DEF 14A

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As filed with the Securities and Exchange Commission on         OMB APPROVAL
February 23, 2006
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Registration No. 2-86903                                     OMB Number:3235-0336
                                                             Expires March 31, 2008
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                                       UNITED STATES
                             SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549

                                         FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                 / X /

PRE-EFFECTIVE AMENDMENT NO. __                                          /    /

POST-EFFECTIVE AMENDMENT NO. __                                         /    /


                                 OPPENHEIMER BALANCED FUND
                             [GRAPHIC OMITTED][GRAPHIC OMITTED]
                     (Exact Name of Registrant as Specified in Charter)


                   6803 South Tucson Way, Centennial, Colorado 80112-3924
                             [GRAPHIC OMITTED][GRAPHIC OMITTED]
                          (Address of Principal Executive Offices)


                                        303-768-3200
                             [GRAPHIC OMITTED][GRAPHIC OMITTED]
                       (Registrant's Area Code and Telephone Number)


                                    Robert G. Zack, Esq.
                         Executive Vice President & General Counsel
                                   OppenheimerFunds, Inc.
                                 Two World Financial Center
                                     225 Liberty Street
                                  New York, New York 10148
                                       (212) 323-0250
                             [GRAPHIC OMITTED][GRAPHIC OMITTED]
                          (Name and Address of Agent for Service)


         As soon as practicable after the Registration Statement becomes effective.
                             [GRAPHIC OMITTED][GRAPHIC OMITTED]
                       (Approximate Date of Proposed Public Offering)


Title of Securities Being Registered: Class A, Class B, Class C and Class N shares of
Oppenheimer Balanced Fund.

It is proposed that this filing will become effective on February 23, 2006 pursuant to Rule
488.

No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of
1940, as amended.






                             CONTENTS OF REGISTRATION STATEMENT

This Registration Statement contains the following pages and documents:

Front Cover
Contents Page

Part A

Combined Prospectus and Proxy Statement of Oppenheimer Balanced Fund

Part B

Statement of Additional Information

Part C

Other Information
Signatures
Exhibits

                   OPPENHEIMER DISCIPLINED ALLOCATION FUND
              6803 South Tucson Way, Centennial, Colorado 80112
                                1.800.225.5677

                  NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON April 20, 2006

To the Shareholders of Oppenheimer Disciplined Allocation Fund:

      Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Disciplined Allocation Fund, a series of Oppenheimer Series Fund,
Inc. ("Disciplined Allocation Fund"), a registered open-end management
investment company, will be held at 6803 South Tucson Way, Centennial,
Colorado 80112 at 1:00 p.m., Mountain time, on April 20, 2006, or any
adjournments thereof (the "Meeting"), for the following purposes:

1. To approve an Agreement and Plan of Reorganization between Disciplined
       Allocation Fund and Oppenheimer Balanced Fund ("Balanced Fund"), and
       the transactions contemplated thereby, including: (a) the transfer of
       substantially all the assets of Disciplined Allocation Fund to
       Balanced Fund in exchange for Class A, Class B, Class C and Class N
       shares of Balanced Fund; (b) the distribution of these shares of
       Balanced Fund to the corresponding Class A, Class B, Class C and Class
       N shareholders of Disciplined Allocation Fund in complete liquidation
       of Disciplined Allocation Fund; and (c) the cancellation of the
       outstanding shares of Disciplined Allocation Fund (all of the
       foregoing being referred to as the "Proposal"); and

2. To act upon such other matters as may properly come before the Meeting.

      Shareholders of record at the close of business on January 20, 2006 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the combined Prospectus and Proxy Statement. Please read
it carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. The Board of Directors of Disciplined Allocation
Fund recommends a vote in favor of the Proposal.

            YOU CAN VOTE ON THE INTERNET, BY TELEPHONE OR BY MAIL.
                        WE URGE YOU TO VOTE PROMPTLY.
                           YOUR VOTE IS IMPORTANT.

By Order of the Board of Directors,
Robert G. Zack, Secretary
March 1, 2006
____________________________________________________________________________________________
                    PLEASE VOTE THE ENCLOSED PROXY TODAY.
          YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.






                          OPPENHEIMER BALANCED FUND
              6803 South Tucson Way, Centennial, Colorado 80112
                                1.800.225.5677

                   COMBINED PROSPECTUS AND PROXY STATEMENT
                             dated March 1, 2006

                      SPECIAL MEETING OF SHAREHOLDERS OF
                   OPPENHEIMER DISCIPLINED ALLOCATION FUND
                         to be held on April 20, 2006

                         Acquisition of the Assets of
                   OPPENHEIMER DISCIPLINED ALLOCATION FUND
              6803 South Tucson Way, Centennial, Colorado 80112
                                1.800.225.5677

    By and in exchange for Class A, Class B, Class C and Class N shares of
                          OPPENHEIMER BALANCED FUND

      This combined Prospectus and Proxy Statement solicits proxies from the
shareholders of Oppenheimer Disciplined Allocation Fund ("Disciplined
Allocation Fund"), an open-end management investment company, to be voted at
a Special Meeting of Shareholders (the "Meeting") to approve the Agreement
and Plan of Reorganization (the "Reorganization Agreement") and the
transactions contemplated thereby (the "Reorganization") between Disciplined
Allocation Fund and Oppenheimer Balanced Fund ("Balanced Fund"), an open-end
management investment company. This combined Prospectus and Proxy Statement
constitutes the Prospectus of Balanced Fund and the Proxy Statement of
Disciplined Allocation Fund filed on Form N-14 with the Securities and
Exchange Commission ("SEC"). If shareholders of Disciplined Allocation Fund
vote to approve the Reorganization Agreement and the Reorganization,
substantially all of the assets of Disciplined Allocation Fund will be
transferred to Balanced Fund in exchange for shares of Balanced Fund and the
assumption of certain liabilities, if any, described in the Reorganization
Agreement.  The Meeting will be held at the offices of OppenheimerFunds, Inc.
("Manager") at 6803 South Tucson Way, Centennial, Colorado 80112 on April 20,
2006 at 1:00 P.M., Mountain time. The Board of Directors of Disciplined
Allocation Fund is soliciting these proxies on behalf of Disciplined
Allocation Fund. This Prospectus and Proxy Statement will first be sent to
shareholders on or about March 1, 2006.

      If the shareholders of Disciplined Allocation Fund vote to approve the
Reorganization Agreement and the Reorganization, shareholders will receive
Class A shares of Balanced Fund equal in value to the value as of the
"Valuation Date," which is the business day preceding the Closing Date of the
Reorganization, of their Class A shares of Disciplined Allocation Fund; Class
B shares of Balanced Fund equal in value to the value as of the Valuation
Date of their Class B shares of Disciplined Allocation Fund; Class C shares
of Balanced Fund equal in value to the value as of the Valuation Date of
their Class C shares of Disciplined Allocation Fund; and Class N shares of
Balanced Fund equal in value to the value as of the Valuation Date of their
Class N shares of Disciplined Allocation Fund. Disciplined Allocation Fund
will then be subsequently dissolved.

      This combined Prospectus and Proxy Statement gives information about
the Class A, Class B, Class C and Class N shares of Balanced Fund that you
should know before investing. You should retain it for future reference. A
Statement of Additional Information, dated March 1, 2006, relating to the
Reorganization, has been filed with the SEC as part of the Registration
Statement on Form N-14 (the "Registration Statement") and is incorporated
herein by reference. You may receive a free copy by writing to
OppenheimerFunds Services (the "Transfer Agent") at P.O. Box 5270, Denver,
Colorado 80217 or by calling toll-free 1.800.225.5677.

      The Prospectus of Balanced Fund dated January 27, 2006, is enclosed
herewith and considered a part of this combined Prospectus and Proxy
Statement.  It is intended to provide you with information about Balanced
Fund.  For more information regarding Balanced Fund, in addition to its
Prospectus, see the Statement of Additional Information dated January 27,
2006, which includes audited financial statements of Balanced Fund for the
12-month period ended September 30, 2005.  These documents have been filed
with the SEC and are incorporated herein by reference.  You may receive a
free copy of these documents by writing to the Transfer Agent at P.O. Box
5270, Denver, Colorado 80217, by calling toll-free 1.800.225.5677 or by
visiting the website at www.oppenheimerfunds.com.

      For more information regarding Disciplined Allocation Fund, see the
Prospectus of Disciplined Allocation Fund dated February 28, 2005 as
supplemented September 30, 3005.  In addition to its Prospectus, see the
Statement of Additional Information of Disciplined Allocation Fund dated
February 28, 2005, revised December 6, 2005; and the annual report of
Disciplined Allocation Fund dated October 31, 2005 which includes audited
financial statements of Disciplined Allocation Fund for the 12-month period
ended October 31, 2005. See also the audited financial statements of
Disciplined Allocation Fund for the 12-month period ended October 31, 2005.
These documents have been filed with the SEC and are incorporated herein by
reference.  You may receive a free copy of these documents by writing to the
Transfer Agent at P.O. Box 5270, Denver, Colorado 80217, by calling toll-free
1.800.225.5677 or by visiting the website at www.oppenheimerfunds.com.

Mutual fund shares are not deposits or obligations of any bank, and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other U.S. government agency. Mutual fund shares involve investment risks
including the possible loss of principal.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Prospectus and Proxy Statement. Any representation to the contrary is a
criminal offense.

This combined Prospectus and Proxy Statement is dated March 1, 2006.






                              TABLE OF CONTENTS
                   COMBINED PROSPECTUS AND PROXY STATEMENT

                                                                        Page

Synopsis................................................................
   What am I being asked to vote on?....................................
   What are the general tax consequences of the Reorganization?.........
   How do the investment objectives and policies of the Funds compare?..
   What are the fees and expenses of each Fund and what are they expected to
be after
      the Reorganization?...............................................
   What are the capitalizations of the Funds and what would the
capitalization be after
      the Reorganization?...............................................
   How have the Funds performed?........................................
Management's Discussion of Balanced Fund's Performance..................
How do the account features and shareholder services for the Funds compare?
      Purchases, Redemptions and Exchanges..............................
      Dividends and Distributions.......................................
      Other Shareholder Services........................................

What are the Principal  Risks of an Investment in Disciplined  Allocation Fund
or
Balanced Fund?..........................................................

Information About the Reorganization....................................
   How will the Reorganization be carried out? .........................
   Who will pay the expenses of the Reorganization? ....................
   What are the tax consequences of the Reorganization? ................

Reasons for the Reorganization..........................................
   Board Considerations ................................................
   What should I know about Class A, Class B, Class C and Class N Shares of
   Balanced Fund?.......................................................

What are the fundamental investment restrictions of the Funds?..........

Other Comparisons Between the Funds.....................................
      Management of the Funds...........................................
      Investment Management and Fees....................................
      Distribution Services.............................................
      Transfer Agency and Custody Services..............................
      Shareholder Rights................................................

Voting Information .....................................................
   How many votes are necessary to approve the Reorganization Agreement?
   How do I ensure my vote is accurately recorded?......................
   Can I revoke my proxy?...............................................
   What other matters will be voted upon at the Meeting? ...............
   Who is entitled to vote?.............................................
   What other solicitations will be made?...............................

Additional Information About Disciplined Allocation Fund and Balanced Fund
   Pending Litigation...................................................
   Principal Shareholders...............................................

Exhibit A:  Agreement and Plan of Reorganization between Oppenheimer
   Disciplined Allocation Fund and Oppenheimer Balanced Fund............  A-1
Exhibit B:  Principal Shareholders......................................  B-1

Enclosures:
Prospectus of Oppenheimer Balanced Fund dated January 27, 2006.






                                      41
                                   SYNOPSIS

      This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
combined Prospectus and Proxy Statement and by the Reorganization Agreement
which is attached as Exhibit A. Shareholders should carefully review this
Prospectus and Proxy Statement and the Reorganization Agreement in their
entirety and, in particular, the current Prospectus of Balanced Fund which
accompanies this Prospectus and Proxy Statement and is incorporated herein by
reference.

What am I being asked to vote on?

      You are being asked by the Board of Directors of Disciplined Allocation
Fund to approve the reorganization of your Fund, Disciplined Allocation Fund,
with and into Balanced Fund (each individually a "Fund" and collectively the
"Funds").  If shareholders of Disciplined Allocation Fund approve the
Reorganization, substantially all of the assets of Disciplined Allocation
Fund will be transferred to Balanced Fund, in exchange for an equal value of
shares of Balanced Fund and the assumption of certain liabilities, if any,
described in the Reorganization Agreement. The shares of Balanced Fund will
then be distributed to Disciplined Allocation Fund shareholders, and
Disciplined Allocation Fund will subsequently be liquidated. If the
Reorganization is approved by shareholders of Disciplined Allocation Fund,
you will no longer be a shareholder of Disciplined Allocation Fund, and,
instead, will become a shareholder of Balanced Fund.  This exchange will
occur on the Closing Date (as such term is defined in the Reorganization
Agreement attached hereto as Exhibit A) of the Reorganization.

      Approval of the Reorganization means that as a shareholder in
Disciplined Allocation Fund, you will receive Class A, Class B, Class C and
Class N shares of Balanced Fund equal in value to the value of the net assets
of Disciplined Allocation Fund transferred to Balanced Fund on the Closing
Date.  The shares you receive will be issued at net asset value ("NAV")
without a sales charge and will not be subject to any contingent deferred
sales charge ("CDSC").

      In considering whether to approve the Reorganization, you should
consider, among other things:

(i) The number of similarities (as well as some principal differences)
               between the Funds (as discussed herein) and the relative
               advantages and disadvantages of each Fund.
(ii) That the Reorganization would allow you the ability to continue your
               investment in a fund that closely resembles the investment
               style you were seeking when you invested in Disciplined
               Allocation Fund.

Balanced Fund is an open-end, diversified, management investment company
organized as a Massachusetts business trust. Disciplined Allocation Fund is a
series of Oppenheimer Series Fund, Inc., an open-end, diversified management
investment company organized as a Maryland Corporation.  Disciplined
Allocation Fund commenced operations on September 16, 1985.  Balanced Fund
commenced operations on April 24, 1987.  Disciplined Allocation Fund is
significantly smaller than Balanced Fund.  As of January 31, 2006,
Disciplined Allocation Fund had approximately $131 million in net assets. In
contrast, as of January 31, 2006, Balanced Fund had approximately $933
million in net assets.  The Manager has concluded that Disciplined Allocation
Fund's assets will not increase substantially in size in the near future. By
merging into Balanced Fund, shareholders of Disciplined Allocation Fund
should have the benefit of economies of scale associated with a larger fund
while maintaining their investment in a fund with similar investment
objectives and policies.  Additionally, the Manager is the investment advisor
to both Funds and employs the same team of investment professionals to manage
both Funds. (See the discussion in "Reasons for the Reorganization" beginning
on page __ below for more details.)

      The Board of Disciplined Allocation Fund reviewed and discussed with
the Manager and the Board's independent legal counsel the proposed
Reorganization. Information with respect to, but not limited to, each Fund's
respective investment objectives and policies, management fees, distribution
fees and other operating expenses, historical performance and asset size, was
also considered by the Board of Disciplined Allocation Fund.

      Based on the considerations discussed above and the reasons more fully
described under "Reasons for the Reorganization" (beginning on page __
below), together with other relevant factors and information, at a meeting
held on December 15, 2005, the Board of Directors of Disciplined Allocation
Fund concluded that the Reorganization would be in the best interests of
shareholders of Disciplined Allocation Fund and that the Fund would not
experience any dilution as a result of the Reorganization.  The Board of
Directors of Disciplined Allocation Fund voted to approve the proposed
Reorganization and to recommend that shareholders approve the proposed
Reorganization.

      The proposed Reorganization was also approved by the Board of Trustees
of Balanced Fund at a meeting held on December 15, 2005.

               THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
             TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION

What are the general tax consequences of the Reorganization?

      It is expected that shareholders of Disciplined Allocation Fund will
not recognize any gain or loss for federal income tax purposes as a result of
the exchange of their shares for shares of Balanced Fund. You should,
however, consult your tax advisor regarding the effect, if any, of the
Reorganization in light of your individual circumstances. You should also
consult your tax advisor about state and local tax consequences.

      For federal income tax purposes, the holding period of your Disciplined
Allocation Fund shares will be carried over to the holding period for
Balanced Fund shares you receive in connection with the Reorganization. This
exchange will occur on the Closing Date (as such term is defined in the
Reorganization Agreement) of the Reorganization.  For further information
about the tax consequences of the Reorganization, please see the "Information
About the Reorganization--What are the Tax Consequences of the Reorganization?"

How do the investment objectives and policies of the Funds compare?

As shown in the chart below, the respective investment objectives and
strategies of the Funds are substantially similar.

 -------------------------------------------------------------------------------
 DISCIPLINED ALLOCATION FUND             BALANCED FUND
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
                             Investment Objectives
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
 Seeks to maximize investment return     Seeks high total investment return
 (including capital appreciation and     consistent with preservation of
 income) principally by allocating its   principal.
 assets among stocks, corporate bonds,
 U.S. government securities and money
 market instruments, according to
 changing market conditions.
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
                             Investment Strategies
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
 The Fund invests mainly in stocks,      The Fund buys a variety of different
 bonds and money market instruments.     types of securities to seek its
 The Manager can allocate the Fund's     objective. Mainly, these include:
 investments among these different
 types of securities in different        o Equity securities. Primarily common
 proportions at different times to seek        stocks of U.S. and foreign
 the Fund's objective. That allocation         companies. The Fund will
 is based on the Manager's judgment of         normally invest at least 25% of
 where the best opportunities are for          its total assets in stocks and
 total return after evaluating market          other equity securities.
 and economic conditions.
                                         o Debt securities. Including bonds
 At least 25% of the Fund's total              and notes issued by domestic
 assets normally will be invested in           and foreign companies (which
 fixed-income senior securities.               can include lower-grade,
 Otherwise, the Fund is not required to        high-yield securities),
 allocate its investments among stocks,        securities issued or guaranteed
 bonds and money market instruments in         by the U.S. Government and its
 any fixed proportion. The Fund may            agencies and instrumentalities,
 have none or some of its assets               including mortgage-related
 invested in each asset class in               securities (these are referred
 relative proportions that change over         to as "U.S. Government
 time based on market and economic             securities"), and debt
 conditions.                                   obligations of foreign
                                               governments. The Fund will
 Equity Securities. The Fund can buy a         normally invest at least 25% of
  variety of domestic and foreign              its net assets in fixed-income
  equity investments, including common         senior securities.
  and preferred stocks, warrants and
  convertible securities (many of which  o Money market instruments, which are
  are debt securities that the Manager         obligations that have a
  considers to be "equity substitutes"         maturity of 13 months or less,
  because of their conversion feature).        including short-term U.S.
  The Fund currently emphasizes its            Government securities,
  equity investments in stocks of              corporate and bank debt
  domestic issuers. The Fund can buy           obligations and commercial
  securities of companies in different         paper.
  capitalization ranges.
 Debt Securities. The Fund can invest    In selecting securities for the Fund,
  in a variety of debt securities        the Fund's portfolio managers use
  (including convertible securities),    different investment styles to carry
  such as securities issued or           out an asset allocation strategy that
  guaranteed by the U.S. government and  seeks broad diversification across
  its agencies and instrumentalities,    asset classes. They normally maintain
  including mortgage-related securities  a balanced mix of stocks, debt
  and collateralized mortgage            securities and cash, although the
  obligations ("CMOs"), and forward      Fund has no requirements to weight
  rolls with respect to                  the portfolio holdings in a fixed
  mortgage-related securities. It also   proportion. Therefore, the
  can buy municipal securities, foreign  portfolio's mix of equity and debt
  government securities, and domestic    securities and cash will change over
  and foreign corporate debt             time as the portfolio managers seek
  obligations. The Fund can buy debt     relative values and opportunities in
  securities rated below investment      different asset classes.
  grade (these are commonly called
  "junk bonds"), but has limits on       Because the goal of total return is
  those investments, as discussed        to increase overall portfolio value
  below.  The Fund does not limit its    from a combination of capital growth
  investments to debt securities of a    and income, the Fund invests in
  particular maturity range, and may     stocks mainly for their capital
  hold both short- and long term debt    appreciation potential and in debt
  securities.                            securities both for income and for
                                         total return. The income from debt
 Money Market Instruments. Under normal  securities and money market
 market conditions (when the equity and  instruments can also help the Fund
 debt securities markets are not         preserve principal when stock markets
 unstable, in the Manager's view), the   are volatile.
 Fund can hold up to 40% of its total
 assets in money market instruments,
 such as short-term U.S. government
 securities and commercial paper.
 In selecting equity securities for      The portfolio managers employ both
 purchase or sale by the Fund, the       "growth" and "value" styles in
 Fund's portfolio managers use an        selecting stocks. They employ
 investment process that combines both   fundamental analysis of a company's
 "value" and "growth" investment         financial statements and management
 styles. They use a value strategy to    structure, operations and product
 find issuers whose securities are       development, as well as the industry
 believed to be undervalued in the       of which the company is part. Value
 marketplace. A growth investing style   investing seeks stocks that are
 encompasses a search for companies      temporarily out of favor or
 whose stock price is expected to        undervalued in the market by various
 increase at a greater rate than the     measures, such as the stock's
 overall market. These issuers may be    price/earnings ratio. Growth
 entering a growth phase marked by       investing seeks stocks that the
 increases in earnings, sales, cash      managers believe have possibilities
 flows or other factors, which suggest   for increases in stock price because
 that the stock may increase in value    of strong earnings growth compared to
 over time.                              the market, the development of new
                                         products or services or other
                                         favorable economic factors.

 The portfolio managers construct the
 equity portion of the portfolio using
 a "bottom up" approach, focusing on
 the fundamental prospects of
 individual companies and issuers,
 rather than on broad economic trends
 affecting entire markets and
 industries. The portfolio managers
 focus on factors that may vary over
 time and in particular cases.
 Currently they look for:

 o Individual stocks that are
       attractive based on fundamental
       stock analysis and company
       characteristics;
 o Growth stocks having high earnings
       potential and earnings and sales
       momentum; and
 o Dividend-paying common stocks of
       established companies for income.

 The    portfolio    managers    monitor
 individual   issuers   for  changes  in
 profit  margins  or  slowing   revenues
 that might affect  future cash flows or
 growth.  The existence of these changes
 in a  particular  case  may  trigger  a
 decision  to  sell  the  security.  The
 portfolio    managers    may   consider
 selling  a stock for one or more of the
 following reasons:
 o The  stock   price  has  reached  its
          target,
 o The company's  fundamentals appear to
          be deteriorating, or
 o Better stock  selections are believed
          to have been identified.
 These approaches may change over time.

 The Fund's portfolio managers analyze
 the overall investment opportunities
 and risks in different sectors of the
 debt securities markets by focusing on
 business cycle analysis and relative
 values between the corporate and
 government sectors. The portfolio
 managers' overall strategy is to build
 a broadly diversified portfolio of
 corporate and government bonds. The
 portfolio managers currently focus on
 the factors below (which may vary in
 particular cases and may change over
 time), looking for:
 o Debt securities in market sectors
          that offer attractive
          relative value,
 o Investment-grade securities that
          offer more income than U.S.
          Treasury obligations with a
          good balance of risk and
          return,
 o High income potential from different
          types of corporate and
          government securities, and
 o Broad portfolio diversification to
          help reduce the volatility of
          the Fund's share prices.

       The portfolio managers may
       consider selling a bond for one
       or more of the following reasons:
 o The bond price has reached its
          target,
 o The bond's fundamentals appear to be
          deteriorating, or
 o Better bond selections are believed
          to have been identified.

 -------------------------------------------------------------------------------
                                    Manager
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
 OppenheimerFunds, Inc.                  OppenheimerFunds, Inc.
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
                               Portfolio Managers
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
 Christopher Leavy                       Christopher Leavy
 Emmanuel Ferreira                       Emmanuel Ferreira
 Angelo G. Manioudakis                   Angelo G. Manioudakis
 -------------------------------------------------------------------------------

      The investment polices of the Funds are substantially similar. Both
Funds primarily invest in stock and other equity investments of U.S. and
foreign companies, debt securities (including those issued by domestic and
foreign companies), and money market instruments (such as short-term U.S.
government securities and commercial paper).   With respect to fixed income
investments, both Funds primarily invest in investment-grade debt securities,
which include domestic and foreign government bonds, domestic and foreign
corporate debt obligations, and mortgage related securities issued by private
issuers.  Disciplined Allocation Fund also tends invest in money market
instruments to achieve its secondary objective of capital preservation and
can hold up to 40% of its total assets in money market instruments.  Also,
Balanced Fund may hold up to 35% in below investment grade ("junk") bonds,
whereas Disciplined Allocation Fund can invest as much as 20% of its total
assets in lower-grade securities.

      In terms of set allocation of assets among the classes of securities
 purchased, at least 25% of each Fund's respective total assets will normally
 be invested in fixed-income senior securities.  Balanced Fund will also
 normally invest at least 25% of its total assets in stocks and other equity
 securities.  Otherwise, neither Fund is required to allocate its investments
 among stocks, bonds and money market instruments in any fixed proportion --
 they may have some or none of their assets invested in each asset class in
 relative proportions that change over time based on market and economic
 conditions.  Currently, however, the Funds focus mainly on U.S. government
 securities and investment-grade debt securities. However, if market
 conditions change, the Funds' portfolio managers can change the relative
 allocation of the Funds' assets.

      The members of the same portfolio management team manage both Funds and
 the Funds' investment strategies are similar. Both Funds may employ "growth"
 and "value" styles in selecting stocks. Both Funds may also invest in bonds
 and money market instruments. The portfolio managers of both Funds also may
 vary the portfolios' mix of equity and debt securities and cash over time as
 they evaluate market and economic conditions to seek the best opportunities.

What are the fees and  expenses of each Fund and what are they  expected to be
after the Reorganization?

      Disciplined Allocation Fund and Balanced Fund each pay a variety of
expenses directly for management of the respective Fund's assets,
administration and/or distribution of shares and other services. Those
expenses are subtracted from each Fund's assets to calculate the Fund's net
asset value per share. Shareholders pay these expenses indirectly.
Shareholders pay other expenses directly, such as sales charges.

      The following table is provided to help you understand and compare the
fees and expenses of investing in shares of Disciplined Allocation Fund with
the fees and expenses of investing in shares of Balanced Fund. The pro forma
fees and expenses of the surviving Balanced Fund show what the fees and
expenses are expected to be after giving effect to the Reorganization of
Disciplined Allocation Fund into Balanced Fund.

      The chart below reflects the current contractual management fee
schedule for each of the Funds and the proposed management fee schedule for
the surviving Balanced Fund upon the successful completion of the
Reorganization.

                             PRO FORMA FEE TABLES
               For the 12 month period ended December 31, 2005

- ---------------------------------------------------------------------------------
                                  Disciplined   Balanced      Pro Forma
                                  Allocation
                                  Fund          Fund          Surviving
                                  Class A       Class A       Balanced Fund
                                  shares        Shares        Class A shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on        5.75%         5.75%           5.75%
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or       None(1)       None(1)         None(1)
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees                       0.63%         0.69%           0.69%
- ---------------------------------------------------------------------------------
Distribution and/or Service         0.25%(2)        0.20%           0.20%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses                        0.26%         0.17%           0.16%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses         1.14%         1.06%           1.05%
- ---------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------
                                  Disciplined   Balanced      Pro Forma
                                  Allocation
                                  Fund          Fund          Surviving
                                  Class B       Class B       Balanced Fund
                                  shares        Shares        Class B shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on        None          None             None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or        5%(2)         5%(2)           5%(2)
redemption proceeds)
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees                       0.63%         0.69%           0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service           1.00%         1.00%           1.00%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses                        0.38%         0.30%           0.27%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses         1.98%         1.99%           1.96%
- ---------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------
                                  Disciplined   Balanced Fund Pro Forma
                                  Allocation
                                  Fund                        Surviving
                                  Class C       Class C       Balanced Fund
                                  Shares        Shares        Class C Shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on        None          None             None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge         1%(3)         1%(3)           1%(3)
(Load) (as a % of the lower of
the original offering price or
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees                       0.63%         0.69%           0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service           1.00%         1.00%           1.00%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses                        0.34%         0.22%           0.21%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses         1.97%         1.91%           1.90%
- ---------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------
                                  Disciplined   Balanced      Pro Forma
                                  Allocation
                                  Fund          Fund          Surviving
                                  Class N       Class N       Balanced Fund
                                  shares        Shares        Class N shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on        None          None             None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or        1%(4)         1%(4)           1%(4)
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees                       0.63%         0.69%           0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service           0.50%         0.50%           0.50%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses                        0.42%         0.27%           0.27%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses         1.55%         1.46%           1.46%
- ---------------------------------------------------------------------------------

Expenses may vary in future years.  "Other Expenses" include transfer agent
fees, custodial fees, and accounting and legal expenses that each Fund pays.
The transfer agent has voluntarily undertaken to each Fund to limit the
transfer agent fees to 0.35% of average daily net assets per fiscal year for
all classes.  That undertaking may be amended or withdrawn at any time.

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

Examples

      These examples below are intended to help you compare the cost of
investing in each Fund and the surviving Balanced Fund after the
Reorganization. These examples assume an annual return for each class of 5%,
the operating expenses described in the tables above and reinvestment of your
dividends and distributions.

      Your actual costs may be higher or lower because expenses will vary
over time. For each $10,000 investment, you would pay the following projected
expenses if you redeemed your shares after the number of years shown or held
your shares for the number of years shown without redeeming, according to the
following examples.

                         Disciplined Allocation Fund
- --------------------------------------------------------------------------------
If     shares      are    1 year        3 years       5 years       10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                    $685          $918         $1,170         $1,889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                    $706          $937         $1,294       $1,923(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                    $302          $624         $1,073         $2,318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                    $259          $493          $851          $1,860
- --------------------------------------------------------------------------------

                         Disciplined Allocation Fund
- --------------------------------------------------------------------------------
If   shares   are  not    1 year        3 years       5 years       10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                    $685          $918         $1,170         $1,889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                    $206          $637         $1,094       $1,923(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                    $202          $624         $1,073         $2,318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                    $159          $493          $851          $1,860
- --------------------------------------------------------------------------------



                                Balanced Fund
- --------------------------------------------------------------------------------
If     shares      are    1 year        3 years       5 years       10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                    $677          $894         $1,129         $1,801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                    $704          $931         $1,283       $1,870(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                    $296          $606         $1,041         $2,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                    $250          $465          $803          $1,759
- --------------------------------------------------------------------------------

                                Balanced Fund
- --------------------------------------------------------------------------------
If   shares   are  not    1 year        3 years       5 years       10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                    $677          $894         $1,129         $1,801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                    $204          $631         $1,083       $1,870(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                    $196          $606         $1,041         $2,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                    $150          $465          $803          $1,759
- --------------------------------------------------------------------------------



                      Pro Forma Surviving Balanced Fund
- --------------------------------------------------------------------------------
If      shares      are    1 year       3 years       5 years       10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                     $676         $891         $1,124         $1,790
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                     $701         $921         $1,267       $1,847(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                     $295         $603         $1,036         $2,243
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                     $250         $465          $803          $1,759
- --------------------------------------------------------------------------------

                      Pro Forma Surviving Balanced Fund
- --------------------------------------------------------------------------------
If   shares   are   not    1 year       3 years       5 years       10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A                     $676         $891         $1,124         $1,790
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B                     $201         $621         $1,067       $1,847(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C                     $195         $603         $1,036         $2,243
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N                     $150         $465          $803          $1,759
- --------------------------------------------------------------------------------

(1.) In the "If shares are redeemed"  examples,  expenses  include the initial
   sales  charge for Class A and the  applicable  Class B, Class C and Class N
   contingent deferred sales charges.
(2.) In the "If  shares  are not  redeemed"  examples,  the  Class A  expenses
   include  the  initial  sales  charge,  but  Class  B,  Class C and  Class N
   expenses do not include the contingent deferred sales charges.
(3.) Class B expenses  for years 7 through  10 are based on Class A  expenses,
   since Class B shares automatically convert to Class A after 6 years.

What are the capitalizations of the Funds and what would the capitalization
be after the Reorganization?

      The following table sets forth the existing capitalization (unaudited)
of Disciplined Allocation Fund and Balanced Fund as of December 31, 2005 and
the pro forma combined capitalization of Balanced Fund as of December 31,
2005 as if the Reorganization had occurred on that date.

- --------------------------------------------------------------------------------
Disciplined Allocation     Net Assets          Shares         Net Asset Value
Fund                                         Outstanding         Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
  Class A                      $              7,334,395           $ 14.74
                          108,080,052
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class B                  12,453,364          832,162            $ 14.97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class C                  8,786,721           604,180            $ 14.54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class N                  1,804,477           122,882            $ 14.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL                          $              8,893,619
                          131,124,614
- -------------------------------------------------------------

- --------------------------------------------------------------------------------
Balanced Fund              Net Assets          Shares         Net Asset Value
                                             Outstanding         Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
  Class A                      $             53,115,407           $ 13.54
                          719,288,112
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class B                  96,126,035         7,247,572           $ 13.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class C                  89,514,378         6,717,928           $ 13.32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class N                  12,689,772          945,978            $ 13.41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL                          $             68,026,885
                          917,618,297
- -------------------------------------------------------------

- --------------------------------------------------------------------------------
Balanced Fund              Net Assets          Shares         Net Asset Value
(Pro Forma Surviving
Fund)*                                       Outstanding         Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
  Class A                      $             61,096,566           $ 13.54
                          827,368,164
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class B                 108,579,399         8,186,513           $ 13.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class C                  98,301,100         7,377,364           $ 13.32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                               $
  Class N                  14,494,249         1,080,496           $ 13.41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL                           $            77,740,939
                        1,048,742,912
- -------------------------------------------------------------
* Reflects the issuance of 7,981,159 Class A shares, 938,941 Class B shares,
659,436 Class C shares and 134,518 Class N shares of Balanced Fund in a
tax-free exchange for the net assets of Disciplined Allocation Fund,
aggregating $131,124,614.

How have the Funds performed?

      The following past performance information for each Fund is set forth
below: (i) a bar chart showing changes in each Fund's performance for Class A
shares from year to year for the last ten calendar years (or less, if
applicable) and (ii) tables detailing how the average annual total returns of
each Fund's shares, both before and after taxes, compared to those of
broad-based market indices. The after-tax returns are shown for Class A
shares only and are calculated using the historical highest individual
federal marginal income tax rates in effect during the periods shown and do
not reflect the impact of state or local taxes.  The after-tax returns are
calculated based on certain assumptions mandated by regulation and your
actual after-tax returns may differ from those shown, depending on your
individual tax situation. The after-tax returns set forth below are not
relevant to investors who hold their fund shares through tax-deferred
arrangements such as 401(k) plans or IRAs or to institutional investors not
subject to tax. The past investment performance of either Fund, before and
after taxes, is not necessarily an indication of how either Fund will perform
in the future.

Annual Total Returns for Balanced Fund (Class A) as of 12/31 each year
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Balanced Fund.]

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

During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 12.05% (2nd Qtr `03) and the lowest
return (not annualized) before taxes for a calendar quarter was -11.03% (3rd
Qtr `01).

Annual Total  Returns for  Disciplined  Allocation  Fund (Class A) as of 12/31
each year
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Disciplined Allocation Fund.]

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

During the period shown in the bar chart, the highest return (not
annualized) before taxes for a calendar quarter was 12.09% (4th Qtr `98)
and the lowest return (not annualized) before taxes for a calendar
quarter was -8.31% (3rd Qtr `01).


- -------------------------------------------------------------------------------------
Disciplined Allocation Fund1,
(2)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Average Annual Total Returns                        5 Years            10 Years
for the periods ended              1 Year         (or life of        (or life of
December 31, 2005                               class, if less)    class, if less)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class A Shares (inception
9/16/85)                           -3.32%            1.33%              4.69%
  Return Before Taxes              -3.69%            0.84%              2.88%
  Return After Taxes on
  Distributions                    -1.95%            0.87%              2.99%
  Return After Taxes on
  Distributions and Sale of
  Fund Shares
- -------------------------------------------------------------------------------------
S&P 500 Index (reflects no
deduction for fees, expenses
or taxes)                           4.91%            0.54%              9.07%
- -------------------------------------------------------------------------------------
Merrill Lynch Gov't/Corp.
Master Index (reflects no                                               6.19%
deduction for fees, expenses
or taxes)                           2.52%            6.07%
- -------------------------------------------------------------------------------------
Class B Shares (inception          -3.30%            1.30%             4.84%(3)
10/02/95)
- -------------------------------------------------------------------------------------
Class C Shares (inception           0.62%            1.66%              4.46%
5/01/96)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class N Shares (inception           1.15%            2.73%               N/A
3/1/01)
- -------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------
Balanced Fund1, (2)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Average Annual Total Returns                        5 Years           10 Years
for the periods ended              1 Year         (or life of        (or life of
December 31, 2005                               class, if less)    class, if less)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Class A Shares (inception
4/24/87)                           -2.37%            3.82%              7.71%
  Return Before Taxes              -3.86%            2.60%              5.46%
  Return After Taxes on
  Distributions                    -0.57%            2.70%              5.48%
  Return After Taxes on
  Distributions and Sale of
  Fund Shares
- ------------------------------------------------------------------------------------
S&P 500 Index (reflects no
deduction for fees, expenses
or taxes)                           4.91%            0.54%              9.07%
- ------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index (reflects no
deduction for fees, expenses        2.43%            5.87%              6.16%
or taxes)
- ------------------------------------------------------------------------------------
Class B Shares (inception          -2.23%            3.76%            7.79%(3)
8/29/95)
- ------------------------------------------------------------------------------------
Class C Shares (inception           1.75%            4.18%              7.45%
12/1/93)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Class N Shares (inception           2.23%            4.21%               N/A
3/1/01)
- ------------------------------------------------------------------------------------

1. The Funds' returns measure the performance of a hypothetical account and
   assume that all dividends and capital gains distributions have been
   reinvested in additional shares.
2. Both Funds' average annual total returns include the applicable sales
   charges: for Class A the current maximum initial sales charge is 5.75%;
   for Class B shares, the contingent deferred sales charges is 5% (1-year)
   and 2% (5-year); and for Class C and Class N, the 1% contingent deferred
   sales charge for the 1-year period.
3. Because Class B shares convert to Class A shares 72 months after purchase,
   Class B "10 Years" performance for each Fund does not include the
   contingent deferred sales charge and uses Class A performance for the
   period after conversion.

The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares.  The performance of each Fund's Class A shares are
compared to the S&P 500 Index, an unmanaged index of common stocks. In
addition, the performance of Disciplined Allocation Fund also is compared to
the Merrill Lynch Government and Corporate Master Index, a broad-based index
of U.S. Treasury and government agency securities, corporate and Yankee
bonds. The performance of Balanced Fund also is compared to the Lehman
Brothers Aggregate Bond Index, an unmanaged index of U.S. corporate,
government and mortgage-backed securities. The indices' performance includes
reinvestment of income but does not reflect transaction costs, fees, expenses
or taxes. Each Fund's investments vary from those in the indices.
MANAGEMENT'S DISCUSSION OF BALANCED FUND'S PERFORMANCE. Although Balanced
Fund slightly underperformed its primary benchmark, the S&P 500 during its
fiscal year ended September 30, 2005, the Fund's performance was particularly
robust in its equity portfolio. The Fund's fixed-income investments produced
more modest returns.

In the consumer discretionary area, holdings such as media conglomerate
Liberty Global, Inc., retailer Sears Holdings and homebuilders Toll Brothers
and WCI Communities, Inc. helped boost the Fund's relative performance.
Winners in the consumer staples area included beverage producer Constellation
Brands Inc., Cl. A and food and tobacco giant Altria Group, Inc., which
benefited from easing litigation concerns and a planned corporate
restructuring designed to unlock shareholder value.

      In the financials area, investment firm, Lehman Brothers Holdings,
Inc., gained value as investors rewarded efforts to diversify its revenue
sources; the insurance provider, Genworth Financial, Inc., Cl. A, saw its
valuation expand after its spin-off from General Electric; and real estate
owner Host Marriott Corp. benefited from an upswing in occupancy rates and
room prices. Among health care holdings, the Fund successfully avoided
declines posted by large pharmaceutical companies while capturing gains in
medical services providers, such as Pacificare Health Systems, which was
subject to an acquisition offer.

      The Fund's equity portfolio suffered relatively few disappointments
during the reporting period. The Fund's telecommunications services holdings
produced slightly lower returns than the benchmark, primarily due to its lack
of participation in gains achieved by the regional bell operating companies.
Although the Fund had less exposure to the high-flying energy and utilities
sectors than the benchmark, strong stock selections offset any resulting
weakness.

      We generally maintained the Fund's bond portfolio's average duration in
a range that was shorter than the benchmark, which hindered relative
performance early in the reporting period but later benefited returns.
Duration reflects the sensitivity of the Fund's return to changes in interest
rates. Conversely, the Fund's emphasis on corporate bonds at the lower end of
the investment-grade range helped early in the reporting period, when
investors' appetite for risk grew, but later undermined performance when
weakness in the automotive sector eroded investor sentiment. Among
mortgage-backed securities, the Fund's focus on seasoned, higher-coupon
mortgages that the markets had priced too high a premium for prepayment risk
in our view, helped support returns over the reporting period's first half,
but detracted modestly during the second half.

      As of the reporting period's end, the Fund assets were apportioned
44.8% to equities, 46.5% to bonds and 8.7% to cash. In our view, the Fund
remains well positioned to capture the growth opportunities of stocks while
managing risks through diversification across both stocks and bonds.

COMPARING BALANCED FUND'S PERFORMANCE TO THE MARKET. The graphs that follow
show the performance of a hypothetical $10,000 investment in each class of
shares of Balanced Fund held until September 30, 2005. In the case of Class
A, Class B, and Class C shares, performance is measured over a
ten-fiscal-year period. In the case of Class N shares, performance is
measured from inception of the Class on March 1, 2001. The Fund's performance
reflects the deduction of the maximum initial sales charge on Class A shares,
the applicable contingent deferred sales charge on Class B, Class C and Class
N shares, and reinvestments of all dividends and capital gains distributions.
Past performance cannot guarantee future results.

      The Fund's performance is compared to the performance of the S&P 500
Index, a broad-based index of equity securities widely regarded as a general
measure of the performance of the U.S. equity securities market. The Fund's
performance is also compared to the Lehman Brothers Aggregate Bond Index, an
unmanaged index of U.S. Government Treasury and agency issues, investment
grade corporate bond issues and fixed-rate mortgage-backed securities. That
index is widely regarded as a measure of the performance of the domestic debt
securities market. Index performance reflects the reinvestment of income but
does not consider the effect of transaction costs, and none of the data in
the graphs shows the effect of taxes. The Fund's performance reflects the
effects of the Fund's business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's performance,
it must be noted that the Fund's investments are not limited to the
investments in either index.


[Insert Graph from Balanced Fund Annual Report]

CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

      Oppenheimer Balanced Fund (Class A)
      S&P 500 Index
      Lehman Brothers Aggregate Bond Index


1. The Fund changed its fiscal year end from 12/31 to 9/30.


[Insert Graph from Balanced Fund Annual Report]

CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

      Oppenheimer Balanced Fund (Class B)
      S&P 500 Index
      Lehman Brothers Aggregate Bond Index


[Insert Graph from Balanced Fund Annual Report]

CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

      Oppenheimer Balanced Fund (Class C)
      S&P 500 Index
      Lehman Brothers Aggregate Bond Index


1. The Fund changed its fiscal year end from 12/31 to 9/30.


[Insert Graph from Balanced Fund Annual Report]

CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

      Oppenheimer Balanced Fund (Class N)
      S&P 500 Index
      Lehman Brothers Aggregate Bond Index


The performance data quoted represents past performance, which does not
guarantee future results. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance quoted. For
performance
data current to the most recent month end, visit us at
www.oppenheimerfunds.com, or call us at 1.800.525.7048. Fund returns include
changes in share price, Reinvested distributions, and the applicable sales
charge: for Class A Shares, The current maximum initial sales charge of
5.75%; for Class B Shares, the Contingent deferred sales charge of 5%
(1-year) and 2% (5-year); and for Class C And N Shares, the contingent 1%
deferred sales charge for the 1-year period. Because Class B Shares convert
to Class A Shares 72 months after purchase, Since-inception return for Class
B Shares uses Class A performance for the Period after conversion.

Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in
a hypothetical investment for the periods shown. The Fund's total returns
shown do not reflect the deduction of income taxes on an individual's
investment. Taxes may reduce your actual investment returns on income or
gains paid by the Fund or any gains you may realize if you sell your shares.

HOW DO THE ACCOUNT FEATURES AND SHAREHOLDER SERVICES FOR THE FUNDS COMPARE?

Purchases, Redemptions and Exchanges

      Both Funds are part of the OppenheimerFunds family of mutual funds. The
procedures for purchases, exchanges and redemptions of shares of the Funds
are substantially the same. Shares of either Fund may be exchanged for shares
of the same class of other Oppenheimer funds offering such shares. Exchange
privileges are subject to amendment or termination at any time.

      Both Funds have the same initial and subsequent minimum investment
amounts for the purchase of shares. These amounts are $1,000 and $50,
respectively. Both Funds have a maximum initial sales charge of 5.75% on
Class A shares for purchases of less than $25,000. The sales charge of 5.75%
is reduced for purchases of Class A shares of $25,000 or more. Investors who
purchase $1 million or more of Class A shares pay no initial sales charge but
may have to pay a contingent deferred sales charge of up to 1% if the shares
are sold within 18 calendar months from the beginning of the calendar month
during which they were purchased. Class B shares of the Funds are sold
without a front-end sales charge but may be subject to a contingent deferred
sales charge ("CDSC") upon redemption depending on the length of time the
shares are held. The CDSC begins at 5% for shares redeemed in the first year
and declines to 1% in the sixth year and is eliminated after that. Class C
shares may be purchased without an initial sales charge, but if redeemed
within 12 months of buying them, a CDSC of 1% may be deducted. Class N shares
are purchased without an initial sales charge, but if redeemed within 18
months of the retirement plan's first purchase of N shares, a CDSC of 1% may
be deducted.

      Class A, Class B, Class C and Class N shares of Balanced Fund received
in the Reorganization will be issued at net asset value, without a sales
charge and no CDSC or redemption fee will be imposed on any Disciplined
Allocation Fund shares exchanged for Balanced Fund shares as a result of the
Reorganization. However, any CDSC that applies to Disciplined Allocation Fund
shares as of the date of the exchange will carry over to Balanced Fund shares
received in the Reorganization.

Dividends and Distributions

      Both Funds intend to declare dividends separately for each class of
shares from net investment income on a quarterly basis and pay them
quarterly. Dividends and distributions paid to Class A shares will generally
be higher than dividends for Class B, Class C and Class N shares, which
normally have higher expenses than Class A shares. The Funds have no fixed
dividend rate and cannot guarantee that they will pay any dividends or
distributions.

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

Other Shareholder Services

      Both Funds also offer the following privileges: (i) the ability to
reduce your sales charge on purchases of Class A shares through rights of
accumulation or letters of intent, (ii) reinvestment of dividends and
distributions at net asset value, (iii) net asset value purchases by certain
individuals and entities, (iv) Asset Builder (automatic investment) Plans,
(v) Automatic Withdrawal and Exchange Plans for shareholders who own shares
of the Funds valued at $5,000 or more, (vi) AccountLink and PhoneLink
arrangements, (vii) exchanges of shares for shares of the same class of
certain other funds at net asset value, (viii) telephone and Internet
redemption and exchange privileges and (ix) wire redemptions of fund shares
(for a fee). All of such services and privileges are subject to amendment or
termination at any time and are subject to the terms of the Funds' respective
prospectuses.  For additional information, please see the section in the
current Prospectus of Balanced Fund titled "ABOUT YOUR ACCOUNT."

 WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN DISCIPLINED ALLOCATION FUND
                              OR BALANCED FUND?

      The risks associated with an investment in each Fund are substantially
similar. Like all investments, an investment in either Fund involves risk.
There is no assurance that either Fund will meet its investment objective.
The achievement of the Funds' goals depends upon market conditions,
generally, and on the portfolio manager's analytical and portfolio management
skills. The risks described below collectively form the risk profiles of the
Funds, and can affect the value of the Funds' investments, investment
performance and prices per share. There is also the risk that poor securities
selection by the Manager will cause the Funds to underperform other funds
having a similar objective. These risks mean that you can lose money by
investing in either Fund. When you redeem your shares, they may be worth more
or less than what you paid for them.

      In the OppenheimerFunds spectrum, each Fund may be less volatile than
funds that focus only on stock investments, but have less opportunities for
capital growth than funds focused solely on stocks and more risks than the
funds that focus solely on investment grade bonds

RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because each Fund currently has substantial
investments in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. Market risk will affect each Fund's per share
prices, which will fluctuate as the values of each Fund's portfolio
securities change. Balanced Fund will normally invest at least 25% of its
total assets in stocks and other equity securities. While Disciplined
Allocation Fund has no limit on the amount of its assets it can invest in
stocks, at least 25% of its total assets normally will be invested in
fixed-income senior securities.

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

      Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events affecting that industry. To the extent
that each Fund emphasizes investments in a particular industry, its share
values may fluctuate in response to events affecting that industry.

      Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. Each Fund can invest in securities of large companies but it
can also buy stocks of small- and medium-size companies, which may have more
volatile stock prices than stocks of large companies.

Risks of Value Investing. Value investing seeks stocks having prices that are
      low in relation to what is believed to be their real worth or
      prospects. Each Fund seeks to realize appreciation in the value of its
      holdings when other investors realize the intrinsic value of those
      stocks. In using a value investing style, there is the risk that the
      market will not recognize that the securities are undervalued and they
      might not appreciate in value as the Manager anticipates.

Risks of Growth Investing. Stocks of growth companies, particularly newer
      companies, may offer opportunities for greater capital appreciation but
      may be more volatile than stocks of larger, more established companies.
      If the company's earnings growth or stock price fails to increase as
      expected, the stock price of a growth company may decline sharply.

      Neither Fund is required to allocate its equity investments among value
      and growth stocks in any fixed proportion. Each Fund may invest its
      assets in relative proportions that change over time.

CREDIT RISK.  Debt securities are subject to credit risk.  Credit risk
relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, each Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of each Fund's shares might
be reduced. While each Fund's investments in U.S. government securities are
subject to little credit risk, each Fund's other investments in debt
securities, particularly high-yield, lower-grade debt securities, are subject
to risks of default. A downgrade in an issuer's credit rating or other
adverse news about an issuer can reduce the value of that issuer's securities.

Special Risks of Lower-Grade Securities. Up to 35% of Balanced Fund's total
assets and up to 20% of Disciplined Allocation Fund's total assets may be
invested in securities below investment-grade to seek income. Therefore, each
Fund's credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities (commonly called "junk
bonds") may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities.
Securities that are (or that have fallen) below investment grade generally
have greater risks that the issuers of those securities might not meet their
debt obligations. The market for lower-grade securities may be less liquid,
especially during times of general economic distress, and therefore they may
be harder to sell at an acceptable price. These risks can reduce each Fund's
share prices and the income it earns.

      Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service ("Moody's") or lower than "BBB" by Standard & Poor's
("S&P") or that have comparable ratings by other nationally-recognized rating
organizations. They include unrated securities assigned a comparable rating
by the Manager. Balanced Fund can invest in securities rated as low as "C" or
"D" or which are in default at the time Balanced Fund buys them. While
securities rated "Baa" by Moody's or "BBB" by S&P are considered "investment
grade," they have some speculative characteristics.

INTEREST RATE RISKS. Debt securities are subject to changes in value when
prevailing interest rates change. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. When prevailing
interest rates rise, the values of outstanding debt securities generally
fall, and the securities may sell at a discount from their face amount. The
magnitude of these price changes is generally greater for debt securities
with longer-term maturities. However, interest rate changes may have
different effects on the values of mortgage-related securities because of
prepayment risks, discussed below.

PREPAYMENT RISK.  Mortgage-related securities, including forward rolls, are
subject to the risks of unanticipated prepayment.  The risk is that when
interest rates fall, borrowers under the mortgages that underlie these
securities will prepay their mortgages more quickly than expected, causing
the issuer of the security to prepay the principal to a Fund prior to the
security's expected maturity.  A Fund may be required to reinvest the
proceeds at a lower interest rate, reducing its income.  Mortgage-related
securities subject to prepayment risk generally offer less potential for
gains when prevailing interest rates fall and have greater potential for loss
when prevailing interest rates rise. The impact of prepayments on the price
of a security may be difficult to predict and may increase the volatility of
the price.  If a Fund buys mortgage-related securities at a premium,
accelerated prepayments on those securities could cause each Fund to lose a
portion of its principal investment represented by the premium.

RISKS OF FOREIGN INVESTING. Disciplined Allocation Fund can invest up to 25%
of its total assets in securities of companies or governments in any country,
whether a developed or an emerging market country. These include equity and
debt securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments and their
agencies and instrumentalities.

      Balanced Fund can buy securities issued by companies or governments in
any country, whether a developed or an emerging market country. While
Balanced Fund has no limits on the amounts it can invest in these foreign
securities, it normally expects to invest not more than 50% of its total
assets in foreign securities whether developed or emerging market countries.

      While foreign securities offer special investment opportunities, there
 are also special risks. The change in value of a foreign currency against
 the U.S. dollar will result in a change in the U.S. dollar value of
 securities denominated in that foreign currency. Foreign issuers are not
 subject to the same accounting and disclosure requirements that U.S.
 companies are subject to.

      The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental,
economic or monetary policy in the U.S. or abroad, or other political and
economic factors.

      Additionally, if a Fund invests a significant amount of its assets in
foreign securities, it might expose the Fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, each Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value, and the imposition of redemption fees
may help deter those activities.

Special Risks of Emerging and Developing Markets. Securities in emerging and
developing markets present risks not found in more mature markets. Those
securities may be more difficult to sell at an acceptable price and their
prices may be more volatile than securities of issuers in more developed
markets. Settlements of trades may be subject to greater delays so that the
proceeds of such a sale of a security may not be received on a timely basis.

    Emerging markets might have less developed trading markets and exchanges,
and legal and accounting systems. Investments may be subject to greater risks
of government restrictions on withdrawing the sales proceeds of securities
from the country. Economies of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be very speculative.

ASSET ALLOCATION RISKS. Because each Fund typically invests in a combination
of stocks, bonds and money market instruments to seek total return, it might
not achieve growth in its share prices to the same degree as funds focusing
on stocks during periods of rapidly rising prices. Also, each Fund's
investments in stocks may make it more difficult for the Manager to preserve
principal in volatile stock markets. Each Fund's use of value and growth
styles in selecting stocks might not be successful, particularly if stocks
selected as value investments fail to appreciate in price to the extent the
Manager expected.

Stock and Other Equity Investments. Equity securities include common stocks,
preferred stocks, warrants and debt securities convertible into common stock.
Balanced Fund will normally invest at least 25% of its total assets in stocks
and other equity securities and Disciplined Allocation Fund has no limit on
the amount of its assets it can invest in stocks.  Disciplined Allocation
Fund's equity investments can include interests in real estate investment
trusts. Those securities may be sensitive to changes in interest rates, and
because the real estate market can be very volatile at times, the prices of
those securities may change substantially. Because total return has two
components, capital appreciation and income, the Manager might select stocks
that offer the potential for either or both of those elements.

While many convertible securities are debt securities, the Manager considers
some of them to be "equity equivalents" because of the conversion feature. In
that case their credit rating has less impact on the investment decision than
in the case of other debt securities. Convertible securities are subject to
credit risk and interest rate risk, discussed above.

These securities might be selected for the Funds because they offer the
ability to participate in stock market movements while offering some current
income. Preferred stocks, while a form of equity security, typically have a
fixed dividend that may cause their prices to behave more like those of debt
securities. If interest rates rise, the fixed dividend on preferred stocks
may be less attractive, causing the price of preferred stocks to decline.

Debt Securities. Disciplined Allocation Fund can invest in a variety of debt
securities to seek its objective. The debt securities Disciplined Allocation
Fund buys may be rated by nationally recognized rating organizations or they
may be unrated securities assigned an equivalent credit rating by the
Manager. Disciplined Allocation Fund's debt investments may be "investment
grade" (that is, in the four highest rating categories of a nationally
recognized rating organization) or may be lower-grade securities (sometimes
called "junk bonds") rated as low as "B" by Moody's Investor Services, Inc.
("Moody's"), Standard & Poor's Rating Services ("S&P") or Fitch, Inc.
("Fitch") or having comparable ratings by other nationally recognized rating
organizations (or, if they are unrated, having a comparable rating assigned
by the Manager). Disciplined Allocation Fund does not invest more than 10% of
its total assets in unrated debt securities. A description of the ratings
definitions of nationally recognized rating organizations is included in
Appendix A to the Statement of Additional Information dated February 28,
2005, revised December 6, 2005.

While Disciplined Allocation Fund can invest as much as 20% of its total
assets in lower-grade securities, currently it does not intend to invest more
than 10% of its total assets in these investments. Lower-grade debt
securities may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities.
Securities that are (or that have fallen) below investment grade are exposed
to a greater risk that the issuers of those securities might not meet their
debt obligations.  These risks can reduce Disciplined Allocation Fund's share
prices and the income it earns.

Balanced Fund will normally invest at least 25% of its net assets in
fixed-income senior securities, such as bonds and notes. The debt securities
Balanced Fund buys may be rated by nationally recognized rating organizations
or they may be unrated securities assigned a rating by the Manager.

      Balanced Fund has no requirements as to the maturity of the debt
securities it can buy, or as to the market capitalization range of the
issuers of those securities. Balanced Fund's investments may be investment
grade or below investment grade in credit quality. The Manager does not rely
solely on ratings by rating organizations in selecting debt securities but
evaluates business and economic factors affecting an issuer as well.

      Balanced Fund's foreign debt investments can be denominated in U.S.
dollars or in foreign currencies. Foreign government securities might not be
backed by the government's full faith and credit. The Fund can buy "Brady
Bonds." Those are U.S. dollar-denominated debt securities collateralized by
zero-coupon U.S. Treasury securities. They are typically issued by
governments of emerging market countries and are considered speculative
securities with higher risks of default. Balanced Fund will buy foreign
currency only in connection with the purchase and sale of foreign securities
and not for speculation.

U.S. Government Securities.  Each Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus and
Proxy Statement.

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

o 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 U.S. 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 ("Ginnie Maes"). Some
      are supported by the right of the issuer to borrow from the U.S.
      Treasury under certain circumstances, such as Federal National Mortgage
      Association bonds ("Fannie Maes"). Others are supported by the credit
      of the entity that issued them, such as Federal Home Loan Mortgage
      Corporation obligations ("Freddie Macs").  Securities issued by Fannie
      Mae, Freddie Mac and the Federal Home Loan Banks are neither guaranteed
      nor issued by the U.S. Government.

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

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

o Forward  Rolls.  Each Fund can enter into "forward roll"  transactions  with
      respect to mortgage-related  securities. In this type of transaction,  a
      mortgage-related  security is sold to a buyer and simultaneously  agrees
      to repurchase a similar security at a later date at a set price.

      During the period between the sale and the repurchase, a Fund will not
      be entitled to receive interest and principal payments on the
      securities that have been sold. It is possible that the market value of
      the securities the Fund sells may decline below the price at which the
      Fund is obligated to repurchase securities, or that the counterparty
      might default in its obligation. A substantial portion of the Fund's
      assets may be subject to forward roll transactions at any given time.

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

      If interest rates rise rapidly, prepayments of mortgages (the risks of
      which are described above) may occur at a slower rate than expected,
      and the expected maturity of long-term or medium-term mortgage-related
      securities could lengthen as a result. That could cause their values to
      fluctuate more, and the prices of a Fund's shares to fall.

Money Market Instruments. The Fund can invest in money market instruments,
which include short-term certificates of deposit, bankers' acceptances,
commercial paper, U.S. Government obligations, and other debt instruments
(including bonds) issued by corporations. These securities may have variable
or floating interest rates. The Fund's investments in commercial paper in
general will be limited to paper in the top two rating categories of S&P or
Moody's.

Zero-Coupon and "Stripped" Securities.  Some of the government and corporate
debt securities the Fund buys are zero-coupon bonds that pay no interest.
They are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped,
with each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all the
principal payments.

Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. Either
Fund may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are
particularly sensitive to changes in interest rates.

The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities
are also sensitive to changes in interest rates. For example, when
prepayments decrease, the yields on principal-only securities also decrease.
The market for some of these securities may be limited, making it difficult
for each Fund to dispose of its holdings at an acceptable price.

While Balanced Fund has no limits on the amount it can invest in zero-coupon
securities, Disciplined Allocation Fund can only invest up to 50% of its
total assets in zero-coupon securities issued by either the U.S. government
or U.S. companies.

Derivative Investments. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value of
an underlying asset, interest rate or index. Options, futures,
mortgage-related securities, asset-backed securities and "stripped"
securities are examples of derivatives each Fund can use.

o Credit Derivatives.  Either Fund may enter into credit default swaps, both
      (i) directly and (ii) indirectly in the form of a swap embedded within
      a structured note, to protect against the risk that a security will
      default. Each Fund pays a fee to enter into the trade and receives a
      fixed payment during the life of the swap.   If there is a credit
      event, a Fund either delivers the defaulted bond (if a Fund has taken
      the short position in the credit default swap) or pays the par amount
      of the defaulted bond (if a Fund has taken the long position in the
      credit default swap note). Risks of credit default swaps include the
      cost of paying for credit protection if there are no credit events.

o There are Special Risks in Using Derivative Investments. If the issuer of
      the derivative does not pay the amount due, a Fund can lose money on
      the investment. Also, the underlying security or investment on which
      the derivative is based, and the derivative itself, might not perform
      the way the Manager expected it to perform. If that happens, a Fund's
      share prices could decline or a Fund could get less income than
      expected. Interest rate and stock market changes in the U.S. and abroad
      may also influence the performance of derivatives.  Some derivative
      investments held by a Fund may be illiquid. Each Fund has limits on the
      amount of particular types of derivatives it can hold. However, using
      derivatives can cause a Fund to lose money on its investment and/or
      increase the volatility of its share prices.

Hedging.  Each Fund can buy and sell futures contracts, put and call options,
swaps, and forward contracts.  These are all referred to as "hedging
instruments."  Neither Fund uses hedging instruments for speculative
purposes. Each Fund has limits on its use of hedging instruments and is not
required to use them in seeking its investment objective.

Each Fund could buy and sell options, futures and forward contracts for a
number of purposes. Some of these strategies would hedge each Fund's
portfolio against price fluctuations. Other hedging strategies, such as
buying futures and call options, would tend to increase each Fund's exposure
to the securities market. Each Fund may also try to manage its exposure to
changing interest rates by using hedging instruments.

There are also special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If a covered call written by a Fund is exercised on an investment
that has increased in value, each Fund will be required to sell the
investment at the call price and will not be able to realize any profit if
the investment has increased in value above the call price.

If the Manager used a hedging instrument at the wrong time or judged market
conditions incorrectly, the hedge might fail and the strategy could reduce
each Fund's return. Each Fund could also experience losses if the prices of
its futures and options positions were not correlated with its other
investments or if it could not close out a position because of an illiquid
market.

Loans of Portfolio Securities. Balanced Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement portfolio
securities of Balanced Fund may be loaned to brokers, dealers and other
financial institutions.  The Securities Lending Agreement provides that loans
must be adequately collateralized and may be made only in conformity with
Balanced Fund's Securities Lending Guidelines, adopted by Balanced Fund's
Board of Trustees. The value of the securities loaned may not exceed 25% of
the value of Balanced Fund's net assets.

Convertible Securities. Many convertible securities are a form of debt
security, but the Manager regards some of them as "equity substitutes"
because of their feature allowing them to be converted into common stock.
Therefore, their credit ratings have less impact on the Manager's investment
decision than in the case of other debt securities. Disciplined Allocation
Fund's investments in convertible securities may include securities rated as
low as "B" by Moody's, S&P or Fitch or having comparable ratings by other
nationally recognized rating organizations (or, if they are unrated, having
comparable ratings assigned by the Manager and subject to each Fund's
limitation on investing in unrated securities as stated above). Those ratings
are below "investment grade" and the securities are subject to greater risk
of default by the issuer than investment-grade securities. Balanced Fund has
no restrictions on the grade of convertible securities in may invest in.

"When-Issued" and "Delayed-Delivery" Transactions. Disciplined Allocation
Fund can purchase securities on a "when-issued" basis and can purchase or
sell securities on a "delayed-delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to
the buyer from the investment. There is a risk of loss to Disciplined
Allocation Fund if the value of the when-issued security declines prior to
the settlement date. No income accrues to Disciplined Allocation Fund on a
when-issued security until Disciplined Allocation Fund receives the security
on settlement of the trade.

Asset-Backed Securities. Disciplined Allocation Fund can buy asset-backed
securities, which are fractional interests in pools of loans collateralized
by the loans or other assets or receivables. They are issued by trusts and
special purpose corporations that pass the income from the underlying pool to
the buyer of the security. These securities are subject to the risk of
default by the issuer as well as by the borrowers of the underlying loans in
the pool.

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

PORTFOLIO TURNOVER. A change in the securities held by the Funds is known as
"portfolio turnover." The Funds may engage in active and frequent short-term
trading to try to achieve their objective and may have a high portfolio
turnover rate of over 100% annually. Increased portfolio turnover creates
higher brokerage and transaction costs for the Funds (and may reduce
performance). However, most of the Funds' portfolio transactions are
principal trades that do not entail brokerage fees. If the Funds realize
capital gains when they sell their portfolio investments, they must generally
pay those gains out to shareholders, increasing their taxable distributions.

TEMPORARY DEFENSIVE AND INTERIM INVESTMENTS. In times of adverse or unstable
market, economic or political conditions, each Fund can invest up to 100% of
its assets in temporary investments that are inconsistent with each Fund's
principal investment strategies.  Generally, they would be short-term U.S.
government securities, high-grade commercial paper, bank obligations or
repurchase agreements. Each Fund can also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or portfolio
securities or to meet anticipated redemptions of Fund shares. To the extent
each Fund invests in these securities, it might not achieve its investment
objective.

                     INFORMATION ABOUT THE REORGANIZATION

      This is only a  summary  of the  material  terms  of the  Reorganization
Agreement.  You should  read the form of  Reorganization  Agreement,  which is
attached as Exhibit A.

How will the Reorganization be carried out?

      If the shareholders of Disciplined Allocation Fund approve the
Reorganization Agreement, the Reorganization will take place after various
conditions are satisfied by Disciplined Allocation Fund and Balanced Fund,
including delivery of certain documents. The Closing Date is presently
scheduled for on or about May 12, 2006 and the "Valuation Date" (which is the
business day preceding the Closing Date of the Reorganization) is presently
scheduled for on or about May 11, 2006.

      If the shareholders of Disciplined Allocation Fund vote to approve the
Reorganization Agreement, you will receive Class A, Class B, Class C and
Class N shares of Balanced Fund equal in value to the value as of the
Valuation Date of your shares of Disciplined Allocation Fund.  Disciplined
Allocation Fund will then be liquidated and its outstanding shares will be
cancelled. The stock transfer books of Disciplined Allocation Fund will be
permanently closed at the close of business on the Valuation Date.

      Shareholders of Disciplined Allocation Fund who vote their Class A,
Class B, Class C and Class N shares in favor of the Reorganization will be
electing in effect to redeem their shares of Disciplined Allocation Fund at
net asset value on the Valuation Date, after Disciplined Allocation Fund
subtracts a cash reserve, and reinvest the proceeds in Class A, Class B,
Class C and Class N shares of Balanced Fund at net asset value. The cash
reserve is that amount retained by Disciplined Allocation Fund, which is
deemed sufficient in the discretion of the Board of Disciplined Allocation
Fund for the payment of Disciplined Allocation Fund's outstanding debts,
taxes and expenses of liquidation. The cash reserve will consist of
approximately $159,000 in cash. Balanced Fund is not assuming any debts of
Disciplined Allocation Fund except debts for unsettled securities
transactions and outstanding dividend and redemption checks. Any debts paid
out of the cash reserve will be those debts, taxes or expenses of liquidation
incurred by Disciplined Allocation Fund on or before the Closing Date.
Disciplined Allocation Fund will recognize capital gains or losses on any
sales of portfolio securities made prior to the Reorganization. The sales of
portfolio securities contemplated in the Reorganization are anticipated to be
in the ordinary course of business of Disciplined Allocation Fund's
activities.

      Under the Reorganization Agreement, within one year after the Closing
Date, Disciplined Allocation Fund shall: (a) either pay or make provision for
all of its debts and taxes; and (b) either (i) transfer any remaining amount
of the Cash Reserve to Balanced Fund, if such remaining amount is not
material (as defined below) or (ii) distribute such remaining amount to the
shareholders of Disciplined Allocation Fund who were shareholders on the
Valuation Date. The remaining amount shall be deemed to be material if the
amount to be distributed, after deducting the estimated expenses of the
distribution, equals or exceeds one cent per share of the number of
Disciplined Allocation Fund shares outstanding on the Valuation Date. In
order to qualify for this rebate, it is not necessary for a shareholder of
Disciplined Allocation Fund to continue to hold Balanced Fund shares received
in the Reorganization. If the Cash Reserve is insufficient to satisfy any of
Disciplined Allocation Fund's liabilities, the Manager will assume
responsibility for any such unsatisfied liability. Within one year after the
Closing Date, Disciplined Allocation Fund will complete its liquidation.

      Under the Reorganization Agreement, either Disciplined Allocation Fund
or Balanced Fund may abandon and terminate the Reorganization Agreement for
any reason and there shall be no liability for damages or other recourse
available to the other Fund, provided, however, that in the event that one of
the Funds terminates the Reorganization Agreement without reasonable cause,
it shall, upon demand, reimburse the other Fund for all expenses, including
reasonable out-of-pocket expenses and fees incurred in connection with the
Reorganization Agreement.

      To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of Disciplined
Allocation Fund.

Who will pay the expenses of the Reorganization?

      The cost of printing and mailing this Proxy will be borne by
Disciplined Allocation Fund and is estimated to be approximately $24,000. The
Funds will share equally the cost of the tax opinion. Any documents such as
existing prospectuses or annual reports that are included in the proxy
mailing or at a shareholder's request will be a cost of the Fund issuing the
document. Any other out-of-pocket expenses associated with the Reorganization
will be paid by the Funds in the amounts incurred by each. The approximate
cost of the Reorganization is $38,000 for Disciplined Allocation Fund and
$14,000 for Balanced Fund.

What are the tax consequences of the Reorganization?

      The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes under Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended. Based on certain assumptions and
representations received from Disciplined Allocation Fund and Balanced Fund,
it is expected to be the opinion of Deloitte & Touche LLP that; (i)
shareholders of Disciplined Allocation Fund will not recognize any gain or
loss for federal income tax purposes as a result of the exchange of their
shares for shares of Balanced Fund; (ii) shareholders of Balanced Fund will
not recognize any gain or loss upon receipt of Disciplined Allocation Fund's
assets (iii) and the holding period of Balanced Fund shares received in that
exchange will include the period that Disciplined Allocation Fund shares were
held (provided such shares were held as a capital asset on the Closing Date).
Please see the Agreement and Plan of Reorganization for more details.
      If the tax opinion is not received by the Closing Date, the Fund may
still pursue the Reorganization, pending re-solicitation of shareholders and
shareholder approval which would delay the reorganization by several months.
In addition, neither Fund is expected to recognize a gain or loss as a direct
result of the Reorganization. Although not likely, in the event such a tax
opinion is not received, the reorganization may not qualify as a tax-free
reorganization.

      Prior to the Valuation Date, Disciplined Allocation Fund may pay a
dividend which will have the effect of distributing to Disciplined Allocation
Fund's shareholders all of Disciplined Allocation Fund's investment company
taxable income, if any, for taxable years ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains, if any, realized in taxable years ending on or prior
to the Closing Date (after reduction for any available capital loss
carry-forward). As of Disciplined Allocation Fund's fiscal year ended October
31, 2005, the Fund had $5,050,942 of net capital loss carry-forward available
to offset any realized capital gains and thereby reduce the capital gains
distributions. Any such dividends will be included in the taxable income of
Disciplined Allocation Fund's shareholders as ordinary income and capital
gain, respectively.

      You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding
the effect, if any, of the Reorganization in light of your individual
circumstances. You should also consult your tax advisor as to state and local
and other tax consequences, if any, of the Reorganization because this
discussion only relates to federal income tax consequences.

                        REASONS FOR THE REORGANIZATION

Board Considerations

      At a meeting of the Board of Directors/Trustees of Disciplined
Allocation Fund and Balanced Fund held December 15, 2005, the Board
considered whether to approve the proposed Reorganization and reviewed and
discussed with the Manager and the Board's independent legal counsel the
proposed Reorganization. Information with respect to the Funds' respective
investment objectives and policies, management fees, distribution fees and
other operating expenses, historical performance and asset size also was
considered by the Board.

      The Board reviewed information demonstrating that Disciplined
Allocation Fund is a significantly smaller fund with approximately $133.9
million in net assets as of September 29, 2005. In comparison, Balanced Fund
had approximately $921.4 million in net assets as of September 29, 2005. The
Board considered that Disciplined Allocation Fund has not seen any
significant influx of money into the Fund and the Manager does not expect the
assets of the Fund to grow substantially, which might result in decreased
fund operating expenses. The Board also considered that Disciplined
Allocation Fund's assets are unlikely to increase substantially in size in
the near future, and, as a result, its expense ratios would likely remain the
same as fixed expenses are borne by a relatively small fund. Economies of
scale realized by the larger, surviving Balanced Fund may benefit
shareholders of Disciplined Allocation Fund.

      At that meeting, the Board considered the fact that both Funds have
similar investment objectives and are managed by the same team of investment
professionals. Additionally, the Board considered that both Funds invest
primarily in stocks, corporate bonds, U.S. government securities and money
market instruments. Although there is no set allocation of assets among the
classes of securities either Fund buys, currently the Funds focus mainly in a
variety of equity and debt securities of U.S. and foreign issuers, as well as
money market instruments.

      The Board also considered that the procedures for purchases, exchanges
and redemptions of shares of both Funds are substantially similar and that
both Funds offer the same investor services and options.

      The Board also considered the terms and conditions of the
Reorganization, including that there would be no sales charge imposed in
effecting the Reorganization and that the Reorganization is expected to be a
tax-free reorganization. The Board concluded that Disciplined Allocation
Fund's participation in the transaction is in the best interests of
Disciplined Allocation Fund and that the Reorganization would not result in a
dilution of the interests of existing shareholders of Disciplined Allocation
Fund.

      After consideration of the above factors, and such other factors and
information as the Board of Disciplined Allocation Fund deemed relevant, the
Board, including the Directors who are not "interested persons" (as defined
in the Investment Company Act) of either Disciplined Allocation Fund or the
Manager (the "Independent Trustees"), unanimously approved the Reorganization
and the Reorganization Agreement and voted to recommend its approval by the
shareholders of Disciplined Allocation Fund. The Board also determined that
the Reorganization was in the best interests of Balanced Fund and its
shareholders and that no dilution would result to those shareholders.
Balanced Fund shareholders do not vote on the Reorganization. The Board on
behalf of Balanced Fund, including the Independent Trustees, unanimously
approved the Reorganization and the Reorganization Agreement.

      Neither Funds' Board members are required to attend the meeting nor do
they plan to attend the meeting.

      For the reasons discussed above, the Board, on behalf of Disciplined
Allocation Fund, recommends that you vote FOR the Reorganization Agreement.
If shareholders of Disciplined Allocation Fund do not approve the
Reorganization Agreement, the Reorganization will not take place.

What should I know about Class A, Class B, Class C and Class N Shares of
Balanced Fund?

      Upon consummation of the Reorganization, Class A, Class B, Class C and
Class N shares of Balanced Fund will be distributed to shareholders of Class
A, Class B, Class C and Class N shares of Disciplined Allocation Fund,
respectively, in connection with the Reorganization. The shares of Balanced
Fund will be recorded electronically in each shareholder's account. Balanced
Fund will then send a confirmation to each shareholder. Shareholders of
Disciplined Allocation Fund holding certificates representing their shares
will not be required to surrender their certificates in connection with the
reorganization. However, former shareholders of Disciplined Allocation Fund
whose shares are represented by outstanding share certificates will not be
allowed to redeem or exchange shares of Balanced Fund they receive in the
Reorganization until the exchanged Disciplined Allocation Fund certificates
have been returned to the Transfer Agent.

      Each share will be fully paid and non-assessable when issued, will have
no preemptive or conversion rights and will be transferable on the books of
Balanced Fund. Balanced Fund's Declaration of Trust contains an express
disclaimer of shareholder or Trustee liability for the Fund's obligations,
and provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its obligations.
Neither Fund permits cumulative voting.

WHAT ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS?

      Both Disciplined Allocation Fund and Balanced Fund have certain
additional investment restrictions that, together with their investment
objectives, are fundamental policies, changeable only by shareholder
approval. Generally, these investment restrictions are similar between the
Funds.  Please see the Statement of Additional Information for each Fund for
descriptions of those investment restrictions, which are incorporated by
reference into the Statement of Additional Information dated March 1, 2006
related to this Reorganization.

OTHER COMPARISONS BETWEEN THE FUNDS

      The description of certain other key features of the Funds below is
supplemented by Balanced Fund's Prospectus and Statement of Additional
Information, which are incorporated by reference.

Management of the Funds

      Each Fund is governed by the same Board of Trustees, which is
responsible for protecting the interests of each Fund's shareholders under
either Maryland law or Massachusetts law, as applicable, and other applicable
laws.  For a listing of the Balanced Fund's Board of Trustees and
biographical information, please refer to the Statement of Additional
Information to this Prospectus and Proxy Statement.

Investment Management and Fees

      The day-to-day management of the business and affairs of each Fund is
the responsibility of the Manager.  Pursuant to each Fund's investment
advisory agreement, the Manager acts as the investment advisor for both
Funds, manages the assets of both Funds and makes their respective investment
decisions.  The Manager employs the Funds' portfolio managers.  Christopher
Leavy and Emmanuel Ferreira, supported by other members of the Manager's
value portfolio team are primarily responsible for the day-to-day management
of the equity portion of Disciplined Allocation Fund's investments. Angelo
Manioudakis, supported by other members of the Manager's high grade
fixed-income team are primarily responsible for the day-to-day management of
the fixed-income portion of Disciplined Allocation Fund's investments.
Christopher Leavy and Emmanuel Ferreira, supported by other members of the
Manager's value portfolio team are primarily responsible for the day-to-day
management of the equity portion of Balanced Fund's investments. Angelo
Manioudakis, supported by other members of the Manager's high grade
fixed-income team are primarily responsible for the day-to-day management of
the fixed-income portion of Balanced Fund's investments.

      Both Funds obtain investment management services from the Manager
according to the terms of management agreements that are substantially
similar although Balanced Fund's management fee rates were higher than those
of Disciplined Allocation Fund during the Funds' last completed fiscal year.
The chart below shows the current contractual management fee schedule for
each of the Funds.  While Disciplined Allocation Fund has a lower management
fee than Balanced Fund, the total operating expenses for Balanced Fund are
lower than Disciplined Allocation Fund.

- ---------------------------------------------------------------
Disciplined Allocation Fund(1)   Balanced Fund(1)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
0.625% of the first $300         0.75% of the first $200
million of average annual net    million of average annual
assets of the Fund, 0.500% of    net assets of the Fund,
the next $100 million, and       0.72% of the next $200
0.450% of average annual net     million, 0.69% of the next
assets in excess of $400         $200 million, 0.66% of the
million.                         next $200 million, 0.60% of
                                 the next $700 million, and
                                 0.58% of average annual net
                                 assets in excess of $1.5
                                 billion.
- ---------------------------------------------------------------
1. Based on average annual net assets of the respective Fund.

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

      Each Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreements list examples of expenses paid by
each Fund. The major categories relate to interest, taxes, brokerage
commissions, fees to Independent Trustees, legal and audit expenses,
custodian bank and transfer agent expenses, share issuance costs, certain
printing and registration costs, and non-recurring expenses, including
litigation costs.

      Both investment advisory agreements generally provide 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 sustained by reason of good faith errors or omissions in connection with
any matters to which the agreement(s) relate.

      The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior officers of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies.
The Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $200 billion in
assets as of December 31, 2005, including other Oppenheimer funds with more
than 6 million shareholder accounts. The Manager is located at 225 Liberty
Street, 11th Floor, New York, New York 10281-1008.

Distribution Services

      OppenheimerFunds Distributor, Inc. (the "Distributor") acts as the
principal underwriter in a continuous public offering of shares of the Funds,
but is not obligated to sell a specific number of shares.  Both Funds have
adopted a Service Plan and Agreement under Rule 12b-1 of the Investment
Company Act for their Class A shares. The Service Plan provides for the
reimbursement to the Distributor for a portion of its costs incurred in
connection with the services provided to accounts that hold Class A shares of
the respective Funds. Under the Class A Service Plans, reimbursement is made
at a rate of up to 0.25% of average annual net assets of Class A shares of
the respective Funds. The Distributor currently uses the fees it receives
from the Funds to pay dealers, brokers and other financial institutions (they
are referred to as "recipients") for personal services and account
maintenance services they provide for their customers that hold Class A
shares of the respective Funds.

      Both Funds have adopted Distribution and Service Plans and Agreements
under Rule 12b-1 of the Investment Company Act for Class B, Class C and Class
N shares. These plans compensate the Distributor for its services and costs
in connection with the distribution of Class B, Class C and Class N shares
and for servicing shareholder accounts. Under the plans, the Funds pay the
Distributor an annual asset-based sales charge of 0.75% on Class B and Class
C shares and 0.25% on Class N shares. The Distributor also receives a service
fee of 0.25% per year under the Class B, Class C and Class N plans.

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

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

      The Manager and the Distributor, in their discretion, also may pay
 dealers or other financial intermediaries and service providers for
 distribution and/or shareholder servicing activities. These payments are
 made out of the Manager's and/or the Distributor's own resources, including
 from the profits derived from the advisory fees the Manager receives from a
 Fund. These cash payments, which may be substantial, are paid to many firms
 having business relationships with the Manager and Distributor. These
 payments are in addition to any distribution fees, servicing fees, or
 transfer agency fees paid directly or indirectly by a Fund to these
 financial intermediaries and any commissions the Distributor pays to these
 firms out of the sales charges paid by investors. These payments by the
 Manager or Distributor from their own resources are not reflected in the Pro
 Forma Fee Tables contained in this Prospectus and Proxy Statement because
 they are not paid by either Fund.

     "Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to each Fund, or both, and
receive compensation for doing so. Your securities dealer or financial
adviser, for example, is a financial intermediary, and there are other types
of financial intermediaries that receive payments relating to the sale or
servicing of each Fund's shares. In addition to dealers, the financial
intermediaries that may receive payments include sponsors of fund
"supermarkets," sponsors of fee-based advisory or wrap fee programs, sponsors
of college and retirement savings programs, banks and trust companies
offering products that hold fund shares, and insurance companies that offer
variable annuity or variable life insurance products.

     In general, these payments to financial intermediaries can be
categorized as "distribution-related" or "servicing" payments. Payments for
distribution-related expenses, such as marketing or promotional expenses, are
often referred to as "revenue sharing." Revenue sharing payments may be made
on the basis of the sales of shares attributable to that dealer, the average
net assets of a Fund and other Oppenheimer funds attributable to the accounts
of that dealer and its clients, negotiated lump sum payments for distribution
services provided, or sales support fees. In some circumstances, revenue
sharing payments may create an incentive for a dealer or financial
intermediary or its representatives to recommend or offer shares of a Fund or
other Oppenheimer funds to its customers. These payments also may give an
intermediary an incentive to cooperate with the Distributor's marketing
efforts. A revenue sharing payment may, for example, qualify the Fund for
preferred status with the intermediary receiving the payment or provide
representatives of the Distributor with access to representatives of the
intermediary's sales force, in some cases on a preferential basis over funds
of competitors. Additionally, as firm support, the Manager or Distributor may
reimburse expenses related to educational seminars and "due diligence" or
training meetings (to the extent permitted by applicable laws or the rules of
the NASD) designed to increase sales representatives' awareness about
Oppenheimer funds, including travel and lodging expenditures. However, the
Manager does not consider a financial intermediary's sale of shares of a Fund
or other Oppenheimer funds when selecting brokers or dealers to effect
portfolio transactions for the funds.

     Various factors are used to determine whether to make revenue sharing
payments. Possible considerations include, without limitation, the types of
services provided by the intermediary, sales of fund shares, the redemption
rates on accounts of clients of the intermediary or overall asset levels of
Oppenheimer funds held for or by clients of the intermediary, the willingness
of the intermediary to allow the Distributor to provide educational and
training support for the intermediary's sales personnel relating to the
Oppenheimer funds, the availability of the Oppenheimer funds on the
intermediary's sales system, as well as the overall quality of the services
provided by the intermediary and the Manager or Distributor's relationship
with the intermediary. The Manager and Distributor have adopted guidelines
for assessing and implementing each prospective revenue sharing arrangement.
To the extent that financial intermediaries receiving distribution-related
payments from the Manager or Distributor sell more shares of the Oppenheimer
funds or retain more shares of the funds in their client accounts, the
Manager and Distributor benefit from the incremental management and other
fees they receive with respect to those assets.

     Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided such as sub-transfer
agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements,
account set-up, recordkeeping and other shareholder services. Payments may
also be made for administrative services related to the distribution of Fund
shares through the intermediary. Firms that may receive servicing fees
include retirement plan administrators, qualified tuition program sponsors,
banks and trust companies, and others. These fees may be used by the service
provider to offset or reduce fees that would otherwise be paid directly to
them by certain account holders, such as retirement plans.

      The Statement of Additional Information contains more information about
revenue sharing and service payments made by the Manager or the Distributor.
Your dealer may charge you fees or commissions in addition to those disclosed
in this Prospectus and Proxy Statement. You should ask your dealer or
financial intermediary for details about any such payments it receives from
the Manager or the Distributor and their affiliates, or any other fees or
expenses it charges.

Transfer Agency and Custody Services

      Both Funds receive shareholder accounting and other clerical services
from OppenheimerFunds Services, a division of the Manager, in its capacity as
transfer agent and dividend paying agent. It acts on an annual per-account
fee basis for both Funds. The terms of the transfer agency agreement for both
Funds, and of a voluntary undertaking to limit transfer agent fees (to 0.35%
per fiscal year for each class of both Funds) are substantially similar.
Citibank, N.A., located at 388 Greenwich Street, New York, New York, 10013,
and JP Morgan Chase Bank, located at 4 Chase Metro Tech Center, Brooklyn, NY
11245, respectively, act as custodian of the securities and other assets of
Disciplined Allocation Fund and Balanced Fund, respectively.

Shareholder Rights

      Disciplined Allocation Fund is a series of Oppenheimer Series Fund,
Inc. and is organized as a Maryland corporation, Balanced Fund is organized
as a Massachusetts business trust. The Funds are not required to, and do not,
hold annual meetings of shareholders and have no current intention to hold
such meetings, except as required by the Investment Company Act.

Under the Investment Company Act, the Funds are required to hold a
shareholder meeting if, among other reasons, the numbers of
Directors/Trustees elected by shareholders is less than a majority of the
total number of Directors/Trustees, or if they seek to change a fundamental
investment policy. The Trustees of Balanced Fund 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.

                              VOTING INFORMATION

How do I vote?

      Please take a few moments to complete your proxy ballot promptly. You
may vote your shares by completing and signing the enclosed proxy ballot(s)
and mailing the proxy ballot(s) in the postage paid envelope provided.  You
also may vote your shares by telephone or via the internet by following the
instructions on the attached proxy ballot(s) and accompanying materials.  You
may cast your vote by attending the Meeting in person if you are a record
owner.

      If you need assistance, have any questions regarding the Proposal or
need a replacement proxy ballot, you may contact us toll-free at
1-800-225-5677 (1-800-CALL-OPP).  Any proxy given by a shareholder, whether
in writing, by telephone or via the internet, is revocable as described below
under the paragraph titled "Revoking a Proxy".

      If you simply sign and date the proxy but give no voting instructions,
your shares will be voted in favor of the Reorganization Agreement.

Telephone Voting

      Please have the proxy ballot in hand and call the number on the
enclosed materials and follow the instructions.  After you provide your
voting instructions, those instructions will be read back to you and you must
confirm your voting instructions before ending the telephone call.  The
voting procedures used in connection with telephone voting are designed to
reasonably authenticate the identity of shareholders, to permit shareholders
to authorize the voting of their shares in accordance with their instructions
and to confirm that their instructions have been properly recorded.

      As the Special Meeting date approaches, certain shareholders may
receive telephone calls from a representative of the solicitation firm (if
applicable) if their vote has not yet been received.  Authorization to permit
the solicitation firm to execute proxies may be obtained by telephonic
instructions from shareholders of Disciplined Allocation Fund.  Proxies that
are obtained telephonically will be recorded in accordance with the
procedures discussed herein.  These procedures have been designed to
reasonably ensure that the identity of the shareholder providing voting
instructions is accurately determined and that the voting instructions of the
shareholder are accurately recorded.

      In all cases where a telephonic proxy is solicited, the solicitation
firm representative is required to ask for each shareholder's full name,
address, title (if the shareholder is authorized to act on behalf of an
entity, such as a corporation) and to confirm that the shareholder has
received the Proxy Statement and ballot.  If the information solicited agrees
with the information provided to the solicitation firm, the solicitation firm
representative has the responsibility to explain the process, read the
proposal listed on the proxy ballot, and ask for the shareholder's
instructions on such proposal.  The solicitation firm representative,
although he or she is permitted to answer questions about the process, is not
permitted to recommend to the shareholder how to vote.  The solicitation firm
representative may read any recommendation set forth in the Proxy Statement.
The solicitation firm representative will record the shareholder's
instructions.  Within 72 hours, the shareholder will be sent a confirmation
of his or her vote asking the shareholder to call the solicitation firm
immediately if his or her instructions are not correctly reflected in the
confirmation.  For additional information, see also the section below titled
"Solicitation of Proxies".

Internet Voting

      You also may vote over the internet by following the instructions in
the enclosed materials.  You will be prompted to enter the control number on
the enclosed proxy ballot. Follow the instructions on the screen, using your
proxy ballot as a guide.

Who is entitled to vote and how are votes counted?

      Shareholders of record of Disciplined Allocation Fund at the close of
business on January 20, 2006 (the "record date") will be entitled to vote at
the Meeting. On January 20, 2006, there were 8,834,073.73 outstanding shares
of Disciplined Allocation Fund, consisting of 7,282,124.579 Class A shares,
824,379.304 Class B shares, 603,416.760 Class C shares and 124,153.087 Class
N shares.  Each shareholder will be entitled to one vote for each full share,
and a fractional vote for each fractional share of Disciplined Allocation
Fund held on the Record Date.

      The individuals named as proxies on the proxy ballots (or their
substitutes) will vote according to your directions if your proxy ballot is
received and properly executed, or in accordance with the instructions you
provide if you vote by telephone, internet or mail.  You may direct the proxy
holders to vote your shares on the proposal by checking the appropriate box
"FOR" or "AGAINST", or instruct them not to vote those shares on the proposal
by checking the "ABSTAIN" box.

Quorum and Required Vote

The presence in person or by proxy of a majority of Disciplined Allocation
Fund's shares outstanding and entitled to vote constitutes a quorum.  Shares
whose proxies reflect an abstention on the proposal are counted as shares
present and entitled to vote for purposes of determining whether the required
quorum of shares exists for the Proposal.  However, because of the need to
obtain a vote of a majority of the shares outstanding and entitled to vote,
abstentions will have the same effect as a vote "against" the Proposal.  In
the absence of a quorum, the shareholders present or represented by proxy and
entitled to vote thereat have the power to adjourn the meeting from time to
time without further notice.

      The affirmative vote of the holders of a majority of the shares of
Disciplined Allocation Fund outstanding and entitled to vote is necessary to
approve the Reorganization Agreement and the transactions contemplated
thereby. Balanced Fund shareholders do not vote on the Reorganization.

      In absence of a quorum or if a quorum is present but sufficient votes
to approve the Proposal are not received by the date of the Meeting, the
persons named in the enclosed proxy (or their substitutes) may propose and
approve one or more adjournments of the Meeting to permit further
solicitation of proxies.  All such adjournments will require the affirmative
vote of a majority of the shares present in person or by proxy at the session
of the Meeting to be adjourned.  The persons named as proxies on the proxy
ballots (or their substitutes) will vote the Shares present in person or by
proxy (including broker non-votes and abstentions) in favor of such an
adjournment if they determine additional solicitation is warranted and in the
interests of the Fund's shareholders.

Solicitation of Proxies

      Broker-dealer firms, banks, custodians, nominees and other fiduciaries
may be required to forward soliciting material to the beneficial owners of
the shares of record on behalf of Disciplined Allocation Fund and to obtain
authorization for the execution of proxies.  For those services, they will be
reimbursed by the Fund for their reasonable expenses incurred in connection
with the proxy solicitation to the extent the Fund would have directly borne
those expenses.

      In addition to solicitations by mail, solicitations may be conducted by
telephone or email including by a proxy solicitation firm hired at
Disciplined Allocation Fund's expense. If a proxy solicitation firm is hired,
it is anticipated that the cost to Disciplined Allocation Fund of engaging a
proxy solicitation firm would not exceed $7,500, plus the additional costs
which would be incurred in connection with contacting those shareholders who
have not voted, in the event of a need for re-solicitation of votes.
Currently, if the Manager determines to retain the services of a proxy
solicitation firm on behalf of the Fund, the Manager anticipates retaining
Computershare Fund Services.  Any proxy solicitation firm engaged by the
Fund, among other things, will be: (i) required to maintain the
confidentiality of all shareholder information; (ii) prohibited from selling
or otherwise disclosing shareholder information to any third party; and (iii)
required to comply with applicable telemarketing laws.

Voting By Broker-Dealers

      Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based
on instructions received from its customers. If no instructions are received,
the broker-dealer does not have discretionary power ("broker non-vote") to
vote such street account shares on the Proposal under applicable stock
exchange rules.  This "broker non-vote" occurs when a proxy is received from
a broker and the broker does not have discretionary authority to vote the
shares on that matter.  Broker non-votes will not be counted as present nor
entitled to vote for purposes of determining a quorum nor will they be
counted as votes "for" or "against" the Proposal.  Beneficial owners of
street account shares cannot vote at the meeting.  Only record owners may
vote at the meeting.

Voting by the Trustee for OppenheimerFunds-Sponsored Retirement Plans

      Shares held in OppenheimerFunds-sponsored retirement accounts for which
votes are not received as of the last business day before the Meeting Date,
will be voted by the trustee for such accounts in the same proportion as
Shares for which voting instructions from the Fund's other shareholders have
been timely received.

Revoking a Proxy

      You may revoke a previously granted proxy at any time before it is
exercised by: (1) delivering a written notice to the Fund expressly revoking
your proxy, (2) signing and sending to the Fund a later-dated proxy, (3)
telephone or internet or (4) attending the Meeting and casting your votes in
person if you are a record owner. Please be advised that the deadline for
revoking your proxy by telephone or the internet is 3:00 p.m., Eastern Time,
on the last business day before the Meeting.

What other matters will be voted upon at the Meeting?

      The Board of Directors of Disciplined Allocation Fund does not intend
to bring any matters before the Meeting other than those described in this
Prospectus and Proxy Statement. Neither the Board nor the Manager is aware of
any other matters to be brought before the Meeting by others. Matters not
known at the time of the solicitation may come before the Meeting.  The proxy
as solicited confers discretionary authority with respect to such matters
that might properly come before the Meeting, including any adjournment or
adjournments thereof, and it is the intention of the persons named as
attorneys-in-fact in the proxy (or their substitutes) to vote the proxy in
accordance with their judgment on such matters.

Shareholder Proposals

      The Funds are not required and do not intend to hold shareholder
meetings on a regular basis.  Special meetings of shareholders may be called
from time to time by either a Fund or the shareholders (for certain matters
and under special conditions described in the Funds' Statements of Additional
Information).  Under the proxy rules of the SEC, shareholder proposals that
meet certain conditions may be included in a fund's proxy statement for a
particular meeting.  Those rules currently require that for future meetings,
the shareholder must be a record or beneficial owner of Fund shares either
(i) with a value of at least $2,000 or (ii) in an amount representing at
least 1% of the Fund's securities to be voted, at the time the proposal is
submitted and for one year prior thereto, and must continue to own such
shares through the date on which the meeting is held.  Another requirement
relates to the timely receipt by a Fund of any such proposal. Under those
rules, a proposal must have been submitted a reasonable time before the Fund
began to print and mail this Proxy Statement in order to be included in this
Proxy Statement.  A proposal submitted for inclusion in a Fund's proxy
material for the next special meeting after the meeting to which this Proxy
Statement relates must be received by the Fund a reasonable time before the
Fund begins to print and mail the proxy materials for that meeting. Notice of
shareholder proposals to be presented at the Meeting must have been received
within a reasonable time before the Fund began to mail this Proxy Statement.
The fact that the Fund receives a proposal from a qualified shareholder in a
timely manner does not ensure its inclusion in the proxy materials because
there are other requirements under the proxy rules for such inclusion.

Shareholder Communications to the Board

      Shareholders who desire to communicate generally with the Board should
address their correspondence to the Board of Directors/Trustees of the
applicable Fund and may submit their correspondence by mail to the Fund at
6803 South Tucson Way, Centennial, CO 80112, attention Secretary of the Fund;
and if the correspondence is intended for a particular Director/Trustee, the
shareholder should so indicate.

Reports to Shareholders and Financial Statements

      To avoid sending duplicate copies of materials to households, the Funds
mail only one copy of each report to shareholders having the same last name
and address on the Funds' records.  The consolidation of these mailings,
called householding, benefits the Funds through reduced mailing expenses.

      If you want to receive multiple copies of these materials or request
householding in the future, you may call the transfer agent at
1.800.647.7374.  You may also notify the transfer agent in writing at 6803
South Tucson Way, Centennial, Colorado 80112.  Individual copies of
prospectuses and reports will be sent to you within 30 days after the
transfer agent receives your request to stop householding.

       ADDITIONAL INFORMATION ABOUT DISCIPLINED ALLOCATION FUND AND BALANCED
                                     FUND

      Both Funds also file proxy materials, proxy voting reports and other
information with the SEC in accordance with the informational requirements of
the Securities and Exchange Act of 1934 and the Investment Company Act. These
materials can be inspected and copied at: the SEC's Public Reference Room in
Washington, D.C. (Phone: 1.202.942.8090) or the EDGAR database on the SEC's
website at www.sec.gov. Copies may be obtained upon payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C.
20549-0102.

Pending Litigation

      A consolidated amended complaint has been filed as putative derivative
and class actions against the Manager, Distributor and Transfer Agent, as
well as 51 of the Oppenheimer funds (collectively the "funds") including the
Funds, 30 present and former Directors or Trustees and 8 present and former
officers of certain of the funds. This complaint, initially filed in the U.S.
District Court for the Southern District of New York on January 10, 2005 and
amended on March 4, 2005, consolidates into a single action and amends six
individual previously-filed putative derivative and class action complaints.
Like those prior complaints, the complaint alleges that the Manager charged
excessive fees for distribution and other costs, improperly used assets of
the funds in the form of directed brokerage commissions and 12b-1 fees to pay
brokers to promote sales of the funds, and failed to properly disclose the
use of fund assets to make those payments in violation of the Investment
Company Act of 1940 and the Investment Advisers Act of 1940. Also, like those
prior complaints, the complaint further alleges that by permitting and/or
participating in those actions, the Directors/Trustees and the officers
breached their fiduciary duties to Fund shareholders under the Investment
Company Act and at common law.  The complaint seeks unspecified compensatory
and punitive damages, rescission of the funds' investment advisory
agreements, an accounting of all fees paid, and an award of attorneys' fees
and litigation expenses.

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

Principal Shareholders

      As of January 31, 2006, the officers and Directors of Disciplined
Allocation Fund as a group and of Balanced Fund as a group, owned less than
1% of the outstanding voting shares of any class of their respective Fund. As
of January 31, 2006, the only persons who owned of record or were known by
Disciplined Allocation Fund or Balanced Fund to own beneficially 5% or more
of any class of the outstanding shares of that respective Fund are listed in
Exhibit B.






                        EXHIBITS TO THE COMBINED PROXY
                           STATEMENT AND PROSPECTUS

Exhibit

A  Agreement and Plan of Reorganization between Oppenheimer Disciplined
   Allocation Fund and Oppenheimer Balanced Fund

B  Principal Shareholders









                                   A-12
                                     A-1
                                                                     EXHIBIT A

                     AGREEMENT AND PLAN OF REORGANIZATION

      AGREEMENT  AND  PLAN OF  REORGANIZATION  (the  "Agreement")  dated as of
December 15, 2005 by and between  Oppenheimer  Disciplined  Allocation Fund, a
series of Oppenheimer  Series Fund, Inc.  ("Disciplined  Allocation  Fund"), a
Maryland  corporation  and  Oppenheimer  Balanced Fund  ("Balanced  Fund"),  a
Massachusetts business trust.

                             W I T N E S S E T H:

      WHEREAS,  the  parties are each  open-end  investment  companies  of the
management type; and

      WHEREAS,  the parties  hereto  desire to provide for the  reorganization
pursuant  to  Section  368(a)(1)  of the  Internal  Revenue  Code of 1986,  as
amended (the "Code"),  of Disciplined  Allocation Fund through the acquisition
by Balanced Fund of substantially all of the assets of Disciplined  Allocation
Fund in exchange for the voting  shares of beneficial  interest  ("shares") of
Class  A,  Class  B,  Class C and  Class N  shares  of  Balanced  Fund and the
assumption by Balanced Fund of certain  liabilities of Disciplined  Allocation
Fund,  which Class A, Class B, Class C and Class N shares of Balanced Fund are
to be distributed by Disciplined  Allocation Fund pro rata to its shareholders
in  complete   liquidation  of  Disciplined   Allocation   Fund  and  complete
cancellation of its shares;

      NOW,   THEREFORE,   in  consideration  of  the  mutual  promises  herein
contained, the parties hereto agree as follows:

   1.       The  parties  hereto  hereby  adopt  this  Agreement  and  Plan of
Reorganization (the "Agreement")  pursuant to Section 368(a)(1) of the Code as
follows:  The reorganization  will be comprised of the acquisition by Balanced
Fund of  substantially  all of the assets of  Disciplined  Allocation  Fund in
exchange  for Class A,  Class B, Class C and Class N shares of  Balanced  Fund
and the  assumption by Balanced  Fund of certain  liabilities  of  Disciplined
Allocation Fund,  followed by the distribution of such Class A, Class B, Class
C and Class N shares of  Balanced  Fund to the Class A,  Class B,  Class C and
Class N  shareholders  of  Disciplined  Allocation  Fund in exchange for their
Class A, Class B, Class C and Class N shares of Disciplined  Allocation  Fund,
all upon and subject to the terms of the Agreement hereinafter set forth.

      The  share  transfer  books  of  Disciplined  Allocation  Fund  will  be
permanently  closed  at the  close  of  business  on the  Valuation  Date  (as
hereinafter  defined) and only redemption  requests received in proper form on
or prior to the close of business on the Valuation  Date shall be fulfilled by
Disciplined  Allocation  Fund;  redemption  requests  received by  Disciplined
Allocation  Fund  after  that  date  shall  be  treated  as  requests  for the
redemption  of  the  shares  of  Balanced  Fund  to  be   distributed  to  the
shareholder in question as provided in Section 5 hereof.

   2. On the  Closing  Date (as  hereinafter  defined),  all of the  assets of
Disciplined  Allocation Fund on that date, excluding a cash reserve (the "cash
reserve") to be retained by  Disciplined  Allocation  Fund  sufficient  in its
discretion  for the payment of the expenses of Disciplined  Allocation  Fund's
dissolution and its liabilities,  but not in excess of the amount contemplated
by Section 10E,  shall be delivered as provided in Section 8 to Balanced Fund,
in exchange for and against  delivery to  Disciplined  Allocation  Fund on the
Closing  Date of a number of Class A,  Class B,  Class C and Class N shares of
Balanced  Fund,  having an aggregate net asset value equal to the value of the
assets of Disciplined Allocation Fund so transferred and delivered.

   3. The net asset  value of Class A,  Class B, Class C and Class N shares of
Balanced Fund and the value of the assets of  Disciplined  Allocation  Fund to
be  transferred  shall in each case be  determined as of the close of business
of The New York Stock Exchange on the Valuation  Date. The  computation of the
net  asset  value of the  Class  A,  Class B,  Class C and  Class N shares  of
Balanced  Fund  and the  Class  A,  Class B,  Class C and  Class N  shares  of
Disciplined  Allocation Fund shall be done in the manner used by Balanced Fund
and Disciplined Allocation Fund, respectively,  in the computation of such net
asset  value  per  share as set forth in their  respective  prospectuses.  The
methods  used by  Balanced  Fund in such  computation  shall be applied to the
valuation of the assets of  Disciplined  Allocation  Fund to be transferred to
Balanced Fund.

      Disciplined  Allocation Fund shall declare and pay, immediately prior to
the Valuation Date, a dividend or dividends which,  together with all previous
such  dividends,   shall  have  the  effect  of  distributing  to  Disciplined
Allocation   Fund's   shareholders  all  of  Disciplined   Allocation   Fund's
investment  company taxable income for taxable years ending on or prior to the
Closing Date (computed  without  regard to any dividends  paid) and all of its
net capital gain, if any,  realized in taxable years ending on or prior to the
Closing Date (after reduction for any capital loss carry-forward).

   4. The   closing   (the   "Closing")   shall   be   at   the   offices   of
OppenheimerFunds,  Inc.  (the  "Agent"),  6803 S Tucson  Way,  Centennial,  CO
80112,  on such time or such other place as the parties  may  designate  or as
provided  below (the "Closing  Date").  The business day preceding the Closing
Date is herein referred to as the "Valuation Date."

      In the event that on the  Valuation  Date either party has,  pursuant to
the  Investment  Company Act of 1940,  as amended  (the  "Act"),  or any rule,
regulation  or order  thereunder,  suspended  the  redemption of its shares or
postponed  payment  therefore,  the Closing Date shall be postponed  until the
first  business  day  after  the date  when  both  parties  have  ceased  such
suspension or postponement;  provided,  however, that if such suspension shall
continue  for a period of 60 days beyond the  Valuation  Date,  then the other
party to the Agreement  shall be permitted to terminate the Agreement  without
liability to either party for such termination.

   5. In  conjunction  with the  Closing,  Disciplined  Allocation  Fund shall
distribute on a pro rata basis to the  shareholders of Disciplined  Allocation
Fund as of the Valuation  Date Class A, Class B, Class C and Class N shares of
Balanced Fund received by Disciplined  Allocation  Fund on the Closing Date in
exchange  for  the  assets  of   Disciplined   Allocation   Fund  in  complete
liquidation   of  Disciplined   Allocation   Fund;  for  the  purpose  of  the
distribution  by Disciplined  Allocation Fund of Class A, Class B, Class C and
Class  N  shares  of   Balanced   Fund  to   Disciplined   Allocation   Fund's
shareholders,  Balanced  Fund will promptly  cause its transfer  agent to: (a)
credit an  appropriate  number of Class A, Class B, Class C and Class N shares
of  Balanced  Fund on the books of  Balanced  Fund to each  Class A,  Class B,
Class C and Class N shareholder of Disciplined  Allocation  Fund in accordance
with  a  list  (the  "Shareholder   List")  of  Disciplined   Allocation  Fund
shareholders  received from  Disciplined  Allocation  Fund; and (b) confirm an
appropriate  number  of  Class  A,  Class B,  Class C and  Class N  shares  of
Balanced  Fund to each Class A, Class B,  Class C and Class N  shareholder  of
Disciplined Allocation Fund.

      The Shareholder List shall indicate,  as of the close of business on the
Valuation  Date,  the name and  address  of each  shareholder  of  Disciplined
Allocation Fund, indicating his or her share balance.  Disciplined  Allocation
Fund agrees to supply the  Shareholder  List to  Balanced  Fund not later than
the  Closing  Date.   Shareholders  of  Disciplined  Allocation  Fund  holding
certificates  representing  their  shares  shall not be required to  surrender
their  certificates  to anyone in connection  with the  reorganization.  After
the Closing  Date,  however,  it will be necessary  for such  shareholders  to
surrender  their  certificates  in order to  redeem,  transfer  or pledge  the
shares of Balanced Fund which they received.

   6. Within one year after the  Closing  Date,  Disciplined  Allocation  Fund
shall (a) either pay or make  provision for payment of all of its  liabilities
and taxes,  and (b)  either  (i)  transfer  any  remaining  amount of the cash
reserve  to  Balanced  Fund,  if such  remaining  amount  (as  reduced  by the
estimated  cost  of  distributing  it to  shareholders)  is not  material  (as
defined below) or (ii)  distribute such remaining  amount to the  shareholders
of Disciplined  Allocation Fund on the Valuation  Date. Such remaining  amount
shall  be  deemed  to be  material  if the  amount  to be  distributed,  after
deduction of the  estimated  expenses of the  distribution,  equals or exceeds
one  cent  per  share  of  Disciplined  Allocation  Fund  outstanding  on  the
Valuation Date.

   7. Prior to the  Closing  Date,  there  shall be  coordination  between the
parties  as to  their  respective  portfolios  so  that,  after  the  Closing,
Balanced Fund will be in compliance  with all of its  investment  policies and
restrictions.  At the Closing,  Disciplined  Allocation  Fund shall deliver to
Balanced Fund two copies of a list setting forth the securities  then owned by
Disciplined   Allocation  Fund.   Promptly  after  the  Closing,   Disciplined
Allocation  Fund  shall  provide  Balanced  Fund  a  list  setting  forth  the
respective federal income tax bases thereof.

   8. Portfolio  securities or written evidence acceptable to Balanced Fund of
record  ownership  thereof by The  Depository  Trust  Company  or through  the
Federal  Reserve  Book  Entry  System  or any  other  depository  approved  by
Disciplined  Allocation  Fund  pursuant to Rule 17f-4 and Rule 17f-5 under the
Act shall be endorsed and delivered,  or  transferred by appropriate  transfer
or assignment  documents,  by Disciplined  Allocation Fund on the Closing Date
to Balanced Fund, or at its direction,  to its custodian  bank, in proper form
for  transfer in such  condition as to  constitute  good  delivery  thereof in
accordance  with  the  custom  of  brokers  and  shall be  accompanied  by all
necessary  state transfer  stamps,  if any. The cash delivered shall be in the
form of  certified  or bank  cashiers'  checks or by bank  wire or  intra-bank
transfer  payable to the order of  Balanced  Fund for the  account of Balanced
Fund.  Class  A,  Class  B,  Class  C and  Class N  shares  of  Balanced  Fund
representing  the  number of Class A,  Class B,  Class C and Class N shares of
Balanced Fund being  delivered  against the assets of  Disciplined  Allocation
Fund,  registered  in the  name  of  Disciplined  Allocation  Fund,  shall  be
transferred to Disciplined  Allocation  Fund on the Closing Date.  Such shares
shall   thereupon  be  assigned  by   Disciplined   Allocation   Fund  to  its
shareholders  so that  the  shares  of  Balanced  Fund may be  distributed  as
provided in Section 5.

      If, at the Closing Date,  Disciplined  Allocation Fund is unable to make
delivery  under  this  Section  8 to  Balanced  Fund  of any of its  portfolio
securities  or cash for the reason that any of such  securities  purchased  by
Disciplined  Allocation  Fund,  or the cash  proceeds  of a sale of  portfolio
securities,  prior to the Closing  Date have not yet been  delivered  to it or
Disciplined  Allocation  Fund's custodian,  then the delivery  requirements of
this Section 8 with  respect to said  undelivered  securities  or cash will be
waived and Disciplined  Allocation Fund will deliver to Balanced Fund by or on
the Closing Date with respect to said undelivered  securities or cash executed
copies of an  agreement  or  agreements  of  assignment  in a form  reasonably
satisfactory to Balanced Fund,  together with such other documents,  including
a due bill or due bills and brokers'  confirmation  slips as may reasonably be
required by Balanced Fund.

   9. Balanced  Fund shall not assume the  liabilities  (except for  portfolio
securities  purchased  which have not settled and for  shareholder  redemption
and  dividend  checks   outstanding)  of  Disciplined   Allocation  Fund,  but
Disciplined  Allocation  Fund  will,  nevertheless,  use its best  efforts  to
discharge  all  known  liabilities,  so far as may be  possible,  prior to the
Closing  Date.  The  cost of  printing  and  mailing  the  proxies  and  proxy
statements  will  be  borne  by  Disciplined   Allocation  Fund.   Disciplined
Allocation  Fund and Balanced  Fund will share  equally in the cost of the tax
opinion.  Any documents such as existing  prospectuses  or annual reports that
are  included  in  that  mailing  will  be a cost  of  the  Fund  issuing  the
document.  Any other  out-of-pocket  expenses of Balanced Fund and Disciplined
Allocation  Fund  associated  with  this   reorganization,   including  legal,
accounting  and  transfer  agent  expenses,   will  be  borne  by  Disciplined
Allocation  Fund and Balanced Fund,  respectively,  in the amounts so incurred
by each.

  10. The  obligations  of  Balanced  Fund  hereunder  shall be subject to the
following conditions:

      A.    The Board of Directors of Disciplined  Allocation  Fund shall have
authorized  the  execution  of  the  Agreement,   and  the   shareholders   of
Disciplined  Allocation  Fund  shall  have  approved  the  Agreement  and  the
transactions  contemplated hereby, and Disciplined  Allocation Fund shall have
furnished to Balanced Fund copies of resolutions  to that effect  certified by
the Secretary or the Assistant Secretary of Disciplined  Allocation Fund; such
shareholder  approval shall have been by the affirmative  vote required by the
Maryland  Law and its charter  documents  at a meeting for which  proxies have
been solicited by the Proxy Statement and Prospectus (as hereinafter defined).

      B.    Balanced  Fund shall  have  received  an  opinion  dated as of the
Closing Date from counsel to Disciplined  Allocation  Fund, to the effect that
(i)  Disciplined  Allocation  Fund is a corporation  duly  organized,  validly
existing  and in good  standing  under the laws of the State of Maryland  with
full corporate  powers to carry on its business as then being conducted and to
enter into and perform the  Agreement;  and (ii) that all action  necessary to
make the Agreement,  according to its terms, valid, binding and enforceable on
Disciplined  Allocation  Fund and to authorize  effectively  the  transactions
contemplated  by the  Agreement  have  been  taken by  Disciplined  Allocation
Fund.  Maryland counsel may be relied upon for this opinion.

C. The   representations   and  warranties  of  Disciplined   Allocation  Fund
contained  herein shall be true and correct at and as of the Closing Date, and
Balanced Fund shall have been  furnished  with a certificate of the President,
or a Vice  President,  or the  Secretary  or the  Assistant  Secretary  or the
Treasurer or the Assistant Treasurer of Disciplined  Allocation Fund, dated as
of the Closing Date, to that effect.

D. On the Closing Date,  Disciplined  Allocation  Fund shall have furnished to
Balanced  Fund a  certificate  of the  Treasurer  or  Assistant  Treasurer  of
Disciplined  Allocation  Fund as to the amount of the capital loss  carry-over
and net  unrealized  appreciation  or  depreciation,  if any,  with respect to
Disciplined Allocation Fund as of the Closing Date.

      E.    The cash  reserve  shall  not  exceed  10% of the value of the net
assets,  nor 30% in value of the gross assets, of Disciplined  Allocation Fund
at the close of business on the Valuation Date.

F. A  Registration  Statement  on Form N-14 filed by  Balanced  Fund under the
Securities Act of 1933, as amended (the "1933 Act"),  containing a preliminary
form of the Proxy Statement and Prospectus,  shall have become effective under
the 1933 Act.

      G.    On the Closing  Date,  Balanced  Fund shall have received a letter
from a senior  executive  officer  of  OppenheimerFunds,  Inc.  acceptable  to
Balanced Fund,  stating that nothing has come to his or her attention which in
his or her judgment  would indicate that as of the Closing Date there were any
material,  actual or contingent  liabilities  of Disciplined  Allocation  Fund
arising out of  litigation  brought  against  Disciplined  Allocation  Fund or
claims asserted  against it, or pending or to the best of his or her knowledge
threatened  claims or  litigation  not  reflected in or apparent from the most
recent  audited  financial  statements  and footnotes  thereto of  Disciplined
Allocation  Fund  delivered  to Balanced  Fund.  Such letter may also  include
such additional  statements  relating to the scope of the review  conducted by
such  person  and  his or her  responsibilities  and  liabilities  as are  not
unreasonable under the circumstances.

      H.    Balanced  Fund shall have  received  an  opinion,  dated as of the
Closing  Date,  of  Deloitte & Touche  LLP,  to the same effect as the opinion
contemplated by Section 11.E. of the Agreement.

I. Balanced  Fund  shall have  received  at the  Closing  all of the assets of
Disciplined  Allocation Fund to be conveyed  hereunder,  which assets shall be
free and clear of all liens,  encumbrances,  security interests,  restrictions
and limitations whatsoever.

  11. The  obligations  of  Disciplined  Allocation  Fund  hereunder  shall be
subject to the following conditions:

      A.    The Board of Trustees of Balanced Fund shall have  authorized  the
execution of the Agreement,  and the transactions  contemplated  thereby,  and
Balanced Fund shall have  furnished to Disciplined  Allocation  Fund copies of
resolutions  to  that  effect  certified  by the  Secretary  or the  Assistant
Secretary of Balanced Fund.

      B.    Disciplined  Allocation  Fund's  shareholders  shall have approved
the Agreement and the  transactions  contemplated  hereby,  by an  affirmative
vote required by the Maryland Law and its charter  documents  and  Disciplined
Allocation  Fund shall have  furnished  Balanced Fund copies of resolutions to
that  effect  certified  by  the  Secretary  or  an  Assistant   Secretary  of
Disciplined Allocation Fund.

      C.    Disciplined  Allocation  Fund shall have received an opinion dated
as of the Closing Date from counsel to Balanced  Fund,  to the effect that (i)
Balanced  Fund is a business  trust duly  organized,  validly  existing and in
good standing under the laws of the  Commonwealth of  Massachusetts  with full
powers to carry on its business as then being  conducted and to enter into and
perform the  Agreement;  (ii) all  actions  necessary  to make the  Agreement,
according to its terms, valid,  binding and enforceable upon Balanced Fund and
to authorize  effectively the transactions  contemplated by the Agreement have
been  taken by  Balanced  Fund,  and (iii) the shares of  Balanced  Fund to be
issued  hereunder are duly  authorized and when issued will be validly issued,
fully-paid  and  non-assessable,  except as set forth under  "Shareholder  and
Trustee  Liability" in Balanced  Fund's  Statement of Additional  Information.
Massachusetts counsel may be relied upon for this opinion.

      D.    The  representations  and  warranties of Balanced  Fund  contained
herein  shall  be  true  and  correct  at  and  as of the  Closing  Date,  and
Disciplined  Allocation  Fund shall have been  furnished with a certificate of
the President,  a Vice  President or the Secretary or the Assistant  Secretary
or the Treasurer or the Assistant  Treasurer of the Trust to that effect dated
as of the Closing Date.

      E.    Disciplined  Allocation  Fund  shall have  received  an opinion of
Deloitte & Touche LLP to the effect that the federal tax  consequences  of the
transaction,  if carried out in the manner  outlined in the  Agreement  and in
accordance with (i) Disciplined  Allocation Fund's  representation  that there
is no plan or intention by any  Disciplined  Allocation  Fund  shareholder who
owns 5% or more of Disciplined  Allocation Fund's outstanding  shares, and, to
Disciplined  Allocation  Fund's best knowledge,  there is no plan or intention
on the part of the remaining  Disciplined  Allocation  Fund  shareholders,  to
redeem,  sell,  exchange or  otherwise  dispose of a number of  Balanced  Fund
shares received in the transaction  that would reduce  Disciplined  Allocation
Fund  shareholders'  ownership  of Balanced  Fund shares to a number of shares
having a value,  as of the Closing  Date, of less than 50% of the value of all
of the formerly outstanding  Disciplined Allocation Fund shares as of the same
date, and (ii) the  representation by each of Disciplined  Allocation Fund and
Balanced Fund that, as of the Closing Date,  Disciplined  Allocation  Fund and
Balanced Fund will qualify as regulated  investment companies or will meet the
diversification  test of  Section  368(a)(2)(F)(ii)  of the  Code,  will be as
follows:

a. The  transactions  contemplated by the Agreement will qualify as a tax-free
"reorganization"  within the  meaning of Section  368(a)(1)  of the Code,  and
under the regulations promulgated thereunder.

b. Disciplined  Allocation  Fund and  Balanced  Fund  will each  qualify  as a
"party to a  reorganization"  within the meaning of Section  368(b)(2)  of the
Code.

c. No gain or loss  will be  recognized  by the  shareholders  of  Disciplined
Allocation  Fund upon the  distribution of Class A, Class B, Class C and Class
N shares of  beneficial  interest  in  Balanced  Fund to the  shareholders  of
Disciplined Allocation Fund pursuant to Section 354 of the Code.

d. Under  Section  361(a)  of the Code no gain or loss will be  recognized  by
Disciplined  Allocation  Fund by reason of the transfer of  substantially  all
its  assets in  exchange  for Class A,  Class B, Class C and Class N shares of
Balanced Fund.

e. Under  Section  1032 of the  Code no gain  or loss  will be  recognized  by
Balanced Fund by reason of the transfer of  substantially  all of  Disciplined
Allocation  Fund's  assets in exchange for Class A, Class B, Class C and Class
N  shares  of  Balanced  Fund  and  Balanced  Fund's   assumption  of  certain
liabilities of Disciplined Allocation Fund.

f. The  shareholders  of  Disciplined  Allocation  Fund will have the same tax
basis and holding  period for the Class A, Class B, Class C and Class N shares
of  beneficial  interest  in Balanced  Fund that they  receive as they had for
Disciplined  Allocation  Fund shares that they  previously  held,  pursuant to
Section 358(a) and 1223(1), respectively, of the Code.

g. The securities  transferred by Disciplined Allocation Fund to Balanced Fund
will have the same tax basis and holding  period in the hands of Balanced Fund
as they had for Disciplined  Allocation  Fund,  pursuant to Section 362(b) and
1223(1), respectively, of the Code.

      F.    The cash  reserve  shall  not  exceed  10% of the value of the net
assets,  nor 30% in value of the gross assets, of Disciplined  Allocation Fund
at the close of business on the Valuation Date.

      G.    A  Registration  Statement  on Form N-14  filed by  Balanced  Fund
under the 1933 Act,  containing a preliminary  form of the Proxy Statement and
Prospectus, shall have become effective under the 1933 Act.

      H.    On the  Closing  Date,  Disciplined  Allocation  Fund  shall  have
received a letter from a senior executive  officer of  OppenheimerFunds,  Inc.
acceptable to Disciplined  Allocation  Fund,  stating that nothing has come to
his or her attention  which in his or her judgment  would  indicate that as of
the Closing Date there were any material,  actual or contingent liabilities of
Balanced  Fund arising out of  litigation  brought  against  Balanced  Fund or
claims  asserted  against  it,  or  pending  or,  to  the  best  of his or her
knowledge,  threatened  claims or  litigation  not reflected in or apparent by
the  most  recent  audited  financial  statements  and  footnotes  thereto  of
Balanced Fund delivered to Disciplined  Allocation  Fund. Such letter may also
include  such  additional  statements  relating  to the  scope  of the  review
conducted by such person and his or her  responsibilities  and  liabilities as
are not unreasonable under the circumstances.

I. Disciplined  Allocation  Fund  shall  acknowledge  receipt  of the Class A,
Class B, Class C and Class N shares of Balanced Fund.

  12. Disciplined Allocation Fund hereby represents and warrants that:

A. The audited  financial  statements  of  Disciplined  Allocation  Fund as of
October 31, 2005  heretofore  furnished to Balanced  Fund,  present fairly the
financial  position,  results  of  operations,  and  changes  in net assets of
Disciplined  Allocation  Fund as of that date,  in conformity  with  generally
accepted  accounting  principles  applied  on  a  basis  consistent  with  the
preceding  year;  and that from October 31, 2005 through the date hereof there
have not been,  and through the Closing  Date there will not be, any  material
adverse  change  in  the  business  or  financial   condition  of  Disciplined
Allocation  Fund,  it being agreed that a decrease in the size of  Disciplined
Allocation  Fund due to a  diminution  in the  value of its  portfolio  and/or
redemption of its shares shall not be considered a material adverse change;

B. Contingent   upon   approval  of  the   Agreement   and  the   transactions
contemplated   thereby  by   Disciplined   Allocation   Fund's   shareholders,
Disciplined  Allocation  Fund has  authority  to transfer all of the assets of
Disciplined  Allocation  Fund to be conveyed  hereunder  free and clear of all
liens,   encumbrances,   security  interests,   restrictions  and  limitations
whatsoever;

C. The  Prospectus,  as amended and  supplemented,  contained  in  Disciplined
Allocation Fund's  Registration  Statement under the 1933 Act, as amended,  is
true,  correct and complete,  conforms to the requirements of the 1933 Act and
does not contain any untrue  statement  of a material  fact or omit to state a
material  fact  required  to be  stated  therein  or  necessary  to  make  the
statements  therein not misleading.  The Registration  Statement,  as amended,
was, as of the date of the filing of the last Post-Effective Amendment,  true,
correct and complete,  conformed to the  requirements  of the 1933 Act and did
not  contain  any  untrue  statement  of a  material  fact or omit to  state a
material  fact  required  to be  stated  therein  or  necessary  to  make  the
statements therein not misleading;

D. There is no material  contingent  liability of Disciplined  Allocation Fund
and  no  material  claim  and  no  material  legal,  administrative  or  other
proceedings  pending or, to the  knowledge  of  Disciplined  Allocation  Fund,
threatened  against  Disciplined   Allocation  Fund,  not  reflected  in  such
Prospectus;

E. Except for the Agreement,  there are no material  contracts  outstanding to
which Disciplined  Allocation Fund is a party other than those ordinary in the
conduct of its business;

F. Disciplined  Allocation  Fund  is  one  of two  investment  portfolios,  or
"series," of Oppenheimer Series Fund, Inc., an open-end management  investment
company organized as a Maryland  corporation duly organized,  validly existing
and in  good  standing  under  the  laws of the  State  of  Maryland;  has all
necessary  and  material  Federal and state  authorizations  to own all of its
assets  and to carry  on its  business  as now  being  conducted;  and is duly
registered  under  the Act and such  registration  has not been  rescinded  or
revoked and is in full force and effect;

G. All Federal and other tax  returns  and reports of  Disciplined  Allocation
Fund  required by law to be filed have been  filed,  and all federal and other
taxes shown due on said returns and reports have been paid or provision  shall
have been made for the  payment  thereof and to the best of the  knowledge  of
Disciplined  Allocation  Fund no such return is  currently  under audit and no
assessment has been asserted with respect to such returns; and

H. Disciplined  Allocation  Fund has  elected  that the Fund be  treated  as a
regulated  investment  company  and,  for each fiscal year of its  operations,
Disciplined  Allocation  Fund has met the  requirements of Subchapter M of the
Code for  qualification  and treatment as a regulated  investment  company and
Disciplined  Allocation Fund intends to meet such requirements with respect to
its current taxable year.

13. Balanced Fund hereby represents and warrants that:

A. The audited financial  statements of Balanced Fund as of September 30, 2005
heretofore  furnished  to  Disciplined  Allocation  Fund,  present  fairly the
financial  position,  results  of  operations,  and  changes  in net assets of
Balanced  Fund,  as of  that  date,  in  conformity  with  generally  accepted
accounting  principles  applied on a basis consistent with the preceding year;
and that from  September 30, 2005 through the date hereof there have not been,
and through the Closing Date there will not be, any material  adverse  changes
in the business or financial  condition of Balanced Fund, it being  understood
that a decrease in the size of Balanced  Fund due to a diminution in the value
of its  portfolio  and/or  redemption  of its shares shall not be considered a
material or adverse change;

B. The Prospectus,  as amended and supplemented,  contained in Balanced Fund's
Registration  Statement  under the 1933 Act, is true,  correct  and  complete,
conforms to the  requirements  of the 1933 Act and does not contain any untrue
statement of a material  fact or omit to state a material  fact required to be
stated  therein or necessary to make the  statements  therein not  misleading.
The Registration  Statement,  as amended, was, as of the date of the filing of
the last Post-Effective  Amendment,  true, correct and complete,  conformed to
the  requirements of the 1933 Act and did not contain any untrue  statement of
a  material  fact or omit to  state a  material  fact  required  to be  stated
therein or necessary to make the statements therein not misleading;

C. Except for this  Agreement,  there is no material  contingent  liability of
Balanced Fund and no material claim and no material legal,  administrative  or
other  proceedings  pending or, to the knowledge of Balanced Fund,  threatened
against Balanced Fund, not reflected in such Prospectus;

D. Except for this Agreement,  there are no material contracts  outstanding to
which  Balanced  Fund is a party  other than those  ordinary in the conduct of
its business;

E. Balanced Fund is a business trust duly organized,  validly  existing and in
good standing under the laws of the  Commonwealth of  Massachusetts;  Balanced
Fund has all necessary and material  Federal and state  authorizations  to own
all its  properties  and  assets  and to carry on its  business  as now  being
conducted;  the Class A, Class B, Class C and Class N shares of Balanced  Fund
which it issues to Disciplined  Allocation Fund pursuant to the Agreement will
be duly authorized,  validly issued, fully-paid and non-assessable,  except as
set  forth  under   "Shareholder  &  Trustee  Liability"  in  Balanced  Fund's
Statement of Additional  Information,  will conform to the description thereof
contained  in  Balanced  Fund's  Registration   Statement  and  will  be  duly
registered  under  the  1933  Act  and in the  states  where  registration  is
required;  and  Balanced  Fund  is duly  registered  under  the  Act and  such
registration  has not been  revoked  or  rescinded  and is in full  force  and
effect;

F. All federal and other tax returns and reports of Balanced  Fund required by
law to be filed have been filed,  and all federal and other taxes shown due on
said returns and reports have been paid or provision  shall have been made for
the payment  thereof and to the best of the  knowledge  of Balanced  Fund,  no
such return is currently  under audit and no assessment has been asserted with
respect to such  returns and to the extent such tax  returns  with  respect to
the  taxable  year of  Balanced  Fund ended  December  31,  2004 have not been
filed,  such returns  will be filed when  required and the amount of tax shown
as due thereon shall be paid when due;

      G.    Balanced Fund has elected to be treated as a regulated  investment
company  and,  for each  fiscal year of its  operations,  the Fund has met the
requirements of Subchapter M of the Code for  qualification and treatment as a
regulated   investment   company  and  Balanced  Fund  intends  to  meet  such
requirements with respect to its current taxable year;

      H.    Balanced  Fund has no plan or  intention  (i) to dispose of any of
the assets  transferred  by  Disciplined  Allocation  Fund,  other than in the
ordinary  course of business,  or (ii) to redeem or reacquire any of the Class
A,  Class B,  Class C and Class N shares  issued  by it in the  reorganization
other than pursuant to valid requests of shareholders; and

      I.    After  consummation  of  the  transactions   contemplated  by  the
Agreement,  Balanced  Fund intends to operate its business in a  substantially
unchanged manner.

  14. Each party hereby  represents  to the other that no broker or finder has
been  employed  by it  with  respect  to the  Agreement  or  the  transactions
contemplated  hereby.  Each party also  represents  and  warrants to the other
that the  information  concerning it in the Prospectus and Proxy Statement and
Prospectus will not as of its date contain any untrue  statement of a material
fact or omit to state a fact  necessary to make the  statements  concerning it
therein not  misleading and that the financial  statements  concerning it will
present the  information  shown fairly in accordance  with generally  accepted
accounting  principles  applied on a basis consistent with the preceding year.
Each party also  represents  and  warrants to the other that the  Agreement is
valid,  binding  and  enforceable  in  accordance  with its terms and that the
execution,  delivery and  performance  of the Agreement will not result in any
violation of, or be in conflict with,  any provision of any charter,  by-laws,
contract,  agreement,  judgment,  decree or order to which it is subject or to
which it is a party.  Balanced Fund hereby  represents  to and covenants  with
Disciplined  Allocation Fund that, if the  reorganization  becomes  effective,
Balanced Fund will treat each  shareholder of Disciplined  Allocation Fund who
received any of Balanced  Fund's shares as a result of the  reorganization  as
having made the minimum  initial  purchase of shares of Balanced Fund received
by such  shareholder  for the  purpose  of making  additional  investments  in
shares of  Balanced  Fund,  regardless  of the value of the shares of Balanced
Fund received.

  15. Balanced  Fund  agrees  that it will  prepare  and  file a  Registration
Statement  on Form N-14 under the 1933 Act which shall  contain a  preliminary
form of proxy  statement  and  prospectus  contemplated  by Rule 145 under the
1933 Act. The final form of such proxy  statement  and  prospectus is referred
to in the  Agreement  as the  "Proxy  Statement  and  Prospectus."  Each party
agrees that it will use its best efforts to have such  Registration  Statement
declared  effective  and to supply  such  information  concerning  itself  for
inclusion  in the  Proxy  Statement  and  Prospectus  as may be  necessary  or
desirable  in this  connection.  Disciplined  Allocation  Fund  covenants  and
agrees to  liquidate  under the laws of the State of Maryland,  following  the
Closing,  and,  upon Closing,  to cause the  cancellation  of its  outstanding
shares.

  16.  The  obligations of the parties shall be subject to the right of either
party to abandon and  terminate  the  Agreement for any reason and there shall
be no  liability  for damages or other  recourse  available  to a party not so
terminating this Agreement,  provided, however, that in the event that a party
shall  terminate  this  Agreement  without  reasonable  cause,  the  party  so
terminating  shall,  upon demand,  reimburse the party not so terminating  for
all expenses,  including reasonable  out-of-pocket  expenses and fees incurred
in connection with this Agreement.

  17. The  Agreement  may be executed in several  counterparts,  each of which
shall be deemed an  original,  but all taken  together  shall  constitute  one
Agreement.   The  rights  and  obligations  of  each  party  pursuant  to  the
Agreement shall not be assignable.

  18. All prior or contemporaneous  agreements and  representations are merged
into the Agreement,  which constitutes the entire contract between the parties
hereto.  No amendment or modification  hereof shall be of any force and effect
unless in writing  and signed by the  parties  and no party shall be deemed to
have waived any provision  herein for its benefit unless it executes a written
acknowledgment of such waiver.

  19. Balanced  Fund   understands   that  the   obligations   of  Disciplined
Allocation  Fund under the  Agreement  are not  binding  upon any  Director or
shareholder  of  Disciplined   Allocation  Fund  personally,   but  bind  only
Disciplined Allocation Fund and Disciplined Allocation Fund's property.

  20. Disciplined   Allocation  Fund   understands  that  the  obligations  of
Balanced  Fund  under the  Agreement  are not  binding  upon any  director  or
shareholder  of Balanced  Fund  personally,  but bind only  Balanced  Fund and
Balanced Fund's property.  Disciplined  Allocation Fund represents that it has
notice  of the  provisions  of the  Declaration  of  Trust  of  Balanced  Fund
disclaiming  shareholder  and trustee  liability  for acts or  obligations  of
Balanced Fund.

      IN WITNESS  WHEREOF,  each of the parties has caused the Agreement to be
executed and attested by its officers  thereunto  duly  authorized on the date
first set forth above.

                              OPPENHEIMER SERIES FUND, INC.,      on behalf
                                of its series OPPENHEIMER DISCIPLINED
                                ALLOCATION FUND


                              By:   /s/Robert G. Zack
                                    Robert G. Zack
                                    Secretary



                              OPPENHEIMER BALANCED FUND


                              By:   /s/Robert G. Zack
                                    Robert G. Zack
                                    Secretary










                                     B-1
                                                                     EXHIBIT B

                            PRINCIPAL SHAREHOLDERS

      Principal Shareholders of Disciplined Allocation Fund. As of January
31, 2006, the only persons who owned of record or were known by Disciplined
Allocation Fund to own beneficially 5% or more of any class of the
outstanding shares of Disciplined Allocation Fund were:

Citigroup Global Mkts Inc., Attn Cindy Tempesta, 7th Floor, 333 West 34th
Street, New York, NY 10001-2483, which owned 41,847.044 Class C shares or
6.86% of the Class C shares then outstanding.

MLPF&S for the sole benefit of its customers, Attn Fund Admn/#97J24, 4800
Deer Lake Drive E., Floor 3, Jacksonville, FL 32246-6484, which owned
37,410.232 Class C shares or 6.14% of the then outstanding shares.

MG Trust Cust, Herman Herman Katz & Cotlar PSP, 700 17th Street Suite 300,
Denver, CO 80202-3531, which owned 53,653.777 Class N shares or 43.47% of the
Class N shares then outstanding.

Pershing LLC, P.O. Box 2052, Jersey City, NJ 07303-9998, which owned
10,854.924 Class N shares or 8.79% of the Class N shares then outstanding.

Orchard Trust Co. LLC, FBO Oppen Recordkeeperpro, 8515 East Orchard Road,
Greenwood Village, CO 80111-5002, which owned 6,567.003 Class N shares or
5.32% of the Class N shares then outstanding.

      Principal Shareholders of Balanced Fund. As of January 31, 2006, the
only persons who owned of record or were known by Balanced Fund to own
beneficially 5% or more of any class of the outstanding shares of Balanced
Fund were:

Wilmington  Trust Co. TR,  Movado Group Inc.,  FBO WTC Movagrou  Exec DCP A/C,
1100 N. Market  Street,  Wilmington,  DE  19801-1243,  which owned  71,750.565
Class N shares or 7.95% of the Class N shares then outstanding.

RPSS TR, Woolsey Bros Farm Supply Inc.,  401(K) Plan, Attn Herb Woolsey,  P.O.
Box 363,  Vandalia,  IL 62471-0363,  which owned  48,231.664 Class N shares or
5.35% of the Class N shares then outstanding.

Orchard  Trust Co. LLC, FBO Oppen  Recordkeeperpro,  8515 East  Orchard  Road,
Greenwood  Village,  CO 80111-5002,  which owned  49,031.268 Class N shares or
5.43% of the then Class N shares outstanding.






 Appendix to Combined Prospectus and Proxy Statement of Oppenheimer Balanced
                                     Fund


      Graphic  material  included  under  the  heading  "How  have  the  Funds
performed?":

A bar chart will be included in the combined Prospectus and Proxy Statement, depicting
the annual total return of a hypothetical investment in Class A shares of
Balanced Fund for each of the ten most recent calendar years, without
deducting sales charges. Set forth below are the relevant data points that
will appear on the bar chart.


- --------------------------------------------------------------------------------
          Calendar Year Ended:                 Oppenheimer Balanced Fund
                                                  Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/96                                 17.23%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/97                                 17.77%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/98                                 7.05%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/99                                 10.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/00                                 6.57%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/01                                 1.68%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/02                                -10.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/03                                 23.91%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/04                                 9.67%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/05                                 3.59%
- --------------------------------------------------------------------------------


A bar chart will be included in the combined  Prospectus and Proxy  Statement,
depicting  the annual total  returns of a  hypothetical  investment in Class A
shares  of  Disciplined  Allocation  Fund for  each of the ten  most  calendar
years,  without deducting sales charges.  Set forth below is the relevant data
point that will appear on the bar chart.


- --------------------------------------------------------------------------------
          Calendar Year Ended:             Oppenheimer Disciplined Allocation
                                                          Fund
                                                  Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/96                                 9.59%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/97                                 17.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/98                                 10.85%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/99                                 -1.78%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/00                                 5.27%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/01                                 -5.96%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/02                                 -9.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/03                                 18.89%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/04                                 8.58%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                12/31/05                                 2.58%
- --------------------------------------------------------------------------------








                     STATEMENT OF ADDITIONAL INFORMATION
                      TO PROSPECTUS AND PROXY STATEMENT
                                      OF
                          OPPENHEIMER BALANCED FUND

                                    PART B

                         Acquisition of the Assets of
                   OPPENHEIMER DISCIPLINED ALLOCATION FUND

                       By and in exchange for Shares of
                          OPPENHEIMER BALANCED FUND


      This Statement of Additional Information to this Prospectus and Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer Disciplined Allocation Fund
("Disciplined Allocation Fund") for Class A, Class B, Class C and Class N
shares of Oppenheimer Balanced Fund ("Balanced Fund") (the "Reorganization").

      This SAI consists of this Cover Page and the following documents which
are incorporated into this SAI by reference: (i) the Statement of Additional
Information of Disciplined Allocation Fund dated February 28, 2005 revised
December 6, 2005; (ii) the Statement of Additional Information of Balanced
Fund dated January 27, 2006, which includes audited financial statements of
Balanced Fund for the 12-month period ended September 30, 2005; (iii) the
annual report of Disciplined Allocation Fund which includes audited financial
statements of Disciplined Allocation Fund for the 12-month period ended
October 31, 2005.

      This SAI also includes the pro forma financial statements for the
Surviving Balanced Fund for the 12-month period ended December 31, 2005.

      This SAI is not a Prospectus; you should read this SAI in conjunction
with the combined Prospectus and Proxy Statement dated March 1, 2006,
relating to the Reorganization. You can request a copy of the Prospectus and
Proxy Statement by calling 1.800.647.1963 or by writing OppenheimerFunds
Services at P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is
March 1, 2006.

                        PRO FORMA FINANCIAL STATEMENTS

      Shown below are unaudited pro forma financial statements for the
combined Balanced Fund, assuming the Reorganization had been consummated as
of December 31, 2005.  The first table presents pro forma Statements of
Assets and Liabilities for the combined Balanced Fund. The second table
presents pro forma Statements of Operations for the combined Balanced Fund.
The third table presents a pro forma Statement of Investments for the
combined Balanced Fund.

      The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of Disciplined
Allocation and Balanced Funds at December 31, 2005.  The unaudited pro forma
statement of operations reflects the results of operations of Disciplined
Allocation and Balanced Funds for the year ended December 31, 2005.  The
unaudited pro forma combined financial statements may not necessarily be
representative of what the actual combined financial statements would have
been had the Reorganization occurred at December 31, 2005.  The historical
cost of investment securities will be carried forward to the surviving entity
and results of operations of Disciplined Allocation Fund for pre-combination
periods will not be restated.  The unaudited pro forma statement of
investments, and statements of assets and liabilities and operations should
be read in conjunction with the historical financial statements of the Funds
incorporated by reference in the Statements of Additional Information for
each Fund.

PROFORMA COMBINED STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 2005 (UNAUDITED)
Oppenheimer Balanced Fund and Oppenheimer Disciplined Allocation Fund

                                            OPPENHEIMER  OPPENHEIMER                    OPPENHEIMER   OPPENHEIMER
                                            BALANCED     DISCIPLINED      COMBINED      BALANCED      DISCIPLINED       COMBINED
                                            FUND         ALLOCATION FUND  PROFORMA      FUND          ALLOCATION FUND   PROFORMA

                                            SHARES       SHARES           SHARES        VALUE         VALUE             VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--51.0%
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.2%
Corinthian Colleges, Inc.(1)                   182,505          29,000       211,505     $ 2,149,909     $   341,620     $ 2,491,529
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.3%
WCI Communities, Inc.(1)                        97,400          19,000       116,400       2,615,190         510,150       3,125,340
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA--5.5%
Liberty Global, Inc., Series A                 591,194         108,331       699,525      13,301,865       2,437,448      15,739,313
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Global, Inc., Series C(1)              591,194         108,331       699,525      12,533,313       2,296,617      14,829,930
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., Cl. A(1)                2,290,700         407,700     2,698,400      18,027,809       3,208,599      21,236,408
- ------------------------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B                            195,900               0       195,900       6,386,340               0       6,386,340
                                                                                         -------------------------------------------
                                                                                          50,249,327       7,942,664      58,191,991
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc. (The)                                118,800               0       118,800       2,095,632               0       2,095,632
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.9%
Constellation Brands, Inc., Cl. A(1)           329,100          39,400       368,500       8,632,293       1,033,462       9,665,755
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Tyson Foods, Inc., Cl. A                       328,900               0       328,900       5,624,190               0       5,624,190
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.1%
Wal-Mart Stores, Inc.                                0          20,200        20,200               0         945,360         945,360
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.4%
Altria Group, Inc.                             293,100          44,500       337,600      21,900,432       3,325,040      25,225,472
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY--4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.8%
Halliburton Co.                                103,300          22,200       125,500       6,400,468       1,375,512       7,775,980
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS--3.9%
BP plc, ADR                                     70,900          43,200       114,100       4,553,198       2,774,304       7,327,502
- ------------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc.                             24,700           4,300        29,000       2,271,165         395,385       2,666,550
- ------------------------------------------------------------------------------------------------------------------------------------
LUKOIL, Sponsored ADR                          126,100          19,700       145,800       7,439,900       1,162,300       8,602,200
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference             448,000               0       448,000       7,129,145               0       7,129,145
- ------------------------------------------------------------------------------------------------------------------------------------
Talisman Energy, Inc.                          200,400               0       200,400      10,619,502               0      10,619,502
- ------------------------------------------------------------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR                  37,500               0        37,500       4,740,000               0       4,740,000
                                                                                         -------------------------------------------
                                                                                          36,752,910       4,331,989      41,084,899


- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.7%
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--1.5%
UBS AG                                         142,731          23,158       165,889      13,588,256       2,204,685      15,792,941
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.9%
Bank of America Corp.                          100,652          17,502       118,154       4,645,090         807,717       5,452,807
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Corp.                                  89,274          16,088       105,362       4,719,024         850,412       5,569,436
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co.                              123,400          20,900       144,300       7,753,222       1,313,147       9,066,369
                                                                                         -------------------------------------------
                                                                                          17,117,336       2,971,276      20,088,612
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.8%
Capital One Financial Corp.                     96,400          17,200       113,600       8,328,960       1,486,080       9,815,040
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.                                137,700          23,277       160,977       6,682,581       1,129,633       7,812,214
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co.                           251,900          35,000       286,900       9,997,911       1,389,150      11,387,061
                                                                                         -------------------------------------------
                                                                                          25,009,452       4,004,863      29,014,315
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.3%
American International Group, Inc.              44,100           7,700        51,800       3,008,943         525,371       3,534,314
- ------------------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd.                           51,500           9,000        60,500       5,168,025         903,150       6,071,175
- ------------------------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A                268,300          38,400       306,700       9,277,814       1,327,872      10,605,686
- ------------------------------------------------------------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd.            102,500          16,400       118,900       3,184,675         509,548       3,694,223
                                                                                         -------------------------------------------
                                                                                          20,639,457       3,265,941      23,905,398
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE--0.4%
Host Marriott Corp.                            205,100               0       205,100       3,886,645               0       3,886,645
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.8%
Countrywide Financial Corp.                    101,100          15,600       116,700       3,456,609         533,364       3,989,973
- ------------------------------------------------------------------------------------------------------------------------------------
Freddie Mac                                     53,000           9,200        62,200       3,463,550         601,220       4,064,770
                                                                                         -------------------------------------------
                                                                                           6,920,159       1,134,584       8,054,743
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--6.4%
- ------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.3%
MedImmune, Inc.(1)                             124,300          17,400       141,700       4,352,986         609,348       4,962,334
- ------------------------------------------------------------------------------------------------------------------------------------
Wyeth                                          155,900          27,500       183,400       7,182,313       1,266,925       8,449,238
                                                                                         -------------------------------------------
                                                                                          11,535,299       1,876,273      13,411,572
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Beckman Coulter, Inc.                           88,400               0        88,400       5,029,960               0       5,029,960
- ------------------------------------------------------------------------------------------------------------------------------------
Boston Scientific Corp.(1)                           0          24,600        24,600               0         602,454         602,454
- ------------------------------------------------------------------------------------------------------------------------------------
Cooper Cos., Inc. (The)                         37,300           6,500        43,800       1,913,490         333,450       2,246,940
                                                                                         -------------------------------------------
                                                                                           6,943,450         935,904       7,879,354
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.5%
Manor Care, Inc.                                69,500          12,200        81,700       2,764,015         485,194       3,249,209
- ------------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(1)                      280,900          45,900       326,800       2,151,694         351,594       2,503,288
                                                                                         -------------------------------------------
                                                                                           4,915,709         836,788       5,752,497
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.8%
GlaxoSmithKline plc, ADR                       118,500          20,500       139,000       5,981,880       1,034,840       7,016,720
- ------------------------------------------------------------------------------------------------------------------------------------



Pfizer, Inc.                                   394,140          52,600       446,740       9,191,345       1,226,632      10,417,977
- ------------------------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR                         198,100          34,700       232,800       8,696,590       1,523,330      10,219,920
- ------------------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp.(2)                       245,800          48,700       294,500       5,124,930       1,015,395       6,140,325
- ------------------------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(1)                168,300          29,900       198,200       5,471,433         972,049       6,443,482
                                                                                         -------------------------------------------
                                                                                          34,466,178       5,772,246      40,238,424
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--5.4%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.5%
Empresa Brasileira de Aeronautica
SA, ADR                                        142,100               0       142,100       5,556,110               0       5,556,110
- ------------------------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc.                  247,800          34,800       282,600       9,230,550       1,296,300      10,526,850
- ------------------------------------------------------------------------------------------------------------------------------------
Orbital Sciences Corp.(1)                      957,717         131,300     1,089,017      12,297,086       1,685,892      13,982,978
- ------------------------------------------------------------------------------------------------------------------------------------
United Technologies Corp.                       94,800          15,200       110,000       5,300,268         849,832       6,150,100
                                                                                         -------------------------------------------
                                                                                          32,384,014       3,832,024      36,216,038
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.7%
Cendant Corp.                                  916,400         130,900     1,047,300      15,807,900       2,258,025      18,065,925
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
GrafTech International Ltd.(1)                 230,900          41,100       272,000       1,436,198         255,642       1,691,840
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--11.1%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.0%
Cisco Systems, Inc.(1)                         536,600          46,200       582,800       9,186,592         790,944       9,977,536
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.6%
Hutchinson Technology, Inc.(1)                 136,800          21,400       158,200       3,891,960         608,830       4,500,790
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machines Corp.          152,700               0       152,700      12,551,940               0      12,551,940
                                                                                         -------------------------------------------
                                                                                          16,443,900         608,830      17,052,730
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--0.5%
Flextronics International Ltd.(1)              485,300          48,600       533,900       5,066,532         507,384       5,573,916
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.4%
ATI Technologies, Inc.(1,3)                    333,300          52,500       385,800       5,662,767         891,975       6,554,742
- ------------------------------------------------------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. A(1)        294,700          44,200       338,900       7,423,493       1,113,398       8,536,891
                                                                                         -------------------------------------------
                                                                                          13,086,260       2,005,373      15,091,633
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE--6.6%
Compuware Corp.(1)                             272,929          48,000       320,929       2,448,173         430,560       2,878,733
- ------------------------------------------------------------------------------------------------------------------------------------
Microsoft Corp.                                744,800         123,000       867,800      19,476,520       3,216,450      22,692,970
- ------------------------------------------------------------------------------------------------------------------------------------
Novell, Inc.(1)                                837,000         129,200       966,200       7,390,710       1,140,836       8,531,546
- ------------------------------------------------------------------------------------------------------------------------------------
Synopsys, Inc.(1)                              285,300          48,200       333,500       5,723,118         966,892       6,690,010
- ------------------------------------------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc.(1)       1,370,500         215,450     1,585,950      24,257,850       3,813,465      28,071,315
                                                                                         -------------------------------------------
                                                                                          59,296,371       9,568,203      68,864,574
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS--1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5%
Praxair, Inc.                                   85,800          16,400       102,200       4,543,968         868,544       5,412,512
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.6%
Companhia Vale do Rio Doce, Sponsored
ADR                                            162,900               0       162,900       5,905,125               0       5,905,125
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--0.9%



IDT Corp., Cl. B(1)                            696,200         153,700       849,900       8,145,540       1,798,290       9,943,830
- ------------------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group(1,4)             450,000               0       450,000               0               0               0
                                                                                           -----------------------------------------
                                                                                           8,145,540       1,798,290       9,943,830
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.5%
AES Corp. (The)(1)                             554,200         121,500       675,700       8,772,986       1,923,345      10,696,331
- ------------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc.(1)                        453,900          66,900       520,800       4,684,248         690,408       5,374,656
                                                                                         -------------------------------------------
                                                                                          13,457,234       2,613,753      16,070,987
                                                                                         -------------------------------------------
Total Common Stocks (Cost $347,642,276,
Cost $58,596,257, Combined Cost $12,358,533)                                             466,201,926      67,915,369     534,117,295

- ------------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts., Exp.
12/10/07 (Cost $0)                              11,758               0        11,758           6,643               0           6,643

- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--5.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Ace Securities Corp., Home Equity Loan
Pass-Through Certificates,
Series 2002-HE7, Cl. A2B, 4.559%,
11/25/35(5)                                    780,000         110,000       890,000         780,482         110,068         890,550
- ------------------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile
Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 4.43%, 4/20/08(5)      550,000          80,000       630,000         550,392          80,057         630,449
- ------------------------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan
Certificates, Series 2005-A, Cl. A2,
3.66%, 12/26/07                              1,666,853         221,737     1,888,590       1,661,738         221,057       1,882,795
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust,
Automobile Mtg.-Backed Nts.:
Series 2004-2, Cl. A3, 3.58%, 1/15/09        1,870,000         270,000     2,140,000       1,835,704         265,048       2,100,752
Series 2005-1, Cl. A2B, 3.73%, 7/16/07         677,025          98,891       775,916         676,151          98,764         774,915
- ------------------------------------------------------------------------------------------------------------------------------------
Capital One Prime Auto Receivables Trust,
Automobile Loan Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.24%, 11/15/07       2,090,000         310,000     2,400,000       2,085,320         309,306       2,394,626
- ------------------------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity
Loan Asset-Backed
Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20         138,501          20,006       158,507         138,111          19,949         158,060
Series 2005-B, Cl. AF1, 4.02%, 3/26/35         339,915          44,989       384,904         338,165          44,757         382,922
Series 2005-C, Cl. AF1, 4.196%, 6/25/35        871,421         126,389       997,810         866,825         125,723         992,548
Series 2005-D, Cl. AF1, 5.04%, 10/25/35      1,695,734         243,536     1,939,270       1,691,262         242,894       1,934,156
Series 2005-D, Cl. AV2, 4.649%,
10/25/35(5)                                  1,530,000         220,000     1,750,000       1,530,945         220,136       1,751,081
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through Certificates,
Series 2005-A, Cl. A2, 3.72%, 12/15/07       1,530,000         230,000     1,760,000       1,523,434         229,013       1,752,447
- ------------------------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment
Receivable-Backed Nts., Series 2004-DFS,
Cl. A2, 2.66%, 11/20/06                        654,173          93,453       747,626         652,305          93,186         745,491
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit
Card Receivable Nts., Series 2003-C4,
Cl. C4, 5%, 6/10/15                            270,000          40,000       310,000         265,036          39,265         304,301
- ------------------------------------------------------------------------------------------------------------------------------------



Citigroup Mortgage Loan Trust, Inc., CMO,
Series 2005-WF2, Cl.
AF2, 4.922%, 8/25/35(5)                      2,097,153         310,014     2,407,167       2,090,571         309,041       2,399,612
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Credit Reference Index Securities
Program, Credit Card Asset-Backed
Certificates, Series 2002-B, Cl. FX,
10.421%, 3/22/07(6)                          1,720,000         250,000     1,970,000       1,718,497         249,782       1,968,279
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates,
Inc., Home Equity Asset-Backed Certificates:
Series 2002-4, Cl. A1, 4.749%, 2/25/33(5)       27,360           4,125        31,485          27,414           4,333          31,747
Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36(5)   550,000          80,000       630,000         550,000          80,000         630,000
Series 2005-17, Cl. 1AF1, 4.58%,
12/27/35(5)                                  1,150,000         170,000     1,320,000       1,149,963         169,995       1,319,958
Series 2005-17, Cl. 1AF2, 5.363%,
12/27/35(5)                                    370,000          50,000       420,000         370,091          50,012         420,103
Series 2005-7, Cl. AF1B, 4.317%,
11/25/35(5)                                  1,070,389         157,410     1,227,799       1,064,810         156,590       1,221,400
- ------------------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile
Loan Pass-Through Certificates:
Series 2004-B, Cl. A2, 2.48%, 2/8/07            36,664           2,444        39,108          36,669           2,445          39,114
Series 2004-C, Cl. A2, 2.62%, 6/8/07           846,625         127,666       974,291         844,535         127,351         971,886
Series 2005-A, Cl. A2, 3.17%, 9/8/07         1,286,022         179,706     1,465,728       1,282,236         179,177       1,461,413
Series 2005-B, Cl. A2, 3.75%, 12/8/07                0         184,096       184,096               0         183,666         183,666
- ------------------------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity
Asset-Backed Security, Series 2004-3, Cl.
AF2, 3.80%, 7/25/34(5)                       1,610,000         230,000     1,840,000       1,603,612         229,088       1,832,700
- ------------------------------------------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Asset-Backed
Certificates, Home Equity Receivables,
Series 2005-FF10, Cl. A3, 4.589%,
11/25/35(5)                                  2,270,000         330,000     2,600,000       2,271,402         330,204       2,601,606
- ------------------------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile
Loan Pass-Through Certificates:
Series 2005-A, Cl. A3, 3.48%, 11/17/08       1,370,000         190,000     1,560,000       1,353,538         187,717       1,541,255
Series 2005-B, Cl. A2, 3.78%, 9/15/07          957,896         134,105     1,092,001         955,902         133,826       1,089,728
- ------------------------------------------------------------------------------------------------------------------------------------
GS Auto Loan Trust, Automobile Loan
Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.32%, 5/15/08        4,010,000         590,000     4,600,000       3,999,465         588,450       4,587,915
- ------------------------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust,
Automobile Receivable
Obligations:
Series 2005-1, Cl. A2, 3.21%, 5/21/07          569,442          79,599       649,041         567,886          79,382         647,268
Series 2005-3, Cl. A2, 3.73%, 10/18/07       1,420,000         210,000     1,630,000       1,413,216         208,997       1,622,213
- ------------------------------------------------------------------------------------------------------------------------------------
Household Home Equity Loan Trust, Home
Equity Loan Pass- Through Certificates,
Series 2005-3, Cl. A1, 4.63%, 1/20/35(5)     1,126,447         163,516     1,289,963       1,127,251         163,633       1,290,884
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman XS Trust, Home Equity Mtg.
Pass-Through Certificates,
Series 2005-2, Cl. 2A1B, 3.63%, 8/25/35(5)   1,775,305         263,582     2,038,887       1,777,812         263,955       2,041,767
- ------------------------------------------------------------------------------------------------------------------------------------
Litigation Settlement Monetized Fee Trust,
Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31(4)            0         596,634       596,634               0         606,419         606,419
- ------------------------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit
Card Receivables,
Series 2003-C7, Cl. C7, 5.719%, 3/15/16(5)   2,540,000         360,000     2,900,000       2,694,057         381,835       3,075,892
- ------------------------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease
Obligations, Series
2004-A, Cl. A2, 2.55%, 1/15/07                 117,010          16,849       133,859         116,980          16,845         133,825
- ------------------------------------------------------------------------------------------------------------------------------------


Onyx Acceptance Owner Trust, Automobile
Receivable Obligations,
Series 2005-B, Cl. A2, 4.03%, 4/15/08        1,170,000          170,000    1,340,000       1,166,404         169,477       1,335,881
- ------------------------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust,
Home Equity Pass-Through Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34(5)   500,000           70,000      570,000         494,016          69,162         563,178
Series 2005-1, Cl. A F2, 3.914%, 5/25/35(5)    390,000           60,000      450,000         384,629          59,174         443,803
Series 2005-2, Cl. A F2, 4.415%, 4/25/35(5)    630,000           90,000      720,000         623,828          89,118         712,946
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc.,
Home Equity Asset-Backed Pass-Through
Certificates, Series
2004-RS7, Cl. AI3, 4.45%, 7/25/28            1,130,000         170,000     1,300,000       1,124,322         169,146       1,293,468
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., CMO
Pass-Through Certificates,
Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35     2,401,697         324,196     2,725,893       2,402,603         324,318       2,726,921
- ------------------------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan
Asset-Backed Nts.:
Series 2004-2, Cl. A2, 2.41%, 2/15/07           37,292           5,119        42,411          37,280           5,117          42,397
Series 2004-3, Cl. A2, 2.79%, 6/15/07          386,411          58,449       444,860         385,795          58,356         444,151
- ------------------------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile
Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07          377,103          53,181       430,284         376,479          53,093         429,572
Series 2005-A, Cl. A2, 3.52%, 4/20/07        1,484,067         212,010     1,696,077       1,479,517         211,360       1,690,877
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile
Receivable Nts., Series
2004-B, Cl. A2, 2.40%, 5/21/07                 177,962          25,652       203,614         177,714          25,616         203,330
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Home Equity
Asset-Backed Certificates,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18(5)     735,337         103,777       839,114         730,150         103,046         833,196
- ------------------------------------------------------------------------------------------------------------------------------------
WFS Financial Owner Trust, Automobile
Receivable Obligations,
Series 2002-2, Cl. A4, 4.50%, 2/20/10          345,678          46,090       391,768         345,850          46,113         391,963
- ------------------------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan
Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07         628,951          91,556       720,507         626,633          91,219         717,852
                                                                                          ------------------------------------------
Total Asset-Backed Securities
(Cost $52,194,243, Cost $8,299,229,
Combined Cost $60,493,472)                                                                51,966,997       8,276,081      60,243,078

- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--29.8%
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--24.8%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--24.6%
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19                                4,780,723         413,604     5,194,327       4,659,869         403,148       5,063,017
5%, 1/1/36(7)                                5,010,000         601,000     5,611,000       4,850,306         581,843       5,432,149
6%, 9/1/24                                   1,042,916               0     1,042,916       1,060,298               0       1,060,298
6%, 4/1/17-7/1/24                                    0         840,199       840,199               0         856,592         856,592
6.50%, 4/1/18-4/1/34                         2,123,623         296,475     2,420,098       2,184,457         304,964       2,489,421
7%, 5/1/29                                     420,542               0       420,542         438,428               0         438,428
7%, 6/1/29                                           0         415,143       415,143               0         432,800         432,800


7%, 5/1/29-11/1/32                           2,559,977         376,307     2,936,284       2,667,658         392,137       3,059,795
8%, 4/1/16                                           0          84,436        84,436               0          89,971          89,971
9%, 8/1/22-5/1/25                                    0          23,289        23,289               0          25,237          25,237
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO
Gtd. Real Estate Mtg.Investment
Conduit Multiclass Pass-Through
Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23              10,794           1,542        12,336          10,782           1,540          12,322
Series 2034, Cl. Z, 6.50%, 2/15/28             505,209          68,272       573,481         521,874          70,524         592,398
Series 2053, Cl. Z, 6.50%, 4/15/28             550,628          76,103       626,731         567,384          78,419         645,803
Series 2055, Cl. ZM, 6.50%, 5/15/28            709,094         106,364       815,458         727,853         109,178         837,031
Series 2075, Cl. D, 6.50%, 8/15/28           1,668,566         209,642     1,878,208       1,719,017         215,981       1,934,998
Series 2080, Cl. Z, 6.50%, 8/15/28             449,028          65,483       514,511         460,259          67,121         527,380
Series 2387, Cl. PD, 6%, 4/15/30               521,787          76,395       598,182         526,748          77,121         603,869
Series 2456, Cl. BD, 6%, 3/15/30               182,904          26,129       209,033         183,281          26,183         209,464
Series 2500, Cl. FD, 4.869%, 3/15/32(5)        235,312          34,045       269,357         237,901          34,420         272,321
Series 2526, Cl. FE, 4.769%, 6/15/29(5)        310,235          43,961       354,196         312,471          44,277         356,748
Series 2551, Cl. FD, 4.769%, 1/15/33(5)        241,402          34,298       275,700         243,655          34,618         278,273
Series 2583, Cl. KA, 5.50%, 3/15/22          1,254,138         177,215     1,431,353       1,256,532         177,553       1,434,085
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO
Pass-Through Participation
Certificates, Series 151,
Cl. F, 9%, 5/15/21                              50,585               0        50,585          50,508               0          50,508
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Interest-Only Stripped Mtg.-
Backed Security:
Series 176, Cl. IO, 6/1/26(8)                  433,238          62,920       496,158          92,219          13,393         105,612
Series 183, Cl. IO, 4/1/27(8)                  680,719          97,622       778,341         141,611          20,308         161,919
Series 184, Cl. IO, 12/1/26(8)                 737,101         105,372       842,473         145,756          20,837         166,593
Series 192, Cl. IO, 2/1/28(8)                  206,117          30,715       236,832          42,132           6,279          48,411
Series 200, Cl. IO, 1/1/29(8)                  244,889          36,410       281,299          53,237           7,915          61,152
Series 2003-118, Cl. S, 12/25/33(8)          3,525,963         511,445     4,037,408         385,180          55,871         441,051
Series 2130, Cl. SC, 3/15/29(8)                558,307          84,462       642,769          41,632           6,298          47,930
Series 2796, Cl. SD, 7/15/26(8)                828,676         110,529       939,205          64,313           8,578          72,891
Series 2920, Cl. S, 1/15/35(8)               4,870,804         688,106     5,558,910         235,458          33,263         268,721
Series 3000, Cl. SE, 7/15/25(8)              4,510,205         666,879     5,177,084         164,831          24,372         189,203
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-
Backed Security, Series 176, Cl. PO,
6/1/26(9)                                      175,656          35,131       210,787         148,178          29,636         177,814
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
5%, 6/1/18-7/1/18                            4,646,677         657,311     5,303,988       4,605,093         651,429       5,256,522
5%, 1/1/36(7)                               24,834,000       3,774,000    28,608,000      24,065,686       3,657,240      27,722,926
5.50%, 1/1/21(7)                            17,227,000       2,699,000    19,926,000      17,334,669       2,715,869      20,050,538
5.50%, 2/1/33                                        0         261,861       261,861               0         260,023         260,023
5.50%, 3/1/33-4/1/33                         3,742,761         506,867     4,249,628       3,716,483         503,308       4,219,791
5.50%, 4/1/33                                  959,581               0       959,581         952,844               0         952,844
5.50%, 7/1/33                                1,372,120               0     1,372,120       1,362,486               0       1,362,486
5.50%, 5/1/33-1/1/34                        25,072,975       3,457,848    28,530,823      24,896,936       3,433,569      28,330,505


5.50%, 12/1/33                                       0          53,644        53,644               0          53,267          53,267
5.50%, 1/1/34-11/1/34                                0         479,929       479,929               0         476,179         476,179
5.50%, 1/1/36(7)                            53,775,000       7,090,000    60,865,000      53,254,028       7,021,312      60,275,340
6%, 5/1/16-9/1/32                            8,048,653               0     8,048,653       8,165,643               0       8,165,643
6%, 7/1/16-11/1/32                          11,053,504       1,241,140    12,294,644      11,286,404       1,266,780      12,553,184
6%, 11/1/17-10/1/19                                  0         464,806       464,806               0         475,267         475,267
6%, 2/1/21(7)                                1,500,000               0     1,500,000       1,531,407               0       1,531,407
6%, 1/1/36(7)                                7,057,000       2,008,000     9,065,000       7,123,159       2,026,825       9,149,984
6.50%, 3/1/36                                        0          43,060        43,060               0          44,384          44,384
6.50%, 12/1/27-11/1/31                       2,979,838               0     2,979,838       3,071,471               0       3,071,471
6.50%, 10/1/30                                 290,325          42,889       333,214         299,160          44,194         343,354
6.50%, 1/1/36(7)                            15,167,000       2,702,000    17,869,000      15,560,402       2,772,084      18,332,486
7%, 11/1/17                                  1,649,721         227,819     1,877,540       1,715,310         236,876       1,952,186
7%, 2/25/22                                          0         150,587       150,587               0         153,834         153,834
7.50%, 1/1/08-6/1/08                                 0          19,140        19,140               0          19,583          19,583
7.50%, 8/1/29                                  645,719          73,239       718,958         677,870          76,886         754,756
8.50%, 7/1/32                                   45,728           7,415        53,143          49,515           8,030          57,545
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.
Grantor, Trust, CMO, Trust 2002-
T1, Cl. A2, 7%, 11/25/31                     1,612,983         232,205     1,845,188       1,669,975         240,409       1,910,384
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO
Gtd. Real Estate Mtg.Investment
Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23         1,319,239         179,996     1,499,235       1,361,554         185,769       1,547,323
Trust 1996-35, Cl. Z, 7%, 7/25/26                    0         272,403       272,403               0         283,322         283,322
Trust 1998-63, Cl. PG, 6%, 3/25/27              37,898           5,646        43,544          37,808           5,632          43,440
Trust 2001-50, Cl. NE, 6%, 8/25/30             284,351          42,388       326,739         286,019          42,636         328,655
Trust 2001-51, Cl. OD, 6.50%, 10/25/31       1,806,060         262,583     2,068,643       1,860,146         270,447       2,130,593
Trust 2001-70, Cl. LR, 6%, 9/25/30             334,768          48,554       383,322         337,978          49,020         386,998
Trust 2001-72, Cl. NH, 6%, 4/25/30             199,753          29,870       229,623         201,302          30,101         231,403
Trust 2001-74, Cl. PD, 6%, 5/25/30              80,868          11,284        92,152          81,072          11,312          92,384
Trust 2002-77, Cl. WF, 4.77%, 12/18/32(5)      374,214          52,966       427,180         377,075          53,371         430,446
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23          630,000               0       630,000         634,782               0         634,782
Trust 2003-28, Cl. KG, 5.50%, 4/25/23        1,045,000               0     1,045,000       1,067,831               0       1,067,831
Trust 2004-101, Cl. BG, 5%, 1/25/20          1,633,000         236,000     1,869,000       1,611,598         232,907       1,844,505
Trust 2005-71, Cl. DB, 4.50%, 8/25/25                0         160,000       160,000               0         150,280         150,280
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO
Gtd. Real Estate Mtg.Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed
Security
Trust 1993-223, Cl. PM, 6.50%, 10/25/23(8)           0          58,737        58,737               0           5,956           5,956
Trust 2002-38, Cl. SO, 2.806%, 4/25/32(8)      878,236          81,762       959,998          51,298           4,776          56,074
Trust 2002-47, Cl. NS, 3.806%, 4/25/32(8)      920,863         132,023     1,052,886          74,255          10,646          84,901
Trust 2002-51, Cl. S, 3.806%, 8/25/32(8)       845,498         121,287       966,785          68,486           9,824          78,310
Trust 2002-77, Cl. IS, 3.96%, 12/18/32(8)    1,496,254         139,299     1,635,553         125,814          11,713         137,527
- ------------------------------------------------------------------------------------------------------------------------------------


- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-
Backed Security:
Trust 2001-65, Cl. S, 3.706%, 11/25/31(8)    2,060,650         302,474     2,363,124         190,709          27,993         218,702
Trust 2001-81, Cl. S, 3.756%, 1/25/32(8)       471,506          66,698       538,204          41,054           5,807          46,861
Trust 2002-52, Cl. SD, 3.806%, 9/25/32(8)    1,034,124         148,347     1,182,471          85,113          12,210          97,323
Trust 2002-77, Cl. SH, 3.96%, 12/18/32(8)      613,851          87,336       701,187          57,821           8,227          66,048
Trust 2002-9, Cl. MS, 3.906%, 3/25/32(8)       631,954          93,691       725,645          55,246           8,191          63,437
Trust 2002-96, Cl. SK, 3.806%, 4/25/32(8)    5,339,626         786,683     6,126,309         458,868          67,605         526,473
Trust 2003-4, Cl. S, 4.056%, 2/25/33(8)      1,132,019         167,458     1,299,477         120,178          17,778         137,956
Trust 2004-54, Cl. DS, 2.906%, 11/25/30(8)     930,491         124,863     1,055,354          53,571           7,189          60,760
Trust 2005-19, Cl. SA, 2.556%, 3/25/35(8)   13,056,238       1,840,753    14,896,991         726,880         102,480         829,360
Trust 2005-40, Cl. SA, 2.506%, 5/25/35(8)    2,885,085         396,403     3,281,488         153,724          21,121         174,845
Trust 2005-6, Cl. SE, 2.506%, 2/25/35(8)     3,309,749         464,773     3,774,522         172,195          24,181         196,376
Trust 2005-71, Cl. SA, 2.556%, 8/25/25(8)    2,892,185         421,960     3,314,145         172,831          25,216         198,047
Trust 214, Cl. 2, 7.50%, 3/1/23(8)           1,352,626               0     1,352,626         312,597               0         312,597
Trust 222, Cl. 2, 7%, 6/1/23(8)              1,516,880         218,096     1,734,976         359,853          51,740         411,593
Trust 240, Cl. 2, 7%, 9/1/23(8)              2,330,050         341,888     2,671,938         485,219          71,196         556,415
Trust 247, Cl. 2, 7.50%, 10/1/23(8)                  0         365,475       365,475               0          81,509          81,509
Trust 252, Cl. 2, 7.50%, 11/1/23(8)          1,121,979         161,929     1,283,908         247,758          35,758         283,516
Trust 273, Cl. 2, 7%, 8/1/26(8)                324,393          47,128       371,521          66,955           9,727          76,682
Trust 319, Cl. 2, 6.50%, 2/1/32(8)             453,497          66,664       520,161         102,822          15,115         117,937
Trust 321, Cl. 2, 6.50%, 3/1/32(8)           4,704,270         657,034     5,361,304       1,061,722         148,288       1,210,010
Trust 329, Cl. 2, 5.50%, 1/1/33(8)           1,167,197         109,088     1,276,285         258,678          24,176         282,854
Trust 331, Cl. 9, 6.50%, 2/1/33(8)                   0         181,681       181,681               0          41,222          41,222
Trust 333, Cl. 2, 5.50%, 3/1/33(8)          13,772,744       1,656,094    15,428,838       3,086,231         371,102       3,457,333
Trust 334, Cl. 17, 6.50%, 2/1/33(8)            771,279         108,969       880,248         170,907          24,146         195,053
Trust 338, Cl. 2, 5.50%, 6/1/33(8)           5,393,055         894,982     6,288,037       1,205,204         200,005       1,405,209
Trust 350, Cl. 2, 5.50%, 2/1/34(8)           5,010,115         735,650     5,745,765       1,111,082         163,143       1,274,225
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-
Backed Security, Trust 1993-184, Cl.
M, %, 9/25/23(9)                               516,511               0       516,511         433,563               0         433,563
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-
Backed Security, Trust 1993-184, Cl.
M, %, 9/25/23(9)                                     0          71,275        71,275               0          59,829          59,829

                                                                                         224,900,168      33,370,391     258,270,559
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage Assn.:
4.375%, 3/20/26(5)                              35,589               0        35,589          35,910               0          35,910
7%, 4/15/26                                    225,806               0       225,806         237,776               0         237,776
7%, 4/15/09-2/15/24                                  0         118,240       118,240               0         123,510         123,510
7.50%, 5/15/27                               1,232,551               0     1,232,551       1,298,868               0       1,298,868
7.50%, 3/15/09                                       0          69,557        69,557               0          72,229          72,229
8%, 5/15/17                                          0          47,926        47,926               0          51,304          51,304
8.50%, 8/15/17-12/15/17                              0          30,423        30,423               0          32,831          32,831
- ------------------------------------------------------------------------------------------------------------------------------------


Government National Mortgage Assn.,
Interest-Only Stripped Mtg.-
Backed Security:
Series 2001-21, Cl. SB, 3.23%, 1/16/27(8)    1,103,317         204,545     1,307,862          75,973          14,085          90,058
Series 2002-15, Cl. SM, 3.13%, 2/16/32(8)    1,052,766               0     1,052,766          73,205               0          73,205
Series 2002-76, Cl. SY, 3.33%, 12/16/26(8)   2,152,668         275,321     2,427,989          94,392          12,072         106,464
Series 2004-11, Cl. SM, 3.28%, 1/17/30(8)      778,163          99,775       877,938          32,818           4,208          37,026
                                                                                           -----------------------------------------
                                                                                           1,848,942         310,239       2,159,181
- ------------------------------------------------------------------------------------------------------------------------------------
NON-AGENCY--5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--4.6%
Banc of America Commercial Mortgage,
Inc., Commercial Mtg. Pass Through
Certificates:
Series 2005-3, Cl. A2, 4.501%, 7/10/43       1,580,000         230,000     1,810,000       1,542,679         224,567       1,767,246
Series 2004-6, Cl. A3, 4.512%, 12/10/42      1,480,000         210,000     1,690,000       1,433,938         203,464       1,637,402
Series 2005-2, Cl. A4, 4.783%, 7/10/43(5)    1,910,000         280,000     2,190,000       1,875,267         274,908       2,150,175
- ------------------------------------------------------------------------------------------------------------------------------------
Banc of America Funding Corp., CMO
Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32       1,480,415         198,406     1,678,821       1,482,022         198,622       1,680,644
- ------------------------------------------------------------------------------------------------------------------------------------
Banc of America Mortgage Securities,
Inc., CMO Pass-Through
Certificates:
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34(5)      31,105           4,212        35,317          31,095           4,211          35,306
Series 2005-E, Cl. 2A2, 4.983%, 6/25/35(5)     334,530          49,560       384,090         333,012          49,335         382,347
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32       1,160,846         164,368     1,325,214       1,178,984         166,936       1,345,920
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage
Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl.
A2, 4.945%, 2/11/41                            750,000         100,000       850,000         741,753          98,900         840,653
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial
Mortgage Trust, Commercial
Mtg. Obligations, Series 2005-CD1, Cl.
A4, 5.225%, 7/15/44                          1,810,000         260,000     2,070,000       1,829,996         262,872       2,092,868
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, CMO:
Series 2004-J9, Cl. 1A1, 4.559%, 10/25/34(5)   427,764          63,080       490,844         428,096          63,129         491,225
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34      1,883,672               0     1,883,672       1,907,481               0       1,907,481
- ------------------------------------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates, Series 1997-CHL1, Cl. D,
7.674%, 4/29/39(5,6)                         1,170,000         170,000     1,340,000       1,175,850         170,850       1,346,700
- ------------------------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman
Brothers/Bank of America
Commercial Mtg. Trust, Pass-Through
Certificates, Series 1998-C2,
Cl. A2, 6.56%, 11/18/35                        887,553         126,793     1,014,346         912,761         130,394       1,043,155
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp.,
Commercial Mtg.
Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39        960,000               0       960,000         943,764               0         943,764
Series 2005-CA, Cl. A3, 4.578%, 6/10/48        650,000          90,000       740,000         632,683          87,602         720,285
Series 2005-C3, Cl. A2, 4.853%, 7/10/45        940,000         140,000     1,080,000         933,768         139,072       1,072,840
- ------------------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities,
Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-C3, Cl. A4, 4.547%, 12/10/41       940,000         140,000     1,080,000         910,482         135,604       1,046,086
Series 1997-C1, Cl. A3, 6.869%, 7/15/29        544,365          71,784       616,149         556,763          73,419         630,182
- ------------------------------------------------------------------------------------------------------------------------------------


Greenwich Capital Commercial Funding
Corp., Commercial Mtg. Pass-Through
Certificates:
Series 2005-G G3, Cl. A2, 4.305%,
8/10/42                                      1,330,000         190,000     1,520,000       1,295,927         185,132       1,481,059
Series 2005-G G5, Cl. A2, 5.117%,
4/10/37(3)                                   1,050,000         150,000     1,200,000       1,053,206         150,458       1,203,664
- ------------------------------------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1, 3.659%,
10/10/28                                       992,056         147,335     1,139,391         961,427         142,786       1,104,213
Series 2004-GG2, Cl. A3, 4.602%,
8/10/38                                        620,000               0       620,000         612,409               0         612,409
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage
Securities Corp., Commercial Mtg.
Pass-Through Certificates,
Series 2005-LDP2, Cl.
A2, 4.575%, 7/15/42                            380,000          60,000       440,000         372,481          58,813         431,294
- ------------------------------------------------------------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust,
Commercial Mtg. Pass-
Through Certificates, Series 2005-C5,
Cl. A2, 4.885%, 9/15/30                      1,120,000         160,000     1,280,000       1,112,665         158,952       1,271,617
- ------------------------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO
Pass-Through Certificates:
Series 2004-9, Cl. A3, 4.70%, 8/25/34(5)     3,541,867         543,496     4,085,363       3,525,714         541,017       4,066,731
Series 2004-6, Cl. 10A1, 6%, 7/25/34         1,914,262         283,571     2,197,833       1,924,763         285,127       2,209,890
- ------------------------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Mtg.
Pass-Through Certificates,
Series 2004-2, Cl. A1, 6.50%, 8/25/32        2,771,666         406,678     3,178,344       2,798,516         410,618       3,209,134
- ------------------------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl.
A1B, 6.59%, 3/15/30                          1,130,000         160,000     1,290,000       1,168,589         165,464       1,334,053
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II
LLC, Commercial Mtg. Pass-
Through Certificates, Series PRU-HTG
2000-C1, Cl. A2, 7.306%,
10/6/15                                      1,362,000         192,000     1,554,000       1,490,033         210,049       1,700,082
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc.,
Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl.
A2, 5.75%, 1/25/33                             987,329         145,007     1,132,336         989,234         145,287       1,134,521
- ------------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities
VII, Inc., Commercial Mtg.
Pass-Through Certificates, Series
1996-C1, Cl. F, 8.301%, 1/20/28(4,5)           250,000               0       250,000         205,000               0         205,000
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage
Trust, Commercial Mtg.
Obligations:
Series 2005-C17, Cl. A2, 4.782%,
3/15/42                                      2,190,000         300,000     2,490,000       2,165,842         296,691       2,462,533
Series 2005-C20, Cl. A5, 5.087%,
7/15/42(5)                                   1,120,000         160,000     1,280,000       1,112,655         158,951       1,271,606
- ------------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities
Corp., CMO Pass-Through Certificates,
Series 2005-AR5, Cl.
A1, 4.681%, 5/25/35(5)                       1,346,336         189,533     1,535,869       1,345,369         189,397       1,534,766
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed
Securities Trust, CMO, Series 2004-
DD, Cl. 2A1, 4.522%, 1/25/35(5)              1,257,852         181,858     1,439,710       1,254,004         181,302       1,435,306
                                                                                          ------------------------------------------
                                                                                          42,238,228       5,563,929      47,802,157
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER--0.1%
JPMorgan Chase Commercial Mortgage
Securities Corp., Commercial Mtg.
Pass-Through Certificates,
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42    1,360,000         200,000     1,560,000       1,342,689         197,454       1,540,143



- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.3%
Countrywide Alternative Loan Trust,
CMO, Series 2005-J1, Cl.
3A1, 6.50%, 8/25/32(3)                      2,918,059          424,270     3,342,329       2,970,038         431,828       3,401,866
                                                                                         -------------------------------------------
Total Mortgage-Backed Obligations
(Cost $274,548,094, Cost $40,044,218,
Combined Cost $314,592,312)                                                              273,300,065      39,873,841     313,173,906

- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07(10)   1,245,000               0     1,245,000       1,148,133               0       1,148,133
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Unsec. Bonds:
3.125%, 11/15/06                             2,600,000               0     2,600,000       2,564,437               0       2,564,437
3.50%, 11/15/07                              1,020,000         140,000     1,160,000         997,395         136,897       1,134,292
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Unsec. Nts.:
3.625%, 9/15/06(11)                          3,495,000               0     3,495,000       3,470,423               0       3,470,423
3.625%, 9/15/06                                      0       1,065,000     1,065,000               0       1,057,511       1,057,511
4.125%, 7/12/10(3)                           1,406,000         250,000     1,656,000       1,372,460         244,036       1,616,496
4.375%, 11/16/07                             1,280,000         195,000     1,475,000       1,272,060         193,790       1,465,850
6.625%, 9/15/09                                235,000         240,000       475,000         249,879         255,195         505,074
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.
Unsec. Nts.:
4%, 2/28/07                                  2,310,000         320,000     2,630,000       2,290,621         317,316       2,607,937
4.25%, 7/15/07                               2,170,000         550,000     2,720,000       2,154,626         546,103       2,700,729
4.75%, 12/15/10(3)                             130,000               0       130,000         130,144               0         130,144
6%, 5/15/11                                  4,005,000         600,000     4,605,000       4,240,690         635,309       4,875,999
6.625%, 9/15/09                                135,000               0       135,000         143,669               0         143,669
7.25%, 1/15/10(11)                           1,500,000               0     1,500,000       1,635,806               0       1,635,806
7.25%, 1/15/10(11)                                   0         750,000       750,000               0         817,903         817,903
7.25%, 5/15/30(3)                            1,215,000         170,000     1,385,000       1,613,196         225,715       1,838,911
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
4.65%, 6/15/35  (3)                          1,560,000         280,000     1,840,000       1,480,640         265,756       1,746,396
5.375%, 11/13/08(3)                            375,000         109,000       484,000         381,948         111,019         492,967
Series A, 6.79%, 5/23/12                    11,936,000         950,000    12,886,000      13,226,496       1,052,712      14,279,208
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%, 2/15/31(3)                           1,486,000         269,000     1,755,000       1,669,661         302,247       1,971,908
8.875%, 8/15/17(3)                             465,000               0       465,000         646,314               0         646,314
STRIPS, 4.96%, 2/15/16(10)                           0         171,000       171,000               0         108,568         108,568
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
3.875%, 7/15/10-9/15/10(3)                   2,744,000         297,000     3,041,000       2,688,218         291,028       2,979,246
4.25%, 11/30/07                                202,000               0       202,000         201,471               0         201,471
4.25%, 8/15/15(3)                              293,000               0       293,000         289,303               0         289,303
4.25%, 11/30/07-8/15/15                              0          86,000        86,000               0          85,235          85,235
4.375%, 12/15/10                               254,000               0       254,000         254,278               0         254,278
4.375%, 11/15/08(3)                            640,000               0       640,000         640,300               0         640,300
4.375%, 11/15/08-12/15/10                            0         113,000       113,000               0         113,074         113,074


5%, 8/15/11(3)                                 810,000               0       810,000         836,293               0         836,293
5%, 2/15/11(3)                                 440,000          76,000       516,000         453,321          78,301         531,622
                                                                                          ------------------------------------------
Total U.S. Government Obligations
(Cost $46,704,517, Cost $8,931,513,
Combined Cost $55,636,030)                                                                46,051,782       6,837,715      52,889,497

- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%,
1/14/12 (Cost $1,779,531, Cost
$249,445, Combined Cost $2,028,976)          1,620,000         235,000     1,855,000       1,810,350         262,613       2,072,963

- ------------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND
NOTES--13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch), 7.125%
Sub. Nts., Series B, 10/15/93                  500,000               0       500,000         600,600               0         600,600
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06  1,675,000         250,000     1,925,000       1,681,703         251,001       1,932,704
- ------------------------------------------------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs.,
5/1/31(3)                                    1,080,000         155,000     1,235,000       1,065,399         152,905       1,218,304
- ------------------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc.,
8.875% Sr. Nts., Series B, 4/1/08(3)           840,000         125,000       965,000         890,400         132,500       1,022,900
- ------------------------------------------------------------------------------------------------------------------------------------
Allstate Financial Global Funding II,
4.25% Nts., 9/10/08(6)                         365,000          50,000       415,000         358,984          49,176         408,160
- ------------------------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 5.375%
Nts., 9/15/35                                  940,000         135,000     1,075,000         904,883         129,957       1,034,840
- ------------------------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.125%
Sr. Unsec. Nts., 5/1/12                      1,255,000         180,000     1,435,000       1,451,891         208,239       1,660,130
- ------------------------------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub.
Nts., 5/1/08                                   140,000          20,000       160,000         147,498          21,071         168,569
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual
Bonds(12)                                    1,460,000         220,000     1,680,000       1,470,059         221,516       1,691,575
- ------------------------------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875% Sr.
Unsec. Nts., 7/15/15                           895,000         130,000     1,025,000         862,556         125,288         987,844
- ------------------------------------------------------------------------------------------------------------------------------------
British Sky Broadcasting Group plc,
7.30% Unsec. Nts., 10/15/06                    335,000          48,000       383,000         340,485          48,786         389,271
- ------------------------------------------------------------------------------------------------------------------------------------
British Telecommunications plc, 8.875%
Bonds, 12/15/30                                795,000         115,000       910,000       1,066,809         154,318       1,221,127
- ------------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr.
Nts., Series B, 9/1/10                         990,000         145,000     1,135,000       1,063,063         155,701       1,218,764
- ------------------------------------------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec.
Nts., 11/1/08                                1,660,000         240,000     1,900,000       1,765,943         255,317       2,021,260
- ------------------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
4.75% Sr. Nts., 8/15/08(3)                     265,000               0       265,000         264,151               0         264,151
7.75% Sr. Unsec. Unsub. Nts., 4/2/12           680,000         100,000       780,000         772,177         113,556         885,733
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub.
Nts., 6/15/32                                  705,000         105,000       810,000         799,278         119,041         918,319
- ------------------------------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec.
Debs., 7/29/93                                 440,000               0       440,000         570,798               0         570,798
- ------------------------------------------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06          925,000         130,000     1,055,000         931,564         130,922       1,062,486
- ------------------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7.60%
Unsec. Nts., 4/1/32                          1,230,000         175,000     1,405,000       1,484,375         211,192       1,695,567
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Financial Corp., 4.50%
Nts., Series A, 6/15/10                        925,000         135,000     1,060,000         898,771         131,172       1,029,943
- ------------------------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec.
Nts., 1/15/10                                1,865,000         270,000     2,135,000       1,807,051         261,611       2,068,662
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (USA),
5.50% Nts., 8/15/13                          1,685,000         250,000     1,935,000       1,721,514         255,418       1,976,932
- ------------------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14        780,000         115,000       895,000         781,392         115,205         896,597
- ------------------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler NA Holdings Corp., 8%
Nts., 6/15/10                                1,610,000         230,000     1,840,000       1,762,414         251,773       2,014,187
- ------------------------------------------------------------------------------------------------------------------------------------
Dana Corp., 6.50% Unsec. Nts., 3/1/09(3)     1,205,000         175,000     1,380,000         970,025         140,875       1,110,900
- ------------------------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub.
Debs., 4/15/31                               1,175,000         170,000     1,345,000       1,387,226         200,705       1,587,931
- ------------------------------------------------------------------------------------------------------------------------------------


Deutsche Telekom International Finance
BV, 8% Unsub. Nts., 6/15/10(5)               1,105,000         160,000     1,265,000       1,253,990         181,573       1,435,563
- ------------------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr.
Unsub. Nts., 6/15/10                         1,280,000         190,000     1,470,000       1,424,029         211,379       1,635,408
- ------------------------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts.,
6/1/06                                         830,000         120,000       950,000         835,402         120,781         956,183
- ------------------------------------------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07                295,000               0       295,000         301,234               0         301,234
8.10% Unsec. Nts., 8/1/10                    1,210,000         205,000     1,415,000       1,337,706         226,636       1,564,342
8.375% Nts., 3/15/06                           560,000               0       560,000         563,862               0         563,862
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc.,
6.625% Sr. Unsec. Nts., 9/1/08               1,165,000         170,000     1,335,000       1,208,092         176,288       1,384,380
- ------------------------------------------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07       1,875,000         275,000     2,150,000       1,824,390         267,577       2,091,967
- ------------------------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06      730,000         105,000       835,000         732,776         105,399         838,175
7.375% Sr. Unsub. Nts., Series C,
11/15/31                                       915,000         130,000     1,045,000       1,083,068         153,879       1,236,947
- ------------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
5.80% Sr. Unsec. Nts., 1/12/09               2,250,000         325,000     2,575,000       1,964,066         283,698       2,247,764
7.375% Nts., 10/28/09                          375,000          55,000       430,000         332,847          48,818         381,665
- ------------------------------------------------------------------------------------------------------------------------------------
France Telecom SA, 8.50% Sr. Unsec.
Nts., 3/1/31(5)                                275,000          40,000       315,000         368,037          53,533         421,570
- ------------------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07                          1,360,000         135,000     1,495,000       1,390,202         137,998       1,528,200
9.55% Unsub. Nts., 12/15/08(5)                 199,000          29,000       228,000         221,291          32,248         253,539
- ------------------------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts.,
11/30/07                                     1,400,000         195,000     1,595,000       1,373,184         191,265       1,564,449
- ------------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
6.15% Nts., 4/5/07                           2,870,000         410,000     3,280,000       2,711,645         387,378       3,099,023
8% Bonds, 11/1/31(3)                         1,315,000         190,000     1,505,000       1,262,951         182,480       1,445,431
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70%
Sr. Unsec. Nts., 9/1/12                      2,650,000         380,000     3,030,000       2,729,752         391,436       3,121,188
- ------------------------------------------------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 5.625% Sr.
Unsec. Bonds, 6/1/15                           940,000         135,000     1,075,000         925,140         132,866       1,058,006
- ------------------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06      865,000         125,000       990,000         876,418         126,650       1,003,068
- ------------------------------------------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec.
Nts., 2/15/11                                  800,000         114,000       914,000         877,644         125,064       1,002,708
- ------------------------------------------------------------------------------------------------------------------------------------
HSBC Finance Corp., 4.75% Sr. Unsec.
Nts., 7/15/13                                1,840,000         265,000     2,105,000       1,780,546         256,437       2,036,983
- ------------------------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr.
Sec. Nts., 11/14/08(5)                         810,000         110,000       920,000         852,525         115,775         968,300
- ------------------------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
5.125% Sr. Unsec. Nts., Series B, 4/1/11(3)    575,000          85,000       660,000         560,908          82,917         643,825
5.15% Sr. Unsec. Nts., 3/1/12                  700,000         100,000       800,000         678,797          96,971         775,768
- ------------------------------------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc. (Holding Co.),
7.40% Nts., 4/1/37(3)                        1,610,000         235,000     1,845,000       1,806,765         263,720       2,070,485
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Capital XV, 5.875% Nts., 3/15/35    1,220,000         180,000     1,400,000       1,217,171         179,583       1,396,754
- ------------------------------------------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 6.50%
Sr. Nts., 1/15/14                              895,000         130,000     1,025,000         860,387         124,972         985,359
- ------------------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp.,
10.875% Sr. Nts., Series B, 10/15/06(13)       250,000               0       250,000         253,750               0         253,750
- ------------------------------------------------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts.,
2/1/14                                       1,145,000         165,000     1,310,000       1,085,311         156,399       1,241,710
- ------------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec.
Nts., 9/1/12                                   985,000         145,000     1,130,000       1,044,904         153,818       1,198,722
- ------------------------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07        1,105,000         160,000     1,265,000       1,109,859         160,704       1,270,563
- ------------------------------------------------------------------------------------------------------------------------------------


Kroger Co. (The), 6.80% Sr. Unsec.
Nts., 4/1/11                                 2,095,000         300,000     2,395,000       2,199,559         314,973       2,514,532
- ------------------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09(3)                         1,450,000         210,000     1,660,000       1,350,484         195,587       1,546,071
- ------------------------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts.,
3/1/13(3)                                      895,000         130,000     1,025,000         902,117         131,034       1,033,151
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec.
Nts., 5/15/13(3)                               930,000         140,000     1,070,000         871,188         131,147       1,002,335
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts.,
8/15/14                                        885,000         130,000     1,015,000         897,816         131,883       1,029,699
- ------------------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr.
Unsec. Bonds, 8/1/33                         1,110,000         170,000     1,280,000       1,066,094         163,276       1,229,370
- ------------------------------------------------------------------------------------------------------------------------------------
May Department Stores Co., 7.90% Unsec.
Debs., 10/15/07                                625,000          90,000       715,000         650,989          93,742         744,731
- ------------------------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F,
3/15/12                                      1,380,000         200,000     1,580,000       1,556,288         225,549       1,781,837
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr.
Unsub. Nts., Series C, 2/3/14                1,825,000         265,000     2,090,000       1,805,239         262,131       2,067,370
- ------------------------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts.,
6/15/35                                        915,000         135,000     1,050,000         921,663         135,983       1,057,646
- ------------------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875%
Sr. Unsec. Nts., 10/1/12                     1,525,000         220,000     1,745,000       1,576,534         227,434       1,803,968
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12             855,000         125,000       980,000         920,191         134,531       1,054,722
- ------------------------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts.,
12/15/11                                       124,000          17,000       141,000         131,368          18,010         149,378
- ------------------------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12                             675,000          95,000       770,000         704,678          99,177         803,855
6.25% Sr. Unsec. Nts., 11/15/11                195,000          30,000       225,000         205,491          31,614         237,105
- ------------------------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06                            250,000               0       250,000         246,434               0         246,434
7.875% Sr. Unsec. Nts., 11/15/10             1,070,000         190,000     1,260,000       1,186,730         210,729       1,397,459
- ------------------------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust,
5.75% Unsec. Unsub. Nts.,
Series 12, 12/15/15(3,6)                     1,480,000         215,000     1,695,000       1,474,450         214,194       1,688,644
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV,
4.623% Sr. Nts., Cl. A1, 6/15/10(6)          2,717,000         395,000     3,112,000       2,692,908         391,498       3,084,406
- ------------------------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust,
3.748% Sr. Nts., Series B, 6/1/13(6)           533,014          64,478       597,492         506,467          61,266         567,733
- ------------------------------------------------------------------------------------------------------------------------------------
Popular North America, Inc., 5.20%
Nts., 12/12/07                               1,855,000         265,000     2,120,000       1,854,048         264,864       2,118,912
- ------------------------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125%
First Mortgage Nts., 2/1/10(6)                 715,000          95,000       810,000         789,860         104,946         894,806
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds,
Series C, 12/18/23(6)                        1,510,000         295,000     1,805,000       1,918,597         374,825       2,293,422
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25                           1,530,000         260,000     1,790,000       1,985,654         337,431       2,323,085
- ------------------------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec.
Nts., 4/16/07                                  810,000         115,000       925,000         842,400         119,600         962,000
- ------------------------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec.
Nts., 4/15/06                                  915,000         130,000     1,045,000         919,803         130,682       1,050,485
- ------------------------------------------------------------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts.,
11/16/07                                       900,000         130,000     1,030,000         901,769         130,255       1,032,024
- ------------------------------------------------------------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec.
Nts., 12/15/08                                 750,000               0       750,000         842,455               0         842,455
- ------------------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 7.50% Sr. Unsec. Nts.,
9/15/09                                      1,195,000         175,000     1,370,000       1,277,374         187,063       1,464,437
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Communications, Inc., 5.30% Nts.,
11/15/10                                     1,365,000         195,000     1,560,000       1,370,588         195,798       1,566,386
- ------------------------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub.
Nts., 3/1/10                                 1,330,000         190,000     1,520,000       1,462,269         208,896       1,671,165
- ------------------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP, 5.375% Nts.,
6/1/11(3,6)                                  1,380,000         195,000     1,575,000       1,384,840         195,684       1,580,524
- ------------------------------------------------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64% Bonds,
12/29/49(5,6,12)                                75,000          10,000        85,000          78,065          10,409          88,474
- ------------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts.,
3/15/32                                      1,100,000         160,000     1,260,000       1,464,209         212,967       1,677,176
- ------------------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide,
Inc., 7.375% Nts., 5/1/07                    1,350,000         190,000     1,540,000       1,383,750         194,750       1,578,500
- ------------------------------------------------------------------------------------------------------------------------------------


Sterling Chemicals, Inc., 10% Sr. Sec.
Nts., 12/19/07(3,4,14)                          57,774               0        57,774          55,752               0          55,752
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr.
Unsec. Debs., 2/1/12                         1,640,000         245,000     1,885,000       1,980,825         295,916       2,276,741
- ------------------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP:
8.375% Sr. Nts., 7/15/33                     1,050,000         130,000     1,180,000       1,244,005         154,020       1,398,025
10.15% Sr. Nts., 5/1/12                        308,000          65,000       373,000         375,452          79,235         454,687
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp.,
3.75% Sr. Unsec. Nts., 3/15/08               1,325,000         195,000     1,520,000       1,292,959         190,285       1,483,244
- ------------------------------------------------------------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08         1,165,000         165,000     1,330,000       1,184,748         167,797       1,352,545
- ------------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA:
6.125% Unsec. Unsub. Nts., 11/1/08           1,560,000         225,000     1,785,000       1,593,432         229,822       1,823,254
6.125% Unsec. Unsub. Nts., 1/15/09             212,000          31,000       243,000         216,822          31,705         248,527
6.375% Sr. Unsec. Unsub. Nts., 2/15/06       1,135,000         165,000     1,300,000       1,136,885         165,274       1,302,159
- ------------------------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc., 3.50%
Sr. Unsec. Nts., 10/15/07                    1,465,000         210,000     1,675,000       1,421,756         203,801       1,625,557
- ------------------------------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp.:
5.85% Nts., 9/15/35                            915,000         135,000     1,050,000         884,796         130,544       1,015,340
7.25% Sr. Unsec. Unsub. Nts., 12/1/10          840,000         120,000       960,000         912,453         130,350       1,042,803
- ------------------------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec.
Unsub. Nts., 6/15/07(3)                      1,795,000         260,000     2,055,000       1,808,177         261,909       2,070,086
- ------------------------------------------------------------------------------------------------------------------------------------
Western Forest Products, Inc., 15% Sec.
Nts., 7/28/09(6,14)                            302,804               0       302,804         325,515               0         325,515
- ------------------------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec.
Nts., 4/15/06                                1,785,000         260,000     2,045,000       1,802,564         262,558       2,065,122
                                                                                         -------------------------------------------

Total Non-Convertible Corporate Bonds
and Notes (Cost $121,636,568,
Cost $17,110,532,
Combined Cost $138,747,100)                                                              121,248,168      17,110,631     138,358,799

- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 3.40%, 1/3/06                0       2,000,000     2,000,000               0       1,999,622       1,999,622

- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--8.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 5.72% in joint
repurchase agreement (Principal
Amount/Value $1,414,200,000, with a
maturity value of
$1,414,844,247) with UBS Warburg LLC,
4.10%, dated 12/30/05, to
be repurchased at $80,860,820 on
1/3/06, collateralized by Federal
Home Loan Mortgage Corp., 5%, 1/1/35,
with a value of
$157,513,104 and Federal National
Mortgage Assn., 5%--5.50%,
3/1/34--10/1/35, with a value of
$1,301,420,187                              80,824,000               0    80,824,000      80,824,000               0      80,824,000
- ------------------------------------------------------------------------------------------------------------------------------------


Undivided interest of 0.55% in
joint repurchase agreement
(Principal Amount/Value
$1,203,488,000, with a maturity
value of $1,204,036,256) with
UBS Warburg LLC, 4.10%, dated
12/30/05, to be repurchased at
$6,605,008 on 1/3/06,
collateralized by Federal Home
Loan Mortgage Corp., 5%--5.50%,
1/1/35--11/1/35, with a value of
$565,118,538 and Federal
National Mortgage Assn., 5.50%-
- -6%, 11/1/34--1/1/36, with a
value of $676,946,908                                0       6,602,000     6,602,000               0       6,602,000       6,602,000
                                                                                        --------------------------------------------
Total Joint Repurchase Agreements
(Cost $80,824,000, Cost
$6,602,000, Combined Cost
$87,426,000)                                                                              80,824,000       6,602,000      87,426,000

- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED--2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Whitehawk CDO Funding Corp.,
4.561%, 3/15/06(15)                          2,000,000               0     2,000,000       2,000,000               0       2,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.66% in
joint repurchase agreement
(Principal Amount/Value
$3,150,000,000, with a maturity
value of $3,151,501,500) with
Nomura \ Securities, 4.29%,
dated 12/30/05, to be
repurchased at $20,946,025 on
1/3/06, collateralized by U.S.
Agency Mortgages, 3.34%--9.50%,
6/1/08--5/1/38, with a value of
$3,213,000,000(15)                          20,936,045               0    20,936,045      20,936,045               0      20,936,045
- ------------------------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTE--0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns, 4.37%, 1/3/06(15)              1,000,000               0     1,000,000       1,000,000               0       1,000,000
                                                                                      ----------------------------------------------
Total Investments Purchased
with Cash Collateral from
Securities Loaned
(Cost $23,936,045)                         698,051,300      95,106,773   793,158,073      23,936,045               0      23,936,045

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$949,265,274, COST $139,833,194,
COMBINED COST $1,089,098,468)                    116.1%          113.5%        115.8%  1,065,345,976     148,877,872   1,214,223,848
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS                                     (16.1)          (13.5)        (15.8)   (147,727,679)    (17,753,257)  (165,480,936)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS                                       100.0%          100.0%        100.0% $  917,618,297   $ 131,124,615  $1,048,742,912
                                           =========================================================================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1.    Non-income producing security.

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

3.    Partial or fully-loaned security. Loaned securities only apply to
      Oppenheimer Balanced Fund.

4.    Illiquid security. The aggregate value of illiquid securities as of
      December 31, 2005 was $260,752, $606,419 (Combined $867,171), which
      represents 0.03%, 0.46% (Combined 0.08%) of the Fund's net assets.

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


6.    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 $12,424,033 or 1.35%,
      $1,822,630 or 1.39% (Combined $14,246,663 or 1.36%) of the Fund's net
      assets as of December 31, 2005.

7.    When-issued security or forward commitment to be delivered and settled
      after December 31, 2005.

8.    Interest-Only Strips represent the right to receive the monthly interest
      payments on an underlying pool of mortgage loans. These securities
      typically decline in price as interest rates decline. Most other fixed
      income securities increase in price when interest rates decline. The
      principal amount of the underlying pool represents the notional amount on
      which current interest is calculated. The price of these securities is
      typically more sensitive to changes in prepayment rates than traditional
      mortgage -backed securities (for example, GNMA pass-throughs). These
      securities amount to $12,719,828 or 1.39%, $1,835,519 or 1.40% (Combined
      $14,555,347 or 1.39%) of the Fund's net assets as of December 31, 2005.

9.    Principal-Only Strips represent the right to receive the monthly principal
      payments on an underlying pool of mortgage loans. The value of these
      securities generally increases as interest rates decline and prepayment
      rates rise. The price of these securities is typically more volatile than
      that of coupon-bearing bonds of the same maturity. These securities amount
      to $581,471 or 0.06%, $89,465 or 0.07% (Combined $671,206 or 0.06%) of the
      Fund's net assets as of December 31, 2005.

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

11.   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 $1,737,694, $239,918
      (Combined $1,977,612).

12.   This bond has no contractual maturity date, is not redeemable and
      contractually pays an indefinite stream of interest.

13.   Issue is in default. Non-income producing.

14.   Interest or dividend is paid-in-kind.

15.   The security has been segregated to satisfy the forward commitment to
      return the cash collateral received in securities lending transactions
      upon the borrower's return of the securities loaned.

PROFORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2005
(UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND

                                                                                  OPPENHEIMER                        PROFORMA
                                                                  OPPENHEIMER     DISCIPLINED                         COMBINED
                                                                    BALANCED       ALLOCATION       PROFORMA         OPPENHEIMER
                                                                      FUND            FUND         ADJUSTMENTS      BALANCED FUND
                                                               --------------------------------------------------------------------
ASSETS:
Investments, at value (cost * )                                $1,065,345,976     $148,877,872                      $1,214,223,848
Cash                                                                  110,524           53,841                            $164,365
Futures margin                                                         12,954              911                             $13,865
Unrealized appreciation on swap contracts                              14,858            2,825                             $17,683
Receivables:
   Investments sold                                                20,753,848        2,818,060                         $23,571,908
   Interest, dividends and principal paydowns                       3,955,633          569,507                          $4,525,140
   Shares of beneficial interest sold                                 432,371            2,140                            $434,511
Other                                                                  26,067            6,298                             $32,365
                                                               --------------------------------------------------------------------
  Total assets                                                 $1,090,652,231     $152,331,454                      $1,242,983,685
                                                               --------------------------------------------------------------------
LIABILITIES:
Return of collateral for securities loaned                         23,936,045               --                         $23,936,045
Payables and other liabilities:
   Investments purchased                                          147,944,298       20,895,539                        $168,839,837
   Shares of beneficial interest redeemed                             253,971          129,963                            $383,934
   Distributions and service plan fees                                489,556           81,774                            $571,330
   Trustees' and Directors' fees                                      157,344           29,291                            $186,635
   Shareholder reports                                                 89,538           26,676                            $116,214
   Transfer and shareholder servicing agent fees                      118,236           21,111                            $139,347
   Other                                                               44,946           22,485                             $67,431
                                                               --------------------------------------------------------------------
      Total liabilities                                           173,033,934       21,206,839            --           194,240,773
                                                               --------------------------------------------------------------------
NET ASSETS                                                       $917,618,297     $131,124,615            --        $1,048,742,912
                                                               ====================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital:
Par value of shares of capital stock                                       --          126,601      (126,601)(1)                --
Additional paid-in capital                                        797,372,167      126,474,364       126,601 (1)       923,973,132
Undistributed net investment income                                 3,901,393           56,644                           3,958,037
Accumulated net realized gain from investments and
   foreign currency transactions                                     (272,314)      (4,657,879)                         (4,930,193)
Net unrealized appreciation on investments and translation
   of assets and liabilities denominated in foreign currencies    116,617,051        9,124,885                         125,741,936
                                                               --------------------------------------------------------------------
NET ASSETS                                                        917,618,297      131,124,615            --         1,048,742,912
                                                               ====================================================================



PROFORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2005
(UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND

                                                                            OPPENHEIMER                        PROFORMA
                                                            OPPENHEIMER     DISCIPLINED                         COMBINED
                                                              BALANCED       ALLOCATION       PROFORMA         OPPENHEIMER
                                                                FUND            FUND         ADJUSTMENTS      BALANCED FUND
                                                         -----------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A Shares:

Net asset value and redemption price per share
(based on net assets of $719,288,112,
$108,080,052, and $827,368,164 and 53,115,407,
7,334,395, and 61,096,566 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively)                       $13.54              $14.74                              $13.54(2)

Maximum offering price per share (net asset
value plus sales charge of 5.75% of offering
price)                                                         $14.37              $15.64                              $14.37(2)

Class B Shares:

Net asset value and redemption price per share
(based on net assets of $96,126,035,
$12,453,364, and $108,579,399 and 7,247,572,
832,162 and 8,186,513 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively)                       $13.26              $14.97                              $13.26(2)

Class C Shares:

Net asset value and redemption price per share
(based on net assets of $89,514,378,
$8,786,722, and $98,301,099 and 6,717,928,
604,180 and 7,377,364 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively)                       $13.32              $14.54                              $13.32(2)

Class N Shares:

Net asset value and redemption price per share
(based on net assets of $12,689,772,
$1,804,477, and $14,494,249 and 945,978,
122,882 and 1,080,496 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively)                       $13.41              $14.68                              $13.41(2)

*Cost                                                    $949,265,274        $139,833,194                      $1,089,098,468

(1)   Represents the conversion from par value shares to no par value shares.

(2)   Oppenheimer Disciplined Allocation Fund Class A shares will be exchanged
      for Oppenheimer Balanced Fund Class A shares.

      Oppenheimer Disciplined Allocation Fund Class B shares will be exchanged
      for Oppenheimer Balanced Fund Class B shares.

      Oppenheimer Disciplined Allocation Fund Class C shares will be exchanged
      for Oppenheimer Balanced Fund Class C shares.

      Oppenheimer Disciplined Allocation Fund Class N shares will be exchanged
      for Oppenheimer Balanced Fund Class N shares.


PROFORMA COMBINED STATEMENTS OF OPERATIONS AS OF DECEMBER 31, 2005 (UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND


                                                                                      OPPENHEIMER                    PROFORMA
                                                                       OPPENHEIMER    DISCIPLINED                     COMBINED
                                                                         BALANCED      ALLOCATION      PROFORMA      OPPENHEIMER
                                                                           FUND           FUND        ADJUSTMENTS   BALANCED FUND
                                                                       ----------------------------------------------------------
INVESTMENT INCOME:
Interest                                                                $18,544,489    $2,629,950                    $21,174,439
Dividends (net of foreign withholding taxes of $184,559 and $4,246)       5,949,384       887,547                     $6,836,931
Portfolio lending fees                                                       58,120            --                        $58,120
Other income                                                                 33,230         5,926                         39,156
                                                                       ---------------------------------------------------------
   Total income                                                         $24,585,223    $3,523,423                     28,108,646
                                                                       ---------------------------------------------------------
EXPENSES:
Management fees                                                           6,197,873       820,415                      7,018,288
Distribution and service plan fees:
Class A                                                                   1,426,130       266,719                      1,692,849
Class B                                                                     945,599       132,763                      1,078,362
Class C                                                                     821,808        78,308                        900,116
Class N                                                                      55,187         8,483                         63,670
Transfer and shareholder servicing agent fees
Class A                                                                     852,491       172,490                      1,024,981
Class B                                                                     214,244        32,518                        246,762
Class C                                                                     143,540        20,921                        164,461
Class N                                                                      28,189         5,813                         34,002
Shareholder reports
Class A                                                                     122,010        35,578                        157,588
Class B                                                                      41,721         8,974                         50,695
Class C                                                                      23,220         4,810                         28,030
Class N                                                                       2,887           710                          3,597
Custodian fees and expenses                                                   4,559           750                          5,309
Legal, auditing and other professional fees                                  67,543        44,430      (21,408)(1)        90,565
Insurance expenses                                                            9,523         3,742                         13,265
Trustees' or Directors' fees and expenses                                    29,054         2,960                         32,014
Registration and filing fees:                                                10,694         1,640                         12,334
Other                                                                         7,564         7,704                         15,268
Total Expenses                                                           11,003,836     1,649,728      (21,408)       12,632,156
                                                                       ---------------------------------------------------------
Less management fee waiver                                                       --            --                             --
Less waivers and reimbursements of expenses
Class A                                                                          --            --                             --
Class B                                                                          --            --                             --
Class C                                                                          --            --                             --
Class N                                                                          --           (41)          41 (1)            --
Net Expenses                                                             11,003,836     1,649,687      (21,367)       12,632,156
                                                                       ---------------------------------------------------------


PROFORMA COMBINED STATEMENTS OF OPERATIONS AS OF DECEMBER 31, 2005 (UNAUDITED)

                                                                                OPPENHEIMER                     PROFORMA
                                                                OPPENHEIMER     DISCIPLINED                      COMBINED
                                                                  BALANCED       ALLOCATION      PROFORMA       OPPENHEIMER
                                                                    FUND            FUND        ADJUSTMENTS    BALANCED FUND
                                                               -------------------------------------------------------------
NET INVESTMENT INCOME                                             13,581,387       1,873,736                     15,455,123
                                                               -------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
   Investments                                                    37,283,490       6,005,377                     43,288,867
   Foreign currency transactions                                     (72,589)          1,852                        (70,737)
   Swap contracts                                                   (137,030)        (25,898)                      (162,928)
   Closing of futures contracts                                    3,107,135         581,505                      3,688,640
                                                               -------------------------------------------------------------
Net realized gain                                                 40,181,006       6,562,836                     46,743,842
                                                               -------------------------------------------------------------

Net change in unrealized appreciation or depreciation on:
  Investments                                                    (24,111,796)     (5,423,351)                   (29,535,147)
  Translation of assets and liabilities denominated in
    foreign currencies                                                   130             224                            354
  Swap contracts                                                      96,477          15,589                        112,066
  Futures contracts                                                  424,885          61,564                        486,449
                                                               -------------------------------------------------------------
Net unrealized gain                                              (23,590,304)     (5,345,974)                   (28,936,278)
                                                               -------------------------------------------------------------
Net realized and unrealized gain                                  16,590,702       1,216,862                     17,807,564
                                                               -------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS                                        $30,172,089      $3,090,598                    $33,262,687
                                                               =============================================================

(1)   Elimination of expense.

NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - BASIS OF COMBINATION:

      On December 15, 2005, the Board of Directors of Disciplined Allocation
Fund and the Board of Trustees of Balanced Fund approved a proposed Agreement
and Plan of Reorganization ("Reorganization"). The Reorganization
contemplates the transfer of substantially all the assets of Oppenheimer
Disciplined Allocation Fund to Oppenheimer Balanced Fund and the assumption
by Balanced Fund of certain liabilities of Disciplined Allocation Fund in
exchange for shares of Balance Fund equal in value to the value as of the
Valuation Date of the corresponding shares of Disciplined Allocation Fund.
The Reorganization provides for the complete liquidation of Disciplined
Allocation Fund.  The Reorganization is subject to approval by shareholders
of Disciplined Allocation Fund. A special meeting of shareholders of
Disciplined Allocation Fund is scheduled for April 20, 2006.

      The Reorganization intends to be accounted for as a tax free
reorganization of investment companies. The unaudited pro forma combined
financial statements are presented for the information of the reader and may
not necessarily be representative of what the actual combined financial
statements would have been had the Reorganization occurred at December 31,
2005. The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of Disciplined
Allocation Fund and Balanced Fund at December 31, 2000.  The unaudited pro
forma statement of operations reflects the results of operations of
Disciplined Allocation Fund and Balanced Fund for the year ended December 31,
2005. These statements have been derived from the Funds' respective books and
records utilized in calculating daily net asset value at the dates indicated
above for Disciplined Allocation and Balanced Funds under generally accepted
accounting principles.  The historical cost of investment securities will be
carried forward to the surviving entity and results of operations of the
Balanced Fund for pre-combination periods will not be restated.  The
unaudited pro forma statement of investments, and statements of assets and
liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements
of Additional Information for the Funds.


NOTE 2- SHARES:

      The unaudited pro forma net asset value per share assumes additional
common shares of beneficial interest issued in connection with the proposed
acquisition of Disciplined Allocation Fund by Balanced Fund as of December
31, 2005.  The number of additional shares issued was calculated by dividing
the net asset value of each Class of Disciplined Allocation Fund by the
respective Class net asset value per share of Balanced Fund.

NOTE 3 - UNAUDITED PRO FORMA ADJUSTMENTS:

      The accompanying unaudited pro forma financial statements reflect
changes in the Balanced Fund's shares as if the Reorganization had taken
place on December 31, 2005.




                                  PROXY CARD
                   OPPENHEIMER DISCIPLINED ALLOCATION FUND


Proxy for a Special Meeting of Shareholders to be held on April 20, 2006

The  undersigned,  revoking  prior  proxies,  hereby  appoints  Brian Wixted,
Brian  Szilagyi and Kathleen  Ives,  and each of them,  as  attorneys-in-fact
and  proxies of the  undersigned,  with full power of  substitution,  to vote
shares  held  in the  name  of the  undersigned  on the  record  date  at the
Special Meeting of Shareholders  of Oppenheimer  Disciplined  Allocation Fund
(the  "Fund")  to be held at 6803 South  Tucson  Way,  Centennial,  Colorado,
80112,  on April 20, 2006, at 1:00 p.m.  Mountain time, or at any adjournment
thereof,   upon  the  proposal   described  in  the  Notice  of  Meeting  and
accompanying  Prospectus  and Proxy  Statement,  which have been  received by
the undersigned.

This proxy is solicited on behalf of the Fund's Board of  Directors,  and the
proposal  (set  forth  on the  reverse  side of this  proxy  card)  has  been
proposed by the Board of Directors.  When properly executed,  this proxy will
be  voted as  indicated  on the  reverse  side or "FOR"  the  proposal  if no
choice is  indicated.  The proxy will be voted in  accordance  with the proxy
holders'  best  judgment  as to any  other  matters  that  may  arise  at the
Meeting.

VOTE VIA THE INTERNET: https://vote.proxy-direct.com
VOTE VIA THE TELEPHONE: 1-866-241-6192

CONTROL NUMBER:  999  9999  9999  999
Note:  Please sign this proxy exactly as your name or names appear  hereon.
Each  joint  owner  should  sign.  Trustees  and other  fiduciaries  should
indicate the capacity in which they sign. If a corporation,  partnership or
other  entity,   this  signature  should  be  that  of  a  duly  authorized
individual who should state his or her title.


Signature


Signature of joint owner, if any


Date

   PLEASE VOTE ON THE REVERSE SIDE, SIGN AND DATE THIS PROXY AND RETURN
                     PROMPTLY IN THE ENCLOSED ENVELOPE






TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK.  Example: [ ]

1. To approve an  Agreement  and Plan of  Reorganization  between  Oppenheimer
   Disciplined  Allocation  Fund  ("Disciplined  Allocation  Fund")  and
   Oppenheimer  Balanced  Fund  ("Balanced  Fund") and the  transactions
   contemplated  thereby,  including:  (a) the transfer of substantially
   all the assets of  Disciplined  Allocation  Fund to Balanced  Fund in
   exchange  for  Class  A,  Class  B,  Class C and  Class N  shares  of
   Balanced Fund, (b) the  distribution  of such shares of Balanced Fund
   to the  Class  A,  Class  B,  Class  C and  Class N  shareholders  of
   Disciplined  Allocation  Fund in complete  liquidation of Disciplined
   Allocation Fund and (c) the  cancellation  of the outstanding  shares
   of Disciplined Allocation Fund.

Oppenheimer
Balanced Fund


Prospectus dated January 27, 2006



                                          Oppenheimer Balanced Fund is a
                                          mutual fund that seeks high total
                                          return consistent with the
                                          preservation of principal. It
                                          invests in a variety of equity and
                                          debt securities of U.S. and foreign
                                          issuers, as well as money market
                                          instruments.
                                             This Prospectus contains
                                          important information about the
                                          Fund's objective, its investment
                                          policies, strategies and risks. It
                                          also contains important information
                                          about how to buy and sell shares of
                                          the Fund and other account features.
                                          Please read this Prospectus
As with all mutual funds, the             carefully before you invest and keep
Securities and Exchange Commission        it for future reference about your
has not approved or disapproved the       account.
Fund's securities nor has it
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.



                                                      (logo) OppenheimerFunds
                                                       The Right Way to Invest







CONTENTS


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


                    ABOUT THE FUND

                    The Fund's Investment Objective and Principal Investment
                    Strategies
                    Main Risks of Investing in the Fund
                    The Fund's Past Performance
                    Fees and Expenses of the Fund
                    About the Fund's Investments
                    How the Fund is Managed


                    ABOUT YOUR ACCOUNT

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

                    Special Investor Services
                    AccountLink
                    PhoneLink
                    OppenheimerFunds Internet Website
                    Retirement Plans

                    How to Sell Shares
                    By Mail
                    By Telephone

                    How to Exchange Shares
                    Shareholder Account Rules and Policies
                    Dividends, Capital Gains and Taxes
                    Financial Highlights

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








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

The Fund's Investment Objective and Principal Investment Strategies

WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks high total investment
return consistent with preservation of principal.

WHAT DOES THE FUND MAINLY INVEST IN? The Fund buys a variety of different
types of securities to seek its objective. Mainly, these include:
o     Equity securities. Primarily common stocks of U.S. and foreign
      companies.
o     Debt securities. Including bonds and notes issued by domestic and
      foreign companies (which can include lower-grade, high-yield
      securities), securities issued or guaranteed by the U.S. Government and
      its agencies and instrumentalities, including mortgage-related
      securities (these are referred to as "U.S. Government securities"),
      debt obligations of foreign governments, and money market instruments,
      which are obligations that have a maturity of 13 months or less,
      including short-term U.S. Government securities, corporate and bank
      debt obligations and commercial paper.

      These investments are more fully explained in "About the Fund's
Investments," below.

HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund's portfolio managers use
different investment styles to carry out an asset allocation strategy that
seeks broad diversification across asset classes. They normally maintain a
balanced mix of stocks, debt securities and cash, although the Fund has no
requirements to weight the portfolio holdings in a fixed proportion.
Therefore, the portfolio's mix of equity and debt securities and cash will
change over time as the portfolio managers seek relative values and
opportunities in different asset classes.

      Because the goal of total return is to increase overall portfolio value
from a combination of capital growth and income, the Fund invests in stocks
mainly for their capital appreciation potential and in debt securities both
for income and for total return. The income from debt securities and money
market instruments can also help the Fund preserve principal when stock
markets are volatile.

      The portfolio managers employ both "growth" and "value" styles in
selecting stocks. They employ fundamental analysis of a company's financial
statements and management structure, operations and product development, as
well as the industry of which the company is part. Value investing seeks
stocks that are temporarily out of favor or undervalued in the market by
various measures, such as the stock's price/earnings ratio. Growth investing
seeks stocks that the managers believe have possibilities for increases in
stock price because of strong earnings growth compared to the market, the
development of new products or services or other favorable economic factors.

WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking high total return from their investment over the long term, from a
fund employing different investment styles in allocating its assets among a
variety of types of securities. While the Fund seeks to select investments
consistent with the preservation of principal, investors should be willing to
assume the risks of short-term share price fluctuations that are typical for
a fund with significant investments in stocks and foreign securities. Since
the Fund's income level will fluctuate, it is not designed for investors
needing an assured level of current income. Because of its focus on seeking
total return over the long-term, the Fund may be appropriate for a part of an
investor's retirement plan portfolio. However, the Fund is not a complete
investment program.

Main Risks of Investing in the Fund

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

RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. The Fund will normally invest at least 25%
of its total assets in stocks and other equity securities, and the value of
the Fund's portfolio therefore will be affected by changes in the stock
markets. Market risk will affect the Fund's net asset values per share, which
will fluctuate as the values of the Fund's portfolio securities change. A
variety of factors can affect the price of a particular stock and the prices
of individual stocks do not all move in the same direction uniformly or at
the same time. Different stock markets may behave differently from each
other.

      Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. The Fund has no requirements to invest in companies in any
particular capitalization range, and can invest in securities of large
companies and also small and medium-size companies, which may have more
volatile stock prices than large companies.

RISKS OF FOREIGN INVESTING. The Fund can buy securities issued by companies
or governments in any country, whether a developed or an emerging market
country. While the Fund has no limits on the amounts it can invest in foreign
securities, it normally expects to invest not more than 50% of its total
assets in foreign securities. Foreign securities may offer special investment
opportunities, but there are also special risks. The change in value of a
foreign currency against the U.S. dollar will result in a change in the U.S.
dollar value of foreign securities denominated in that foreign currency.
Foreign issuers are not subject to the same accounting and disclosure
requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental, economic or monetary policy in the
U.S. or abroad, or other political and economic factors.

      Additionally, if a fund invests a significant amount of its assets in
foreign securities, it may be exposed to "time-zone arbitrage" attempts by
investors seeking to take advantage of the differences in value of foreign
securities that might result from events that occur after the close of the
foreign securities market on which a foreign security is traded and the close
of the New York Stock Exchange (the "NYSE") that day, when its net asset
value is calculated. If such time-zone arbitrage were successful, it might
dilute the interests of other shareholders. However, the Fund's use of "fair
value pricing" to adjust the closing market prices of foreign securities
under certain circumstances, to reflect what the Manager and the Board
believe to be their fair value, and the imposition of redemption fees, may
help deter those activities.


Special Risks of Emerging and Developing Markets. Securities in emerging and
      developing markets present risks not found in more mature markets.
      Those securities may be more difficult to sell at an acceptable price
      and their prices may be more volatile than securities of issuers in
      more developed markets. Settlements of trades may be subject to greater
      delays so that the Fund might not receive the proceeds of a sale of a
      security on a timely basis.

      Emerging markets might have less developed trading markets and
      exchanges, and legal and accounting systems. Investments may be subject
      to greater risks of government restrictions on withdrawing the sales
      proceeds of securities from the country. Economies of developing
      countries may be more dependent on relatively few industries that may
      be highly vulnerable to local and global changes. Governments may be
      more unstable and present greater risks of nationalization or
      restrictions on foreign ownership of stocks of local companies. These
      investments may be very speculative.

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

Special Risks of Lower-Grade Securities. The Fund can invest up to 35% of its
      total assets in securities below investment-grade to seek income.
      Therefore, the Fund's credit risks are greater than those of funds that
      buy only investment-grade bonds. Lower-grade debt securities (commonly
      called "junk bonds") may be subject to greater market fluctuations and
      greater risks of loss of income and principal than investment-grade
      debt securities.  Securities that are (or that have fallen) below
      investment grade generally have greater risks that the issuers of those
      securities might not meet their debt obligations. The market for
      lower-grade securities may be less liquid, especially during times of
      general economic distress, and therefore they may be harder to sell at
      an acceptable price. These risks can reduce the Fund's share prices and
      the income it earns.

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

PREPAYMENT RISK. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the mortgage-related securities that the Fund can
buy, have greater potential for loss when interest rates rise. The impact of
prepayments on the price of a security may be difficult to predict and may
increase the volatility of the price. Additionally, the Fund might buy
mortgage-related securities at a premium. Accelerated prepayments on those
securities could cause the Fund to lose a portion of its principal investment
represented by the premium the Fund paid.

      If interest rates rise rapidly, prepayments might occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.

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

      If prepayments of mortgages underlying a mortgage-related security
occur faster than expected when interest rates fall, the market value and
yield of the mortgage-related security could be reduced. Additionally, the
Fund may have to reinvest the prepayment proceeds in other securities paying
interest at lower rates, which could reduce the Fund's yield.

ASSET ALLOCATION RISKS. Because the Fund typically invests in a combination
of stocks, bonds and money market instruments to seek total return, it might
not achieve growth in its share prices to the same degree as funds focusing
on stocks during periods of rapidly rising prices. Also, the Fund's
investments in stocks may make it more difficult for the Manager to preserve
principal in volatile stock markets. The Fund's use of value and growth
styles in selecting stocks might not be successful, particularly if stocks
selected as value investments fail to appreciate in price to the extent the
Manager expected.

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

      In the short term, domestic and foreign stock markets can be volatile,
and the price of the Fund's shares will go up and down in response to those
changes. The Fund's income-oriented investments may help cushion the Fund's
total return from changes in stock prices, but debt securities are subject to
credit, prepayment and interest rate risks. In the OppenheimerFunds spectrum,
the Fund may be less volatile than funds that focus only on stock
investments, but has less opportunities for capital growth than funds focused
solely on stocks and more risks than the funds that focus solely on
investment grade bonds.

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


The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares, both before and after
taxes, compare to those of broad-based market indices.  The after-tax returns
for the other classes of shares will vary.

The after-tax returns are shown for Class A shares only and are calculated
using the historical highest individual federal marginal income tax rates in
effect during the periods shown, and do not reflect the impact of state or
local taxes.  In certain cases, the figure representing "Return After Taxes
on Distributions and Sale of Fund Shares" may be higher than the other return
figures for the same period.  A higher after-tax return results when a
capital loss occurs upon redemption and translates into an assumed tax
deduction that benefits the shareholder.   The after-tax returns are
calculated based on certain assumptions mandated by regulation and your
actual after-tax returns may differ from those shown, depending on your
individual tax situation.  The after-tax returns set forth below are not
relevant to investors who hold their fund shares through tax-deferred
arrangements such as 401(k) plans or IRAs or to institutional investors not
subject to tax. The Fund's past investment performance, before and after
taxes, is not necessarily an indication of how the Fund will perform in the
future.

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

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

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

For the period  from  1/1/05  through  12/31/05,  the  cumulative  return (not
annualized) before taxes for Class A shares was 3.59%.
During the period shown in the bar chart,  the highest return (not annualized)
before  taxes for a calendar  quarter  was 12.05% (2nd Qtr '03) and the lowest
return (not  annualized)  before taxes for a calendar quarter was -11.03% (3rd
Qtr '01).


- -------------------------------------------------------------------------------------
Average Annual Total Returns                          5 Years          10 Years
for    the    periods    ended                      (or life of       (or life of
December 31, 2005                   1 Year        class, if less)   class, if less)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class  A   Shares   (inception
4/24/87)                            -2.37%             3.82%             7.71%
  Return Before Taxes               -3.86%             2.60%             5.46%
  Return After Taxes on             -0.57%             2.70%             5.48%
  Distributions
  Return    After   Taxes   on
  Distributions  and  Sale  of
  Fund Shares
- -------------------------------------------------------------------------------------
S&P 500  Index (reflects no
deduction for fees, expenses
or taxes)                            4.91%             0.54%           9.07%(1)
- -------------------------------------------------------------------------------------
Lehman  Bros.  Aggregate  Bond
Index  (reflects  no deduction
for fees, expenses or taxes)         2.43%             5.87%           6.16%(1)
- -------------------------------------------------------------------------------------
Class  B   Shares   (inception      -2.23%             3.76%             7.79%
8/29/95)
- -------------------------------------------------------------------------------------
Class  C   Shares   (inception       1.75%             4.18%             7.45%
12/1/93)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class  N   Shares   (inception       2.23%             4.21%              N/A
3/1/01)
- -------------------------------------------------------------------------------------
(1)   From 12/31/95

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

Fees and Expenses of the Fund

      The following tables are provided to help you understand the fees and
expenses you may pay if you buy and hold shares of the Fund.  The Fund pays a
variety of expenses directly for management of its assets, administration,
distribution of its shares and other services.  Those expenses are subtracted
from the Fund's assets to calculate the Fund's net asset values per share.
All shareholders therefore pay those expenses indirectly.  Shareholders pay
other transaction expenses directly, such as sales charges.  The numbers
below are based on the Fund's expenses during its fiscal year ended September
30, 2005.


 --------------------------------------------------------------------------
 Shareholder Fees (charges paid directly from your investment):
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
                                  Class A   Class B    Class C   Class N
                                   Shares     Shares    Shares    Shares
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Maximum Sales Charge (Load) on
 purchases (as % of offering        5.75%      None      None      None
 price)
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Maximum Deferred Sales Charge
 (Load) (as % of the lower of
 the original offering             None(1)   5.00%(2)  1.00%(3)  1.00%(4)
 price or redemption proceeds)
 --------------------------------------------------------------------------

 --------------------------------------------------------------------------
 Annual Fund Operating Expenses (deducted from Fund assets):
 (% of average daily net assets)
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
                                  Class A   Class B    Class C    Class N
                                   Shares     Shares    Shares    Shares
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Management Fees                    0.70%     0.70%      0.70%     0.70%
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Distribution    and/or   Service   0.20%     1.00%      1.00%     0.50%
 (12b-1) Fees
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Other Expenses                     0.15%     0.28%      0.21%     0.30%
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------
 Total Annual Operating Expenses    1.05%     1.98%      1.91%     1.50%
 --------------------------------------------------------------------------
Expenses may vary in future years.  "Other  Expenses"  include  transfer agent
fees,  custodial  fees,  and accounting and legal expenses that the Fund pays.
The  Transfer  Agent  has  voluntarily  undertaken  to the Fund to  limit  the
transfer  agent fees to 0.35% of average  daily net assets per fiscal year for
all classes.  That  undertaking  may be amended or withdrawn at any time.  For
the Fund's fiscal year ended  September 30, 2005,  the transfer agent fees did
not exceed the expense limitation described above.

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


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

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

 ------------------------------------------------------------------------------
 If shares are redeemed:      1 Year      3 Years       5 Years     10 Years
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class A Shares                $676         $891        $1,124       $1,790
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class B Shares                $703         $927        $1,278      $1,859(1)
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class C Shares                $296         $606        $1,041       $2,254
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class N Shares                $254         $478         $824        $1,804
 ------------------------------------------------------------------------------

 ------------------------------------------------------------------------------
 If shares are not            1 Year      3 Years       5 Years     10 Years
 redeemed:
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class A Shares                $676         $891        $1,124       $1,790
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class B Shares                $203         $627        $1,078      $1,859(1)
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class C Shares                $196         $606        $1,041       $2,254
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Class N Shares                $154         $478         $824        $1,804
 ------------------------------------------------------------------------------

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

About the Fund's Investments

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

      At times the Fund may focus more on investing for capital appreciation
with less emphasis on seeking income, while seeking to preserve principal. At
other times, for example when stock markets are less stable, the Fund might
have greater relative emphasis on income-seeking investments, such as
government securities and money market instruments.

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

      In seeking broad diversification of the Fund's portfolio over asset
classes, issuers and economies, the portfolio managers consider overall and
relative economic conditions in U.S. and foreign markets. They seek broad
diversification by investing in different countries to help moderate the
special risks of investing in foreign securities and lower-grade, high-yield
debt securities.

Stock Investments. The Fund's stock investments may be exchange-traded or
      over-the-counter securities. Over-the-counter securities may have less
      liquidity than exchange-traded securities. Stocks represent an
      ownership interest in a company and common stocks rank below preferred
      stocks and bonds in their claim for dividends and assets if the issuer
      is liquidated or becomes bankrupt.

Debt Securities. The Fund will normally invest at least 25% of its net assets
      in fixed-income senior securities, such as bonds and notes. The debt
      securities the Fund buys may be rated by nationally recognized rating
      organizations or they may be unrated securities assigned a rating by
      the Manager.

      The Fund has no requirements as to the maturity of the debt securities
      it can buy, or as to the market capitalization range of the issuers of
      those securities. The Fund's investments may be investment grade or
      below investment grade in credit quality. The Manager does not rely
      solely on ratings by rating organizations in selecting debt securities
      but evaluates business and economic factors affecting an issuer as well.

      The Fund's foreign debt investments can be denominated in U.S. dollars
      or in foreign currencies. Foreign government securities might not be
      backed by the government's full faith and credit. The Fund can buy
      "Brady Bonds." Those are U.S. dollar-denominated debt securities
      collateralized by zero-coupon U.S. Treasury securities. They are
      typically issued by governments of emerging market countries and are
      considered speculative securities with higher risks of default. The
      Fund will buy foreign currency only in connection with the purchase and
      sale of foreign securities and not for speculation.

   o  U.S. Government Securities. The Fund can invest in securities issued or
      guaranteed by the U.S. Treasury or other U.S. Government agencies or
      federally-chartered corporate entities referred to as
      "instrumentalities." These are referred to as "U.S. Government
      securities" in this Prospectus. They can include collateralized
      mortgage obligations ("CMOs") and other mortgage-related securities.

   o  U.S. Treasury Obligations. These include Treasury bills (having
      maturities of one year or less when issued), Treasury notes (having
      maturities of more than one and up to ten years when issued), and
      Treasury bonds (having maturities of more than ten years when issued).
      Treasury securities are backed by the full faith and credit of the
      United States as to timely payments of interest and repayment of
      principal. Although not rated, Treasury obligations have little credit
      risk, but prior to their maturity they are subject to interest rate
      risk.

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

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

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

      During the period  between  the sale and the  repurchase,  the Fund will
      not be  entitled  to receive  interest  and  principal  payments  on the
      securities  that have been sold. It is possible that the market value of
      the  securities  the Fund sells may decline below the price at which the
      Fund is obligated to  repurchase  securities,  or that the  counterparty
      might default in its  obligation.  A  substantial  portion of the Fund's
      assets may be subject to forward roll transactions at any given time.

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

   ?  High-Yield, Lower-Grade Debt Securities. The Fund can purchase a
      variety of lower-grade, high-yield debt securities, to seek current
      income. These securities are sometimes called "junk bonds." The Fund
      limits these investments to not more than 35% of its total assets.

      Lower-grade debt securities are those rated below "Baa" by Moody's
      Investors Service ("Moody's") or lower than "BBB" by Standard & Poor's
      ("S&P") or that have comparable ratings by other nationally-recognized
      rating organizations. They include unrated securities assigned a
      comparable rating by the Manager. The Fund can invest in securities
      rated as low as "C" or "D" or which are in default at the time the Fund
      buys them. While securities rated "Baa" by Moody's or "BBB" by S&P are
      considered "investment grade," they have some speculative
      characteristics.

   o  Money Market Instruments. The Fund can invest in money market
      instruments, which include short-term certificates of deposit, bankers'
      acceptances, commercial paper, U.S. Government obligations, and other
      debt instruments (including bonds) issued by corporations. These
      securities may have variable or floating interest rates. The Fund's
      investments in commercial paper in general will be limited to paper in
      the top two rating categories of S&P or Moody's.


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

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

Other Equity Investments. The Fund's equity investments are mainly common
      stocks, but also include preferred stocks and securities convertible
      into common stock. The Manager considers some convertible securities to
      be "equity equivalents" because of the conversion feature and in that
      case their rating has less impact on the investment decision than in
      the case of other debt securities.

Investing in Small- and Mid-Cap Stocks. The Fund may investment in small- and
      mid-cap companies. Small- and mid-cap companies can include both
      established and newer companies. While these companies might offer
      greater opportunities for capital appreciation than larger or more
      established companies, they involve greater risks of loss or price
      fluctuations than larger issuers.

      Small- and mid-cap companies may have more limited product lines or
      markets for their products, limited access to financial resources and
      less depth in management skill than larger, more established companies.
      Their stocks may be less liquid than those of larger issuers. That
      means the Fund could have greater difficulty selling a security of a
      small- or mid-cap issuer at an acceptable price, especially in periods
      of market volatility. That factor increases the potential for losses to
      the Fund. Also, it may take a longer period of time before the Fund
      realizes a gain on an investment in a small- or mid-cap company than in
      a larger company, if it realizes any gain at all.

Zero-Coupon and "Stripped" Securities. Some of the U.S. Government debt
      securities the Fund buys are zero-coupon bonds that pay no interest.
      They are issued at a substantial discount from their face value.
      "Stripped" securities are the separate income or principal components
      of a debt security. Some CMOs or other mortgage-related securities may
      be stripped, with each component having a different proportion of
      principal or interest payments. One class might receive all the
      interest and the other all the principal payments.

      Zero-coupon and stripped securities are subject to greater fluctuations
      in price from interest rate changes than interest-bearing securities.
      The Fund may have to pay out the imputed income on zero-coupon
      securities without receiving the actual cash currently. Interest-only
      securities are particularly sensitive to changes in interest rates.

      The values of interest-only mortgage related securities are also very
      sensitive to prepayments of underlying mortgages. When prepayments tend
      to fall, the timing of the cash flows to these securities increases,
      making them more sensitive to changes in interest rates. The market for
      some of these securities may be limited, making it difficult for the
      Fund to dispose of its holdings quickly at an acceptable price.

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

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

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

   o  Credit Derivatives.  The Fund may enter into credit default swaps, both
      (i) directly and (ii) indirectly in the form of a swap embedded within
      a structured note, to protect against the risk that a security will
      default.   The Fund pays a fee to enter into the trade and receives a
      fixed payment during the life of the swap.   If there is a credit
      event, the Fund either delivers the defaulted bond (if the Fund has
      taken the short position in the credit default swap) or pays the par
      amount of the defaulted bond (if the Fund has taken the long position
      in the credit default swap note). Risks of credit default swaps include
      the cost of paying for credit protection if there are no credit events.

Hedging. The Fund can buy and sell futures contracts, put and call options,
      and forward contracts. These are all referred to as "hedging
      instruments."  The Fund is not required to use hedging instruments to
      seek its objective. The Fund does not use hedging instruments for
      speculative purposes, and has limits on its use of them.

      The Fund could buy and sell options, futures and forward contracts for
      a number of purposes. It might do so to try to manage its exposure to
      the possibility that the prices of its portfolio securities may
      decline, or to establish a position in the securities market as a
      temporary substitute for purchasing individual securities. It might do
      so to try to manage its exposure to changing interest rates. Forward
      contracts can be used to try to manage foreign currency risks on the
      Fund's foreign investments.

      There are also special risks in particular hedging strategies. Options
      trading involves the payment of premiums and can increase portfolio
      turnover. 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 and will not be able to realize
      any profit if the investment has increased in value above the call
      price.

      If the Manager used a hedging instrument at the wrong time or judged
      market conditions incorrectly, the strategy could 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 or if it could not close out a position because of an
      illiquid market.

o     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  defensive  investments  that  are
   inconsistent with the Fund's principal  investment  strategies.  Generally,
   they would be high-quality,  short-term money market  instruments,  such as
   U.S.  government  securities,  highly rated  commercial  paper,  short-term
   corporate debt  obligations,  bank deposits or repurchase  agreements.  The
   Fund can also hold these  types of  securities  pending the  investment  of
   proceeds  from the sale of Fund shares or portfolio  securities  or to meet
   anticipated  redemptions of Fund shares.  To the extent the Fund invests in
   these  securities,  it might not achieve its  investment  objective of high
   total return.

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

o     Loans of  Portfolio  Securities.  The Fund has entered into a Securities
   Lending  Agreement  with JP Morgan Chase.  Under that  agreement  portfolio
   securities  of the  Fund  may be  loaned  to  brokers,  dealers  and  other
   financial  institutions.  The Securities  Lending  Agreement  provides that
   loans must be adequately  collateralized and may be made only in conformity
   with the Fund's Securities Lending Guidelines,  adopted by the Fund's Board
   of Trustees.  The value of the securities  loaned may not exceed 25% of the
   value of the Fund's net assets.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
      and annual reports that are distributed to shareholders of the Fund
      within 60 days after the close of the period for which such report is
      being made. The Fund also discloses its portfolio holdings in its
      Statements of Investments on Form N-Q, which are filed with the
      Securities and Exchange Commission (the "SEC") no later than 60 days
      after the close of its first and third fiscal quarters. These required
      filings are publicly available at the SEC. Therefore, portfolio
      holdings of the Fund are made publicly available no later than 60 days
      after the close of each of the Fund's fiscal quarters.

      A description of the Fund's policies and procedures with respect to the
      disclosure of the Fund's portfolio securities is available in the
      Fund's Statement of Additional Information.


How the Fund Is Managed

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

      The Manager has been an investment adviser since 1960.  The Manager and
its subsidiaries and controlled affiliates managed more than $200 billion in
assets as of December 31, 2005, including other Oppenheimer funds, with more
than 6 million shareholder accounts. The Manager is located at Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008.

Advisory Fees. Under the investment advisory agreement, the Fund pays the
      Manager an advisory fee at an annual rate that declines on additional
      assets as the Fund grows: 0.75% of the first $200 million of average
      annual net assets of the Fund, 0.72% of the next $200 million, 0.69% of
      the next $200 million, 0.66% of the next $200 million, 0.60% of the
      next $700 million, and 0.58% of average annual net assets in excess of
      $1.5 billion. The Fund's management fee for its last fiscal year ended
      September 30, 2005 was 0.70% of average annual net assets for each
      class of shares.

      A discussion regarding the basis for the Board of Trustees' approval of
      the Fund's investment advisory contract is available in the Fund's
      Annual Report to shareholders for the year ended September 30, 2005.


Portfolio Managers.  The equity component of the Fund's portfolio is managed
      by Emmanuel Ferreira and Christopher Leavy, and the fixed-income
      component of the Fund's portfolio is managed by Angelo Manioudakis and
      a team of investment professionals including Benjamin J. Gord, Geoffrey
      Caan, Charles Moon and Antulio N. Bomfim who are primarily responsible
      for the day-to-day management of the Fund's investments.  Messrs.
      Ferreira, Leavy and Manioudakis have been portfolio managers of the
      Fund since January 2003.

       Mr. Ferreira is the lead manager of the equity  component of the Fund's
      portfolio  and  has  been  a Vice  President  of the  Manager  and  Vice
      President  of the Fund since  January  2003.  He is a portfolio  manager
      and officer of other  portfolios  in the  OppenheimerFunds  complex.  He
      was formerly  Portfolio  Manager at Lashire  Investments  from July 1999
      through December 2002.

       Mr.  Leavy  has been a  Senior  Vice  President  of the  Manager  since
      September  2000 and Vice  President of the Fund since  January  2003. He
      is  a  portfolio   manager  and  officer  of  other  portfolios  in  the
      OppenheimerFunds  complex.  Mr. Leavy was a portfolio  manager at Morgan
      Stanley Dean Witter  Investment  Management from 1997 through  September
      2000.

       The Fund's  fixed-income  component  has been  managed  by a  portfolio
      management team comprised of Angelo Manioudakis,  Benjamin Gord, Charles
      Moon,  Geoffrey Caan and Antulio N. Bomfim.  This  portfolio  management
      team is  primarily  responsible  for the  day-to-day  management  of the
      fixed-income component of the Fund.

      Mr.  Manioudakis  has been a Senior Vice President of the Manager and of
      HarbourView  Asset Management  Corporation since April 2002. He has been
      a Senior Vice  President of OFI  Institutional  Asset  Management,  Inc.
      since  June  2002.  He has  been  a Vice  President  of the  Fund  since
      January  2003.  He is also a  portfolio  manager  and  officer  of other
      portfolios  in  the   OppenheimerFunds   complex.  Mr.  Manioudakis  was
      Executive  Director  and  portfolio  manager  for  Miller,   Anderson  &
      Sherrerd,  a  division  of Morgan  Stanley  Investment  Management  from
      August 1993 through April 2002.

      Mr. Gord has been a portfolio  manager of the Fund since 2003 and a Vice
      President  of the  Manager  since  April  2002.  He is also a  portfolio
      manager of other portfolios in the  OppenheimerFunds  complex.  Mr. Gord
      was an Executive  Director and a senior fixed income  analyst at Miller,
      Anderson & Sherrerd, a division of Morgan Stanley Investment  Management
      from April 1992 through March 2002.

      Mr. Caan has been a portfolio  manager of the Fund since 2003 and a Vice
      President  of the  Manager  since  August  2003.  He is also a portfolio
      manager of other portfolios in the  OppenheimerFunds  complex.  Mr. Caan
      was a Vice  President  of ABN AMRO  N.A.,  Inc.  from June 2002  through
      August 2003,  and a Vice President of Zurich  Scudder  Investments  from
      January 1999 through June 2002.

      Mr. Moon has been a portfolio  manager of the Fund since 2003 and a Vice
      President  of the  Manager  since  April  2002.  He is also a  portfolio
      manager of other portfolios in the  OppenheimerFunds  complex.  Mr. Moon
      was an Executive Director and a portfolio manager at Miller,  Anderson &
      Sherrerd,  a division of Morgan Stanley Investment  Management from June
      1999 through March 2002.

      Mr.  Bomfim  has been a  portfolio  manager of the Fund since 2003 and a
      Vice  President  of  the  Manager  since  October  2003.  He is  also  a
      portfolio manager of other portfolios in the  OppenheimerFunds  complex.
      Mr.  Bomfim  was a Senior  Economist  at the Board of  Governors  of the
      Federal Reserve System from June 1992 to October 2003.

      The Statement of Additional Information provides additional information
      about the Portfolio Managers' compensation, other accounts they manage
      and their ownership of Fund shares.

Pending Litigation. A consolidated amended complaint has been filed as
      putative derivative and class actions against the Manager, Distributor
      and Transfer Agent, as well as 51 of the Oppenheimer funds
      (collectively the "funds") including the Fund, 30 present and former
      Directors or Trustees and 8 present and former officers of certain of
      the funds. This complaint, initially filed in the U.S. District Court
      for the Southern District of New York on January 10, 2005 and amended
      on March 4, 2005, consolidates into a single action and amends six
      individual previously-filed putative derivative and class action
      complaints. Like those prior complaints, the complaint alleges that the
      Manager charged excessive fees for distribution and other costs,
      improperly used assets of the funds in the form of directed brokerage
      commissions and 12b-1 fees to pay brokers to promote sales of the
      funds, and failed to properly disclose the use of fund assets to make
      those payments in violation of the Investment Company Act and the
      Investment Advisers Act of 1940. Also, like those prior complaints, the
      complaint further alleges that by permitting and/or participating in
      those actions, the Directors/Trustees and the officers breached their
      fiduciary duties to fund shareholders under the Investment Company Act
      and at common law.  The complaint seeks unspecified compensatory and
      punitive damages, rescission of the funds' investment advisory
      agreements, an accounting of all fees paid, and an award of attorneys'
      fees and litigation expenses.

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

ABOUT YOUR ACCOUNT

How to Buy Shares

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

Buying Shares Through Your Dealer. You can buy shares through any dealer,
      broker or financial institution that has a sales agreement with the
      Distributor. Your dealer will place your order with the Distributor on
      your behalf. A broker or dealer may charge for that service.
Buying Shares Through the Distributor. Complete an OppenheimerFunds new
      account application and return it with a check payable to
      "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
      Colorado 80217. If you do not list a dealer on the application, Class A
      shares are your only purchase option. The Distributor will act as your
      agent in buying Class A shares. However, we recommend that you discuss
      your investment with a financial advisor before you make a purchase to
      be sure that the Fund is appropriate for you. 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 a current investor no longer has another
      broker-dealer of record for an existing Class B, Class C or Class N
      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.
Paying by Federal Funds Wire. Shares purchased through the Distributor may be
      paid for by Federal Funds wire. The minimum investment is $2,500.
      Before sending a wire, call the Distributor's Wire Department at
      1.800.225.5677 to notify the Distributor of the wire and to receive
      further instructions.
o     Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
      you pay for shares by electronic funds transfers from your bank
      account. Shares are purchased for your account by a transfer of money
      from your bank account through the Automated Clearing House (ACH)
      system. You can provide those instructions automatically, under an
      Asset Builder Plan, described below, or by telephone instructions using
      OppenheimerFunds PhoneLink, also described below. Please refer to
      "AccountLink," below for more details.
o     Buying Shares Through Asset Builder Plans. You may purchase shares of
      the Fund automatically from your account at a bank or other financial
      institution under an Asset Builder Plan with AccountLink. Details are
      in the Asset Builder application and the Statement of Additional
      Information.

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

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

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

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

      The Board has adopted valuation procedures for the Fund and has
      delegated the day-to-day responsibility for fair value determinations
      to the Manager's Valuation Committee.  Fair value determinations by the
      Manager are subject to review, approval and ratification by the Board
      at its next scheduled meeting after the fair valuations are
      determined.  In determining whether current market prices are readily
      available and reliable, the Manager monitors the information it
      receives in the ordinary course of its investment management
      responsibilities for significant events that it believes in good faith
      will affect the market prices of the securities of issuers held by the
      Fund.  Those may include events affecting specific issuers (for
      example, a halt in trading of the securities of an issuer on an
      exchange during the trading day) or events affecting securities markets
      (for example, a foreign securities market closes early because of a
      natural disaster).  The Fund uses fair value pricing procedures to
      reflect what the Manager and the Board believe to be more accurate
      values for the Fund's portfolio securities, although it may not always
      be able to accurately determine such values. In addition, the
      discussion of "time-zone arbitrage" describes effects that the Fund's
      fair value pricing policy is intended to counteract.


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

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

The Offering Price. To receive the offering price for a particular day, the
      Distributor or its designated agent must receive your order, in good
      order, by the time the NYSE closes that day. If your order is received
      on a day when the NYSE is closed or after it has closed, the order will
      receive the next offering price that is determined after your order is
      received.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
      receive the order by the close of the NYSE (normally 4:00 p.m.) and
      transmit it to the Distributor so that it is received before the
      Distributor's close of business on a regular business day (normally
      5:00 p.m.) to receive that day's offering price, unless your dealer has
      made alternative arrangements with the Distributor. Otherwise, the
      order will receive the next offering price that is determined.

- ------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge
      (on investments up to $1 million for regular accounts or lesser amounts
      for certain retirement plans). The amount of that sales charge will
      vary depending on the amount you invest. The sales charge rates are
      listed in "How Can You Buy Class A Shares?" below.
- ------------------------------------------------------------------------------
Class B Shares. If you buy Class B shares, you pay no sales charge at the
      time of purchase, but you will pay an annual asset-based sales charge.
      If you sell your shares within 6 years of buying them, you will
      normally pay a contingent deferred sales charge. That contingent
      deferred sales charge varies depending on how long you own your shares,
      as described in "How Can You Buy Class B Shares?" below.
- ------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the
      time of purchase, but you will pay an annual asset-based sales charge.
      If you sell your shares within 12 months of buying them, you will
      normally pay a contingent deferred sales charge of 1.0%, as described
      in "How Can You Buy Class C Shares?" below.
- ------------------------------------------------------------------------------
Class N Shares. If you buy Class N shares (available only through certain
      retirement plans), you pay no sales charge at the time of purchase, but
      you will pay an annual asset-based sales charge. If you sell your
      shares within 18 months of the retirement plan's first purchase of
      Class N shares, you may pay a contingent deferred sales charge of 1.0%,
      as described in "How Can You Buy Class N Shares?" below.

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

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

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

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

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

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

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

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

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

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

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

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

 ------------------------------------------------------------------------------
 Amount of Purchase       Front-End Sales  Front-End Sales   Concession As a
                                           Charge As a
                          Charge As a      Percentage of
                          Percentage of    Net               Percentage of
                          Offering Price   Amount Invested   Offering Price
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 Less than $25,000             5.75%             6.10%             4.75%
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 $25,000 or more but           5.50%             5.82%             4.75%
 less than $50,000
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 $50,000 or more but           4.75%             4.99%             4.00%
 less than $100,000
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 $100,000 or more but          3.75%             3.90%             3.00%
 less than $250,000
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 $250,000 or more but          2.50%             2.56%             2.00%
 less than $500,000
 ------------------------------------------------------------------------------
 ------------------------------------------------------------------------------
 $500,000 or more but          2.00%             2.04%             1.60%
 less than $1 million
 ------------------------------------------------------------------------------
Due to rounding,  the actual sales charge for a particular  transaction may be
higher or lower than the rates listed above.

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

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

o     Right of Accumulation. To qualify for the reduced Class A sales charge
         that would apply to a larger purchase than you are currently making
         (as shown in the table above), you can add the value of any Class A,
         Class B or, Class C shares of the Fund or other Oppenheimer funds
         that you or your spouse currently own, or are currently purchasing,
         to the value of your Class A share purchase. Your Class A shares of
         Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on
         which you have not paid a sales charge will not be counted for this
         purpose.  In totaling your holdings, you may count shares held in
         your individual accounts (including IRAs and 403(b) plans), your
         joint accounts with your spouse, or accounts you or your spouse hold
         as trustees or custodians on behalf of your children who are minors.
         A fiduciary can count all shares purchased for a trust, estate or
         other fiduciary account that has multiple accounts (including
         employee benefit plans for the same employer).  If you are buying
         shares directly from the Fund, you must inform the Distributor of
         your eligibility and holdings at the time of your purchase in order
         to qualify for the Right of Accumulation. If you are buying shares
         through your financial intermediary you must notify your
         intermediary of your eligibility for the Right of Accumulation at
         the time of your purchase.

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

o     Letters of Intent. You may also qualify for reduced Class A sales
         charges by submitting a Letter of Intent to the Distributor. A
         Letter of Intent is a written statement of your intention to
         purchase a specified value of Class A, Class B or Class C shares of
         the Fund or other Oppenheimer funds over a 13-month period. The
         total amount of your intended purchases of Class A, Class B and
         Class C shares will determine the reduced sales charge rate that
         will apply to your Class A share purchases of the Fund during that
         period. You can choose to include purchases made up to 90 days
         before the date that you submit a Letter. Your Class A shares of
         Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on
         which you have not paid a sales charge will not be counted for this
         purpose. Submitting a Letter of Intent does not obligate you to
         purchase the specified amount of shares.  You may also be able to
         apply the Right of Accumulation to these purchases.

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

Other Special Sales Charge Arrangements and Waivers.  The Fund and the
Distributor offer other opportunities to purchase shares without front-end or
contingent deferred sales charges under the programs described below. The
Fund reserves the right to amend or discontinue these programs at any time
without prior notice.
o     Dividend Reinvestment.  Dividends and/or capital gains distributions
         received by a shareholder from the Fund may be reinvested in shares
         of the Fund or any of the other Oppenheimer funds without a sales
         charge, at the net asset value per share in effect on the payable
         date. You must notify the Transfer Agent in writing to elect this
         option and must have an existing account in the fund selected for
         reinvestment.
o     Exchanges of Shares.  Shares of the Fund may be exchanged for shares of
         certain other Oppenheimer funds at net asset value per share at the
         time of exchange, without sales charge, and shares of the Fund can
         be purchased by exchange of shares of certain other Oppenheimer
         funds on the same basis. Please refer to "How to Exchange Shares" in
         this Prospectus and in the Statement of Additional Information for
         more details, including a discussion of circumstances in which sales
         charges may apply on exchanges.
o     Reinvestment Privilege.  Within six months of a redemption of certain
         Class A and Class B shares, the proceeds may be reinvested in Class
         A shares of the Fund, or any of the other Oppenheimer funds into
         which shares of the Fund may be exchanged, without a sales charge.
         This privilege applies to redemptions of Class A shares that were
         subject to an initial sales charge or Class A or Class B shares that
         were subject to a contingent deferred sales charge when redeemed.
         The investor must ask the Transfer Agent or financial intermediary
         for that privilege at the time of reinvestment and must identify the
         account from which the redemption was made.
o     Other Special Reductions and Waivers. The Fund and the Distributor
         offer additional arrangements to reduce or eliminate front-end sales
         charges or to waive contingent deferred sales charges for certain
         types of transactions and for certain classes of investors
         (primarily retirement plans that purchase shares in special programs
         through the Distributor). These are described in greater detail in
         Appendix C to the Statement of Additional Information, which may be
         ordered by calling 800.225.5677 or through the OppenheimerFunds
         website, at www.oppenheimerfunds.com (follow the hyperlinks: "Access
         Accounts and Services" - "Forms & Literature" - "Order Literature" -
         "Statements of Additional Information"). A description of these
         waivers and special sales charge arrangements is also available for
         viewing on the OppenheimerFunds website (follow the hyperlinks:
         "Research Funds" - "Fund Documents" - "View a description . . .").
         To receive a waiver or special sales charge rate under these
         programs, the purchaser must notify the Distributor (or other
         financial intermediary through which shares are being purchased) at
         the time of purchase, or notify the Transfer Agent at the time of
         redeeming shares for those waivers that apply to contingent deferred
         sales charges.
o     Purchases by Certain Retirement Plans. There is no initial sales charge
         on purchases of Class A shares of the Fund by retirement plans that
         have $5 million or more in plan assets. In that case the Distributor
         may pay from its own resources, at the time of sale, concessions in
         an amount equal to 0.25% of the purchase price of Class A shares
         purchased within the first six months of account establishment by
         those retirement plans to dealers of record, subject to certain
         exceptions described in "Retirement Plans" in the Statement of
         Additional Information.

         There is also no initial sales charge on purchases of Class A shares
         of the Fund by certain retirement plans that are part of a
         retirement plan or platform offered by banks, broker-dealers,
         financial advisors, insurance companies or recordkeepers. No
         contingent deferred sales charge is charged upon the redemption of
         such shares.

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

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

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

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

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

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

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

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

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

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

      Class N shares are sold at net asset value without an initial sales
charge. A contingent deferred sales charge of 1.0% will be imposed upon the
redemption of Class N shares, if:
o     The group retirement plan is terminated or Class N shares of all
      Oppenheimer funds are terminated as an investment option of the plan
      and Class N shares are redeemed within 18 months after the plan's first
      purchase of Class N shares of any Oppenheimer fund, or
o     With respect to an IRA or 403(b) plan, Class N shares are redeemed
      within 18 months of the plan's first purchase of Class N shares of any
      Oppenheimer fund.

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


DISTRIBUTION AND SERVICE (12b-1) PLANS.

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

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

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

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

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

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

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

      For certain group retirement plans held in omnibus accounts, the
      Distributor will pay the full Class C or Class N asset-based sales
      charge and the service fee to the dealer beginning in the first year
      after the purchase of such shares in lieu of paying the dealer the
      sales concession and the advance of the first year's service fee at the
      time of purchase. New group omnibus plans may not purchase Class B
      shares.

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

OTHER PAYMENTS TO FINANCIAL INTERMEDIARIES AND SERVICE PROVIDERS. The Manager
and the Distributor, in their discretion, also may pay dealers or other
financial intermediaries and service providers for distribution and/or
shareholder servicing activities. These payments are made out of the
Manager's and/or the Distributor's own resources, including from the profits
derived from the advisory fees the Manager receives from the Fund. These cash
payments, which may be substantial, are paid to many firms having business
relationships with the Manager and Distributor. These payments are in
addition to any distribution fees, servicing fees, or transfer agency fees
paid directly or indirectly by the Fund to these financial intermediaries and
any commissions the Distributor pays to these firms out of the sales charges
paid by investors. These payments by the Manager or Distributor from their
own resources are not reflected in the tables in the section called "Fees and
Expenses of the Fund" in this prospectus because they are not paid by the
Fund.

      "Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to the Fund, or both, and
receive compensation for doing so. Your securities dealer or financial
adviser, for example, is a financial intermediary, and there are other types
of financial intermediaries that receive payments relating to the sale or
servicing of the Fund's shares. In addition to dealers, the financial
intermediaries that may receive payments include sponsors of fund
"supermarkets," sponsors of fee-based advisory or wrap fee programs, sponsors
of college and retirement savings programs, banks and trust companies
offering products that hold Fund shares, and insurance companies that offer
variable annuity or variable life insurance products.

      In general, these payments to financial intermediaries can be
categorized as "distribution-related" or "servicing" payments. Payments for
distribution-related expenses, such as marketing or promotional expenses, are
often referred to as "revenue sharing." Revenue sharing payments may be made
on the basis of the sales of shares attributable to that dealer, the average
net assets of the Fund and other Oppenheimer funds attributable to the
accounts of that dealer and its clients, negotiated lump sum payments for
distribution services provided, or sales support fees. In some circumstances,
revenue sharing payments may create an incentive for a dealer or financial
intermediary or its representatives to recommend or offer shares of the Fund
or other Oppenheimer funds to its customers. These payments also may give an
intermediary an incentive to cooperate with the Distributor's marketing
efforts. A revenue sharing payment may, for example, qualify the Fund for
preferred status with the intermediary receiving the payment or provide
representatives of the Distributor with access to representatives of the
intermediary's sales force, in some cases on a preferential basis over funds
of competitors. Additionally, as firm support, the Manager or Distributor may
reimburse expenses related to educational seminars and "due diligence" or
training meetings (to the extent permitted by applicable laws or the rules of
the NASD) designed to increase sales representatives' awareness about
Oppenheimer funds, including travel and lodging expenditures. However, the
Manager does not consider a financial intermediary's sale of shares of the
Fund or other Oppenheimer funds when selecting brokers or dealers to effect
portfolio transactions for the funds.

      Various factors are used to determine whether to make revenue sharing
payments. Possible considerations include, without limitation, the types of
services provided by the intermediary, sales of Fund shares, the redemption
rates on accounts of clients of the intermediary or overall asset levels of
Oppenheimer funds held for or by clients of the intermediary, the willingness
of the intermediary to allow the Distributor to provide educational and
training support for the intermediary's sales personnel relating to the
Oppenheimer funds, the availability of the Oppenheimer funds on the
intermediary's sales system, as well as the overall quality of the services
provided by the intermediary and the Manager or Distributor's relationship
with the intermediary. The Manager and Distributor have adopted guidelines
for assessing and implementing each prospective revenue sharing arrangement.
To the extent that financial intermediaries receiving distribution-related
payments from the Manager or Distributor sell more shares of the Oppenheimer
funds or retain more shares of the funds in their client accounts, the
Manager and Distributor benefit from the incremental management and other
fees they receive with respect to those assets.

      Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided such as sub-transfer
agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements,
account set-up, recordkeeping and other shareholder services. Payments may
also be made for administrative services related to the distribution of Fund
shares through the intermediary. Firms that may receive servicing fees
include retirement plan administrators, qualified tuition program sponsors,
banks and trust companies, and others. These fees may be used by the service
provider to offset or reduce fees that would otherwise be paid directly to
them by certain account holders, such as retirement plans.

      The Statement of Additional Information contains more information about
revenue sharing and service payments made by the Manager or the Distributor.
Your dealer may charge you fees or commissions in addition to those disclosed
in this prospectus. You should ask your dealer or financial intermediary for
details about any such payments it receives from the Manager or the
Distributor and their affiliates, or any other fees or expenses it charges.


Special Investor Services

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

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

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

PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the PhoneLink number, 1.800.225.5677.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
      phone, by calling 1.800.225.5677. You must have established AccountLink
      privileges to link your bank account with the Fund to pay for these
      purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
      below, you can exchange shares automatically by phone from your Fund
      account to another OppenheimerFunds account you have already
      established by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling
      the PhoneLink number and the Fund will send the proceeds directly to
      your AccountLink bank account. Please refer to "How to Sell Shares,"
      below for details.

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

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

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

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

How to Sell Shares

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

Certain Requests Require a Signature Guarantee. To protect you and the Fund
      from fraud, the following redemption requests must be in writing and
      must include a signature guarantee (although there may be other
      situations that also require a signature guarantee):
   o  You wish to redeem more than $100,000 and receive a check
   o  The redemption check is not payable to all shareholders listed on the
      account statement
   o  The redemption check is not sent to the address of record on your
      account statement
   o  Shares are being transferred to a Fund account with a different owner
      or name
   o  Shares are being redeemed by someone (such as an Executor) other than
      the owners.

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

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

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

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

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

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

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

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

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

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

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

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

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

How to Exchange Shares

If you want to change all or part of your investment from one Oppenheimer
fund to another, you can exchange your shares for shares of the same class of
another Oppenheimer fund that offers the exchange privilege. For example, you
can exchange Class A shares of the Fund only for Class A shares of another
fund. To exchange shares, you must meet several conditions:

   o  Shares of the fund selected for exchange must be available for sale in
      your state of residence.
   o  The prospectus of the selected fund must offer the exchange privilege.
   o  When you establish an account, you must hold the shares you buy for at
      least seven days before you can exchange them. After your account is
      open for seven days, you can exchange shares on any regular business
      day, subject to the limitations described below.
   o  You must meet the minimum purchase requirements for the selected fund.
   o  Generally, exchanges may be made only between identically registered
      accounts, unless all account owners send written exchange instructions
      with a signature guarantee.
   o  Before exchanging into a fund, you must obtain its prospectus and
      should read it carefully.

      For tax purposes, an exchange of shares of the Fund is considered a
sale of those shares and a purchase of the shares of the fund into which you
are exchanging. An exchange may result in a capital gain or loss.

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

      A contingent deferred sales charge (CDSC) is not charged when you
exchange shares of the Fund for shares of another Oppenheimer fund. However,
if you exchange your shares during the applicable CDSC holding period, the
holding period will carry over to the fund shares that you acquire.
Similarly, if you acquire shares of the Fund in exchange for shares of
another Oppenheimer fund that are subject to a CDSC holding period, that
holding period will carry over to the acquired shares of the Fund. In either
of these situations, a CDSC may be imposed if the acquired shares are
redeemed before the end of the CDSC holding period that applied to the
exchanged shares.

      There are a number of other  special  conditions  and  limitations  that
apply to certain types of exchanges.  These conditions and  circumstances  are
described in detail in the "How to Exchange  Shares"  section in the Statement
of Additional Information.

HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing,
by telephone or internet, or by establishing an Automatic Exchange Plan.

Written Exchange Requests. Send a request letter, signed by all owners of the
      account, to the Transfer Agent at the address on the back cover.
      Exchanges of shares for which share certificates have been issued
      cannot be processed unless the Transfer Agent receives the certificates
      with the request letter.

Telephone and Internet Exchange Requests. Telephone exchange requests may be
      made either by calling a service representative or by using PhoneLink
      by calling 1.800.225.5677. You may submit internet exchange requests on
      the OppenheimerFunds internet website, at www.oppenheimerfunds.com. You
      must have obtained a user I.D. and password to make transactions on
      that website. Telephone and/or internet exchanges may be made only
      between accounts that are registered with the same name(s) and address.
      Shares for which share certificates have been issued may not be
      exchanged by telephone or the internet.

Automatic Exchange Plan. Shareholders can authorize the Transfer Agent to
      exchange a pre-determined amount of shares automatically on a monthly,
      quarterly, semi-annual or annual basis.

Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES, REDEMPTIONS AND EXCHANGES?

Risks from Excessive Purchase, Redemption and Short-Term Exchange Activity.
The OppenheimerFunds exchange privilege affords investors the ability to
switch their investments among Oppenheimer funds if their investment needs
change. However, there are limits on that privilege. Frequent purchases,
redemptions and exchanges of fund shares may interfere with the Manager's
ability to manage the fund's investments efficiently, increase the fund's
transaction and administrative costs and/or affect the fund's performance,
depending on various factors, such as the size of the fund, the nature of its
investments, the amount of fund assets the portfolio manager maintains in
cash or cash equivalents, the aggregate dollar amount and the number and
frequency of trades. If large dollar amounts are involved in exchange and/or
redemption transactions, the Fund might be required to sell portfolio
securities at unfavorable times to meet redemption or exchange requests, and
the Fund's brokerage or administrative expenses might be increased.

Therefore, the Manager and the Fund's Board of Trustees have adopted the
following policies and procedures to detect and prevent frequent and/or
excessive exchanges, and/or purchase and redemption activity, while balancing
the needs of investors who seek liquidity from their investment and the
ability to exchange shares as investment needs change. There is no guarantee
that the policies and procedures described below will be sufficient to
identify and deter excessive short-term trading.

o     Timing of Exchanges.  Exchanged shares are normally redeemed from one
      fund and the proceeds are reinvested in the fund selected for exchange
      on the same regular business day on which the Transfer Agent or its
      agent (such as a financial intermediary holding the investor's shares
      in an "omnibus" or "street name" account) receives an exchange request
      that conforms to these policies. The request must be received by the
      close of the NYSE that day, which is normally 4:00 p.m. Eastern time,
      but may be earlier on some days, in order to receive that day's net
      asset value on the exchanged shares. Exchange requests received after
      the close of the NYSE will receive the next net asset value calculated
      after the request is received. However, the Transfer Agent may delay
      transmitting the proceeds from an exchange for up to five business days
      if it determines, in its discretion, that an earlier transmittal of the
      redemption proceeds to the receiving fund would be detrimental to
      either the fund from which the exchange is being made or the fund into
      which the exchange is being made. The proceeds will be invested in the
      fund into which the exchange is being made at the next net asset value
      calculated after the proceeds are received. In the event that such a
      delay in the reinvestment of proceeds occurs, the Transfer Agent will
      notify you or your financial representative.

o     Limits on Disruptive Activity. The Transfer Agent may, in its
      discretion, limit or terminate trading activity by any person, group or
      account  that it believes would be disruptive, even if the activity has
      not exceeded the policy outlined in this Prospectus. The Transfer Agent
      may review and consider the history of frequent trading activity in all
      accounts in the Oppenheimer funds known to be under common ownership or
      control as part of the Transfer Agent's procedures to detect and deter
      excessive trading activity.

o     Exchanges of Client Accounts by Financial Advisers.  The Fund and the
      Transfer Agent permit dealers and financial intermediaries to submit
      exchange requests on behalf of their customers (unless the customer has
      revoked that authority). The Distributor and/or the Transfer Agent have
      agreements with a number of financial intermediaries that permit them
      to submit exchange orders in bulk on behalf of their clients. Those
      intermediaries are required to follow the exchange policies stated in
      this Prospectus and to comply with additional, more stringent
      restrictions. Those additional restrictions include limitations on the
      funds available for exchanges, the requirement to give advance notice
      of exchanges to the Transfer Agent, and limits on the amount of client
      assets that may be invested in a particular fund. A fund or the
      Transfer Agent may limit or refuse bulk exchange requests submitted by
      such financial intermediaries if, in the Transfer Agent's judgment,
      exercised in its discretion, the exchanges would be disruptive to any
      of the funds involved in the transaction.

o     Redemptions of Shares.  These exchange policy limits do not apply to
      redemptions of shares. Shareholders are permitted to redeem their
      shares on any regular business day, subject to the terms of this
      Prospectus. Further details are provided under "How to Sell Shares."

o     Right to Refuse Exchange and Purchase Orders.  The Distributor and/or
      the Transfer Agent may refuse any purchase or exchange order in their
      discretion and are not obligated to provide notice before rejecting an
      order. The Fund may amend, suspend or terminate the exchange privilege
      at any time. You will receive 60 days' notice of any material change in
      the exchange privilege unless applicable law allows otherwise.

o     Right to Terminate or Suspend Account Privileges.  The Transfer Agent
      may send a written warning to direct shareholders that the Transfer
      Agent believes may be engaging in excessive purchases, redemptions
      and/or exchange activity and reserves the right to suspend or terminate
      the ability to purchase shares and/or exchange privileges for any
      account that the Transfer Agent determines, in carrying out these
      policies and in the exercise of its discretion, has engaged in
      disruptive or excessive trading activity, with or without such warning.

o     Omnibus Accounts.  If you hold your shares of the Fund through a
      financial intermediary such as a broker-dealer, a bank, an insurance
      company separate account, an investment adviser, an administrator or
      trustee of a retirement plan or 529 plan, that holds your shares in an
      account under its name (these are sometimes referred to as "omnibus" or
      "street name" accounts), that financial intermediary may impose its own
      restrictions or limitations to discourage short-term or excessive
      trading. You should consult your financial intermediary to find out
      what trading restrictions, including limitations on exchanges, they may
      apply.

While the Fund, the Distributor, the Manager and the Transfer Agent encourage
financial intermediaries to apply the Fund's policies to their customers who
invest indirectly in the Fund, the Transfer Agent may not be able to detect
excessive short term trading activity facilitated by, or in accounts
maintained in, the "omnibus" or "street name" accounts of a financial
intermediary. Therefore the Transfer Agent might not be able to apply this
policy to accounts such as (a) accounts held in omnibus form in the name of a
broker-dealer or other financial institution, or (b) omnibus accounts held in
the name of a retirement plan or 529 plan trustee or administrator, or (c)
accounts held in the name of an insurance company for its separate
account(s), or (d) other accounts having multiple underlying owners but
registered in a manner such that the underlying beneficial owners are not
identified to the Transfer Agent.

However, the Transfer Agent will attempt to monitor overall purchase and
redemption activity in those accounts to seek to identify patterns that may
suggest excessive trading by the underlying owners. If evidence of possible
excessive trading activity is observed by the Transfer Agent, the financial
intermediary that is the registered owner will be asked to review account
activity, and to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity. However, the
Transfer Agent's ability to monitor and deter excessive short-term trading in
omnibus or street name accounts ultimately depends on the capability and
cooperation of the financial intermediaries controlling those accounts.

Additional Policies and Procedures. The Fund's Board has adopted the
following additional policies and procedures to detect and prevent frequent
and/or excessive exchanges and purchase and redemption activity:

o     30-Day Limit.  A direct shareholder may exchange some or all of the
         shares of the Fund held in his or her account to another eligible
         Oppenheimer fund once in a 30 calendar-day period. When shares are
         exchanged into a fund account, that account will be "blocked" from
         further exchanges into another fund for a period of 30 calendar days
         from the date of the exchange. The block will apply to the full
         account balance and not just to the amount exchanged into the
         account. For example, if a shareholder exchanged $1,000 from one
         fund into another fund in which the shareholder already owned shares
         worth $10,000, then, following the exchange, the full account
         balance ($11,000 in this example) would be blocked from further
         exchanges into another fund for a period of 30 calendar days. A
         "direct shareholder" is one whose account is registered on the
         Fund's books showing the name, address and tax ID number of the
         beneficial owner.

o     Exchanges Into Money Market Funds.  A direct shareholder will be
         permitted to exchange shares of a stock or bond fund for shares of a
         money market fund at any time, even if the shareholder has exchanged
         shares into the stock or bond fund during the prior 30 days.
         However, all of the shares held in that money market fund would then
         be blocked from further exchanges into another fund for 30 calendar
         days.

o     Dividend Reinvestments/B Share Conversions.  Reinvestment of dividends
         or distributions from one fund to purchase shares of another fund
         and the conversion of Class B shares into Class A shares will not be
         considered exchanges for purposes of imposing the 30-day limit.

o     Asset Allocation.  Third-party asset allocation and rebalancing
         programs will be subject to the 30-day limit described above. Asset
         allocation firms that want to exchange shares held in accounts on
         behalf of their customers must identify themselves to the Transfer
         Agent and execute an acknowledgement and agreement to abide by these
         policies with respect to their customers' accounts. "On-demand"
         exchanges outside the parameters of portfolio rebalancing programs
         will be subject to the 30-day limit. However, investment programs by
         other Oppenheimer "funds-of-funds" that entail rebalancing of
         investments in underlying Oppenheimer funds will not be subject to
         these limits.

o     Automatic Exchange Plans.  Accounts that receive exchange proceeds
         through automatic or systematic exchange plans that are established
         through the Transfer Agent will not be subject to the 30-day block
         as a result of those automatic or systematic exchanges (but may be
         blocked from exchanges, under the 30-day limit, if they receive
         proceeds from other exchanges).


Shareholder Account Rules and Policies

More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
A $12 annual "Minimum Balance Fee" is assessed on each Fund account with a
      value of less than $500. The fee is automatically deducted from each
      applicable Fund account annually in September. See the Statement of
      Additional Information to learn how you can avoid this fee and for
      circumstances under which this fee will not be assessed.
The offering of shares may be suspended during any period in which the
      determination of net asset value is suspended, and the offering may be
      suspended by the Board of Trustees at any time the Board believes it is
      in the Fund's best interest to do so.
Telephone transaction privileges for purchases, redemptions or exchanges may
      be modified, suspended or terminated by the Fund at any time. The Fund
      will provide you notice whenever it is required to do so by applicable
      law. If an account has more than one owner, the Fund and the Transfer
      Agent may rely on the instructions of any one owner. Telephone
      privileges apply to each owner of the account and the dealer
      representative of record for the account unless the Transfer Agent
      receives cancellation instructions from an owner of the account.
The Transfer Agent will record any telephone calls to verify data concerning
      transactions and has adopted other procedures to confirm that telephone
      instructions are genuine, by requiring callers to provide tax
      identification numbers and other account data or by using PINs, and by
      confirming such transactions in writing. The Transfer Agent and the
      Fund will not be liable for losses or expenses arising out of telephone
      instructions reasonably believed to be genuine.
Redemption or transfer requests will not be honored until the Transfer Agent
      receives all required documents in proper form. From time to time, the
      Transfer Agent in its discretion may waive certain of the requirements
      for redemptions stated in this Prospectus.
Dealers that perform account transactions for their clients by participating
      in NETWORKING through the National Securities Clearing Corporation are
      responsible for obtaining their clients' permission to perform those
      transactions, and are responsible to their clients who are shareholders
      of the Fund if the dealer performs any transaction erroneously or
      improperly.
The redemption price for shares will vary from day to day because the value
      of the securities in the Fund's portfolio fluctuates. The redemption
      price, which is the net asset value per share, will normally differ for
      each class of shares. The redemption value of your shares may be more
      or less than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by
      check, or through AccountLink or by Federal Funds wire (as elected by
      the shareholder) within seven days after the Transfer Agent receives
      redemption instructions in proper form. However, under unusual
      circumstances determined by the Securities and Exchange Commission,
      payment may be delayed or suspended. For accounts registered in the
      name of a broker-dealer, payment will normally be forwarded within
      three business days after redemption.
The Transfer Agent may delay processing any type of redemption payment as
      described under "How to Sell Shares" for recently purchased shares, but
      only until the purchase payment has cleared. That delay may be as much
      as 10 days from the date the shares were purchased. That delay may be
      avoided if you purchase shares by Federal Funds wire or certified
      check, or arrange with your bank to provide telephone or written
      assurance to the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the
      account value has fallen below $500 for reasons other than the fact
      that the market value of shares has dropped. In some cases, involuntary
      redemptions may be made to repay the Distributor for losses from the
      cancellation of share purchase orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack
      of liquidity in the Fund's portfolio to meet redemptions). This means
      that the redemption proceeds will be paid with liquid securities from
      the Fund's portfolio. If the Fund redeems your shares in kind, you may
      bear transaction costs and will bear market risks until such time as
      such securities are converted into cash.
Federal regulations may require the Fund to obtain your name, your date of
      birth (for a natural person), your residential street address or
      principal place of business and your Social Security Number, Employer
      Identification Number or other government issued identification when
      you open an account. Additional information may be required in certain
      circumstances or to open corporate accounts.  The Fund or the Transfer
      Agent may use this information to attempt to verify your identity.  The
      Fund may not be able to establish an account if the necessary
      information is not received.  The Fund may also place limits on account
      transactions while it is in the process of attempting to verify your
      identity.  Additionally, if the Fund is unable to verify your identity
      after your account is established, the Fund may be required to redeem
      your shares and close your account.
"Backup withholding" of federal income tax may be applied against taxable
      dividends, distributions and redemption proceeds (including exchanges)
      if you fail to furnish the Fund your correct, certified Social Security
      or Employer Identification Number when you sign your application, or if
      you under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will
      mail only one copy of each prospectus, annual and semi-annual report
      and annual notice of the Fund's privacy policy to shareholders having
      the same last name and address on the Fund's records. The consolidation
      of these mailings, called householding, benefits the Fund through
      reduced mailing expense.

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

Dividends, Capital Gains and Taxes

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

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

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

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

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

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

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

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

Financial Highlights

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

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

CLASS A    YEAR ENDED SEPTEMBER 30,                    2005            2004            2003          2002          2001
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $  13.75        $  12.55        $  10.51      $  12.14      $  14.23
                                                   ----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                   .24 1           .14             .21           .35           .43
Net realized and unrealized gain (loss)                1.38            1.16            2.08         (1.29)        (1.40)
                                                   ----------------------------------------------------------------------
Total from investment operations                       1.62            1.30            2.29          (.94)         (.97)
- -------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.16)           (.10)           (.22)         (.31)         (.38)
Tax return of capital distribution                       --              --            (.03)           --            --
Distributions from net realized gain                   (.70)             --              --          (.38)         (.74)
                                                   ----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                        (.86)           (.10)           (.25)         (.69)        (1.12)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $  14.51        $  13.75        $  12.55      $  10.51      $  12.14
                                                   ======================================================================

- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                    12.13%          10.37%          21.98%        (8.58)%       (7.27)%

- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $725,836        $651,754        $575,799      $483,311      $562,281
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $694,147        $631,041        $523,477      $570,796      $626,251
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                  1.69%           1.05%           1.78%         2.84%         3.16%
Total expenses                                         1.05%           1.07%           1.11%         1.15%         1.01%
Expenses after payments and waivers and
reduction to custodian expenses                        1.05%           1.06%           1.11%         1.15%         1.01%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                  73% 4           61% 4          205%           31%           40%

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

                                   PURCHASE TRANSACTIONS       SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005             $2,097,453,846          $2,135,377,175
Year Ended September 30, 2004             $1,069,526,653          $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         40 | OPPENHEIMER BALANCED FUND

CLASS B   YEAR ENDED SEPTEMBER 30,                    2005           2004            2003           2002           2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.53        $ 12.40         $ 10.38        $ 12.01        $ 14.08
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .11 1          .02             .09            .25            .31
Net realized and unrealized gain (loss)               1.36           1.13            2.07          (1.29)         (1.36)
                                                   -----------------------------------------------------------------------
Total from investment operations                      1.47           1.15            2.16          (1.04)         (1.05)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.07)          (.02)           (.11)          (.21)          (.28)
Tax return of capital distribution                      --             --            (.03)            --             --
Distributions from net realized gain                  (.70)            --              --           (.38)          (.74)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.77)          (.02)           (.14)          (.59)         (1.02)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.23        $ 13.53         $ 12.40        $ 10.38        $ 12.01
                                                   =======================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                   11.17%          9.26%          20.91%         (9.38)%        (7.96)%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $98,271        $84,924         $64,944        $54,757        $63,487
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $92,677        $77,082         $57,836        $64,702        $67,959
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                 0.76%          0.11%           0.81%          2.02%          2.37%
Total expenses                                        1.98% 4        2.02% 4,5       2.08% 4        1.97% 4        1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 6          61% 6          205%            31%            40%

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 September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         41 | OPPENHEIMER BALANCED FUND

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


CLASS C   YEAR ENDED SEPTEMBER 30,                    2005           2004            2003           2002           2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.59        $ 12.44         $ 10.42        $ 12.06        $ 14.13
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .11 1          .04             .11            .24            .31
Net realized and unrealized gain (loss)               1.37           1.13            2.06          (1.29)         (1.37)
                                                   -----------------------------------------------------------------------
Total from investment operations                      1.48           1.17            2.17          (1.05)         (1.06)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.08)          (.02)           (.12)          (.21)          (.27)
Tax return of capital distribution                      --             --            (.03)            --             --
Distributions from net realized gain                  (.70)            --              --           (.38)          (.74)
                                                   -----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.78)          (.02)           (.15)          (.59)         (1.01)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.29        $ 13.59         $ 12.44        $ 10.42        $ 12.06
                                                   =======================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                   11.18%          9.45%          20.98%         (9.41)%        (8.00)%

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $87,820        $68,018         $47,212        $33,300        $36,171
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $78,091        $60,095         $38,407        $37,412        $39,030
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                 0.83%          0.19%           0.90%          2.03%          2.37%
Total expenses                                        1.91% 4        1.93% 4,5       1.98% 4        1.96% 4        1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 6          61% 6          205%            31%            40%

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 September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         42 | OPPENHEIMER BALANCED FUND

FINANCIAL HIGHLIGHTS Continued


CLASS N    YEAR ENDED SEPTEMBER 30,                   2005          2004          2003         2002         2001 1
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.65       $ 12.49       $ 10.48      $ 12.13      $ 13.67
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .17 2         .10           .20          .39          .24
Net realized and unrealized gain (loss)               1.38          1.12          2.01        (1.38)       (1.48)
                                                   ---------------------------------------------------------------
Total from investment operations                      1.55          1.22          2.21         (.99)       (1.24)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.12)         (.06)         (.17)        (.28)        (.30)
Tax return of capital distribution                      --            --          (.03)          --           --
Distributions from net realized gain                  (.70)           --            --         (.38)          --
                                                   ---------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.82)         (.06)         (.20)        (.66)        (.30)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.38       $ 13.65       $ 12.49      $ 10.48      $ 12.13
                                                   ===============================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                   11.66%         9.77%        21.27%       (8.94)%      (9.30)%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $11,803       $ 8,772       $ 3,349      $   798      $    95
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $10,278       $ 5,701       $ 1,604      $   454      $    12
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                 1.24%         0.55%         1.24%        2.49%        5.81%
Total expenses                                        1.50%         1.58%         1.76%        1.48%        1.32%
Expenses after payments and waivers and
reduction to custodian expenses                       1.50%         1.57%         1.62%        1.48%        1.32%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 5         61% 5        205%          31%          40%

1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.

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

3. 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.

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

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

                                    PURCHASE TRANSACTIONS      SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

INFORMATION AND SERVICES

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

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

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

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


- ------------------------------------------------------------------------------
By Telephone:                 Call OppenheimerFunds Services toll-free:
                              1.800.CALL OPP (225.5677)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
By Mail:                      Write to:
                              OppenheimerFunds Services
                              P.O. Box 5270
                              Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
On the Internet:              You can request these documents by e-mail or
                              through the OppenheimerFunds website. You may
                              also read or download certain documents on the
                              OppenheimerFunds website at:
                              www.oppenheimerfunds.com
- ------------------------------------------------------------------------------

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


The Fund's shares are distributed by:                [logo]   OppenheimerFunds
Distributor, Inc.
The Fund's SEC File No.: 811-3864
PR0240.001.0106

Printed on recycled paper







                          Appendix to Prospectus of
                          Oppenheimer Balanced Fund


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

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

            Calendar                Annual
            Year                    Total
            Ended                         Returns

            12/31/96                17.23%
            12/31/97                17.77%
            12/31/98                 7.05%
            12/31/99                10.60%
            12/31/00                 6.57%
            12/31/01                 1.68%
            12/31/02                -10.60%
            12/31/03                 23.91%
            12/31/04                 9.67%
            12/31/05                 3.59%

 ------------------------------------------------------------------------------
 Oppenheimer Balanced Fund
 ------------------------------------------------------------------------------

6803 S. Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)

Statement of Additional Information dated January 27, 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  January  27,  2006.  It should be read
together with the Prospectus.  You can obtain the Prospectus 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.........................
    Other Investment Restrictions......................................
    Disclosure of Portfolio Holdings...................................
How the Fund is Managed ...............................................
    Organization and History...........................................
    Board of Trustees and Oversight Committees.........................
    Trustees and Officers of the Fund..................................
    The Manager........................................................
Brokerage Policies of the Fund.........................................
Distribution and Service Plans.........................................
Payments to Fund Intermediaries........................................
Performance of the Fund................................................

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

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

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






                                      42
   -------------------------------------------------------------------------
   ABOUT THE FUND
   -------------------------------------------------------------------------

Additional Information About the Fund's Investment Policies and Risks

      The investment objective, the principal investment policies and the
main risks of the Fund are described in the Prospectus. This Statement of
Additional Information contains supplemental information about those policies
and risks and the types of securities that the Fund's investment manager,
OppenheimerFunds, Inc. (the "Manager"), can select for the Fund. Additional
information is also provided about the strategies that the Fund may 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 Manager may use will vary over time. The Fund is not required to use
all of the investment techniques and strategies described below in seeking
its objective. It may use some of the special investment techniques and
strategies at some times or not at all.

      In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation
of the issuer's historical operations, prospects for the industry of which
the issuer is part, the issuer's financial condition, its pending product
developments and business (and those of competitors), the effect of general
market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer.

      |_| Investments in Equity Securities. The Fund's investments in equity
securities can include those of foreign and U.S. companies. Equity securities
include common stocks, preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund's investments can include stocks of
companies in any market capitalization range, if the Manager believes the
investment is consistent with the Fund's objective, including the
preservation of principal. Certain equity securities might be selected not
only for their appreciation possibilities but because they may provide
dividend income.

      Small-cap growth companies may offer greater opportunities for capital
appreciation than securities of large, more established companies. However,
these securities also involve greater risks than securities of larger
companies. Securities of small capitalization issuers may be subject to
greater price volatility in general than securities of large-cap and mid-cap
companies. Therefore, to the degree that the Fund has investments in smaller
capitalization companies at times of market volatility, the Fund's share
price may fluctuate more. Those investments may be limited to the extent the
Manager believes that such investments would be inconsistent with the goal of
preservation of principal. As noted below, the Fund limits investments in
unseasoned small-cap issuers.

            |_| Preferred Stocks. 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 on the issuer's
common stock.

      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 calls or redemptions prior to maturity, which also have a negative
impact on prices when interest rates decline. 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. 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. Preferred stock may be "participating" stock, which means that
it may be entitled to a dividend exceeding the stated dividend in certain
cases.

            |_| Growth Companies. The Fund may invest in securities of
"growth" companies. Growth companies are those companies that the Manager
believes are entering into a growth cycle in their business, with the
expectation that their stock will increase in value. They may be established
companies as well as newer companies in the development stage.

      Growth companies may have a variety of characteristics that in the
Manager's view define them as "growth" issuers. They may be generating or
applying new technologies, new or improved distribution techniques or new
services. They may own or develop natural resources. They may be companies
that can benefit from changing consumer demands or lifestyles, or companies
that have projected earnings in excess of the average for their sector or
industry. In each case, they have prospects that the Manager believes are
favorable for the long term. The portfolio managers of the Fund look for
growth companies with strong, capable management, sound financial and
accounting policies, successful product development and marketing and other
factors.

      |_| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio manager also uses a value investing style coupled
with fundamental analysis of issuers. In using a value approach, the manager
looks for stocks and other equity securities that appear to be temporarily
undervalued, by various measures, such as price/earnings ratios. Value
investing seeks stocks having prices that are low in relation to their real
worth or future prospects, with 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.

            |_| Convertible Securities. While some convertible securities are
a form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded by the Manager
more as "equity equivalents." As a result, the credit rating assigned to the
security has less impact on the Manager's investment decision with respect to
convertible securities than in the case of non-convertible debt fixed-income
securities. Convertible securities are subject to the credit risks and
interest rate risks described below in "Debt Securities."

      To determine whether convertible securities should be regarded as
"equity equivalents," the Manager examines the following factors:

(1)   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,
(2)   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
(3)   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.

      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 prevailing interest rates fall and
decrease when prevailing 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.

      |_| Rights and Warrants. Warrants basically are options to purchase
equity securities at specific prices valid for a specific period of time.
Their prices do not necessarily move parallel to the prices of the underlying
securities. Rights are similar to warrants, but normally have a short
duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.

      |_| Debt Securities. The Fund can invest in a variety of domestic and
foreign debt securities for current income. Foreign debt securities are
subject to the risks of foreign securities described below. In general,
domestic and foreign fixed-income securities are also subject to two
additional types of risk: credit risk and interest rate risk.

         |_| Credit Risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater
extent than lower-yield, higher-quality bonds.

      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. ("Moody's"), at least "BBB" by Standard & Poor's Rating Service
("Standard & Poor's") or Fitch, Inc. ("Fitch"), or have comparable ratings by
another nationally-recognized statistical rating organization.

      In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research
to evaluate a security's credit-worthiness. If the securities 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.

         |_| Special Risks of Lower-Grade Securities. The Fund can invest a
substantial portion of its assets in lower-grade debt securities. Because
lower-grade securities tend to offer higher yields than investment-grade
securities, the Fund may invest in lower-grade securities if the Manager is
trying to achieve greater income. In some cases, the appreciation
possibilities of lower-grade securities may be a reason they are selected for
the Fund's portfolio. However, these investments will be made only when
consistent with the Fund's goal of preservation of principal that is part of
the Fund's objective.

      The Fund may invest up to 35% 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 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 are in default at the time the Fund buys
them.

      Some of the special credit risks of lower-grade securities are
discussed below. 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 risks of foreign investing discussed in
the Prospectus and in this Statement of Additional Information.

      However, the Fund's limitations on these investments may reduce some of
the 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 are investment-grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. The debt security ratings definitions of the principal
rating definitions are included in Appendix A to this Statement of Additional
Information.

         |_| Interest Rate Risk. Interest rate risk refers to the
fluctuations in value of fixed-income 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
fixed-income investments, 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 fixed-income securities after the
Fund buys them will not affect the interest payable on those securities, nor
the cash income from them. 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.

      |_| Mortgage-Related Securities. Mortgage-related securities are a form
of derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests
in real estate mortgage investment conduits ("REMICs") and other real estate
related securities.

      Mortgage-related securities that are issued or guaranteed by agencies
or instrumentalities of the U.S. government have relatively little credit
risk (depending on the nature of the issuer) but are subject to interest rate
risks and prepayment risks, as described in the Prospectus.

      As with other debt securities, the prices of mortgage-related
securities tend to move inversely to changes in interest rates. The Fund can
buy mortgage-related securities that have interest rates that move inversely
to changes in general interest rates, based on a multiple of a specific
index. Although the value of a mortgage-related security may decline when
interest rates rise, the converse is not always the case.

      In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened
by unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities
may be less effective as a means of "locking in" attractive long-term
interest rates, and they may have less potential for appreciation during
periods of declining interest rates, than conventional bonds with comparable
stated maturities.

      Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security.  In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all
or part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes
or prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment
than were anticipated, the Fund may fail to recoup its initial investment on
the security.

      During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on
the Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.

      As with other debt securities, the values of mortgage-related
securities may be affected by changes in the market's perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and
tax policies.

      |_| Collateralized Mortgage Obligations. CMOs are multi-class bonds
that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:

            (1) pass-through certificates issued or guaranteed by Ginnie Mae,
                Fannie Mae, or Freddie Mac,
            (2) unsecuritized mortgage loans insured by the Federal Housing
                Administration or guaranteed by the Department of Veterans'
                Affairs,
            (3) unsecuritized conventional mortgages,
            (4) other mortgage-related securities, or
            (5) any combination of these.

      Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal
and interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in different ways. One or more tranches may have
coupon rates that reset periodically at a specified increase over an index.
These are floating rate CMOs, and typically have a cap on the coupon rate.
Inverse floating rate CMOs have a coupon rate that moves in the reverse
direction to an applicable index. The coupon rate on these CMOs will increase
as general interest rates decrease. These are usually much more volatile than
fixed rate CMOs or floating rate CMOs.







      |_| U.S. Government Securities. These are securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
The obligations of U.S. government agencies or instrumentalities in which the
Fund may invest may or may not be guaranteed or supported by the "full faith
and credit" of the United States. "Full faith and credit" means generally
that the taxing power of the U.S. government is pledged to the payment of
interest and repayment of principal on a security. 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. The owner might be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.
The Fund will invest in securities of U.S. government agencies and
instrumentalities only if the Manager is satisfied that the credit risk with
respect to such instrumentality is minimal.

      |_| 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. They also can include U. S. Treasury securities that have been
"stripped" by a Federal Reserve Bank, zero-coupon U.S. Treasury securities
described below, and Treasury Inflation-Protection Securities ("TIPS").

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

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

      |_| U.S. Government Mortgage-Related Securities. The Fund can invest in
a variety of mortgage-related securities that are issued by U.S. government
agencies or instrumentalities, some of which are described below.

         |_| GNMA Certificates. The Government National Mortgage Association
("GNMA") is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately-issued securities backed by
pools of mortgages. Ginnie Maes are debt securities representing an interest
in one or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration.

      The Ginnie Maes in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the
Certificates will receive timely monthly payments of the pro-rata share of
the scheduled principal payments on the underlying mortgages, whether or not
those amounts are collected by the issuers. Amounts paid include, on a pro
rata basis, any prepayment of principal of such mortgages and interest (net
of servicing and other charges) on the aggregate unpaid principal balance of
the Ginnie Maes, whether or not the interest on the underlying mortgages has
been collected by the issuers.

      The Ginnie Maes purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. It is expected that payments
received by the issuers of Ginnie Maes on account of the mortgages backing
the Ginnie Maes will be sufficient to make the required payments of principal
of and interest on those GNMA Certificates. However if those payments are
insufficient, the guaranty agreements between the issuers of the Certificates
and GNMA require the issuers to make advances sufficient for the payments. If
the issuers fail to make those payments, GNMA will do so.

      Under federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under
any guaranty issued by GNMA as to such mortgage pools. An opinion of an
Assistant Attorney General of the United States, dated December 9, 1969,
states that such guaranties "constitute general obligations of the United
States backed by its full faith and credit." GNMA is empowered to borrow from
the United States Treasury to the extent necessary to make any payments of
principal and interest required under those guaranties.

      Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to
the extent of payments received by the issuers on account of such mortgages,
Ginnie Maes do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against GNMA.
Holders of Ginnie Maes (such as the Fund) have no security interest in or
lien on the underlying mortgages.

      Monthly payments of principal will be made, and additional prepayments
of principal may be made, to the Fund with respect to the mortgages
underlying the Ginnie Maes held by the Fund. All of the mortgages in the
pools relating to the Ginnie Maes in the Fund are subject to repayment
without any significant premium or penalty, at the option of the mortgagors.
While the mortgages on one-to-four-family dwellings underlying certain Ginnie
Maes have a stated maturity of up to 30 years, it has been the experience of
the mortgage industry that the average life of comparable mortgages, as a
result of prepayments, refinancing and payments from foreclosures, is
considerably less.

      |_| Federal Home Loan Mortgage Corporation Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in:

(i)   interest payments less servicing and guarantee fees,
(ii)  principal prepayments and
(iii) the ultimate collection of amounts representing the holder's
                  proportionate interest in principal payments on the
                  mortgage loans in the pool represented by the FHLMC
                  Certificate, in each case whether or not such amounts are
                  actually received.

      The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.

      |_| Federal National Mortgage Association (Fannie Mae) Certificates.
Fannie Mae, a federally-chartered and privately-owned corporation, issues
Fannie Mae Certificates which are backed by a pool of mortgage loans. Fannie
Mae guarantees to each registered holder of a Fannie Mae Certificate that the
holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments,
on the mortgage loans in the pool represented by such Certificate, less
servicing and guarantee fees, and the holder's proportionate interest in the
full principal amount of any foreclosed or other liquidated mortgage loan. In
each case the guarantee applies whether or not those amounts are actually
received. The obligations of Fannie Mae under its guarantees are obligations
solely of Fannie Mae and are not backed by the full faith and credit of the
United States or any of its agencies or instrumentalities other than Fannie
Mae.

      |_| Zero-Coupon U.S. Government Securities. The Fund may buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons,
the coupons themselves, or certificates representing interests in those
stripped debt obligations and coupons.

      Zero-coupon securities do not make periodic interest payments and are
sold at a deep discount from their face value at maturity. 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. The discount typically decreases as the maturity date approaches.

      Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities that pay
interest. 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.

         |_| Forward Rolls. The Fund can enter into "forward roll"
transactions with respect to mortgage-related securities. In this type of
transaction, the Fund sells a mortgage-related security to a buyer and
simultaneously agrees to repurchase a similar security (the same type of
security, having the same coupon and maturity) at a later date at a set
price. The securities that are repurchased will have the same interest rate
as the securities that are sold, but typically will be collateralized by
different pools of mortgages (with different prepayment histories) than the
securities that have been sold. Proceeds from the sale are invested in
short-term instruments, such as repurchase agreements.  The income from those
investments, plus the fees from the forward roll transaction, are expected to
generate income to the Fund in excess of the yield on the securities that
have been sold.

      The Fund will only enter into "covered" rolls.  That is, to assure its
future payment of the purchase price, the Fund will identify on its books
liquid assets in an amount equal to the payment obligation under the roll.

      These transactions have risks. During the period between the sale and
the repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities that have been sold. It is possible that
the market value of the securities the Fund sells may decline below the price
at which the Fund is obligated to repurchase securities.

      |_| Money Market Instruments. The following is a brief description of
the types of money market securities the Fund can invest in. Money market
securities are high-quality, short-term debt instruments that may be issued
by the U.S. government, corporations, banks or other entities. They may have
fixed, variable or floating interest rates.

         |_| U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, described above.

         |_| Bank Obligations. The Fund can buy time deposits, certificates
of deposit and bankers' acceptances. They must be:

               o obligations issued or guaranteed by a domestic bank
                 (including a foreign branch of a domestic bank) having total
                 assets of at least $500 million, or
               o banker's acceptances (which may or may not be supported by
                 letters of credit) but only if guaranteed by a U.S.
                 commercial bank with total assets of at least U.S. $500
                 million.

      The Fund can purchase certificates of deposit of $100,000 or less of a
domestic bank even if that bank has assets of less than $500 million, if the
certificate of deposit is fully insured as to principal by the Federal
Deposit Insurance Corporation. The Fund can buy only one such certificate of
deposit from any one bank with that amount of assets and limits its
investments in those certificates of deposit to 10% of its total assets.
"Banks" include U.S. commercial banks, savings banks and savings and loan
associations.

      |_| Commercial Paper. The Fund can invest in commercial paper if it is
rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having
a credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.

      The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper
may otherwise be purchased by the Fund.

      |_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by
the Fund at varying rates of interest under direct arrangements between the
Fund, as lender, and the borrower. They permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount. The borrower may prepay up to the full amount of the note without
penalty. These notes may or may not be backed by bank letters of credit.

      Because these notes are direct lending arrangements between the lender
and borrower, it is not expected that there will be a trading market for
them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. Accordingly, the Fund's right to
redeem such notes is dependent upon the ability of the borrower to pay
principal and interest on demand.

      The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an
ongoing basis, the Manager will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. Investments in master demand notes are subject to
the limitation on investments by the Fund in illiquid securities, described
in the Prospectus. Currently, the Fund does not intend that its investments
in variable amount master demand notes will exceed 5% of its total assets.

      |_| Portfolio Turnover.  The Fund can engage in short-term trading to
try to achieve its objective. "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.

Other Investment Techniques and Strategies. In seeking its objective, the
Fund may from time to time use 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.

      |_| Foreign Securities. The Fund expects to have substantial
investments in foreign securities. These include equity securities issued by
foreign companies and debt securities issued by foreign companies or
governments, including supra-national entities. "Foreign securities" include
equity and debt securities of companies organized under the laws of countries
other than the United States and debt securities issued or guaranteed by
governments other than the U.S. government or by foreign supra-national
entities. They also include securities of companies (including those that are
located in the U.S. or organized under U.S. law) that derive a significant
portion of their revenue or profits from foreign businesses, investments or
sales, or that have a significant portion of their assets abroad. They may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.

      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, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.

      Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be
received in foreign currencies, the Fund will be required to compute its
income in U.S. dollars for distribution to shareholders, and therefore the
Fund will absorb the cost of currency fluctuations. After the Fund has
distributed income, subsequent foreign currency losses may result in the
Fund's having distributed more income in a particular fiscal period than was
available from investment income, which could result in a return of capital
to shareholders.







      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.

            |_| Foreign Debt Obligations. The debt obligations of foreign
governments and entities may or may not be supported by the full faith and
credit of the foreign government. The Fund may buy securities issued by
certain "supra-national" entities, which include entities designated or
supported by governments to promote economic reconstruction or development,
international banking organizations and related government agencies. Examples
are the International Bank for Reconstruction and Development (commonly
called the "World Bank"), the Asian Development bank and the Inter-American
Development Bank.

      The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed
to make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able
or willing to honor their capitalization commitments for those entities.

      The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate
discount bonds. They are generally collateralized in full as to repayment of
principal at maturity by U.S. Treasury zero-coupon obligations that have the
same maturity as the Brady Bonds. Brady Bonds can be viewed as having three
or four valuation components: (i) the collateralized repayment of principal
at final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity. Those uncollateralized amounts constitute what is
called the "residual risk."

      If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not
be distributed to investors, nor will those obligations be sold to distribute
the proceeds. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds. The defaulted bonds will
continue to remain outstanding, and the face amount of the collateral will
equal the principal payments which would have then been due on the Brady
Bonds in the normal course. Because of the residual risk of Brady Bonds and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, Brady Bonds are considered
speculative investments.

            |_| 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, currency devaluation 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.

      |_| Special Risks of Emerging Markets. Emerging and developing markets
abroad may also offer special opportunities for growth investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of
securities may be subject to additional delays. They are subject to greater
risks of limitations on the repatriation of income and profits because of
currency restrictions imposed by local governments. Those countries may also
be subject to the risk of greater political and economic instability, which
can greatly affect the volatility of prices of securities in those countries.
The Manager will consider these factors when evaluating securities in these
markets, because the selection of those securities must be consistent with
the Fund's goal of preservation of principal.

      |_| Passive Foreign Investment Companies.  Some securities of
corporations domiciled outside the U.S. which the Fund may purchase, may be
considered passive foreign investment companies ("PFICs") under U.S. tax
laws. PFICs are those foreign corporations which generate primarily passive
income. They tend to be growth companies or "start-up" companies. For federal
tax purposes, a corporation is deemed a PFIC if 75% or more of the foreign
corporation's gross income for the income year is passive income or if 50% or
more of its assets are assets that produce or are held to produce passive
income. Passive income is further defined as any income to be considered
foreign personal holding company income within the subpart F provisions
defined by IRCss.954.

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

      Subject to the limits under the Investment Company Act, the Fund may
also invest in foreign mutual funds which are also deemed PFICs (since nearly
all of the income of a mutual fund is generally passive income). Investing in
these types of PFICs may allow exposure to varying 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."

      |_| 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 different types of zero-coupon or stripped
securities, including, 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.

      The Fund may buy zero-coupon and delayed interest securities, and
"stripped" securities of corporations and of foreign government issuers.
These are similar in structure to zero-coupon and "stripped" U.S. government
securities, but in the case of foreign government securities may or may not
be backed by the "full faith and credit" of the issuing foreign government.
Zero coupon securities issued by foreign governments and by corporations will
be subject to greater credit risks than U.S. government zero-coupon
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 value is
generally more volatile than the value 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.

      |_| Commercial (Privately-Issued) Mortgage-Related Securities. The Fund
may invest in commercial mortgage-related securities issued by private
entities. Generally these are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. They are subject to the
credit risk of the issuer. These securities typically are structured to
provide protection to investors in senior classes from possible losses on the
underlying loans. They do so by having holders of subordinated classes take
the first loss if there are defaults on the underlying loans. They may also
be protected to some extent by guarantees, reserve funds or additional
collateralization mechanisms.

      |_| "Stripped" Mortgage-Related Securities. The Fund can invest in
stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security's principal or interest payments. These are a form of derivative
investment.

      Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one
type of security, known as an "interest-only" security, or "I/O," and all of
the principal is distributed to holders of another type of security, known as
a "principal-only" security or "P/O." Strips can be created for pass-through
certificates or CMOs.

      The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.

      |_| Floating Rate and Variable Rate Obligations.      Variable rate
demand obligations have a demand feature that allows the Fund to tender the
obligation to the issuer or a third party prior to its maturity. The tender
may be at par value plus accrued interest, according to the terms of the
obligations.

      The interest rate on a floating rate demand note is adjusted
automatically according to a stated prevailing market rate, such as a bank's
prime rate, the 91-day U.S. Treasury Bill rate, or some other standard. The
instrument's rate is adjusted automatically each time the base rate is
adjusted. The interest rate on a variable rate demand note is also based on a
stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest
rate on such securities reduce the fluctuation in their market value. As
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate demand obligation meets the Fund's quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets those
quality standards.

      Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified
intervals not exceeding one year and upon no more than 30 days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally the issuer must provide a
specified number of days' notice to the holder.

      |_| 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. The Fund currently does
not intend to invest more than 5% of its net assets in those securities.

      |_| 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 of 1940 (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.







      |_| When-Issued and Delayed-Delivery Transactions. The Fund may invest
in securities on a "when-issued" basis and may purchase or sell securities on
a "delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.

      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. No income begins to accrue
to the Fund on a when-issued security until the Fund receives the security at
settlement of the trade.

      The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of
entering 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 for its portfolio 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 may 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.

      |_| Participation Interests. The Fund can invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made
by the issuing financial institution in the proportion that the buyers
participation interest bears to the total principal amount of the loan. No
more than 5% of the Fund's net assets can be invested in participation
interests of the same borrower. The issuing financial institution may have no
obligation to the Fund other than to pay the Fund the proportionate amount of
the principal and interest payments it receives.

      Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan. There is a risk that a
borrower may have difficulty making payments. If a borrower fails to pay
scheduled interest or principal payments, the Fund could experience a
reduction in its income. The value of that participation interest might also
decline, which could affect the net asset value of the Fund's shares. If the
issuing financial institution fails to perform its obligations under the
participation agreement, the Fund might incur costs and delays in realizing
payment and suffer a loss of principal and/or interest.

      |_| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It may 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, or for temporary defensive purposes, as described
below.

      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 that causes more than 10% of its net
assets to be subject to repurchase agreements having a maturity beyond seven
days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.

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

      Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Fund, along with other affiliated entities
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.

      |_| 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 investments. To enable the
Fund to sell its holdings of a restricted security not registered under
applicable securities laws, 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 may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.

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

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

      |_| Loans of Portfolio Securities.  The Fund may lend its portfolio
securities pursuant to the Securities Lending Agreement (the "Securities
Lending Agreement") with JPMorgan Chase, subject to the other restrictions
stated in the Prospectus.  The Fund will lend such portfolio securities to
attempt to increase the Fund's income.  Under the Securities Lending
Agreement and applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, be at least equal to
the value of the loaned securities and must consist of cash, bank letters of
credit or 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 to JPMorgan Chase, as agent, amounts demanded by the Fund if the
demand meets the terms of the letter.  Such terms of the letter of credit and
the issuing bank must be satisfactory to JPMorgan Chase and the Fund.  The
Fund will receive, pursuant to the Securities Lending Agreement, 80% of all
annual net income (i.e., net of rebates to the Borrower) from securities
lending transactions. JPMorgan Chase has agreed, in general, to guarantee the
obligations of borrowers to return loaned securities and to be responsible
for expenses relating to securities lending. The Fund will be responsible,
however, for risks associated with the investment of cash collateral,
including the risk that the issuer of the security in which the cash
collateral has been invested defaults.  The Securities Lending Agreement may
be terminated by either JPMorgan Chase or the Fund on 30 days' written
notice. The terms of the Fund's loans must also meet applicable tests under
the Internal Revenue Code and permit the Fund to reacquire loaned securities
on five business days' notice or in time to vote on any important matter.

      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 if the borrower defaults. The
Fund must receive collateral for a loan.  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.

      |_| Borrowing and Leverage.  The Fund may not borrow money, 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. Borrowing may entail "leverage," and may be a speculative
investment strategy. Any borrowing will be made only from banks and, pursuant
to the requirements of the Investment Company Act, will be made only to the
extent that the value of the Fund's assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing. If the value of the Fund's assets, when computed in that
manner, should fail to meet the 300% asset coverage requirement, the Fund is
required within three days to reduce its bank debt to the extent necessary to
meet that coverage requirement. To do so, the Fund may have to sell a portion
of its investments at a time when it would otherwise not want to sell the
securities. Interest on money the Fund borrows is an expense the Fund would
not otherwise incur, so that during periods of substantial borrowings, its
expenses may increase more than the expenses of funds that do not borrow. The
use of leverage also may make the Fund's share prices more sensitive to
interest rate changes.

      |_| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer
loans. They are issued by trusts or special-purpose corporations. They are
similar to mortgage-backed securities, described above, and are backed by a
pool of assets that consist of obligations of individual borrowers. The
income from the pool is passed through to the holders of participation
interest in the pools. The pools may offer a credit enhancement, such as a
bank letter of credit, to try to reduce the risks that the underlying debtors
will not pay their obligations when due. However, the enhancement, if any,
might not be for the full par value of the security. If the enhancement is
exhausted and any required payments of interest or repayments of principal
are not made, the Fund could suffer a loss on its investment or delays in
receiving payment.

      The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness
of the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected
if any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans
by the individual borrowers. As a purchaser of an asset-backed security, the
Fund would generally have no recourse to the entity that originated the loans
in the event of default by a borrower. The underlying loans are subject to
prepayments, which may shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as in the case of
mortgage-backed securities and CMOs, described above. Unlike mortgage-backed
securities, asset-backed securities typically do not have the benefit of a
security interest in the underlying collateral.

      |_| Derivatives. The Fund can invest in a variety of derivative
investments to seek income or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below in
this Statement of Additional Information. However, the Fund is not obligated
to use derivatives in seeking its objective.

      Some of the 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.

      Other derivative investments the Fund can invest in include
mortgage-related securities (described above) and "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 may 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.

      |_| 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  high yield  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
high yield  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).

      |_| Hedging. Although the Fund can use hedging instruments, it is not
obligated to use them in seeking its objective. 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 that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:







      |_|   sell futures contracts,
      |_|   buy puts on such futures or on securities, or
|_|   write covered calls on securities or futures. Covered calls may also be
         used to increase the Fund's income, but the Manager does not expect
         to engage extensively in that practice.

      The Fund can 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:

      |_|   buy futures, or
      |_|   buy calls on such futures or on securities.

      The Fund's strategy of hedging with futures and options on futures will
be incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may 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) broadly-based stock indices (these are referred to as "stock index
futures"), (2) an individual stock ("single stock futures"), (3) bond indices
(these are referred to as "bond index futures"), (4) debt securities (these
are referred to as "interest rate futures"), (5) foreign currencies (these
are referred to as "forward contracts") and (6) commodities.

      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. Bond index 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.

      The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3)
agriculture, which includes wheat, corn, soybeans, cotton, coffee, sugar and
cocoa; (4) industrial metals, which includes aluminum, copper, lead, nickel,
tin and zinc; and (5) precious metals, which includes gold, platinum and
silver. The Fund may purchase and sell commodity futures contracts, options
on futures contracts and options and futures on commodity indices with
respect to these five main commodity groups and the individual commodities
within each group, as well as other types of commodities.

      No payment 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 may 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 (except
forward contracts) are effected through a clearinghouse associated with the
exchange on which the contracts are traded.

      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
segregating liquid assets to enable the Fund to satisfy its obligations if
the call is exercised. Up to 35% of the Fund's total assets may 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, or a securities depository acting for the
custodian, 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 may
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 may 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 segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated 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 segregated liquid
assets. 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 identify liquid assets on its
books 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 may 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 an investment the Fund does not own (such as an index
or future) permits the Fund either 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.

      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 may sell the put prior to its expiration. That sale may or
may not be at a profit.

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

      The Fund may 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 identified
on its books) 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 identifying on its books cash, U.S. government securities or other liquid,
high grade debt securities in an amount equal to the exercise price of the
option.

      |_| 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 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 may 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 might 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 may 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 may 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 might suffer a substantial decline against
a foreign currency, it could enter into a forward contract to buy that
foreign currency for a fixed dollar amount. Alternatively, the Fund could
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 books liquid 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
may 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 may 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 may 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 may
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 may 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 the Fund's books (such as cash or U.S. government  securities) to cover any
amounts it could owe under  swaps that  exceed the  amounts it is  entitled to
receive, and it will adjust that amount daily, as needed.

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

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

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

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

      Under interpretations of the staff of the SEC regarding applicable
provisions of the Investment Company Act, when the Fund purchases a future,
it must identify liquid assets on its books in an amount equal to the
purchase price of 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.

      |_| Temporary Defensive and Interim Investments.  When market, economic
or political conditions are unstable, or the Manager believes it is otherwise
appropriate to reduce holdings in stocks, the Fund can invest in a variety of
debt securities for defensive purposes. The Fund can also purchase these
securities for liquidity purposes to meet cash needs due to the redemption of
Fund shares, or to hold while waiting to reinvest cash received from the sale
of other portfolio securities. The Fund can buy:
o     obligations issued or guaranteed by the U. S. government or its
         instrumentalities or agencies,
o     commercial paper (short-term, unsecured, promissory notes of domestic
         or foreign companies) rated in the three top rating categories of a
         nationally recognized rating organization,
o     short-term debt obligations of corporate issuers, rated investment
         grade (rated at least Baa by Moody's Investors Service, Inc. or at
         least BBB by Standard & Poor's Corporation, or a comparable rating
         by another rating organization), or unrated securities judged by the
         Manager to have a comparable quality to rated securities in those
         categories,
o     certificates of deposit and bankers' acceptances of domestic and
         foreign banks  having total assets in excess of $1 billion, and
o     repurchase agreements.

      Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly,
are not generally subject to significant fluctuations in principal value and
their value will be less subject to interest rate risk than longer-term debt
securities.

Other Investment Restrictions

      |_| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be
changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as
the vote of the holders of the lesser of:

o     67% or more of the shares present or represented by proxy at a
      shareholder meeting, if the holders of more than 50% of the outstanding
      shares are present or represented by proxy, or
o     more than 50% of the outstanding shares.

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

      |_| What Are the Fund's Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.

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

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.

o     The Fund cannot invest 25% or more of its total assets in any one
      industry.  That limit does not apply to securities issued or guaranteed
      by the U.S. government or its agencies and instrumentalities or
      securities issued by investment companies.

o     The Fund cannot invest in real estate, physical commodities or
      commodity contracts, except to the extent permitted under the
      Investment Company Act, the rules or regulations thereunder or any
      exemption therefrom, as such statute, rules or regulations may be
      amended or interpreted from time to time.

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 may not borrow money, 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.

o     The Fund cannot issue senior securities, except to the extent permitted
      under the Investment Company Act, the rules or regulations thereunder
      or any exemption therefrom, as such statute, rules or regulations may
      be amended or interpreted from time to time.

      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.

      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.

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

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

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

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







A.G. Edwards & Sons
ABG Securities
ABN AMRO
Advest
AG Edwards
American Technology Research
Auerbach Grayson
Banc of America Securities
Barclays
Baseline
Bear Stearns
Belle Haven
Bloomberg
BNP Paribas
BS Financial Services






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






                                      54

How the Fund is Managed

Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of
beneficial interest. The Fund was organized as a Massachusetts business trust
in September 1983.  Prior to February 2004, the Fund's name was Oppenheimer
Multiple Strategies Fund.

      |_| 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 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.

      |_| 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.

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

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

Board of Trustees and Oversight Committees. The Fund is governed by a Board
of Trustees, which is responsible for protecting the interests of
shareholders under Massachusetts law. The Trustees meet periodically
throughout the year to oversee the Fund's activities, review its performance,
and review the actions of the Manager.

      The Board of Trustees has an Audit Committee, a Regulatory & Oversight
Committee, a Governance Committee and a Proxy 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 Joel W. Motley (Chairman), Mary F. Miller, Kenneth A. Randall
and Joseph M. Wikler. The Audit Committee held 5 meetings during the Fund's
fiscal year ended September 30, 2005. 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) maintaining a separate
line of communication between the Fund's independent Auditors and the
Independent Trustees; (v) reviewing the independence of the Fund's
independent Auditors; and (vi) 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 members of the Regulatory & Oversight Committee are Robert G. Galli
(Chairman), Matthew P. Fink, Phillip A. Griffiths, Joel W. Motley and Brian
F. Wruble. The Regulatory & Oversight Committee held 5 meetings during the
Fund's fiscal year ended September 30, 2005. The Regulatory & Oversight
Committee evaluates and reports to the Board on the Fund's contractual
arrangements, including the Investment Advisory and Distribution Agreements,
transfer agency and shareholder service agreements and custodian agreements
as well as the policies and procedures adopted by the Fund to comply with the
Investment Company Act and other applicable law, among other duties as set
forth in the Regulatory & Oversight Committee's Charter.

      The members of the Governance Committee are, Phillip A. Griffiths
(Chairman), Kenneth A. Randall, Russell S. Reynolds, Jr. and Peter I. Wold.
The Governance Committee held 8 meetings during the Fund's fiscal year ended
September 30, 2005. The Governance Committee reviews the Fund's governance
guidelines, the adequacy of the Fund's Codes of Ethics, and develops
qualification criteria for Board members consistent with the Fund's
governance guidelines, among other duties set forth in the Governance
Committee's Charter.

      The Governance Committee's functions also include the selection and
nomination of Trustees, including Independent Trustees for election. The
Governance Committee may, but need not, consider the advice and
recommendation of the Manager and its affiliates in selecting nominees. The
full Board elects new Trustees except for those instances when a shareholder
vote is required.

      To date, the Governance Committee has been able to identify from its
own resources an ample number of qualified candidates. Nonetheless, under the
current policy of the Board, if the Board determines that a vacancy exists or
is likely to exist on the Board, the Governance Committee will consider
candidates for Board membership including those recommended by the Fund's
shareholders. The Governance Committee will consider nominees recommended by
Independent Board members or recommended by any other Board members including
Board members affiliated with the Fund's Manager. The Governance Committee
may, upon Board approval, retain an executive search firm to assist in
screening potential candidates. Upon Board approval, the Governance Committee
may also use the services of legal, financial, or other external counsel that
it deems necessary or desirable in the screening process. Shareholders
wishing to submit a nominee for election to the Board may do so by mailing
their submission to the offices of OppenheimerFunds, Inc., Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008, to the attention of the Board of Trustees of Oppenheimer Balanced
Fund, c/o the Secretary of the Fund.

      Submissions should, at a minimum, be accompanied by the following: (1)
the name, address, and business, educational, and/or other pertinent
background of the person being recommended; (2) a statement concerning
whether the person is an "interested person" as defined in the Investment
Company Act; (3) any other information that the Fund would be required to
include in a proxy statement concerning the person if he or she was
nominated; and (4) the name and address of the person submitting the
recommendation and, if that person is a shareholder, the period for which
that person held Fund shares. Shareholders should note that a person who owns
securities issued by Massachusetts Mutual Life Insurance Company (the parent
company of the Manager) would be deemed an "interested person" under the
Investment Company Act. In addition, certain other relationships with
Massachusetts Mutual Life Insurance Company or its subsidiaries, with
registered broker-dealers, or with the Funds' outside legal counsel may cause
a person to be deemed an "interested person."

      The Governance Committee has not established specific qualifications
that it believes must be met by a trustee nominee. In evaluating trustee
nominees, the Governance Committee considers, among other things, an
individual's background, skills, and experience; whether the individual is an
"interested person" as defined in the Investment Company Act; and whether the
individual would be deemed an "audit committee financial expert" within the
meaning of applicable SEC rules. The Governance Committee also considers
whether the individual's background, skills, and experience will complement
the background, skills, and experience of other Trustees and will contribute
to the Board. There are no differences in the manner in which the Governance
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder. Candidates are expected to provide a mix of
attributes, experience, perspective and skills necessary to effectively
advance the interests of shareholders.

      The members of the Proxy Committee are Russell S. Reynolds, Jr.
(Chairman), Matthew P. Fink and Mary F. Miller. The Proxy Committee held 1
meeting during the Fund's fiscal year ended September 30, 2005. The Proxy
Committee provides the Board with recommendations for the proxy voting of
portfolio securities held by the Fund and monitors proxy voting by the Fund.

Trustees and Officers of the Fund. Except for Mr. Murphy, each of the
Trustees is an Independent Trustee. All of the Trustees are also directors or
trustees of the following Oppenheimer funds (referred to as "Board I Funds"):

Oppenheimer AMT-Free Municipals            Oppenheimer International Growth Fund
                                           Oppenheimer   International   Large  Cap
Oppenheimer AMT-Free New York Municipals   Core Fund
                                           Oppenheimer  International Small Company
Oppenheimer Balanced Fund                  Fund
Oppenheimer California Municipal Fund      Oppenheimer International Value Fund
                                           Oppenheimer   Limited  Term   California
Oppenheimer Capital Appreciation Fund      Municipal Fund
Oppenheimer Developing Markets Fund        Oppenheimer Money Market Fund, Inc.
Oppenheimer Discovery Fund                 Oppenheimer Multi-State Municipal Trust
Oppenheimer Dividend Growth Fund           Oppenheimer Portfolio Series
Oppenheimer Emerging Growth Fund           Oppenheimer Real Estate Fund
Oppenheimer Emerging Technologies Fund     Oppenheimer Select Value Fund
Oppenheimer Enterprise Fund                Oppenheimer Series Fund, Inc.
Oppenheimer Global Fund                    OFI Tremont Core Strategies Hedge Fund
Oppenheimer Global Opportunities Fund      OFI Tremont Market Neutral Hedge Fund
                                           Oppenheimer  Tremont Market Neutral Fund
Oppenheimer Gold & Special Minerals Fund   LLC
Oppenheimer Growth Fund                    Oppenheimer Tremont Opportunity Fund LLC
Oppenheimer International Diversified Fund Oppenheimer U.S. Government Trust

      In addition to being a Board member of each of the Board I Funds,
Messrs. Galli and Wruble are directors or trustees of ten other portfolios,
and Messrs. Wikler and Wold are trustees of one other portfolio, in the
OppenheimerFunds complex.

      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. Ferreira, Leavy, Manioudakis, Gillespie, 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 I Funds. As of December 30, 2005 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 Fund listed above. In addition, none of the Independent
Trustees (nor any of their immediate family members) owns securities of
either the Manager, or the Distributor of the Board I Funds or of any entity
directly or indirectly controlling, controlled by or under common control
with the Manager, or the Distributor.

      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,             Principal Occupation(s) During the Past 5      Dollar     Aggregate
                                                                               Dollar
                                                                              Range Of
                                                                 Range of      Shares
 Position(s) Held                                                 Shares    Beneficially
 with the Fund,    Years; Other Trusteeships/Directorships     Beneficially   Owned in
 Length of         Held; Number of Portfolios in the Fund        Owned in    Supervised
 Service, Age      Complex Currently Overseen                    the Fund      Funds
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
                                                                As of December 31, 2005
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Clayton K.        Director  of  American   Commercial   Lines None         Over
 Yeutter,          (barge   company)   (since  January  2005);              $100,000
 Chairman of the   Attorney  at  Hogan &  Hartson  (law  firm)
 Board of          (since  June  1993);  Director  of  Covanta
 Trustees since    Holding  Corp.   (waste-to-energy  company)
 2003,             (since  2002);   Director  of  Weyerhaeuser
 Trustee since     Corp.   (1999-April   2004);   Director  of
 1993              Caterpillar,   Inc.  (1993-December  2002);
 Age: 75           Director  of  ConAgra  Foods   (1993-2001);
                   Director of Texas Instruments  (1993-2001);
                   Director  of FMC  Corporation  (1993-2001).
                   Oversees    38     portfolios     in    the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Matthew P. Fink,  Trustee  of  the   Committee  for  Economic None         Over
 Trustee since     Development  (policy  research  foundation)              $100,000
 2005              (since  2005);  Director  of ICI  Education
 Age: 65           Foundation  (education  foundation)  (since
                   October 1991);  President of the Investment
                   Company   Institute   (trade   association)
                   (1991-2004);   Director   of   ICI   Mutual
                   Insurance   Company   (insurance   company)
                   (1991-2004).  Oversees 38 portfolios in the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Robert G. Galli,  A director or trustee of other  Oppenheimer None         Over
 Trustee since     funds.   Oversees  48   portfolios  in  the              $100,000
 1993              OppenheimerFunds complex.
 Age: 72

 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Phillip A.        Distinguished   Presidential   Fellow   for None         Over
 Griffiths,        International   Affairs  (since  2002)  and              $100,000
 Trustee since     Member   (since   1979)  of  the   National
 1999              Academy  of  Sciences;  Council  on Foreign
 Age: 67           Relations  (since  2002);  Director  of GSI
                   Lumonics Inc.  (precision medical equipment
                   supplier)  (since 2001);  Senior Advisor of
                   The  Andrew  W.  Mellon  Foundation  (since
                   2001);  Chair of Science  Initiative  Group
                   (since   1999);   Member  of  the  American
                   Philosophical    Society    (since   1996);
                   Trustee of Woodward  Academy  (since 1983);
                   Foreign  Associate  of Third World  Academy
                   of Sciences;  Director of the Institute for
                   Advanced  Study  (1991-2004);  Director  of
                   Bankers   Trust   New   York    Corporation
                   (1994-1999);  Provost  at  Duke  University
                   (1983-1991).  Oversees 38 portfolios in the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Mary F. Miller,   Trustee of the American Symphony  Orchestra None         Over
 Trustee since     (not-for-profit)  (since October 1998); and              $100,000
 2004              Senior Vice  President and General  Auditor
 Age: 63           of  American  Express  Company   (financial
                   services   company)   (July   1998-February
                   2003).   Oversees  38   portfolios  in  the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Joel W. Motley,   Director  of  Columbia   Equity   Financial None         Over
 Trustee since     Corp.  (privately-held  financial  adviser)              $100,000
 2002              (since 2002);  Managing Director of Carmona
 Age: 53           Motley,  Inc.   (privately-held   financial
                   adviser)  (since  January  2002);  Managing
                   Director  of Carmona  Motley  Hoffman  Inc.
                   (privately-held      financial     adviser)
                   (January  1998-December  2001);  Member  of
                   the  Finance  and Budget  Committee  of the
                   Council   on   Foreign    Relations,    the
                   Investment   Committee  of  the   Episcopal
                   Church   of   America,    the    Investment
                   Committee  of Human  Rights  Watch  and the
                   Investment  Committee  of  Historic  Hudson
                   Valley.   Oversees  38  portfolios  in  the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Kenneth A.        Director   of  Dominion   Resources,   Inc. $10,001-$50,0Over
 Randall,          (electric    utility    holding    company)              $100,000
 Trustee since     (February    1972-October   2005);   Former
 1983              Director  of  Prime  Retail,   Inc.   (real
 Age: 78           estate investment  trust),  Dominion Energy
                   Inc.   (electric   power   and  oil  &  gas
                   producer),   Lumberman's   Mutual  Casualty
                   Company,   American   Motorists   Insurance
                   Company and American  Manufacturers  Mutual
                   Insurance  Company;  Former  President  and
                   Chief  Executive  Officer of The Conference
                   Board,  Inc.  (international  economic  and
                   business research).  Oversees 38 portfolios
                   in the OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Russell S.        Chairman of The Directorship  Search Group, None         $10,001-$50,000
 Reynolds, Jr.,    Inc. (corporate  governance  consulting and
 Trustee since     executive  recruiting)  (since 1993);  Life
 1989              Trustee of International  House (non-profit
 Age: 74           educational  organization);  Former Trustee
                   of The  Historical  Society  of the Town of
                   Greenwich.  Oversees 38  portfolios  in the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Joseph M. Wikler, Director of the  following  medical  device None         Over
 Trustee since     companies:   Medintec   (since   1992)  and              $100,000
 2005              Cathco  (since  1996);  Director  of  Lakes
 Age: 64           Environmental   Association  (since  1996);
                   Member of the  Investment  Committee of the
                   Associated  Jewish  Charities  of Baltimore
                   (since 1994);  Director of  Fortis/Hartford
                   mutual    funds    (1994-December    2001).
                   Oversees    39     portfolios     in    the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Peter I. Wold,    President  of  Wold  Oil  Properties,  Inc. None         Over
 Trustee since     (oil  and gas  exploration  and  production              $100,000
 2005              company)  (since  1994);   Vice  President,
 Age: 57           Secretary   and  Treasurer  of  Wold  Trona
                   Company,  Inc.  (soda  ash  processing  and
                   production)  (since 1996);  Vice  President
                   of Wold Talc  Company,  Inc.  (talc mining)
                   (since    1999);    Managing    Member   of
                   Hole-in-the-Wall  Ranch  (cattle  ranching)
                   (since 1979);  Director and Chairman of the
                   Denver  Branch of the Federal  Reserve Bank
                   of Kansas City  (1993-1999);  and  Director
                   of    PacifiCorp.     (electric    utility)
                   (1995-1999).  Oversees 39 portfolios in the
                   OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------
 ----------------------------------------------------------------------------------------
 Brian F. Wruble,  General Partner of Odyssey  Partners,  L.P. $10,001-$50,0Over
 Trustee since     (hedge   fund)  (since   September   1995);              $100,000
 2005              Director  of  Special  Value  Opportunities
 Age: 62           Fund, LLC (registered  investment  company)
                   (since September 2004);  Director of Zurich
                   Financial  Investment Advisory Board (since
                   October 2004);  Board of Governing Trustees
                   of  The  Jackson  Laboratory   (non-profit)
                   (since   August   1990);   Trustee  of  the
                   Institute  for Advanced  Study  (non-profit
                   educational  institute)  (since  May 1992);
                   Special    Limited   Partner   of   Odyssey
                   Investment  Partners,  LLC (private  equity
                   investment) (January  1999-September 2004);
                   Trustee  of  Research  Foundation  of  AIMR
                   (2000-2002)      (investment      research,
                   non-profit);    Governor,    Jerome    Levy
                   Economics   Institute   of   Bard   College
                   (August   1990-September  2001)  (economics
                   research);  Director  of Ray &  Berendtson,
                   Inc.  (May  2000-April   2002)   (executive
                   search  firm).  Oversees 48  portfolios  in
                   the OppenheimerFunds complex.
 ----------------------------------------------------------------------------------------

      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 annual term, or until his resignation,
retirement, death or removal. Mr. Murphy is an "Interested Trustee" because
he is affiliated with the Manager by virtue of his positions as an officer
and director of the Manager, and as a shareholder of its parent company.

- -------------------------------------------------------------------------------------------
                              Interested Trustee and Officer
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Name, Position(s)  Principal Occupation(s) During the Past 5      Dollar      Aggregate
                                                                             Dollar Range
                                                                 Range of     Of Shares
                                                                  Shares     Beneficially
Held with Fund,    Years; Other Trusteeships/Directorships      Beneficially   Owned in
Length of          Held; Number of Portfolios in the Fund        Owned in     Supervised
Service, Age       Complex Currently Overseen                    the Fund       Funds
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
                                                                 As of December 31, 2005
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
John V. Murphy,    Chairman,   Chief   Executive   Officer  and None        Over $100,000
President and      Director  (since  June  2001) and  President
Principal          (since   September  2000)  of  the  Manager;
Executive Officer  President  and  a  director  or  trustee  of
since 2001 and     other  Oppenheimer   funds;   President  and
Trustee since      Director of  Oppenheimer  Acquisition  Corp.
2001               ("OAC")  (the   Manager's   parent   holding
Age: 56            company)  and  of  Oppenheimer   Partnership
                   Holdings,  Inc. (holding company  subsidiary
                   of the Manager) (since July 2001);  Director
                   of   OppenheimerFunds    Distributor,   Inc.
                   (subsidiary of the Manager)  (since November
                   2001);  Chairman and Director of Shareholder
                   Services,  Inc. and of Shareholder Financial
                   Services,  Inc. (transfer agent subsidiaries
                   of   the   Manager)   (since   July   2001);
                   President  and Director of  OppenheimerFunds
                   Legacy  Program  (charitable  trust  program
                   established  by  the  Manager)  (since  July
                   2001);  Director of the following investment
                   advisory  subsidiaries  of the Manager:  OFI
                   Institutional   Asset   Management,    Inc.,
                   Centennial  Asset  Management   Corporation,
                   Trinity  Investment  Management  Corporation
                   and Tremont Capital Management,  Inc. (since
                   November    2001),     HarbourView     Asset
                   Management   Corporation   and  OFI  Private
                   Investments,   Inc.   (since   July   2001);
                   President   (since  November  1,  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 87 portfolios in
                   the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------------

      The addresses of the officers in the chart below are as follows: for
Messrs. Ferreira, Leavy, Manioudakis, Gillespie 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 annual term or until his or her resignation, retirement, death
or removal.

- --------------------------------------------------------------------------------------
                             Other Officers of the Fund
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Name, Position(s) Held  Principal Occupation(s) During Past 5 Years
with Fund, Length of
Service, Age
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Emmanuel Ferreira,      Vice  President of the Manager since January 2003;  Portfolio
Vice President and      Manager at Lashire Investments (July 1999-December  2002). An
Portfolio Manager       officer of 5 portfolios in the OppenheimerFunds complex.
since 2003
Age:  38
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Christopher Leavy,      Senior Vice  President of the Manager since  September  2000;
Vice President and      portfolio  manager of Morgan  Stanley Dean Witter  Investment
Portfolio Manager       Management  (1997-September 2000). An officer of 8 portfolios
since 2003              in the OppenheimerFunds complex.
Age:  34
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Angelo Manioudakis,     Senior Vice President of the Manager  (since April 2002),  of
Vice President and      HarbourView Asset Management  Corporation  (since April, 2002
Portfolio Manager       and of OFI Institutional  Asset Management,  Inc. (since June
since 2003              2002);  Executive  Director and portfolio manager for Miller,
Age:  39                Anderson & Sherrerd,  a division of Morgan Stanley Investment
                        Management   (August  1993-April  2002).  An  officer  of  14
                        portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Mark S. Vandehey,       Senior Vice  President  and Chief  Compliance  Officer of the
Vice President and      Manager    (since    March   2004);    Vice    President   of
Chief Compliance        OppenheimerFunds   Distributor,    Inc.,   Centennial   Asset
Officer since 2004      Management Corporation and Shareholder Services,  Inc. (since
Age: 55                 June 1983).  Former Vice  President  and Director of Internal
                        Audit of the Manager  (1997-February  2004). An officer of 87
                        portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian W. Wixted,        Senior Vice  President  and  Treasurer of the Manager  (since
Treasurer and Principal March 1999);  Treasurer of the following:  HarbourView  Asset
Financial &  Accounting Management   Corporation,   Shareholder  Financial  Services,
Officer                 Inc.,  Shareholder  Services,  Inc.,  Oppenheimer  Real Asset
since 1999              Management    Corporation,    and   Oppenheimer   Partnership
Age: 46                 Holdings,  Inc. (since March 1999), OFI Private  Investments,
                        Inc. (since March 2000), OppenheimerFunds  International Ltd.
                        (since May 2000),  OppenheimerFunds plc (since May 2000), OFI
                        Institutional  Asset Management,  Inc. (since November 2000),
                        and   OppenheimerFunds   Legacy  Program   (charitable  trust
                        program  established  by  the  Manager)  (since  June  2003);
                        Treasurer  and Chief  Financial  Officer of OFI Trust Company
                        (trust company  subsidiary of the Manager)  (since May 2000);
                        Assistant  Treasurer  of  the  following:  OAC  (since  March
                        1999),Centennial    Asset   Management   Corporation   (March
                        1999-October  2003)  and   OppenheimerFunds   Legacy  Program
                        (April  2000-June   2003);   Principal  and  Chief  Operating
                        Officer  of  Bankers  Trust   Company-Mutual   Fund  Services
                        Division   (March   1995-March   1999).   An  officer  of  87
                        portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian Petersen,         Assistant  Vice President of the Manager (since August 2002);
Assistant Treasurer     Manager/Financial   Product   Accounting   of   the   Manager
since 2004              (November  1998-July  2002).  An officer of 87  portfolios in
Age: 35                 the OppenheimerFunds complex.

- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian C. Szilagyi,      Assistant  Vice  President of the Manager  (since July 2004);
Assistant Treasurer     Director of Financial  Reporting and Compliance of First Data
since 2005              Corporation (April 2003-July 2004);  Manager of Compliance of
Age: 35                 Berger Financial Group LLC (May 2001-March  2003). An officer
                        of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Robert G. Zack,         Executive  Vice  President  (since  January 2004) and General
Secretary since 2001    Counsel  (since March 2002) of the Manager;  General  Counsel
Age: 57                 and  Director  of  the  Distributor  (since  December  2001);
                        General Counsel of Centennial  Asset  Management  Corporation
                        (since  December  2001);  Senior Vice  President  and General
                        Counsel of HarbourView  Asset Management  Corporation  (since
                        December  2001);  Secretary and General Counsel of OAC (since
                        November 2001);  Assistant  Secretary  (since September 1997)
                        and  Director  (since  November  2001)  of   OppenheimerFunds
                        International Ltd. and  OppenheimerFunds  plc; Vice President
                        and  Director  of  Oppenheimer   Partnership  Holdings,  Inc.
                        (since  December  2002);  Director of Oppenheimer  Real Asset
                        Management,   Inc.  (since   November   2001);   Senior  Vice
                        President,   General  Counsel  and  Director  of  Shareholder
                        Financial  Services,  Inc.  and  Shareholder  Services,  Inc.
                        (since  December  2001);   Senior  Vice  President,   General
                        Counsel and  Director of OFI Private  Investments,  Inc.  and
                        OFI Trust Company (since  November  2001);  Vice President of
                        OppenheimerFunds  Legacy  Program  (since June 2003);  Senior
                        Vice  President  and  General  Counsel  of OFI  Institutional
                        Asset  Management,  Inc. (since  November 2001);  Director of
                        OppenheimerFunds   (Asia)  Limited  (since   December  2003);
                        Senior  Vice  President  (May  1985-December   2003),  Acting
                        General Counsel (November  2001-February  2002) and Associate
                        General  Counsel  (May  1981-October  2001)  of the  Manager;
                        Assistant Secretary of the following:  Shareholder  Services,
                        Inc.  (May   1985-November   2001),   Shareholder   Financial
                        Services,    Inc.   (November    1989-November   2001),   and
                        OppenheimerFunds  International Ltd. (September 1997-November
                        2001).  An officer of 87 portfolios  in the  OppenheimerFunds
                        complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Kathleen T. Ives,       Vice  President  (since  June  1998) and Senior  Counsel  and
Assistant Secretary     Assistant  Secretary  (since  October  2003) of the  Manager;
since 2001              Vice President  (since 1999) and Assistant  Secretary  (since
Age: 40                 October  2003) of the  Distributor;  Assistant  Secretary  of
                        Centennial  Asset  Management   Corporation   (since  October
                        2003); Vice President and Assistant  Secretary of Shareholder
                        Services,   Inc.   (since  1999);   Assistant   Secretary  of
                        OppenheimerFunds  Legacy  Program and  Shareholder  Financial
                        Services,  Inc. (since December 2001);  Assistant  Counsel of
                        the  Manager  (August  1994-October  2003).  An officer of 87
                        portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Lisa I. Bloomberg,      Vice  President and Associate  Counsel of the Manager  (since
Assistant Secretary     May 2004);  First Vice  President  (April  2001-April  2004),
since 2004              Associate   General  Counsel   (December   2000-April  2004),
Age: 37                 Corporate Vice President (May 1999-April  2001) and Assistant
                        General  Counsel (May  1999-December  2000) of UBS  Financial
                        Services  Inc.  (formerly,   PaineWebber  Incorporated).   An
                        officer of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Phillip S. Gillespie,   Senior  Vice  President  and  Deputy  General  Counsel of the
Assistant Secretary     Manager  (since  September  2004);  Mr.  Gillespie  held  the
since 2004              following  positions at Merrill Lynch Investment  Management:
Age: 41                 First  Vice   President   (2001-September   2004);   Director
                        (2000-September  2004)  and Vice  President  (1998-2000).  An
                        officer of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------


      |_|   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' compensation from
the Fund, shown below, is for serving as a Trustee and member of a committee
(if applicable), with respect to the Fund's fiscal year ended September 30,
2005. The total compensation from the Fund and fund complex represents
compensation, including accrued retirement benefits, 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 and Other Fund      Aggregate                     Estimated          Total
                                       Retirement
                                        Benefits
                       Compensation    Accrued as       Annual        Compensation
Position(s) (as          From the     Part of Fund   Benefits Upon    From the Fund
applicable) (14)          Fund(1)       Expenses     Retirement(2)  and Fund Complex
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
                       Fiscal year ended September                     Year ended
                                 30, 2005                           December 31, 2005
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Clayton K. Yeutter       $3,646(3)        None          $86,171         $173,700
Chairman of the Board
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Matthew P. Fink            $283           None          $2,641           $61,936
Proxy Committee
Member and Regulatory
& Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Robert G. Galli           $2,714          None        $100,824(4)      $264,812(5)
Regulatory &
Oversight Committee
Chairman
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Phillip A. Griffiths     $3,164(6)        None          $34,972         $150,760
Governance Committee
Chairman and
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Mary F. Miller
Audit Committee
Member and Proxy          $1,673          None          $7,128          $103,254
Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Joel W. Motley           $3,164(7)        None          $23,945         $150,760
Audit Committee
Chairman and
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Kenneth A. Randall        $2,814        None(8)         $85,944         $134,080
Audit Committee
Member and Governance
Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Edward V. Regan(9)        $1,740          None          $70,977          $54,605
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Russell S. Reynolds,      $2,261          None          $66,602         $108,593
Jr.
Proxy Committee
Chairman and
Governance Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Joseph M. Wikler           $160           None           None         $60,386(1(0))
Audit Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Peter I. Wold
Governance Committee       $160           None           None         $60,386(1(1))
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian F. Wruble             $0            None       $37,139(1(2))   $159,354(1(3))
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
1.    "Aggregate  Compensation  From the  Fund"  includes  fees  and  deferred
   compensation, if any.
2.    "Estimated  Annual Benefits Upon Retirement" is based on a straight life
   payment plan  election  with the  assumption  that a Trustee will retire at
   the  age of 75 and is  eligible  (after  7 years  of  service)  to  receive
   retirement  plan  benefits  with  respect  to  certain  Board  I  Funds  as
   described below under "Retirement Plan for Trustees."
3.    Includes $912 deferred by Mr.  Yeutter under the "Deferred  Compensation
   Plan" described below.
4.    Includes $45,840 estimated  benefits to be paid to Mr. Galli for serving
   as a director or trustee of 10 other  Oppenheimer  funds that are not Board
   I Funds.
5.    Includes  $135,500  paid to Mr.  Galli  for  serving  as a  director  or
   trustee of 10 other Oppenheimer  funds (at December 31,  2005) that are not
   Board I Funds.
6.    Includes   $3,164   deferred  by  Mr.   Griffiths  under  the  "Deferred
   Compensation Plan" described below.
7.    Includes $1,266 deferred by Mr. Motley under the "Deferred  Compensation
   Plan" described below.
8.    Due to actuarial considerations,  no additional retirement benefits were
   accrued with respect to Mr. Randall.
9.    Mr. Regan retired as a Trustee of the Board I funds  effective  June 30,
   2005.
10.   Includes  $23,500  paid to Mr.  Wikler  for  serving  as a  director  or
   trustee of one other Oppenheimer fund (at December 31,  2005) that is not a
   Board I Fund.
11.   Includes  $23,500  paid to Mr. Wold for serving as a director or trustee
   of one other Oppenheimer fund (at December 31,  2005) that is not a Board I
   Fund.
12.   Estimated  benefits  to be paid to Mr.  Wruble for serving as a director
   or trustee of 10 other  Oppenheimer  funds that are not Board I Funds.  Mr.
   Wruble's  service  as a  director  or  trustee  of such  funds  will not be
   counted  towards  the  fulfillment  of  his  eligibility  requirements  for
   payments under the Board I retirement plan, described below.
13.   Includes  $135,500  paid to Mr.  Wruble for  serving  as a  director  or
   trustee of 10 other Oppenheimer  funds (at December 31,  2005) that are not
   Board I Funds.
14.    Mr.  Spiro  retired  as a  Trustee  of  the  Board  I  funds  effective
   October 31,  2004.  Mr. Spiro received $114 for serving as a Trustee of the
   Fund for the fiscal year ended  September  30, 2005. He did not receive any
   compensation  from  the  Supervised  Funds  for  the  calendar  year  ended
   December 31, 2005.

         |_| Retirement Plan for Trustees.  The Board I Funds have adopted a
retirement plan that provides for payments to retired Independent Trustees.
Payments are up to 80% of the average compensation paid during a Trustee's
five years of service in which the highest compensation was received. A
Trustee must serve as director or trustee for any of the Board I Funds for at
least seven years to be eligible for retirement plan benefits and must serve
for at least 15 years to be eligible for the maximum benefit. The amount of
retirement benefits a Trustee will receive depends on the amount of the
Trustee's compensation, including future compensation and the length of his
or her service on the Board.

         |_| Deferred Compensation Plan. The Board of Trustees has adopted a
Deferred Compensation Plan for Independent Trustees that enables them to
elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from certain Board I Funds. 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 the 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 Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued
by the SEC, the Fund may invest in the funds selected by the Trustee under
the plan without shareholder approval for the limited purpose of determining
the value of the Trustee's deferred compensation account.

         |_| Major Shareholders.  As of December 30, 2005, 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, Movado Group Inc., FBO WTC Movagrou,  EXE
      CDP, 1100 N. Market Street, Wilmington, DE 19801-1243,  which owed
      74,760.864  Class N  shares  (7.89%  of the  Class N  shares  then
      outstanding).

      Orchard  Trust  Co.  LLC,  FBO  Oppen.  RecordkeeperPro,  8515  E.
      Orchard  Road,   Greenwood  Village,  CO  80111-500,   which  owed
      47,673.498  Class N  shares  (5.03%  of the  Class N  shares  then
      outstanding).

      RPSS TR Woolsey Bros. Farm Supply Inc.,  401(k) Plan,  Attn.: Herb
      Woolsey,  P.O.  Box 363,  Vandalia,  IL  62471-0363,  which  owned
      48,212.926  Class N  shares  (5.09%  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.

      |_| 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.

      |_|   Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy
Voting Policies and Procedures under which the Fund votes proxies relating to
securities ("portfolio proxies") held by the Fund. The Fund's primary
consideration in voting portfolio proxies is the financial interests of the
Fund and its shareholders. The Fund has retained an unaffiliated third-party
as its agent to vote portfolio proxies in accordance with the Fund's
Portfolio Proxy Voting Guidelines and to maintain records of such portfolio
proxy voting. The 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
Guidelines, the Manager will vote the portfolio proxy in accordance with the
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 Guidelines or the 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 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.

      |_| The Investment Advisory Agreement.  The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities
for the Fund's portfolio and handles its day-to-day business. The portfolio
managers of the Fund are employed by the Manager and are the persons who are
principally responsible for the day-to-day management of the Fund's
portfolio.  Other members of the Manager's Equity Portfolio Departments
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 9/30:  Management Fees Paid to OppenheimerFunds,
                                                 Inc.
      --------------------------------------------------------------------
      --------------------------------------------------------------------
               2003                           $4,456,996
      --------------------------------------------------------------------
      --------------------------------------------------------------------
               2004                           $5,468,668
      --------------------------------------------------------------------
      --------------------------------------------------------------------
               2005                           $6,085,297
      --------------------------------------------------------------------

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

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

 Portfolio Managers. The Fund's portfolio is managed by Emmanuel Ferreira,
Christopher Leavy, Angelo Manioudakis and a team of investment professionals
including Benjamin Gord, Geoffrey Caan, Charles Moon and Antulio N. Bomfim
(each is referred to as a "Portfolio Manager" and collectively they are
referred to as the "Portfolio Managers").  They are the persons who are
responsible for the day-to-day management of the Fund's investments.

         |_| Other Accounts Managed by the Portfolio Managers.  The Fund's
portfolio is managed by Emmanuel Ferreira, Christopher Leavy, Angelo
Manioudakis and a team of investment professionals including Benjamin J.
Gord, Geoffrey Caan, Charles Moon and Antulio N. Bomfim who are responsible
for the day-to-day management of the fund's investments. In addition to
managing the Fund's investment portfolio, Messrs. Ferreira, Leavy,
Manioudakis, Gord, Caan, Moon and Bomfim also manage other investment
portfolios on behalf of the Manager or its affiliates. The following table
provides information, as of September 30, 2005, regarding the other
portfolios managed by Messrs. Ferreira, Leavy, Manioudakis, Gord, Caan, Moon
and Bomfim. None of those portfolios has an advisory fee based on
performance:

Portfolio         RegistereTotal      Other        Total    Other   Total
                                                 Assets in
                           Assets in               Other
                           Registered Pooled      Pooled              Assets
                  InvestmenInvestment InvestmentInvestment          in Other   ,2)
                  CompaniesCompanies  Vehicles   Vehicles   AccountsAccounts
Managers          Managed  Managed(1)  Managed  Managed(1)  Managed(Managed(1)(
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Emmanuel Ferreira    4      $3,560.8    None       None      None      None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Christopher Leavy    11     $9,618.1      2       $152.2     None      None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Angelo               17    $12,751.7      6       $198.3       1      $39.5
Manioudakis
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Benjamin Gord        14    $12,220.4      6       $198.3       1      $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Geoffrey Caan        14    $12,220.4      6       $198.3       1      $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Charles Moon         14    $12,220.4      6       $198.3       1      $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Antulio N. Bomfim    14    $12,220.4      6       $198.3       1      $39.5
1.    In millions.
2.    Does not include personal accounts of portfolio managers and their
families, which are subject to the Code of Ethics.

      As indicated above, each of the Portfolio Managers also manages other
funds. Potentially, at times, those responsibilities could conflict with the
interests of the Fund. That may occur whether the investment strategies of
the other fund 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 having
similar objectives or strategies, or he may need to execute transactions for
another fund 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 is more
advantageous to the Manager than the fee structure of the Fund, the Manager
could have an incentive to favor the other fund. However, the Manager's
compliance procedures and Code of Ethics recognize the Manager's fiduciary
obligations to treat all of its clients, including the Fund, fairly and
equitably, and are designed to preclude the Portfolio Managers 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, one or more of the Fund's Portfolio Managers may manage
other funds or accounts with investment objectives and strategies that are
similar to those of the Fund, or may manage funds or accounts with investment
objectives and strategies that are different from those of the Fund.

         |_| Compensation of the Portfolio Managers.  The Fund's Portfolio
Managers are 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
September 30, 2005 each Portfolio Managers' 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. The Lipper benchmark with respect to the
Fund is Lipper Balanced Funds.  Other factors include management quality
(such as style consistency, risk management, sector coverage, team leadership
and coaching) and organizational development.  The Portfolio Managers'
compensation is not based on the total value of the Fund's portfolio assets,
although the Fund's investment performance may increase those assets. The
compensation structure is also intended to be internally equitable and serve
to reduce potential conflicts of interest between the Fund and other funds
and accounts managed by the Portfolio Managers.  The compensation structure
of the other funds and accounts managed by the Portfolio Manager is the same
as the compensation structure of the Fund, described above.

         |_|      Ownership  of Fund  Shares.  As of  September  30,  2005 the
Portfolio Managers did not beneficially own any shares of the Fund.

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 September 30, 2003, 2004 and 2005, the
Fund paid the total brokerage commissions indicated in the chart below.
During the fiscal year ended September 30, 2005, the Fund paid $356,340 in
commissions to firms that provide brokerage and research services to the Fund
with respect to $278,001,533 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 September   Total Brokerage Commissions Paid by the
             30,                                Fund*
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
            2003                              $1,011,309
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
            2004                               $742,092
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
            2005                               $383,713
- -------------------------------------------------------------------------
  *  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.

- --------------------------------------------
                  Aggregate      Class A
    Fiscal        Front-End      Front-
     Year       Sales Charges   End Sales
     Ended       on Class A      Charges
     9/30:         Shares      Retained by
                              Distributor(1)
- --------------------------------------------
- --------------------------------------------
     2003         $444,448      $149,815
- --------------------------------------------
- --------------------------------------------
     2004        $1,133,173     $385,955
- --------------------------------------------
- --------------------------------------------
     2005        $1,317,632     $407,881
- --------------------------------------------
1.  Includes  amounts  retained by a  broker-dealer  that is an affiliate or a
   parent of the Distributor.

- -------------------------------------------------------------------------
                 Concessions   Concessions   Concessions   Concessions
                 on Class A    on Class B    on Class C     on Class N
  Fiscal Year      Shares        Shares        Shares         Shares
  Ended 9/30     Advanced by   Advanced by   Advanced by   Advanced by
                Distributor(1)Distributor(1)Distributor(1)Distributor(1)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
     2003          $26,447      $389,821       $69,428       $14,816
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
     2004          $19,092      $755,174      $177,932       $36,065
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
     2005          $34,719      $573,577      $182,944       $18,914
- -------------------------------------------------------------------------
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        Class B        Class C       Class N
     Ended        Contingent     Contingent     Contingent     Contingent
      9/30         Deferred    Deferred Sales    Deferred       Deferred
                     Sales         Charges         Sales     Sales Charges
                    Charges       Retained        Charges     Retained by
                   Retained    by Distributor    Retained     Distributor
                      by                            by
                  Distributor                   Distributor
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
      2003          $2,174        $172,208        $4,803         $4,571
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
      2004           $205         $141,739        $8,124         $1,701
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
      2005          $2,396        $175,201        $21,759        $6,448
- ----------------------------------------------------------------------------

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.

      |_| 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 September 30, 2005 payments under the Class A
plan totaled $1,399,566, of which $2,206 was retained by the Distributor
under the arrangement described above, regarding grandfathered retirement
accounts, and included $84,134 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect
to Class A shares in any fiscal year cannot be recovered in subsequent years.
The Distributor may not use payments received under the Class A plan to pay
any of its interest expenses, carrying charges, or other financial costs, or
allocation of overhead.

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

      Each plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a
periodic basis, without payment in advance. However, the Distributor
currently intends to pay the service fee to recipients in advance for the
first year after Class B, Class C and Class N shares are purchased. After the
first year Class B, Class C or Class N shares are outstanding, after their
purchase, the Distributor makes service fee payments periodically on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee
payment. If Class B, Class C or Class N shares are redeemed during the first
year after their purchase, the recipient of the service fees on those shares
will be obligated to repay the Distributor a pro rata portion of the advance
payment of the service fee made on those shares. Class B, Class C or Class N
shares may not be purchased by an investor directly from the Distributor
without the investor designating another registered broker-dealer.  If the
investor no longer has another broker-dealer of record for an existing
account, the Distributor is automatically designated as the broker-dealer of
record, but solely for the purpose of acting as the investor's agent to
purchase the shares.  In those cases, the Distributor retains the asset-based
sales charge paid on Class B, Class C and Class N shares, but does not retain
any service fees as to the assets represented by that account.

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

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

      The asset-based sales charge on Class B, Class C and Class N shares
allow investors to buy shares without a front-end sales charge while allowing
the Distributor to compensate dealers that sell those shares. The Fund pays
the asset-based sales charge to the Distributor for its services rendered in
distributing Class B, Class C and Class N shares. The payments are made to
the Distributor in recognition that the Distributor:
o     pays sales concessions to authorized brokers and dealers at the time of
         sale and pays service fees as described above,
o     may finance payment of sales concessions and/or the advance of the
         service fee payment to recipients under the plans, or may provide
         such financing from its own resources or from the resources of an
         affiliate,
o     employs personnel to support distribution of Class B, Class C and Class
         N shares,
o     bears the costs of sales literature, advertising and prospectuses
         (other than those furnished to current shareholders) and state "blue
         sky" registration fees and certain other distribution expenses,
o     may not be able to adequately compensate dealers that sell Class B,
         Class C and Class N shares without receiving payment under the plans
         and therefore may not be able to offer such Classes for sale absent
         the plans,
o     receives payments under the plans consistent with the service fees and
         asset-based sales charges paid by other non-proprietary funds that
         charge 12b-1 fees,
o     may use the payments under the plan to include the Fund in various
         third-party distribution programs that may increase sales of Fund
         shares,
o     may experience increased difficulty selling the Fund's shares if
         payments under the plan are discontinued because most competitor
         funds have plans that pay dealers for rendering distribution
         services as much or more than the amounts currently being paid by
         the Fund, and
o     may not be able to continue providing, at the same or at a lesser cost,
         the same quality distribution sales efforts and services, or to
         obtain such services from brokers and dealers, if the plan payments
         were to be discontinued.

      During a calendar year, 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 asset-based sales charges paid to the Distributor by the Fund under
the distribution and service plans. Those excess expenses are carried over on
the Distributor's books and may be recouped from asset-based sales charge
payments from the Fund in future years. However, the Distributor has
voluntarily agreed to cap the amount of expenses under the plans that may be
carried over from year to year and recouped that relate to (i) expenses the
Distributor has incurred that represent compensation and expenses of its
sales personnel and (ii) other direct distribution costs it has incurred,
such as sales literature, state registration fees, advertising and
prospectuses used to offer Fund shares. The cap on the carry-over of those
categories of expenses is set at 0.70% of annual gross sales of shares of the
Fund. If those categories of expenses exceed the capped amount, the
Distributor bears the excess costs. If the Class B, Class C or Class N plan
were to be terminated by the Fund, the Fund's Board of Trustees may allow the
Fund to continue payments of the asset-based sales charge to the Distributor
for distributing shares prior to the termination of the plan.







- -------------------------------------------------------------------------------
  Distribution and Service Fees Paid to the Distributor for the Fiscal Year
                                Ended 9/30/05
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                                                Distributor's   Distributor's
                                                  Aggregate      Unreimbursed
                     Total         Amount       Unreimbursed    Expenses as %
                   Payments     Retained by       Expenses      of Net Assets
     Class        Under Plan    Distributor      Under Plan        of Class
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Plan      $924,866(1)     $734,324       $2,799,628         2.85%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Plan      $778,708(2)     $178,007       $1,392,035         1.59%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class N Plan      $51,254(3)      $25,868         $134,366          1.14%
- -------------------------------------------------------------------------------
1.    Includes  $10,405  paid  to an  affiliate  of the  Distributor's  parent
   company.
2.    Includes  $20,237  paid  to an  affiliate  of the  Distributor's  parent
   company.
3.    Includes  $2,159  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 Statement of Additional Information. 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 Statement of Additional Information. 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 Statement of Additional
Information. You should ask your financial intermediary for information about
any payments it receives from the Fund, the Manager or the Distributor and
any services it provides, as well as the fees and commissions it charges.

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

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

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

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

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

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

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

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

Performance of the Fund

Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how
total returns are calculated is set forth below. The charts below show the
Fund's performance as of the Fund's most recent fiscal year end. You can
obtain current performance information by calling the Fund's Transfer Agent
at 1.800.225.5677 or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.

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

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

o     Total returns measure the performance of a hypothetical account in the
         Fund over various periods and do not show the performance of each
         shareholder's account. Your account's performance will vary from the
         model performance data if your dividends are received in cash, or
         you buy or sell shares during the period, or you bought your shares
         at a different time and price than the shares used in the model.
o     The Fund's performance returns 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.







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

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

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

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


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



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

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

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

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

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

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

 --------------------------------------------------------------------------------
             The Fund's Total Returns for the Periods Ended 9/30/05
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
           Cumulative Total              Average Annual Total Returns
           Returns (10 years
 Class of  or Life of Class)
 Shares
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
                                                  5-Years          10-Years
                                  1-Year            (or               (or
                                               life-of-class   life-of-class if
                                                  if less)           less)
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
           After    Without   After   Without After    Without After    Without
           Sales    Sales     Sales   Sales   Sales    Sales   Sales    Sales
           Charge   Charge    Charge  Charge  Charge   Charge  Charge   Charge
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
 Class     116.06%   129.24%   5.68%  12.13%   3.82%    5.06%   8.01%    8.65%
 A(1)
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
 Class     117.79%   117.79%   6.17%  11.17%   3.80%    4.14%   8.09%    8.09%
 B(2)
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
 Class     110.90%   110.90%  10.18%  11.18%   4.19%    4.19%   7.75%    7.75%
 C(3)
 --------------------------------------------------------------------------------
 --------------------------------------------------------------------------------
 Class      22.86%   22.86%   10.66%  11.66%   4.60%    4.60%    N/A      N/A
 N(4)
 --------------------------------------------------------------------------------
 1. Inception of Class A:     4/24/87.
 2. Inception of Class B:     8/29/95.
 3. Inception of Class C:     12/1/93.
 4. Inception of Class N:     3/1/01.

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

    Average Annual Total Returns for Class A(1) Shares (After Taxes)
                      For the Periods Ended 9/30/05
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
                                 1-Year        5-Years
                                                              10-Years
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
After Taxes on Distributions     4.29%          2.57%          5.71%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
After Taxes on                   4.42%          2.63%          5.65%
Distributions and
Redemption of Fund Shares
- --------------------------------------------------------------------------
      1. Inception of Class A:      4/24/87.

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

      |_| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of shares by Lipper, 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.

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

      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.

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

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

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

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









ABOUT YOUR ACCOUNT

How to Buy Shares

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

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

AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $50 and shareholders must invest at least $500 before an
Asset Builder Plan (described below) can be established on a new account.
Accounts established prior to November 1, 2002 will remain at $25 for
additional purchases. Shares will be purchased on the regular business day
the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on shares
purchased with the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of the New York Stock Exchange (the "NYSE"). The NYSE normally closes
at 4:00 p.m., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the NYSE, the shares will be
purchased and dividends will begin to accrue on the next regular business
day. The proceeds of ACH transfers are normally received by the Fund three
days after the transfers are initiated. If the proceeds of the ACH transfer
are not received on a timely basis, the Distributor reserves the right to
cancel the purchase order. The Distributor and the Fund are not responsible
for any delays in purchasing shares resulting from delays in ACH
transmissions.

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

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

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

And the following money market funds:

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


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

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

      A Letter is an investor's statement in writing to the Distributor of
his or her intention to purchase a specified value of Class A, Class B and
Class C shares of the Fund and other Oppenheimer funds during a 13-month
period (the "Letter period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter
states the investor's intention to make the aggregate amount of purchases of
shares which will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or capital gains distributions
and purchases made at net asset value (i.e. without 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 Statement of Additional Information and the application used
for a Letter. If those terms are amended, as they may be from time to time by
the Fund, the investor agrees to be bound by the amended terms and that those
amendments will apply automatically to existing Letters.

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

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

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

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

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

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

      3. If, at the end of the 13-month Letter period the total purchases
pursuant to the Letter are less than the intended purchase amount specified
in the Letter, the investor must remit to the Distributor an amount equal to
the difference between the dollar amount of sales charges actually paid and
the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request
from the Distributor or the dealer, the Distributor will, within sixty days
of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the
redemption proceeds.

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

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







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

Asset Builder Plans. As explained in the Prospectus, you must initially
establish your account with $500. Subsequently, you can establish an Asset
Builder Plan to automatically purchase additional shares directly from a bank
account for as little as $50. For those accounts established prior to
November 1, 2002 and which have previously established Asset Builder Plans,
additional purchases will remain at $25. Shares purchased by Asset Builder
Plan payments from bank accounts are subject to the redemption restrictions
for recent purchases described in the Prospectus. Asset Builder Plans are
available only if your bank is an ACH member. Asset Builder Plans may not be
used to buy shares for OppenheimerFunds employer-sponsored qualified
retirement accounts.

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

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

Retirement Plans.  Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charges or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information.  Certain
special sales charge arrangements described in that Appendix apply to
retirement plans whose records are maintained on a daily valuation basis by
Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch") or an independent
record keeper that has a contract or special arrangement with Merrill Lynch.
If on the date the plan sponsor signed the Merrill Lynch record keeping
service agreement the plan has less than $1 million in assets invested in
applicable investments (other than assets invested in money market funds),
then the retirement plan may purchase only Class C shares of the Oppenheimer
funds.  If on the date the plan sponsor signed the Merrill Lynch record
keeping service agreement the plan has $1 million or more in assets but less
than $5 million in assets invested in applicable investments (other than
assets invested in money market funds), then the retirement plan may purchase
only Class N shares of the Oppenheimer funds.  If on the date the plan
sponsor signed the Merrill Lynch record keeping service agreement the plan
has $5 million or more in assets invested in applicable investments (other
than assets invested in money market funds), then the retirement plan may
purchase only Class A shares of the Oppenheimer funds.







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

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

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

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

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

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

      |_| 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.

      |_| 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.

      |_| Availability of Class N Shares. In addition to the description of
the types of retirement plans which may purchase Class N shares contained in
the prospectus, Class N shares also are offered to the following:
o     to all rollover IRAs (including SEP IRAs and SIMPLE IRAs),
o     to all rollover contributions made to Individual 401(k) plans,
            Profit-Sharing Plans and Money Purchase Pension Plans,
o     to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and
            Ascender retirement plans,
o     to all trustee-to-trustee IRA transfers,
o     to all 90-24 type 403(b) transfers,
o     to Group Retirement Plans (as defined in Appendix C to this Statement
            of Additional Information) which have entered into a special
            agreement with the Distributor for that purpose,
o     to Retirement Plans qualified under Sections 401(a) or 401(k) of the
            Internal Revenue Code, the recordkeeper or the plan sponsor for
            which has entered into a special agreement with the Distributor,
o     to Retirement Plans of a plan sponsor where the aggregate assets of all
            such plans invested in the Oppenheimer funds is $500,000 or more,
o     to Retirement Plans with at least 100 eligible employees or $500,000 or
            more in plan assets,
o     to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the
            purchase with the redemption proceeds of Class A shares of one or
            more Oppenheimer funds, and
o     to certain customers of broker-dealers and financial advisors that are
            identified in a special agreement between the broker-dealer or
            financial advisor and the Distributor for that purpose.

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

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

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

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

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

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

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

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

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

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

      Dealers other than NYSE members may conduct trading in certain
securities on days on which the NYSE is closed (including weekends and
holidays) or after 4:00 p.m. on a regular business day. Because the Fund's
net asset values will not be calculated on those days, the Fund's net asset
values per share may be significantly affected on such days when shareholders
may not purchase or redeem shares. Additionally, trading on European and
Asian stock exchanges and over-the-counter markets normally is completed
before the close of the NYSE.

      Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those securities
are determined, but before the close of the NYSE, will not be reflected in
the Fund's calculation of its net asset values that day unless the Manager
determines that the event is likely to effect a material change in the value
of the security. The Manager, or an internal valuation committee established
by the Manager, as applicable, may establish a valuation, under procedures
established by the Board and subject to the approval, ratification and
confirmation by the Board at its next ensuing meeting.

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

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

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

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

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

How to Sell Shares

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

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

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

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

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

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

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

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause
the involuntary redemption of the shares held in any account if the aggregate
net asset value of those shares is less than $500 or such lesser amount as
the Board may fix. The Board will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has
fallen below the stated minimum solely as a result of market fluctuations. If
the Board exercises this right, it may also fix the requirements for any
notice to be given to the shareholders in question (not less than 30 days).
The Board may alternatively set requirements for the shareholder to increase
the investment, or set other terms and conditions so that the shares would
not be involuntarily redeemed.

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

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

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

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

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

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

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

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

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

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

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

      |_| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares
(of the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $50.
Instructions should be provided on the OppenheimerFunds application or
signature-guaranteed instructions. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of Additional
Information.

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

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

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

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

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

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

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

How to Exchange Shares

As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares
of the same class of other Oppenheimer funds. Shares of Oppenheimer funds
that have a single class without a class designation are deemed "Class A"
shares for this purpose. You can obtain a current list showing which funds
offer which classes of shares by calling the Distributor.

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

   The following funds only offer Class A shares:
   Centennial California Tax Exempt Trust    Centennial New York Tax Exempt
                                             Trust
   Centennial Government Trust               Centennial Tax Exempt Trust
   Centennial Money Market Trust

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

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


o     Oppenheimer  Money  Market  Fund,  Inc.  only offers Class A and Class Y
   shares.
o     Class 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 any money market fund offered by the Distributor. Shares
      of any money market fund purchased without a sales charge may be
      exchanged for shares of Oppenheimer funds offered with a sales charge
      upon payment of the sales charge. They may also be used to purchase
      shares of Oppenheimer funds subject to an early withdrawal charge or
      contingent deferred sales charge.
o     Shares of the Fund acquired by reinvestment of dividends or
      distributions from any of the other Oppenheimer funds or from any unit
      investment trust for which reinvestment arrangements have been made
      with the Distributor may be exchanged at net asset value for shares of
      any of the Oppenheimer funds.
o     Shares of Oppenheimer Principal Protected Main Street Fund may be
      exchanged at net asset value for shares of any of the Oppenheimer
      funds. However, shareholders are not permitted to exchange shares of
      other Oppenheimer funds for shares of Oppenheimer Principal Protected
      Main Street Fund until after the expiration of the warranty period
      (8/5/2010).
o     Shares of Oppenheimer Principal Protected Main Street Fund II may be
      exchanged at net asset value for shares of any of the Oppenheimer
      funds. However, shareholders are not permitted to exchange shares of
      other Oppenheimer funds for shares of Oppenheimer Principal Protected
      Main Street Fund II until after the expiration of the warranty period
      (3/3/2011).
o     Shares of Oppenheimer Principal Protected Main Street Fund III may be
      exchanged at net asset value for shares of any of the Oppenheimer
      funds. However, shareholders are not permitted to exchange shares of
      other Oppenheimer funds for shares of Oppenheimer Principal Protected
      Main Street Fund III until after the expiration of the warranty period
      (12/16/2011).







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

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

o     When Class A shares of any Oppenheimer fund (other than 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.

      |_| 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.

      |_| 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 feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans
cannot be switched to an account in Oppenheimer Senior Floating Rate Fund.

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

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

Dividends, Capital Gains and Taxes

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

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

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

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

      |_| 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. J.P. Morgan Chase Bank 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. KPMG LLP serves as the
independent registered public accounting firm for the Fund.  KPMG LLP audits
the Fund's financial statements and performs other related audit services.
KPMG LLP also acts as the independent registered public accounting firm for
the Manager and certain other funds advised by the Manager and its
affiliates. Audit and non-audit services provided by KPMG LLP to the Fund
must be pre-approved by the Audit Committee.

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

- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BALANCED FUND:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Balanced Fund, including the statement of investments, as of
September 30, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year 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.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Balanced Fund as of September 30, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.


KPMG LLP

Denver, Colorado
November 16, 2005


STATEMENT OF INVESTMENTS  September 30, 2005
- --------------------------------------------------------------------------------

                                                                                                              VALUE
                                                                                         SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--51.1%
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.4%
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.3%
WCI Communities, Inc. 1                                                                  97,400      $    2,763,238
- --------------------------------------------------------------------------------------------------------------------
MEDIA--5.9%
Liberty Global, Inc., Series A                                                          569,594          15,424,606
- --------------------------------------------------------------------------------------------------------------------
Liberty Global, Inc., Series C 1                                                        569,594          14,667,046
- --------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., Cl. A 1                                                          2,207,100          17,767,155
- --------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B                                                                     188,800           6,232,288
                                                                                                     ---------------
                                                                                                         54,091,095

- --------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc. (The)                                                                         118,800           2,070,684
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.7%
- --------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.8%
Constellation Brands, Inc., Cl. A 1                                                     288,600           7,503,600
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Tyson Foods, Inc., Cl. A                                                                328,900           5,936,645
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--2.3%
Altria Group, Inc.                                                                      282,400          20,815,704
- --------------------------------------------------------------------------------------------------------------------
Energy--5.0%
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.8%
Halliburton Co.                                                                         103,300           7,078,116
- --------------------------------------------------------------------------------------------------------------------
OIL & GAS--4.2%
BP plc, ADR                                                                              70,900           5,023,265
- --------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc.                                                                      23,800           2,288,608
- --------------------------------------------------------------------------------------------------------------------
LUKOIL, Sponsored ADR                                                                   168,300           9,696,395
- --------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference                                                      448,000           7,145,261
- --------------------------------------------------------------------------------------------------------------------
Talisman Energy, Inc.                                                                   200,400           9,805,378
- --------------------------------------------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR                                                           37,500           5,093,250
                                                                                                     ---------------
                                                                                                         39,052,157

- --------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.4%
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.9%
UBS AG                                                                                   97,591           8,292,465
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.6%
Bank of America Corp.                                                                    96,952           4,081,679
- --------------------------------------------------------------------------------------------------------------------
Wachovia Corp.                                                                           85,974           4,091,503
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co.                                                                       118,900           6,963,973
                                                                                                     ---------------
                                                                                                         15,137,155


                         19 | OPPENHEIMER BALANCED FUND

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

                                                                                                              VALUE
                                                                                         SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.5%
Alliance Capital Management Holding LP                                                   73,700      $    3,526,545
- --------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp.                                                              92,900           7,387,408
- --------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.                                                                         132,700           6,040,504
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co.                                                                    144,300           4,896,099
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                                                           69,400           8,083,712
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley                                                                           46,900           2,529,786
                                                                                                     ---------------
                                                                                                         32,464,054

- --------------------------------------------------------------------------------------------------------------------
INSURANCE--2.2%
American International Group, Inc.                                                       42,500           2,633,300
- --------------------------------------------------------------------------------------------------------------------
Assured Guaranty Ltd. 2                                                                 101,200           2,421,716
- --------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd.                                                                    49,600           4,855,840
- --------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A                                                         325,700          10,500,568
                                                                                                     ---------------
                                                                                                         20,411,424

- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE--0.4%
Host Marriott Corp.                                                                     197,600           3,339,440
- --------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.8%
Countrywide Financial Corp.                                                             137,400           4,531,452
- --------------------------------------------------------------------------------------------------------------------
Freddie Mac                                                                              51,100           2,885,106
                                                                                                     ---------------
                                                                                                          7,416,558

- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE--6.3%
- --------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.4%
MedImmune, Inc. 1                                                                       168,600           5,673,390
- --------------------------------------------------------------------------------------------------------------------
Wyeth                                                                                   150,200           6,949,754
                                                                                                     ---------------
                                                                                                         12,623,144

- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Beckman Coulter, Inc.                                                                    85,200           4,599,096
- --------------------------------------------------------------------------------------------------------------------
Cooper Cos., Inc. (The)                                                                  35,900           2,750,299
                                                                                                     ---------------
                                                                                                          7,349,395

- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.6%
Manor Care, Inc.                                                                         67,000           2,573,470
- --------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp. 1                                                                280,900           3,154,507
                                                                                                     ---------------
                                                                                                          5,727,977

- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.5%
GlaxoSmithKline plc, ADR                                                                118,500           6,076,680


                         20 | OPPENHEIMER BALANCED FUND

                                                                                                              VALUE
                                                                                         SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS Continued
Pfizer, Inc.                                                                            291,740      $    7,284,748
- --------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR                                                                  190,900           7,931,895
- --------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 3                                                                 245,800           5,174,090
- --------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1                                                          168,300           6,161,463
                                                                                                     ---------------
                                                                                                         32,628,876

- --------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--6.1%
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.4%
Empresa Brasileira de Aeronautica SA, ADR                                               142,100           5,485,060
- --------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc.                                                           361,700          13,563,750
- --------------------------------------------------------------------------------------------------------------------
Orbital Sciences Corp. 1                                                                957,717          11,971,463
- --------------------------------------------------------------------------------------------------------------------
Raytheon Co.                                                                              2,200              83,644
                                                                                                     ---------------
                                                                                                         31,103,917

- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--2.1%
Cendant Corp.                                                                           873,700          18,033,168
- --------------------------------------------------------------------------------------------------------------------
Corinthian Colleges, Inc. 1                                                              79,300           1,052,311
                                                                                                     ---------------
                                                                                                         19,085,479

- --------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.1%
GrafTech International Ltd. 1                                                           230,900           1,253,787
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.5%
Tyco International Ltd.                                                                 167,700           4,670,445
- --------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--10.7%
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.5%
Cisco Systems, Inc. 1                                                                   262,700           4,710,211
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.9%
Hewlett-Packard Co.                                                                     204,479           5,970,787
- --------------------------------------------------------------------------------------------------------------------
Hutchinson Technology, Inc. 1                                                               100               2,612
- --------------------------------------------------------------------------------------------------------------------
International Business Machines Corp.                                                   147,100          11,800,362
                                                                                                     ---------------
                                                                                                         17,773,761

- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.7%
Flextronics International Ltd. 1                                                        485,300           6,236,105
- --------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.1%
Net2Phone, Inc. 1                                                                       676,600           1,184,050
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.3%
ATI Technologies, Inc. 1,2                                                              321,100           4,476,134
- --------------------------------------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. A 1                                                  294,700           6,898,927
                                                                                                     ---------------
                                                                                                         11,375,061


                         21 | OPPENHEIMER BALANCED FUND

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

                                                                                                              VALUE
                                                                                         SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--6.2%
Compuware Corp. 1                                                                       345,329      $    3,280,626
- --------------------------------------------------------------------------------------------------------------------
Microsoft Corp.                                                                         717,600          18,463,848
- --------------------------------------------------------------------------------------------------------------------
Novell, Inc. 1                                                                          900,300           6,707,235
- --------------------------------------------------------------------------------------------------------------------
Synopsys, Inc. 1                                                                        274,900           5,195,610
- --------------------------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1                                                 1,078,000          23,813,020
                                                                                                     ---------------
                                                                                                         57,460,339

- --------------------------------------------------------------------------------------------------------------------
MATERIALS--1.1%
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.4%
Praxair, Inc.                                                                            82,700           3,963,811
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.7%
Companhia Vale do Rio Doce, Sponsored ADR                                               162,900           6,338,439
- --------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.9%
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.9%
IDT Corp., Cl. B 1                                                                      696,200           8,486,678
- --------------------------------------------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group 1,4                                                       450,000                  --
                                                                                                     ---------------
                                                                                                          8,486,678

- --------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
- --------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.5%
AES Corp. (The) 1                                                                       534,000           8,773,620
- --------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc. 1                                                                  344,500           5,319,080
                                                                                                     ---------------
                                                                                                         14,092,700
                                                                                                     ---------------
Total Common Stocks (Cost $338,291,466)                                                                 472,436,510

                                                                                          UNITS
- --------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts., Exp. 12/10/071 (Cost $0)                                 11,758              11,170

                                                                                      PRINCIPAL
                                                                                         AMOUNT
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--6.1%
- --------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 3.856%, 4/20/08 5                                           $   550,000             550,400
- --------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates, Series 2005-A,
Cl. A2, 3.66%, 12/26/07                                                               2,180,000           2,175,063
- --------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.:
Series 2004-2, Cl. A3, 3.58%, 1/15/09                                                 1,870,000           1,837,191
Series 2005-1, Cl. A2B, 3.73%, 7/16/07                                                  890,000             889,040
- --------------------------------------------------------------------------------------------------------------------
Capital One Prime Auto Receivables Trust, Automobile Loan Asset-Backed
Securities, Series 2005-1, Cl. A2, 4.24%, 11/15/07                                    2,090,000           2,088,255


                         22 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20                                              $   335,381      $      333,576
Series 2005-B, Cl. AF1, 4.02%, 3/26/35                                                  468,991             466,549
Series 2005-C, Cl. AF1, 4.196%, 6/25/35                                               1,146,541           1,142,992
- --------------------------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home Equity
Mtg. Obligations:
Series 2003-5, Cl. 1A2, 2.451%, 11/25/18                                                100,455             100,219
Series 2004-1, Cl. 1A2, 2.427%, 6/25/19                                                 492,516             491,088
- --------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08                                                   201,835             202,003
Series 2005-A, Cl. A2, 3.72%, 12/15/07                                                1,530,000           1,523,867
- --------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06                                              1,161,920           1,157,308
- --------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.:
Series 2001-A6, Cl. A6, 5.65%, 6/16/08                                                1,760,000           1,775,560
Series 2003-C4, Cl. C4, 5%, 6/10/15                                                     270,000             267,509
- --------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Collateralized Mtg. Obligations,
Series 2005-WF2, Cl. AF2, 4.922%, 8/25/35 5                                           2,415,000           2,416,509
- --------------------------------------------------------------------------------------------------------------------
Consumer Credit Reference Index Securities Program, Credit Card
Asset-Backed Certificates, Series 2002-B, Cl. FX, 10.421%, 3/22/07 4                    500,000             523,296
- --------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc., Home Equity Asset-Backed
Certificates:
Series 2002-4, Cl. A1, 4.20%, 2/25/33 5                                                  27,360              27,611
Series 2005-7, Cl. AF1B, 4.317%, 11/25/35                                             1,264,092           1,259,555
- --------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.49%, 10/6/08                                                   402,983             403,502
Series 2004-B, Cl. A2, 2.48%, 2/8/07                                                    445,903             445,503
Series 2004-C, Cl. A2, 2.62%, 6/8/07                                                  1,474,075           1,469,116
Series 2005-A, Cl. A2, 3.17%, 9/8/07                                                  1,909,240           1,903,520
- --------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Mtg. Pass-Through Certificates,
Series 2004-3, Cl. AF2, 3.80%, 7/25/34                                                1,610,000           1,602,699
- --------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2004-A, Cl. A2, 2.13%, 10/15/06                                                  692,399             691,457
Series 2005-A, Cl. A3, 3.48%, 11/17/08                                                1,370,000           1,354,997
Series 2005-B, Cl. A2, 3.77%, 9/15/07                                                 1,369,663           1,367,872
- --------------------------------------------------------------------------------------------------------------------
GS Auto Loan Trust, Automobile Loan Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.32%, 5/15/08                                                 4,010,000           4,005,690
- --------------------------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08                                                   209,714             209,474
- --------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2005-1, Cl. A2, 3.21%, 5/21/07                                                   876,603             874,183
Series 2005-3, Cl. A2, 3.73%, 10/18/07                                                1,420,000           1,413,570
- --------------------------------------------------------------------------------------------------------------------
Lehman XS Trust, Home Equity Obligations, Series 2005-2, Cl. 2A1B,
5.18%, 8/25/35                                                                        2,047,596           2,056,007


                         23 | OPPENHEIMER BALANCED FUND

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

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 5.118%, 3/15/16 5                                           $ 2,540,000      $    2,699,577
- --------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series 2004-A,
Cl. A2, 2.55%, 1/15/07                                                                  618,910             617,616
- --------------------------------------------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, Automobile Receivable Obligations:
Series 2002-B, Cl. A4, 4.71%, 3/15/09                                                   874,304             874,952
Series 2005-B, Cl. A2, 4.03%, 4/15/08                                                 1,170,000           1,167,205
- --------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through
Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34                                               500,000             493,223
Series 2005-1, Cl. A F2, 3.914%, 5/25/35                                                390,000             384,494
Series 2005-2, Cl. A F2, 4.415%, 4/25/35                                                630,000             625,044
- --------------------------------------------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc., Home Equity Asset-Backed
Pass-Through Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28                   1,130,000           1,123,928
- --------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35                   2,910,757           2,916,468
- --------------------------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed
Obligations, Series 2002-B, Cl. A4, 4.39%, 5/15/09                                    1,775,005           1,776,506
- --------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2004-2, Cl. A2, 2.41%, 2/15/07                                                   474,817             474,156
Series 2004-3, Cl. A2, 2.79%, 6/15/07                                                   817,160             815,133
- --------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07                                                   937,624             935,018
Series 2005-A, Cl. A2, 3.52%, 4/20/07                                                 1,610,000           1,604,621
- --------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts., Series 2004-B,
Cl. A2, 2.40%, 5/21/07                                                                  495,129             493,837
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18                                               1,165,689           1,156,278
- --------------------------------------------------------------------------------------------------------------------
WFS Financial Owner Trust, Automobile Receivable Obligations,
Series 2002-2, Cl. A4, 4.50%, 2/20/10                                                   431,952             432,649
- --------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07                                                  990,220             985,843
                                                                                                     ---------------
Total Asset-Backed Securities (Cost $56,799,958)                                                         56,601,729

- --------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--28.0%
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--22.8%
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--22.6%
Federal Home Loan Mortgage Corp.:
6%, 9/1/24                                                                            1,096,376           1,122,834
6.50%, 4/1/18-4/1/34                                                                  2,319,317           2,394,121
7%, 5/1/29-11/1/32                                                                    3,297,323           3,446,780
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Pass-Through Participation Certificates, Series 151, Cl. F, 9%, 5/15/21                  56,589              56,557


                         24 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23                                                  $    93,821      $       93,869
Series 2034, Cl. Z, 6.50%, 2/15/28                                                      530,209             547,241
Series 2053, Cl. Z, 6.50%, 4/15/28                                                      602,219             620,170
Series 2055, Cl. ZM, 6.50%, 5/15/28                                                     764,406             785,563
Series 2075, Cl. D, 6.50%, 8/15/28                                                    1,822,953           1,875,891
Series 2080, Cl. Z, 6.50%, 8/15/28                                                      488,789             501,074
Series 2387, Cl. PD, 6%, 4/15/30                                                        688,648             694,094
Series 2456, Cl. BD, 6%, 3/15/30                                                        342,466             343,769
Series 2498, Cl. PC, 5.50%, 10/15/14                                                     38,038              38,076
Series 2500, Cl. FD, 4.268%, 3/15/32 5                                                  264,248             266,359
Series 2526, Cl. FE, 4.168%, 6/15/29 5                                                  338,949             340,745
Series 2551, Cl. FD, 4.168%, 1/15/33 5                                                  264,568             266,634
Series 2583, Cl. KA, 5.50%, 3/15/22                                                   1,664,936           1,671,320
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed
Security:
Series 176, Cl. IO, 1.348%, 6/1/26 6                                                    475,750              94,645
Series 183, Cl. IO, (0.93)%, 4/1/27 6                                                   747,993             147,557
Series 184, Cl. IO, 4.60%, 12/1/26 6                                                    810,653             150,535
Series 192, Cl. IO, 6.677%, 2/1/28 6                                                    224,225              40,778
Series 200, Cl. IO, 5.407%, 1/1/29 6                                                    267,435              50,620
Series 2130, Cl. SC, 0.191%, 3/15/29 6                                                  595,528              47,700
Series 2796, Cl. SD, 7.381%, 7/15/26 6                                                  896,222              73,418
Series 2920, Cl. S, 10.714%, 1/15/35 6                                                5,362,034             300,967
Series 3000, Cl. SE, 31.046%, 7/15/25 6                                               4,856,862             234,781
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 6.729%, 6/1/26 7                              192,892             164,833
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 10/1/20 8                                                                     10,642,000          10,422,509
5%, 6/1/18-7/1/18                                                                     4,867,627           4,859,689
5%, 10/1/35-11/1/35 8                                                                26,745,000          26,177,548
5.50%, 3/1/33-1/1/34                                                                 11,777,057          11,786,195
5.50%, 10/1/20-11/1/35 8                                                             31,140,000          31,171,755
6%, 4/1/16-11/1/32                                                                   15,868,416          16,311,413
6%, 10/1/20-10/1/35 8                                                                33,737,000          34,469,349
6.50%, 12/1/27-11/1/31                                                                3,514,260           3,632,496
6.50%, 10/1/34-11/1/35 8                                                             27,080,382          27,878,438
7%, 11/1/17                                                                           1,811,086           1,893,845
7.50%, 8/1/29                                                                           707,508             750,199
8.50%, 7/1/32                                                                            53,863              58,585
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust, Commercial Mtg.
Obligations, Trust 2002-T1, Cl. A2, 7%, 11/25/31                                      1,737,114           1,810,157
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust  1993-87, Cl. Z, 6.50%, 6/25/23                                                 1,416,151           1,461,676
Trust  1998-63, Cl. PG, 6%, 3/25/27                                                     116,456             116,392
Trust  2001-50, Cl. NE, 6%, 8/25/30                                                     356,757             358,883


                         25 | OPPENHEIMER BALANCED FUND

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

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Continued
Trust 2001-51, Cl. OD, 6.50%, 10/25/31                                              $ 1,933,308      $    1,997,364
Trust 2001-70, Cl. LR, 6%, 9/25/30                                                      412,134             416,474
Trust 2001-72, Cl. NH, 6%, 4/25/30                                                      275,519             277,043
Trust 2001-74, Cl. PD, 6%, 5/25/30                                                      111,315             111,815
Trust 2002-77, Cl. WF, 4.189%, 12/18/32 5                                               414,443             417,166
Trust 2002-94, Cl. MA, 4.50%, 8/25/09                                                   104,733             104,574
Trust 2003-10, Cl. HP, 5%, 2/25/18                                                    2,480,000           2,472,509
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23                                                   630,000             637,724
Trust 2003-28, Cl. KG, 5.50%, 4/25/23                                                 1,045,000           1,073,703
Trust 2004-101, Cl. BG, 5%, 1/25/20                                                   1,633,000           1,632,297
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-38, Cl. SO, 3.181%, 4/25/32 6                                                972,649              67,661
Trust 2002-47, Cl. NS, 1.931%, 4/25/32 6                                              1,009,917              96,438
Trust 2002-51, Cl. S, 2.125%, 8/25/32 6                                                 927,263              91,446
Trust 2002-77, Cl. IS, 3.876%, 12/18/32 6                                             1,657,106             164,330
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 214, Cl. 2, 7.023%, 3/1/23 6                                                    1,457,269             285,723
Trust 222, Cl. 2, 3.82%, 6/1/23 6                                                     1,628,310             321,567
Trust 240, Cl. 2, 6.83%, 9/1/23 6                                                     2,484,414             475,806
Trust 252, Cl. 2, 1.409%, 11/1/23 6                                                   1,216,040             235,781
Trust 254, Cl. 2, 5.103%, 1/1/24 6                                                      620,366             122,711
Trust 273, Cl. 2, 5.892%, 7/1/26 6                                                      349,686              67,342
Trust 319, Cl. 2, 1.406%, 2/1/32 6                                                      502,715             105,023
Trust 321, Cl. 2, (3.70)%, 3/1/32 6                                                   5,159,207           1,088,147
Trust 329, Cl. 2, 4.906%, 1/1/33 6                                                    1,235,207             263,308
Trust 333, Cl. 2, 5.73%, 3/1/33 6                                                     5,730,968           1,238,574
Trust 334, Cl. 17, (5.478)%, 2/1/33 6                                                   845,987             166,819
Trust 346, Cl. 2, 8.63%, 12/1/33 6                                                    3,023,049             645,744
Trust 350, Cl. 2, 6.05%, 2/1/34 6                                                     5,328,022           1,135,655
Trust 2001-65, Cl. S, 18.657%, 11/25/31 6                                             2,236,445             205,816
Trust 2001-81, Cl. S, 4.542%, 1/25/32 6                                                 519,498              48,376
Trust 2002-9, Cl. MS, 3.043%, 3/25/32 6                                                 700,539              68,012
Trust 2002-52, Cl. SD, (0.566)%, 9/25/32 6                                            1,145,295             111,308
Trust 2002-77, Cl. SH, 9.172%, 12/18/32 6                                               672,238              67,234
Trust 2002-96, Cl. SK, 18.902%, 4/25/32 6                                             5,756,563             528,418
Trust 2003-4, Cl. S, 17.135%, 2/25/33 6                                               1,224,278             127,533
Trust 2004-54, Cl. DS, 3.602%, 11/25/30 6                                             1,026,050              70,706
Trust 2005-6, Cl. SE, 11.131%, 2/25/35 6                                              3,687,741             219,620
Trust 2005-19, Cl. SA, 9.55%, 3/25/35 6                                              14,571,059             857,348
Trust 2005-40, Cl. SA, 11.533%, 5/25/35 6                                             3,259,188             192,938
Trust 2005-71, Cl. SA, 22.845%, 8/25/25 6                                             3,112,132             177,220
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 8.244%, 9/25/23 7                                      549,646             470,690
                                                                                                     ---------------
                                                                                                        208,388,023


                         26 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage Assn.:
4.375%, 3/20/26 5                                                                   $    38,264      $       38,772
7%, 4/15/26                                                                             249,097             262,765
7.50%, 5/15/27                                                                        1,238,676           1,317,853
- --------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 4.769%, 1/16/27 6                                             1,203,083              93,605
Series 2002-15, Cl. SM, 0.751%, 2/16/32 6                                             1,128,432              84,627
Series 2002-76, Cl. SY, 5.958%, 12/16/26 6                                            2,313,179             191,178
Series 2004-11, Cl. SM, 0.305%, 1/17/30 6                                               878,085              64,497
                                                                                                     ---------------
                                                                                                          2,053,297

- --------------------------------------------------------------------------------------------------------------------
NON-AGENCY--5.2%
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL--4.7%
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-6, Cl. A3, 4.512%, 12/10/42                                               1,480,000           1,447,596
Series 2005-2, Cl. A4, 4.783%, 7/10/43                                                1,910,000           1,894,253
Series 2005-3, Cl. A2, 4.501%, 7/10/43                                                1,580,000           1,554,747
- --------------------------------------------------------------------------------------------------------------------
Banc of America Funding Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2004-2, Cl. 2A1, 6.50%, 7/20/32                     1,631,841           1,644,078
- --------------------------------------------------------------------------------------------------------------------
Banc of America Mortgage Securities, Inc., Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32                                                1,288,082           1,312,637
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34                                                 355,086             355,084
Series 2005-E, Cl. 2A2, 4.989%, 6/25/35 5                                               414,048             413,297
- --------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl. A2, 4.945%, 2/11/41                                  750,000             749,866
- --------------------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations:
Series 2004-J9, Cl. 1A1, 4.01%, 10/25/34 5                                              688,769             689,358
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34                                               2,091,212           2,135,411
- --------------------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997-CHL1, Cl. D, 7.67%, 4/29/39 5,9                                           1,170,000           1,172,925
- --------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%, 11/18/35          925,715             961,010
- --------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39                                                 960,000             949,547
Series 2005-CA, Cl. A3, 4.578%, 6/10/48                                                 650,000             638,690
Series 2005-C3, Cl. A2, 4.853%, 7/10/45                                                 940,000             941,870
- --------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 1997-C1, Cl. A3, 6.869%, 7/15/29                                                 623,553             642,808
Series 2004-C3, Cl. A4, 4.547%, 12/10/41                                                940,000             920,942
- --------------------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-G G3, Cl. A2, 4.305%, 8/10/42                  1,330,000           1,304,597


                         27 | OPPENHEIMER BALANCED FUND

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

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL Continued
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%, 10/10/28                                            $   994,884      $      969,455
Series 2004-GG2, Cl. A3, 4.602%, 8/10/38                                                620,000             616,325
- --------------------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations, Series 2004-12,
Cl. 3A1, 4.494%, 12/25/34 5                                                             486,273             485,009
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42               380,000             375,494
- --------------------------------------------------------------------------------------------------------------------
LB-UBS Securities Commercial Mortgage Trust, Commercial Mtg.
Pass-Through Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/40                    1,120,000           1,122,258
- --------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1, 6%, 7/25/34                                     2,087,534           2,112,539
- --------------------------------------------------------------------------------------------------------------------
Mastr Asset Securitization Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3, 4.70%, 8/25/34 5                                  3,541,867           3,530,498
- --------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. A1, 6.50%, 8/25/32                                                 3,085,015           3,125,507
- --------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 2                               1,130,000           1,180,705
- --------------------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15                         1,362,000           1,510,317
- --------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl. A2, 5.75%, 1/25/33                                 1,119,764           1,124,803
- --------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1, Cl. F, 8.301%, 1/20/28 4,5                   250,000             205,000
- --------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C17, Cl. A2, 4.782%, 3/15/42                                              2,190,000           2,183,995
Series 2005-C20, Cl. A5, 5.087%, 7/15/42                                              1,120,000           1,123,976
- --------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.684%, 5/25/35 5                 1,607,509           1,608,345
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-DD, Cl. 2 A1, 4.53%, 1/25/35 5                                            1,704,981           1,701,845
Series 2004-N, Cl. A10, 3.803%, 8/25/34                                                 464,377             464,786
Series 2004-W, Cl. A2, 4.594%, 11/25/34 5                                               198,363             197,903
                                                                                                     ---------------
                                                                                                         43,367,476

- --------------------------------------------------------------------------------------------------------------------
OTHER--0.2%
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42             1,360,000           1,356,682
- --------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.3%
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 8                                             3,135,035           3,184,020
                                                                                                     ---------------
Total Mortgage-Backed Obligations (Cost $260,283,492)                                                   258,349,498


                         28 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--5.4%
- --------------------------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 10                                           $ 1,245,000      $    1,140,481
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Unsec. Bonds:
3.125%, 11/15/06                                                                      2,600,000           2,564,458
3.50%, 11/15/07                                                                       1,020,000           1,001,705
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
3.625%, 9/15/06                                                                       3,495,000           3,472,087
4.125%, 7/12/10 2                                                                     1,406,000           1,384,469
6.625%, 9/15/09 2                                                                       235,000             253,034
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4%, 2/28/07                                                                           2,310,000           2,297,568
4.25%, 7/15/07-8/15/10 2                                                              2,420,000           2,412,457
6%, 5/15/11                                                                           3,900,000           4,177,321
6.625%, 9/15/09                                                                         135,000             145,200
7.25%, 1/15/10 11                                                                     1,500,000           1,658,450
7.25%, 5/15/30 2                                                                      1,215,000           1,608,186
- --------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
4.65%, 6/15/35 2                                                                      1,560,000           1,491,221
5.375%, 11/13/08                                                                        375,000             385,443
Series A, 6.79%, 5/23/12                                                             11,936,000          13,415,694
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2/15/31                                                  1,064,000           1,192,346
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
3.625%, 6/15/10 2                                                                       792,000             772,201
3.75%, 3/31/07 2                                                                      3,980,000           3,955,750
3.875%, 7/31/07-9/15/10 2                                                             2,914,000           2,876,930
4%, 8/31/07 2                                                                           110,000             109,661
4.125%, 5/15/15 2                                                                       646,000             635,074
4.25%, 8/15/15                                                                        1,270,000           1,262,460
5%, 2/15/11-8/15/11 2                                                                 1,340,000           1,391,615
                                                                                                     ---------------
Total U.S. Government Obligations (Cost $50,112,907)                                                     49,603,811

- --------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.2%
- --------------------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $1,786,191)                          1,620,000           1,821,690
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--13.4%
- --------------------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch), 7.125% Sub. Nts., Series B, 10/15/93                      500,000             598,658
- --------------------------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06                                           1,675,000           1,694,552
- --------------------------------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31                                        1,080,000             985,969
- --------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B, 4/1/08                     840,000             879,900
- --------------------------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 9                            365,000             360,657
- --------------------------------------------------------------------------------------------------------------------
AOL Time Warner, Inc., 7.70% Debs., 5/1/32                                            1,010,000           1,199,472
- --------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 5.375% Nts., 9/15/35                                        940,000             914,099
- --------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.125% Sr. Unsec. Nts., 5/1/12                          1,210,000           1,420,787
- --------------------------------------------------------------------------------------------------------------------
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13                                   23,000              22,954


                         29 | OPPENHEIMER BALANCED FUND

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

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08                                $   140,000      $      148,898
- --------------------------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bond 12                                           1,460,000           1,438,480
- --------------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875% Sr. Nts., 7/15/15 9                                      895,000             872,625
- --------------------------------------------------------------------------------------------------------------------
British Telecommunications plc, 8.875% Bonds, 12/15/30                                  795,000           1,081,590
- --------------------------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09                                       238,000             234,533
- --------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 2                            975,000           1,059,667
- --------------------------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 2                                   1,660,000           1,788,653
- --------------------------------------------------------------------------------------------------------------------
CIGNA Corp.:
7% Sr. Unsec. Nts., 1/15/11                                                             610,000             666,154
7.40% Unsec. Nts., 5/15/07                                                            1,230,000           1,279,709
- --------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
4.75% Sr. Nts., 8/15/08                                                                 265,000             265,249
7.75% Sr. Unsec. Unsub. Nts., 4/2/12                                                    680,000             780,516
- --------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32                                       705,000             797,500
- --------------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec. Debs., 7/29/93                                       440,000             576,799
- --------------------------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06                                                   925,000             936,805
- --------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7% Unsec. Nts., 4/1/12 2                            1,455,000           1,601,623
- --------------------------------------------------------------------------------------------------------------------
Countrywide Financial Corp., 4.50% Nts., Series A, 6/15/10                              925,000             906,653
- --------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10                                 1,865,000           1,825,251
- --------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc., (USA), 5.50% Nts., 8/15/13                          1,685,000           1,738,955
- --------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08                                                  860,000             895,434
- --------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 2                                               780,000             782,161
- --------------------------------------------------------------------------------------------------------------------
DaimlerChrysler NA Holdings Corp.:
7.20% Unsec. Nts., 9/1/09                                                               880,000             939,616
8% Nts., 6/15/10                                                                        682,000             755,923
- --------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31                                      1,175,000           1,362,226
- --------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts., 6/15/10                 1,105,000           1,254,007
- --------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10                             1,280,000           1,444,303
- --------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06                                           830,000             840,223
- --------------------------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07                                                         295,000             304,022
8.10% Unsec. Nts., 8/1/10                                                             1,210,000           1,359,192
8.375% Nts., 3/15/06                                                                    560,000             569,764
- --------------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08                     1,165,000           1,220,526
- --------------------------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07                                                1,875,000           1,822,824
- --------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06                                               730,000             736,369
7.375% Sr. Unsub. Nts., Series C, 11/15/31                                              755,000             888,303


                         30 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
5.80% Sr. Unsec. Nts., 1/12/09                                                      $ 1,540,000      $    1,437,986
6.25% Unsec. Nts., 12/8/05                                                              628,000             628,778
7.375% Nts., 10/28/09                                                                   375,000             362,541
- --------------------------------------------------------------------------------------------------------------------
France Telecom SA:
7.75% Sr. Unsec. Nts., 3/1/11 5                                                         855,000             971,913
8.50% Sr. Unsec. Nts., 3/1/31 5                                                         275,000             369,671
- --------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08                                           585,000             571,745
- --------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07                                                                   1,360,000           1,403,320
9.55% Unsub. Nts., 12/15/08 5                                                           199,000             224,086
- --------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07                                            1,400,000           1,376,217
- --------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.125% Unsec. Unsub. Nts., 2/1/07                    3,645,000           3,624,712
- --------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70% Sr. Unsec. Nts., 9/1/12                        1,685,000           1,750,139
- --------------------------------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 5.625% Bonds, 6/1/15 9                                    940,000             930,958
- --------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06                                               561,000             571,039
- --------------------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 2                                              1,860,000           1,760,613
- --------------------------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11                                     804,000             911,745
- --------------------------------------------------------------------------------------------------------------------
HSBC Finance Corp., 4.75% Sr. Unsec. Nts., 7/15/13                                    1,840,000           1,798,780
- --------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 5                              810,000             862,650
- --------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc., 4.875% Sr. Unsec. Nts., Series B, 1/15/09 2                    1,285,000           1,273,644
- --------------------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., (Holding Co.), 7.40% Nts., 4/1/37 2                            1,610,000           1,748,863
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Capital XV, 5.875% Nts., 3/15/35                                             1,220,000           1,198,328
- --------------------------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 6.50% Sr. Nts., 1/15/14 2                               895,000             865,736
- --------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 10.875% Sr. Nts., Series B, 10/15/06 14               250,000             244,375
- --------------------------------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14                                         1,145,000           1,090,582
- --------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12                                      985,000           1,055,969
- --------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07                                                 2,040,000           2,061,587
- --------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 6.80% Sr. Unsec. Nts., 4/1/11                                       1,285,000           1,371,036
- --------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B, 5/15/09 2                                1,450,000           1,443,165
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08                                       1,165,000           1,223,657
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08                                    185,000             193,119
- --------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13                                             880,000             896,114
- --------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13 2                                   930,000             850,966
- --------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14                                         885,000             903,560
- --------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr. Unsec. Bonds, 8/1/33                          1,110,000           1,008,623
- --------------------------------------------------------------------------------------------------------------------
May Department Stores Co.:
3.95% Nts., 7/15/07                                                                     616,000             607,606
7.90% Unsec. Debs., 10/15/07                                                            735,000             773,805
- --------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F, 3/15/12                                         1,380,000           1,571,020


                         31 | OPPENHEIMER BALANCED FUND

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

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C, 2/3/14                     $ 1,825,000      $    1,818,118
- --------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35                                           915,000             912,822
- --------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12                      1,525,000           1,593,471
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12                                                      855,000             927,513
- --------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11                                           124,000             133,116
- --------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12                                                                      675,000             706,960
6.25% Sr. Unsec. Nts., 11/15/11                                                         195,000             209,199
- --------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06                                                                     250,000             246,055
7.875% Sr. Unsec. Nts., 11/15/10                                                      1,070,000           1,204,261
- --------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11                                      1,125,000           1,244,679
- --------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 5.75% Unsec. Unsub. Nts.,
Series 12, 12/15/15 9                                                                 1,480,000           1,467,050
- --------------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 9                  2,750,000           2,737,290
- --------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 9                 547,925             518,471
- --------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts., 2/1/10 9                     715,000             798,606
- --------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 9                           1,510,000           1,935,227
- --------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 9                             1,530,000           1,983,660
- --------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07                                   810,000             832,275
- --------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06                                        915,000             926,049
- --------------------------------------------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec. Nts., 12/15/08                                       750,000             852,734
- --------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 7.50% Sr. Unsec. Nts., 9/15/09                                         1,195,000           1,287,161
- --------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts., 3/1/10                                     900,000           1,000,418
- --------------------------------------------------------------------------------------------------------------------
Simon Property Group LP:
5.45% Unsec. Nts., 3/15/13 2                                                            820,000             829,812
5.625% Unsec. Unsub. Nts., 8/15/14                                                      545,000             559,056
- --------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32                                             1,100,000           1,479,528
- --------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts., 5/1/07                        1,350,000           1,398,938
- --------------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10% Sr. Sec. Nts., 12/19/07 4,13                              136,379             135,697
- --------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08                                                                       965,000             946,618
7.75% Unsec. Sub. Nts., 5/1/10                                                           86,000              96,440
- --------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12                              1,640,000           2,019,421
- --------------------------------------------------------------------------------------------------------------------
Telecom Italia Capital, 5.25% Nts., 10/1/15                                             235,000             231,361
- --------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12                               308,000             386,795
- --------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts., 3/15/08                     1,325,000           1,289,001
- --------------------------------------------------------------------------------------------------------------------
TXU Corp., 6.55% Sr. Unsec. Nts., Series R, 11/15/34                                  1,165,000           1,087,064
- --------------------------------------------------------------------------------------------------------------------
Tyco International Group SA, 6.375% Sr. Unsec. Unsub. Nts., 2/15/06                   1,135,000           1,142,681


                         32 | OPPENHEIMER BALANCED FUND

                                                                                      PRINCIPAL               VALUE
                                                                                         AMOUNT          SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06                                                    $   241,000       $     236,292
3.50% Sr. Unsec. Nts., 10/15/07                                                       1,255,000           1,218,540
- --------------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp., 5.85% Nts., 9/15/35                                       915,000             902,996
- --------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 2                           1,765,000           1,780,424
- --------------------------------------------------------------------------------------------------------------------
Waste Management, Inc., 6.875% Sr. Unsec. Nts., 5/15/09                               1,700,000           1,810,204
- --------------------------------------------------------------------------------------------------------------------
Western Forest Products, Inc., 15% Sec. Nts., 7/28/09 4,13                              302,804             296,748
- --------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06                                     1,785,000           1,821,750
                                                                                                     ---------------
Total Non-Convertible Corporate Bonds and Notes (Cost $124,571,538)                                     124,194,750

- --------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--8.0%
Undivided interest of 7.71% in joint repurchase agreement (Principal Amount/
Value $951,774,000, with a maturity value of $952,055,566) with UBS Warburg
LLC, 3.55%, dated 9/30/05, to be repurchased at $73,416,713 on 10/3/05,
collateralized by Federal National Mortgage Assn., 5%, 10/1/35, with
a value of $972,647,107 (Cost $73,395,000)                                           73,395,000          73,395,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments Purchased with
Cash Collateral from Securities Loaned) (Cost $905,240,552)                                           1,036,414,158

- --------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--2.0%
- --------------------------------------------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--0.2%
Whitehawk CDO Funding Corp., 3.94%, 12/15/05 15                                       2,000,000           2,000,000
- --------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.7%
Undivided interest of 0.46% in joint repurchase agreement (Principal Amount/
Value $3,300,000,000, with a maturity value of $3,301,064,250) with Nomura
Securities, 3.87%, dated 9/30/05, to be repurchased at $15,313,636 on 10/3/05,
collateralized by U.S. Agency Mortgages, 5%--5.50%, 9/1/20--8/1/35,
with a value of $3,366,000,000 15                                                    15,308,699          15,308,699
- --------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.1%
Bear Stearns, 4.06%, 10/3/05 15                                                       1,000,000           1,000,000
                                                                                                     ---------------
Total Investments Purchased with Cash Collateral from Securities Loaned
(Cost $18,308,699)                                                                                       18,308,699

- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $923,549,251)                                           114.2%      1,054,722,857
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS                                                     (14.2)       (130,992,894)
                                                                                    --------------------------------

NET ASSETS                                                                                100.0%     $  923,729,963
                                                                                    ================================


                         33 | OPPENHEIMER BALANCED FUND

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

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Partial or fully-loaned security. See Note 10 of Notes to Financial
Statements.

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          DATE        PRICE       RECEIVED     SEE NOTE 1
- -------------------------------------------------------------------------------------------------
Schering-Plough Corp.                786       1/23/06       $22.50        $96,477        $55,020

4. Illiquid security. The aggregate value of illiquid securities as of September
30, 2005 was $1,160,741, which represents 0.13% of the Fund's net assets. See
Note 9 of Notes to Financial Statements.

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 $10,821,512 or 1.17% of the Fund's net assets
as of September 30, 2005.

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 $635,523 or 0.07% of the Fund's net assets as of
September 30, 2005.

8. When-issued security or forward commitment to be delivered and settled after
September 30, 2005. See Note 1 of Notes to Financial Statements.

9. 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 $12,777,469 or 1.38% of the Fund's net
assets as of September 30, 2005.

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

11. 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 $1,105,633. See Note 6 of Notes to Financial
Statements.

12. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.

13. Interest or dividend is paid-in-kind.

14. Issue is in default. Non-income producing. See Note 1 of Notes to Financial
Statements.

15. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 10 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         34 | OPPENHEIMER BALANCED FUND

STATEMENT OF ASSETS AND LIABILITIES  September 30, 2005
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $29,832,219) (cost $923,549,251)
- --see accompanying statement of investments                                                  $1,054,722,857
- ------------------------------------------------------------------------------------------------------------
Cash                                                                                                170,029
- ------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $30,078,948 sold on a when-issued basis
or forward commitment)                                                                           41,022,383
Interest, dividends and principal paydowns                                                        4,157,781
Shares of beneficial interest sold                                                                1,004,348
Futures margins                                                                                     144,584
Other                                                                                                27,349
                                                                                             ---------------
Total assets                                                                                  1,101,249,331

- ------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $96,477)
- --see accompanying statement of investments                                                          55,020
- ------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                       18,308,699
- ------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                            71,343
- ------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $155,457,045 purchased on a when-issued basis
or forward commitment)                                                                          156,919,863
Shares of beneficial interest redeemed                                                            1,258,969
Distribution and service plan fees                                                                  495,372
Trustees' compensation                                                                              155,682
Transfer and shareholder servicing agent fees                                                       111,556
Shareholder communications                                                                           70,090
Other                                                                                                72,774
                                                                                             ---------------
Total liabilities                                                                               177,519,368

- ------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                   $  923,729,963
                                                                                             ===============

- ------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Paid-in capital                                                                              $  741,307,555
- ------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                 5,145,284
- ------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions                   45,784,524
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                               131,492,600
                                                                                             ---------------
NET ASSETS                                                                                   $  923,729,963
                                                                                             ===============


                         35 | OPPENHEIMER BALANCED FUND

STATEMENT OF ASSETS AND LIABILITIES  Continued
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $725,836,301 and
50,010,844 shares of beneficial interest outstanding)                                                $14.51
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price)      $15.40
- ------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $98,270,880 and 6,907,567 shares
of beneficial interest outstanding)                                                                  $14.23
- ------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $87,820,386 and 6,145,816 shares
of beneficial interest outstanding)                                                                  $14.29
- ------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $11,802,396 and 820,597 shares of
beneficial interest outstanding)                                                                     $14.38

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         36 | OPPENHEIMER BALANCED FUND

STATEMENT OF OPERATIONS  For the Year Ended September 30, 2005
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest                                                           $ 16,658,051
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $175,859)              7,225,027
- --------------------------------------------------------------------------------
Portfolio lending fees                                                   52,528
- --------------------------------------------------------------------------------
Other income                                                             33,230
                                                                   -------------
Total investment income                                              23,968,836

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                       6,085,297
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                               1,399,566
Class B                                                                 924,866
Class C                                                                 778,708
Class N                                                                  51,254
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A                                                                 833,080
Class B                                                                 208,495
Class C                                                                 135,453
Class N                                                                  26,986
- --------------------------------------------------------------------------------
Shareholder communications:
Class A                                                                 121,101
Class B                                                                  42,473
Class C                                                                  22,879
Class N                                                                   2,814
- --------------------------------------------------------------------------------
Trustees' compensation                                                   27,672
- --------------------------------------------------------------------------------
Custodian fees and expenses                                              23,909
- --------------------------------------------------------------------------------
Other                                                                    91,278
                                                                   -------------
Total expenses                                                       10,775,831
Less reduction to custodian expenses                                    (20,670)
                                                                   -------------
Net expenses                                                         10,755,161

- --------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                13,213,675


                         37 | OPPENHEIMER BALANCED FUND

STATEMENT OF OPERATIONS  Continued
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments                                                                  $ 55,523,311
Closing of futures contracts                                                    3,868,560
Foreign currency transactions                                                     483,399
Swap contracts                                                                    (34,072)
                                                                             -------------
Net realized gain                                                              59,841,198

- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments                                                                    25,331,740
Translation of assets and liabilities denominated in foreign currencies           (35,485)
Futures contracts                                                                (838,889)
Option contracts                                                                   41,457
Swap contracts                                                                    (86,475)
                                                                             -------------
Net change in unrealized appreciation                                          24,412,348

- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                         $ 97,467,221
                                                                             =============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         38 | OPPENHEIMER BALANCED FUND

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

YEAR ENDED SEPTEMBER 30,                                                                 2005               2004
- -----------------------------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income                                                           $  13,213,675      $   6,881,213
- -----------------------------------------------------------------------------------------------------------------
Net realized gain                                                                  59,841,198         64,202,686
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                              24,412,348            240,460
                                                                                ---------------------------------
Net increase in net assets resulting from operations                               97,467,221         71,324,359

- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                            (7,922,968)        (4,777,266)
Class B                                                                              (487,362)          (111,890)
Class C                                                                              (462,164)          (122,220)
Class N                                                                               (90,860)           (30,405)
- -----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                                           (33,213,932)                --
Class B                                                                            (4,435,493)                --
Class C                                                                            (3,587,318)                --
Class N                                                                              (466,585)                --

- -----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A                                                                            36,521,136         20,788,123
Class B                                                                             8,636,193         13,846,692
Class C                                                                            15,819,238         16,261,663
Class N                                                                             2,483,994          4,986,013

- -----------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Total increase                                                                    110,261,100        122,165,069
- -----------------------------------------------------------------------------------------------------------------
Beginning of period                                                               813,468,863        691,303,794
                                                                                ---------------------------------
End of period (including accumulated net investment income (loss)
of $5,145,284 and $(681,095), respectively)                                     $ 923,729,963      $ 813,468,863
                                                                                =================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         39 | OPPENHEIMER BALANCED FUND

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

CLASS A    YEAR ENDED SEPTEMBER 30,                    2005            2004            2003          2002          2001
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $  13.75        $  12.55        $  10.51      $  12.14      $  14.23
                                                   ----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                   .24 1           .14             .21           .35           .43
Net realized and unrealized gain (loss)                1.38            1.16            2.08         (1.29)        (1.40)
                                                   ----------------------------------------------------------------------
Total from investment operations                       1.62            1.30            2.29          (.94)         (.97)
- -------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.16)           (.10)           (.22)         (.31)         (.38)
Tax return of capital distribution                       --              --            (.03)           --            --
Distributions from net realized gain                   (.70)             --              --          (.38)         (.74)
                                                   ----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                        (.86)           (.10)           (.25)         (.69)        (1.12)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $  14.51        $  13.75        $  12.55      $  10.51      $  12.14
                                                   ======================================================================

- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                    12.13%          10.37%          21.98%        (8.58)%       (7.27)%

- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $725,836        $651,754        $575,799      $483,311      $562,281
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $694,147        $631,041        $523,477      $570,796      $626,251
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                  1.69%           1.05%           1.78%         2.84%         3.16%
Total expenses                                         1.05%           1.07%           1.11%         1.15%         1.01%
Expenses after payments and waivers and
reduction to custodian expenses                        1.05%           1.06%           1.11%         1.15%         1.01%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                  73% 4           61% 4          205%           31%           40%

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

                                   PURCHASE TRANSACTIONS       SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005             $2,097,453,846          $2,135,377,175
Year Ended September 30, 2004             $1,069,526,653          $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         40 | OPPENHEIMER BALANCED FUND

CLASS B   YEAR ENDED SEPTEMBER 30,                    2005           2004            2003           2002           2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.53        $ 12.40         $ 10.38        $ 12.01        $ 14.08
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .11 1          .02             .09            .25            .31
Net realized and unrealized gain (loss)               1.36           1.13            2.07          (1.29)         (1.36)
                                                   -----------------------------------------------------------------------
Total from investment operations                      1.47           1.15            2.16          (1.04)         (1.05)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.07)          (.02)           (.11)          (.21)          (.28)
Tax return of capital distribution                      --             --            (.03)            --             --
Distributions from net realized gain                  (.70)            --              --           (.38)          (.74)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.77)          (.02)           (.14)          (.59)         (1.02)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.23        $ 13.53         $ 12.40        $ 10.38        $ 12.01
                                                   =======================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                   11.17%          9.26%          20.91%         (9.38)%        (7.96)%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $98,271        $84,924         $64,944        $54,757        $63,487
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $92,677        $77,082         $57,836        $64,702        $67,959
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                 0.76%          0.11%           0.81%          2.02%          2.37%
Total expenses                                        1.98% 4        2.02% 4,5       2.08% 4        1.97% 4        1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 6          61% 6          205%            31%            40%

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 September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         41 | OPPENHEIMER BALANCED FUND

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


CLASS C   YEAR ENDED SEPTEMBER 30,                    2005           2004            2003           2002           2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.59        $ 12.44         $ 10.42        $ 12.06        $ 14.13
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .11 1          .04             .11            .24            .31
Net realized and unrealized gain (loss)               1.37           1.13            2.06          (1.29)         (1.37)
                                                   -----------------------------------------------------------------------
Total from investment operations                      1.48           1.17            2.17          (1.05)         (1.06)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.08)          (.02)           (.12)          (.21)          (.27)
Tax return of capital distribution                      --             --            (.03)            --             --
Distributions from net realized gain                  (.70)            --              --           (.38)          (.74)
                                                   -----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.78)          (.02)           (.15)          (.59)         (1.01)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.29        $ 13.59         $ 12.44        $ 10.42        $ 12.06
                                                   =======================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                   11.18%          9.45%          20.98%         (9.41)%        (8.00)%

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $87,820        $68,018         $47,212        $33,300        $36,171
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $78,091        $60,095         $38,407        $37,412        $39,030
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                 0.83%          0.19%           0.90%          2.03%          2.37%
Total expenses                                        1.91% 4        1.93% 4,5       1.98% 4        1.96% 4        1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 6          61% 6          205%            31%            40%

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 September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         42 | OPPENHEIMER BALANCED FUND

FINANCIAL HIGHLIGHTS Continued


CLASS N    YEAR ENDED SEPTEMBER 30,                   2005          2004          2003         2002         2001 1
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 13.65       $ 12.49       $ 10.48      $ 12.13      $ 13.67
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .17 2         .10           .20          .39          .24
Net realized and unrealized gain (loss)               1.38          1.12          2.01        (1.38)       (1.48)
                                                   ---------------------------------------------------------------
Total from investment operations                      1.55          1.22          2.21         (.99)       (1.24)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.12)         (.06)         (.17)        (.28)        (.30)
Tax return of capital distribution                      --            --          (.03)          --           --
Distributions from net realized gain                  (.70)           --            --         (.38)          --
                                                   ---------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.82)         (.06)         (.20)        (.66)        (.30)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 14.38       $ 13.65       $ 12.49      $ 10.48      $ 12.13
                                                   ===============================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                   11.66%         9.77%        21.27%       (8.94)%      (9.30)%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $11,803       $ 8,772       $ 3,349      $   798      $    95
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $10,278       $ 5,701       $ 1,604      $   454      $    12
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                 1.24%         0.55%         1.24%        2.49%        5.81%
Total expenses                                        1.50%         1.58%         1.76%        1.48%        1.32%
Expenses after payments and waivers and
reduction to custodian expenses                       1.50%         1.57%         1.62%        1.48%        1.32%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 73% 5         61% 5        205%          31%          40%

1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.

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

3. 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.

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

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

                                    PURCHASE TRANSACTIONS      SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005              $2,097,453,846         $2,135,377,175
Year Ended September 30, 2004              $1,069,526,653         $1,026,457,980

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         43 | OPPENHEIMER BALANCED FUND

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

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

Oppenheimer Balanced 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 high total investment return consistent
with preservation of principal. 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 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, in the country that is 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 are valued at their fair value. Foreign


                         44 | OPPENHEIMER BALANCED FUND

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).

- --------------------------------------------------------------------------------
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 September 30, 2005, the Fund had purchased
$155,457,045 of securities issued on a when-issued basis or forward commitment
and sold $30,078,948 of securities issued on a when-issued basis or forward
commitment.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of September 30, 2005, securities with an
aggregate market value of $244,375, representing 0.03% of the Fund's net assets,
were in default.

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


                         45 | OPPENHEIMER BALANCED FUND

NOTES TO FINANCIAL STATEMENTS  Continued

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

withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the values of assets and liabilities, including
investments in securities at fiscal period end, resulting from changes in
exchange rates.

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

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

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

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

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
    ----------------------------------------------------------------------------
    $14,225,407        $38,133,390                $444,925          $130,662,367

1. The Fund had $44,552 of post-October foreign currency losses which were
deferred.

2. The Fund had $400,373 of straddle losses which were deferred.


                         46 | OPPENHEIMER BALANCED FUND

3. During the fiscal year ended September 30, 2005, the Fund utilized $248,875
of capital loss carryforward to offset capital gains realized in that fiscal
year.

4. During the fiscal year ended September 30, 2004, the Fund utilized $4,257,280
of capital loss carryforward to offset capital gains realized in that fiscal
year.

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 September 30, 2005. Net assets of
the Fund were unaffected by the reclassifications.

                                INCREASE TO              REDUCTION TO
                                ACCUMULATED           ACCUMULATED NET
       INCREASE TO           NET INVESTMENT             REALIZED GAIN
       PAID-IN CAPITAL               INCOME          ON INVESTMENTS 5
       --------------------------------------------------------------
       $3,848,071                $1,576,058                $5,424,129

5. $3,600,291, including $2,911,989 of long-term capital gain, was distributed
in connection with Fund share redemptions.

The tax character of distributions paid during the years ended September 30,
2005 and September 30, 2004 was as follows:

                                        YEAR ENDED         YEAR ENDED
                                    SEPT. 30, 2005     SEPT. 30, 2004
       --------------------------------------------------------------
       Distributions paid from:
       Ordinary income                $ 20,732,822        $ 5,041,781
       Long-term capital gain           29,933,860                 --
                                      -------------------------------
       Total                          $ 50,666,682        $ 5,041,781
                                      ===============================

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 September 30, 2005 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           $ 924,122,414
       Federal tax cost of other investments     (123,047,206)
                                                --------------
       Total federal tax cost                   $ 801,075,208
                                                ==============

       Gross unrealized appreciation            $ 148,655,942
       Gross unrealized depreciation              (17,993,575)
                                                --------------
       Net unrealized appreciation              $ 130,662,367
                                                ==============


                         47 | OPPENHEIMER BALANCED FUND

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

1. SIGNIFICANT ACCOUNTING POLICIES Continued

TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent trustees. Benefits are based on years of service and fees
paid to each trustee during the years of service. During the year ended
September 30, 2005, the Fund's projected benefit obligations were increased by
$5,423 and payments of $9,637 were made to retired trustees, resulting in an
accumulated liability of $124,605 as of September 30, 2005.

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

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

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

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


                         48 | OPPENHEIMER BALANCED FUND

- --------------------------------------------------------------------------------
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 no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:

                                YEAR ENDED SEPTEMBER 30, 2005     YEAR ENDED SEPTEMBER 30, 2004
                                      SHARES           AMOUNT           SHARES           AMOUNT
- ------------------------------------------------------------------------------------------------
CLASS A
Sold                               6,341,196     $ 89,407,865        6,122,137     $ 82,783,982
Dividends and/or
distributions reinvested           2,700,256       37,680,524          313,143        4,294,088
Redeemed                          (6,426,942)     (90,567,253)      (4,905,906)     (66,289,947)
                                  --------------------------------------------------------------
Net increase                       2,614,510     $ 36,521,136        1,529,374     $ 20,788,123
                                  ==============================================================

- ------------------------------------------------------------------------------------------------
CLASS B
Sold                               2,164,968     $ 29,908,987        2,864,209     $ 38,137,332
Dividends and/or
distributions reinvested             334,015        4,563,228            7,693          103,111
Redeemed                          (1,865,946)     (25,836,022)      (1,835,055)     (24,393,751)
                                  --------------------------------------------------------------
Net increase                         633,037     $  8,636,193        1,036,847     $ 13,846,692
                                  ==============================================================

- ------------------------------------------------------------------------------------------------
CLASS C
Sold                               1,913,961     $ 26,621,005        2,004,496     $ 26,837,027
Dividends and/or
distributions reinvested             273,835        3,758,922            8,365          112,683
Redeemed                          (1,047,238)     (14,560,689)        (801,328)     (10,688,047)
                                  --------------------------------------------------------------
Net increase                       1,140,558     $ 15,819,238        1,211,533     $ 16,261,663
                                  ==============================================================

- ------------------------------------------------------------------------------------------------
CLASS N
Sold                                 295,550     $  4,136,828          553,663     $  7,419,779
Dividends and/or
distributions reinvested              39,150          541,581            2,182           29,726
Redeemed                            (156,565)      (2,194,415)        (181,488)      (2,463,492)
                                  --------------------------------------------------------------
Net increase                         178,135     $  2,483,994          374,357     $  4,986,013
                                  ==============================================================


                         49 | OPPENHEIMER BALANCED FUND

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

- --------------------------------------------------------------------------------
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 September 30, 2005, were as
follows:

                                        PURCHASES              SALES
- --------------------------------------------------------------------
Investment securities              $1,289,673,154     $  476,962,320
U.S. government and government
agency obligations                     90,915,994        100,960,839
To Be Announced (TBA)
mortgage-related securities         2,097,453,846      2,135,377,175
- --------------------------------------------------------------------

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

MANAGEMENT FEES. Management fees paid to the Manager are in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets of
the Fund, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66%
of the next $200 million, 0.60% of the next $700 million, and 0.58% of average
annual net assets in excess of $1.5 billion.

- --------------------------------------------------------------------------------
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 September 30, 2005, the Fund paid
$1,190,778 to OFS for services to the Fund.

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

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

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% 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


                         50 | OPPENHEIMER BALANCED FUND

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 September 30, 2005 for Class B, Class C
and Class N shares were $2,799,628, $1,392,035 and $134,366, respectively. Fees
incurred by the Fund under the plans are detailed in the Statement of
Operations.

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

                                            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
- ---------------------------------------------------------------------------------------------------
September 30, 2005         $407,881          $2,396        $175,201         $21,759          $6,448
- ---------------------------------------------------------------------------------------------------

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. FOREIGN CURRENCY CONTRACTS

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

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

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

      As of September 30, 2005, the Fund had no outstanding foreign currency
contracts.


                         51 | OPPENHEIMER BALANCED FUND

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

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

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

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

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

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported 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 September 30, 2005, the Fund had outstanding futures contracts as follows:

                                                             VALUATION AS OF         UNREALIZED
                                 EXPIRATION     NUMBER OF      SEPTEMBER 30,       APPRECIATION
CONTRACT DESCRIPTION                  DATES     CONTRACTS               2005     (DEPRECIATION)
- -----------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds                    12/20/05           310        $35,465,938        $ (756,638)
                                                                                    -----------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr.          12/30/05           428         88,121,188           593,961
U.S. Treasury Nts., 5 yr.          12/20/05           477         50,971,922           297,015
U.S. Treasury Nts., 10 yr.         12/20/05           175         19,236,328           209,961
                                                                                    -----------
                                                                                     1,100,937
                                                                                    -----------
                                                                                    $  344,299
                                                                                    ===========


                         52 | OPPENHEIMER BALANCED FUND

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

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

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

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

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

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

Written option activity for the year ended September 30, 2005 was as follows:

                                             CALL OPTIONS
                                  -----------------------
                                  NUMBER OF     AMOUNT OF
                                  CONTRACTS      PREMIUMS
- ---------------------------------------------------------
Options outstanding as of
September 30, 2004                       --       $    --
Options written                         786        96,477
                                        -----------------
Options outstanding as of
September 30, 2005                      786       $96,477
                                        =================

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

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


                         53 | OPPENHEIMER BALANCED FUND

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

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

termination or settlement. Total return swaps are subject to risks (if the
counterparty fails to meet its obligations).

As of September 30, 2005, the Fund had entered into the following total return
swap agreements:

                                    PAID                      RECEIVED
                                  BY THE          RATE          BY THE          RATE
                                 FUND AT         AS OF         FUND AT         AS OF
SWAP              NOTIONAL     SEPT. 30,     SEPT. 30,       SEPT. 30,     SEPT. 30,   TERMINATION       UNREALIZED
COUNTERPARTY        AMOUNT          2005          2005            2005          2005          DATE     DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
                               One-Month
                                   LIBOR                     Change of
                                   minus                  Total Return
                                   0.25%                     of Lehman
                                (+ or -)                      Brothers
                                    Rate                          CMBS
UBS AG          $5,260,000      Received      5.04893%           Index      (1.36)%*       12/1/05          $71,343

*Represents an additional amount paid by the Fund at September 30, 2005.

Index abbreviations are as follows:

CMBS     Commercial Mortgage Backed Securities

LIBOR    London-Interbank Offered Rate

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

As of September 30, 2005, 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. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund continues to receive the
economic benefit of interest or dividends paid on the securities loaned in


                         54 | OPPENHEIMER BALANCED FUND

the form of a substitute payment received from the borrower. As of September 30,
2005, the Fund had on loan securities valued at $29,832,219. Collateral of
$30,627,203 was received for the loans, of which $18,308,699 was received in
cash and subsequently invested in approved instruments.

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

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor, as well as 51 of the
Oppenheimer funds (as "Nominal Defendants") including the Fund, 30 present and
former Directors or Trustees and 8 present and former officers of the funds.
This complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The defendants believe that the allegations contained in the Complaints
are without merit and that they have meritorious defenses against the claims
asserted. The defendants intend to defend these lawsuits vigorously and to
contest any claimed liability. The defendants believe that it is premature to
render any opinion as to the likelihood of an outcome unfavorable to them and
that no estimate can yet be made with any degree of certainty as to the amount
or range of any potential loss.


                         55 | OPPENHEIMER BALANCED FUND

                                  Appendix A

                             RATINGS DEFINITIONS


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

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

LONG-TERM RATINGS: BONDS AND PREFERRED STOCK ISSUER RATINGS

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

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

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

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

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

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

Caa: Bonds and preferred stock rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds and preferred stock rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

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

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

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

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

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

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

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

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

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

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

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

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

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

BB, B, CCC, CC, and C
An obligation rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: An obligation  rated "BB" are less  vulnerable  to  nonpayment  than other
speculative  issues.   However,  they  face  major  ongoing  uncertainties  or
exposure to adverse business,  financial,  or economic  conditions which could
lead to the obligor's  inadequate capacity to meet its financial commitment on
the obligation.

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

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

CC: An obligation rated "CC" are currently highly vulnerable to nonpayment.

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

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

The ratings from "AA" to "CCC" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating
categories.

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

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

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

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

N.R. Not rated.

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

Bond Investment Quality Standards

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

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

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

A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.

B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.

C: A short-term obligation rated "C" is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation.

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

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

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

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

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

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

INTERNATIONAL LONG-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings.

Investment Grade:

AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

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

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

Speculative Grade:

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

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

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

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

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.

Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories.  Plus and minus signs are
not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).

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

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

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

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

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

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

D: Default. Denotes actual or imminent payment default.









                                     B-1
                                 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        Road & Rail
Services
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









                                     C-11
                                  Appendix C

        OppenheimerFunds Special Sales Charge Arrangements and Waivers

In certain cases, the initial sales charge that applies to purchases of Class
A 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. Waivers of the Class A Initial and Contingent Deferred Sales Charges in
Certain Transactions.

1.    Class A shares issued or purchased in the following transactions are
   not subject to sales charges (and no concessions are paid by the
   Distributor on such purchases):
      Shares issued in plans of reorganization, such as mergers, asset
         acquisitions and exchange offers, to which the Fund is a party.
      Shares purchased by the reinvestment of dividends or other
         distributions reinvested from the Fund or other Oppenheimer funds or
         unit investment trusts for which reinvestment arrangements have been
         made with the Distributor.
      Shares purchased by certain Retirement Plans that are part of a
         retirement plan or platform offered by banks, broker-dealers,
         financial advisors or insurance companies, or serviced by
         recordkeepers.
      Shares purchased by the reinvestment of loan repayments by a
         participant in a Retirement Plan for which the Manager or an
         affiliate acts as sponsor.
      Shares purchased in amounts of less than $5.

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

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

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

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

A. Waivers for Redemptions in Certain Cases.

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

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

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

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

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

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

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

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

A. Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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

      |_| 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

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

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

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

      |_| Waivers for Redemptions of Shares Purchased Prior to March 6,
1995.  In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, Class B or Class C shares of an
Oppenheimer fund. The shares must have been acquired by the merger of a
Former Quest for Value Fund into the fund or by exchange from an Oppenheimer
fund that was a Former Quest for Value Fund or into which such fund merged.
Those shares must have been purchased prior to March 6, 1995 in connection
with:
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

      |_| Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the contingent
deferred sales charge will be waived for redemptions of Class A, Class B or
Class C shares of an Oppenheimer fund. The shares must have been acquired by
the merger of a Former Quest for Value Fund into the fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on
or after March 6, 1995, but prior to November 24, 1995:
o     redemptions following the death or disability of the shareholder(s) (as
            evidenced by a determination of total disability by the U.S.
            Social Security Administration);
o     withdrawals under an automatic withdrawal plan (but only for Class B or
            Class C shares) where the annual withdrawals do not exceed 10% of
            the initial value of the account value; adjusted annually, and
o     liquidation of a shareholder's account if the aggregate net asset value
            of shares held in the account is less than the required minimum
            account value.
      A shareholder's account will be credited with the amount of any
contingent deferred sales charge paid on the redemption of any Class A, Class
B or Class C shares of the Oppenheimer fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another
Oppenheimer fund within 90 days after redemption.
V.         Special Sales Charge Arrangements for Shareholders of Certain
 Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
                              Accounts, Inc.
- ---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

Shareholders of Oppenheimer 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.







Oppenheimer Balanced 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
      JPMorgan Chase Bank
      4 Chase Metro Tech Center
      Brooklyn, New York 11245

Independent Registered Public Accounting Firm
      KPMG LLP
      707 Seventeenth Street
      Denver, Colorado 80202

Legal Counsel
      Mayer, Brown, Rowe & Maw LLP
      1675 Broadway
      New York, New York 10019

1234

PX240.001.0106



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

                          OPPENHEIMER BALANCED FUND

                                  FORM N-14

                                    PART C

                              OTHER INFORMATION

Item 15. - Indemnification

Reference is made to the provisions of Article Seven of Registrant's Amended
and Restated Declaration of Trust filed as Exhibit 16(1) to this Registration
Statement, and incorporated herein by reference.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be permitted to trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling
person, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

Item 16. - Exhibits

(1)   (i)  Amendment dated 2/19/04 to the Amended and Restated Declaration of
Trust dated 3/6/97: Previously filed with Registrant's Post-Effective
Amendment No. 39, 11/23/04, and incorporated herein by reference.

      (ii) Amended and Restated Declaration of Trust dated 3/6/97: Previously
filed with Post-Effective No. 29, 11/24/97, and incorporated herein by
reference.

(2)   Amended and Restated By-Laws dated 12/14/00: Previously filed with
Registrant's Post-Effective Amendment No. 39, 11/23/04, and incorporated
herein by reference.

(3)   Not Applicable.

(4)   Not Applicable.

(5)   (i)  Specimen  Class  A  Share   Certificate:   Previously   filed  with
Registrant's  Post-Effective  Amendment  No. 37,  11/21/02,  and  incorporated
herein by reference.

      (ii)  Specimen  Class  B  Share   Certificate:   Previously  filed  with
Registrant's  Post-Effective  Amendment  No. 37,  11/21/02,  and  incorporated
herein by reference.

      (iii)  Specimen  Class  C  Share  Certificate:   Previously  filed  with
Registrant's  Post-Effective  Amendment  No. 37,  11/21/02,  and  incorporated
herein by reference.

      (iv) Specimen Class N Share Certificate:  Previously filed with
Registrant's Post-Effective Amendment No. 37, 11/21/02, and incorporated
herein by reference.

(6)   Amended and Restated Investment Advisory Agreement dated January 1,
2005: Previously filed with Registrant's Post-Effective Amendment No. 40,
11/23/05, and incorporated herein by reference.

(7)   (i)  General Distributor's Agreement dated 12/10/92: Previously filed
with Registrant's Post-Effective Amendment No. 15, 4/19/93, refiled with
Registrant's Post-Effective Amendment No. 20, 3/2/95, pursuant to Item 102 of
Regulation S-T and incorporated herein by reference.

(ii)  Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.

(iii) Form of Broker Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.

(iv)  Form of Agency Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.

(v)   Form of Trust Company Fund/SERV Purchase Agreement of OppenheimerFunds
Distributor, Inc.: Previously filed with Post-Effective Amendment No. 45 to
the Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/26/01, and incorporated herein by reference.

(vi)  Form of Trust Company Agency Agreement of OppenheimerFunds Distributor,
Inc.: Previously filed with Post-Effective Amendment No. 45 to the
Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/26/01, and incorporated herein by reference.

(8)   (i) Amended and Restated Retirement Plan for Non-Interested  Trustees or
Directors dated 8/9/01:  Previously filed with Post-Effective Amendment No. 34
to the  Registration  Statement of  Oppenheimer  Gold & Special  Minerals Fund
(Reg. No. 2-82590), 10/25/01, and incorporated herein by reference.

      (ii) Form of Deferred Compensation Plan for Disinterested
Trustees/Directors: Previously filed with Post-Effective Amendment No. 26 to
the Registration Statement of Oppenheimer Gold & Special Minerals Fund (Reg.
No. 2-82590), 10/28/98, and incorporated by reference.

(9)   (i)  Global Custody Agreement dated August 16, 2002: Previously filed
with Post-Effective Amendment No. 41 to the Registration Statement of
Oppenheimer Variable Account Funds (Reg. No. 2-93177), 4/28/03, and
incorporated herein by reference.

      (ii) Amendment dated October 2, 2003 to the Global Custody Agreement
dated August 16, 2002: Previously filed with Pre-Effective Amendment No. 1 to
the Registration Statement of Oppenheimer Principal Protected Trust II (Reg.
333-108093), 11/6/03, and incorporated herein by reference.

(10)  (i) Amended and Restated  Service Plan and  Agreement for Class A shares
dated 4/15/04:  Previously filed with  Registrant's  Post-Effective  Amendment
No. 39, 11/23/04, and incorporated herein by reference.

      (ii) Amended and Restated  Distribution  and Service Plan and  Agreement
for  Class  B  shares  dated  2/12/98:   Previously  filed  with  Registrant's
Post-Effective   Amendment  No.  30,  1/22/98,   and  incorporated  herein  by
reference.

(iii) Amended and Restated  Distribution  and Service Plan and  Agreement  for
Class  C  shares   dated   2/18/04:   Previously   filed   with   Registrant's
Post-Effective   Amendment  No.  39,  11/23/04,  and  incorporated  herein  by
reference.

      (iv)  Distribution and Service Plan and Agreement for Class N shares
dated 10/12/00: Previously filed with Registrant's Post-Effective Amendment
No. 37, 11/21/02, and incorporated herein by reference.

      (v)  Oppenheimer Funds Multiple Class Plan under Rule 18f-3 updated
through 8/11/05: Previously filed with Post-Effective Amendment No. 5 to the
Registration Statement of Oppenheimer Main Street Opportunity Fund (Reg. No.
333-40186), 9/27/05, and incorporated herein by reference.

(11)  Opinion and Consent of Counsel: To be filed by Amendment.

(12)  Tax Opinion: To be filed by Amendment.

(13)  Not Applicable.

(14)  Consent of KPMG LLP:  Filed herewith.

(15)  Not Applicable.

(16)  (i)  Powers of Attorney for John Murphy and Brian Wixted: Previously
filed with Post-Effective Amendment No. 16 to the Registration Statement of
Oppenheimer Enterprise Fund (Reg. No. 33-58343), 12/21/05, and incorporated
herein by reference.

(iii)     Power of Attorney for all Trustees/Directors (except Mr. Wruble):
Previously filed with Post-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Limited Term California Fund (Reg. No. 333-111230),
9/29/05, and incorporated herein by reference.

Power of Attorney for Mr. Brian Wruble: Previously filed with Post-Effective
Amendment No. 49 to the Registration Statement of Oppenheimer Capital
Appreciation Fund (Reg. No. 2-69719), 10/19/05, and incorporated herein by
reference.

(17)  Not Applicable.

Item 17. - Undertakings

(1)   The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.

(2)   The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
or the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering of them.








                                  SIGNATURES

As required by the Securities Act of 1933, as amended, this registration
statement has been signed on behalf of the registrant, in the City of New
York and State of New York, on the 22nd day of February, 2006.


                                    Oppenheimer Balanced Fund

                                    By:  /s/ John V. Murphy*

                                    ---------------------------------------------
                                    John V. Murphy, President,
                                    Principal Executive Officer & Trustee


Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:

Signatures                    Title                         Date

/s/ Clayton K. Yeutter*       Chairman of the Board         February 22, 2006
- ---------------------------------                           of Trustees
Clayton K. Yeutter

/s/ John V. Murphy*           President, Principal
- ---------------------------------                           Executive Officer
February 22, 2006
John V. Murphy                & Trustee

/s/ Brian W. Wixted*          Treasurer, Principal          February 22, 2006
- ---------------------------------                           Financial and
Brian W. Wixted               Accounting Officer

/s/ Matthew P. Fink*          Trustee                       February 22, 2006
- --------------------
Matthew P. Fink

/s/ Robert G. Galli*          Trustee                       February 22, 2006
- ----------------------------------
Robert G. Galli

/s/ Phillip A. Griffiths*     Trustee                       February 22, 2006
- ---------------------------------
Phillip A. Griffiths

/s/ Mary F. Miller*           Trustee                       February 22, 2006
- --------------------
Mary F. Miller

/s/ Joel W. Motley*           Trustee                       February 22, 2006
- ------------------------
Joel W. Motley

/s/ Kenneth A. Randall*       Trustee                       February 22, 2006
- ---------------------------------
Kenneth A. Randall

/s/ Russell S. Reynolds, Jr.* Trustee                       February 22, 2006
- ---------------------------------
Russell S. Reynolds, Jr.

/s/ Joseph M. Wikler*
- ------------------------      Trustee                       February 22, 2006
Joseph M. Wikler

/s/ Peter I. Wold*
- -------------------           Trustee                       February 22, 2006
Peter I. Wold

/s/ Brian F. Wruble*
- -------------------           Trustee                       February 22, 2006
Brian F. Wruble


*By:  /s/ Mitchell J. Lindauer
        -----------------------------------------
        Mitchell J. Lindauer, Attorney-in-Fact







                          OPPENHEIMER BALANCED FUND


                           Registration No. 2-86903


                                EXHIBIT INDEX


Exhibit No.    Description

   (14)        Consent of KPMG LLP

EX-99.J

           CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Trustees/Directors
Oppenheimer Balanced Fund
Oppenheimer Disciplined Allocation Fund:

We consent to the use of our incorporation by reference in this Registration
Statement of Oppenheimer Balanced Fund on Form N-14 of our reports dated
November 16, 2005 and December 20, 2005 relating to the financial statements
and financial highlights appearing in the September 30, 2005 Annual Report to
the Shareholders of Oppenheimer Balanced Fund and in the October 31, 2005
Annual Report to the Shareholders of Oppenheimer Disciplined Allocation Fund,
one of the portfolios constituting the Oppenheimer Series Fund, Inc.
respectively.



                              /s/ KPMG LLP
                              KPMG LLP


Denver, Colorado
February 22, 2006