497

497 1 sai.htm CAPITAL INCOME FUND 497

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

Statement of Additional Information dated November 24, 2006

This Statement of Additional Information is not a Prospectus. This document
contains additional information about the Fund and supplements information in
the Prospectus dated November 24, 2006. 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......................... 10
Investment Restrictions............................................ 26
Disclosure of Portfolio Holdings................................... 28
How the Fund is Managed ................................................ 32
Organization and History............................................. 32
Board of Trustees and Oversight Committees.......................... 33
Trustees and Officers of the Fund................................... 34
The Manager......................................................... 44
Brokerage Policies of the Fund............................................ 47
Distribution and Service Plans........................................... 50
Payments to Fund Intermediaries.......................................... 55
Performance of the Fund.................................................. 59

About Your Account
How To Buy Shares......................................................... 64
How To Sell Shares....................................................... 74
How To Exchange Shares.................................................. 78
Dividends, Capital Gains and Taxes....................................... 82
Additional Information About the Fund.................................. 87

Financial Information About the Fund
Report of Independent Registered Public Accounting Firm................... 88
Financial Statements.......................................................89

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 ("SAI") contains supplemental information about those policies and
risks and the types of securities that the Fund's investment Manager,
OppenheimerFunds, Inc. (the "Manager"), 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") and 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|Event-Linked Bonds. The Fund may invest in "event-linked bonds."
Event-linked bonds, which are sometimes referred to as "catastrophe bonds," are
fixed income securities for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific "trigger" event, such
as a hurricane, earthquake, or other occurrence that leads to physical or
economic loss. For some event-linked bonds, the trigger event may be based on
company-wide losses, index-portfolio losses, industry index or parametric
(readings of scientific instruments) loss. If a trigger event causes losses
exceeding a specific amount in the time period specified in a bond, the Fund may
lose a portion or all of its investment. If no trigger event occurs, the Fund
will recover its principal plus interest.

Event-linked bonds may be issued by government agencies, insurance
companies, reinsurers, special purpose corporations or other on-shore or
off-shore entities. Often event-linked bonds provide for mandatory or optional
extensions of maturity, at the discretion of the issuer, in order to process and
audit loss claims in those cases when a trigger event has occurred or is likely
to have occurred. An extension of maturity may increase a bond's volatility.

Event-linked bonds may expose the Fund to certain other risks, including
issuer default, adverse regulatory or jurisdictional interpretations, liquidity
risk and adverse tax consequences. Event-linked bonds may also be subject to
liquidity risk. Lack of a liquid market may result in higher transaction costs
and the possibility that the Fund may be forced to liquidate positions when it
would not be advantageous to do so. Event-linked bonds are typically rated by
one or more nationally recognized statistical rating organization and the Fund
will only invest in event-linked bonds that meet the credit quality requirements
for the Fund.

|X| Publicly Traded Partnerships; Master Limited Partnerships. The Fund may
invest in publicly traded limited partnerships such as master limited
partnerships ("MLPs"). MLPs issue units that are registered with the SEC and are
freely tradable on a securities exchange or in the over-the-counter market. An
MLP is not considered to be a separate entity. It consists of one or more
general partners, who conduct the business, and one or more limited partners,
who contribute capital. The general partner or partners are jointly and
severally responsible for the liabilities of the MLP. The Fund invests as a
limited partner, and normally would not be liable for the debts of an MLP beyond
the amounts the Fund has contributed but it would not be shielded to the same
extent that a shareholder of corporation would be. In certain circumstances,
creditors of an MLP would have the right to seek a return of capital that had
been distributed to a limited partner. This right of an MLP's creditors would
continue even after the Fund had sold its investment in the partnership. MLPs
are typically real estate, oil and gas and equipment leasing businesses, but
they also finance movies, research and development, and other projects.

The Fund currently invests in MLPs that are taxed as corporations for
United States federal tax purposes and that make distributions in additional
shares rather than cash. Because these distributions of additional shares will
be made proportionately to all owners of shares, the receipt of these additional
shares will not be includable in the gross income of an owner of shares for
United States federal income tax purposes. When the Fund as an owner of the
shares of such an MLP receives additional shares, it will be required to
allocate its tax basis in its shares of the MLP equally between shares that the
Fund already owns and the new additional shares received. Gain or loss
recognized by the Fund as an owner of shares, on the sale or other disposition
of a share will generally be taxable as capital gain or loss.

As a regulated investment company, the Fund is required to derive at least
90% of its gross income for every taxable year from qualifying income. As an
owner of shares of an MLP, the Fund will not report on its United States federal
income tax return any of an MLP's items of income, gain, loss and deduction.
Thus, ownership of shares by the Fund will not result in income which is not
qualifying income to the fund that elects to qualify as a regulated investment
company for federal tax purposes. Furthermore, any gain from the sale or other
disposition of the shares of an MLP that the Fund owns, and the associated
purchase rights, will qualify for purposes of that 90% test. Finally, shares,
and the associated purchase rights, will constitute qualifying assets to mutual
funds which also must own at least 50% qualifying assets at the end of each
quarter.

|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| 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 of 1940 (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| 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 on
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."

Swaption Transactions. The Fund may enter into a swaption transaction,
which is a contract that grants the holder, in return for payment of the
purchase price (the "premium") of the option, the right, but not the obligation,
to enter into an interest rate swap at a preset rate within a specified period
of time, with the writer of the contract. The writer of the contract receives
the premium and bears the risk of unfavorable changes in the preset rate on the
underlying interest rate swap. Unrealized gains/losses on swaptions are
reflected in investment assets and investment liabilities in the Fund's
statement of financial condition.

|_| 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,
and (c) 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.

o The Fund cannot make loans, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any exemption
therefrom that is applicable to the Fund, as such statute, rules or regulations
may be amended or interpreted from time to time.

|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:

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.

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.

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 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 (the "CCO") of the Fund and the Manager,
Distributor, and Transfer Agent 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 Maryland Corporation in 1967 but was
reorganized 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. Each 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 6 meetings during the Fund's fiscal year ended August 31, 2006.
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 Directors. The
members of the Review Committee are Jon S. Fossel (Chairman), Robert G. Avis,
Sam Freedman and Beverly L. Hamilton. The Review Committee held 6 meetings
during the Fund's fiscal year ended August 31, 2006. 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 held 5 meetings during the Fund's fiscal year ended August 31, 2006.
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.

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 Cash Reserves Oppenheimer Principal Protected Trust II
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Trust III
Oppenheimer Champion Income Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Senior Floating Rate Fund
Oppenheimer Integrity Funds Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Variable Account Funds
Oppenheimer Limited-Term Government Fund Panorama Series Fund, Inc.
Oppenheimer Main Street Funds, Inc. Centennial California Tax Exempt Trust
Oppenheimer Main Street Opportunity Fund Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer 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, Szilagyi, Vandehey, 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 November 3, 2006,
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) with the Principal Occupation(s) During the Past 5 Years; Other Dollar Range of Aggregate
Dollar Range
of Shares
Beneficially
Shares Owned in All
Trusteeships/Directorships Held; Number of Portfolios in the Fund Beneficially Supervised
Fund, Length of Service, Age Complex Currently Overseen Owned in the Fund Funds
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- -----------------------------------
As of December 31, 2005
------------------------------ -------------------------------------------------------------------- -----------------------------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
William L. Armstrong, President, Colorado Christian University (since 2006);Chairman of None Over $100,000
Chairman of the Board of the following private mortgage banking companies: Cherry Creek
Trustees since 2003, Trustee Mortgage Company (since 1991), Centennial State Mortgage Company
since 1999 (since 1994), and The El Paso Mortgage Company (since 1993);
Age: 69 Chairman of the 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 37
portfolios in the OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Robert G. Avis, Director and President of A.G. Edwards Capital, Inc. (General None Over $100,000
Trustee since 1993 Partner of private equity funds) (until February 2001); Chairman,
Age: 75 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 37 portfolios in
the OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
George C. Bowen, Assistant Secretary and Director of Centennial Asset Management $10,001-$50,000 Over $100,000
Trustee since 1998 Corporation (December 1991-April 1999); President, Treasurer and
Age: 70 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 37 portfolios in the
OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Edward L. Cameron, Member of The Life Guard of Mount Vernon (George Washington $10,001-$50,000 Over $100,000
Trustee since 1999 historical site) (since June 2000); Director of Genetic ID, Inc.
Age: 68 (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 (accounting firm) (July
1994-June 1998). Oversees 37 portfolios in the OppenheimerFunds
complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Jon S. Fossel, Director of UNUMProvident (insurance company) (since June 2002); None Over $100,000
Trustee since 1990 Director of Northwestern Energy Corp. (public utility corporation)
Age: 64 (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 and since
February 2005); 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 37 portfolios in the OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Sam Freedman, Director of Colorado Uplift (charitable organization) (since $10,001-$50,000 Over $100,000
Trustee since 1996 September 1984). Mr. Freedman held several positions with the
Age: 66 Manager and with subsidiary or affiliated companies of the Manager
(until October 1994). Oversees 37 portfolios in the
OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Beverly L. Hamilton, Trustee of Monterey Institute for International Studies None Over $100,000
Trustee since 2002 (educational organization) (since February 2000); Board Member of
Age: 60 Middlebury College (educational organization) (since December
2005); Director of The California Endowment (philanthropic
organization) (since April 2002); Director (February 2002-2005)
and Chairman of Trustees (since 2006) of the Community Hospital of
Monterey Peninsula; Director (October 1991-2005) and Vice Chairman
(since 2006) of American Funds' Emerging Markets Growth Fund, Inc.
(mutual fund); President of ARCO Investment Management Company
(February 1991-April 2000); Member of the investment committees of
The Rockefeller Foundation (since 2001) and The University of
Michigan (since 2000); 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 37
portfolios in the OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
Robert J. Malone, Director of Jones International University (educational None Over $100,000
Trustee since 2002 organization) (since August 2005); Chairman, Chief Executive
Age: 62 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 37 portfolios in the
OppenheimerFunds complex.
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
------------------------------ -------------------------------------------------------------------- ------------------ ----------------
F. William Marshall, Jr., Trustee of MassMutual Select Funds (formerly MassMutual None Over $100,000
Trustee since 2000 Institutional Funds) (investment company) (since 1996) and MML
Age: 64 Series Investment Fund (investment company) (since 1996); Trustee
(since 1987) and Chairman (1994-2005) of the Investment Committee
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);
and Executive Vice President of Peoples Heritage Financial Group,
Inc. (commercial bank) (January 1999-July 1999). Oversees 39
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 as a
Trustee for an indefinite term or until his resignation, retirement, death or
removal and as an officer for an indefinite 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 above) for which he is
a director or trustee.

---------------------------------------------------------------------------------------------------------------------------
Interested Trustee and Officer
---------------------------------------------------------------------------------------------------------------------------
------------------------------ ---------------------------------------------------------- ---------------- ----------------
Name, Position(s) Held with Principal Occupation(s) During the Past 5 Years; Other Dollar Range Aggregate
Dollar Range
Of Shares
of Shares Beneficially
Beneficially Owned in All
the Fund, Length of Service, Trusteeships/Directorships Held; Number of Portfolios in Owned in the Supervised
Age the Fund Complex Currently Overseen Fund Funds
------------------------------ ---------------------------------------------------------- ---------------- ----------------
------------------------------ ---------------------------------------------------------- ---------------------------------
As of December 31, 2005
------------------------------ ---------------------------------------------------------- ---------------------------------
------------------------------ ---------------------------------------------------------- ---------------- ----------------
John V. Murphy, Chairman, Chief Executive Officer and Director (since None Over $100,000
President, Principal June 2001) and President (since September 2000) of the
Executive Officer, and Manager; President and director or trustee of other
Trustee since 2001 Oppenheimer funds; President and Director of OAC and of
Age: 57 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 91 portfolios
in the OppenheimerFunds complex.
------------------------------ ---------------------------------------------------------- ---------------- ----------------

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

----------------------------------------------------------------------------------------------------------------------
Other Officers of the Fund
----------------------------------------------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Name, Position(s) Held with the Principal Occupation(s) During Past 5 Years
Fund, Length of Service, Age
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Michael S. Levine Vice President of the Manager since June 1998; an officer of 1 portfolio in the
Vice President and Portfolio OppenheimerFunds complex. Formerly Assistant Vice President and Portfolio
Manager since June 1999 Manager of the Manager (April 1996 - June 1998).
Age: 39
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of the Manager (since March
Vice President and Chief 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset
Compliance Officer since 2004 Management Corporation and Shareholder Services, Inc. (since June 1983); Vice
Age: 56 President and Director of Internal Audit of the Manager (1997-February 2004). An
officer of 91 portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer
Treasurer and Principal Financial of the following: HarbourView Asset Management Corporation, Shareholder
& Accounting Officer since since Financial Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset
1999 Management Corporation, and Oppenheimer Partnership Holdings, Inc. (since March
Age: 47 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 91
portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager (since August 2002); Manager/Financial
Assistant Treasurer since 2004 Product Accounting of the Manager (November 1998-July 2002). An officer of 91
Age: 36 portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Brian C. Szilagyi, Assistant Vice President of the Manager (since July 2004); Director of Financial
Assistant Treasurer since 2005 Reporting and Compliance of First Data Corporation (April 2003-July 2004);
Age: 36 Manager of Compliance of Berger Financial Group LLC (May 2001-March 2003). An
officer of 91 portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General Counsel (since March
Vice President and Secretary 2002) of the Manager; General Counsel and Director of the Distributor (since
since 2001 December 2001); General Counsel of Centennial Asset Management Corporation
Age: 58 (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 91 portfolios in the
OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager (since May 2004); First Vice
Assistant Secretary since 2004 President (April 2001-April 2004), Associate General Counsel (December
Age: 38 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 91 portfolios in the
OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and Assistant Secretary
Assistant Secretary since 2001 (since October 2003) of the Manager; Vice President (since 1999) and Assistant
Age: 41 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 91 portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------
----------------------------------- ----------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the Manager (since September
Assistant Secretary since 2004 2004); First Vice President (2000-September 2004), Director (2000-September
Age: 42 2004) and Vice President (1998-2000) of Merrill Lynch Investment Management. An
officer of 91 portfolios in the OppenheimerFunds complex.
----------------------------------- ----------------------------------------------------------------------------------

|X| Remuneration of the Officers and Trustees. The officers and the
interested Trustee 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, 2006. 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,
2005.

------------------------------------------------ ----------------------------------- ---------------------------------
Name of Trustee and Other Fund Position(s) (as Aggregate Compensation From the Total Compensation From the
applicable) Fund(1) Fund and Fund Complex(2)
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
William L. Armstrong $8,764 $178,000
Chairman of the Board and
Governance Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Robert G. Avis $5,840 $118,500
Review Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
George C. Bowen $5,840 $118,500
Audit Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Edward L. Cameron $6,918 $136,000
Audit Committee Chairman
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Jon S. Fossel $6,192 $124,100
Review Committee Chairman
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Sam Freedman $5,840 $118,500
Review Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Beverly Hamilton $5,387(3) $107,175
Review Committee Member and
Governance Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
Robert J. Malone $6,712(4) $134,868
Governance Committee Chairman and
Audit Committee Member
------------------------------------------------ ----------------------------------- ---------------------------------
------------------------------------------------ ----------------------------------- ---------------------------------
F. William Marshall, Jr. $5,840 $169,500((5))
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 $5,387 deferred by Ms. Hamilton under the "Deferred
Compensation Plan" described below.

4. Includes $1,979 deferred by Mr. Malone under the "Deferred Compensation
Plan" described below.

5. Includes $51,000 compensation paid to Mr. Marshall for serving as a
Trustee for MassMutual Select Funds and MML Series Investment Fund.

|X| Compensation Deferral Plan For Trustees. The Board of Trustees has
adopted a Compensation Deferral 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 Trustee. The
amount paid to the Trustee 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 November 3, 2006, the only persons or
entities who owned of record or were known by the Fund to own beneficially 5% or
more of any class of the Fund's outstanding shares were:

Wilmington Trust Co., TR, Cumulus Media Inc. 401K, 1100 N. Market Street,
Wilmington, DE 19801-1243, which owned 189,851.053 Class N shares (6.54% of the
Class N shares then outstanding).

Hartford Life Insurance Company, P O Box 2999, Hartford, CT 06104-2999,
which owned 158,635.066 Class N shares (5.46% of the Class N shares then
outstanding).

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, which include Proxy Voting Guidelines, 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 Proxy Voting Guidelines and to maintain records of such
portfolio proxy voting. The Portfolio Proxy Voting Policies and Procedures
include provisions to address conflicts of interest that may arise between the
Fund and the Manager or the Manager's affiliates or business relationships. Such
a conflict of interest may arise, for example, where the Manager or an affiliate
of the Manager manages or administers the assets of a pension plan or other
investment account of the portfolio company soliciting the proxy or seeks to
serve in that capacity. The Manager and its affiliates generally seek to avoid
such conflicts by maintaining separate investment decision making processes to
prevent the sharing of business objectives with respect to proposed or actual
actions regarding portfolio proxy voting decisions. Additionally, the Manager
employs the following two procedures: (1) if the proposal that gives rise to the
conflict is specifically addressed in the Proxy Voting Guidelines, the Manager
will vote the portfolio proxy in accordance with the Proxy Voting Guidelines,
provided that they do not provide discretion to the Manager on how to vote on
the matter; and (2) if such proposal is not specifically addressed in the Proxy
Voting Guidelines or the Proxy Voting Guidelines provide discretion to the
Manager on how to vote, the Manager will vote in accordance with the third-party
proxy voting agent's general recommended guidelines on the proposal provided
that the Manager has reasonably determined that there is no conflict of interest
on the part of the proxy voting agent. If neither of the previous two procedures
provides an appropriate voting recommendation, the Manager may retain an
independent fiduciary to advise the Manager on how to vote the proposal or may
abstain from voting. The Proxy Voting Guidelines' provisions with respect to
certain routine and non-routine proxy proposals are summarized below:

o The Fund generally votes with the recommendation of the issuer's
management on routine matters, including ratification of the independent
registered public accounting firm, unless circumstances indicate otherwise.

o The Fund evaluates nominees for director nominated by management on a
case-by-case basis, examining the following factors, among others: Composition
of the board and key board committees, attendance at board meetings, corporate
governance provisions and takeover activity, long-term company performance and
the nominee's investment in the company.

o In general, the Fund opposes anti-takeover proposals and supports the
elimination, or the ability of shareholders to vote on the preservation or
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 without shareholder
approval.

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 2006: Management Fees Paid to OppenheimerFunds, Inc.

2004 $14,972,144

2005 $15,950,286

2006 $16,153,003

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 in
connection with matters to which the agreement relates.

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. As of August 31, 2006, Mr. Levine did not manage
any other fund or account. At the current time, the Fund's Portfolio Manager
does not manage any other fund or account. However, he may be responsible for
the management of another fund or account in the future. Potentially, at times,
those responsibilities could conflict with the interests of the Fund. That may
occur whether the investment objectives and strategies of the other funds and
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 he 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 obligation 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 different times,
the Fund's Portfolio Manager may manage other funds or accounts with investment
objectives and strategies similar to those of the Fund, or he may manage funds
or accounts with different investment objectives and strategies.

Compensation of the Portfolio Managers. 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 investors. 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, 2006, 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.

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, to help the Manager attract and retain talent. 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 benchmark selected by
management. During the Fund's fiscal year ended August 31, 2006 the Lipper
benchmark with respect to the Fund was Lipper - Income Funds. Other factors
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 managed by the Portfolio Manager. The compensation structure of the other
funds 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, 2006, the Portfolio Manager
beneficially owned shares of the Fund as follows:

--------------------------------------------------------------------------
Portfolio Manager Range of Shares Beneficially
Owned in the Fund
-------------------------------------------------------------------------

Michael S. Levine $500,000 to $1,000,000
----------------------------------------------------------------------------

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, 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 for the services provided. 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 both brokerage and research services to the Fund. 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.

Brokerage Practices Followed by the Manager. The Manager allocates
brokerage for the Fund subject to the provisions of the investment advisory
agreement and other applicable rules and procedures described below.

The Manager's portfolio traders allocate brokerage based upon
recommendations from the Manager's portfolio managers, together with the
portfolio traders' judgment as to the execution capability of the broker or
dealer. 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 that are available in U.S. markets. Brokerage commissions are paid
primarily for transactions in listed securities or for certain fixed-income
agency transactions executed 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 accounts advised by the Manager have investment policies similar to
those of the Fund. Those other accounts 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 accounts 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. 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.

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.

The investment advisory agreement permits the Manager to allocate brokerage
for research services. The research services provided by a particular broker may
be useful both to the Fund and to one or more of the other accounts advised by
the Manager or its affiliates. Investment research may be supplied to the
Manager by the broker or 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, analytical software 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.

Although the Manager currently does not do so, the Board of Trustees may
permit 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 may also permit
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 supplement
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.

During the fiscal years ended August 31, 2004, 2005 and 2006, the Fund paid
the total brokerage commissions indicated in the chart below. During the fiscal
year ended August 31, 2006, the Fund paid $2,122,207.00 in commissions to firms
that provide brokerage and research services to the Fund with respect to
$2,148,230,980.00 of aggregate portfolio transactions. All such transactions
were on a "best execution" basis, as described above. The provision of research
services was not necessarily a factor in the placement of all such transactions.

Fiscal Year Ended August 31 Total Brokerage Commissions Paid by the Fund*

2004 $ 3,308,511

2005 $ 3,407,539

2006 $ 2,133,538

* Amounts do not include spreads or commissions on principal transactions
on a net trade basis.

Distribution and Service Plans

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

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

------------------ ----------------------- -----------------------
Fiscal Year Aggregate Front-End Class A Front-End
Sales Charges
Ended August 31 Sales Charges on Retained by
Class A Shares Distributor(1)
------------------ ----------------------- -----------------------
------------------ ----------------------- -----------------------
2004 $3,390,971 $1,038,146
------------------ ----------------------- -----------------------
------------------ ----------------------- -----------------------
2005 $3,232,920 $979,563
------------------ ----------------------- -----------------------
------------------ ----------------------- -----------------------
2006 $2,764,870 $790,133
------------------ ----------------------- -----------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.

------------------ ----------------------- ---------------------- ------------------------ ------------------------
Fiscal Year Concessions on Class Concessions on Class Concessions on Class C Concessions on Class N
Ended August 31 A Shares Advanced by B Shares Advanced by Shares Advanced by Shares Advanced by
Distributor(1) Distributor(1) Distributor(1) Distributor(1)
------------------ ----------------------- ---------------------- ------------------------ ------------------------
------------------ ----------------------- ---------------------- ------------------------ ------------------------
2004 $254,037 $1,967,231 $330,437 $68,040
------------------ ----------------------- ---------------------- ------------------------ ------------------------
------------------ ----------------------- ---------------------- ------------------------ ------------------------
2005 $196,684 $1,308,849 $281,491 $83,453
------------------ ----------------------- ---------------------- ------------------------ ------------------------
------------------ ----------------------- ---------------------- ------------------------ ------------------------
2006 $140,832 $982,675 $206,626 $38,323
------------------ ----------------------- ---------------------- ------------------------ ------------------------
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 Year Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Deferred Sales Deferred Sales Deferred Sales
Ended August 31 Charges Retained by Charges Retained by Deferred Sales Charges Charges Retained by
Distributor Distributor Retained by Distributor Distributor
------------------ ----------------------- ----------------------- ------------------------- -----------------------
------------------ ----------------------- ----------------------- ------------------------- -----------------------
2004 $29,534 $530,263 $17,067 $3,969
------------------ ----------------------- ----------------------- ------------------------- -----------------------
------------------ ----------------------- ----------------------- ------------------------- -----------------------
2005 $33,107 $496,570 $17,566 $13,003
------------------ ----------------------- ----------------------- ------------------------- -----------------------
------------------ ----------------------- ----------------------- ------------------------- -----------------------
2006 $3,857 $474,645 $16,269 $10,060
------------------ ----------------------- ----------------------- ------------------------- -----------------------

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, 2006 payments under the Class A plan
totaled $6,153,469, of which $12,245 was retained by the Distributor under the
arrangement described above, regarding grandfathered retirement accounts, and
included $375,476 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 a new investor
directly from the Distributor without the investor designating another
registered broker-dealer. If the current 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 and Service Fees Paid to the Distributor for the Fiscal Year Ended August 31, 2006
---------------------------------------------------------------------------------------------------------------------
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class: Total Payments Under Amount Retained by Distributor's Distributor's
Aggregate Unreimbursed Expenses
Unreimbursed Expenses as % of Net Assets of
Plan Distributor Under Plan Class
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class B Plan $2,736,971(1) $2,130,221 $8,531,867 3.30%
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class C Plan $1,653,565(2) $277,737 $3,783,065 2.31%
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
Class N Plan $162,774(3) $85,028 $579,278 1.62%
-------------------- ----------------------- ------------------------ ----------------------- -----------------------
1. Includes $44,982 paid to an affiliate of the Distributor's parent company.
2. Includes $49,816 paid to an affiliate of the Distributor's parent company.
3. Includes $6,728 paid to an affiliate of the Distributor's parent company.

All payments under the plans are subject to the limitations imposed by the
Conduct Rules of the NASD 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 payments or concessions
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 (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, 2005, 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:

Advantage Capital Corp./Financial Services Corp. Advest, Inc.
Aegon USA Aetna Retirement Services, Inc.
A.G. Edwards & Sons, Inc. AIG Life
Allianz Life Insurance Company Allmerica Financial Life Insurance and Annuity Co.
Allstate Financial Advisors American Enterprise Life Insurance
American General Securities, Inc. American General Annuity
Ameriprise Financial Services, Inc. American Portfolio Financial Services, Inc.
Ameritas Life Insurance Corporation Annuity Investors Life
Associated Securities AXA Advisors
Banc One Securities Corp. BNY Investment Center, Inc.
Cadaret Grant & Co. Inc. Charles Schwab - Great West Life
Chase Investment Services Corp. CitiCorp Investment Services, Inc.
Citigroup Global Markets, Inc. (SSB) 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 Life Assurance Company Financial Network (ING)
First Global Capital GE Financial Assurance - GE Life & Annuity
Glenbrook Life and Annuity Co. Hartford
HD Vest HSBC Brokerage (USA) Inc.
ING Financial Advisers ING Financial Partners
Jefferson Pilot Life Insurance Company Jefferson Pilot Securities Corp.
John Hancock Life Insurance Co. Kemper Investors Life Insurance Co.
Legend Equities Corp. Legg Mason
Lincoln Benefit Life Lincoln Financial
Lincoln Investment Planning, Inc. Lincoln National Life
Linsco Private Ledger MassMutual Financial Group and affiliates
McDonald Investments, Inc. Merrill Lynch & Co. and affiliates
MetLife and affiliates Minnesota Life Insurance Company
Mony Life Insurance Co. Morgan Stanley Dean Witter, Inc.
Multi-Financial (ING) Mutual Service Corporation
National Planning Holdings, Inc. Nationwide and affiliates
NFP New York Life Securities, Inc.
Park Avenue Securities LLC PFS Investments, Inc.
Prime Capital Services, Inc. Primevest Financial Services, Inc. (ING)
Protective Life Insurance Co. Prudential Investment Management Services LLC
Raymond James & Associates Raymond James Financial Services
RBC Dain Rauscher Inc. Royal Alliance
Securities America Inc. Security Benefit Life Insurance Co.
Sentra Securities Signator Investments
Sun Life Assurance Company of Canada SunAmerica Securities, Inc.
SunTrust Securities Thrivent
Travelers Life & Annuity Co., Inc. UBS Financial Services Inc.
Union Central Life Insurance Company United Planners
Valic Financial Advisors, Inc. Wachovia Securities LLC
Walnut Street Securities (Met Life Network) Waterstone Financial Group
Wells Fargo Investments, LLC

For the year ended December 31, 2005, 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 Financial Services Inc. ACS HR Solutions LLC
Administrative Management Group ADP Broker/Dealer Inc.
Aetna Financial Services Alliance Benefit Group
American Stock Transfer & Trust Co Ameriprise Financial Services, Inc.
Baden Retirement Plan Services LLC Banc One Securities Corp.
BCG Securities Benefit Administration Company LLC
Benefit Administration Inc. Benefit Plans Administrative Services
Benetech Inc. Bisys Retirement Services
Boston Financial Data Services Inc. Ceridian Retirement Plan Services
Charles Schwab & Co Inc. Charles Schwab Trust Company
Circle Trust Company Citigroup Global Markets Inc.
CitiStreet City National Bank
Columbia Funds Distributor Inc. CPI Qualified Plan Consultants Inc.
Daily Access.Com Inc. Digital Retirement Solutions
DST Systems Inc. Dyatech LLC
Edgewood/Federated Investments ERISA Administrative Services Inc.
Expert Plan Inc. FASCorp
FBD Consulting Inc. Fidelity Institutional Operations Co.
Fidelity Investments First National Bank of Omaha
First Trust Corp. First Trust-Datalynx
Franklin Templeton Geller Group LTD
GoldK Inc. Great West Life & Annuity Ins Co.
Hartford Life Insurance Co Hewitt Associates LLC
ICMA-RC Services LLC Independent Plan Coordinators Inc.
ING Ingham Group
Interactive Retirement Systems Invesco Retirement Plans
Invesmart InWest Pension Management
John Hancock Life Insurance Co. JPMorgan Chase & Co
JPMorgan Chase Bank July Business Services
Kaufman & Goble Leggette & Company Inc.
Lincoln National Life MassMutual Financial Group and affiliates
Matrix Settlement & Clearance Services Mellon HR Solutions
Mercer HR Services Merrill Lynch & Co., Inc.
Metavante 401(k) Services Metlife Securities Inc.
MFS Investment Management Mid Atlantic Capital Corp.
Milliman Inc. Morgan Stanley Dean Witter Inc.
National City Bank National Financial Services Corp.
Nationwide Investment Service Corp. New York Life Investment Management
Northeast Retirement Services Northwest Plan Services Inc.
Pension Administration and Consulting PFPC Inc.
Plan Administrators Inc. PlanMember Services Corporation
Princeton Retirement Group Inc. Principal Life Insurance Co
Programs for Benefit Plans Inc. Prudential Retirement Insurance & Annuity Co.
Prudential Retirement Services PSMI Group
Putnam Investments Quads Trust Company
RSM McGladrey Retirement Resources SAFECO
Standard Insurance Co Stanley Hunt DuPree Rhine
Stanton Group Inc. State Street Bank & Trust
Strong Capital Management Inc. Symetra Investment Services Inc.
T Rowe Price Associates Taylor Perky & Parker LLC
Texas Pension Consultants The 401(K) Company
The Chicago Trust Company The Retirement Plan Company LLC
The Vanguard Group TruSource
Unified Fund Services Inc. Union Bank & Trust Co. (Nebraska)
USI Consulting Group (CT) Valic Retirement Services Co
Wachovia Bank NA Web401k.com
Wells Fargo Bank NA Wilmington Trust Company
WySTAR Global Retirement Solutions

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 may not reflect the effect of taxes on
dividends and capital gains distributions.

o An investment in the Fund is not insured by the FDIC or any other
government agency.

o The principal value of the Fund's shares, and total returns are not
guaranteed and normally will fluctuate on a daily basis.

o When an investor's shares are redeemed, they may be worth more or less
than their original cost.

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

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

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

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

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

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

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

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

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

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

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

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

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

----------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/06
----------------------------------------------------------------------------------------------------------------------
-------------- ------------------------- -----------------------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
Returns (10 years or
Shares life of class)
-------------- ------------------------- -----------------------------------------------------------------------------
-------------- ------------------------- ------------------------ ------------------------ ---------------------------
1-Year 5-Years 10-Years
[(or life-of-class if [(or life-of-class 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 A(1) 121.56% 135.08% -1.34% 4.68% 4.23% 5.47% 8.28% 8.92%
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
Class B(2) 124.36% 124.36% -1.02% 3.84% 4.28% 4.60% 8.42% 8.42%
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
Class C(3) 117.06%(3) 117.06%(3) 2.85% 3.83% 4.63% 4.63% 8.06%(3) 8.06%(3)
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
Class N(4) 28.02%(4) 28.02%(4) 3.34%(4) 4.32% 5.10%(4) 5.10%(4) 4.59%(4) 4.59%(4)
-------------- ------------ ------------ ----------- ------------ ----------- ------------ ---------- ----------------
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 (After Sales Charge)
For the Periods Ended 8/31/05
---------------------------------------------------------------------------------------------------------------
------------------------------------------ ------------------ ---------------------- --------------------------
1-Year 5-Years 10-Years
(or Life of Class) (or Life of Class)
------------------------------------------ ------------------ ---------------------- --------------------------
------------------------------------------ ------------------ ---------------------- --------------------------
After Taxes on Distributions -3.18% 2.52% 5.96%
------------------------------------------ ------------------ ---------------------- --------------------------
------------------------------------------ ------------------ ---------------------- --------------------------
After Taxes on Distributions and -0.31% 2.73% 5.94%
Redemption of Fund Shares
------------------------------------------ ------------------ ---------------------- --------------------------

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 SAI. 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.
("Morningstar"), 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 SAI 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 Pennsylvania Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Portfolio Series:
Oppenheimer Balanced Fund Active Allocation Fund
Oppenheimer Core Bond Fund Aggressive Investor Fund
Oppenheimer California Municipal Fund Conservative Investor Fund
Oppenheimer Capital Appreciation Fund Moderate Investor Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Convertible Securities Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Developing Markets Fund Oppenheimer Quest Balanced Fund
Oppenheimer Discovery Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Dividend Growth Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Global Fund Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Global Opportunities Fund Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Growth Fund Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer International Bond Fund Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer International Diversified Fund Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer International Growth Fund Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer International Small Company Fund Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer International Value Fund Oppenheimer Rochester National Municipals
Oppenheimer Limited Term California Municipal Fund Oppenheimer Select Value Fund
Oppenheimer Limited-Term Government Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Main Street Fund Oppenheimer Strategic Income Fund
Oppenheimer Main Street Opportunity Fund Oppenheimer U.S. Government Trust
Oppenheimer Main Street Small Cap Fund Oppenheimer Value Fund
Oppenheimer MidCap Fund Limited-Term New York Municipal Fund
Oppenheimer New Jersey Municipal Fund Rochester Fund Municipals

And the following money market funds:
Oppenheimer Cash Reserves Centennial Money Market Trust
Oppenheimer Institutional Money Market Fund Centennial Government Trust
Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust

There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds described above except the money market funds. Under
certain circumstances described in this SAI, 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 paying a front-end or contingent deferred 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 SAI
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 SAI. 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 or an affiliate 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 a new investor
directly from the Distributor without the investor designating another
registered broker-dealer.

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 SAI) 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 SAI 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 many
foreign 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 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, 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, 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 on the valuation date. If not, the value shall be the
closing bid price on the principal exchange on the valuation date. If the put,
call or future is not traded on an exchange, 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 SAI. 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.

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 SAI).

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 SAI.

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 Rochester National Municipals
Oppenheimer AMT-Free Municipals Oppenheimer Senior Floating Rate Fund
Oppenheimer AMT-Free New York Municipals Rochester Fund Municipals
Oppenheimer California Municipal Fund Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer International Value Fund Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Limited Term California Municipal Fund Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Money Market Fund, Inc. Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Principal Protected Main Street Fund II Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Pennsylvania Municipal Fund Oppenheimer Rochester Virginia Municipal Fund

The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main Street Fund II
Oppenheimer AMT-Free New York Municipals Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Balanced Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer California Municipal Fund Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Capital Income Fund Oppenheimer Rochester National Municipals
Oppenheimer Cash Reserves Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Convertible Securities Fund Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Dividend Growth Fund Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Institutional Money Market Fund Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Limited Term California Municipal Fund Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer Pennsylvania Municipal Fund

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

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, Inc. 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 certain money market funds offered by the Distributor. Shares of a
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.

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 the same class of any of the other
Oppenheimer funds into which you may exchange shares.

o Shares of Oppenheimer Principal Protected Main Street Fund may be
exchanged at net asset value for shares of the same class of any of the other
Oppenheimer funds into which you may exchange shares. 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 the same class of any of the other
Oppenheimer funds into which you may exchange shares. 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 the same class of any of the other
Oppenheimer funds into which you may exchange shares. 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).

o Class A, Class B, Class C and Class N shares of each of Oppenheimer
Developing Markets Fund and Oppenheimer International Small Company Fund may be
acquired by exchange only with a minimum initial investment of $50,000. An
existing shareholder of each fund may make additional exchanges into that fund
with as little as $50.

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 Oppenheimer
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 Oppenheimer 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 Oppenheimer Limited Term California
Municipal Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer 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 Oppenheimer 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.

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 features that are available in the new fund (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.

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 SAI, 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 SAI is based on tax law in
effect on the date of the Prospectus and this SAI. 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.

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.

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.

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.

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.

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 into which you may exchange
shares. 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, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit includes consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2006, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
October 16, 2006

STATEMENT OF INVESTMENTS August 31, 2006
--------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------
COMMON STOCKS--52.1%
--------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--4.0%
--------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.9%
Wyndham Worldwide Corp. 1 909,040 $ 26,598,510
--------------------------------------------------------------------------------
MEDIA--1.0%
CBS Corp., Cl. B 110,000 3,140,500
--------------------------------------------------------------------------------
Clear Channel Communications, Inc. 782,500 22,723,800
--------------------------------------------------------------------------------
Viacom, Inc., Cl. B 1 112,450 4,081,935
-------------
29,946,235

--------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Target Corp. 56,000 2,709,840
--------------------------------------------------------------------------------
SPECIALTY RETAIL--2.0%
CSK Auto Corp. 1,2 5,502,500 63,113,675
--------------------------------------------------------------------------------
CONSUMER STAPLES--9.2%
--------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.8%
Wal-Mart Stores, Inc. 550,000 24,596,000
--------------------------------------------------------------------------------
FOOD PRODUCTS--0.5%
B&G Foods, Inc. 875,000 14,988,750
--------------------------------------------------------------------------------
TOBACCO--7.9%
Altria Group, Inc. 3 2,175,000 181,677,750
--------------------------------------------------------------------------------
Loews Corp./Carolina Group 3 1,069,900 61,262,474
-------------
242,940,224

--------------------------------------------------------------------------------
ENERGY--14.7%
--------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.2%
ENSCO International, Inc. 23,000 1,027,870
--------------------------------------------------------------------------------
GlobalSantaFe Corp. 95,200 4,685,744
-------------
5,713,614

--------------------------------------------------------------------------------
OIL & GAS--14.5%
BP plc, ADR 500,000 34,025,000
--------------------------------------------------------------------------------
Chevron Corp. 84,000 5,409,600
--------------------------------------------------------------------------------
Enbridge Energy Management LLC 2 747,702 35,104,599
--------------------------------------------------------------------------------
Kinder Morgan Management LLC 3,650,001 154,066,522
--------------------------------------------------------------------------------
Kinder Morgan, Inc. 3 1,550,750 161,836,270
--------------------------------------------------------------------------------
Occidental Petroleum Corp. 215,000 10,962,850
--------------------------------------------------------------------------------
Tortoise Energy Capital Corp. 598,733 14,130,099
--------------------------------------------------------------------------------
Valero GP Holdings LLC 1 1,000,000 20,470,000
--------------------------------------------------------------------------------
Williams Cos., Inc. (The) 304,700 7,504,761
-------------
443,509,701

VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------
FINANCIALS--15.9%
--------------------------------------------------------------------------------
COMMERCIAL BANKS--1.3%
U.S. Bancorp 3 1,000,000 $ 32,070,000
--------------------------------------------------------------------------------
Wachovia Corp. 166,500 9,095,895
-------------
41,165,895

--------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--6.7%
Bank of America Corp. 1,650,000 84,925,500
--------------------------------------------------------------------------------
Citigroup, Inc. 2,400,000 118,440,000
-------------
203,365,500

--------------------------------------------------------------------------------
INSURANCE--5.1%
ACE Ltd. 825,000 44,434,500
--------------------------------------------------------------------------------
Everest Re Group Ltd. 3 1,175,000 110,426,500
-------------
154,861,000

--------------------------------------------------------------------------------
REAL ESTATE--0.4%
Anthracite Capital, Inc. 931,250 11,966,563
--------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--0.2%
Crystal River Capital, Inc. 1 305,000 6,685,600
--------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.8%
Realogy Corp. 1 1,136,300 24,316,820
--------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.4%
Washington Mutual, Inc. 3 1,000,000 41,890,000
--------------------------------------------------------------------------------
HEALTH CARE--1.3%
--------------------------------------------------------------------------------
PHARMACEUTICALS--1.3%
Pfizer, Inc. 3 1,400,000 38,584,000
--------------------------------------------------------------------------------
INDUSTRIALS--3.4%
--------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.6%
Raytheon Co. 3 1,000,000 47,210,000
--------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.3%
Cendant Corp. 4,545,200 8,772,236
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.5%
General Electric Co. 1,175,000 40,020,500
--------------------------------------------------------------------------------
Siemens AG, Sponsored ADR 76,500 6,506,325
-------------
46,526,825

--------------------------------------------------------------------------------
MATERIALS--0.3%
--------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.3%
Packaging Corp. of America 415,000 9,603,100

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

VALUE
SHARES SEE NOTE 1
-----------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.5%
-----------------------------------------------------------------------------------------------------

DIVERSIFIED TELECOMMUNICATION SERVICES--2.2%
Citizens Communications Co. 1,250,000 $ 17,237,500
-----------------------------------------------------------------------------------------------------
Consolidated Communications Holdings, Inc. 1,110,000 19,036,500
-----------------------------------------------------------------------------------------------------
FairPoint Communications, Inc. 1,000,000 16,350,000
-----------------------------------------------------------------------------------------------------
Windstream Corp. 1,075,000 14,190,000
--------------
66,814,000

-----------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
Sprint Nextel Corp. 500,000 8,460,000
-----------------------------------------------------------------------------------------------------
UTILITIES--0.8%
-----------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.8%
Sempra Energy 500,000 24,860,000
--------------
Total Common Stocks (Cost $1,071,638,101) 1,589,198,088

-----------------------------------------------------------------------------------------------------
PREFERRED STOCKS--7.6%
-----------------------------------------------------------------------------------------------------
AES Trust III, 6.75% Cv. 187,500 9,140,625
-----------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.02% Cv., Series GNW 400,000 13,148,000
-----------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 475,000 19,475,000
-----------------------------------------------------------------------------------------------------
General Motors Corp., 4.50% Cv. Sr. Debs., Series A 1,050,000 25,725,000
-----------------------------------------------------------------------------------------------------
Hess Corp., 7% Cv., Non-Vtg. 47,500 5,481,975
-----------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 3.60% Cv. Yield Enhanced Equity
Linked Debt Securities, Series TYC (linked to Tyco International
Ltd. common stock) 1,968,811 51,090,645
-----------------------------------------------------------------------------------------------------
Lucent Technologies Capital Trust I, 7.75% Cum. Cv., Non-Vtg. 12,250 12,372,500
-----------------------------------------------------------------------------------------------------
NRG Energy, Inc., 5.75% Cv. 10,000 2,534,600
-----------------------------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd., 6% Cv., Series A, Non-Vtg. 175,000 5,202,750
-----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 1,875,000 45,037,500
-----------------------------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly Income Preferred Securities 575,000 25,300,000
-----------------------------------------------------------------------------------------------------
XL Capital Ltd., 7% Cv. 675,000 16,726,500
---------------
Total Preferred Stocks (Cost $221,975,067) 231,235,095

PRINCIPAL
AMOUNT
-----------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--12.7%
-----------------------------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series 2005-3, Cl. A2, 4.501%, 7/10/43 $2,670,000 2,604,381
-----------------------------------------------------------------------------------------------------
Banc of America Funding Corp., CMO Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 2,193,364 2,218,231
-----------------------------------------------------------------------------------------------------
Banc of America Mortgage Securities, Inc., CMO Pass-Through
Certificates, Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,702,886 1,712,465

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
-------------------------------------------------------------------------------------------------------

Citigroup Mortgage Loan Trust, Inc., CMO, Series 2006-WF1,
Cl. A2B, 5.536%, 3/1/36 $ 660,000 $ 658,606
-------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, CMO:
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 4,260,682 4,293,970
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 3,443,729 3,482,092
-------------------------------------------------------------------------------------------------------
Deutsche Alt-A Securities, Inc. Mortgage Loan Trust, CMO,
Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 3,835,972 3,829,441
-------------------------------------------------------------------------------------------------------
Deutsche Alt-B Securities, Inc. Mortgage Loan Trust, CMO,
Series 2006-AB3, Cl. A7, 6.36%, 4/25/08 1,241,856 1,243,669
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 12,266,826 11,799,190
5%, 8/1/33 6,553,362 6,310,347
5%, 9/1/36 4 1,612,000 1,545,505
6%, 5/1/18 4,196,620 4,244,371
6.50%, 4/1/18-4/1/34 2,189,716 2,233,181
7%, 9/1/23-3/1/35 10,511,058 10,823,227
8%, 4/1/16 562,192 595,385
9%, 8/1/22-5/1/25 170,574 183,014
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO Gtd. Real Estate
Mtg. Investment Conduit Multiclass Pass-Through Certificates:
Series 2034, Cl. Z, 6.50%, 2/15/28 711,710 730,776
Series 2053, Cl. Z, 6.50%, 4/15/28 772,862 793,307
Series 2055, Cl. ZM, 6.50%, 5/15/28 942,045 962,179
Series 2075, Cl. D, 6.50%, 8/15/28 2,489,826 2,555,580
Series 2080, Cl. Z, 6.50%, 8/15/28 612,703 625,393
Series 2326, Cl. ZP, 6.50%, 6/15/31 767,083 787,892
Series 2387, Cl. PD, 6%, 4/15/30 482,469 483,263
Series 2500, Cl. FD, 5.83%, 3/15/32 5 342,419 345,887
Series 2526, Cl. FE, 5.73%, 6/15/29 5 460,966 461,191
Series 2551, Cl. FD, 5.73%, 1/15/33 5 361,563 365,650
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO Interest-Only
Stripped Mtg.-Backed Security, Series 2005-87, Cl. SG, 12.157%, 10/25/35 6 9,014,995 484,963
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 13.529%, 6/1/26 6 633,116 143,383
Series 183, Cl. IO, 10.491%, 4/1/27 6 986,108 223,672
Series 184, Cl. IO, 15.986%, 12/1/26 6 1,048,649 237,784
Series 192, Cl. IO, 15.182%, 2/1/28 6 318,638 69,427
Series 200, Cl. IO, 14.013%, 1/1/29 6 380,905 86,238
Series 2003-118, Cl. S, 10.072%, 12/25/33 6 5,279,311 598,050
Series 2130, Cl. SC, (1.575)%, 3/15/29 6 749,620 43,694
Series 2796, Cl. SD, 1.061%, 7/15/26 6 1,112,551 70,981
Series 2920, Cl. S, (2.806)%, 1/15/35 6 6,441,260 293,439
Series 3000, Cl. SE, (3.951)%, 7/15/25 6 6,721,550 222,213
-------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 4.448%, 6/1/26 7 301,350 244,614

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
----------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
----------------------------------------------------------------------------------------------

Federal National Mortgage Assn.:
5%, 6/1/18-11/1/33 $28,649,718 $27,700,002
5%, 3/1/18-9/1/36 4 35,844,541 34,756,783
5.50%, 1/1/33-4/1/34 36,454,752 35,910,668
5.50%, 9/1/21-9/1/36 4 38,229,000 37,700,024
6%, 8/1/32-1/1/33 7,383,661 7,419,365
6%, 9/1/21-9/1/36 4 27,244,000 27,504,436
6.50%, 12/1/29-11/1/31 12,923,016 13,193,684
6.50%, 4/1/16-9/1/36 4 16,550,483 16,831,042
7%, 11/1/17-7/1/35 10,001,122 10,306,572
7.50%, 1/1/33-3/1/33 14,184,741 14,730,192
8.50%, 7/1/32 59,628 64,262
----------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust, CMO,
Trust 2002-T1, Cl. A2, 7%, 11/25/31 2,179,545 2,236,469
----------------------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,950,842 2,005,179
Trust 2001-50, Cl. NE, 6%, 8/25/30 284,224 284,758
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 2,645,563 2,700,025
Trust 2001-70, Cl. LR, 6%, 9/25/30 374,576 375,555
Trust 2001-72, Cl. NH, 6%, 4/25/30 165,250 165,102
Trust 2001-74, Cl. PD, 6%, 5/25/30 68,593 68,443
Trust 2002-9, Cl. PC, 6%, 3/25/17 8,010,280 8,115,386
Trust 2002-77, Cl. WF, 5.73%, 12/18/32 5 542,702 547,491
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 1,903,000 1,860,236
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,921,000 1,891,763
Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,481,334
Trust 2005-31, Cl. PB, 5.50%, 4/25/35 1,430,000 1,390,645
Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,560,000 1,498,184
Trust 2005-104, Cl. MC, 5.50%, 12/25/25 7,321,312 7,121,559
Trust 2006-50, Cl. KS, 4.677%, 6/25/36 5 3,202,317 2,951,356
Trust 2006-50, Cl. SK, 4.677%, 6/25/36 5 259,542 251,449
Trust 2006-57, Cl. PA, 5.50%, 8/25/27 6,415,418 6,423,060
----------------------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 2001-15, Cl. SA, 6.429%, 3/17/31 6 928,149 114,069
Trust 2002-47, Cl. NS, (0.223)%, 4/25/32 6 1,348,732 106,661
Trust 2002-51, Cl. S, (0.104)%, 8/25/32 6 1,238,321 99,543
----------------------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO Interest-Only
Stripped Mtg.-Backed Security, Trust 340, Cl. 2, 8.345%, 9/1/33 6 2,047,200 507,095
----------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, 14.988%, 6/1/23 6 2,248,960 497,849
Trust 240, Cl. 2, 18.732%, 9/1/23 6 3,399,467 773,632
Trust 252, Cl. 2, 10.142%, 11/1/23 6 1,667,901 417,650
Trust 273, Cl. 2, 15.989%, 8/1/26 6 473,005 106,396

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
---------------------------------------------------------------------------------------------------

Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security: Continued
Trust 303, Cl. IO, 12.054%, 11/1/29 6 $ 605,841 $ 148,053
Trust 308, Cl. 2, 13.611%, 9/1/30 6 1,757,403 444,856
Trust 321, Cl. 2, 6.489%, 4/1/32 6 6,816,678 1,610,546
Trust 322, Cl. 2, 16.576%, 4/1/32 6 2,590,246 605,676
Trust 329, Cl. 2, 10.462%, 1/1/33 6 3,401,218 833,340
Trust 331, Cl. 9, 8.748%, 2/1/33 6 1,906,886 435,127
Trust 334, Cl. 17, 17.39%, 2/1/33 6 1,108,812 262,892
Trust 344, Cl. 2, 8.907%, 12/1/33 6 1,985,657 473,119
Trust 362, Cl. 12, 4.55%, 8/1/35 6 5,767,331 1,273,024
Trust 362, Cl. 13, 4.571%, 8/1/35 6 3,202,283 725,745
Trust 2001-65, Cl. S, 10.366%, 11/25/31 6 3,073,863 288,341
Trust 2001-81, Cl. S, 3.442%, 1/25/32 6 700,884 51,465
Trust 2002-9, Cl. MS, 0.572%, 3/25/32 6 844,819 67,764
Trust 2002-52, Cl. SD, (2.472)%, 9/25/32 6 1,469,802 113,739
Trust 2002-75, Cl. SA, 11.301%, 11/25/32 6 3,581,199 343,770
Trust 2002-77, Cl. SH, 3.651%, 12/18/32 6 868,335 85,415
Trust 2003-33, Cl. SP, 13.214%, 5/25/33 6 3,015,547 345,667
Trust 2003-46, Cl. IH, 8.403%, 6/25/33 6 6,325,955 1,372,172
Trust 2004-54, Cl. DS, (3.732)%, 11/25/30 6 1,393,018 71,696
Trust 2005-6, Cl. SE, (2.59)%, 2/25/35 6 4,413,273 206,466
Trust 2005-19, Cl. SA, (3.328)%, 3/25/35 6 16,432,857 770,507
Trust 2005-40, Cl. SA, (3.374)%, 5/25/35 6 3,817,675 179,946
Trust 2005-71, Cl. SA, 3.446%, 8/25/25 6 4,275,700 224,174
Trust 2006-33, Cl. SP, 13.778%, 5/25/36 6 8,556,070 648,357
---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only
Stripped Mtg.-Backed Security:
Trust 340, Cl. 1, 5.056%, 9/1/33 7 2,047,200 1,469,277
Trust 1993-184, Cl. M, 5.413%, 9/25/23 7 770,119 618,342
---------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,687,944
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,569,463
---------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 656,535 661,958
---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 221,801 236,788
---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., CMO Interest-Only
Stripped Mtg.-Backed Security, Series 2002-41, Cl. GS, 4.706%, 6/16/32 6 789,520 119,686
---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, (5.729)%, 1/16/27 6 1,511,219 92,305
Series 2002-15, Cl. SM, (8.599)%, 2/16/32 6 1,382,654 80,362
Series 2002-76, Cl. SY, (5.202)%, 12/16/26 6 3,361,624 228,284
Series 2004-11, Cl. SM, (8.329)%, 1/17/30 6 1,176,503 68,799
Series 2006-47, Cl. SA, 17.104%, 8/16/36 6 11,355,000 629,027

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

Greenwich Capital Commercial Funding Corp., Commercial
Mtg. Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 $ 1,990,000 $ 1,938,503
Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,750,000 1,741,295
-------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities Corp.,
Commercial Mtg. Pass-Through Certificates:
Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 640,000 625,328
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 2,280,000 2,240,014
-------------------------------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust, Commercial Mtg.
Pass-Through Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,900,000 1,879,959
-------------------------------------------------------------------------------------------------------
Lehman XS Trust, Mtg. Pass-Through Certificates, Series 2005-10,
Cl. 2A3B, 5.55%, 1/25/36 1,489,863 1,477,611
-------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO Pass-Through Certificates:
Series 2004-6, Cl. 10A1, 6%, 7/25/34 2,763,677 2,743,334
Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 1,598,205 1,586,146
-------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg.
Pass-Through Certificates, Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15 2,380,000 2,551,081
-------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., CMO Asset-Backed
Pass-Through Certificates:
Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 1,366,504 1,357,939
Series 2006-QS5, Cl. 2 A2, 6%, 4/25/08 4,473,432 4,466,190
-------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg.
Obligations, Series 2005-C17, Cl. A2, 4.782%, 3/15/42 3,590,000 3,538,217
-------------------------------------------------------------------------------------------------------
WAMU Mortgage Pass-Through Certificates, Series 2005-AR5 Trust,
CMO Mtg. Pass-Through Certificates, Series 2005-AR5,
Cl. A1, 4.673%, 5/25/35 5 1,441,143 1,436,867
-------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities 2004-DD Trust,
CMO Mtg. Pass-Through Certificates, Series 2004-DD,
Cl. 2A1, 4.511%, 1/25/35 5 341,327 340,014
------------
Total Mortgage-Backed Obligations (Cost $388,925,731) 386,681,160

-------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--1.9%
-------------------------------------------------------------------------------------------------------
Ace Securities Corp., Home Equity Loan Pass-Through Certificates,
Series 2002-HE7, Cl. A2B, 5.504%, 11/25/35 5 1,310,000 1,311,429
-------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 5.385%, 4/20/08 5 900,000 900,683
-------------------------------------------------------------------------------------------------------
Argent Securities Trust 2004-W8, Asset-Backed Pass-Through Certificates,
Series 2004-W8, Cl. A2, 5.804%, 5/25/34 5 4,500,000 4,522,361
-------------------------------------------------------------------------------------------------------
Argent Securities Trust 2006-W5, Asset-Backed Pass-Through Certificates,
Series 2006-W5, Cl. A2B, 5.424%, 5/26/36 5 1,810,000 1,811,115
-------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Asset-Backed Securities,
Series 2004-2, Cl. A3, 3.58%, 1/15/09 2,990,000 2,942,908

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
---------------------------------------------------------------------------------------------------

Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2005-C, Cl. AF1, 4.196%, 6/25/35 $ 334,323 $ 333,014
Series 2005-D, Cl. AF1, 5.04%, 10/25/35 1,218,938 1,213,325
Series 2005-D, Cl. AV2, 5.594%, 10/25/35 5 2,550,000 2,552,940
Series 2006-A, Cl. AV2, 5.424%, 5/16/36 5 2,270,000 2,271,398
---------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.,
Series 2003-C4, Cl. C4, 5%, 6/10/15 430,000 415,457
---------------------------------------------------------------------------------------------------
Consumer Credit Reference Index Securities Program, Credit Card
Asset-Backed Certificates, Series 2002-B, Cl. FX, 10.421%, 3/22/07 8 2,890,000 2,940,735
---------------------------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2002-4, Asset-Backed
Certificates, Series 2002-4, Cl. A1, 5.694%, 2/25/33 5 44,821 44,868
---------------------------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-16, Asset-Backed
Certificates, Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 5 920,000 917,902
---------------------------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-17, Asset-Backed Certificates:
Series 2005-17, Cl. 1AF1, 5.524%, 5/25/36 5 1,468,245 1,470,046
Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 5 620,000 618,349
---------------------------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-7, Asset-Backed Certificates,
Series 2005-7, Cl. AF1B, 4.317%, 11/25/35 5 350,276 348,965
---------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust 2005-FF10, Mtg.
Pass-Through Certificates,
Series 2005-FF10, Cl. A3, 5.534%, 11/25/35 5 3,800,000 3,804,119
---------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust 2006-FF10, Mtg.
Pass-Through Certificates,
Series 2006-FF10, Cl. A3, 5.414%, 7/25/36 5 1,790,000 1,791,102
---------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust 2006-FF5, Mtg.
Pass-Through Certificates,
Series 2006-FF5, Cl.2A1, 5.374%, 5/15/36 5 1,236,307 1,237,160
---------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust 2006-FF9, Mtg.
Pass-Through Certificates,
Series 2006-FF9, Cl. 2A2, 5.495%, 7/7/36 5 920,000 920,566
---------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan
Pass-Through Certificates:
Series 2005-A, Cl. A3, 3.48%, 11/17/08 1,799,955 1,785,417
Series 2005-B, Cl. A2, 3.78%, 9/15/07 25,968 25,964
---------------------------------------------------------------------------------------------------
Household Home Equity Loan Trust, Home Equity Loan
Pass-Through Certificates, Series 2005-3, Cl. A1, 5.585%, 1/20/35 5 1,415,345 1,417,533
---------------------------------------------------------------------------------------------------
Lehman XS Trust, Mtg. Pass-Through Certificates:
Series 2005-2, Cl. 2A1B, 5.18%, 8/25/35 5 1,938,626 1,931,861
Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 1,438,151 1,431,092
---------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 6.68%, 3/15/16 5 4,080,000 4,338,874
---------------------------------------------------------------------------------------------------
Morgan Stanley ABS Capital I, Mtg. Pass-Through Certificates,
Series 2005-WMC6, Cl. A2B, 5.584%, 7/25/35 5 1,100,000 1,102,646

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

Onyx Acceptance Owner Trust, Automobile Receivable Obligations,
Series 2005-B, Cl. A2, 4.03%, 4/15/08 $ 392,250 $ 391,953
---------------------------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Asset-Backed Certificates,
Series 2006-2, Cl. 2A2, 5.424%, 7/1/36 5 3,010,000 3,011,853
---------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity
Pass-Through Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34 5 561,648 558,330
Series 2005-2, Cl. A F2, 4.415%, 4/25/35 5 1,040,000 1,029,372
---------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Mtg. Pass-Through
Certificates, Series 2005-1, Cl. AF2, 3.914%, 5/25/35 5 600,000 594,933
---------------------------------------------------------------------------------------------------
RAMP Series 2004-RS7 Trust, Mtg. Asset-Backed Pass-Through
Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28 1,910,000 1,892,051
---------------------------------------------------------------------------------------------------
RAMP Series 2006-RS4 Trust, Mtg. Asset-Backed Pass-Through
Certificates, Series 2006-RS4, Cl. A1, 5.404%, 7/25/36 5 1,173,508 1,174,233
---------------------------------------------------------------------------------------------------
Structured Asset Investment Loan Trust, Mtg. Pass-Through
Certificates, Series 2006-2, Cl. A1, 5.384%, 4/25/36 5 1,356,042 1,356,967
---------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Home Equity Asset-Backed Securities,
Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 2,442,289 2,433,190
---------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust,
Home Equity Asset-Backed Certificates,
Series 2006-2, Cl. A2, 5.485%, 7/25/36 5 1,790,000 1,791,102
------------
Total Asset-Backed Securities (Cost $58,739,253) 58,635,813

---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--0.8%
---------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 9 2,255,000 2,131,419
---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.125%, 7/12/10 1,210,000 1,172,835
5.125%, 4/18/11 1,310,000 1,316,008
6.625%, 9/15/09 3 2,340,000 2,444,907
---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.75%, 12/15/10 3,405,000 3,371,239
6%, 5/15/11 2,855,000 2,971,687
6.625%, 9/15/09 3,555,000 3,717,350
---------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds, Series A, 6.79%, 5/23/12 4,898,000 5,321,525
---------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.50%, 2/15/36 1,269,000 1,194,744
8.875%, 8/15/17 285,000 382,524
---------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.875%, 8/15/16 301,000 304,504
5.125%, 5/15/16 958,000 985,505
------------
Total U.S. Government Obligations (Cost $25,744,220) 25,314,247

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.0%
---------------------------------------------------------------------------------------------

Ahold Finance USA, Inc., 6.25% Sr. Unsec. Unsub. Nts., 5/1/09 $ 2,775,000 $ 2,788,875
---------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 2,425,000 2,252,165
---------------------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,775,000
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,612,500
---------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.:
7.50% Sr. Unsec. Nts., 5/1/07 10 770,000 779,838
8.125% Sr. Unsec. Nts., 5/1/12 10 2,115,000 2,370,701
---------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75% Nts., 8/15/10 8 2,995,000 2,908,445
---------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 11 2,500,000 2,675,000
---------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bonds 12 4,410,000 4,125,643
---------------------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
6.875% Sr. Unsec. Nts., 7/15/15 1,515,000 1,355,925
8.375% Sr. Nts., 4/15/12 800,000 796,000
---------------------------------------------------------------------------------------------
Caesars Entertainment, Inc., 7.50% Sr. Unsec. Nts., 9/1/09 3,310,000 3,464,494
---------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 2,770,000 2,923,364
---------------------------------------------------------------------------------------------
Centex Corp., 4.875% Sr. Unsec. Nts., 8/15/08 1,800,000 1,774,535
---------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 1,440,000 1,506,845
---------------------------------------------------------------------------------------------
Charter Communications Holdings I LLC, 11% Sr. Sec. Nts., 10/1/15 57,500,000 51,318,750
---------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/Charter
Communications Holdings Capital Corp.:
9.92% Sr. Unsec. Disc. Nts., 4/1/11 27,500,000 20,487,500
10% Sr. Unsec. Sub. Nts., 5/15/11 2,000,000 1,430,000
13.50% Sr. Unsec. Disc. Nts., 1/15/11 4,250,000 3,378,750
---------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,460,975
---------------------------------------------------------------------------------------------
CIT Group, Inc., 5.40% Sr. Nts., 3/7/13 2,960,000 2,929,349
---------------------------------------------------------------------------------------------
Citigroup, Inc., 6.125% Sub. Nts., 8/25/36 1,220,000 1,236,797
---------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 6.25% Nts., 3/15/11 1,965,000 1,963,579
---------------------------------------------------------------------------------------------
Comcast Corp., 6.45% Unsec. Nts., 3/15/37 3,540,000 3,482,868
---------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.568% Pass-Through Certificates,
Series D, 12/1/06 10,250,000 10,240,199
---------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10 4,530,000 4,391,803
---------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 3,041,250
---------------------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 1,790,000 1,702,797
6.125% Nts., 1/15/14 1,315,000 1,277,523
---------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 7.30% Nts., 1/15/12 2,760,000 2,939,579
---------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,820,000 2,138,444
---------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 2,570,000 2,793,361
---------------------------------------------------------------------------------------------
Eastman Kodak Co., 3.625% Nts., Series A, 5/15/08 360,000 343,911
---------------------------------------------------------------------------------------------
EchoStar DBS Corp., 5.75% Sr. Unsec. Nts., 10/1/08 1,810,000 1,796,425

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
-------------------------------------------------------------------------------------------
El Paso Corp.:
6.50% Sr. Unsec. Nts., 6/1/08 8 $ 578,000 $ 580,168
7.625% Sr. Unsec. Nts., 9/1/08 11 2,170,000 2,224,250
-------------------------------------------------------------------------------------------
Enterprise Products Operating LP, 4.625% Sr. Unsec. Nts.,
Series B, 10/15/09 1,520,000 1,479,545
-------------------------------------------------------------------------------------------
EOP Operating LP, 8.10% Unsec. Nts., 8/1/10 2,720,000 2,952,103
-------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 1,945,000 1,988,385
-------------------------------------------------------------------------------------------
FirstEnergy Corp., 7.375% Sr. Unsub. Nts., Series C, 11/15/31 2,660,000 3,017,294
-------------------------------------------------------------------------------------------
Ford Motor Credit Co., 9.75% Sr. Unsec. Nts., 9/15/10 8 5,600,000 5,801,359
-------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 2,130,000 2,152,037
9.393% Unsub. Nts., 12/15/08 5 359,000 387,880
-------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 8% Bonds, 11/1/31 2,355,000 2,386,637
-------------------------------------------------------------------------------------------
Goldman Sachs Capital, Inc. (The), 6.345% Sub. Bonds, 2/15/34 4,505,000 4,461,657
-------------------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Perpetual Bonds, Series A 8,12 4,300,000 4,104,079
-------------------------------------------------------------------------------------------
HCA, Inc., 8.75% Sr. Nts., 9/1/10 2,985,000 3,014,850
-------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11 2,135,000 2,305,100
-------------------------------------------------------------------------------------------
HSBC Finance Capital Trust IX, 5.911% Nts., 11/30/35 5 2,900,000 2,880,376
-------------------------------------------------------------------------------------------
Hyatt Equities LLC, 6.875% Nts., 6/15/07 8 2,855,000 2,874,899
-------------------------------------------------------------------------------------------
Hyundai Motor Manufacturing Alabama LLC, 5.30% Sr. Unsec.
Nts., 12/19/08 8 1,645,000 1,628,543
-------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 5 1,410,000 1,462,875
-------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,051,250
-------------------------------------------------------------------------------------------
iStar Financial, Inc., 5.15% Sr. Unsec. Nts., 3/1/12 3,125,000 3,036,384
-------------------------------------------------------------------------------------------
JPMorgan Chase & Co., 5.15% Sub. Nts., 10/1/15 2,960,000 2,867,003
-------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.:
6.50% Sr. Nts., 1/15/14 2,525,000 2,291,438
8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,552,000
-------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14 1,915,000 1,707,642
-------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.30% Sr. Unsec. Nts., 8/15/33 2,705,000 2,911,362
-------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 2,435,000 2,390,756
-------------------------------------------------------------------------------------------
Kroger Co. (The), 5.50% Unsec. Unsub. Nts., 2/1/13 2,970,000 2,909,780
-------------------------------------------------------------------------------------------
Lennar Corp., 7.625% Sr. Unsec. Nts., 3/1/09 2,760,000 2,880,667
-------------------------------------------------------------------------------------------
Liberty Media Corp.:
5.70% Sr. Unsec. Nts., 5/15/13 1,580,000 1,492,206
7.875% Sr. Nts., 7/15/09 845,000 887,477
-------------------------------------------------------------------------------------------
Limited Brands, Inc., 6.125% Sr. Unsec. Nts., 12/1/12 2,965,000 2,980,643
-------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.:
5.875% Sr. Unsec. Bonds, 8/1/33 1,930,000 1,746,970
7.125% Sr. Unsec. Nts., 6/15/09 1,660,000 1,723,274

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
-----------------------------------------------------------------------------------------------------------------

May Department Stores Co., 7.90% Unsec. Debs., 10/15/07 $1,050,000 $1,070,672
----------------------------------------------------------------------------------------------------------------
MBIA, Inc., 5.70% Sr. Unsec. Unsub. Nts., 12/1/34 2,320,000 2,181,417
----------------------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85% Unsec. Unsub. Nts., 4/1/12 2,815,000 2,923,338
----------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35 2,545,000 2,427,449
----------------------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 6% Sr. Sec. Nts., 10/1/09 2,960,000 2,908,200
----------------------------------------------------------------------------------------------------------------
Mission Energy Holding Co., 13.50% Sr. Sec. Nts., 7/15/08 2,630,000 2,955,463
----------------------------------------------------------------------------------------------------------------
Morgan Stanley, 4.75% Sub. Nts., 4/1/14 3,080,000 2,915,168
----------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 221,591
----------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12 1,600,000 1,627,498
6.25% Sr. Unsec. Nts., 11/15/11 40,000 41,393
----------------------------------------------------------------------------------------------------------------
NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 3,680,000 3,958,245
----------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 7.875% Unsec. Unsub. Nts., 2/1/09 4,125,000 4,320,938
----------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 8 4,082,667 4,027,359
----------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 8 916,261 859,998
----------------------------------------------------------------------------------------------------------------
Popular North America, Inc., 4.70% Nts., 6/30/09 3,665,000 3,587,438
----------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 8 2,910,000 3,572,918
----------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 2,970,000 3,693,834
----------------------------------------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts., 11/16/07 1,735,000 1,731,029
----------------------------------------------------------------------------------------------------------------
Pulte Homes, Inc., 4.875% Nts., 7/15/09 2,975,000 2,912,888
----------------------------------------------------------------------------------------------------------------
Qwest Corp., 5.625% Unsec. Nts., 11/15/08 10 363,000 360,278
----------------------------------------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 4.625% Nts., 6/15/12 1,235,000 1,172,983
----------------------------------------------------------------------------------------------------------------
Reynolds American, Inc., 6.50% Sr. Sec. Nts., 6/1/07 8 1,848,000 1,861,612
----------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 13,500,000 11,407,500
----------------------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 7% Sr. Unsec. Unsub. Nts., 10/15/07 800,000 811,457
----------------------------------------------------------------------------------------------------------------
Safeway, Inc., 6.50% Sr. Unsec. Nts., 3/1/11 2,850,000 2,932,314
----------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,017,500
----------------------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 1,575,000 1,546,396
----------------------------------------------------------------------------------------------------------------
Telus Corp., 8% Nts., 6/1/11 350,000 385,270
----------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 8.375% Sr. Nts., 7/15/33 2,400,000 2,760,302
----------------------------------------------------------------------------------------------------------------
Tribune Co., 5.50% Nts., Series E, 10/6/08 1,615,000 1,601,738
----------------------------------------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08 1,955,000 1,970,503
----------------------------------------------------------------------------------------------------------------
Tyson Foods, Inc., 7.25% Sr. Unsec. Nts., 10/1/06 3,405,000 3,406,941
----------------------------------------------------------------------------------------------------------------
United States Steel Corp., 10.75% Sr. Nts., 8/1/08 545,000 589,963
----------------------------------------------------------------------------------------------------------------
Univision Communications, Inc., 3.50% Sr. Unsec. Nts., 10/15/07 2,795,000 2,712,986
----------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp., 7.25% Sr. Unsec. Unsub. Nts., 12/1/10 1,400,000 1,495,217
----------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 2,990,000 2,985,679
----------------------------------------------------------------------------------------------------------------
Westar Energy, Inc., 7.125% Sr. Unsec. Nts., 8/1/09 2,190,000 2,285,683

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

Williams Cos., Inc., Credit Linked Certificate Trust (The), 6.75% Nts., 4/15/09 8 $ 2,885,000 $ 2,899,425
-----------------------------------------------------------------------------------------------------------------
Xerox Corp., 9.75% Sr. Unsec. Nts., 1/15/09 2,750,000 2,983,750
-----------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 7.70% Sr. Nts., 7/1/12 1,890,000 2,071,338
-------------
Total Non-Convertible Corporate Bonds and Notes (Cost $344,988,751) 334,789,750

-----------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES-10.5%
-----------------------------------------------------------------------------------------------------------------
Charter Communications, Inc.:
5.875% Cv. Sr. Nts., 11/16/09 8 5,000,000 4,406,250
5.875% Cv. Sr. Nts., 11/16/09 16,000,000 14,100,000
-----------------------------------------------------------------------------------------------------------------
CSK Auto, Inc., 4.625% Cv. Sr. Unsec. Nts., 12/15/25 5,8 11,000,000 11,893,750
-----------------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 6% Cv. Unsec. Sub. Nts., 3/15/10 2,500,000 2,146,875
-----------------------------------------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 13 56,000,000 59,010,000
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for Viacom,
Inc. Cl. B common stock or cash based on the value thereof) 122,500,000 95,396,875
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) 5,000,000 3,318,750
-----------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 2.75% Cv. Sr. Unsec. Debs., Series A, 6/15/23 33,750,000 33,159,375
-----------------------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 22,500,000 21,403,121
-----------------------------------------------------------------------------------------------------------------
Pride International, Inc., 3.25% Cv. Sr. Nts., 5/1/33 20,500,000 23,908,125
-----------------------------------------------------------------------------------------------------------------
Sirius Satellite Radio, Inc., 2.50% Cv. Sr. Nts., 2/15/09 17,500,000 19,950,000
-----------------------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc.:
1.75% Cv. Sr. Nts., 12/1/09 8 14,250,000 11,346,563
1.75% Cv. Sr. Nts., 12/1/09 26,750,000 21,299,688
-------------
Total Convertible Corporate Bonds and Notes (Cost $340,108,387) 321,339,372

-----------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES-7.6%
-----------------------------------------------------------------------------------------------------------------
Bank of America NA, Boston Scientific Corp. Cv. Linked Nts.,
2.25%, 11/6/06 15,000,000 10,827,000
-----------------------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc.:
Pulte Homes, Inc. Cv. Equity Linked Nts., 7.55%, 3/14/07 259,673 8,187,074
Tyco International Ltd. Cv. Equity Linked Nts., 2.87%, 12/15/06 1,170,961 30,907,867
-----------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (New York), Cv. Equity Linked Nts.,
1.60%, 12/29/06 (redemption linked to Comcast Corp., Cl. A common stock) 1,724,340 56,101,402
-----------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Boston Scientific Corp. Cv. Equity Linked Nts., 4.70%, 5/3/07 1,11 566,560 9,907,435
EchoStar Communications Corp. Cv. Linked Nts., 3.40%, 1/2/07 595,400 17,965,600
GlobalSantaFe Corp. Cv. Linked Nts., 7%, 6/30/08 431,460 21,350,367
-----------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., Cv. Yield Enhanced Equity Linked Debt
Securities, Series H, 7%, 12/20/06 (linked to CarMax, Inc.) 764,498 23,615,343

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES Continued
--------------------------------------------------------------------------------------------------------------------

Morgan Stanley:
Cv. Nts., 3.42%, 3/16/07 (linked to Tyco International Ltd.) 11 $ 1,171,000 $ 30,346,465
Cv. Performance Equity Linked Redemption Quarterly-pay Nts.,
2.50% (linked to Microsoft Corp.) 1,000,000 23,975,000
----------------
Total Structured Notes (Cost $218,542,461) 233,183,553

--------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.1%
--------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.30% in joint repurchase agreement (Principal Amount/
Value $1,235,729,000, with a maturity value of $1,235,908,181) with UBS Warburg
LLC, 5.22%, dated 8/31/06, to be repurchased at $3,670,532 on 9/1/06,
collateralized by Federal National Mortgage Assn., 6%-7%,
3/1/36-8/1/36, with a value of $1,262,388,232 (Cost $3,670,000) 3,670,000 3,670,000
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,674,331,971) 104.3% 3,184,047,078
--------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (4.3) (131,118,258)
----------------------------------
NET ASSETS 100.0% $ 3,052,928,820
==================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. 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, 2006. Transactions during the period in
which the issuer was an affiliate are as follows:

SHARES GROSS GROSS SHARES
AUGUST 31, 2005 ADDITIONS REDUCTIONS AUGUST 31,2006
-------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp. 6,488,750 94,627 1,080,877 5,502,500
Enbridge Energy Management LLC 700,000 787,096* 739,394 747,702

VALUE DIVIDEND REALIZED
SEE NOTE 1 INCOME GAIN (LOSS)
-------------------------------------------------------------------------------------------------------------------------

CSK Auto Corp. $63,113,675 $-- $(7,956,683)
Enbridge Energy Management LLC 35,104,599 -- 102,570
---------------------------------------------------
$98,218,274 $-- $(7,854,113)
===================================================
* All or a portion of the transactions were a result of a stock dividend.

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

3. 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 6
---------------------------------------------------------------------------------------------------------------------

Altria Group, Inc. 6,750 12/18/06 $ 90.00 $ 415,112 $ 540,000
Everest Re Group Ltd. 3,500 9/18/06 100.00 162,745 --
Kinder Morgan, Inc. 9,500 11/20/06 105.00 829,491 712,500
Kraft Foods, Inc., Cl. A 15,000 10/6/06 30.25 1,602,338 5,541,450
Loews Corp./Carolina Group 2,000 9/18/06 65.00 63,246 --
Pfizer, Inc. 1,000 9/18/06 27.50 24,999 48,000
Raytheon Co. 7,000 11/20/06 50.00 625,314 420,000
Raytheon Co. 2,500 9/18/06 47.50 251,217 125,000
U.S. Bancorp 10,000 9/18/06 32.50 326,240 150,000
Washington Mutual, Inc. 10,000 10/23/06 45.00 2,043,471 350,000
----------------------------
$6,344,173 $7,886,950
============================

4. When-issued security or forward commitment to be delivered and settled after
August 31, 2006. See Note 1 of accompanying Notes.

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

6. 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 $17,897,059 or 0.59% of the Fund's net assets
as of August 31, 2006.

7. 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 $2,332,233 or 0.08% of the Fund's net assets as of
August 31, 2006.

8. 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 $61,706,103 or 2.02% of the Fund's net
assets as of August 31, 2006.

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

10. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. The aggregate
market value of such securities is $961,871. See Note 5 of accompanying Notes.

11. Illiquid security. The aggregate value of illiquid securities as of August
31, 2006 was $45,153,150, which represents 1.48% of the Fund's net assets. See
Note 9 of accompanying Notes.

12. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest. Rate reported represents
the current interest rate for this variable rate security.

13. 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 6
--------------------------------------------------------------------------------------------------------------------------

BellSouth Corp. 2,712 10/23/06 $35.00 $ 541,762 $ 13,560
Boston Scientific Corp. 480 11/20/06 20.00 142,556 127,200
Boston Scientific Corp. 11 1/22/07 30.00 6,127 13,640
Capital One Financial Corp. 1,000 10/23/06 70.00 261,992 135,000
Capital One Financial Corp. 3,500 10/23/06 75.00 1,648,204 1,260,000
ENSCO International, Inc. 271 9/18/06 50.00 180,552 143,630
ENSCO International, Inc. 481 12/18/06 50.00 384,975 312,650
GlobalSantaFe Corp. 48 9/18/06 57.50 29,615 38,880
GlobalSantaFe Corp. 1,000 10/23/06 57.50 726,978 850,000
GlobalSantaFe Corp. 4,350 1/22/07 57.50 4,228,802 4,002,000
Phelps Dodge Corp. 3,000 10/23/06 75.00 1,886,492 270,000
Phelps Dodge Corp. 2,000 10/23/06 90.00 2,913,910 1,040,000
PMI Group, Inc. (The) 1,282 12/18/06 45.00 405,522 339,730
Take-Two Interactive Software, Inc. 3,000 9/18/06 15.00 410,987 900,000
Take-Two Interactive Software, Inc. 5,500 12/18/06 15.00 1,726,571 1,815,000
Transocean, Inc. 3,000 11/20/06 80.00 4,200,251 4,080,000
Tyco International Ltd. 7,033 10/23/06 27.50 1,491,875 1,090,115
--------------------------
$21,187,171 $16,431,405
==========================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES August 31, 2006
--------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------------------------

Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,613,078,717) $ 3,085,828,804
Affiliated companies (cost $61,253,254) 98,218,274
----------------
3,184,047,078
-------------------------------------------------------------------------------------------------
Cash 480,838
-------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 112,535
-------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $18,326,400 sold on a when-issued basis
or forward commitment) 21,592,539
Interest, dividends and principal paydowns 20,435,079
Shares of beneficial interest sold 1,283,013
Other 86,576
----------------
Total assets 3,228,037,658

-------------------------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------------------------
Options written, at value (premiums received $27,531,344)
--see accompanying statement of investments 24,318,355
-------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 74,262
-------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $135,924,653 purchased on
a when-issued basis or forward commitment) 146,041,730
Shares of beneficial interest redeemed 2,620,526
Distribution and service plan fees 1,222,149
Transfer and shareholder servicing agent fees 331,473
Shareholder communications 222,222
Trustees' compensation 43,019
Futures margins 38,790
Other 196,312
----------------
Total liabilities 175,108,838

-------------------------------------------------------------------------------------------------
NET ASSETS $ 3,052,928,820
================

-------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
-------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 249,001
-------------------------------------------------------------------------------------------------
Additional paid-in capital 2,548,267,834
-------------------------------------------------------------------------------------------------
Accumulated net investment income 5,059,260
-------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (13,212,123)
-------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies 512,564,848
----------------
NET ASSETS $ 3,052,928,820
================

-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
-------------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $2,594,507,457 and
211,207,431 shares of beneficial interest outstanding) $12.28
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.03
-------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $258,811,805 and 21,319,655 shares
of beneficial interest outstanding) $12.14
-------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $163,958,585 and 13,550,923 shares
of beneficial interest outstanding) $12.10
-------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $35,650,973 and 2,923,104 shares of
beneficial interest outstanding) $12.20

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended August 31, 2006
--------------------------------------------------------------------------------

-------------------------------------------------------------------------------
INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest $ 68,620,165
-------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $10,263) 57,984,350
-------------------------------------------------------------------------------
Fee income 91,851
-------------------------------------------------------------------------------
Other income 61,987
--------------
Total investment income 126,758,353

-------------------------------------------------------------------------------
EXPENSES
-------------------------------------------------------------------------------
Management fees 16,153,003
-------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 6,153,469
Class B 2,736,971
Class C 1,653,565
Class N 162,774
-------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 3,015,591
Class B 466,302
Class C 255,257
Class N 76,380
-------------------------------------------------------------------------------
Shareholder communications:
Class A 416,131
Class B 96,579
Class C 33,643
Class N 9,910
-------------------------------------------------------------------------------
Custodian fees and expenses 178,388
-------------------------------------------------------------------------------
Trustees' compensation 45,585
-------------------------------------------------------------------------------
Administration service fees 1,500
-------------------------------------------------------------------------------
Other 223,011
--------------
Total expenses 31,678,059
Less reduction to custodian expenses (1,156)
--------------
Net expenses 31,676,903

-------------------------------------------------------------------------------
NET INVESTMENT INCOME 95,081,450

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

Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 13,837,709
Affiliated companies (7,854,113)
Closing and expiration of option contracts written 19,692,603
Closing and expiration of futures contracts 1,759,143
Foreign currency transactions 19,608
Swap contracts 57,121
--------------
Net realized gain 27,512,071
-----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 7,981,990
Futures contracts 251,097
Option contracts 4,574,751
Swap contracts (143,164)
--------------
Net change in unrealized appreciation 12,664,674

-----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 135,258,195
==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

YEAR ENDED AUGUST 31, 2006 2005
----------------------------------------------------------------------------------------------------------
OPERATIONS
----------------------------------------------------------------------------------------------------------
Net investment income $ 95,081,450 $ 90,086,029
----------------------------------------------------------------------------------------------------------
Net realized gain 27,512,071 151,145,430
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 12,664,674 159,251,121
-----------------------------------
Net increase in net assets resulting from operations 135,258,195 400,482,580

----------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (77,812,436) (98,334,605)
Class B (6,031,033) (9,374,778)
Class C (3,701,400) (4,622,703)
Class N (836,479) (783,486)
----------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (112,727,835) (79,229,551)
Class B (12,275,789) (9,824,424)
Class C (7,342,478) (4,580,356)
Class N (1,340,023) (642,942)

----------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (3,331,341) 127,979,966
Class B (31,772,777) (37,260,401)
Class C 1,811,081 24,380,138
Class N 6,928,899 11,328,890

----------------------------------------------------------------------------------------------------------
NET ASSETS
----------------------------------------------------------------------------------------------------------
Total increase (decrease) (113,173,416) 319,518,328
----------------------------------------------------------------------------------------------------------
Beginning of period 3,166,102,236 2,846,583,908
-----------------------------------
End of period (including accumulated net investment income (loss) of
$5,059,260 and $(5,155,034), respectively)
$ 3,052,928,820 $ 3,166,102,236
===================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

CLASS A YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002
----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------------

Net asset value, beginning of period $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 1 .38 1 .46 .54 .51
Net realized and unrealized gain (loss) .16 1.28 .69 1.35 (2.66)
--------------------------------------------------------------------------
Total from investment operations .55 1.66 1.15 1.89 (2.15)
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.37) (.48) (.53) (.43) (.48)
Distributions from net realized gain (.53) (.39) -- -- (.33)
--------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.90) (.87) (.53) (.43) (.81)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.28 $ 12.63 $ 11.84 $ 11.22 $ 9.76
===========================================================================

-----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 4.68% 14.40% 10.32% 20.10% (17.75)%
-----------------------------------------------------------------------------------------------------------------------------

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

Net assets, end of period (in thousands) $2,594,507 $2,670,552 $2,379,956 $2,130,486 $1,873,458
-----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,608,268 $2,565,609 $2,356,948 $1,900,896 $2,224,911
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.21% 3.09% 3.85% 5.41% 4.48%
Total expenses 0.91% 0.89% 4 0.89% 4,5 0.93% 4 0.98% 4
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 6 55% 6 52% 141% 148%

1. Per share amounts calculated based on the average shares outstanding during
the period.

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%.

6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
--------------------------------------------------------------------------------
Year Ended August 31, 2006 $2,212,763,141 $2,305,352,091
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

CLASS B YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------------------------

Net asset value, beginning of period $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .28 1 .28 1 .36 .45 .41
Net realized and unrealized gain (loss) .16 1.26 .68 1.33 (2.62)
----------------------------------------------------------------------------
Total from investment operations .44 1.54 1.04 1.78 (2.21)
------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.38) (.42) (.35) (.39)
Distributions from net realized gain (.53) (.39) -- -- (.33)
----------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.79) (.77) (.42) (.35) (.72)
------------------------------------------------------------------------------------------------------------------------------

Net asset value, end of period $ 12.14 $ 12.49 $ 11.72 $ 11.10 $ 9.67
============================================================================

------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 3.84% 13.40% 9.46% 18.94% (18.31)%
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 258,812 $ 299,093 $ 316,568 $ 343,074 $ 327,368
------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 273,916 $ 304,769 $ 349,853 $ 312,457 $ 410,652
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.37% 2.25% 3.00% 4.55% 3.67%
Total expenses 1.74% 1.73% 4 1.76% 4,5 1.81% 4 1.76% 4
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 6 55% 6 52% 141% 148%

1. Per share amounts calculated based on the average shares outstanding during
the period.

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%.

6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
---------------------------------------------------------------------------
Year Ended August 31, 2006 $2,212,763,141 $2,305,352,091
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

CLASS C YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------------------------

Net asset value, beginning of period $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .29 1 .28 1 .35 .45 .42
Net realized and unrealized gain (loss) .15 1.26 .69 1.34 (2.62)
----------------------------------------------------------------------------
Total from investment operations .44 1.54 1.04 1.79 (2.20)
------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.38) (.44) (.36) (.40)
Distributions from net realized gain (.53) (.39) -- -- (.33)
----------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.80) (.77) (.44) (.36) (.73)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.10 $ 12.46 $ 11.69 $ 11.09 $ 9.66
============================================================================

------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 3.83% 13.52% 9.40% 19.05% (18.30)%
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 163,959 $ 167,013 $ 133,368 $ 93,797 $ 72,792
------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 165,514 $ 150,410 $ 122,458 $ 75,459 $ 84,049
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.40% 2.27% 3.01% 4.55% 3.74%
Total expenses 1.71% 1.71% 4 1.72% 4,5 1.78% 4 1.76% 4
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 6 55% 6 52% 141% 148%

1. Per share amounts calculated based on the average shares outstanding during
the period.

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%.

6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
-----------------------------------------------------------------------------
Year Ended August 31, 2006 $2,212,763,141 $2,305,352,091
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

CLASS N YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002
------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------------------------

Net asset value, beginning of period $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 1 .34 1 .39 .46 .50
Net realized and unrealized gain (loss) .16 1.26 .72 1.37 (2.66)
----------------------------------------------------------------------------
Total from investment operations .50 1.60 1.11 1.83 (2.16)
------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.44) (.49) (.40) (.47)
Distributions from net realized gain (.53) (.39) -- -- (.33)
----------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.85) (.83) (.49) (.40) (.80)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.20 $ 12.55 $ 11.78 $ 11.16 $ 9.73
============================================================================

------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 4.32% 13.95% 10.01% 19.45% (17.89)%
------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 35,651 $ 29,444 $ 16,692 $ 9,023 $ 4,071
------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 32,598 $ 22,974 $ 13,301 $ 5,968 $ 2,839
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.82% 2.73% 3.42% 4.92% 4.74%
Total expenses 1.30% 1.24% 4 1.28% 4,5 1.35% 4 1.25% 4
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 6 55% 6 52% 141% 148%

1. Per share amounts calculated based on the average shares outstanding during
the period.

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%.

6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
-------------------------------------------------------------------------
Year Ended August 31, 2006 $2,212,763,141 $2,305,352,091
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

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

Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund has a secondary objective to
conserve principal while providing an opportunity for capital appreciation. 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 may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities listed or traded on National
Stock Exchanges or other domestic 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(R) 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. Securities traded on
foreign exchanges are valued based on the last sale price on the principal
exchange on which the security is traded, as identified by the portfolio pricing
service, prior to the time when the Fund's assets are valued. In the absence of
a sale, the security is valued at the official closing price on the principal
exchange. Corporate, government and municipal debt instruments having a
remaining maturity in excess of sixty days and all mortgage-backed securities
will be valued at the mean between the "bid" and "asked" prices. Futures
contracts traded on a commodities or futures exchange will be valued at the
final settlement price or official closing price on the principal exchange as
reported by such principal exchange at its trading session ending at, or most
recently prior to, the time when the Fund's assets are valued. Securities
(including restricted securities) for which market quotations are not readily
available

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

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

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).

--------------------------------------------------------------------------------
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 Statement of Operations. The Fund records a realized gain or loss
when a structured note is sold or matures. As of August 31, 2006, the market
value of these securities comprised 7.6% of the Fund's net assets and resulted
in unrealized cumulative gains of $14,641,092.

--------------------------------------------------------------------------------
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, 2006, the Fund had purchased
$135,924,653 of securities issued on a when-issued basis or forward commitment
and sold $18,326,400 of securities issued 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.

--------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income 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. 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.

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

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

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.

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 1,2,3,4 TAX PURPOSES
--------------------------------------------------------------------------------
$22,026,713 $-- $6,086,311 $488,518,969

1. As of August 31, 2006, the Fund had $37,847 of post-October losses available
to offset future realized capital gains, if any. Such losses, if unutilized,
will expire in 2015.

2. The Fund had $6,048,464 of straddle losses which were deferred.

3. During the fiscal year ended August 31, 2006, the Fund did not utilize any
capital loss carryforward.

4. During the fiscal year ended August 31, 2005, 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, 2006. Net assets of the
Fund were unaffected by the reclassifications.

INCREASE TO INCREASE TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED LOSS
PAID-IN CAPITAL INCOME ON INVESTMENTS 5
------------------------------------------------------------------
$648,789 $3,514,192 $4,162,981

5. $1,119,832 was distributed in connection with Fund share redemptions.

The tax character of distributions paid during the years ended August 31, 2006
and August 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
AUGUST 31, 2006 AUGUST 31, 2005
-------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $162,410,486 $113,115,572
Long-term capital gain 59,656,987 94,277,273
-----------------------------------------
Total $222,067,473 $207,392,845
=========================================

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, 2006 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.

Federal tax cost of securities $ 2,698,274,740
Federal tax cost of other investments (141,337,674)
----------------
Total federal tax cost $ 2,556,937,066
================

Gross unrealized appreciation $ 591,708,830
Gross unrealized depreciation (103,189,861)
----------------
Net unrealized appreciation $ 488,518,969
================

--------------------------------------------------------------------------------
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.

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

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

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.

--------------------------------------------------------------------------------
CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts, to the extent they are not
offset by positive cash balances maintained by the Fund, at a rate equal to the
Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item,
if applicable, represents earnings on cash balances maintained by the Fund
during the period. Such interest expense and other custodian fees may be paid
with these earnings.

--------------------------------------------------------------------------------
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.

--------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.

--------------------------------------------------------------------------------
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.

--------------------------------------------------------------------------------
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, 2006 YEAR ENDED AUGUST 31, 2005
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------
CLASS A

Sold 18,616,904 $ 226,300,881 22,558,905 $ 277,939,203
Dividends and/or
distributions reinvested 14,837,822 176,523,004 13,463,832 165,521,957
Redeemed (33,641,665) (406,155,226) (25,590,738) (315,481,194)
---------------------------------------------------------------------
Net increase (decrease) (186,939) $ (3,331,341) 10,431,999 $ 127,979,966
=====================================================================

----------------------------------------------------------------------------------------------------
CLASS B

Sold 3,241,843 $ 38,903,049 4,597,999 $ 56,062,655
Dividends and/or
distributions reinvested 1,451,650 17,079,474 1,486,058 18,104,691
Redeemed (7,316,039) (87,755,300) (9,161,381) (111,427,747)
---------------------------------------------------------------------
Net decrease (2,622,546) $ (31,772,777) (3,077,324) $ (37,260,401)
=====================================================================

----------------------------------------------------------------------------------------------------
CLASS C

Sold 2,830,185 $ 33,853,111 3,382,894 $ 41,213,863
Dividends and/or
distributions reinvested 845,746 9,915,326 693,034 8,423,553
Redeemed (3,532,313) (41,957,356) (2,075,964) (25,257,278)
---------------------------------------------------------------------
Net increase 143,618 $ 1,811,081 1,999,964 $ 24,380,138
=====================================================================

----------------------------------------------------------------------------------------------------
CLASS N

Sold 1,158,822 $ 13,939,161 1,172,709 $ 14,333,266
Dividends and/or
distributions reinvested 178,715 2,111,820 114,121 1,396,302
Redeemed (760,312) (9,122,082) (358,515) (4,400,678)
---------------------------------------------------------------------
Net increase 577,225 $ 6,928,899 928,315 $ 11,328,890
=====================================================================

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

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2006, were as
follows:

PURCHASES SALES
----------------------------------------------------------------------
Investment securities $1,877,908,686 $1,894,044,219
U.S. government and
government agency obligations 88,930,024 121,538,583
To Be Announced (TBA)
mortgage-related securities 2,212,763,141 2,305,352,091

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

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
average annual rate as shown in the following table:

FEE SCHEDULE AUG. 1, 2005 TO DECEMBER 31, 2005 FEE SCHEDULE EFFECTIVE JAN. 1, 2006
----------------------------------------------------------------------------------------------------

Up to $100 million of net assets 0.75% Up to $100 million of net assets 0.75%
Next $100 million of net assets 0.70 Next $100 million of net assets 0.70
Next $100 million of net assets 0.65 Next $100 million of net assets 0.65
Next $100 million of net assets 0.60 Next $100 million of net assets 0.60
Next $100 million of net assets 0.55 Next $100 million of net assets 0.55
Over $500 million of net assets 0.50 From $500 million to $5 billion
of net assets 0.50
Over $5 billion of net assets 0.48

--------------------------------------------------------------------------------
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, 2006, the Fund paid
$3,794,415 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
periodically 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 periodically 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
periods. 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% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under 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, 2006 for Class B, Class C
and Class N shares were $8,531,867, $3,783,065 and $579,278, 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 following table for the period
indicated.

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, 2006 $790,133 $3,857 $502,444 $30,357 $11,456

--------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees for all classes to 0.35% of
average annual net assets per class. This undertaking may be amended or
withdrawn at any time.

--------------------------------------------------------------------------------
5. 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 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

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

--------------------------------------------------------------------------------
5. FUTURES CONTRACTS Continued

the daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations at the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in 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, 2006, the Fund had outstanding futures contracts as follows:

UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2006 (DEPRECIATION)
----------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 12/19/06 451 $50,089,188 $ 325,521
U.S. Treasury Nts., 10 yr. 12/19/06 117 12,562,875 6,641
----------
332,162
----------
CONTRACTS TO SELL
Euro-Bundesobligation, 10 yr. 9/7/06 157 23,788,854 (463,813)
U.S. Treasury Nts., 2 yr. 12/29/06 639 130,575,656 (199,441)
U.S. Treasury Nts., 5 yr. 12/29/06 215 22,598,516 (70,429)
----------
(733,683)
----------
$(401,521)
==========

--------------------------------------------------------------------------------
6. OPTION ACTIVITY

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

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

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

Securities designated to cover outstanding call or put 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 [or commodity]
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 [or commodity]
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, 2006 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, 2005 30,563 $ 4,354,050 65,934 $ 15,086,303
Options written 265,819 20,248,754 372,878 82,034,765
Options closed or expired (216,045) (16,272,363) (336,797) (59,440,300)
Options exercised (13,087) (1,986,268) (63,347) (16,493,597)
--------------------------------------------------------------
Options outstanding as of
August 31, 2006 67,250 $ 6,344,173 38,668 $ 21,187,171
==============================================================

--------------------------------------------------------------------------------
7. 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 unrealized gain (loss) related to the daily change
in the valuation of the notional amount of the swap, as well as the amount due
to (owed by) the Fund at termination or settlement, is combined and separately
disclosed as an asset (liability). The Fund also records any periodic payments
received from (paid to) the counterparty, including at termination, under such
contracts as realized gain (loss). Total return swaps are subject to risks (if
the counterparty fails to meet its obligations).

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

--------------------------------------------------------------------------------
7. TOTAL RETURN SWAP CONTRACTS Continued

As of August 31, 2006, the Fund had entered into the following total return swap
agreements:

SWAP NOTIONAL TERMINATION UNREALIZED
COUNTERPARTY SWAP DESCRIPTION AMOUNT DATES DEPRECIATION
-----------------------------------------------------------------------------------------------------------------------------

Received or paid monthly. The Counterparty
pays the Fund a Floating Payment which is
the sum of the Notional Amount, the Lehman
Brothers CMBS Index Spread and the Financial
Spread on the initial Notional Amount for the
Swap Interest Accrual Period. In addition, the
Counterparty, pays the Fund the Total Return
Amount if it is a positive value for a given
Index Period. If it is a negative, the Fund pays
the Counterparty the absolute value of the
Deutsche Bank Total Return Amount for a given Index Period,
AG on each Payment Date. $5,560,000 12/1/06 $5,644
-----------------------------------------------------------------------------------------------------------------------------
Received or paid monthly. If the Carry
Amount, plus the Spread Return Amount
(Spread Change times Duration times
Notional Amount), is positive, the
Counterparty pays the Fund. The payment
is based on the Carry Amount which is the
Spread on the Lehman Brothers CMBS AAA
8.5+ Index as of the close of one Business Day
prior to the Period End Day plus 15 basis
points times the Notional Amount times the
Lehman Brothers Day Count Basis. If it is negative, the Fund
Special Financing, pays the Counterparty the absolute value of
Inc. the Spread Return Amount. 6,170,000 12/1/06 6,263
--------
$11,907
========
Abbreviation is as follows:
CMBS Commercial Mortgage Backed Securities

--------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS

The Fund may enter into a credit default swap contract to seek to maintain a
total return on a particular investment or portion of its portfolio, or for
other non-speculative purposes. Credit default swap contracts are subject to
credit risks (for example if the counterparty fails to meet its obligations).

As a purchaser of a credit default swap contract, the Fund pays a periodic
interest fee on the notional amount to the counterparty. This interest fee is
accrued daily as a component of unrealized appreciation (depreciation) and is
recorded as realized loss upon payment. The Fund also records an increase or
decrease to unrealized gain (loss) in an amount equal to the daily valuation.
Upon occurrence of a specific credit event with respect to the underlying
referenced debt obligation, the Fund is obligated to deliver that security to
the counterparty in exchange for receipt of the notional amount from the
counterparty. The difference between the value of the security delivered and the
notional amount received is recorded as realized gain.

Information regarding such credit default swaps as of August 31, 2006 is as
follows:

NOTIONAL ANNUAL
AMOUNT INTEREST
REFERENCED RECEIVED BY RATE PAID UNREALIZED
DEBT THE FUND UPON BY THE APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------

Deutsche Bank Weyerhaeuser Co. $2,910,000 0.580% $(13,637)
--------------------------------------------------------------------------------------------------------------
Morgan Stanley
Capital Services, Inc.:
Arrow Electronics, Inc. 2,910,000 0.790 (33,301)
Arrow Electronics, Inc. 1,470,000 0.770 (14,971)
Belo Corp. 1,675,000 0.650 5,260
Belo Corp. 925,000 0.670 2,054
Belo Corp. 1,870,000 0.675 3,721
Federated Department Stores, Inc. 2,910,000 0.445 (417)
---------
$(51,291)
=========

As a seller of a credit default swap contract, the Fund receives a periodic
interest fee on the notional amount from the counterparty. This interest fee is
accrued daily as a component of unrealized appreciation (depreciation) and is
recorded as realized gain upon receipt. The Fund also records an increase or
decrease to unrealized gain (loss) in an amount equal to the daily valuation.
Upon occurrence of a specific credit event with respect to the underlying
referenced debt obligation, the Fund receives that security from the
counterparty in exchange for payment of the notional amount to the counterparty.
The difference between the value of the security received and the notional
amount paid is recorded as realized loss.

Information regarding such credit default swaps as of August 31, 2006 is as
follows:

ANNUAL
NOTIONAL INTEREST
AMOUNT RATE
REFERENCED PAID BY RECEIVED UNREALIZED
DEBT THE FUND UPON BY THE APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION)

Deutsche Bank:
Abitibi-Consolidated Co. of Canada $2,385,000 1.52% $ 6,772
Allied Waste North America, Inc. 920,000 2.00 11,247
Allied Waste North America, Inc. 1,440,000 2.00 17,524
General Motors Acceptance Corp. 825,000 2.30 10,647
General Motors Corp. 920,000 6.40 (18)
General Motors Corp. 560,000 6.40 (11)

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

--------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS Continued

ANNUAL
NOTIONAL INTEREST
AMOUNT RATE
REFERENCED PAID BY RECEIVED UNREALIZED
DEBT THE FUND UPON BY THE APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------

Morgan Stanley
Capital Services, Inc.:
General Motors Acceptance Corp. $1,875,000 3.15% $ 50,424
Hyundai Motor Manufacturing
Alabama LLC 1,280,000 0.40 2,293
J.C. Penney Corp., Inc. 2,910,000 0.61 2,593
--------
$101,471
========

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

As of August 31, 2006, 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. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.

--------------------------------------------------------------------------------
10. RECENT ACCOUNTING PRONOUNCEMENT

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
August 31, 2006, the Manager is evaluating the implications of FIN 48. Its
impact in the Fund's financial statements has not yet been determined.

--------------------------------------------------------------------------------
11. LITIGATION

A consolidated amended complaint was filed as a putative class action
against the Manager and the Transfer Agent and other defendants (including 51 of
the Oppenheimer funds including the Fund) in the U.S. District Court for the
Southern District of New York on January 10, 2005 and was amended on March 4,
2005. The complaint alleged, among other things, that the Manager charged
excessive fees for distribution and other costs, and that by permitting and/or
participating in those actions, the Directors/Trustees and the Officers of the
funds breached their fiduciary duties to fund shareholders under the Investment
Company Act of 1940 and at common law. The plaintiffs sought unspecified
damages, an accounting of all fees paid, and an award of attorneys' fees and
litigation expenses.

In response to the defendants' motions to dismiss the suit, seven of the
eight counts in the complaint, including the claims against certain of the
Oppenheimer funds, as nominal defendants, and against certain present and former
Directors, Trustees and Officers of the funds, and the Distributor, as
defendants, were dismissed with prejudice, by court order dated March 10, 2006,
and the remaining count against the Manager and the Transfer Agent was dismissed
with prejudice by court order dated April 5, 2006. The plaintiffs filed an
appeal of those dismissals on May 11, 2006.

The Manager believes that the allegations contained in the complaint are
without merit and that there are substantial grounds to sustain the district
court's rulings. The Manager also believes that it is premature to render any
opinion as to the likelihood of an outcome unfavorable to it, the funds, the
Directors/Trustees or the Officers on the appeal of the decisions of the
district court, and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.

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 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. 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. 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.

D. 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 59 1/2, as long as the
aggregate value of the distributions does not exceed 10% of the account's value,
adjusted annually.

13) Redemptions of Class B shares under an Automatic Withdrawal Plan for an
account other than a Retirement Plan, if the aggregate value of the redeemed
shares does not exceed 10% of the account's value, adjusted annually.

14) For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special arrangement with the Distributor allowing this
waiver.

|_| Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the aggregate
value of the redeemed shares does not exceed 10% of the account's value
annually.

E. 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. |_|
F. A. Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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

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

|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:

o Shareholders who were shareholders of the AMA Family of Funds on February
28, 1991 and who acquired shares of any of the Former Quest for Value Funds by
merger of a portfolio of the AMA Family of Funds.

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

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

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

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

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 I. J. 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) 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 Funds
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)

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