Oppenheimer Portfolio Series

497 1 sai.htm SAI WITH FINANCIALS Oppenheimer Portfolio Series

Oppenheimer Portfolio Series
Conservative Investor Fund
Moderate Investor Fund
Aggressive Investor Fund
Active Allocation Fund

6803 South Tucson Way, Centennial, Colorado 80112
1.800.CALL OPP (225.5677)

Statement of Additional Information dated May 31, 2006

This Statement of Additional Information ("SAI") is not a Prospectus. This document
contains additional information about the Portfolios and supplements information in the
Prospectus dated May 31, 2006. It should be read together with the Prospectus. You can
obtain the Prospectus by writing to the Portfolios' 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 web
site at www.oppenheimerfunds.com.

Contents
Page
About the Portfolios
Additional Information About the Portfolios' Investment Policies and Risks
The Portfolios' Investment Policies................................
Other Investment Techniques and Strategies.........................
Investment Restrictions............................................
Disclosure of Portfolio Holdings...................................
How the Portfolios are Managed ........................................
Organization and History...........................................
Board of Trustees and Oversight Committees.........................
Trustees and Officers of the Fund..................................
The Manager........................................................
Brokerage Policies of the Portfolios...................................
Distribution and Service Plans.........................................
Payments to Fund Intermediaries........................................
Performance of the Portfolios..........................................
About Your Account
How To Buy Shares......................................................
How To Sell Shares.....................................................
How To Exchange Shares.................................................
Dividends, Capital Gains and Taxes.....................................
Additional Information About the Portfolios............................
Financial Information About the Portfolios
Independent Registered Public Accounting Firms' Reports and Financial Statements
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
Appendix D: Qualifying Hybrid Instruments...............................D-1
Appendix E: Qualifying Swap Transactions............................... E-1

ABOUT THE PORTFOLIOS

Additional Information About the Portfolios' Investment Policies and Risks

The investment objective, the principal investment policies and the main risks of
each Portfolio are described in the Prospectus. This SAI contains supplemental information
about those policies and risks and the types of securities that each Portfolio's investment
Manager, OppenheimerFunds, Inc. (the "Manager"), can select for the Portfolio or the
Underlying Funds. Additional information is also provided about the strategies that the
Portfolios may use to try to achieve their objectives.

This SAI describes Oppenheimer Portfolio Series (the "Fund"), which is comprised of
four different portfolios: Conservative Investor Fund, Moderate Investor Fund, Aggressive
Investor Fund and Active Allocation Fund (each, a "Portfolio" and collectively, the
"Portfolios"), each of which is designed to achieve an allocation of assets among different
asset classes. The Fund is a special type of mutual fund known as a "fund of funds"
because it invests in other mutual funds.

The Portfolios' Investment Policies. The composition of the Portfolios and the
techniques and strategies that the Manager may use in selecting portfolio securities will
vary over time. The Portfolios are not required to use all of the investment techniques and
strategies described below in seeking their objectives. They may use some of the special
investment techniques and strategies at some times or not at all.

|X|...The Underlying Funds' Investment Policies. The Portfolios can invest in various
Oppenheimer funds. Each Portfolio normally invests in a portfolio consisting of a
target-weighted allocation in Class A or Class Y shares of other Oppenheimer funds,
referred to as "Underlying Funds," within the parameters listed below. The Prospectus
contains a brief description of Oppenheimer Champion Income Fund ("Champion Income Fund"),
Oppenheimer Core Bond Fund ("Core Bond Fund"), Oppenheimer Capital Appreciation Fund
("Capital Appreciation Fund"), Oppenheimer Developing Markets Fund ("Developing Markets
Fund"), Oppenheimer Global Fund ("Global Fund"), Oppenheimer Global Opportunities Fund
("Global Opportunities Fund"), Oppenheimer High Yield Fund ("High Yield Fund"), Oppenheimer
International Bond Fund ("International Bond Fund"), Oppenheimer Limited-Term Government
Fund ("Limited-Term Government Fund"), Oppenheimer Main Street Fund ("Main Street Fund"),
Oppenheimer Main Street Opportunity Fund ("Main Street Opportunity Fund"), Oppenheimer Main
Street Small Cap Fund ("Main Street Small Cap Fund"), Oppenheimer Real Asset Fund ("Real
Asset Fund"), Oppenheimer Real Estate Fund ("Real Estate Fund"), Oppenheimer Small- & Mid-
Cap Fund ("Small- & Mid- Cap Fund"), Oppenheimer Strategic Income Fund ("Strategic Income
Fund") and Oppenheimer Value Fund ("Value Fund"), including each Underlying Fund's
investment objective. Set forth below is supplemental information about the types of
securities the Underlying Funds may invest in, as well as strategies the Underlying Funds
may use to try to achieve their objectives.

For more complete information about each Underlying Fund's investment policies and
strategies, please refer to each Underlying Fund's Prospectus. You may obtain a copy of
each Underlying Fund's Prospectus by calling 1.800.225.5677.

|X| ..Investments in Small-Cap Equity Securities. Some of the Underlying Funds
invest in small-cap equity securities. Some of these funds focus their investments in
equity securities of small market capitalization ("small cap") growth and/or undervalued
U.S. companies. Equity securities include common stocks, preferred stocks, rights and
warrants, and securities convertible into common stock.

Some of the Underlying Funds can also hold a portion of their assets in securities of
issuers having a larger market capitalization. Although under normal market conditions,
some of the Underlying Funds may invest at least 80% of their net assets (including any
borrowings for investment purposes) in equity securities having small market
capitalizations, at times, in the Manager's view, the market may favor or disfavor
securities of issuers of a particular capitalization range.

For some Underlying Funds, current income is not a criterion used to select portfolio
securities. However, certain debt securities may be selected for an Underlying Fund's
portfolio for defensive purposes (including debt securities that the Manager believes may
offer some opportunities for capital appreciation when stocks are disfavored). Other debt
securities may be selected because they are convertible into common stock, as discussed
below in "Convertible Securities."

|X| Investments in Equity Securities. Some of the Underlying Funds focus their
investments in equity securities. Equity securities include common stocks, preferred
stocks, rights and warrants, and securities convertible into common stock. Investments in
equity securities may include stocks of companies of all market capitalization ranges:
small-cap, mid-cap and large-cap.

At times, one or more of the Underlying Funds may increase their emphasis on equity
investments in securities of one or more capitalization ranges, based upon its manager or
sub-advisor's judgment of where the best market opportunities are to seek their objectives.

Securities of small capitalization issuers (having market capitalizations of less
than $1.8 billion and greater than $500 million) may be subject to greater price volatility
in general than securities of large-cap issuers (generally issuers having market
capitalizations greater than $9 billion) and mid-cap issuers (generally issuers having
market capitalizations between $1.8 billion and $9 billion). Therefore, to the degree that
an Underlying Fund has investments in smaller capitalization companies at times of market
volatility, its share prices may fluctuate more. The market capitalization ranges used by
the Underlying Funds will vary from Fund to Fund. For specific information on the market
capitalization ranges and types of investments in equity securities for an Underlying Fund,
refer to the Statement of Information for the Underlying Fund.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their short-term
volatility at times may be great. To the extent that the some of the Underlying Funds
invest in equity securities, the value of the Underlying Fund's portfolio will be affected
by changes in the stock markets. Market risk can affect the Underlying Fund's net asset
value per share, which will fluctuate as the values of the Underlying Fund's portfolio
securities change. 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.

Some of the Underlying Funds can invest in securities of large companies and mid-size
companies, but may also buy stocks of small companies, which may have more volatile stock
prices than large companies.

Cyclical Opportunities. Some of the Underlying Funds seek to take advantage of
changes in the business cycle by investing in companies that are sensitive to those changes
if the portfolio manager(s) of these Underlying Funds believes they have growth potential.
For example, when the economy is expanding, companies in the consumer durable and
technology sectors might benefit and offer long-term growth opportunities. Other cyclical
industries include insurance, for example. These Underlying Funds focus on seeking growth
over the long term, but could seek to take tactical advantage of short-term market
movements or events affecting particular issuers or industries.

Growth Companies. Some of the Underlying Funds invest in growth companies. Growth
companies are those companies that the Underlying Fund's manager believes are entering into
growth cycles in their businesses, 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 Underlying Fund's
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 Underlying Fund's
manager believes are favorable for the long term. The portfolio managers of the Underlying
Funds looks for growth companies with strong, capable management sound financial and
accounting policies, successful product development and marketing and other factors.

|X| Value Investing. Value Fund uses a value investing style. In selecting equity
investments for Value Fund's portfolio, the portfolio manager currently 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 expectation that Value 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 (or its
long-term earnings potential) 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, liquidation value
and intellectual property value.

Preferred Stock. Some of the Underlying Funds may invest in preferred stock.
Preferred stock, unlike common stock, has a stated dividend rate payable from the
corporation's earnings. Preferred stock dividends may be cumulative or non-cumulative.
"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. Preferred stock may be
"participating" stock, which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases.

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

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

The value of a convertible security is a function of its "investment value" and its
"conversion value." If the investment value exceeds the conversion value, the security will
behave more like a debt security and the security's price will likely increase when
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.

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

To determine whether convertible securities should be regarded as "equity
equivalents," the Underlying Fund's manager may examine 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.

|X| Over-the-Counter Securities. Some of the Underlying Funds may invest in
over-the-counter securities. Securities of small capitalization issuers may be traded on
securities exchanges or in the over-the-counter market. The over-the-counter markets, both
in the U.S. and abroad, may have less liquidity than securities exchanges. That can affect
the price the Underlying Fund is able to obtain when it wants to sell a security.

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 some of the
Underlying Funds have investments in smaller capitalization companies at times of market
volatility, the Underlying Fund's share price may fluctuate more. For specific limitations
on the Underlying Funds' investments in small-cap issuers, refer to the SAI for the
Underlying Funds.

|X| Rights and Warrants. Some of the Underlying Funds may invest in warrants or
rights. For specific limitations on the Underlying Funds' investments in Rights and
Warrants, refer to the SAI for the Underlying Fund.

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.

|X| Investing in Small, Unseasoned Companies. Some of the Underlying Funds 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 Underlying Fund's ability to dispose
of them and can reduce the price the Underlying 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 Underlying Fund is attempting to
dispose of its holdings of that security. In that case, an Underlying Fund might receive a
lower price for its holdings than might otherwise be obtained. For specific limitations on
the Underlying Funds' investments in small, unseasoned companies, refer to the SAI for the
Underlying Fund.

|X| Debt Securities. Some of the Underlying Funds can invest in a variety of debt
securities to seek their objectives, for defensive purposes or for liquidity. Foreign debt
securities are subject to the risks of foreign securities described below. In general, debt
securities are also subject to two additional types of risk: credit risk and interest rate
risk. For specific limitations on the Underlying Funds' investments in debt securities,
refer to the SAI for the Underlying Fund.

o 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.

Some of the Underlying Funds' investments are investment-grade debt securities and
U.S. government securities. U.S. government securities, although unrated, are generally
considered to be equivalent to securities in the highest rating categories.
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors Service, Inc.
("Moody's"), or at least "BBB" by Standard & Poor's Rating Service ("S&P") and Fitch, Inc.
("Fitch"), or have comparable ratings by another nationally-recognized rating organization.

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

Some of the Underlying Funds also buy non-investment-grade debt securities (commonly
referred to as "junk bonds"). "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 S&P or Fitch or similar ratings by other nationally recognized rating
organizations. If they are unrated, and are determined by an Underlying Fund's manager to
be of comparable quality to debt securities rated below investment grade, they are included
in the limitation on the percentage of the Underlying Fund's assets that can be invested in
lower-grade securities.

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

Fluctuations in the market value of debt securities after an Underlying Fund buys
them will not affect the interest income payable on those securities (unless the security
pays interest at a variable rate pegged to interest rate changes). However, those price
fluctuations will be reflected in the valuations of the securities, and therefore an
Underlying Fund's net asset values will be affected by those fluctuations.

o Special Risks of Lower-Grade Debt Securities. Because lower-grade debt
securities tend to offer higher yields than investment-grade securities, an Underlying Fund
might invest in lower-grade securities if its manager is trying to achieve higher income.
For specific limitations on theses Underlying Funds' investments in lower-grade debt
securities, refer to the SAI for the Underlying Fund.

"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 S&P or Fitch, or
similar ratings by other rating organizations. If they are unrated, and are determined by
an Underlying Fund's manager to be of comparable quality to debt securities rated below
investment grade, they are considered part of the Underlying Fund's portfolio of
lower-grade securities.

Some of the special credit risks of lower-grade securities include the following:
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.

To the extent they can be converted into stock, convertible securities may be less
subject to some of the risks of volatility than non-convertible high yield bonds, since
stock may be more liquid and less affected by some of these risk factors.

|X| Mortgage-Related Securities. Some of the Underlying Funds can invest in
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. Some of the Underlying Funds 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 Underlying Fund's
shares. If a mortgage-related security has been purchased at a premium, all or part of the
premium the Underlying 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 Underlying 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 responses to changes in interest rates.
If the prepayments on the Underlying Fund's mortgage-related securities were to decrease
broadly, the Underlying Fund's effective duration and therefore its sensitivity to interest
rates, 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.

o Collateralized Mortgage Obligations. Collateralized mortgage obligations or "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 Government National Mortgage
Association (Ginnie Mae), Federal National Mortgage Association (Fannie
Mae), or Federal Home Loan Mortgage Corporation (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.

|X| U.S. Government Securities. Some of the Underlying Funds may invest in 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 Underlying Funds can 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 not be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.

o U.S. Treasury Obligations. These include Treasury bills (which have maturities of
one year or less when issued), Treasury notes (which have maturities of more than one year
and up to ten years when issued), and Treasury bonds (which have 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. Other U.S.
Treasury obligations the Underlying Funds can buy include U. S. Treasury securities that
have been "stripped" by a Federal Reserve Bank, zero-coupon U.S. Treasury securities
described below, and Treasury Inflation-Protection Securities ("TIPS").

o Treasury Inflation-Protection Securities. Some of the Underlying Funds can buy
these TIPS, which 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.

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 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. Others are supported only by the credit of the entity that
issued them, such as Federal Home Loan Mortgage Corporation obligations.

o Mortgage-Related U.S. Government Securities. These include interests in pools of
residential or commercial mortgages, in the form of collateralized mortgage obligations 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 with 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. For specific
limitations on the Underlying Funds' investments in mortgage-related U.S. government
securities, refer to the SAI for the Underlying Fund.

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

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

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

o GNMA (Ginnie Mae) 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 some of the Underlying Funds invest 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 Underlying Fund are guaranteed as to timely payment
of principal and interest by GNMA. In giving that guaranty, GNMA expects that payments
received by the issuers of Ginnie Macs on account of the mortgages backing the Certificates
will be sufficient to make the required payments of principal of and interest on those
Ginnie Maes. However, if those payments are insufficient, the guaranty agreements between
the issuers of the Ginnie Maes 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 Underlying 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 Underlying Fund with respect to the mortgages underlying the Ginnie
Maes held by the Underlying Fund. All of the mortgages in the pools relating to the Ginnie
Maes in the Underlying Fund are subject to prepayment without any significant premium or
penalty, at the option of the mortgagors. While the mortgages on 1-to-4-family dwellings
underlying certain Ginnie Maes have a stated maturity of up to thirty (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.

o Federal Home Loan Mortgage Corporation (FHLMC) 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.

o 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.

o Commercial (Privately-Issued) Mortgage Related Securities. Some of the Underlying
Funds can 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.

o "Stripped" Mortgage Related Securities. Some of the Underlying Funds may 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 Underlying 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. The market for some of these securities may be limited, making it
difficult for the Underlying Fund to dispose of its holdings at an acceptable price.

Zero-Coupon Securities of Private-Issuers. Real Asset Fund may also invest in zero-coupon
securities issued by private-issuers such as domestic or foreign corporations. These
securities have the same interest rate risks as described above for zero-coupon U.S.
Treasury securities. An additional risk of private-issuer zero-coupon securities is the
credit risk that the issuer will be unable to make payment at maturity of the obligation.

High-Yield Securities. Real Asset Fund may invest up to 10% of its total assets in
high-risk, high-yield, lower-grade debt securities (commonly called "junk bonds"), whether
they are rated or unrated. While Real Asset Fund may invest in lower-grade debt securities,
it is not currently contemplated that Real Asset Fund will do so to a significant extent.
Real Asset Fund's Sub-Advisor will not rely solely on the ratings assigned by rating
services, and Real Asset Fund may invest in unrated securities which offer, in the opinion
of Real Asset Fund's Sub-Advisor, comparable yields and risks as those rated securities in
which Real Asset Fund may invest.

High-yield securities are rated "BB" or below by Standard & Poor's Corporation or
"Ba" or below by Moody's Investors Service, Inc., or have a similar credit risk rating by
another rating organization. If they are unrated, Real Asset Fund's Sub-Advisor will assign
a rating to them that the Sub-Advisor believes is of comparable quality to rated
securities. High-yield securities are considered more risky than investment-grade bonds
because there is greater uncertainty regarding the economic viability of the issuer. Real
Asset Fund may invest in securities rated as low as "C" by Moody's or "D" by S&P.

Special Risks of High-Yield Securities. Risks of high-yield securities may include:
o limited liquidity and secondary market support,
o substantial market price volatility resulting from changes in prevailing interest
rates,
o subordination to the prior claims of banks and other senior lenders,
o the operation of mandatory sinking fund or call/redemption provisions during periods
of declining interest rates that could cause Real Asset Fund to
reinvest premature redemption proceeds only in lower yielding
portfolio securities,
o the possibility that earnings of the issuer may be insufficient to meet its debt
service, and
o the issuer's low creditworthiness and potential for insolvency during periods of
rising interest rates and economic downturn.

As a result of the limited liquidity of high-yield securities, their prices have at
times experienced significant and rapid decline when a substantial number of holders
decided to sell. A decline is also likely in the high-yield bond market during an economic
downturn. An economic downturn or an increase in interest rates could severely disrupt the
market for high-yield bonds and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest.

|X| Asset-Backed Securities. Some of the Underlying Funds may invest in 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. These securities are subject to prepayment risks and the risk of default by
the issuer as well as by the borrowers of the underlying loans in the pool. 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, an
Underlying Fund could suffer losses 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, an
Underlying 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.

|X| Participation Interests. Some of the Underlying Funds can invest in participation
interests, subject to the Underlying 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 buyer's participation interest
bears to the total principal amount of the loan. The issuing financial institution may have
no obligation to this fund other than to pay this fund the proportionate amount of the
principal and interest payments it receives. For specific limitations on the Underlying
Funds' investments in participation interests, refer to the SAI for the Underlying Fund.

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, an Underlying 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 an Underlying Fund's shares. If the issuing
financial institution fails to perform its obligations under the participation agreement,
an Underlying Fund might incur costs and delays in realizing payment and suffer a loss of
principal and/or interest.

|X| Bank Obligations and Securities That Are Secured By Them. Some of the Underlying
Funds can invest in bank obligations, including time deposits, certificates of deposit, and
bankers' acceptances. They must be either obligations of a domestic bank with total assets
of at least $1 billion or obligations of a foreign bank with total assets of at least U.S.
$1 billion. These Underlying Funds may also invest in instruments secured by bank
obligations (for example, debt which is guaranteed by the bank). For purposes of this
policy, the term "bank" includes commercial banks, savings banks, and savings and loan
associations that may or may not be members of the Federal Deposit Insurance Corporation.

Time deposits are non-negotiable deposits in a bank for a specified period of time at
a stated interest rate. They may or may not be subject to withdrawal penalties. However,
time deposits that are subject to withdrawal penalties, other than those maturing in seven
days or less, are subject to the limitation on investments by the Underlying Fund in
illiquid investments.

Bankers' acceptances are marketable short-term credit instruments used to finance the
import, export, transfer or storage of goods. They are deemed "accepted" when a bank
guarantees their payment at maturity.

|X| Investment-Grade Bonds. Some of the Underlying Funds may invest in investment-grade
debt obligations rated in the four highest investment categories by Standard & Poor's
Corporation, Moody's Investors Service, Inc., or by another NRSRO. If they are unrated,
they will be assigned a rating to be considered of similar quality to obligations that are
rated investment grade. These investments may include:

Corporate Bonds. Some of the Underlying Funds may invest in debt securities
issued by domestic corporations.

Foreign Bonds. Some of the Underlying Funds may invest in bonds and other debt
securities denominated in currencies other than the U.S. dollar. Generally, these
securities are issued by foreign corporations and foreign governments and are traded on
foreign markets. Investment in foreign debt securities that are denominated in foreign
currencies involve certain additional risks, which are described below, in "Foreign
Securities."

|X| Foreign Securities. Some of the Underlying Funds may invest in foreign securities.
"Foreign securities" include equity and debt securities issued or guaranteed by 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, such as the World Bank. Real Estate Fund can purchase securities
issued by foreign real estate companies. Those securities may be traded on foreign
securities exchanges or in the foreign over-the-counter markets. Securities denominated in
foreign currencies issued by U.S. companies are also considered to be "foreign
securities." For specific information on the type of securities that an Underlying Fund
considers "foreign securities" and the limitations on the total amount of assets of the
Underlying Funds that can be invested in foreign securities, refer to the Prospectus and
SAI for the Underlying Fund.

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 income 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 securities markets that do
not move in a manner parallel to U.S. markets, or to benefit from the appreciation relative
to the U.S. Dollar of foreign currencies in which such securities may denominated. The
Underlying Funds will hold foreign currency only in connection with the purchase or sale of
foreign securities.

o Foreign Debt Obligations. The debt obligations of a foreign government and its
agencies and instrumentalities may or may not be supported by the full faith and credit of
the foreign government. Some of the Underlying Funds can 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.

Some of the Underlying Funds 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.

Because some of the Underlying Funds can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar could
result in a change in the amount of income the Underlying Fund has available for
distribution. Because a portion of an Underlying Fund's investment income may be received
in foreign currencies, an Underlying Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Underlying Fund will absorb the
cost of currency fluctuations. After the Underlying Fund has distributed income, subsequent
foreign currency losses may result in the Underlying 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.

|X| Passive Foreign Investment Companies. Some securities of corporations domiciled
outside the U.S. which the Underlying Funds 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 Underlying 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 Underlying Funds make every effort to
ensure compliance with federal tax reporting of these investments. PFICs are considered
foreign securities for the purposes of the Underlying Fund's minimum percentage
requirements or limitations of investing in foreign securities.

Subject to the limits under the Investment Company Act of 1940 (the "Investment
Company Act"), the Underlying Fund may also invest in foreign mutual funds which are also
deemed PFICs (since nearly all of the income of a mutual fund is generally passive income).
Investing in these types of PFICs may allow exposure to various countries because some
foreign countries limit, or prohibit, all direct foreign investment in the securities of
companies domiciled therein.

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

o Risks of Foreign Investing. Investments in foreign securities may offer special
opportunities for investing but also present special additional risks and considerations
not typically associated with investments in domestic securities. Some of these additional
risks are:

o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency, rates or
currency devaluation, or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
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, securities 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 foreign withholding taxes;
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.

o Special Risks of Emerging Markets. Emerging and developing markets abroad may also
offer special opportunities for 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 Underlying Funds' manager will consider these factors
when evaluating securities in these markets. For specific limitations on the Underlying
Funds' investments in emerging and developing markets, refer to the SAI for the Underlying
Fund.

? Settlement of Transactions. Settlement procedures in developing markets may
differ from those of more established securities markets. Settlements may also be delayed
by operational problems. Securities issued by developing countries and by issuers located
in those countries may be subject to extended settlement periods. Delays in settlement
could result in temporary periods during which a portion of an Underlying Fund's assets is
uninvested and no return is earned on those assets. The inability of an Underlying Fund to
make intended purchases of securities due to settlement problems could cause an Underlying
Fund to miss investment opportunities. An Underlying Fund could suffer losses from the
inability to dispose of portfolio securities due to settlement problems. As a result there
could be subsequent declines in the value of the portfolio security, a decrease in the
level of liquidity of an Underlying Fund's portfolio or, if an Underlying Fund has entered
into a contract to sell the security, a possible liability to the purchaser.

? Price Volatility. Securities prices in developing markets may be significantly
more volatile than is the case in more developed nations of the world. In particular,
countries with emerging markets may have relatively unstable governments. That presents the
risk of nationalization of businesses, restrictions on foreign ownership or prohibitions of
repatriation of assets. These countries may have less protection of property rights than
more developed countries. The economies of developing countries may be predominantly based
on only a few industries and, as such, may be highly vulnerable to changes in local or
global trade conditions.

? Less Developed Securities Markets. Developing market countries may have less
well-developed securities markets and exchanges. Consequently they have lower trading
volume than the securities markets of more developed countries. These markets may be unable
to respond effectively to increases in trading volume. Therefore, prompt liquidation of
substantial portfolio holdings may be difficult at times. As a result, these markets may be
substantially less liquid than those of more developed countries, and the securities of
issuers located in these markets may have limited marketability.

? Government Restrictions. In certain developing countries, government approval
may be required for the repatriation of investment income, capital or the proceeds of sales
of securities by foreign investors, such as an Underlying Fund. Also, a government might
impose temporary restrictions on remitting capital abroad if the country's balance of
payments deteriorates, or it might do so for other reasons. If government approval were
delayed or refused, an Underlying Fund could be adversely affected. Additionally, an
Underlying Fund could be adversely affected by the imposition of restrictions on
investments by foreign entities.

Among the countries that the Manager has identified as developing or emerging markets
in which an Underlying Fund will consider investing are the following countries. An
Underlying Fund might not invest in all of these countries and the list may change.

Algeria Czech Republic Ivory Coast Nigeria Sri Lanka
Argentina Ecuador Jamaica Pakistan Swaziland
Bangladesh Egypt Jordan Paraguay Taiwan
Bolivia Estonia Kenya Peru Tanzania
Botswana Ghana Latvia Philippines Thailand
Brazil Greece Lebanon Poland Tunisia
Bulgaria Guyana Lithuania Portugal Turkey
Chile Hong Kong Malaysia Russia Ukraine
China Hungary Mauritius Singapore Uruguay
Colombia India Mexico Slovakia Republic Venezuela
Costa Rica Indonesia Morocco Slovenia Vietnam
Croatia Iran Myanmar South Africa Zambia
Cyprus Israel Namibia South Korea Zimbabwe

? Privatization Programs. The governments in some developing countries have been
engaged in programs to sell all or part of their interests in government-owned or
controlled enterprises. Privatization programs may offer opportunities for significant
capital appreciation, and the Manager may invest Underlying Fund assets in privatization
programs in what it considers to be appropriate circumstances. In certain developing
countries, the ability of foreign entities such as an Underlying Fund to participate in
privatization programs may be limited by local law. Additionally, the terms on which an
Underlying Fund might be permitted to participate may be less advantageous than those
afforded local investors. There can be no assurance that privatization programs will be
successful.

Other Investment Techniques and Strategies. In seeking their investment objectives, certain
Underlying Funds may from time to time use the types of investment strategies and
investments described below. They are not required to use all of these strategies at all
times, and at times may not use them.

|X| Zero-Coupon Securities. Some of the Underlying Funds 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. Some
of the Underlying Funds can buy different types of zero-coupon or stripped securities,
including, among others, foreign debt securities and U.S. Treasury notes or bonds that have
been stripped of their interest coupons, U.S. Treasury bills issued without interest
coupons, and certificates representing interests in stripped securities.

Zero-coupon securities do not make periodic interest payments and are sold at a deep
discount from their face value 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. 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 prevailing 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.

An Underlying Fund's investment in zero-coupon securities may cause that 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, that 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 the
Underlying Fund shares.

|X| "Stripped" Mortgage-Related Securities. Some of the Underlying Funds 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.

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, an Underlying 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. The market for some of these securities may be limited, making it
difficult for an Underlying Fund to dispose of its holdings at an acceptable price.

|X| Floating Rate and Variable Rate Obligations. Some securities that some of the
Underlying Funds can purchase have variable or floating interest rates. Variable rates are
adjusted at stated periodic intervals. Variable rate obligations may have a demand feature
that allows the Underlying 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 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 note is also based on a stated
prevailing market rate but is adjusted automatically at specified intervals. 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
Underlying Fund's manager may determine that an unrated floating rate or variable rate
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.

Step-coupon bonds have a coupon interest rate that changes periodically during the
life of the security on predetermined dates that are set when the security is issued.

|X| "When-Issued" and "Delayed-Delivery" Transactions. Some of the Underlying Funds
may invest in securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" 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. For specific limitations on the Underlying Funds'
investments in "when-issued" and "delayed-delivery" transactions, refer to the SAI for the
Underlying Fund.

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 Underlying Fund's manager before settlement will affect the value of
such securities and may cause a loss to an Underlying Fund. During the period between
purchase and settlement, no payment is made by an Underlying Fund to the issuer and no
interest accrues to the Underlying Fund from the investment until it receives the security
at settlement. There is a risk of loss to the Underlying Fund if the value of the security
changes prior to the settlement date, and there is the risk that the other party may not
perform.

Some of the Underlying Funds may engage in when-issued transactions to secure what
their manager considers to be an advantageous price and yield at the time the obligation is
entered into. When an Underlying 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 an Underlying Fund to lose the opportunity to obtain the security at a price and
yield its manager considers to be advantageous.

When an Underlying Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its investment
objective and policies or for delivery pursuant to options contracts it has entered into,
and not for the purpose of investment leverage. Although an Underlying Fund will enter into
delayed-delivery or when-issued purchase transactions to acquire securities, it may dispose
of a commitment prior to settlement. If an Underlying 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 an Underlying 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 its net asset value. In a sale
transaction, it records the proceeds to be received. An Underlying Fund will identify on
its books liquid assets at least equal in value to the value of its purchase commitments
until it pays for the investment.

When-issued and delayed-delivery transactions can be used by an Underlying 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, an Underlying 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, an Underlying Fund might sell portfolio securities and purchase the same or similar
securities on a when-issued or delayed-delivery basis to obtain the benefit of currently
higher cash yields.

|X| Repurchase Agreements. Some of the Underlying Funds can acquire securities
subject to repurchase agreements. An Underlying Fund might do so for liquidity purposes to
meet anticipated redemptions of fund shares, or pending the investment of the proceeds from
sales of fund shares, or pending the settlement of portfolio securities transactions, or
for temporary defensive purposes.

In a repurchase transaction, an Underlying 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 Underlying 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 an Underlying Fund's limits on holding
illiquid investments. There is generally no limit on the amount of the Underlying Funds'
net assets that may be subject to repurchase agreements having maturities of seven days or
less for defensive purposes. For specific limitations on the Underlying Funds' investments
in securities subject to repurchase agreements, refer to the SAI for the Underlying Fund.

Repurchase agreements, considered "loans" under the Investment Company Act are
collateralized by the underlying security. The Underlying Funds' 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
Underlying 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 Underlying Funds' manager will monitor the
vendor's creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.

Pursuant to an Exemptive Order issued by the SEC, the Underlying Funds, along with
other affiliated entities managed by their 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.

Reverse Repurchase Agreements. Some of the Underlying Funds can use reverse
repurchase agreements on debt obligations it owns. Under a reverse repurchase agreement,
the Underlying Fund sells an underlying debt obligation and simultaneously agrees to
repurchase the same security at an agreed-upon price on an agreed-upon date. The Underlying
Fund will identify on its books liquid assets in an amount sufficient to cover its
obligations under reverse repurchase agreements, including interest, until payment is made
to the seller.

These transactions involve the risk that the market value of the securities sold by
the Underlying Fund under a reverse repurchase agreement could decline below the price at
which the Underlying Fund is obligated to repurchase them. These agreements are considered
borrowings by the Underlying Fund and will be subject to the asset coverage requirement
under the Underlying Fund's policy on borrowing.

Investment in Other Investment Companies. Some of the Underlying Funds can also
invest in the securities of other investment companies, which can include open-end funds,
closed-end funds and unit investment trusts, subject to the limits set forth in the
Investment Company Act that apply to those types of investments. For example, an
Underlying Fund may invest in Exchange-Traded Funds, which are typically open-end funds or
unit investment trusts, listed on a stock exchange. The Underlying 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 Underlying Fund may not be able
to buy those portfolio securities directly. As a non-fundamental policy, the Underlying
Funds cannot invest in the securities of other registered open-end 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.

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 Underlying Funds do 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 Underlying Fund would be subject to its ratable
share of that investment company's expenses, including its advisory and administration
expenses. For specific limitations on the Underlying Funds' investments in securities of
other investment companies, refer to the SAI for the Underlying Fund. The Underlying Funds
do not anticipate investing a substantial amount of their net assets in shares of other
investment companies.

|X| Real Estate Investment Trusts (REITs). Some of the Underlying Funds can invest in
real estate investment trusts, as well as real estate development companies and operating
companies. They can also buy shares of companies engaged in other real estate businesses.
REITs are trusts that sell shares to investors and use the proceeds to invest in real
estate. A REIT can focus on a particular project, such as a shopping center or apartment
complex, or may buy many properties or properties located in a particular geographic region.

To the extent a REIT focuses on a particular project, sector of the real estate
market or geographic region, its share price will be affected by economic and political
events affecting that project, sector or geographic region. Property values may fall due to
increasing vacancies or declining rents resulting from unanticipated economic, legal,
cultural or technological developments. REIT prices also may drop because of the failure of
borrowers to pay their loans, a dividend cut, a disruption to the real estate investment
sales market, changes in federal or state taxation policies affecting REITs, and poor
management.

|X| Illiquid and Restricted Securities. Under the policies and procedures established by
the Underlying Funds' Boards of Trustees/Directors, their manager determines the liquidity
of certain of an Underlying Fund's investments. To enable an Underlying Fund to sell its
holdings of a restricted security not registered under applicable securities laws, the
Underlying Fund may have to cause those securities to be registered. The expenses of
registering restricted securities may be negotiated by the Underlying Fund with the issuer
at the time the Underlying Fund buys the securities. When the Underlying Fund must arrange
registration because the Underlying 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 Underlying Fund could sell it. The Underlying Fund would
bear the risks of any downward price fluctuation during that period.

The Underlying Funds may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public resale. Those
restrictions may make it more difficult to value them, and might limit an Underlying Fund's
ability to dispose of the securities and might lower the amount the Underlying Fund could
realize upon the sale.

The Underlying Funds have limitations that apply to purchases of restricted
securities, as stated in their prospectus. Those percentage restrictions generally 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 their 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, an Underlying Fund's holdings of that security
may be considered to be illiquid.

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

|X| Forward Rolls. Some of the Underlying Funds can enter into "forward roll"
transactions with respect to mortgage-related securities. In this type of transaction, an
Underlying Fund sells a mortgage-related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and 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 Underlying Fund in excess of the
yield on the securities that have been sold.

The Underlying Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Underlying 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 Underlying 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
Underlying Fund sells might decline below the price at which the Underlying Fund is
obligated to repurchase securities.

|X| Borrowing for Leverage. Many of the Underlying Funds have the ability to borrow from
banks, to invest the borrowed funds in portfolio securities. This speculative technique is
known as "leverage." Currently, under the Investment Company Act, absent exemptive relief,
a mutual fund may borrow only from banks and the maximum amount it may borrow is up to
one-third of its total assets (including the amount borrowed) less all liabilities and
indebtedness other than borrowing, except that a fund may borrow up to 5% of its total
assets for temporary purposes from any person. Under the Investment Company Act, there is a
rebuttable presumption that a loan is temporary if it is repaid within 60 days and not
extended or renewed. If the value of an Underlying Fund's assets fails to meet the 300%
asset coverage requirement, the Underlying Fund will reduce its bank debt within three days
to meet the requirement. To do so, the Underlying Fund might have to sell a portion of its
investments at a disadvantageous time.

The Underlying Fund will pay interest on its borrowings, and that interest expense will
raise the overall expenses of the Underlying Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow for leverage.
Additionally, an Underlying Fund's net asset values per share might fluctuate more than
that of funds that do not borrow.

|X| Loans of Portfolio Securities. To raise cash for income or liquidity purposes, some
of the Underlying Funds can lend their portfolio securities to brokers, dealers and other
types of financial institutions approved by the Underlying Funds' Board of Trustees or
Directors. For specific limitations on the Underlying Funds' loans of portfolio securities,
refer to the SAI for the Underlying Fund. In addition, these loans are subject to the other
conditions described in the SAI of the Underlying Fund.

There are some risks in connection with securities lending. An Underlying 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. An Underlying Fund must receive
collateral for a loan. Under current applicable regulatory requirements (which are subject
to change), on each business day the loan collateral must be at least equal to the value of
the loaned securities. It must consist of cash, bank letters of credit or securities of the
U.S. government or its agencies or instrumentalities, or other cash equivalents in which an
Underlying Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Underlying Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both must be
satisfactory to the Underlying Fund.

When it lends securities, the Underlying 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 Underlying Fund may also pay reasonable finder's, custodian and
administrative fees in connection with these loans. The terms of the Underlying Fund's
loans must meet applicable tests under the Internal Revenue Code and must permit the
Underlying Fund to reacquire loaned securities on five days' notice or in time to vote on
any important matter.

Some of the Underlying Funds may lend their portfolio securities to brokers, dealers
and other financial institutions pursuant to the Securities Lending Agreement (the
"Securities Lending Agreement") with JP Morgan Chase, subject to the restrictions stated in
the prospectuses of these funds. 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 these funds are permitted to invest.
To be acceptable as collateral, letters of credit must obligate a bank to pay to JP Morgan
Chase, as agent, amounts demanded by these funds if the demand meets the terms of the
letter. Such terms of the letter of credit and the issuing bank must be satisfactory to JP
Morgan Chase and the fund. These funds 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. JP Morgan 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. These funds 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 JP Morgan Chase or the fund on 30 days'
written notice. The terms of these funds' loans must also meet applicable tests under the
Internal Revenue Code and permit a fund to reacquire loaned securities on five business
days' notice or in time to vote on any important matter. These funds will lend their
portfolio securities in conformity with each fund's Securities Lending Guidelines, as
adopted by the Fund's Board.

|X| Duration of the Fund's Portfolio. Some of the Underlying Funds can invest in debt
securities of any maturity or duration but may have an operating policy to maintain a
dollar-weighted average effective portfolio duration of not more than 3 years. The goal is
to try to manage the sensitivity of the Underlying Fund's portfolio to changes in interest
rates, and in doing so to manage the volatility of the Underlying Fund's share prices in
response to those changes. However, unanticipated events may change the effective duration
of a security after the Underlying Fund buys it, and there can be no assurance that the
Underlying Fund will achieve its targeted duration at all times.

The Manager determines the effective duration of debt obligations purchased by the
Underlying Fund by considering various factors that apply to a particular type of debt
obligation, including those described below. Duration is a measure of the expected life of
a security on a current-value basis expressed in years, using calculations that consider
the security's yield, coupon interest payments, final maturity and call features.

While a debt security's maturity can be used to measure the sensitivity of the
security's price to changes in interest rates, the term to maturity of a security does not
take into account the pattern (or expected pattern) of the security's payments of interest
or principal prior to maturity. Duration, on the other hand, measures the length of the
time interval from the present to the time when the interest and principal payments are
scheduled to be received (or, in the case of a mortgage-related security, when the interest
payments are expected to be received). Duration calculations weigh them by the present
value of the cash to be received at each future point in time. If the interest payments on
a debt security occur prior to the repayment of principal, the duration of the security is
less than its stated maturity. For zero-coupon securities, duration and term to maturity
are equal.

Absent other factors, the lower the stated or coupon rate of interest on a debt
security or the longer the maturity or the lower the yield-to-maturity of the debt
security, the longer the duration of the security. Conversely, the higher the stated or
coupon rate of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter the duration of the security.

Futures, options and options on futures in general have durations that are closely
related to the duration of the securities that underlie them. Holding long futures
positions or call option positions (backed by liquid assets) will tend to lengthen the
portfolio's duration.

In some cases the standard effective duration calculation does not properly reflect the
interest rate exposure of a security. For example, floating and variable rate securities
often have final maturities of ten or more years. However, their exposure to interest rate
changes corresponds to the frequency of the times at which their interest coupon rate is
reset. In the case of mortgage pass-through securities, the stated final maturity of the
security is typically 30 years, but current rates or prepayments are more important to
determine the security's interest rate exposure. In these and other similar situations, the
Manager will use other analytical techniques that consider the economic life of the
security as well as relevant macroeconomic factors (such as historical prepayment rates) in
determining the Underlying Fund's effective duration.

|X| Money Market Instruments. Some of the Underlying Funds can invest in a variety of
high quality money market instruments and short-term debt obligations, both under normal
market conditions and for defensive purposes. The following is a brief description of the
types of money market securities and short-term debt obligations the Underlying Funds can
invest in. Those money market securities are high-quality, short-term debt instruments that
are issued by the U.S. government, corporations, banks or other entities. They may have
fixed, variable or floating interest rates.

o U.S. Government Securities. Some of the Underlying Funds can invest in U.S.
Government securities. These include obligations issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities.

o Bank Obligations. Some of the Underlying Funds can buy time deposits, certificates
of deposit and bankers' acceptances. They must be:

o obligations issued or guaranteed by a domestic bank or foreign bank
(including a foreign branch of a domestic bank) having total assets of at
least U.S. $1 billion,
o banker's acceptances (which may or may not be supported by letters of credit) only if
guaranteed by a U.S. commercial bank with total assets of at least U.S.
$1 billion.

Some of the Underlying Funds can make time deposits. These are non-negotiable
deposits in a bank for a specified period of time. They may be subject to early withdrawal
penalties. Time deposits that are subject to early withdrawal penalties are subject to the
Fund's limits on illiquid investments, as described below. "Banks" include commercial
banks, savings banks and savings and loan associations.

o Commercial Paper. Some of the Underlying Funds can invest in commercial paper if
it is rated within the top two or three rating categories of S&P and Moody's or other
rating organizations. If the paper is not rated, it may be purchased if the Underlying
Fund's manager determines that it is comparable to rated commercial paper in the top two or
three rating categories of national rating organizations.

Some of the Underlying Funds 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
an Underlying Fund.

o Variable Amount Master Demand Notes. Master demand notes are corporate obligations
that permit the investment of fluctuating amounts by the Underlying Funds at varying rates
of interest under direct arrangements between an Underlying Fund, as lender, and the
borrower. They permit daily changes in the amounts borrowed. An Underlying 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, an
Underlying Fund's right to redeem such notes is dependent upon the ability of the borrower
to pay principal and interest on demand. For specific limitations on the Underlying Funds'
investments in these notes, refer to the SAI for the Underlying Fund.

The Underlying Funds may have 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 may be subject to the limitation on investments by a Underlying Fund in illiquid
securities, described in the Underlying Fund's Prospectus.

|X| Derivatives. Many Underlying Funds, and the tactical allocation component of
the Active Allocation Fund, can invest in a variety of derivative investments to gain
investment exposure to certain asset classes to seek income, to seek income for liquidity
needs or for hedging purposes. Some derivative investments that may be used include the
hedging instruments described below in this SAI. Segregated accounts will be maintained for
all derivative transactions, as required by the Investment Company Act. For specific
limitations on the Underlying Funds' investments in derivatives, refer to the SAI for the
Underlying Fund.

Among the derivative investments that some of the Underlying Funds and the tactical
allocation component of the Active Allocation Fund can invest in are "index-linked" or
"currency-linked" notes. Principal and/or interest payments on index-linked notes depend on
the performance of an underlying index. Currency-indexed securities are typically
short-term or intermediate-term debt securities. Their value at maturity or the rates at
which they pay income are determined by the change in value of the U.S. dollar against one
or more foreign currencies or an index. In some cases, these securities may pay an amount
at maturity based on a multiple of the amount of the relative currency movements. This type
of index security offers the potential for increased income or principal payments but at a
greater risk of loss than a typical debt security of the same maturity and credit quality.

Other derivative investments 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.

Credit Derivatives. Some of the Underlying Funds and the tactical allocation
component of the Active Allocation 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. A
fee is paid to enter into the swap and receives a fixed payment during the life of the
swap. An Underlying Fund the tactical allocation component of the Active Allocation 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").

An Underlying Fund or the tactical allocation component of the Active Allocation Fund
could 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 Underlying Fund or the tactical
allocation component of the Active Allocation Fund must own that corporate issue. However,
if the short credit default swap is against sovereign debt, the Underlying Fund or the
tactical allocation component of the Active Allocation Fund may own either: (i) the
reference obligation, (ii) any sovereign debt of that foreign country, or (iii) sovereign
debt of any country that its manager determines is closely correlated as an inexact bona
fide hedge.

If a short position is taken in s credit default swap and if there is a credit event
(including bankruptcy, failure to timely pay interest or principal, or a restructuring),
the defaulted bonds will be delivered 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 Underlying Fund's or the tactical allocation component of the
Active Allocation 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 an Underlying Fund or the tactical allocation component of the Active Allocation
Fund takes a long position in the credit default swap note and if there is a credit event,
the Underlying Fund or the tactical allocation component of the Active Allocation 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.

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 Underlying Fund or the tactical allocation
component of the Active Allocation Fund is long or short the swap, respectively). For
specific limitations on the Underlying Funds' investments in credit derivatives, refer to
the SAI for the Underlying Fund.

Investments in Hybrid Instruments. A primary vehicle for gaining exposure to the
commodities markets is through hybrid instruments. These are either equity or debt
derivative securities with one or more commodity-dependent components that have payment
features similar to a commodity futures contract, a commodity option contract, or a
combination of both. Therefore, these instruments are "commodity-linked." They are
considered "hybrid" instruments because they have both commodity-like and security-like
characteristics. Hybrid instruments are derivative instruments because at least part of
their value is derived from the value of an underlying commodity, futures contract, index
or other readily measurable economic variable.

Qualifying Hybrid Instruments. Some of the Underlying Funds may invest in hybrid
instruments that qualify for exclusion from regulation under the Commodity Exchange Act
(the "Act") and the regulations adopted thereunder. See Appendix D to this SAI.

Principal Protection. Hybrid instruments may be principal protected, partially
protected, or offer no principal protection. A principal protected hybrid instrument means
that the issuer will pay, at a minimum, the par value of the note at maturity. Therefore,
if the commodity value to which the hybrid instrument is linked declines over the life of
the note, the Underlying Fund will receive at maturity the face or stated value of the note.

With a principal protected hybrid instrument, the Underlying Fund will receive at
maturity the greater of the par value of the note or the increase in value of the
underlying commodity or index. This protection is, in effect, an option whose value is
subject to the volatility and price level of the underlying commodity. This optionality
can be added to a hybrid structure, but only for a cost higher than that of a partially
protected (or no protection) hybrid instrument. The Manager's decision on whether to use
principal protection depends in part on the cost of the protection. In addition, the
protection feature depends upon the ability of the issue to meet its obligation to buy back
the security, and therefore depends on the creditworthiness of the issuer.

With full principal protection, the Underlying Fund will receive at maturity of the
hybrid instrument either the stated par value of the hybrid instrument, or potentially, an
amount greater than the stated par value if the underlying commodity, index, futures
contract or economic variable to which the hybrid instrument is linked has increased in
value. Partially protected hybrid instruments may suffer some loss of principal if the
underlying commodity, index, futures contract or economic variable to which the hybrid
instrument is linked declines in value during the term of the hybrid instrument. However,
partially protected hybrid instruments have a specified limit as to the amount of principal
that they may lose.

Hybrid Instruments Without Principal Protection. Some of the Underlying Funds may
also invest in hybrid instruments that offer no principal protection. At maturity, there
is a risk that the underlying commodity price, futures contract, index or other economic
variable may have declined sufficiently in value such that some or all of the face value of
the hybrid instrument might not be returned. Some of the hybrid instruments that the
Underlying Fund may invest in may have no principal protection and the hybrid instrument
could lose all of its value.

With a partially-protected or no-principal-protection hybrid instrument, the
Underlying Fund may receive at maturity an amount less than the note's par value if the
commodity, index or other economic variable value to which the note is linked declines over
the term of the note. The Manager, at its discretion, may invest in a partially protected
principal structured note or a note without principal protection. In deciding to purchase
a note without principal protection, the Manager may consider, among other things, the
expected performance of the underlying commodity futures contract, index or other economic
variable over the term of the note, the cost of the note, and any other economic factors
which the Manager believes are relevant.

Limitations on Leverage. Some of the hybrid instruments in which an Underlying
Fund invests may involve leverage. To avoid being subject to undue leverage risk, an
Underlying Fund may seek to limit the amount of economic leverage it has under one hybrid
instrument in which it invests and the leverage of the Underlying Fund's overall
portfolio. For example, an Underlying Fund may not invest in a hybrid instrument if, at
the time of purchase:
o That instrument's "leverage ratio" exceeds 300% of the price increase in the
underlying commodity, futures contract, index or other economic variable; or
o The Underlying Fund's "portfolio leverage ratio" exceeds 150%, measured at the time
of purchase.

"Leverage ratio" is the expected increase in the value of a hybrid instrument,
assuming a one percent price increase in the underlying commodity, futures contract, index
or other economic factor. In other words, for a hybrid instrument with a leverage factor
of 150%, a 1% gain in the underlying economic variable would be expected to result in a
1.5% gain in value for the hybrid instrument. "Portfolio leverage ratio" is defined as the
average (mean) leverage ratio of all instruments in the Underlying Fund's portfolio,
weighted by the market values of such instruments or, in the case of futures contracts,
their notional values.

Counterparty Risk. A significant risk of Hybrid Instruments is counterparty
risk. Unlike exchange-traded futures and options, which are standard contracts, hybrid
instruments are customized securities, tailor-made by a specific issuer. With a listed
futures or options contract, an investor's counterparty is the exchange clearinghouse.
Exchange clearinghouses are capitalized by the exchange members and typically have high
investment grade ratings (ratings of AAA or AA by Standard & Poor's). Therefore, the risk
is small that an exchange clearinghouse might be unable to meet its obligations at maturity.

However, with a hybrid instrument, the Underlying Fund will take on the counterparty
credit risk of the issuer. That is, at maturity of the hybrid instrument, there is a risk
that the issuer may be unable to perform its obligations under the structured note.
Issuers of hybrid instruments are typically large money center banks, broker-dealers, other
financial institutions and large corporations. To minimize this risk the Underlying Fund
will transact, to the extent possible, with issuers who have an investment-grade credit
rating from a nationally recognized statistical rating organization ("NRSRO").

|X| Hedging. Many Underlying Funds can use hedging instruments although they may not
obligated to use them in seeking their objectives. To attempt to protect against declines
in the market value of the Underlying Funds' portfolio, to permit these funds to retain
unrealized gains in the value of portfolio securities which have appreciated, or to
facilitate selling securities for investment reasons, these funds could:
o sell futures contracts,
o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls may also be used to
increase these funds' income.

The Underlying Funds can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case, these funds
would normally seek to purchase the securities and then terminate that hedging position.
These funds 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 these funds could:
o buy futures, or
o buy calls on futures or on securities.

The Underlying Funds may not obligated to use hedging instruments, even though they
may be permitted to use them in their manager's discretion, as described below. The
Underlying Funds' strategy of hedging with futures and options on futures may be incidental
to these funds' activities in the underlying cash market. The particular hedging
instruments these funds can use are described below. These funds may employ new hedging
instruments and strategies when they are developed, if those investment methods are
consistent with these funds' investment objective and are permissible under applicable
regulations governing these funds.

o Futures. Some of the Underlying Funds and the tactical allocation component of the
Active Allocation Fund can buy and sell futures contracts that relate to (1) broadly-based
bond or other security indices (these are referred to as "financial futures"), (2)
commodity contracts (these are referred to as "commodity futures"), (3) debt securities
(these are referred to as "interest rate futures"), (4) foreign currencies (these are
referred to as "forward contracts"), (5) individual stock (these are referred to as "single
stock futures"), (6) bond indices (these are referred to as "bond index futures") and (7)
broadly-based stock indices (these are referred to as "stock index futures"). For specific
information on the permitted type of future contract for an Underlying Fund, refer to the
SAI for the Underlying Fund.

A broadly-based stock index is used as the basis for trading stock index futures. In
some cases, these futures may be based on stocks of issuers in a particular industry or
group of industries. A stock index assigns relative values to the securities included in
the index and its value fluctuates in response to the changes in value of the underlying
securities. 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.

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. These funds 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 made or received by an Underlying Fund or the tactical allocation
component of the Active Allocation Fund on the purchase or sale of a future. Upon entering
into a futures transaction, a deposit will be required to be made an initial margin payment
with the futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with a 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 a 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, an Underlying Fund or the tactical
allocation component of the Active Allocation 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 Underlying Fund. Any loss
or gain on the future is then realized by the Underlying Fund or the tactical allocation
component of the Active Allocation Portfolio for tax purposes. All futures transactions,
except forward contracts, are effected through a clearinghouse associated with the exchange
on which the contracts are traded.

o Put and Call Options. Some Underlying Funds can buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Underlying Funds 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 in this SAI.

o Writing Covered Call Options. Some Underlying Funds can write (that is, sell)
covered calls. If these funds sell a call option, it must be covered. That means these
funds must own the security subject to the call while the call is outstanding, or, for
calls on futures and indices, the call may be covered by identifying liquid assets to
enable the Underlying Fund to satisfy its obligations if the call is exercised. For
specific limitations on the Underlying Funds' investments in covered calls, refer to the
SAI for the Underlying Fund.

When an Underlying Fund writes a call on a security, it receives cash (a premium).
The Underlying 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 Underlying 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 Underlying 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 Underlying Fund would keep the cash premium and the investment.

When the Underlying Fund writes a call on an index, it receives cash (a premium). If the
buyer of the call exercises it, the Underlying 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 Underlying
Fund would keep the cash premium.

The Underlying Fund's custodian bank, or a securities depository acting for the
custodian bank, will act as the Underlying 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 Underlying Fund enters into a closing transaction.

When the Underlying 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 Underlying 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 Underlying
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 Underlying Fund may
purchase a corresponding call in a "closing purchase transaction." The Underlying 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 Underlying Fund wrote is
more or less than the price of the call the Underlying Fund purchases to close out the
transaction. The Underlying Fund may realize a profit if the call expires unexercised,
because the Underlying 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
Underlying Fund they are taxable as ordinary income. If the Underlying 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 Underlying Funds 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 Underlying Fund must cover the call by identifying on it books an
equivalent dollar amount of liquid assets. The Underlying Fund will identify additional
liquid assets on its books to cover the call if the value of the identified assets drops
below 100% of the current value of the future. Because of this asset coverage requirement,
in no circumstances would the Underlying Fund's receipt of an exercise notice as to that
future require the Underlying Fund to deliver a futures contract. It would simply put the
Underlying Fund in a short futures position, which is permitted by the Underlying Fund's
hedging policies.

o Writing Put Options. Some Underlying Funds can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. 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. For specific
limitations on the Underlying Funds' investments in put options, refer to the SAI for the
Underlying Fund.

If an Underlying Fund writes a put, the put must be covered by liquid assets
identified on the Underlying Fund's books. The premium the Underlying 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 Underlying 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 an Underlying Fund has written expires unexercised, the Underlying Fund
realizes a gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Underlying 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 Underlying 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 Underlying Fund incurred.

When writing a put option on a security, to secure its obligation to pay for the
underlying security the Underlying Fund will deposit in escrow liquid assets with a value
equal to or greater than the exercise price of the underlying securities. The Underlying
Fund therefore forgoes the opportunity of investing the segregated assets or writing calls
against those assets.

As long as the Underlying 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 Underlying Fund to take delivery of the underlying security and pay
the exercise price. The Underlying 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 Underlying Fund effects a closing purchase transaction by purchasing a
put of the same series as it sold. Once the Underlying Fund has been assigned an exercise
notice, it cannot effect a closing purchase transaction.

An Underlying 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 Underlying
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 Underlying 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 Underlying Fund, are taxable as ordinary income.

o Purchasing Calls and Puts. Some of the Underlying Funds can purchase calls on
securities, broadly-based securities indices, foreign currencies and futures. They may do
so to protect against the possibility that an Underlying Fund's portfolio will not
participate in an anticipated rise in the securities market. When an Underlying Fund buys a
call (other than in a closing purchase transaction), it pays a premium. The Underlying 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. For specific
limitations on the Underlying Funds' investments in calls and puts, refer to the SAI for
the Underlying Fund.

An Underlying 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 Underlying Fund
exercises the call. If the Underlying 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 Underlying Fund will have paid the premium but lost the right to purchase the
underlying investment.

Some Underlying Funds can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not they own the underlying investment.
Convertible Securities Fund may buy only those puts that relate to stocks including stocks
underlying the convertible securities that this fund owns. When an Underlying Fund
purchases a put, it pays a premium and, except as to puts on indices, has the right to sell
the underlying investment to a seller of a put on a corresponding investment during the put
period at a fixed exercise price.

Buying a put on securities or futures an Underlying Fund owns enables this 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
Underlying Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Underlying Fund may sell the put prior to its expiration. That
sale may or may not be at a profit.

Buying a put on an investment the Underlying Fund does not own (such as an index or
future) permits the Underlying 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.

When an Underlying 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.

o Over-The-Counter Options. Some of the Underlying Funds may buy and sell
over-the-counter options. Over-the-counter options are not traded on an exchange. They are
traded directly with dealers. To the extent an over-the-counter option is a tailored
investment for the Underlying Fund, it may be less liquid than an exchange-traded option.
Further, as with other derivative investments, over-the-counter options are subject to
counterparty risk. The Underlying Fund will have the credit risk that the seller of an
over-the-counter option will not perform its obligations under the option agreement if the
Underlying Fund exercises the option. To reduce this risk, the Underlying Fund intends to
transact these trades, to the extent practicable, with issuers that have an
investment-grade credit rating. The Underlying Fund may buy and sell over-the-counter
options on commodity indices, individual commodities, commodity futures contracts,
securities, financial indices, interest rates, currencies and swaps.

o Exchange-Traded Options. Some of the Underlying Funds may buy and sell trade listed
options on commodity futures contracts. Options on commodity futures contracts are traded
on the same exchange on which the underlying futures contract is listed. The Underlying
Fund may purchase and sell options on commodity futures listed on U.S. and foreign futures
exchanges. Options purchased on futures contracts on foreign exchanges are exposed to the
risk of foreign currency fluctuations against the U.S. dollar. The Underlying Fund may
also buy and sell exchange listed options on securities, commodity indices, financial
indices, interest rates and currencies.

o Options on Swaps. Some of the Underlying Funds may trade options on swap contracts
or "swap options." Swap call options provide the holder of the option with the right to
enter a swap contract having a specified (strike) swap formula, while swap put options
provide the holder with the right to sell or terminate a swap contract. Swap options are
not exchange-traded and the Underlying Fund will bear the credit risk of the option
seller. Additionally, if the Underlying Fund exercises a swap call option with the option
seller, the credit risk of the counterparty is extended to include the term of the swap
agreement.

Swaps. A swap contract is essentially like a portfolio of forward contracts, under
which one party agrees to exchange an asset (for example, bushels of wheat) for another
asset (cash) at specified dates in the future. A one-period swap contract operates in a
manner similar to a forward or futures contract because there is an agreement to swap a
commodity for cash at only one forward date. The Underlying Fund may engage in swap
transactions that have more than one period and therefore more than one exchange of assets.

Some of the Underlying Funds may invest in total return swaps to gain exposure to the
overall commodity markets. In a total return commodity swap the Underlying Fund will
receive the price appreciation of a commodity index, a portion of the index, or a single
commodity in exchange for paying an agreed-upon fee. If the commodity swap is for one
period, the Underlying Fund will pay a fixed fee, established at the outset of the swap.
However, if the term of the commodity swap is more than one period, with interim swap
payments, the Underlying Fund will pay an adjustable or floating fee. With a "floating"
rate, the fee is pegged to a base rate such as the London Interbank Offered Rate ("LIBOR"),
and is adjusted each period. Therefore, if interest rates increase over the term of the
swap contract, the Underlying Fund may be required to pay a higher fee at each swap reset
date.

o Counterparty Risk. Swap contracts are private transactions that are customized to
meet the specific investment requirements of the parties. The Underlying Fund will be
exposed to the performance risk of its counterparty. If the counterparty is unable to
perform its obligations under the swap contract at maturity of the swap or any interim
payment date, the Underlying Fund may not receive the payments due it under the swap
agreement. To reduce this risk, the Underlying Fund will enter in swaps, to the extent
possible, with counterparties who have an investment-grade rating from an NRSRO.

o Contractual Liability. Swaps are privately negotiated transactions between the
Underlying Fund and a counterparty. All of the rights and obligations of the Underlying
Fund are detailed in the swap contract, which binds the Underlying Fund and its
counterparty. Because a swap transaction is a privately-negotiated contract, the
Underlying Fund remains liable for all obligations under the contract until the swap
contract matures or is purchased by the swap counterparty. Therefore, even if the
Underlying Fund were to sell the swap contract to a third party, the Underlying Fund would
remain primarily liable for the obligations under the swap transaction. The only way for
the Underlying Fund to eliminate its primary obligations under the swap agreement is to
sell the swap contract back to the original counterparty. Additionally, the Underlying
Fund must identify liquid assets on its books to the extent of the Underlying Fund's
obligations to pay the counterparty under the swap agreement.

o Price Risk. Total return commodity swaps expose the Underlying Fund to the price
risk of the underlying commodity, index, futures contract or economic variable. If the
price of the underlying commodity or index increases in value during the term of the swap,
the Underlying Fund will receive the price appreciation. However, if the price of the
commodity or index declines in value during the term of the swap, the Underlying Fund will
be required to pay to its counterparty the amount of the price depreciation. The amount of
the price depreciation paid by the Underlying Fund to its counterparty would be in addition
to the financing fee paid by the Underlying Fund to the same counterparty.

o Lack of Liquidity. Although the swap market is well-developed for primary
participants, there is only a limited secondary market. Swaps are not traded or listed on
an exchange and over-the-counter trading of existing swap contracts is limited. Therefore,
if the Underlying Fund wishes to sell its swap contract to a third party, it may not be
able to do so at a favorable price.

o Regulatory Risk. Qualifying swap transactions are excluded from regulation under the
Act and the regulations adopted thereunder. See Appendix E to this SAI. Additionally, swap
contracts have not been determined to be securities under the rules promulgated by the
SEC. Consequently, swap contracts are not regulated by either the Commodities Futures
Trading Commission ("CFTC") or the SEC, and swap participants may not be afforded the
protections of the Commodity Exchange Act or the federal securities laws.

To reduce this risk, the Underlying Fund will only enter into swap agreements with
counterparties who use standard International Swap and Dealers Association, Inc. ("ISDA")
contract documentation. ISDA establishes industry standards for the documentation of swap
agreements. Virtually all principal swap participants use ISDA documentation because it has
an established set of definitions, contract terms, and counterparty obligations.

ISDA documentation also includes a "master netting agreement" which provides that all
swaps transacted between the Underlying Fund and a counterparty under the master agreement
shall be regarded as parts of an integral agreement. If, on any date, amounts are payable
in the same currency in respect of one or more swap transactions, the net amount payable on
that date in that currency shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the counterparty may terminate
the remaining swaps with that party. Under such agreements, if there is a default
resulting 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 with respect to each swap (i.e., 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."

o Buying and Selling Options on Foreign Currencies. Some of the Underlying Funds 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 Underlying 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 their 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 their
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 Underlying Fund's position. The Underlying
Fund will then have incurred option premium payments and transaction costs without a
corresponding benefit.

A call an Underlying Fund writes on a foreign currency is "covered" if the Underlying
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 Underlying Funds 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 Underlying 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 Underlying
Fund covers the option by maintaining and identifying cash, U.S. government securities or
other liquid, high grade debt securities in an amount equal to the exercise price of the
option.

|X| Options and Futures. Some of the Underlying Funds can buy and sell options, futures
and forward contracts for various purposes:
o to try to manage the risk that the prices of its portfolio securities and instruments
may decline,
o to establish a position in the futures or options market as a temporary substitute
for purchasing individual securities or instruments,
o to attempt to enhance its income or return by purchasing and selling call and put
options on commodity futures, commodity indices, financial indices or
securities.

Some of the Underlying Funds can buy futures related to:
o foreign currencies (these are called forward contracts),
o financial indices, such as U.S. or foreign government securities indices, corporate
debt securities indices or equity securities indices (these are referred
to as financial futures),
o interest rates (these are referred to as interest rate futures), and
o commodities (these are referred to as commodities futures)

Some of the Underlying Funds may enter into futures contracts or related options for
purposes that may be considered speculative. In those cases, the aggregate initial margin
for futures contracts and premiums for options (or, in the case of non-qualifying hybrid
instruments, the portion of the margin attributable to the options premium) will not exceed
5% of the Underlying Fund's net assets. That amount is calculated after taking into account
realized profits and unrealized losses on such futures contracts.

|X| Commodity Futures Contracts. Some of the Underlying Funds can invest a substantial
portion of its assets in commodity futures contracts. Some of the special characteristics
and risks of these investments are described below.

Commodity futures contracts are an agreement between two parties. One party agrees to
buy an asset from the other party at a later date at a price and quantity agreed-upon when
the contract is made. Commodity futures contracts are traded on futures exchanges. These
futures exchanges offer a central marketplace in which to transact futures contracts, a
clearing corporation to process trades, a standardization of expiration dates and contract
sizes, and the availability of a secondary market. Futures markets also specify the terms
and conditions of delivery as well as the maximum permissible price movement during a
trading session. Additionally, the commodity futures exchanges have position limit rules
that limit the amount of futures contracts that any one party may hold in a particular
commodity at any point in time. These position limit rules are designed to prevent any one
participant from controlling a significant portion of the market.

In the futures markets, the exchange clearing corporation takes the other side in all
transactions, either buying or selling directly to the market participants. The
clearinghouse acts as the counterparty to all exchange-traded futures contracts. That is,
the Underlying Fund's obligation is to the clearinghouse, and the Underlying Fund will look
to the clearinghouse to satisfy the Underlying Fund's rights under the futures contract.

When purchasing stocks or bonds, the buyer acquires ownership in the security,
however buyers of futures contracts are not entitled to ownership of the underlying
commodity until and unless they decide to accept delivery at expiration of the contract.
In practice, delivery of the underlying commodity to satisfy a futures contract rarely
occurs because most futures traders use the liquidity of the central marketplace to sell
their futures contract before expiration.

Price Limits. The commodity futures exchanges impose on each commodity futures
contract a maximum permissible price movement for each trading session. If the maximum
permissible price movement is achieved on any trading day, no more trades may be executed
above (or below, if the price has moved downward) that limit. If the Underlying Fund
wishes to execute a trade outside the daily permissible price movement, it would be
prevented from doing so by exchange rules, and would have to wait for another trading
session to execute its transaction.

Price Volatility. Despite the daily price limits on the futures exchanges, the
price volatility of commodity futures contracts has been historically greater than that for
traditional securities such as stocks and bonds. To the extent that the Underlying Fund
invests in commodity futures contracts, the assets of the Underlying Fund, and therefore
the prices of its shares may be subject to greater volatility.

Marking-to-Market Futures Positions. The futures clearinghouse marks every
futures contract to market at the end of each trading day, to ensure that the outstanding
futures obligations are limited by the maximum daily permissible price movement. This
process of marking-to-market is designed to prevent losses from accumulating in any futures
account. Therefore, if the Underlying Fund's futures positions have declined in value, the
Underlying Fund may be required to post additional margin to cover this decline.
Alternatively, if the Underlying Fund's futures positions have increased in value, this
increase will be credited to the Underlying Fund's account.

Special Risks of Commodity Futures Contracts.

Storage Costs. As in the financial futures markets, there are hedgers and
speculators in the commodity futures markets. However, unlike financial instruments, there
are costs of physical storage associated with purchasing the underlying commodity. For
instance, a large manufacturer of baked goods that wishes to hedge against a rise in the
price of wheat has two choices: (i) it can purchase the wheat today in the cash market and
store the commodity at a cost until it needs the wheat for its manufacturing process, or
(ii) it can buy commodity futures contracts. The price of the commodity futures contract
will reflect the storage costs of purchasing the physical commodity.

These storage costs include the time value of money invested in the physical
commodity plus the actual costs of storing the commodity less any benefits from ownership
of the physical commodity that are not obtained by the holder of a futures contract (this
is sometimes referred to as the "convenience yield"). To the extent that these storage
costs change for an underlying commodity while the Underlying Fund is long futures
contracts on that commodity, the value of the futures contract may change proportionately.

o Reinvestment Risk. In the commodity futures markets, if producers of the underlying
commodity wish to hedge the price risk of selling the commodity, they will sell futures
contracts today to lock in the price of the commodity at delivery tomorrow. In order to
induce speculators to take the corresponding long side of the same futures contract, the
commodity producer must be willing to sell the futures contract at a price that is below
the expected future spot price. Conversely, if the predominate hedgers in the futures
market are the purchasers of the underlying commodity who purchase futures contracts to
hedge against a rise in prices, then speculators will only take the short side of the
futures contract if the futures price is greater than the expected future spot price of the
commodity.

The changing nature of the hedgers and speculators in the commodity markets will
influence whether futures prices are above or below the expected future spot price. This
can have significant implications for the Underlying Fund when it is time to reinvest the
proceeds from a maturing futures contract into a new futures contract. If the nature of
hedgers and speculators in futures markets has shifted such that commodity purchasers are
the predominate hedgers in the market, the Underlying Fund might reinvest at higher futures
prices or choose other related commodity investments

Additional Economic Factors. The values of commodities which underlie commodity
futures contracts are subject to additional variables which may be less significant to the
values of traditional securities such as stocks and bonds. Variables such as drought,
floods, weather, livestock disease, embargoes and tariffs may have a larger impact on
commodity prices and commodity-linked instruments, including futures contracts, hybrid
instruments, commodity options and commodity swaps, than on traditional securities. These
additional variables may create additional investment risks which subject the Underlying
Fund's investments to greater volatility than investments in traditional securities.

Leverage. There is much greater leverage in futures trading than in stocks. As a
registered investment company, an Underlying Fund must pay in full for all securities it
purchases. In other words, the Underlying Fund is not allowed to purchase securities on
margin. However, the Underlying Fund may be allowed to purchase futures contracts on
margin. The initial margin requirements are typically between 3% and 6% of the face value
of the contract. That means the Underlying Fund is only required to pay up front between
3% to 6% percent of the face value of the futures contract. Therefore, the Underlying Fund
has a higher degree of leverage in its futures contract purchases than in its stock
purchases. As a result there may be differences in the volatility of rates of return
between securities purchases and futures contract purchases, with the returns from futures
contracts being more volatile.

o 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 an Underlying Fund's manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly, hedging strategies
may reduce the Underlying Fund's return. The Underlying Fund could also experience losses
if the prices of its futures and options positions were not correlated with its other
investments.

An Underlying Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Underlying Fund might cause the
Underlying Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Underlying 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 Underlying Fund's control, holding a put might cause the Underlying
Fund to sell the related investments for reasons that would not exist in the absence of the
put.

An Underlying 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 an Underlying Fund's net asset value being more
sensitive to changes in the value of the underlying investment.

If a covered call written by the Underlying Fund is exercised on an investment that
has increased in value, the Underlying 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 Underlying 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
Underlying 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
Underlying Fund's securities. For example, it is possible that while the Underlying Fund
has used hedging instruments in a short hedge, the market might advance and the value of
the securities held in the Underlying Fund's portfolio might decline. If that occurred, the
Underlying 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 Underlying
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
Underlying 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.

An Underlying Fund may 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 an Underlying Fund does so the market might decline.
If an Underlying Fund then concludes not to invest in securities because of concerns that
the market might decline further or for other reasons, the Underlying Fund will realize a
loss on the hedging instruments that is not offset by a reduction in the price of the
securities purchased.

o 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. An
Underlying Fund or the tactical component of the Active Allocation Fund may use them to
"lock in" the U.S. dollar price of a security denominated in a foreign currency that such
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. An Underlying Fund or the tactical
component of the Active Allocation Fund may also use "cross-hedging" where such 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.

An Underlying Fund or the tactical component of the Active Allocation 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 such 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 an Underlying Fund or the tactical component of the Active Allocation 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, that
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.

An Underlying Fund or the tactical component of the Active Allocation Fund could also
use forward contracts to lock in the U.S. dollar value of portfolio positions. This is
called a "position hedge." When an Underlying Fund or the tactical component of the Active
Allocation 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 that fund's portfolio securities
denominated in that foreign currency. When such 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, it could
enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar
amount if it 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."

An Underlying Fund or the tactical component of the Active Allocation Fund will cover
its short positions in these cases by identifying to its books assets having a value equal
to the aggregate amount of that fund's commitment under forward contracts. Such fund will
not enter into forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate it to deliver an amount of foreign currency in
excess of the value of its 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, an Underlying Fund or
the tactical component of the Active Allocation Fund may maintain a net exposure to forward
contracts in excess of the value of its 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, an Underlying Fund or the tactical component of the Active Allocation
Fund may purchase a call option permitting it 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, an Underlying Fund or the tactical component of the Active
Allocation Fund may purchase a put option permitting it 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 that an Underlying Fund or the tactical component of the Active
Allocation Fund is obligated to deliver, the fund might have to purchase additional foreign
currency on the "spot" (that is, cash) market to settle the security trade. If the market
value of the security instead exceeds the amount of foreign currency that an Underlying
Fund or the tactical component of the Active Allocation Fund is obligated to deliver to
settle the trade, it 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 a fund to sustain losses on these contracts and to pay additional
transactions costs. The use of forward contracts in this manner might reduce the Underlying
Funds' or the tactical component of the Active Allocation Fund performance if there are
unanticipated changes in currency prices to a greater degree than if they had not entered
into such contracts.

At or before the maturity of a forward contract requiring an Underlying Fund or the
tactical component of the Active Allocation Fund to sell a currency, such fund might sell a
portfolio security and use the sale proceeds to make delivery of the currency. In the
alternative such fund might retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract. Under that contract, the Underlying
Fund or the tactical component of the Active Allocation Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to deliver. Similarly,
that 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. Such 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 Underlying Fund or the tactical component of the Active Allocation
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
Underlying Fund or the tactical component of the Active Allocation Fund must evaluate the
credit and performance risk of the counterparty under each forward contract.

Although the funds value their assets daily in terms of U.S. dollars, they do not
intend to convert their holdings of foreign currencies into U.S. dollars on a daily basis.
They 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 at one rate, while
offering a lesser rate of exchange if the fund desires to resell that currency to the
dealer.

Comparison of Commodity Futures and Forward Contracts. Futures contracts and forward
contracts achieve the same economic effect: both are an agreement to purchase a specified
amount of a specified commodity at a specified future date for a price agreed-upon today.
However, there are significant differences in the operation of the two contracts. Forward
contracts are individually negotiated transactions and are not exchange traded. Therefore,
with a forward contract, the Underlying Fund would make a commitment to carry out the
purchase or sale of the underlying commodity at expiration.

For example, if the Underlying Fund were to buy a forward contract to purchase a
certain amount of gold at a set price per ounce for delivery in three months' time and
then, two months later, the Underlying Fund wished to liquidate that position, it would
contract for the sale of the gold at a new price per ounce for delivery in one months'
time. At expiration of both forward contracts, the Underlying Fund would be required to
buy the gold at the set price under the first forward contract and sell it at the
agreed-upon price under the second forward contract. Even though the Underlying Fund has
effectively offset its gold position with the purchase and sale of the two forward
contracts, it must still honor the original commitment at maturity of the two contracts.
By contrast, futures exchanges have central clearinghouses which keep track of all
positions. To offset a long position in a futures contract, the Underlying Fund simply
needs to sell a similar contract on the exchange. The exchange clearinghouse will record
both the original futures contract purchase and the offsetting sale, and there is no
further commitment on the part of the Underlying Fund.

Only a very small percentage of commodity futures contracts result in actual delivery
of the underlying commodity. Additionally, any gain or loss on the purchase and sale of
the futures contracts is recognized immediately upon the offset, while with a forward
contract, profit or loss is recognized upon maturity of the forward contracts.

o Interest Rate Swap Transactions. Some of the Underlying Funds and the tactical
component of the Active Allocation Fund can enter into interest rate swap agreements. In an
interest rate swap, these funds 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. These funds can enter into swaps only on
securities that they own. A fund will identify on its books liquid assets (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. For
specific limitations on the Underlying Funds' investments in interest rate swap
transactions, refer to the SAI for the Underlying Fund.

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 these funds 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, these funds'
loss will consist of the net amount of contractual interest payments that these funds have
not yet received. These funds' manager will monitor the creditworthiness of counterparties
to these funds' interest rate swap transactions on an ongoing basis.

Some Underlying Funds and the tactical component of the Active Allocation Fund can
enter into swap transactions with certain counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done between these funds 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 may 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."

Total Return Swap Transactions. Some of the Underlying Funds and the tactical
component of the Active Allocation Fund may enter into total return swaps. For specific
limitations on the Underlying Funds' investments in total return swaps, refer to the SAI
for the Underlying Fund. A swap contract is essentially like a portfolio of forward
contracts, under which one party agrees to exchange an asset (for example, bushels of
wheat) for another asset (cash) at specified dates in the future. A one-period swap
contract operates in a manner similar to a forward or futures contract because there is an
agreement to swap a commodity for cash at only one forward date. The Underlying Fund or the
tactical component of the Active Allocation Fund may engage in swap transactions that have
more than one period and therefore more than one exchange of assets.

The Underlying Fund or the tactical component of the Active Allocation Fund may
invest in total return swaps to gain exposure to the overall commodity markets. In a total
return commodity swap the fund will receive the price appreciation of a commodity index, a
portion of the index, or a single commodity in exchange for paying an agreed-upon fee. If
the commodity swap is for one period, the fund will pay a fixed fee, established at the
outset of the swap. However, if the term of the commodity swap is more than one period,
with interim swap payments, a fund will pay an adjustable or floating fee. With a
"floating" rate, the fee is pegged to a base rate such as the LIBOR, and is adjusted each
period. Therefore, if interest rates increase over the term of the swap contract, a fund
may be required to pay a higher fee at each swap reset date.

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

"Structured" Notes. Some of the Underlying Funds can buy "structured" notes, which
are specially-designed derivative debt investments with principal payments or interest
payments that are linked to the value of an index (such as a currency or securities index)
or commodity. The terms of the instrument may be "structured" by the purchaser (the
Underlying Fund) and the borrower issuing the note.

The principal and/or interest payments depend on the performance of one or more other
securities or indices, and the values of these notes will therefore fall or rise in
response to the changes in the values of the underlying security or index. They are subject
to both credit and interest rate risks and therefore the Underlying Fund could receive more
or less than it originally invested when the notes mature, or it might receive less
interest than the stated coupon payment if the underlying investment or index does not
perform as anticipated. Their values may be very volatile and they may have a limited
trading market, making it difficult for the Underlying Fund to sell its investment at an
acceptable price.

o Regulatory Aspects of Hedging Instruments. 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 Underlying Funds have claimed such an exclusion from
registration as a commodity pool operator under the Commodity Exchange Act ("CEA"). The
Underlying Funds may use futures and options for hedging and non-hedging purposes to the
extent consistent with their investment objective, internal risk management guidelines
adopted by the Underlying Fund's investment advisor (as they may be amended from time to
time), and as otherwise set forth in the Underlying Fund's prospectus or this SAI.

Transactions in options by the Underlying 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 Underlying 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 Underlying Fund (or an advisor that is
an affiliate of the Underlying 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 SEC staff interpretations regarding applicable provisions of the Investment
Company Act, when the Underlying Fund purchases a future, it must segregate cash or readily
marketable short-term debt instruments in an amount equal to the purchase price of the
future, less the margin deposit applicable to it. The account must be a segregated account
or accounts held by the Underlying Fund.

o Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Underlying Funds 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 Underlying Funds 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
Underlying Funds to exempt those transactions from this marked-to-market treatment.

Certain forward contracts the Underlying Funds enter 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 Underlying Funds 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 Underlying Funds accrue interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Underlying Funds actually collect 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 Underlying Funds' investment
income available for distribution to its shareholders.

|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Portfolios
and the Underlying Funds traded their portfolio securities during their last fiscal year.
For example, if a Portfolio or Underlying Fund sold all of its securities during the year,
its portfolio turnover rate would have been 100%. The Portfolios' and Underlying Funds'
portfolio turnover rates will fluctuate from year to year, and they may have a portfolio
turnover rate of more than 100% annually.

Increased portfolio turnover may result in higher brokerage and transaction costs for
the Portfolios and Underlying Funds, which may reduce their overall performance. However,
most of the Portfolios' portfolio transactions should involve trades in the Underlying
Funds that do not entail brokerage commissions. Additionally, the realization of capital
gains from selling portfolio securities may result in distributions of taxable long-term
capital gains to shareholders, since the Portfolios and Underlying Funds will normally
distribute all of their capital gains realized each year, to avoid excise taxes under the
Internal Revenue Code.

|X| Temporary Defensive and Interim Investments. When market, economic or political
conditions are unstable, or the Portfolios or the Underlying Funds' manager believes it is
otherwise appropriate to reduce holdings in stocks, the Portfolios and the Underlying Funds
can invest in a variety of debt securities for defensive purposes. The Portfolios and the
Underlying Funds can also purchase these securities for liquidity purposes to meet cash
needs due to the redemption of a Portfolio's or an Underlying Fund's, or to hold while
waiting to reinvest cash received from the sale of other portfolio securities. For specific
types of securities an Underlying Fund can buy when assuming a temporary defensive or
interim investment position, refer to the SAI for the Underlying Fund. Examples of
temporary defensive and interim investments the Portfolios may use, and that some of the
Underlying Funds may use, include:
o high-quality (rated in the top two rating categories of nationally-recognized rating
organizations or deemed by the Manager to be of comparable quality),
short-term money market instruments, including those issued by the U. S.
Treasury or other government agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic or foreign
companies),
o short-term debt obligations of corporate issuers,
o certificates of deposit and bankers' acceptances of domestic and foreign banks and
savings and loan associations, and
o repurchase agreements.

These short-term debt securities would 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. If securities of foreign companies are
selected, the issuer must have assets of at least (U.S.) $1 billion.

Tactical Allocation

A tactical allocation of up to 20% of net assets of Active Allocation Fund (the
"Portfolio") is designed to take advantage of short-term market opportunities. The
allocation will be based on recommendations from Caleb Wong, one of the portfolio managers
of the Portfolio and decided upon by the Manager's Asset Allocation Committee.

The funds available for tactical investment by the Portfolio are listed in the
Prospectus.

|X| The Active Allocation Fund's Investment Policies and Risks. For the funds
included in the tactical allocation component of the portfolio ("Active Allocation Funds")
that are not Underlying Funds and have not been previously discussed in this SAI, a brief
description of the types of investments, strategies and risks associated with these funds
is included below. This description also applies to investments made by the Portfolio in
derivatives to effect a tactical allocation if it is determined that the Portfolio's
transactions would be detrimental to the Active Allocation Funds.

|X| Floating Rate and Variable Rate Obligations. Some of the securities that the
Portfolio and some of the Active Allocation Funds can purchase have variable or floating
interest rates. Variable rates are adjusted at stated periodic intervals. Variable rate
obligations can have a demand feature that allows the the obligation to be tendered 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. 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 quality standards by reason of being backed by a letter of
credit or guarantee issued by a bank that meets those quality standards.

|X| Inverse Floaters. The tactical allocation portion of the Portfolio and some of
the Active Allocation Funds can invest in a type of variable rate instrument known as an
"inverse floater." These pay interest at rates that vary as the rates on bonds change.
However, the rates of interest on inverse floaters move in the opposite direction of yields
on other bonds in response to market changes. As interest rates rise, inverse floaters
produce less current income, and their market value can become volatile.

Inverse floaters may offer relatively high current income, reflecting the spread
between short- and long-term interest rates. As long as the yield curve remains relatively
steep and short-term rates remain relatively low, owners of inverse floaters will have the
opportunity to earn interest at above-market rates because they receive interest at the
higher long-term rates but have paid for bonds with lower short-term rates. If the yield
curve flattens and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The tactical allocation portion of the Portfolio and the
Active Allocation Funds may invest in inverse floaters to seek higher yields than are
available from fixed-rate bonds that have comparable maturities and credit ratings. In some
cases, the holder of an inverse floater may have an option to convert the floater to a
fixed-rate bond, pursuant to a "rate-lock" option.

Some inverse floaters have a feature known as an interest rate "cap" as part of the
terms of the investment. Investing in inverse floaters that have interest rate caps might
be part of a portfolio strategy to try to maintain a high current yield when the Portfolio
or some of the Active Allocation Funds have invested in inverse floaters that expose them
to the risk of short-term interest rate fluctuations. "Embedded" caps can be used to hedge
a portion of the Active Allocation Fund's exposure to rising interest rates. When interest
rates exceed a pre-determined rate, the cap generates additional cash flows that offset the
decline in interest rates on the inverse floater, and the hedge is successful. However,
the Portfolio and the Active Allocation Funds bear the risk that if interest rates do not
rise above the pre-determined rate, the cap (which is purchased for additional cost) will
not provide additional cash flows and will expire worthless. Inverse floaters are a form
of derivative investment.

Investing in Special Situations. Periodically, some of the Active Allocation Funds
might use aggressive investment techniques. These might include seeking to benefit from
what the portfolio manager perceives to be "special situations," such as mergers,
reorganizations, restructurings or other unusual events expected to affect a particular
issuer. However, there is a risk in investing in special situations that the change or
event might not occur, which could have a negative impact on the price of the issuer's
securities. The Active Allocation Funds' investment technique might not produce the
expected gains or could incur a loss for the portfolio.

Brady Bonds. Some of the Active Allocation Funds 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" of the bonds.

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 that 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, they are considered speculative investments.

|X| Ratings of Securities - Portfolio Quality, Maturity and Diversification. Under
Rule 2a-7 of the Investment Company Act, Oppenheimer Money Market Fund, Inc. ("Money Market
Fund") uses the amortized cost method to value its portfolio securities to determine Money
Market Fund's net asset value per share. Rule 2a-7 places restrictions on a money market
fund's investments. Under that Rule, Money Market Fund may purchase only those securities
that the Manager, under Board-approved procedures, has determined have minimal credit risks
and are "Eligible Securities." The rating restrictions described in its Prospectus and SAI
do not apply to banks in which Money Market Fund's cash is kept.

An "Eligible Security" is one that has been rated in one of the two highest
short-term rating categories by any two "nationally-recognized statistical rating
organizations." That term is defined in Rule 2a-7 and they are referred to as "Rating
Organizations" in Money Market Fund's SAI. If only one Rating Organization has rated that
security, it must have been rated in one of the two highest rating categories by that
Rating Organization. An unrated security that is judged by the Manager, subject to review
by Money Market Fund's Board of Directors, to be of comparable quality to Eligible
Securities rated by Rating Organizations may also be an "Eligible Security."

Rule 2a-7 permits Money Market Fund to purchase any number of "First Tier
Securities." These are Eligible Securities that have been rated in the highest rating
category for short-term debt obligations by at least two Rating Organizations. If only one
Rating Organization has rated a particular security, it must have been rated in the highest
rating category by that Rating Organization. Comparable unrated securities may also be
First Tier Securities.

Under Rule 2a-7, Money Market Fund may invest only up to 5% of its total assets in
"Second Tier Securities." Those are Eligible Securities that are not "First Tier
Securities." In addition, Money Market Fund may not invest more than:

o? 5% of its total assets in the securities of any one issuer (other than the U.S.
government, its agencies or instrumentalities) or
o 1% of its total assets or $1 million (whichever is greater) in Second Tier Securities
of any one issuer.

Under Rule 2a-7, Money Market Fund must maintain a dollar-weighted average portfolio
maturity of not more than 90 days, and the maturity of any single portfolio investment may
not exceed 397 days. The Board regularly reviews reports from the Manager to show the
Manager's compliance with Money Market Fund's procedures and with the Rule.

If a security's rating is downgraded, the Manager and/or the Board may have to
reassess the security's credit risk. If a security has ceased to be a First Tier Security,
the Manager will promptly reassess whether the security continues to present minimal credit
risk. If the Manager becomes aware that any Rating Organization has downgraded its rating
of a Second Tier Security or rated an unrated security below its second highest rating
category, Money Market Fund's Board of Directors shall promptly reassess whether the
security presents minimal credit risk and whether it is in the best interests of the Fund
to dispose of it.

If Money Market Fund disposes of the security within five days of the Manager
learning of the downgrade, the Manager will provide the Board with subsequent notice of
such downgrade. If a security is in default, or ceases to be an Eligible Security, or is
determined no longer to present minimal credit risks, the Board must determine whether it
would be in the best interests of the Fund to dispose of the security.

The Rating Organizations currently designated as nationally-recognized statistical
rating organizations by the SEC are Standard & Poor's (a division of the McGraw-Hill
Companies), Moody's Investors Service, Inc., Fitch, Inc. and Dominion Bond Rating Service
Limited. Appendix A to its SAI contains descriptions of the rating categories of those
Rating Organizations. Ratings at the time of purchase will determine whether securities may
be acquired under the restrictions described therein.

|X| Time Deposits and Other Bank Obligations. The types of "banks" whose securities
Money Market Fund may buy include commercial banks, savings banks, and savings and loan
associations, which may or may not be members of the Federal Deposit Insurance Corporation.
Money Market Fund may also buy securities of "foreign banks" that are:
o foreign branches of U.S. banks (which may be issuers of "Eurodollar" money
market instruments),
o? U.S. branches and agencies of foreign banks (which may be issuers of "Yankee
dollar" instruments), or
o? foreign branches of foreign banks.

Money Market Fund may invest in fixed time deposits. These are non-negotiable
deposits in a bank for a specified period of time at a stated interest rate. They may or
may not be subject to withdrawal penalties. However, Money Market Fund's investments in
time deposits that are subject to penalties (other than time deposits maturing in less than
7 days) are subject to the 10% investment limitation for investing in illiquid securities,
set forth in "Illiquid and Restricted Securities" in the Prospectus.

Money Market Fund will buy bank obligations only from a domestic bank with total
assets of at least $2.0 billion or from a foreign bank with total assets of at least $30.0
billion. Those asset requirements apply only at the time the obligations are acquired.

|X| Insured Bank Obligations. The Federal Deposit Insurance Corporation insures the
deposits of banks and savings and loan associations up to $100,000 per investor. Within the
limits set forth in its Prospectus, Money Market Fund may purchase bank obligations that
are fully insured as to principal by the FDIC. To remain fully insured as to principal,
these investments must currently be limited to $100,000 per bank. If the principal amount
and accrued interest together exceed $100,000, then the accrued interest in excess of that
$100,000 will not be insured.

|X| Bank Loan Participation Agreements. Money Market Fund may invest in bank loan
participation agreements, subject to the investment limitation set forth in its Prospectus
as to investments in illiquid securities. If Money Market Fund invests in bank loan
participation agreements, they are not expected to exceed 5% of Money Market Fund's total
assets. Participation agreements provide an undivided interest in a loan made by the bank
issuing the participation interest in the proportion that the buyer's investment bears to
the total principal amount of the loan. Under this type of arrangement, the issuing bank
may have no obligation to the buyer other than to pay principal and interest on the loan if
and when received by the bank. Thus, Money Market Fund must look to the creditworthiness of
the borrower, which is obligated to make payments of principal and interest on the loan. If
the borrower fails to pay scheduled principal or interest payments, Money Market Fund may
experience a reduction in income.

Writing Uncovered Call Options on Futures Contracts. Some of the Active Allocation
Funds may 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
Active Allocation Funds must cover the call by segregating an equivalent dollar amount of
liquid assets. The Active Allocation Funds 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 Active Allocation
Funds' receipt of an exercise notice as to that future require the Active Allocation Funds
to deliver a futures contract. It would simply put the Active Allocation Funds in a short
futures position, which may be permitted by the Active Allocation Fund's hedging policies.

|X| Investments in Equity Securities and Metal Investments. Gold & Special
Minerals Fund focuses its investments in equity securities of U.S. and foreign-domiciled
companies. Equity securities include common stocks, preferred stocks, rights and warrants,
and securities convertible into common stock. Gold & Special Minerals Fund's investments
primarily include stocks of companies that are involved in mining or processing gold or
other metals or minerals. These securities are described as "Mining Securities."

Gold & Special Minerals Fund may also invest in gold or silver bullion, in other
precious metals, in metals naturally occurring with precious metals, in certificates
representing an ownership interest in those metals, and in gold or silver coins. These
investments are referred to as "Metal Investments." Under normal market conditions, Gold &
Special Minerals Fund will invest at least 80% of its net assets (plus borrowings for
investment purposes) in Mining Securities and Metal Investments. However, Gold & Special
Minerals Fund will invest no more than 10% of its total net assets in Metal Investments.

Current income is not a criterion used to select portfolio securities for Gold and
Special Minerals. However, certain debt securities can be selected for Gold & Special
Minerals Fund's portfolio for defensive purposes (including debt securities that the
Manager believes might offer some opportunities for capital appreciation when stocks are
disfavored).

o Special Risks of Concentrating Investments in Mining Securities and Metal
Investments. Investments in Mining Securities and Metal Investments involve additional
risks and considerations not typically associated with other types of investments: (1) the
risk of substantial price fluctuations of gold and precious metals; (2) the concentration
of gold supply is mainly in five territories (South Africa, Australia, the Commonwealth of
Independent States (the former Soviet Union), Canada and the United States), and the
prevailing economic and political conditions of these countries may have a direct effect on
the production and marketing of gold and sales of central bank gold holdings; (3)
unpredictable international monetary policies, economic and political conditions; (4)
possible U.S. governmental regulation of Metal Investments, as well as foreign regulation
of such investments; and (5) possible adverse tax consequences for Gold & Special Minerals
Fund in making Metal Investments, if it fails to qualify as a "regulated investment
company" under the Internal Revenue Code.

Because Gold & Special Minerals Fund concentrates its investments in Mining
Securities and Metal Investments, an adverse change with respect to any of these risk
factors could have a significant negative effect on Gold & Special Minerals Fund's net
asset value per share. These risks are discussed in greater detail below.

o Risk of Price Fluctuations. The prices of precious and strategic metals are
affected by various factors such as economic conditions, political events, governmental
monetary and regulatory policies and market events. The prices of Mining Securities and
Metal Investments held by Gold & Special Minerals Fund may fluctuate sharply, which will
affect the value of Gold & Special Minerals Fund's shares.

o Concentration of Source of Gold Supply and Control of Gold Sales. Currently, the
five largest producers of gold are the Republic of South Africa, Australia, the
Commonwealth of Independent States (which includes Russia and certain other countries that
were part of the former Soviet Union), Canada and the United States. Economic and political
conditions in those countries may have a direct effect on the production and marketing of
gold and on sales of central bank gold holdings. In South Africa, the activities of
companies engaged in gold mining are subject to the policies adopted by the Ministry of
Mines. The Reserve Bank of South Africa, as the sole authorized sales agent for South
African gold, has an influence on the price and timing of sales of South African gold.
Political and social conditions in South Africa are still somewhat unsettled and may pose
certain risks to Gold & Special Minerals Fund (in addition to the risks described below
under the caption "Foreign Securities"), because Gold & Special Minerals Fund may hold a
portion of its assets in securities of South African issuers.

o Unpredictable International Monetary Policies, Economic and Political Conditions.
There is the possibility that unusual international monetary or political conditions may
make Gold & Special Minerals Fund's portfolio assets less liquid, or that the value of Gold
& Special Minerals Fund's assets might be more volatile, than would be the case with other
investments. In particular, the price of gold is affected by its direct and indirect use to
settle net balance of payments deficits and surpluses between nations. Because the prices
of precious or strategic metals may be affected by unpredictable international monetary
policies and economic conditions, there may be greater likelihood of a more dramatic
fluctuation of the market prices of Gold & Special Minerals Fund's investments than of
other investments.

o Commodities Regulations. The trading of Metal Investments in the United States
could become subject to the rules that govern the trading of agricultural and certain other
commodities and commodity futures. In the opinion of Gold & Special Minerals Fund's
counsel, at present Gold & Special Minerals Fund's permitted Metal Investments are either
not subject to regulation by the CFTC or an exemption from regulation is available. The
absence of CFTC regulation may adversely affect the continued development of an orderly
market in Metal Investments trading in the United States. The development of a regulated
futures market in Metal Investments trading may affect the development of a market in, and
the price of, Metal Investments in the United States.

o Effect on Gold & Special Minerals Fund's Tax Status. By making Metal Investments,
Gold & Special Minerals Fund risks failing to qualify as a regulated investment company
under the Internal Revenue Code. If Gold & Special Minerals Fund should fail to qualify, it
would lose the beneficial tax treatment accorded to qualifying investment companies under
Subchapter M of the Code. Failure to qualify would occur if in any fiscal year Gold &
Special Minerals Fund either (a) derived 10% or more of its gross income (as defined in the
Internal Revenue Code, which disregards losses for this purpose) from sales or other
dispositions of Metal Investments and other non-qualifying income, or (b) held more than
50% of its net assets in the form of Metal Investments or in securities not meeting certain
tests under the Internal Revenue Code (see "Dividends, Capital Gains and Taxes").
Accordingly, Gold & Special Minerals Fund will endeavor to manage its portfolio within the
limitations described above, and Gold & Special Minerals Fund has adopted an investment
restriction limiting the amount of its total assets that can be invested in Metal
Investments. There can be no assurance that Gold & Special Minerals Fund will qualify in
every fiscal year. Furthermore, to comply with the limitations described above, Gold &
Special Minerals Fund may be required to make investment decisions the Manager would
otherwise not make, foregoing the opportunity to realize gains, if necessary, to permit
Gold & Special Minerals Fund to qualify. See "Investment Restrictions" in the Gold &
Special Minerals SAI.

Investment Restrictions

|X| What Are "Fundamental Policies?" Fundamental policies are those policies that the
Portfolios have adopted to govern its investments that can be changed only by the vote of a
"majority" of the Portfolios' 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 Portfolios' investment objectives are not fundamental policies and the investment
objectives of the Underlying Funds may be fundamental or non-fundamental, according to the
Prospectuses and Statements of Additional Information of these funds. Other policies
described in the Prospectus or this SAI are "fundamental" only if they are identified as
such. The Portfolios' Boards of Trustees and the Underlying Funds' Boards of
Trustees/Directors 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 SAI, as appropriate. The Portfolios' principal investment
policies are described in the Prospectus.

|X| Do the Portfolios Have Additional Fundamental Policies? The following investment
restrictions are fundamental policies of each Portfolio indicated below:
o A Portfolio cannot concentrate investments. That means a Portfolio cannot invest 25%
or more of its total assets in any single industry. However, there is no limitation
on investments in affiliated funds and obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
o A Portfolio cannot buy securities issued or guaranteed by any one issuer, other than
an Underlying Fund, if more than 5% of its total assets would be invested in
securities of that issuer or if it would then own more than 10% of that issuer's
voting securities. This limitation applies to 75% of a Portfolio's total assets. The
limit does not apply to securities issued by the U.S. government or any of its
agencies or instrumentalities;
o A Portfolio cannot purchase or sell real estate or commodities; however, a Portfolio
may use commodity contracts approved by its Board;
o A Portfolio cannot underwrite securities except to the extent a Portfolio may be
deemed to be an underwriter in connection with the sale of securities held in its
portfolio;
o A Portfolio cannot lend money, except that a Portfolio may (a) lend its portfolio
securities, (b) purchase debt securities which are permitted by a Portfolio's
investment policies and restrictions, (c) enter into repurchase agreements, and (d)
lend money to other affiliated funds provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 33 1/3% of the value of its total
assets (taken at market value at the time of such loans) subject to obtaining all
required authorizations and regulatory approvals;
o A Portfolio cannot borrow money in excess of one-third of the value of its total
assets. A Portfolio can borrow only if it maintains a 300% ratio of assets to
borrowings at all times in the manner set forth in the Investment Company Act;

o A Portfolio cannot issue "senior securities," but this does not prohibit certain
investment activities for which assets of a Portfolio are designated as segregated,
or margin, collateral or escrow arrangements are established, to cover the related
obligations. Examples of those activities include borrowing money, reverse repurchase
agreements, delayed-delivery and when-issued arrangements for portfolio securities
transactions, and contracts to buy or sell derivatives, hedging instruments, options
or futures.

|X| Do the Underlying Funds and the Funds in the tactical allocation component of the
Active Allocation Fund Have Additional Fundamental Policies? The following investment
restrictions are fundamental policies of the Underlying Funds and the Funds in the tactical
allocation component of the Active Allocation Fund indicated below.

Core Bond Fund

o Core Bond Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or
if it would then own more than 10% of that issuer's voting securities. That
restriction applies to 75% of the fund's total assets. The limit does not apply
to securities issued by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies.

o Core Bond Fund cannot concentrate its investments (that means it cannot invest 25% or
more of its total assets) in any one industry. Gas, water, electric and
telephone utilities are considered to be separate industries for this purpose.

o Core Bond Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an inter-fund lending program with other affiliated funds, and (d)
through repurchase agreements.

o Core Bond Fund cannot invest in real estate or real estate mortgage loans. However,
Bond Fund can purchase and sell securities issued or secured by companies that
invest in or deal in real estate or interests in real estate.

o Core Bond Fund cannot underwrite securities. 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 Core Bond Fund cannot borrow money in excess of 33 1/3% of the value of its total
assets. This fund may borrow only from banks and/or affiliated investment
companies. With respect to this fundamental policy, this fund can borrow only
if it maintains a 300% ratio of assets to borrowings at all times in the manner
set forth in the Investment Company Act.

o Core Bond Fund cannot issue "senior securities," but this does not prohibit certain
investment activities for which assets of this fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or
sell derivatives, hedging instruments, options or futures.

Capital Appreciation Fund

o Capital Appreciation 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 Capital Appreciation 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 this fund, as such statute, rules or regulations
may be amended or interpreted from time to time.

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

o Capital Appreciation 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 Capital Appreciation Fund cannot invest in real estate, physical 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 Capital Appreciation 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 Capital Appreciation 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.

Champion Income Fund

o Champion Income Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in securities of that issuer or if
it would then own more than 10% of that issuer's voting securities. That restriction
applies to 75% of Champion Income Fund's total assets. The limit does not apply to
securities issued by the U.S. government or any of its agencies or instrumentalities
or securities of other investment companies.

o Champion Income 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. Under this policy, utilities are
divided into "industries" according to the services they provide (for example, gas,
gas transmission, electric and telephone utilities will be considered to be in
separate industries).

o Champion Income Fund cannot borrow money in excess of 33 1/3% of the value of its
total assets. Champion Income Fund may borrow only from banks and/or affiliated
investment companies and only as a temporary measure for extraordinary or emergency
purposes. Champion Income Fund cannot make any investment at a time during which its
borrowings exceed 5% of the value of its assets. With respect to this fundamental
policy, Champion Income Fund can borrow only if it maintains a 300% ratio of assets
to borrowings at all times in the manner set forth in the Investment Company Act.

o Champion Income Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness, (c)
through an inter-fund lending program with other affiliated funds, provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed 33
1/3% of the value of its total assets (taken at market value at the time of such
loans), and (d) through repurchase agreements.

o Champion Income Fund cannot invest in real estate. However, Champion Income Fund can
purchase debt securities secured by real estate or interests in real estate, or
issued by companies, including real estate investment trusts, that invest in real
estate or interests in real estate.

o Champion Income Fund cannot invest in commodities or commodity contracts. However,
Champion Income Fund may buy and sell any of the hedging instruments permitted by its
other investment policies, whether or not the hedging instrument is considered a
commodity or commodity contract, subject to the restrictions and limitations on such
investments specified in the Prospectus and this Statement of Additional Information.

o Champion Income Fund cannot underwrite the securities of other issuers. A permitted
exception is in case it is determined to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.

o Champion Income Fund cannot issue "senior securities, but this does not prohibit
certain investment activities for which assets of Champion Income Fund are designated
as segregated, or margin, collateral or escrow arrangements are established, to cover
the related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives, hedging
instruments, options or futures.

Developing Markets Fund

o Developing Markets 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 Developing Markets 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 Developing Markets 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 Developing Markets Fund cannot invest in real estate, physical 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 Developing Markets 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.

o Developing Markets 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 Developing Markets Fund may not borrow money, 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.

Discovery Fund

o Discovery 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 Discovery 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 Discovery Fund cannot invest 25% or more of its total assets in companies in any one
industry. That limit does not apply to securities issued by the U.S. government or
its agencies and instrumentalities or securities issued by investment companies.

o Discovery 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 Discovery Fund cannot invest in real estate, physical 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 Discovery 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.

Global Fund

o Global 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 Global 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 Global 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 Global Fund cannot invest in real estate, physical 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 Global 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 Global Fund cannot invest in or hold securities of any issuer if officers and
Trustees of this fund or its manager individually beneficially own more than 1/2
of 1% of the securities of that issuer and together own more than 5% of the
securities of that issuer.

o Global 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.

o Global Fund may not borrow money, 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.

Global Opportunities Fund

o Global Opportunities 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 Global Opportunities 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 Global Opportunities Fund, as such statute, rules
or regulations may be amended or interpreted from time to time.

o Global Opportunities 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 Global Opportunities 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 exception there from, as such
statute, rules or regulations may be amended or interpreted from time to time.

o Global Opportunities 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 Global Opportunities 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.

Gold & Special Minerals Fund

o Gold & Special Minerals Fund cannot invest in Metal Investments if, as a result, more
than 10% of Gold & Special Minerals Fund's total assets would be invested in Metal
Investments.

o With the exception of its investments in Mining Securities and Metal Investments,
Gold & Special Minerals 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 Gold & Special Minerals Fund is "non-diversified" under the Investment Company Act.

o Gold & Special Minerals 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 Gold & Special Minerals Fund, as such
statute, rules or regulations may be amended or interpreted from time to time.

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

o Gold & Special Minerals Fund cannot invest in real estate, physical commodities or
commodity contracts (other than the hedging instruments or Metal Investments
permitted by any of its other investment policies) 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. It does not matter whether the hedging instrument
or Metal Investment is considered to be a commodity or commodity contract.

o Gold & Special Minerals 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.

o Gold & Special Minerals 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 As a non-fundamental investment policy, Gold & Special Minerals Fund cannot invest in
the securities of other 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.

Non-Diversification of Gold & Special Minerals Fund's Investments. Gold & Special Minerals
Fund is "non-diversified," as defined in the Investment Company Act. Funds that are
diversified have restrictions against investing too much of their assets in the securities
of any one "issuer." That means that Gold & Special Minerals Fund can invest more of its
assets in the securities of a single issuer than a fund that is diversified.

Being non-diversified poses additional investment risks, because if Gold & Special
Minerals Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of those issuers.
However, Gold & Special Minerals Fund does limit its investments in the securities of any
one issuer to qualify for tax purposes as a "regulated investment company" under the
Internal Revenue Code. By qualifying, it does not have to pay federal income taxes on
amounts distributed if more than 90% of its earnings are distributed to shareholders. To
qualify, Gold & Special Minerals Fund must meet a number of conditions. First, not more
than 25% of the market value of Gold & Special Minerals Fund's total assets may be invested
in the securities of a single issuer. Second, with respect to 50% of the market value of
its total assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own more than 10%
of the outstanding voting securities of a single issuer.

Growth Fund

o Growth 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 Growth 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 Growth Fund may not borrow money, except as permitted by 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 Growth 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 Growth 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 exception there from, as such statute,
rules or regulations may be amended or interpreted from time to time.

o Growth 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 Growth 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.

High Yield Fund

o High Yield Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or
if it would then own more than 10% of that issuer's voting securities. That
restriction applies to 75% of High Yield Fund's total assets. The limit does
not apply to securities issued by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies.

o High Yield 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. Under this policy, utilities
are divided into "industries" according to the services they provide (for
example, gas, gas transmission, electric and telephone utilities will be
considered to be in separate industries).

o High Yield Fund cannot borrow money in excess of 33-1/3% of the value of its total
assets. High Yield Fund may only borrow from banks and/or affiliated investment
companies. High Yield Fund cannot make any investment at a time during which
its borrowings exceed 5% of the value of its assets. With respect to this
fundamental policy, High Yield Fund can borrow only if it maintains a 300%
ratio of assets to borrowings at all times in the manner set forth in the
Investment Company Act.

o High Yield Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an inter-fund lending program with other affiliated funds, and (d)
through repurchase agreements.

o High Yield Fund cannot invest in real estate. However, High Yield Fund can purchase
debt securities secured by real estate or interests in real estate, or issued
by companies, including real estate investment trusts, that invest in real
estate or interests in real estate.

o High Yield Fund cannot invest in commodities or commodity contracts. However, High
Yield Fund may buy and sell any of the hedging instruments permitted by its
other investment policies, whether or not the hedging instrument is considered
a commodity or commodity contract.

o High Yield Fund cannot underwrite securities issued by other persons. 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 High Yield Fund cannot issue "senior securities", but this does not prohibit certain
investment activities for which assets of High Yield Fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, delayed-delivery and when-issued arrangements for portfolio securities
transactions, and contracts to buy or sell derivatives, hedging instruments,
options or futures.

International Bond Fund

o International Bond Fund cannot make loans except (a) through lending of securities,
(b) through the purchase of debt instruments or similar evidences of
indebtedness, (c) through an inter-fund lending program with other affiliated
funds, and (d) through repurchase agreements.

o International Bond Fund cannot buy or sell real estate. However, International Bond
Fund can purchase debt securities secured by real estate or interests in real
estate or issued by companies, including real estate investment trusts, which
invest in real estate or interests in real estate.

o International Bond 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 International Bond Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of International Bond Fund are
designated as segregated, or margin, collateral or escrow arrangements are
established, to cover the related obligations. Examples of those activities
include borrowing money, reverse repurchase agreements, delayed-delivery and
when-issued arrangements for portfolio securities transactions, and contracts
to buy or sell derivatives, hedging instruments, options or futures.

o International Bond Fund cannot borrow money in excess of 33 1/3% of the value of its
total assets. International Bond Fund may borrow only from banks and/or
affiliated investment companies. International Bond Fund cannot make any
investment at a time during which its borrowings exceed 5% of the value of its
assets. With respect to this fundamental policy, International Bond Fund can
borrow only if it maintains a 300% ratio of assets to borrowings at all times
in the manner set forth in the Investment Company Act.

o International Bond Fund cannot concentrate investments. That means it cannot invest
25% or more of its total assets in any one industry. International Bond Fund
will not invest 25% or more of its total assets in government securities of any
one foreign company or in debt and equity securities issued by companies
organized under the laws of any one foreign country. Obligations of the U.S.
government, its agencies and instrumentalities are not considered to be part of
an "industry" for the purposes of this policy.

Non-Diversification of International Bond Fund's Investments. International Bond Fund is
"non-diversified," as defined in the Investment Company Act. Funds that are diversified
have restrictions against investing too much of their assets in the securities of any one
"issuer." That means that this fund can invest more of its assets in the securities of a
single issuer than a fund that is diversified.

Being non-diversified poses additional investment risks, because if International
Bond Fund invests more of its assets in fewer issuers, the value of its shares is subject
to greater fluctuations from adverse conditions affecting any one of those issuers.
However, International Bond Fund does limit its investments in the securities of any one
issuer to qualify for tax purposes as a "regulated investment company" under the Internal
Revenue Code. By qualifying, it does not have to pay federal income taxes on amounts
distributed if more than 90% of its earnings are distributed to shareholders. To qualify,
International Bond Fund must meet a number of conditions. First, not more than 25% of the
market value of International Bond Fund's total assets may be invested in the securities of
a single issuer. Second, with respect to 50% of the market value of its total assets, (1)
no more than 5% of the market value of its total assets may be invested in the securities
of a single issuer, and (2) International Bond Fund must not own more than 10% of the
outstanding voting securities of a single issuer. This is not a fundamental policy.

International Growth Fund

o International Growth 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 International Growth 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 Global Opportunities Fund, as such statute,
rules or regulations may be amended or interpreted from time to time.

o International Growth 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 International Growth 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 exception there from,
as such statute, rules or regulations may be amended or interpreted from time
to time.

o International Growth 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.

o International Growth 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 International Growth Fund may not borrow money, except as permitted by 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.

International Small Company Fund

o International Small Company 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 International Small Company 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 Global Opportunities Fund, as such
statute, rules or regulations may be amended or interpreted from time to time.

o International Small Company 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 International Small Company 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 exception there from,
as such statute, rules or regulations may be amended or interpreted from time
to time.

o International Small Company 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.

o International Small Company 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 International Small Company Fund may not borrow money, except as permitted by 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.

Limited-Term Government Fund

o Limited-Term Government 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 Limited-Term Government Fund's total assets. The limit does not apply to
securities issued by the U.S. government or any of its agencies or
instrumentalities, or securities of other investment companies.

o Limited-Term Government 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.

o Limited-Term Government Fund cannot deviate from any of its other investment policies
that are described as fundamental policies in its Prospectus or SAI.

o Limited-Term Government Fund cannot make loans except (a) through lending of
securities, (b) through the purchase of debt instruments or similar evidences of
indebtedness, (c) through an inter-fund lending program with other affiliated
funds, and (d) through repurchase agreements.

o Limited-Term Government Fund cannot borrow money in excess of 33 1/3% of the value of
its total assets. Limited-Term Government Fund may borrow only from banks and/or
affiliated investment companies. With respect to this fundamental policy,
Limited-Term Government Fund can borrow only if it maintains a 300% ratio of
assets to borrowings at all times in the manner set forth in the Investment
Company Act.

o Limited-Term Government Fund cannot purchase or sell real estate, commodities or
commodity contracts. However, Limited-Term Government Fund may use hedging
instruments approved by its Board of Trustees whether or not those hedging
instruments are considered commodities or commodity contracts.

o Limited-Term Government Fund cannot underwrite securities. 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 Limited-Term Government Fund cannot issue "senior securities," but this does not
prohibit certain investment activities for which assets of Limited-Term
Government Fund are designated as segregated, or margin, collateral or escrow
arrangements are established, to cover the related obligations. Examples of
those activities include borrowing money, reverse repurchase agreements,
delayed-delivery and when-issued arrangements for portfolio securities
transactions, contracts to buy or sell derivatives, hedging instruments,
options, or futures.

Main Street Fund

o Main Street Fund cannot concentrate investments. That means it cannot invest 25% or
more of its total assets in any industry. However, there is no limitation on
investments in U.S. government securities.

o Main Street Fund cannot invest in commodities. However, Main Street Fund can buy and
sell any of the hedging instruments permitted by any of its other policies. It
does not matter if the hedging instrument is considered to be a commodity or
commodity contract.

o Main Street Fund cannot invest in real estate or in interests in real estate.
However, Main Street Fund can purchase securities of issuers holding real estate
or interests in real estate (including securities of real estate investment
trusts).

o Main Street 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 Main Street Fund cannot issue "senior securities," but this does not prohibit certain
investment activities for which assets of Main Street Fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.

o Main Street Fund cannot borrow money in excess of 33 1/3% of the value of its total
assets (including the amount borrowed). Main Street Fund may borrow only from
banks and/or affiliated investment companies. With respect to this fundamental
policy, Main Street Fund can borrow only if it maintains a 300% ratio of assets
to borrowings at all times in the manner set forth in the Investment Company Act.

o Main Street Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an interfund lending program (if applicable) with other affiliated
funds, and (d) through repurchase agreements.

o Main Street Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or it
would then own more than 10% of that issuer's voting securities. This limit
applies to 75% of Main Street Fund's total assets. The limit does not apply to
securities issued by the U.S. Government or any of its agencies or
instrumentalities, or securities of other investment companies.

Main Street Opportunity Fund

o Main Street Opportunity Fund cannot buy securities issued or guaranteed by any one
issuer if more than 5% of its total assets would be invested in securities of
that issuer or if it would then own more than 10% of that issuer's voting
securities. This limitation applies to 75% of Main Street Opportunity Fund's
total assets. The limit does not apply to securities issued by the U.S.
government or any of its agencies or instrumentalities or securities of other
investment companies.

o Main Street Opportunity Fund cannot make loans except (a) through lending of
securities, (b) through the purchase of debt instruments or similar evidences
of indebtedness, (c) through an interfund lending program (if applicable) with
other affiliated funds, provided that no such loan may be made if, as a result,
the aggregate of such loans would exceed 33 1/3% of the value of its total
assets (taken at market value at the time of such loans), and (d) through
repurchase agreements.

o Main Street Opportunity Fund cannot borrow money in excess of 33 1/3% of the value of
its total assets. Main Street Opportunity Fund may borrow only from banks
and/or affiliated investment companies. With respect to this fundamental
policy, Main Street Opportunity Fund can borrow only if it maintains a 300%
ratio of assets to borrowings at all times in the manner set forth in the
Investment Company Act.

o Main Street Opportunity Fund cannot concentrate investments. That means it cannot
invest 25% or more of its total assets in any industry. However, there is no
limitation on investments in U.S. government securities.

o Main Street Opportunity Fund cannot invest in physical commodities or physical
commodity contracts or buy securities for speculative short-term purposes.
However, Main Street Opportunity Fund can buy and sell any of the hedging
instruments permitted by any of its other policies. It can also buy and sell
options, futures, securities or other instruments backed by physical
commodities or whose investment return is linked to changes in the price of
physical commodities.

o Main Street Opportunity Fund cannot invest in real estate or in interests in real
estate. However, Main Street Opportunity Fund can purchase securities of
issuers holding real estate or interests in real estate (including securities
of real estate investment trusts).

o Main Street Opportunity 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 Main Street Opportunity Fund cannot issue "senior securities," but this does not
prohibit certain investment activities for which assets of Main Street
Opportunity Fund are designated as segregated, or margin, collateral or escrow
arrangements are established, to cover the related obligations. Examples of
those activities include borrowing money, reverse repurchase agreements,
delayed-delivery and when-issued arrangements for portfolio securities
transactions, and contracts to buy or sell derivatives, hedging instruments,
options or futures.

Main Street Small Cap Fund

o Main Street Small Cap Fund cannot buy securities issued or guaranteed by any one
issuer if more than 5% of its total assets would be invested in securities of
that issuer or if it would then own more than 10% of that issuer's voting
securities. That restriction applies to 75% of Main Street Small Cap Fund's
total assets. The limit does not apply to securities issued by the U.S.
government or any of its agencies or instrumentalities or securities of other
investment companies.

o Main Street Small Cap Fund cannot make loans except (a) through lending of
securities, (b) through the purchase of debt securities or similar evidences of
indebtedness, (c) through an interfund-lending program with other affiliated
funds, and (d) through repurchase agreements.

o Main Street Small Cap Fund cannot borrow money in excess of 33 1/3% of the value of
its total assets. Main Street Small Cap Fund may borrow only from banks and/or
affiliated investment companies. With respect to this fundamental policy, Main
Street Small Cap Fund can borrow only if it maintains a 300% ratio of assets to
borrowing at all times in the manner set forth in the Investment Company Act.

o Main Street Small Cap Fund cannot concentrate investments. That means it cannot
invest 25% or more of its total assets in companies in any one industry.
Obligations of the U.S. government, its agencies and instrumentalities are not
considered to be part of an "industry" for the purposes of this restriction.

o Main Street Small Cap Fund cannot invest in real estate or in interests in real
estate. However, Main Street Small Cap Fund can purchase securities of
companies holding real estate or interests in real estate.

o Main Street Small Cap Fund cannot invest in physical commodities or physical
commodity contracts or buy securities for speculative short-term purposes.
However, Main Street Small Cap Fund can buy and sell any of the hedging
instruments permitted by any of its other policies. It can also buy and sell
options, futures, securities or other instruments backed by physical
commodities or whose investment return is linked to changes in the price of
physical commodities.

o Main Street Small Cap 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 Main Street Small Cap Fund cannot issue "senior securities," but this does not
prohibit certain investment activities for which assets of Main Street Small
Cap Fund are designated as segregated, or margin, collateral or escrow
arrangements are established, to cover the related obligations. Examples of
those activities include borrowing money, reverse repurchase agreements,
delayed-delivery and when-issued arrangements for portfolio securities
transactions, and contracts to buy or sell derivatives, hedging instruments,
options or futures.

MidCap Fund

o MidCap 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 MidCap 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 exception there from, as such statute,
rules or regulations may be amended or interpreted from time to time.

o MidCap 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 Global Opportunities Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o MidCap 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 or securities issued by
investment companies.

o MidCap Fund may not underwrite securities issued by others, except to the extent that
a Fund may be considered an underwriter within the meaning of the Securities
Act of 1933, as amended, when reselling securities held in its own portfolio.

o MidCap 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.

Money Market Fund

o Money Market Fund cannot invest more than 5% of its total assets in securities of any
issuer (except the U.S. government or its agencies or instrumentalities).

o Money Market Fund cannot invest 25% or more of its total assets in any one industry.
Except for obligations issued or guaranteed by the U.S. government securities
and bank obligations described in the prospectus are not included in this
limitation.

o Money Market 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 Money Market Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Money Market 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 Money Market Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Money Market 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 exception there from, as such statute,
rules or regulations may be amended or interpreted from time to time.

o Money Market Fund may not underwrite securities issued by others, except to the
extent that a Fund may be considered an underwriter within the meaning of the
Securities Act of 1933, as amended, when reselling securities held in its own
portfolio.

o Money Market 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.

Quest International Value Fund

o Quest International Value 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 its 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 Quest International Value Fund cannot lend money. However the Fund can invest in all
or a portion of an issue of bonds, debentures, commercial paper or other
similar corporate obligations. Quest International Value Fund may also engage
in repurchase agreements and may make loans of portfolio securities, subject to
the restrictions stated under "Loans of Portfolio Securities."

o Quest International Value Fund cannot invest 25% or more of its total assets in any
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 Quest International Value 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 exception there from,
as such statute, rules or regulations may be amended or interpreted from time
to time.

o Quest International Value Fund cannot invest in companies for the purpose of
acquiring control or management of those companies.

o Quest International Value Fund may not underwrite securities issued by others, except
to the extent that a Fund may be considered an underwriter within the meaning
of the Securities Act of 1933, as amended, when reselling securities held in
its own portfolio.

o Quest International Value Fund cannot invest or hold securities of any issuer if
officers and directors of Quest International Value Fund or its Manager or
Sub-Advisor individually beneficially own more than 1/2 of 1% of the securities
of that issuer and together own more than 5% of the securities of that issuer.

o Quest International Value Fund cannot 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 Money Market Fund, as such statute,
rules or regulations may be amended or interpreted from time to time.

o Quest International Value Fund cannot pledge its assets or assign or otherwise
encumber its assets in excess of one-third of its net assets. It can do so only
to secure borrowings made within the limitations set forth in the Prospectus or
its SAI.

o Quest International Value 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.

Real Asset Fund

o Real Asset Fund will not purchase the securities, hybrid instruments and other
instruments of any issuer if, as a result, 25% or more of Real Asset Fund's
total assets would be invested in the securities of companies whose principal
business activities are in the same industry. This restriction does not apply
to securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities, or repurchase agreements secured by them.
However, Real Asset Fund will invest 25% or more of its total assets in
securities, hybrid instruments and other instruments, including futures and
forward contracts, related options and swaps, linked to the energy and natural
resources, agriculture, livestock, industrial metals, and precious metals
industries. The individual components of an index will be considered as
separate industries for this purpose.

o Real Asset Fund will not issue any senior security. However, Real Asset Fund may
enter into commitments to purchase securities in accordance with Real Asset
Fund's investment program, including reverse repurchase agreements,
delayed-delivery and when-issued securities, which may be considered the
issuance of senior securities. Additionally, Real Asset Fund may engage in
transactions that may result in the issuance of a senior security to the extent
permitted under the Investment Company Act and applicable regulations,
interpretations of the Investment Company Act or an exemptive order. Real Asset
Fund may also engage in short sales of securities to the extent permitted in
its investment program and other restrictions. The purchase or sale of hybrid
instruments, futures contracts and related options shall not be considered to
involve the issuance of senior securities. Moreover, Real Asset Fund may borrow
money as authorized by the Investment Company Act.

o Real Asset Fund will not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments. This restriction shall
not prevent Real Asset Fund from purchasing or selling hybrid instruments,
options and futures contracts with respect to individual commodities or
indices, or from investing in securities or other instruments backed by
physical commodities or indices.

o Real Asset Fund will not purchase or sell real estate unless acquired as a result of
direct ownership of securities or other instruments. This restriction shall not
prevent Real Asset Fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real estate
business, including real estate investment trusts. This restriction does not
preclude Real Asset Fund from buying securities backed by mortgages on real
estate or securities of companies engaged in such activities. Real Asset Fund
can also invest in real estate operating companies and shares of companies
engaged in other real estate related businesses.

o Real Asset Fund cannot underwrite securities issued by other persons. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling securities held in its own portfolio.

o Real Asset Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an interfund lending program (if applicable) with other affiliated
funds, provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of its total assets (taken at
market value at the time of such loans), and (d) through repurchase
agreements.(1)

o Real Asset Fund cannot borrow money in excess of 33 1/3% of the value of its total
assets. Real Asset Fund may borrow only from banks and/or affiliated investment
companies. With respect to this fundamental policy, Real Asset Fund can borrow
only if it maintains a 300% ratio of assets to borrowings at all times in the
manner set forth in the Investment Company Act.(2)

Real Estate Fund

o Real Estate Fund cannot buy securities issued or guaranteed by any one issuer if more
than 5% of its total assets would be invested in securities of that issuer or if
it would then own more than 10% of that issuer's voting securities. That
restriction applies to 50% of Real Estate Fund's total assets. The limit does not
apply to securities issued by the U.S. government or any of its agencies or
instrumentalities or securities of other investment companies.

o Real Estate 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 Real Estate Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Real Estate Fund may not borrow money, except to the extent permitted under the
Investment Company Act,

o Real Estate Fund cannot concentrate its investments to the extent of 25% of its total
assets in any industry. However, there is no limitation as to Real Estate Fund's
investments in the real estate industry in general.

o Real Estate Fund cannot underwrite securities of other companies except as permitted
by the Act. 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 Real Estate Fund cannot invest in real estate, physical commodities or commodity
contracts, except to the extent permitted under the Investment Company Act, the
rules regulations thereunder or any exemption therefrom, as such, rules or
regulations may be amended or interpreted from time to time.

o Real Estate 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.

Small- & Mid- Cap Value Fund

o Small- & Mid- Cap Value Fund cannot invest more than 5% of the value of its total
assets in the securities of any one issuer. This restriction applies to 75% of
its total assets.

o Small- & Mid- Cap Value Fund cannot purchase more than 10% of the voting securities
of any one issuer. All outstanding debt securities and all preferred stock of an
issuer are considered as one class. This restriction does not apply to securities
issued by the U.S. government or any of its agencies or instrumentalities.

o Small- & Mid- Cap Value Fund cannot concentrate its investments. That means it
cannot invest 25% or more of its total assets in any industry. If deemed
appropriate for attaining its investment objective, Small- & Mid- Cap Value Fund
may invest less than but up to 25% of its total assets in any one industry
classification used by Small- & Mid- Cap Value Fund for investment purposes. For
this purpose, a foreign government is considered an industry.

o Small- & Mid- Cap Value Fund cannot borrow money in excess of 33 1/3% of the value of
Small- & Mid- Cap Value Fund's total assets. Small- & Mid- Cap Value Fund may
borrow only from banks and only as a temporary measure for extraordinary or
emergency purposes. Small- & Mid- Cap Value Fund will make no additional
investments while borrowings exceed 5% of the Fund's total assets. Small- & Mid-
Cap Value Fund can borrow only if it maintains a 300% ratio of assets to
borrowings at all times in the manner set forth in the Investment Company Act.

o Small- & Mid- Cap Value Fund cannot invest in physical commodities or physical
commodity contracts. However, Small- & Mid- Cap Value Fund may buy and sell
hedging instruments to the extent specified in its Prospectus or SAI from time to
time. Small- & Mid- Cap Value Fund can also buy and sell options, futures,
securities or other instruments backed by, or the investment return from which is
linked to, changes in the price of physical commodities.

o Small- & Mid- Cap Value Fund cannot invest in real estate or real estate limited
partnerships (direct participation programs). However, Small- & Mid- Cap Value
Fund may purchase securities of issuers that engage in real estate operations and
securities which are secured by real estate or interests in real estate.

o Small- & Mid- Cap Value 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 Small- & Mid- Cap Value Fund cannot invest in securities of any issuer if, to the
knowledge of the Trust, officers, directors or trustees of the Trust, or the
Manager who owns more than 1/2 of 1% of the outstanding securities of such issuer
together own more than 5% of the outstanding securities of such issuer.

o Small- & Mid- Cap Value Fund cannot pledge its assets or assign or otherwise encumber
its assets in excess of 10% of its net assets. It can pledge, assign or encumber
its assets only to secure borrowings effected within the limitations set forth in
its Prospectus.

o Small- & Mid- Cap Value Fund cannot invest for the purpose of exercising control or
management of another company.

o Small- & Mid- Cap Value Fund cannot issue senior securities (as defined in the
Investment Company Act). However, the Fund can enter into any repurchase
agreement, borrow money in accordance with restrictions described above and lend
its portfolio securities.

o Small- & Mid- Cap Value Fund cannot make loans to any person or individual. However,
portfolio securities may be loaned by Small- & Mid- Cap Value Fund within the
limits set forth in the Prospectus.

Strategic Income Fund

o Strategic Income Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in securities of that issuer
or it would then own more than 10% of that issuer's voting securities. This
limit applies to 75% of Strategic Income Fund's total assets. The limit does
not apply to securities issued by the U.S. government or any of its agencies or
instrumentalities, or securities of other investment companies.

o Strategic Income 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. Each foreign government
is treated as an "industry" and utilities are divided according to the services
they provide.

o Strategic Income Fund cannot borrow money in excess of 331/3% of the value of its
total assets (including the amount borrowed). Strategic Income Fund may borrow
only from banks and/or affiliated investment companies. With respect to this
fundamental policy, Strategic Income Fund can borrow only if it maintains a
300% ratio of assets to borrowings at all times in the manner set forth in the
Investment Company Act.

o Strategic Income Fund cannot make loans except (a) through lending of securities, (b)
through the purchase of debt instruments or similar evidences of indebtedness,
(c) through an inter-fund lending program with other affiliated funds, provided
that no such loan may be made if, as a result, the aggregate of such loans
would exceed 33 1/3% of the value of its total assets (taken at market value at
the time of such loans), and (d) through repurchase agreements.

o Strategic Income Fund cannot invest in real estate, physical commodities or commodity
contracts. However, Strategic Income Fund may: (1) invest in debt securities
secured by real estate or interests in real estate, or issued by companies,
including real estate investment trusts, that invest in real estate or
interests in real estate; (2) invest in hedging instruments permitted by any of
its other investment policies; and (3) buy and sell options, futures,
securities or other instruments backed by, or the investment return from which
is linked to changes in the price of, physical commodities or currencies.

o Strategic Income 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 Strategic Income Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of Strategic Income Fund are
designated as segregated, or margin, collateral or escrow arrangements are
established, to cover the related obligations. Examples of those activities
include borrowing money, reverse repurchase agreements, delayed-delivery and
when-issued arrangements for portfolio securities transactions, and contracts
to buy or sell derivatives, hedging instruments, options or futures.

U.S. Government Trust

o U.S. Government Trust 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 U.S. Government Trust 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 or instrumentalities or securities issued by investment
companies.

o U.S. Government Trust 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 U.S. Government Trust, as such statute, rules or
regulations may be amended or interpreted from time to time.(3)

o U.S. Government Trust 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 U.S. Government Trust, as such statute, rules or
regulations may be amended or interpreted from time to time.(4)

o U.S. Government Trust 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 U.S. Government Trust cannot underwrite securities issued by others, except to the
extent that U.S. Government Trust may be considered an underwriter within the
meaning of the Securities Act of 1933, as amended, when reselling securities held
in its own portfolio.

o U.S. Government Trust 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.

Value Fund

o Value 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 statue, rules or regulations may be amended or interpreted
from time to time..

o Value 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 Value 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 Value 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 Value 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, rule or
regulations may be amended or interpreted from time to time.

o Value Fund cannot underwrite securities of other issuers. A permitted exception is in
case it is deemed to be an underwriter under the Securities Act of 1933 in
reselling its portfolio securities.

o Value 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 Value Fund, as such statute, rules or regulations may be
amended or interpreted from time to time.

o Value 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 Value Fund, as such statute, rules or regulations may be
amended or interpreted from time to time. (5)

Do the Underlying Funds Have Any Restrictions That Are Not Fundamental? Some of the
Underlying Funds have additional operating policies which are stated below, that are not
"fundamental," and which can be changed by an Underlying Fund's Board of Trustees or
Directors without shareholder approval.

Core Bond Fund

o Core Bond 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.

Capital Appreciation Fund

o Capital Appreciation Fund cannot invest in securities of other investment companies,
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.

Champion Income Fund

o Champion Income 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.

Developing Markets Fund

o Developing Markets Fund cannot invest in companies for the purpose of acquiring
control or management of them.

o Developing Markets Fund cannot purchase securities on margin. However, Developing
Markets Fund may make margin deposits in connection with any of the hedging
instruments permitted by any of its other investment policies.

o Developing Markets Fund cannot invest in or hold securities of any issuer if officers
and Trustees of Developing Markets Fund or its manager individually
beneficially own more than 1/2 of 1% of the securities of that issuer and
together own more than 5% of the securities of that issuer.

o Developing Markets Fund cannot mortgage or pledge any of its assets. However, this
does not prohibit the escrow arrangements contemplated by the writing of
covered call options or other collateral or margin arrangements in connection
with any of the hedging instruments permitted by any of its other investment
policies.

o Developing Markets Fund permits it to invest all of its assets in the securities of a
single open-end management investment company for which its manager, one of its
subsidiaries or a successor is the investment advisor or sub-advisor. That fund
must have substantially the same fundamental investment objective, policies and
limitations as Developing Markets Fund. This policy would permit Developing
Markets Fund to adopt a "master-feeder" structure. Under that structure,
Developing Markets Fund would be a "feeder" fund and would invest all of its
assets in a single pooled "master fund" in which other feeder funds could also
invest. This could enable Developing Markets Fund to take advantage of
potential operational and cost efficiencies in the master-feeder structure.
Developing Markets Fund has no present intention of adopting the master-feeder
structure. If it did so, its prospectus and SAI would be revised accordingly.
In addition, Developing Markets Fund may invest in funds selected by a Trustee
of this fund under its Deferred Compensation Plan for Disinterested Trustees.

Discovery Fund

o Discovery Fund cannot invest in physical commodities or commodity contracts; however,
the Fund may: (1) buy and sell hedging instruments permitted by any of its
other investment policies, and (2) buy and sell options, futures, securities or
other instruments backed by, or the investment return from which is linked to
changes in the price of, physical commodities.

Global Fund

o Global Fund cannot sell securities short except in "short sales "against-the-box."
However, Global Fund does not engage in this type of transaction at all because
of changes in applicable tax laws.

o Growth Fund cannot invest in securities of other open-end investment companies,
except in connection with a merger, consolidation, reorganization or
acquisition of assets, or invest more than 5% of its net assets in closed-end
investment companies, including small business investment companies. Such
investments may not be made at commission rates in excess of normal brokerage
commissions.

Global Opportunities Fund

o Global Opportunities Fund cannot sell securities short except in "short sales
"against-the-box." However, Global Opportunities Fund does not engage in this
type of transaction at all because of changes in applicable tax laws.

o Global Opportunities Fund cannot invest in securities of other investment companies,
except to the extent permitted under the Investment Company Act, the rules or
regulations thereunder or any exemption thereform, as such statute, rules or
regulations may be amended or interpreted from time to time.

International Growth Fund

o As a non-fundamental policy, International Growth Fund cannot sell securities short
except in collateralized transactions. In those cases International Growth Fund
must own an equivalent amount of the securities sold short. Not more than 15%
of International Growth Fund's net assets may be held as collateral for short
sales at any time. International Growth Fund does not expect to engage in this
type of transaction as part of its normal portfolio management techniques.

o International Growth Fund cannot invest in other open-end investment companies. It
cannot invest more than 5% of its net assets in closed-end investment
companies, including small business development companies. Any brokerage
commissions it pays in investing in closed-end investment companies must not
exceed normal commission rates.

International Small Company Fund

o International Small Company Fund cannot invest in companies for the purpose of
acquiring control or management of them.

o International Small Company Fund cannot purchase securities on margin. However,
International Small Company Fund may make margin deposits in connection with any
of the hedging instruments permitted by any of its other investment policies.

o International Small Company Fund cannot invest in or hold securities of any issuer if
officers and Trustees of International Small Company Fund or the Manager
individually beneficially own more than 1/2 of 1% of the securities of that issuer
and together own more than 5% of the securities of that issuer.

o International Small Company Fund cannot pledge any of its assets. However, this does
not prohibit the escrow arrangements contemplated by the writing of covered call
options or other collateral or margin arrangements in connection with any of the
hedging instruments permitted by any of its other investment policies.

Limited-Term Government Fund

o Limited-Term Government Fund cannot invest in 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.

o As a non-fundamental policy, Limited-Term Government Fund can invest at least 80% of
its net assets in obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities, repurchase agreements on those securities, and
hedging instruments approved by its Board of Trustees. This non-fundamental policy
will not be changed by Limited-Term Government Fund's Board of Trustees without
first providing shareholders 60 days written notice.

Main Street Small Cap Fund

o As a non-fundamental investment policy, Main Street Small Cap Fund can invest all of
its assets in the securities of a single open-end management investment company
for which its manager, one of its subsidiaries or a successor is the investment
advisor or sub-advisor. That fund must have substantially the same fundamental
investment objective, policies and limitations as Main Street Small Cap Fund. This
non-fundamental policy that permits Main Street Small Cap Fund to invest its
assets in an open-end management investment company would permit the fund to adopt
a "fund-of-funds" or "master-feeder" structure. This could enable Main Street
Small Cap Fund to take advantage of potential operational and cost efficiencies in
either a fund-of-funds or master-feeder structure. Main Street Small Cap Fund has
no present intention of adopting a fund-of-funds or master-feeder structure. If it
did so, its prospectus and SAI would be revised accordingly.

MidCap Fund

o MidCap Fund cannot invest in companies for the purpose of acquiring control or
management of them.

o MidCap Fund cannot invest in or hold securities of any issuer if officers and
Trustees or directors of MidCap Fund or the Manager individually or beneficially
own more than1/2of 1% of the securities of that issuer and together own more than
5% of the securities of that issuer.

o MidCap Fund cannot purchase securities on margin. However, MidCap Fund can make
margin deposits in connection with any of the hedging instruments permitted by any
of its other investment policies.

o MidCap Fund cannot pledge, mortgage or hypothecate any of its assets. However, this
does not prohibit the escrow arrangements contemplated by writing covered call
options or other collateral or margin arrangements in connection with any of the
hedging instruments permitted by any of its other investment policies.

Money Market Fund, Inc.
o Money Market Fund cannot invest in securities of other investment companies.

Quest Capital Value Fund, Inc.

o Quest Capital Value 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 Quest Capital
Value 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 Quest Capital Value 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 Quest Capital Value Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Quest Capital Value 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 Quest Capital Value 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 Quest Capital Value Fund may not underwrite securities issued by others, except to
the extent that a Fund may be considered an underwriter within the meaning of the
Securities Act of 1933, as amended, when reselling securities held in its own
portfolio.

o Quest Capital Value 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 Quest Capital Value Fund, as such statute, rules, or
regulations may be amended or interpreted from time to time.

o Quest Capital Value 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.

Quest International Value Fund

o Quest International Value Fund cannot invest in oil, gas or other mineral exploration
or development programs.

o Quest International Value Fund cannot purchase securities on margin (except for
short-term loans that are necessary for the clearance of purchases of portfolio
securities) or make short sales. Collateral arrangements in connection with
transactions in futures and options are not deemed to be margin transactions.

o Quest International Value Fund cannot invest in real estate limited partnership
programs.

o Quest International Value Fund cannot invest more than 5% of its assets in unseasoned
issuers.

o Quest International Value Fund cannot purchase warrants if more than 5% of its total
assets would be invested in warrants.

o Quest International Value 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.

Quest Value Fund, Inc.

o Quest Value 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 Quest Value 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 Quest Value 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 Quest Value Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Quest Value 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 Quest Value 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 Quest Value Fund, as such statute, rules or
regulations may be amended or interpreted from time to time.

o Quest Value 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 Quest Value 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.

o Quest Value Fund may not underwrite securities issued by others, except to the extent
that a Fund may be considered an underwriter within the meaning of the Securities
Act of 1933, as amended, when reselling securities held in its own portfolio.

Real Estate Fund

o Real Estate Fund cannot invest in other investment companies except to the extent
permitted by the Act. Real Estate Fund would be permitted under this policy to invest
its assets in the securities of one or more open-end management investment company
for which the Manager, one of its affiliates or a successor is the investment advisor
or sub-advisor. That fund or funds must have substantially the same fundamental
investment objective, policies and limitations as Real Estate Fund. The policy also
would permit Real Estate Fund. The policy also would permit the Fund to adopt a
"master-feeder" structure. Under that structure, Real Estate Fund would be a "feeder"
fund and would invest all of its assets in a single pooled "master fund" in which
other feeder funds could also invest. This could enable Real Estate Fund to take
advantage of potential operational and cost efficiencies in the master-feeder
structure. Real Estate Fund has no present imitation of adopting the master-feeder
structure. If it did so, Real Estate Fund's Prospectus and Statement of Additional of
Information would be revised accordingly.

Small- & Mid- Cap Value Fund

o Small- & Mid- Cap Value Fund cannot make short sales or purchase securities on
margin. However, Small- & Mid- Cap Value Fund can make short-term borrowings when
necessary for the clearance of purchases of portfolio securities. Collateral
arrangements in connection with futures and options transactions are not deemed to
be margin transactions under this restriction.

o Small- & Mid- Cap Value Fund cannot invest in interests in oil, gas or other mineral
exploration or development programs or leases.

Strategic Income Fund

o Strategic Income Fund cannot invest in securities of other investment companies,
except if it acquires them as part of a merger, consolidation or acquisition of
assets.

U.S. Government Trust

o U.S. Government Trust cannot invest in interests in oil, gas, or other mineral
exploration or development programs.

o With respect to U.S. Government Trust's non-fundamental policy to invest, under
normal circumstances, at least 80% of its assets in U.S. government securities,
U.S. Government Trust will provide at least 60 days' prior notice of any change in
such policy as required by the Investment Company Act.

o U.S. Government Trust cannot invest in securities of other investment companies,
except if it acquires them as part of a merger, consolidation or acquisition of
assets.

Value Fund

o Value Fund cannot invest in securities of other investment companies, 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.

The Underlying Fund's 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 Portfolios have adopted policies and procedures
concerning the dissemination by employees, officers and/or directors of the Manager,
Distributor, and Transfer Agent of information about the portfolio securities holdings of
the Portfolios. These policies are designed to assure that dissemination of non-public
information about portfolio securities is distributed 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 Portfolio's investment program or enable third parties to use that information in a
manner that is harmful to a Portfolio.

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 or in the Statement of Investments on Form N-Q, which are
publicly available at the SEC.

Until publicly disclosed, a Portfolio's portfolio holdings are proprietary,
confidential business information. While recognizing the importance of providing Portfolio
shareholders with information about their Portfolio's investments and providing portfolio
information to a variety of third parties to assist with the management, distribution and
administrative process, such need for transparency must be balanced against the risk that
third parties who gain access to a Portfolio's portfolio holdings information could attempt
to use that information to trade ahead of or against a Portfolio, which could negatively
affect the prices the Portfolio is able to obtain in portfolio transactions or the
availability of the portfolio securities that portfolio managers are trading in on a
Portfolio'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 Portfolio or in other investment companies or accounts
managed by the Manager or any affiliated person of the Manager) in connection with the
disclosure of a Portfolio's non-public portfolio holdings. The receipt of investment
advisory fees or other fees and compensation paid to the Manager and their 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 Portfolio.

A list of some or all of the 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 a
Portfolio's complete portfolio holdings may be disclosed no sooner than 30-days after the
relevant month-end, subject to the procedures below. If they 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 a Portfolio's
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 a
Portfolio's holdings; and
o The third-party recipient must sign the Manager's portfolio holdings non-disclosure
agreement before receiving the data, agreeing to keep confidential
information that is not publicly available regarding a Portfolio's holdings
and agreeing not to trade directly or indirectly based on the information.

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 Portfolio's Manager, Distributor and Transfer Agent who need to have
access to such information (as determined by senior officers of such entity),
o The Portfolio's independent registered public accounting firm,
o Members of the Portfolio's Board and the Board's legal counsel,
o The Portfolio's custodian bank,
o A proxy voting service designated by the Portfolio 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, because securities are not priced by the
Portfolio's regular pricing services).

Portfolio holdings information of a Portfolio may be provided, under limited circumstances,
to brokers and dealers with whom the Portfolio trades and/or entities that provide
investment coverage and/or analytical information regarding the Portfolio's portfolio,
provided that there is a legitimate investment reason for providing the information to the
broker or 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
Portfolio, 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 Portfolio. 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 a
Portfolio are not priced by the Portfolio's regular pricing services)
o Dealers to obtain price quotations where the Portfolio is not identified as the owner

Portfolio holdings information (which may include information on a Portfolio'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 Portfolio 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-advisors of portfolios (but only pursuant to confidentiality
agreements),
o To consultants for retirement plans for plan sponsors/discussions at due diligence
meetings (but only pursuant to confidentiality agreements),
o Investment bankers in connection with merger discussions (but only 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 Portfolio shares or their financial intermediary representatives.

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

The Chief Compliance Officer of the Portfolio 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 Board on such compliance oversight and on the categories of entities and
individuals to which disclosure of portfolio holdings of the Portfolios has been made
during the preceding year pursuant to these policies. The CCO shall report to the Fund
Board any material violation of these policies and procedures during the previous calendar
quarter and shall make recommendations to the Companies and to the Boards 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 Portfolio have entered into ongoing arrangements to make available
information about the Portfolio's 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 Fortis Securities Nomura Securities
ABG Securities Fox-Pitt, Kelton Pacific Crest
ABN AMRO Friedman, Billing, Ramsey Pacific Crest Securities
Advest Fulcrum Global Partners Pacific Growth Equities
AG Edwards Garp Research Petrie Parkman
American Technology Research George K Baum & Co. Pictet
Auerbach Grayson Goldman Piper Jaffray Inc.
Banc of America Securities Goldman Sachs Plexus
Barclays HSBC Prager Sealy & Co.
Baseline HSBC Securities Inc Prudential Securities
Bear Stearns ING Barings Ramirez & Co.
Belle Haven ISI Group Raymond James
Bloomberg Janney Montgomery RBC Capital Markets
BNP Paribas Jefferies RBC Dain Rauscher
BS Financial Services Jeffries & Co. Research Direct
Buckingham Research Group JP Morgan Robert W. Baird
Caris & Co. JP Morgan Securities Roosevelt & Cross
CIBC World Markets JPP Eurosecurities Russell Mellon
Citigroup Keefe, Bruyette & Woods Ryan Beck & Co.
Citigroup Global Markets Keijser Securities Sanford C. Bernstein
Collins Stewart Kempen & Co. USA Inc. Scotia Capital Markets
Craig-Hallum Capital Group LLC Kepler Equities/Julius SG Cowen & Co.
Baer Sec
Credit Agricole Cheuvreux KeyBanc Capital Markets SG Cowen Securities
N.A. Inc.
Credit Suisse First Boston Leerink Swan Soleil Securities Group
Daiwa Securities Legg Mason Standard & Poors
Davy Lehman Stone & Youngberg
Deutsche Bank Lehman Brothers SWS Group
Deutsche Bank Securities Lipper Taylor Rafferty
Dresdner Kleinwort Wasserstein Loop Capital Markets Think Equity Partners
Emmet & Co MainFirst Bank AG Thomas Weisel Partners
Empirical Research Makinson Cowell US Ltd UBS
Enskilda Securities Maxcor Financial Wachovia
Essex Capital Markets Merrill Wachovia Corp
Exane BNP Paribas Merrill Lynch Wachovia Securities
Factset Midwest Research Wescott Financial
Fidelity Capital Markets Mizuho Securities William Blair
Fimat USA Inc. Morgan Stanley Yieldbook
First Albany Morningstar
First Albany Corporation Natexis Bleichroeder
Fixed Income Securities Ned Davis Research Group

How the Portfolios are Managed

Organization and History. The Portfolios are open-end, diversified management investment
companies with an unlimited number of authorized shares of beneficial interest. The Fund
was organized as a Massachusetts business trust on November 30, 2004.

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
a Portfolio. Shares do not have cumulative voting rights or preemptive or subscription
rights. Shares may be voted in person or by proxy at shareholder meetings.

The Portfolios each currently have five classes of shares: Class A, Class B, Class C,
Class N and Class Y. All classes invest in the same investment portfolio. Only retirement
plans may purchase Class N shares. Only certain institutional investors may elect to
purchase Class Y shares. Each class of shares:

o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o will generally have a different net asset value,
o will generally have separate voting rights on matters in which interests of one class
are different from interests of another class, and
o votes as a class on matters that affect that class alone.

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

Meetings of Shareholders. As a Massachusetts business trust, the Fund and each
Portfolio are not required to hold, and do not plan to hold, regular annual meetings of
shareholders, but may do so from time to time on important matters or when required to 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
a Fund is limited to the relatively remote circumstances in which a 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 and each Portfolio is governed
by a Board of Trustees, which is responsible for protecting the interests of shareholders
under federal and Massachusetts law. The Trustees meet periodically throughout the year to
oversee each Portfolio'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 period ended January 31, 2006. The Audit Committee furnishes the Board
with recommendations regarding the selection of the Fund's independent registered public
accounting firm (also referred to as the "independent Auditors"). Other main functions of
the Audit Committee outlined in the Audit Committee Charter, include, but are not limited
to: (i) reviewing the scope and results of financial statement audits and the audit fees
charged; (ii) reviewing reports from the Fund's independent Auditors regarding the Fund's
internal accounting procedures and controls; (iii) reviewing reports from the Manager's
Internal Audit Department; (iv) 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 2 meetings during the Fund's fiscal period ended January 31, 2006.
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 2
meetings during the Fund's fiscal period ended January 31, 2006. 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 Portfolio Series, 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 nominees 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 did not meet during the Fund's fiscal
period ended January 31, 2006. 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 Small Company
Oppenheimer AMT-Free New York Municipals Fund
Oppenheimer Balanced Fund Oppenheimer International Value Fund
Oppenheimer Limited Term California
Oppenheimer California Municipal Fund Municipal Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Developing Markets Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Discovery Fund Oppenheimer Portfolio Series
Oppenheimer Dividend Growth Fund Oppenheimer Real Estate Fund
Oppenheimer Emerging Growth Fund Oppenheimer Select Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Series Fund, Inc.
Oppenheimer Enterprise Fund OFI Tremont Core Strategies Hedge Fund
Oppenheimer Global Fund OFI Tremont Market Neutral Hedge Fund
Oppenheimer Tremont Market Neutral Fund
Oppenheimer Global Opportunities Fund LLC
Oppenheimer Gold & Special Minerals Fund Oppenheimer Tremont Opportunity Fund LLC
Oppenheimer Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Diversified Fund

In addition to being a director or trustee 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. Wolfgruber, Schadt, Webman, Wong, 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 May 1, 2006, the
Trustees and officers of the Fund, as a group, owned of record or beneficially less than 1%
of each class of shares of each Portfolio. 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 Past 5 Dollar Aggregate
Dollar Range
Of Shares
Beneficially
Range of Owned in Any
Years; Shares of the
Position(s) Held Other Trusteeships/Directorships Held by BeneficialOppenheimer
with Fund, Trustee; Owned in Funds
Length of Service, Number of Portfolios in Fund Complex each Overseen by
Age Currently Overseen by Trustee Portfolio Trustee
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
As of December 31, 2005
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Clayton K. Director of American Commercial Lines None Over $100,000
Yeutter, Chairman (barge company) (since January 2005);
of the Board of Attorney at Hogan & Hartson (law firm)
Trustees since (since June 1993); Director of Covanta
2003, Holding Corp. (waste-to-energy company)
Trustee since 2005 (since 2002); Director of Weyerhaeuser
Age: 75 Corp. (1999-April 2004); Director of
Caterpillar, Inc. (1993-December 2002);
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 None
Trustee since 2005 Development (policy research foundation)
Age: 65 (since 2005); Director of ICI Education
Foundation (education foundation) (since
October 1991); President of the Investment
Company Institute (trade association)
(October 1991-June 2004); Director of ICI
Mutual Insurance Company (insurance
company) (October 1991-June 2004).
Oversees 38 portfolios in the
OppenheimerFunds complex.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Robert G. Galli, A director or trustee of other Oppenheimer None Over $100,000
Trustee since 2005 funds. Oversees 48 portfolios in the
Age: 72 OppenheimerFunds complex.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Phillip A. Distinguished Presidential Fellow for None Over $100,000
Griffiths, International Affairs (since 2002) and
Trustee since 2005 Member (since 1979) of the National
Age: 67 Academy of Sciences; Council on Foreign
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 None
Trustee since 2005 (not-for-profit) (since October 1998); and
Age: 63 Senior Vice President and General Auditor
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 $100,000
Trustee since 2005 Corp. (privately-held financial adviser)
Age: 53 (since 2002); Managing Director of Carmona
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 and Board 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. None Over $100,000
Randall, (electric utility holding company)
Trustee since 2005 (February 1972-October 2005); Former
Age: 78 Director of Prime Retail, Inc. (real
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 Over $100,000
Reynolds, Jr., Inc. (corporate governance consulting and
Trustee since 2005 executive recruiting) (since 1993); Life
Age: 74 Trustee of International House (non-profit
educational organization); Founder,
Chairman and Chief Executive Officer of
Russell Reynolds Associates, Inc.
(1969-1993); Banker at J.P. Morgan & Co.
(1958-1966); 1st Lt. Strategic Air
Command, U.S. Air Force (1954-1958).
Oversees 38 portfolios in the
OppenheimerFunds complex.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Joseph M. Wikler, Director of the following medical device None $50,001-$100,000
Trustee since 2004 companies: Medintec (since 1992) and
Age: 65 Cathco (since 1996); Director of Lakes
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 38 portfolios in the
OppenheimerFunds complex.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Peter I. Wold, President of Wold Oil Properties, Inc. None Over $100,000
Trustee since 2004 (oil and gas exploration and production
Age: 58 company) (since 1994); Vice President,
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 38 portfolios in the
OppenheimerFunds complex.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Brian F. Wruble, General Partner of Odyssey Partners, L.P. None Over $100,000
Trustee since 2005 (hedge fund) (since September 1995);
Age: 62 Director of Special Value Opportunities
Fund, LLC (registered investment company)
(since September 2004); Member of Zurich
Financial Investment Advisory Board
(insurance) (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 indefinite
term, or until his resignation, retirement, death or removal. Mr. Murphy is an "Interested
Trustee" because he is affiliated with the Manager by virtue of his positions as an officer
and director of the Manager, and as a shareholder of its parent company.

-------------------------------------------------------------------------------------
Interested Trustee and Officer
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Range of Owned in
Years; Shares any of the
Position(s) Held Other Trusteeships/Directorships Held by BeneficialOppenheimer
with Fund, Trustee; Owned in Funds
Length of Service; Number of Portfolios in Fund Complex each Overseen
Age Currently Overseen by Trustee Portfolio by Trustee
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
As of December 31,
2005
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and None Over
Trustee since 2005 Director (since June 2001) and President $100,000
and President and (since September 2000) of the Manager;
Principal Executive President and a director or trustee of
Officer since 2005 other Oppenheimer funds; President and
Age: 56 Director of Oppenheimer Acquisition
Corp. ("OAC") (the Manager's parent
holding 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 86 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------

The address of the Officers in the chart below is as follows: for Messrs. Gillespie,
Schadt, Webman, Wolfgruber, Wong and Zack, and Ms. Bloomberg, Two World Financial Center,
225 Liberty Street, 11th Floor, New York, NY 10281-1008, for Messrs. Petersen, Szilagyi,
Vandehey, and Wixted and Ms. Ives, 6803 S. Tucson Way, Centennial, CO 80112-3924. Each
Officer serves for an indefinite term or until his or her earlier resignation, retirement,
death or removal.

-------------------------------------------------------------------------------------
Officers of the Portfolio
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Name, Principal occupation(s) during past 5 years
Position(s) Held with Fund,
Length of Service,
Age
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Kurt Wolfgruber Executive Vice President of the Manager since March
Vice President and 2003 and Chief Investment Officer and Director of the
Portfolio Manager since 2004 Manager since July 2003 of the Manager. He has been
Age: 54 Director of HarbourView Asset Management Corporation
and of OFI Institutional Asset Management, Inc. since
June 2003 and of Tremont Capital Management, Inc.
since October 2001. He is also an officer of 8 other
portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Rudi W. Schadt, Vice President, Director of Research in Product Design
Vice President and and Risk Management of the Manager and an officer of 7
Portfolio Manager since 2004 portfolios in the OppenheimerFunds complex. Prior to
Age: 47 joining the Manager in February 2002, he was a
Director and Senior Quantitative Analyst from 2000
through 2001 at UBS Asset Management prior to which he
was an Associate Director and Senior Researcher and
Portfolio Manager from June 1997 at State Street
Global Advisors.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Jerry Webman Senior Vice President of the Manager since February
Vice President and 1996 and a Senior Investment Officer and Director of
Portfolio Manager since 2004 the Manager's Fixed Income Investments since 1999 and
Age: 55 Senior Vice President of HarbourView Asset Management
Corporation since May 1999. He is also an officer of
8 other portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Caleb Wong, Vice President of the Manager since June 1999 and has
Vice President and worked in fixed-income quantitative research and risk
Portfolio Manager since 2004 management for the Manager since July 1996. He is an
Age: 39 officer of 5 other portfolio in the OppenheimerFunds
complex. He was Assistant Vice President of the
Manager from January 1997 through June 1999.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of
Vice President and Chief the Manager (since March 2004); Vice President of
Compliance Officer since OppenheimerFunds Distributor, Inc., Centennial Asset
2004 Management Corporation and Shareholder Services, Inc.
Age: 55 (since June 1983). Former Vice President and Director
of Internal Audit of the Manager (1997-February 2004).
An officer of 86 portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager
Treasurer since 2004 (since March 1999); Treasurer of the following:
Age: 46 HarbourView Asset Management Corporation, Shareholder
Financial Services, Inc., Shareholder Services, Inc.,
Oppenheimer Real Asset Management Corporation, and
Oppenheimer Partnership Holdings, Inc. (since March
1999), OFI Private Investments, Inc. (since March
2000), OppenheimerFunds International Ltd. (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 86 portfolios
in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager (since August
Assistant Treasurer since 2002); Manager/Financial Product Accounting of the
2004 Manager (November 1998-July 2002). An officer of 86
Age: 35 portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Brian C. Szilagyi, Assistant Vice President of the Manager (since July
Assistant Treasurer since 2004); Director of Financial Reporting and Compliance
2005 of First Data Corporation (April 2003-July 2004);
Age: 36 Manager of Compliance of Berger Financial Group LLC
(May 2001-March 2003); Director of Mutual Fund
Operations at American Data Services, Inc. (September
2000-May 2001). An officer of 86 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Robert G. Zack Executive Vice President (since January 2004) and
Secretary since 2004 General Counsel (since March 2002) of the Manager;
Age: 57 General Counsel and Director of the Distributor (since
December 2001); General Counsel of Centennial Asset
Management Corporation (since December 2001); Senior
Vice President and General Counsel of HarbourView
Asset Management Corporation (since December 2001);
Secretary and General Counsel of OAC (since November
2001); Assistant Secretary (since September 1997) and
Director (since November 2001) of OppenheimerFunds
International Ltd. and OppenheimerFunds plc; Vice
President and Director of Oppenheimer Partnership
Holdings, Inc. (since December 2002); Director of
Oppenheimer Real Asset Management, Inc. (since
November 2001); Senior Vice President, General Counsel
and Director of Shareholder Financial Services, Inc.
and Shareholder Services, Inc. (since December 2001);
Senior Vice President, General Counsel and Director of
OFI Private Investments, Inc. and OFI Trust Company
(since November 2001); Vice President of
OppenheimerFunds Legacy Program (since June 2003);
Senior Vice President and General Counsel of OFI
Institutional Asset Management, Inc. (since November
2001); Director of OppenheimerFunds (Asia) Limited
(since December 2003); Senior Vice President (May
1985-December 2003), Acting General Counsel (November
2001-February 2002) and Associate General Counsel (May
1981-October 2001) of the Manager; Assistant Secretary
of the following: Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services,
Inc. (November 1989-November 2001), and
OppenheimerFunds International Ltd. (September
1997-November 2001). An officer of 86 portfolios in
the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Kathleen T. Ives Vice President (since June 1998) and Senior Counsel
Assistant Secretary since and Assistant Secretary (since October 2003) of the
2004 Manager; Vice President (since 1999) and Assistant
Age: 40 Secretary (since October 2003) of the Distributor;
Assistant Secretary of Centennial Asset Management
Corporation (since October 2003); Vice President and
Assistant Secretary of Shareholder Services, Inc.
(since 1999); Assistant Secretary of OppenheimerFunds
Legacy Program and Shareholder Financial Services,
Inc. (since December 2001); Assistant Counsel of the
Manager (August 1994-October 2003). An officer of 86
portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager
Assistant Secretary since (since May 2004); First Vice President (April
2004 2001-April 2004), Associate General Counsel (December
Age: 38 2000-April 2004), Corporate Vice President (May
1999-April 2001) and Assistant General Counsel (May
1999-December 2000) of UBS Financial Services Inc.
(formerly, PaineWebber Incorporated). An officer of 86
portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Phillip Gillespie Senior Vice President and Deputy General Counsel of
Assistant Secretary since the Manager (since September 2004); Mr. Gillespie held
2004 the following positions at Merrill Lynch Investment
Age: 42 Management: First Vice President (2001-September
2004); Director (2000-September 2004) and Vice
President (1998-2000). An officer of 86 portfolios in
the OppenheimerFunds complex.
-------------------------------------------------------------------------------------

|X| Remuneration of the Officers and Trustees. The officers and the interested
Trustee of the Fund, are affiliated with the Manager, receive no salary or fee from the
Portfolios. 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 January 31, 2006. 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.

---------------------------------------------------------------------------------------------
Retirement Estimated Total
Compensation
Benefits from
Accrued Annual Portfolio
Trustee's Name and as Part Benefits (2and Fund
Other Portfolio Aggregate Compensation from of Fund Upon Complex Paid
Position(s) Portfolios(1) Expenses Retirementto Directors*
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Fiscal Period Ended January 31, 2006 Fiscal Year Ended
Period December 31,
Ended 2005
January
31, 2006
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
ConservatiModerate Active
Aggressiv
Investor Investor Investor Allocatio
Fund Fund Fund Fund n
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Clayton K. Yeutter $39(3) $85(3) $35(3) $221(3) None $86,171 $173,700
Chairman of the
Board
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Matthew P. Fink $26 $56 $23 $145 None $2,641 $61,936
Proxy Committee
Member and
Regulatory &
Oversight Committee
Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Robert G. Galli
Regulatory &
Oversight Committee $29 $64 $26 $165 None $100,824(($264,812((5))
Chairman
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Phillip A. Griffiths
Governance
Committee Chairman
and Regulatory & $34((6)) $74(6) $30(6) $192(6) None $34,972 $150,760
Oversight Committee
Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Mary F. Miller
Audit Committee
Member and Proxy $24 $53 $21 $136 None $7,128 $103,254
Committee Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Joel W. Motley
Audit Committee
Chairman and
Regulatory & $34((7)) $74(7) $30(7) $192(7) None $23,945 $150,760
Oversight Committee
Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Kenneth A. Randall
Audit Committee
Member and $30 $66 $27 $171 None((8)) $85,944 $134,080
Governance
Committee Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Russell S.
Reynolds, Jr.
Proxy Committee
Chairman and $25 $54 $22 $140 None $66,602 $108,593
Governance
Committee Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Joseph M. $25((10)) $54(10) $22(10) $140(10) None $13,200 $60,386(1(1))
Wikler((9))
Audit Committee
Chairman
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Peter I. Wold((9))
Governance $25 $54 $22 $140 None $12,727 $60,386(1(2))
Committee Member
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Brian F.
Wruble(1(3))
Regulatory &
Oversight Committee $22 $49 $20 $126 None $31,332(1($159,354(1(5))
Member
---------------------------------------------------------------------------------------------
1. "Aggregate Compensation From the Fund" includes fees and deferred compensation, if
any. The Portfolio Series Fund is composed of four funds: Conservative Investor Fund,
Moderate Investor Fund, Growth Investor Fund and Aggressive Investor Fund.
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. Amount includes $10 from Conservator Investor Fund, $21 from Moderate Investor Fund,
$9 from Aggressive Investor Fund and $55 from Active Allocation Fund, respectively,
which represents amounts 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. Amount includes $34 from Conservative Investor Fund, $74 from Moderate Investor Fund,
$30 from Aggressive Investor Fund and $192 from Active Allocation Fund, respectively,
which represents amounts deferred by Mr. Griffiths under the "Deferred Compensation
Plan" described below.
7. Amount includes $14 from Conservative Investor Fund, $30 from Moderate Investor Fund,
$12 from Aggressive Investor Fund and $77 from Active Allocation Fund, respectively,
which represents amounts 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. Wikler and Mr. Wold were elected as Board members of 23 of the Board I Funds,
including the Fund as of August 17, 2005. They had served as Board members of the other
11 Board I Funds, including the Fund prior to that date.
10. Amount includes $12 from Conservative Investor Fund, $27 from Moderate Investor Fund,
$11 from Aggressive Investor Fund and $70 from Active Allocation Fund, respectively,
which represents amounts deferred by Mr. Wikler under the "Deferred Compensation Plan"
described below.
11. 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.
12. 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.
13. Mr. Wruble was appointed as Trustee of the Board I Funds on October 10, 2005.
14. 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.
15. 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..

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.

|X| 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 the Fund. Under the
plan, the compensation deferred by a Trustee is periodically adjusted as though an
equivalent amount had been invested in shares of one or more Oppenheimer funds selected by
the Trustee. The amount paid to the Trustee under the plan will be determined based upon
the amount of compensation deferred and the performance of the selected funds.

Deferral of 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 May 1, 2006, the only persons or entities who owned of
record or were known by the Fund to own beneficially 5% or more of any class of the
Portfolio's outstanding shares were:

Conservative Investor Fund

MG Trust Company Cust, Stack-On Products Company, 700 17th Street Suite 300, Denver,
CO 80202-3531, which owned 208,583.848 Class N shares (20.94% of the Class N shares then
outstanding).

Orchard Trust Co. Cust, FBO Oppen RecordkeeperPro, 8515 E. Orchard Rd., Green wood
Village, CO 80111-500, which owned 180, 400.039 Class N shares (18.11% of the Class N
shares then outstanding).

MLPF&S for the Sole Benefit of its Customers, Attn Fund Admn, 4800 Deer Lake Dr. East
Floor 3, Jacksonville, FL 32246-6484, which owned 126,822.811 Class N shares (12.73% of the
Class N shares then outstanding).

RPSS TR, Ace Hardware Home Cntr of Round, 401K Plan, Attn. Rich Hill, 659 Railroad
Ave., Round Lake, IL 60073-3236, which owned 77,389.367 Class N shares (7.77% of the Class
N shares then outstanding).

MG Trust Company Cust, Albert Frei & Sons Inc. 401K, 700 17th Street Suite 300,
Denver, CO 80202-3531, which owned 64,619.288 Class N shares (6.48% of the Class N shares
then outstanding).

Taynik & Co., C/O Investors Bank & Trust FPG90, P.O. Box 9130, Boston, MA 02117-9130,
which owned 9,038.933 Class Y shares (98.90% of the Class Y shares then outstanding).

Moderate Investor Fund

Orchard Trust Co. Cust, FBO Oppen RecordkeeperPro, 8515 E. Orchard Rd., Green wood
Village, CO 80111-500, which owned 297, 255.801 Class N shares (17.50% of the Class N
shares then outstanding).

NFS LLC FEBO, JP Morgan Chase Bank TRAD CUST, IRA of Mitchell L Bruck, 1500 Copper
Run Blvd., Lexington, KY 40514, which owned 86,249.742 Class N shares (5.07% of the Class N
share then outstanding).

Taynik & Co., C/O Investors Bank & Trust FPG90, P.O. Box 9130, Boston, MA 02117-9130,
which owned 10,948.652 Class Y shares (99.09% of the Class Y shares then outstanding).

Aggressive Investor Fund

Orchard Trust Co. Cust, FBO Oppen RecordkeeperPro, 8515 E. Orchard Rd., Green wood
Village, CO 80111-500, which owned 222, 856.490 Class N shares (20.93% of the Class N
shares then outstanding).

MLPF&S for the Sole Benefit of its Customers, Attn Fund Admn, 4800 Deer Lake Dr. East
Floor 3, Jacksonville, FL 32246-6484, which owned 111,576.473 Class N shares (10.47% of the
Class N shares then outstanding).

Taynik & Co., C/O Investors Bank & Trust FPG90, P.O. Box 9130, Boston, MA 02117-9130,
which owned 85,829.117 Class Y shares (99.88% of the Class Y shares then outstanding).

Active Allocation Fund

Orchard Trust Co. Cust, FBO Oppen RecordkeeperPro, 8515 E. Orchard Rd., Green wood
Village, CO 80111-500, which owned 700, 651.718 Class N shares (17.53% of the Class N
shares then outstanding).

Taynik & Co., C/O Investors Bank & Trust FPG90, P.O. Box 9130, Boston, MA 02117-9130,
which owned 53,311.636 Class Y shares (99.81% of the Class Y shares then outstanding).

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

|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It
is designed to detect and prevent improper personal trading by certain employees, including
portfolio managers, that would compete with or take advantage of the Portfolios' portfolio
transactions. Covered persons include persons with knowledge of the investments and
investment intentions of the Portfolios 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 Portfolios, subject to a number of
restrictions and controls. Compliance with the Code of Ethics is carefully monitored and
enforced by the Manager.

The Code of Ethics is an exhibit to the Fund's registration statement filed with the
SEC and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
You can obtain information about the hours of operation of the Public Reference Room by
calling the SEC at 1.202.942.8090. The Code of Ethics can also be viewed as part of the
Fund's registration statement on the SEC's EDGAR database at the SEC's Internet website at
www.sec.gov. Copies may be obtained, after paying a duplicating fee, by electronic request
at the following E-mail address: publicinfo@sec.gov., or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102.

|X| Portfolio Proxy Voting. Each Portfolio is structured as a fund of funds and, as
such, will invest assets in certain of the Underlying Funds. Accordingly, each Portfolio,
in its capacity as a shareholder in the Underlying Funds, may be requested to vote on
matters pertaining to the Underlying Funds. With respect to such shareholder proposals,
each Portfolio will vote its shares in each of its Underlying Funds in the same proportion
as the vote of all other shareholders in that Underlying Fund.

Each of the Underlying Funds will adopt Proxy Voting Policies and Procedures under which
the Underlying Fund votes proxies relating to securities ("portfolio proxies") held by the
Underlying Fund. Each Underlying Fund's primary consideration in voting portfolio proxies
is the financial interests of the Underlying Fund and its shareholders. The Underlying Fund
will retain an unaffiliated third-party as its agent to vote portfolio proxies in
accordance with the Underlying Fund's Proxy Voting Guidelines and to maintain records of
such portfolio proxy voting. The Portfolio Proxy Voting Policies and Procedures include
provisions to address conflicts of interest that may arise between the Underlying 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 Each Underlying 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 Each Underlying 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, each Underlying 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 Each Underlying Fund supports shareholder proposals to reduce a super-majority vote
requirement, and opposes management proposals to add a super-majority vote
requirement.
o Each Underlying Fund opposes proposals to classify the board of directors.
o Each Underlying Fund supports proposals to eliminate cumulative voting.
o Each Underlying Fund opposes re-pricing of stock options without shareholder approval.
o Each Underlying Fund generally considers executive compensation questions such as
stock option plans and bonus plans to be ordinary business activity. The
Underlying Fund analyzes stock option plans, paying particular attention to their
dilutive effect. While each Underlying Fund generally supports management
proposals, it opposes plans it considers to be excessive.

Each Portfolio, and each Underlying 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 Portfolio's Form N-PX filing is available (i) without charge, upon
request, by calling the Portfolio 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 Portfolios under the investment advisory agreement. The Manager
selects securities for the Portfolios and handles their day-to-day business. The portfolio
managers and associate portfolio managers, if any, of the Portfolios are employed by the
Manager and are the persons who are principally responsible for the day-to-day management
of the Portfolios. Other members of the Manager's Equity, Fixed Income and Global Portfolio
Team provide the portfolio managers with counsel and support in managing the Portfolios.

The investment advisory agreement requires the Manager, at its expense, to provide
the Portfolios 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 Portfolios. 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
Portfolios.

Each of the Portfolios pays expenses not expressly assumed by the Manager under the
investment advisory agreement. The investment advisory agreement lists examples of expenses
paid by the Portfolios. 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, if any, and asset
allocation fees paid by the Portfolios to the Manager are calculated at the rates described
in the Prospectus, which are applied to the assets of the Portfolios as a whole. The fees
are allocated to each class of shares based upon the relative proportion of a Portfolio's
net assets represented by that class. The management fee paid by the Portfolios to the
Manager for its fiscal period ended January 31, 2006, is listed below.

---------------------------------------------------------------------------------
Fiscal Period ended 01/31 Management Fee Paid to OppenheimerFunds, Inc.
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
2006 $0
---------------------------------------------------------------------------------

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 Portfolios may sustain 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 a team of investment professionals
including Rudi W. Schadt, Jerry Webman, Kurt Wolfgruber and Caleb Wong (each is referred to
as a "Portfolio Manager" and collectively they are referred to as the "Portfolio Managers")
who are responsible for the day-to-day management of the Fund's investments.

Other Accounts Managed. In addition to managing the Fund's investment
portfolio, members of the portfolio management team also manage other investment portfolios
and other accounts, on behalf of the Manager or its affiliates. The following table
provides information regarding those portfolios and accounts as of January 31, 2006:

------------------------------------------------------------------------------
Portfolio RegistereTotal Other Total Other Total
Assets
Assets in in Other
Registered Pooled Pooled Assets
InvestmenInvestment Investment Investment in Other
CompaniesCompanies Vehicles Vehicles Accounts Accounts
Manager Managed Managed(1) Managed Managed(1)Managed Managed(1,2)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Rudi Schadt 7 None None
$1,440.8 None None
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Jerry Webman 4 None None
$932.8 None None
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Kurt Wolfgruber 4 None None
$932.8 None None
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Caleb Wong 4 None None
$557.15 None None
------------------------------------------------------------------------------
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
Portfolios. That may occur whether the investment strategies of the other funds are the
same as, or different from, the Portfolios' investment objectives and strategies. For
example the Portfolio Manager may need to allocate investment opportunities between a
Portfolio and another fund or account 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 a Portfolio. Not all funds and accounts advised by the Manager
have the same management fee. If the management fee structure of another fund or account is
more advantageous to the Manager than the fee structure of a Portfolio, 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 Portfolio, 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, the Portfolio Managers may manage other funds or accounts with investment
objectives and strategies that are similar to those of a Portfolio, or may manage funds or
accounts with investment objectives and strategies that are different from those of a
Portfolio.
Compensation of the Portfolio Managers. The Portfolio Managers are employed and
compensated by the Manager, not the Portfolio. 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 January 31, 2006, each Portfolio Manager's compensation
consisted primarily 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. Portfolio
managers who are responsible for duties as senior executives of the Manager may also
receive compensation for the performance of their duties in that separate capacity.
The base pay component of each portfolio manager is reviewed regularly to ensure that it
reflects the performance of the individual, is commensurate with the requirements of the
particular portfolio, reflects any specific competence or specialty of the individual
manager, and is competitive with other comparable positions. The annual discretionary
bonus is determined by senior management of the Manager and is based on a number of
factors, including a fund's pre-tax performance for periods of up to five years, measured
against an appropriate Lipper benchmark selected by management. The Portfolio Managers do
not receive additional compensation with respect to the performance of Portfolios. They
are compensated based on the performance of Underlying Funds. Other factors include
management quality (such as style consistency, risk management, sector coverage, team
leadership and coaching) and organizational development. The compensation structure is
intended to be internally equitable and serve to reduce potential conflicts of interest
between the Portfolio and other funds managed by the Portfolio Managers. The compensation
structure of certain other portfolios managed by the Portfolio Managers may be different
from the compensation structure of the Underlying Funds, described above. The Portfolio
Managers' compensation with regard to those portfolios may, under certain circumstances,
include an amount based on the amount of the management fee.

Ownership of Portfolio Shares. As of January 31, 2006, each Portfolio Manager
beneficially owned shares of the Fund as follows:

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

Rudi Schadt None
----------------------------------------------------------
----------------------------------------------------------
None
Jerry Webman
----------------------------------------------------------
----------------------------------------------------------
None
Kurt Wolfgruber
----------------------------------------------------------
----------------------------------------------------------
$10,001-$50,000
Caleb Wong
----------------------------------------------------------

Brokerage Policies of the Portfolios

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
Portfolios. The advisory agreement contains provisions relating to the employment of
broker-dealers to effect the Portfolio's portfolio transactions. The Manager is authorized
by the advisory agreement to employ broker-dealers, including "affiliated brokers", as that
term is defined in the Investment Company Act. The Manager may employ broker-dealers that
the Manager thinks, in its best judgment based on all relevant factors, will implement the
policy of the Portfolio to obtain, at reasonable expense, the "best execution" of the
Portfolio's portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive commission
bidding. However, it is expected to be aware of the current rates of eligible brokers and
to minimize the commissions paid to the extent consistent with the interests and policies
of the Portfolio as established by its Board of Trustees.

Under the investment advisory agreement, in choosing brokers to execute portfolio
transactions for the Portfolio, the Manager may select brokers (other than affiliates) that
provide brokerage and/or research services to the Portfolio and/or the other accounts over
which the Manager or its affiliates have investment discretion. The concessions paid to
those brokers may be higher than another qualified broker would charge, if the Manager
makes a good faith determination that the concession is fair and reasonable in relation to
the services provided.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage for each
Portfolio 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, a Portfolio may be required to pay fixed brokerage commissions and therefore
would not have the benefit of negotiated commissions available in U.S. markets. Brokerage
commissions are paid primarily for transactions in listed securities or for certain
fixed-income agency transactions in the secondary market. Otherwise, brokerage commissions
are paid only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Portfolio 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 a
Portfolio. Those other accounts may purchase or sell the same securities as a Portfolio at
the same time as a Portfolio, 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 Portfolio's shares by (1) directing to that broker
or dealer any of the Portfolio'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 Portfolio's shares.

However, the Rule permits Portfolios to effect brokerage transactions through firms
that also sell Portfolio 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 period ended January 31, 2006, the Fund paid the total brokerage
commissions indicated in the chart below. During the fiscal period ended January 31, 2006,
the Fund did not execute any transactions through or pay any commissions to firms that
provide research services.

-------------------------------------------------------------------------
Fiscal Period Ended January Total Brokerage Commissions Paid by the
31 Fund*
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006 $0
-------------------------------------------------------------------------
* 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 each of the Portfolios, the
Distributor acts as each of the Portfolio's principal underwriter in the continuous public
offering of each Portfolio'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 Portfolios' most recent fiscal period ended January 31,
2006, are shown in the tables below.

------------------------------------------------------------------------------------------------------
Fiscal Aggregate Class A Concessions Concessions Concessions Concessions
Front-End Front-End
Period Sales Sales on Class A on Class B on Class C on Class N
Ended Charges Charges Shares Shares Shares Shares
1/31: on Class A Retained by Advanced by Advanced by Advanced by Advanced by
Shares Distributor(1)Distributor(2Distributor(2)Distributor(2)Distributor
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
2006 Conservative $731,578 $202,862 $12,061 $136,823 $106,853 $50,542
Investor
Fund
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Moderate
2006 Investor $1,936,463 $568,947 $55,377 $563,486 $287,477 $56,539
Fund
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Aggressive
2006 Investor $821,446 $265,087 $6,567 $267,793 $103,732 $19,193
Fund
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Active
2006 Allocation $4,905,946 $1,474,177 $58,097 $1,716,124 $744,303 $127,076
Fund
------------------------------------------------------------------------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a parent of the
Distributor.
2. The Distributor advances concession payments to financial intermediaries for certain
sales of Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.

---------------------------------------------------------------------------------------------
Fiscal Class A Class B Class C Class N
Contingent Contingent Contingent Contingent
Deferred Sales Deferred Sales Deferred Deferred
Charges Charges Sales Charges Sales Charges
Period Retained by Retained by Retained by Retained by
Ended 1/31: Distributor Distributor Distributor Distributor
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2006 Conservative $0 $3,193 $1,819 $1,832
Investor Fund
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2006 Moderate $0 $14,166 $4,881 $3,554
Investor Fund
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2006 Aggressive $0 $5,572 $2,126 $5,679
Investor Fund
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2006 Active $0 $44,078 $16,412 $4,555
Allocation Fund
---------------------------------------------------------------------------------------------

Distribution and Service Plans. Each Portfolio 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 a Portfolio 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(6) 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 Portfolio, to compensate brokers, dealers, financial institutions and
other intermediaries for providing distribution assistance and/or administrative services
or that otherwise promote sales of the Portfolio's shares. These payments, some of which
may be referred to as "revenue sharing," may relate to the Portfolio'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 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 each Portfolio automatically convert into Class A shares 72
months after purchase, the Portfolio 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" (as defined in the
Investment Company Act) of the shares of each Class, voting separately by class.

While the Plans are in effect, the Treasurer of each Portfolio 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 Portfolio shares held by the recipient for
itself and its customers does not exceed a minimum amount, if any, that may be set from
time to time by a majority of the Independent Trustees. The Board of Trustees has set no
minimum amount of assets to qualify for payments under the plans.

|X| Class A Service Plan Fees. Under the Class A service plan, the Distributor currently
uses the fees it receives from the Portfolio 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 Portfolio, assisting in
establishing and maintaining accounts in the Portfolio, making the Portfolio's investment
plans available and providing other services at the request of the Portfolio or the
Distributor. The Class A service plan permits reimbursements to the Distributor at a rate
of up to 0.25% of average net assets of Class A shares. 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. The
Distributor makes payments to plan 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.

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 period ended January 31, 2006 payments under the Class A plan totaled
$43,617 for Conservative Investor Fund, $89,171 for Moderate Investor Fund, $34,064 for
Aggressive Investor Fund and $228,321 for Active Allocation Fund all of which was paid by
the Distributor to recipients, and included $843, $2,569, $887 and $4,744, respectively,
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 plans to
pay any of its interest expenses, carrying charges, or other financial costs, or allocation
of overhead.

|X| Class B, Class C and Class N Distribution and Service Plan Fees. Under each Plan,
distribution and service fees are computed on the average of the net asset value of shares
in the respective class, determined as of the close of each regular business day during the
period. Each plan provides for the Distributor to be compensated at a flat rate, whether
the Distributor's distribution expenses are more or less than the amounts paid by the
Portfolios 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 broker-dealer of record. If the
investor no longer has another broker-dealer of record for an existing account, the
Distributor is automatically designated as the broker-dealer of record, but solely for the
purpose of acting as the investor's agent to purchase the shares. In those cases, the
Distributor retains the asset-based sales charge paid on Class B, Class C and Class N
shares, but does not retain any service fees as to the assets represented by that account.

The 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 increases Class N expenses by
0.50% of the net assets per year of the respective class.

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 concessions and service fee in advance at the time of purchase.

The asset-based sales charges 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. Each Portfolio pays the asset-based sales charges to the
Distributor for its services rendered in distributing Class B, Class C and Class N shares.
The payments are made to the Distributor in recognition that the Distributor:
o pays sales concessions to authorized brokers and dealers at the time of sale and pays
service fees as described above,
o may finance payment of sales concessions and/or the advance of the service fee
payment to recipients under the plans, or may provide such financing from its own
resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B, Class C and Class N shares,
o bears the costs of sales literature, advertising and prospectuses (other than those
furnished to current shareholders) and state "blue sky" registration fees and
certain other distribution expenses,
o may not be able to adequately compensate dealers that sell Class B, Class C and Class
N shares without receiving payment under the plans and therefore may not be able
to offer such Classes for sale absent the plans,
o receives payments under the plans consistent with the service fees and asset-based
sales charges paid by other non-proprietary funds that charge 12b-1 fees,
o may use the payments under the plan to include a Portfolio in various third-party
distribution programs that may increase sales of a Portfolios shares,
o may experience increased difficulty selling a Portfolio'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 Portfolio, and
o may not be able to continue providing, at the same or at a lesser cost, the same
quality distribution sales efforts and services, or to obtain such services from
brokers and dealers, if the plan payments were to be discontinued.

The Distributor's actual expenses in selling Class B, Class C and Class N shares may
be more than the payments it receives from the contingent deferred sales charges collected
on redeemed shares and from each Portfolio under the plans. If either the Class B, Class C
or Class N plan were to be terminated by the Portfolio, the Board of Trustees may allow the
Portfolio to continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated.

-------------------------------------------------------------------------------
Distribution and Service Fees Paid to the Distributor for the Fiscal Period
Ended 1/31/06
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class: Total Payments Amount Retained Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Conservative Investor Fund
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B Plan $32,998 $22,876 $103,594 1.13%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C Plan $62,739 $32,103 $127,362 0.67%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class N Plan $9,122 $5,001 $126,713 1.67%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Moderate Investor Fund
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B Plan $127,405 $88,102 $536,339 1.45%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C Plan $160,182 $83,020 $358,188 0.75%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class N Plan $17,032 $9,231 $112,008 0.92%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Aggressive Investor Fund
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B Plan $57,776 $39,516 $262,957 1.38%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C Plan $50,173 $22,371 $142,362 0.71%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class N Plan $7,028 $3,657 $36,299 0.65%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Active Allocation Fund
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B Plan $379,747 $261,467 $1,607,656 1.39%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C Plan $374,213 $186,986 $932,769 0.74%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class N Plan $37,490 $19,171 $317,511 1.12%
-------------------------------------------------------------------------------

All payments under the Class B, Class C and Class N plans are subject to the
limitations imposed by the Conduct Rules of the NASD on payments of asset-based sales
charges and service fees.

Payments to Fund Intermediaries

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

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

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

o depending on the share class that the investor selects, contingent deferred sales
charges or initial front-end sales charges, all or a portion of which front-end
sales charges are payable by the Distributor to financial intermediaries as
sales commissions (see "About Your Account" in the Prospectus);
o ongoing asset-based payments attributable to the share class selected, including fees
payable under the Fund's distribution and/or service plans adopted under Rule
12b-1 under the Investment Company Act, which are paid from the Fund's assets
and allocated to the class of shares to which the plan relates;
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 Portfolios 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 Portfolios or a particular share
class. Financial intermediaries may earn profits on these payments, since the amount of the
payment may exceed the cost of providing the service. Certain of these payments are subject
to limitations under applicable law. Financial intermediaries may categorize and disclose
these arrangements to their clients and to members of the public in a manner different from
the disclosures in the Fund's prospectus and this SAI. You should ask your financial
intermediary for information about any payments it receives from the Portfolios, 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 securities by the Portfolios or
other Oppenheimer funds, a financial intermediary's sales of shares of the Portfolios or
such other Oppenheimer funds is not a consideration for the Manager when choosing brokers
or dealers to effect portfolio transactions for the Portfolios 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 Portfolios or
other Oppenheimer funds on particular trading systems, and paying the
intermediary's networking fees;

o program support, such as expenses related to including the Oppenheimer funds in
retirement plans, college savings plans, fee-based advisory or wrap fee programs,
fund "supermarkets", bank or trust company products or insurance companies'
variable annuity or variable life insurance products;

o placement on the dealer's list of offered funds and providing representatives of the
Distributor with access to a financial intermediary's sales meetings, sales
representatives and management representatives.

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

For the year ended December 31, 2005, the following financial intermediaries that are
broker-dealers offering shares of the Oppenheimer funds, and/or their respective
affiliates, received revenue sharing or similar distribution-related payments from the
Manager or Distributor for marketing or program support:

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

For the year ended December 31, 2005, the following firms, which in some cases are
broker-dealers, received payments from the Manager or Distributor for administrative or
other services provided (other than revenue sharing arrangements), as described above:

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

Performance of the Portfolios

Explanation of Performance Terminology. The Portfolios use a variety of terms to illustrate
their 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.
You can obtain current performance information by calling the Portfolio's Transfer Agent at
1.800.225.5677 or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.

Each Portfolio'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 a Portfolio of its
performance data must include the average annual total returns for the advertised class of
shares of the Portfolio. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar quarter prior
to the publication of the advertisement (or its submission for publication).

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

o Total returns measure the performance of a hypothetical account in a Portfolio 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 A Portfolio's performance returns may not reflect the effect of taxes on dividends
and capital gains distributions.
o An investment in a Portfolio is not insured by the FDIC or any other government
agency.
o The principal value of a Portfolio'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 a Portfolio are
affected by market conditions, the quality of a Portfolio's investments, the maturity of
those investments, the types of investments a Portfolio holds, and its operating expenses
that are allocated to the particular class.

|X| Total Return Information. There are different types of "total returns" to
measure a Portfolio's performance. Total return is the change in value of a hypothetical
investment in a Portfolio 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. A Portfolio 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%-equity funds (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 and
life-of-class periods as applicable.

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

ERV l/n - 1 Average Annual Total
Return
P

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

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

o Average Annual Total Return (After Taxes on Distributions and Redemptions). The
"average annual total return (after taxes on distributions and redemptions)" of Class A
shares is an average annual compounded rate of return for each year in a specified number
of years, adjusted to show the effect of federal taxes (calculated using the highest
individual marginal federal income tax rates in effect on any reinvestment date) on any
distributions made by a Portfolio 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 Portfolio
distributions and on the redemption of Portfolio shares, according to the following formula:

ATVDR - 1 = Average Annual Total Return (After Taxes on Distributions
l/n and Redemption)
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 a Portfolio 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. There is no sales charge on Class
Y 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 1/31/06
----------------------------------------------------------------
----------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
Returns (10
years or
Shares life-of-class)
----------------------------------------------------------------
----------------------------------------------------------------
1-Year 5-Years
(or life of
class if less)
----------------------------------------------------------------
----------------------------------------------------------------
After Without After Without After Without
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------
----------------------------------------------------------------
Conservative Investor Fund
----------------------------------------------------------------
----------------------------------------------------------------
Class 0.99% 7.15% N/A N/A N/A N/A
A(1)
----------------------------------------------------------------
----------------------------------------------------------------
Class 1.44% 6.44% N/A N/A N/A N/A
B(2)
----------------------------------------------------------------
----------------------------------------------------------------
Class 5.37% 6.37% N/A N/A N/A N/A
C(3)
----------------------------------------------------------------
----------------------------------------------------------------
Class 5.98% 6.98% N/A N/A N/A N/A
N(4)
----------------------------------------------------------------
----------------------------------------------------------------
Class 7.34% 7.34% N/A N/A N/A N/A
Y(5)
----------------------------------------------------------------
----------------------------------------------------------------
Moderate Investor Fund
----------------------------------------------------------------
----------------------------------------------------------------
Class 3.28% 9.58% N/A N/A N/A N/A
A(1)
----------------------------------------------------------------
----------------------------------------------------------------
Class 3.90% 8.90% N/A N/A N/A N/A
B(2)
----------------------------------------------------------------
----------------------------------------------------------------
Class 7.82% 8.82% N/A N/A N/A N/A
C(3)
----------------------------------------------------------------
----------------------------------------------------------------
Class 8.35% 9.35% N/A N/A N/A N/A
N(4)
----------------------------------------------------------------
----------------------------------------------------------------
Class 9.79% 9.79% N/A N/A N/A N/A
Y(5)
----------------------------------------------------------------
----------------------------------------------------------------
Aggressive Investor Fund
----------------------------------------------------------------
----------------------------------------------------------------
Class 10.71% 17.46% N/A N/A N/A N/A
A(1)
----------------------------------------------------------------
----------------------------------------------------------------
Class 11.70% 16.70% N/A N/A N/A N/A
B(2)
----------------------------------------------------------------
----------------------------------------------------------------
Class 15.64% 16.64% N/A N/A N/A N/A
C(3)
----------------------------------------------------------------
----------------------------------------------------------------
Class 16.34% 17.34% N/A N/A N/A N/A
N(4)
----------------------------------------------------------------
----------------------------------------------------------------
Class 17.69% 17.69% N/A N/A N/A N/A
Y(5)
----------------------------------------------------------------
----------------------------------------------------------------
Active Allocation Fund
----------------------------------------------------------------
----------------------------------------------------------------
Class 6.79% 13.31% N/A N/A N/A N/A
A(1)
----------------------------------------------------------------
----------------------------------------------------------------
Class 7.72% 12.72% N/A N/A N/A N/A
B(2)
----------------------------------------------------------------
----------------------------------------------------------------
Class 11.66% 12.66% N/A N/A N/A N/A
C(3)
----------------------------------------------------------------
----------------------------------------------------------------
Class 12.18% 13.18% N/A N/A N/A N/A
N(4)
----------------------------------------------------------------
----------------------------------------------------------------
Class 13.72% 13.72% N/A N/A N/A N/A
Y(5)
----------------------------------------------------------------

---------------------------------------------------------------
Average Annual Total Returns for Class A1 Shares (After Sales
Charge)
For the Periods Ended 1/31/06
---------------------------------------------------------------
---------------------------------------------------------------
1-Year 5-Years (or life
of class if less)
---------------------------------------------------------------
---------------------------------------------------------------
Conservative Investor Fund
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on Distributions 0.38% N/A
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on 0.64% N/A
Distributions and
Redemption of Fund Shares
---------------------------------------------------------------
---------------------------------------------------------------
Moderate Investor Fund
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on Distributions 2.69% N/A
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on N/A
Distributions and 2.12%
Redemption of Fund Shares
---------------------------------------------------------------
---------------------------------------------------------------
Aggressive Investor Fund
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on Distributions 10.23% N/A
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on N/A
Distributions and 6.95%
Redemption of Fund Shares
---------------------------------------------------------------
---------------------------------------------------------------
Active Allocation Fund
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on Distributions 6.03% N/A
---------------------------------------------------------------
---------------------------------------------------------------
After Taxes on
Distributions and 4.39% N/A
Redemption of Fund Shares
---------------------------------------------------------------
1. Inception of Class A for each Portfolio: 04/05/05.
2. Inception of Class B for each Portfolio: 04/05/05.
3. Inception of Class C for each Portfolio: 04/05/05.
4. Inception of Class N for each Portfolio: 04/05/05.
5. Inception of Class Y for each Portfolio: 04/05/05.

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

|X| Lipper Rankings. From time to time a Portfolio 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 Portfolios, and ranks their
performance for various periods in categories based on investment styles. The Lipper
performance rankings are based on total returns that include the reinvestment of capital
gain distributions and income dividends but do not take sales charges or taxes into
consideration. Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the funds in
particular categories.

|X| Morningstar Ratings. From time to time a Portfolio 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
Portfolios are not yet rated.

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

|X| Performance Rankings and Comparisons by Other Entities and Publications. From
time to time a Portfolio may include in its advertisements and sales literature performance
information about a Portfolio 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 a Portfolio'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 a Portfolio'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, a Portfolio'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, a Portfolio 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 a Portfolio may include in its advertisements and sales literature
the total return performance of a hypothetical investment account that includes shares of a
Portfolio 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 a Portfolio and the total return performance of other
Oppenheimer funds included in the account. Additionally, from time to time, a Portfolio'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 a Portfolio.

ABOUT YOUR ACCOUNT

How to Buy Shares

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

When you purchase shares of a Portfolio, your ownership interest in the shares in the
Portfolio will be recorded as a book entry on the records of the Portfolio. The Portfolio
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. 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 a Portfolio 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 a Portfolio 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 Portfolios are not responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.

Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be
obtained for Class A shares under Right of Accumulation and Letters of Intent because of
the economies of sales efforts and reduction in expenses realized by the Distributor,
dealers and brokers making such sales. No sales charge is imposed in certain other
circumstances described in Appendix C to this SAI because the Distributor or dealer or
broker incurs little or no selling expenses.

A fiduciary can count all shares purchased for a trust, estate or other fiduciary
account (including one or more employee benefit plans of the same employer) that has
multiple accounts. The Distributor will add the value, at current offering price, of the
shares you previously purchased and currently own to the value of current purchases to
determine the sales charge rate that applies. The reduced sales charge will apply only to
current purchases. You must request it when you buy shares.

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

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Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
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Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
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Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund
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Oppenheimer Core Bond Fund Oppenheimer Main Street Small Cap Fund
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Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
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Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
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Oppenheimer Capital Income Fund Oppenheimer Pennsylvania Municipal Fund
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Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund
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Oppenheimer Principal Protected Main
Oppenheimer Convertible Securities Fund Street Fund II
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Oppenheimer Principal Protected Main
Oppenheimer Developing Markets Fund Street Fund III
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Oppenheimer Discovery Fund Oppenheimer Quest Balanced Fund
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Oppenheimer Quest Capital Value Fund,
Oppenheimer Dividend Growth Fund Inc.
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Oppenheimer Quest International Value
Oppenheimer Emerging Growth Fund Fund, Inc.
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Oppenheimer Emerging Technologies Fund Oppenheimer Quest Opportunity Value Fund
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Oppenheimer Enterprise Fund Oppenheimer Quest Value Fund, Inc.
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Oppenheimer Equity Fund, Inc. Oppenheimer Real Asset Fund
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Oppenheimer Global Fund Oppenheimer Real Estate Fund
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Oppenheimer Rochester National
Oppenheimer Global Opportunities Fund Municipals
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Oppenheimer Gold & Special Minerals Fund Oppenheimer Select Value Fund
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Oppenheimer Growth Fund Oppenheimer Senior Floating Rate Fund
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Oppenheimer High Yield Fund Oppenheimer Small- & Mid- Cap Value Fund
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Oppenheimer International Bond Fund Oppenheimer Strategic Income Fund
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Oppenheimer International Diversified
Fund Oppenheimer U.S. Government Trust
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Oppenheimer International Growth Fund Oppenheimer Value Fund
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Oppenheimer International Small Company
Fund Limited-Term New York Municipal Fund
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Oppenheimer International Value Fund Rochester Fund Municipals
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Oppenheimer Limited Term California Oppenheimer Portfolio Series:
Municipal Fund
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Oppenheimer Limited-Term Government Fund Active Allocation Fund
Aggressive Investor Fund
Conservative Investor Fund
Moderate Investor Fund
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And the following money market funds:
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Oppenheimer Cash Reserves Centennial Money Market Trust
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Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
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Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
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Centennial Government Trust
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There is an initial sales charge on the purchase of Class A shares of each of the
Oppenheimer funds described above except the money market funds. Under certain
circumstances described in this SAI, redemption proceeds of certain money market fund
shares may be subject to a contingent deferred sales charge.

Letters of Intent. Under a Letter of Intent ("Letter"), you can reduce the sales charge
rate that applies to your purchases of Class A shares if you purchase Class A, Class B or
Class C shares of a Portfolio 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 a
Portfolio and other Oppenheimer funds during a 13-month period (the "Letter period"). At
the investor's request, this may include purchases made up to 90 days prior to the date of
the Letter. The Letter states the investor's intention to make the aggregate amount of
purchases of shares which will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or capital gains distributions and purchases
made at net asset value (i.e. without a sales charge) do not count toward satisfying the
amount of the Letter.

Each purchase of Class A shares under the Letter will be made at the offering price
(including the sales charge) that would apply to a single lump-sum purchase of shares in
the amount intended to be purchased under the Letter.

In submitting a Letter, the investor makes no commitment to purchase shares. However,
if the investor's purchases of shares within the Letter period, when added to the value (at
offering price) of the investor's holdings of shares on the last day of that period, do not
equal or exceed the intended purchase amount, the investor agrees to pay the additional
amount of sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to time). The
investor agrees that shares equal in value to 5% of the intended purchase amount will be
held in escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor
agrees to be bound by the terms of the Prospectus, this SAI and the application used for a
Letter. If those terms are amended, as they may be from time to time by a Portfolio, 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 a
Portfolio and other Oppenheimer funds by OppenheimerFunds prototype 401(k) plans under a
Letter. If the intended purchase amount under a Letter entered into by an OppenheimerFunds
prototype 401(k) plan is not purchased by the plan by the end of the Letter period, there
will be no adjustment of concessions paid to the broker-dealer or financial institution of
record for accounts held in the name of that plan.

In determining the total amount of purchases made under a Letter, shares redeemed by
the investor prior to the termination of the Letter period will be deducted. It is the
responsibility of the dealer of record and/or the investor to advise the Distributor about
the Letter when placing any purchase orders for the investor during the Letter period. All
of such purchases must be made through the Distributor.

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

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

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

3. If, at the end of the 13-month Letter period the total purchases pursuant to the
Letter are less than the intended purchase amount specified in the Letter, the investor
must remit to the Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. That sales charge adjustment
will apply to any shares redeemed prior to the completion of the Letter. If the difference
in sales charges is not paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the
number of escrowed shares necessary to realize such difference in sales charges. Full and
fractional shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.

4. By signing the Letter, the investor irrevocably constitutes and appoints the
Transfer Agent as attorney-in-fact to surrender for redemption any or all escrowed shares.

5. The shares eligible for purchase under the Letter (or the holding of which may be
counted toward completion of a Letter) include:

(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent
deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a contingent deferred
sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of
the other Oppenheimer funds that were acquired subject to a Class A initial or
contingent deferred sales charge or (2) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred sales
charge.

6. Shares held in escrow hereunder will automatically be exchanged for shares of
another fund to which an exchange is requested, as described in the section of the
Prospectus entitled "How to Exchange Shares" and the escrow will be transferred to that
other fund.

Asset Builder Plans. As explained in the Prospectus, you must initially establish your
account with $500. Subsequently, you can establish an Asset Builder Plan to automatically
purchase additional shares directly from a bank account for as little as $50. 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 a Portfolio, 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 Portfolio 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
Portfolio without sales charges or at reduced sales charge rates, as described in an
Appendix to this SAI. Certain special sales charge arrangements are maintained on a daily
valuation basis by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch") or an
independent record keeper that has a contact 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), than 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 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 a Portfolio's shares
(for example, when a purchase check is returned to a Portfolio unpaid) causes a loss to be
incurred when the net asset values of a Portfolio'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 a Portfolio for the loss,
the Distributor will do so. A Portfolio may reimburse the Distributor for that amount by
redeeming shares from any account registered in that investor's name, or the Portfolio or
the Distributor may seek other redress.

Classes of Shares. Each class of shares of the Portfolios represent an interest in the same
portfolio of investments of a Portfolio. 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 a
Portfolio. A salesperson who is entitled to receive compensation from his or her firm for
selling Portfolio shares may receive different levels of compensation for selling one class
of shares rather than another.

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

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

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

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

|X| Availability of Class N Shares. In addition to the description of the types of
retirement plans which may purchase Class N shares contained in the Prospectus, Class N
shares also are offered to the following:
o to all rollover IRAs (including SEP IRAs and SIMPLE IRAs),
o to all rollover contributions made to Individual 401(k) plans, Profit-Sharing Plans
and Money Purchase Pension Plans,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and Ascender
retirement plans,
o to all trustee-to-trustee IRA transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix C to this SAI) which have entered
into a special agreement with the Distributor for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code, the recordkeeper or the plan sponsor for which has entered into a
special agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all such plans
invested in the Oppenheimer funds is $500,000 or more,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with
the redemption proceeds of Class A shares of one or more Oppenheimer funds,
and
o to certain customers of broker-dealers and financial advisors that are identified in
a special agreement between the broker-dealer or financial advisor and the
Distributor for that purpose.

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

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

|X| Allocation of Expenses. A Portfolio 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 a Portfolio'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 a
Portfolio'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 a Portfolio'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).

Portfolio Account Fees. As stated in the Prospectus, a $12 annual "Minimum Balance Fee" is
assessed on each Portfolio account with a share balance valued under $500. The Minimum
Balance Fee is automatically deducted from each such Portfolio account in September.

Listed below are certain cases in which the Portfolios have elected, in their
discretion, not to assess the Portfolio Account Fees. These exceptions are subject to
change:
o A Portfolio account whose shares were acquired after September 30th of the prior year;
o A Portfolio 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 eDocs Direct;
o A Portfolio 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 Portfolio 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 Portfolio reserves the authority to modify Portfolio 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 Portfolios 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 a Portfolio's
net assets attributable to a class by the number of shares of that class that are
outstanding. The NYSE normally closes at 4:00 P.M., Eastern time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling before a
U.S. holiday). All references to time in this SAI mean "Eastern time." The NYSE's most
recent annual announcement (which is subject to change) states that it will close on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days.

Dealers other than NYSE members may conduct trading in certain securities on days on
which the NYSE is closed (including weekends and holidays) or after 4:00 P.M. on a regular
business day. Because a Portfolio's net asset values will not be calculated on those days,
a Portfolio'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 Portfolio's calculation of its net
asset values that day unless the Manager determines that the event is likely to effect a
material change in the value of the security. The Manager, or an internal valuation
committee established by the Manager, as applicable, may establish a valuation, under
procedures established by the Board and subject to the approval, ratification and
confirmation by the Board at its next ensuing meeting.

|X| Securities Valuation. The Fund's Board of Trustees has established procedures for the
valuation of an Underlying Fund's securities. In general those procedures are as follows:
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.
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.
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.

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.

If a Portfolio writes an option, an amount equal to the premium received is included
in a Portfolio'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 a Portfolio's gain on investments,
if a call or put written by a Portfolio is exercised, the proceeds are increased by the
premium received. If a call or put written by a Portfolio expires, a Portfolio has a gain
in the amount of the premium. If a Portfolio 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 a Portfolio exercises a put it holds, the amount
the Portfolio receives on its sale of the underlying investment is reduced by the amount of
premium paid by the Portfolio.

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 Portfolio's custodian bank is not open for business on a day
when the Portfolio would normally authorize the wire to be made, which is usually the
Portfolio'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 Portfolio 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, Class N or Class Y 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 a Portfolio to make payment of a redemption order wholly or partly in cash.
In that case, a Portfolio may pay the redemption proceeds in whole or in part by a
distribution "in kind" of liquid securities from the portfolio of a Portfolio, in lieu of
cash.

Each Portfolio has elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, each Portfolio is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the net assets of the Portfolio 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. Each Portfolio will value
securities used to pay redemptions in kind using the same method the Portfolio 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 SAI. The request must:

(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and a Portfolio's other redemption
requirements.

Participants (other than self-employed plan sponsors) in OppenheimerFunds-sponsored
pension or profit-sharing plans with shares of the Portfolio 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
Portfolios, 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 Portfolios' 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 a Portfolio 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 Portfolios cannot guarantee receipt of a payment on the date requested. The
Portfolios reserve the right to amend, suspend or discontinue offering these plans at any
time without prior notice. Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share purchases while participating
in an Automatic Withdrawal Plan. Class B, Class C and Class N shareholders should not
establish automatic withdrawal plans, because of the potential imposition of the contingent
deferred sales charge on such withdrawals (except where the Class B, Class C or Class N
contingent deferred sales charge is waived as described in Appendix C to this SAI).

By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the
terms and conditions that apply to such plans, as stated below. These provisions may be
amended from time to time by the Portfolios and/or the Distributor. When adopted, any
amendments will automatically apply to existing Plans.

|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a
pre-determined amount of shares of a Portfolio for shares (of the same class) of other
Oppenheimer funds automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund
account is $50. Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the
Prospectus and below in this SAI.

|X| Automatic Withdrawal Plans. Portfolio 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 Portfolios 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 a Portfolio 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 a Portfolio.
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 a Portfolio, 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 Portfolios. 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
Portfolio 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 Portfolio, 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 Portfolios, 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
-----------------------------------------------------------------------------
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Centennial Government Trust Centennial Tax Exempt Trust
-----------------------------------------------------------------------------
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Centennial Money Market Trust
-----------------------------------------------------------------------------

The following funds do not offer Class N shares:
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Limited Term New York Municipal Fund Oppenheimer New Jersey Municipal Fund
-----------------------------------------------------------------------------------
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Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main
Street Fund II
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-----------------------------------------------------------------------------------
Oppenheimer AMT-Free New York Municipals Oppenheimer Pennsylvania Municipal Fund
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Oppenheimer California Municipal Fund Oppenheimer Rochester National
Municipals
-----------------------------------------------------------------------------------
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Oppenheimer International Value Fund Oppenheimer Senior Floating Rate Fund
-----------------------------------------------------------------------------------
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Oppenheimer Limited Term California Rochester Fund Municipals
Municipal Fund
-----------------------------------------------------------------------------------
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Oppenheimer Limited Term Municipal Fund
-----------------------------------------------------------------------------------
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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 Oppenheimer New Jersey Municipal Fund
Municipals
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main
Street Fund
-----------------------------------------------------------------------------------
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Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main
Street Fund II
-----------------------------------------------------------------------------------
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Oppenheimer Cash Reserves Oppenheimer Principal Protected Main
Street Fund III
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Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund, Inc.
-----------------------------------------------------------------------------------
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Oppenheimer Convertible Securities Oppenheimer Quest International Value
Fund Fund, Inc.
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Oppenheimer Dividend Growth Oppenheimer Rochester National Municipals
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-----------------------------------------------------------------------------------
Oppenheimer Gold & Special Minerals
Fund
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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.
o Shares of the Fund acquired by reinvestment of dividends or distributions from any of
the other Oppenheimer funds or from any unit investment trust for which reinvestment
arrangements have been made with the Distributor may be exchanged at net asset value
for shares of the same class of any of the other Oppenheimer funds into which you may
exchange shares.
o Shares of Oppenheimer Principal Protected Main Street Fund may be exchanged at net
asset value for shares of the same class of any of the other Oppenheimer funds into
which you may exchange shares. However, shareholders are not permitted to exchange
shares of other Oppenheimer funds for shares of Oppenheimer Principal Protected Main
Street Fund until after the expiration of the warranty period (8/5/2010).
o Shares of Oppenheimer Principal Protected Main Street Fund II may be exchanged at net
asset value for shares of the same class of any of the other Oppenheimer funds into
which you may exchange shares. However, shareholders are not permitted to exchange
shares of other Oppenheimer funds for shares of Oppenheimer Principal Protected Main
Street Fund II until after the expiration of the warranty period (3/3/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be exchanged at
net asset value for shares of the same class of any of the other Oppenheimer funds
into which you may exchange shares. However, shareholders are not permitted to
exchange shares of other Oppenheimer funds for shares of Oppenheimer Principal
Protected Main Street Fund III until after the expiration of the warranty period
(12/16/2011).
o Class A, Class B, Class C and Class N shares of each of Oppenheimer Developing
Markets Fund and Oppenheimer International Small Company Fund may be acquired by
exchange only with a minimum initial investment of $50,000. An existing shareholder
of each fund may make additional exchanges into that fund with as little as $50.
o Shares of Oppenheimer Real Asset Fund may not be acquired by an exchange of shares
from any other Oppenheimer fund.

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

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

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

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

o With respect to Class C shares, the Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.

o With respect to Class N shares, a 1% contingent deferred sales charge will be imposed
if the retirement plan (not including IRAs and 403(b) plans) is terminated or Class N
shares of all Oppenheimer funds are terminated as an investment option of the plan and
Class N shares are redeemed within 18 months after the plan's first purchase of Class N
shares of any Oppenheimer fund or with respect to an individual retirement plan or 403(b)
plan, Class N shares are redeemed within 18 months of the plan's first purchase of Class N
shares of any Oppenheimer fund.

o When Class B, Class C or Class N shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition of the
Class B, Class C or Class N contingent deferred sales charge will be followed in
determining the order in which the shares are exchanged. Before exchanging shares,
shareholders should take into account how the exchange may affect any contingent deferred
sales charge that might be imposed in the subsequent redemption of remaining shares.

Shareholders owning shares of more than one class must specify which class of shares
they wish to exchange.

|X| Limits on Multiple Exchange Orders. The Portfolios reserve the right to reject
telephone or written exchange requests submitted in bulk by anyone on behalf of more than
one account.

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

Processing Exchange Requests. Shares to be exchanged are redeemed on the regular
business day the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of a Portfolio 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 Portfolios reserve the right, in their 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 a Portfolio, the Portfolio 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.

In connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include shares
subject to a restriction cited in the Prospectus or this SAI, or would include shares
covered by a share certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.

The different Oppenheimer funds available for exchange have different investment
objectives, policies and risks. A shareholder should assure that the fund selected is
appropriate for his or her investment and should be aware of the tax consequences of an
exchange. For federal income tax purposes, an exchange transaction is treated as a
redemption of shares of one fund and a purchase of shares of another. "Reinvestment
Privilege," above, discusses some of the tax consequences of reinvestment of redemption
proceeds in such cases. The Fund, the Distributor, and the Transfer Agent are unable to
provide investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.

Dividends, Capital Gains and Taxes

Dividends and Distributions. For some of the Underlying Funds, dividends will be payable
on shares held of record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares purchased
through dealers or brokers normally are paid for by the third business day following the
placement of the purchase order.

Shares redeemed through the regular redemption procedure will be paid dividends
through and including the day on which the redemption request is received by the Transfer
Agent in proper form. Dividends will be declared on shares repurchased by a dealer or
broker for three business days following the trade date (this is, up to and including the
day prior to settlement of the repurchase). If all shares in an account are redeemed, all
dividends accrued on shares of the same class in the account will be paid together with the
redemption proceeds.

The Portfolio's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Portfolio's portfolio and, if necessary,
to select higher-yielding securities when it is deemed appropriate to seek income at the
level needed to meet the target. Those securities must be within the Portfolio investment
parameters, however. The Portfolio expects income without any impact on the net asset
values per share.

The Portfolio 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 Portfolio's portfolio, and expenses borne by the
Portfolio 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 and Class Y
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 Portfolio 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 Portfolio and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good faith.

Some of the Underlying Funds have 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 a Portfolio's portfolio, and expenses borne by a
Portfolio 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.

Tax Status of the Portfolios' Dividends, Distributions and Redemptions of Shares.
The tax discussion in the Prospectus and this SAI is based on tax law in effect on the date
of the Prospectus and this SAI. Those laws and regulations may be changed by legislative,
judicial, or administrative action, sometimes with retroactive effect. State and local tax
treatment of ordinary income dividends and capital gain dividends from regulated investment
companies may differ from the treatment under the Internal Revenue Code described below.
Potential purchasers of shares of a Portfolio 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 a Portfolio.

The federal tax treatment of a Portfolio'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 Portfolios and their shareholders.
Generally, the character of the income or capital gains that the Portfolios receive from
the Underlying Funds will pass through to the Portfolios as long as the Underlying Funds
continue to qualify as registered investment companies. However, short-term capital gains
will be taxed as ordinary income and therefore may not be offset against long-term capital
losses and foreign tax credits or deductions may not "pass through" to the Portfolios'
shareholders.

Qualification as a Regulated Investment Company. Each Portfolio 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, each Portfolio 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 each Portfolio 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 a Portfolio
(unless their Portfolio 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 each Portfolio might not meet in a particular year. If it did not
qualify as a regulated investment company, each Portfolio 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, each Portfolio 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. Each Portfolio must also satisfy certain other requirements of the Internal Revenue
Code, some of which are described below. Distributions by each Portfolio 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, each Portfolio 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, each Portfolio 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 a Portfolio's taxable year, at
least 50% of the value of the Portfolio'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, each
Portfolio must not have invested more than 5% of the value of the Portfolio's total assets
in securities of each such issuer and the Portfolio 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 each Portfolio 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 Portfolio 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 Portfolios must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Portfolios will meet those requirements. To meet this
requirement, in certain circumstances the Portfolio 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 a Portfolio 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 Portfolio Distributions. Generally, the character of the income or
capital gains that the Portfolios receive from the Underlying Funds will pass through to
the Portfolios, subject to certain exceptions, as long as the Underlying Funds continue to
qualify as registered investment companies. The Portfolios anticipate distributing
substantially all of their 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 each
Portfolio'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 each Portfolio that may qualify for the deduction is limited to the
aggregate amount of qualifying dividends that a Portfolio derives from portfolio
investments that the Portfolio has held for a minimum period, usually 46 days. A corporate
shareholder will not be eligible for the deduction on dividends paid on Portfolio shares
held for 45 days or less. To the extent each Portfolio'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.

Each Portfolio may either retain or distribute to shareholders its net capital gain
for each taxable year. The Portfolios currently intend 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 a Portfolio before the shareholder acquired his or her shares.

If a Portfolio elects to retain its net capital gain, the Portfolio will be subject
to tax on it at the 35% corporate tax rate. If a Portfolio elects to retain its net capital
gain, the Portfolio 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 a Portfolio 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 certain Underlying Funds 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 an
Underlying Fund to a reduced rate of, or exemption from, taxes on such income. The
Portfolios may not be able to pass through certain foreign tax credits or deductions that
would otherwise be available to a shareholder in an Underlying Fund.

Distributions by the Portfolios 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 Portfolios 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 a Portfolio's
investment policies, they will be identified as such in notices sent to shareholders.

Distributions by each Portfolio will be treated in the manner described above
regardless of whether the distributions are paid in cash or reinvested in additional shares
of a Portfolio (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.

Each Portfolio 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 a Portfolio that the shareholder is not subject to backup withholding
or is an "exempt recipient" (such as a corporation). Any tax withheld by a Portfolio is
remitted by a Portfolio 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 a Portfolio
within 30 days before or after the redemption.

In general, any gain or loss arising from the redemption of shares of the Portfolio
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 a Portfolio 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 a Portfolio (and are deemed not
"effectively connected income") to foreign persons will be subject to a U.S. tax withheld
by a Portfolio at a rate of 30%, provided the Portfolio 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 a Portfolio. Any tax withheld (in this situation) by a
Portfolio is remitted by the Portfolio 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 each Portfolio 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 Portfolio obtains a properly completed and
signed Certificate of Foreign Status. If the foreign person fails to provide a
certification of his/her foreign status, a Portfolio 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 (in this
situation) by a Portfolio is remitted by the Portfolio 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 each Portfolio,
including the applicability of the U.S. withholding taxes described above.

Dividend Reinvestment in Another Fund. Shareholders of each Portfolio may elect to reinvest
all dividends and/or capital gains distributions in shares of the same class of any of the
other Oppenheimer funds listed above. Reinvestment will be made without sales charge at the
net asset value per share in effect at the close of business on the payable date of the
dividend or distribution. To elect this option, the shareholder must notify the Transfer
Agent in writing and must have an existing account in the fund selected for reinvestment.
Otherwise the shareholder first must obtain a prospectus for that fund and an application
from the Distributor to establish an account. Dividends and/or distributions from shares of
certain other Oppenheimer funds may be invested in shares of each Portfolio on the same
basis.

Additional Information About the Portfolios

The Distributor. Each Portfolio'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 each Portfolio'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 Portfolios' Transfer Agent, is a
division of the Manager. It is responsible for maintaining each Portfolio's shareholder
registry and shareholder accounting records, and for paying dividends and distributions to
shareholders. It also handles shareholder servicing and administrative functions. It serves
as the Transfer Agent for an annual per account fee. It also acts as shareholder servicing
agent for the other Oppenheimer funds. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown on the back cover.

The Custodian. Citibank, N.A. is the custodian of each Portfolio's assets. The custodian's
responsibilities include safeguarding and controlling each Portfolio's portfolio securities
and handling the delivery of such securities to and from a Portfolio. It is the practice of
each Portfolio to deal with the custodian in a manner uninfluenced by any banking
relationship the custodian may have with the Manager and its affiliates. Each Portfolio'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 is the independent registered
public accounting firm of each Portfolio. KPMG, LLP audits each Portfolio's financial
statements and perform other related audit services. KPMG, LLP also act as an 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 to each Portfolio must be
pre-approved the Audit Committee.


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

--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES:

We have audited the accompanying statement of assets and liabilities of
Conservative Investor Fund (one of the portfolios constituting the Oppenheimer
Portfolio Series), including the statement of investments, as of January 31,
2006, and the related statement of operations, the statement of changes in net
assets and the financial highlights for the period April 5, 2005 (commencement
of operations) to January 31, 2006. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

      We conducted our audit 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 January 31, 2006, 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
audit provides 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
Conservative Investor Fund as of January 31, 2006, the results of its
operations, the changes in its net assets and the financial highlights for the
period April 5, 2005 (commencement of operations) to January 31, 2006, in
conformity with U.S. generally accepted accounting principles.

KPMG LLP

Denver, Colorado
March 15, 2006







                         20 | CONSERVATIVE INVESTOR FUND

STATEMENT OF INVESTMENTS January 31, 2006
--------------------------------------------------------------------------------

                                                                                                            VALUE
                                                                                         SHARES        SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--97.1% 1
-----------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY--5.7%
Oppenheimer Global Fund, Cl. Y                                                           66,908       $ 4,731,060
-----------------------------------------------------------------------------------------------------------------
U.S. EQUITY--16.5%
Oppenheimer Capital Appreciation Fund, Cl. Y                                             99,978         4,563,028
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Fund, Cl. Y                                                     117,728         4,521,933
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Value Fund, Cl. Y                                                           181,842         4,453,313
                                                                                                      -----------
                                                                                                       13,538,274
-----------------------------------------------------------------------------------------------------------------
FIXED INCOME FUNDS--63.9%
Oppenheimer Core Bond Fund, Cl. Y                                                     2,533,270        25,839,353
-----------------------------------------------------------------------------------------------------------------
Oppenheimer High Yield Fund, Cl. Y                                                      978,485         9,119,482
-----------------------------------------------------------------------------------------------------------------
Oppenheimer International Bond Fund, Cl. Y                                              751,912         4,451,319
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Limited-Term Government Fund, Cl. Y                                       1,326,111        13,208,065
                                                                                                      -----------
                                                                                                       52,618,219
-----------------------------------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS--11.0%
Oppenheimer Real Asset Fund, Cl. Y                                                      524,309         4,304,573
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Real Estate Fund, Cl. Y                                                     230,456         4,726,661
                                                                                                      -----------
                                                                                                        9,031,234
                                                                                                      -----------
Total Investments in Affiliated Companies (Cost $78,851,358)                                           79,918,787

                                                                                      PRINCIPAL
                                                                                         AMOUNT
-----------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.0%
Undivided interest of 0.001% in joint repurchase agreement (Principal Amount/
Value $781,426,000, with a maturity value of $781,521,291) with UBS Warburg
LLC, 4.39%, dated 1/31/06, to be repurchased at $5,001 on 2/1/06, collateralized
by Federal Home Loan Mortgage Corp., 5%, 12/1/35, with a value of
$799,056,396 (Cost $5,000)                                                               $5,000             5,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $78,856,358)                                             97.1%       79,923,787
-----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                             2.9         2,366,981
                                                                                      ---------------------------
NET ASSETS                                                                                100.0%      $82,290,768
                                                                                      ===========================


                         21 | CONSERVATIVE INVESTOR FUND

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

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Affiliated companies. Represents ownership of an affiliated fund, at or
during the period ended January 31, 2006.

Transactions during the period in which the issuer was an affiliate are as
follows:

                                                              SHARES            GROSS           GROSS           SHARES
                                                       APRIL 5, 2005        ADDITIONS      REDUCTIONS    JAN. 31, 2006
----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                      --          102,934           2,956           99,978
Oppenheimer Core Bond Fund, Cl. Y                                 --        2,800,411         267,141        2,533,270
Oppenheimer Global Fund, Cl. Y                                    --           68,853           1,945           66,908
Oppenheimer High Yield Fund, Cl. Y                                --        1,008,253          29,768          978,485
Oppenheimer International Bond Fund, Cl. Y                        --          774,461          22,549          751,912
Oppenheimer Limited-Term Government Fund, Cl. Y                   --        1,367,069          40,958        1,326,111
Oppenheimer Main Street Fund, Cl. Y                               --          121,217           3,489          117,728
Oppenheimer Real Asset Fund, Cl. Y                                --          540,767          16,458          524,309
Oppenheimer Real Estate Fund, Cl. Y                               --          237,176           6,720          230,456
Oppenheimer Value Fund, Cl. Y                                     --          187,276           5,434          181,842

                                                                                VALUE        DIVIDEND         REALIZED
                                                                           SEE NOTE 1          INCOME             LOSS
----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                             $  4,563,028      $   30,343         $ (2,207)
Oppenheimer Core Bond Fund, Cl. Y                                          25,839,353         480,979          (26,456)
Oppenheimer Global Fund, Cl. Y                                              4,731,060          32,152           (3,062)
Oppenheimer High Yield Fund, Cl. Y                                          9,119,482         247,087           (5,509)
Oppenheimer International Bond Fund, Cl. Y                                  4,451,319         155,090           (3,241)
Oppenheimer Limited-Term Government Fund, Cl. Y                            13,208,065         183,650           (4,219)
Oppenheimer Main Street Fund, Cl. Y                                         4,521,933          45,568           (1,938)
Oppenheimer Real Asset Fund, Cl. Y                                          4,304,573         123,638          (24,408)
Oppenheimer Real Estate Fund, Cl. Y                                         4,726,661         116,383           (3,103)
Oppenheimer Value Fund, Cl. Y                                               4,453,313          75,784           (4,038)
                                                                         ----------------------------------------------
                                                                         $ 79,918,787      $1,490,674         $(78,181)
                                                                         ==============================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         22 | CONSERVATIVE INVESTOR FUND

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

--------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $5,000)                                 $     5,000
Affiliated companies (cost $78,851,358)                               79,918,787
                                                                     -----------
                                                                      79,923,787
--------------------------------------------------------------------------------
Cash                                                                       5,163
--------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                     2,690,308
Interest and dividends                                                   208,258
Other                                                                      1,998
                                                                     -----------
Total assets                                                          82,829,514

--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                    363,117
Shares of beneficial interest redeemed                                   115,012
Legal, auditing and other professional fees                               19,038
Distribution and service plan fees                                        15,688
Shareholder communications                                                12,705
Transfer and shareholder servicing agent fees                              4,216
Trustees' compensation                                                       119
Other                                                                      8,851
                                                                     -----------
Total liabilities                                                        538,746

--------------------------------------------------------------------------------
NET ASSETS                                                           $82,290,768
                                                                     ===========

--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
--------------------------------------------------------------------------------
Par value of shares of beneficial interest                           $     7,830
--------------------------------------------------------------------------------
Additional paid-in capital                                            80,809,603
--------------------------------------------------------------------------------
Accumulated net investment income                                        143,905
--------------------------------------------------------------------------------
Accumulated net realized gain on investments                             262,001
--------------------------------------------------------------------------------
Net unrealized appreciation on investments                             1,067,429
                                                                     -----------
NET ASSETS                                                           $82,290,768
                                                                     ===========


                         23 | CONSERVATIVE INVESTOR 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 $46,318,136 and
4,400,623 shares of beneficial interest outstanding)                                                  $10.53
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price)       $11.17
------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and
offering price per share (based on net assets of $9,163,440 and 873,549 shares of
beneficial interest outstanding)                                                                      $10.49
------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and
offering price per share (based on net assets of $19,144,803 and 1,826,455 shares of
beneficial interest outstanding)                                                                      $10.48
------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and
offering price per share (based on net assets of $7,568,565 and 720,410 shares of
beneficial interest outstanding)                                                                      $10.51
------------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $95,824 and 9,089 shares of beneficial interest outstanding)                                       $10.54

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         24 | CONSERVATIVE INVESTOR FUND

STATEMENT OF OPERATIONS For the Period Ended January 31, 2006 1
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------
Dividends from affiliated companies                                  $1,490,674
--------------------------------------------------------------------------------
Interest                                                                 10,535
                                                                     -----------
Total investment income                                               1,501,209

--------------------------------------------------------------------------------
EXPENSES
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                                  43,617
Class B                                                                  32,998
Class C                                                                  62,739
Class N                                                                   9,122
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A                                                                  11,058
Class B                                                                   4,274
Class C                                                                   6,333
Class N                                                                     720
Class Y                                                                      69
--------------------------------------------------------------------------------
Shareholder communications:
Class A                                                                  12,002
Class B                                                                   4,048
Class C                                                                   7,095
Class N                                                                     709
Class Y                                                                      12
--------------------------------------------------------------------------------
Legal, auditing and other professional fees                              25,605
--------------------------------------------------------------------------------
Trustees' compensation                                                    7,744
--------------------------------------------------------------------------------
Custodian fees and expenses                                                 821
--------------------------------------------------------------------------------
Other                                                                    11,776
                                                                     -----------
Total expenses                                                          240,742
Less reduction to custodian expenses                                         (4)
Less waivers and reimbursements of expenses                              (7,387)
                                                                     -----------
Net expenses                                                            233,351

--------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                 1,267,858

--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
--------------------------------------------------------------------------------
Net realized gain (loss) on:
Distributions received from affiliated companies                        396,255
Affiliated companies                                                    (78,181)
                                                                     -----------
Net realized gain                                                       318,074
--------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                  1,067,429

--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                 $2,653,361
                                                                     ===========

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         25 | CONSERVATIVE INVESTOR FUND

STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

PERIOD ENDED JANUARY 31,                                                               2006 1
---------------------------------------------------------------------------------------------
OPERATIONS
---------------------------------------------------------------------------------------------
Net investment income                                                           $ 1,267,858
---------------------------------------------------------------------------------------------
Net realized gain                                                                   318,074
---------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                             1,067,429
                                                                                -------------
Net increase in net assets resulting from operations                              2,653,361

---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                            (681,145)
Class B                                                                            (105,273)
Class C                                                                            (216,389)
Class N                                                                            (125,016)
Class Y                                                                              (1,638)

---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A                                                                          45,236,761
Class B                                                                           9,001,293
Class C                                                                          18,835,139
Class N                                                                           7,498,474
Class Y                                                                              91,201

---------------------------------------------------------------------------------------------
NET ASSETS
---------------------------------------------------------------------------------------------
Total increase                                                                   82,186,768
---------------------------------------------------------------------------------------------
Beginning of period                                                                 104,000 2
                                                                                -------------
End of period (including accumulated net investment income
of $143,905 for the period ended January 31, 2006)                              $82,290,768
                                                                                =============

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. Reflects the value of the Manager's initial seed money investment on March
15, 2005.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         26 | CONSERVATIVE INVESTOR FUND

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

PERIOD ENDED JANUARY 31, 2006 1                    CLASS A         CLASS B         CLASS C
---------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------
Net asset value, beginning of period               $ 10.00         $ 10.00         $ 10.00
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                .38             .32             .32
Net realized and unrealized gain                       .33             .32             .31
                                                   ------------------------------------------
Total from investment operations                       .71             .64             .63
---------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.18)           (.15)           (.15)
---------------------------------------------------------------------------------------------
Net asset value, end of period                     $ 10.53         $ 10.49         $ 10.48
                                                   ==========================================

---------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                    7.15%           6.44%           6.37%
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $46,318         $ 9,163         $19,145
---------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $21,844         $ 4,018         $ 7,647
---------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                 4.50%           3.74%           3.78%
Total expenses                                        0.53% 5         1.39% 6         1.36% 7
Expenses after waivers and reimbursements
and reduction to custodian expenses                   0.51%           1.34%           1.33%
---------------------------------------------------------------------------------------------
Portfolio turnover rate                                 11%             11%             11%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.19% for January 31,
2006.

6. Expenses including all underlying fund expenses were 2.05% for January 31,
2006.

7. Expenses including all underlying fund expenses were 2.02% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         27 | CONSERVATIVE INVESTOR FUND

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

PERIOD ENDED JANUARY 31, 2006 1                        CLASS N        CLASS Y
--------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period                    $10.00         $10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                    .41            .38
Net realized and unrealized gain                           .28            .35
                                                        ------------------------
Total from investment operations                           .69            .73
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.18)          (.19)
--------------------------------------------------------------------------------
Net asset value, end of period                          $10.51         $10.54
                                                        ========================

--------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        6.98%          7.34%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Net assets, end of period (in thousands)                $7,569         $   96
--------------------------------------------------------------------------------
Average net assets (in thousands)                       $2,231         $   71
--------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     4.82%          4.42%
Total expenses                                            0.72% 5        0.30% 6
Expenses after waivers and reimbursements
and reduction to custodian expenses                       0.71%          0.25%
--------------------------------------------------------------------------------
Portfolio turnover rate                                     11%            11%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.38% for January 31,
2006.

6. Expenses including all underlying fund expenses were 0.96% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                         28 | CONSERVATIVE INVESTOR FUND

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

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

Oppenheimer Portfolio Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Conservative Investor Fund (the "Portfolio") is a series of the Fund whose
investment objective is to seek current income with a secondary objective of
long-term growth of capital. The Portfolio is a special type of mutual fund
known as a "fund of funds" because it invests in other mutual funds. The
Portfolio normally invests in a portfolio consisting of a target-weighted
allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's
investment advisor is OppenheimerFunds, Inc. (the "Manager").

      The Portfolio offers Class A, Class B, Class C, Class N and Class Y
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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Portfolio 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. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase.

      Under normal market conditions, the Manager will invest the Portfolio's
assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation
Fund, Oppenheimer Global Fund, Oppenheimer High Yield Fund, Oppenheimer
International Bond Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer
Main Street Fund(R), Oppenheimer Real Asset Fund(R), Oppenheimer Real Estate
Fund and Oppenheimer Value Fund (individually, an "Underlying Fund" and
collectively, the "Underlying Funds").

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

--------------------------------------------------------------------------------
SECURITIES VALUATION. The Portfolio calculates the net asset value of each class
of shares based upon the net asset value of the applicable Underlying Funds' 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 trading.

      For each Underlying Fund, the net asset value per share for a class of
shares on a "regular business day" is determined by dividing the value of the
Underlying 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
Underlying Fund assets are valued primarily on the basis of current market
quotations. If market quotations are not readily available or do


                         29 | CONSERVATIVE INVESTOR FUND

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

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

not accurately reflect fair value for a security (in the Manager's judgment) or
if a security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded,
that security may be valued by another method that the Underlying Fund's Board
of Trustees/Directors 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 Underlying Fund's foreign
investments may change on days when investors cannot buy or redeem Underlying
Fund shares.

      Short-term "money market type" debt securities with remaining maturities
of sixty days or less are valued at amortized cost (which approximates market
value).

--------------------------------------------------------------------------------
RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in
which the Portfolio invests has its own investment risks, and those risks can
affect the value of the Portfolio's investments and therefore the value of the
Portfolio's shares. To the extent that the Portfolio invests more of its assets
in one Underlying Fund than in another, the Portfolio will have greater exposure
to the risks of that Underlying Fund.

--------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Portfolio, 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 Portfolio 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 Portfolio must satisfy under the income tax
regulations, losses the Portfolio 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.


                         30 | CONSERVATIVE INVESTOR FUND

                                                                  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           TAX PURPOSES
        ------------------------------------------------------------------------
        $143,954              $287,411                $--             $1,042,019

1. During the period ended January 31, 2006, the Fund did not have any capital
loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Portfolio.
Accordingly, the following amounts have been reclassified for January 31, 2006.
Net assets of the Portfolio were unaffected by the reclassifications.

                                                                       REDUCTION
                                           INCREASE           TO ACCUMULATED NET
        INCREASE                 TO ACCUMULATED NET                REALIZED GAIN
        TO PAID-IN CAPITAL        INVESTMENT INCOME             ON INVESTMENTS 2
        ------------------------------------------------------------------------
        $50,565                              $5,508                      $56,073

2. $56,073, all of which was long-term capital gain, was distributed in
connection with Portfolio share redemptions.

The tax character of distributions paid during the period ended January 31, 2006
was as follows:

                                                   PERIOD ENDED
                                               JANUARY 31, 2006
        -------------------------------------------------------
        Distributions paid from:
        Ordinary income                              $1,129,461

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 January 31, 2006 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

        Federal tax cost of securities             $ 78,881,768
                                                   =============
        Gross unrealized appreciation              $  1,386,485
        Gross unrealized depreciation                  (344,466)
                                                   -------------
        Net unrealized appreciation                $  1,042,019
                                                   =============

--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded


                         31 | CONSERVATIVE INVESTOR FUND

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

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

on the ex-dividend date. Income and 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 Portfolio 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 Portfolio pays
interest to its custodian on such cash overdrafts to the extent they are not
offset by positive cash balances maintained by the Portfolio 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
Portfolio during the period. Such interest expense and other custodian fees may
be paid with these earnings.

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

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

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


                         32 | CONSERVATIVE INVESTOR FUND

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

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

                                               PERIOD ENDED JANUARY 31, 2006 1,2
                                                     SHARES              AMOUNT
--------------------------------------------------------------------------------
CLASS A

Sold                                              4,892,094         $50,465,464
Dividends and/or
distributions reinvested                             58,785             607,250
Redeemed                                           (560,256)         (5,835,953)
                                                --------------------------------
Net increase                                      4,390,623         $45,236,761
                                                ================================

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

Sold                                                949,406         $ 9,789,255
Dividends and/or
distributions reinvested                              9,315              95,942
Redeemed                                            (85,272)           (883,904)
                                                --------------------------------
Net increase                                        873,449         $ 9,001,293
                                                ================================

--------------------------------------------------------------------------------
CLASS C
Sold                                              1,904,973         $19,653,821
Dividends and/or
distributions reinvested                             19,416             199,792
Redeemed                                            (98,034)         (1,018,474)
                                                --------------------------------
Net increase                                      1,826,355         $18,835,139
                                                ================================

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

Sold                                              1,007,278         $10,503,896
Dividends and/or
distributions reinvested                             11,897             122,654
Redeemed                                           (298,865)         (3,128,076)
                                                --------------------------------
Net increase                                        720,310         $ 7,498,474
                                                ================================

--------------------------------------------------------------------------------
CLASS Y

Sold                                                 14,752         $   151,331
Dividends and/or
distributions reinvested                                157               1,619
Redeemed                                             (5,920)            (61,749)
                                                --------------------------------
Net increase                                          8,989         $    91,201
                                                ================================

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. The Fund sold 10,000 shares of Class A at a value of $100,000 and 100 shares
of Class B, Class C, Class N and Class Y at a value of $1,000, respectively, to
the Manager upon seeding of the Fund on March 15, 2005.


                         33 | CONSERVATIVE INVESTOR 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 period ended January 31, 2006, were as
follows:

                                                     PURCHASES             SALES
--------------------------------------------------------------------------------
Investment securities                              $83,303,944        $4,374,405
--------------------------------------------------------------------------------

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

MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not
charge a management fee, but rather collects indirect management fees from
investments in the Underlying Funds. The weighted indirect management fees
collected from the Underlying Funds, as a percent of average daily net assets of
the Portfolio for the period ended January 31, 2006 was 0.56%.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Portfolio. The
Portfolio pays OFS a per account fee. For the period ended January 31, 2006, the
Portfolio paid $18,168 to OFS for services to the Portfolio.

      Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.

--------------------------------------------------------------------------------
INITIAL OFFERING AND ORGANIZATIONAL COSTS. The Manager assumed all initial
offering and organizational costs associated with the registration and seeding
of the Portfolio.

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

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

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The
Portfolio has adopted Distribution and Service Plans for Class B, Class C and
Class N shares to compensate the Distributor for its services and costs in
connection with the distribution


                         34 | CONSERVATIVE INVESTOR FUND

of those shares and servicing accounts. Under the plans, the Portfolio 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 Portfolio or by the shareholders of a class, the Board
of Trustees and its independent trustees must determine whether the Distributor
shall be entitled to payment from the Portfolio 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 January 31, 2006 for Class B, Class C
and Class N shares were $103,594, $127,362 and $126,713, respectively. Fees
incurred by the Portfolio 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 Portfolio. They are deducted from the
proceeds of sales of Portfolio 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
PERIOD ENDED           DISTRIBUTOR      DISTRIBUTOR       DISTRIBUTOR       DISTRIBUTOR      DISTRIBUTOR
--------------------------------------------------------------------------------------------------------
January 31, 2006          $202,862              $--            $3,193            $1,819           $1,832
--------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees paid directly by the Portfolio to
0.35% of average annual net assets for each class. During the period ended
January 31, 2006, OFS waived $60, $3 and $7 for Class B, Class N and Class Y
shares, respectively. This undertaking may be amended or withdrawn at any time.

      The Manager has voluntarily agreed to a total expense limitation on the
aggregate amount of combined direct (fund-of-funds level) and indirect expense
so that Combined Total Annual and Underlying Fund Operating Expenses as a
percentage of average daily net assets will not exceed the following annual
rates: 1.25%, 2.00%, 2.00%, 1.50% and 1.00%, for Class A, Class B, Class C,
Class N and Class Y, respectively. During the period ended January 31, 2006, the
Manager reimbursed the Portfolio $4,011, $1,524, $1,683, $79 and $20, for the
Class A, Class B, Class C, Class N and Class Y shares, respectively. The Manager
may modify or terminate this undertaking at any time without notice to
shareholders. These expense limitations do not include Extraordinary Expenses
and other expenses not incurred in the ordinary course of the Portfolio's
business. Notwithstanding the foregoing limits, the Manager is not required to
waive or reimburse Portfolio expenses in excess of indirect management fees
earned from investments in Underlying Funds to assure that expenses do not
exceed those limits.


                         35 | CONSERVATIVE INVESTOR FUND

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

--------------------------------------------------------------------------------
5. LITIGATION

A complaint was filed as a putative class action against the Manager and OFS
(and other defendants) in the U.S. District Court for the Southern District of
New York on January 10, 2005 and was amended on March 4, 2005. Seven of the
eight counts in the complaint, including claims against certain of the
Oppenheimer funds excluding the Portfolio, as nominal defendants, and against
certain present and former Directors, Trustees and officers of the funds, and
the Distributor, as defendants, were dismissed with prejudice, under a court
order dated March 10, 2006, in response to a motion to dismiss the suit that had
been filed by the defendants. The remaining count against the Adviser Defendants
alleges, among other things, that the defendants charged excessive fees in
violation of section 36(b) of the Investment Company Act of 1940. The plaintiffs
seek unspecified damages, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

      The Adviser Defendants believe that the claims asserted in the remaining
count under this lawsuit are without merit, and intend to defend the suit
vigorously and contest any claimed liability. They 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.

--------------------------------------------------------------------------------
6. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

At a meeting held on December 14, 2005, the Board of Trustees of the Fund
appointed KPMG LLP as the independent registered public accounting firm to the
Fund to replace the firm of Ernst & Young LLP, who were dismissed as the
independent registered public accounting firm to the Fund. This change in the
Fund's auditors was approved by the Fund's audit committee and ratified by the
Fund's independent Trustees.

      The report of Ernst & Young LLP on the Fund's statements of assets and
liabilities as of March 15, 2005 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.

      The Fund commenced operations on April 5, 2005. During the period from
March 15, 2005 through December 14, 2005, there were no disagreements with Ernst
& Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the matter in their report.


                         36 | CONSERVATIVE INVESTOR FUND










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

--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES:

We have audited the accompanying statement of assets and liabilities of Moderate
Investor Fund (one of the portfolios constituting the Oppenheimer Portfolio
Series), including the statement of investments, as of January 31, 2006, and the
related statement of operations, the statement of changes in net assets and the
financial highlights for the period April 5, 2005 (commencement of operations)
to January 31, 2006. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit.

      We conducted our audit 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 January 31, 2006, 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
audit provides 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
Moderate Investor Fund as of January 31, 2006, the results of its operations,
the changes in its net assets and the financial highlights for the period April
5, 2005 (commencement of operations) to January 31, 2006, in conformity with
U.S. generally accepted accounting principles.

KPMG LLP

Denver, Colorado
March 15, 2006


STATEMENT OF INVESTMENTS January 31, 2006
--------------------------------------------------------------------------------

                                                                                                            VALUE
                                                                                       SHARES          SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--99.0% 1
-----------------------------------------------------------------------------------------------------------------
GLOBAL EQUITY--10.6%
Oppenheimer Global Fund, Cl. Y                                                        307,304        $ 21,729,432
-----------------------------------------------------------------------------------------------------------------
U. S. EQUITY--35.0%
Oppenheimer Capital Appreciation Fund, Cl. Y                                          452,591          20,656,244
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Fund, Cl. Y                                                   533,482          20,491,066
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Opportunity Fund, Cl. Y                                       729,566          10,345,238
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Value Fund, Cl. Y                                                         829,078          20,304,120
                                                                                                     ------------
                                                                                                       71,796,668

-----------------------------------------------------------------------------------------------------------------
FIXED INCOME--43.2%
Oppenheimer Core Bond Fund, Cl. Y                                                   3,823,987          39,004,670
-----------------------------------------------------------------------------------------------------------------
Oppenheimer High Yield Fund, Cl. Y                                                  2,132,328          19,873,297
-----------------------------------------------------------------------------------------------------------------
Oppenheimer International Bond Fund, Cl. Y                                          1,704,413          10,090,125
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Limited-Term Government Fund, Cl. Y                                     1,959,654          19,518,148
                                                                                                     ------------
                                                                                                       88,486,240

-----------------------------------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS--10.2%
Oppenheimer Real Asset Fund, Cl. Y                                                  1,239,352          10,175,085
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Real Estate Fund, Cl. Y                                                   527,524          10,819,515
                                                                                                     ------------
                                                                                                       20,994,600
                                                                                                     ------------
Total Investments in Affiliated Companies (Cost $198,352,686)                                         203,006,940

                                                                                    PRINCIPAL
                                                                                       AMOUNT
-----------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.2%
Undivided interest of 0.05% in joint repurchase agreement (Principal Amount/
Value $781,426,000, with a maturity value of $781,521,291) with UBS Warburg
LLC, 4.39%, dated 1/31/06, to be repurchased at $362,044 on 2/1/06,
collateralized by Federal Home Loan Mortgage Corp., 5%, 12/1/35,
with a value of $799,056,396
(Cost $362,000)                                                                      $362,000             362,000
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $198,714,686)                                          99.2%        203,368,940
-----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                           0.8           1,610,395
                                                                                    -----------------------------
NET ASSETS                                                                              100.0%       $204,979,335
                                                                                    =============================

                           21 | MODERATE INVESTOR FUND

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

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Affiliated companies. Represents ownership of an affiliated fund, at or
during the period ended January 31, 2006.

Transactions during the period in which the issuer was an affiliate are as
follows:

                                                           SHARES             GROSS           GROSS           SHARES
                                                    APRIL 5, 2005         ADDITIONS      REDUCTIONS    JAN. 31, 2006
---------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                   --           453,009             418          452,591
Oppenheimer Core Bond Fund, Cl. Y                              --         3,827,191           3,204        3,823,987
Oppenheimer Global Fund, Cl. Y                                 --           307,594             290          307,304
Oppenheimer High Yield Fund, Cl. Y                             --         2,134,105           1,777        2,132,328
Oppenheimer International Bond Fund, Cl. Y                     --         1,705,838           1,425        1,704,413
Oppenheimer Limited-Term Government Fund, Cl. Y                --         1,961,301           1,647        1,959,654
Oppenheimer Main Street Fund, Cl. Y                            --           533,977             495          533,482
Oppenheimer Main Street Opportunity Fund, Cl. Y                --           730,230             664          729,566
Oppenheimer Real Asset Fund, Cl. Y                             --         1,240,394           1,042        1,239,352
Oppenheimer Real Estate Fund, Cl. Y                            --           528,030             506          527,524
Oppenheimer Value Fund, Cl. Y                                  --           829,812             734          829,078

                                                                             VALUE        DIVIDEND          REALIZED
                                                                        SEE NOTE 1          INCOME       GAIN (LOSS)
---------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                          $ 20,656,244      $  140,045           $  (640)
Oppenheimer Core Bond Fund, Cl. Y                                       39,004,670         649,358                --
Oppenheimer Global Fund, Cl. Y                                          21,729,432         151,560              (571)
Oppenheimer High Yield Fund, Cl. Y                                      19,873,297         509,937              (195)
Oppenheimer International Bond Fund, Cl. Y                              10,090,125         341,523                14
Oppenheimer Limited-Term Government Fund, Cl. Y                         19,518,148         257,330                --
Oppenheimer Main Street Fund, Cl. Y                                     20,491,066         210,335              (747)
Oppenheimer Main Street Opportunity Fund, Cl. Y                         10,345,238         162,372              (365)
Oppenheimer Real Asset Fund, Cl. Y                                      10,175,085         296,172              (396)
Oppenheimer Real Estate Fund, Cl. Y                                     10,819,515         264,614               (46)
Oppenheimer Value Fund, Cl. Y                                           20,304,120         352,032              (748)
                                                                      -----------------------------------------------
                                                                      $203,006,940      $3,335,278           $(3,694)
                                                                      ===============================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           22 | MODERATE INVESTOR FUND

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

--------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $362,000)                              $    362,000
Affiliated companies (cost $198,352,686)                             203,006,940
                                                                    ------------
                                                                     203,368,940
--------------------------------------------------------------------------------
Cash                                                                       5,453
--------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                     3,195,730
Interest and dividends                                                   357,361
Other                                                                      2,422
                                                                    ------------
Total assets                                                         206,929,906

--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                  1,142,679
Shares of beneficial interest redeemed                                   694,257
Distribution and service plan fees                                        39,573
Shareholder communications                                                16,535
Transfer and shareholder servicing agent fees                             16,106
Trustees' compensation                                                       269
Other                                                                     41,152
                                                                    ------------
Total liabilities                                                      1,950,571

--------------------------------------------------------------------------------
NET ASSETS                                                          $204,979,335
                                                                    ============

--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
--------------------------------------------------------------------------------
Par value of shares of beneficial interest                          $     19,054
--------------------------------------------------------------------------------
Additional paid-in capital                                           198,749,039
--------------------------------------------------------------------------------
Accumulated net investment income                                        206,552
--------------------------------------------------------------------------------
Accumulated net realized gain on investments                           1,350,436
--------------------------------------------------------------------------------
Net unrealized appreciation on investments                             4,654,254
                                                                    ------------
NET ASSETS                                                          $204,979,335
                                                                    ============


                           23 | MODERATE INVESTOR 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 $107,685,705
and 9,990,294 shares of beneficial interest outstanding)                                         $10.78
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price)                                                                         $11.44
-------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $36,955,874 and 3,442,105
shares of beneficial interest outstanding)                                                       $10.74
-------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $47,904,460 and 4,466,040
shares of beneficial interest outstanding)                                                       $10.73
-------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $12,116,889 and 1,126,088
shares of beneficial interest outstanding)                                                       $10.76
-------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$316,407 and 29,318 shares of beneficial interest outstanding)                                   $10.79

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           24 | MODERATE INVESTOR FUND

STATEMENT OF OPERATIONS For the Period Ended January 31, 2006 1
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------
Dividends from affiliated companies                                  $3,335,278
--------------------------------------------------------------------------------
Interest                                                                 25,380
                                                                     -----------
Total investment income                                               3,360,658
--------------------------------------------------------------------------------
EXPENSES
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                                  89,171
Class B                                                                 127,405
Class C                                                                 160,182
Class N                                                                  17,032
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A                                                                  35,681
Class B                                                                  20,272
Class C                                                                  17,669
Class N                                                                   2,843
Class Y                                                                     209
--------------------------------------------------------------------------------
Shareholder communications:
Class A                                                                  15,599
Class B                                                                   9,748
Class C                                                                   7,441
Class N                                                                     961
Class Y                                                                     101
--------------------------------------------------------------------------------
Legal, auditing and other professional fees                              25,782
--------------------------------------------------------------------------------
Trustees' compensation                                                    8,081
--------------------------------------------------------------------------------
Custodian fees and expenses                                               1,016
--------------------------------------------------------------------------------
Other                                                                    25,173
                                                                     -----------
Total expenses                                                          564,366
Less reduction to custodian expenses                                         (8)
Less waivers and reimbursements of expenses                             (12,309)
                                                                     -----------
Net expenses                                                            552,049

--------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                 2,808,609
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
--------------------------------------------------------------------------------
Net realized gain (loss) on:
Distributions received from affiliated companies                      1,521,916
Affiliated companies                                                     (3,694)
                                                                     -----------
Net realized gain                                                     1,518,222
--------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                  4,654,254

--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                 $8,981,085
                                                                     ===========

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           25 | MODERATE INVESTOR FUND

STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

PERIOD ENDED JANUARY 31,                                                             2006 1
---------------------------------------------------------------------------------------------
OPERATIONS
---------------------------------------------------------------------------------------------
Net investment income                                                          $  2,808,609
---------------------------------------------------------------------------------------------
Net realized gain                                                                 1,518,222
---------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                             4,654,254
                                                                               --------------
Net increase in net assets resulting from operations                              8,981,085

---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                          (1,457,787)
Class B                                                                            (428,124)
Class C                                                                            (555,237)
Class N                                                                            (164,658)
Class Y                                                                              (5,308)

---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A                                                                         104,188,008
Class B                                                                          35,779,888
Class C                                                                          46,402,364
Class N                                                                          11,835,440
Class Y                                                                             299,664

---------------------------------------------------------------------------------------------
NET ASSETS
---------------------------------------------------------------------------------------------
Total increase                                                                  204,875,335
---------------------------------------------------------------------------------------------
Beginning of period                                                                 104,000 2
                                                                               --------------
End of period (including accumulated net investment income of
$206,552 for the period ended January 31, 2006)                                $204,979,335
                                                                               ==============

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. Reflects the value of the manager's initial seed money investments on March
15, 2005.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           26 | MODERATE INVESTOR FUND

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

                                                    CLASS A          CLASS B          CLASS C
PERIOD ENDED JANUARY 31,                             2006 1           2006 1           2006 1
------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------
Net asset value, beginning of period               $  10.00         $  10.00         $  10.00
------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                 .38              .31              .31
Net realized and unrealized gain                        .57              .58              .57
                                                   ---------------------------------------------
Total from investment operations                        .95              .89              .88
------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.17)            (.15)            (.15)
------------------------------------------------------------------------------------------------
Net asset value, end of period                     $  10.78         $  10.74         $  10.73
                                                   =============================================

------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                     9.58%            8.90%            8.82%
------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $107,686         $ 36,956         $ 47,904
------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $ 43,984         $ 15,521         $ 19,527
------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                  4.39%            3.56%            3.64%
Total expenses                                         0.47% 5          1.31% 6          1.23% 7
Expenses after waivers and reimbursements and
reduction to custodian expenses                        0.46%            1.29%            1.22%
------------------------------------------------------------------------------------------------
Portfolio turnover rate                                   0%               0%               0%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.15% for January 31,
2006.

6. Expenses including all underlying fund expenses were 1.99% for January 31,
2006.

7. Expenses including all underlying fund expenses were 1.91% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           27 | MODERATE INVESTOR FUND

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

                                                      CLASS N         CLASS Y
PERIOD ENDED JANUARY 31,                               2006 1          2006 1
--------------------------------------------------------------------------------
PER SHARE OPERATING DATA
--------------------------------------------------------------------------------
Net asset value, beginning of period                  $ 10.00         $ 10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                   .40             .36
Net realized and unrealized gain                          .53             .61
                                                      --------------------------
Total from investment operations                          .93             .97
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                     (.17)           (.18)
--------------------------------------------------------------------------------
Net asset value, end of period                        $ 10.76         $ 10.79
                                                      ==========================

--------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                       9.35%           9.79%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $12,117         $   316
--------------------------------------------------------------------------------
Average net assets (in thousands)                     $ 4,158         $   216
--------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                    4.56%           4.20%
Total expenses                                           0.68% 5         0.28% 6
Expenses after waivers and reimbursements and
reduction to custodian expenses                          0.67%           0.12%
--------------------------------------------------------------------------------
Portfolio turnover rate                                     0%              0%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.36% for January 31,
2006.

6. Expenses including all underlying fund expenses were 0.96% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           28 | MODERATE INVESTOR FUND

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

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

Oppenheimer Portfolio Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Moderate Investor Fund (the "Portfolio") is a series of the Fund whose
investment objective is to seek long term growth of capital and current income.
The Portfolio is a special type of mutual fund known as a "fund of funds"
because it invests in other mutual funds. The Portfolio normally invests in a
portfolio consisting of a target-weighted allocation in Class A or Class Y
shares of other Oppenheimer funds. The Fund's investment advisor is
OppenheimerFunds Inc. (the "Manager").

      The Portfolio offers Class A, Class B, Class C, Class N and Class Y
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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Portfolio 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. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase.

      Under normal market conditions, the Manager will invest the Portfolio's
assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation
Fund, Oppenheimer Global Fund, Oppenheimer High Yield Fund, Oppenheimer
International Bond Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer
Main Street Fund(R), Oppenheimer Main Street Opportunity Fund(R), Oppenheimer
Real Asset Fund(R), Oppenheimer Real Estate Fund and Oppenheimer Value Fund
(individually, an "Underlying Fund" and collectively, the "Underlying Funds").

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

--------------------------------------------------------------------------------
SECURITIES VALUATION. The Portfolio calculates the net asset value of each class
of shares based upon the net asset value of the applicable Underlying Funds' 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 trading.

      For each Underlying Fund, the net asset value per share for a class of
shares on a "regular business day" is determined by dividing the value of the
Underlying 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
Underlying Fund assets are valued primarily on the


                           29 | MODERATE INVESTOR FUND

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

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

basis of current market quotations. If market quotations are not readily
available or do not accurately reflect fair value for a security (in the
Manager's judgment) or if a security's value has been materially affected by
events occurring after the close of the exchange or market on which the security
is principally traded, that security may be valued by another method that the
Underlying Fund's Board of Trustees/Directors 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 Underlying
Fund's foreign investments may change on days when investors cannot buy or
redeem Underlying Fund shares.

      Short-term "money market type" debt securities with remaining maturities
of sixty days or less are valued at amortized cost (which approximates market
value).

--------------------------------------------------------------------------------
RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in
which the Portfolio invests has its own investment risks, and those risks can
affect the value of the Portfolio's investments and therefore the value of the
Portfolio's shares. To the extent that the Portfolio invests more of its assets
in one Underlying Fund than in another, the Portfolio will have greater exposure
to the risks of that Underlying Fund.

--------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Portfolio, 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 Portfolio 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 Portfolio must satisfy under the income tax
regulations, losses the Portfolio 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.


                           30 | MODERATE INVESTOR FUND

                                                                  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           TAX PURPOSES
      --------------------------------------------------------------------------
      $206,658             $1,350,436                 $--             $4,654,254

1. During the period ended January 31, 2006, the Portfolio did not have any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Portfolio.
Accordingly, the following amounts have been reclassified for January 31, 2006.
Net assets of the Portfolio were unaffected by the reclassifications.

                                                                       REDUCTION
                                           INCREASE           TO ACCUMULATED NET
      INCREASE                   TO ACCUMULATED NET                REALIZED GAIN
      TO PAID-IN CAPITAL          INVESTMENT INCOME             ON INVESTMENTS 2
      --------------------------------------------------------------------------
      $158,729                               $9,057                     $167,786

2. $167,786, all of which was long-term capital gain, was distributed in
connection with Portfolio share redemptions.

The tax character of distributions paid during the period ended January 31, 2006
was as follows:

                                              PERIOD ENDED
                                          JANUARY 31, 2006
      ----------------------------------------------------
      Distributions paid from:
      Ordinary income                           $2,611,114

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 January 31, 2006 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

      Federal tax cost of securities          $198,714,686
                                              =============
      Gross unrealized appreciation           $  5,284,368
      Gross unrealized depreciation               (630,114)
                                              -------------
      Net unrealized appreciation             $  4,654,254
                                              =============

--------------------------------------------------------------------------------
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 and capital gain distributions, if
any, are declared and paid annually.


                           31 | MODERATE INVESTOR FUND

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

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

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

--------------------------------------------------------------------------------
CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may
include interest expense incurred by the Portfolio 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 Portfolio pays
interest to its custodian on such cash overdrafts to the extent they are not
offset by positive cash balances maintained by the Portfolio 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
Portfolio during the period. Such interest expense and other custodian fees may
be paid with these earnings.

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

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

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

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

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


                           32 | MODERATE INVESTOR FUND

                                              PERIOD ENDED JANUARY 31, 2006 1,2
                                                      SHARES             AMOUNT
--------------------------------------------------------------------------------
CLASS A
Sold                                              10,348,982       $108,067,839
Dividends and/or
distributions reinvested                             131,505          1,380,804
Redeemed                                            (500,193)        (5,260,635)
                                                  ------------------------------
Net increase                                       9,980,294       $104,188,008
                                                  ==============================

--------------------------------------------------------------------------------
CLASS B
Sold                                               3,602,759       $ 37,460,502
Dividends and/or
distributions reinvested                              38,687            404,664
Redeemed                                            (199,441)        (2,085,278)
                                                  ------------------------------
Net increase                                       3,442,005       $ 35,779,888
                                                  ==============================

--------------------------------------------------------------------------------
CLASS C
Sold                                               4,610,775       $ 47,936,138
Dividends and/or
distributions reinvested                              48,772            509,662
Redeemed                                            (193,607)        (2,043,436)
                                                  ------------------------------
Net increase                                       4,465,940       $ 46,402,364
                                                  ==============================

--------------------------------------------------------------------------------
CLASS N
Sold                                               1,274,902       $ 13,414,589
Dividends and/or
distributions reinvested                              14,511            152,071
Redeemed                                            (163,425)        (1,731,220)
                                                  ------------------------------
Net increase                                       1,125,988       $ 11,835,440
                                                  ==============================

--------------------------------------------------------------------------------
CLASS Y
Sold                                                  35,197       $    362,730
Dividends and/or
distributions reinvested                                 503              5,289
Redeemed                                              (6,482)           (68,355)
                                                  ------------------------------
Net increase                                          29,218       $    299,664
                                                  ==============================

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100
shares of Class B, Class C, Class N and Class Y at a value of $1,000,
respectively, to the Manager upon seeding of the Portfolio on March 15, 2005.

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

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

                                                      PURCHASES            SALES
--------------------------------------------------------------------------------
Investment securities                              $198,522,519         $166,137


                           33 | MODERATE INVESTOR FUND

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

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

MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not
charge a management fee, but rather collects indirect management fees from
investments in the Underlying Funds. The weighted indirect management fees
collected from the Underlying Funds, as a percent of average daily net assets of
the Portfolio for the period ended January 31, 2006 was 0.57%.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Portfolio. The
Portfolio pays OFS a per account fee. For the period ended January 31, 2006, the
Portfolio paid $60,548 to OFS for services to the Portfolio.

      Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.

--------------------------------------------------------------------------------
INITIAL OFFERING AND ORGANIZATIONAL COSTS. The Manager assumed all initial
offering and organizational costs associated with the registration and seeding
of the Portfolio.

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

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

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The
Portfolio has adopted Distribution and Service Plans for Class B, Class C and
Class N shares to compensate the Distributor for its services and costs in
connection with the distribution of those shares and servicing accounts. Under
the plans, the Portfolio 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


                           34 | MODERATE INVESTOR FUND

under each plan. If either the Class B, Class C or Class N plan is terminated by
the Portfolio or by the shareholders of a class, the Board of Trustees and its
independent trustees must determine whether the Distributor shall be entitled to
payment from the Portfolio 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 January 31, 2006 for Class B, Class C and Class N shares were
$536,339, $358,188 and $112,008, respectively. Fees incurred by the Portfolio
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 Portfolio. They are deducted from the
proceeds of sales of Portfolio 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
PERIOD ENDED            DISTRIBUTOR      DISTRIBUTOR       DISTRIBUTOR       DISTRIBUTOR      DISTRIBUTOR
---------------------------------------------------------------------------------------------------------
January 31, 2006           $568,947              $--           $14,166            $4,881           $3,554
---------------------------------------------------------------------------------------------------------

WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees paid directly by the Portfolio to
0.35% of average annual net assets for each class. During the period ended
January 31, 2006, OFS waived $20 for Class B shares. This undertaking may be
amended or withdrawn at any time.

      The Manager has voluntarily agreed to a total expense limitation on the
aggregate amount of combined direct (fund-of-funds level) and indirect expense
so that Combined Total Annual and Underlying Fund Operating Expenses as a
percentage of average daily net assets will not exceed the following annual
rates: 1.30%, 2.05%, 2.05%, 1.55% and 1.05%, for Class A, Class B, Class C,
Class N and Class Y, respectively. During the period ended January 31, 2006, the
Manager reimbursed the Portfolio $5,415, $3,465, $2,682, $442 and $285, for the
Class A, Class B, Class C, Class N and Class Y shares, respectively. The Manager
may modify or terminate this undertaking at any time without notice to
shareholders. These expense limitations do not include Extraordinary Expenses
and other expenses not incurred in the ordinary course of the Portfolio's
business. Notwithstanding the foregoing limits, the Manager is not required to
waive or reimburse Portfolio expenses in excess of indirect management fees
earned from investments in Underlying Funds to assure that expenses do not
exceed those limits.


                           35 | MODERATE INVESTOR FUND

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

--------------------------------------------------------------------------------
5. LITIGATION

A complaint was filed as a putative class action against the Manager and OFS
(and other defendants) in the U.S. District Court for the Southern District of
New York on January 10, 2005 and was amended on March 4, 2005. Seven of the
eight counts in the complaint, including claims against certain of the
Oppenheimer funds excluding the Portfolio, as nominal defendants, and against
certain present and former Directors, Trustees and officers of the funds, and
the Distributor, as defendants, were dismissed with prejudice, under a court
order dated March 10, 2006, in response to a motion to dismiss the suit that had
been filed by the defendants. The remaining count against the Adviser Defendants
alleges, among other things, that the defendants charged excessive fees in
violation of section 36(b) of the Investment Company Act of 1940. The plaintiffs
seek unspecified damages, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

      The Adviser Defendants believe that the claims asserted in the remaining
count under this lawsuit are without merit, and intend to defend the suit
vigorously and contest any claimed liability. They 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.

--------------------------------------------------------------------------------
6. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

At a meeting held on December 14, 2005, the Board of Trustees of the Fund
appointed KPMG LLP as the independent registered public accounting firm to the
Fund to replace the firm of Ernst & Young LLP, who were dismissed as the
independent registered public accounting firm to the Fund. This change in the
Fund's auditors was approved by the Fund's audit committee and ratified by the
Fund's independent Trustees.

      The report of Ernst & Young LLP on the Fund's statements of assets and
liabilities as of March 15, 2005 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.

      The Fund commenced operations on April 5, 2005. During the period from
March 15, 2005 through December 14, 2005, there were no disagreements with Ernst
& Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the matter in their report.


                           36 | MODERATE INVESTOR FUND










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

--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES:

We have audited the accompanying statement of assets and liabilities of
Aggressive Investor Fund (one of the portfolios constituting the Oppenheimer
Portfolio Series), including the statement of investments, as of January 31,
2006, and the related statement of operations, the statement of changes in net
assets and the financial highlights for the period April 5, 2005 (commencement
of operations) to January 31, 2006. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

      We conducted our audit 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 January 31, 2006, 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
audit provides 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
Aggressive Investor Fund as of January 31, 2006, the results of its operations,
the changes in its net assets and the financial highlights for the period April
5, 2005 (commencement of operations) to January 31, 2006, in conformity with
U.S. generally accepted accounting principles.

KPMG LLP

Denver, Colorado
March 15, 2006


                          18 | AGGRESSIVE INVESTOR FUND

STATEMENT OF INVESTMENTS January 31, 2006
--------------------------------------------------------------------------------

                                                                                                      VALUE
                                                                                  SHARES         SEE NOTE 1
-----------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--98.4% 1
GLOBAL EQUITY--31.0%
Oppenheimer Developing Markets Fund, Cl. Y                                       131,194        $ 5,195,257
-----------------------------------------------------------------------------------------------------------
Oppenheimer Global Fund, Cl. Y                                                   265,671         18,785,577
-----------------------------------------------------------------------------------------------------------
Oppenheimer Global Opportunities Fund, Cl. Y                                     124,676          5,045,603
                                                                                                -----------
                                                                                                 29,026,437
-----------------------------------------------------------------------------------------------------------
U. S. EQUITY--67.4%
Oppenheimer Capital Appreciation Fund, Cl. Y                                     393,164         17,943,986
-----------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Fund, Cl. Y                                              347,889         13,362,423
-----------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Opportunity Fund, Cl. Y                                  633,885          8,988,492
-----------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small Cap Fund, Cl. Y                                    409,733          9,468,940
-----------------------------------------------------------------------------------------------------------
Oppenheimer Value Fund, Cl. Y                                                    541,824         13,269,265
                                                                                               ------------
                                                                                                 63,033,106
                                                                                                -----------
Total Investments in Affiliated Companies (Cost $86,895,651)                                     92,059,543

                                                                               PRINCIPAL
                                                                                  AMOUNT
-----------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.6%
Undivided interest of 0.07% in joint repurchase agreement (Principal
Amount/Value $781,426,000, with a maturity value of $781,521,291)
with UBS Warburg LLC, 4.39%, dated 1/31/06, to be repurchased
at $535,065 on 2/1/06, collateralized by Federal Home Loan Mortgage
Corp., 5%, 12/1/35, with a value of $799,056,396 (Cost $535,000)                $535,000            535,000
-----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $87,430,651)                                      99.0%        92,594,543
-----------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                      1.0            968,493
                                                                                ---------------------------
NET ASSETS                                                                         100.0%       $93,563,036
                                                                                ===========================

FOOTNOTE TO STATEMENT OF INVESTMENTS

1. Affiliated companies. Represents ownership of an affiliated fund, at or
during the period ended January 31, 2006.

Transactions during the period in which the issuer was an affiliate are as
follows:

                                                           SHARES           GROSS           GROSS          SHARES
                                                    APRIL 5, 2005       ADDITIONS      REDUCTIONS   JAN. 31, 2006
-----------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                   --         393,164              --         393,164
Oppenheimer Developing Markets Fund, Cl. A                     --          69,254          69,254              --
Oppenheimer Developing Markets Fund, Cl. Y                     --         131,194              --         131,194
Oppenheimer Global Fund, Cl. Y                                 --         265,671              --         265,671
Oppenheimer Global Opportunities Fund, Cl. Y                   --         124,676              --         124,676
Oppenheimer Main Street Fund, Cl. Y                            --         347,889              --         347,889
Oppenheimer Main Street Opportunity Fund, Cl. Y                --         633,885              --         633,885
Oppenheimer Main Street Small Cap Fund, Cl. Y                  --         409,733              --         409,733
Oppenheimer Value Fund, Cl. Y                                  --         541,824              --         541,824


                          19 | AGGRESSIVE INVESTOR FUND

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

                                                          VALUE        DIVIDEND        REALIZED
                                                     SEE NOTE 1          INCOME            GAIN
-----------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y        $17,943,986     $   102,086     $        --
Oppenheimer Developing Markets Fund, Cl. A                   --              --         136,715
Oppenheimer Developing Markets Fund, Cl. Y            5,195,257          80,177              --
Oppenheimer Global Fund, Cl. Y                       18,785,577         111,604              --
Oppenheimer Global Opportunities Fund, Cl. Y          5,045,603          63,790              --
Oppenheimer Main Street Fund, Cl. Y                  13,362,423         113,520              --
Oppenheimer Main Street Opportunity Fund, Cl. Y       8,988,492         120,815              --
Oppenheimer Main Street Small Cap Fund, Cl. Y         9,468,940          67,423              --
Oppenheimer Value Fund, Cl. Y                        13,269,265         191,917              --
                                                    -------------------------------------------
                                                    $92,059,543     $   851,332     $   136,715
                                                    ===========================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          20 | AGGRESSIVE INVESTOR FUND

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

--------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $535,000)                              $   535,000
Affiliated companies (cost $86,895,651)                              92,059,543
                                                                    ------------
                                                                     92,594,543
--------------------------------------------------------------------------------
Cash                                                                      5,412
--------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                    1,785,905
Interest and dividends                                                       65
Other                                                                     2,109
                                                                    ------------
Total assets                                                         94,388,034

--------------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                   737,769
Shares of beneficial interest redeemed                                   17,527
Distribution and service plan fees                                       16,971
Shareholder communications                                               12,704
Transfer and shareholder servicing agent fees                            11,625
Trustees' compensation                                                       97
Other                                                                    28,305
                                                                    ------------
Total liabilities                                                       824,998

--------------------------------------------------------------------------------
NET ASSETS                                                          $93,563,036
                                                                    ============

--------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
--------------------------------------------------------------------------------
Par value of shares of beneficial interest                          $     8,084
--------------------------------------------------------------------------------
Additional paid-in capital                                           87,414,797
--------------------------------------------------------------------------------
Accumulated net investment loss                                             (41)
--------------------------------------------------------------------------------
Accumulated net realized gain on investments                            976,304
--------------------------------------------------------------------------------
Net unrealized appreciation on investments                            5,163,892
--------------------------------------------------------------------------------
NET ASSETS                                                          $93,563,036
                                                                    ============


                          21 | AGGRESSIVE INVESTOR 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 $48,132,412
and 4,150,893 shares of beneficial interest outstanding)                                             $11.60
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price)      $12.31
-----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $19,077,611 and 1,651,928
shares of beneficial interest outstanding)                                                           $11.55
-----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $20,033,822 and 1,735,743
shares of beneficial interest outstanding)                                                           $11.54
-----------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $5,608,345 and 483,918 shares
of beneficial interest outstanding)                                                                  $11.59
-----------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $710,846 and 61,222 shares of beneficial interest outstanding)                                    $11.61

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          22 | AGGRESSIVE INVESTOR FUND

STATEMENT OF OPERATIONS For the Period Ended January 31, 2006 1
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
INVESTMENT INCOME
--------------------------------------------------------------------------------
Dividends from affiliated companies                                  $  851,332
--------------------------------------------------------------------------------
Interest                                                                 11,236
                                                                     -----------
Total investment income                                                 862,568

--------------------------------------------------------------------------------
EXPENSES
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                                  34,064
Class B                                                                  57,776
Class C                                                                  50,173
Class N                                                                   7,028
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A                                                                  28,007
Class B                                                                  14,158
Class C                                                                  10,884
Class N                                                                   1,431
Class Y                                                                     320
--------------------------------------------------------------------------------
Shareholder communications:
Class A                                                                  13,623
Class B                                                                   7,721
Class C                                                                   5,373
Class N                                                                     481
Class Y                                                                      11
--------------------------------------------------------------------------------
Legal, auditing and other professional fees                              25,582
--------------------------------------------------------------------------------
Trustees' compensation                                                    7,695
--------------------------------------------------------------------------------
Custodian fees and expenses                                                 105
--------------------------------------------------------------------------------
Other                                                                    12,370
                                                                     -----------
Total expenses                                                          276,802
Less reduction to custodian expenses                                         (2)
Less waivers and reimbursements of expenses                              (5,919)
                                                                     -----------
Net expenses                                                            270,881

--------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                   591,687

--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
--------------------------------------------------------------------------------
Net realized gain on:
Distributions received from affiliated companies                      1,146,959
Affiliated companies                                                    136,715
                                                                     -----------
Net realized gain                                                     1,283,674
--------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                  5,163,892

--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                 $7,039,253
                                                                     ===========

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          23 | AGGRESSIVE INVESTOR FUND

STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

                                                                                   PERIOD ENDED
                                                                               JANUARY 31, 2006 1
-------------------------------------------------------------------------------------------------
OPERATIONS
-------------------------------------------------------------------------------------------------
Net investment income                                                               $   591,687
-------------------------------------------------------------------------------------------------
Net realized gain                                                                     1,283,674
-------------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                                 5,163,892
                                                                                    -------------
Net increase in net assets resulting from operations                                  7,039,253

-------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                                (380,503)
Class B                                                                                (127,617)
Class C                                                                                (120,802)
Class N                                                                                 (41,332)
Class Y                                                                                  (6,678)
-------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                                                 (67,178)
Class B                                                                                 (28,621)
Class C                                                                                 (25,903)
Class N                                                                                  (7,402)
Class Y                                                                                  (1,071)

-------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
-------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A                                                                              44,717,597
Class B                                                                              17,711,412
Class C                                                                              18,857,875
Class N                                                                               5,289,149
Class Y                                                                                 650,857

-------------------------------------------------------------------------------------------------
NET ASSETS
-------------------------------------------------------------------------------------------------
Total increase                                                                       93,459,036
-------------------------------------------------------------------------------------------------
Beginning of period                                                                     104,000 2
                                                                                    -------------
End of period (including accumulated net investment loss
of $41 for the period ended January 31, 2006)                                       $93,563,036
                                                                                    =============

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. Reflects the value of the Manager's initial seed money investment on March
15, 2005.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          24 | AGGRESSIVE INVESTOR FUND

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

                                                    CLASS A          CLASS B          CLASS C
PERIOD ENDED JANUARY 31,                             2006 1           2006 1           2006 1
------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------
Net asset value, beginning of period                $ 10.00          $ 10.00          $ 10.00
------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                 .22              .16              .15
Net realized and unrealized gain                       1.52             1.50             1.51
                                                    --------------------------------------------
Total from investment operations                       1.74             1.66             1.66
------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.12)            (.09)            (.10)
Distributions from net realized gain                   (.02)            (.02)            (.02)
                                                    --------------------------------------------
Total dividends and distributions
to shareholders                                        (.14)            (.11)            (.12)
------------------------------------------------------------------------------------------------
Net asset value, end of period                      $ 11.60          $ 11.55          $ 11.54
                                                    ============================================

------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                    17.46%           16.70%           16.64%
------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)            $48,132          $19,078          $20,034
------------------------------------------------------------------------------------------------
Average net assets (in thousands)                   $17,321          $ 7,050          $ 6,131
------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                  2.47%            1.83%            1.71%
Total expenses                                         0.70% 5          1.53% 6          1.48% 7
Expenses after waivers and reimbursements
and reduction to custodian expenses                    0.68%            1.50%            1.45%
------------------------------------------------------------------------------------------------
Portfolio turnover rate                                   7%               7%               7%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.39% for January 31,
2006.

6. Expenses including all underlying fund expenses were 2.22% for January 31,
2006.

7. Expenses including all underlying fund expenses were 2.17% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          25 | AGGRESSIVE INVESTOR FUND

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

                                                     CLASS N          CLASS Y
PERIOD ENDED JANUARY 31,                              2006 1           2006 1
--------------------------------------------------------------------------------
PER SHARE OPERATING DATA
--------------------------------------------------------------------------------
Net asset value, beginning of period                  $10.00           $10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                  .24              .24
Net realized and unrealized gain                        1.49             1.52
                                                      --------------------------
Total from investment operations                        1.73             1.76
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                    (.12)            (.13)
Distributions from net realized gain                    (.02)            (.02)
                                                      --------------------------
Total dividends and distributions
to shareholders                                         (.14)            (.15)
--------------------------------------------------------------------------------
Net asset value, end of period                        $11.59           $11.61
                                                      ==========================

--------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                     17.34%           17.69%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $5,608           $  711
--------------------------------------------------------------------------------
Average net assets (in thousands)                     $1,717           $  331
--------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                   2.62%            2.67%
Total expenses                                          0.79% 5          0.30% 6
Expenses after waivers and reimbursements
and reduction to custodian expenses                     0.78%            0.27%
--------------------------------------------------------------------------------
Portfolio turnover rate                                    7%               7%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.48% for January 31,
2006.

6. Expenses including all underlying fund expenses were 0.99% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                          26 | AGGRESSIVE INVESTOR FUND

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

1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Portfolio Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Aggressive Investor Fund (the "Portfolio") is a series of the Fund whose
investment objective is to seek long term growth of capital. The Portfolio is a
special type of mutual fund known as a "fund of funds" because it invests in
other mutual funds. The Portfolio normally invests in a portfolio consisting of
a target-weighted allocation in Class A or Class Y shares of other Oppenheimer
funds. The Fund's investment advisor is OppenheimerFunds Inc. (the "Manager").

      The Portfolio offers Class A, Class B, Class C, Class N and Class Y
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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Portfolio 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. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase.

      Under normal market conditions, the Manager will invest the Portfolio's
assets in shares of Oppenheimer Capital Appreciation Fund, Oppenheimer
Developing Markets Fund, Oppenheimer Global Fund, Oppenheimer Global
Opportunities Fund, Oppenheimer Main Street Fund(R), Oppenheimer Main Street
Opportunity Fund(R), Oppenheimer Main Street Small Cap Fund(R) and Oppenheimer
Value Fund (individually, an "Underlying Fund" and collectively, the "Underlying
Funds").

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

--------------------------------------------------------------------------------
SECURITIES VALUATION. The Portfolio calculates the net asset value of each class
of shares based upon the net asset value of the applicable Underlying Funds' 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 trading.

      For each Underlying Fund, the net asset value per share for a class of
shares on a "regular business day" is determined by dividing the value of the
Underlying 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
Underlying Fund assets are valued primarily on the basis of current market
quotations. If market quotations are not readily available or do


                          27 | AGGRESSIVE INVESTOR FUND

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

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

not accurately reflect fair value for a security (in the Manager's judgment) or
if a security's value has been materially affected by events occurring after the
close of the exchange or market on which the security is principally traded,
that security may be valued by another method that the Underlying Fund's Board
of Trustees/Directors 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 Underlying Fund's foreign
investments may change on days when investors cannot buy or redeem Underlying
Fund shares.

      Short-term "money market type" debt securities with remaining maturities
of sixty days or less are valued at amortized cost (which approximates market
value).

--------------------------------------------------------------------------------
RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in
which the Portfolio invests has its own investment risks, and those risks can
affect the value of the Portfolio's investments and therefore the value of the
Portfolio's shares. To the extent that the Portfolio invests more of its assets
in one Underlying Fund than in another, the Portfolio will have greater exposure
to the risks of that Underlying Fund.

--------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Portfolio, 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 Portfolio 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 Portfolio must satisfy under the income tax
regulations, losses the Portfolio 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.


                          28 | AGGRESSIVE INVESTOR FUND

                                                                  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            TAX PURPOSES
      --------------------------------------------------------------------------
      $--                    $977,747                $--              $5,162,449

1. During the period ended January 31, 2006, the Portfolio did not have any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Portfolio.
Accordingly, the following amounts have been reclassified for January 31, 2006.
Net assets of the Portfolio were unaffected by the reclassifications.

                                                                       REDUCTION
                                         REDUCTION            TO ACCUMULATED NET
      INCREASE                      TO ACCUMULATED                 REALIZED GAIN
      TO PAID-IN CAPITAL           INVESTMENT LOSS              ON INVESTMENTS 2
      --------------------------------------------------------------------------
      $91,991                              $85,204                      $177,195

2. $95,557, all of which was long-term capital gain, was distributed in
connection with Portfolio share redemptions.

The tax character of distributions paid during the period ended January 31, 2006
was as follows:

                                                                    PERIOD ENDED
                                                                JANUARY 31, 2006
      --------------------------------------------------------------------------
      Distributions paid from:
      Ordinary income                                                   $807,107

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 January 31, 2006 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

Federal tax cost of securities                 $87,432,094
                                               ===========
Gross unrealized appreciation                  $ 5,162,449
Gross unrealized depreciation                           --
                                               -----------
Net unrealized appreciation                    $ 5,162,449
                                               ===========

--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded


                          29 | AGGRESSIVE INVESTOR FUND

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

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

on the ex-dividend date. Income and 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 Portfolio 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 Portfolio pays
interest to its custodian on such cash overdrafts to the extent they are not
offset by positive cash balances maintained by the Portfolio 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
Portfolio during the period. At January 31, 2006, the Portfolio had $39 of such
earnings on cash balances available to offset future custodian fees or interest
expenses incurred during the next fiscal year.

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

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

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

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

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


                          30 | AGGRESSIVE INVESTOR FUND

                               PERIOD ENDED JANUARY 31, 2006 1,2
                                         SHARES           AMOUNT
-----------------------------------------------------------------
CLASS A
Sold                                  4,307,796      $46,498,407
Dividends and/or
distributions reinvested                 38,611          427,037
Redeemed                               (205,514)      (2,207,847)
                                    -----------------------------
Net increase                          4,140,893      $44,717,597
                                    =============================

-----------------------------------------------------------------
CLASS B
Sold                                  1,712,718      $18,374,371
Dividends and/or
distributions reinvested                 13,238          145,879
Redeemed                                (74,128)        (808,838)
                                    -----------------------------
Net increase                          1,651,828      $17,711,412
                                    =============================

-----------------------------------------------------------------
CLASS C
Sold                                  1,784,313      $19,370,332
Dividends and/or
distributions reinvested                 12,844          141,411
Redeemed                                (61,514)        (653,868)
                                    -----------------------------
Net increase                          1,735,643      $18,857,875
                                    =============================

-----------------------------------------------------------------
CLASS N
Sold                                    536,355      $ 5,884,519
Dividends and/or
distributions reinvested                  3,629           40,096
Redeemed                                (56,166)        (635,466)
                                    -----------------------------
Net increase                            483,818      $ 5,289,149
                                    =============================

-----------------------------------------------------------------
CLASS Y
Sold                                     69,936      $   744,994
Dividends and/or
distributions reinvested                    699            7,734
Redeemed                                 (9,513)        (101,871)
                                    -----------------------------
Net increase                             61,122      $   650,857
                                    =============================

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100
shares of Class B, Class C, Class N and Class Y at a value of $1,000,
respectively, to the Manager upon seeding of the Portfolio on March 15, 2005.

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

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

                                                    PURCHASES              SALES
      --------------------------------------------------------------------------
      Investment Securities                       $89,015,063         $2,256,128


                          31 | AGGRESSIVE INVESTOR FUND

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

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

MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not
charge a management fee, but rather collects indirect management fees from
investments in the Underlying Funds. The weighted indirect management fees
collected from the Underlying Funds, as a percent of average daily net assets of
the Portfolio for the period ended January 31, 2006 was 0.58%.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Portfolio. The
Portfolio pays OFS a per account fee. For the period ended January 31, 2006, the
Portfolio paid $43,055 to OFS for services to the Portfolio.

      Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.

--------------------------------------------------------------------------------
INITIAL OFFERING AND ORGANIZATIONAL COSTS. The Manager assumed all initial
offering and organizational costs associated with the registration and seeding
of the Portfolio.

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

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

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The
Portfolio has adopted Distribution and Service Plans for Class B, Class C and
Class N shares to compensate the Distributor for its services and costs in
connection with the distribution of those shares and servicing accounts. Under
the plans, the Portfolio 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 Portfolio or by
the shareholders of a class, the Board of Trustees and its independent


                          32 | AGGRESSIVE INVESTOR FUND

trustees must determine whether the Distributor shall be entitled to payment
from the Portfolio 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 January 31, 2006 for Class B, Class C and Class N shares were $262,957,
$142,362 and $36,299, respectively. Fees incurred by the Portfolio 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 Portfolio. They are deducted from the
proceeds of sales of Portfolio 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
                                               CONTINGENT         CONTINGENT         CONTINGENT        CONTINGENT
                                CLASS A    DEFERRED SALES     DEFERRED SALES     DEFERRED SALES    DEFERRED SALES
                        FRONT-END SALES           CHARGES            CHARGES            CHARGES           CHARGES
                       CHARGES RETAINED       RETAINED BY        RETAINED BY        RETAINED BY       RETAINED BY
PERIOD ENDED             BY DISTRIBUTOR       DISTRIBUTOR        DISTRIBUTOR        DISTRIBUTOR       DISTRIBUTOR
-----------------------------------------------------------------------------------------------------------------
January 31, 2006               $265,087               $--             $5,572             $2,126            $5,679
-----------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees paid directly by the Portfolio to
0.35% of average annual net assets for each class. During the period ended
January 31, 2006, OFS waived $113, $3 and $4 for Class B, Class N and Class Y
shares, respectively. This undertaking may be amended or withdrawn at any time.

      The Manager has voluntarily agreed to a total expense limitation on the
aggregate amount of combined direct (fund-of-funds level) and indirect expense
so that Combined Total Annual and Underlying Fund Operating Expenses as a
percentage of average daily net assets will not exceed the following annual
rates: 1.45%, 2.20%, 2.20%, 1.70% and 1.20%, for Class A, Class B, Class C,
Class N and Class Y, respectively. During the period ended January 31, 2006, the
Manager reimbursed the Portfolio $2,512, $1,811, $1,334, $99 and $43, for the
Class A, Class B, Class C, Class N and Class Y shares, respectively. The Manager
may modify or terminate this undertaking at any time without notice to
shareholders. These expense limitations do not include Extraordinary Expenses
and other expenses not incurred in the ordinary course of the Portfolio's
business. Notwithstanding the foregoing limits, the Manager is not required to
waive or reimburse Portfolio expenses in excess of indirect management fees
earned from investments in Underlying Funds to assure that expenses do not
exceed those limits.


                          33 | AGGRESSIVE INVESTOR FUND

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

--------------------------------------------------------------------------------
5. LITIGATION

A complaint was filed as a putative class action against the Manager and OFS
(and other defendants) in the U.S. District Court for the Southern District of
New York on January 10, 2005 and was amended on March 4, 2005. Seven of the
eight counts in the complaint, including claims against certain of the
Oppenheimer funds excluding the Portfolio, as nominal defendants, and against
certain present and former Directors, Trustees and officers of the funds, and
the Distributor, as defendants, were dismissed with prejudice, under a court
order dated March 10, 2006, in response to a motion to dismiss the suit that had
been filed by the defendants. The remaining count against the Adviser Defendants
alleges, among other things, that the defendants charged excessive fees in
violation of section 36(b) of the Investment Company Act of 1940. The plaintiffs
seek unspecified damages, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

      The Adviser Defendants believe that the claims asserted in the remaining
count under this lawsuit are without merit, and intend to defend the suit
vigorously and contest any claimed liability. They 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.

--------------------------------------------------------------------------------
6. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

At a meeting held on December 14, 2005, the Board of Trustees of the Fund
appointed KPMG LLP as the independent registered public accounting firm to the
Fund to replace the firm of Ernst & Young LLP, who were dismissed as the
independent registered public accounting firm to the Fund. This change in the
Fund's auditors was approved by the Fund's audit committee and ratified by the
Fund's independent Trustees.

      The report of Ernst & Young LLP on the Fund's statements of assets and
liabilities as of March 15, 2005 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.

      The Fund commenced operations on April 5, 2005. During the period from
March 15, 2005 through December 14, 2005, there were no disagreements with Ernst
& Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the matter in their report.


                          34 | AGGRESSIVE INVESTOR FUND










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

--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES:
We have audited the accompanying statement of assets and liabilities of Active
Allocation Fund (one of the portfolios constituting the Oppenheimer Portfolio
Series), including the statement of investments, as of January 31, 2006, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period April 5, 2005 (commencement of
operations) to January 31, 2006. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

      We conducted our audit 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 January 31, 2006, 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
audit provides 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
Active Allocation Fund as of January 31, 2006, the results of its operations,
the changes in its net assets and the financial highlights for the period April
5, 2005 (commencement of operations) to January 31, 2006, in conformity with
U.S. generally accepted accounting principles.


KPMG LLP

Denver, Colorado
March 15, 2006




                           21 | ACTIVE ALLOCATION FUND

STATEMENT OF INVESTMENTS  January 31, 2006
--------------------------------------------------------------------------------

                                                                                              VALUE
                                                                            SHARES       SEE NOTE 1
----------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--98.5% 1
----------------------------------------------------------------------------------------------------
GLOBAL EQUITY--26.2%
Oppenheimer Developing Markets Fund, Cl. Y                                 735,369    $  29,120,616
----------------------------------------------------------------------------------------------------
Oppenheimer Global Fund, Cl. Y                                             817,108       57,777,755
----------------------------------------------------------------------------------------------------
Oppenheimer Global Opportunities Fund, Cl. Y                               771,757       31,233,008
----------------------------------------------------------------------------------------------------
Oppenheimer International Small Company Fund, Cl. Y                      1,296,021       29,432,632
                                                                                      --------------
                                                                                        147,564,011

----------------------------------------------------------------------------------------------------
U.S. EQUITY--39.1%
Oppenheimer Capital Appreciation Fund, Cl. Y                             1,206,388       55,059,534
----------------------------------------------------------------------------------------------------
Oppenheimer Main Street Fund, Cl. Y                                      1,422,021       54,619,844
----------------------------------------------------------------------------------------------------
Oppenheimer Main Street Opportunity Fund, Cl. Y                          1,943,920       27,564,794
----------------------------------------------------------------------------------------------------
Oppenheimer Main Street Small Cap Fund, Cl. Y                            1,258,510       29,084,171
----------------------------------------------------------------------------------------------------
Oppenheimer Value Fund, Cl. Y                                            2,210,413       54,133,002
                                                                                      --------------
                                                                                        220,461,345

----------------------------------------------------------------------------------------------------
FIXED INCOME--23.3%
Oppenheimer Core Bond Fund, Cl. Y                                        5,106,446       52,085,753
----------------------------------------------------------------------------------------------------
Oppenheimer Strategic Income Fund, Cl. Y                                12,557,766       52,993,772
----------------------------------------------------------------------------------------------------
Oppenheimer U.S. Government Trust, Cl. Y                                 2,764,889       26,238,793
                                                                                      --------------
                                                                                        131,318,318

----------------------------------------------------------------------------------------------------
ALTERNATIVE INVESTMENTS--9.9%
Oppenheimer Real Asset Fund, Cl. Y                                       3,273,185       26,872,855
----------------------------------------------------------------------------------------------------
Oppenheimer Real Estate Fund, Cl. Y                                      1,403,079       28,777,166
                                                                                      --------------
                                                                                         55,650,021
                                                                                      --------------
Total Investments in Affiliated Companies (Cost $531,891,076)                           554,993,695

                                                                         PRINCIPAL
                                                                            AMOUNT
----------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.5%
----------------------------------------------------------------------------------------------------
Undivided interest of 0.36% in joint repurchase agreement
(Principal Amount/ Value $781,426,000, with a maturity value of
$781,521,291) with UBS Warburg LLC, 4.39%, dated 1/31/06, to be
repurchased at $2,826,345 on 2/1/06, collateralized by Federal
Home Loan Mortgage Corp., 5%, 12/1/35, with a value of
$799,056,396 (Cost $2,826,000)                                          $2,826,000        2,826,000

----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $534,717,076)                               99.0%     557,819,695
----------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                1.0        5,836,209
                                                                        ----------------------------
NET ASSETS                                                                   100.0%   $ 563,655,904
                                                                        ============================


                           22 | ACTIVE ALLOCATION FUND

FOOTNOTE TO STATEMENT OF INVESTMENTS

1. Affiliated companies. Represents ownership of an affiliated fund, at or
during the period ended January 31, 2006. Transactions during the period in
which the issuer was an affiliate are as follows:

                                                              SHARES                                          SHARES
                                                            APRIL 5,           GROSS           GROSS     JANUARY 31,
                                                                2005       ADDITIONS      REDUCTIONS            2006
---------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                      --       1,206,388              --       1,206,388
Oppenheimer Core Bond Fund, Cl. Y*                                --       5,106,446              --       5,106,446
Oppenheimer Developing Markets Fund, Cl. A                        --         749,173         749,173              --
Oppenheimer Developing Markets Fund, Cl. Y                        --       1,158,340         422,971         735,369
Oppenheimer Global Fund, Cl. Y                                    --         817,108              --         817,108
Oppenheimer Global Opportunities Fund, Cl. Y                      --         771,757              --         771,757
Oppenheimer International Small Company Fund, Cl. A               --         949,884         949,884              --
Oppenheimer International Small Company Fund, Cl. Y               --       1,986,571         690,550       1,296,021
Oppenheimer Main Street Fund, Cl. Y                               --       1,422,021              --       1,422,021
Oppenheimer Main Street Opportunity Fund, Cl. Y                   --       1,943,920              --       1,943,920
Oppenheimer Main Street Small Cap Fund, Cl. Y                     --       1,258,510              --       1,258,510
Oppenheimer Money Market Fund, Inc., Cl. Y                        --      27,144,844      27,144,844              --
Oppenheimer Real Asset Fund, Cl. Y                                --       5,641,708       2,368,523       3,273,185
Oppenheimer Real Estate Fund, Cl. Y*                              --       1,403,079              --       1,403,079
Oppenheimer Strategic Income Fund, Cl. Y                          --      12,557,766              --      12,557,766
Oppenheimer U.S. Government Trust, Cl. Y                          --       6,692,138       3,927,249       2,764,889
Oppenheimer Value Fund, Cl. Y                                     --       3,670,221       1,459,808       2,210,413

                                                                               VALUE        DIVIDEND        REALIZED
                                                                          SEE NOTE 1          INCOME     GAIN (LOSS)
---------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund, Cl. Y                            $ 55,059,534    $    363,057    $         --
Oppenheimer Core Bond Fund, Cl. Y*                                        52,085,753         826,934              --
Oppenheimer Developing Markets Fund, Cl. A                                        --              --        (142,284)
Oppenheimer Developing Markets Fund, Cl. Y                                29,120,616         489,530         338,377
Oppenheimer Global Fund, Cl. Y                                            57,777,755         393,261              --
Oppenheimer Global Opportunities Fund, Cl. Y                              31,233,008         453,977              --
Oppenheimer International Small Company Fund, Cl. A                               --              --        (121,768)
Oppenheimer International Small Company Fund, Cl. Y                       29,432,632         921,459          48,338
Oppenheimer Main Street Fund, Cl. Y                                       54,619,844         543,445              --
Oppenheimer Main Street Opportunity Fund, Cl. Y                           27,564,794         422,027              --
Oppenheimer Main Street Small Cap Fund, Cl. Y                             29,084,171         235,180              --
Oppenheimer Money Market Fund, Inc., Cl. Y                                        --          63,814              --
Oppenheimer Real Asset Fund, Cl. Y                                        26,872,855         811,115      (1,263,564)
Oppenheimer Real Estate Fund, Cl. Y*                                      28,777,166         681,898              --
Oppenheimer Strategic Income Fund, Cl. Y                                  52,993,772       1,859,978              --
Oppenheimer U.S. Government Trust, Cl. Y                                  26,238,793         208,978         (38,191)
Oppenheimer Value Fund, Cl. Y                                             54,133,002       1,357,676        (931,242)
                                                                        ---------------------------------------------
                                                                        $554,993,695    $  9,632,329    $ (2,110,334)
                                                                        =============================================

* Represents at least 5% of the voting securities of the issuer, and is or was
an affiliate, as defined in the Investment Company Act of 1940.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           23 | ACTIVE ALLOCATION FUND

STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------

January 31, 2006
-----------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,826,000)                              $  2,826,000
Affiliated companies (cost $531,891,076)                               554,993,695
                                                                      -------------
                                                                       557,819,695
-----------------------------------------------------------------------------------
Cash                                                                         3,106
-----------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                      10,543,096
Interest and dividends                                                     318,146
Other                                                                        3,028
                                                                      -------------
Total assets                                                           568,687,071

-----------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                    4,352,220
Shares of beneficial interest redeemed                                     406,224
Distribution and service plan fees                                         106,439
Transfer and shareholder servicing agent fees                               50,046
Shareholder communications                                                  29,205
Trustees' compensation                                                         654
Other                                                                       86,379
                                                                      -------------
Total liabilities                                                        5,031,167

-----------------------------------------------------------------------------------
NET ASSETS                                                            $563,655,904
                                                                      =============

-----------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
-----------------------------------------------------------------------------------
Par value of shares of beneficial interest                            $     50,847
-----------------------------------------------------------------------------------
Additional paid-in capital                                             536,276,269
-----------------------------------------------------------------------------------
Accumulated net investment income                                           53,764
-----------------------------------------------------------------------------------
Accumulated net realized gain on investments                             4,172,405
-----------------------------------------------------------------------------------
Net unrealized appreciation on investments                              23,102,619
                                                                      -------------

NET ASSETS                                                            $563,655,904
                                                                      =============


                           24 | ACTIVE ALLOCATION FUND

----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
----------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $293,577,731 and
26,438,593 shares of beneficial interest outstanding)                                              $11.10
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price)    $11.78
----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $115,629,346 and 10,448,483 shares
of beneficial interest outstanding)                                                                $11.07
----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $125,622,130 and 11,360,595 shares
of beneficial interest outstanding)                                                                $11.06
----------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $28,345,099 and 2,556,373 shares of
beneficial interest outstanding)                                                                   $11.09
----------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $481,598 and 43,265 shares of beneficial interest outstanding)                                  $11.13

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           25 | ACTIVE ALLOCATION FUND

STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

For the Period Ended January 31, 2006 1
-----------------------------------------------------------------------------------
INVESTMENT INCOME
-----------------------------------------------------------------------------------
Dividends from affiliated companies                                   $  9,632,329
-----------------------------------------------------------------------------------
Interest                                                                    66,500
                                                                      -------------
Total investment income                                                  9,698,829

-----------------------------------------------------------------------------------
EXPENSES
-----------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                                    228,321
Class B                                                                    379,747
Class C                                                                    374,213
Class N                                                                     37,490
-----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A                                                                    116,305
Class B                                                                     64,011
Class C                                                                     52,664
Class N                                                                      5,016
Class Y                                                                        183
-----------------------------------------------------------------------------------
Shareholder communications:
Class A                                                                     33,310
Class B                                                                     20,373
Class C                                                                     14,559
Class N                                                                      1,045
Class Y                                                                        100
-----------------------------------------------------------------------------------
Asset allocation fees                                                      175,127
-----------------------------------------------------------------------------------
Legal, auditing and other professional fees                                 31,413
-----------------------------------------------------------------------------------
Trustees' compensation                                                       9,002
-----------------------------------------------------------------------------------
Custodian fees and expenses                                                  2,218
-----------------------------------------------------------------------------------
Other                                                                       65,678
                                                                      -------------
Total expenses                                                           1,610,775

Less reduction to custodian expenses                                          (161)
Less waivers and reimbursements of expenses                                (38,809)
                                                                      -------------
Net expenses                                                             1,571,805

-----------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                    8,127,024

-----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
-----------------------------------------------------------------------------------
Net realized gain (loss) on:
Distributions received from affiliated companies                         7,504,012
Affiliated companies                                                    (2,110,334)
                                                                      -------------
Net realized gain                                                        5,393,678
-----------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                    23,102,619

-----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                  $ 36,623,321
                                                                      =============

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           26 | ACTIVE ALLOCATION FUND

STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------

PERIOD ENDED JANUARY 31,                                                                 2006 1
-------------------------------------------------------------------------------------------------
OPERATIONS
-------------------------------------------------------------------------------------------------
Net investment income                                                             $   8,127,024
-------------------------------------------------------------------------------------------------
Net realized gain                                                                     5,393,678
-------------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                                23,102,619
                                                                                  ---------------
Net increase in net assets resulting from operations                                 36,623,321

-------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                              (4,500,051)
Class B                                                                              (1,549,890)
Class C                                                                              (1,619,117)
Class N                                                                                (414,437)
Class Y                                                                                  (6,386)
-------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                                                (376,546)
Class B                                                                                (149,661)
Class C                                                                                (153,460)
Class N                                                                                 (35,176)
Class Y                                                                                    (507)

-------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
-------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A                                                                             278,869,967
Class B                                                                             109,728,240
Class C                                                                             119,590,827
Class N                                                                              27,088,823
Class Y                                                                                 455,957

-------------------------------------------------------------------------------------------------
NET ASSETS
-------------------------------------------------------------------------------------------------
Total increase                                                                      563,551,904
-------------------------------------------------------------------------------------------------
Beginning of period                                                                     104,000 2
                                                                                  ---------------
End of period (including accumulated net investment income of $53,764
for the period ended January 31, 2006)                                            $ 563,655,904
                                                                                  ===============

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. Reflects the value of the Manager's initial seed money investment on March
15, 2005.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           27 | ACTIVE ALLOCATION FUND

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

                                                       CLASS A       CLASS B       CLASS C
PERIOD ENDED JANUARY 31,                                2006 1        2006 1        2006 1
---------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------
Net asset value, beginning of period                  $  10.00      $  10.00      $  10.00
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                    .43           .36           .37
Net realized and unrealized gain                           .89           .91           .89
                                                      ---------------------------------------
Total from investment operations                          1.32          1.27          1.26
---------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.20)         (.18)         (.18)
Distributions from net realized gain                      (.02)         (.02)         (.02)
                                                      ---------------------------------------
Total dividends and/or distributions
to shareholders                                           (.22)         (.20)         (.20)
---------------------------------------------------------------------------------------------

Net asset value, end of period                        $  11.10      $  11.07      $  11.06
                                                      =======================================

---------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                       13.31%        12.72%        12.66%
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $293,578      $115,629      $125,622
---------------------------------------------------------------------------------------------
Average net assets (in thousands)                     $112,224      $ 46,284      $ 45,647
---------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     4.94%         4.06%         4.18%
Total expenses                                            0.56% 5       1.37% 6       1.33% 7
Expenses after waivers and reimbursements and
reduction to custodian expenses                           0.55%         1.34%         1.31%
---------------------------------------------------------------------------------------------
Portfolio turnover rate                                     90%           90%           90%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.28% for January 31,
2006.

6. Expenses including all underlying fund expenses were 2.09% for January 31,
2006.

7. Expenses including all underlying fund expenses were 2.05% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           28 | ACTIVE ALLOCATION FUND

                                                       CLASS N        CLASS Y
PERIOD ENDED JANUARY 31,                                2006 1         2006 1
--------------------------------------------------------------------------------
PER SHARE OPERATING DATA
--------------------------------------------------------------------------------
Net asset value, beginning of period                 $   10.00      $   10.00
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2                                    .46            .39
Net realized and unrealized gain                           .85            .97
                                                     ---------------------------
Total from investment operations                          1.31           1.36
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.20)          (.21)
Distributions from net realized gain                      (.02)          (.02)
                                                     ---------------------------
Total dividends and/or distributions
to shareholders                                           (.22)          (.23)
--------------------------------------------------------------------------------
Net asset value, end of period                       $   11.09      $   11.13
                                                     ===========================

--------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                       13.18%         13.72%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
Net assets, end of period (in thousands)             $  28,345      $     482
--------------------------------------------------------------------------------
Average net assets (in thousands)                    $   9,156      $     196
--------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     5.28%          4.44%
Total expenses                                            0.73% 5        0.33% 6
Expenses after waivers and reimbursements and
reduction to custodian expenses                           0.72%          0.21%
--------------------------------------------------------------------------------
Portfolio turnover rate                                     90%            90%

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

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 Portfolio distributions or the redemption of Portfolio shares.

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

5. Expenses including all underlying fund expenses were 1.45% for January 31,
2006.

6. Expenses including all underlying fund expenses were 1.05% for January 31,
2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                           29 | ACTIVE ALLOCATION FUND

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

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

Oppenheimer Portfolio Series (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
Active Allocation Fund (the "Portfolio") is a series of the Fund whose
investment objective is to seek long term growth of capital with a secondary
objective of current income. The Portfolio is a special type of mutual fund
known as a "fund of funds" because it invests in other mutual funds. The
Portfolio normally invests in a portfolio consisting of a target-weighted
allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's
investment advisor is OppenheimerFunds Inc. (the "Manager").

      The Portfolio offers Class A, Class B, Class C, Class N and Class Y
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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Portfolio 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. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase.

      Under normal market conditions, the Manager will invest the Portfolio's
assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation
Fund, Oppenheimer Global Fund, Oppenheimer Global Opportunities Fund,
Oppenheimer Main Street Fund(R), Oppenheimer Main Street Opportunity Fund(R),
Oppenheimer Main Street Small Cap Fund(R), Oppenheimer Real Estate Fund,
Oppenheimer Strategic Income Fund and Oppenheimer Value Fund (individually, an
"Underlying Fund" and collectively, the "Underlying Funds").

Oppenheimer Funds:
Oppenheimer Core Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Developing Markets Fund
Oppenheimer Discovery Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer High Yield Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
Oppenheimer International Small Company Fund
Oppenheimer Limited-Term Government Fund


                           30 | ACTIVE ALLOCATION FUND

Oppenheimer MidCap Fund
Oppenheimer Money Market Fund, Inc.
Oppenheimer Quest International Value Fund, Inc.
Oppenheimer Real Asset Fund
Oppenheimer Small- & Mid-Cap Value Fund
Oppenheimer U.S. Government Trust
Oppenheimer Value Fund

      In addition, up to 20% of the Portfolio's net assets may be invested
according to a tactical allocation among up to four Oppenheimer funds or money
market securities based on recommendations made by the Manager.

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

--------------------------------------------------------------------------------
SECURITIES VALUATION. The Portfolio calculates the net asset value of each
class of shares based upon the net asset value of the applicable Underlying
Funds' 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 trading.

      For each Underlying Fund, the net asset value per share for a class of
shares on a "regular business day" is determined by dividing the value of the
Underlying 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
Underlying Fund assets are valued primarily on the basis of current market
quotations. If market quotations are not readily available or do not accurately
reflect fair value for a security (in the Manager's judgment) or if a security's
value has been materially affected by events occurring after the close of the
exchange or market on which the security is principally traded, that security
may be valued by another method that the Underlying Fund's Board of
Trustees/Directors 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 Underlying Fund's foreign
investments may change on days when investors cannot buy or redeem Underlying
Fund shares. Short-term "money market type" debt securities with remaining
maturities of sixty days or less are valued at amortized cost (which
approximates market value).

--------------------------------------------------------------------------------
RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in
which the Portfolio invests has its own investment risks, and those risks can
affect the value of the Portfolio's investments and therefore the value of the
Portfolio's shares. To the extent that the Portfolio invests more of its assets
in one Underlying Fund than in another, the Portfolio will have greater
exposure to the risks of that Underlying Fund.


                           31 | ACTIVE ALLOCATION FUND

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

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

JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Portfolio, 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 Portfolio 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 Portfolio must satisfy under the income tax regulations,
losses the Portfolio 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            TAX PURPOSES
  ----------------------------------------------------------------------------
  $54,033               $5,975,584                 $--             $21,299,440

1. During the period ended January 31, 2006, the Portfolio did not have any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Portfolio.
Accordingly, the following amounts have been reclassified for January 31, 2006.
Net assets of the Portfolio were unaffected by the reclassifications.


                           32 | ACTIVE ALLOCATION FUND

                                                                   REDUCTION
                                     INCREASE             TO ACCUMULATED NET
  INCREASE                 TO ACCUMULATED NET                  REALIZED GAIN
  TO PAID-IN CAPITAL        INVESTMENT INCOME               ON INVESTMENTS 2
  --------------------------------------------------------------------------
  $489,302                            $16,621                       $505,923

2. $506,265, all of which was long-term capital gain, was distributed in
connection with Portfolio share redemptions.

The tax character of distributions paid during the period ended January 31, 2006
was as follows:

                                                                PERIOD ENDED
                                                            JANUARY 31, 2006
  --------------------------------------------------------------------------
  Distributions paid from:
  Ordinary income                                                 $8,805,231

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 January 31, 2006 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.

                Federal tax cost of securities    $ 536,520,255
                                                  ==============
                Gross unrealized appreciation     $  22,353,457
                Gross unrealized depreciation        (1,054,017)
                                                  --------------
                Net unrealized appreciation       $  21,299,440
                                                  ==============

--------------------------------------------------------------------------------
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 and 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 Portfolio 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
Portfolio pays interest to its custodian on such cash overdrafts to the extent
they are not offset by positive cash balances maintained by the Portfolio 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 Portfolio during the period. At January 31, 2006, the
Portfolio had $39 of such earnings on cash balances available to offset future
custodian fees or interest expenses incurred during the next fiscal year.


                           33 | ACTIVE ALLOCATION FUND

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

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

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

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

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

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

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

                                     PERIOD ENDED JANUARY 31, 2006 1,2
                                            SHARES              AMOUNT
-----------------------------------------------------------------------
CLASS A
Sold                                    27,068,123      $  285,660,045
Dividends and/or
distributions reinvested                   438,928           4,665,805
Redeemed                                (1,078,458)        (11,455,883)
                                      ---------------------------------
Net increase                            26,428,593      $  278,869,967
                                      =================================

-----------------------------------------------------------------------
CLASS B
Sold                                    10,764,936      $  113,091,487
Dividends and/or
distributions reinvested                   154,655           1,639,339
Redeemed                                  (471,208)         (5,002,586)
                                      ---------------------------------
Net increase                            10,448,383      $  109,728,240
                                      =================================

-----------------------------------------------------------------------
CLASS C
Sold                                    11,696,791      $  123,196,995
Dividends and/or
distributions reinvested                   155,748           1,649,374
Redeemed                                  (492,044)         (5,255,542)
                                      ---------------------------------
Net increase                            11,360,495      $  119,590,827
                                      =================================


                           34 | ACTIVE ALLOCATION FUND

                                     PERIOD ENDED JANUARY 31, 2006 1,2
                                            SHARES              AMOUNT
-----------------------------------------------------------------------
CLASS N
Sold                                     2,664,849      $   28,261,231
Dividends and/or
distributions reinvested                    42,051             446,165
Redeemed                                  (150,627)         (1,618,573)
                                      ---------------------------------
Net increase                             2,556,273      $   27,088,823
                                      =================================

-----------------------------------------------------------------------
CLASS Y
Sold                                        54,640      $      577,537
Dividends and/or
distributions reinvested                       645               6,870
Redeemed                                   (12,120)           (128,450)
                                      ---------------------------------
Net increase                                43,165      $      455,957
                                      =================================

1. For the period from April 5, 2005 (commencement of operations) to January 31,
2006.

2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100
shares of Class B, Class C, Class N and Class Y at a value of $1,000,
respectively, to the Manager upon seeding of the Portfolio on March 15, 2005.

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

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

                                     PURCHASES                   SALES
        --------------------------------------------------------------
        Investment securities     $725,196,533            $191,277,223

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

MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not
charge a management fee, but rather collects indirect management fees from
investments in the Underlying Funds. The weighted indirect management fees
collected from the Underlying Funds, as a percent of average daily net assets
of the Portfolio for the period ended January 31, 2006 was 0.60%.

      The Portfolio pays the Manager an asset allocation fee equal to an annual
rate of 0.10% of the average daily net assets of the Portfolio.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Portfolio. The
Portfolio pays OFS a per account fee. For the period ended January 31, 2006, the
Portfolio paid $187,555 to OFS for services to the Portfolio.

      Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.

--------------------------------------------------------------------------------
INITIAL OFFERING AND ORGANIZATIONAL COSTS. The Manager assumed all initial
offering and organizational costs associated with the registration and seeding
of the Portfolio.


                           35 | ACTIVE ALLOCATION FUND

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

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

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

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

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The
Portfolio has adopted Distribution and Service Plans for Class B, Class C and
Class N shares to compensate the Distributor for its services and costs in
connection with the distribution of those shares and servicing accounts. Under
the plans, the Portfolio 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 Portfolio or
by the shareholders of a class, the Board of Trustees and its independent
trustees must determine whether the Distributor shall be entitled to payment
from the Portfolio 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 January 31, 2006 for Class B, Class C and Class N shares were $1,607,656,
$932,769 and $317,511, respectively. Fees incurred by the Portfolio 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 Portfolio. They are deducted from the
proceeds of sales of Portfolio 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
PERIOD ENDED         DISTRIBUTOR     DISTRIBUTOR      DISTRIBUTOR     DISTRIBUTOR     DISTRIBUTOR
-------------------------------------------------------------------------------------------------
January 31, 2006      $1,474,177             $--          $44,078         $16,412          $4,555


                           36 | ACTIVE ALLOCATION FUND

--------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees paid directly by the Portfolio to
0.35% of average annual net assets for each class. During the period ended
January 31, 2006, OFS waived $365, $186, $15 and $12 for Class B, Class C,
Class N and Class Y shares, respectively. This undertaking may be amended or
withdrawn at any time.

      The Manager has voluntarily agreed to a total expense limitation on the
aggregate amount of combined direct (fund-of-funds level) and indirect expense
so that Combined Total Annual and Underlying Fund Operating Expenses as a
percentage of average daily net assets will not exceed the following annual
rates: 1.45%, 2.20%, 2.20%, 1.70% and 1.20%, for Class A, Class B, Class C,
Class N and Class Y, respectively. During the period ended January 31, 2006, the
Manager reimbursed the Portfolio $18,930, $10,748, $7,600, $763 and $190, for
the Class A, Class B, Class C, Class N and Class Y shares, respectively. The
Manager may modify or terminate this undertaking at any time without notice to
shareholders. These expense limitations do not include Extraordinary Expenses
and other expenses not incurred in the ordinary course of the Portfolio's
business. Notwithstanding the foregoing limits, the Manager is not required to
waive or reimburse Portfolio expenses in excess of indirect management fees
earned from investments in Underlying Funds to assure that expenses do not
exceed those limits.

--------------------------------------------------------------------------------
5. LITIGATION

A complaint was filed as a putative class action against the Manager and OFS
(and other defendants) in the U.S. District Court for the Southern District of
New York on January 10, 2005 and was amended on March 4, 2005. Seven of the
eight counts in the complaint, including claims against certain of the
Oppenheimer funds excluding the Portfolio, as nominal defendants, and against
certain present and former Directors, Trustees and officers of the funds, and
the Distributor, as defendants, were dismissed with prejudice, under a court
order dated March 10, 2006, in response to a motion to dismiss the suit that
had been filed by the defendants. The remaining count against the Adviser
Defendants alleges, among other things, that the defendants charged excessive
fees in violation of section 36(b) of the Investment Company Act of 1940. The
plaintiffs seek unspecified damages, an accounting of all fees paid, and an
award of attorneys' fees and litigation expenses.

      The Adviser Defendants believe that the claims asserted in the remaining
count under this lawsuit are without merit, and intend to defend the suit
vigorously and contest any claimed liability. They 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.

--------------------------------------------------------------------------------
6. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

At a meeting held on December 14, 2005, the Board of Trustees of the Fund
appointed KPMG LLP as the independent registered public accounting firm to the
Fund to replace the firm of Ernst & Young LLP, who were dismissed as the
independent registered public


                           37 | ACTIVE ALLOCATION FUND

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

--------------------------------------------------------------------------------
6. CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Continued

accounting firm to the Fund. This change in the Fund's auditors was approved by
the Fund's audit committee and ratified by the Fund's independent Trustees.

      The report of Ernst & Young LLP on the Fund's statements of assets and
liabilities as of March 15, 2005 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.

      The Fund commenced operations on April 5, 2005. During the period from
March 15, 2005 through December 14, 2005, there were no disagreements with Ernst
& Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the matter in their report.


                           38 | ACTIVE ALLOCATION FUND

                                            A-7

                                         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

                                            C-1
                                         Appendix C

               OppenheimerFunds Special Sales Charge Arrangements and Waivers

In certain cases, the initial sales charge that applies to purchases of Class A shares(7)
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.(8)  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(9)
         4) Group Retirement Plans(10)
         5) 403(b)(7) custodial plan accounts
         6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Roth IRAs,
            SEP-IRAs, SARSEPs or SIMPLE plans

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

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








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

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

      There is no initial sales charge on purchases of Class A shares of any of the
Oppenheimer funds in the cases listed below. However, these purchases may be subject to the
Class A contingent deferred sales charge if redeemed within 18 months (24 months in the
case of Oppenheimer Rochester National Municipals and Rochester Fund Municipals) of the
beginning of the calendar month of their purchase, as described in the Prospectus (unless a
waiver described elsewhere in this Appendix applies to the redemption). Additionally, on
shares purchased under these waivers that are subject to the Class A contingent deferred
sales charge, the Distributor will pay the applicable concession described in the
Prospectus under "Class A Contingent Deferred Sales Charge."(11) 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).








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):
|X|   The Manager or its affiliates.
|X|   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.
|X|   Registered management investment companies, or separate accounts of insurance
            companies having an agreement with the Manager or the Distributor for that
            purpose.
|X|   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.
|X|   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).
|X|   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.
|X|   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.
|X|   "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.
|X|   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.
|X|   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.
|X|   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.
|X|   A unit investment trust that has entered into an appropriate agreement with the
            Distributor.
|X|   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.
|X|   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.
|X|   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.
|X|   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.
|X|   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.(12)
         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.(13)
         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.
         12)  For distributions from 401(k) plans sponsored by broker-dealers that have
            entered into a special agreement with the Distributor allowing this waiver.
         13)      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.
         14)      For distributions from retirement plans which are part of a retirement
            plan product or platform offered by certain banks, broker-dealers, financial
            advisors, insurance companies or record keepers which have entered into a
            special agreement with the Distributor.

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

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

A.    Waivers for Redemptions in Certain Cases.

The Class B, Class C and Class N contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
o     Shares redeemed involuntarily, as described in "Shareholder Account Rules and
            Policies," in the applicable Prospectus.
o     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.
o     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).
o     Distributions from accounts for which the broker-dealer of record has entered into a
            special agreement with the Distributor allowing this waiver.
o     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.
o     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.
o     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.
o     Distributions(14) 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.(15)
         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.(16)
         9) On account of the participant's separation from service.(17)
         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.
         15)      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:
|X|   Shares sold to the Manager or its affiliates.
|X|   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.
|X|   Shares issued in plans of reorganization to which the Fund is a party.
|X|   Shares sold to present or former officers, directors, trustees or employees (and
      their "immediate families" as defined above in Section I.A.) of the Fund, the Manager
      and its affiliates and retirement plans established by them for their employees.


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

The initial and contingent deferred sales charge rates and waivers for Class A, Class B and
Class C shares described in the Prospectus or Statement of Additional Information of the
Oppenheimer funds are modified as described below for certain persons who were shareholders
of the former Quest for Value Funds.  To be eligible, those persons must have been
shareholders on November 24, 1995, when OppenheimerFunds, Inc. became the investment
advisor to those former Quest for Value Funds.  Those funds include:
   Oppenheimer Quest Value Fund, Inc.           Oppenheimer Small- & 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:
|X|   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
|X|   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.
o
      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.
o
      Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to
November 24, 1995. In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund into the fund
or by exchange from an Oppenheimer fund that was a Former Quest For Value Fund or into
which such Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
o     redemptions following the death or disability of the shareholder(s) (as evidenced by
            a determination of total disability by the U.S. Social Security Administration);
o     withdrawals under an automatic withdrawal plan (but only for Class B or Class C
            shares) where the annual withdrawals do not exceed 10% of the initial value of
            the account value; adjusted annually, and
o     liquidation of a shareholder's account if the aggregate net asset value of shares
            held in the account is less than the required minimum account value.
      A shareholder's account will be credited with the amount of any contingent deferred
sales charge paid on the redemption of any Class A, Class B or Class C shares of the
Oppenheimer fund described in this section if the proceeds are invested in the same Class
of shares in that fund or another Oppenheimer fund within 90 days after redemption.

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

The initial and contingent deferred sale charge rates and waivers for Class A and Class B
shares described in the respective Prospectus (or this Appendix) of the following
Oppenheimer funds (each is referred to as a "Fund" in this section):
   Oppenheimer U. S. Government Trust,
   Oppenheimer Core Bond Fund,
   Oppenheimer Value Fund and
are modified as described below for those Fund shareholders who were shareholders of the
following funds (referred to as the "Former Connecticut Mutual Funds") on March 1, 1996,
when OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut Mutual
Funds:
   Connecticut Mutual Liquid Account         Connecticut Mutual Total Return Account
   Connecticut Mutual Government Securities Account   CMIA LifeSpan Capital Appreciation
   Account
   Connecticut Mutual Income Account         CMIA LifeSpan Balanced Account
   Connecticut Mutual Growth Account         CMIA Diversified Income Account

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.

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

Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S. Government Trust,
Oppenheimer Strategic Income Fund and Oppenheimer Capital Income Fund who acquired (and
still hold) shares of those funds as a result of the reorganization of series of Advance
America Funds, Inc. into those Oppenheimer funds on October 18, 1991, and who held shares
of Advance America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.

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

Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this section) may
sell Class M shares at net asset value without any initial sales charge to the classes of
investors listed below who, prior to March 11, 1996, owned shares of the Fund's
then-existing Class A and were permitted to purchase those shares at net asset value
without sales charge:
|X|   the Manager and its affiliates,
|X|   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,
|X|   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,
|X|   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,
|X|   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,
|X|   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.






                                            D-2
                                         Appendix D

                               QUALIFYING HYBRID INSTRUMENTS

Section 2(f) of the Commodities Exchange Act (the "Act") ("Exclusion for qualifying hybrid
instruments")

   (1)   In general

      Nothing in this chapter (other than section 16(e)(2)(B) of this title) governs or is
      applicable to a hybrid instrument that is predominantly a security.

   (2)      Predominance.

      A hybrid instrument shall be considered to be predominantly a security if -

         (A)
               the issuer of the hybrid instrument receives payment in full of the purchase
         price of the hybrid instrument, substantially contemporaneously with delivery of
         the hybrid instrument;

         (B)
               the purchaser or holder of the hybrid instrument is not required to make any
         payment to the issuer in addition to the purchase price paid under subparagraph
         (A), whether as margin, settlement payment, or otherwise, during the life of the
         hybrid instrument or at maturity;

         (C)
               the issuer of the hybrid instrument is not subject by the terms of the
         instrument to mark-to-market margining requirements; and

         (D)
               the hybrid instrument is not marketed as a contract of sale of a commodity
         for future delivery (or option on such a contract) subject to this chapter.

   (3)      Mark-to-market margining requirements.

         For the purposes of paragraph (2)(C), mark-to-market margining requirements do not
   include the obligation of an issuer of a secured debt instrument to increase the amount
   of collateral held in pledge for the benefit of the purchaser of the secured debt
   instrument to secure the repayment obligations of the issuer under the secured debt
   instrument.

Section 34.3 Hybrid Instrument Exemption

(a) A hybrid instrument is exempt from all provisions of the Act and any person or class of
persons offering, entering into, rendering advice or rendering other services with respect
to such exempt hybrid instrument is exempt for such activity from all provisions of the Act
(except in each case Section 2(a)(1)(B)), provided the following terms and conditions are
met:

   (1)  The instrument is:

        (i)  An equity or debt security within the meaning of Section 2(l) of the
        Securities Act of 1933; or

        (ii)  A demand deposit, time deposit or transaction account within the meaning of
        12 CFR 204.2(b)(1), (c)(1) and (e), respectively, offered by an insured depository
        institution as defined in Section 3 of the Federal Deposit Insurance Act; an
        insured credit union as defined in Section 101 of the Federal Credit Union Act; or
        a Federal or State branch or agency of a foreign bank as defined in Section 1 of
        the International Banking Act;

   (2)  The sum of the commodity-dependent values of the commodity-dependent components is
        less than the commodity-independent value of the commodity-independent component;

   (3)  Provided that:

        (i)  An issuer must receive full payment of the hybrid instrument's purchase price,
        and a purchaser or holder of a hybrid instrument may not be required to make
        additional out-of-pocket payments to the issuer during the life of the instrument
        or at maturity; and

        (ii)  The instrument is not marketed as a futures contract or a commodity option,
        or, except to the extent necessary to describe the functioning of the instrument or
        to comply with applicable disclosure requirements, as having the characteristics of
        a futures contract or a commodity option; and

        (iii)  The instrument does not provide for settlement in the form of a delivery
        instrument that is specified as such in the rules of a designated contract market;

   (4)  The instrument is initially issued or sold subject to applicable federal or state
        securities or banking laws to persons permitted thereunder to purchase or enter
        into the hybrid instrument.








                                            E-1
                                         Appendix E

                                QUALIFYING SWAP TRANSACTIONS

Section 2(g) of the Act ("Excluded swap transactions")

      No provision of this chapter (other than section 7a (to the extent provided in
section 7a(g) of this title), 7a-1, 7a-3, or 16(e)(2) of this title) shall apply to or
govern any agreement, contract, or transaction in a commodity other than an agricultural
commodity if the agreement, contract, or transaction is -

      (1)
         entered into only between persons that are eligible contract participants at the
      time they enter into the agreement, contract, or transaction;

      (2)
         subject to individual negotiation by the parties; and

      (3)
         not executed or traded on a trading facility.

Section 35.2 Exemption

      A swap agreement is exempt from all provisions of the Act and any person or class of
persons offering, entering into, rendering advice, or rendering other services with respect
to such agreement, is exempt for such activity from all provisions of the Act (except in
each case the provisions of Sections 2(a)(1)(B), 4b, and 4o of the Act and Section 32.9 of
this chapter as adopted under Section 4c(b) of the Act, and the provisions of Sections 6(c)
and 9(a)(2) of the Act to the extent these provisions prohibit manipulation of the market
price of any commodity in interstate commerce or for future delivery on or subject to the
rules of any contract market), provided the following terms and conditions are met:

      (a)   the swap agreement is entered into solely between eligible swap participants at
the time such persons enter into the swap agreement;

      (b)   the swap agreement is not part of a fungible class of agreements that are
standardized as to their material economic terms;

      (c)   the creditworthiness of any party having an actual or potential obligation
under the swap agreement would be a material consideration in entering into or determining
the terms of the swap agreement, including pricing, cost, or credit enhancement terms of
the swap agreement; and

      (d)   the swap agreement is not entered into and traded on or through a multilateral
transaction execution facility;

Provided, however, That paragraphs (b) and (d) of Rule 35.2 shall not be deemed to preclude
arrangements or facilities between parties to swap agreements, that provide for netting of
payment obligations resulting from such swap agreements nor shall these subsections be
deemed to preclude arrangements or facilities among parties to swap agreements, that
provide for netting of payments resulting from such swap agreements; Provided further, That
any person may apply to the Commission for exemption from any of the provisions of the Act
(except 2(a)(1)(B)) for other arrangements or facilities, on such terms and conditions as
the Commission deems appropriate, including but not limited thereto, the applicability of
other regulatory regimes.









Oppenheimer Portfolio Series

Internet Website
      www.oppenheimerfunds.com

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

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

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

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

Independent Registered Public Accounting Firm
      KPMG LLP
      707 Seventeenth Street
      Denver, Colorado 80202

Legal Counsel
      Mayer, Brown, Rowe & Maw LLP
      1675 Broadway
      New York, New York 10019

[GRAPHIC OMITTED][GRAPHIC OMITTED]

PX540.001.0506



(1) Currently, the Investment Company Act permits (a) lending of securities, (b) purchasing
debt securities or similar evidences of indebtedness, (c) repurchase agreements and (d)
interfund lending consistent with Real Asset Fund's exemptive order.
(2) Currently, the Investment Company Act permits a mutual fund to borrow from banks and/
or affiliated investment companies up to one-third of its total assets (including the
amount borrowed).  A fund may borrow up to 5% of its total assets for temporary purposes
from any person.  Interfund borrowing must be consistent with Real Asset Fund's exemptive
order.
(3) Currently, the Investment Company Act permits (a) lending of securities, (b) purchasing
debt securities or similar evidences of indebtedness, (c) repurchase agreements and (d)
interfund lending consistent with U.S. Government Trust's exemptive order.
(4) Currently, the Investment Company Act permits a mutual fund to borrow from banks and/or
affiliated investment companies up to one-third of its total assets (including the amount
borrowed).  A fund may borrow up to 5% of its total assets for temporary purposes from any
person.  Interfund borrowing must be consistent with U.S. Government Trust's exemptive
order.
(5) Currently, under the Investment Company Act, a mutual fund may borrow only from banks
and the maximum amount it may borrow is up to one-third of its total assets (including the
amount borrowed). In addition, the Fund may borrow from affiliated funds as described
above. A fund may borrow up to 5% of its total assets for temporary purposes from any
person. Under the Investment Company Act, there is a rebuttable presumption that a loan is
temporary if it is repaid within 60 days and not extended or renewed.
(6) 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.
(7) Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) This provision does not apply to IRAs.
(13) 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.
(14) The distribution must be requested prior to Plan termination or the elimination of the
Oppenheimer funds as an investment option under the Plan.
(15) This provision does not apply to IRAs.
(16) This provision does not apply to loans from 403(b)(7) custodial plans and loans from
the OppenheimerFunds-sponsored Single K retirement plan.
(17) This provision does not apply to 403(b)(7) custodial plans if the participant is less
than age 55, nor to IRAs.