capital income sai 12.05

497 1 sai.htm capital income sai 12.05

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 December
5, 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
Disclosure of Portfolio Holdings................................... 26
How the Fund is Managed ............................................... 30
Organization and History........................................... 30
Board of Trustees and Oversight Committees......................... 31
Trustees and Officers of the Fund.................................. 32
The Manager........................................................ 41
Brokerage Policies of the Fund......................................... 44
Distribution and Service Plans......................................... 47
Payments to Fund Intermediaries........................................ 51
Performance of the Fund................................................ 55

About Your Account
How To Buy Shares...................................................... 60
How To Sell Shares..................................................... 70
How To Exchange Shares................................................. 74
Dividends, Capital Gains and Taxes..................................... 78
Additional Information About the Fund.................................. 83

Financial Information About the Fund
Independent Auditors' Report........................................... 84
Financial Statements................................................... 85

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

ABOUT THE FUND

Additional Information About the Fund's Investment Policies and Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., or at least "BBB" by Standard & 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| Passive Foreign Investment Companies. Some securities of corporations
domiciled outside the U.S. which the Fund may purchase, may be considered
passive foreign investment companies ("PFICs") under U.S. tax laws. PFICs are
those foreign corporations which generate primarily passive income. They tend
to be growth companies or "start-up" companies. For federal tax purposes, a
corporation is deemed a PFIC if 75% or more of the foreign corporation's
gross income for the income year is passive income or if 50% or more of its
assets are assets that produce or are held to produce passive income. Passive
income is further defined as any income to be considered foreign personal
holding company income within the subpart F provisions defined by IRCss.954.

Investing in PFICs involves the risks associated with investing in
foreign securities, as described above. There are also the risks that the
Fund may not realize that a foreign corporation it invests in is a PFIC for
federal tax purposes. Federal tax laws impose severe tax penalties for
failure to properly report investment income from PFICs. Following industry
standards, the Fund makes every effort to ensure compliance with federal tax
reporting of these investments. PFICs are considered foreign securities for
the purposes of the Fund's minimum percentage requirements or limitations of
investing in foreign securities.

Subject to the limits under the "Investment Company Act, the Fund may
also invest in foreign mutual funds which are also deemed PFICs (since nearly
all of the income of a mutual fund is generally passive income). Investing in
these types of PFICs may allow exposure to various countries because some
foreign countries limit, or prohibit, all direct foreign investment in the
securities of companies domiciled therein.

In addition to bearing their proportionate share of a fund's expenses
(management fees and operating expenses), shareholders will also indirectly
bear similar expenses of such entities. Additional risks of investing in
other investment companies are described below under "Investment in Other
Investment Companies."

|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 and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. 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.

Disclosure of Portfolio Holdings. The Fund has adopted policies and
procedures concerning the dissemination of information about its portfolio
holdings by employees, officers and/or directors of the Manager, Distributor
and Transfer Agent. These policies are designed to assure that non-public
information about portfolio securities is distributed only for a legitimate
business purpose, and is done in a manner that (a) conforms to applicable
laws and regulations and (b) is designed to prevent that information from
being used in a way that could negatively affect the Fund's investment
program or enable third parties to use that information in a manner that is
harmful to the Fund.

o Public Disclosure. The Fund's portfolio holdings are made publicly
available no later than 60 days after the close of each of the
Fund's fiscal quarters in semi-annual and annual reports to
shareholders, or in its Statements of Investments on Form N-Q,
which are publicly available at the SEC. In addition, the top 10
or more holdings are posted on the OppenheimerFunds' website at
www.oppenheimerfunds.com in the "Fund Profiles" section. Other
general information about the Fund's portfolio investments, such
as portfolio composition by asset class, industry, country,
currency, credit rating or maturity, may also be posted with a
15-day lag.

Until publicly disclosed, the Fund's portfolio holdings are
proprietary, confidential business information. While recognizing the
importance of providing Fund shareholders with information about their Fund's
investments and providing portfolio information to a variety of third parties
to assist with the management, distribution and administrative process, the
need for transparency must be balanced against the risk that third parties
who gain access to the Fund's portfolio holdings information could attempt to
use that information to trade ahead of or against the Fund, which could
negatively affect the prices the Fund is able to obtain in portfolio
transactions or the availability of the securities that portfolio managers
are trading on the Fund's behalf.

The Manager and its subsidiaries and affiliates, employees, officers, and
directors, shall neither solicit nor accept any compensation or other
consideration (including any agreement to maintain assets in the Fund or in
other investment companies or accounts managed by the Manager or any
affiliated person of the Manager) in connection with the disclosure of the
Fund's non-public portfolio holdings. The receipt of investment advisory fees
or other fees and compensation paid to the Manager and its subsidiaries
pursuant to agreements approved by the Fund's Board shall not be deemed to be
"compensation" or "consideration" for these purposes. It is a violation of
the Code of Ethics for any covered person to release holdings in
contravention of portfolio holdings disclosure policies and procedures
adopted by the Fund.

A list of the top 10 or more portfolio securities holdings (based on invested
assets), listed by security or by issuer, as of the end of each month may be
disclosed to third parties (subject to the procedures below) no sooner than
15 days after month-end.

Except under special limited circumstances discussed below, month-end lists
of the Fund's complete portfolio holdings may be disclosed no sooner than
30-days after the relevant month-end, subject to the procedures below. If the
Fund's complete portfolio holdings have not been disclosed publicly, they may
be disclosed pursuant to special requests for legitimate business reasons,
provided that:

o The third-party recipient must first submit a request for release of
Fund portfolio holdings, explaining the business reason for the
request;
o Senior officers (a Senior Vice President or above) in the Manager's
Portfolio and Legal departments must approve the completed
request for release of Fund portfolio holdings; and
o The third-party recipient must sign the Manager's portfolio holdings
non-disclosure agreement before receiving the data, agreeing to
keep information that is not publicly available regarding the
Fund's holdings confidential and agreeing not to trade directly
or indirectly based on the information.

The Fund's complete portfolio holdings positions may be released to the
following categories of entities or individuals on an ongoing basis, provided
that such entity or individual either (1) has signed an agreement to keep
such information confidential and not trade on the basis of such information
or (2) is subject to fiduciary obligations, as a member of the Fund's Board,
or as an employee, officer and/or director of the Manager Distributor, or
Transfer Agent, or their respective legal counsel, not to disclose such
information except in conformity with these policies and procedures and not
to trade for his/her personal account on the basis of such information:

o Employees of the Fund's Manager, Distributor and Transfer Agent who
need to have access to such information (as determined by senior
officers of such entity),
o The Fund's certified public accountants and independent registered
public accounting firm,
o Members of the Fund's Board and the Board's legal counsel,
o The Fund's custodian bank,
o A proxy voting service designated by the Fund and its Board,
o Rating/ranking organizations (such as Lipper and Morningstar),
o Portfolio pricing services retained by the Manager to provide portfolio
security prices, and
o Dealers, to obtain bids (price quotations if securities are not priced
by the Fund's regular pricing services).

Portfolio holdings information of the Fund may be provided, under limited
circumstances, to brokers and/or dealers with whom the Fund trades and/or
entities that provide investment coverage and/or analytical information
regarding the Fund's portfolio, provided that there is a legitimate
investment reason for providing the information to the broker, dealer or
other entity. Month-end portfolio holdings information may, under this
procedure, be provided to vendors providing research information and/or
analytics to the fund, with at least a 15-day delay after the month end, but
in certain cases may be provided to a broker or analytical vendor with a 1-2
day lag to facilitate the provision of requested investment information to
the manager to facilitate a particular trade or the portfolio manager's
investment process for the Fund. Any third party receiving such information
must first sign the Manager's portfolio holdings non-disclosure agreement as
a pre-condition to receiving this information.

Portfolio holdings information (which may include information on individual
securities positions or multiple securities) may be provided to the entities
listed below (1) by portfolio traders employed by the Manager in connection
with portfolio trading, and (2) by the members of the Manager's Security
Valuation Group and Accounting Departments in connection with portfolio
pricing or other portfolio evaluation purposes:

o Brokers and dealers in connection with portfolio transactions
(purchases and sales)
o Brokers and dealers to obtain bids or bid and asked prices (if
securities held by the Fund are not priced by the fund's regular
pricing services)
o Dealers to obtain price quotations where the fund is not identified as
the owner

Portfolio holdings information (which may include information on the
Fund's entire portfolio or individual securities therein) may be provided by
senior officers of the Manager or attorneys on the legal staff of the
Manager, Distributor, or Transfer Agent, in the following circumstances:

o Response to legal process in litigation matters, such as responses to
subpoenas or in class action matters where the Fund may be part
of the plaintiff class (and seeks recovery for losses on a
security) or a defendant,
o Response to regulatory requests for information (the SEC, NASD, state
securities regulators, and/or foreign securities authorities,
including without limitation requests for information in
inspections or for position reporting purposes),
o To potential sub-advisers of portfolios (pursuant to confidentiality
agreements),
o To consultants for retirement plans for plan sponsors/discussions at
due diligence meetings (pursuant to confidentiality agreements),
o Investment bankers in connection with merger discussions (pursuant to
confidentiality agreements)

Portfolio managers and analysts may, subject to the Manager's policies
on communications with the press and other media, discuss portfolio
information in interviews with members of the media, or in due diligence or
similar meetings with clients or prospective purchasers of Fund shares or
their financial intermediary representatives.

The Fund's shareholders may, under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions), receive redemption
proceeds of their Fund shares paid as pro rata shares of securities held in
the Fund's portfolio. In such circumstances, disclosure of the Fund's
portfolio holdings may be made to such shareholders.

The Chief Compliance Officer of the Fund and the Manager, Distributor, and
Transfer Agent (the "CCO") shall oversee the compliance by the Manager,
Distributor, Transfer Agent, and their personnel with these policies and
procedures. At least annually, the CCO shall report to the Fund's Board on
such compliance oversight and on the categories of entities and individuals
to which disclosure of portfolio holdings of the Funds has been made during
the preceding year pursuant to these policies. The CCO shall report to the
Fund's Board any material violation of these policies and procedures during
the previous calendar quarter and shall make recommendations to the Board as
to any amendments that the CCO believes are necessary and desirable to carry
out or improve these policies and procedures.

The Manager and/or the Fund have entered into ongoing arrangements to make
available information about the Fund's portfolio holdings. One or more of the
Oppenheimer funds may currently disclose portfolio holdings information based
on ongoing arrangements to the following parties:

A.G. Edwards & Sons
ABG Securities
ABN AMRO
Advest
AG Edwards
American Technology Research
Auerbach Grayson
Banc of America Securities
Barclays
Baseline
Bear Stearns
Belle Haven
Bloomberg
BNP Paribas
BS Financial Services
Buckingham Research Group
Caris & Co.
CIBC World Markets
Citigroup
Citigroup Global Markets
Collins Stewart
Craig-Hallum Capital Group LLC
Credit Agricole Cheuvreux N.A. Inc.
Credit Suisse First Boston
Daiwa Securities
Davy
Deutsche Bank
Deutsche Bank Securities
Dresdner Kleinwort Wasserstein
Emmet & Co
Empirical Research
Enskilda Securities
Essex Capital Markets
Exane BNP Paribas
Factset
Fidelity Capital Markets
Fimat USA Inc.
First Albany
First Albany Corporation
Fixed Income Securities
Fortis Securities
Fox-Pitt, Kelton
Friedman, Billing, Ramsey
Fulcrum Global Partners
Garp Research
George K Baum & Co.
Goldman
Goldman Sachs
HSBC
HSBC Securities Inc
ING Barings
ISI Group
Janney Montgomery
Jefferies
Jeffries & Co.
JP Morgan
JP Morgan Securities
JPP Eurosecurities
Keefe, Bruyette & Woods
Keijser Securities
Kempen & Co. USA Inc.
Kepler Equities/Julius Baer Sec
KeyBanc Capital Markets
Leerink Swan
Legg Mason
Lehman
Lehman Brothers
Lipper
Loop Capital Markets
MainFirst Bank AG
Makinson Cowell US Ltd
Maxcor Financial
Merrill
Merrill Lynch
Midwest Research
Mizuho Securities
Morgan Stanley
Morningstar
Natexis Bleichroeder
Ned Davis Research Group
Nomura Securities
Pacific Crest
Pacific Crest Securities
Pacific Growth Equities
Petrie Parkman
Pictet
Piper Jaffray Inc.
Plexus
Prager Sealy & Co.
Prudential Securities
Ramirez & Co.
Raymond James
RBC Capital Markets
RBC Dain Rauscher
Research Direct
Robert W. Baird
Roosevelt & Cross
Russell Mellon
Ryan Beck & Co.
Sanford C. Bernstein
Scotia Capital Markets
SG Cowen & Co.
SG Cowen Securities
Soleil Securities Group
Standard & Poors
Stone & Youngberg
SWS Group
Taylor Rafferty
Think Equity Partners
Thomas Weisel Partners
UBS
Wachovia
Wachovia Corp
Wachovia Securities
Wescott Financial
William Blair
Yieldbook

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 Massachusetts business trust
in August 1986.

|X| Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares, to reclassify unissued
shares into additional series or classes and to 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, preemptive rights 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 will generally have a different net asset value,
o will generally 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 a 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 hold shareholder meetings 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 and that 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 Trustees who
are not "interested persons" under the Investment Company Act (the
"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 Fund's fiscal year ended
August 31, 2004. The Audit Committee furnishes the Board with recommendations
regarding the selection of the Fund's independent registered public accounting
firm (also referred to as the "independent Auditors"). Other main functions of
the Audit Committee, outlined in the Audit Committee Charter, 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) reviewing reports from the Manager's Internal Audit
Department; (iv) reviewing certain reports from and meet periodically with the
Funds' Chief Compliance Officer; (v) maintaining a separate line of
communication between the Fund's independent Auditors and the Independent
Trustees; (vi) reviewing the independence of the Fund's independent Auditors;
and (vii) pre-approving the provision of any audit or non-audit services by
the Fund's independent Auditors, including tax services, that are not
prohibited by the Sarbanes-Oxley Act, to the Fund, the Manager and certain
affiliates of the Manager.

The Review Committee is comprised solely of Independent Trustees. The
members of the Review Committee are Jon S. Fossel (Chairman), Robert G. Avis,
Sam Freedman and Beverly L. Hamilton. The Review Committee held six meetings
during the Fund's fiscal year ended August 31, 2004. Among other duties, as
set forth in the Review Committee's Charter, the Review Committee 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 as well as the policies and procedures adopted by the
Fund to comply with the Investment Company Act and other applicable law.

The Governance Committee is comprised solely of Independent Trustees.
The members of the Governance Committee are, Robert J. Malone (Chairman),
William Armstrong, Beverly L. Hamilton and F. William Marshall, Jr. The
Governance Committee did not hold any meetings during the Fund's fiscal year
ended August 31, 2004. The Governance Committee has adopted a charter setting
forth its duties and responsibilities. Among other duties, the Governance
Committee reviews and oversees the Fund's governance guidelines, the adequacy
of the Fund's Codes of Ethics and the nomination of Trustees, including
Independent Trustees. The Governance Committee has adopted a process for
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 Governance Committee in care of the Fund. The Governance
Committee may consider such persons at such time as it meets to consider
possible nominees. The Governance Committee, however, reserves sole
discretion to determine which candidates for Trustees and Independent
Trustees it will recommend to the Board and/or shareholders and it may
identify candidates other than those submitted by Shareholders. The
Governance Committee may, but need not, consider the advice and
recommendation of the Manager and/or 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 below. 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 is an Independent Trustee. All of the Trustees are also trustees or
directors of the following Oppenheimer/Centennial funds (referred to as
"Board II Funds"):

Oppenheimer Principal Protected
Oppenheimer Cash Reserves Trust II
Oppenheimer Principal Protected
Oppenheimer Capital Income Fund Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund
Oppenheimer Senior Floating Rate
Oppenheimer Equity Fund, Inc. Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Integrity Funds Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Limited-Term Government Fund
Centennial California Tax Exempt
Oppenheimer Main Street Funds, Inc. Trust
Oppenheimer Main Street Opportunity Fund Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Centennial New York Tax Exempt
Oppenheimer Municipal Fund Trust
Oppenheimer Principal Protected Trust 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 charge on Class A shares is
waived for that group because of the reduced sales efforts realized by the
Distributor.

Messrs.Gillespie, Levine, Murphy, Petersen, Vandehey, Vottiero, Wixted
and Zack and Mss. Bloomberg and Ives, who are officers of the Fund, hold the
same offices with one or more of the other Board II Funds. As of October 6,
2004 the Trustees and officers of the Fund, as a group, owned of record or
beneficially less than 1% of any 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 Board II Funds. In addition,
none of the Independent Trustees (nor any of their immediate family members)
owns securities of either the Manager or the Distributor or of any entity
directly or indirectly controlling, controlled by or under common control
with the Manager or the Distributor of the Board II Funds.

Biographical Information. The Trustees and officers, their positions
with the Fund, length of service in such position(s), and principal
occupations and business affiliations during at least the past five years are
listed in the charts below. The charts also include information about each
Trustee's beneficial share ownership in the Fund and in all of the registered
investment companies that the Trustee oversees in the Oppenheimer family of
funds ("Supervised Funds"). The address of each Trustee in the chart below is
6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each Trustee serves for
an indefinite term, or until his or her resignation, retirement, death or
removal.

-------------------------------------------------------------------------------------
Independent Trustees
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During the Dollar Aggregate
Dollar
Range of
Shares
Range of Beneficially
Past 5 Years; Other Shares Owned in
with the Fund, Trusteeships/Directorships Held; BeneficiallyAll
Length of Service, Number of Portfolios in the Fund Owned in Supervised
Age Complex Currently Overseen the Fund Funds
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
As of December 31, 2004
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
William L. Chairman of the following private None Over
Armstrong, mortgage banking companies: Cherry $100,000
Chairman of the Creek Mortgage Company (since 1991),
Board of Trustees Centennial State Mortgage Company
since 2003, Trustee (since 1994), and The El Paso Mortgage
since 1999 Company (since 1993); Chairman of the
Age: 68 following private companies:
Ambassador Media Corporation (since
1984) and Broadway Ventures (since
1984); Director of the following:
Helmerich & Payne, Inc. (oil and gas
drilling/production company) (since
1992), Campus Crusade for Christ
(since 1991) and The Lynde and Harry
Bradley Foundation, Inc. (non-profit
organization) (since 2002); former
Chairman of the following: Transland
Financial Services, Inc. (private
mortgage banking company) (1997-2003),
Great Frontier Insurance (insurance
agency) (1995-2000), Frontier Real
Estate, Inc. (residential real estate
brokerage) (1994-2000) and Frontier
Title (title insurance agency)
(1995-2000); former Director of the
following: UNUMProvident (insurance
company) (1991-2004), Storage
Technology Corporation (computer
equipment company) (1991-2003) and
International Family Entertainment
(television channel) (1992-1997); U.S.
Senator (January 1979-January 1991).
Oversees 38 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Robert G. Avis, Director and President of A.G. Edwards None Over
Trustee since 1993 Capital, Inc. (General Partner of $100,000
Age: 74 private equity funds) (until February
2001); Chairman, President and Chief
Executive Officer of A.G. Edwards
Capital, Inc. (until March 2000);
Director of A.G. Edwards & Sons, Inc.
(brokerage company) (until 2000) and
A.G. Edwards Trust Company (investment
adviser) (until 2000); Vice Chairman
and Director of A.G. Edwards, Inc.
(until March 1999); Vice Chairman of
A.G. Edwards & Sons, Inc. (until March
1999); Chairman of A.G. Edwards Trust
Company (until March 1999) and A.G.E.
Asset Management (investment adviser)
(until March 1999). Oversees 38
portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
George C. Bowen, Assistant Secretary and Director of $10,001-$50,Over
Trustee since 1998 Centennial Asset Management $100,000
Age: 69 Corporation (December 1991-April
1999); President, Treasurer and
Director of Centennial Capital
Corporation (June 1989-April 1999);
Chief Executive Officer and Director
of MultiSource Services, Inc. (March
1996-April 1999); Mr. Bowen held
several positions with the Manager and
with subsidiary or affiliated
companies of the Manager (September
1987-April 1999). Oversees 38
portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Edward L. Cameron, Member of The Life Guard of Mount $10,001-$50,Over
Trustee since 1999 Vernon (George Washington historical $100,000
Age: 67 site) (since June 2000); Director of
Genetic ID, Inc. (biotech company)
(March 2001-May 2002); Partner at
PricewaterhouseCoopers LLP (accounting
firm) (July 1974-June 1999); Chairman
of Price Waterhouse LLP Global
Investment Management Industry
Services Group (July 1994-June 1998).
Oversees 38 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Jon S. Fossel, Director of UNUMProvident (insurance None Over
Trustee since 1990 company) (since June 2002); Director $100,000
Age: 63 of Northwestern Energy Corp. (public
utility corporation) (since November
2004); Director of P.R.
Pharmaceuticals (October 1999-October
2003); Director of Rocky Mountain Elk
Foundation (non-profit organization)
(February 1998-February 2003);
Chairman and Director (until October
1996) and President and Chief
Executive Officer (until October 1995)
of the Manager; President, Chief
Executive Officer and Director of the
following: Oppenheimer Acquisition
Corp. ("OAC") (parent holding company
of the Manager), Shareholders
Services, Inc. and Shareholder
Financial Services, Inc. (until
October 1995). Oversees 38 portfolios
in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Sam Freedman, Director of Colorado Uplift $10,001-$50,Over
Trustee since 1996 (charitable organization) (since $100,000
Age: 65 September 1984). Mr. Freedman held
several positions with the Manager and
with subsidiary or affiliated
companies of the Manager (until
October 1994). Oversees 38 portfolios
in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Beverly L. Hamilton, Trustee of Monterey Institute for None Over
Trustee since 2002 International Studies (educational $100,000
Age: 59 organization) (since February 2000);
Director of The California Endowment
(philanthropic organization) (since
April 2002); Director of Community
Hospital of Monterey Peninsula (since
February 2002); Director of American
Funds' Emerging Markets Growth Fund,
Inc. (mutual fund) (since October
1991); President of ARCO Investment
Management Company (February
1991-April 2000); Member of the
investment committees of The
Rockefeller Foundation and The
University of Michigan; Advisor at
Credit Suisse First Boston's Sprout
venture capital unit (venture capital
fund) (1994-January 2005); Trustee of
MassMutual Institutional Funds
(investment company) (1996-June 2004);
Trustee of MML Series Investment Fund
(investment company) (April 1989-June
2004); Member of the investment
committee of Hartford Hospital
(2000-2003); and Advisor to Unilever
(Holland) pension fund (2000-2003).
Oversees 38 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Robert J. Malone, Director of Jones International None Over
Trustee since 2002 University (educational organization) $100,000
Age: 61 (since August 2005); Chairman, Chief
Executive Officer and Director of
Steele Street State Bank (commercial
banking) (since August 2003); Director
of Colorado UpLIFT (charitable
organization) (since 1986); Trustee of
the Gallagher Family Foundation
(non-profit organization) (since
2000); Former Chairman of U.S.
Bank-Colorado (subsidiary of U.S.
Bancorp and formerly Colorado National
Bank) (July 1996-April 1999); Director
of Commercial Assets, Inc. (real
estate investment trust) (1993-2000);
Director of Jones Knowledge, Inc.
(2001-July 2004); and Director of U.S.
Exploration, Inc. (oil and gas
exploration) (1997-February 2004).
Oversees 38 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
F. William Trustee of MassMutual Select Funds None Over
Marshall, Jr., (formerly MassMutual Institutional $100,000
Trustee since 2000 Funds) (investment company) (since
Age: 63 1996) and MML Series Investment Fund
(investment company) (since 1996), the
Springfield Library and Museum
Association (museums) (since 1995) and
the Community Music School of
Springfield (music school) (since
1996); Chairman and Trustee (since
2003) and Chairman of the Investment
Committee (since 1994) of the
Worcester Polytech Institute (private
university); President and Treasurer
of the SIS Funds (private charitable
fund) (since January 1999); Chairman
of SIS & Family Bank, F.S.B. (formerly
SIS Bank) (commercial bank) (January
1999-July 1999); Member of the
Investment Committee of the Community
Foundation of Western Massachusetts
(1998-2003); and Executive Vice
President of Peoples Heritage
Financial Group, Inc. (commercial
bank) (January 1999-July 1999).
Oversees 40 portfolios in the
OppenheimerFunds complex.*
-------------------------------------------------------------------------------------
* Includes two open-end investment companies: MassMutual Select Funds and
MML Series Investment Fund. In accordance with the instructions for Form
N-1A, for purposes of this section only, MassMutual Select Funds and MML
Series Investment Fund are included in the "Fund Complex." The Manager
does not consider MassMutual Select Funds and MML Series Investment Fund
to be part of the OppenheimerFunds' "Fund Complex" as that term may be
otherwise interpreted.

The address of Mr. Murphy is Two World Financial Center, 225 Liberty
Street, 11th Floor, New York, New York 10281-1008. Mr. Murphy serves for as a
Trustee for an indefinite term and as an officer for an annual term, or until
his resignation, retirement, death or removal. 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 director or trustee.

-------------------------------------------------------------------------------------
Interested Trustee and Officer
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During the Dollar Aggregate
Dollar
Range Of
Shares
Range of Beneficially
Past 5 Years; Other Shares Owned in
Held with the Fund, Trusteeships/Directorships Held; BeneficiallyAll
Length of Service, Number of Portfolios in the Fund Owned in Supervised
Age Complex Currently Overseen the Fund Funds
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
As of December 31, 2004
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and None Over
President and Director (since June 2001) and $100,000
Trustee since 2001 President (since September 2000) of
Age: 56 the Manager; President and director or
trustee of other Oppenheimer funds;
President and Director of OAC and of
Oppenheimer Partnership Holdings, Inc.
(holding company subsidiary of the
Manager) (since July 2001); Director
of OppenheimerFunds Distributor, Inc.
(subsidiary of the Manager) (since
November 2001); Chairman and Director
of Shareholder Services, Inc. and of
Shareholder Financial Services, Inc.
(transfer agent subsidiaries of the
Manager) (since July 2001); President
and Director of OppenheimerFunds
Legacy Program (charitable trust
program established by the Manager)
(since July 2001); Director of the
following investment advisory
subsidiaries of the Manager: OFI
Institutional Asset Management, Inc.,
Centennial Asset Management
Corporation, Trinity Investment
Management Corporation and Tremont
Capital Management, Inc. (since
November 2001), HarbourView Asset
Management Corporation and OFI Private
Investments, Inc. (since July 2001);
President (since November 2001) and
Director (since July 2001) of
Oppenheimer Real Asset Management,
Inc.; Executive Vice President of
Massachusetts Mutual Life Insurance
Company (OAC's parent company) (since
February 1997); Director of DLB
Acquisition Corporation (holding
company parent of Babson Capital
Management LLC) (since June 1995);
Member of the Investment Company
Institute's Board of Governors (since
October 3, 2003); Chief Operating
Officer of the Manager (September
2000-June 2001); President and Trustee
of MML Series Investment Fund and
MassMutual Select Funds (open-end
investment companies) (November
1999-November 2001); Director of C.M.
Life Insurance Company (September
1999-August 2000); President, Chief
Executive Officer and Director of MML
Bay State Life Insurance Company
(September 1999-August 2000); Director
of Emerald Isle Bancorp and Hibernia
Savings Bank (wholly-owned subsidiary
of Emerald Isle Bancorp) (June
1989-June 1998). Oversees 77
portfolios as an officer and director
or trustee and 10 additional
portfolios as an officers in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------

The addresses of the officers in the chart below are as follows: for Messrs.
Gillespie, Levine and Zack and Mss. Bloomberg, Two World Financial Center,
225 Liberty Street, New York, New York 10281-1008, for Messrs. Petersen,
Vandehey, Vottiero, and Wixted and Ms. Ives, 6803 S. Tucson Way, Centennial,
Colorado 80112-3924. Each officer serves for an annual term or until his or
her resignation, retirement death or removal.

---------------------------------------------------------------------------------
Other Officers of the Fund
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Name, Position(s) Held Principal Occupation(s) During Past 5 Years
with the Fund, Length
of Service, Age
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Michael S. Levine Vice President of the Manager since June 1998; an
Vice President and officer of 1 portfolio in the OppenheimerFunds complex.
Portfolio Manager Formerly Assistant Vice President and Portfolio Manager
since June 1999 of the Manager (April 1996 - June 1998).
Age: 39
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of
Vice President and the Manager (since March 2004); Vice President of
Chief Compliance OppenheimerFunds Distributor, Inc., Centennial Asset
Officer since 2004 Management Corporation and Shareholder Services, Inc.
Age: 55 (since June 1983); Vice President and Director of
Internal Audit of the Manager (1997-February 2004). An
officer of 87 portfolios in the OppenheimerFunds
complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager
Treasurer since 1999 (since March 1999); Treasurer of the following:
Age: 46 HarbourView Asset Management Corporation, Shareholder
Financial Services, Inc., Shareholder Services, Inc.,
Oppenheimer Real Asset Management Corporation, and
Oppenheimer Partnership Holdings, Inc. (since March
1999), OFI Private Investments, Inc. (since March
2000), OppenheimerFunds International Ltd. and
OppenheimerFunds plc (since May 2000), OFI
Institutional Asset Management, Inc. (since November
2000), and OppenheimerFunds Legacy Program (since June
2003); Treasurer and Chief Financial Officer of OFI
Trust Company (trust company subsidiary of the Manager)
(since May 2000); Assistant Treasurer of the following:
OAC (since March 1999), Centennial Asset Management
Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer of Bankers Trust
Company-Mutual Fund Services Division (March 1995-March
1999). An officer of 87 portfolios in the
OppenheimerFunds complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager (since August
Assistant Treasurer 2002); Manager/Financial Product Accounting of the
since 2004 Manager (November 1998-July 2002). An officer of 87
Age: 35 portfolios in the OppenheimerFunds complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Philip F. Vottiero, Vice President/Fund Accounting of the Manager (since
Assistant Treasurer March 2002); Vice President/Corporate Accounting of the
since 2002 Manager (July 1999-March 2002); Chief Financial Officer
Age: 42 of Sovlink Corporation (April 1996-June 1999). An
officer of 87 portfolios in the OppenheimerFunds
complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and
Secretary since 2001 General Counsel (since March 2002) of the Manager;
Age: 57 General Counsel and Director of the Distributor (since
December 2001); General Counsel of Centennial Asset
Management Corporation (since December 2001); Senior
Vice President and General Counsel of HarbourView Asset
Management Corporation (since December 2001); Secretary
and General Counsel of OAC (since November 2001);
Assistant Secretary (since September 1997) and Director
(since November 2001) of OppenheimerFunds International
Ltd. and OppenheimerFunds plc; Vice President and
Director of Oppenheimer Partnership Holdings, Inc.
(since December 2002); Director of Oppenheimer Real
Asset Management, Inc. (since November 2001); Senior
Vice President, General Counsel and Director of
Shareholder Financial Services, Inc. and Shareholder
Services, Inc. (since December 2001); Senior Vice
President, General Counsel and Director of OFI Private
Investments, Inc. and OFI Trust Company (since November
2001); Vice President of OppenheimerFunds Legacy
Program (since June 2003); Senior Vice President and
General Counsel of OFI Institutional Asset Management,
Inc. (since November 2001); Director of
OppenheimerFunds (Asia) Limited (since December 2003);
Senior Vice President (May 1985-December 2003), Acting
General Counsel (November 2001-February 2002) and
Associate General Counsel (May 1981-October 2001) of
the Manager; Assistant Secretary of the following:
Shareholder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November
1989-November 2001), and OppenheimerFunds International
Ltd. (September 1997-November 2001). An officer of 87
portfolios in the OppenheimerFunds complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager
Assistant Secretary (since May 2004); First Vice President (April
since 2004 2001-April 2004), Associate General Counsel (December
Age: 37 2000-April 2004), Corporate Vice President (May
1999-April 2001) and Assistant General Counsel (May
1999-December 2000) of UBS Financial Services Inc.
(formerly, PaineWebber Incorporated). An officer of 87
portfolios in the OppenheimerFunds complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and
Assistant Secretary Assistant Secretary (since October 2003) of the
since 2001 Manager; Vice President (since 1999) and Assistant
Age: 40 Secretary (since October 2003) of the Distributor;
Assistant Secretary of Centennial Asset Management
Corporation (since October 2003); Vice President and
Assistant Secretary of Shareholder Services, Inc.
(since 1999); Assistant Secretary of OppenheimerFunds
Legacy Program and Shareholder Financial Services, Inc.
(since December 2001); Assistant Counsel of the Manager
(August 1994-October 2003). An officer of 87 portfolios
in the OppenheimerFunds complex.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the
Assistant Secretary Manager (since September 2004); First Vice President
since 2004 (2000-September 2004), Director (2000-September 2004)
Age: 41 and Vice President (1998-2000) of Merrill Lynch
Investment Management. An officer of 87 portfolios in
the OppenheimerFunds complex.
---------------------------------------------------------------------------------

|X| Remuneration of the Officers and Trustees. The officers and interested
Trustees of the Fund, who are affiliated with the Manager, receive no salary
or fee from the Fund. The Independent Trustees received the compensation
shown below from the Fund for serving as a Trustee and member of a committee
(if applicable), with respect to the Fund's fiscal year ended August 31,
2005. The total compensation, including accrued retirement benefits, from the
Fund and fund complex represents compensation received for serving as a
Trustee and member of a committee (if applicable) of the Boards of the Fund
and other funds in the OppenheimerFunds complex during the calendar year
ended December 31, 2004.

---------------------------------------------------------------------------------
Name of Trustee and Other Fund Aggregate Compensation Total Compensation
From the Fund and
Position(s) (as applicable) From the Fund(1) Fund Complex(2)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
William L. Armstrong $7,705 $178,000
Chairman of the Board and
Governance Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Robert G. Avis $5,129 $118,500
Review Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
George C. Bowen $5,129 $118,500
Audit Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Edward L. Cameron $5,887 $136,000
Audit Committee Chairman
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Jon S. Fossel $5,887 $136,000
Review Committee Chairman
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Sam Freedman $5,129 $118,500
Review Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Beverly Hamilton $5,157(3) $152,355(5)
Review Committee Member and
Governance Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Robert J. Malone $5,921(4) $121,726
Governance Committee Chairman
and
Audit Committee Member
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
F. William Marshall, Jr. $5,129 $167,500(6)
Audit Committee Member and
Governance Committee Member
---------------------------------------------------------------------------------
1. "Aggregate Compensation From the Fund" includes fees and deferred
compensation, if any.
2. In accordance with SEC regulations, for purposes of this section only,
"Fund Complex" includes the Oppenheimer funds, the MassMutual
Institutional Funds, the MassMutual Select Funds and the 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 following: MassMutual Premier International Equity Fund, MassMutual
Premier Main Street Fund, MassMutual Premier Strategic Income Fund,
MassMutual Premier Capital Appreciation Fund, and MassMutual Premier
Global Fund. The Manager does not consider MassMutual Institutional Funds,
MassMutual Select Funds and MML Series Investment Fund to be part of the
OppenheimerFunds' "Fund Complex" as that term may be otherwise interpreted.
3. Includes $5,157 deferred by Ms. Hamilton under the "Deferred
Compensation Plan" described below.
4. Includes $5,921 deferred by Mr. Malone under the "Deferred Compensation
Plan" described below.
5. Includes $36,654 deferred by Ms. Hamilton under a deferred compensation
plan for serving as a Trustee for MassMutual Institutional Funds and MML
Series Investment Fund (until June 30, 2004).
6. Includes $49,000 compensation paid to Mr. Marshall for serving as a
Trustee for MassMutual Select Funds and MML Series Investment Fund.

|X| Deferred Compensation Plan For Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for Independent 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
Trustees. The amount paid to the Trustees under the plan will be determined
based upon the amount of compensation deferred and the performance of the
selected funds.

Deferral of Trustees' fees under the plan will not materially affect
the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustees or to pay any
particular level of compensation to any Trustees. Pursuant to an Order
issued by the SEC, the Fund may invest in the funds selected by the Trustees
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustees' deferred compensation 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 the Manager where a
directly-controlled affiliate of the Manager 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 the independent registered public
accounting firm, unless circumstances indicate otherwise.
o In general, the Fund opposes "anti-takeover" proposals and supports the
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 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.

|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities
for the Fund's portfolio and handles its day-to-day business. The portfolio
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.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2003 $12,219,761
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2004 $14,972,144
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 $15,950,286
---------------------------------------------------------------------------

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.

Portfolio Manager. The Fund's portfolio is managed by Michael S. Levine (the
"Portfolio Manager") who is responsible for the day-to-day management of the
Fund's investments.

Other Accounts Managed. In addition to managing the Fund's
investments, the Portfolio Manager also manages other investment portfolios
and accounts. The following table provides information regarding the other
portfolios and accounts managed by the Portfolio Manager as of August 31,
2005. No account has a performance-based advisory fee:

Portfolio RegistereTotal Other Total Other Total
Assets in
Assets in Other
Registered Pooled Pooled Assets
InvestmenInvestment InvestmentInvestment in Other
CompaniesCompanies Vehicles Vehicles AccountsAccounts
Manager Managed Managed* Managed Managed* Managed Managed*
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Michael S. 1 $3,104.2 None None 2 $825,000
Levine

* In millions.

As indicated above, the Portfolio Manager also manages other funds and
accounts. Potentially, at times, those responsibilities could conflict with
the interests of the Fund. That may occur whether the investment strategies
of the other funds or accounts are the same as, or different from, the Fund's
investment objectives and strategies. For example the Portfolio Manager may
need to allocate investment opportunities between the Fund and another fund
or account having similar objectives or strategies, or they may need to
execute transactions for another fund or account that could have a negative
impact on the value of securities held by the Fund. Not all funds and
accounts advised by the Manager have the same management fee. If the
management fee structure of another fund or account is more advantageous to
the Manager than the fee structure of the Fund, the Manager could have an
incentive to favor the other fund or account. However, the Manager's
compliance procedures and Code of Ethics recognize the Manager's fiduciary
obligations to treat all of its clients, including the Fund, fairly and
equitably, and are designed to preclude the Portfolio Manager from favoring
one client over another. It is possible, of course, that those compliance
procedures and the Code of Ethics may not always be adequate to do so. At
various times, the Fund's Portfolio Manager may manage other funds or
accounts with investment objectives and strategies that are similar to those
of the Fund, or may manage funds or accounts with investment objectives and
strategies that are different from those of the Fund.

Compensation of the Portfolio Manager. The Fund's Portfolio Manager is
employed and compensated by the Manager, not the Fund. Under the Manager's
compensation program for its portfolio managers and portfolio analysts, their
compensation is based primarily on the investment performance results of the
funds and accounts they manage, rather than on the financial success of the
Manager. This is intended to align the portfolio managers and analysts'
interests with the success of the funds and accounts and their shareholders.
The Manager's compensation structure is designed to attract and retain highly
qualified investment management professionals and to reward individual and
team contributions toward creating shareholder value. As of August 31, 2005,
the Portfolio Manager's compensation consisted of three elements: a base
salary, an annual discretionary bonus and eligibility to participate in
long-term awards of options and appreciation rights in regard to the common
stock of the Manager's holding company parent. Senior portfolio managers may
also be eligible to participate in the Manager's deferred compensation plan.

To help the Manager attract and retain talent, the base pay component of each
portfolio manager is reviewed regularly to ensure that it reflects the
performance of the individual, is commensurate with the requirements of the
particular portfolio, reflects any specific competence or specialty of the
individual manager, and is competitive with other comparable positions. The
annual discretionary bonus is determined by senior management of the Manager
and is based on a number of factors, including a fund's pre-tax performance
for periods of up to five years, measured against an appropriate Lipper
benchmark selected by management. The Lipper benchmark with respect to the
Fund is Lipper - Income Funds. Other factors considered include management
quality (such as style consistency, risk management, sector coverage, team
leadership and coaching) and organizational development. The Portfolio
Manager's compensation is not based on the total value of the Fund's
portfolio assets, although the Fund's investment performance may increase
those assets. The compensation structure is also intended to be internally
equitable and serve to reduce potential conflicts of interest between the
Fund and other funds and accounts managed by the Portfolio Manager. The
compensation structure of the other funds and accounts managed by the
Portfolio Manager is the same as the compensation structure of the Fund,
described above.

Ownership of Fund Shares. As of August 31, 2005, the Portfolio Manager
beneficially owned shares of the Fund as follows:

Range of Shares Beneficially
Portfolio Manager Owned in the Fund
-------------------------------------------------------
-------------------------------------------------------
Michael S. Levine Over $100,000
-------------------------------------------------------
-------------------------------------------------------

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.

Rule 12b-1 under the Investment Company Act prohibits any fund from
compensating a broker or dealer for promoting or selling the fund's shares by
(1) directing to that broker or dealer any of the fund's portfolio
transactions, or (2) directing any other remuneration to that broker or
dealer, such as commissions, mark-ups, mark downs or other fees from the
fund's portfolio transactions, that were effected by another broker or dealer
(these latter arrangements are considered to be a type of "step-out"
transaction). In other words, a fund and its investment adviser cannot use
the fund's brokerage for the purpose of rewarding broker-dealers for selling
the fund's shares.

However, the Rule permits funds to effect brokerage transactions through
firms that also sell fund shares, provided that certain procedures are
adopted to prevent a quid pro quo with respect to portfolio brokerage
allocations. As permitted by the Rule, the Manager has adopted procedures
(and the Fund's Board of Trustees has approved those procedures) that permit
the Fund to direct portfolio securities transactions to brokers or dealers
that also promote or sell shares of the Fund, subject to the "best execution"
considerations discussed above. Those procedures are designed to prevent: (1)
the Manager's personnel who effect the Fund's portfolio transactions from
taking into account a broker's or dealer's promotion or sales of the Fund
shares when allocating the Fund's portfolio transactions, and (2) the Fund,
the Manager and the Distributor from entering into agreements or
understandings under which the Manager directs or is expected to direct the
Fund's brokerage directly, or through a "step-out" arrangement, to any broker
or dealer in consideration of that broker's or dealer's promotion or sale of
the Fund's shares or the shares of any of the other Oppenheimer funds.

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 broaden 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
Fund(1)
---------------------------------------------------------------------
---------------------------------------------------------------------
2003 $3,084,115
---------------------------------------------------------------------
---------------------------------------------------------------------
2004 $3,308,511(2)
---------------------------------------------------------------------
---------------------------------------------------------------------
2005 $3,407,539
---------------------------------------------------------------------
1. Amounts do not include spreads or commissions on principal
transactions on a net trade basis.
2. In the fiscal year ended 8/31/05, the amount of transactions
directed to brokers for research services was $6,288,555 and the
amount of the commissions paid to broker-dealers for those
services was $8,014.

Distribution and Service Plans

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

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

-------------------------------------------
Fiscal Aggregate Class A
Front-End
Front-End Sales Sales Charges
Year Charges on Retained by
Ended Class A Shares Distributor(1)
-------------------------------------------
-------------------------------------------
2003 $1,898,819 $492,515
-------------------------------------------
-------------------------------------------
2004 $3,390,971 $1,038,146
-------------------------------------------
-------------------------------------------
2005 $3,232,920 $979,563
-------------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.

-----------------------------------------------------------------------------
Fiscal Concessions on Concessions on Concessions on Concessions on
Class A Shares Class B Shares Class C Shares Class N Shares
Year Advanced by Advanced by Advanced by Advanced by
Ended Distributor(1) Distributor(1) Distributor(1) Distributor(1)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
2003 $236,351 $1,420,826 $146,356 $40,439
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
2004 $254,037 $1,967,231 $330,437 $68,040
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
2005 $196,684 $1,308,849 $281,491 $83,453
-----------------------------------------------------------------------------
1. The Distributor advances concession payments to financial
intermediaries for certain sales of Class A shares and for sales of Class
B, Class C, and Class N shares from its own resources at the time of sale.

------------------------------------------------------------------------------
Fiscal Class A Class B Class C Class N
Contingent Contingent Contingent
Deferred Sales Deferred Sales Contingent Deferred Sales
Year Charges Charges Deferred Sales Charges
Ended Retained by Retained by Charges Retained Retained by
8/31 Distributor Distributor by Distributor Distributor
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2003 $18,476 $759,454 $7,861 $14,754
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2004 $29,534 $530,263 $17,067 $3,969
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2005 $33,107 $496,570 $17,566 $13,003
------------------------------------------------------------------------------

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 Trustees(1), 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.

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 period 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.

|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 periodically 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
periodically 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, 2005 payments under the Class A
plan totaled $6,033,808, of which $14,598 was retained by the Distributor
under the arrangement described above, regarding grandfathered retirement
accounts, and included $359,388 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
periodic 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 periodically 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 registered broker-dealer. 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 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 periodically 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 charge 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 either 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 8/31/05
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class: Total Amount Distributor's Distributor's
Unreimbursed
Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Under Plan Distributor Expenses Under Plan of Class
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Plan $3,041,646 $2,383,879(1) $8,785,178 2.94%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Plan $1,500,411 $289,136(2) $3,261,469 1.95%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class N Plan $114,518 $71,057(3) $455,838 1.55%
--------------------------------------------------------------------------------
1. Includes $52,120 paid to an affiliate of the Distributor's parent company.
2. Includes $43,901paid to an affiliate of the Distributor's parent company.
3. Includes $5,089 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.

Payments to Fund Intermediaries

Financial intermediaries may receive various forms of compensation or
reimbursement from the Fund in the form of 12b-1 plan payments as described
in the preceding section of this SAI. They may also receive reallowance of
commissions from the Distributor, derived from sales charges paid by the
clients of the financial intermediary, also as described in this SAI.
Additionally, the Manager and/or the Distributor (including their affiliates)
may make payments to financial intermediaries in connection with their
offering and selling shares of the Fund and other Oppenheimer funds,
providing marketing or promotional support, transaction processing and/or
administrative services. Among the financial intermediaries that may receive
these payments are brokers and dealers who sell and/or hold shares of the
Fund, banks (including bank trust departments), registered investment
advisers, insurance companies, retirement plan and qualified tuition program
administrators, third party administrators, and other institutions that have
selling, servicing or similar arrangements with the Manager or Distributor.
The payments to intermediaries vary by the types of product sold, the
features of the Fund share class and the role played by the intermediary.

Possible types of payments to financial intermediaries include, without
limitation, those discussed below.

o Payments made by the Fund, or by an investor buying or selling shares
of the Fund may include:

o depending on the share class that the investor selects, contingent
deferred sales charges or initial front-end sales charges, all
or a portion of which front-end sales charges are payable by
the Distributor to financial intermediaries as sales
commissions (see "About Your Account" in the Prospectus);
o ongoing asset-based payments attributable to the share class selected,
including fees payable under the Fund's distribution and/or
service plans adopted under Rule 12b-1 under the Investment
Company Act, which are paid from the Fund's assets and
allocated to the class of shares to which the plan relates (see
"About the Fund -- Distribution and Service Plans" above);
o shareholder servicing payments for providing omnibus accounting,
recordkeeping, networking, sub-transfer agency or other
administrative or shareholder services, including retirement
plan and 529 plan administrative services fees, which are paid
from the assets of a Fund as reimbursement to the Manager or
Distributor for expenses they incur on behalf of the Fund.

o Payments made by the Manager or Distributor out of their respective
resources and assets, which may include profits the Manager derives
from investment advisory fees paid by the Fund. These payments are
made at the discretion of the Manager and/or the Distributor. These
payments, often referred to as "revenue sharing" payments, may be in
addition to the payments by the Fund listed above.

o These types of payments may reflect compensation for marketing support,
support provided in offering the Fund or other Oppenheimer
funds through certain trading platforms and programs,
transaction processing or other services;
o The Manager and Distributor each may also pay other compensation to the
extent the payment is not prohibited by law or by any
self-regulatory agency, such as the NASD. Payments are made
based on the guidelines established by the Manager and
Distributor, subject to applicable law.

These payments may provide an incentive to financial intermediaries to
actively market or promote the sale of shares of the Fund or other
Oppenheimer funds, or to support the marketing or promotional efforts of the
Distributor in offering shares of the Fund or other Oppenheimer funds. In
addition, some types of payments may provide a financial intermediary with an
incentive to recommend the Fund or a particular share class. Financial
intermediaries may earn profits on these payments, since the amount of the
payment may exceed the cost of providing the service. Certain of these
payments are subject to limitations under applicable law. Financial
intermediaries may categorize and disclose these arrangements to their
clients and to members of the public in a manner different from the
disclosures in the Fund's prospectus and this SAI. You should ask your
financial intermediary for information about any payments it receives from
the Fund, the Manager or the Distributor and any services it provides, as
well as the fees and commissions it charges.

Although brokers or dealers that sell Fund shares may also act as a
broker or dealer in connection with the execution of the purchase or sale of
portfolio securities by the Fund or other Oppenheimer funds, a financial
intermediary's sales of shares of the Fund or such other Oppenheimer funds is
not a consideration for the Manager when choosing brokers or dealers to
effect portfolio transactions for the Fund or such other Oppenheimer funds.

Revenue sharing payments can pay for distribution-related or asset
retention items including, without limitation,

o transactional support, one-time charges for setting up access for the
Fund or other Oppenheimer funds on particular trading systems, and
paying the intermediary's networking fees;
o program support, such as expenses related to including the Oppenheimer
funds in retirement plans, college savings plans, fee-based advisory
or wrap fee programs, fund "supermarkets", bank or trust company
products or insurance companies' variable annuity or variable life
insurance products;
o placement on the dealer's list of offered funds and providing
representatives of the Distributor with access to a financial
intermediary's sales meetings, sales representatives and management
representatives.

Additionally, the Manager or Distributor may make payments for firm
support, such as business planning assistance, advertising, and educating a
financial intermediary's sales personnel about the Oppenheimer funds and
shareholder financial planning needs.

For the year ended December 31, 2004, the following financial
intermediaries that are broker-dealers offering shares of the Oppenheimer
funds, and/or their respective affiliates, received revenue sharing or
similar distribution-related payments from the Manager or Distributor for
marketing or program support:

ADVEST INC. AEGON
A.G. Edwards & Sons, Inc AIG Network
Allianz Life Insurance Company Allstate Life Insurance Company
Ameritas Life Insurance Corporation American Centurian Life Insurance
American Enterprise Life Insurance American Express Financial Advisors
Inc.
American Portfolios Annuity Investors Life
AXA Advisors Banc One Securities Corporation
Bank of New York Cadaret Grant & Co. Inc.
Charter One Securities Inc. Chase Investment Services
Citigroup Financial Network CitiStreet
Citizens Bank of Rhode Island CJM Planning Corp.
Columbus Life Insurance Company Commonwealth Financial Network
CUNA Brokerage Services Inc. CUSO Financial Services, L.P.
Federal Kemper First Allied Securities Inc
First Global Capital GE Financial Assurance
GlenBrook Life and Annuity Co. Great West Life & Annuity Co., Inc.
HD Vest Hewitt Associates
HSBC Brokerage (USA) Inc. ING Network
Jefferson Pilot Securities Corporation John Hancock Variable Life Insurance
Company
Kemper Life Assurance Company Legend Equities Corporation
Legg Mason Wood Walker, Incorporated Lincoln National Life Insurance
Company
Lincoln Financial Advisors Corporation Lincoln Investment Planning
Linsco/Private Ledger Corp. MassMutual Financial Group and
affiliates
McDonald Investments, Inc. Merrill Lynch & Co., Inc. and
affiliates
Metlife and affiliates Minnesota Life Insurance Company
Morgan Stanley DW Inc. NPH Network
Nationwide and affiliates New York Life Securities, LLC
PacLife Network Park Avenue Securities LLC
Planmember Securities Corporation Prime Capital Services, Inc.
Princor Financial Services Corporation Protective Life Insurance Co.
Provident Mutual Insurance Company Prudential Investment Management
Services LLC
Raymond James Financial Services, Inc. Raymond James & Associates, Inc.
RBC Dain Rauscher Inc. Securities America, Inc.
Security Benefit Life Insurance Company Signator Investments
Sun Life Insurance Company Suntrust Investment Services, Inc.
Tower Square Securities, Inc Travelers Life & Annuity Co., Inc.
UBS Financial Services Inc. Union Central Life Insurance Company
Wachovia Securities LLC Wells Fargo Investments, LLC

For the year ended December 31, 2004, the following firms, which in
some cases are broker-dealers, received payments from the Manager or
Distributor for administrative or other services provided (other than revenue
sharing arrangements), as described above:

ABN AMRO ADP
Alliance Benefit Group AMVESCAP Retirement Plans
American Stock & Transfer Baden Retirement
BCG Benefit Administration Co., LLC
Benefit Administration, Inc. Benefit Plans Administrative Services
Benetech, Inc. BISYS Retirement Services
Boston Financial Data Services Ceridian
Circle Trust Company Citigroup
CitiStreet CPI
Daily Access.Com, Inc. Digital Retirement Solutions
Dyatech ERISA Administrative Services, Inc.
ExpertPlan.com FAScore
FBD Consulting Federated Investors
Fidelity Institutional First National Bank of Omaha
First Trust Corp. Franklin Templeton
Geller Group Gold K
Great West Financial Services Hartford Life Insurance Co.
Equities, Inc.
ICMA - RC Services In West Pension Mgmt
Independent Plan Coordinators Ingham Group
Interactive Retirement Systems, Ltd. Invesmart, Inc.
Kaufman & Goble Leggette & Co., Inc.
Manulife MassMutual Financial Group and
affiliates
Matrix Settlement & Clearance Services Mellon HR Solutions
Merrill Lynch & Co., Inc. Metavante
Metlife Securities Inc. MFS Investment Management
Mid Atlantic Capital Corp. Milliman USA
Morgan Stanley DW Inc. National City Bank
National Financial Services Corp. National Investors Services Corp.
Nationwide Investment Service Corp. New York Life Investment Management,
Inc.
Northwest Plan Services Pension Administration and Consulting
PFPC, Inc. PSMI Group
Putnam Fiduciary Trust Company Quads Trust Company
RSM McGladrey SAFECO
Charles Schwab & Co., Inc. Security Trust Company
Sentinel / National Life Standard Insurance Co
Stanley, Hunt, Dupree & Rhine State Street Bank & Trust Company
Suntrust Investment Services, Inc. Swerdlin & Co.
T. Rowe Price Brokerage Services, L.P. Taylor, Perky & Parker, LLC
The 401k Company The Investment Center, Inc.
Trusource Union Bank and Trust Co.
USI Consulting Group Vanguard Group
Web401K.com Wilmington Trust Company

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 1.800.225.5677 or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.

The Fund's illustrations of its performance data in advertisements must
comply with rules of the SEC. Those rules describe the types of performance
data that may be used and how it is to be calculated. In general, any
advertisement by the Fund of its performance data must include the average
annual total returns for the advertised class of shares of the Fund.

Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other
investments:

o Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the
model performance data if your dividends are received in cash, or
you buy or sell shares during the period, or you bought your shares
at a different time and price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future returns.

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

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

In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted
from the initial investment ("P" in the formula below) (unless the return is
shown without sales charge, as described below). For Class B shares, payment
of the applicable contingent deferred sales charge is applied, depending on
the period for which the return is shown: 5.0% in the first year, 4.0% in the
second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0%
in the sixth year and none thereafter. For Class C shares, the 1.0%
contingent deferred sales charge is deducted for returns for the one-year
period. For Class N shares, the 1.0% contingent deferred sales charge is
deducted for returns for the one-year period, and total returns for the
periods prior to 03/01/01 (the inception date for Class N shares) are based
on the Fund's Class A returns, adjusted to reflect the higher Class N 12b-1
fees.

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

- 1 =Average Annual Total
ERV l/n Return
P

o Average Annual Total Return (After Taxes on Distributions). The
"average annual total return (after taxes on distributions)" of Class A
shares is an average annual compounded rate of return for each year in a
specified number of years, adjusted to show the effect of federal taxes
(calculated using the highest individual marginal federal income tax rates in
effect on any reinvestment date) on any distributions made by the Fund during
the specified period. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below)
held for a number of years ("n" in the formula) to achieve an ending value
("ATVD" in the formula) of that investment, after taking into account the
effect of taxes on Fund distributions, but not on the redemption of Fund
shares, according to the following formula:

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

o Average Annual Total Return (After Taxes on Distributions and
Redemptions). The "average annual total return (after taxes on distributions
and redemptions)" of Class A shares is an average annual compounded rate of
return for each year in a specified number of years, adjusted to show the
effect of federal taxes (calculated using the highest individual marginal
federal income tax rates in effect on any reinvestment date) on any
distributions made by the Fund during the specified period and the effect of
capital gains taxes or capital loss tax benefits (each calculated using the
highest federal individual capital gains tax rate in effect on the redemption
date) resulting from the redemption of the shares at the end of the period.
It is the rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a number of
years ("n" in the formula) to achieve an ending value ("ATVDR" in the
formula) of that investment, after taking into account the effect of taxes on
Fund distributions and on the redemption of Fund shares, according to the
following formula:

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

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

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

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

---------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/05
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
Returns (10
years or
Shares life of class)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
1-Year 5-Year 10-Year
[(or [(or
life-of-class life-of-class if
if less)] less)]
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
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 139.20% 153.79% 7.83% 14.40% 4.65% 5.90% 9.11% 9.76%
A(1)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Class
B(2) 141.86% 141.86% 8.40% 13.40% 4.72% 5.04% 9.23% 9.23%
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Class
C(3) 129.98%(3129.98%(312.52% 13.52% 5.07% 5.07% 8.84%(3) 8.84%(3)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Class
N(4) 22.72%(4)22.72%(4)12.95%(4)13.95% 4.65%(4)4.65%(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 Shares(1) (After Sales Charge)
For the Periods Ended 8/31/05
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or Life of
Class) (or Life of Class)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
After Taxes on Distributions 2.36% 4.39% 8.33%
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
After Taxes on Distributions 3.47 % 4.37% 8.11%
and Redemption of Fund Shares
-----------------------------------------------------------------------------
1. Inception of Class A shares: 12/1/70.

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

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

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

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

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

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

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

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

ABOUT YOUR ACCOUNT

How to Buy Shares

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

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

AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $50 and shareholders must invest at least $500 before an
Asset Builder Plan (described below) can be established on a new account.
Accounts established prior to November 1, 2002 will remain at $25 for
additional purchases. Shares will be purchased on the regular business day
the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on shares
purchased with the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of the New York Stock Exchange (the "NYSE"). The NYSE 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 NYSE, 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 Core 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 Income Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund
Oppenheimer Principal Protected Main
Oppenheimer Convertible Securities Fund Street Fund II
Oppenheimer Principal Protected Main
Oppenheimer Developing Markets Fund Street Fund III
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest Balanced Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Discovery Fund Inc.
Oppenheimer Quest International Value
Oppenheimer Dividend Growth Fund Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Rochester National
Oppenheimer Global Fund Municipals
Oppenheimer Global Opportunities Fund Oppenheimer Select Value Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Growth Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Diversified
Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer Value Fund
Oppenheimer International Small Company
Fund Limited-Term New York Municipal Fund
Oppenheimer International Value Fund Rochester Fund Municipals
Oppenheimer Limited Term California
Municipal Fund Oppenheimer Portfolio Series:
Active Allocation Fund
Aggressive Investor Fund
Conservative Investor Fund
Oppenheimer Limited-Term Government Fund Moderate Investor Fund

And the following money market funds:

Oppenheimer Cash Reserves Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government 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"), you can reduce the
sales charge rate that applies to your purchases of Class A shares if you
purchase Class A, Class B or Class C shares of the Fund or other Oppenheimer
funds during a 13-month period. The total amount of your purchases of Class
A, Class B and Class C shares will determine the sales charge rate that
applies to your Class A share purchases during that period. You can choose to
include purchases that you made up to 90 days before the date of the Letter.
Class A shares of Oppenheimer Money Market Fund, Inc. and Oppenheimer Cash
Reserves on which you have not paid a sales charge and any Class N shares you
purchase, or may have purchased, will not be counted towards satisfying the
purchases specified in a Letter.

A Letter is an investor's statement in writing to the Distributor of
his or her intention to purchase a specified value of Class A , Class B and
Class C 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 will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or capital gains distributions
and purchases made at net asset value (i.e. without a sales charge) do not
count toward satisfying the amount of the Letter.

Each purchase of Class A shares under the Letter will be made at the
offering price (including the sales charge) that would apply 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 and Class C shares of other Oppenheimer funds acquired subject
to a contingent deferred sales charge, and
(c) Class A, Class B or Class C 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 or Class C 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.

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 more than $100,000
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).

Class B, Class C or Class N shares may not be purchased by an investor
directly from the Distributor without the investor designating another
registered broker-dealer.

|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 Retirement Plans with at least 100 eligible employees or $500,000 or
more in plan assets,
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
in 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 NYSE on each day that the NYSE 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 NYSE 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 NYSE'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 NYSE members may conduct trading in certain
securities on days on which the NYSE 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 NYSE.

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

Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ(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 NYSE 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 NYSE closes. Normally, the NYSE 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 California Tax Exempt Trust Centennial New York Tax Exempt
Trust
Centennial Government Trust Centennial Tax Exempt Trust
Centennial Money Market Trust

The following funds do not offer Class N shares:
Limited Term New York Municipal Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer AMT-Free New York Oppenheimer Pennsylvania Municipal
Municipals Fund
Oppenheimer California Municipal Fund Oppenheimer Rochester National
Municipals
Oppenheimer International Value Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Limited Term California Rochester Fund Municipals
Municipal Fund
Oppenheimer Limited Term Municipal
Fund
Oppenheimer Money Market Fund, Inc.

The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer Limited Term California
Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main
Street Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main
Street Fund III
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest International Value
Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Rochester National Municipals
Oppenheimer Dividend Growth Fund Oppenheimer Total Return Bond Fund
Oppenheimer Gold & Special Minerals 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 and Class C 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 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
(3/3/2011).
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
(12/16/2011).

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 Except with respect to the Class B shares described in the next two
paragraphs, the 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 California Municipal
Fund, Limited-Term Government Fund, Limited Term Municipal Fund, Limited Term
New York Municipal Fund and Oppenheimer Senior Floating Rate Fund, the Class
B contingent deferred sales charge is imposed on the acquired shares if they
are redeemed within five years of the initial purchase of the exchanged Class
B shares.

o With respect to Class B shares of Cash Reserves that were acquired
through the exchange of Class B shares initially purchased in the Oppenheimer
Capital Preservation Fund, the Class B contingent deferred sales charge is
imposed on the acquired shares if they are redeemed within five years of that
initial purchase.

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.

|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. The Fund may be subject to U.S. Federal income tax, and an interest
charge, on certain distributions or gains from the sale of shares of a
foreign company considered to be a PFIC, even if those amounts are paid out
as dividends to shareholders. To avoid imposition of the interest charge, the
Fund may elect to "mark to market" all PFIC shares that it holds at the end
of each taxable year. In that case, any increase or decrease in the value of
those shares would be recognized as ordinary income or as ordinary loss (but
only to the extent of previously recognized "mark-to-market" gains).

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 with a copy sent to the IRS.

|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 with a copy sent to the IRS.

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. 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 with a copy sent to the IRS.

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
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 serves
as the 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 acts as the 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.

/s/ Deloitte & Touche LLP

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.

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.

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 shares(1) 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 created or qualified under Sections 401(a) or 401(k) of the
Internal Revenue Code,
2) non-qualified deferred compensation plans,
3) employee benefit plans(3)
4) Group Retirement Plans(4)
5) 403(b)(7) custodial plan accounts
6) Individual Retirement Accounts ("IRAs"), including traditional
IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

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

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

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

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

There is no initial sales charge on purchases of Class A shares of any
of the Oppenheimer funds in the cases listed below. However, these purchases
may be subject to the Class A contingent deferred sales charge if redeemed
within 18 months (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 $5 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).

II. Waivers of Class A Sales Charges of Oppenheimer Funds
------------------------------------------------------------------------------

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

Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no concessions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees
(and their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews;
relatives by virtue of a remarriage (step-children, step-parents,
etc.) are included.
|_| Registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that
have entered into sales arrangements with such dealers or brokers
(and which are identified as such to the Distributor) or with the
Distributor. The purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks or registered investment advisors that
have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients. Those clients
may be charged a transaction fee by their dealer, broker, bank or
advisor for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into
an agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares
for their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial
intermediary that has made special arrangements with the Distributor
for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master
account of their investment advisor or financial planner on the
books and records of the broker, agent or financial intermediary
with which the Distributor has made such special arrangements . Each
of these investors may be charged a fee by the broker, agent or
financial intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension,
profit sharing or other benefit plan which beneficially owns shares
for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the
company or trust which is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate
agreement with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that
have entered into an agreement with the Distributor to sell shares
to defined contribution employee retirement plans for which the
dealer, broker or investment adviser provides administration
services.
|_| Retirement Plans and deferred compensation plans and trusts used
to fund those plans (including, for example, plans qualified or
created under sections 401(a), 401(k), 403(b) or 457 of the Internal
Revenue Code), in each case if those purchases are made through a
broker, agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for
Value Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest
for Value Advisors to purchase shares of any of the Former Quest for
Value Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by
December 31, 1996.
|_| Effective October 1, 2005, taxable accounts established with the
proceeds of Required Minimum Distributions from Retirement Plans.

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

1. 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 or
unit investment trusts for which reinvestment arrangements have been
made with the Distributor.
|_| Shares purchased by certain Retirement Plans that are part of a
retirement plan or platform offered by banks, broker-dealers,
financial advisors or insurance companies, or serviced by
recordkeepers.
|_| 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.
|_| Shares purchased in amounts of less than $5.

2. Class A shares issued and purchased in the following transactions are
not subject to sales charges (a dealer concession at the annual rate of
0.25% is paid by the Distributor on purchases made within the first 6
months of plan establishment):
|_| Retirement Plans that have $5 million or more in plan assets.
|_| Retirement Plans with a single plan sponsor that have $5 million
or more in aggregate assets invested in Oppenheimer funds.

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.

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

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

A. Waivers for Redemptions in Certain Cases.

The Class B, Class C and Class N contingent deferred sales charges will be
waived for redemptions of shares in the following cases:
|_| Shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving shareholder. 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 (as defined in the
Internal Revenue Code).
|_| 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.
|_| Distributions(8) 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 591/2,
as long as the aggregate value of the distributions does not
exceed 10% of the account's value, adjusted annually.
13) Redemptions of Class B shares under an Automatic Withdrawal
Plan for an account other than a Retirement Plan, if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
14) For distributions from 401(k) plans sponsored by
broker-dealers that have entered into a special arrangement with
the Distributor allowing this waiver.
|_| Redemptions of Class B shares or Class C shares under an
Automatic Withdrawal Plan from an account other than a Retirement
Plan if the aggregate value of the redeemed shares does not exceed
10% of the account's value annually.

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

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

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

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

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

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

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

A. Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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

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

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

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

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

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

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

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

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

The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix)
of the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
Oppenheimer U. S. Government Trust,
Oppenheimer Core 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.

VI. 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%.

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

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

(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.

Oppenheimer Capital Income Fund

Internet Website:
www.oppenheimerfunds.com

Investment Advisor
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008

Distributor
OppenheimerFunds Distributor, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008

Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
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

(OppenheimerFunds logo)

PX0300.001.1205