Oppenheimer Capital Income Fund

497 1 sai.htm STATEMENT OF ADDITIONAL INFORMATION Oppenheimer Capital Income Fund

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, revised February 2, 2005

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

30
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 &
Poor's Corporation or Fitch, Inc., or that have comparable ratings by another nationally-recognized rating organization.

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

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

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

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

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

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

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

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

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

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

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

|_| Zero Coupon Securities. The Fund can buy zero-coupon and delayed interest securities, and "stripped" securities.
Stripped securities are debt securities whose interest coupons are separated from the security and sold separately. The Fund can buy
the following types of zero-coupon or stripped securities, among 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 & 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 Cash Reserves Oppenheimer Principal Protected Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund
Oppenheimer Capital Income Fund Oppenheimer Senior Floating Rate 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.
Oppenheimer Main Street Opportunity Fund Centennial California Tax Exempt Trust
Oppenheimer Main Street Small Cap Fund Centennial Government Trust
Oppenheimer Municipal Fund Centennial Money Market Trust
Oppenheimer Principal Protected Trust Centennial New York Tax Exempt 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 Years; Dollar Range Aggregate
Dollar Range
Of Shares
Beneficially
Owned in Any
of Shares of the
Position(s) Held with Fund, Other Trusteeships/Directorships Held by Trustee; Beneficially Oppenheimer
Length of Service and Number of Portfolios in Fund Complex Currently Overseen by Owned in the Funds Overseen
Age Trustee Fund by Trustee
----------------------------- ------------------------------------------------------------ --------------- ----------------
----------------------------- ------------------------------------------------------------ --------------------------------
As of December 31, 2003
----------------------------- ------------------------------------------------------------ --------------------------------
----------------------------- ------------------------------------------------------------ --------------- ----------------
William L. Armstrong, Chairman of the following private mortgage banking None Over $100,000
Chairman since 2004 and companies: Cherry Creek Mortgage Company (since 1991),
Trustee since 1999 Centennial State Mortgage Company (since 1994), The El
Age: 67 Paso Mortgage Company (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 & 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. Edwards Capital, None Over $100,000
Trustee since 1993 Inc. (General Partner of private equity funds) (until
Age: 73 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 & 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 & Sons and A.G. Edwards
Trust Company. Oversees 39 portfolios in the
OppenheimerFunds complex.
----------------------------- ------------------------------------------------------------ --------------- ----------------
----------------------------- ------------------------------------------------------------ --------------- ----------------
George C. Bowen, Formerly Assistant Secretary and a director (December $10,001-$50,000 Over $100,000
Trustee since 1998 1991-April 1999) of Centennial Asset Management
Age: 68 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 Vernon, George $10,001-$50,000 $50,001-$100,000
Trustee since 1999 Washington's home (since June 2000). Formerly Director
Age: 66 (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 Mountain Elk None Over $100,000
Trustee since 1990 Foundation (a not-for-profit foundation); a director
Age: 61 (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 non-profit charity) (since $10,001-$50,000 Over $100,000
Trustee since 1996 September 1984). Formerly (until October 1994) Mr.
Age: 63 Freedman held several positions in subsidiary or
affiliated companies of the Manager. Oversees 39
portfolios in the OppenheimerFunds complex.
----------------------------- ------------------------------------------------------------ --------------- ----------------
----------------------------- ------------------------------------------------------------ --------------- ----------------
Beverly L. Hamilton, Trustee of Monterey International Studies (an educational None $50,001-$100,000
Trustee since 2002 organization) (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 Director of Steele None Over $100,000
Trustee since 2002 Street State Bank (a commercial banking entity) (since
Age: 60 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 Marshall, Jr., Trustee of MassMutual Institutional Funds (since 1996) and None Over $100,000
Trustee since 2000 MML Series Investment Fund (since 1987) (both open-end
Age: 62 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 & 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 Years; Dollar Range Aggregate
Dollar Range
Of Shares
Beneficially
Owned in
Position(s) Held with of Shares Any of the
Fund, Other Trusteeships/Directorships Held by Trustee; Beneficially Oppenheimer
Length of Service, Number of Portfolios in Fund Complex Currently Overseen by Owned in the Funds Overseen
Age Trustee Fund by Trustee
--------------------------- -------------------------------------------------------------- --------------- ----------------
--------------------------- -------------------------------------------------------------- --------------------------------
As of December 31, 2003
--------------------------- -------------------------------------------------------------- --------------------------------
--------------------------- -------------------------------------------------------------- --------------- ----------------
John V. Murphy, Chairman, Chief Executive Officer and director (since June None Over $100,000
President and Trustee and 2001) and President (since September 2000) of the Manager;
Principal Executive President and a director or trustee of other Oppenheimer
Officer since 2001 funds; President and a director (since July 2001) of
Age: 55 Oppenheimer 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 of 1 portfolio in the
Vice President and Portfolio OppenheimerFunds complex. Formerly Assistant Vice President and Portfolio Manager of
Manager since June 1999 the Manager (April 1996 - June 1998).
Age: 39
---------------------------------- ----------------------------------------------------------------------------------------
---------------------------------- ----------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer (since March 2004) of the Manager;
Vice President and Chief Vice President (since June 1983) of OppenheimerFunds Distributor, Inc., Centennial
Compliance Officer since 2004 Asset Management Corporation and Shareholder Services, Inc. Formerly (until February
Age: 54 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 the Manager; Treasurer of
Treasurer, Principal Financial HarbourView Asset Management Corporation, Shareholder Financial Services, Inc.,
and Accounting Officer Shareholder Services, Inc., Oppenheimer Real Asset Management Corporation, and
since 1999 Oppenheimer Partnership Holdings, Inc. (since March 1999), of OFI Private Investments,
Age: 45 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; formerly Manager/Financial
Assistant Treasurer since 2004 Product Accounting (November 1998-July 2002) of the Manager. An officer of 84
Age: 34 portfolios in the OppenheimerFunds complex.
---------------------------------- ----------------------------------------------------------------------------------------
---------------------------------- ----------------------------------------------------------------------------------------
Philip Vottiero, Vice President/Fund Accounting of the Manager since March 2002. Formerly Vice
Assistant Treasurer since 2002 President/Corporate Accounting of the Manager (July 1999-March 2002) prior to which he
Age: 41 was Chief 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 Counsel (since February
Vice President & Secretary since 2002) of the Manager; General Counsel and a director (since November 2001) of the
2001 Distributor; General Counsel (since November 2001) of Centennial Asset Management
Age: 56 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 Manager since September 2004.
Assistant Secretary since 2004 Formerly Mr. Gillespie held 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 (since
Assistant Secretary since 2001 October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary
Age: 38 (since 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 Manager (since December 2000);
Assistant Secretary since 2004 formerly an attorney and Assistant Secretary of Van Eck Global (until December 2000).
Age: 34 An officer of 84 portfolios in the OppenheimerFunds complex.
---------------------------------- ----------------------------------------------------------------------------------------
---------------------------------- ----------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager since May 2004; formerly First
Assistant Secretary since 2004 Vice President and Associate 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 & 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 Manager since June 2004.
Assistant Secretary since 2004 Formerly an Associate with Sidley Austin Brown & Wood LLP (September 1999 - May 2004).
Age: 31 An 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 Position(s) (as Aggregate Total Compensation From Fund
Compensation and Fund Complex Paid to
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 during its last three fiscal years were:

---------------------------------- -------------------------------------------------------------------------
Fiscal Year ended 8/31: Management Fees Paid to OppenheimerFunds, Inc.
---------------------------------- -------------------------------------------------------------------------
---------------------------------- -------------------------------------------------------------------------
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 Year Aggregate Front-End Class A Front-End
Sales Charges
Sales 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 Year Concessions on Class Concessions on Class Concessions on Class C Concessions on Class N
A Shares Advanced by B Shares Advanced by Shares Advanced by Shares Advanced by
Ended 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 Year Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Deferred Sales Deferred Sales Deferred Sales
Charges Retained by Charges Retained by Deferred Sales Charges Charges Retained by
Ended 8/31 Distributor Distributor Retained 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 Aggregate Distributor's
Unreimbursed Expenses
Payments Retained by Unreimbursed Expenses as % of Net Assets of
Under Plan Distributor Under Plan 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:

ERV l/n - 1 Average Annual Total 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:

ATVD l/n - 1 = Average Annual Total Return (After Taxes on 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 l/n - 1 = Average Annual Total Return (After Taxes on Distributions 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 and 2.94% 1.68% 6.51%
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 Capital Income Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Convertible Securities Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Developing Markets Fund Oppenheimer Quest Balanced Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Discovery Fund Oppenheimer Quest International Value 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 Global Fund Oppenheimer Rochester National Municipals
Oppenheimer Global Opportunities Fund Oppenheimer Select Value Fund
Oppenheimer Gold & 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 & 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:
o 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 Street Fund II Oppenheimer Limited Term 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 & 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 Fund Limited Term New York Municipal 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 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 & Touche LLP served as an Independent Registered Public Accounting Firm for
the Fund. Deloitte & Touche LLP audits the Fund's financial statements and performs other related audit services. Deloitte & 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 & 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
October 14, 2004

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

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%.

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

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%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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%.

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

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

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 & Poor's Ratings Services ("Standard & 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 & 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 & 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 & 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 & 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 & 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 & 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 & 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.

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.
1 Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.
2 In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred
sales charges mean the Fund's Early Withdrawal Charges and references to "redemptions" mean "repurchases" of shares.
3 An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the Internal Revenue Code, under
which Class N shares of an Oppenheimer fund or funds are purchased by a fiduciary or other administrator for the account of
participants who are employees of a single employer or of affiliated employers. These may include, for example, medical savings
accounts, payroll deduction plans or similar plans. The fund accounts must be registered in the name of the fiduciary or
administrator purchasing the shares for the benefit of participants in the plan.
4 The term "Group Retirement Plan" means any qualified or non-qualified retirement plan for employees of a corporation or sole
proprietorship, members and employees of a partnership or association or other organized group of persons (the members of which may
include other groups), if the group has made special arrangements with the Distributor and all members of the group participating in
(or who are eligible to participate in) the plan purchase shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group Retirement Plan" also includes qualified retirement plans
and non-qualified deferred compensation plans and IRAs that purchase shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution that has made special arrangements with the Distributor.
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.

Appendix B

Industry Classifications

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

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

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 & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202

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

Counsel to the Independent Trustees
Bell, Boyd & Lloyd LLC
70 West Madison Street, Suite 3100
Chicago, Illinois 60602
1234
PX0300.001.0205

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