Class A shares by certain
retirement plans that satisfied certain requirements prior to March 1, 2001
("grandfathered retirement accounts"). However, those Class A shares may be
subject to a Class A contingent deferred sales charge, as described below.
Retirement plans holding shares of Oppenheimer funds in an omnibus account(s)
for the benefit of plan participants in the name of a fiduciary or financial
intermediary (other than OppenheimerFunds-sponsored Single DB Plus plans) are
not permitted to make initial purchases of Class A shares subject to a
contingent deferred sales charge.

The Distributor pays dealers of record concessions in an amount equal to
1.0% of purchases of $1 million or more other than purchases by
grandfathered retirement accounts. For grandfathered retirement accounts,
the concession is 0.75% of the first $2.5 million of purchases plus 0.25%
of purchases in excess of $2.5 million. In either case, the concession
will not be paid on purchases of shares by exchange or that were
previously subject to a front-end sales charge and dealer concession.

If you redeem any of those shares within an 18-month "holding period"
measured from the beginning of the calendar month of their purchase, a
contingent deferred sales charge (called the "Class A contingent deferred
sales charge") may be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of the lesser of:
o the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or
o the original net asset value of the redeemed shares.

The Class A contingent deferred sales charge will not exceed the aggregate
amount of the concessions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were
subject to the Class A contingent deferred sales charge.

HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within six years from the beginning of the calendar month of their purchase, a
contingent deferred sales charge will be deducted from the redemption proceeds.
The Class B contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related services to the
Fund in connection with the sale of Class B shares.

The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule for the Class B contingent deferred sales
charge holding period:

- -------------------------------------------------------------------------------
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Purchase Order was Accepted Redemptions in That Year
(As % of Amount Subject to Charge)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
0 - 1 5.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 - 2 4.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2 - 3 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3 - 4 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4 - 5 2.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5 - 6 1.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
More than 6 None
- -------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the contingent deferred
sales charge, all purchases are considered to have been made on the first
regular business day of the month in which the purchase was made.

Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies
to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value
of the two classes, and no sales load or other charge is imposed. When any
Class B shares that you hold convert, any other Class B shares that were
acquired by reinvesting dividends and distributions on the converted
shares will also convert to Class A shares. For further information on the
conversion feature and its tax implications, see "Class B Conversion" in
the Statement of Additional Information.

How Can you Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within a holding period of 12 months from the beginning of the calendar month of
their purchase, a contingent deferred sales charge of 1.0% will be deducted from
the redemption proceeds. The Class C contingent deferred sales charge is paid to
compensate the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class C shares.

HOW CAN YOU BUY CLASS N SHARES? Class N shares are offered for sale to
retirement plans (including IRAs and 403(b) plans) that purchase $500,000 or
more of Class N shares of one or more Oppenheimer funds or to group retirement
plans (which do not include IRAs and 403(b) plans) that have assets of $500,000
or more or 100 or more eligible participants. See "Availability of Class N
shares" in the Statement of Additional Information for other circumstances where
Class N shares are available for purchase.

Class N shares are sold at net asset value without an initial sales
charge. A contingent deferred sales charge of 1.0% will be imposed upon the
redemption of Class N shares, if:
o The group retirement plan 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
o With respect to an IRA 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.

Retirement plans that offer Class N shares may impose charges on plan
participant accounts. The procedures for buying, selling, exchanging and
transferring the Fund's other classes of shares (other than the time those
orders must be received by the Distributor or Transfer Agent in Colorado) and
the special account features applicable to purchasers of those other classes of
shares described elsewhere in this Prospectus do not apply to Class N shares
offered through a group retirement plan. Instructions for buying, selling,
exchanging or transferring Class N shares offered through a group retirement
plan must be submitted by the plan, not by plan participants for whose benefit
the shares are held.

DISTRIBUTION AND SERVICE (12b-1) PLAN.

Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. With respect to
Class A shares subject to a Class A contingent deferred sales charge
purchased by grandfathered retirement accounts, the Distributor pays the
0.25% service fee to dealers in advance for the first year after the
shares are sold by the dealer. The Distributor retains the first year's
service fee paid by the Fund. After the shares have been held by
grandfathered retirement accounts for a year, the Distributor pays the
service fee to dealers on a quarterly basis.

Distribution and Service Plans for Class B, Class C and Class N Shares. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class
N shares to pay the Distributor for its services and costs in distributing
Class B, Class C and Class N shares and servicing accounts. Under the
plans, the Fund pays the Distributor an annual asset-based sales charge of
0.75% on Class B and Class C shares and 0.25% on Class N shares. The
Distributor also receives a service fee of 0.25% per year under the Class
B, Class C and Class N plans.

The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.0% and increase Class N expenses by 0.50% of the net assets
per year of the respective class. Because these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will increase the
cost of your investment and may cost you more than other types of sales
charges.

The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B, Class C or Class N
shares. The Distributor normally pays the 0.25% service fees to dealers in
advance for the first year after the shares are sold by the dealer. After
the shares have been held for a year, the Distributor pays the service
fees to dealers on a quarterly basis.

The Distributor currently pays a sales concession of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class B shares is
therefore 4.00% of the purchase price. The Distributor normally retains
the Class B asset-based sales charge. See the Statement of Additional
Information for exceptions.

The Distributor currently pays a sales concession of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.0% of the purchase price. The Distributor pays the asset-based
sales charge as an ongoing concession to the dealer on Class C shares that
have been outstanding for a year or more. The Distributor normally retains
the asset-based sales charge on Class C shares during the first year after
the purchase of Class C shares. See the Statement of Additional
Information for exceptions.

The Distributor currently pays a sales concession of 0.75% of the purchase
price of Class N shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class N shares is
therefore 1.0% of the purchase price. The Distributor normally retains the
asset-based sales charge on Class N shares. See the Statement of
Additional Information for exceptions.

Under certain circumstances, the Distributor will pay the full Class B,
Class C or Class N asset-based sales charge and the service fee to the
dealer beginning in the first year after purchase of such shares in lieu
of paying the dealer the sales concession and the advance of the first
year's service fee at the time of purchase, if there is a special
agreement between the dealer and the Distributor. In those circumstances,
the sales concession will not be paid to the dealer.

For Class C shares purchased through the OppenheimerFunds Recordkeeper Pro
program, the Distributor will pay the Class C asset-based sales charge to
the dealer of record in the first year after the purchase of such shares
in lieu of paying the dealer a sales concession at the time of purchase.
The Distributor will use the service fee it receives from the Fund on
those shares to reimburse FASCorp for providing personal services to the
Class C accounts holding those shares.

In addition, the Manager and the Distributor may make substantial payments
to dealers or other financial intermediaries and service providers for
distribution and/or shareholder servicing activities, out of their own
resources, including the profits from the advisory fees the Manager
receives from the Fund. Some of these distribution-related payments may be
made to dealers or financial intermediaries for marketing, promotional or
related expenses; these payments are often referred to as "revenue
sharing." In some circumstances, those types of payments may create an
incentive for a dealer or financial intermediary or its representatives to
recommend or offer shares of the Fund or other Oppenheimer funds to its
customers. You should ask your dealer or financial intermediary for more
details about any such payments it receives.

Special Investor Services

ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends and
distributions directly to your bank account. Please call the Transfer
Agent for more information.

You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.225.5677. The purchase payment
will be debited from your bank account.

AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions and proper documentation to the Transfer
Agent. AccountLink privileges will apply to each shareholder listed in the
registration on your account as well as to your dealer representative of record
unless and until the Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own the
account.

PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the PhoneLink number, 1.800.225.5677. Purchasing
Shares. You may purchase shares in amounts up to $100,000 by phone, by calling
1.800.225.5677. You must have established AccountLink privileges to link your
bank account with the Fund to pay for these purchases.

Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.

CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.225.5677 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.

OPPENHEIMERFUNDS INTERNET WEBSITE. You can obtain information about the Fund, as
well as your account balance, on the OppenheimerFunds Internet website, at
WWW.OPPENHEIMERFUNDS.COM. Additionally, shareholders listed in the account
registration (and the dealer of record) may request certain account transactions
through a special section of that website. To perform account transactions or
obtain account information online, you must first obtain a user I.D. and
password on that website. If you do not want to have Internet account
transaction capability for your account, please call the Transfer Agent at
1.800.225.5677. At times, the website may be inaccessible or its transaction
features may be unavailable.

AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.

RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs and rollover IRAs.
SEP-IRAs. These are Simplified Employee Pension Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These are tax-deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
401(k)Plans. These are special retirement plans for businesses. Pension and
Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.

How to Sell Shares

You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter, by wire or by telephone. You can also set up
Automatic Withdrawal Plans to redeem shares on a regular basis. If you have
questions about any of these procedures, and especially if you are redeeming
shares in a special situation, such as due to the death of the owner or from a
retirement plan account, please call the Transfer Agent first, at
1.800.225.5677, for assistance.

Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):

o You wish to redeem more than $100,000 and receive a check. o The redemption
check is not payable to all shareholders listed on the
account statement.
o The redemption check is not sent to the address of record on your account
statement.
o Shares are being transferred to a Fund account with a different owner or
name.

o Shares are being redeemed by someone (such as an Executor) other than the
owners.

Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities
or government securities, or
o a U.S. national securities exchange, a registered securities
association or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the
signature.

Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares
in your plan account.

Sending Redemption Proceeds by Wire. While the Fund normally sends your money by
check, you can arrange to have the proceeds of shares you sell sent by
Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each request. To find out how to set up this feature on your account
or to arrange a wire, call the Transfer Agent at 1.800.225.5677.

HOW DO YOU SELL SHARES BY MAIL? Write a letter of instruction that includes: o
Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any
special payment instructions o Any share certificates for the shares you are
selling o The signatures of all registered owners exactly as the account is
registered, and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.

Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231

HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of the Exchange that day, which is normally 4:00
P.M., but may be earlier on some days. You may not redeem shares held in an
OppenheimerFunds-sponsored qualified retirement plan account or under a share
certificate by telephone.
o To redeem shares through a service representative or automatically on
PhoneLink, call 1.800.225.5677. Whichever method you use, you may have a
check sent to the address on the account statement, or, if you have linked
your Fund account to your bank account on AccountLink, you may have the
proceeds sent to that bank account.

Are There Limits on Amounts Redeemed by Telephone?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any seven-day period. The check must be payable to all owners
of record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.

Telephone Redemptions Through AccountLink or by Wire. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when
you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be transferred.

If you have requested Federal Funds wire privileges for your account, the
wire of the redemption proceeds will normally be transmitted on the next
bank business day after the shares are redeemed. There is a possibility
that the wire may be delayed up to seven days to enable the Fund to sell
securities to pay the redemption proceeds. No dividends are accrued or
paid on the proceeds of shares that have been redeemed and are awaiting
transmittal by wire.

CAN YOU SELL SHARES THROUGH YOUR DEALER? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.

HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase shares
subject to a Class A, Class B, Class C or Class N contingent deferred sales
charge and redeem any of those shares during the applicable holding period for
the class of shares, the contingent deferred sales charge will be deducted from
the redemption proceeds (unless you are eligible for a waiver of that sales
charge based on the categories listed in Appendix C to the Statement of
Additional Information and you advise the Transfer Agent of your eligibility for
the waiver when you place your redemption request.)

A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on:
o the amount of your account value represented by an increase in net
asset value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether a contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for the holding period that applies to the class, and 3.
shares held the longest during the holding period.

Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.

How to Exchange Shares

To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of both funds must offer the exchange privilege.
o You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them. After the account is open
seven days, you can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you
can exchange Class A shares of this Fund only for Class A shares of
another fund. In some cases, sales charges may be imposed on exchange
transactions. For tax purposes, exchanges of shares involve a sale of the
shares of the fund you own and a purchase of the shares of the other fund,
which may result in a capital gain or loss. Please refer to "How to
Exchange Shares" in the Statement of Additional Information for more
details.

You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1.800.225.5677. That list can change from time to time.

HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or
by telephone:

Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form,
signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificates
with the request.
Telephone Exchange Requests. Telephone exchange requests may be made either by
calling a service representative or by using PhoneLink for automated
exchanges by calling 1.800.225.5677. Telephone exchanges may be made only
between accounts that are registered with the same name(s) and address.
Shares held under certificates may not be exchanged by telephone.

ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o Shares are redeemed from one fund and are normally purchased from the
other fund in the same transaction on the same regular business day on
which the Transfer Agent or its agent (such as a financial intermediary
holding the investor's shares in an omnibus account) receives an exchange
request that conforms to the policies described above. It must be received
by the close of The New York Stock Exchange that day, which is normally
4:00 P.M. but may be earlier on some days. The Transfer Agent may delay
the reinvestment of the proceeds of an exchange up to seven days if it
determines in its discretion that an earlier transmittal of the redemption
proceeds to the receiving fund would be detrimental to the Fund from which
the exchange is made or to the receiving fund.
o The interests of the Fund's shareholders and the Fund's ability to
manage its investments may be adversely affected when its shares are
repeatedly exchanged over the short term. When large dollar amounts
are involved, the Fund's implementation of its investment strategies
may be negatively affected or the Fund might have to raise or retain
more cash than the portfolio manager would normally retain, to meet
unanticipated redemptions. Frequent exchange activity also may force
the Fund to sell portfolio securities at disadvantageous times to raise
the cash needed to meet those exchange requests. These factors might
hurt the Fund's performance. When the Transfer Agent in its discretion
believes frequent trading activity by any person, group or account
would have a disruptive effect on the Fund's ability to manage its
investments, the Fund and the Transfer Agent may reject purchase orders
and/or exchanges into the Fund. The history of exchange activity in
all accounts known by the Transfer Agent to be under common ownership
or control within the Oppenheimer funds complex may be considered by
the Transfer Agent, with respect to the review of exchanges involving
this Fund as part of the Transfer Agent's procedures to detect and
deter excessive exchange activity. The Transfer Agent may permit
exchanges that it believes in the exercise of its judgment are not
disruptive. The Transfer Agent might not be able to detect frequent
exchange activity conducted by the underlying owners of shares held in
omnibus accounts, and therefore might not be able to effectively
prevent frequent exchange activity in those accounts. There is no
guarantee that the Transfer Agent's controls and procedures will be
successful to identify investors who engage in excessive trading
activity or to curtail that activity.

As stated above, the Fund permits dealers or financial intermediaries to
submit exchange requests on behalf of their customers (unless the customer
has revoked that authority). The Manager, the Distributor and/or the
Transfer Agent have agreements with a limited number of broker-dealers and
investment advisers permitting them to submit exchange orders in bulk on
behalf of their clients, provided that those broker-dealers or advisers
agree to restrictions on their exchange activity (which are more stringent
than the restrictions that apply to other shareholders). Those
restrictions include limitations on the funds available for exchanges, the
requirement to give advance notice of exchanges to the Transfer Agent, and
limits on the amount of client assets that may be invested in a particular
fund. The Fund and its Transfer Agent may restrict or refuse bulk exchange
requests submitted by a financial intermediary on behalf of a large number
of accounts (including pursuant to the arrangements described above) if,
in the Transfer Agent's judgment exercised in its discretion, those
exchanges would be disruptive to either fund in the exchange transaction.

o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund may refuse any exchange order and is currently not
obligated to provide notice before rejecting an exchange order.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will
be exchanged.

Shareholder Account Rules and Policies

More information about the Fund's policies and procedures for buying,
selling and exchanging shares is contained in the Statement of Additional
Information. A $12 annual "Minimum Balance Fee" is assessed on each Fund account
with a value of less than $500. The fee is automatically deducted from each
applicable Fund account annually on or about the second to last "regular
business day" of September. See the Statement of Additional Information
(shareholders may visit the OppenheimerFunds website) to learn how you can avoid
this fee and for circumstances under which this fee will not be assessed.

The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be
suspended by the Board of Trustees at any time the Board believes it is in
the Fund's best interest to do so.
Telephone transaction privileges for purchases, redemptions or exchanges may be
modified, suspended or terminated by the Fund at any time. The Fund will
provide you notice whenever it is required to do so by applicable law. If
an account has more than one owner, the Fund and the Transfer Agent may
rely on the instructions of any one owner. Telephone privileges apply to
each owner of the account and the dealer representative of record for the
account unless the Transfer Agent receives cancellation instructions from
an owner of the account.
The Transfer Agent will record any telephone calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
Dealers that perform account transactions for their clients by participating in
NETWORKING through the National Securities Clearing Corporation are
responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders of
the Fund if the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day because the value of
the securities in the Fund's portfolio fluctuates. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by
check, or through AccountLink or by Federal Funds wire (as elected by the
shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the name
of a broker-dealer, payment will normally be forwarded within three
business days after redemption.
The Transfer Agent may delay processing any type of redemption payment as
described under "How to Sell Shares" for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as
10 days from the date the shares were purchased. That delay may be avoided
if you purchase shares by Federal Funds wire or certified check, or
arrange with your bank to provide telephone or written assurance to the
Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases, involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio. If the Fund redeems your shares in kind, you may bear
transaction costs and will bear market risks until such time as such
securities are converted into cash.

Federal regulations may require the Fund to obtain your name, your date of birth
(for a natural person), your residential street address or principal place
of business and your Social Security Number, Employer Identification
Number or other government issued identification when you open an account.
Additional information may be required in certain circumstances or to open
corporate accounts. The Fund or the Transfer Agent may use this
information to attempt to verify your identity. The Fund may not be able
to establish an account if the necessary information is not received. The
Fund may also place limits on account transactions while it is in the
process of attempting to verify your identity. Additionally, if the Fund
is unable to verify your identity after your account is established, the
Fund may be required to redeem your shares and close your account.

"Backup withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will
mail only one copy of each prospectus, annual and semi-annual report and
annual notice of the Fund's privacy policy to shareholders having the same
last name and address on the Fund's records. The consolidation of these
mailings, called householding, benefits the Fund through reduced mailing
expense.

If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.225.5677. You may also notify the Transfer
Agent in writing. Individual copies of prospectuses, reports and privacy
notices will be sent to you commencing within 30 days after the Transfer
Agent receives your request to stop householding.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on a quarterly basis in March, June, September
and December on a date selected by the Board of Trustees. Dividends and
distributions paid to Class A shares will generally be higher than dividends for
Class B, Class C and Class N shares, which normally have higher expenses than
Class A shares. The Fund has no fixed dividend rate and cannot guarantee that it
will pay any dividends or distributions.

Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.

WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.

TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.

Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.

The Fund intends each year to qualify as a "regulated investment company"
under the Internal Revenue Code, but reserves the right not to qualify. It
qualified during its last fiscal year. The Fund, as a regulated investment
company, will not be subject to federal income taxes on any of its income,
provided that it satisfies certain income, diversification and distribution
requirements.

Avoid "Buying a Distribution." If you buy shares on or just before the
ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive
a portion of the price back as a taxable dividend or capital gain.
Remember, There May be Taxes on Transactions. Because the Fund's share prices
fluctuate, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price
you paid for the shares and the price you received when you sold them. Any
capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.

This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte &amp; Touche LLP, the
Fund's independent registered public accounting firm, whose report, along with
the Fund's financial statements, is included in the Statement of Additional
Information, which is available on request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

CLASS A YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.22 $ 9.76 $ 12.72 $ 12.88 $ 13.63
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .46 .54 .51 .42 .49
Net realized and unrealized gain (loss) .69 1.35 (2.66) .41 .32
-----------------------------------------------------------------------------------
Total from investment operations 1.15 1.89 (2.15) .83 .81
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.53) (.43) (.48) (.48) (.49)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
-----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.43) (.81) (.99) (1.56)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.84 $ 11.22 $ 9.76 $ 12.72 $ 12.88
===================================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 10.32% 20.10% (17.75)% 6.84% 7.24%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,379,956 $ 2,130,486 $ 1,873,458 $ 2,458,272 $ 2,395,444
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,356,948 $ 1,900,896 $ 2,224,911 $ 2,432,151 $ 2,502,535
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.85% 5.41% 4.48% 3.21% 3.78%
Total expenses 0.89% 3,4 0.93% 3 0.98% 3 0.91% 3 0.93% 3
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%

1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

43 | OPPENHEIMER CAPITAL INCOME FUND

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

CLASS B YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.10 $ 9.67 $ 12.60 $ 12.76 $ 13.51
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 .45 .41 .32 .38
Net realized and unrealized gain (loss) .68 1.33 (2.62) .41 .32
-------------------------------------------------------------------------
Total from investment operations 1.04 1.78 (2.21) .73 .70
- ---------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.42) (.35) (.39) (.38) (.38)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
-------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.42) (.35) (.72) (.89) (1.45)
- ---------------------------------------------------------------------------------------------------------------------

Net asset value, end of period $ 11.72 $ 11.10 $ 9.67 $ 12.60 $ 12.76
=========================================================================

- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.46% 18.94% (18.31)% 6.05% 6.34%
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------

Net assets, end of period (in thousands) $ 316,568 $ 343,074 $ 327,368 $ 477,223 $ 472,222
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 349,853 $ 312,457 $ 410,652 $ 469,690 $ 546,390
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.00% 4.55% 3.67% 2.44% 3.01%
Total expenses 1.76% 3,4 1.81% 3 1.76% 3 1.68% 3 1.70% 3
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

44 | OPPENHEIMER CAPITAL INCOME FUND

CLASS C YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.09 $ 9.66 $ 12.59 $ 12.76 $ 13.50
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 .45 .42 .32 .38
Net realized and unrealized gain (loss) .69 1.34 (2.62) .40 .32
---------------------------------------------------------------------
Total from investment operations 1.04 1.79 (2.20) .72 .70
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.44) (.36) (.40) (.38) (.37)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
---------------------------------------------------------------------
Total dividends and/or distributions to
shareholders (.44) (.36) (.73) (.89) (1.44)
- -----------------------------------------------------------------------------------------------------------------

Net asset value, end of period $ 11.69 $ 11.09 $ 9.66 $ 12.59 $ 12.76
=====================================================================

- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.40% 19.05% (18.30)% 6.00% 6.40%
- -----------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 133,368 $ 93,797 $ 72,792 $ 89,547 $ 73,346
Average net assets (in thousands) $ 122,458 $ 75,459 $ 84,049 $ 80,390 $ 84,898
Ratios to average net assets: 2
Net investment income 3.01% 4.55% 3.74% 2.44% 3.01%
Total expenses 1.72% 3,4 1.78% 3 1.76% 3 1.68% 3 1.70% 3
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

45 | OPPENHEIMER CAPITAL INCOME FUND

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

CLASS N YEAR ENDED AUGUST 31, 2004 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.16 $ 9.73 $ 12.69 $ 12.96
- -----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .46 .50 .28
Net realized and unrealized gain (loss) .72 1.37 (2.66) (.30)
---------------------------------------------------
Total from investment operations 1.11 1.83 (2.16) (.02)
- -----------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.49) (.40) (.47) (.25)
Distributions from net realized gain -- -- (.33) --
---------------------------------------------------
Total dividends and/or distributions to
shareholders (.49) (.40) (.80) (.25)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.78 $ 11.16 $ 9.73 $ 12.69
===================================================

- -----------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.01% 19.45% (17.89)% (0.18)%
- -----------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 16,692 $ 9,023 $ 4,071 $ 648
- -----------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 13,301 $ 5,968 $ 2,839 $ 214
- -----------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.42% 4.92% 4.74% 2.94%
Total expenses 1.28% 4,5 1.35% 4 1.25% 4 1.17% 4
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74%

1. For the period from March 1, 2001 (inception of offering) to August 31, 2001.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.

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

4. Reduction to custodian expenses less than 0.01%.

5. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

46 | OPPENHEIMER CAPITAL INCOME FUND

INFORMATION AND SERVICES

For More Information on Oppenheimer Capital Income Fund The following additional
information about the Fund is available without charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy and other
information about the Fund or your account:

- ------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:

1.800.525.7048

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or read or
down-load documents on the OppenheimerFunds
website:

www.oppenheimerfunds.com

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

Information about the Fund including the Statement of Additional Information can
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1.202.942.8090. Reports and other information about the Fund
are available on the EDGAR database on the SEC's Internet website at
WWW.SEC.GOV. Copies may be obtained after payment of a duplicating fee by
electronic request at the SEC's e-mail address: publicinfo@sec.gov or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102. No one has
been authorized to provide any information about the Fund or to make any
representations about the Fund other than what is contained in this Prospectus.
This Prospectus is not an offer to sell shares of the Fund, nor a solicitation
of an offer to buy shares of the Fund, to any person in any state or other
jurisdiction where it is unlawful to make such an offer.

The Fund's shares are distributed by: [logo] OppenheimerFunds
Distributor, Inc.
The Fund's SEC File No. 811-1512

PR0300.001.1004
Printed on recycled paper

APPENDIX TO THE PROSPECTUS OF
OPPENHEIMER CAPITAL INCOME FUND

Graphic material included in the Prospectus of Oppenheimer Capital Income
Fund: "Annual Total Returns (Class A) (as of 12/31 each year)":

A bar chart will be included in the Prospectus of Oppenheimer Capital
Income Fund (the "Fund") depicting the annual total returns of a hypothetical
$10,000 investment in Class A shares of the Fund for each of the ten most recent
calendar years without deducting sales charges. Set forth below are the relevant
data points that will appear in the bar chart:

----------------------------------------------------------
Oppenheimer Capital Income
Calendar Year Ended: Fund Class A Shares
----------------------------------------------------------
----------------------------------------------------------

----------------------------------------------------------
----------------------------------------------------------
12/31/94 -2.79%
----------------------------------------------------------
----------------------------------------------------------
12/31/95 27.92%
----------------------------------------------------------
----------------------------------------------------------
12/31/96 20.06%
----------------------------------------------------------
----------------------------------------------------------
12/31/97 29.68%
----------------------------------------------------------
----------------------------------------------------------
12/31/98 10.32%
----------------------------------------------------------
----------------------------------------------------------
12/31/99 -6.25%
----------------------------------------------------------
----------------------------------------------------------
12/31/00 16.82%
----------------------------------------------------------
----------------------------------------------------------
12/31/01 -0.19%
----------------------------------------------------------
----------------------------------------------------------
12/31/02 -16.15%
----------------------------------------------------------
----------------------------------------------------------

12/31/03 33.47%

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

Oppenheimer Capital Income Fund
6803 South Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)

Statement of Additional Information dated October 25, 2004

This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated October 25, 2004. 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 website 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............................................ 24
How the Fund is Managed ............................................... 26
Organization and History........................................... 26
Trustees and Officers.............................................. 28
The Manager........................................................ 37
Brokerage Policies of the Fund......................................... 40
Distribution and Service Plans......................................... 42
Performance of the Fund................................................ 47

About Your Account
How To Buy Shares...................................................... 51
How To Sell Shares..................................................... 62
How To Exchange Shares................................................. 66
Dividends, Capital Gains and Taxes..................................... 70
Additional Information About the Fund.................................. 75

Financial Information About the Fund
Independent Auditors' Report........................................... 76
Financial Statements................................................... 77

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 mid-to
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 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 &amp; 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 &amp; 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 &amp; 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&amp;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 others: 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.

|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. 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. 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 Manager from time to time.

The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement having a maturity beyond seven days that causes more than
10% of its net assets to exceed that limit 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
of 1940 (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.

Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Fund, along with other affiliated mutual funds
managed by the Manager, may transfer uninvested cash balances into one or more
joint repurchase accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities that are pledged
as collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each joint repurchase arrangement requires that the market
value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default by the other party to the agreement,
retention or sale of the collateral may be subject to legal proceedings.

|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 value or 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 25% 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. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
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
uses futures and other instruments to maintain the desired interest rate
exposure. 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) an
individual stock ("single stock futures"), (3) broadly-based stock indices
(these are referred to as "stock index futures") or other indices (referred to
as "financial futures"), (4) foreign currencies (these are referred to as
"forward contracts"), or (5) 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. Similarly, a single stock future obligates the seller to
deliver (and the purchaser to take) cash or a specified equity security to
settle the futures transaction. Either party could also enter into an offsetting
contract to close out the position. Single stock futures trade on a very limited
number of exchanges, with contracts typically not fungible among the exchanges.

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.

Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund to resell the put or to buy the underlying investment
and sell it at the exercise price. The resale price will vary inversely to the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and, as a result, the put is not
exercised, the put will become worthless on its expiration date.

When the Fund purchases a 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. The Commodities Futures
Trading Commission (the "CFTC") recently eliminated limitations on futures
trading by certain regulated entities including registered investment companies
and consequently registered investment companies may engage in unlimited futures
transactions and options thereon provided that the Fund claims an exclusion from
regulation as a commodity pool operator. The Fund has claimed such an exclusion
from registration as a commodity pool operator under the Commodity Exchange Act
("CEA"). The Fund may use futures and options for hedging and non-hedging
purposes to the extent consistent with its investment objective, internal risk
management guidelines adopted by the Fund's investment advisor (as they may be
amended from time to time), and as otherwise set forth in the Fund's prospectus
or this statement of additional information.

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| Credit Derivatives. The Fund may enter into credit default swaps, both
directly ("unfunded swaps") and indirectly in the form of a swap embedded within
a structured note ("funded swaps"), to protect against the risk that a security
will default. Unfunded and funded credit default swaps may be on a single
security, or on a basket of securities. The Fund pays a fee to enter into the
swap and receives a fixed payment during the life of the swap. The Fund may take
a short position in the credit default swap (also known as "buying credit
protection"), or may take a long position in the credit default swap note (also
known as "selling credit protection").

The Fund would take a short position in a credit default swap (the
"unfunded swap") against a long portfolio position to decrease exposure to
specific corporate issuers. If the short credit default swap is against a
corporate issue, the Fund must own that corporate issue. However, if the short
credit default swap is against sovereign debt, the Fund may own either: (i) the
reference obligation, (ii) any sovereign debt of that foreign country, or (iii)
sovereign debt of any country that the Manager determines is closely correlated
as an inexact bona fide hedge.

If the Fund takes a short position in the credit default swap, if there is
a credit event (including bankruptcy, failure to timely pay interest or
principal, or a restructuring), the Fund will deliver the defaulted bonds and
the swap counterparty will pay the par amount of the bonds. An associated risk
is adverse pricing when purchasing bonds to satisfy the delivery obligation. If
the swap is on a basket of securities, the notional amount of the swap is
reduced by the par amount of the defaulted bond, and the fixed payments are then
made on the reduced notional amount.

Taking a long position in the credit default swap note (i.e., purchasing
the "funded swap") would increase the Fund's exposure to specific corporate
issuers. The goal would be to increase liquidity in that market sector via the
swap note and its associated increase in the number of trading instruments, the
number and type of market participants, and market capitalization.

If the Fund takes a long position in the credit default swap note, if
there is a credit event the Fund will pay the par amount of the bonds and the
swap counterparty will deliver the bonds. If the swap is on a basket of
securities, the notional amount of the swap is reduced by the par amount of the
defaulted bond, and the fixed payments are then made on the reduced notional
amount.

The Fund will invest no more than 25 % of its total assets in "unfunded"
credit default swaps.

The Fund will limit its investments in "funded" credit default swap notes
to no more than 10% of its total assets.

Other risks of credit default swaps include the cost of paying for credit
protection if there are no credit events, pricing transparency when assessing
the cost of a credit default swap, counterparty risk, and the need to fund the
delivery obligation (either cash or the defaulted bonds, depending on whether
the Fund is long or short the swap, respectively).

|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 &amp;
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.

|X| Investment in Other Investment Companies. The Fund can also invest in
the securities of other investment companies, which can include open-end funds,
closed-end funds and unit investment trusts, subject to the limits set forth in
the Investment Company Act that apply to those types of investments. For
example, the Fund can invest in Exchange-Traded Funds, which are typically
open-end funds or unit investment trusts, listed on a stock exchange. The Fund
might do so as a way of gaining exposure to the segments of the equity or
fixed-income markets represented by the Exchange-Traded Funds' portfolio, at
times when the Fund may not be able to buy those portfolio securities directly.

Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company's portfolio
securities and is subject to limitations under the Investment Company Act. The
Fund does not intend to invest in other investment companies unless the Manager
believes that the potential benefits of the investment justify the payment of
any premiums or sales charges. As a shareholder of an investment company, the
Fund would be subject to its ratable share of that investment company's
expenses, including its advisory and administration expenses. The Fund does not
anticipate investing a substantial amount of its net assets in shares of other
investment companies.

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 objectives are fundamental policies. 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.

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.

|X| 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 (except in the case of borrowing
and investments in illiquid securities). 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.

|X| Does the Fund Have Additional Restrictions That Are Not "Fundamental"
Policies? The Fund has an additional operating policy that is not "fundamental,"
and which can be changed by the Board of Trustees without shareholder approval:

o The Fund cannot invest in the securities of other registered investment
companies or registered unit investment trusts in reliance on sub-paragraph (F)
or (G) of section 12(d)(1) of the Investment Company Act.

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.

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

The Fund currently has four classes of shares: Class A, Class B, Class C
and Class N. All classes invest in the same investment portfolio. Only
retirement plans may purchase Class N shares. Each class of shares: o has its
own dividends and distributions, o pays certain expenses which may be different
for the different classes, o may have a different net asset value, o may have
separate voting rights on matters in which interests of one class are different
from interests of another class, and o votes as a class on matters that affect
that class alone.

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

|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual meetings of
shareholders, but may do so from time to time on important matters or when
required to do so by the Investment Company Act or other applicable law.
Shareholders have the right, upon a vote or declaration in writing of two-thirds
of the outstanding shares of the Fund, to remove a Trustee or to take other
action described in the Fund's Declaration of Trust.

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. The Trustees may also take other action as permitted
by the Investment Company Act.

|X| 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.

Board of Trustees and Oversight Committees. 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.

The Board of Trustees has an Audit Committee, a Review Committee and a
Governance Committee. The Audit Committee is comprised solely of Independent
Trustees. The members of the Audit Committee are Edward L. Cameron (Chairman),
George C. Bowen, Robert J. Malone and F. William Marshall, Jr. The Audit
Committee held six meetings during the fiscal year ended August 31, 2004. The
Audit Committee furnishes the Board with recommendations regarding the selection
of the Fund's independent auditors. Other main functions of the Audit Committee
include, but are not limited to: (i) reviewing the scope and results of
financial statement audits and the audit fees charged; (ii) reviewing reports
from the Fund's independent auditors regarding the Fund's internal accounting
procedures and controls; (iii) review reports from the Manager's Internal Audit
Department; (iv) maintaining a separate line of communication between the Fund's
independent auditors and its Independent Trustees; and (v) exercise all other
functions outlined in the Audit Committee Charter, including but not limited to
reviewing the independence of the Fund's independent auditors and the
pre-approval of the performance by the Fund's independent auditors of any
non-audit service, including tax service, for the Fund and the Manager and
certain affiliates of the Manager that is not prohibited by the Sarbanes-Oxley
Act.

The members of the Review Committee are Jon S. Fossel (Chairman), Robert G.
Avis, Sam Freedman, and Beverly Hamilton. The Review Committee held six meetings
during the fiscal year ended August 31, 2004. Among other functions, the Review
Committee reviews reports and makes recommendations to the Board concerning the
fees paid to the Fund's transfer agent and the Manager and the services provided
to the Fund by the transfer agent and the Manager. The Review Committee also
reviews the Fund's investment performance and policies and procedures adopted by
the Fund to comply with Investment Company Act and other applicable law.

The members of the Governance Committee are Robert Malone (Chairman),
William Armstrong, Beverly Hamilton and F. William Marshall, Jr. Each member of
the Committee is independent, meaning each person is not an "interested person"
as defined in the Investment Company Act. The Governance Committee was
established in August 2004 and did not hold any meetings during the Fund's
fiscal year ended August 31, 2004. The Governance Committee is expected to
consider general governance matters, including a formal process for shareholders
to send communications to the Board and the qualifications of candidates for
board positions including consideration of any candidate recommended by
shareholders.

The Governance Committee has not yet adopted a charter, but anticipates
that it will do so by the end of this calendar year. The Committee has
temporarily adopted the process previously adopted by the Audit Committee
regarding shareholder submission of nominees for board positions. Shareholders
may submit names of individuals, accompanied by complete and properly supported
resumes, for the Governance Committee's consideration by mailing such
information to the Committee in care of the Fund. The Committee may consider
such persons at such time as it meets to consider possible nominees. The
Committee, however, reserves sole discretion to determine the candidates for
trustees and independent trustees to recommend to the Board and/or shareholders
and may identify candidates other than those submitted by Shareholders. The
Committee may, but need not, consider the advice and recommendation of the
Manager and its affiliates in selecting nominees. The full Board elects new
trustees except for those instances when a shareholder vote is required.

Shareholders who desire to communicate with the Board should address
correspondence to the Board or an individual Board member and may submit their
correspondence electronically at www.oppenheimerfunds.com under the caption
"contact us" or by mail to the Fund at the address above. The Governance
Committee will consider if a different process should be recommended to the
Board.

Trustees and Officers of the Fund. Except for Mr. Murphy, each of the Trustees
are "Independent Trustees" under the Investment Company Act. Mr. Murphy is an
"Interested Trustee" because he is affiliated with the Manager by virtue of his
positions as an officer and director of the Manager, and as a shareholder of
its parent company. Mr. Murphy was elected as a Trustee of the Fund with the
understanding that in the event he ceases to be the chief executive officer of
the Manager, he will resign as a trustee of the Fund and the other Board II
Funds (defined below) for which he is a trustee or director.

The Fund's Trustees and officers and their positions held with the Fund
and length of service in such position(s) and their principal occupations and
business affiliations during the past five years are listed in the chart below.
The information for the Trustees also includes the dollar range of shares of the
Fund as well as the aggregate dollar range of shares beneficially owned in any
of the Oppenheimer funds overseen by the Trustees. All of the Trustees are also
trustees or directors of the following Oppenheimer funds (except for Ms.
Hamilton and Mr. Malone, who are not Trustees of Oppenheimer Senior Floating
Rate Fund) (referred to as "Board II Funds"):

Oppenheimer Principal Protected
Oppenheimer Cash Reserves Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund

Oppenheimer Senior Floating Rate
Oppenheimer Capital Income Fund Fund

Oppenheimer Equity Fund, Inc. Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc. Centennial America Fund, L. P.
Centennial California Tax Exempt

Oppenheimer Main Street Opportunity Fund Trust

Oppenheimer Main Street Small Cap Fund Centennial Government Trust
Oppenheimer Municipal Fund Centennial Money Market Trust
Centennial New York Tax Exempt

Oppenheimer Principal Protected Trust Trust

Oppenheimer Principal Protected Trust II Centennial Tax Exempt Trust

Present or former officers, directors, trustees and employees (and their
immediate family members) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees are permitted to
purchase Class A shares of the Fund and the other Oppenheimer funds at net asset
value without sales charge. The sales charges on Class A shares is waived for
that group because of the economies of sales efforts realized by the
Distributor.

Messrs. Levine, Murphy, Petersen, Vandehey, Gillespie, Miao, Vottiero,
Wixted and Zack, and Messes. Bloomberg, Ives and Lee who are officers of the
Fund, respectively hold the same offices with one or more of the other Board II
Funds as with the Fund. As of October 6, 2004, the Trustees and officers of the
Fund, as a group, owned of record or beneficially less than 1% of each class of
shares of the Fund. The foregoing statement does not reflect ownership of shares
held of record by an employee benefit plan for employees of the Manager, other
than the shares beneficially owned under that plan by the officers of the Fund
listed above. In addition, each Independent Trustee (and their immediate family
members), do not own securities of either the Manager or Distributor of the
Board II Funds or any person directly or indirectly controlling, controlled by
or under common control with the Manager or Distributor.

The address of each Trustee in the chart below is 6803 S. Tucson Way,
Centennial, CO 80112-3924. Each Trustee serves for an indefinite term, until his
or her resignation, retirement, death or removal.

- -------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Position(s) Held Years; Range of Any of the
with Fund, Other Trusteeships/Directorships Held by Shares Oppenheimer
Length of Service Trustee; BeneficiallFunds
and Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,

2003

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

William L. Chairman of the following private None Over
Armstrong, mortgage banking companies: Cherry Creek $100,000
Chairman since Mortgage Company (since 1991),
2004 and Trustee Centennial State Mortgage Company (since
since 1999 1994), The El Paso Mortgage Company
Age: 67 (since 1993), Transland Financial
Services, Inc. (since 1997); Chairman of
the following private companies: Great
Frontier Insurance (insurance agency)
(since 1995), Ambassador Media
Corporation and Broadway Ventures (since
1984); a director of the following
public companies: Helmerich &amp; Payne,
Inc. (oil and gas drilling/production
company) (since 1992) and UNUMProvident
(insurance company) (since 1991). Mr.
Armstrong is also a Director/Trustee of
Campus Crusade for Christ and the
Bradley Foundation. Formerly a director
of the following: Storage Technology
Corporation (a publicly-held computer
equipment company) (1991-February 2003),
and International Family Entertainment
(television channel) (1992-1997),
Frontier Real Estate, Inc. (residential
real estate brokerage) (1994-1999), and
Frontier Title (title insurance agency)
(1995-June 1999); a U.S. Senator
(January 1979-January 1991). Oversees 39
portfolios in the OppenheimerFunds
complex.

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

Robert G. Avis, Formerly, Director and President of A.G. None Over
Trustee since 1993 Edwards Capital, Inc. (General Partner $100,000
Age: 73 of private equity funds) (until February
2001); Chairman, President and Chief
Executive Officer of A.G. Edwards
Capital, Inc. (until March 2000); Vice
Chairman and Director of A.G. Edwards,
Inc. and Vice Chairman of A.G. Edwards &amp;
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 1999); and a Director
(until March 2000) of A.G. Edwards &amp;
Sons and A.G. Edwards Trust Company.
Oversees 39 portfolios in the
OppenheimerFunds complex.

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

George C. Bowen, Formerly Assistant Secretary and a $10,001- Over
Trustee since 1998 director (December 1991-April 1999) of $50,000 $100,000
Age: 68 Centennial Asset Management Corporation;
President, Treasurer and a director (June 1989-April 1999)
of Centennial Capital Corporation; Chief Executive Officer
and a director of MultiSource Services, Inc. (March
1996-April 1999). Until April 1999 Mr. Bowen held several
positions in subsidiary or affiliated companies of the
Manager. Oversees 38 portfolios in the OppenheimerFunds
complex.

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

Edward L. Cameron, A member of The Life Guard of Mount $10,001- $50,001-
Trustee since 1999 Vernon, George Washington's home (since $50,000 $100,000
Age: 66 June 2000). Formerly Director (March
2001-May 2002) of Genetic ID, Inc. and
its subsidiaries (a privately held
biotech company); a partner (July
1974-June 1999) with
PricewaterhouseCoopers LLP (an
accounting firm); and Chairman (July
1994-June 1998) of Price Waterhouse LLP
Global Investment Management Industry
Services Group. Oversees 39 portfolios
in the OppenheimerFunds complex.

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

Jon S. Fossel, Director (since February 1998) of Rocky None Over
Trustee since 1990 Mountain Elk Foundation (a $100,000
Age: 61 not-for-profit foundation); a director
(since 1997) of Putnam Lovell Finance (finance company); a
director (since June 2002) of UNUMProvident (an insurance
company). Formerly a director (October 1999-October 2003) of
P.R. Pharmaceuticals (a privately held company); Chairman
and a director (until October 1996) and President and Chief
Executive Officer (until October 1995) of the Manager;
President, Chief Executive Officer and a director (until
October 1995) of Oppenheimer Acquisition Corp., Shareholders
Services Inc. and Shareholder Financial Services, Inc.
Oversees 39 portfolios in the OppenheimerFunds complex.

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

Sam Freedman, Director of Colorado Uplift (a $10,001- Over
Trustee since 1996 non-profit charity) (since September $50,000 $100,000
Age: 63 1984). Formerly (until October 1994) Mr.
Freedman held several positions in subsidiary or affiliated
companies of the Manager. Oversees 39 portfolios in the
OppenheimerFunds complex.

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

Beverly L. Trustee of Monterey International None $50,001-
Hamilton, Studies (an educational organization) $100,000
Trustee since 2002 (since February 2000); a director of The
Age: 58 California Endowment (a philanthropic
organization) (since April 2002) and of Community Hospital
of Monterey Peninsula (educational organization) (since
February 2002); a director of America Funds Emerging Markets
Growth Fund (since October 1991) (an investment company); an
advisor to Credit Suisse First Boston's Sprout venture
capital unit. Mrs. Hamilton also is a member of the
investment committees of the Rockefeller Foundation and of
the University of Michigan. Formerly, Trustee of MassMutual
Institutional Funds (open-end investment company) (1996-May
2004); a director of MML Series Investment Fund (April
1989-May 2004) and MML Services (April 1987-May 2004)
(investment companies); member of the investment committee
(2000-2003) of Hartford Hospital; an advisor (2000-2003) to
Unilever (Holland)'s pension fund; and President (February
1991-April 2000) of ARCO Investment Management Company.
Oversees 38 portfolios in the OppenheimerFunds complex.

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

Robert J. Malone, Chairman, Chief Executive Officer and None Over
Trustee since 2002 Director of Steele Street State Bank (a $100,000
Age: 60 commercial banking entity) (since August
2003); director of Colorado UpLIFT (a
non-profit organization) (since 1986);
trustee (since 2000) of the Gallagher
Family Foundation (non-profit
organization). Formerly, Chairman of
U.S. Bank-Colorado (a subsidiary of U.S.
Bancorp and formerly Colorado National
Bank,) (July 1996-April 1, 1999), a
director of: Commercial Assets, Inc. (a
REIT) (1993-2000), Jones Knowledge, Inc.
(a privately held company) (2001-July
2004) and U.S. Exploration, Inc. (oil
and gas exploration) (1997-February
2004). Oversees 38 portfolios in the
OppenheimerFunds complex.

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

F. William Trustee of MassMutual Institutional None Over Marshall, Jr., Funds
(since 1996) and MML Series $100,000 Trustee since 2000 Investment Fund (since
1987) (both Age: 62 open-end investment companies) and the
Springfield Library and Museum Association (since 1995)
(museums) and the Community Music School of Springfield
(music school) (since 1996); Trustee (since 1987), Chairman
of the Board (since 2003) and Chairman of the investment
committee (since 1994) for the Worcester Polytech Institute
(private university); and President and Treasurer (since
January 1999) of the SIS Fund (a private not for profit
charitable fund). Formerly, member of the investment
committee of the Community Foundation of Western
Massachusetts (1998 - 2003); Chairman (January 1999-July
1999) of SIS &amp; Family Bank, F.S.B. (formerly SIS Bank)
(commercial bank); and Executive Vice President (January
1999-July 1999) of Peoples Heritage Financial Group, Inc.
(commercial bank). Oversees 39 portfolios in the
OppenheimerFunds complex.

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

The address of Mr. Murphy in the chart below is Two World Financial Center,
225 Liberty Street, 11th Floor, New York, NY 10281-1008. Mr. Murphy serves for
an indefinite term, until his resignation, death or removal.

Interested Trustee
and Officer
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in

Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held by Shares Oppenheimer
with Fund, Trustee; BeneficiallFunds
Length of Service, Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,

2003

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

John V. Murphy, Chairman, Chief Executive Officer and None Over
President and director (since June 2001) and President $100,000
Trustee and (since September 2000) of the Manager;
Principal President and a director or trustee of
Executive Officer other Oppenheimer funds; President and a
since 2001 director (since July 2001) of Oppenheimer
Age: 55 Acquisition Corp. (the Manager's parent
holding company) and of Oppenheimer Partnership Holdings,
Inc. (a holding company subsidiary of the Manager); a
director (since November 2001) of OppenheimerFunds
Distributor, Inc. (a subsidiary of the Manager); Chairman and
a director (since July 2001) of Shareholder Services, Inc.
and of Shareholder Financial Services, Inc. (transfer agent
subsidiaries of the Manager); President and a director (since
July 2001) of OppenheimerFunds Legacy Program (a charitable
trust program established by the Manager); a director of the
following investment advisory subsidiaries of the Manager:
OFI Institutional Asset Management, Inc., Centennial Asset
Management Corporation, Trinity Investment Management
Corporation and Tremont Capital Management, Inc. (since
November 2001), HarbourView Asset Management Corporation and
OFI Private Investments, Inc. (since July 2001); President
(since November 1, 2001) and a director (since July 2001) of
Oppenheimer Real Asset Management, Inc.; Executive Vice
President (since February 1997) of Massachusetts Mutual Life
Insurance Company (the Manager's parent company); a director
(since June 1995) of DLB Acquisition Corporation (a holding
company that owns the shares of Babson Capital Management
LLC); a member of the Investment Company Institute's Board of
Governors (elected to serve from October 3, 2003 through
September 30, 2006). Formerly, Chief Operating Officer
(September 2000-June 2001) of the Manager; President and
trustee (November 1999-November 2001) of MML Series
Investment Fund and MassMutual Institutional Funds (open-end
investment companies); a director (September 1999-August
2000) of C.M. Life Insurance Company; President, Chief
Executive Officer and director (September 1999-August 2000)
of MML Bay State Life Insurance Company; a director (June
1989-June 1998) of Emerald Isle Bancorp and Hibernia Savings
Bank (a wholly-owned subsidiary of Emerald Isle Bancorp).
Oversees 74 portfolios as Trustee/Director and 10 portfolios
as Officer in the OppenheimerFunds complex.

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

The address of the Officers in the chart below is as follows: for Messrs.
Levine, Zack, Gillespie and Miao and Messes. Bloomberg and Lee, Two World
Financial Center, 225 Liberty Street, New York, NY 10281-1008, for Messrs.
Vandehey, Vottiero, Petersen and Wixted and Ms. Ives, 6803 S. Tucson Way,
Centennial, CO 80112-3924. Each Officer serves for an annual term or until his
or her earlier resignation, death or removal.

- -------------------------------------------------------------------------------------
Officers of the Fund
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Years
Position(s) Held with
Fund,
Length of Service,
Age
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Michael S. Levine Vice President of the Manager since June 1998; an officer
Vice President and of 1 portfolio in the OppenheimerFunds complex. Formerly
Portfolio Manager Assistant Vice President and Portfolio Manager of the
since June 1999 Manager (April 1996 - June 1998).
Age: 39

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

Mark S. Vandehey, Senior Vice President and Chief Compliance Officer (since
Vice President and March 2004) of the Manager; Vice President (since June
Chief Compliance 1983) of OppenheimerFunds Distributor, Inc., Centennial
Officer since 2004 Asset Management Corporation and Shareholder Services, Inc.
Age: 54 Formerly (until February 2004) Vice President and Director
of Internal Audit of OppenheimerFunds, Inc. An officer of
84 portfolios in the Oppenheimer funds complex.

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

Brian W. Wixted, Senior Vice President and Treasurer (since March 1999) of
Treasurer, Principal the Manager; Treasurer of HarbourView Asset Management
Financial and Corporation, Shareholder Financial Services, Inc.,
Accounting Officer Shareholder Services, Inc., Oppenheimer Real Asset
since 1999 Management Corporation, and Oppenheimer Partnership
Age: 45 Holdings, Inc. (since March 1999), of OFI Private
Investments, Inc. (since March 2000), of
OppenheimerFunds International Ltd. and OppenheimerFunds
plc (since May 2000), of OFI Institutional Asset
Management, Inc. (since November 2000), and of
OppenheimerFunds Legacy Program (a Colorado non-profit
corporation) (since June 2003); Treasurer and Chief
Financial Officer (since May 2000) of OFI Trust Company
(a trust company subsidiary of the Manager); Assistant
Treasurer (since March 1999) of Oppenheimer Acquisition
Corp. Formerly Assistant Treasurer of Centennial Asset
Management Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer (March 1995-March
1999) at Bankers Trust Company-Mutual Fund Services
Division. An officer of 84 portfolios in the
OppenheimerFunds complex.

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

Brian Petersen, Assistant Vice President of the Manager since August 2002;
Assistant Treasurer formerly Manager/Financial Product Accounting (November
since 2004 1998-July 2002) of the Manager. An officer of 84 portfolios
Age: 34 in the OppenheimerFunds complex.

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

Philip Vottiero, Vice President/Fund Accounting of the Manager since March
Assistant Treasurer 2002. Formerly Vice President/Corporate Accounting of the
since 2002 Manager (July 1999-March 2002) prior to which he was Chief
Age: 41 Financial Officer at Sovlink Corporation (April 1996-June
1999). An officer of 84 portfolios in the
OppenheimerFunds complex.

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

Robert G. Zack, Executive Vice President (since January 2004) and General Vice
President &amp; Counsel (since February 2002) of the Manager; General Secretary
since 2001 Counsel and a director (since November 2001) of the Age: 56
Distributor; General Counsel (since November 2001) of
Centennial Asset Management Corporation; Senior Vice
President and General Counsel (since November 2001) of
HarbourView Asset Management Corporation; Secretary and
General Counsel (since November 2001) of Oppenheimer
Acquisition Corp.; Assistant Secretary and a director
(since October 1997) of OppenheimerFunds International
Ltd. and OppenheimerFunds plc; Vice President and a
director (since November 2001) of Oppenheimer
Partnership Holdings, Inc.; a director (since November
2001) of Oppenheimer Real Asset Management, Inc.; Senior
Vice President, General Counsel and a director (since
November 2001) of Shareholder Financial Services, Inc.,
Shareholder Services, Inc., OFI Private Investments,
Inc. and OFI Trust Company; Vice President (since
November 2001) of OppenheimerFunds Legacy Program;
Senior Vice President and General Counsel (since
November 2001) of OFI Institutional Asset Management,
Inc.; a director (since June 2003) of OppenheimerFunds
(Asia) Limited. Formerly Senior Vice President (May
1985-December 2003), Acting General Counsel (November
2001-February 2002) and Associate General Counsel (May
1981-October 2001) of the Manager; Assistant Secretary
of Shareholder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November
1989-November 2001); and OppenheimerFunds International
Ltd. (October 1997-November 2001). An officer of 84
portfolios in the OppenheimerFunds complex.

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

Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the
Assistant Secretary Manager since September 2004. Formerly Mr. Gillespie held
since 2004 the following positions at Merrill Lynch Investment
Age: 40 Management: First Vice President (2001-September 2004);
Director (from 2000) and Vice President (1998-2000). An
officer of 74 portfolios in the OppenheimerFunds
complex.

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

Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and
Assistant Secretary Assistant Secretary (since October 2003) of the Manager;
since 2001 Vice President (since 1999) and Assistant Secretary (since
Age: 38 October 2003) of the Distributor; Assistant Secretary
(since October 2003) of Centennial Asset Management
Corporation; Vice President and Assistant Secretary
(since 1999) of Shareholder Services, Inc.; Assistant
Secretary (since December 2001) of OppenheimerFunds
Legacy Program and of Shareholder Financial Services,
Inc.. Formerly an Assistant Counsel (August 1994-October
2003) and Assistant Vice President of the Manager
(August 1997-June 1998). An officer of 84 portfolios in
the OppenheimerFunds complex.

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

Dina C. Lee, Assistant Vice President and Assistant Counsel of the
Assistant Secretary Manager (since December 2000); formerly an attorney and
since 2004 Assistant Secretary of Van Eck Global (until December
Age: 34 2000). An officer of 84 portfolios in the OppenheimerFunds
complex.

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

Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager since
Assistant Secretary May 2004; formerly First Vice President and Associate
since 2004 General Counsel of UBS Financial Services Inc. (formerly,
Age: 36 PaineWebber Incorporated) (May 1999 - April 2004) prior to
which she was an Associate at Skaden, Arps, Slate,
Meagher &amp; Flom, LLP (September 1996 - April 1999). An
officer of 84 portfolios in the OppenheimerFunds
complex.

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

Wayne Miao, Assistant Vice President and Assistant Counsel of the
Assistant Secretary Manager since June 2004. Formerly an Associate with Sidley
since 2004 Austin Brown &amp; Wood LLP (September 1999 - May 2004). An
Age: 31 officer of 74 portfolios in the OppenheimerFunds complex.

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

|X| Remuneration of Trustees. The officers of the Fund and Mr. Murphy (who
is an officer and Trustee of the Fund) 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 from the Fund with respect to the Fund's
fiscal year ended August 31, 2004. The compensation from all 38 of the Board II
Funds (including the Fund) represents compensation received for serving as a
director or trustee and member of a committee (if applicable) of the boards of
those funds during the calendar year ended December 31, 2003.

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

Trustee Name and Other Fund Aggregate Total Compensation
From Fund and Fund
Compensation Complex Paid to
Position(s) (as applicable) from Fund1 Trustees*

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

William L. Armstrong $7,920 $118,649
Chairman of the Board of Trustees
Governance Committee Member

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

Robert G. Avis $5,193 $101,499
Review Committee Member

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

George C. Bowen $5,193 $101,499
Audit Committee Member

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

Edward L. Cameron $5,979 $115,503
Audit Committee Chairman

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

Jon S. Fossel $5,979 $115,503
Review Committee Chairman

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

Sam Freedman $5,193 $101,499
Review Committee Member

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

Beverly Hamilton
Review Committee Member $5,1932 $150,5423,4
Governance Committee Member

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

Robert J. Malone
Governance Committee Chairman $5,1935 $100,1793
Audit Committee Member

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

F. William Marshall, Jr.
Audit Committee Member $5,193 $149,4996
Governance Committee Member

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

Effective December 15, 2003, Mr. James C. Swain retired as Trustee from the
Board II funds. For the fiscal year ended August 31, 2004, Mr. Swain received
$2,011 aggregate compensation from the Fund. For the calendar year ended
December 31, 2003, Mr. Swain received $178,000 total compensation from all of
the Oppenheimer funds for which he served as Trustee.
1. Aggregate Compensation from Fund includes fees and deferred compensation,
if any, for a Trustee.
2. Includes $5,193 deferred under Deferred Compensation Plan described below.
3. Compensation for Mrs. Hamilton and Mr. Malone was paid by all the Board II
Funds, with the exception of Oppenheimer Senior Floating Rate Fund for which
they currently do not serve as Trustees (total of 37 Oppenheimer funds at
December 31, 2003).
4. Includes $50,363 compensation (of which 100% was deferred under a deferred
compensation plan) paid to Mrs. Hamilton for serving as a trustee by two
open-end investment companies (MassMutual Institutional Funds and MML Series
Investment Fund) the investment adviser for which is the indirect parent company
of the Fund's Manager. The Manager also serves as the Sub-Advisor to the
MassMutual International Equity Fund, a series of MassMutual Institutional
Funds.
5. Includes $5,193 deferred under Deferred Compensation Plan described below.
6. Includes $48,000 compensation paid to Mr. Marshall for serving as a trustee by
two open-end investment companies (MassMutual Institutional Funds and MML Series
Investment Fund) the investment adviser for which is the indirect parent company
of the Fund's Manager. The Manager also serves as the Sub-Advisor to the
MassMutual International Equity Fund, a series of MassMutual Institutional
Funds.
* For purposes of this section only, "Fund Complex" includes the Oppenheimer
funds, MassMutual Institutional Funds and MML Series Investment Fund in
accordance with the instructions for Form N-1A. The Manager does not consider
MassMutual Institutional Funds and MML Series Investment Fund to be part of the
OppenheimerFunds "Fund Complex" as that term may be otherwise interpreted.

|X| Deferred Compensation Plan for Trustees. 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 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 SEC, 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 October 6, 2004, there were no shareholders
who were known by the Fund to own of record 5% or more of the Fund's outstanding
Class A, Class B, Class C and Class N shares.

The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp.,
a holding company controlled by Massachusetts Mutual Life Insurance Company, a
global, diversified insurance and financial services organization.

|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 SEC 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 website at 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| Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies
and Procedures under which the Fund votes proxies relating to securities
("portfolio proxies") held by the Fund. The Fund's primary consideration in
voting portfolio proxies is the financial interests of the Fund and its
shareholders. The Fund has retained an unaffiliated third-party as its agent to
vote portfolio proxies in accordance with the Fund's Portfolio Proxy Voting
Guidelines and to maintain records of such portfolio proxy voting. The Proxy
Voting Guidelines include provisions to address conflicts of interest that may
arise between the Fund and OFI where an OFI directly-controlled affiliate
manages or administers the assets of a pension plan of a company soliciting the
proxy. The Fund's Portfolio Proxy Voting Guidelines on routine and non-routine
proxy proposals are summarized below.

o The Fund votes with the recommendation of the issuer's management on
routine matters, including election of directors nominated by management and
ratification of auditors, unless circumstances indicate otherwise.

o In general, the Fund opposes anti-takeover proposals and supports
elimination of anti-takeover proposals, absent unusual circumstances.

o The Fund supports shareholder proposals to reduce a super-majority vote
requirement, and opposes management proposals to add a super-majority vote
requirement.

o The Fund opposes proposals to classify the board of directors.

o The Fund supports proposals to eliminate cumulative voting.

o The Fund opposes re-pricing of stock options.

o The Fund generally considers executive compensation questions such as
stock option plans and bonus plans to be ordinary business activity. The Fund
analyzes stock option plans, paying particular attention to their dilutive
effect. While the Fund generally supports management proposals, the Fund opposes
plans it considers to be excessive.

The Fund is required to file new Form N-PX, with its complete proxy voting
record for the 12 months ended June 30th, no later than August 31st of each
year. The Fund's Form N-PX filing is available (i) without charge, upon request,
by calling the Fund toll-free at 1.800.525.7048 and (ii) on the SEC's website at
WWW.SEC.GOV.

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 manager of the Fund
is 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 managers 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 certain Trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class. The management fees paid by the Fund to the
Manager to OppenheimerFunds, during its last three fiscal Inc. years were:

Fiscal Year ended 8/31: Management Fees Paid
- -------------------------------------------------------------------------------
---------------------------------------------------------------------------
2002 $14,372,477
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2003 $12,219,761
---------------------------------------------------------------------------
---------------------------------------------------------------------------

2004 $14,972,144

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

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.

|X| Annual Approval of Investment Advisory Agreement. Each year, the
Board of Trustees, including a majority of the Independent Trustees, is required
to approve the renewal of the investment advisory agreement. The Investment
Company Act requires that the Board request and evaluate and the Manager provide
such information as may be reasonably necessary to evaluate the terms of the
investment advisory agreement. The Board employs an independent consultant to
prepare a report that provides such information as the Board requests for this
purpose.

The Board also receives information about the 12b-1 distribution fees the
Fund pays. These distribution fees are reviewed and approved at a different time
of the year.

The Board reviewed the foregoing information in arriving at its decision
to renew the investment advisory agreement. Among other factors, the Board
considered:
o The nature, cost, and quality of the services provided to the Fund and
its shareholders;
o The profitability of the Fund to the Manager;
o The investment performance of the Fund in comparison to regular market
indices;

o Economies of scale that may be available to the Fund from the Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the
Fund from its relationship with the Manager, and
o The direct and indirect benefits the Manager received from its
relationship with the Fund. These included services provided by the Distributor
and the Transfer Agent, and brokerage and soft dollar arrangements permissible
under Section 28(e) of the Securities Exchange Act.

The Board considered that the Manager must be able to pay and retain high
quality personnel at competitive rates to provide services to the Fund. The
Board also considered that maintaining the financial viability of the Manager is
important so that the Manager will be able to continue to provide quality
services to the Fund and its shareholders in adverse times. The Board also
considered the investment performance of other mutual funds advised by the
Manager. The Board is aware that there are alternatives to the use of the
Manager.

These matters were also considered by the Independent Trustees meeting
separately from the full Board with experienced Counsel to the Fund and
experienced Counsel to the Independent Trustees who assisted the Board in its
deliberations. The Fund's Counsel and the Independent Trustees' Counsel is
independent of the Manager within the meaning and intent of the SEC Rules
regarding the independence of counsel.

After careful deliberation, the Board, including the Independent Trustees,
concluded that it was in the best interest of shareholders to continue the
investment advisory agreement for another year. In arriving at a decision, the
Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board
judged the terms and conditions of the investment advisory agreement, including
the investment advisory fee, in light of all of the surrounding circumstances.

Brokerage Policies of the Fund

Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The 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, in choosing brokers to execute
portfolio transactions for the Fund, the Manager may select brokers (other than
affiliates) that provide brokerage and/or research services to the Fund and/or
the other accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to those 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 investment advisory agreement also
permits the Manager to consider sales of shares of the Fund and other investment
companies for which the Manager or an affiliate serves as investment adviser.
Notwithstanding that authority, and with the concurrence of the Fund's Board,
the Manager has determined not to consider sales of shares of the Fund and other
investment companies for which the Manager or an affiliate serves as investment
adviser as a factor in selecting brokers for the Fund's portfolio transactions.
However, the Manager may continue to effect portfolio transactions through
brokers who sell shares of the Fund.

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.

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. When possible, the Manager tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. 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.

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 commissions 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 Ended 8/31: Total Brokerage Commissions Paid by the
Fund1
---------------------------------------------------------------------
---------------------------------------------------------------------

2002 $4,226,432

---------------------------------------------------------------------
---------------------------------------------------------------------
2003 $3,084,115
---------------------------------------------------------------------
---------------------------------------------------------------------

2004 $3,308,5112

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

1. Amounts do not include spreads or commissions on principal transactions on
a net trade basis. 2. In the fiscal year ended 8/31/04, the amount of
transactions directed to brokers for research services was $98,665,837 and
the amount of the commissions paid to broker-dealers for those services was
$177,593.

Distribution and Service Plans

The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's classes of shares. The Distributor bears the expenses
normally attributable to sales, including advertising and the cost of printing
and mailing prospectuses, other than those furnished to existing shareholders.
The Distributor is not obligated to sell a specific number of shares.

The sales charges and concessions paid to, or retained by, the Distributor
from the sale of shares and the contingent deferred sales charges retained by
the Distributor on the redemption of shares during the Fund's three most recent
fiscal years are shown in the tables below.

- -------------------------------------------
Fiscal Aggregate Class A
Front-End
Front-End Sales Sales Charges
Year Charges on Retained by
Ended Class A Shares Distributor1
- -------------------------------------------
- -------------------------------------------
2002 $2,233,812 $667,8451
- -------------------------------------------
- -------------------------------------------
2003 $1,898,819 $492,515
- -------------------------------------------
- -------------------------------------------

2004 $3,390,971 $1,038,146

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

1. Includes amounts retained by a broker-dealer that is an affiliate or a parent
of the Distributor.

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

Fiscal Concessions on Concessions on Concessions on Concessions on
Year Class A Shares Class B Shares Class C Shares Class N Shares
Ended Advanced by Advanced by Advanced by Advanced by
Distributor1 Distributor1 Distributor1 Distributor1

- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2002 $203,793 $1,929,632 $154,139 $45,149
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2003 $236,351 $1,420,826 $146,356 $40,439
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------

2004 $254,037 $1,967,231 $330,437 $68,040

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

1. The Distributor advances concession payments to financial intermediaries 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.

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

Fiscal Class A Class B Class C Class N
Contingent Contingent Contingent
Deferred Sales Deferred Sales Contingent Deferred Sales
Year Charges Charges Deferred Sales Charges
Ended Retained by Retained by Charges Retained Retained by
8/31 Distributor Distributor by Distributor Distributor

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

2002 $9,652 $736,732 $10,425 $261

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2003 $18,476 $759,454 $7,861 $14,754
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

2004 $29,534 $530,263 $17,067 $3,969

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

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 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. Each plan has been approved by a vote of the Board of
Trustees, including a majority of the Independent Trustees1, 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. In their sole discretion, they may also from time to time make
substantial payments from their own resources, which include the profits the
Manager derives from the advisory fees it receives from the Fund, to compensate
brokers, dealers, financial institutions and other intermediaries for providing
distribution assistance and/or administrative services or that otherwise promote
sales of the Fund's shares. These payments, some of which may be referred to as
"revenue sharing," may relate to the Fund's inclusion on a financial
intermediary's preferred list of funds offered to its clients.

Financial intermediaries, brokers and dealers may receive other payments
from the Distributor or the Manager from their own resources in connection with
the promotion and/or sale of shares of the Fund, including payments to defray
expenses incurred in connection with educational seminars and meetings. The
Manager or Distributor may share expenses incurred by financial intermediaries
in conducting training and educational meetings about aspects of the Fund for
employees of the intermediaries or for hosting client seminars or meetings at
which the Fund is discussed. In their sole discretion, the Manager and/or the
Distributor may increase or decrease the amount of payments they make from their
own resources for these purposes.

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 72 months after purchase, 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" 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.

|X| 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. The Board has set the rate at that level.
The Distributor does not receive or retain the service fee on Class A shares in
accounts for which the Distributor has been listed as the broker-dealer of
record. 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, except in the case of the special arrangement described below,
regarding grandfathered retirement accounts. The Distributor makes payments to
recipients quarterly at an annual rate not to exceed 0.25% of the average annual
net assets consisting of Class A shares held in the accounts of the recipients
or their customers.

With respect to purchases of Class A shares subject to a contingent
deferred sales charge by certain retirement plans that purchased such shares
prior to March 1, 2001 ("grandfathered retirement accounts"), the Distributor
currently intends to pay the service fee to recipients in advance for the first
year after the shares are purchased. During the first year the shares are sold,
the Distributor retains the service fee to reimburse itself for the costs of
distributing the shares. After the first year shares are outstanding, the
Distributor makes service fee payments to recipients 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 A shares purchased by grandfathered retirement accounts 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.

For the fiscal year ended August 31, 2004 payments under the Class A plan
totaled $5,533,158, of which $108,767 was retained by the Distributor under the
arrangement described above, regarding grandfathered retirement accounts, and
included $383,414 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.

|X| Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, distribution and service 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. Each plan provides 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.

Each plan permits 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 Class B,
Class C and Class N shares are purchased. After the first year Class B, Class C
or Class N shares are outstanding, after their purchase, 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.
Class B, Class C or Class N shares may not be purchased by an investor directly
from the Distributor without the investor designating another broker-dealer of
record. If the investor no longer has another broker-dealer of record for an
existing account, the Distributor is automatically designated as the
broker-dealer of record, but solely for the purpose of acting as the investor's
agent to purchase the shares. In those cases, the Distributor retains the
asset-based sales charge paid on Class B, Class C and Class N shares, but does
not retain any service fees as to the assets represented by that account. The
Distributor does not receive or retain the service fee on Class B, Class C or
Class N shares in accounts for which it is listed as the broker-dealer or
record.

The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% and the asset-based sales charge and service fees increase
Class N expenses by 0.50% of the net assets per year of the respective classes.

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
asset-based sales charge to the dealer quarterly in lieu of paying the sales
concession and service fee in advance at the time of purchase.

The asset-based sales charge 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,
o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses,
o may not be able to adequately compensate dealers that sell Class B,
Class C and Class N shares without receiving payment under the plans
and therefore may not be able to offer such Classes for sale absent the
plans,
o receives payments under the plans consistent with the service fees and
asset-based sales charges paid by other non-proprietary funds that
charge 12b-1 fees,
o may use the payments under the plan to include the Fund in various
third-party distribution programs that may increase sales of Fund
shares,
o may experience increased difficulty selling the Fund's shares if
payments under the plan are discontinued because most competitor funds
have plans that pay dealers for rendering distribution services as much
or more than the amounts currently being paid by the Fund, and
o may not be able to continue providing, at the same or at a lesser cost,
the same quality distribution sales efforts and services, or to obtain
such services from brokers and dealers, if the plan payments were to be
discontinued.

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.

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

Distribution Fees Paid to the Distributor for the Fiscal Year Ended 8/31/04

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

Class: Total Amount Distributor's Distributor's
Unreimbursed
Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Under Plan Distributor Expenses Under Plan of Class

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

Class B Plan $3,500,192 $2,540,9131 $9,978,540 3.15%

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

Class C Plan $1,223,748 $275,4792 $2,981,560 2.24%

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

Class N Plan $66,400 $43,1713 $303,546 1.82%

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

1. Includes $73,518 paid to an affiliate of the Distributor's parent company.
2. Includes $41,597 paid to an affiliate of the Distributor's parent company.
3. Includes $3,511 paid to an affiliate of the Distributor's parent company.

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.

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 website at www.oppenheimerfunds.com.

The Fund's illustrations of its performance data in advertisements must
comply with rules of the SEC. 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.

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.
o 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 those 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" in the formula below) (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 1.0% contingent deferred
sales charge is deducted for returns for the one-year period. For Class N
shares, the 1.0% contingent deferred sales charge is deducted for returns for
the one-year period, and total returns for the periods prior to 03/01/01 (the
inception date for Class N shares) are based on the Fund's Class A returns,
adjusted to reflect the higher Class N 12b-1 fees.

o 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:

- 1 Average Annual Total
ERV l/n Return
P

o Average Annual Total Return (After Taxes on Distributions). The "average
annual total return (after taxes on distributions)" of Class A shares is an
average annual compounded rate of return for each year in a specified number of
years, adjusted to show the effect of federal taxes (calculated using the
highest individual marginal federal income tax rates in effect on any
reinvestment date) on any distributions made by the Fund during the specified
period. 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 value ("ATVD" in the formula)
of that investment, after taking into account the effect of taxes on Fund
distributions, but not on the redemption of Fund shares, according to the
following formula:

- 1 = Average Annual Total Return (After Taxes on
ATVD l/n Distributions)
P

o Average Annual Total Return (After Taxes on Distributions and
Redemptions). The "average annual total return (after taxes on distributions
and redemptions)" of Class A shares is an average annual compounded rate of
return for each year in a specified number of years, adjusted to show the
effect of federal taxes (calculated using the highest individual marginal
federal income tax rates in effect on any reinvestment date) on any
distributions made by the Fund during the specified period and the effect of
capital gains taxes or capital loss tax benefits (each calculated using the
highest federal individual capital gains tax rate in effect on the redemption
date) resulting from the redemption of the shares at the end of the period. 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 value ("ATVDR" in the formula) of that
investment, after taking into account the effect of taxes on Fund distributions
and on the redemption of Fund shares, according to the following formula:

ATVDR - 1 = Average Annual Total Return (After Taxes on Distributions
l/n and Redemptions)
P

o 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

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

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

The Fund's Total Returns for the Periods Ended 8/31/04

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
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 138.26% 152.78% 3.98% 10.32% 3.31% 4.54% 9.07% 9.72%

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

Class B 141.02% 141.02% 4.46% 9.46% 3.40% 3.70% 9.20% 9.20%

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

Class C 102.60%3 102.60%3 8.40% 9.40% 3.71% 3.71% 8.32%3 8.32%3

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

Class N 7.70%4 7.70%4 9.01%4 10.01% 2.14%4 2.14%4 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 4. Inception of Class N: 3/1/01.

-----------------------------------------------------------------------------
Average Annual Total Returns for Class A Shares1 (After Sales Charge)

For the Periods Ended 8/31/04

-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or Life of
Class) (or Life of Class)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

After Taxes on Distributions 2.75% 1.18% 6.59%

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

After Taxes on Distributions 2.94% 1.68% 6.51%

and Redemption of Fund Shares
-----------------------------------------------------------------------------

1. Inception of Class A shares: 12/1/70.

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

|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper, Inc. ("Lipper"). Lipper is a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
their performance for various periods in categories based on investment styles.
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.

|X| Morningstar Ratings. From time to time the Fund may publish the star rating
of the performance of its classes of shares by Morningstar, Inc., an independent
mutual fund monitoring service. Morningstar rates mutual funds in their
specialized market sector. The Fund is rated among the domestic hybrid category.

Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. For each fund with at least a three-year history,
Morningstar calculates a Morningstar Rating(TM) based on a Morningstar
Risk-Adjusted Return measure that accounts for variation in a fund's monthly
performance (including the effects of sales charges, loads, and redemption
fees), placing more emphasis on downward variations and rewarding consistent
performance. The top 10% of funds in each category receive 5 stars, the next
22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2
stars, and the bottom 10% receive 1 star. (Each share class is counted as a
fraction of one fund within this scale and rated separately, which may cause
slight variations in the distribution percentages.) The Overall Morningstar
Rating for a fund is derived from a weighted average of the performance figures
associated with its three-, five-and ten-year (if applicable) Morningstar Rating
metrics.

|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, 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.

When you purchase shares of the Fund, your ownership interest in the
shares of the Fund will be recorded as a book entry on the records of the Fund.
The Fund will not issue or re-register physical share certificates.

AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $50 and shareholders must invest at least $500 before an Asset
Builder Plan (described below) can be established on a new account. Accounts
established prior to November 1, 2002 will remain at $25 for additional
purchases. 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"). 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 three days after the transfers are initiated. If
the proceeds of the ACH transfer are not received on a timely basis, the
Distributor reserves the right to cancel the purchase order. 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.

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

Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund Oppenheimer
Bond Fund Oppenheimer Main Street Small Cap Fund Oppenheimer California
Municipal Fund Oppenheimer MidCap Fund Oppenheimer Capital Appreciation Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Capital Preservation Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Principal Protected Main
Oppenheimer Capital Income Fund Street Fund
Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund II

Oppenheimer Principal Protected Main

Oppenheimer Convertible Securities Fund Street Fund III
Oppenheimer Developing Markets Fund Oppenheimer Quest Balanced Fund

Oppenheimer Quest Capital Value Fund,

Oppenheimer Disciplined Allocation Fund Inc.

Oppenheimer Quest International Value

Oppenheimer Discovery Fund Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund

Oppenheimer Rochester National

Oppenheimer Global Fund Municipals Oppenheimer Global Opportunities Fund
Oppenheimer Select Value Fund Oppenheimer Gold &amp; Special Minerals Fund
Oppenheimer Senior Floating Rate Fund Oppenheimer Growth Fund Oppenheimer Small
Cap Value Fund Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Small Company Fund Oppenheimer Value Fund Oppenheimer
International Value Fund Limited-Term New York Municipal Fund Oppenheimer
Limited Term California Municipal Fund Rochester Fund Municipals Oppenheimer
Limited-Term Government Fund

And the following money market funds:

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

There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds described above 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 ("Letter"), 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. Letters do not consider Class C or
Class N shares you purchase or may have purchased.

A Letter 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 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 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 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. 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.

If the total eligible purchases made during the Letter period do not equal
or exceed the intended purchase amount, the concessions 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 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. If the intended purchase amount under a Letter entered
into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan
by the end of the Letter 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 period will be
deducted. It is the responsibility of the dealer of record and/or the investor
to advise the Distributor about the Letter when placing any purchase orders for
the investor during the Letter period. All of such purchases must be made
through the Distributor.

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

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

2. If the total minimum investment specified under the Letter is completed
within the 13-month Letter period, the escrowed shares will be promptly released
to the investor.

3. If, at the end of the 13-month Letter 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. As explained in the Prospectus, you must initially
establish your account with $500. Subsequently, you can establish an Asset
Builder Plan to automatically purchase additional shares directly from a bank
account for as little as $50. For those accounts established prior to November
1, 2002 and which have previously established Asset Builder Plans, additional
purchases will remain at $25. 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 your 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 charges 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 &amp; Smith, Inc. ("Merrill Lynch") 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 $1 million in assets invested in applicable investments
(other than assets invested in money market funds), then the retirement plan may
purchase only Class C shares of the Oppenheimer funds. If on the date the plan
sponsor signed the Merrill Lynch record keeping service agreement the plan has
$1 million or more in assets but less than $5 million in assets invested in
applicable investments (other than assets invested in money market funds), then
the retirement plan may purchase only Class N shares of the Oppenheimer funds.
If on the date the plan sponsor signed the Merrill Lynch record keeping service
agreement the plan has $5 million or more in assets invested in applicable
investments (other than assets invested in money market funds), then the
retirement plan may purchase only Class A shares of the Oppenheimer funds.

OppenheimerFunds has entered into arrangements with certain record keepers
whereby the Transfer Agent compensates the record keeper for its record keeping
and account servicing functions that it performs on behalf of the participant
level accounts of a retirement plan. While such compensation may act to reduce
the record keeping fees charged by the retirement plan's record keeper, that
compensation arrangement may be terminated at any time, potentially affecting
the record keeping fees charged by the retirement plan's record keeper.

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 values 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,
Class C and Class N shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B, Class C and Class
N shares is the same as that of the initial sales charge on Class A shares - to
compensate the Distributor and brokers, dealers and financial institutions that
sell shares of the Fund. A salesperson who is entitled to receive compensation
from his or her firm for selling Fund shares may receive different levels of
compensation for selling one class of shares rather than another.

The Distributor will not accept a purchase order of $100,000 or for Class
B shares or a purchase order of $1 million or more to purchase Class C shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts).

|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases
of Class A shares at net asset value whether or not subject to a contingent
deferred sales charge as described in the Prospectus, no sales concessions will
be paid to the broker-dealer of record, as described in the Prospectus, on sales
of Class A shares purchased with the redemption proceeds of shares of another
mutual fund offered as an investment option in a retirement plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor, if the purchase occurs more than 30 days after
the Oppenheimer funds are added as an investment option under that plan.
Additionally, that concession will not be paid on purchases of Class A shares by
a retirement plan made with the redemption proceeds of Class N shares of one or
more Oppenheimer funds held by the plan for more than 18 months.

|X| Class B Conversion. Under current interpretations of applicable
federal income tax law by the Internal Revenue Service, the conversion of Class
B shares to Class A shares 72 months after purchase is not treated as a taxable
event for the shareholder. If those laws or the IRS interpretation of those laws
should change, the automatic conversion feature may be suspended. In that event,
no further conversions of Class B shares would occur while that suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the shareholder, and absent such exchange, Class B shares might
continue to be subject to the asset-based sales charge for longer than six
years.

|X| Availability of Class N Shares. 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 (including SEP IRAs and SIMPLE IRAs), o to all rollover contributions made
to Individual 401(k) plans,
Profit-Sharing Plans and Money Purchase Pension Plans,
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, and
o to certain customers of broker-dealers and financial advisors that
are identified in a special agreement between the broker-dealer or
financial advisor and the Distributor for that purpose.

The sales concession and the advance of the service fee, as described in
the Prospectus, will not be paid to dealers of record on sales of Class N shares
on:
o purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class A shares of one or more Oppenheimer funds (other
than rollovers from an OppenheimerFunds-sponsored Pinnacle or
Ascender 401(k) plan to any IRA invested in the Oppenheimer funds),
o purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class C shares of one or more Oppenheimer funds held by
the plan for more than one year (other than rollovers from an
OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to any
IRA invested in the Oppenheimer funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan made with the redemption proceeds
of Class A shares of one or more Oppenheimer funds.

No sales concessions will be paid to the broker-dealer of record, as
described in the Prospectus, on sales of Class N shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.

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

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

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

Fund Account Fees. As stated in the Prospectus, a $12 annual "Minimum Balance
Fee" is assessed on each Fund account with a share balance valued under $500.
The Minimum Balance Fee is automatically deducted from each such Fund account on
or about the second to last business day of September.

Listed below are certain cases in which the Fund has elected, in its
discretion, not to assess the Fund Account Fees. These exceptions are subject to
change:
A fund account whose shares were acquired after September 30th of the
prior year;
o A fund account that has a balance below $500 due to the automatic
conversion of shares from Class B to Class A shares. However, once all
Class B shares held in the account have been converted to Class A
shares the new account balance may become subject to the Minimum
Balance Fee;
o Accounts of shareholders who elect to access their account documents
electronically via eDoc Direct;
o A fund account that has only certificated shares and, has a balance below
$500 and is being escheated;
o Accounts of shareholders that are held by broker-dealers under the NSCC
Fund/SERV system;
o Accounts held under the Oppenheimer Legacy Program and/or holding certain
Oppenheimer Variable Account Funds;
o Omnibus accounts holding shares pursuant to the Pinnacle, Ascender,
Custom Plus, Recordkeeper Pro and Pension Alliance Retirement Plan
programs; and
o A fund account that falls below the $500 minimum solely due to market
fluctuations within the 12-month period preceding the date the fee is
deducted.

To access account documents electronically via eDocs Direct, please visit
the Service Center on our website at WWW.OPPENHEIMERFUNDS.COM or call
1.888.470.0862 for instructions.

The Fund reserves the authority to modify Fund Account Fees in its
discretion.

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 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., Eastern time, but may close earlier on some other days (for
example, in case of weather emergencies or on days falling before a U.S.
holiday). All references to time in this Statement of Additional Information
mean "Eastern time." The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Martin Luther
King, Jr. Day, Presidents' 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
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such 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 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 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, or an internal valuation committee established by the
Manager, as applicable, may establish a valuation, under procedures established
by the Board and subject to the approval, ratification and confirmation by the
Board at its next ensuing meeting.

|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on Nasdaq(R)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(R), 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 rate determined on a particular business day at the time fixed for
valuation of the Fund's securities that is 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(R), 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(R) on the
valuation date. If not, the value shall be the closing bid price on the
principal exchange or on Nasdaq(R) on the valuation date. If the put, call or
future is not traded on an exchange or on Nasdaq(R), it shall be valued by the
mean between "bid" and "asked" prices obtained by the Manager from two active
market makers. In certain cases that may be at the "bid" price if no "asked"
price is available.

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

How to Sell Shares

The information below supplements the terms and conditions for redeeming shares
set forth in the Prospectus.

Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds 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 Federal Funds wire.

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
and Class N 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, under certain circumstances, the
Board of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash. In that case, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of liquid
securities from the portfolio of the Fund, in lieu of cash.

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

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $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
and Class N contingent deferred sales charge will be followed in determining the
order in which shares are transferred.

Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, SEP-IRAs, SIMPLE 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 plan sponsors) 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 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, Class C
and Class N shareholders should not establish automatic withdrawal plans,
because of the potential imposition of the contingent deferred sales charge on
such withdrawals (except where the Class B, Class C or Class N 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 $50.
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.

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
of shares by calling the Distributor.

o All of the Oppenheimer funds currently offer Class A, B, C, N and Y shares
with the following exceptions:

The following funds only offer Class A shares:
Centennial America Fund, L.P. Centennial New York Tax Exempt
Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Money Market Fund, Inc.
Centennial Money Market Trust

The following funds do not offer Class N shares:
Oppenheimer AMT-Free Municipals Oppenheimer Pennsylvania Municipal
Fund

Oppenheimer AMT-Free New York Municipals Oppenheimer Rochester National
Municipals
Oppenheimer California Municipal Fund Limited Term New York Municipal Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer New Jersey Municipal Fund Rochester Fund Municipals
Oppenheimer Principal Protected Main Oppenheimer Limited Term
Street Fund II California Municipal Fund
Oppenheimer International Value Fund

The following funds do not offer Class Y shares:
Oppenheimer AMT-Free Municipals Oppenheimer Balanced Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main
Street Fund
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main
Street Fund III

Oppenheimer Convertible Securities Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest International Value
Fund, Inc.

Oppenheimer Developing Markets Fund Oppenheimer Rochester National Municipals
Oppenheimer Gold &amp; Special Minerals Fund Oppenheimer Senior Floating Rate
Fund Oppenheimer International Bond Fund Oppenheimer Small Cap Value Fund
Oppenheimer International Growth Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Small Company Limited Term New York Municipal Fund
Fund Oppenheimer Limited Term Municipal Fund

o Oppenheimer Money Market Fund, Inc. only offers Class A and Class Y
shares.

o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for shares
of any other fund.
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 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 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 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.
o 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.
o 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.
o Shares of Oppenheimer Principal Protected Main Street Fund may be exchanged
at net asset value for shares of any of the Oppenheimer funds. However,
shareholders are not permitted to exchange shares of other Oppenheimer funds
for shares of Oppenheimer Principal Protected Main Street Fund until after
the expiration of the warranty period (8/5/2010).

o Shares of Oppenheimer Principal Protected Main Street Fund II may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
However, shareholders are not permitted to exchange shares of other
Oppenheimer funds for shares of Oppenheimer Principal Protected Main Street
Fund II until after the expiration of the warranty period (2/4/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
However, shareholders are not permitted to exchange shares of other
Oppenheimer funds for shares of Oppenheimer Principal Protected Main Street
Fund III until after the expiration of the warranty period (12/6/2011).

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

|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge, with the following exceptions:

o When Class A shares of any Oppenheimer fund (other than Rochester National
Municipals and Rochester Fund Municipals) acquired by exchange of Class A shares
of any Oppenheimer fund purchased subject to a Class A contingent deferred sales
charge are redeemed within 18 months measured from the beginning 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.

o When Class A shares of Rochester National Municipals and Rochester Fund
Municipals acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within 24 months of the beginning 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.

o 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 When Class A shares of Oppenheimer Cash Reserves and Oppenheimer Money Market
Fund, Inc. acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within the Class A holding period of the fund from which the shares were
exchanged, the Class A contingent deferred sales charge of the fund from which
the shares were exchanged is imposed on the redeemed shares.

o With respect to Class B shares (other than Limited-Term Government Fund,
Limited Term Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer
Capital Preservation Fund and Oppenheimer Senior Floating Rate Fund), the Class
B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within six years of the initial purchase of the
exchanged Class B shares.

o With respect to Class B shares of Limited-Term Government Fund, Limited Term
Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer Capital
Preservation Fund and Oppenheimer Senior Floating Rate Fund, the Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 5 years of the initial purchase of the
exchanged Class B shares.

o With respect to Class C 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.

o 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.

o When Class B, Class C or Class N 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, Class C or Class N 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 wish to exchange.

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

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

|X| Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.

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, Distributions and Redemptions of Shares. The
federal tax treatment of the Fund's dividends and capital gains distributions is
briefly highlighted in the Prospectus. The following is only a summary of
certain additional tax considerations generally affecting the Fund and its
shareholders.

The tax discussion in the Prospectus and this Statement of Additional
Information is based on tax law in effect on the date of the Prospectus and this
Statement of Additional Information. Those laws and regulations may be changed
by legislative, judicial, or administrative action, sometimes with retroactive
effect. State and local tax treatment of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the treatment
under the Internal Revenue Code described below. Potential purchasers of shares
of the Fund are urged to consult their tax advisers with specific reference to
their own tax circumstances as well as the consequences of federal, state and
local tax rules affecting an investment in the Fund.

|X| Qualification as a Regulated Investment Company. The Fund has elected to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, the Fund is
not subject to federal income tax on the portion of its net investment income
(that is, taxable interest, dividends, and other taxable ordinary income, net of
expenses) and capital gain net income (that is, the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders. That qualification enables the Fund to "pass through" its income
and realized capital gains to shareholders without having to pay tax on them.
This avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive from the
Fund (unless their Fund shares are held in a retirement account or the
shareholder is otherwise exempt from tax).

The Internal Revenue Code contains a number of complex tests relating to
qualification that the Fund might not meet in a particular year. If it did not
qualify as a regulated investment company, the Fund would be treated for tax
purposes as an ordinary corporation and would receive no tax deduction for
payments made to shareholders.

To qualify as a regulated investment company, the Fund must distribute at
least 90% of its investment company taxable income (in brief, net investment
income and the excess of net short-term capital gain over net long-term capital
loss) for the taxable year. The Fund must also satisfy certain other
requirements of the Internal Revenue Code, some of which are described below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within 12 months after the close of the taxable year, will be
considered distributions of income and gains for the taxable year and will
therefore count toward satisfaction of the above-mentioned requirement.

To qualify as a regulated investment company, the Fund must derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies (to the extent such currency gains are
directly related to the regulated investment company's principal business of
investing in stock or securities) and certain other income.

In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under that test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items (including receivables), U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers. As to each of those issuers, the Fund must not have invested more than
5% of the value of the Fund's total assets in securities of each such issuer and
the Fund must not hold more than 10% of the outstanding voting securities of
each such issuer. No more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. For purposes of this test, obligations issued or
guaranteed by certain agencies or instrumentalities of the U.S. government are
treated as U.S. government securities.

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

|X| Taxation of Fund Distributions. The Fund anticipates distributing
substantially all of its investment company taxable income for each taxable
year. Those distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes.

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

The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net long term capital gains are distributed and designated as a
capital gain distribution, it will be taxable to shareholders as a long-term
capital gain and will be properly identified in reports sent to shareholders in
January of each year. Such treatment will apply no matter how long the
shareholder has held his or her shares or whether that gain was recognized by
the Fund before the shareholder acquired his or her shares.

If the Fund elects to retain its net capital gain, the Fund will be
subject to tax on it at the 35% corporate tax rate. If the Fund elects to retain
its net capital gain, the Fund will provide to shareholders of record on the
last day of its taxable year information regarding their pro rata share of the
gain and tax paid. As a result, each shareholder will be required to report his
or her pro rata share of such gain on their tax return as long-term capital
gain, will receive a refundable tax credit for his/her pro rata share of tax
paid by the Fund on the gain, and will increase the tax basis for his/her shares
by an amount equal to the deemed distribution less the tax credit.

Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.

Distributions by the Fund that do not constitute ordinary income dividends
or capital gain distributions will be treated as a return of capital to the
extent of the shareholder's tax basis in their shares. Any excess will be
treated as gain from the sale of those shares, as discussed below. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year. If prior distributions made
by the Fund must be re-characterized as a non-taxable return of capital at the
end of the fiscal year as a result of the effect of the Fund's investment
policies, they will be identified as such in notices sent to shareholders.

Distributions by the Fund will be treated in the manner described above
regardless of whether the distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.

The Fund will be required in certain cases to withhold 28% of ordinary
income dividends, capital gains distributions and the proceeds of the redemption
of shares, paid to any shareholder (1) who has failed to provide a correct
taxpayer identification number or to properly certify that number when required,
(2) who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that the shareholder is not subject to backup withholding or is an "exempt
recipient" (such as a corporation). Any tax withheld by the Fund is remitted by
the Fund to the U.S. Treasury and all income and any tax withheld is identified
in reports mailed to shareholders in January of each year.

|X| Tax Effects of Redemptions of Shares. If a shareholder redeems all or a
portion of his/her shares, the shareholder will recognize a gain or loss on the
redeemed shares in an amount equal to the difference between the proceeds of the
redeemed shares and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss recognized in that manner may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the redemption.

In general, any gain or loss arising from the redemption of shares of the
Fund will be considered capital gain or loss, if the shares were held as a
capital asset. It will be long-term capital gain or loss if the shares were held
for more than one year. However, any capital loss arising from the redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on those shares.
Special holding period rules under the Internal Revenue Code apply in this case
to determine the holding period of shares and there are limits on the
deductibility of capital losses in any year.

|X| Foreign Shareholders. Under U.S. tax law, taxation of a shareholder who is a
foreign person (to include, but not limited to, a nonresident alien individual,
a foreign trust, a foreign estate, a foreign corporation, or a foreign
partnership) primarily depends on whether the foreign person's income from the
Fund is effectively connected with the conduct of a U.S. trade or business.
Typically, ordinary income dividends paid from a mutual fund are not considered
"effectively connected" income.

Ordinary income dividends that are paid by the Fund (and are deemed not
"effectively connected income") to foreign persons will be subject to a U.S. tax
withheld by the Fund at a rate of 30%, provided the Fund obtains a properly
completed and signed Certificate of Foreign Status. The tax rate may be reduced
if the foreign person's country of residence has a tax treaty with the U.S.
allowing for a reduced tax rate on ordinary income dividends paid by the Fund.
Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and
all income and any tax withheld is identified in reports mailed to shareholders
in March of each year.

If the ordinary income dividends from the Fund are effectively connected
with the conduct of a U.S. trade or business, then the foreign person may claim
an exemption from the U.S. tax described above provided the Fund obtains a
properly completed and signed Certificate of Foreign Status. If the foreign
person fails to provide a certification of his/her foreign status, the Fund will
be required to withhold U.S. tax at a rate of 28% on ordinary income dividends,
capital gains distributions and the proceeds of the redemption of shares, paid
to any foreign person. All income and any tax withheld (in this situation) by
the Fund is remitted by the Fund to the U.S. Treasury and is identified in
reports mailed to shareholders in January of each year.

The tax consequences to foreign persons entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors or the U.S. Internal
Revenue Service with respect to the particular tax consequences to them of an
investment in the Fund, including the applicability of the U.S. withholding
taxes described above.

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

Independent Registered Public Accounting Firm. Deloitte &amp; Touche LLP served as
an Independent Registered Public Accounting Firm for the Fund. Deloitte &amp; Touche
LLP audits the Fund's financial statements and performs other related audit
services. Deloitte &amp; Touche LLP also act as independent registered public
accounting firm for certain other funds advised by the Manager and its
affiliates. Audit and non-audit services provided by Deloitte &amp; Touche LLP to
the Fund must be pre-approved by the Audit Committee.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO 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, 2004, 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 the periods indicated. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
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, 2004, 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, 2004, 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 the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP

Denver, Colorado
October 14, 2004

58 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS August 31, 2004
- --------------------------------------------------------------------------------

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

COMMON STOCKS--40.8%
- ---------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--4.2%
- ---------------------------------------------------------------------------------------------------
AUTO COMPONENTS--0.2%
TRW Automotive Holdings Corp. 1 302,500 $ 5,889,675
- ---------------------------------------------------------------------------------------------------
MEDIA--0.5%
Cablevision Systems New York Group, Cl. A 1 5,000 92,600
- ---------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 366,400 12,278,064
- ---------------------------------------------------------------------------------------------------
EchoStar Communications Corp., Cl. A 1,2 25,000 766,250
---------------
13,136,914

- ---------------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.3%
Dollar Tree Stores, Inc. 1 415,000 9,756,650
- ---------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--3.2%
CarMax, Inc. 1 690,400 13,518,032
- ---------------------------------------------------------------------------------------------------
CSK Auto Corp. 1,3 6,500,000 76,310,000
---------------
89,828,032

- ---------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.6%
- ---------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.0%
Kroger Co. (The) 1 100 1,653
- ---------------------------------------------------------------------------------------------------
TOBACCO--4.6%
Altria Group, Inc. 2 2,120,000 103,774,000
- ---------------------------------------------------------------------------------------------------
Loews Corp./Carolina Group 1,046,750 25,833,790
---------------
129,607,790

- ---------------------------------------------------------------------------------------------------
ENERGY--10.6%
- ---------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.6%
GlobalSantaFe Corp. 645,000 17,982,600
- ---------------------------------------------------------------------------------------------------
OIL & GAS--10.0%
BP plc, ADR 500,000 26,850,000
- ---------------------------------------------------------------------------------------------------
Enbridge Energy Management LLC 3 650,000 28,099,500
- ---------------------------------------------------------------------------------------------------
Kinder Morgan Management LLC 3,175,000 123,412,250
- ---------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 1,750,000 105,875,000
---------------
284,236,750

- ---------------------------------------------------------------------------------------------------
FINANCIALS--13.1%
- ---------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--4.4%
Bank of America Corp. 2 1,000,000 44,980,000
- ---------------------------------------------------------------------------------------------------
U.S. Bancorp 1,250,000 36,875,000
- ---------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 2 1,120,800 43,520,664
---------------
125,375,664

20 | OPPENHEIMER CAPITAL INCOME FUND

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

DIVERSIFIED FINANCIAL SERVICES--3.3%
Citigroup, Inc. 1,760,900 $ 82,022,722
- ---------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 171,600 6,791,928
- ---------------------------------------------------------------------------------------------------
Morgan Stanley 100,000 5,073,000
---------------
93,887,650

- ---------------------------------------------------------------------------------------------------
INSURANCE--4.2%
ACE Ltd. 775,000 29,876,250
- ---------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 1,000,000 70,160,000
- ---------------------------------------------------------------------------------------------------
Prudential Financial, Inc. 25,000 1,154,500
- ---------------------------------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 225,000 7,805,250
- ---------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 150,000 10,530,000
---------------
119,526,000

- ---------------------------------------------------------------------------------------------------
REAL ESTATE--0.5%
Anthracite Capital, Inc. 1,000,000 11,550,000
- ---------------------------------------------------------------------------------------------------
Origen Financial, Inc. 225,000 1,696,500
---------------
13,246,500

- ---------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.7%
Freddie Mac 2 28,000 1,879,360
- ---------------------------------------------------------------------------------------------------
PMI Group, Inc. (The) 175,000 7,267,750
- ---------------------------------------------------------------------------------------------------
Radian Group, Inc. 250,000 11,075,000
---------------
20,222,110

- ---------------------------------------------------------------------------------------------------
HEALTH CARE--2.4%
- ---------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
Wyeth 225,000 8,228,250
- ---------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Boston Scientific Corp. 1 150,000 5,359,500
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.9%
Abbott Laboratories 463,200 19,310,808
- ---------------------------------------------------------------------------------------------------
Merck & Co., Inc. 210,000 9,443,700
- ---------------------------------------------------------------------------------------------------
Pfizer, Inc. 625,000 20,418,750
- ---------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1 175,000 4,819,500
---------------
53,992,758

- ---------------------------------------------------------------------------------------------------
INDUSTRIALS--4.5%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.0%
Lockheed Martin Corp. 337,500 18,150,750
- ---------------------------------------------------------------------------------------------------
Raytheon Co. 1,160,000 40,286,800
---------------
58,437,550

21 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

COMMERCIAL SERVICES & SUPPLIES--0.8%
Cendant Corp. 1,005,000 $ 21,738,150
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.7%
General Electric Co. 345,000 11,312,550
- ---------------------------------------------------------------------------------------------------
Tyco International Ltd. 2 1,162,000 36,393,840
---------------
47,706,390

- ---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.5%
- ---------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Hewlett-Packard Co. 50,000 894,500
- ---------------------------------------------------------------------------------------------------
IT SERVICES--0.2%
Unisys Corp. 1 500,000 5,020,000
- ---------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.1%
National Semiconductor Corp. 1 107,500 1,432,975
- ---------------------------------------------------------------------------------------------------
SOFTWARE--0.2%
Compuware Corp. 1 10,000 45,300
- ---------------------------------------------------------------------------------------------------
Microsoft Corp. 225,000 6,142,500
---------------
6,187,800

- ---------------------------------------------------------------------------------------------------
MATERIALS--0.2%
- ---------------------------------------------------------------------------------------------------
CHEMICALS--0.2%
Lyondell Chemical Co. 2 350,000 6,891,500
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.2%
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.2%
SBC Communications, Inc. 125,000 3,223,750
- ---------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 2 100,000 3,925,000
---------------
7,148,750

- ---------------------------------------------------------------------------------------------------
UTILITIES--0.5%
- ---------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.5%
Equitable Resources, Inc. 2 287,500 15,073,625
---------------
Total Common Stocks (Cost $906,547,184) 1,160,809,736

- ---------------------------------------------------------------------------------------------------
PREFERRED STOCKS--8.4%
- ---------------------------------------------------------------------------------------------------
AES Trust III, 6.75% Cv. 100,000 4,370,000
- ---------------------------------------------------------------------------------------------------
Allied Waste Industries, Inc., 6.25% Cv. Sr., Non-Vtg. 75,000 4,342,500
- ---------------------------------------------------------------------------------------------------
Aquila, Inc., 6.75% Cv. 1 350,000 10,325,000
- ---------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 2% Cv. Zero-Premium
Exchangeable Sub. Nts., 9/15/29 (exchangeable for
cash based on value of Time Warner, Inc. common stock) 1,000,000 32,337,000
- ---------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., 2% Cv.
(cv. into Regency Centers Corp. common stock) 225,000 9,187,425

22 | OPPENHEIMER CAPITAL INCOME FUND

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

PREFERRED STOCKS Continued
- ---------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., Series A,
Non-Vtg. 400,000 $ 17,500,000
- ---------------------------------------------------------------------------------------------------
Equity Securities Trust I/Cablevision Systems Corp.,
6.50% Cv., Series CVC (exchangeable into Cablevision NY
Group, Cl. A common stock) 1,000,000 19,020,000
- ---------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., 5.50%. Cv. 5 10,000 9,775,000
- ---------------------------------------------------------------------------------------------------
Genworth Financial, Inc., 6% Cv. 300,000 8,550,000
- ---------------------------------------------------------------------------------------------------
McKesson Financing Trust, 5% Cum. Cv., Non-Vtg. 117,500 5,904,375
- ---------------------------------------------------------------------------------------------------
Prudential Financial, Inc./Prudential Financial Capital
Trust I, 6.75% Cum. Cv. Equity Security Units (each unit
has a stated amount of $50 and consists of a contract
to purchase Prudential Financial, Inc. common stock and
a redeemable capital security of Prudential Financial
Capital Trust 1), Non-Vtg. 4 262,500 18,004,875
- ---------------------------------------------------------------------------------------------------
Sempra Energy, 8.50% Cv. Equity Units (each equity unit
consists of income equity units, each has a stated
value of $25 and consists of a purchase contract to
purchase Sempra Energy common stock and $25 principal
amount of Sempra Energy, 5.60% sr. nts., 5/17/07) 4 675,000 20,823,750
- ---------------------------------------------------------------------------------------------------
Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity
Redeemable Shares, Non-Vtg. 675,000 13,871,250
- ---------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec.
Sub. Nts. 1,250,000 27,750,000
- ---------------------------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly Income
Preferred Securities 575,000 22,640,625
- ---------------------------------------------------------------------------------------------------
UnumProvident Corp., 8.25% Cv. 275,000 9,185,000
- ---------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The), 5.50% Cv. Jr. Unsec. Sub.
Debs. 47,500 3,342,813
- ---------------------------------------------------------------------------------------------------
XL Capital Ltd., 6.50% Cv. 144,000 3,424,320
---------------
Total Preferred Stocks (Cost $234,636,977) 240,353,933

PRINCIPAL
AMOUNT
- ---------------------------------------------------------------------------------------------------

MORTGAGE-BACKED OBLIGATIONS--15.6%
- ---------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg.
Obligations Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 $ 5,180,000 5,349,969
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 2,964,315 2,971,496
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34 3,204,992 3,205,493
- ---------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2003-EF1, Cl. A2, 1.49%, 12/20/05 1,010,096 1,009,948
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 9/1/34 6 31,795,000 31,536,666
5.50%, 1/1/34 1,605,976 1,634,449
7%, 11/1/32-11/1/33 7,865,839 8,384,685
7%, 9/1/34 6 30,913,000 32,845,063
8%, 4/1/16 1,134,153 1,219,092
9%, 8/1/22-5/1/25 330,979 371,360

23 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 $ 875,827 $ 884,707
Series 2055, Cl. ZM, 6.50%, 5/15/28 1,805,075 1,897,968
Series 2075, Cl. D, 6.50%, 8/15/28 4,666,352 4,914,704
Series 2080, Cl. Z, 6.50%, 8/15/28 1,179,550 1,227,891
Series 2102, Cl. VA, 6%, 10/15/09 209,822 209,761
Series 2387, Cl. PD, 6%, 4/15/30 2,738,506 2,819,015
Series 2466, Cl. PD, 6.50%, 4/15/30 1,526,531 1,547,832
Series 2491, Cl. PE, 6%, 12/15/27 79,079 79,055
Series 2498, Cl. PC, 5.50%, 10/15/14 399,353 405,775
Series 2500, Cl. FD, 2.10%, 3/15/32 7 797,807 801,693
Series 2526, Cl. FE, 2%, 6/15/29 7 911,703 917,249
Series 2551, Cl. FD, 2%, 1/15/33 7 748,460 751,625
Series 2551, Cl. TA, 4.50%, 2/15/18 1,521,859 1,523,964
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 1.326%, 6/1/26 8 1,254,081 239,693
Series 183, Cl. IO, 0.313%, 4/1/27 8 2,066,608 378,141
Series 184, Cl. IO, 3.054%, 12/1/26 8 2,031,178 386,187
Series 192, Cl. IO, 7.027%, 2/1/28 8 626,402 115,296
Series 200, Cl. IO, 6.143%, 1/1/29 8 756,111 139,974
Series 2130, Cl. SC, 22.176%, 3/15/29 8 1,462,913 165,221
Series 2796, Cl. SD, 30.994%, 7/15/26 8 2,136,956 235,430
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. PO, 6.662%, 6/1/26 9 596,916 523,465
Series 217, Cl. PO, 7.896%, 1/1/32 9 790,486 685,862
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Structured Pass-Through
Securities, Collateralized Mtg. Obligations, Series T-42,Cl. A2,
5.50%, 2/25/42 3,106 3,107
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 9/1/19 6 14,853,000 14,843,717
5%, 9/1/34 6 7,194,000 7,137,800
5.50%, 7/1/33-4/1/34 22,630,754 23,062,844
5.50%, 9/1/19-9/1/34 6 88,322,000 90,502,761
6%, 10/1/34 6 12,191,000 12,583,404
6.50%, 10/1/30 726,473 766,481
6.50%, 9/30/34 6 37,445,000 39,317,250
7%, 7/1/32-7/1/34 16,345,628 17,413,170
7%, 7/1/34-10/1/34 6 81,123,782 86,141,172
8.50%, 7/1/32 198,267 215,194

24 | OPPENHEIMER CAPITAL INCOME FUND

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

MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 $ 3,505,695 $ 3,721,226
Trust 1998-63, Cl. PG, 6%, 3/25/27 777,117 783,656
Trust 2001-50, Cl. NE, 6%, 8/25/30 1,614,289 1,635,211
Trust 2001-70, Cl. LR, 6%, 9/25/30 1,355,422 1,396,200
Trust 2001-72, Cl. NH, 6%, 4/25/30 1,162,434 1,192,843
Trust 2001-74, Cl. PD, 6%, 5/25/30 495,427 506,880
Trust 2002-50, Cl. PD, 6%, 9/25/27 1,500,000 1,514,303
Trust 2002-77, Cl. WF, 2%, 12/18/32 7 1,238,789 1,242,697
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 2,234,089 2,246,729
Trust 2003-81, Cl. PA, 5%, 2/25/12 789,633 797,578
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, Interest-Only Stripped
Mtg.-Backed Security:
Trust 2002-47, Cl. NS, 24.788%, 4/25/32 8 2,843,613 317,459
Trust 2002-51, Cl. S, 15.812%, 8/25/32 8 2,610,827 291,471
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Trust 222, Cl. 2, (2.418)%, 6/1/23 8 4,041,418 807,832
Trust 240, Cl. 2, 0.535%, 9/1/23 8 6,029,581 1,240,876
Trust 252, Cl. 2, (0.233)%, 11/1/23 8 3,136,102 680,121
Trust 254, Cl. 2, 2.433%, 1/1/24 8 1,521,696 324,994
Trust 273, Cl. 2, 1.012%, 7/1/26 8 895,307 186,786
Trust 308, Cl. 2, 8.114%, 9/1/30 8 4,183,727 796,733
Trust 321, Cl. 2, (5.909)%, 3/1/32 8 8,544,068 1,689,136
Trust 2001-81, Cl. S, 27.645%, 1/25/32 8 1,515,695 160,788
Trust 2002-9, Cl. MS, 26.164%, 3/25/32 8 1,786,432 202,586
Trust 2002-52, Cl. SD, 17.754%, 9/25/32 8 3,355,017 334,930
Trust 2004-54, Cl. DS, 28.86%, 11/25/30 8 3,176,743 303,378
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped
Mtg.-Backed Security, Trust 1993-184, Cl. M, 9.626%, 9/25/23 9 1,324,218 1,140,859
- ---------------------------------------------------------------------------------------------------
First Union/Lehman Brothers/Bank of America, Commercial Mtg.
Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%,
11/18/35 1,730,000 1,894,540
- ---------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg.
Obligations, Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,752,676
- ---------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 1,460,954 1,582,308
- ---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 396,598 437,515
- ---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 24.981%, 1/16/27 8 2,814,771 283,073
Series 2002-15, Cl. SM, 19.37%, 2/16/32 8 2,627,967 253,353
Series 2002-76, Cl. SY, 17.107%, 12/16/26 8 6,341,267 647,488
Series 2004-11, Cl. SM, 22.781%, 1/17/30 8 2,571,118 253,583
- ---------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through
Certificates, Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 1,080,000 1,111,582

25 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 $ 1,950,000 $ 2,148,099
- ---------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg.
Pass-Through Certificates, Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15 5 2,380,000 2,766,979
- ---------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Obligations,
Series 2004-B, Cl. A2, 2.40%, 1/20/06 6 1,940,000 1,940,188
- ---------------------------------------------------------------------------------------------------
Wells Fargo Mortgage Backed Securities Trust, Collateralized
Mtg. Obligations, Series 2004-N, Cl. A10, 3.803%, 8/25/34 10 5,342,315 5,362,349
---------------
Total Mortgage-Backed Obligations (Cost $441,907,112) 445,314,634

- ---------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.4%
- ---------------------------------------------------------------------------------------------------
Bank One Auto Securitization Trust, Automobile Receivable
Certificates, Series 2003-1, Cl. A2, 1.29%, 8/21/06 1,999,760 1,996,255
- ---------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates:
Series 2003-A, Cl. A2, 1.45%, 11/25/05 96,022 96,065
Series 2004-A, Cl. A2, 1.88%, 10/25/06 3,730,000 3,725,271
- ---------------------------------------------------------------------------------------------------
Caterpillar Financial Asset Trust, Equipment Loan Pass-Through
Certificates, Series 2003-A, Cl. A2, 1.25%, 10/25/05 182,583 182,632
- ---------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed
Certificates:
Series 2003-B, Cl. AF1, 1.64%, 2/25/18 140,325 140,215
Series 2003-C, Cl. AF1, 2.14%, 7/25/18 1,409,246 1,408,010
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 1,318,917 1,316,684
- ---------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home
Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%, 4/25/23 948,827 952,245
Series 2003-1, Cl. 1A3, 3.14%, 7/25/23 2,060,000 2,064,413
Series 2003-3, Cl. 1A1, 1.695%, 8/25/17 7 424,612 424,833
Series 2003-4, Cl. 1A1, 1.735%, 9/25/17 7 1,558,348 1,559,292
Series 2004-1, Cl. 2A1, 1.725%, 9/25/21 7 4,724,001 4,726,585
- ---------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 850,000 862,134
Series 2003-A, Cl. A2, 1.26%, 1/16/06 419,125 419,114
Series 2003-B, Cl. A2, 1.28%, 3/15/06 870,527 870,011
- ---------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable
Nts., Series 2002-A3, Cl. A3, 4.40%, 5/15/07 2,230,000 2,266,448
- ---------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity
Collateralized Mtg. Obligations:
Series 2003-2, Cl. AF1, 1.715%, 5/25/33 7 558,930 559,249
Series 2003-3, Cl. AF1, 1.735%, 8/25/33 7 1,121,839 1,122,552
- ---------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through
Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05 2,977,216 2,977,328
Series 2003-B, Cl. A2, 1.61%, 7/10/06 5,730,000 5,726,736
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2,700,000 2,700,000

26 | OPPENHEIMER CAPITAL INCOME FUND

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

ASSET-BACKED SECURITIES Continued
- ---------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through
Certificates, Series 2004-A, Cl. A2, 2.13%, 10/15/06 $ 5,000,000 $ 5,000,278
- ---------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/15/07 496,634 496,987
Series 2003-3, Cl. A1, 1.50%, 1/15/08 2,687,268 2,682,228
- ---------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable
Obligations:
Series 2003-2, Cl. A2, 1.34%, 12/21/05 1,271,427 1,271,364
Series 2003-3, Cl. A2, 1.52%, 4/21/06 3,981,303 3,978,553
Series 2003-4, Cl. A2, 1.58%, 7/17/06 4,275,272 4,271,309
- ---------------------------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%, 12/18/06 2,090,625 2,088,584
- ---------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 1,903,169 1,908,237
Series 2003-1, Cl. A2, 1.60%, 7/20/06 3,766,214 3,764,119
- ---------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable
Obligations,
Series 2004-A, Cl. A2, 1.50%, 2/15/07 2,210,000 2,204,353
- ---------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations,
Series 2003-A, Cl. A2, 1.69%, 12/15/05 2,118,139 2,119,164
- ---------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06 850,000 858,851
Series 2003-B, Cl. A2, 1.20%, 11/15/05 1,272,569 1,272,896
Series 2004-A, Cl. A2, 1.40%, 7/17/06 2,560,000 2,552,024
- ---------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed
Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 538,123 540,842
Series 2003-A, Cl. A2, 1.28%, 8/15/05 103,820 103,864
Series 2003-B, Cl. A2, 1.43%, 2/15/06 2,442,128 2,439,890
- ---------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 939,634 941,690
Series 2003-1, Cl. A2, 1.22%, 4/17/06 893,281 893,223
Series 2004-1, Cl. A2, 1.43%, 9/15/06 6,130,000 6,113,042
Series 2004-2, Cl. A2, 2.38%, 2/15/07 2,730,000 2,735,336
- ---------------------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust, Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2, 1.11%, 12/20/05 885,993 885,441
Series 2003-2, Cl. A2, 1.55%, 6/20/06 2,427,924 2,425,991
- ---------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Home Equity Loan Pass-Through
Certificates, Series 2004-2, Cl. AI1B, 3.35%, 9/26/34 6 4,340,000 4,340,000
- ---------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 3,698,524 3,695,157
---------------
Total Asset-Backed Securities (Cost $95,774,152) 95,679,495

27 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

U.S. GOVERNMENT OBLIGATIONS--4.2%
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
2.75%, 8/15/06 $ 6,000,000 $ 6,023,574
4.50%, 1/15/13 2,740,000 2,757,931
4.875%, 3/15/07-11/15/13 7,835,000 8,178,630
5.50%, 7/15/06 23,560,000 24,844,208
5.75%, 1/15/12 2,300,000 2,517,079
6.25%, 7/15/32 550,000 614,783
6.625%, 9/15/09 13,470,000 15,249,266
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.25%, 8/15/08 1,800,000 1,792,152
4.25%, 7/15/07 13,900,000 14,395,549
6%, 5/15/11 4,820,000 5,337,099
7.25%, 5/15/30 2,315,000 2,896,787
- ---------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%, 11/13/08 908,000 973,759
7.125%, 5/1/30 989,000 1,214,947
Series C, 4.75%, 8/1/13 860,000 871,760
Series C, 6%, 3/15/13 825,000 911,196
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%, 2/15/31 11 6,400,000 6,816,006
5.50%, 8/15/28 2,775,000 2,962,204
6.125%, 11/15/27 11 4,639,000 5,350,437
STRIPS, 2.99%, 2/15/10 12 2,075,000 1,707,974
STRIPS, 3.37%, 2/15/11 11,12 4,403,000 3,448,742
STRIPS, 3.84%, 2/15/13 11,12 5,158,000 3,620,488
STRIPS, 4.96%, 2/15/16 12 1,157,000 682,581
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.25%, 11/15/13-8/15/14 3,080,000 3,117,960
6.50%, 2/15/10 11 3,300,000 3,798,739
---------------
Total U.S. Government Obligations (Cost $119,264,103) 120,083,851

- ---------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.0%
- ---------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $1,240,122) 1,205,000 1,365,265

- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.8%
- ---------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 15 3,060,000 3,266,042
- ---------------------------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,825,000
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,756,250
8.875% Sr. Nts., Series B, 4/1/08 1,230,000 1,356,075
- ---------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 5 625,000 638,093
- ---------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts., 7/30/07 850,000 857,392
- ---------------------------------------------------------------------------------------------------
American Express Centurion Bank, 4.375% Nts., 7/30/09 1,140,000 1,167,452
- ---------------------------------------------------------------------------------------------------
American Honda Finance Corp., 3.85% Nts., 11/6/08 5 725,000 730,184

28 | OPPENHEIMER CAPITAL INCOME FUND

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

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec. Nts., 5/1/07 15 $ 2,170,000 $ 2,403,095
- ---------------------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30 1,810,000 2,332,900
- ---------------------------------------------------------------------------------------------------
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13 40,000 40,460
- ---------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,687,500
- ---------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 250,000 282,498
- ---------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
8.375% Sr. Nts., 4/15/12 800,000 874,000
8.625% Sr. Unsec. Nts., 5/15/11 1,285,000 1,400,650
- ---------------------------------------------------------------------------------------------------
Boeing Capital Corp., 5.65% Sr. Unsec. Nts., 5/15/06 234,000 245,533
- ---------------------------------------------------------------------------------------------------
British Telecommunications plc:
7.875% Nts., 12/15/05 1,940,000 2,068,989
8.125% Nts., 12/15/10 1,420,000 1,712,840
- ---------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC, 8.50% Sr. Unsec. Nts., 5/1/08 5,000,000 3,212,500
- ---------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09 433,000 439,663
- ---------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08 1,710,000 1,796,550
8.125% Unsec. Nts., Series B, 7/15/05 475,000 497,402
- ---------------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/
Charter Communications Holdings Capital Corp.:
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 13 4,250,000 3,123,750
8.625% Sr. Unsec. Nts., 4/1/09 40,000,000 32,000,000
9.92% Sr. Unsec. Disc. Nts., 4/1/11 50,000,000 39,750,000
- ---------------------------------------------------------------------------------------------------
Chesapeake Energy Corp.:
6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,699,018
7.50% Sr. Nts., 6/15/14 1,660,000 1,780,350
- ---------------------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts., 5/15/07 3,613,000 3,974,950
- ---------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,150,000 1,358,980
- ---------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 462,000 501,270
- ---------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 4.625% Sr. Unsec. Nts.,
1/15/08 3,240,000 3,304,894
- ---------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06 1,585,000 1,676,266
- ---------------------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts., Series B, 6/1/05 372,000 378,619
- ---------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 8% Sr. Nts., 12/15/05 3,000,000 2,760,000
- ---------------------------------------------------------------------------------------------------
Cox Communications, Inc., 6.40% Sr. Unsec. Nts., 8/1/08 2,185,000 2,295,812
- ---------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 3,030,000
- ---------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 1,460,000 1,586,068
- ---------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 9.375% Sr. Unsec. Sub. Nts., 3/15/11 1,185,000 1,336,088
- ---------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 4.75% Unsec. Nts.,
1/15/08 2,295,000 2,368,936
- ---------------------------------------------------------------------------------------------------
Delphi Automotive Systems Corp., 6.50% Nts., 5/1/09 1,235,000 1,318,206
- ---------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts.,
6/15/10 1,790,000 2,149,727
- ---------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 1,300,000 1,542,505

29 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 $ 1,430,000 $ 1,510,152
- ---------------------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts., 8/15/14 1,630,000 1,652,892
- ---------------------------------------------------------------------------------------------------
Edison International, Inc., 6.875% Unsec. Nts., 9/15/04 10 788,000 789,773
- ---------------------------------------------------------------------------------------------------
EOP Operating LP, 6.763% Sr. Unsec. Nts., 6/15/07 275,000 298,239
- ---------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 2,150,000 2,363,519
- ---------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 3,360,000 3,317,469
- ---------------------------------------------------------------------------------------------------
FirstEnergy Corp., 5.50% Sr. Unsub. Nts., Series A, 11/15/06 3,135,000 3,279,627
- ---------------------------------------------------------------------------------------------------
Food Lion, Inc., 7.55% Nts., 4/15/07 2,010,000 2,188,918
- ---------------------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec. Unsub. Debs., 3/1/30 1,140,000 1,307,737
- ---------------------------------------------------------------------------------------------------
Ford Motor Co., 8.90% Unsec. Unsub. Debs., 1/15/32 1,045,000 1,179,884
- ---------------------------------------------------------------------------------------------------
France Telecom SA:
8.75% Sr. Unsec. Nts., 3/1/11 1,005,000 1,200,167
9.50% Sr. Unsec. Nts., 3/1/31 7 755,000 996,765
- ---------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 1,025,000 1,029,758
- ---------------------------------------------------------------------------------------------------
Gap, Inc. (The), 6.90% Nts., 9/15/07 10 1,255,000 1,364,813
- ---------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 2,505,000 2,538,915
- ---------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Unsec. Unsub. Nts.,
8/28/12 3,730,000 3,873,941
- ---------------------------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs., 7/15/33 715,000 762,238
- ---------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375% Nts.,
6/1/06 845,000 837,709
- ---------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 3,820,000 3,947,156
- ---------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.95% Sr. Nts., 4/15/07 1,165,000 1,290,238
- ---------------------------------------------------------------------------------------------------
Hutchison Whampoa International Ltd., 7.45% Sr. Bonds, 11/24/33 5 1,200,000 1,255,228
- ---------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 7 1,410,000 1,572,150
- ---------------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,110,000
- ---------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B, 1/15/09 1,390,000 1,395,681
8.75% Sr. Unsec. Nts., 8/15/08 1,020,000 1,171,735
- ---------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., 7.60% Nts., 4/1/07 3,010,000 3,295,950
- ---------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10 5 1,137,000 1,346,081
- ---------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,792,000
- ---------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 1,450,000 1,581,416
- ---------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 4,606,000 4,698,120
- ---------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 3,720,000 3,913,176
- ---------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 2,230,000 2,503,543
- ---------------------------------------------------------------------------------------------------
Lear Corp.:
7.96% Sr. Unsec. Nts., Series B, 5/15/05 1,805,000 1,870,449
8.11% Sr. Unsec. Nts., Series B, 5/15/09 1,064,000 1,235,978

30 | OPPENHEIMER CAPITAL INCOME FUND

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

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 $ 1,990,000 $ 2,207,222
- ---------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 325,000 357,315
- ---------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 1,505,000 1,585,829
- ---------------------------------------------------------------------------------------------------
Level 3 Communications, Inc.:
10.50% Sr. Disc. Nts., 12/1/08 7,000,000 5,162,500
11% Sr. Unsec. Nts., 3/15/08 5,000,000 3,850,000
- ---------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts., 9/25/06 1,420,000 1,421,098
- ---------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 1,600,000 1,617,789
- ---------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 32,500,000 25,675,000
- ---------------------------------------------------------------------------------------------------
May Department Stores Co. (The), 3.95% Nts., 7/15/07 5 215,000 217,608
- ---------------------------------------------------------------------------------------------------
MBNA America Bank NA, 5.375% Nts., 1/15/08 2,475,000 2,603,220
- ---------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875% Unsec. Unsub. Nts., 11/1/06 416,000 449,053
- ---------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125% Nts., Series C, 1/15/09 3,210,000 3,249,717
- ---------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 2,300,000 2,416,548
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 1,370,000 1,532,267
- ---------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 234,224
- ---------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 1,090,000 1,173,660
- ---------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375% Sr. Unsec. Nts., 10/1/04 915,000 917,572
- ---------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 440,000 440,061
7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 2,138,169
- ---------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 2,080,000 2,394,540
- ---------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 920,000 1,124,700
- ---------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B,
6/1/13 5 1,130,000 1,111,508
- ---------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 5 2,235,000 2,832,051
- ---------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 5 2,330,000 2,939,628
- ---------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 1,390,000 1,483,825
- ---------------------------------------------------------------------------------------------------
Rite Aid Corp.:
6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 4,625,000
7.125% Sr. Unsub. Nts., 1/15/07 7,500,000 7,687,500
- ---------------------------------------------------------------------------------------------------
Safeway, Inc.:
2.50% Nts., 11/1/05 1,210,000 1,208,268
3.80% Sr. Unsec. Nts., 8/15/05 100,000 101,143
4.80% Sr. Unsec. Nts., 7/16/07 1,430,000 1,477,891
- ---------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,037,500
- ---------------------------------------------------------------------------------------------------
Spieker Properties LP, 6.75% Unsec. Unsub. Nts., 1/15/08 2,230,000 2,461,916
- ---------------------------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts., 1/30/06 1,790,000 1,897,905
8.75% Nts., 3/15/32 1,150,000 1,460,310

31 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 $ 1,655,000 $ 1,682,549
7.75% Unsec. Sub. Nts., 5/1/10 149,000 175,333
- ---------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 2,995,000 3,850,489
- ---------------------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts., 12/1/07 1,280,000 1,484,800
- ---------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 1,345,000 1,356,022
- ---------------------------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 1,125,000
- ---------------------------------------------------------------------------------------------------
Texas Utilities Co., 6.375% Sr. Unsec. Nts., Series C, 1/1/08 1,317,000 1,421,451
- ---------------------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs., 1/15/13 1,130,000 1,417,974
- ---------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12 651,000 852,847
- ---------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 1,285,000 1,419,925
- ---------------------------------------------------------------------------------------------------
Tyco International Group SA:
5.875% Unsec. Unsub. Nts., 11/1/04 283,000 284,735
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 2,380,000 2,501,635
6.75% Sr. Unsub. Nts., 2/15/11 870,000 973,517
- ---------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 430,000 426,618
3.50% Sr. Unsec. Nts., 10/15/07 2,245,000 2,235,369
- ---------------------------------------------------------------------------------------------------
Volkswagen Credit, Inc., 1.88% Nts., 7/21/05 5,7 3,245,000 3,244,818
- ---------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 3,080,000 3,248,642
- ---------------------------------------------------------------------------------------------------
Walt Disney Co. (The), 5.375% Sr. Unsec. Nts., 6/1/07 1,265,000 1,329,542
- ---------------------------------------------------------------------------------------------------
Waste Management, Inc., 7% Sr. Nts., 7/15/28 1,050,000 1,151,736
- ---------------------------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts., 3/15/05 631,000 641,744
- ---------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 3,145,000 3,420,480
---------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$321,159,862) 337,335,687

- ---------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--17.3%
- ---------------------------------------------------------------------------------------------------
Allied Waste Industries, Inc., 4.25% Cv. Sr. Unsec. Sub. Debs.,
4/15/34 1,000,000 926,250
- ---------------------------------------------------------------------------------------------------
Brinker International, Inc., 2.43% Cv. Sr. Unsec. Debs.,
10/10/21 12 5,000,000 3,231,250
- ---------------------------------------------------------------------------------------------------
Calpine Corp., 4.75% Cv. Sr. Unsec. Nts., 11/15/23 5 12,500,000 9,515,625
- ---------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 4.50% Cv. Sr. Unsec. Unsub. Nts.,
2/1/07 4,750,000 3,336,875
- ---------------------------------------------------------------------------------------------------
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs., 2/2/07 15,000,000 14,512,500
- ---------------------------------------------------------------------------------------------------
Delta Air Lines, Inc., 2.875% Cv. Sr. Bonds, 2/18/24 5 7,500,000 2,896,875
- ---------------------------------------------------------------------------------------------------
El Paso Corp., 5.48% Cv. Debs., 2/28/21 12 117,500,000 58,309,375
- ---------------------------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc., 4.50% Cv. Unsec. Sub. Nts., 7/1/08 20,750,000 19,349,375
- ---------------------------------------------------------------------------------------------------
Gap, Inc. (The), 5.75% Cv. Unsec. Nts., 3/15/09 4,000,000 4,980,000
- ---------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 6% Cv. Unsec. Sub. Nts., 3/15/10 7,500,000 3,843,750

32 | OPPENHEIMER CAPITAL INCOME FUND

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

CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 $ 7,500,000 $ 8,278,125
3.25% Exchangeable Sr. Sec. Debs., 3/15/31 (exchangeable for
Viacom, Inc., Cl. B common stock) 5 7,500,000 6,665,625
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for
Viacom, Inc., Cl. B common stock or cash based on the value
thereof) 118,500,000 105,316,875
3.75% Exchangeable Sr. Unsec. Debs., 2/15/30 (exchangeable for
Sprint Corp. PCS, Series 1 common stock or cash based on the
value of that stock) 6,000,000 3,997,500
4% Exchangeable Sr. Unsec. Debs., 11/15/29 (exchangeable for
Sprint Corp. PCS, Series 1 common stock or cash based on the
value of that stock) 46,500,000 33,189,375
- ---------------------------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Sub. Nts., 5/15/10 10,750,000 9,903,438
- ---------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10 15,000,000 15,018,744
- ---------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 15,000,000 14,531,250
- ---------------------------------------------------------------------------------------------------
Pride International, Inc., 2.50% Cv. Sr. Unsec. Nts., 3/1/07 8,000,000 9,650,000
- ---------------------------------------------------------------------------------------------------
Providian Financial Corp., 6.09% Cv. Sr. Unsec. Unsub. Nts.,
2/15/21 12 57,500,000 29,540,625
- ---------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 5.60% Cv. Sr. Unsec. Unsub. Liquid
Yield Option Nts., 2/2/21 12 20,000,000 10,525,000
- ---------------------------------------------------------------------------------------------------
Time Warner, Inc., 4.16% Cv. Nts., 12/6/19 12 25,000,000 16,000,000
- ---------------------------------------------------------------------------------------------------
Tyco International Group SA:
2.75% Cv. Sr. Unsec. Unsub. Debs., Series A, 1/15/18 5 36,000,000 51,930,000
2.75% Cv. Sr. Unsec. Unsub. Debs., Series A, 1/15/18 38,750,000 55,896,875
---------------
Total Convertible Corporate Bonds and Notes (Cost $449,776,752) 491,345,307

- ---------------------------------------------------------------------------------------------------
STRUCTURED NOTES--4.2%
- ---------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., EchoStar Communications
Corp. Cv. Equity Linked Nts., 6%, 4/29/05 287,026 9,109,287
- ---------------------------------------------------------------------------------------------------
Core Investment Grade Bond Trust I, Pass-Through Certificates,
Series 2002-1, 4.727%, 11/30/07 1,400,000 1,461,201
- ---------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch) Equity Linked
Nts., 6%, 12/23/04 (redemption linked to Comcast Corp., Cl. A
Special common stock) 1,060,200 29,950,650
- ---------------------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit Linked Nts., Series
2003-1, 3.318%, 1/7/05 10,7 7,150,000 7,118,540
- ---------------------------------------------------------------------------------------------------
Dow Jones CDX High Yield Index, Pass-Through Certificates, Series
3-1, 7.75%, 12/29/09 5,14 13,600,000 13,668,000
- ---------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), MedImmune, Inc. Cv. Medium Term
Linked Nts., 4.875%, 2/4/05 475,000 11,115,000
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Cv. Yield Enhanced Equity Linked Debt Securities, 2.50%, 11/7/04
(linked to Liberty Media Corp.) 1,001,002 10,720,731
Cv. Yield Enhanced Equity Linked Debt Securities, 6%, 12/23/04
(linked to EchoStar Communications Corp., Cl. A common stock) 326,297 10,085,840

33 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

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

STRUCTURED NOTES Continued
- ---------------------------------------------------------------------------------------------------
Morgan Stanley:
Cv. Performance Equity Linked Redemption Quarterly-pay
Securities, 5.50%, 11/26/04 (linked to Echostar Communications
Corp.) 5 $ 306,505 $ 9,541,501
Cv. Performance Equity Linked Redemption Quarterly-pay
Securities, 5.75%, 11/15/04 (linked to Echostar Communications
Corp.) 5 263,395 8,262,701
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, AT&T Wireless Services, Inc. Equity Linked Nts.,
1/21/05 10 550,000 1,265,000
- ---------------------------------------------------------------------------------------------------
UBS AG, High Grade Credit Linked Nts., 3.11%, 12/10/04 10 7,150,000 7,194,330
---------------
Total Structured Notes (Cost $122,102,355) 119,492,781

DATE STRIKE CONTRACTS
- ---------------------------------------------------------------------------------------------------

OPTIONS PURCHASED--0.1%
- ---------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc. Call 1
(Cost $1,401,890) 1/24/05 $ 12.50 6,500 1,527,500

PRINCIPAL
AMOUNT
- ----------------------------------------------------------------------------------------------------

JOINT REPURCHASE AGREEMENTS--5.7%
- ----------------------------------------------------------------------------------------------------
Undivided interest of 23.22% in joint repurchase agreement
(Principal Amount/Value $695,366,000, with a maturity value of
$695,396,133) with UBS Warburg LLC, 1.56%, dated 8/31/04, to be
repurchased at $161,486,997 on 9/1/04, collateralized by Federal
National Mortgage Assn., 5%, 3/1/34, with a value of $710,873,503
(Cost $161,480,000) $ 161,480,000 161,480,000
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,855,290,509) 111.5% 3,174,788,189
- ----------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (11.5) (328,204,281)
--------------------------------
NET ASSETS 100.0% $ 2,846,583,908
================================

34 | OPPENHEIMER CAPITAL INCOME FUND

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

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

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

Altria Group, Inc. 10,500 1/24/05 $ 70.00 $ 740,540 $ --
Bank of America Corp. 900 9/20/04 42.50 104,398 220,500
EchoStar Communications Corp., Cl.A 250 9/20/04 35.00 5,625 --
Equitable Resources, Inc. 2,000 9/20/04 50.00 331,586 460,000
Freddie Mac 280 9/20/04 65.00 70,558 58,800
Lyondell Chemical Co. 3,500 12/20/04 17.50 708,488 980,000
Tyco International Ltd. 750 10/18/04 27.50 335,234 300,000
Tyco International Ltd. 10,870 10/18/04 30.00 3,306,477 2,010,950
Verizon Communications, Inc. 1,000 9/20/04 40.00 46,499 20,000
Washington Mutual, Inc. 375 9/20/04 40.00 10,874 7,500
-------------------------
$ 5,660,279 $ 4,057,750
=========================

3. 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, 2004.
The aggregate fair value of securities of affiliated companies held by the Fund
as of August 31, 2004 amounts to $104,409,500. Transactions during the period in
which the issuer was an affiliate are as follows:

SHARES/ SHARES/
PRINCIPAL GROSS GROSS PRINCIPAL
AUG. 31, 2003 ADDITIONS REDUCTIONS AUG. 31, 2004
- ---------------------------------------------------------------------------------------------------------

STOCKS AND/OR WARRANTS
CSK Auto Corp. 6,270,000 294,250 64,250 6,500,000
Enbridge Energy Management LLC 534,518 115,482* -- 650,000

BONDS AND NOTES
CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06** $ 10,000,000 $ -- $ 10,000,000 $ --

DIVIDEND/
UNREALIZED INTEREST REALIZED
APPRECIATION INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------

STOCKS AND/OR WARRANTS
CSK Auto Corp. $ 12,235,873 $ -- $ (651,359)
Enbridge Energy Management LLC 5,355,348 1,533,800 --
-----------------------------------------
17,591,221 1,533,800 (651,359)
-----------------------------------------

BONDS AND NOTES
CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06** -- 800,000 1,354,634
-----------------------------------------
$ 17,591,221 $ 2,333,800 $ 703,275
=========================================

* A portion of the transactions (10,641) was the result of a stock dividend.

** No longer an affiliate as August 31, 2004.

35 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

4. 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.

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 $129,337,505 or 4.54% of the Fund's net
assets as of August 31, 2004.

6. When-issued security or forward commitment to be delivered and settled after
August 31, 2004. See Note 1 of Notes to Financial Statements.

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

8. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $10,434,529 or 0.37% of the Fund's net assets
as of August 31, 2004.

9. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $2,350,186 or 0.08% of the Fund's net assets as of
August 31, 2004.

10. Illiquid security. See Note 9 of Notes to Financial Statements.

36 | OPPENHEIMER CAPITAL INCOME FUND

11. A sufficient amount of securities has been designated to cover outstanding
written put options, as follows:

CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------

AT&T Corp. 300 10/18/04 $ 15.00 $ 32,099 $ 25,500
AT&T Wireless Services, Inc. 3,500 1/24/05 12.50 223,989 52,500
Altria Group, Inc. 1,250 9/20/04 47.50 227,495 50,000
Altria Group, Inc. 1,250 9/20/04 55.00 939,956 837,500
Amerada Hess Corp. 2,000 11/22/04 75.00 662,184 380,000
Amgen, Inc. 2,000 1/24/05 47.50 308,985 100,000
BP plc, ADR 2,000 1/24/05 55.00 793,981 620,000
Cablevision Systems New York Group, Cl. A 2,450 9/20/04 22.50 534,032 931,000
CarMax, Inc. 2,121 1/24/05 30.00 1,571,813 2,184,630
CarMax, Inc. 850 10/18/04 30.00 677,434 858,500
Cendant Corp. 250 9/20/04 22.50 21,624 21,250
Citigroup, Inc. 1,750 12/20/04 47.50 825,981 402,500
Citigroup, Inc. 1,116 9/20/04 50.00 643,902 357,120
Clear Channel Communications, Inc. 2,500 10/18/04 40.00 904,957 1,600,000
Comcast Corp., Cl. A Special, Non-Vtg. 1,250 10/18/04 30.00 371,232 293,750
Comcast Corp., Cl. A Special, Non-Vtg. 8,750 10/18/04 27.50 1,109,740 568,750
ConocoPhillips 1,000 11/22/04 75.00 376,991 320,000
ConocoPhillips 1,000 9/20/04 75.00 237,144 220,000
Exxon Mobil Corp. 2,000 9/20/04 45.00 110,996 40,000
GlobalSantaFe Corp. 500 10/18/04 27.50 173,492 52,500
Hewlett-Packard Co. 300 11/22/04 20.00 62,849 76,500
Hewlett-Packard Co. 7,280 11/22/04 22.50 2,157,122 3,348,800
International Business Machines Corp. 3,000 10/18/04 90.00 1,366,936 1,770,000
Kinder Morgan, Inc. 4,000 9/20/04 60.00 648,535 120,000
Kroger Co. (The) 2,499 1/24/05 17.50 480,296 349,860
Microsoft Corp. 2,250 9/20/04 27.50 214,870 135,000
NTL, Inc. 1,000 12/20/04 60.00 1,166,973 790,000
Pfizer, Inc. 500 12/20/04 32.50 123,497 65,000
Pfizer, Inc. 1,000 12/20/04 35.00 346,992 300,000
Prudential Financial, Inc. 1,000 9/20/04 45.00 286,986 30,000
SBC Communications, Inc. 3,500 9/20/04 25.00 134,622 35,000
SouthTrust Corp. 1,000 9/20/04 40.00 149,193 5,000
Tyco International Ltd. 2,050 9/20/04 30.00 209,095 41,000
UnitedGlobalCom, Inc., Cl. 5,000 2/21/05 7.50 784,981 550,000
Washington Mutual, Inc. 500 9/20/04 40.00 103,498 65,000
Wyeth 4,000 10/18/04 40.00 1,822,913 1,320,000
---------------------------
$ 20,807,385 $ 18,916,660
===========================

12. Zero coupon bond reflects effective yield on the date of purchase.

13. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

14. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

15. All or a portion of the Security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $2,493,795. See Note 6 of Notes to Financial Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

37 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES August 31, 2004
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,768,472,230) $ 3,070,378,689
Affiliated companies (cost $86,818,279) 104,409,500
---------------
3,174,788,189
- ------------------------------------------------------------------------------------------------
Cash 681,433
- ------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 408,026
- ------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $53,875,813 sold on a when-issued basis
or forward commitment) 56,424,433
Interest, dividends and principal paydowns 16,348,641
Futures margins 115,910
Other 74,799
---------------
Total assets 3,248,841,431

- ------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------
Options written, at value (premiums received $26,467,664)
- --see accompanying statement of investments 22,974,410
- ------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $372,415,248 purchased on a when-issued basis
or forward commitment) 373,459,855
Shares of beneficial interest redeemed 4,005,054
Distribution and service plan fees 1,146,914
Transfer and shareholder servicing agent fees 299,637
Shareholder communications 272,458
Trustees' compensation 30,582
Other 68,613
---------------
Total liabilities 402,257,523

- ------------------------------------------------------------------------------------------------
NET ASSETS $ 2,846,583,908
===============

- ------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 240,807
- ------------------------------------------------------------------------------------------------
Additional paid-in capital 2,437,599,367
- ------------------------------------------------------------------------------------------------
Accumulated net investment income 28,994,342
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 56,226,468
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 323,522,924
---------------
NET ASSETS $ 2,846,583,908
===============

38 | OPPENHEIMER CAPITAL INCOME FUND

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

NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $2,379,955,580
and 200,962,371 shares of beneficial interest outstanding) $ 11.84
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 12.56
- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $316,568,243 and 27,019,525 shares
of beneficial interest outstanding) $ 11.72
- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $133,368,241 and 11,407,341 shares
of beneficial interest outstanding) $ 11.69
- ---------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $16,691,844 and 1,417,564 shares
of beneficial interest outstanding) $ 11.78

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

39 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENT OF OPERATIONS For the Year Ended August 31, 2004
- --------------------------------------------------------------------------------

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

INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest:
Unaffiliated companies $ 82,260,031
Affiliated companies 800,000
- --------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $59,967) 50,185,572
Affiliated companies 1,533,800
---------------
Total investment income 134,779,403

- --------------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------------
Management fees 14,972,144
- --------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 5,533,158
Class B 3,500,192
Class C 1,223,748
Class N 66,400
- --------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,653,385
Class B 671,653
Class C 197,309
Class N 29,265
- --------------------------------------------------------------------------------------
Shareholder communications:
Class A 239,762
Class B 120,971
Class C 22,507
Class N 2,458
- --------------------------------------------------------------------------------------
Trustees' compensation 55,325
- --------------------------------------------------------------------------------------
Custodian fees and expenses 52,702
- --------------------------------------------------------------------------------------
Other 187,379
---------------
Total expenses 29,528,358
Less reduction to custodian expenses (16,073)
Less payments and waivers of expenses (54,141)
---------------
Net expenses 29,458,144

- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 105,321,259

40 | OPPENHEIMER CAPITAL INCOME FUND

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

REALIZED AND UNREALIZED GAIN (LOSS)
- ------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 173,853,028
Affiliated companies 703,275
Closing of futures contracts 716,782
Closing and expiration of option contracts written 7,554,802
Foreign currency transactions (517)
Swap contracts 507,498
Net increase from payments by affiliates 198,354
--------------
Net realized gain 183,533,222
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (26,243,435)
Futures contracts 580,977
Option contracts (1,135,146)
Swap contracts 337,954
--------------
Net change in unrealized appreciation (26,459,650)

- ------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 262,394,831
==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

41 | OPPENHEIMER CAPITAL INCOME FUND

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED AUGUST 31, 2004 2003
- -----------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $ 105,321,259 $ 120,703,591
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) 183,533,222 (27,505,993)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (26,459,650) 327,739,226
----------------------------------
Net increase in net assets resulting from operations 262,394,831 420,936,824

- -----------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (102,927,701) (81,815,372)
Class B (12,688,798) (11,054,004)
Class C (4,369,847) (2,657,642)
Class N (513,100) (214,705)

- -----------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A 132,826,225 (14,008,667)
Class B (46,403,963) (26,837,289)
Class C 34,609,632 10,405,145
Class N 7,276,288 3,937,349

- -----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Total increase 270,203,567 298,691,639
- -----------------------------------------------------------------------------------------------
Beginning of period 2,576,380,341 2,277,688,702
----------------------------------
End of period (including accumulated net investment income
of $28,994,342 and $43,094,417, respectively) $ 2,846,583,908 $ 2,576,380,341
==================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

42 | OPPENHEIMER CAPITAL INCOME FUND

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

CLASS A YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

43 | OPPENHEIMER CAPITAL INCOME FUND

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

CLASS B YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------

Net asset value, end of period $ 11.72 $ 11.10 $ 9.67 $ 12.60 $ 12.76
=========================================================================

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

44 | OPPENHEIMER CAPITAL INCOME FUND

CLASS C YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------

Net asset value, end of period $ 11.69 $ 11.09 $ 9.66 $ 12.59 $ 12.76
=====================================================================

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

45 | OPPENHEIMER CAPITAL INCOME FUND

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

CLASS N YEAR ENDED AUGUST 31, 2004 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------

1. For the period from March 1, 2001 (inception of offering) to August 31, 2001.

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

4. Reduction to custodian expenses less than 0.01%.

5. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

46 | OPPENHEIMER CAPITAL INCOME FUND

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, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights and voting privileges with respect to the Fund in
general and exclusive voting rights on matters that affect that class alone.
Earnings, net assets and net asset value per share may differ due to each class
having its own expenses, such as transfer and shareholder servicing agent fees
and shareholder communications, directly attributable to that class. Class A, B,
C and N have separate distribution and/or service plans. Class B shares will
automatically convert to Class A shares six years after the date of purchase.

The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities 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. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of 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).

47 | OPPENHEIMER CAPITAL INCOME FUND

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of August 31, 2004, the market value of
these securities comprised 4.2% of the Fund's net assets and resulted in
unrealized cumulative losses of $2,609,574.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of August 31, 2004, the Fund had purchased
$372,415,248 of securities on a when-issued basis or forward commitment and sold
$53,875,813 of securities on a when-issued basis or forward commitment.

In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

48 | OPPENHEIMER CAPITAL INCOME FUND

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. 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. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

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

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

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

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

49 | OPPENHEIMER CAPITAL INCOME FUND

NOTES TO FINANCIAL STATE MENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES Continued

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------
$ 31,712,533 $ 79,779,788 $ 16,535,375 $ 319,628,158

1. The Fund had $16,535,375 of straddle losses which were deferred.

2. During the fiscal year ended August 31, 2004, the Fund utilized $105,823,276
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended August 31, 2003, the Fund did not utilize any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for August 31, 2004. Net assets of the
Fund were unaffected by the reclassifications.

INCREASE TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL INCOME ON INVESTMENTS 4
----------------------------------------------------
$ 6,727,050 $ 1,078,112 $ 7,805,162

4. $6,727,050, all of which was long-term capital gain, was distributed in
connection with Fund share redemptions.

The tax character of distributions paid during the years ended August 31, 2004
and August 31, 2003 was as follows:

YEAR ENDED YEAR ENDED
AUGUST 31, 2004 AUGUST 31, 2003
------------------------------------------------------------
Distributions paid from:
Ordinary income $ 120,499,446 $ 95,741,723

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of August 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

50 | OPPENHEIMER CAPITAL INCOME FUND

Federal tax cost of securities $ 2,859,026,277
Federal tax cost of other
investments (135,911,646)
---------------
Total federal tax cost $ 2,723,114,631
===============
Gross unrealized appreciation $ 386,155,135
Gross unrealized depreciation (66,526,977)
---------------
Net unrealized appreciation $ 319,628,158
===============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
and paid quarterly. Capital gain distributions, if any, are declared and paid
annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

51 | OPPENHEIMER CAPITAL INCOME FUND

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

YEAR ENDED AUGUST 31, 2004 YEAR ENDED AUGUST 31, 2003
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------

CLASS A
Sold 27,395,516 $ 328,897,834 23,888,388 $ 242,116,329
Dividends and/or
distributions reinvested 8,032,385 94,957,085 7,646,622 75,313,569
Redeemed (24,375,517) (291,028,694) (33,503,854) (331,438,565)
------------------------------------------------------------
Net increase (decrease) 11,052,384 $ 132,826,225 (1,968,844) $ (14,008,667)
============================================================

- ---------------------------------------------------------------------------------------
CLASS B
Sold 6,888,752 $ 81,662,144 7,062,687 $ 71,550,088
Dividends and/or
distributions reinvested 1,020,466 11,950,178 1,076,863 10,485,911
Redeemed (11,792,254) (140,016,285) (11,099,686) (108,873,288)
------------------------------------------------------------
Net decrease (3,883,036) $ (46,403,963) (2,960,136) $ (26,837,289)
============================================================

- ---------------------------------------------------------------------------------------
CLASS C
Sold 4,346,905 $ 51,194,830 2,646,850 $ 27,258,931
Dividends and/or
distributions reinvested 339,300 3,974,837 249,803 2,435,681
Redeemed (1,740,267) (20,560,035) (1,972,656) (19,289,467)
------------------------------------------------------------
Net increase 2,945,938 $ 34,609,632 923,997 $ 10,405,145
============================================================

- ---------------------------------------------------------------------------------------
CLASS N
Sold 715,430 $ 8,550,182 531,993 $ 5,367,224
Dividends and/or
distributions reinvested 42,495 501,477 21,477 213,022
Redeemed (148,746) (1,775,371) (163,690) (1,642,897)
------------------------------------------------------------
Net increase 609,179 $ 7,276,288 389,780 $ 3,937,349
============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
August 31, 2004, were $1,308,934,877 and $1,167,044,227, respectively. There
were purchases of $141,001,606 and sales of $131,756,897 of U.S. government and
government agency obligations for the year ended August 31, 2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $100 million of average annual net assets of
the Fund, 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.

52 | OPPENHEIMER CAPITAL INCOME FUND

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended August 31, 2004, the Fund paid
$3,525,379 to OFS for services to the Fund.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.

- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses all of those fees to
pay dealers, brokers, banks and other financial institutions quarterly for
providing personal services and maintenance of accounts of their customers that
hold Class A shares. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
years. Fees incurred by the Fund under the Plan are detailed in the Statement of
Operations.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% per year on
Class B and Class C shares and 0.25% per year on Class N shares. The Distributor
also receives a service fee of up to 0.25% per year under each plan. If either
the Class B, Class C or Class N plan is terminated by the Fund or by the
shareholders of a class, the Board of Trustees and its independent trustees must
determine whether the Distributor shall be entitled to payment from the Fund of
all or a portion of the service fee and/or asset-based sales charge in respect
to shares sold prior to the effective date of such termination. The
Distributor's aggregate uncompensated expenses under the plan at August 31, 2004
for Class B, Class C and Class N shares were $9,978,540, $2,981,560 and
$303,546, respectively. Fees incurred by the Fund under the plans are detailed
in the Statement of Operations.

- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.

53 | OPPENHEIMER CAPITAL INCOME FUND

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

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

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

August 31, 2004 $ 1,038,146 $ 29,534 $ 530,263 $ 17,067 $ 3,969

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $198,354, an amount equivalent to certain of such
commissions incurred in prior years.

OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average daily net assets per fiscal year
for all classes. During the year ended August 31, 2004, OFS waived $42,774,
$9,447, $1,768 and $152 for Class A, Class B, Class C and Class N shares,
respectively. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

As of August 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value

54 | OPPENHEIMER CAPITAL INCOME FUND

of stocks and bonds or interest rates. The Fund may also buy or write put or
call options on these futures contracts.

The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported on the Statement of Operations.

Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

As of August 31, 2004, the Fund had outstanding futures contracts as follows:

UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2004 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
U.S. Long Bonds 12/20/04 348 $ 38,736,750 $ 634,727
U.S. Treasury Nts., 10 yr. 12/20/04 475 53,348,438 466,984
------------
1,101,711
------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 9/30/04-12/30/04 658 139,587,953 (779,983)
U.S. Treasury Nts., 5 yr. 12/20/04 560 61,976,250 (197,764)
------------
(977,747)
------------
$ 123,964
============

- --------------------------------------------------------------------------------
7. 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.

55 | OPPENHEIMER CAPITAL INCOME FUND

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
7. OPTION ACTIVITY Continued

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. Contracts 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.

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, 2004 was as follows:

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

Options outstanding as of
August 31, 2003 35,837 $ 4,562,196 55,856 $ 10,030,182
Options written 278,243 41,256,427 426,576 72,187,862
Options closed or expired (236,790) (30,023,716) (380,526) (54,229,655)
Options exercised (46,865) (10,134,628) (25,190) (7,181,004)
-----------------------------------------------------
Options outstanding as of
August 31, 2004 30,425 $ 5,660,279 76,716 $ 20,807,385
=====================================================

- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS

The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to unrealized
gain (loss), in the amount due to or owed by the Fund at termination or
settlement. Total return swaps are subject to risks (if the counterparty fails
to meet its obligations).

56 | OPPENHEIMER CAPITAL INCOME FUND

As of August 31, 2004, the Fund had entered into the following total return swap
agreements:

PAID BY RECEIVED BY
SWAP NOTIONAL THE FUND AT THE FUND AT TERMINATION UNREALIZED
COUNTERPARTY AMOUNT AUGUST 31, 2004 AUGUST 31, 2004 DATES APPRECIATION
- -------------------------------------------------------------------------------------------------------

Value of
One-Month total return of
LIBOR less 50 Lehman Brothers
Deutsche Bank AG $ 9,700,000 basis points CMBS Index 12/31/04 $ 204,092
Value of
One-Month total return of
Morgan Stanley LIBOR less 55 Lehman Investment
Capital Services, Inc. 9,700,000 basis points Grade Index 9/30/04 203,934
---------
$ 408,026
=========

Index abbreviations are as follows:

CMBS Commercial Mortgage Backed Securities Markets

LIBOR London-Interbank Offered Rate

- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES

As of August 31, 2004, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. The aggregate value
of illiquid securities subject to this limitation as of August 31, 2004 was
$23,094,805, which represents 0.81% of the Fund's net assets.

- --------------------------------------------------------------------------------
10. LITIGATION

Six complaints have been filed as putative derivative and class actions against
the Manager, OFS and the Distributor (collectively, "OppenheimerFunds"), as well
as 51 of the Oppenheimer funds (collectively, the "Funds") including this Fund,
and nine directors/ trustees of certain of the Funds other than this Fund
(collectively, the "Directors/Trustees"). The complaints allege that the Manager
charged excessive fees for distribution and other costs, improperly used assets
of the Funds in the form of directed brokerage commissions and 12b-1 fees to pay
brokers to promote sales of the Funds, and failed to properly disclose the use
of Fund assets to make those payments in violation of the Investment Company Act
of 1940 and the Investment Advisers Act of 1940. The complaints further allege
that by permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law.

OppenheimerFunds believes that it is premature to render any opinion as to
the likelihood of an outcome unfavorable to them, the Funds or the
Directors/Trustees and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss. However,
OppenheimerFunds, the Funds and the Directors/Trustees believe that the
allegations contained in the complaints are without merit and intend to defend
these lawsuits vigorously.

57 | OPPENHEIMER CAPITAL INCOME FUND

Appendix A

RATINGS DEFINITIONS

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

Moody's Investors Service, Inc. ("Moody's")

LONG-TERM RATINGS: BONDS AND PREFERRED STOCK ISSUER RATINGS

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

C: Bonds and preferred stock 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.

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.

PRIME RATING SYSTEM (SHORT-TERM RATINGS - TAXABLE DEBT)
These ratings are opinions of the ability of issuers to honor senior financial
obligations and contracts. Such obligations generally have an original maturity
not exceeding one year, unless explicitly noted.

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 &amp; Poor's Ratings Services ("Standard &amp; Poor's"), a division of The
McGraw-Hill Companies, Inc.

LONG-TERM ISSUE CREDIT RATINGS

Issue credit ratings are based in varying degrees, on the following
considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.

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

AA: An obligation 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: An obligation 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: An obligation 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
An obligation 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: An obligation rated "BB" are less vulnerable to nonpayment than other
speculative issues. However, they 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: An obligation 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: An obligation 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: An obligation rated "CC" are currently highly vulnerable to nonpayment.

C: Subordinated debt or preferred stock obligations rated "C" are 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 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: An obligation rated "D" are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard &amp; Poor's believes that
such payments will be made during such grace period. The "D" rating also will 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.

c: The `c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.

p: The letter `p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.

Continuance of the ratings is contingent upon Standard &amp; Poor's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.

r: The `r' highlights derivative, hybrid, and certain other obligations that
Standard &amp; Poor's believes may experience high volatility or high variability in
expected returns as a result of noncredit risks. Examples of such obligations
are securities with principal or interest return indexed to equities,
commodities, or currencies; certain swaps and options; and interest-only and
principal-only mortgage securities. The absence of an `r' symbol should not be
taken as an indication that an obligation will exhibit no volatility or
variability in total return.

N.R. Not rated.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards

Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories (`AAA', `AA', `A', `BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general

SHORT-TERM ISSUE CREDIT RATINGS
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days-including
commercial paper.

A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard &amp; Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.

A-2: A short-term obligation rated "A-2" 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: A short-term
obligation rated "A-3" 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: A short-term obligation rated "B" 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: A short-term obligation rated "C" 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: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard &amp; Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.

NOTES:
A Standard &amp; Poor's note rating reflects the liquidity factors and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment:
o Amortization schedule-the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
o Source of payment-the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.

SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3: Speculative capacity to pay principal and interest.

Fitch, Inc.

International credit ratings assess the capacity to meet foreign currency or
local currency commitments. Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local currency rating measures
the probability of payment within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency rating, does not take
account of the possibility of foreign exchange controls limiting transfer into
foreign currency.

INTERNATIONAL LONG-TERM CREDIT RATINGS

The following ratings scale applies to foreign currency and local currency
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

The following ratings scale applies to foreign currency and local currency
ratings. A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.

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 &amp; Defense Household Products
Air Freight &amp; Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet &amp; Catalog Retail
Automobiles Internet Software &amp; Services
Beverages IT Services
Biotechnology Leisure Equipment &amp; Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals &amp; Mining
Commercial Services &amp; Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers &amp; Peripherals Office Electronics
Construction &amp; Engineering Oil &amp; Gas
Construction Materials Paper &amp; Forest Products
Containers &amp; Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Services Road &amp; Rail
Electric Utilities Semiconductors and Semiconductor
Equipment
Electrical Equipment Software
Electronic Equipment &amp; Instruments Specialty Retail
Energy Equipment &amp; Services Textiles, Apparel &amp; Luxury Goods
Food &amp; Staples Retailing Thrifts &amp; Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies &amp; Distributors
Health Care Equipment &amp; Supplies Transportation Infrastructure
Health Care Providers &amp; Services Water Utilities
Hotels Restaurants &amp; Leisure Wireless Telecommunication Services
Household Durables

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.

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 (24 months in the case of Oppenheimer Rochester National Municipals and
Rochester Fund Municipals) of the beginning 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."5 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. That included plans
(other than IRA or 403(b)(7) Custodial Plans) that: 1) bought shares
costing $500,000 or more, 2) had at the time of purchase 100 or more
eligible employees or total plan assets of $500,000 or more, or 3)
certified to the Distributor that it projects to have annual plan
purchases of $200,000 or more.

|_| 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 &amp;

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).

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 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.6 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.7
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.
|_|For distributions from retirement plans that have $10 million or more
in plan assets and that have entered into a special agreement with the
Distributor.
|_|For distributions from retirement plans which are part of a retirement
plan product or platform offered by certain banks, broker-dealers,
financial advisors, insurance companies or record keepers which have
entered into a special agreement with the Distributor.

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. 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.
|_|The contingent deferred sales charges are generally not waived
following the death or disability of a grantor or trustee for a trust
account. The contingent deferred sales charges will only be waived in
the limited case of the death of the 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 of Class C shares of an Oppenheimer fund in amounts of $1
million or more requested in writing by a Retirement Plan sponsor and
submitted more than 12 months after the Retirement Plan's first
purchase of Class C shares, if the redemption proceeds are invested to
purchase Class N shares of one or more Oppenheimer funds.
|_|Distributions8 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.9 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.10 9) On account of the
participant's separation from service.11 10) Participant-directed
redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) 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.

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 Fund Oppenheimer Quest International 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.

|X| 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.

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

|X| 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:

o 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.
o Shareholders who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.

|X| 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.

|X| 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:

o 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
o 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.

|X| 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:

o 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);
o 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

o 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.

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.

|X| 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.

|X| 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.

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

Shareholders of Oppenheimer AMT-Free Municipals, 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%.

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.

- -----------
1 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.
2 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.
5 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.
6 This provision does not apply to IRAs.

7 This provision only applies to qualified retirement plans and 403(b)(7)
custodial plans after your separation from service in or after the year you
reached age 55.

8 The distribution must be requested prior to Plan termination or the
elimination of the Oppenheimer funds as an investment option under the Plan.
9 This provision does not apply to IRAs.
10 This provision does not apply to loans from 403(b)(7) custodial plans and
loans from the OppenheimerFunds-sponsored Single K retirement plan.
11 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.

Oppenheimer Capital Income Fund

Internet Website:
WWW.OPPENHEIMERFUNDS.COM

Investment Adviser
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10080

Distributor
OppenheimerFunds Distributor, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10080

Transfer Agent
OppenheimerFunds Services
P.O. Box 5270 Denver, Colorado 80217-5270
1.800.CALL OPP (225.5677)

Custodian Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005

Independent Registered Public Accounting Firm

Deloitte &amp; Touche LLP
555 Seventeenth Street
Denver, Colorado 80202

Counsel to the Fund
Myer, Swanson, Adams &amp; Wolf, P.C.
1600 Broadway
Denver, Colorado 80202

Counsel to the Independent Trustees

Bell, Boyd &amp; Lloyd LLC
70 West Madison Street, Suite 3100
Chicago, Illinois 60602

PX0300.1004

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