497 PS0300.027/SAI Capital Income Fund Revised May 2002

497 1 sai300revised0502.htm PS0300.027/SAI CAPITAL INCOME FUND 497 PS0300.027/SAI Capital Income Fund Revised May 2002

OPPENHEIMER CAPITAL INCOME FUND
Supplement dated May 15, 2002 to the Prospectus
dated December 28, 2001

The Prospectus is changed by adding the following disclosure after the 1st
full paragraph on page 11:

Credit Derivatives. The Fund may enter into credit
default swaps, both (i) directly and (ii) indirectly in the form of a swap
embedded within a structured note, to protect against the risk that a security
will default. The Fund pays a fee to enter into the trade and receives a fixed
payment during the life of the swap. If there is a credit event (for example,
the security fails to timely pay interest or principal), the Fund either
delivers the defaulted bond (if the Fund has taken the short position in the
credit default swap, also known as "buying credit protection") or pays the par
amount of the defaulted bond (if the Fund has taken the long position in the
credit default swap note, also know as "selling credit protection"). Risks of
credit default swaps include the cost of paying for credit protection if there
are no credit events, and adverse pricing when purchasing bonds to satisfy its
delivery obligation where the Fund took a short position in the swap and there
has been a credit event.

May 15, 2002 PS0300.027

Oppenheimer Capital Income Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048

Statement of Additional Information dated December 28, 2001 revised May 15, 2002

This Statement of Additional Information is not a Prospectus. This document contains additional information about the Fund
and supplements information in the Prospectus dated December 28, 2001. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling
the Transfer Agent at the toll-free number shown above, or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.

Contents
Page
About the Fund

Additional Information About the Fund's Investment Policies and Risks................................... 2
The Fund's Investment Policies..................................................................... 2
Other Investment Techniques and Strategies......................................................... 8
Investment Restrictions............................................................................ 23
How the Fund is Managed ................................................................................ 25
Organization and History........................................................................... 25
Trustees and Officers.............................................................................. 26
The Manager........................................................................................ 31
Brokerage Policies of the Fund.......................................................................... 33
Distribution and Service Plans.......................................................................... 35
Performance of the Fund................................................................................. 39

About Your Account

How To Buy Shares....................................................................................... 41
How To Sell Shares...................................................................................... 52
How To Exchange Shares.................................................................................. 57
Dividends, Capital Gains and Taxes...................................................................... 60
Additional Information About the Fund................................................................... 61

Financial Information About the Fund

Independent Auditors' Report............................................................................ 62
Financial Statements.................................................................................... 63

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

ABOUT THE FUND

Additional Information About the Fund's Investment Policies and Risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Fund's debt investments can include investment-grade and non-investment-grade bonds (commonly referred to as "junk
bonds"). Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors Service, Inc., or at least "BBB" by Standard &
Poor's Corporation or Fitch, Inc., or that have comparable ratings by another nationally-recognized rating organization.

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

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

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

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

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

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

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

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

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

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

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

|_| Zero Coupon Securities. The Fund can buy zero-coupon and delayed interest securities, and "stripped" securities.
Stripped securities are debt securities whose interest coupons are separated from the security and sold separately. The Fund can buy
the following types of zero-coupon or stripped securities, among others: U.S. Treasury notes or bonds that have been stripped of
their interest coupons, U.S. Treasury bills issued without interest coupons, and certificates representing interests in stripped
securities.

Zero-coupon securities do not make periodic interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the security, which is redeemed at face value on a
specified maturity date. This discount depends on the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. In the absence of threats to the issuer's credit quality, the
discount typically decreases as the maturity date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to a security with a specified coupon rate.

Because zero-coupon securities pay no interest and compound semi-annually at the rate fixed at the time of their issuance,
their prices are generally more volatile than the prices of other debt securities. Their value may fall more dramatically than the
value of interest-bearing securities when interest rates rise. When prevailing interest rates fall, zero-coupon securities tend to
rise more rapidly in value because they have a fixed rate of return.

The Fund's investment in zero-coupon securities may cause the Fund to recognize income and make distributions to
shareholders before it receives any cash payments on the zero-coupon investment. To generate cash to satisfy those distribution
requirements, the Fund may have to sell portfolio securities that it otherwise might have continued to hold or to use cash flows from
other sources such as the sale of Fund shares.

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

|X| Foreign Securities. The Fund can purchase equity and debt securities issued or guaranteed by foreign companies or
foreign governments or their agencies. "Foreign securities" include equity and debt securities of companies organized under the laws
of countries other than the United States and debt securities of foreign governments. They may be traded on foreign securities
exchanges or in the foreign over-the-counter markets. The debt obligations of a foreign government and its agencies and
instrumentalities may or may not be supported by the full faith and credit of the foreign government.

Securities of foreign issuers that are represented by American Depository Receipts or that are listed on a U.S. securities
exchange or traded in the U.S. over-the-counter markets are not considered "foreign securities" for the purpose of the Fund's
investment allocations. That is because they are not subject to many of the special considerations and risks, discussed below, that
apply to foreign securities traded and held abroad.

Investing in foreign securities offers potential benefits not available from investing solely in securities of domestic
issuers. They include the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S. markets. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities.

|_| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities for investing but also
present special additional risks and considerations not typically associated with investments in domestic securities. Some of these
additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in foreign countries comparable to those applicable
to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.

In the past, U.S. government policies have discouraged certain investments abroad by U.S. investors, through taxation or
other restrictions, and it is possible that such restrictions could be re-imposed.

|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries in the European Union adopted the euro as their
official currency. However, their current currencies (for example, the franc, the mark, and the lira) will also continue in use until
January 1, 2002. After that date, it is expected that only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt market for those countries and reducing some currency
risks and costs. But the conversion to the new currency will affect the Fund operationally and also has potential risks, some of
which are listed below. Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive environment from a consolidated currency market and
greater operational costs from converting to the new currency. This might depress securities values.
o vendors the Fund depends on to carry out its business, such as its custodian bank (which holds the foreign securities the
Fund buys), the Manager (which must price the Fund's investments to deal with the conversion to the euro) and brokers,
foreign markets and securities depositories. If they are not prepared, there could be delays in settlements and
additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to update the Fund's contracts could pose extra costs to the
Fund.

The Manager has upgraded (at its expense) its computer and bookkeeping systems to deal with the conversion. The Fund's
custodian bank has advised the Manager of its plans to deal with the conversion, including how it will update its record keeping
systems and handle the redenomination of outstanding foreign debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of these factors on the Fund's investments cannot be
determined with certainty at this time, but they may reduce the value of some of the Fund's holdings and increase its operational
costs.

|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio securities during its
last fiscal year. For example, if a fund sold all of its securities during the year, its portfolio turnover rate would have been
100%. The Fund's portfolio turnover rate will fluctuate from year to year. The Fund does not expect to have a portfolio turnover rate
of 100% or more. Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which may reduce its
overall performance. Additionally, the realization of capital gains from selling portfolio securities may result in distributions of
taxable long-term capital gains to shareholders, since the Fund will normally distribute all of its capital gains realized each year,
to avoid excise taxes under the Internal Revenue Code. The Financial Highlights table at the end of the Prospectus shows the Fund's
portfolio turnover rates during prior fiscal years.

Other Investment Techniques and Strategies. In seeking its objective, the Fund can from time to time employ the types of investment
strategies and investments described below. It is not required to use all of these strategies at all times and at times may not use
them.

|X| Investing in Small, Unseasoned Companies. The Fund can invest in securities of small, unseasoned companies. These are
companies that have been in operation for less than three years, including the operations of any predecessors. Securities of these
companies may be subject to volatility in their prices. They may have a limited trading market, which may adversely affect the Fund's
ability to dispose of them and can reduce the price the Fund might be able to obtain for them. Other investors that own a security
issued by a small, unseasoned issuer for which there is limited liquidity might trade the security when the Fund is attempting to
dispose of its holdings of that security. In that case the Fund might receive a lower price for its holdings than might otherwise be
obtained.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can invest in securities on a "when-issued" basis and can
purchase or sell securities on a "delayed-delivery" basis. When-issued and delayed-delivery are terms that refer to securities whose
terms and indenture have been created, but the securities are not available for immediate delivery even though the market for them
exists.

When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made. Delivery and payment for the securities take place at a later date. The securities are subject to change in value
from market fluctuations during the period until settlement. The value at delivery may be less than the purchase price. For example,
changes in interest rates in a direction other than that expected by the Manager before settlement will affect the value of such
securities and may cause a loss to the Fund. During the period between purchase and settlement, no payment is made by the Fund to the
issuer, and no interest accrues to the Fund from the investment until it receives the security at settlement.

The Fund can engage in when-issued transactions to secure what the Manager considers to be an advantageous price and yield
at the time the Fund enters into the obligation. When the Fund enters into a when-issued or delayed-delivery transaction, it relies
on the other party to complete the transaction. Its failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.

When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of acquiring or selling
securities consistent with its investment objective and policies or for delivery pursuant to options contracts it has entered into,
and not for the purpose of investment leverage. Although the Fund will enter into delayed-delivery or when-issued purchase
transactions to acquire securities, it can dispose of a commitment prior to settlement. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.

At the time the Fund makes the commitment to purchase or sell a security on a when-issued or delayed-delivery basis, it
records the transaction on its books and reflects the value of the security purchased in determining the Fund's net asset value. In a
sale transaction, it records the proceeds to be received. The Fund will identify on its books liquid assets at least equal in value
to the value of the Fund's purchase commitments until the Fund pays for the investment.

When issued and delayed-delivery transactions can be used by the Fund as a defensive technique to hedge against anticipated
changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio securities and purchase the same or similar securities on
a when-issued or delayed-delivery basis to obtain the benefit of currently higher cash yields.

|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It might do so for liquidity
purposes to meet anticipated redemptions of Fund shares, or pending the investment of the proceeds from sales of Fund shares, or
pending the settlement of portfolio securities transactions.

In a repurchase transaction, the Fund buys a security from, and simultaneously resells it to, an approved vendor for
delivery on an agreed-upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been designated as primary dealers in government securities. They
must meet credit requirements set by the Fund's Manager from time to time.

The majority of these transactions run from day to day, and delivery pursuant to the resale typically occurs within one to
five days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding
illiquid investments. The Fund will not enter into a repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.

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

|X| Illiquid and Restricted Securities. Under the policies and procedures established by the Fund's Board of Trustees, the
Manager determines the liquidity of certain of the Fund's illiquid or restricted investments. To enable the Fund to sell its holdings
of a restricted security not registered under the Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be negotiated by the Fund with the issuer at the time the Fund buys
the securities. When the Fund must arrange registration because the Fund wishes to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the time the security is registered so that the Fund could sell
it. The Fund would bear the risks of any downward price fluctuation during that period.

The Fund can acquire restricted securities through private placements. Those securities have contractual restrictions on
their public resale. Those restrictions might limit the Fund's ability to dispose of the securities and might lower the amount the
Fund could realize upon the sale.

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

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

|X| Loans of Portfolio Securities. The Fund can lend its portfolio securities to certain types of eligible borrowers
approved by the Board of Trustees. It might do so to try to provide income or to raise cash for liquidity purposes. These loans are
limited to not more than 10% of the value of the Fund's total assets. There are some risks in connection with securities lending. The
Fund might experience a delay in receiving additional collateral to secure a loan, or a delay in recovery of the loaned securities.
The Fund presently does not intend to lend its securities in the coming year, but if it does, the value of the loaned securities is
not expected to exceed 5% of the value of the Fund's total assets.

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

When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned securities. It also
receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on any short-term
debt securities purchased with such loan collateral. Either type of interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees in connection with these loans. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter.

|X| Derivatives. The Fund can invest in a variety of derivative investments for income, for capital appreciation or for
hedging purposes. Some derivative investments the Fund can use are the hedging instruments described below in this Statement of
Additional Information.

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

Other derivative investments the Fund can use include "debt exchangeable for common stock" of an issuer or "equity-linked
debt securities" of an issuer. At maturity, the debt security is exchanged for common stock of the issuer or it is payable in an
amount based on the price of the issuer's common stock at the time of maturity. Both alternatives present a risk that the amount
payable at maturity will be less than the principal amount of the debt because the price of the issuer's common stock might not be as
high as the Manager expected.

|X| Hedging. The Fund can use hedging to attempt to protect against declines in the market value of the Fund's portfolio, to
permit the Fund to retain unrealized gains in the value of portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons. To do so, the Fund could:
o sell futures contracts,
o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls can also be used to increase the Fund's income, but the
Manager does not expect to engage extensively in that practice.

The Fund might use hedging to establish a position in the securities market as a
temporary substitute for purchasing particular securities. In that case, the Fund would normally seek to purchase the securities and
then terminate that hedging position. The Fund might also use this type of hedge to attempt to protect against the possibility that
its portfolio securities would not be fully included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.

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

|_| Futures. The Fund can buy and sell futures contracts that relate to (1) debt securities (these are referred to as
"interest rate futures"), (2) broadly-based stock indices (these are referred to as "stock index futures") or other indices (referred
to as "financial futures"), (3) foreign currencies (these are referred to as "forward contracts"), or (4) commodities (these are
referred to as "commodity futures").

|_| Stock Index Futures, Financial Futures and Interest Rate Futures. A broadly-based stock index is used as the basis
for trading stock index futures. They may in some cases be based on stocks of issuers in a particular industry or group of
industries. A stock index assigns relative values to the common stocks included in the index and its value fluctuates in response to
the changes in value of the underlying stocks. A stock index cannot be purchased or sold directly. Financial futures are similar
contracts based on the future value of the basket of securities that comprise the index. These contracts obligate the seller to
deliver, and the purchaser to take, cash to settle the futures transaction. There is no delivery made of the underlying securities to
settle the futures obligation. Either party may also settle the transaction by entering into an offsetting contract.

An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specified type of debt
security to settle the futures transaction. Either party could also enter into an offsetting contract to close out the position.

No money is paid or received by the Fund on the purchase or sale of a future. Upon entering into a futures transaction, the
Fund will be required to deposit an initial margin payment with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's custodian bank in an account registered in the futures broker's name. However, the
futures broker can gain access to that account only under specified conditions. As the future is marked to market (that is, its value
on the Fund's books is changed) to reflect changes in its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker daily.

At any time prior to expiration of the future, the Fund can elect to close out its position by taking an opposite position,
at which time a final determination of variation margin is made and any additional cash must be paid by or released to the Fund. Any
loss or gain on the future is then realized by the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.

|_| Commodity Futures. The Fund can invest a portion of its assets in commodity futures contracts. They may be based
upon commodities in five main commodity groups: energy, livestock, agriculture, industrial metals and precious metals, on individual
commodities within these groups, or on other commodities. For hedging purposes, the Fund can buy and sell commodity futures
contracts, options on commodity futures contracts, and options and futures on commodity indices.

Under a commodity futures contract, the buyer agrees to take delivery of a specified amount of a commodity at a future date
at a price agreed upon when the contract is made. In the United States, commodity contracts are traded on futures exchanges. The
exchanges offer a central marketplace for transactions, a clearing corporation to process trades, standardization of contract sizes
and expiration dates, and the liquidity of a secondary market. Futures markets also regulate the terms and conditions of delivery and
the maximum permissible price movement of a contract during a trading session. The exchanges have rules on position limits. Those
rules limit the amount of futures contracts that any one party may hold in a particular commodity at one time. Those rules are
designed to prevent any one party from controlling a significant portion of the market.

Despite the daily price limits imposed by the futures exchanges, historically the short-term price volatility of commodity
futures contracts has been greater than that for stocks and bonds. To the extent that the Fund invests in these futures contracts,
its share price may be subject to greater volatility.

|_| Put and Call Options. The Fund can buy and sell certain kinds of put options ("puts") and call options ("calls").
The Fund can buy and sell exchange-traded and over-the-counter put and call options, including index options, securities options,
currency options, commodities options, and options on the other types of futures described above.

|_| Writing Covered Call Options. The Fund can write (that is, sell) covered calls. If the Fund sells a call option, it
must be covered. That means the Fund must own the security subject to the call while the call is outstanding, or, for certain types
of calls, the call may be covered by liquid assets identifying on the Fund's books to enable the Fund to satisfy its obligations if
the call is exercised. Up to 25% of the Fund's total assets can be subject to calls the Fund writes.

When the Fund writes a call on a security, it receives cash (a premium). The Fund agrees to sell the underlying security to
a purchaser of a corresponding call on the same security during the call period at a fixed exercise price regardless of market price
changes during the call period. The call period is usually not more than nine months. The exercise price may differ from the market
price of the underlying security. The Fund has the risk of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash premium and
the investment.

When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call exercises it, the Fund will
pay an amount of cash equal to the difference between the closing price of the call and the exercise price, multiplied by a specified
multiple that determines the total value of the call for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash
premium.

The Fund's custodian bank, or a securities depository acting for the custodian bank, will act as the Fund's escrow agent,
through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund has written calls traded
on exchanges or as to other acceptable escrow securities. In that way, no margin will be required for such transactions. OCC will
release the securities on the expiration of the option or when the Fund enters into a closing transaction.

When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. government
securities dealer which will establish a formula price at which the Fund will have the absolute right to repurchase that OTC option.
The formula price will generally be based on a multiple of the premium received for the option, plus the amount by which the option
is exercisable below the market price of the underlying security (that is, the option is "in the money"). When the Fund writes an OTC
option, it will treat as illiquid (for purposes of its restriction on holding illiquid securities) the mark-to-market value of any
OTC option it holds, unless the option is subject to a buy-back agreement by the executing broker.

To terminate its obligation on a call it has written, the Fund can purchase a corresponding call in a "closing purchase
transaction." The Fund will then realize a profit or loss, depending upon whether the net of the amount of the option transaction
costs and the premium received on the call the Fund wrote is more or less than the price of the call the Fund purchases to close out
the transaction. The Fund may realize a profit if the call expires unexercised, because the Fund will retain the underlying security
and the premium it received when it wrote the call. Any such profits are considered short-term capital gains for federal income tax
purposes, as are the premiums on lapsed calls. When distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have to hold the callable securities until the call
expires or is exercised.

The Fund can also write calls on a futures contract without owning the futures contract or securities deliverable under the
contract. To do so, at the time the call is written, the Fund must cover the call by identifying an equivalent dollar amount of
liquid assets on the Fund's books. The Fund will identify additional liquid assets on its books if the value of the identified assets
drops below 100% of the current value of the future. Because of this segregation requirement, in no circumstances would the Fund's
receipt of an exercise notice as to that future require the Fund to deliver a futures contract. It would simply put the Fund in a
short futures position, which is permitted by the Fund's hedging policies.

|_| Writing Put Options. The Fund can sell put options. A put option on securities gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying investment at the exercise price during the option period. The Fund will
not write puts if, as a result, more than 25% of the Fund's net assets would be required to be segregated to cover such put options.

If the Fund writes a put, the put must be covered by liquid assets identified on the Fund's books. The premium the Fund
receives from writing a put represents a profit, as long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during the option period to buy the underlying investment
from the buyer of the put at the exercise price, even if the value of the investment falls below the exercise price. If a put the
Fund has written expires unexercised, the Fund realizes a gain in the amount of the premium less the transaction costs incurred. If
the put is exercised, the Fund must fulfill its obligation to purchase the underlying investment at the exercise price. That price
will usually exceed the market value of the investment at that time. In that case, the Fund may incur a loss if it sells the
underlying investment. That loss will be equal to the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs the Fund incurred.

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

As long as the Fund's obligation as the put writer continues, it may be assigned an exercise notice by the broker-dealer
through which the put was sold. That notice will require the Fund to take delivery of the underlying security and pay the exercise
price. The Fund has no control over when it may be required to purchase the underlying security, since it may be assigned an exercise
notice at any time prior to the termination of its obligation as the writer of the put. That obligation terminates upon expiration of
the put. It may also terminate if, before it receives an exercise notice, the Fund effects a closing purchase transaction by
purchasing a put of the same series as it sold. Once the Fund has been assigned an exercise notice, it cannot effect a closing
purchase transaction.

The Fund can decide to effect a closing purchase transaction to realize a profit on an outstanding put option it has written
or to prevent the underlying security from being put. Effecting a closing purchase transaction will also permit the Fund to write
another put option on the security, or to sell the security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on whether the cost of the transaction is less or more than
the premium received from writing the put option. Any profits from writing puts are considered short-term capital gains for federal
tax purposes, and when distributed by the Fund, are taxable as ordinary income.

|_| Purchasing Calls and Puts. The Fund can purchase calls to protect against the possibility that the Fund's portfolio
will not participate in an anticipated rise in the securities market. When the Fund buys a call (other than in a closing purchase
transaction), it pays a premium. The Fund then has the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The Fund benefits only if it sells the call at a profit or
if, during the call period, the market price of the underlying investment is above the sum of the call price plus the transaction
costs and the premium paid for the call and the Fund exercises the call. If the Fund does not exercise the call or sell it (whether
or not at a profit), the call will become worthless at its expiration date. In that case the Fund will have paid the premium but lost
the right to purchase the underlying investment.

The Fund can buy puts whether or not it holds the underlying investment in its portfolio. When the Fund purchases a put, it
pays a premium and, except as to puts on indices, has the right to sell the underlying investment to a seller of a put on a
corresponding investment during the put period at a fixed exercise price. Buying a put on securities or futures the Fund owns enables
the Fund to attempt to protect itself during the put period against a decline in the value of the underlying investment below the
exercise price by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market price of
the underlying investment is equal to or above the exercise price and, as a result, the put is not exercised or resold, the put will
become worthless at its expiration date. In that case the Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Fund can sell the put prior to its expiration. That sale may or may not be at a profit.

When the Fund purchases a call or put on an index or future, it pays a premium, but settlement is in cash rather than by
delivery of the underlying investment to the Fund. Gain or loss depends on changes in the index in question (and thus on price
movements in the securities market generally) rather than on price movements in individual securities or futures contracts.

The Fund can buy a call or put only if, after the purchase, the value of all call and put options held by the Fund will not
exceed 5% of the Fund's total assets.

|_| Buying and Selling Options on Foreign Currencies. The Fund can buy and sell calls and puts on foreign currencies.
They include puts and calls that trade on a securities or commodities exchange or in the over-the-counter markets or are quoted by
major recognized dealers in such options. The Fund could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign securities the Fund wants to acquire.

If the Manager anticipates a rise in the dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of those securities may be partially offset by purchasing calls or writing puts on that foreign
currency. If the Manager anticipates a decline in the dollar value of a foreign currency, the decline in the dollar value of
portfolio securities denominated in that currency might be partially offset by writing calls or purchasing puts on that foreign
currency. However, the currency rates could fluctuate in a direction adverse to the Fund's position. The Fund will then have incurred
option premium payments and transaction costs without a corresponding benefit.

A call the Fund writes on a foreign currency is "covered" if the Fund owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or it can do so
for additional cash consideration held in a segregated account by its custodian bank) upon conversion or exchange of other foreign
currency held in its portfolio.

The Fund could write a call on a foreign currency to provide a hedge against a decline in the U.S. dollar value of a
security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option. That decline
might be one that occurs due to an expected adverse change in the exchange rate. This is known as a "cross-hedging" strategy. In
those circumstances, the Fund covers the option by maintaining cash, U.S. government securities or other liquid, high grade debt
securities in an amount equal to the exercise price of the option, in a segregated account with the Fund's custodian bank.

|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were not correlated with its other investments.

The Fund's option activities could affect its portfolio turnover rate and brokerage commissions. The exercise of calls
written by the Fund might cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the
Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments
for reasons that would not exist in the absence of the put.

The Fund could have to pay a brokerage commission each time it buys a call or put, sells a call or put, or buys or sells an
underlying investment in connection with the exercise of a call or put. Those commissions could be higher on a relative basis than
the commissions for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options offer large amounts of leverage. The leverage offered
by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying
investment.

If a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required
to sell the investment at the call price. It will not be able to realize any profit if the investment has increased in value above
the call price.

An option position may be closed out only on a market that provides secondary trading for options of the same series, and
there is no assurance that a liquid secondary market will exist for any particular option. The Fund might experience losses if it
could not close out a position because of an illiquid market for the future or option.

There is a risk in using short hedging by selling futures or purchasing puts on broadly-based indices or futures to attempt
to protect against declines in the value of the Fund's portfolio securities. The risk is that the prices of the futures or the
applicable index will correlate imperfectly with the behavior of the cash prices of the Fund's securities. For example, it is
possible that while the Fund has used hedging instruments in a short hedge, the market might advance and the value of the securities
held in the Fund's portfolio might decline. If that occurred, the Fund would lose money on the hedging instruments and also
experience a decline in the value of its portfolio securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will tend to move in the same direction as the indices
upon which the hedging instruments are based.

The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the securities included
in the applicable index. To compensate for the imperfect correlation of movements in the price of the portfolio securities being
hedged and movements in the price of the hedging instruments, the Fund might use hedging instruments in a greater dollar amount than
the dollar amount of portfolio securities being hedged. It might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the applicable index.

The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to differences in the
nature of those markets. First, all participants in the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures market may cause temporary price distortions.

The Fund can use hedging instruments to establish a position in the securities markets as a temporary substitute for the
purchase of individual securities (long hedging) by buying futures and/or calls on such futures, broadly-based indices or on
securities. It is possible that when the Fund does so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market may decline further or for other reasons, the Fund will realize a loss on the hedging
instruments that is not offset by a reduction in the price of the securities purchased.

|_| Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy or sell foreign
currency for future delivery at a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a security denominated in a
foreign currency that the Fund has bought or sold, or to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign currency exchange contracts in a particular foreign
currency to the amount of its assets denominated in that currency or a closely-correlated currency. The Fund can also use
"cross-hedging" where the Fund hedges against changes in currencies other than the currency in which a security it holds is
denominated.

Under a forward contract, one party agrees to purchase, and another party agrees to sell, a specific currency at a future
date. That date may be any fixed number of days from the date of the contract agreed upon by the parties. The transaction price is
set at the time the contract is entered into. These contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.

The Fund can use forward contracts to protect against uncertainty in the level of future exchange rates. The use of forward
contracts does not eliminate the risk of fluctuations in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. Although forward contracts may reduce the risk of loss from a decline in the value of
the hedged currency, at the same time they limit any potential gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when it
anticipates receiving dividend payments in a foreign currency, the Fund might desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of the dividend payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying transaction, in a fixed amount of U.S. dollars per unit
of the foreign currency. This is called a "transaction hedge." The transaction hedge will protect the Fund against a loss from an
adverse change in the currency exchange rates during the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or received.

The Fund could also use forward contracts to lock in the U.S. dollar value of portfolio positions. This is called a
"position hedge." When the Fund believes that foreign currency might suffer a substantial decline against the U.S. dollar, it could
enter into a forward contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in that foreign currency. When the Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it might enter into a forward contract to buy that foreign currency for a fixed dollar amount.
Alternatively, the Fund might enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount if
the Fund believes that the U.S. dollar value of the foreign currency to be sold pursuant to its forward contract will fall whenever
there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated. That is
referred to as a "cross hedge."

The Fund will cover its short positions in these cases by identifying to its custodian bank assets having a value equal to
the aggregate amount of the Fund's commitment under forward contracts. The Fund will not enter into forward contracts or maintain a
net exposure to such contracts if the consummation of the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets denominated in that currency or another currency that is
the subject of the hedge. However, to avoid excess transactions and transaction costs, the Fund can maintain a net exposure to
forward contracts in excess of the value of the Fund's portfolio securities or other assets denominated in foreign currencies if the
excess amount is "covered" by liquid securities denominated in any currency. The cover must be at least equal at all times to the
amount of that excess. As one alternative, the Fund can purchase a call option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no higher than the forward contract price. As another alternative, the
Fund can purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contact price.

The precise matching of the amounts under forward contracts and the value of the securities involved generally will not be
possible because the future value of securities denominated in foreign currencies will change as a consequence of market movements
between the date the forward contract is entered into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase obligation. If the market value of the security is less than
the amount of foreign currency the Fund is obligated to deliver, the Fund might have to purchase additional foreign currency on the
"spot" (that is, cash) market to settle the security trade. If the market value of the security instead exceeds the amount of foreign
currency the Fund is obligated to deliver to settle the trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately
predicted, causing the Fund to sustain losses on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are unanticipated changes in currency prices to a greater
degree than if the Fund had not entered into such contracts.

At or before the maturity of a Forward Contract requiring the Fund to sell a currency, the Fund might sell a portfolio
security and use the sale proceeds to make delivery of the currency. In the alternative the Fund might retain the security and offset
its contractual obligation to deliver the currency by purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund might close out a forward
contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance. The gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first contract and offsetting contract.

The costs to the Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of
the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal
basis, no brokerage fees or commissions are involved. Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.

Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund can convert foreign currency from time to time, and will incur costs in doing
so. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange if the Fund desires to resell that currency to the dealer.

|_| Interest Rate Swap Transactions. The Fund can enter into interest rate swap agreements. In an interest rate swap,
the Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they might
swap the right to receive floating rate payments for fixed rate payments. The Fund can enter into swaps only on securities that it
owns. The Fund will not enter into swaps with respect to more than 25% of its total assets. Also, the Fund will identify liquid
assets on its books (such as cash or U.S. government securities) to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily, as needed.

Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates
in the future, the payments made by the Fund under a swap agreement will be greater than the payments it received. Credit risk arises
from the possibility that the counterparty will default. If the counterparty defaults, the Fund's loss will consist of the net amount
of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties
to the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties pursuant to master netting agreements. A master
netting agreement provides that all swaps done between the Fund and that counterparty shall be regarded as parts of an integral
agreement. If amounts are payable on a particular date in the same currency in respect of one or more swap transactions, the amount
payable on that date in that currency shall be the net amount. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate all of the swaps with that party. Under these agreements, if
a default results in a loss to one party, the measure of that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at the time of the termination of each swap. The gains and
losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred to as "aggregation."

|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is required to
operate within certain guidelines and restrictions with respect to the use of futures as established by the Commodities Futures
Trading Commission (the "CFTC"). In particular, the Fund is exempted from registration with the CFTC as a "commodity pool operator"
if the Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the percentage of the Fund's
assets that may be used for futures margin and related options premiums for a bona fide hedging position. However, under the Rule,
the Fund must limit its aggregate initial futures margin and related options premiums to not more than 5% of the Fund's net assets
for hedging strategies that are not considered bona fide hedging strategies under the Rule. Under the Rule, the Fund must also use
short futures and options on futures solely for bona fide hedging purposes within the meaning and intent of the applicable provisions
of the Commodity Exchange Act.

Transactions in options by the Fund are subject to limitations established by the option exchanges. The exchanges limit the
maximum number of options that may be written or held by a single investor or group of investors acting in concert. Those limits
apply regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more brokers. Thus, the number of options that the Fund may
write or hold may be affected by options written or held by other entities, including other investment companies having the same
advisor as the Fund (or an advisor that is an affiliate of the Fund's advisor). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain
other sanctions.

Under the Investment Company Act, when the Fund purchases a future, it must maintain cash or readily marketable short-term
debt instruments in an amount equal to the market value of the securities underlying the future, less the margin deposit applicable
to it.

|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in which the Fund may invest
are treated as "Section 1256 contracts" under the Internal Revenue Code. In general, gains or losses relating to Section 1256
contracts are characterized as 60% long-term and 40% short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts generally are treated as ordinary income or loss. In
addition, Section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market," and unrealized gains or
losses are treated as though they were realized. These contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue
Code. An election can be made by the Fund to exempt those transactions from this marked-to-market treatment.

Certain forward contracts the Fund enters into may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character and timing of gains (or losses) recognized by the Fund on straddle positions. Generally, a loss sustained on
the disposition of a position making up a straddle is allowed only to the extent that the loss exceeds any unrecognized gain in the
offsetting positions making up the straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in
the offsetting positions making up the straddle, or the offsetting position is disposed of.

Under the Internal Revenue Code, the following gains or losses are treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency forward contracts and the date of disposition.

Currency gains and losses are offset against market gains and losses on each trade before determining a net "Section 988"
gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the amount of the Fund's investment
income available for distribution to its shareholders.

|X|Credit Derivatives. The Fund may enter into credit default swaps, both directly ("unfunded swaps") and indirectly in the
form of a swap embedded within a structured note ("funded swaps"), to protect against the risk that a security will default.
Unfunded and funded credit default swaps may be on a single security, or on a basket of securities. The Fund pays a fee to enter into
the swap and receives a fixed payment during the life of the swap. The Fund may take a short position in the credit default swap
(also known as "buying credit protection"), or may take a long position in the credit default swap note (also known as "selling
credit protection").

The Fund would take a short position in a credit default swap (the "unfunded swap") against a long portfolio position to
decrease exposure to specific high yield issuers. If the short credit default swap is against a corporate issue, the Fund must own
that corporate issue. However, if the short credit default swap is against sovereign debt, the Fund may own either: (i) the reference
obligation, (ii) any sovereign debt of that foreign country, or (iii) sovereign debt of any country that the Manager determines is
closely correlated as an inexact bona fide hedge.

If the Fund takes a short position in the credit default swap, if there is a credit event (including bankruptcy, failure to
timely pay interest or principal, or a restructuring), the Fund will deliver the defaulted bonds and the swap counterparty will pay
the par amount of the bonds. An associated risk is adverse pricing when purchasing bonds to satisfy the delivery obligation. If the
swap is on a basket of securities, the notional amount of the swap is reduced by the par amount of the defaulted bond, and the fixed
payments are then made on the reduced notional amount.

Taking a long position in the credit default swap note (i.e., purchasing the "funded swap") would increase the Fund's
exposure to specific high yield corporate issuers. The goal would be to increase liquidity in that market sector via the swap note
and its associated increase in the number of trading instruments, the number and type of market participants, and market
capitalization.

If the Fund takes a long position in the credit default swap note, if there is a credit event the Fund will pay the par
amount of the bonds and the swap counterparty will deliver the bonds. If the swap is on a basket of securities, the notional amount
of the swap is reduced by the par amount of the defaulted bond, and the fixed payments are then made on the reduced notional amount.

The Fund will invest no more than 25 % of its total assets in "unfunded" credit default swaps.

The Fund will limit its investments in "funded" credit default swap notes to no more than 10% of its total assets.

Other risks of credit default swaps include the cost of paying for credit protection if there are no credit events, pricing
transparency when assessing the cost of a credit default swap, counterparty risk, and the need to fund the delivery obligation
(either cash or the defaulted bonds, depending on whether the Fund is long or short the swap, respectively).

|X| Temporary Defensive Investments. The Fund's temporary defensive investments can include debt securities such as: (i)
U.S. Treasury bills or other obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; (ii)
commercial paper rated A-3 or higher by Standard & Poor's or P-3 or higher by Moody's; (iii) certificates of deposit or bankers'
acceptances or other obligations of domestic banks with assets of $1 billion or more; and (iv) repurchase agreements.

Investment Restrictions

|X| What Are "Fundamental Policies?" Fundamental policies are those policies that the Fund has adopted to govern its
investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting securities. Under the Investment
Company Act, a "majority" vote is defined as the vote of the holders of the lesser of:
o 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or
o more than 50% of the outstanding shares.

The Fund's investment objectives are fundamental policies. Other policies described in the Prospectus or this Statement of
Additional Information are "fundamental" only if they are identified as such. The Fund's Board of Trustees can change non-fundamental
policies without shareholder approval. However, significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as appropriate. The Fund's most significant investment
policies are described in the Prospectus.

|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of
the Fund.

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

o The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund can buy and sell
hedging instruments that are permitted by any of its other investment policies. The Fund can also buy and sell options, futures and
other instruments backed by physical commodities or the investment return from which is linked to changes in the price of physical
commodities.

o The Fund cannot concentrate investments. That means it cannot invest 25% or more of its total assets in any industry.

o The Fund cannot borrow money in excess of 33-1/3% of the value of its total assets. The Fund may borrow only from banks
and/or affiliated investment companies. With respect to this fundamental policy, the Fund can borrow only if it maintains a 300%
ratio of assets to borrowing at all times in the manner set forth in the Investment Company Act of 1940.

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

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

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

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

Unless the Prospectus or this Statement of Additional Information states that a percentage restriction applies on an ongoing
basis, it applies only at the time the Fund makes an investment with the exception of the borrowing policy. The Fund need not sell
securities to meet the percentage limits if the value of the investment increases in proportion to the size of the Fund.

For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has adopted the industry
classifications set forth in Appendix B to this Statement of Additional Information. This is not a fundamental policy.

How the Fund is Managed

Organization and History. The Fund is an open-end, diversified management investment company with an unlimited number of authorized
shares of beneficial interest. The Fund was organized as a corporation in 1967 but was reorganized as a Massachusetts business trust
in July 1986.

The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's activities, review its performance, and
review the actions of the Manager.

|_| Classes of Shares. The Board of Trustees has the power, without shareholder approval, to divide unissued shares of
the Fund into two or more classes. The Board has done so, and the Fund currently has four classes of shares: Class A, Class B, Class
C and Class N. All classes invest in the same investment portfolio. Only retirement plans may purchase Class N shares. Each class of
shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are different from interests of another class,
and
o votes as a class on matters that affect that class alone.

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

The Trustees are authorized to create new series and classes of shares. The Trustees may reclassify unissued shares of the
Fund into additional series or classes of shares. The Trustees also may divide or combine the shares of a class into a greater or
lesser number of shares without changing the proportionate beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may be voted in person or by proxy at shareholder meetings.

|_| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to hold, and does not plan to
hold, regular annual meetings of shareholders. The Fund will hold meetings when required to do so by the Investment Company Act or
other applicable law. It will also do so when a shareholder meeting is called by the Trustees or upon proper request of the
shareholders.

Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. 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, whichever is less. The Trustees may also take other
action as permitted by the Investment Company Act.

|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer of shareholder or
Trustee liability for the Fund's obligations. It also provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable
as a "partner" under certain circumstances. However, the risk that a Fund shareholder will incur financial loss from being held
liable as a "partner" of the Fund is limited to the relatively remote circumstances in which the Fund would be unable to meet its
obligations.

The Fund's contractual arrangements state that any person doing business with the Fund (and each shareholder of the Fund)
agrees under its Declaration of Trust to look solely to the assets of the Fund for satisfaction of any claim or demand that may arise
out of any dealings with the Fund. Additionally, the Trustees shall have no personal liability to any such person, to the extent
permitted by law.

Trustees and Officers of the Fund. The Fund's Trustees, officers and their principal occupations and business affiliations during the
past five years are listed below. Trustees denoted with an asterisk (*) below are deemed to be "interested persons" of the Fund under
the Investment Company Act. All of the Trustees are also trustees, directors or managing general partners of the following
Denver-based Oppenheimer funds1:
Oppenheimer Cash Reserves Oppenheimer Select Managers
Oppenheimer Champion Income Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Capital Income Fund Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer International Bond Fund Oppenheimer Variable Account Funds
Oppenheimer Integrity Funds Panorama Series Fund, Inc.
Oppenheimer Limited-Term Government Fund Centennial America Fund, L. P.
Oppenheimer Main Street Funds, Inc. Centennial California Tax Exempt Trust
Oppenheimer Main Street Opportunity Fund Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Messrs. Swain, Murphy, Wixted, Zack, Bishop, Molleur and Farrar, and Mses. Feld and Ives who are officers of the Fund,
respectively hold the same offices with the other Denver-based Oppenheimer funds. As of December 10, 2001, the Trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund. The foregoing statement does not reflect shares held
of record by an employee benefit plan for employees of the Manager other than shares beneficially owned under that plan by the
officers of the Fund listed below. Mr. Murphy is a trustee of that plan.

James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 68.
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager (since September 1988); formerly President and a director of Centennial Asset Management Corporation, a
wholly-owned subsidiary of the Manager and Chairman of the Board of Shareholder Services, Inc., a transfer agent subsidiary of the
Manager.

John V. Murphy*, President and Trustee; Age: 52.
498 Seventh Avenue, New York, New York 10018
Chairman, Chief Executive Officer and a director (since July 2001) and President (since August 2000) of the Manager; President and a
director (since July 2001) of Oppenheimer Acquisition Corp., the Manager's parent holding company, Oppenheimer Partnership Holdings,
Inc., a holding company subsidiary of the Manager and OppenheimerFunds Legacy Program, a charitable trust program established by the
Manager; President, Chief Executive Officer and a director (since July 2001) of OFI Private Investments, Inc., an investment adviser
subsidiary of the Manager; Chairman and a director (since July 2001) of Shareholder Services, Inc. and of Shareholder Financial
Services, Inc., transfer agent subsidiaries of the Manager; a director (since July 2001) of HarbourView Asset Management Corporation
and of Oppenheimer Real Asset Management, Inc., investment adviser subsidiaries of the Manager; a director (since November 2001) of
Trinity Investment Management Corporation, an investment adviser subsidiary of the Manager; President and a trustee of other
Oppenheimer funds. Formerly Chief Operating Officer of the Manager (August 2000-July 2001); Executive Vice President of Massachusetts
Life Insurance Company, the Manager's parent company (February 1997-August 2000); President and director of MassMutual Institutional
Funds, MML Series Funds, open-end investment companies and a director of David L. Babson Acquisition Corporation (February
1997-October 2001); Executive Vice President and Chief Operating Officer of David L. Babson & Company (1995-1997), an investment
advisor; Chief Operating Officer of Concert Capital Management, Inc., an investment advisor (1993-1996).

William L. Armstrong, Trustee, Age: 64.
6803 South Tucson Way, Englewood, Colorado 80112
Chairman of the following private mortgage banking companies: Cherry Creek Mortgage Company (since 1991), Centennial State Mortgage
Company (since 1994), The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc. (since 1997); Chairman of the
following private companies: Great Frontier Insurance (insurance agency) (since 1995) and Ambassador Media Corporation (since 1984);
Director of the following public companies: Storage Technology Corporation (computer equipment company) (since 1991), Helmerich &
Payne, Inc. (oil and gas drilling/production company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly Director
of International Family Entertainment (television channel) (1992 - 1997) and Natec Resources, Inc. (air pollution control equipment
and services company) (1991-1995), Frontier Real Estate, Inc. (residential real estate brokerage) (1994-1999), and Frontier Title
(title insurance agency) (1995-June 1999); formerly U.S. Senator (January 1979-January 1991).
Robert G. Avis, Trustee, Age: 70.
6803 South Tucson Way, Englewood, Colorado 80112
Formerly, (until February 2001) Director and President of A.G. Edwards Capital, Inc. (General Partner of private equity funds),
formerly, (until March 2000) Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.; formerly, (until March
1999) Vice Chairman and Director of A.G. Edwards, Inc. and Vice Chairman of A.G. Edwards & Sons, Inc. (its brokerage company
subsidiary); (until March 1999) Chairman of A.G. Edwards Trust Company and A.G.E. Asset Management (investment advisor); (until March
2000) a Director of A.G. Edwards & Sons and A.G. Edwards Trust Company.

George C. Bowen, Trustee, Age: 65.
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice President (from September 1987) and Treasurer (from
March 1985) of the Manager; Vice President (from June 1983) and Treasurer (since March 1985) of OppenheimerFunds, Distributor, Inc.,
a subsidiary of the Manager and the Fund's Distributor; Senior Vice President (since February 1992), Treasurer (since July 1991)
Assistant Secretary and a director (since December 1991) of Centennial Asset Management Corporation; Vice President (since October
1989) and Treasurer (since April 1986) of HarbourView Asset Management Corporation; President, Treasurer and a director of Centennial
Capital Corporation (since June 1989); Vice President and Treasurer (since August 1978) and Secretary (since April 1981) of
Shareholder Services, Inc.; Vice President, Treasurer and Secretary of Shareholder Financial Services, Inc. (since November 1989);
Assistant Treasurer of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of Oppenheimer Partnership Holdings, Inc. (since
November 1989); Vice President and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996); Treasurer of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc (since October 1997).

Jon S. Fossel, Trustee, Age: 59.
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until October 1996) Chairman and a director of the Manager; President and a director of Oppenheimer Acquisition Corp.,
Shareholder Services, Inc. and Shareholder Financial Services, Inc.

Sam Freedman, Trustee, Age: 61.
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until October 1994) Chairman and Chief Executive Officer of OppenheimerFunds Services, Chairman, Chief Executive Officer
and a director of Shareholder Services, Inc., Chairman, Chief Executive Officer and director of Shareholder Financial Services, Inc.,
Vice President and director of Oppenheimer Acquisition Corp. and a director of OppenheimerFunds, Inc.

C. Howard Kast, Trustee, Age: 80.
6803 South Tucson Way, Englewood, Colorado 80112
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).

Robert M. Kirchner, Trustee, Age: 80.
6803 South Tucson Way, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).

Michael S. Levine, Vice President and Portfolio Manager, Age: 35
498 Seventh Avenue, New York, New York 10018
Vice President (since June 1998) of the Manager; an officer and portfolio manager of other Oppenheimer funds; formerly Assistant Vice
President and Portfolio Manager of the Manager (April 1996 - June 1998); prior to joining the Manager in June 1994, he was a
portfolio manager and research associate for Amas Securities, Inc. (February 1990 - February 1994).

Robert G. Zack, Vice President and Secretary, Age: 53.
498 Seventh Avenue, New York, New York 10018
Acting General Counsel (since November 1, 2001), Senior Vice President (since May 1985) of the Manager; Assistant Secretary of
Shareholder Services, Inc. (since May 1985), Shareholder Financial Services, Inc. (since November 1989); OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
Associate General Counsel of the Manager (May 1981-October 2001).

Katherine P. Feld, Assistant Secretary; Age: 42
498 Seventh Avenue, New York, New York 10018
Vice President and Senior Counsel of the Manager (since July 1999); an officer of other Oppenheimer funds; formerly a Vice President
and Associate Counsel of the Manager (June 1990 - July 1999).

Denis R. Molleur, Assistant Secretary; Age: 44
498 Seventh Avenue, New York, New York 10018
Vice President and Senior Counsel of the Manager (since July 1999); an officer of other Oppenheimer funds; formerly a Vice President
and Associate Counsel of the Manager (September 1995 - July 1999).

Kathleen Ives, Assistant Secretary; Age: 36
6803 South Tucson Way, Englewood, CO 80112
Vice President and Assistant Counsel of the Manager (since June 1998); an officer of other Oppenheimer funds; formerly an Assistant
Vice President and Assistant Counsel of the Manager (August 1997 - June 1998); and Assistant Counsel of the Manager (August
1994-August 1997).

Brian W. Wixted, Treasurer and Principal Financial and Accounting Officer, Age: 42.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer (since March 1999) of HarbourView Asset Management
Corporation, Shareholder Services, Inc., Oppenheimer Real Asset Management Corporation, Shareholder Financial Services, Inc. and
Oppenheimer Partnership Holdings, Inc., of OFI Private Investments, Inc. (since March 2000) and of OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since May 2000); Treasurer and Chief Financial Officer (since May 2000) of Oppenheimer
Trust Company; Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp.; an officer of other Oppenheimer funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management Corp. (September 1991 - March 1995).

Robert J. Bishop, Assistant Treasurer, Age: 43.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an officer of other Oppenheimer funds; formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund Controller of the Manager.

Scott T. Farrar, Assistant Treasurer, Age: 36.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant Treasurer of Oppenheimer Millennium Funds plc (since
October 1997); an officer of other Oppenheimer Funds; formerly an Assistant Vice President of the Manager/Mutual Fund Accounting
(April 1994 - May 1996), and a Fund Controller of the Manager.

|X| Remuneration of Trustees. The officers of the Fund and two Trustees of the Fund (Messrs. Murphy and Swain) are
affiliated with the Manager and receive no salary or fee from the Fund. The remaining Trustees of the Fund received the compensation
shown below during the Fund's fiscal period ending August 31, 2001. The compensation from all of the Oppenheimer funds represents
that compensation which was received as a director, trustee, or member of a committee of the boards of those funds during the
calendar year 2001.

--------------------------------------------- ------------------------------- --------------------------------------
Trustee's Name Total Compensation
and Position Aggregate From all Denver-based
Compensation Oppenheimer Funds
From Fund1 (40 funds)2
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
William L. Armstrong $5,125 $49,270
Review Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
Robert G. Avis $5,650 $72,000
Review Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
George C. Bowen $5,075 $55,948
Review Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
Edward L. Cameron $4,342 $26,709
Audit Committee Chairman
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
Jon S. Fossel $6,078 $77,880
Review Committee Chairman
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
Sam Freedman $6,273 $80,100
Review Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
C. Howard Kast $6,570 $86,150
Audit Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
Robert M. Kirchner $5,988 $76,950
--------------------------------------------- ------------------------------- --------------------------------------
--------------------------------------------- ------------------------------- --------------------------------------
F. William Marshall $3,440 $3,768
Audit Committee Member
--------------------------------------------- ------------------------------- --------------------------------------
* Effective July 1, 2000, William A. Baker and Ned M. Steel resigned as Trustees of the Fund and subsequently became Trustees
Emeritus of the Fund. For the fiscal year ended August 31, 2001, Messrs. Baker and Steel each received $4,394 aggregate compensation
from the Fund and for the calendar year ended December 31, 2000, they each received $63,999 total compensation from all Denver-based
Oppenheimer funds. Effective April 5, 2001 Raymond Kalinowski resigned as Trustee of the Fund. For the fiscal year ended August 31,
2001, Mr. Kalinowski received $3,386 aggregate compensation from the Fund and for the calendar year ended December 31, 2000, he
received $73,500 total compensation from all Denver-based Oppenheimer funds.
1. For the Fund's fiscal year ended August 31, 2001.
2. For the 2000 calendar year.

|X| Deferred Compensation Plan for Trustees. The Board of Trustees has adopted a Deferred Compensation Plan for
disinterested Trustees that enables them to elect to defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Trustee or is periodically adjusted as though an equivalent
amount had been invested in shares of one or more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under the
plan will be determined based upon the performance of the selected funds.

Deferral of Trustee's fees under the plan will not materially affect the Fund's assets, liabilities and net income per
share. The plan will not obligate the Fund to retain the services of any Trustee or to pay any particular level of compensation to
any Trustee. Pursuant to an Order issued by the Securities and Exchange Commission, the Fund may invest in the funds selected by the
Trustee under the plan without shareholder approval for the limited purpose of determining the value of the Trustee's deferred fee
account.

|X| Major Shareholders. As of December 10, 2001, the only persons who owned of record or who were known by the Fund to own
beneficially 5% or more of the Fund's outstanding Class A, Class B, Class C, Class N and Class Y shares were:

RPSS TR Mull Group 401K PSP, Attention: Diana Lontz, P.O Box 6561, Wheeling WV 26003-0627 which owned 59,524.198 Class N shares,
representing 35.39% of the Class N shares then outstanding.

RPSS TR The NEFFS National Bank, 401K PSP, Attention: Kevin A. Schmidt, P.O. Box 10, NEFFS, PA 18065-0010 which owned 24,071.795
Class N shares, representing 14.31% of the Class N shares then outstanding.

RPSS TR Rollover IRA, FBO John B Schamel, P.O. Box 250, Chemung, NY 14825-0250 which owned 15,904.592 Class N shares, representing
9.45% of the Class N shares then outstanding.

Donaldson Lufkin Jenrette, Securities Corporation Inc., Acct. No. 3030000066, P.O. Box 2052, Jersey City, NJ 07303-9998 which owned
15,632.218 Class N shares, representing 9.29% of the Class N shares then outstanding.

Donaldson Lufkin Jenrette, Securities Corporation Inc., Acct. No. 3030000099, P.O. Box 2052, Jersey City, NJ 07303-9998 which owned
13,426.571 Class N shares, representing 7.98% of the Class N shares then outstanding.

Donaldson Lufkin Jenrette, Securities Corporation Inc., Acct. No. 30300000143, P.O. Box 2052, Jersey City, NJ 07303-9998 which owned
12,781.103 Class N shares, representing 7.60% of the Class N shares then outstanding.

Donaldson Lufkin Jenrette, Securities Corporation Inc., Acct. No. 30300000209, P.O. Box 2052, Jersey City, NJ 07303-9998 which owned
11,274.070 Class N shares, representing 6.70% of the Class N shares then outstanding.

The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a holding company controlled by Massachusetts Mutual Life
Insurance Company.

|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics.
It is designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete
with or take advantage of the Fund's portfolio transactions. Covered persons include persons with knowledge of the investments and
investment intentions of the Fund and other funds advised by the Manager. The Code of Ethics does permit personnel subject to the
Code to invest in securities, including securities that may be purchased or held by the Fund, subject to a number of restrictions and
controls. Compliance with the Code of Ethics is carefully monitored and enforced by the Manager.

The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and Exchange Commission 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 web site at HTTP://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| The Investment Advisory Agreement. The Manager provides investment advisory and management services to the Fund under an
investment advisory agreement between the Manager and the Fund. The Manager selects securities for the Fund's portfolio and handles
its day-to-day business. The portfolio manager of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members of the Manager's Equity Portfolio Department provide
the portfolio manager with counsel and support in managing the Fund's portfolio.

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

The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The advisory agreement lists
examples of expenses paid by the Fund. The major categories relate to interest, taxes, brokerage commissions, fees to independent
trustees, legal and audit expenses, custodian bank and transfer agent expenses, share issuance costs, certain printing and
registration costs and non-recurring expenses, including litigation costs. The management fees paid by the Fund to the Manager are
calculated at the rates described in the Prospectus, which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net assets represented by that class.

------------------------------------- --------------------------------------------------------
Fiscal Year Management Fees Paid to
Ended 8/31: OppenheimerFunds, Inc.
------------------------------------- --------------------------------------------------------
------------------------------------- --------------------------------------------------------
1999 $20,872,455
------------------------------------- --------------------------------------------------------
------------------------------------- --------------------------------------------------------
2000 $16,447,234
------------------------------------- --------------------------------------------------------
------------------------------------- --------------------------------------------------------
2001 $15,646,888
------------------------------------- --------------------------------------------------------

The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties under the investment advisory agreement, the Manager is
not liable for any loss the Fund sustains for any investment, adoption of any investment policy, or the purchase, sale or retention
of any security.

The agreement permits the Manager to act as investment advisor for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with other investment companies for which it may act as investment advisor or general distributor. If the
Manager shall no longer act as investment advisor to the Fund, the Manager may withdraw the right of the Fund to use the name
"Oppenheimer" as part of its name.

Brokerage Policies of the Fund

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

Under the investment advisory agreement, the Manager may select brokers (other than affiliates) that provide brokerage
and/or research services for the Fund and/or the other accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the services provided. Subject to those considerations, as a
factor in selecting brokers for the Fund's portfolio transactions, the Manager may also consider sales of shares of the Fund and
other investment companies for which the Manager or an affiliate serves as investment advisor.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund subject to the provisions of the investment
advisory agreement and the procedures and rules described above. Generally, the Manager's portfolio traders allocate brokerage based
upon recommendations from the Manager's portfolio managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise the allocation of brokerage.

Transactions in securities other than those for which an exchange is the primary market are generally done with principals
or market makers. In transactions on foreign exchanges, the Fund may be required to pay fixed brokerage commissions and therefore
would not have the benefit of negotiated commissions available in U.S. markets. Brokerage commissions are paid primarily for
transactions in listed securities or for certain fixed-income agency transactions in the secondary market. Otherwise brokerage
commissions are paid only if it appears likely that a better price or execution can be obtained by doing so. In an option
transaction, the Fund ordinarily uses the same broker for the purchase or sale of the option and any transaction in the securities to
which the option relates. Other funds advised by the Manager have investment policies similar to those of the Fund. Those other funds
may purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the supply and price of the
securities. If two or more funds advised by the Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated in accordance with the purchase or sale orders
actually placed for each account.

Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the Manager determines
that a better price or execution can be obtained by using the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt execution of these orders at the most favorable net price.

The investment advisory agreement permits the Manager to allocate brokerage for research services. The research services
provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates. The
investment research received for the commissions of those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by a third party at the instance of a broker through
which trades are placed.

Investment research services include information and analysis on particular companies and industries as well as market or
economic trends and portfolio strategy, market quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Manager in a non-research capacity (such as bookkeeping or
other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.

The Board of Trustees permits the Manager to use stated commissions on secondary fixed-income agency trades to obtain
research if the broker represents to the Manager that: (i) the trade is not from or for the broker's own inventory, (ii) the trade
was executed by the broker on an agency basis at the stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use concessions on fixed-price offerings to obtain research, in the same manner as is
permitted for agency transactions.

The research services provided by brokers broadens the scope and supplements the research activities of the Manager. That
research provides additional views and comparisons for consideration, and helps the Manager to obtain market information for the
valuation of securities that are either held in the Fund's portfolio or are being considered for purchase. The Manager provides
information to the Board about the commissions paid to brokers furnishing such services, together with the Manager's representation
that the amount of such commissions was reasonably related to the value or benefit of such services.

----------------------------------- ---------------------------------------------------------------------
Fiscal Year Total Brokerage Commissions
Ended 8/31: Paid by the Fund1
----------------------------------- ---------------------------------------------------------------------
----------------------------------- ---------------------------------------------------------------------
1999 $1,803,930
----------------------------------- ---------------------------------------------------------------------
----------------------------------- ---------------------------------------------------------------------
2000 $2,894,461
----------------------------------- ---------------------------------------------------------------------
----------------------------------- ---------------------------------------------------------------------
2001 $3,134,3552
----------------------------------- ---------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a net trade basis.
2. In the fiscal year ended 8/31/01, the amount of transactions directed to brokers for research services was $311,110,969
and the amount of the commissions paid to broker-dealers for those services was $520,095.

Distribution and Service Plans

The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of shares of the Fund's classes of shares. The Distributor bears the expenses normally attributable to
sales, including advertising and the cost of printing and mailing prospectuses, other than those furnished to existing shareholders.
The Distributor is not obligated to sell a specific number of shares. Expenses normally attributable to sales are borne by the
Distributor. They exclude payments under the Fund's Distribution and Service Plans but include advertising and the cost of printing
and mailing prospectuses (other than prospectuses furnished to current shareholders).

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

---------------------------- ------------------------------ -------------------------------------
Aggregate Front-End Sales Class A Front-End Sales Charges
Fiscal Year Ended 8/31 Charges on Class A Shares Retained by Distributor
---------------------------- ------------------------------ -------------------------------------
---------------------------- ------------------------------ -------------------------------------
1999 $5,280,270 $1,692,621
---------------------------- ------------------------------ -------------------------------------
---------------------------- ------------------------------ -------------------------------------
2000 $2,190,051 $631,452
---------------------------- ------------------------------ -------------------------------------
---------------------------- ------------------------------ -------------------------------------
2001 $2,709,328 $813,1981
---------------------------- ------------------------------ -------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a parent of the distributor.

---------------------- ------------------------- ----------------------- -------------------- ----------------------
Concessions on Class A Concessions on Class Concessions on Concessions on Class
Shares Advanced by B Shares Advanced by Class C Shares N Shares Advanced by
Fiscal Year Distributor! Distributor1 Advanced by Distributor1
Ended8/31: Distributor1
---------------------- ------------------------- ----------------------- -------------------- ----------------------
---------------------- ------------------------- ----------------------- -------------------- ----------------------
1999 $533,123 $5,659,987 $484,484 N/a
---------------------- ------------------------- ----------------------- -------------------- ----------------------
---------------------- ------------------------- ----------------------- -------------------- ----------------------
2000 $300,262 $1,621,384 $96,086 N/A
---------------------- ------------------------- ----------------------- -------------------- ----------------------
---------------------- ------------------------- ----------------------- -------------------- ----------------------
2001 $286,624 $2,326,642 $173,514 $6,5632
---------------------- ------------------------- ----------------------- -------------------- ----------------------
1. The Distributor advances concession payments to dealers for certain sales of Class A shares and for sales of Class B, Class
C and Class N shares from its own resources at the time of sale.
2. The inception date of Class N shares was March 1, 2001.

------------ -------------------------- ------------------------ ------------------------- -------------------------
Fiscal Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Year Deferred Sales Deferred Sales Deferred Sales Deferred Sales
Ended Charges Retained Charges Retained Charges Retained Charges Retained
8/31: by Distributor by Distributor by Distributor By Distributor
------------ -------------------------- ------------------------ ------------------------- -------------------------
------------ -------------------------- ------------------------ ------------------------- -------------------------
2001 $7,594 $643,432 $24,027 0
------------ -------------------------- ------------------------ ------------------------- -------------------------

For additional information about distribution of the Fund's shares, including fees and expenses, please refer to
"Distribution and Service Plans," below.

Distribution and Service Plans. The Fund has adopted a Service Plan for Class A shares and Distribution and Service Plans for Class
B, Class C and Class N shares under Rule 12b-1 of the Investment Company Act. Under those plans the Fund makes payments to 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,2 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 and, in their sole discretion, from time to
time, may use their own resources (at no direct cost to the Fund) to make payments to brokers, dealers or other financial
institutions for distribution and administrative services they perform. The Manager may use its profits from the advisory fee it
receives from the Fund. In their sole discretion, the Distributor and the Manager may increase or decrease the amount of payments
they make from their own resources to plan recipients.

Unless a plan is terminated as described below, the plan continues in effect from year to year but only if the Fund's Board
of Trustees and its Independent Trustees specifically vote annually to approve its continuance. Approval must be by a vote cast in
person at a meeting called for the purpose of voting on continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the
outstanding shares of that class.

The Board of Trustees and the Independent Trustees must approve all material amendments to a plan. An amendment to increase
materially the amount of payments to be made under a plan must be approved by shareholders of the class affected by the amendment.
Because Class B shares of the Fund automatically convert into Class A shares after six years, the Fund must obtain the approval of
both Class A and Class B shareholders for a proposed material amendment to the Class A Plan that would materially increase payments
under the Plan. That approval must be by a "majority" (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 the Fund shall provide separate written reports on the plans to the Board of
Trustees at least quarterly for its review. The Reports shall detail the amount of all payments made under a plan and the purpose for
which the payments were made. Those reports are subject to the review and approval of the Independent Trustees.

Each Plan states that while it is in effect, the selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the Independent Trustees. This does not prevent the involvement of
others in the selection and nomination process as long as the final decision as to selection or nomination is approved by a majority
of the Independent Trustees.

Under the plans for a class, no payment will be made to any recipient in any quarter in which the aggregate net asset value of
all Fund shares of that class held by the recipient for itself and its customers does not exceed a minimum amount, if any, that may
be set from time to time by a majority of the Independent Trustees. The Board of Trustees has set no minimum amount of assets to
qualify for payments under the plans.

|_| Class A Service Plan Fees. Under the Class A service plan, the Distributor currently uses the fees it receives from
the Fund to pay brokers, dealers and other financial institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans
available and providing other services at the request of the Fund or the Distributor.

The Class A service plan permits reimbursements to the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares. 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. The Distributor makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets consisting of Class A shares and held in the accounts of the recipients or their customers.

For the fiscal year ended August 31, 2001 payments under the Class A Plan totaled $5,698,019, all of which was paid by the
Distributor to recipients. That included $370,332 paid to an affiliate of the Distributor's parent company. Any unreimbursed expenses
the Distributor incurs with respect to Class A shares in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A Plan to pay any of its interest expenses, carrying charges, or other financial costs, or
allocation of overhead.

|_| Class B, Class C and Class N Service and Distribution Plan Fees. Under each plan, service fees and distribution 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. The Class B, Class C and Class N plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the amounts paid by the Fund under the plan during the period
for which the fee is paid. The types of services that recipients provide are similar to the services provided under the Class A
service plan, described above.

The Class B, Class C and Class N plans permit the Distributor to retain both the asset-based sales charges and the service
fees or to pay recipients the service fee on a quarterly basis, without payment in advance. However, the Distributor currently
intends to pay the service fee to recipients in advance for the first year after the shares are purchased. After the first year
shares are outstanding, the Distributor makes service fee payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for the advance service fee payment. If Class B, Class C or
Class N shares are redeemed during the first year after their purchase, the recipient of the service fees on those shares will be
obligated to repay the Distributor a pro rata portion of the advance payment of the service fee made on those shares.

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

The sales concession on the sale of Class N shares will not be paid on (i) 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), (ii) 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), and (iii) 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.

When Class B, Class C or Class N shares are sold without the designation of a broker-dealer, the Distributor is
automatically designated as the broker-dealer of record. In those cases, the Distributor retains the service fee and asset-based
sales charge paid on Class B, Class C and Class N shares.

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

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

---------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/01
---------------------------------------------------------------------------------------------------------------------
--------------------- ------------------ -------------------- ----------------------------- -------------------------
Class: Total Amount Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as
Payments Retained by Expenses % of Net Assets
Under Plan Distributor Under Plan of Class
--------------------- ------------------ -------------------- ----------------------------- -------------------------
--------------------- ------------------ -------------------- ----------------------------- -------------------------
Class B Plan $4,692,665 $3,631,050 $11,679,144 2.45%
--------------------- ------------------ -------------------- ----------------------------- -------------------------
--------------------- ------------------ -------------------- ----------------------------- -------------------------
Class C Plan $802,801 $97,524 $1,835,823 2.05%
--------------------- ------------------ -------------------- ----------------------------- -------------------------
--------------------- ------------------ -------------------- ----------------------------- -------------------------
Class N Plan $530 $337 0 0
--------------------- ------------------ -------------------- ----------------------------- -------------------------

Performance of the Fund

Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its investment performance. Those terms
include "cumulative total return," "average annual total return," "average annual total return at net asset value" and "total return
at net asset value." An explanation of how total returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current performance information by calling the Fund's
Transfer Agent at 1-800-525-7048 or by visiting the OppenheimerFunds Internet web site at http://www.oppenheimerfunds.com.

The Fund's illustrations of its performance data in advertisements must comply with rules of the Securities and Exchange
Commission. Those rules describe the types of performance data that may be used and how it is to be calculated. In general, any
advertisement by the Fund of its performance data must include the average annual total returns for the advertised class of shares of
the Fund. 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 the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be considered before using the Fund's performance information
as a basis for comparison with other investments:
o Total returns measure the performance of a hypothetical account in the Fund over various periods and do not show the
performance of each shareholder's account. Your account's performance will vary from the model performance data if your dividends are
received in cash, or you buy or sell shares during the period, or you bought your shares at a different time and price than the
shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other government agency.
o The principal value of the Fund's shares and total returns are not guaranteed and normally will fluctuate on a daily
basis.
o When an investor's shares are redeemed, they may be worth more or less than their original cost.

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

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

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

In calculating total returns for Class A shares, the current maximum sales charge of 5.75% (as a percentage of the offering
price) is deducted from the initial investment ("P") (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% contingent deferred sales charge is deducted for returns for the one-year
period. For Class N shares, the 1% contingent deferred sales charge is deducted for returns for the one-year and life-of-class
periods as applicable.

|_| 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:

[OBJECT OMITTED]

|_| 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:

[OBJECT OMITTED]

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

---------------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/01
---------------------------------------------------------------------------------------------------------------------------
--------------- --------------------------- -------------------------------------------------------------------------------
Class of Cumulative Total Average Annual Total Returns
Shares Returns (10 years or
Life of Class)
--------------- --------------------------- -------------------------------------------------------------------------------
--------------- --------------------------- -------------------------- ------------------------ ---------------------------
1-Year 5-Year 10-Year
(or life-of-class) (or life-of-class)
--------------- --------------------------- -------------------------- ------------------------ ---------------------------
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
Class A 186.19% 203.64% 0.70% 6.84% 11.17% 12.49% 11.09% 11.75%
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
Class B 131.05%2 131.05%2 1.11% 6.05% 11.33% 11.59% 10.98%2 10.98%2
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
Class C 90.42%3 90.42%3 5.01% 6.00% 11.60% 11.60% 11.67%3 11.67%3
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
Class N -1.16%4 -0.18%4 -0.16%4 -0.18%4 N/A N/A N/A N/A
--------------- ------------- ------------- ------------ ------------- ----------- ------------ ------------ --------------
1. Inception of Class A: 12/1/70
2. Inception of Class B: 8/17/93. Because Class B shares convert to Class A shares 72 months after purchase, the "Life-of-Class"
return for Class B shares uses Class A performance for the period after conversion.
3. Inception of Class C: 11/1/95
4. Inception of Class N: 3/1/01. For the period from 3/1/01 (inception of offering) to August 31, 2001.

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

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

|_| Morningstar Rankings. From time to time the Fund may publish the ranking and/or star rating of the performance of
its classes of shares by Morningstar, Inc., an independent mutual fund monitoring service. Morningstar rates and ranks mutual funds
in broad investment categories: domestic stock funds, international stock funds, taxable bond funds and municipal bond funds. The
Fund is included in the domestic stock category.

Morningstar proprietary star rankings reflect historical risk-adjusted total investment return. For each fund with at least
a three-year history, Morningstar calculates a Morningstar RatingTM metric each month by subtracting the return on a 90-day U.S.
Treasury Bill from the fund's load-adjusted return for the same period, and then adjusting this excess return for risk. The top 10%
of funds in each broad asset class 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. 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 Ratings metrics.
The Fund may also compare its total return ranking to that of other funds in its Morningstar category, in addition to its
star ratings. Those total return rankings are percentages from one percent to one hundred percent and are not risk adjusted. For
example if a fund is in the 94th percentile, that means that 94% of the funds in the same category performed better than it did.

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

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

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

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

ABOUT YOUR ACCOUNT

How to Buy Shares

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

AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares.
Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York Stock Exchange. The Exchange normally closes at 4:00
P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.

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

|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together:
o Class A and Class B shares you purchase for your individual accounts (including IRAs and 403(b) plans), or for your joint
accounts, or for trust or custodial accounts on behalf of your children who are minors, and
o Current purchases of Class A and Class B shares of the Fund and other Oppenheimer funds to reduce the sales charge rate that
applies to current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A shares, provided that you still hold your
investment in one of the Oppenheimer funds.

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

Oppenheimer Bond Fund Oppenheimer Municipal Bond Fund
Oppenheimer California Municipal Fund Oppenheimer New York Municipal Fund
Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Capital Preservation Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Concentrated Growth Fund Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Developing Markets Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Real Asset Fund
Oppenheimer Discovery Fund Oppenheimer Rochester National Municipals
Oppenheimer Emerging Growth Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Small Cap Value Fund
Oppenheimer Enterprise Fund Oppenheimer Special Value Fund
Oppenheimer Europe Fund Oppenheimer Strategic Income Fund
Oppenheimer Global Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer Trinity Core Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Large Cap Growth Fund
Oppenheimer Growth Fund Oppenheimer Trinity Value Fund
Oppenheimer High Yield Fund Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Municipal Fund Oppenheimer Value Fund
Oppenheimer International Bond Fund Limited-Term New York Municipal Fund
Oppenheimer International Growth Fund Rochester Fund Municipals
Oppenheimer International Small Company Fund OSM1- Gartmore Millennium Growth Fund II
Oppenheimer Limited-Term Government Fund OSM1 - Jennison Growth Fund
Oppenheimer Main Street Growth & Income Fund OSM1 - Mercury Advisors S&P 500 Index
Oppenheimer Main Street Opportunity Fund OSM1 - Mercury Advisors Focus Growth Fund
Oppenheimer Main Street Small Cap Fund OSM1 - QM Active Balanced Fund
Oppenheimer MidCap Fund OSM1 - Salomon Brothers Capital Fund
Oppenheimer Multiple Strategies Fund

And the following money market funds:

Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
1"OSM" stands for Oppenheimer Select Managers

There is an initial sales charge on the purchase of Class A shares of each of the Oppenheimer funds except the money market
funds. Under certain circumstances described in this Statement of Additional Information, redemption proceeds of certain money market
fund shares may be subject to a contingent deferred sales charge.

Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up to 90 days before the date of the Letter.

A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase Class A shares or
Class A and Class B shares of the Fund (and other Oppenheimer funds) during a 13-month period (the "Letter of Intent period"). At the
investor's request, this may include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital
gains and purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.

A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain the reduced sales
charge rate on purchases of Class A shares of the Fund (and other Oppenheimer funds) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the
Letter.

In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's purchases of shares
within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day
of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor
from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by
the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for a Letter of Intent. If those terms are amended, as they may be from
time to time by the Fund, the investor agrees to be bound by the amended terms and that those amendments will apply automatically to
existing Letters of Intent.

If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount,
the commissions 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 of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the
Prospectus, the sales charges paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer
returns to the Distributor the excess of the amount of concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions returned to the Distributor will be used to purchase additional
shares for the investor's account at the net asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.

The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent. If the intended purchase amount under a Letter of Intent entered
into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan by the end of the Letter of Intent 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 of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the
Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.

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

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

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

3. If, at the end of the thirteen-month Letter of Intent 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. To establish an Asset Builder Plan to buy shares directly from a bank account, you must enclose a check (the
minimum is $25) for the initial purchase with your application. Shares purchased by Asset Builder Plan payments from bank accounts
are subject to the redemption restrictions for recent purchases described in the Prospectus. Asset Builder Plans are available only
if your bank is an ACH member. Asset Builder Plans may not be used to buy shares for OppenheimerFunds employer-sponsored qualified
retirement accounts. Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.

If you make payments from your bank account to purchase shares of the Fund, your bank account will be debited automatically.
Normally the debit will be made two business days prior to the investment dates you selected on your Application. Neither the
Distributor, the Transfer Agent nor the Fund shall be responsible for any delays in purchasing shares that result from delays in ACH
transmissions.

Before you establish Asset Builder payments, you should obtain a prospectus of the selected fund(s) from your financial
advisor (or the Distributor) and request an application from the Distributor. Complete the application and return it. You may change
the amount of the Asset Builder payment or you can terminate these automatic investments at any time by writing to the Transfer
Agent. The Transfer Agent requires a reasonable period (approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset Builder plans at any time without prior notice.

Retirement Plans. Certain types of retirement plans are entitled to purchase shares of the Fund without sales charge or at reduced
sales charge rates, as described in Appendix C to this Statement of Additional Information. Certain special sales charge arrangements
described in that Appendix apply to retirement plans whose records are maintained on a daily valuation basis by Merrill Lynch Pierce
Fenner & Smith, Inc. ("Merrill Lynch") or an independent record keeper that has a contract or special arrangement with Merrill Lynch.
If on the date the plan sponsor signed the Merrill Lynch record keeping service agreement the Plan has less than $3 million in assets
(other than assets invested in money market funds) invested in applicable investments, then the retirement plan may purchase only
Class B shares of the Oppenheimer funds. Any retirement plans in that category that currently invest in Class B shares of the Fund
will have their Class B shares converted to Class A shares of the Fund when the Plan's applicable investments reach $5 million.

Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for
the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account
registered in that investor's name, or the Fund or the Distributor may seek other redress.

Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of the Fund. However,
each class has different shareholder privileges and features. The net income attributable to Class B, Class C or Class N shares and
the dividends payable on Class B, Class C or Class N shares will be reduced by incremental expenses borne solely by that class. Those
expenses include the asset-based sales charges to which Class B, Class C and Class N shares are subject.

The availability of different classes of shares permits an investor to choose the method of purchasing shares that is more
appropriate for the investor. That may depend on the amount of the purchase, the length of time the investor expects to hold shares,
and other relevant circumstances. Class A shares normally are sold subject to an initial sales charge. While Class B, Class C and
Class N shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B, Class
C and Class N shares is the same as that of the initial sales charge on Class A shares - to compensate the Distributor and brokers,
dealers and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or
her firm for selling Fund shares may receive different levels of compensation for selling one class of shares rather than another.

The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1 million or more for
Class C shares on behalf of a single investor (not including dealer "street name" or omnibus accounts). That is because generally it
will be more advantageous for that investor to purchase Class A shares of the Fund.

|_| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of Class A shares 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 shares by a retirement plan made with the redemption
proceeds of Class N shares of one or more Oppenheimer funds held by the plan for more than 18 months.

|_| Class B Conversion. Under current interpretation of applicable federal tax law by the Internal Revenue Service, the
conversion of Class B shares to Class A shares after six years is not treated as a taxable event for the shareholder. 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 conversion 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,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and Ascender retirement plans,
o to all trustee-to-trustee IRA transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix C to this Statement of Additional Information) which have entered into a
special agreement with the Distributor for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code, the recordkeeper or the plan
sponsor for which has entered into a special agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all such plans invested in the Oppenheimer funds is
$500,000 or more,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with the redemption proceeds of Class A shares
of one or more Oppenheimer funds,
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.

|_| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian bank fees,
Trustees' fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment.

The methodology for calculating the net asset value, dividends and distributions of the Fund's share classes recognizes two
types of expenses. General expenses that do not pertain specifically to any one class are allocated pro rata to the shares of all
classes. The allocation is based on the percentage of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials
for current shareholders, fees to unaffiliated Trustees, custodian bank 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).

Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund are determined as of
the close of business of The New York Stock Exchange on each day that the Exchange is open. The calculation is done by dividing the
value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Exchange
normally closes at 4:00 P.M., New York time, but may close earlier on some other days (for example, in case of weather emergencies or
on days falling before a holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.

Dealers other than Exchange members may conduct trading in certain securities on days on which the Exchange is closed
(including weekends and U. S. holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net asset values will not be
calculated on those days, the Fund's net asset values per share may be significantly affected on such days when shareholders may not
purchase or redeem shares. Additionally, trading on European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.

Changes in the values of securities traded on foreign exchanges or markets as a result of events that occur after the prices
of those securities are determined, but before the close of The New York Stock Exchange, will not be reflected in the Fund's
calculation of its net asset values that day unless the Manager determines that the event is likely to effect a material change in
the value of the security. The Manager, or an internal valuation committee established by the Manager, may establish a valuation,
under procedures established by the Board and subject to approval, ratification and confirmation by the Board at its next ensuing
meeting.

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

o Equity securities traded on a U.S. securities exchange or on NASDAQ 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, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid" and "asked" prices on the valuation date or, if not,
at the closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the principal exchange on which the security is traded at
its last trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the security is traded or, on
the basis of reasonable inquiry, from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days are valued based on the mean between the
"bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of Trustees or obtained by the Manager
from two active market makers in the security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two active market makers in the security on the basis of
reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a remaining maturity of
60 days or less.
o The following securities are valued at cost, adjusted for amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days when issued that have
a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available market quotations are valued at fair value
determined under the Board's procedures. If the Manager is unable to locate two market makers willing to give quotes, a security may
be priced at the mean between the "bid" and "asked" prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).

In the case of U.S. government securities, mortgage-backed securities, corporate bonds and foreign government securities,
when last sale information is not generally available, the Manager may use pricing services approved by the Board of Trustees. The
pricing service may use "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the interest paid by municipal securities). The Manager will
monitor the accuracy of the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual
sales prices of selected securities.

The closing prices in the London 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,
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 on the valuation date. If not, the value shall be the closing bid price on the
principal exchange or on NASDAQ on the valuation date. If the put, call or future is not traded on an exchange or on NASDAQ, it shall
be valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In certain cases that
may be at the "bid" price if no "asked" price is available.

When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset. An equivalent credit is included in the liability section. The credit is adjusted ("marked-to-market") to
reflect the current market value of the option. In determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain
in the amount of the premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.

How to Sell Shares

The information below supplements the terms and conditions for redeeming shares set forth in the Prospectus.

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 shares. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation.

Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital
gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the Oppenheimer funds within 90 days
of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds.

Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However, under
certain circumstances, the Board of Trustees of the Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of
cash.

The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities
for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio
securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the
redemption price is determined.

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200 or such lesser amount as the Board may fix. The Board will
not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the requirements for any
notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.

Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges.
Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the
name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge
are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the
transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.

If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a
contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B, Class C or Class N contingent deferred sales charge will be followed in determining the
order in which shares are transferred.

Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be delayed if the Fund's custodian bank is not open for
business on a day when the Fund would normally authorize the wire to be made, which is usually the Fund's next regular business day
following the redemption. In those circumstances, the wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed shares awaiting transfer by wire.

Distributions From Retirement Plans. Requests for distributions from OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans,
401(k) plans or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer
Agent at its address listed in "How To Sell Shares" in the Prospectus or on the back cover of this Statement of Additional
Information. The request must
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing plans with shares of
the Fund held in the name of the plan or its fiduciary may not directly request redemption of their accounts. The plan administrator
or fiduciary must sign the request.

Distributions from pension and profit sharing plans are subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be completed and submitted to the Transfer Agent before the distribution
may be made. Distributions from retirement plans are subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the
Internal Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no responsibility to determine whether a distribution satisfies
the conditions of applicable tax laws and will not be responsible for any tax penalties assessed in connection with a distribution.

Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares
from authorized dealers or brokers on behalf of their customers. Shareholders should contact their broker or dealer to arrange this
type of redemption. The repurchase price per share will be the net asset value next computed after the Distributor receives an order
placed by the dealer or broker. However, if the Distributor receives a repurchase order from a dealer or broker after the close of
The New York Stock Exchange on a regular business day, it will be processed at that day's net asset value if the order was received
by the dealer or broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may
do so earlier on some days. Additionally, the order must have been transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 P.M.).

Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within three business days
after the shares have been redeemed upon the Distributor's receipt of the required redemption documents in proper form. The
signature(s) of the registered owners on the redemption documents must be guaranteed as described in the Prospectus.

Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly, semi-annual or annual basis under an
Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of
the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check
payable to all shareholders of record. Payments must also be sent to the address of record for the account and the address must not
have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not
be arranged on this basis.

Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to
have Automatic Withdrawal Plan payments transferred to the bank account designated on the Account Application or by
signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the Account Application. If a contingent deferred sales charge
applies to the redemption, the amount of the check or payment will be reduced accordingly.

The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend, suspend or
discontinue offering these plans at any time without prior notice. Class B, Class C and Class N shareholders should not establish
automatic withdrawal plans, because of the potential imposition of the contingent deferred sales charge on such withdrawals (except
where the Class B, Class C or Class N contingent deferred sales charge is waived as described in Appendix C to this Statement of
Additional Information

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

|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other Oppenheimer funds automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $25. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed instructions. Exchanges made under these plans are subject to
the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.

|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired
without a sales charge will be redeemed first. Shares acquired with reinvested dividends and capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted. Payments made under these plans should not be considered as a yield
or income on your investment.

The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the shareholder(s) (the
"Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. Neither the Fund nor the Transfer
Agent shall incur any liability to the Planholder for any action taken or not taken by the Transfer Agent in good faith to administer
the Plan. Share certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder
may be surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the certificate may
be held under the Plan.

For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund,
which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or
reinvested.

Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the redemption date.
Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be transmitted three business days prior
to the date selected for receipt of the payment, according to the choice specified in writing by the Planholder. Receipt of payment
on the date selected cannot be guaranteed.

The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink
payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow at
least two weeks' time after mailing such notification for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the shares held under the Plan. That notice must be in
proper form in accordance with the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent will
redeem the number of shares requested at the net asset value per share in effect and will mail a check for the proceeds to the
Planholder.

The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also give directions to the
Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence satisfactory to it
that the Planholder has died or is legally incapacitated. Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed will be held in uncertificated form in the name of the Planholder. The account will continue as a
dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his or her
executor or guardian, or another authorized person.

To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a portion of the shares
in certificated form. Upon written request from the Planholder, the Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to stop. However, should such uncertificated shares become exhausted,
Plan withdrawals will terminate.

If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as agent in administering the Plan.

How to Exchange Shares

As stated in the Prospectus, shares of a particular class of Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a single class without
a class designation are deemed "Class A" shares for this purpose. You can obtain a current list showing which funds offer which
classes by calling the Distributor at 1.800.525.7048.
o All of the Oppenheimer funds currently offer Class A, B and C shares except Oppenheimer Money Market Fund, Inc., Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial
California Tax Exempt Trust, and Centennial America Fund, L.P., which only offer Class A shares.
o Class B, Class C and Class N shares of Oppenheimer Cash Reserves are generally available only by exchange from the same
class of shares of other Oppenheimer funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y shares of Oppenheimer Real Asset Fund may not be
exchanged for shares of any other fund.
o Only certain Oppenheimer funds currently offer Class N shares, which are only offered to retirement plans as described in
the Prospectus. Class N shares can be exchanged only for Class N shares of other Oppenheimer funds.
o Class M shares of Oppenheimer Convertible Securities Fund may be exchanged only for Class A shares of other Oppenheimer
funds. They may not be acquired by exchange of shares of any class of any other Oppenheimer funds except Class A shares of
Oppenheimer Money Market Fund or Oppenheimer Cash Reserves acquired by exchange of Class M shares.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other Oppenheimer funds
and no exchanges may be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged for shares of Oppenheimer Money Market Fund, Inc.,
Oppenheimer Cash Reserves or Oppenheimer Limited-Term Government Fund. Only participants in certain retirement plans may
purchase shares of Oppenheimer Capital Preservation Fund, and only those participants may exchange shares of other Oppenheimer
funds for shares of Oppenheimer Capital Preservation Fund.
o Class A shares of Oppenheimer Senior Floating Rate Fund are not available by exchange of shares of Oppenheimer Money Market
Fund or Class A shares of Oppenheimer Cash Reserves. 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 Class A, Class B, Class C and Class Y Shares of Oppenheimer Select Managers Mercury Advisors S&P Index Fund and Oppenheimer
Select Managers QM Active Balanced Fund are only available to retirement plans and are available only by exchange from the same
class of shares of other Oppenheimer funds held by retirement plans.

Class A shares of Oppenheimer funds may be exchanged at net asset value for shares of any money market fund offered by the
Distributor. Shares of any money market fund purchased without a sales charge may be exchanged for shares of Oppenheimer funds
offered with a sales charge upon payment of the sales charge. They may also be used to purchase shares of Oppenheimer funds subject
to an early withdrawal charge or contingent deferred sales charge.

Shares of Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds of shares of other mutual funds (other
than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to that purchase may subsequently be
exchanged for shares of other Oppenheimer funds without being subject to an initial sales charge or contingent deferred sales charge.
To qualify for that privilege, the investor or the investor's dealer must notify the Distributor of eligibility for this privilege at
the time the shares of Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must supply proof of entitlement to
this privilege.

Shares of the Fund acquired by reinvestment of dividends or distributions from any of the other Oppenheimer funds or from
any unit investment trust for which reinvestment arrangements have been made with the Distributor may be exchanged at net asset value
for shares of any of the Oppenheimer funds.

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

|_| 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. However, when Class A shares acquired by exchange of
Class A shares of other Oppenheimer funds purchased subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end 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. The Class B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B 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. With respect to Class N shares, if you redeem your shares within 18 months of the retirement plan's first
purchase or the retirement plan eliminates the Fund as a plan investment option within 18 months of selecting the Fund, a 1%
contingent deferred sales charge will be imposed on the plan. 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.

When Class B or Class C 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 or the Class C 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 intend to exchange.

|_| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written exchange requests
submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests for exchanges of up to 50 accounts per
day from representatives of authorized dealers that qualify for this privilege.

|_| 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 investor must obtain a Prospectus of that fund before the exchange request
may be submitted. If all telephone lines are busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests.

|_| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent
receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any
exchange request that may disadvantage it. For example, if the receipt of multiple exchange requests from a dealer might require the
disposition of portfolio securities at a time or at a price that might be disadvantageous to the Fund, the Fund may refuse the
request. When you exchange some or all of your shares from one fund to another, any special account feature such as an Asset Builder
Plan or Automatic Withdrawal Plan, will be switched to the new fund account unless you tell the Transfer Agent not to do so. However,
special redemption and exchange features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an
account in Oppenheimer Senior Floating Rate Fund.

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

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

Dividends, Capital Gains and Taxes

Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance as to the payment of any dividends or
the realization of any capital gains. The dividends and distributions paid by a class of shares will vary from time to time depending
on market conditions, the composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same day for each class of shares. However, dividends on
Class B, Class C and Class N shares are expected to be lower than dividends on Class A shares. That is because of the effect of the
asset-based sales charge on Class B, Class C and Class N shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of the different classes of shares.

Dividends, distributions and proceeds of the redemption of Fund shares represented by checks returned to the Transfer Agent
by the Postal Service as undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc. Reinvestment will be made as
promptly as possible after the return of such checks to the Transfer Agent, to enable the investor to earn a return on otherwise idle
funds. Unclaimed accounts may be subject to state escheatment laws, and the Fund and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good faith.

Tax Status of the Fund's Dividends and Distributions. The federal tax treatment of the Fund's dividends and capital gains
distributions is briefly highlighted in the Prospectus.

Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the dividends-received
deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. The amount of
dividends paid by the Fund that may qualify for the deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will
not be eligible for the deduction on dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are
derived from gross income from option premiums, interest income or short-term gains from the sale of securities or dividends from
foreign corporations, those dividends will not qualify for the deduction.

Under the Internal Revenue Code, by December 31 each year, the Fund must distribute 98% of its taxable investment income
earned from January 1 through December 31 of that year and 98% of its capital gains realized in the period from November 1 of the
prior year through October 31 of the current year. If it does not, the Fund must pay an excise tax on the amounts not distributed. It
is presently anticipated that the Fund will meet those requirements. However, the Board of Trustees and the Manager might determine
in a particular year that it would be in the best interests of shareholders for the Fund not to make such distributions at the
required levels and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.

The Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code (although it reserves the
right not to qualify). That qualification enables the Fund to "pass through" its income and realized capital gains to shareholders
without having to pay tax on them. This avoids a double tax on that income and capital gains, since shareholders normally will be
taxed on the dividends and capital gains they receive from the Fund (unless the Fund's shares are held in a retirement account or the
shareholder is otherwise exempt from tax). If the Fund qualifies as a "regulated investment company" under the Internal Revenue Code,
it will not be liable for federal income taxes on amounts paid by it as dividends and distributions. The Fund qualified as a
regulated investment company in its last fiscal year. The Internal Revenue Code contains a number of complex tests relating to
qualification which the Fund might not meet in any particular year. If it did not so qualify, the Fund would be treated for tax
purposes as an ordinary corporation and receive no tax deduction for payments made to shareholders.

If prior distributions made by the Fund must be re-characterized as a non-taxable return of capital at the end of the fiscal
year as a result of the effect of the Fund's investment policies, they will be identified as such in notices sent to shareholders.

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

Additional Information About the Fund

The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a sales agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also
distributes shares of the other Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of the Manager.

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

The Custodian Bank. The Bank of New York is the custodian bank of the Fund's assets. The custodian bank's responsibilities include
safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and from the Fund. It is
the practice of the Fund to deal with the custodian bank in a manner uninfluenced by any banking relationship the custodian bank may
have with the Manager and its affiliates. The Fund's cash balances with the custodian bank in excess of $100,000 are not protected by
federal deposit insurance. Those uninsured balances at times may be substantial.

Independent Auditors. Deloitte & Touche, LLP are the independent auditors of the Fund. They audit the Fund's financial statements and
perform other related audit services. They also act as auditors for the Manager and certain other funds advised by the Manager and
its affiliates.

INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------

================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CAPITAL INCOME FUND:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Income Fund, including the statement of investments, as of
August 31, 2001, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2001, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
     In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Capital Income Fund as of August 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America.



/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
September 24, 2001






STATEMENT OF INVESTMENTS  AUGUST 31, 2001
--------------------------------------------------------------------------------

MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
============================================================================================================================

COMMON STOCKS--67.8%
----------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--0.5%
----------------------------------------------------------------------------------------------------------------------------
PAPER--0.5%
Sappi Ltd., Sponsored ADR                                                                1,600,000        $
16,576,000
----------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--5.4%
----------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--0.2%
Boeing Co.                                                                                 107,500
5,504,000
----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.6%
Republic Services, Inc.(1)                                                                 960,000
19,056,000
----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--4.6%
Honeywell International, Inc.                                                              437,500
16,301,250
----------------------------------------------------------------------------------------------------------------------------
Packaging Corp. of America(1)                                                            1,500,000
27,570,000
----------------------------------------------------------------------------------------------------------------------------
Pall Corp.                                                                                 610,000
13,639,600
----------------------------------------------------------------------------------------------------------------------------
Titan Corp. (The)(1)                                                                       500,000
9,275,000
----------------------------------------------------------------------------------------------------------------------------
Tyco International Ltd.                                                                  1,412,500
73,379,375

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

140,165,225

----------------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--1.6%
----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-LONG DISTANCE--1.0%
Sprint Corp. (Fon Group)                                                                   400,000
9,336,000
----------------------------------------------------------------------------------------------------------------------------
Verizon Communications, Inc.                                                               400,000
20,000,000

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

29,336,000

----------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--0.6%
SBC Communications, Inc.                                                                   410,000
16,773,100
----------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--2.5%
----------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.9%
KB Home                                                                                    530,000
17,156,100
----------------------------------------------------------------------------------------------------------------------------
Snap-On, Inc.                                                                              250,000
6,365,000
----------------------------------------------------------------------------------------------------------------------------
Visteon Corp.                                                                              270,000
4,617,000

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

28,138,100

----------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.1%
Host Marriott Corp.                                                                        287,500
3,680,000
----------------------------------------------------------------------------------------------------------------------------
MEDIA--0.4%
Deluxe Corp.                                                                               350,000
11,487,000
----------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3%
Federated Department Stores, Inc.(1)                                                       140,000
5,083,400
----------------------------------------------------------------------------------------------------------------------------
May Department Stores Co.                                                                  140,000
4,711,000

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

9,794,400

----------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.8%
AutoNation, Inc.(1)                                                                        550,000
5,918,000
----------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp.(1,2)                                                                      1,839,300
15,726,015
----------------------------------------------------------------------------------------------------------------------------
Gap, Inc.                                                                                  125,000
2,456,250

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

24,100,265




                       12 OPPENHEIMER CAPITAL INCOME FUND







MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------

CONSUMER STAPLES--8.3%
----------------------------------------------------------------------------------------------------------------------------
BROADCASTING--2.0%
Charter Communications, Inc., Cl. A(1)                                                     700,000        $
14,140,000
----------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.(1)                                                      775,000
38,959,250
----------------------------------------------------------------------------------------------------------------------------
Comcast Corp., Cl. A Special(1)                                                            200,000
7,326,000

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

60,425,250

----------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.4%
McDonald's Corp.                                                                           150,000
4,504,500
----------------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B(1)                                                                     200,000
8,480,000

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

12,984,500

----------------------------------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--1.8%
Kroger Co. (The)(1)                                                                      1,097,500
29,215,450
----------------------------------------------------------------------------------------------------------------------------
SUPERVALU, Inc.                                                                          1,025,000
21,504,500
----------------------------------------------------------------------------------------------------------------------------
Winn-Dixie Stores, Inc.                                                                    145,000
3,255,250

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

53,975,200

----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.0%
Kimberly-Clark Corp.                                                                         5,000
310,250
----------------------------------------------------------------------------------------------------------------------------
TOBACCO--4.1%
Philip Morris Cos., Inc.                                                                 2,500,000
118,500,000
----------------------------------------------------------------------------------------------------------------------------
UST, Inc.                                                                                  200,000
6,600,000

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

125,100,000

----------------------------------------------------------------------------------------------------------------------------
ENERGY--6.5%
----------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--1.6%
BJ Services Co.(1)                                                                         435,000
9,757,050
----------------------------------------------------------------------------------------------------------------------------
Cooper Cameron Corp.(1)                                                                     85,000
3,676,250
----------------------------------------------------------------------------------------------------------------------------
ENSCO International, Inc.                                                                  525,000
9,576,000
----------------------------------------------------------------------------------------------------------------------------
Global Marine, Inc.(1)                                                                     325,000
4,680,000
----------------------------------------------------------------------------------------------------------------------------
Santa Fe International Corp.                                                               600,000
15,180,000
----------------------------------------------------------------------------------------------------------------------------
Tidewater, Inc.                                                                            200,000
6,222,000

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

49,091,300

----------------------------------------------------------------------------------------------------------------------------
OIL: DOMESTIC--4.9%
Conoco, Inc., Cl. A                                                                        850,000
25,202,500
----------------------------------------------------------------------------------------------------------------------------
EOG Resources, Inc.                                                                        200,000
6,324,000
----------------------------------------------------------------------------------------------------------------------------
Kerr/McGee Corp.                                                                           150,000
8,761,500
----------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp.                                                               1,000,000
27,520,000
----------------------------------------------------------------------------------------------------------------------------
Texaco, Inc.                                                                               100,000
6,965,000
----------------------------------------------------------------------------------------------------------------------------
Unocal Corp.                                                                               500,000
17,650,000
----------------------------------------------------------------------------------------------------------------------------
USX-Marathon Group, Inc.                                                                 1,075,000
33,873,250
----------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp.(3)                                                                     500,000
20,750,000

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

147,046,250




                       13 OPPENHEIMER CAPITAL INCOME FUND




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




MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------

FINANCIAL--29.6%
----------------------------------------------------------------------------------------------------------------------------
BANKS--14.6%
AmSouth Bancorp                                                                            425,000        $
8,083,500
----------------------------------------------------------------------------------------------------------------------------
Bank of America Corp.(3)                                                                 1,250,000
76,875,000
----------------------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The)(3)                                                        675,000
26,797,500
----------------------------------------------------------------------------------------------------------------------------
Bank One Corp.(3)                                                                          875,000
30,353,750
----------------------------------------------------------------------------------------------------------------------------
Charter One Financial, Inc.                                                              1,150,000
33,580,000
----------------------------------------------------------------------------------------------------------------------------
First Union Corp.(3)                                                                     1,192,500
41,045,850
----------------------------------------------------------------------------------------------------------------------------
FleetBoston Financial Corp.(3)                                                           1,945,250
71,643,558
----------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co.                                                                  1,325,000
52,205,000
----------------------------------------------------------------------------------------------------------------------------
KeyCorp                                                                                    550,000
13,805,000
----------------------------------------------------------------------------------------------------------------------------
Mellon Financial Corp.(3)                                                                  725,000
25,556,250
----------------------------------------------------------------------------------------------------------------------------
PNC Financial Services Group                                                               287,500
19,144,625
----------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp(3)                                                                          1,200,000
29,088,000
----------------------------------------------------------------------------------------------------------------------------
Union Planters Corp.(3)                                                                    330,000
14,685,000

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

442,863,033

----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--5.8%
Anthracite Capital, Inc.                                                                   850,000
9,333,000
----------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp.(3)                                                             100,000
5,561,000
----------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.                                                                          2,225,000
101,793,750
----------------------------------------------------------------------------------------------------------------------------
Fannie Mae                                                                                  52,500
4,001,025
----------------------------------------------------------------------------------------------------------------------------
Household International, Inc.(3)                                                           600,000
35,460,000
----------------------------------------------------------------------------------------------------------------------------
John Hancock Financial Services, Inc.                                                      400,000
15,980,000
----------------------------------------------------------------------------------------------------------------------------
Smith (Charles E.) Residential Realty, Inc.                                                 59,275
3,143,353

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

175,272,128

----------------------------------------------------------------------------------------------------------------------------
INSURANCE--3.6%
Allstate Corp.                                                                             250,000
8,482,500
----------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd.                                                                      450,000
29,205,000
----------------------------------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc.                                                     50,000
3,240,000
----------------------------------------------------------------------------------------------------------------------------
Protective Life Corp.                                                                      300,000
8,949,000
----------------------------------------------------------------------------------------------------------------------------
Radian Group, Inc.                                                                         625,000
25,068,750
----------------------------------------------------------------------------------------------------------------------------
St. Paul Cos., Inc.                                                                        300,000
12,609,000
----------------------------------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A                                                                     250,000
20,750,000

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

108,304,250




                       14 OPPENHEIMER CAPITAL INCOME FUND







MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------

REAL ESTATE INVESTMENT TRUSTS--3.3%
Archstone Communities Trust                                                                655,000        $
17,685,000
----------------------------------------------------------------------------------------------------------------------------
Avalonbay Communities, Inc.                                                                300,000
15,147,000
----------------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc.                                                                    200,000
7,880,000
----------------------------------------------------------------------------------------------------------------------------
Equity Office Properties Trust                                                           1,100,000
35,299,000
----------------------------------------------------------------------------------------------------------------------------
Equity Residential Properties Trust                                                        385,000
22,680,350

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

98,691,350

----------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOANS--2.3%
Greenpoint Financial Corp.                                                                 500,000
19,750,000
----------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc.                                                                  1,350,000
50,544,000

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

70,294,000

----------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--2.5%
----------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--2.5%
Abbott Laboratories(3)                                                                      77,500
3,851,750
----------------------------------------------------------------------------------------------------------------------------
American Home Products Corp.                                                               400,000
22,400,000
----------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co.                                                                   225,000
12,631,500
----------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson(3)                                                                       220,500
11,622,555
----------------------------------------------------------------------------------------------------------------------------
Merck & Co., Inc.                                                                          162,500
10,578,750
----------------------------------------------------------------------------------------------------------------------------
Pharmacia Corp.                                                                            150,000
5,940,000
----------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp.                                                                      200,000
7,626,000
----------------------------------------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.(1)                                                                    10,000
272,000

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

74,922,555

----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.0%
----------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--0.2%
First Data Corp.(3)                                                                        100,000
6,585,000
----------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.8%
Microsoft Corp.(1)                                                                         400,000
22,820,000
----------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--0.0%
Waters Corp.(1,3)                                                                           25,000
828,250
----------------------------------------------------------------------------------------------------------------------------
UTILITIES--9.9%
----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.9%
Constellation Energy Group, Inc.                                                           700,000
21,014,000
----------------------------------------------------------------------------------------------------------------------------
Exelon Corp.                                                                               500,000
27,300,000
----------------------------------------------------------------------------------------------------------------------------
TXU Corp.                                                                                  800,000
37,984,000

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

86,298,000

----------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--7.0%
Dynegy, Inc.                                                                             1,225,000
51,658,250
----------------------------------------------------------------------------------------------------------------------------
El Paso Corp.                                                                              225,000
10,932,750
----------------------------------------------------------------------------------------------------------------------------
Enron Corp.                                                                                650,000
22,743,500
----------------------------------------------------------------------------------------------------------------------------
Kinder Morgan Management LLC                                                               558,160
40,996,852




                       15 OPPENHEIMER CAPITAL INCOME FUND




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




MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------

GAS UTILITIES Continued
Kinder Morgan, Inc.                                                                        925,000        $
51,430,000
----------------------------------------------------------------------------------------------------------------------------
Sempra Energy                                                                              325,000
8,804,250
----------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The)                                                                  775,000
25,226,250

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

211,791,852

------------------
Total Common Stocks (Cost $1,447,170,445)
2,052,213,258

============================================================================================================================
PREFERRED STOCKS--10.6%
----------------------------------------------------------------------------------------------------------------------------
ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend Equity
Securities, Non-Vtg.                                                                       287,500
20,412,500
----------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg.                               375,000
40,453,125
----------------------------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum. Exchangeable,
Series A, Non-Vtg.                                                                         100,000
2,577,000
----------------------------------------------------------------------------------------------------------------------------
CMS Energy Trust III, 7.25% Cv. Premium Equity Participating Security Units                200,000
5,150,000
----------------------------------------------------------------------------------------------------------------------------
Coastal Corp., $37.75 Cv. Preferred Redeemable Increased Dividend
Equity Securities                                                                          725,000
24,331,000
----------------------------------------------------------------------------------------------------------------------------
Duke Energy Corp., 8.25% Cv. Equity Units, Non-Vtg. (each equity unit
consists of units referred to as corporate units which consist of $25
principal amount of Duke Energy Corp., 5.87% sr. nts., due 2006 and a
contract to purchase Duke Energy Corp. common stock)(4)                                    325,000
8,645,000
----------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg.                             300,000
12,450,000
----------------------------------------------------------------------------------------------------------------------------
Enron Corp., 7% Cv. Exchangeable, Non-Vtg.                                                 183,050
5,231,569
----------------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Trust Securities                            5,985,000
6,209,438
----------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 7% Cum. Cv.                                                          200,000
11,300,000
----------------------------------------------------------------------------------------------------------------------------
Hercules Trust II, Units (each unit consists of one preferred security of the
Trust and one warrant to purchase 23.4192 shares of Hercules, Inc.
common stock)(4)                                                                             7,500
3,823,500
----------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 6.75% Cv., Series A, Non-Vtg.                                              55,000
3,190,000
----------------------------------------------------------------------------------------------------------------------------
National Australia Bank Ltd., ExCaps (each ExCap consists of $25 principal
amount of 7.875% Perpetual Capital Security and a purchase contract
entitling the holder to exchange ExCaps for ordinary shares of the bank)(4)                500,000
16,100,000
----------------------------------------------------------------------------------------------------------------------------
Nisource, Inc., 7.75% Cv. Premium Income Equity Securities, Non-Vtg.                       200,000
9,720,000
----------------------------------------------------------------------------------------------------------------------------
NRG Energy, Inc., Equity Units, Non-Vtg. (each equity unit consists of units
referred to as corporate units which consist of $25 principal amount of
NRG Energy, Inc., 6.50% sr. debs., 5/16/01 and a purchase contract to
purchase NRG Energy, Inc. common stock)(4)                                                 225,000
4,722,750
----------------------------------------------------------------------------------------------------------------------------
Pharmacia Corp., 6.50% Cv. Adjustable Conversion-rate Equity Security                      228,800
8,545,680
----------------------------------------------------------------------------------------------------------------------------
Qwest Trends Trust, 5.75% Cv.(5)                                                           250,000
10,187,500
----------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts.                               100,000
5,935,000
----------------------------------------------------------------------------------------------------------------------------
Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity Redeemable Stock                   715,000
17,875,000
----------------------------------------------------------------------------------------------------------------------------
Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity Redeemable
Stock, Units (each unit consists of one preferred plus one warrant to
purchase 5.3355 shares of Sovereign Bancorp common stock)(4)                               475,000
30,780,000




                       16 OPPENHEIMER CAPITAL INCOME FUND







MARKET VALUE
                                                                                            SHARES
SEE NOTE 1
============================================================================================================================

PREFERRED STOCKS Continued
----------------------------------------------------------------------------------------------------------------------------
Sprint Corp., Equity Units [each equity unit consists of units referred to
as corporate units which consist of $25 principal amount of
Sprint Capital Corp., 6% sr. nts., 8/17/06 and a purchase contract to
purchase Sprint Corp. (PCS Group) common stock](1,4)                                       760,000        $
19,790,400
----------------------------------------------------------------------------------------------------------------------------
Tribune Co., 2% Unsec. Participation Hybrid Option Note Exchangeable
Securities (exchangeable for shares of America Online, Inc.)                               225,000
21,150,000
----------------------------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income Deferrable
Equity Securities, Non-Vtg.                                                                135,000
6,395,625
----------------------------------------------------------------------------------------------------------------------------
United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities,
Non-Vtg.                                                                                   350,000
12,337,500
----------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security                       312,500
10,296,875
----------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc., 7% Cum. Cv., Series E                                                      200,000
4,525,000

------------------
Total Preferred Stocks (Cost $332,203,404)
322,134,462





                                                                                         PRINCIPAL
                                                                                            AMOUNT

============================================================================================================================
MORTGAGE-BACKED OBLIGATIONS--4.9%
----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6%, 9/25/31(6)                                                                      $  126,000,000
123,834,060
6.50%, 9/1/28(6)                                                                        25,000,000
25,093,750

------------------
Total Mortgage-Backed Obligations (Cost $147,347,188)
148,927,810

============================================================================================================================
U.S. GOVERNMENT OBLIGATIONS--4.6%
----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.33%, 2/15/15(7)                                         150,000,000
72,226,350
----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5%, 2/15/11                                                         65,000,000
65,446,940

------------------
Total U.S. Government Obligations (Cost $128,872,494)
137,673,290

============================================================================================================================
FOREIGN GOVERNMENT OBLIGATIONS--0.6%
----------------------------------------------------------------------------------------------------------------------------
Banco Nac de Desen Econo Cv. Sr. Nts., 6.50%, 6/15/06 [cv. into Empresa
Brasileira de Aeronautica SA (Embraer), ADR common stock](5)                             7,750,000
6,897,500
----------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR]                        14,800,000
1,975,525
----------------------------------------------------------------------------------------------------------------------------
United Mexican States Sec. Nts., Fideicomiso Petacalco Trust,
10.16%, 12/23/09(5)                                                                      7,650,000
8,300,250

------------------
Total Foreign Government Obligations (Cost $18,112,991)
17,173,275

============================================================================================================================
LOAN PARTICIPATIONS--0.3%
----------------------------------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 3.696%, 4/28/02 (representing
a basket of reference loans and a total return swap between Chase
Manhattan Bank and the Trust)(8,9) (Cost $16,849,811)                                   16,800,000
10,269,221

============================================================================================================================
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--4.9%
----------------------------------------------------------------------------------------------------------------------------
AK Steel Corp., 9.125% Sr. Nts., 12/15/06                                                4,000,000
4,130,000
----------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09               4,995,000
5,057,438
----------------------------------------------------------------------------------------------------------------------------
Amtran, Inc., 9.625% Nts., 12/15/05(8)                                                   3,000,000
2,595,000




                       17 OPPENHEIMER CAPITAL INCOME FUND




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



                                                                                         PRINCIPAL
MARKET VALUE
                                                                                            AMOUNT
SEE NOTE 1
============================================================================================================================

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
----------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(9)                   $    5,000,000        $
7,303,520
----------------------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07                                                   2,500,000
2,715,625
----------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/Charter Communications
Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09                                   9,250,000
9,018,750
----------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01                                           6,000,000
6,034,014
----------------------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05                                                      6,350,000
6,492,875
----------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18                                     3,000,000
2,828,337
----------------------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09                                       4,000,000
4,145,000
----------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09               9,000,000
8,752,500
----------------------------------------------------------------------------------------------------------------------------
Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09                                    1,750,000
1,408,750
----------------------------------------------------------------------------------------------------------------------------
Fairchild Semiconductor Corp., 10.375% Sr. Unsec. Nts., 10/1/07                          2,500,000
2,525,000
----------------------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06                          5,000,000
5,056,250
----------------------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08                                 10,000,000
10,125,000
----------------------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc.:
8.625% Sr. Unsec. Nts., 3/15/05(8)                                                       4,210,000
4,146,850
9.25% Sr. Unsec. Sub. Nts., 2/1/06                                                       4,200,000
4,137,000
----------------------------------------------------------------------------------------------------------------------------
ICN Pharmaceuticals, Inc., 9.75% Sr. Nts., 11/15/08(5)                                   2,000,000
2,290,000
----------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05                                                     5,000,000
1,775,000
----------------------------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08                                                 2,000,000
2,040,000
----------------------------------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09(8)                       6,000,000
5,910,000
----------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09                                        25,000,000
11,312,500
----------------------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc.:
10% Sr. Nts., 12/15/09                                                                   4,000,000
980,000
10% Sr. Nts., 12/15/09 [EUR]                                                             2,000,000
472,368
----------------------------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Unsec. Nts., Series B, 9/1/07                                   7,500,000
7,537,500
----------------------------------------------------------------------------------------------------------------------------
NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08                      7,650,000
4,513,500
----------------------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08                         3,224,000
3,449,680
----------------------------------------------------------------------------------------------------------------------------
RCN Corp., 10.125% Sr. Unsec. Nts., 1/15/10                                             14,284,000
5,499,340
----------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 11.25% Sr. Nts., 7/1/08(5)                                               2,500,000
2,637,500
----------------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.625% Sr. Unsec. Nts., 8/1/07                                                          1,000,000
1,045,000
10.875% Sr. Sub. Nts., 4/1/08                                                            1,000,000
990,000
----------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.:
7.625% Sr. Unsec. Nts., Series B, 6/1/08                                                 2,150,000
2,327,375
8.625% Sr. Sub. Nts., 1/15/07                                                            2,000,000
2,110,000
----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09                          1,000,000
500,000
----------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust I, 10.50% Sr. Asset-Backed Securities,
Series 1993-A, 12/1/11(8)                                                                1,745,919
1,104,294
----------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09                               96,000
110,880
----------------------------------------------------------------------------------------------------------------------------
Williams Communications Group, Inc., 10.875% Sr. Unsec. Nts., 10/1/09                    3,000,000
1,380,000




                       18 OPPENHEIMER CAPITAL INCOME FUND






                                                                                         PRINCIPAL
MARKET VALUE
                                                                                            AMOUNT
SEE NOTE 1
============================================================================================================================

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
----------------------------------------------------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09                        $    1,000,000        $
1,012,684
----------------------------------------------------------------------------------------------------------------------------
XO Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09                                  5,000,000
1,950,000

------------------
Total Non-Convertible Corporate Bonds and Notes (Cost $165,714,418)
147,419,530

============================================================================================================================
CONVERTIBLE CORPORATE BONDS AND NOTES--9.3%
----------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 6% Cv. Unsec. Nts., 2/15/06                              40,000,000
34,350,000
----------------------------------------------------------------------------------------------------------------------------
American Tower Corp.:
5% Cv. Nts., 2/15/10(5)                                                                  7,000,000
5,398,750
5% Cv. Nts., 2/15/10                                                                     5,500,000
4,241,875
----------------------------------------------------------------------------------------------------------------------------
Amkor Technology, Inc.:
5% Cv. Sub. Nts., 3/15/07(5)                                                            23,000,000
15,898,750
5% Cv. Unsec. Sub. Nts., 3/15/07                                                         7,000,000
4,838,750
----------------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., 4.75% Cv. Sr. Unsec. Nts., 6/1/06                          7,500,000
7,434,375
----------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 2.625% Cv. Sr. Nts., 4/1/03                         10,000,000
10,300,000
----------------------------------------------------------------------------------------------------------------------------
Commscope, Inc., 4% Cv. Unsec. Sub. Nts., 12/15/06                                      10,500,000
8,859,375
----------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp., 7% Cv. Sub. Nts., 8/1/06(2,8)                                           30,000,000
40,044,600
----------------------------------------------------------------------------------------------------------------------------
Enron Corp., Zero Coupon Cv. Sr. Unsec. Nts., 2.68%, 2/7/21(7)                          15,000,000
8,981,250
----------------------------------------------------------------------------------------------------------------------------
Juniper Networks, Inc., 4.75% Cv. Unsec. Sub. Nts., 3/15/07                              6,250,000
4,500,000
----------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 6% Cv. Nts., 9/15/09                                      52,500,000
16,012,500
----------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.25% Cv. Sr. Nts., 3/15/31 (cv. into Viacom, Inc.,
Cl. B common stock)(5)                                                                  20,000,000
18,925,000
----------------------------------------------------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05                                       17,500,000
14,896,875
----------------------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Exchangeable
Sub. Debs., 5.25%, 10/30/15(5,7)                                                        19,500,000
8,214,375
----------------------------------------------------------------------------------------------------------------------------
Network Associates, Inc., Zero Coupon Cv. Unsec
Sub. Debs., 3.94%, 2/13/18(7)                                                           25,000,000
11,000,000
----------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc.:
5.25% Cv. Sr. Nts., 1/15/10(5)                                                          12,500,000
7,328,125
5.25% Cv. Sr. Nts., 1/15/10                                                             25,000,000
14,656,250
----------------------------------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Nts., 9/1/08(5)                                     6,500,000
6,150,625
----------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02                                            20,000,000
19,300,000
----------------------------------------------------------------------------------------------------------------------------
Royal Carribean Cruises Ltd., Zero Coupon Cv. Sr. Unsec. Unsub
Liquid Yield Option Nts., 5.15%, 2/2/21(7)                                              36,000,000
13,320,000
----------------------------------------------------------------------------------------------------------------------------
Solectron Corp., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield
Option Nts., 3.63%, 5/8/20(7)                                                           15,000,000
7,650,000

------------------
Total Convertible Corporate Bonds and Notes (Cost $290,924,388)
282,301,475




                       19 OPPENHEIMER CAPITAL INCOME FUND




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



                                                                                         PRINCIPAL
MARKET VALUE
                                                                                            AMOUNT
SEE NOTE 1
============================================================================================================================

STRUCTURED INSTRUMENTS--0.7%
----------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch), Carnival Corp.
Equity Linked Nts., 7%, 7/17/02(8)                                                  $   11,558,946        $
16,182,524
----------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Medium-Term Stock Linked Nts., Series B,
7%, 7/8/02 (linked to the performance of The Gap, Inc. common stock)                     7,500,000
5,250,000

------------------
Total Structured Instruments (Cost $19,615,358)
21,432,524

============================================================================================================================
REPURCHASE AGREEMENTS--0.3%
----------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Deutsche Bank Securities, Inc., 3.62%,
dated 8/31/01, to be repurchased at $7,664,081 on 9/4/01, collateralized
by U.S. Treasury Bonds, 6.50%-8.125%, 8/15/21-11/15/26, with a value of
$7,839,821 (Cost $7,661,000)                                                           7,661,000
7,661,000
----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,574,471,497)                                          104.0%
3,147,205,845
----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS                                                       (4.0)
(121,516,039)

----------------------------------------
NET ASSETS                                                                                 100.0%         $
3,025,689,806

========================================




FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:

EUR    Euro
ZAR    South African Rand

1.  Non-income-producing security.

2.  Affiliated company. Represents ownership of at least 5% of the voting
    securities of the issuer, and is or was an affiliate, as defined in the
    Investment Company Act of 1940, at or during the period ended August 31,
    2001. The aggregate fair value of securities of affiliated companies held by
    the Fund as of August 31, 2001, amounts to $55,770,615. Transactions during
    the period in which the issuer was an affiliate are as follows:



                                           SHARES/                                  SHARES/
                                         PRINCIPAL                                PRINCIPAL       UNREALIZED
                                        AUGUST 31,         GROSS        GROSS    AUGUST 31,     APPRECIATION
INTEREST
                                              2000     ADDITIONS   REDUCTIONS          2001
(DEPRECIATION)       INCOME
--------------------------------------------------------------------------------------------------------------------------

STOCKS AND WARRANTS
CSK Auto Corp.                           1,500,000       339,300           --     1,839,300    $(18,737,975)
$     --

BONDS AND NOTES
CSK Auto Corp., 7% Cv. Sub.
Nts., 8/1/06                                    --   $30,000,000           --   $30,000,000
10,044,600        93,333

---------

$ 93,333

=========




                       20 OPPENHEIMER CAPITAL INCOME FUND




FOOTNOTES TO STATEMENT OF INVESTMENTS Continued

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



                                            CONTRACTS  EXPIRATION     EXERCISE       PREMIUM  MARKET VALUE
                                      SUBJECT TO CALL        DATE        PRICE      RECEIVED    SEE NOTE 1
------------------------------------------------------------------------------------------------------------

Abbott Laboratories                               500     9/24/01          $55    $   33,249    $    5,000
Bank of America Corp.                             500     9/24/01           70        13,250            --
Bank of America Corp.                             250    10/22/01           70        17,249         2,500
Bank of America Corp.                             875    11/19/01           70        79,622        30,625
Bank of New York Co., Inc. (The)                1,500    10/22/01           60       266,241            --
Bank of New York Co., Inc. (The)                4,500     1/21/02           70       402,511            --
Bank One Corp.                                  1,000    11/19/01           43        57,499            --
Capital One Financial Corp.                       375     9/24/01           65        50,123         7,500
First Data Corp.                                  875     9/24/01           65       417,611       210,000
First Data Corp.                                  125     9/24/01           70        17,224         5,000
First Union Corp.                                 725     9/24/01           35        98,947        25,375
First Union Corp.                               1,325     9/24/01           38        48,233        19,875
First Union Corp.                                 950    10/22/01           35       150,395        90,250
FleetBoston Financial Corp.                     1,750    10/22/01           50       129,996            --
Household International, Inc.                   1,000     9/24/01           70        88,497            --
Household International, Inc.                     250    10/22/01           65       119,246        22,500
Johnson & Johnson                           1,200    10/22/01           58       112,046        54,000
Johnson & Johnson                           1,000    10/22/01           55       114,496        70,000
Mellon Financial Corp.                            750     9/24/01           55        54,248            --
U.S. Bancorp                                      250     9/24/01           25        11,000         6,250
Union Planters Corp.                            3,300    11/19/01           48       217,793        82,500
Valero Energy Corp.                               500     9/24/01           40       264,991       100,000
Valero Energy Corp.                               250     9/24/01           45        89,247        10,000
Valero Energy Corp.                             1,500     9/24/01           50       676,027            --
Valero Energy Corp.                               750     9/24/01           55       235,692            --
Waters Corp.                                       25     9/24/01           35         3,050         1,750
                                                                                  --------------------------
                                                                                   3,768,483       743,125
                                                                                  --------------------------





                                            CONTRACTS  EXPIRATION     EXERCISE       PREMIUM  MARKET VALUE
                                       SUBJECT TO PUT        DATE        PRICE      RECEIVED    SEE NOTE 1
------------------------------------------------------------------------------------------------------------

Charter Communications, Inc., Cl. A               250     9/24/01          $20    $   30,499    $   21,250
Cisco Systems, Inc.                                86     1/21/02           18        26,401        25,800
Comcast Corp., Cl. A                              500     9/24/01           35        19,499        27,500
Comcast Corp., Cl. A                            1,750    10/22/01           40       654,478       647,500
EMC Corp.                                         130    10/22/01           23        42,075        93,600
Gap, Inc.                                         500     9/24/01           23        48,498       140,000
JDS Uniphase Corp.                                  5     9/24/01           40         8,953        16,300
Kinder Morgan, Inc.                               250     9/24/01           50        13,500         1,250
Kinder Morgan, Inc.                             1,000     9/24/01           55       244,992       110,000
Merck & Co., Inc.                             375     9/24/01           70        86,996       191,250
Morgan Stanley Dean Witter & Co.            1,000    10/22/01           60       658,235       790,000
Providian Financial Corp.                         500    10/22/01           35        73,498        90,000
Washington Mutual, Inc.                           500    10/22/01           35        58,499        32,500
                                                                                  --------------------------
                                                                                   1,966,123     2,186,950
                                                                                  --------------------------
                                                                                  $5,734,606    $2,930,075
                                                                                  ==========================




                       21 OPPENHEIMER CAPITAL INCOME FUND




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

FOOTNOTES TO STATEMENT OF INVESTMENTS Continued

4.  Units may be comprised of several components, such as debt and equity and/or
    warrants to purchase equity at some point in the future. For units which
    represent debt securities, principal amount disclosed represents total
    underlying principal.

5.  Represents securities sold under Rule 144A, which are exempt from
    registration under the Securities Act of 1933, as amended. These securities
    have been determined to be liquid under guidelines established by the Board
    of Trustees. These securities amount to $92,228,375 or 3.05% of the Fund's
    net assets as of August 31, 2001.

6.  When-issued security to be delivered and settled after August 31, 2001.

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

8.  Identifies issues considered to be illiquid or restricted--See Note 7 of
    Notes to Financial Statements.

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

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       22 OPPENHEIMER CAPITAL INCOME FUND




STATEMENT OF ASSETS AND LIABILITIES  August 31, 2001
--------------------------------------------------------------------------------




============================================================================================================
ASSETS
------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,510,007,507)                                               $ 3,091,435,230
Affiliated companies (cost $64,463,990)                                                         55,770,615
                                                                                           -----------------
                                                                                             3,147,205,845

------------------------------------------------------------------------------------------------------------
Cash                                                                                               137,765
------------------------------------------------------------------------------------------------------------
Cash used for collateral on written puts                                                        25,098,169
------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends                                                                          12,434,517
Shares of beneficial interest sold                                                               2,308,573
Investments sold                                                                                   729,917
Other                                                                                              276,015
                                                                                           -----------------
Total assets                                                                                 3,188,190,801

============================================================================================================
LIABILITIES
------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $5,734,606)--see accompanying statement             2,930,075
------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $147,755,410 purchased on a when-issued basis)                155,216,909
Shares of beneficial interest redeemed                                                           2,362,912
Distribution and service plan fees                                                               1,243,098
Shareholder reports                                                                                404,922
Transfer and shareholder servicing agent fees                                                      227,863
Trustees' compensation                                                                              10,918
Other                                                                                              104,298
                                                                                           -----------------
Total liabilities                                                                              162,500,995

============================================================================================================
NET ASSETS                                                                                 $ 3,025,689,806
                                                                                           =================

============================================================================================================
COMPOSITION OF NET ASSETS
------------------------------------------------------------------------------------------------------------
Paid-in capital                                                                            $ 2,361,915,750
------------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income                                            9,104,384
------------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and
foreign currency transactions                                                                   79,129,526
------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign currencies                        575,540,146
                                                                                           -----------------
NET ASSETS                                                                                 $ 3,025,689,806
                                                                                           =================




                       23 OPPENHEIMER CAPITAL INCOME 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
$2,458,271,634 and 193,273,281 shares of beneficial interest outstanding)                   $12.72
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price)                                                                 $13.50
----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $477,223,195
and 37,866,936 shares of beneficial interest outstanding)                                   $12.60
----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $89,547,438
and 7,110,374 shares of beneficial interest outstanding)                                    $12.59
----------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $647,539
and 51,035 shares of beneficial interest outstanding)                                       $12.69




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       24 OPPENHEIMER CAPITAL INCOME FUND




STATEMENT OF OPERATIONS  For the Year Ended August 31, 2001
--------------------------------------------------------------------------------



====================================================================================================
INVESTMENT INCOME
----------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $4,199)                               $  69,370,606
----------------------------------------------------------------------------------------------------
Interest:
Unaffiliated companies                                                                  53,259,685
Affiliated companies                                                                        93,333
                                                                                     ---------------
Total income                                                                           122,723,624

====================================================================================================
EXPENSES
----------------------------------------------------------------------------------------------------
Management fees                                                                         15,646,888
----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A                                                                                  5,698,019
Class B                                                                                  4,692,665
Class C                                                                                    802,801
Class N                                                                                        530
----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees                                            2,881,669
----------------------------------------------------------------------------------------------------
Shareholder reports                                                                        883,004
----------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                210,276
----------------------------------------------------------------------------------------------------
Trustees' compensation                                                                      60,715
----------------------------------------------------------------------------------------------------
Other                                                                                      451,241
                                                                                     ---------------
Total expenses                                                                          31,327,808
Less reduction to custodian expenses                                                       (35,920)
                                                                                     ---------------
Net expenses                                                                            31,291,888

====================================================================================================
NET INVESTMENT INCOME                                                                   91,431,736

====================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
----------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised)                                   98,645,690
Closing and expiration of option contracts written                                       8,284,419
Foreign currency transactions                                                           (8,366,175)
                                                                                     ---------------
Net realized gain (loss)                                                                98,563,934

----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments                                                                             (7,378,735)
Translation of assets and liabilities denominated in foreign currencies                  5,919,722
                                                                                     ---------------
Net change                                                                              (1,459,013)
                                                                                     ---------------
Net realized and unrealized gain (loss)                                                 97,104,921

====================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                 $ 188,536,657
                                                                                     ===============




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       25 OPPENHEIMER CAPITAL INCOME FUND




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




YEAR ENDED AUGUST 31,                                                                     2001
2000
=======================================================================================================================

OPERATIONS
-----------------------------------------------------------------------------------------------------------------------
Net investment income (loss)                                                   $    91,431,736        $
113,528,852
-----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                            98,563,934
173,626,281
-----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                (1,459,013)
(130,279,295)

----------------------------------------
Net increase (decrease) in net assets resulting from operations                    188,536,657
156,875,838

=======================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A                                                                            (89,710,614)
(98,446,434)
Class B                                                                            (13,856,744)
(17,009,478)
Class C                                                                             (2,367,695)
(2,657,808)
Class N
(1,361)                    --
-----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                                            (92,805,879)
(220,897,327)
Class B                                                                            (17,996,313)
(51,201,679)
Class C                                                                             (2,930,775)
(8,187,175)
Class N
--                     --

=======================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A                                                                             88,120,939
(348,332,169)
Class B                                                                              9,692,620
(198,760,762)
Class C                                                                             17,337,172
(37,298,949)
Class N
659,783                     --

=======================================================================================================================
NET ASSETS
-----------------------------------------------------------------------------------------------------------------------
Total increase (decrease)                                                           84,677,790
(825,915,943)
-----------------------------------------------------------------------------------------------------------------------
Beginning of period                                                              2,941,012,016
3,766,927,959

----------------------------------------
End of period [including undistributed (overdistributed) net
investment income of $9,104,384 and $23,286,164, respectively]                 $ 3,025,689,806        $
2,941,012,016

========================================




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       26 OPPENHEIMER CAPITAL INCOME FUND



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




CLASS A             YEAR ENDED AUGUST 31,                 2001             2000          1999
1998             1997
==================================================================================================================================

PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                    $12.88           $13.63        $13.75
$14.12           $11.36
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                      .42(1)           .49           .51
..50              .47
Net realized and unrealized gain (loss)                    .41(1)           .32          1.03
..41             3.17

--------------------------------------------------------------------------
Total income (loss)
from investment operations                                 .83              .81          1.54
..91             3.64
----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.48)            (.49)         (.49)
(.49)            (.48)
Distributions from net realized gain                      (.51)           (1.07)        (1.17)
(.79)            (.40)

--------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                           (.99)           (1.56)        (1.66)
(1.28)            (.88)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                          $12.72           $12.88        $13.63
$13.75           $14.12

==========================================================================

==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2)                       6.84%            7.24%        11.03%
6.17%           33.39%
----------------------------------------------------------------------------------------------------------------------------------

==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)            $2,458,272       $2,395,444    $2,926,923
$2,889,472       $2,721,672
----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                   $2,432,151       $2,502,535    $3,156,294
$3,071,928       $2,446,081
----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income                                     3.21%(1)         3.78%         3.51%
3.47%            3.97%
Expenses                                                  0.91%            0.93%         0.89%
0.87%(4)         0.88%(4)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                     74%              37%           40%
18%              24%



1.  Without the adoption of the change in amortization method as discussed in
    Note 1 in the Notes to Financial Statements, these amounts would have been:



Net investment income                                   Unchanged
Net realized and unrealized gain (loss)                 Unchanged
Net investment income ratio                                 3.24%


2.  Assumes a $1,000 hypothetical initial 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.

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

4.  Expense ratio has been calculated without adjustment for the reduction to
    custodian expenses.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       27 OPPENHEIMER CAPITAL INCOME FUND




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




CLASS B         YEAR ENDED AUGUST 31,                  2001             2000          1999
1998             1997
===============================================================================================================================

PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                 $12.76           $13.51        $13.63
$14.01           $11.29
-------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                   .32(1)           .38           .39
..39              .37
NET REALIZED AND UNREALIZED GAIN (LOSS)                 .41(1)           .32          1.03
..40             3.13

--------------------------------------------------------------------------
Total income (loss) from
investment operations                                   .73              .70          1.42
..79             3.50
-------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.38)            (.38)         (.37)
(.38)            (.38)
Distributions from net realized gain                   (.51)           (1.07)        (1.17)
(.79)            (.40)

--------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                        (.89)           (1.45)        (1.54)
(1.17)            (.78)
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                       $12.60           $12.76        $13.51
$13.63           $14.01

==========================================================================

===============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2)                    6.05%            6.34%        10.22%
5.32%           32.17%
-------------------------------------------------------------------------------------------------------------------------------

===============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $477,223         $472,222      $720,721
$634,775         $431,481
-------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $469,690         $546,390      $749,020
$574,986         $344,254
-------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income                                  2.44%(1)         3.01%         2.71%
2.68%            3.16%
Expenses                                               1.68%            1.70%         1.69%
1.67%(4)         1.69%(4)
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                  74%              37%           40%
18%              24%



1.  Without the adoption of the change in amortization method as discussed in
    Note 1 in the Notes to Financial Statements, these amounts would have been:



Net investment income                                       Unchanged
Net realized and unrealized gain (loss)                     Unchanged
Net investment income ratio                                     2.47%


2.  Assumes a $1,000 hypothetical initial 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.

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

4.  Expense ratio has been calculated without adjustment for the reduction to
    custodian expenses.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       28 OPPENHEIMER CAPITAL INCOME FUND






CLASS C          YEAR ENDED AUGUST 31,                2001            2000            1999
1998            1997
==============================================================================================================================

PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                $12.76          $13.50          $13.63
$14.02          $11.30
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                  .32(1)          .38             .39
..39             .40
Net realized and unrealized gain (loss)                .40(1)          .32            1.02
..40            3.12

--------------------------------------------------------------------------
Total income (loss) from
investment operations                                  .72             .70            1.41
..79            3.52
------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                  (.38)           (.37)           (.38)
(.39)           (.40)
Distributions from net realized gain                  (.51)          (1.07)          (1.16)
(.79)           (.40)

--------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders                                       (.89)          (1.44)          (1.54)
(1.18)           (.80)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD                      $12.59          $12.76          $13.50
$13.63          $14.02

==========================================================================

==============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2)                   6.00%           6.40%          10.15%
5.30%          32.31%
------------------------------------------------------------------------------------------------------------------------------

==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)           $89,547         $73,346        $119,284
$94,995         $48,368
------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                  $80,390         $84,898        $119,594
$77,052         $24,514
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income                                 2.44%(1)        3.01%           2.70%
2.68%           3.15%
Expenses                                              1.68%           1.70%           1.69%
1.67%(4)        1.69%(4)
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                 74%             37%             40%
18%             24%



1.  Without the adoption of the change in amortization method as discussed in
    Note 1 in the Notes to Financial Statements, these amounts would have been:



Net investment income                                           Unchanged
Net realized and unrealized gain (loss)                         Unchanged
Net investment income ratio                                         2.47%


2.  Assumes a $1,000 hypothetical initial 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.

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

4.  Expense ratio has been calculated without adjustment for the reduction to
    custodian expenses.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       29 OPPENHEIMER CAPITAL INCOME FUND




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




                                                                              PERIOD ENDED
CLASS N                                                                 AUGUST 31, 2001(1)
=============================================================================================

PER SHARE OPERATING DATA
---------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD                                                $12.96
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                                                  .28 (2)
Net realized and unrealized gain (loss)                                               (.30)(2)
                                                                                    ---------
Total income (loss) from
investment operations                                                                 (.02)
---------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                                                  (.25)
Distributions from net realized gain                                                    --
                                                                                    ---------
Total dividends and/or distributions
to shareholders                                                                       (.25)
---------------------------------------------------------------------------------------------
Net asset value, end of period                                                      $12.69
                                                                                    =========

=============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3)                                                  (0.18)%
---------------------------------------------------------------------------------------------

=============================================================================================
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                                              $648
---------------------------------------------------------------------------------------------
Average net assets (in thousands)                                                     $214
---------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income                                                                 2.94%(2)
Expenses                                                                              1.17%
---------------------------------------------------------------------------------------------
Portfolio turnover rate                                                                 74%




1.  For the period from March 1, 2001 (inception of offering) to August 31,
    2001.

2.  Without the adoption of the change in amortization method as discussed in
    Note 1 in the Notes to Financial Statements, these amounts would have been:



Net investment income                                           Unchanged
Net realized and unrealized gain (loss)                         Unchanged
Net investment income ratio                                         2.97%


3.  Assumes a $1,000 hypothetical initial investment on the business day before
    the first day of the fiscal period (or inception of offering), 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.

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

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                       30 OPPENHEIMER CAPITAL INCOME FUND


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


================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
     The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights to earnings, assets and voting privileges, except
that each class has its own expenses directly attributable to that class and
exclusive voting rights with respect to matters affecting that class. Classes A,
B, C and N have separate distribution and/or service plans. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
--------------------------------------------------------------------------------
SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values and
redemption prices are linked to the market value of specific securities. The
structured notes are leveraged, which increases the Fund's exposure to changes
in prices of the underlying securities and increases the volatility of each
note's market value relative to the change in the underlying security prices.
Fluctuations in value of these securities are recorded as unrealized gains and
losses in the accompanying financial statements. The Fund records a realized
gain or loss when a structured note is sold or matures. As of August 31, 2001,
the market value of these securities comprised 0.7% of the Fund's net assets,
and resulted in unrealized gains in the current period of $1,817,166.



                       31 OPPENHEIMER CAPITAL INCOME FUND




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


================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS. Delivery and
payment for securities that have been purchased by the Fund on a when-issued
basis can take place a month or more after the trade date. Normally the
settlement date occurs within six months after the trade date; however, the Fund
may, from time to time, purchase securities whose settlement date extends beyond
six months or more beyond trade date. During this period, such securities do not
earn interest, are subject to market fluctuation and may increase or decrease in
value prior to their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its purchase commitments.
The purchase of securities on a when-issued or forward commitment basis may
increase the volatility of the Fund's net asset value to the extent the Fund
makes such purchases while remaining substantially fully invested. As of August
31, 2001, the Fund had entered into outstanding net when-issued or forward
commitments of $147,755,410.
     In connection with its ability to purchase securities on a when-issued
basis, the Fund may enter into mortgage dollar-rolls in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The Fund records each
dollar-roll as a sale and a new purchase transaction.
--------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
     The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires its custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily 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.



                       32 OPPENHEIMER CAPITAL INCOME FUND




--------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
CLASSIFICATION OF DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes primarily because of the recognition of certain foreign
currency gains (losses) as ordinary income (loss) for 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 realized gain was
recorded by the Fund.
     The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended August 31, 2001, amounts have been reclassified to reflect an
increase in paid-in capital of $7,018,298, an increase in undistributed net
investment income of $322,898, and a decrease in accumulated net realized gain
on investments of $7,341,196. This reclassification includes $7,018,298
distributed in connection with Fund share redemptions which increased paid-in
capital and reduced accumulated net realized gain. Net assets of the Fund were
unaffected by the reclassifications.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
OTHER. The Fund adopted the provisions of the AICPA Audit and Accounting Guide
for Investment Companies, as revised, effective for fiscal years beginning after
December 15, 2000. The Fund elected to begin amortizing premiums on debt
securities effective January 1, 2001. Prior to this date, the Fund did not
amortize premiums on debt securities. The cumulative effect of this accounting
change had no impact on the total net assets of the Fund, but resulted in a
$1,761,642 decrease to cost of securities and a corresponding $1,761,642
increase in net unrealized appreciation, based on securities held as of December
31, 2000. For the year ended August 31, 2001, interest income decreased by



                       33 OPPENHEIMER CAPITAL INCOME FUND




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


================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
$846,086, net realized gain on investments decreased by $1,068,218, and the
change in net unrealized depreciation on investments decreased by $1,914,304.
     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.

================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:



                                          YEAR ENDED AUGUST 31, 2001(1)                YEAR ENDED AUGUST 31, 2000
                                            SHARES               AMOUNT               SHARES               AMOUNT
-------------------------------------------------------------------------------------------------------------------

CLASS A
Sold                                    19,693,851        $ 253,926,557           19,575,634        $ 241,088,319
Dividends and/or
distributions reinvested                13,680,385          168,977,357           25,370,714          299,536,203
Redeemed                               (26,145,434)        (334,782,975)         (73,658,611)        (888,956,691)

----------------------------------------------------------------------------
Net increase (decrease)                  7,228,802        $  88,120,939          (28,712,263)       $(348,332,169)

============================================================================

-------------------------------------------------------------------------------------------------------------------
CLASS B
Sold                                     7,837,432        $  99,951,476            5,302,692        $  64,844,082
Dividends and/or
distributions reinvested                 2,479,247           30,352,277            5,572,573           65,132,048
Redeemed                                (9,451,946)        (120,611,133)         (27,234,627)        (328,736,892)

----------------------------------------------------------------------------
Net increase (decrease)                    864,733        $   9,692,620          (16,359,362)       $(198,760,762)

============================================================================

-------------------------------------------------------------------------------------------------------------------
CLASS C
Sold                                     3,211,146        $  41,111,852            1,053,764        $  13,049,521
Dividends and/or
distributions reinvested                   401,329            4,914,815              882,449           10,315,715
Redeemed                                (2,251,323)         (28,689,495)          (5,023,386)         (60,664,185)

----------------------------------------------------------------------------
Net increase (decrease)                  1,361,152        $  17,337,172           (3,087,173)       $ (37,298,949)

============================================================================

-------------------------------------------------------------------------------------------------------------------
CLASS N
Sold                                        50,932        $     658,442                   --        $          --
Dividends and/or
distributions reinvested                       103                1,341                   --                   --
Redeemed                                        --                   --                   --                   --

----------------------------------------------------------------------------
Net increase (decrease)                     51,035        $     659,783                   --        $          --

============================================================================



1.   For the year ended August 31, 2001, for Class A, B and C shares and for the
     period from March 1, 2001 (inception of offering) to August 31, 2001, for
     Class N shares.



                       34 OPPENHEIMER CAPITAL INCOME FUND





================================================================================
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2001, were
$2,426,890,936 and $2,243,512,209, respectively.

As of August 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $2,576,810,842 was:



     Gross unrealized appreciation                      $ 714,693,283
     Gross unrealized depreciation                       (144,298,280)
                                                        -------------
     Net unrealized appreciation (depreciation)         $ 570,395,003
                                                        =============



================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.75% of
the first $100 million of average annual net assets, 0.70% of the next $100
million, 0.65% of the next $100 million, 0.60% of the next $100 million, 0.55%
of the next $100 million and 0.50% of average annual net assets in excess of
$500 million. The Fund's management fee for the year ended August 31, 2001, was
an annualized rate of 0.52%.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS an agreed-upon per account fee.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.

The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.



                           AGGREGATE         CLASS A        COMMISSIONS        COMMISSIONS      COMMISSIONS
COMMISSIONS
                           FRONT-END       FRONT-END         ON CLASS A         ON CLASS B       ON CLASS
C        ON CLASS N
                       SALES CHARGES   SALES CHARGES             SHARES             SHARES
SHARES            SHARES
                          ON CLASS A     RETAINED BY        ADVANCED BY        ADVANCED BY      ADVANCED BY
ADVANCED BY
YEAR ENDED                    SHARES     DISTRIBUTOR     DISTRIBUTOR(1)     DISTRIBUTOR(1)   DISTRIBUTOR(1)
DISTRIBUTOR(1)
-------------------------------------------------------------------------------------------------------------------------------

August 31, 2001           $2,709,328        $813,198           $286,624         $2,326,642         $173,514
$6,563


1.   The Distributor advances commission payments to dealers for certain sales
     of Class A shares and for sales of Class B, Class C and Class N shares from
     its own resources at the time of sale.



                                             CLASS A            CLASS B           CLASS C           CLASS N
                                          CONTINGENT         CONTINGENT        CONTINGENT        CONTINGENT
                                            DEFERRED           DEFERRED          DEFERRED          DEFERRED
                                       SALES CHARGES      SALES CHARGES     SALES CHARGES     SALES CHARGES
                                         RETAINED BY        RETAINED BY       RETAINED BY       RETAINED BY
YEAR ENDED                               DISTRIBUTOR        DISTRIBUTOR       DISTRIBUTOR       DISTRIBUTOR
-------------------------------------------------------------------------------------------------------------

August 31, 2001                               $7,594           $643,432           $24,027               $--




                       35 OPPENHEIMER CAPITAL INCOME FUND




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


================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
     The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B, Class C and Class N shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
--------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended August 31, 2001, payments
under the Class A plan totaled $5,698,019, all of which were paid by the
Distributor to recipients, and included $370,332 paid to an affiliate of the
Manager. Any unreimbursed expenses the Distributor incurs with respect to Class
A shares in any fiscal year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
CLASS B, CLASS C AND CLASS N DISTRIBUTION AND SERVICE PLAN FEES. Under each
plan, service fees and distribution 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. The Class B, Class C and Class N
plans provide for the Distributor to be compensated at a flat rate, whether the
Distributor's distribution expenses are more or less than the amounts paid by
the Fund under the plan during the period for which the fee is paid.
     The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The Distributor retains the asset-based
sales charge on Class N shares. 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.
     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 asset-based sales charges from
the Fund under the plans. If any plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.



                       36 OPPENHEIMER CAPITAL INCOME FUND




Distribution fees paid to the Distributor for the year ended August 31, 2001,
were as follows:



                                                                                  DISTRIBUTOR'S
                                                                DISTRIBUTOR'S         AGGREGATE
                                                                    AGGREGATE      UNREIMBURSED
                                                                 UNREIMBURSED     EXPENSES AS %
                             TOTAL PAYMENTS  AMOUNT RETAINED         EXPENSES     OF NET ASSETS
                                 UNDER PLAN   BY DISTRIBUTOR       UNDER PLAN          OF CLASS
-------------------------------------------------------------------------------------------------

Class B Plan                     $4,692,665       $3,631,050      $11,679,144              2.45%
Class C Plan                        802,801           97,524        1,835,823              2.05
Class N Plan                            530              337               --                --



================================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
     The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided by
a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities as a receivable or payable and in the Statement of
Operations with the change in unrealized appreciation or depreciation.
     The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Such realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.


================================================================================
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
     The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
     Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.



                       37 OPPENHEIMER CAPITAL INCOME FUND





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


================================================================================
6. OPTION ACTIVITY Continued
     Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
     The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.

Written option activity for the year ended August 31, 2001, was as follows:



                                                CALL OPTIONS                        PUT OPTIONS
                                 -----------------------------------------------------------------
                                  NUMBER OF        AMOUNT OF        NUMBER OF         AMOUNT OF
                                  CONTRACTS         PREMIUMS        CONTRACTS          PREMIUMS
--------------------------------------------------------------------------------------------------

Options outstanding as of
August 31, 2000                      10,000     $  4,440,182              291       $   475,623
Options written                     112,191       24,138,451           45,429        13,892,033
Options closed or expired           (93,891)     (24,070,668)         (34,564)       (9,379,793)
Options exercised                    (2,275)        (739,482)          (4,310)       (3,021,740)
                                 -----------------------------------------------------------------
Options outstanding as of
August 31, 2001                      26,025     $  3,768,483            6,846       $ 1,966,123
                                 =================================================================



================================================================================
7. ILLIQUID OR RESTRICTED SECURITIES
As of August 31, 2001, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of August 31, 2001, was $80,252,489,
which represents 2.65% of the Fund's net assets, of which $40,044,600 is
considered restricted. Information concerning restricted securities is as
follows:



                                                                       VALUATION        UNREALIZED
                                                                           AS OF      APPRECIATION
SECURITY                     ACQUISITION DATE             COST   AUGUST 31, 2001    (DEPRECIATION)
----------------------------------------------------------------------------------------------------

BONDS
CSK Auto Corp.,
7% Cv. Sub. Nts., 8/1/06              8/14/01      $30,000,000       $40,044,600       $10,044,600




                       38 OPPENHEIMER CAPITAL INCOME FUND




================================================================================
8. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
     The Fund had no borrowings outstanding during the year ended or at August
31, 2001.



                       39 OPPENHEIMER CAPITAL INCOME FUND














                                                                  A-5
                                                              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.
---------------------------------------------------------------------------------------------------------------------------------------

Long-Term (Taxable) Bond Ratings

Aaa: Bonds 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  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 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 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 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 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 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 rated "Ca"  represent  obligations  which are  speculative  in a high degree.  Such issues are often in default or have other
marked shortcomings.

C: Bonds 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.

Con.  (...):  Bonds  for which the  security  depends  on the  completion  of some act or the  fulfillment  of some  condition  are rated
conditionally.  These bonds are secured by (a)  earnings  of  projects  under  construction,  (b)  earnings of projects  unseasoned  in
operating  experience,  (c) rentals that begin when  facilities are completed,  or (d) payments to which some other limiting  condition
attaches.  The parenthetical  rating denotes probable credit stature upon completion of construction or elimination of the basis of the
condition.

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.

Short-Term Ratings - Taxable Debt

These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not exceeding one year:

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 Rating Services
---------------------------------------------------------------------------------------------------------------------------------------

Long-Term Credit Ratings

AAA: Bonds 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: Bonds 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: Bonds 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: Bonds 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

Bonds 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:  Bonds  rated  "BB"  are less  vulnerable  to  nonpayment  than  other  speculative  issues.  However,  these  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: Bonds 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: Bonds 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:  Bonds rated "CC" are currently highly vulnerable to nonpayment.

C: A subordinated  debt or preferred stock  obligation rated "C" is 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  has been  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: Bonds rated "D" are in default.  Payments on the obligation  are not being made on the date due even if the applicable  grace period
has not expired,  unless  Standard and Poor's  believes that such  payments will be made during such grace period.  The "D" rating will
also 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. The "r" symbol is attached to the ratings of instruments with significant noncredit risks.

Short-Term Issue Credit Ratings

A-1:  Obligation is rated in the highest  category.  The  obligor's  capacity to meet its  financial  commitment  on the  obligation is
strong.  Within this  category,  a plus (+) sign  designation  indicates  the obligor's  capacity to meet its  financial  obligation is
extremely strong.

A-2:  Obligation  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: Obligation  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:  Obligation  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: Obligation 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:  Obligation  is in payment  default.  Payments on the  obligation  have not been made on the due date even if the  applicable  grace
period has not expired,  unless Standard and Poor's  believes that such payments will be made during such grace period.  The "D" rating
will also be used upon the  filing of a  bankruptcy  petition  or the  taking of a similar  action if  payments  on an  obligation  are
jeopardized.

Fitch, Inc.
---------------------------------------------------------------------------------------------------------------------------------------

International Long-Term Credit 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

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.

1Messrs. Murphy, Bowen, Cameron and Marshall are not Directors of Panorama Series Fund, Inc. Messrs. Armstrong, Bowen, Cameron,
Fossel and Marshall are not Managing General Partners of Centennial America Fund, L.P. Mr. Murphy is not a Trustee or Managing
General Partner of any of the Centennial Trusts.
2 In  accordance  with Rule 12b-1 of the  Investment  Company Act, the term  "Independent  Trustees"  in this  Statement of  Additional
Information  refers  to those  Trustees  who are not  "interested  persons"  of the Fund and who do not  have any  direct  or  indirect
financial interest in the operation of the distribution plan or any agreement under the plan.
1 Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.
2 In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred
sales charges mean the Fund's Early Withdrawal Charges and references to "redemptions" mean "repurchases" of shares.
3 An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the Internal Revenue Code, under
which Class N shares of an Oppenheimer fund or funds are purchased by a fiduciary or other administrator for the account of
participants who are employees of a single employer or of affiliated employers. These may include, for example, medical savings
accounts, payroll deduction plans or similar plans. The fund accounts must be registered in the name of the fiduciary or
administrator purchasing the shares for the benefit of participants in the plan.
4 The term "Group Retirement Plan" means any qualified or non-qualified retirement plan for employees of a corporation or sole
proprietorship, members and employees of a partnership or association or other organized group of persons (the members of which may
include other groups), if the group has made special arrangements with the Distributor and all members of the group participating in
(or who are eligible to participate in) the plan purchase shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group Retirement Plan" also includes qualified retirement plans
and non-qualified deferred compensation plans and IRAs that purchase shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution that has made special arrangements with the Distributor.
5 However, that concession will not be paid on purchases of shares in amounts of $1 million or more (including any right of
accumulation) by a Retirement Plan that pays for the purchase with the redemption proceeds of Class C shares of one or more
Oppenheimer funds held by the Plan for more than one year.
6 This provision does not apply to IRAs.
7 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
8 The distribution must be requested prior to Plan termination or the elimination of the Oppenheimer funds as an investment option
under the Plan.
9 This provision does not apply to IRAs.
10 This provision does not apply to loans from 403(b)(7) custodial plans.
11 This provision does not apply to 403(b)(7) custodial plans if the participant is less tha






                                                                  B-1
                                                              Appendix B

                                                       Industry Classifications

Aerospace/Defense                                           Food and Drug Retailers
Air Transportation                                          Gas Utilities
Asset-Backed                                                Health Care/Drugs
Auto Parts and Equipment                                    Health Care/Supplies & Services
Automotive                                                  Homebuilders/Real Estate
Bank Holding Companies                                      Hotel/Gaming
Banks                                                       Industrial Services
Beverages                                                   Information Technology
Broadcasting                                                Insurance
Broker-Dealers                                              Leasing & Factoring
Building Materials                                          Leisure
Cable Television                                            Manufacturing
Chemicals                                                   Metals/Mining
Commercial Finance                                          Nondurable Household Goods
Communication Equipment                                     Office Equipment
Computer Hardware                                           Oil - Domestic
Computer Software                                           Oil - International
Conglomerates                                               Paper
Consumer Finance                                            Photography
Consumer Services                                           Publishing
Containers                                                  Railroads & Truckers
Convenience Stores                                          Restaurants
Department Stores                                           Savings & Loans
Diversified Financial                                       Shipping
Diversified Media                                           Special Purpose Financial
Drug Wholesalers                                            Specialty Printing
Durable Household Goods                                     Specialty Retailing
Education                                                   Steel
Electric Utilities                                          Telecommunications - Long Distance
Electrical Equipment                                        Telephone - Utility
Electronics                                                 Textile, Apparel & Home Furnishings
Energy Services                                             Tobacco
Entertainment/Film                                          Trucks and Parts
Environmental                                               Wireless Services
Food








                                                                 C-13
                                                              Appendix C

                                    OppenheimerFunds Special Sales Charge Arrangements and Waivers
                                    --------------------------------------------------------------

In certain cases, the initial sales charge that applies to purchases of Class A shares1 of the Oppenheimer funds or the contingent
deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.2  That is because of the economies of sales
efforts realized by OppenheimerFunds Distributor, Inc., (referred to in this document as the "Distributor"), or by dealers or other
financial institutions that offer those shares to certain classes of investors.

Not all waivers apply to all funds. For example, waivers relating to Retirement Plans do not apply to Oppenheimer municipal funds,
because shares of those funds are not available for purchase by or on behalf of retirement plans. Other waivers apply only to
shareholders of certain funds.

For the purposes of some of the waivers described below and in the Prospectus and Statement of Additional Information of the
applicable Oppenheimer funds, the term "Retirement Plan" refers to the following types of plans:
              1)  plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,
              2)  non-qualified deferred compensation plans,
              3)  employee benefit plans3
              4)  Group Retirement Plans4
              5)  403(b)(7) custodial plan accounts
              6)  Individual Retirement Accounts ("IRAs"), including traditional IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

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

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

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

         There is no initial sales charge on purchases of Class A shares of any of the Oppenheimer funds in the cases listed below.
However, these purchases may be subject to the Class A contingent deferred sales charge if redeemed within 18 months (24 months in
the case of Oppenheimer Rochester National Municipals and Rochester Fund Municipals) of the beginning of the calendar month of their
purchase, as described in the Prospectus (unless a waiver described elsewhere in this Appendix applies to the redemption).
Additionally, on shares purchased under these waivers that are subject to the Class A contingent deferred sales charge, the
Distributor will pay the applicable concession described in the Prospectus under "Class A Contingent Deferred Sales Charge."5 This
waiver provision applies to:
|_|      Purchases of Class A shares aggregating $1 million or more.
|_|      Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset value but subject
              to a contingent deferred sales charge prior to March 1, 2001. That included plans (other than IRA or 403(b)(7) Custodial
              Plans) that: 1) bought shares costing $500,000 or more, 2) had at the time of purchase 100 or more eligible employees or
              total plan assets of $500,000 or more, or 3) certified to the Distributor that it projects to have annual plan purchases
              of $200,000 or more.
|_|      Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases are made:
              1)  through a broker, dealer, bank or registered investment adviser that has made special arrangements with the
                  Distributor for those purchases, or
              2)  by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that Plan has made
                  special arrangements with the Distributor for those purchases.
|_|      Purchases of Class A shares by Retirement Plans that have any of the following record-keeping arrangements:
              1)  The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch") on a daily valuation
                  basis for the Retirement Plan. On the date the plan sponsor signs the record-keeping service agreement with Merrill
                  Lynch, the Plan must have $3 million or more of its assets invested in (a) mutual funds, other than those advised or
                  managed by Merrill Lynch Investment Management, L.P. ("MLIM"), that are made available under a Service Agreement
                  between Merrill Lynch and the mutual fund's principal underwriter or distributor, and  (b)  funds advised or managed
                  by MLIM (the funds described in (a) and (b) are referred to as "Applicable Investments").
              2)  The record keeping for the Retirement Plan is performed on a daily valuation basis by a record keeper whose services
                  are provided under a contract or arrangement between the Retirement Plan and Merrill Lynch. On the date the plan
                  sponsor signs the record keeping service agreement with Merrill Lynch, the Plan must have $3 million or more of its
                  assets (excluding assets invested in money market funds) invested in Applicable Investments.
              3)  The record keeping for a Retirement Plan is handled under a service agreement with Merrill Lynch and on the date the
                  plan sponsor signs that agreement, the Plan has 500 or more eligible employees (as determined by the Merrill Lynch
                  plan conversion manager).
|_|      Purchases by a Retirement  Plan whose  record  keeper had a  cost-allocation  agreement  with the Transfer  Agent on or before
              March 1, 2001.
I.                                           Waivers of Class A Sales Charges of Oppenheimer Funds
---------------------------------------------------------------------------------------------------------------------------------------

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

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

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

Class A shares issued or purchased in the following transactions are not subject to sales charges (and no concessions are paid by the
Distributor on such purchases):
|_|      Shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the Fund is a
              party.
|_|      Shares purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other Oppenheimer funds
              (other than Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment arrangements have been made with
              the Distributor.
|_|      Shares purchased through a broker-dealer that has entered into a special agreement with the Distributor to allow the
              broker's customers to purchase and pay for shares of Oppenheimer funds using the proceeds of shares redeemed in the
              prior 30 days from a mutual fund (other than a fund managed by the Manager or any of its subsidiaries) on which an
              initial sales charge or contingent deferred sales charge was paid. This waiver also applies to shares purchased by
              exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid for in this manner. This waiver
              must be requested when the purchase order is placed for shares of the Fund, and the Distributor may require evidence of
              qualification for this waiver.
|_|      Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid Trust Series.
|_|      Shares purchased by the reinvestment of loan repayments by a participant in a Retirement Plan for which the Manager or an
              affiliate acts as sponsor.

C.   Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.

The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the contingent deferred
sales charge are redeemed in the following cases:
|_|      To make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the account value adjusted
              annually.
|_|      Involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (please refer to
              "Shareholder Account Rules and Policies," in the applicable fund Prospectus).
|_|      For distributions from Retirement Plans, deferred compensation plans or other employee benefit plans for any of the
              following purposes:
              1)  Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The
                  death or disability must occur after the participant's account was established.
              2)  To return excess contributions.
              3)  To return contributions made due to a mistake of fact.
              4)  Hardship withdrawals, as defined in the plan.6
              5)  Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of an IRA, a
                  divorce or separation agreement described in Section 71(b) of the Internal Revenue Code.
              6)  To meet the minimum distribution requirements of the Internal Revenue Code.
              7)  To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
              8)  For loans to participants or beneficiaries.
              9)  Separation from service.7
              10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a
                  subsidiary of the Manager) if the plan has made special arrangements with the Distributor.
              11) Plan termination or "in-service distributions," if the redemption proceeds are rolled over directly to an
                  OppenheimerFunds-sponsored IRA.
|_|      For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special agreement with the
              Distributor allowing this waiver.
|_|      For distributions from retirement plans that have $10 million or more in plan assets and that have entered into a special
              agreement with the Distributor.
|_|      For distributions from retirement plans which are part of a retirement plan product or platform offered by certain banks,
              broker-dealers, financial advisors, insurance companies or record keepers which have entered into a special agreement
              with the Distributor.
II.                                Waivers of Class B, Class C and Class N Sales Charges of Oppenheimer Funds
---------------------------------------------------------------------------------------------------------------------------------------

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

A.   Waivers for Redemptions in Certain Cases.

The Class B, Class C and Class N contingent deferred sales charges will be waived for redemptions of shares in the following cases:
|_|      Shares redeemed involuntarily, as described in "Shareholder Account Rules and Policies," in the applicable Prospectus.
|_|      Redemptions from accounts other than Retirement Plans following the death or disability of the last surviving shareholder,
              including a trustee of a grantor trust or revocable living trust for which the trustee is also the sole beneficiary. The
              death or disability must have occurred after the account was established, and for disability you must provide evidence
              of a determination of disability by the Social Security Administration.
|_|      Distributions from accounts for which the broker-dealer of record has entered into a special agreement with the Distributor
              allowing this waiver.
|_|      Redemptions of Class B shares held by Retirement Plans whose records are maintained on a daily valuation basis by Merrill
              Lynch or an independent record keeper under a contract with Merrill Lynch.
|_|      Redemptions of Class C shares of Oppenheimer U.S. Government Trust from accounts of clients of financial institutions that
              have entered into a special arrangement with the Distributor for this purpose.
|_|      Redemptions requested in writing by a Retirement Plan sponsor of Class C shares of an Oppenheimer fund in amounts of
              $500,000 or more and made more than 12 months after the Retirement Plan's first purchase of Class C shares, if the
              redemption proceeds are invested in Class N shares of one or more Oppenheimer funds.
|_|      Distributions8 from Retirement Plans or other employee benefit plans for any of the following purposes:
              1)  Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The
                  death or disability must occur after the participant's account was established in an Oppenheimer fund.
              2)  To return excess contributions made to a participant's account.
              3)  To return contributions made due to a mistake of fact.
              4)  To make hardship withdrawals, as defined in the plan.9
              5)  To make distributions required under a Qualified Domestic Relations Order or, in the case of an IRA, a divorce or
                  separation agreement described in Section 71(b) of the Internal Revenue Code.
              6)  To meet the minimum distribution requirements of the Internal Revenue Code.
              7)  To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
              8)  For loans to participants or beneficiaries.10
              9)  On account of the participant's separation from service.11
              10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a
                  subsidiary of the Manager) offered as an investment option in a Retirement Plan if the plan has made special
                  arrangements with the Distributor.
              11) Distributions made on account of a plan termination or "in-service" distributions, if the redemption proceeds are
                  rolled over directly to an OppenheimerFunds-sponsored IRA.
              12) For distributions from a participant's account under an Automatic Withdrawal Plan after the participant reaches age
                  59 1/2, as long as the aggregate value of the distributions does not exceed 10% of the account's value, adjusted
                  annually.
              13) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a Retirement Plan, if the
                  aggregate value of the redeemed shares does not exceed 10% of the account's value, adjusted annually.
              14) For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special arrangement with
                  the Distributor allowing this waiver.
|_|      Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account other than a Retirement
              Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's value annually.

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

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

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


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

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

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

A.   Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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



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

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

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

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

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

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

         A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on the redemption of
any Class A, Class B or Class C shares of the Oppenheimer fund described in this section if the proceeds are invested in the same
Class of shares in that fund or another Oppenheimer fund within 90 days after redemption.
IV.       Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds Who Were Shareholders of Connecticut Mutual
                                                        Investment Accounts, Inc.
-----------------------------------------------------------------------------------------------------------------------------------------

The initial and contingent deferred sale charge rates and waivers for Class A and Class B shares described in the respective
Prospectus (or this Appendix) of the following Oppenheimer funds (each is referred to as a "Fund" in this section):
     Oppenheimer U. S. Government Trust,
     Oppenheimer Bond Fund,
     Oppenheimer Value Fund and
     Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the following funds (referred to as the "Former
Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut
Mutual Funds:
     Connecticut Mutual Liquid Account                          Connecticut Mutual Total Return Account
     Connecticut Mutual Government Securities Account           CMIA LifeSpan Capital Appreciation Account
     Connecticut Mutual Income Account                          CMIA LifeSpan Balanced Account
     Connecticut Mutual Growth Account                          CMIA Diversified Income Account

A.   Prior Class A CDSC and Class A Sales Charge Waivers.

|X|      Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other Former Connecticut Mutual Funds are
entitled to continue to make additional purchases of Class A shares at net asset value without a Class A initial sales charge, but
subject to the Class A contingent deferred sales charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC"). Under
the prior Class A CDSC, if any of those shares are redeemed within one year of purchase, they will be assessed a 1% contingent
deferred sales charge on an amount equal to the current market value or the original purchase price of the shares sold, whichever is
smaller (in such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).

         Those shareholders who are eligible for the prior Class A CDSC are:
              1)  persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were $500,000 prior to
                  March 18, 1996, as a result of direct purchases or purchases pursuant to the Fund's policies on Combined Purchases
                  or Rights of Accumulation, who still hold those shares in that Fund or other Former Connecticut Mutual Funds, and
              2)  persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996, with the
                  former general distributor of the Former Connecticut Mutual Funds to purchase shares valued at $500,000 or more over
                  a 13-month period entitled those persons to purchase shares at net asset value without being subject to the Class A
                  initial sales charge


         Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at net asset value
prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares are purchased by those shareholders at
net asset value pursuant to this arrangement they will be subject to the prior Class A CDSC.

|X|      Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales charge, by a person who
was in one (or more) of the categories below and acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
              1)  any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former Connecticut
                  Mutual Funds totaled $500,000 or more, including investments made pursuant to the Combined Purchases, Statement of
                  Intention and Rights of Accumulation features available at the time of the initial purchase and such investment is
                  still held in one or more of the Former Connecticut Mutual Funds or a Fund into which such Fund merged;
              2)  any participant in a qualified plan, provided that the total initial amount invested by the plan in the Fund or any
                  one or more of the Former Connecticut Mutual Funds totaled $500,000 or more;
              3)  Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their immediate
                  families;
              4)  employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior distributor of
                  the Former Connecticut Mutual Funds, and its affiliated companies;
              5)  one or more members of a group of at least 1,000 persons (and persons who are retirees from such group) engaged in a
                  common business, profession, civic or charitable endeavor or other activity, and the spouses and minor dependent
                  children of such persons, pursuant to a marketing program between CMFS and such group; and
              6)  an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was directly
                  compensated by the individual(s) for recommending the purchase of the shares of the Fund or any one or more of the
                  Former Connecticut Mutual Funds, provided the institution had an agreement with CMFS.

         Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the Former Connecticut
Mutual Funds described above.

         Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a variable annuity contract
issued in New York State by Connecticut Mutual Life Insurance Company through the Panorama Separate Account which is beyond the
applicable surrender charge period and which was used to fund a qualified plan, if that holder exchanges the variable annuity
contract proceeds to buy Class A shares of the Fund.

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

In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales charge will be
waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B shares of a Fund into Class A or
Class B shares of a Former Connecticut Mutual Fund provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by exchange from an Oppenheimer fund that was a Former
Connecticut Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18,
1996:
     1)  by the estate of a deceased shareholder;
     2)  upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;
     3)  for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified under Sections
         401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created under Section 457 of the Code, or other
         employee benefit plans;
     4)  as tax-free returns of excess contributions to such retirement or employee benefit plans;
     5)  in whole or in part, in connection with shares sold to any state, county, or city, or any instrumentality, department,
         authority, or agency thereof, that is prohibited by applicable investment laws from paying a sales charge or concession in
         connection with the purchase of shares of any registered investment management company;
     6)  in connection with the redemption of shares of the Fund due to a combination with another investment company by virtue of a
         merger, acquisition or similar reorganization transaction;
     7)  in connection with the Fund's right to involuntarily redeem or liquidate the Fund;
     8)  in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan accounts pursuant
         to an Automatic Withdrawal Plan but limited to no more than 12% of the original value annually; or
     9)  as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund's Articles of
         Incorporation, or as adopted by the Board of Directors of the Fund.
V.                            Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.
---------------------------------------------------------------------------------------------------------------------------------------

Shareholders of Oppenheimer Municipal Bond Fund, 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%.
VI.                      Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer Convertible Securities Fund
---------------------------------------------------------------------------------------------------------------------------------------

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






Oppenheimer Capital Income Fund

Internet Web Site:
         WWW.OPPENHEIMERFUNDS.COM
         ------------------------

Investment Adviser
         OppenheimerFunds, Inc.
         498 Seventh Avenue
         New York, New York 10018

Distributor
         OppenheimerFunds Distributor, Inc.
         498 Seventh Avenue
         New York, New York 10018

Transfer Agent
         OppenheimerFunds Services
         P.O. Box 5270
         Denver, Colorado 80217-5270
         1-800-525-7048

Custodian Bank
         The Bank of New York
         One Wall Street
         New York, New York 10015

Independent Auditors
         Deloitte & Touche LLP
         555 Seventeenth Street, Suite 3600
         Denver, Colorado 80202-3942

Legal Counsel
         Myer, Swanson, Adams & Wolf, P.C.
         1600 Broadway
         Denver, Colorado 80202
1234

PX0300SAI.1201revised.0502