Revised SAI

497 1 sai.htm REVISED SAI Revised SAI

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

Statement of Additional Information dated November 24, 2004, revised
February 2, 2005

This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 24, 2004. It should be read
together with the Prospectus. You can obtain the Prospectus by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217, or by calling the Transfer Agent at the toll-free number shown
above, or by downloading it from the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.

Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 13
Other Investment Restrictions...................................... 35
How the Fund is Managed ............................................... 37
Organization and History........................................... 37
Board of Trustees and Oversight Committees......................... 38
Trustees and Officers of the Fund.................................. 39
The Manager........................................................ 46
Brokerage Policies of the Fund......................................... 49
Distribution and Service Plans......................................... 52
Performance of the Fund................................................ 57

About Your Account
How To Buy Shares...................................................... 62
How To Sell Shares..................................................... 72
How To Exchange Shares................................................. 77
Dividends, Capital Gains and Taxes..................................... 81
Additional Information About the Fund.................................. 85

Financial Information About the Fund
Independent Registered Public Accounting Firm's Report................. 87
Financial Statements................................................... 88

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

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ABOUT THE FUND
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Additional Information About the Fund's Investment Policies and Risks

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

The Fund's Investment Policies.

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

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

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

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

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

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

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

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

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

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

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

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

(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation
in the price of the issuer's common stock.

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

|_| Rights and Warrants. As a fundamental policy, the Fund cannot
invest more than 5% of its total assets in warrants nor more than 2% of that
amount in warrants that are not listed on the New York or American Stock
Exchanges. That limit does not apply to warrants and rights the Fund has
acquired as part of units of securities or that are attached to other securities
that the Fund buys.

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

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

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

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

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

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

The Fund may invest up to 35% of its total assets in "lower-grade" debt
securities. "Lower-grade" debt securities are those rated below "investment
grade" which means they have a rating lower than "Baa" by Moody's or lower than
"BBB" by Standard & Poor's or similar ratings by other rating organizations.
If they are unrated, and are determined by the Manager to be of comparable
quality to debt securities rated below investment grade, they are included in
the limitation on the percentage of the Fund's assets that can be invested in
lower-grade securities. The Fund can invest in securities rated as low as "C" or
"D" or which are in default at the time the Fund buys them.

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

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

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

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

Fluctuations in the market value of fixed-income securities after the Fund
buys them will not affect the interest payable on those securities, nor the cash
income from them. However, those price fluctuations will be reflected in the
valuations of the securities, and therefore the Fund's net asset values will be
affected by those fluctuations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

|X| Portfolio Turnover. The Fund can engage in short-term trading to try
to achieve its objective. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. The Fund's portfolio turnover rate will fluctuate
from year to year.

Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.

The Fund's portfolio turnover rate decreased significantly compared to its
previous fiscal year. The Fund's portfolio managers began managing the Fund in
January 2003. During the Fund's 2003 fiscal year, the portfolio managers of the
equity portion of the Fund reduced the Fund's holdings significantly, consistent
with their management style. In addition, the portfolio managers of the fixed
income portion of the Fund had entered into an increased number of forward roll
transactions, due to their belief that the market offered attractive return
potential to do so. These changes increased portfolio turnover for the Fund's
fiscal year 2003. Because the portfolio managers made these investment changes
primarily in the previous fiscal year, the Fund's portfolio turnover rate
decreased significantly for the Fund's fiscal year 2004 compared with fiscal
year 2003.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

|X| Investment in Other Investment Companies. The Fund can also invest in
the securities of other investment companies, which can include open-end funds,
closed-end funds and unit investment trusts, subject to the limits set forth in
the Investment Company Act of 1940 (the "Investment Company Act") that apply to
those types of investments. For example, the Fund can invest in Exchange-Traded
Funds, which are typically open-end funds or unit investment trusts, listed on a
stock exchange. The Fund might do so as a way of gaining exposure to the
segments of the equity or fixed-income markets represented by the
Exchange-Traded Funds' portfolio, at times when the Fund may not be able to buy
those portfolio securities directly.

Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company's portfolio
securities and is subject to limitations under the Investment Company Act. The
Fund does not intend to invest in other investment companies unless the Manager
believes that the potential benefits of the investment justify the payment of
any premiums or sales charges. As a shareholder of an investment company, the
Fund would be subject to its ratable share of that investment company's
expenses, including its advisory and administration expenses. The Fund does not
anticipate investing a substantial amount of its net assets in shares of other
investment companies.

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

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

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

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

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

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

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

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

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

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

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

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

Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Fund, along with other affiliated entities managed
by the Manager, may transfer uninvested cash balances into one or more joint
repurchase accounts. These balances are invested in one or more repurchase
agreements, secured by U.S. government securities. Securities that are pledged
as collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each joint repurchase arrangement requires that the market
value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default by the other party to the agreement,
retention or sale of the collateral may be subject to legal proceedings.

|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 investments. To enable the Fund to sell its
holdings of a restricted security not registered under applicable securities
laws, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.

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

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

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

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

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

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

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

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

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

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

|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| Hedging. Although the Fund can use hedging instruments, it is not
obligated to use them in seeking its objective. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to
retain unrealized gains in the value of portfolio securities that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:

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

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

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

The Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.

|_| Futures. The Fund can buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as "stock index
futures"), (2) an individual stock ("single stock futures"), (3) bond indices
(these are referred to as "bond index futures"), (4) debt securities (these are
referred to as "interest rate futures"), (5) foreign currencies (these are
referred to as "forward contracts") and (6) commodities.

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

An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position. Similarly, a single stock future obligates the seller to
deliver (and the purchaser to take) cash or a specified equity security to
settle the futures transaction. Either party could also enter into an offsetting
contract to close out the position. Single stock futures trade on a very limited
number of exchanges, with contracts typically not fungible among the exchanges.

The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.

No 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 may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions (except forward contracts)
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.

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

|_| Writing Covered Call Options. The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That means
the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. Up to 35% of the Fund's total assets may be subject to calls
the Fund writes.

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

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

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

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

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

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

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

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

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

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

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

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

The Fund can buy puts whether or not it holds the underlying investment in
its portfolio. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a seller
of a put on a corresponding investment during the put period at a fixed exercise
price.

Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.

When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.

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

The Fund will cover its short positions in these cases by identifying on
its books liquid assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.

However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.

The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund may have to purchase
additional foreign currency on the "spot" (that is, cash) market to settle the
security trade. If the market value of the security instead exceeds the amount
of foreign currency the Fund is obligated to deliver to settle the trade, the
Fund might have to sell on the spot market some of the foreign currency received
upon the sale of the security. There will be additional transaction costs on the
spot market in those cases.

The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.

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

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

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

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

Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.

The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."

|_| Regulatory Aspects of Hedging Instruments. The Commodities Futures
Trading Commission (the "CFTC") recently eliminated limitations on futures
trading by certain regulated entities including registered investment companies
and consequently registered investment companies may engage in unlimited futures
transactions and options thereon provided that the Fund claims an exclusion from
regulation as a commodity pool operator. The Fund has claimed such an exclusion
from registration as a commodity pool operator under the Commodity Exchange Act
("CEA"). The Fund may use futures and options for hedging and non-hedging
purposes to the extent consistent with its investment objective, internal risk
management guidelines adopted by the Fund's investment advisor (as they may be
amended from time to time), and as otherwise set forth in the Fund's prospectus
or this statement of additional information.

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

Under interpretations of the staff of the SEC regarding applicable
provisions of the Investment Company Act, when the Fund purchases a future, it
must identify liquid assets on its books in an amount equal to the purchase
price of the future, less the margin deposit applicable to it.

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

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

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

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

|X| Temporary Defensive and Interim Investments. When market, economic or
political conditions are unstable, or the Manager believes it is otherwise
appropriate to reduce holdings in stocks, the Fund can invest in a variety of
debt securities for defensive purposes. The Fund can also purchase these
securities for liquidity purposes to meet cash needs due to the redemption of
Fund shares, or to hold while waiting to reinvest cash received from the sale of
other portfolio securities. The Fund can buy:

o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic
or foreign companies) rated in the three top rating categories of a
nationally recognized rating organization,
o short-term debt obligations of corporate issuers, rated investment
grade (rated at least Baa by Moody's Investors Service, Inc. or at
least BBB by Standard & Poor's Corporation, or a comparable rating by
another rating organization), or unrated securities judged by the
Manager to have a comparable quality to rated securities in those
categories,
o certificates of deposit and bankers' acceptances of domestic and
foreign banks having total assets in excess of $1 billion, and
o repurchase agreements.

Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.

Other Investment Restrictions

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

|X| What Are the Fund's 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.

o The Fund cannot lend money. However, it can buy debt securities that its
investment policies and restrictions permit it to purchase. The Fund may
also lend its portfolio securities subject to the percentage restrictions
set forth in this Statement of Additional Information and may enter into
repurchase agreements.

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

o The Fund cannot buy or sell real estate, including futures contracts.
However, the Fund can purchase debt securities secured by real estate or
interests in real estate.

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 invest in physical commodities or commodity contracts.
However, the Fund may buy and sell the hedging instruments permitted by
any of its other investment policies. The Fund can also buy and sell
options, futures, securities or other instruments backed by, or the
investment return from which is linked to changes in the price of,
physical commodities.

o The Fund cannot invest in the securities issued by any company for the
purpose of acquiring control or management of that company, except in
connection with a merger, reorganization, consolidation or acquisition of
assets.

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

o The Fund cannot buy securities on margin. However, this does not prohibit
the Fund from making margin deposits in connection with any of the hedging
instruments permitted by any of its other investment policies.

o The Fund cannot borrow money in excess of 5% of the value of its total
assets. It can borrow only as a temporary measure for extraordinary or
emergency purposes.

o The Fund cannot mortgage, hypothecate or pledge any of its assets to
secure a debt. However, the escrow arrangements in connection with hedging
instruments are not considered to involve a mortgage, hypothecation or
pledge.

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 (except in the case of borrowing and
investments in illiquid securities). The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.

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

|X| Does the Fund Have Additional Restrictions That Are Not "Fundamental"
Policies? The Fund has an additional operating policy that is not "fundamental,"
and which can be changed by the Board of Trustees without shareholder approval:

o The Fund cannot invest in the securities of other registered investment
companies or registered unit investment trusts in reliance on
sub-paragraph (F) or (G) of section 12(d)(1) of the Investment Company
Act.

How the Fund is Managed

Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in 1987. The
Fund changed its name from Oppenheimer Multiple Strategies Fund to Oppenheimer
Balanced Fund on February 27, 2004.

|X| Classes of Shares. The Trustees are authorized, without shareholder
approval, 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.

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.

|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not
required to hold, and does not plan to hold, regular annual meetings of
shareholders, but may do so from time to time on important matters or when
required to do so by the Investment Company Act or other applicable law.
Shareholders have the right, upon a vote or the declaration in writing or
two-thirds of the outstanding shares of the Fund, to remove a Trustee or to take
other action described in the Fund's Declaration of Trust.

The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of 10% of its
outstanding shares. If the Trustees receive a request from at least 10
shareholders stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make the
Fund's shareholder list available to the applicants or mail their communication
to all other shareholders at the applicants' expense. The shareholders making
the request must have been shareholders for at least six months and must hold
shares of the Fund valued at $25,000 or more or constituting at least 1% of the
Fund's outstanding shares. The Trustees may also take other action as permitted
by the Investment Company Act.

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

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

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

The Board of Trustees has an Audit Committee, a Regulatory & Oversight
Committee, a Governance Committee, and a Proxy Committee. The Audit Committee is
comprised solely of Independent Trustees. The members of the Audit Committee are
Joel Motley (Chairman), Edward V. Regan, Kenneth A. Randall and Mary F. Miller.
The Audit Committee held 7 meetings during the Fund's fiscal year ended
September 30, 2004. The Audit Committee provides the Board with recommendations
regarding the selection of the Fund's independent auditor. The Audit Committee
also reviews the scope and results of audits and the audit fees charged, reviews
reports from the Fund's independent auditor concerning the Fund's internal
accounting procedures, and controls and reviews reports of the Manager's
internal auditor, among other duties as set forth in the Committee's charter.

The members of the Regulatory & Oversight Committee are Robert G. Galli
(Chairman), Joel Motley and Phillip A. Griffiths. The Regulatory & Oversight
Committee held 6 meetings during the Fund's fiscal year ended September 30,
2004. The Regulatory & Oversight Committee evaluates and reports to the
Board on the Fund's contractual arrangements, including the Investment Advisory
and Distribution Agreements, transfer and shareholder service agreements and
custodian agreements as well as the policies and procedures adopted by the Fund
to comply with the Investment Company Act and other applicable law, among other
duties as set forth in the Committee's charter.

The members of the Governance Committee are Phillip A. Griffiths
(Chairman), Kenneth A. Randall and Russell S. Reynolds, Jr. The Governance
Committee held 7 meetings during the Fund's fiscal year ended September 30,
2004. The Governance Committee reviews the Fund's governance guidelines, the
adequacy of the Fund's Codes of Ethics, and develops qualification criteria for
Board members consistent with the Fund's governance guidelines, among other
duties set forth in the Committee's charter.

The members of the Proxy Committee are Edward V. Regan (Chairman) and
Russell S. Reynolds, Jr. The Proxy Committee held 1 meeting during the Fund's
fiscal year ended September 30, 2004. The Proxy Committee provides the Board
with recommendations for proxy voting and monitors proxy voting by the Fund.

Trustees and Officers of the Fund. Each of the Trustees is an "Independent
Trustee" of the Fund.

The Fund's Trustees and officers and their positions held with the Fund
and length of service in such position(s) and their principal occupations and
business affiliations during the past five years are listed in the chart below.
The information for the Trustees also includes the dollar range of shares of the
Fund as well as the aggregate dollar range of shares beneficially owned in any
of the Oppenheimer funds overseen by the Trustees. All of the Trustees are also
trustees or directors of the following publicly offered Oppenheimer funds
(referred to as "Board I Funds"):

Oppenheimer AMT-Free Municipals Oppenheimer Global Opportunities Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Gold & Special Minerals Fund
Oppenheimer California Municipal Fund Oppenheimer Growth Fund
Oppenheimer Balanced Fund Oppenheimer International Growth Fund
Oppenheimer International Small Company
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Developing Markets Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Discovery Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Emerging Growth Fund Oppenheimer Series Fund, Inc.
Oppenheimer Emerging Technologies Fund Oppenheimer U.S. Government Trust
Oppenheimer Enterprise Fund
Oppenheimer Global Fund

In addition to being a trustee or director of the Board I Funds, Mr. Galli
is also a director or trustee of 10 other portfolios in the OppenheimerFunds
complex. Present or former officers, directors, trustees and employees (and
their immediate family members) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees are permitted to
purchase Class A shares of the Fund and the other Oppenheimer funds at net asset
value without sales charge. The sales charges on Class A shares are waived for
that group because of the economies of sales efforts realized by the
Distributor.

Messrs. Ferreira, Leavy, Manioudakis, Gillespie, Miao, Murphy, Petersen,
Vandehey, Vottiero, Wixted and Zack, and Mses. Bloomberg, Ives and Lee,
respectively hold the same offices with one or more of the other Board I Funds
as with the Fund. As of October 29, 2004, the Trustees and officers of the Fund,
as a group, owned of record or beneficially less than 1% of each class of shares
of the Fund. The foregoing statement does not reflect ownership of shares of the
Fund held of record by an employee benefit plan for employees of the Manager,
other than the shares beneficially owned under the plan by the officers of the
Fund listed above. In addition, each Independent Trustee, and his or her family
members, does not own securities of either the Manager or Distributor of the
Board I Funds or any person directly or indirectly controlling, controlled by or
under common control with the Manager or Distributor.

|X| Affiliated Transactions and Material Business Relationships. Mr. Reynolds
has reported that he has a controlling interest in The Directorship Group, Inc.
("The Directorship Search Group"), a director recruiting firm that provided
consulting services to Massachusetts Mutual Life Insurance Company (which
controls the Manager) for fees of $137,500 for calendar year ended December 31,
2002. The Directorship Search Group did not provide consulting services to
Massachusetts Mutual Life Insurance Company during the calendar year 2003, and
does not expect to provide any such services in the calendar year ended December
31, 2004.

The Independent Trustees have unanimously (except for Mr. Reynolds, who
abstained) determined that the consulting arrangements between The Directorship
Search Group and Massachusetts Mutual Life Insurance Company were not material
business or professional relationships that would compromise Mr. Reynolds'
status as an Independent Trustee. Nonetheless, to assure certainty as to
determinations of the Board and the Independent Trustees as to matters upon
which the Investment Company Act or the rules thereunder require approval by a
majority of Independent Trustees, Mr. Reynolds will not be counted for purposes
of determining whether a quorum of Independent Trustees was present or whether a
majority of Independent Trustees approved the matter.

The address of each Trustee in the chart below is 6803 S. Tucson Way,
Centennial, CO 80112-3924. Each Trustee serves for an indefinite term, until his
or her resignation, retirement, death or removal. Ms. Mary Miller was elected to
the Board I Funds effective October 26, 2004 and therefore did not hold shares
of Board II Funds during the calendar year ended December 31, 2003.

-----------------------------------------------------------------------------------
Independent Trustees
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Dollar Aggregate
Dollar
Range Of
Shares
Beneficially
Owned in
Years; Range of Any of the
Position(s) Held Other Trusteeships/Directorships Held Shares Oppenheimer
with Fund, by Trustee; Beneficially Funds
Length of Service, Number of Portfolios in Fund Complex Owned in Overseen
Age Currently Overseen by Trustee the Fund by Trustee
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
As of December 31,
2003
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Clayton K. Of Counsel (since June 1993) Hogan & $0 Over Yeutter, Chairman
Hartson (a law firm); a director (since $100,000 of the Board of 2002) of
Danielson Holding Corp.
Trustees since Formerly a director of Weyerhaeuser
2003; Corp. (1999-April 2004), Caterpillar,
Trustee since 1991 Inc. (1993-December 2002), ConAgra
Age: 73 Foods (1993-2001), Texas Instruments
(1993-2001) and FMC Corporation (1993-2001). Oversees 25
portfolios in the OppenheimerFunds complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Robert G. Galli, A trustee or director of other $0 Over
Trustee since 1993 Oppenheimer funds. Oversees 35 $100,000
Age: 71 portfolios in the OppenheimerFunds
complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Phillip A. A director (since 1991) of the $0 Over
Griffiths, Institute for Advanced Study, $100,000
Trustee, since Princeton, N.J., a director (since
1999 2001) of GSI Lumonics, a trustee (since
Age: 66 1983) of Woodward Academy, a Senior
Advisor (since 2001) of The Andrew W.
Mellon Foundation. A member of: the
National Academy of Sciences (since
1979), American Academy of Arts and
Sciences (since 1995), American
Philosophical Society (since 1996) and
Council on Foreign Relations (since
2002). Formerly a director of Bankers
Trust New York Corporation (1994-1999).
Oversees 25 portfolios in the
OppenheimerFunds complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Mary F. Miller, Formerly a Senior Vice President and $0 $0
Trustee since General Auditor, American Express
2004 Company (July 1998-February 2003).
Age: 61 Member of Trustees of the American
Symphony Orchestra (October 1998 to present). Oversees 25
portfolios in the OppenheimerFunds complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Joel W. Motley, Director (since January 2002) Columbia $0 $10,001 -
Trustee since 2002 Equity Financial Corp. (privately-held $50,000
Age: 52 financial adviser); Managing Director
(since January 2002) Carmona Motley,
Inc. (privately-held financial
adviser); Formerly a Managing Director
(January 1998-December 2001), Carmona
Motley Hoffman Inc. (privately-held
financial adviser); Oversees 25
portfolios in the OppenheimerFunds
complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Kenneth A. A director (since February 1972) of $1-$10,000 Over
Randall, Trustee Dominion Resources, Inc. (electric $100,000
since 1987 utility holding company); formerly a
Age: 77 director of Prime Retail, Inc. (real
estate investment trust) and Dominion Energy, Inc. (electric
power and oil & gas producer), President and Chief Executive
Officer of The Conference Board, Inc. (international economic
and business research) and a director of Lumbermens Mutual
Casualty Company, American Motorists Insurance Company and
American Manufacturers Mutual Insurance Company. Oversees 25
portfolios in the OppenheimerFunds complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Edward V. Regan, President, Baruch College, CUNY; a $1-$10,000 $10,001-
Trustee since 1993 director of RBAsset (real estate $50,000
Age: 74 manager); a director of OffitBank;
formerly Trustee, Financial Accounting Foundation (FASB and
GASB), Senior Fellow of Jerome Levy Economics Institute, Bard
College, Chairman of Municipal Assistance Corporation for the
City of New York, New York State Comptroller and Trustee of
New York State and Local Retirement Fund. Oversees 25
investment companies in the OppenheimerFunds complex.
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Russell S. Chairman (since 1993) of The $0 $10,001-
Reynolds, Jr., Directorship Search Group, Inc. $50,000
Trustee since 1989 (corporate governance consulting and
Age: 72 executive recruiting); a life trustee
of International House (non-profit educational organization),
and a former trustee of The Historical Society of the Town of
Greenwich. Oversees 25 portfolios in the OppenheimerFunds
complex.
-----------------------------------------------------------------------------------

The address of the Officers in the chart below is as follows: for Messrs.
Murphy, Ferreira, Leavy, Manioudakis, Zack, Gillespie and Miao and Mses.
Bloomberg and Lee, Two World Financial Center, 225 Liberty Street, 11th Floor,
New York, NY 10281-1008, for Messrs. Vandehey, Vottiero, Petersen and Wixted and
Ms. Ives, 6803 S. Tucson Way, Centennial, CO 80112-3924. Each Officer serves for
an annual term or until his or her earlier resignation, death or removal.

-------------------------------------------------------------------------------------
Officers of the Fund
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Name, Principal Occupation(s) During Past 5 Years
Position(s) Held with
Fund, Length of
Service,
Age
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and director (since June
President since 2001 2001) and President (since September 2000) of the Manager;
Age: 55 President and a director or trustee of other Oppenheimer
funds; President and a director (since July 2001) of
Oppenheimer Acquisition Corp. (the Manager's parent
holding company) and of Oppenheimer Partnership
Holdings, Inc. (a holding company subsidiary of the
Manager); a director (since November 2001) of
OppenheimerFunds Distributor, Inc. (a 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); President and a director (since July 2001) of
OppenheimerFunds Legacy Program (a charitable trust
program established by the Manager); a director of the
following investment advisory subsidiaries of the
Manager: OFI Institutional Asset Management, Inc.,
Centennial Asset Management Corporation, Trinity
Investment Management Corporation and Tremont Capital
Management, Inc. (since November 2001), HarbourView
Asset Management Corporation and OFI Private
Investments, Inc. (since July 2001); President (since
November 1, 2001) and a director (since July 2001) of
Oppenheimer Real Asset Management, Inc.; Executive Vice
President (since February 1997) of Massachusetts Mutual
Life Insurance Company (the Manager's parent company); a
director (since June 1995) of DLB Acquisition
Corporation (a holding company that owns the shares of
Babson Capital Management LLC); a member of the
Investment Company Institute's Board of Governors
(elected to serve from October 3, 2003 through September
30, 2006). Formerly, Chief Operating Officer (September
2000-June 2001) of the Manager; President and trustee
(November 1999-November 2001) of MML Series Investment
Fund and MassMutual Institutional Funds (open-end
investment companies); a director (September 1999-August
2000) of C.M. Life Insurance Company; President, Chief
Executive Officer and director (September 1999-August
2000) of MML Bay State Life Insurance Company; a
director (June 1989-June 1998) of Emerald Isle Bancorp
and Hibernia Savings Bank (a wholly-owned subsidiary of
Emerald Isle Bancorp). Oversees 63 portfolios as
Trustee/Director and 21 portfolios as Officer in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Christopher Leavy, Senior Vice President (since September 2000) of the Vice
President and Manager; an officer of 7 portfolios in the OppenheimerFunds
Portfolio Manager complex. Formerly a portfolio manager of Morgan Stanley since
2003 Dean Witter Investment Management (1997 - September 2000).
Age: 33
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Angelo Manioudakis, Senior Vice President of the Manager (since April 2002), of
Vice President and HarbourView Asset Management Corporation (since April 2002)
Portfolio Manager and of OFI Institutional Asset Management, Inc. (since June
since 2003 2002); an officer of 14 portfolios in the OppenheimerFunds
Age: 38 complex. Formerly Executive Director and portfolio manager
for Miller, Anderson & Sherrerd, a division of Morgan
Stanley Investment Management (August 1993-April 2002).
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Emmanuel Ferreira, Vice President of the Manager (since January 2003). An
Vice President and officer of 4 portfolios in the OppenheimerFunds complex.
Portfolio Manager Formerly, Portfolio Manager at Lashire Investments (July
since 2003 1999-December 2002), and a Senior Analyst at Mark Asset
Age: 37 Management (July 1997-June 1999).
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer (since March 1999) of
Treasurer since 1999 the Manager; Treasurer of HarbourView Asset Management
Age: 45 Corporation, Shareholder Financial Services, Inc.,
Shareholder Services, Inc., Oppenheimer Real Asset
Management Corporation, and Oppenheimer Partnership
Holdings, Inc. (since March 1999), of OFI Private
Investments, Inc. (since March 2000), of
OppenheimerFunds International Ltd. and OppenheimerFunds
plc (since May 2000), of OFI Institutional Asset
Management, Inc. (since November 2000), and of
OppenheimerFunds Legacy Program (a Colorado non-profit
corporation) (since June 2003); Treasurer and Chief
Financial Officer (since May 2000) of OFI Trust Company
(a trust company subsidiary of the Manager); Assistant
Treasurer (since March 1999) of Oppenheimer Acquisition
Corp. Formerly Assistant Treasurer of Centennial Asset
Management Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer (March 1995-March
1999) at Bankers Trust Company-Mutual Fund Services
Division. An officer of 84 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Philip Vottiero, Vice President/Fund Accounting of the Manager (since March
Assistant Treasurer 2002). Formerly Vice President/Corporate Accounting of the
since 2002 Manager (July 1999-March 2002) prior to which he was Chief
Age: 41 Financial Officer at Sovlink Corporation (April 1996-June
1999). An officer of 84 portfolios in the
OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General
Secretary since 2001 Counsel (since February 2002) of the Manager; General
Age: 56 Counsel and a director (since November 2001) of the
Distributor; General Counsel (since November 2001) of
Centennial Asset Management Corporation; Senior Vice
President and General Counsel (since November 2001) of
HarbourView Asset Management Corporation; Secretary and
General Counsel (since November 2001) of Oppenheimer
Acquisition Corp.; Assistant Secretary and a director
(since October 1997) of OppenheimerFunds International
Ltd. and OppenheimerFunds plc; Vice President and a
director (since November 2001) of Oppenheimer
Partnership Holdings, Inc.; a director (since November
2001) of Oppenheimer Real Asset Management, Inc.; Senior
Vice President, General Counsel and a director (since
November 2001) of Shareholder Financial Services, Inc.,
Shareholder Services, Inc., OFI Private Investments,
Inc. and OFI Trust Company; Vice President (since
November 2001) of OppenheimerFunds Legacy Program;
Senior Vice President and General Counsel (since
November 2001) of OFI Institutional Asset Management,
Inc.; a director (since June 2003) of OppenheimerFunds
(Asia) Limited. Formerly Senior Vice President (May
1985-December 2003), Acting General Counsel (November
2001-February 2002) and Associate General Counsel (May
1981-October 2001) of the Manager; Assistant Secretary
of Shareholder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November
1989-November 2001); and OppenheimerFunds International
Ltd. (October 1997-November 2001). An officer of 84
portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and
Assistant Secretary Assistant Secretary (since October 2003) of the Manager;
since 2001 Vice President (since 1999) and Assistant Secretary (since
Age: 39 October 2003) of the Distributor; Assistant Secretary
(since October 2003) of Centennial Asset Management
Corporation; Vice President and Assistant Secretary
(since 1999) of Shareholder Services, Inc.; Assistant
Secretary (since December 2001) of OppenheimerFunds
Legacy Program and of Shareholder Financial Services,
Inc.. Formerly an Assistant Counsel (August 1994-October
2003) and Assistant Vice President of the Manager
(August 1997-June 1998). An officer of 84 portfolios in
the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer (since
Vice President and March 2004) of the Manager; Vice President (since June
Chief Compliance 1983) of OppenheimerFunds Distributor, Inc., Centennial
Officer since 2004 Asset Management Corporation and Shareholder Services, Inc.
Age: 54 Formerly (until February 2004) Vice President and Director
of Internal Audit of the Manager. An officer of 84
portfolios in the Oppenheimer funds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager since August 2002;
Assistant Treasurer formerly Manager/Financial Product Accounting (November
since 2004 1998-July 2002) of the Manager. An officer of 84 portfolios
Age: 34 in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Dina C. Lee, Assistant Vice President and Assistant Counsel of the
Assistant Secretary Manager (since December 2000); formerly an attorney and
since 2004 Assistant Secretary of Van Eck Global (until December
Age: 34 2000). An officer of 84 portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager since
Assistant Secretary May 2004; formerly First Vice President and Associate
since 2004 General Counsel of UBS Financial Services Inc. (formerly,
Age: 36 PaineWebber Incorporated) (May 1999 - April 2004) prior to
which she was an Associate at Skaden, Arps, Slate,
Meagher & Flom, LLP (September 1996 - April 1999). An
officer of 84 portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the
Assistant Secretary Manager since September 2004. Formerly Mr. Gillespie held
since 2004 the following positions at Merrill Lynch Investment
Age: 40 Management: First Vice President (2001-September 2004);
Director (from 2000) and Vice President (1998-2000). An
officer of 74 portfolios in the OppenheimerFunds
complex.
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
W. Wayne Miao, Assistant Vice President and Assistant Counsel of the Assistant
Secretary Manager since June 2004. Formerly an Associate with Sidley since 2004
Austin Brown & Wood LLP (September 1999 - May 2004). An Age: 31 officer of
74 portfolios in the OppenheimerFunds complex.
-------------------------------------------------------------------------------------

|X| Remuneration of Trustees. The officers of the Fund 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 from the Fund with respect to the
Fund's fiscal year ended September 30, 2004. The compensation from all 25 of the
Board I Funds (including the Fund) represents compensation received for serving
as a director or trustee and member of a committee (if applicable) of the boards
of those funds during the calendar year ended December 31, 2003.

------------------------------------------------------------------------------------
Trustee Name and Other Aggregate Retirement Estimated Total
Compensation
From All
Oppenheimer
Annual Funds For
Benefits Retirement Which
Accrued as Benefits to Individual
Fund Position(s) Compensation Part of Fund be Paid Upon Serves As
(as applicable) From Fund1 Expenses Retirement2 Trustee/Director
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Clayton K. Yeutter $3,8013 $3,652 $61,306 $152,079
Chairman of the Board
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Robert G. Galli $2,829 $2,375 $80,9234 $213,5365
Regulatory & Oversight
Committee Chairman
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Phillip A. Griffiths
Governance Committee
Chairman and $2,8786 $1,132 $23,309 $74,500
Regulatory & Oversight
Committee Member
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Joel W. Motley
Audit Committee
Chairman and $3,0407 $403 $14,530 $68,900
Regulatory & Oversight
Committee Member
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Kenneth A. Randall $2,651 $0 $79,622 $93,989
Audit Committee Member
and Governance
Committee Member
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Edward V. Regan $2,558 $2,723 $59,353 $98,983
Proxy Committee
Chairman and Audit
Committee Member
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Russell S. Reynolds, $2,255 $2,407 $60,720 $77,002
Jr.
Proxy Committee Member
and Governance
Committee Member
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Mary F. Miller $0 $0 $0 $0
Audit Committee Member8
------------------------------------------------------------------------------------
Messrs. Levy, Lipstein, and Spiro and Ms. Moynihan retired as Trustees from
Board I effective January 1, 2003, March 31, 2003, October 31, 2004 and July
31, 2003, respectively. For the fiscal year ended September 30, 2004, Mr.
Spiro and Ms. Moynihan received $1,401 and $205 aggregate compensation from
the Fund, respectively. For the calendar year ended December 31, 2003,
Messrs. Levy, Lipstein and Spiro and Ms. Moynihan received $43,425, $75,076,
$64,080 and $88,229, respectively of the total compensation from all of the
Oppenheimer funds for which they served as trustees.
1. Aggregate Compensation From Fund includes fees and deferred compensation, if
any, for a Trustee.
2. Estimated Annual Retirement Benefits to be Paid Upon Retirement is based on a
straight life payment plan election with the assumption that a Trustee will
retire at the age of 75 and is eligible (after 7 years of service) to receive
retirement plan benefits as described below under "Retirement Plan for
Trustees."
3. Includes $950 deferred by Mr. Yeutter under the Deferred Compensation Plan
described below.
4. Includes $36,990 estimated to be paid to Mr. Galli for serving as a trustee
or director of 10 other Oppenheimer funds that are not Board I Funds.
5. Includes $96,000 paid to Mr. Galli for serving as a trustee or director of 10
other Oppenheimer funds that are not Board I Funds.
6. Includes $2,878 deferred by Mr. Griffiths under the Deferred Compensation
Plan described below.
7. Includes $1,216 deferred by Mr. Motley under Deferred Compensation Plan
described below.
8. Mary Miller was appointed as a trustee of the fund effective October 26,
2004.

|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Independent Trustees. Payments are up to
80% of the average compensation paid during a Trustee's five years of service in
which the highest compensation was received. A Trustee must serve as trustee for
any of the Board I Funds for at least seven years in order to be eligible for
retirement plan benefits and must serve for at least 15 years to be eligible for
the maximum benefit. Each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service.

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

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

|X| Major Shareholders. As of October 29, 2004, there were no persons who
owned of record or were known by the Fund to own beneficially 5% or more of any
of the Fund's outstanding Class A, Class B, Class C or Class N shares except the
following:

RPSS, Woolsey Bros Farm Supply Inc., 401(k) Plan, Attn.: Herb Woolsey,
P.O. Box 363, Vandalia, IL 62471-0363, which owned 43,776.391 Class N
shares (6.84% of the Class N shares then outstanding).

WILMINGTON TRUST CO TR, Movado Group Inc. FBO WTC MOVAGROU, EXE CDP A/C
064254-00.2, 1100 N. Market Street, Wilmington, DE 19801-1243, which owed
64,172.057 Class N shares (10.02% of the Class N shares then outstanding).

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

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

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

|X| Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies
and Procedures under which the Fund votes proxies relating to securities
("portfolio proxies") held by the Fund. The Fund's primary consideration in
voting portfolio proxies is the financial interests of the Fund and its
shareholders. The Fund has retained an unaffiliated third-party as its agent to
vote portfolio proxies in accordance with the Fund's Portfolio Proxy Voting
Guidelines and to maintain records of such portfolio proxy voting. The Proxy
Voting Guidelines include provisions to address conflicts of interest that may
arise between the Fund and OFI where an OFI directly-controlled affiliate
manages or administers the assets of a pension plan of a company soliciting the
proxy. The Fund's Portfolio Proxy Voting Guidelines on routine and non-routine
proxy proposals are summarized below.

o The Fund votes with the recommendation of the issuer's management on
routine matters, including election of directors nominated by
management and ratification of auditors, unless circumstances
indicate otherwise.
o In general, the Fund opposes anti-takeover proposals and supports
elimination of anti-takeover proposals, absent unusual
circumstances.
o The Fund supports shareholder proposals to reduce a super-majority
vote requirement, and opposes management proposals to add a
super-majority vote requirement.
o The Fund opposes proposals to classify the board of directors.
o The Fund supports proposals to eliminate cumulative voting.
o The Fund opposes re-pricing of stock options.
o The Fund generally considers executive compensation questions such
as stock option plans and bonus plans to be ordinary business
activity. The Fund analyzes stock option plans, paying particular
attention to their dilutive effect. While the Fund generally
supports management proposals, the Fund opposes plans it considers
to be excessive.

The Fund will be required to file new Form N-PX, with its complete proxy
voting record for the 12 months ended June 30th, no later than August 31st of
each year. The Fund's Form N-PX filing will be available (i) without charge,
upon request, by calling the Fund toll-free at 1.800.525.7048 and (ii) on the
SEC's website at WWW.SEC.GOV.

|X| The Investment Advisory Agreement. The Manager provides investment advisory
and management services to the Fund under an investment advisory agreement
between the Manager and the Fund. The Manager selects securities for the Fund's
portfolio and handles its day-to-day business. The portfolio managers of the
Fund are employed by the Manager and are the persons who are principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Equity Portfolio Departments provide the portfolio managers
with counsel and support in managing the Fund's portfolio.

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

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

--------------------------------------------------------------------
Fiscal Year ended 9/30: Management Fees Paid to OppenheimerFunds,
Inc.
--------------------------------------------------------------------
--------------------------------------------------------------------
2002 $4,805,477
--------------------------------------------------------------------
--------------------------------------------------------------------
2003 $4,456,996
--------------------------------------------------------------------
--------------------------------------------------------------------
2004 $5,468,668
--------------------------------------------------------------------

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.

|X| Annual Approval of Investment Advisory Agreement. Each year, the Board
of Trustees, including a majority of the Independent Trustees, is required to
approve the renewal of the investment advisory agreement. The Investment Company
Act requires that the Board request and evaluate and the Manager provide such
information as may be reasonably necessary to evaluate the terms of the
investment advisory agreement. The Board employs an independent consultant to
prepare a report that provides such information as the Board requests for this
purpose.

The Board also receives information about the 12b-1 distribution fees the
Fund pays. These distribution fees are reviewed and approved at a different time
of the year.

The Board reviewed the foregoing information in arriving at its decision
to renew the investment advisory agreement. Among other factors, the Board
considered:
o The nature, cost, and quality of the services provided to the Fund
and its shareholders;
o The profitability of the Fund to the Manager;
o The investment performance of the Fund in comparison to regular market
indices;
o Economies of scale that may be available to the Fund from the
Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the Fund
from its relationship with the Manager; and
o The direct and indirect benefits the Manager received from its
relationship with the Fund. These included services provided by the
Distributor and the Transfer Agent, and brokerage and soft dollar
arrangements permissible under Section 28(e) of the Securities Exchange Act.

The Board considered that the Manager must be able to pay and retain high
quality personnel at competitive rates to provide services to the Fund. The
Board also considered that maintaining the financial viability of the Manager is
important so that the Manager will be able to continue to provide quality
services to the Fund and its shareholders in adverse times. The Board also
considered the investment performance of other mutual funds advised by the
Manager. The Board is aware that there are alternatives to the use of the
Manager.

These matters were also considered by the Independent Trustees, meeting
separately from the full Board with experienced Counsel to the Fund who assisted
the Board in its deliberations. The Fund's Counsel is independent of the Manager
within the meaning and intent of the SEC Rules regarding the independence of
counsel.

After careful deliberation, the Board, including the Independent Trustees,
concluded that it was in the best interest of shareholders to continue the
investment advisory agreement for another year. In arriving at a decision, the
Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board
judged the terms and conditions of the investment advisory agreement, including
the investment advisory fee, in light of all of the surrounding circumstances.

Brokerage Policies of the Fund

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

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

Subject to those considerations, as a factor in selecting brokers for the
Fund's portfolio transactions, the investment advisory agreement also permits
the Manager to consider sales of shares of the Fund and other investment
companies for which the Manager or an affiliate serves as investment adviser.
Notwithstanding that authority, and with the concurrence of the Fund's Board,
the Manager has determined not to consider sales of shares of the Fund and other
investment companies for which the Manager or an affiliate serves as investment
adviser as a factor in selecting brokers for the Fund's portfolio transactions.
However, the Manager may continue to effect portfolio transactions through
brokers who sell shares of the Fund.

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

Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise, brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.

Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.

In an option transaction, the Fund ordinarily uses the same broker for the
purchase or sale of the option and any transaction in the securities to which
the option relates. When possible, the Manager tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. The transactions under those combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.

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

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

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

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

------------------------------------------------------------------------------
Fiscal Year Ended 9/30: Total Brokerage Commissions Paid by the Fund1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2002 $559,597
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2003 $1,011,309
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2004 $742,0922
------------------------------------------------------------------------------

1. Amounts do not include spreads or commissions on principal transactions on a
net trade basis.
2. In the fiscal year ended 9/30/04, the amount of transactions directed to
brokers for research services was $38,665,166 and the amount of the
commissions paid to broker-dealers for those services was $66,904.

Distribution and Service Plans

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

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

--------------------------------------------
Aggregate Class A
Fiscal Front-End Front-
Year Sales Charges End Sales
Ended on Class A Charges
9/30: Shares Retained by
Distributor1
--------------------------------------------
--------------------------------------------
2002 $428,672 $152,045
--------------------------------------------
--------------------------------------------
2003 $444,448 $149,815
--------------------------------------------
--------------------------------------------
2004 $1,133,173 $385,955
--------------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a parent
of the Distributor.

-------------------------------------------------------------------------
Concessions Concessions Concessions Concessions
on Class A on Class B on Class C on Class N
Fiscal Year Shares Shares Shares Shares
Ended 9/30 Advanced by Advanced by Advanced by Advanced by
Distributor1 Distributor1 Distributor1 Distributor1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2002 $19,253 $449,947 $57,203 $7,184
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2003 $26,447 $389,821 $69,428 $14,816
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2004 $19,092 $755,174 $177,932 $36,065
-------------------------------------------------------------------------
1. The Distributor advances concession payments to financial intermediaries
for certain sales of Class A shares and for sales of Class B, Class C and
Class N shares from its own resources at the time of sale.

-------------------------------------------------------------------------
Fiscal Year Class A Class B Class C Class N
Ended Contingent Contingent Contingent Contingent
9/30 Deferred Deferred Sales Deferred Deferred
Sales Charges Sales Sales Charges
Charges Retained Charges Retained by
Retained by Distributor Retained Distributor
by by
Distributor Distributor
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2002 $3,142 $171,979 $4,681 $1,298
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2003 $2,174 $172,208 $4,803 $4,571
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2004 $205 $141,739 $8,124 $1,701
-------------------------------------------------------------------------

Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B, Class C and Class N
shares under Rule 12b-1 of the Investment Company Act. Under those plans the
Fund pays the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of the
particular class. Each plan has been approved by a vote of the Board of
Trustees, including a majority of the Independent Trustees1, cast in person at a
meeting called for the purpose of voting on that plan.

Under the Plans, the Manager and the Distributor may make payments to
affiliates. In their sole discretion, they may also from time to time make
substantial payments from their own resources, which include the profits the
Manager derives from the advisory fees it receives from the Fund, to compensate
brokers, dealers, financial institutions and other intermediaries for providing
distribution assistance and/or administrative services or that otherwise promote
sales of the Fund's shares. These payments, some of which may be referred to as
"revenue sharing," may relate to the Fund's inclusion on a financial
intermediary's preferred list of funds offered to its clients.

Financial intermediaries, brokers and dealers may receive other payments
from the Distributor or the Manager from their own resources in connection with
the promotion and/or sale of shares of the Fund, including payments to defray
expenses incurred in connection with educational seminars and meetings. The
Manager or Distributor may share expenses incurred by financial intermediaries
in conducting training and educational meetings about aspects of the Fund for
employees of the intermediaries or for hosting client seminars or meetings at
which the Fund is discussed. In their sole discretion, the Manager and/or the
Distributor may increase or decrease the amount of payments they make from their
own resources for these purposes.

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

The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares 72 months after purchase, the Fund must obtain the
approval of both Class A and Class B shareholders for a proposed material
amendment to the Class A plan that would materially increase payments under the
plan. That approval must be by a "majority" of the shares of each class, voting
separately by class.

While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.

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

Under the Plans for a class, no payment will be made to any recipient in
any 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.

|X| Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. The Class A service plan
permits reimbursements to the Distributor at a rate of up to 0.25% of average
annual net assets of Class A shares. The Board has set the rate at that level.
The Distributor does not receive or retain the service fee on Class A shares in
accounts for which the Distributor has been listed as the broker-dealer of
record. While the plan permits the Board to authorize payments to the
Distributor to reimburse itself for services under the plan, the Board has not
yet done so, except in the case of the special arrangement described below,
regarding grandfathered retirement accounts. The Distributor makes payments to
recipients quarterly at an annual rate not to exceed 0.25% of the average annual
net assets consisting of Class A shares held in the accounts of the recipients
or their customers.

With respect to purchases of Class A shares subject to a contingent
deferred sales charge by certain retirement plans that purchased such shares
prior to March 1, 2001 ("grandfathered retirement accounts"), the Distributor
currently intends to pay the service fee to recipients in advance for the first
year after the shares are purchased. During the first year the shares are sold,
the Distributor retains the service fee to reimburse itself for the costs of
distributing the shares. After the first year shares are outstanding, the
Distributor makes service fee payments to recipients 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 A shares purchased by grandfathered retirement accounts are redeemed
during the first year after their purchase, the recipient of the service fees on
those shares will be obligated to repay the Distributor a pro rata portion of
the advance payment of the service fee made on those shares.

For the fiscal year ended September 30, 2004 payments under the Class A
plan totaled $1,231,729, of which $21,129 was retained by the Distributor under
the arrangement described above, regarding grandfathered retirement accounts,
and included $72,526 paid to an affiliate of the Distributor's parent company.
Any unreimbursed expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.

|X| Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, distribution and service fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. Each plan provides for the Distributor
to be compensated at a flat rate, whether the Distributor's distribution
expenses are more or less than the amounts paid by the Fund under the plan
during the period for which the fee is paid. The types of services that
recipients provide are similar to the services provided under the Class A
service plan, described above.

Each plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a 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 Class B,
Class C and Class N shares are purchased. After the first year Class B, Class C
or Class N shares are outstanding, after their purchase, the Distributor makes
service fee payments 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.
Class B, Class C or Class N shares may not be purchased by an investor directly
from the Distributor without the investor designating another broker-dealer of
record. If the investor no longer has another broker-dealer of record for an
existing account, the Distributor is automatically designated as the
broker-dealer of record, but solely for the purpose of acting as the investor's
agent to purchase the shares. In those cases, the Distributor retains the
asset-based sales charge paid on Class B, Class C and Class N shares. The
Distributor does not receive or retain the service fee on Class B, Class C or
Class N shares in accounts for which it is listed as the broker-dealer of
record.

The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% and the asset-based sales charge and service fees increase
Class N expenses by 0.50% of the net assets per year of the respective classes.

The Distributor retains the asset-based sales charge on Class B and Class
N shares. The Distributor retains the asset-based sales charge on Class C shares
during the first year the shares are outstanding. It pays the asset-based sales
charge as an ongoing concession to the recipient on Class C shares outstanding
for a year or more. If a dealer has a special agreement with the Distributor,
the Distributor will pay the Class B, Class C or Class N service fee and the
asset-based sales charge to the dealer quarterly in lieu of paying the sales
concession and service fee in advance at the time of purchase.

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

During a calendar year, the Distributor's actual expenses in selling Class
B, Class C and Class N shares may be more than the payments it receives from the
contingent deferred sales charges collected on redeemed shares and from the
asset-based sales charges paid to the Distributor by the Fund under the
distribution and service plans. Those excess expenses are carried over on the
Distributor's books and may be recouped from asset-based sales charge payments
from the Fund in future years. However, the Distributor has voluntarily agreed
to cap the amount of expenses under the plans that may be carried over from year
to year and recouped that relate to (i) expenses the Distributor has incurred
that represent compensation and expenses of its sales personnel and (ii) other
direct distribution costs it has incurred, such as sales literature, state
registration fees, advertising and prospectuses used to offer Fund shares. The
cap on the carry-over of those categories of expenses is set at 0.70% of annual
gross sales of shares of the Fund. If those categories of expenses exceed the
capped amount, the Distributor bears the excess costs. If the Class B, Class C
or Class N plan were to be terminated by the Fund, the Fund's Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares prior to the termination of the plan.

-------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 9/30/04
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class Under Plan Distributor Under Plan of Class
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B Plan $770,0991 $608,643 $2,826,206 3.33%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C Plan $600,1282 $138,639 $1,206,054 1.77%
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class N Plan $28,4143 $16,819 $110,677 1.26%
-------------------------------------------------------------------------------
1. Includes $9,116 paid to an affiliate of the Distributor's parent company.
2. Includes $14,868 paid to an affiliate of the Distributor's parent company.
3. Includes $1,998 paid to an affiliate of the Distributor's parent company.

All payments under the Class B, Class C and the 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.

Performance of the Fund

Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1.800.225.5677
or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 9/30/04
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10 years
Class of or Life of Class)
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
life-of-class) 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 A1 127.19% 141.05% 4.03% 10.37% 4.04% 5.28% 8.55% 9.20%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B2 98.99% 98.99% 4.26% 9.26% 4.02% 4.35% 7.87% 7.87%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C3 121.77% 121.77% 8.45% 9.45% 4.41% 4.41% 8.29% 8.29%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class N4 10.04% 10.04% 8.77% 9.77% 2.71% 2.71% N/A %
--------------------------------------------------------------------------------
1. Inception of Class A: 4/24/87.
2. Inception of Class B: 8/29/95.
3. Inception of Class C: 12/1/93.
4. Inception of Class N: 3/1/01.

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

Average Annual Total Returns for Class A1 Shares (After Taxes)
For the Periods Ended 9/30/04
--------------------------------------------------------------------------
--------------------------------------------------------------------------

1-Year 5-Year 10-Year
--------------------------------------------------------------------------
--------------------------------------------------------------------------
After Taxes on Distributions 3.81% 2.44% 6.02%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
After Taxes on 2.67% 2.62% 5.98%
Distributions and
Redemption of Fund Shares
--------------------------------------------------------------------------
1. Inception of Class A: 4/24/87.

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

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

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

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

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

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

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

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

ABOUT YOUR ACCOUNT

How to Buy Shares

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

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

AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $50 and shareholders must invest at least $500 before an Asset
Builder Plan (described below) can be established on a new account. Accounts
established prior to November 1, 2002 will remain at $25 for additional
purchases. Shares will be purchased on the regular business day the Distributor
is instructed to initiate the Automated Clearing House ("ACH") transfer to buy
the shares. Dividends will begin to accrue on shares purchased with the proceeds
of ACH transfers on the business day the Fund receives Federal Funds for the
purchase through the ACH system before the close of The New York Stock Exchange
(the "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 three days after the transfers are initiated. If
the proceeds of the ACH transfer are not received on a timely basis, the
Distributor reserves the right to cancel the purchase order. The Distributor and
the Fund are not responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.

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

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

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

Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Balanced Fund Oppenheimer Main Street Opportunity Fund Oppenheimer
Bond Fund Oppenheimer Main Street Small Cap Fund Oppenheimer California
Municipal Fund Oppenheimer MidCap Fund Oppenheimer Capital Appreciation Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Capital Preservation Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Principal Protected Main
Oppenheimer Capital Income Fund Street Fund
Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund II
Oppenheimer Principal Protected Main
Oppenheimer Convertible Securities Fund Street Fund III
Oppenheimer Developing Markets Fund Oppenheimer Quest Balanced Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Disciplined Allocation Fund Inc.
Oppenheimer Quest International Value
Oppenheimer Discovery Fund Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Rochester National
Oppenheimer Global Fund Municipals Oppenheimer Global Opportunities Fund
Oppenheimer Select Value Fund Oppenheimer Gold & Special Minerals Fund
Oppenheimer Senior Floating Rate Fund Oppenheimer Growth Fund Oppenheimer Small
Cap Value Fund Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Small Company Fund Oppenheimer Value Fund Oppenheimer
International Value Fund Limited-Term New York Municipal Fund Oppenheimer
Limited Term California Municipal Fund Rochester Fund Municipals Oppenheimer
Limited-Term Government Fund And the following money market funds:

Oppenheimer Cash Reserves Centennial Government Trust
Oppenheimer Money Market Fund, Inc. Centennial Money Market Trust
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust

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

Letters of Intent. Under a Letter of Intent ("Letter"), 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. Letters do not consider Class C or
Class N shares you purchase or may have purchased.

A Letter 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 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 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 period,
when added to the value (at offering price) of the investor's holdings of shares
on the last day of that period, do not equal or exceed the intended purchase
amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow,"
below (those terms may be amended by the Distributor from time to time). The
investor agrees that shares equal in value to 5% of the intended purchase amount
will be held in escrow by the Transfer Agent subject to the Terms of Escrow.
Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the application used for a Letter. If
those terms are amended, as they may be from time to time by the Fund, the
investor agrees to be bound by the amended terms and that those amendments will
apply automatically to existing Letters.

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

The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter. If the intended purchase amount under a Letter entered
into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan
by the end of the Letter period, there will be no adjustment of concessions paid
to the broker-dealer or financial institution of record for accounts held in the
name of that plan.

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

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

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

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

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

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

5. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.

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

Asset Builder Plans. As explained in the Prospectus, you must initially
establish your account with $500. Subsequently, you can establish an Asset
Builder Plan to automatically purchase additional shares directly from a bank
account for as little as $50. For those accounts established prior to November
1, 2002 and which have previously established Asset Builder Plans, additional
purchases will remain at $25. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans are available only if
your bank is an ACH member. Asset Builder Plans may not be used to buy shares
for OppenheimerFunds employer-sponsored qualified retirement accounts. 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 your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend or discontinue offering Asset
Builder plans at any time without prior notice.

Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charges or at reduced sales charge rates, as
described in an Appendix to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. ("Merrill Lynch") or an independent record keeper
that has a contract or special arrangement with Merrill Lynch. If on the date
the plan sponsor signed the Merrill Lynch record keeping service agreement the
plan has less than $1 million in assets invested in applicable investments
(other than assets invested in money market funds), then the retirement plan may
purchase only Class C shares of the Oppenheimer funds. If on the date the plan
sponsor signed the Merrill Lynch record keeping service agreement the plan has
$1 million or more in assets but less than $5 million in assets invested in
applicable investments (other than assets invested in money market funds), then
the retirement plan may purchase only Class N shares of the Oppenheimer funds.
If on the date the plan sponsor signed the Merrill Lynch record keeping service
agreement the plan has $5 million or more in assets invested in applicable
investments (other than assets invested in money market funds), then the
retirement plan may purchase only Class A shares of the Oppenheimer funds.

OppenheimerFunds has entered into arrangements with certain record keepers
whereby the Transfer Agent compensates the record keeper for its record keeping
and account servicing functions that it performs on behalf of the participant
level accounts of a retirement plan. While such compensation may act to reduce
the record keeping fees charged by the retirement plan's record keeper, that
compensation arrangement may be terminated at any time, potentially affecting
the record keeping fees charged by the retirement plan's record keeper.

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

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

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

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

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

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

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

The sales concession and the advance of the service fee, as described in
the Prospectus, will not be paid to dealers of record on sales of Class N shares
on:
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),
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
on purchases of Class N shares by an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan made with the redemption proceeds
of Class A shares of one or more Oppenheimer funds.

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

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

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

Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).

Fund Account Fees. As stated in the Prospectus, a $12 annual "Minimum Balance
Fee" is assessed on each Fund account with a share balance valued under $500.
The Minimum Balance Fee is automatically deducted from each such Fund account on
or about the second to last business day of September.

Listed below are certain cases in which the Fund has elected, in its
discretion, not to assess the Fund Account Fees. These exceptions are subject to
change:
o A fund account whose shares were acquired after September 30th of the
prior year;
o A fund account that has a balance below $500 due to the automatic
conversion of shares from Class B to Class A shares. However, once all
Class B shares held in the account have been converted to Class A shares
the new account balance may become subject to the Minimum Balance Fee;
o Accounts of shareholders who elect to access their account documents
electronically via eDoc Direct;
o A fund account that has only certificated shares and, has a balance below
$500 and is being escheated;
o Accounts of shareholders that are held by broker-dealers under the NSCC
Fund/SERV system;
o Accounts held under the Oppenheimer Legacy Program and/or holding certain
Oppenheimer Variable Account Funds;
o Omnibus accounts holding shares pursuant to the Pinnacle, Ascender,
Custom Plus, Recordkeeper Pro and Pension Alliance Retirement Plan
programs; and
o A fund account that falls below the $500 minimum solely due to market
fluctuations within the 12-month period preceding the date the fee is
deducted.

To access account documents electronically via eDocs Direct, please visit
the Service Center on our website at WWW.OPPENHEIMERFUNDS.COM or call
1.888.470.0862 for instructions.

The Fund reserves the authority to modify Fund Account Fees in its
discretion.

Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
the 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., Eastern time, but may close earlier on some other days (for
example, in case of weather emergencies or on days falling before a U.S.
holiday). All references to time in this Statement of Additional Information
mean "Eastern time." The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days.

Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares. Additionally, trading on European and Asian stock
exchanges and over-the-counter markets normally is completed before the close of
the 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 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, as applicable, may establish a valuation, under procedures established
by the Board and subject to the approval, ratification and confirmation by the
Board at its next ensuing meeting.

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

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

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

Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on Nasdaq(R), as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on Nasdaq(R) on the
valuation date. If not, the value shall be the closing bid price on the
principal exchange or on Nasdaq(R) on the valuation date. If the put, call or
future is not traded on an exchange or on Nasdaq(R), it shall be valued by the
mean between "bid" and "asked" prices obtained by the Manager from two active
market makers. In certain cases that may be at the "bid" price if no "asked"
price is available.

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

How to Sell Shares

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

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

Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.

The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
and Class N shares. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.

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

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

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

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $500 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.

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

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

Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial
plans, 401(k) plans or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its
address listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.

Participants (other than self-employed plan sponsors) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.

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

Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of the 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. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B, Class C
and Class N shareholders should not establish automatic withdrawal plans,
because of the potential imposition of the contingent deferred sales charge on
such withdrawals (except where the Class B, Class C or Class N contingent
deferred sales charge is waived as described in Appendix C to this Statement of
Additional Information).

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

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

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

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

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

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

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

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

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

How to Exchange Shares

As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a
single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
of shares by calling the Distributor.

o All of the Oppenheimer funds currently offer Class A, B, C, N and Y shares
with the following exceptions:

The following funds only offer Class A shares:
Centennial America Fund, L.P. Centennial Money Market Trust
Centennial California Tax Exempt Trust Centennial New York Tax Exempt
Trust
Centennial Government Trust Centennial Tax Exempt Trust

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

The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer International Small Company
Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main
Street Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main
Street Fund III
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest International Value
Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Rochester National Municipals
Oppenheimer Developing Markets Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Small Cap Value Fund
Oppenheimer International Growth Fund Oppenheimer Total Return Bond Fund

o Oppenheimer Money Market Fund, Inc. only offers Class A and Class Y shares.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other fund.
o Class B, 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 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 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 funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of
any money market fund purchased without a sales charge may be exchanged
for shares of Oppenheimer funds offered with a sales charge upon payment
of the sales charge. They may also be used to purchase shares of
Oppenheimer funds subject to an early withdrawal charge or contingent
deferred sales charge.
o Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust
for which reinvestment arrangements have been made with the Distributor
may be exchanged at net asset value for shares of any of the Oppenheimer
funds.
o Shares of Oppenheimer Principal Protected Main Street Fund may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
However, shareholders are not permitted to exchange shares of other
Oppenheimer funds for shares of Oppenheimer Principal Protected Main
Street Fund until after the expiration of the warranty period (8/5/2010).
o Shares of Oppenheimer Principal Protected Main Street Fund II may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
However, shareholders are not permitted to exchange shares of other
Oppenheimer funds for shares of Oppenheimer Principal Protected Main
Street Fund II until after the expiration of the warranty period
(2/4/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
However, shareholders are not permitted to exchange shares of other
Oppenheimer funds for shares of Oppenheimer Principal Protected Main
Street Fund III until after the expiration of the warranty period
(12/6/2011).

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

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

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

o When Class A shares of Rochester National Municipals and Rochester Fund
Municipals acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within 24 months of the beginning of the calendar month of the initial purchase
of the exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares.

o If any Class A shares of another Oppenheimer fund that are exchanged for Class
A shares of Oppenheimer Senior Floating Rate Fund are subject to the Class A
contingent deferred sales charge of the other Oppenheimer fund at the time of
exchange, the holding period for that Class A contingent deferred sales charge
will carry over to the Class A shares of Oppenheimer Senior Floating Rate Fund
acquired in the exchange. The Class A shares of Oppenheimer Senior Floating Rate
Fund acquired in that exchange will be subject to the Class A Early Withdrawal
Charge of Oppenheimer Senior Floating Rate Fund if they are repurchased before
the expiration of the holding period.

o When Class A shares of Oppenheimer Cash Reserves and Oppenheimer Money Market
Fund, Inc. acquired by exchange of Class A shares of any Oppenheimer fund
purchased subject to a Class A contingent deferred sales charge are redeemed
within the Class A holding period of the fund from which the shares were
exchanged, the Class A contingent deferred sales charge of the fund from which
the shares were exchanged is imposed on the redeemed shares.

o With respect to Class B shares (other than Limited-Term Government Fund,
Limited Term Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer
Capital Preservation Fund and Oppenheimer Senior Floating Rate Fund), the Class
B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within six years of the initial purchase of the
exchanged Class B shares.

o With respect to Class B shares of Limited-Term Government Fund, Limited Term
Municipal Fund, Limited Term New York Municipal Fund, Oppenheimer Capital
Preservation Fund and Oppenheimer Senior Floating Rate Fund, the Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 5 years of the initial purchase of the
exchanged Class B shares.

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

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

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

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

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

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

Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.

When you exchange some or all of your shares from one fund to another, any
special account feature such as an Asset Builder Plan or Automatic Withdrawal
Plan, will be switched to the new fund account unless you tell the Transfer
Agent not to do so. However, special redemption and exchange features such as
Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an
account in Oppenheimer Senior Floating Rate Fund.

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

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

Dividends, Capital Gains and Taxes

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

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

Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The
federal tax treatment of the Fund's dividends and capital gains distributions is
briefly highlighted in the Prospectus. The following is only a summary of
certain additional tax considerations generally affecting the Fund and its
shareholders.

The tax discussion in the Prospectus and this Statement of Additional
Information is based on tax law in effect on the date of the Prospectus and this
Statement of Additional Information. Those laws and regulations may be changed
by legislative, judicial, or administrative action, sometimes with retroactive
effect. State and local tax treatment of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the treatment
under the Internal Revenue Code described below. Potential purchasers of shares
of the Fund are urged to consult their tax advisers with specific reference to
their own tax circumstances as well as the consequences of federal, state and
local tax rules affecting an investment in the Fund.

Qualification as a Regulated Investment Company. The Fund has elected to
be taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, the Fund is
not subject to federal income tax on the portion of its net investment income
(that is, taxable interest, dividends, and other taxable ordinary income, net of
expenses) and capital gain net income (that is, the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
shareholders. That qualification enables the Fund to "pass through" its income
and realized capital gains to shareholders without having to pay tax on them.
This avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive from the
Fund (unless their Fund shares are held in a retirement account or the
shareholder is otherwise exempt from tax).

The Internal Revenue Code contains a number of complex tests relating to
qualification that the Fund might not meet in a particular year. If it did not
qualify as a regulated investment company, the Fund would be treated for tax
purposes as an ordinary corporation and would receive no tax deduction for
payments made to shareholders.

To qualify as a regulated investment company, the Fund must distribute at
least 90% of its investment company taxable income (in brief, net investment
income and the excess of net short-term capital gain over net long-term capital
loss) for the taxable year. The Fund must also satisfy certain other
requirements of the Internal Revenue Code, some of which are described below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within 12 months after the close of the taxable year, will be
considered distributions of income and gains for the taxable year and will
therefore count toward satisfaction of the above-mentioned requirement.

To qualify as a regulated investment company, the Fund must derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies (to the extent such currency gains are
directly related to the regulated investment company's principal business of
investing in stock or securities) and certain other income.

In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under that test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items (including receivables), U.S. government securities,
securities of other regulated investment companies, and securities of other
issuers. As to each of those issuers, the Fund must not have invested more than
5% of the value of the Fund's total assets in securities of each such issuer and
the Fund must not hold more than 10% of the outstanding voting securities of
each such issuer. No more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses. For purposes of this test, obligations issued or
guaranteed by certain agencies or instrumentalities of the U.S. government are
treated as U.S. government securities.

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

Taxation of Fund Distributions. The Fund anticipates distributing
substantially all of its investment company taxable income for each taxable
year. Those distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes.

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

The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net long term capital gains are distributed and designated as a
capital gain distribution, it will be taxable to shareholders as a long-term
capital gain and will be properly identified in reports sent to shareholders in
January of each year. Such treatment will apply no matter how long the
shareholder has held his or her shares or whether that gain was recognized by
the Fund before the shareholder acquired his or her shares.

If the Fund elects to retain its net capital gain, the Fund will be
subject to tax on it at the 35% corporate tax rate. If the Fund elects to retain
its net capital gain, the Fund will provide to shareholders of record on the
last day of its taxable year information regarding their pro rata share of the
gain and tax paid. As a result, each shareholder will be required to report his
or her pro rata share of such gain on their tax return as long-term capital
gain, will receive a refundable tax credit for his/her pro rata share of tax
paid by the Fund on the gain, and will increase the tax basis for his/her shares
by an amount equal to the deemed distribution less the tax credit.

Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.

Distributions by the Fund that do not constitute ordinary income dividends
or capital gain distributions will be treated as a return of capital to the
extent of the shareholder's tax basis in their shares. Any excess will be
treated as gain from the sale of those shares, as discussed below. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year. If prior distributions made
by the Fund must be re-characterized as a non-taxable return of capital at the
end of the fiscal year as a result of the effect of the Fund's investment
policies, they will be identified as such in notices sent to shareholders.

Distributions by the Fund will be treated in the manner described above
regardless of whether the distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.

The Fund will be required in certain cases to withhold 28% of ordinary
income dividends, capital gains distributions and the proceeds of the redemption
of shares, paid to any shareholder (1) who has failed to provide a correct
taxpayer identification number or to properly certify that number when required,
(2) who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that the shareholder is not subject to backup withholding or is an "exempt
recipient" (such as a corporation). Any tax withheld by the Fund is remitted by
the Fund to the U.S. Treasury and all income and any tax withheld is identified
in reports mailed to shareholders in January of each year.

Tax Effects of Redemptions of Shares. If a shareholder redeems all or a
portion of his/her shares, the shareholder will recognize a gain or loss on the
redeemed shares in an amount equal to the difference between the proceeds of the
redeemed shares and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss recognized in that manner may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the redemption.

In general, any gain or loss arising from the redemption of shares of the
Fund will be considered capital gain or loss, if the shares were held as a
capital asset. It will be long-term capital gain or loss if the shares were held
for more than one year. However, any capital loss arising from the redemption of
shares held for six months or less will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on those shares.
Special holding period rules under the Internal Revenue Code apply in this case
to determine the holding period of shares and there are limits on the
deductibility of capital losses in any year.

Foreign Shareholders. Under U.S. tax law, taxation of a shareholder who is
a foreign person (to include, but not limited to, a nonresident alien
individual, a foreign trust, a foreign estate, a foreign corporation, or a
foreign partnership) primarily depends on whether the foreign person's income
from the Fund is effectively connected with the conduct of a U.S. trade or
business. Typically, ordinary income dividends paid from a mutual fund are not
considered "effectively connected" income.

Ordinary income dividends that are paid by the Fund (and are deemed not
"effectively connected income") to foreign persons will be subject to a U.S. tax
withheld by the Fund at a rate of 30%, provided the Fund obtains a properly
completed and signed Certificate of Foreign Status. The tax rate may be reduced
if the foreign person's country of residence has a tax treaty with the U.S.
allowing for a reduced tax rate on ordinary income dividends paid by the Fund.
Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and
all income and any tax withheld is identified in reports mailed to shareholders
in March of each year.

If the ordinary income dividends from the Fund are effectively connected
with the conduct of a U.S. trade or business, then the foreign person may claim
an exemption from the U.S. tax described above provided the Fund obtains a
properly completed and signed Certificate of Foreign Status. If the foreign
person fails to provide a certification of his/her foreign status, the Fund will
be required to withhold U.S. tax at a rate of 28% on ordinary income dividends,
capital gains distributions and the proceeds of the redemption of shares, paid
to any foreign person. Any tax withheld by the Fund is remitted by the Fund to
the U.S. Treasury and all income and any tax withheld is identified in reports
mailed to shareholders in January of each year.

The tax consequences to foreign persons entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors or the U.S. Internal
Revenue Service with respect to the particular tax consequences to them of an
investment in the Fund, including the applicability of the U.S. withholding
taxes described above.

Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (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. J.P. Morgan Chase Bank is the custodian of the Fund's assets. The
custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It is the practice of the Fund to deal with the custodian in a manner
uninfluenced by any banking relationship the custodian may have with the Manager
and its affiliates. The Fund's cash balances with the custodian in excess of
$100,000 are not protected by federal deposit insurance. Those uninsured
balances at times may be substantial.

Independent Registered Public Accounting Firm. KPMG LLP served as the
Independent Registered Public Accounting Firm for the Fund. KPMG LLP audits the
Fund's financial statements and performs other related audit services. KPMG LLP
also acts as the independent registered public accounting firm for certain other
funds advised by the Manager and its affiliates. Audit and non-audit services
provided by KPMG LLP to the Fund must be pre-approved by the Audit Committee.

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

--------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BALANCED FUND:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Balanced Fund, formerly Oppenheimer Multiple Strategies Fund,
including the statement of investments, as of September 30, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2004, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Balanced Fund as of September 30, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.

/s/ KPMG LLP
------------
KPMG LLP

Denver, Colorado
October 21, 2004

56 | OPPENHEIMER BALANCED FUND

STATEMENT OF INVESTMENTS September 30, 2004
-------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
-------------------------------------------------------------------------------
COMMON STOCKS--52.6%
-------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--9.5%
-------------------------------------------------------------------------------
AUTO COMPONENTS--0.1%
TRW Automotive Holdings Corp. 1 31,600 $ 595,660
-------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.9%
McDonald's Corp. 269,300 7,548,479
-------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.9%
Toll Brothers, Inc. 1 110,000 5,096,300
-------------------------------------------------------------------------------
WCI Communities, Inc. 1 97,400 2,269,420
-----------
7,365,720

-------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.4%
IAC/InterActiveCorp 1 144,400 3,179,688
-------------------------------------------------------------------------------
MEDIA--6.0%
AMC Entertainment, Inc. 1 61,200 1,171,368
-------------------------------------------------------------------------------
EchoStar Communications Corp., Cl. A 1 99,400 3,093,328
-------------------------------------------------------------------------------
Liberty Media Corp., Cl A 1 1,244,000 10,847,680
-------------------------------------------------------------------------------
Liberty Media International, Inc., A Shares 1 65,504 2,185,344
-------------------------------------------------------------------------------
Regal Entertainment Group 65,800 1,256,780
-------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 1 3,192,567 23,848,475
-------------------------------------------------------------------------------
Viacom, Inc., Cl. B 188,800 6,336,128
-----------
48,739,103

-------------------------------------------------------------------------------
MULTILINE RETAIL--1.0%
Sears Roebuck & Co. 198,800 7,922,180
-------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc. (The) 118,800 2,221,560
-------------------------------------------------------------------------------
CONSUMER STAPLES--3.1%
-------------------------------------------------------------------------------
BEVERAGES--0.9%
Constellation Brands, Inc., Cl. A 1 187,000 7,117,220
-------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Tyson Foods, Inc., Cl. A 328,900 5,268,978
-------------------------------------------------------------------------------
TOBACCO--1.6%
Altria Group, Inc. 282,400 13,284,096
-------------------------------------------------------------------------------
ENERGY--3.9%
-------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Halliburton Co. 58,300 1,964,127
-------------------------------------------------------------------------------
OIL & GAS--3.6%
BP plc, ADR 70,900 4,078,877
-------------------------------------------------------------------------------
Kinder Morgan, Inc. 61,000 3,832,020
-------------------------------------------------------------------------------
LUKOIL, Sponsored ADR 62,300 7,725,200
-------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference 112,000 3,679,776

19 | OPPENHEIMER BALANCED FUND

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

VALUE
SHARES SEE NOTE 1
-------------------------------------------------------------------------------
OIL & GAS Continued
Talisman Energy, Inc. 245,800 $ 6,389,553
-------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR 37,500 3,831,375
-----------
29,536,801

-------------------------------------------------------------------------------
FINANCIALS--10.2%
-------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
UBS AG 34,492 2,435,023
-------------------------------------------------------------------------------
COMMERCIAL BANKS--2.8%
Bank of America Corp. 238,252 10,323,459
-------------------------------------------------------------------------------
Commerce Bancorp, Inc. 47,100 2,599,920
-------------------------------------------------------------------------------
SouthTrust Corp. 116,600 4,857,556
-------------------------------------------------------------------------------
Wells Fargo & Co. 77,300 4,609,399
-----------
22,390,334

-------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.7%
CIT Group, Inc. 100,600 3,761,434
-------------------------------------------------------------------------------
Citigroup, Inc. 138,900 6,128,268
-------------------------------------------------------------------------------
JPMorgan Chase & Co. 144,300 5,733,039
-------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 28,300 2,256,076
-------------------------------------------------------------------------------
Morgan Stanley 81,100 3,998,230
-----------
21,877,047

-------------------------------------------------------------------------------
INSURANCE--3.1%
Genworth Financial, Inc., Cl. A 1 471,300 10,981,290
-------------------------------------------------------------------------------
Prudential Financial, Inc. 151,100 7,107,744
-------------------------------------------------------------------------------
UnumProvident Corp. 166,300 2,609,247
-------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 61,600 4,557,784
-----------
25,256,065

-------------------------------------------------------------------------------
REAL ESTATE--0.8%
Host Marriott Corp. 1 471,100 6,609,533
-------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.5%
Freddie Mac 66,300 4,325,412
-------------------------------------------------------------------------------
HEALTH CARE--6.6%
-------------------------------------------------------------------------------
BIOTECHNOLOGY--1.7%
MedImmune, Inc. 1 278,500 6,600,450
-------------------------------------------------------------------------------
Wyeth 186,200 6,963,880
-----------
13,564,330

20| OPPENHEIMER BALANCED FUND

VALUE
SHARES SEE NOTE 1
-------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.6%
Beckman Coulter, Inc. 85,200 $ 4,781,424
-------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.4%
PacifiCare Health Systems, Inc. 1 108,600 3,985,620
-------------------------------------------------------------------------------
Tenet Healthcare Corp. 1 676,900 7,303,751
-----------
11,289,371

-------------------------------------------------------------------------------
PHARMACEUTICALS--2.9%
GlaxoSmithKline plc, ADR 87,800 3,839,494
-------------------------------------------------------------------------------
Novartis AG 127,663 5,967,381
-------------------------------------------------------------------------------
Pfizer, Inc. 199,140 6,093,684
-------------------------------------------------------------------------------
Schering-Plough Corp. 245,800 4,684,948
-------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1 113,900 3,355,494
-----------
23,941,001

-------------------------------------------------------------------------------
INDUSTRIALS--5.9%
-------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.4%
Empresa Brasileira de Aeronautica SA, ADR 142,100 3,751,440
-------------------------------------------------------------------------------
Orbital Sciences Corp. 1 784,617 8,960,326
-------------------------------------------------------------------------------
Raytheon Co. 170,100 6,460,398
-----------
19,172,164

-------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--2.7%
Brink's Co. (The) 102,700 3,098,459
-------------------------------------------------------------------------------
Cendant Corp. 679,200 14,670,720
-------------------------------------------------------------------------------
ChoicePoint, Inc. 1 94,900 4,047,485
-----------
21,816,664

-------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.8%
General Electric Co. 137,700 4,623,966
-------------------------------------------------------------------------------
Tyco International Ltd. 71,000 2,176,860
-----------
6,800,826

-------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--9.0%
-------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.6%
Hewlett-Packard Co. 467,979 8,774,606
-------------------------------------------------------------------------------
International Business Machines Corp. 147,100 12,612,354
-----------
21,386,960

-------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.8%
Flextronics International Ltd. 1 485,300 6,430,225

21 | OPPENHEIMER BALANCED FUND

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

VALUE
SHARES SEE NOTE 1
-------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.3%
Net2Phone, Inc. 1 676,600 $ 2,178,652
-------------------------------------------------------------------------------
IT SERVICES--0.3%
CSG Systems International, Inc. 1 162,300 2,501,043
-------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.8%
Freescale Semiconductor, Inc., Cl. A 1 773,100 11,055,330
-------------------------------------------------------------------------------
Intel Corp. 180,700 3,624,842
-----------
14,680,172

-------------------------------------------------------------------------------
SOFTWARE--3.2%
Compuware Corp. 1 345,329 1,778,444
-------------------------------------------------------------------------------
Microsoft Corp. 408,500 11,295,025
-------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1 408,900 13,432,365
-----------
26,505,834

-------------------------------------------------------------------------------
MATERIALS--1.8%
-------------------------------------------------------------------------------
CHEMICALS--0.7%
Dow Chemical Co. 54,700 2,471,346
-------------------------------------------------------------------------------
Praxair, Inc. 82,700 3,534,598
-----------
6,005,944

-------------------------------------------------------------------------------
METALS & MINING--0.8%
Companhia Vale do Rio Doce, Sponsored ADR 162,900 3,135,825
-------------------------------------------------------------------------------
GrafTech International Ltd. 1 230,900 3,221,055
-----------
6,356,880

-------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.3%
Bowater, Inc. 47,100 1,798,749
-------------------------------------------------------------------------------
Western Forest Products, Inc. 1 56,736 416,052
-----------
2,214,801

-------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.3%
-------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
IDT Corp., Cl. B 1 696,200 10,463,886
-------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group 1 450,000 --
-----------
10,463,886

-------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.0%
Leap Wireless International, Inc. 1 2,251 49,522
-------------------------------------------------------------------------------
UTILITIES--1.3%
-------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.0%
AES Corp. (The) 1 534,000 5,334,660

22 | OPPENHEIMER BALANCED FUND

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

ELECTRIC UTILITIES Continued
PG&E Corp. 1 81,300 $ 2,471,520
------------
7,806,180

-----------------------------------------------------------------------------------------------------
GAS UTILITIES--0.3%
Sempra Energy 74,100 2,681,679
------------
Total Common Stocks (Cost $326,609,001) 428,264,584

UNITS
-----------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
-----------------------------------------------------------------------------------------------------

Sun Healthcare Group, Inc. Wts., Exp. 2/28/051 (Cost $0) 496 --

PRINCIPAL
AMOUNT
-----------------------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES--7.3%
-----------------------------------------------------------------------------------------------------
Bank One Auto Securitization Trust, Automobile Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%, 8/21/06 $ 981,974 980,139
-----------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates, Series 2004-A,
Cl. A2, 1.88%, 10/25/06 2,130,000 2,125,881
-----------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2003-B, Cl. AF1, 1.64%, 2/25/18 34,657 34,635
Series 2003-C, Cl. AF1, 2.14%, 7/25/18 592,718 592,123
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 77,621 77,452
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 2 900,000 900,000
-----------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home Equity
Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%, 4/25/23 496,879 498,179
Series 2003-1, Cl. 1A3, 3.14%, 7/25/23 1,170,000 1,171,535
Series 2003-3, Cl. 1A1, 1.92%, 8/25/17 3 161,213 161,310
Series 2003-4, Cl. 1A1, 1.96%, 9/25/17 3 677,171 677,607
Series 2004-1, Cl. 2A1, 1.95%, 9/25/21 3 2,453,675 2,455,096
-----------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 470,000 475,559
Series 2003-A, Cl. A2, 1.26%, 1/16/06 164,180 164,208
Series 2003-B, Cl. A2, 1.28%, 3/15/06 407,980 407,790
-----------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 9/29/06 4 1,330,000 1,329,873
-----------------------------------------------------------------------------------------------------
CIT Group Home Equity Loan Trust, Home Equity Loan Asset-Backed
Certificates, Series 2003-1, Cl. A2, 2.35%, 4/20/27 1,145,950 1,144,874
-----------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.,
Series 2002-A3, Cl. A3, 4.40%, 5/15/07 1,430,000 1,449,341
-----------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1, 1.94%, 5/25/33 3 259,837 259,993
Series 2003-3, Cl. AF1, 1.96%, 8/25/33 3 568,197 568,571

23 | OPPENHEIMER BALANCED FUND

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
--------------------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES Continued
--------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Home Equity Mtg. Obligations,
Series 2004-OPT1, Cl. A1B, 2.388%, 9/1/34 $2,221,000 $2,221,000
--------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05 1,335,817 1,335,970
Series 2003-B, Cl. A2, 1.61%, 7/10/06 2,979,027 2,976,804
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2 1,500,000 1,500,000
--------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2003-A, Cl. A2A, 1.62%, 8/15/05 88,301 88,352
Series 2004-A, Cl. A2, 2.13%, 10/15/06 3,090,000 3,086,605
--------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/15/07 130,229 130,229
Series 2003-3, Cl. A1, 1.50%, 1/15/08 1,392,343 1,389,040
--------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2003-2, Cl. A2, 1.34%, 12/21/05 527,579 527,625
Series 2003-3, Cl. A2, 1.52%, 4/21/06 1,932,445 1,930,803
Series 2003-4, Cl. A2, 1.58%, 7/17/06 2,258,582 2,255,865
--------------------------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%, 12/18/06 1,062,438 1,061,180
--------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 995,466 997,437
Series 2003-1, Cl. A2, 1.60%, 7/20/06 1,940,433 1,939,106
--------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable Obligations,
Series 2004-A, Cl. A2, 1.50%, 2/15/07 1,400,000 1,396,074
--------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series 2003-A,
Cl. A2, 1.69%, 12/15/05 951,555 952,056
--------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06 430,449 434,320
Series 2003-B, Cl. A2, 1.20%, 11/15/05 271,672 271,783
Series 2004-A, Cl. A2, 1.40%, 7/17/06 1,580,000 1,574,718
--------------------------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 1.982%, 11/25/34 3,4 920,000 920,000
--------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 248,661 249,730
Series 2003-B, Cl. A2, 1.43%, 2/15/06 1,101,454 1,101,125
--------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 444,272 445,052
Series 2003-1, Cl. A2, 1.22%, 4/17/06 341,833 341,886
Series 2004-1, Cl. A2, 1.43%, 9/15/06 3,840,000 3,828,862
Series 2004-2, Cl. A2, 2.41%, 2/15/07 1,530,000 1,530,781
--------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities,
Series 2004-A, Cl. A2, 2.47%, 1/22/07 1,560,000 1,558,781
--------------------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust, Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2, 1.11%, 12/20/05 1,213,978 1,213,463
Series 2003-2, Cl. A2, 1.55%, 6/20/06 1,281,947 1,280,588

24 | OPPENHEIMER BALANCED FUND

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
----------------------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES Continued
----------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts., Series 2004-B,
Cl. A2, 2.40%, 5/21/07 $ 1,110,000 $ 1,110,824
----------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 2,480,000 2,480,000
----------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 1,800,532 1,798,738
-----------
Total Asset-Backed Securities (Cost $59,474,596) 59,402,963

----------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--30.4%
----------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg
Obligations
Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 2,788,221 2,876,225
Series 2004-8, Cl. 5A1, 6.50%, 9/25/34 2,260,000 2,331,331
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 1,658,866 1,662,656
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34 1,694,925 1,691,404
----------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2003-EF1, Cl. A2, 1.49%, 12/20/05 454,685 454,651
----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 10/1/34 4 16,924,000 16,760,040
5.50%, 1/1/34 917,159 931,154
5.50%, 10/1/34 4 8,019,000 8,129,261
6.50%, 11/1/28 1,086,659 1,143,986
7%, 5/1/29-11/1/33 4,773,250 5,073,101
7%, 10/1/34 4 10,132,000 10,746,253
----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Pass-Through Participation Certificates, Series 151, Cl. F, 9%, 5/15/21 78,479 78,581
----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 501,301 505,973
Series 2055, Cl. ZM, 6.50%, 5/15/28 1,107,785 1,156,883
Series 2075, Cl. D, 6.50%, 8/15/28 2,636,391 2,757,790
Series 2080, Cl. Z, 6.50%, 8/15/28 722,667 747,947
Series 2102, Cl. VA, 6%, 10/15/09 46,419 46,413
Series 2387, Cl. PD, 6%, 4/15/30 1,564,656 1,601,086
Series 2466, Cl. PD, 6.50%, 4/15/30 726,641 734,419
Series 2498, Cl. PC, 5.50%, 10/15/14 235,284 238,410
Series 2500, Cl. FD, 2.209%, 3/15/32 3 422,974 423,892
Series 2526, Cl. FE, 2.109%, 6/15/29 3 502,360 503,795
Series 2551, Cl. FD, 2.109%, 1/15/33 3 412,255 414,001
Series 2551, Cl. TA, 4.50%, 2/15/18 747,785 748,522

25 | OPPENHEIMER BALANCED FUND

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------------

MORTGAGE-BACKED OBLIGATIONS Continued
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security:
Series 176, Cl. IO, (0.688)%, 6/1/26 5 $ 707,057 $ 130,488
Series 183, Cl. IO, (1.514)%, 4/1/27 5 1,159,357 219,980
Series 184, Cl. IO, 0.848%, 12/1/26 5 1,152,081 210,737
Series 192, Cl. IO, 5.662%, 2/1/28 5 328,326 57,049
Series 200, Cl. IO, 5.208%, 1/1/29 5 400,666 74,547
Series 2130, Cl. SC, 17.914%, 3/15/29 5 882,974 91,864
Series 2796, Cl. SD, 26.12%, 7/15/26 5 1,282,083 139,909
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped Mtg.-Backed Security:
Series 176, Cl. PO, 7.039%, 6/1/26 6 286,676 253,653
Series 217, Cl. PO, 8.479%, 1/1/32 6 428,836 370,204
---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Structured Pass-Through Securities,
Collateralized Mtg. Obligations, Series T-42, Cl. A2, 5.50%, 2/25/42 728 728
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 10/1/19 4 8,270,000 8,241,568
5%, 10/1/19-10/1/34 4 14,146,000 14,262,705
5.50%, 7/1/33-9/1/34 10,667,516 10,834,169
5.50%, 10/1/19-10/1/34 4 30,889,398 31,737,307
6%, 5/1/16 3,236,526 3,397,045
6%, 11/1/34 4 1,249,000 1,287,251
6.50%, 12/1/27-10/1/30 1,183,111 1,244,919
6.50%, 10/1/34 4 17,353,000 18,204,373
7%, 7/1/32-8/1/34 11,711,429 12,432,304
7%, 10/1/34 4 45,640,000 48,392,640
8.50%, 7/1/32 98,441 107,096
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,981,683 2,092,433
Trust 1998-63, Cl. PG, 6%, 3/25/27 457,029 460,552
Trust 2001-50, Cl. NE, 6%, 8/25/30 877,838 881,951
Trust 2001-70, Cl. LR, 6%, 9/25/30 808,624 828,367
Trust 2001-72, Cl. NH, 6%, 4/25/30 686,601 701,773
Trust 2001-74, Cl. PD, 6%, 5/25/30 291,262 296,773
Trust 2002-50, Cl. PD, 6%, 9/25/27 941,810 947,021
Trust 2002-77, Cl. WF, 2.211%, 12/18/32 3 678,428 680,563
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 1,311,755 1,318,025
Trust 2003-81, Cl. PA, 5%, 2/25/12 397,370 400,669
---------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-38, Cl. SO, 29.05%, 4/25/32 5 1,592,190 113,756
Trust 2002-47, Cl. NS, 19.181%, 4/25/32 5 1,582,771 149,387
Trust 2002-51, Cl. S, 19.54%, 8/25/32 5 1,453,234 137,288
Trust 2002-77, Cl. IS, 23.023%, 12/18/32 5 2,712,620 272,309

26 | OPPENHEIMER BALANCED FUND

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------

MORTGAGE-BACKED OBLIGATIONS Continued
------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, (4.11)%, 6/1/23 5 $2,278,567 $ 395,825
Trust 240, Cl. 2, (1.081)%, 9/1/23 5 3,451,096 664,496
Trust 252, Cl. 2, (5.194)%, 11/1/23 5 1,746,150 355,538
Trust 254, Cl. 2, (2.401)%, 1/1/24 5 871,983 172,994
Trust 273, Cl. 2, (0.778)%, 7/1/26 5 507,479 95,412
Trust 321, Cl. 2, (8.951)%, 3/1/32 5 4,598,026 904,384
Trust 334, Cl. 17, (47.305)%, 2/1/33 5 1,317,919 226,122
Trust 2001-81, Cl. S, 25.236%, 1/25/32 5 826,625 77,797
Trust 2002-9, Cl. MS, 20.455%, 3/25/32 5 1,093,181 105,612
Trust 2002-52, Cl. SD, 15.361%, 9/25/32 5 1,874,805 183,926
Trust 2004-54, Cl. DS, 25.553%, 11/25/30 5 1,679,852 160,473
------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 10.115%, 9/25/23 6 755,603 662,147
------------------------------------------------------------------------------------------------------
First Union/Lehman Brothers/Bank of America, Commercial Mtg.
Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%, 11/18/35 980,000 1,065,578
------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations,
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 960,000 977,378
------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 775,348 836,020
------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through
Certificates, Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 620,000 637,429
------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
3.375%, 3/20/26 56,175 56,676
7%, 4/15/26 366,860 392,585
7.50%, 5/15/27 1,711,229 1,846,338
------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped Mtg.-Backed
Security:
Series 2001-21, Cl. SB, 21.331%, 1/16/27 5 1,687,793 171,115
Series 2002-15, Cl. SM, 15.334%, 2/16/32 5 1,584,080 156,027
Series 2002-76, Cl. SY, 13.416%, 12/16/26 5 3,275,275 332,286
Series 2004-11, Cl. SM, 18.135%, 1/17/30 5 1,340,757 128,758
------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg Obligations,
Series 2004-9, Cl. A3, 4.70%, 8/25/34 3,541,867 3,555,149
------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through Certificates,
Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 1,130,000 1,238,797
------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 1,362,000 1,582,352
------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 1996-B, Cl. 1, 6.213%, 4/25/26 2,3 5,872 5,421
Series 1996-C1, Cl. F, 8.402%, 1/20/28 2,3 250,000 206,563
------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2003-AR12, Cl. A2, 2.45%, 2/25/34 3 2,146,879 2,149,243

27 | OPPENHEIMER BALANCED FUND

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-----------------------------------------------------------------------------------------------------------

MORTGAGE-BACKED OBLIGATIONS Continued
-----------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-N, Cl. A10, 3.803%, 8/25/34 2 $ 3,007,868 $ 3,017,268
Series 2004-W, Cl. A2, 4.677%, 11/27/34 4 1,890,000 1,902,624
------------
Total Mortgage-Backed Obligations (Cost $246,464,615) 246,991,510

-----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--7.5%
Federal Home Loan Bank Unsec. Bonds, Series EY06, 5.25%, 8/15/06 2,476,000 2,586,675
-----------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
2.75%, 8/15/06 3,500,000 3,499,692
2.875%, 12/15/06 1,685,000 1,684,171
4.50%, 1/15/13 1,270,000 1,278,138
4.875%, 11/15/13 945,000 969,802
5.50%, 7/15/06 13,735,000 14,398,387
5.75%, 1/15/12 600,000 655,688
6.625%, 9/15/09 475,000 536,379
6.875%, 9/15/10 1,000,000 1,151,863
-----------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.25%, 8/15/08 1,000,000 992,524
4.25%, 7/15/07 7,750,000 7,982,795
6%, 5/15/11 4,240,000 4,688,545
7.25%, 1/15/10-5/15/30 7,130,000 8,446,344
-----------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%, 11/13/08 685,000 733,831
7.125%, 5/1/30 603,000 748,620
Series C, 4.75%, 8/1/13 395,000 403,140
Series C, 6%, 3/15/13 380,000 422,656
-----------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%, 2/15/31 2,687,000 2,879,290
5.50%, 8/15/28 1,505,000 1,618,287
STRIPS, 3.37%, 2/15/11 7 2,019,000 1,585,426
STRIPS, 3.86%, 2/15/13 7 2,098,000 1,481,406
-----------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 4.25%, 11/15/13-8/15/14 1,886,000 1,910,390
------------
Total U.S. Government Obligations (Cost $60,616,642) 60,654,049

-----------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.1%
-----------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $731,309) 665,000 751,118

-----------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--13.3%
-----------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch), 7.125% Sub. Nts., Series B, 10/15/93 500,000 571,055
-----------------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 1,675,000 1,776,207
-----------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B, 4/1/08 740,000 806,600
-----------------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 8 365,000 372,261
-----------------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts., 7/30/07 495,000 497,408

28 | OPPENHEIMER BALANCED FUND

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-------------------------------------------------------------------------------------------------

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
-------------------------------------------------------------------------------------------------
American Express Centurion Bank, 4.375% Nts., 7/30/09 $ 650,000 $ 664,843
-------------------------------------------------------------------------------------------------
American Honda Finance Corp., 3.85% Nts., 11/6/08 8 425,000 427,686
-------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec. Nts., 5/1/07 1,200,000 1,322,836
-------------------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30 1,030,000 1,337,280
-------------------------------------------------------------------------------------------------
Bank of America Corp.:
4.875% Sr. Unsec. Nts., 1/15/13 23,000 23,371
7.80% Jr. Unsec. Sub. Nts., 2/15/10 500,000 588,033
-------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 140,000 157,495
-------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 8.625% Sr. Unsec. Nts., 5/15/11 770,000 852,775
-------------------------------------------------------------------------------------------------
Boeing Capital Corp.:
5.65% Sr. Unsec. Nts., 5/15/06 127,000 132,643
6.50% Nts., 2/15/12 10 1,000,000 1,121,147
-------------------------------------------------------------------------------------------------
British Telecommunications plc:
7.875% Nts., 12/15/05 1,070,000 1,133,689
8.125% Nts., 12/15/10 695,000 839,112
-------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09 238,000 241,253
-------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08 980,000 1,023,880
8.125% Unsec. Nts., Series B, 7/15/05 335,000 348,758
-------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.50% Sr. Nts., 6/15/14 895,000 982,263
-------------------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts., 5/15/07 2,020,000 2,213,163
-------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,000,000 1,185,184
-------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.875% Unsec. Nts., 2/15/98 550,000 612,077
-------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 399,000 440,895
-------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 4.625% Sr. Unsec. Nts., 1/15/08 1,815,000 1,849,703
-------------------------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec. Debs., 7/29/93 440,000 538,914
-------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06 925,000 973,465
-------------------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts., Series B, 6/1/05 230,000 233,289
-------------------------------------------------------------------------------------------------
Cox Communications, Inc., 6.40% Sr. Unsec. Nts., 8/1/08 1,205,000 1,266,342
-------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 780,000 846,341
-------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 9.375% Sr. Unsec. Sub. Nts., 3/15/11 710,000 796,975
-------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 4.75% Unsec. Nts., 1/15/08 1,525,000 1,571,755
-------------------------------------------------------------------------------------------------
Delphi Automotive Systems Corp., 6.50% Nts., 5/1/09 685,000 723,783
-------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts., 6/15/10 1,050,000 1,259,976
-------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 725,000 860,058
-------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 830,000 873,129
-------------------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts., 8/15/14 980,000 1,001,422
-------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 295,000 318,025
8.375% Nts., 3/15/06 560,000 601,776

29 | OPPENHEIMER BALANCED FUND

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
----------------------------------------------------------------------------------------------------------

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
----------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 $1,205,000 $1,322,621
----------------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 1,875,000 1,845,446
----------------------------------------------------------------------------------------------------------
FirstEnergy Corp., 5.50% Sr. Unsub. Nts., Series A, 11/15/06 1,710,000 1,780,859
----------------------------------------------------------------------------------------------------------
Food Lion, Inc., 7.55% Nts., 4/15/07 1,110,000 1,209,432
----------------------------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec. Unsub. Debs., 3/1/30 580,000 663,067
----------------------------------------------------------------------------------------------------------
Ford Motor Co.:
7.70% Unsec. Debs., 5/15/97 500,000 477,913
8.90% Unsec. Unsub. Debs., 1/15/32 285,000 320,676
----------------------------------------------------------------------------------------------------------
France Telecom SA:
8.50% Sr. Unsec. Nts., 3/1/11 690,000 827,035
9.25% Sr. Unsec. Nts., 3/1/31 3 360,000 478,706
----------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 585,000 586,720
----------------------------------------------------------------------------------------------------------
Gap, Inc. (The), 6.90% Nts., 9/15/07 2 695,000 759,288
----------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 1,400,000 1,415,590
----------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Unsec. Unsub. Nts., 8/28/12 1,980,000 2,060,568
----------------------------------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs., 7/15/33 550,000 585,622
----------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 7.80% Sr. Unsec. Unsub. Nts., Series B, 1/28/10 500,000 581,787
----------------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375% Nts., 6/1/06 480,000 474,936
----------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 1,810,000 1,877,576
----------------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.95% Sr. Nts., 4/15/07 635,000 704,056
----------------------------------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co. plc, 13.08% Sr. Unsec. Disc. Nts., 12/31/09 2,7 800,000 428,000
----------------------------------------------------------------------------------------------------------
Hutchison Whampoa International Ltd., 7.45% Sr. Bonds, 11/24/33 8 685,000 712,439
----------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 2,3 810,000 907,200
----------------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B, 1/15/09 775,000 780,450
8.75% Sr. Unsec. Nts., 8/15/08 565,000 650,504
----------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., 8% Nts., 3/1/10 1,640,000 1,875,750
----------------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10 8 1,341,000 1,585,771
----------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 10.875% Sr. Nts., Series B, 10/15/06 1,11 250,000 242,500
----------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 810,000 892,025
----------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 2,040,000 2,136,284
----------------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 1,255,000 1,398,827
----------------------------------------------------------------------------------------------------------
Leap Wireless International, Inc.:
4/1/27, Escrow Shares 9 600,000 24,000
4/1/27, Escrow Shares 9 300,000 9,750
----------------------------------------------------------------------------------------------------------
Lear Corp.:
7.96% Sr. Unsec. Nts., Series B, 5/15/05 755,000 778,672
8.11% Sr. Unsec. Nts., Series B, 5/15/09 842,000 973,120
----------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 1,165,000 1,286,630
----------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 185,000 202,571

30 | OPPENHEIMER BALANCED FUND

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
-------------------------------------------------------------------------------------------------

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
-------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 $ 880,000 $ 932,172
-------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts., 9/25/06 825,000 822,053
-------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 935,000 954,141
-------------------------------------------------------------------------------------------------
May Department Stores Co. (The), 3.95% Nts., 7/15/07 8 121,000 122,022
-------------------------------------------------------------------------------------------------
MBNA America Bank NA, 5.375% Nts., 1/15/08 1,390,000 1,458,581
-------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875% Unsec. Unsub. Nts., 11/1/06 228,000 245,040
-------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125% Nts., 9/10/09 1,880,000 1,887,217
-------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 760,000 848,740
-------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 124,000 136,814
-------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375% Sr. Unsec. Nts., 10/1/04 515,000 515,000
-------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 250,000 249,356
7.875% Sr. Unsec. Nts., 11/15/10 1,070,000 1,266,022
-------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 1,125,000 1,294,829
-------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 510,000 622,455
-------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 8 605,895 594,380
-------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 8 1,215,000 1,553,318
-------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 8 1,285,000 1,638,982
-------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 810,000 868,725
-------------------------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec. Nts., 12/15/08 750,000 904,297
-------------------------------------------------------------------------------------------------
Raytheon Co., 6.50% Unsec. Nts., 7/15/05 1,155,000 1,189,419
-------------------------------------------------------------------------------------------------
Safeway, Inc., 2.50% Nts., 11/1/05 1,765,000 1,758,764
-------------------------------------------------------------------------------------------------
Spieker Properties LP, 6.75% Unsec. Unsub. Nts., 1/15/08 575,000 633,578
-------------------------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts., 1/30/06 870,000 917,673
8.75% Nts., 3/15/32 725,000 922,929
-------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10% Sr. Sec. Nts., 12/19/07 2 136,379 128,878
-------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 965,000 978,999
7.75% Unsec. Sub. Nts., 5/1/10 86,000 101,030
-------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 1,720,000 2,196,093
-------------------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts., 12/1/07 680,000 792,200
-------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 745,000 749,052
-------------------------------------------------------------------------------------------------
Texas Utilities Co., 6.375% Sr. Unsec. Nts., Series C, 1/1/08 737,000 801,207
-------------------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs., 1/15/13 695,000 871,495
-------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12 308,000 400,291
-------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 770,000 857,588

31 | OPPENHEIMER BALANCED FUND

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
------------------------------------------------------------------------------------------------------------------

NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
------------------------------------------------------------------------------------------------------------------
Tyco International Group SA:
5.875% Unsec. Unsub. Nts., 11/1/04 $ 167,000 $ 167,445
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 1,220,000 1,275,841
6.375% Nts., 10/15/11 1,000,000 1,107,502
6.75% Sr. Unsub. Nts., 2/15/11 515,000 580,180
------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 241,000 238,507
3.50% Sr. Unsec. Nts., 10/15/07 1,255,000 1,247,158
------------------------------------------------------------------------------------------------------------------
Volkswagen Credit, Inc., 1.88% Nts., 7/21/05 3,8 1,825,000 1,825,100
------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 1,765,000 1,852,945
------------------------------------------------------------------------------------------------------------------
Waste Management, Inc.:
7% Sr. Nts., 7/15/28 290,000 321,911
7.375% Sr. Unsub. Nts., 8/1/10 650,000 751,196
------------------------------------------------------------------------------------------------------------------
Western Forest Products, Inc., 15% Sec. Nts., 7/28/09 2 292,000 324,120
------------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts., 3/15/05 349,000 353,623
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 1,755,000 1,896,132
-------------
Total Non-Convertible Corporate Bonds and Notes (Cost $104,681,858) 108,398,258

------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--1.0%
------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit Linked Nts.,
Series 2003-1, 3.318%, 1/7/05 2,3 4,250,000 4,234,275
------------------------------------------------------------------------------------------------------------------
UBS AG, High Grade Credit Linked Nts., 1.863%, 12/10/04 2 4,250,000 4,260,200
-------------
Total Structured Notes (Cost $8,500,000) 8,494,475

------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--6.5%
------------------------------------------------------------------------------------------------------------------
Undivided interest of 3.66% in joint repurchase agreement (Principal Amount/
Value $1,446,038,000, with a maturity value of $1,446,110,302) with UBS Warburg
LLC, 1.80%, dated 9/30/04, to be repurchased at $52,921,646 on 10/1/04,
collateralized by Federal National Mortgage Assn., 5%, 3/1/34, with
a value of $1,477,979,332 (Cost $52,919,000) 52,919,000 52,919,000

------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $859,997,021) 118.7% 965,875,957
------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (18.7) (152,407,094)
--------------------------------
NET ASSETS 100.0% $ 813,468,863
===============================

32 | OPPENHEIMER BALANCED FUND

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Illiquid security. See Note 9 of Notes to Financial Statements.

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

4. When-issued security or forward commitment to be delivered and settled after
September 30, 2004. See Note 1 of Notes to Financial Statements.

5. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to
changes in prepayment rates than traditional mortgage-backed securities (for
example, GNMA pass-throughs). Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing and amount of future
cash flows. These securities amount to $5,728,079 or 0.70% of the Fund's net
assets as of September 30, 2004.

6. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of
coupon-bearing bonds of the same maturity. Interest rates disclosed represent
current yields based upon the current cost basis and estimated timing of future
cash flows. These securities amount to $1,286,004 or 0.16% of the Fund's net
assets as of September 30, 2004.

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

8. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $8,831,959 or 1.09% of the Fund's net
assets as of September 30, 2004.

9. Received as the result of issuer reorganization.

10. All or a portion of the security is held in collateralized accounts to
cover initial margin requirements on open futures sales contracts with an
aggregate market value of $1,121,147. See Note 6 of Notes to Financial
Statements.

11. Issue is in default. See Note 1 of Notes to Financial Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

33 | OPPENHEIMER BALANCED FUND

STATEMENT OF ASSETS AND LIABILITIES September 30, 2004
--------------------------------------------------------------------------------

ASSETS

Investments, at value (including securities loaned of approximately $56,735,000)
(cost $859,997,021)--see accompanying statement of investments $ 965,875,957
-------------------------------------------------------------------------------------------------------------
Cash 824,025
-------------------------------------------------------------------------------------------------------------
Collateral for securities loaned 57,707,572
-------------------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 15,132
-------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $15,571,863 sold on a when-issued basis or forward commitment) 18,509,584
Interest, dividends and principal paydowns 4,167,482
Shares of beneficial interest sold 611,077
Other 17,788
---------------
Total assets 1,047,728,617

-------------------------------------------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 57,707,572
-------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $173,773,843 purchased on a when-issued basis
or forward commitment) 174,706,665
Shares of beneficial interest redeemed 769,138
Distribution and service plan fees 415,300
Futures margins 209,320
Trustees' compensation 150,164
Shareholder communications 111,919
Transfer and shareholder servicing agent fees 98,320
Other 91,356
---------------
Total liabilities 234,259,754

-------------------------------------------------------------------------------------------------------------
NET ASSETS $ 813,468,863
===============

-------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
-------------------------------------------------------------------------------------------------------------
Paid-in capital $ 673,998,923
-------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (681,095)
-------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 33,070,783
-------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies 107,080,252
---------------
NET ASSETS $ 813,468,863
===============

34 | OPPENHEIMER BALANCED FUND

--------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------------------------------------------------

Class A Shares:
Net asset value and redemption price per share (based on net assets of $651,754,451
and 47,396,334 shares of beneficial interest outstanding) $13.75
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $14.59
--------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $84,924,465 and 6,274,530 shares of
beneficial interest outstanding) $13.53
--------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $68,017,502 and 5,005,258 shares
of beneficial interest outstanding) $13.59
--------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $8,772,445 and 642,462 shares
of beneficial interest outstanding) $13.65

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

35 | OPPENHEIMER BALANCED FUND

STATEMENT OF OPERATIONS For the Year Ended September 30, 2004
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest $ 10,331,052
-------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $152,061) 6,013,083
-------------------------------------------------------------------------------
Portfolio lending fees 42,187
------------
Total investment income 16,386,322

-------------------------------------------------------------------------------
EXPENSES
-------------------------------------------------------------------------------
Management fees 5,468,668
-------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,231,729
Class B 770,099
Class C 600,128
Class N 28,414
-------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 791,353
Class B 188,333
Class C 107,107
Class N 18,288
-------------------------------------------------------------------------------
Shareholder communications:
Class A 106,236
Class B 34,440
Class C 13,133
Class N 1,372
-------------------------------------------------------------------------------
Trustees' compensation 35,182
-------------------------------------------------------------------------------
Custodian fees and expenses 21,446
-------------------------------------------------------------------------------
Other 164,334
------------
Total expenses 9,580,262
Less reduction to custodian expenses (8,860)
Less payments and waivers of expenses (66,293)
------------
Net expenses 9,505,109

-------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,881,213

36 | OPPENHEIMER BALANCED FUND

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

REALIZED AND UNREALIZED GAIN
---------------------------------------------------------------------------------------
Net realized gain on:
Investments (including premiums on options exercised) $ 61,343,728
Closing of futures contracts 1,936,034
Closing and expiration of option contracts written 428,486
Foreign currency transactions 211,202
Swap contracts 266,706
Net increase from payment by affiliate 16,530
-------------
Net realized gain 64,202,686
---------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 428,737
Translation of assets and liabilities denominated in foreign currencies 331,423
Futures contracts (91,453)
Option contracts (211,992)
Swap contracts (216,255)
-------------
Net change in unrealized appreciation 240,460

---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 71,324,359
============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

37 | OPPENHEIMER BALANCED FUND

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

YEAR ENDED SEPTEMBER 30, 2004 2003
------------------------------------------------------------------------------------------

OPERATIONS
------------------------------------------------------------------------------------------
Net investment income $ 6,881,213 $ 10,168,008
------------------------------------------------------------------------------------------
Net realized gain (loss) 64,202,686 (25,256,881)
------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 240,460 137,802,225
-------------------------------
Net increase in net assets resulting from operations 71,324,359 122,713,352

------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (4,777,266) (9,895,590)
Class B (111,890) (549,555)
Class C (122,220) (411,935)
Class N (30,405) (26,078)
------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A -- (1,438,201)
Class B -- (158,899)
Class C -- (105,519)
Class N -- (4,407)

------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 20,788,123 (441,692)
Class B 13,846,692 (9,391)
Class C 16,261,663 7,175,471
Class N 4,986,013 2,289,286

------------------------------------------------------------------------------------------
NET ASSETS
------------------------------------------------------------------------------------------
Total increase 122,165,069 119,136,842
------------------------------------------------------------------------------------------
Beginning of period 691,303,794 572,166,952
-------------------------------
End of period (including accumulated net investment loss
of $681,095 and $129,239, respectively) $ 813,468,863 $ 691,303,794
===============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

38 | OPPENHEIMER BALANCED FUND

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

CLASS A YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
-------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.55 $ 10.51 $ 12.14 $ 14.23 $ 14.06
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .14 .21 .35 .43 .53
Net realized and unrealized gain (loss) 1.16 2.08 (1.29) (1.40) 1.21
------------------------------------------------------------------
Total from investment operations 1.30 2.29 (.94) (.97) 1.74
-------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.10) (.22) (.31) (.38) (.48)
Tax return of capital distribution -- (.03) -- -- --
Distributions from net realized gain -- -- (.38) (.74) (1.09)
------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.10) (.25) (.69) (1.12) (1.57)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.75 $ 12.55 $ 10.51 $ 12.14 $ 14.23
==================================================================

-------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 10.37% 21.98% (8.58)% (7.27)% 13.31%
-------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $651,754 $575,799 $483,311 $562,281 $639,648
-------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $631,041 $523,477 $570,796 $626,251 $644,356
-------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 1.05% 1.78% 2.84% 3.16% 3.71%
Total expenses 1.07% 1.11% 1.15% 1.01% 1.13%
Expenses after payments and waivers
and reduction to custodian expenses 1.06% N/A 3 N/A 3 N/A 3 N/A 3
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 4 205% 31% 40% 33%

1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.

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

3. Reduction to custodian expenses less than 0.01%.

4. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,069,526,653 and $1,026,457,980, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

39 | OPPENHEIMER BALANCED FUND

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

CLASS B YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.40 $ 10.38 $ 12.01 $ 14.08 $ 13.93
------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .02 .09 .25 .31 .41
Net realized and unrealized gain (loss) 1.13 2.07 (1.29) (1.36) 1.19
---------------------------------------------------------------------
Total from investment operations 1.15 2.16 (1.04) (1.05) 1.60
------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.02) (.11) (.21) (.28) (.36)
Tax return of capital distribution -- (.03) -- -- --
Distributions from net realized gain -- -- (.38) (.74) (1.09)
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.02) (.14) (.59) (1.02) (1.45)
------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.53 $ 12.40 $ 10.38 $ 12.01 $ 14.08
=====================================================================

------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.26% 20.91% (9.38)% (7.96)% 12.30%
------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 84,924 $ 64,944 $ 54,757 $ 63,487 $ 66,777
------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 77,082 $ 57,836 $ 64,702 $ 67,959 $ 66,956
------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 0.11% 0.81% 2.02% 2.37% 2.92%
Total expenses 2.02% 3,4 2.08% 3 1.97% 3 1.81% 3 1.94% 3
------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 5 205% 31% 40% 33%

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,069,526,653 and $1,026,457,980, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

40 | OPPENHEIMER BALANCED FUND

CLASS C YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
-----------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.44 $ 10.42 $ 12.06 $ 14.13 $ 13.97
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04 .11 .24 .31 .41
Net realized and unrealized gain (loss) 1.13 2.06 (1.29) (1.37) 1.20
--------------------------------------------------------------------
Total from investment operations 1.17 2.17 (1.05) (1.06) 1.61
-----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.02) (.12) (.21) (.27) (.36)
Tax return of capital distribution -- (.03) -- -- --
Distributions from net realized gain -- -- (.38) (.74) (1.09)
--------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.02) (.15) (.59) (1.01) (1.45)
-----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.59 $ 12.44 $ 10.42 $ 12.06 $ 14.13
====================================================================

-----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.45% 20.98% (9.41)% (8.00)% 12.35%
-----------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 68,018 $ 47,212 $ 33,300 $ 36,171 $ 38,522
-----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 60,095 $ 38,407 $ 37,412 $ 39,030 $ 38,597
-----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 0.19% 0.90% 2.03% 2.37% 2.92%
Total expenses 1.93% 3,4 1.98% 3 1.96% 3 1.81% 3 1.94% 3
-----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 5 205% 31% 40% 33%

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

3. Reduction to custodian expenses less than 0.01%.

4. Voluntary waiver of transfer agent fees less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,069,526,653 and $1,026,457,980, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

41 | OPPENHEIMER BALANCED FUND

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

CLASS N YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 1
-----------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
-----------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.49 $10.48 $12.13 $13.67
-----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .10 .20 .39 .24
Net realized and unrealized gain (loss) 1.12 2.01 (1.38) (1.48)
--------------------------------------------
Total from investment operations 1.22 2.21 (.99) (1.24)
-----------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.06) (.17) (.28) (.30)
Tax return of capital distribution -- (.03) -- --
Distributions from net realized gain -- -- (.38) --
--------------------------------------------
Total dividends and/or distributions
to shareholders (.06) (.20) (.66) (.30)
-----------------------------------------------------------------------------------------------
Net asset value, end of period $13.65 $12.49 $10.48 $12.13
============================================

-----------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.77% 21.27% (8.94)% (9.30)%
-----------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $8,772 $3,349 $ 798 $ 95
-----------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,701 $1,604 $ 454 $ 12
-----------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.55% 1.24% 2.49% 5.81%
Total expenses 1.58% 1.76% 1.48% 1.32%
Expenses after payments and waivers
and reduction to custodian expenses 1.57% 1.62% N/A 4 N/A 4
-----------------------------------------------------------------------------------------------
Portfolio turnover rate 61% 5 205% 31% 40%

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

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.

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

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,069,526,653 and $1,026,457,980, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

42 | OPPENHEIMER BALANCED FUND

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

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

Oppenheimer Balanced Fund (the Fund), formerly Oppenheimer Multiple Strategies
Fund, is registered under the Investment Company Act of 1940, as amended, as an
open end management investment company. The Fund's investment objective is to
seek high total return consistent with the preservation of principal. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).

The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without
a front-end sales charge but may be subject to a contingent deferred sales
charge (CDSC). Class N shares are sold only through retirement plans.
Retirement plans that offer Class N shares may impose charges on those
accounts. All classes of shares have identical rights and voting privileges
with respect to the Fund in general and exclusive voting rights on matters that
affect that class alone. Earnings, net assets and net asset value per share may
differ due to each class having its own expenses, such as transfer and
shareholder servicing agent fees and shareholder communications, directly
attributable to that class. Class A, B, C and N have separate distribution
and/or service plans. Class B shares will automatically convert to Class A
shares six years after the date of purchase.

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

-------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges
are valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on
NASDAQ are valued based on the closing price provided by NASDAQ prior to the
time when the Fund's assets are valued. In the absence of a sale, the security
is valued at the last sale price on the prior trading day, if it is within the
spread of the closing bid and asked prices, and if not, at the closing bid
price. Corporate, government and municipal debt instruments having a remaining
maturity in excess of 60 days and all mortgage-backed securities will be valued
at the mean between the "bid" and "asked" prices. Securities may be valued
primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities (including restricted
securities) for which market quotations are not readily available are valued at
their fair value. Foreign and domestic securities whose values have been
materially affected by what the Manager identifies as a significant event
occurring before the Fund's assets are valued but after the close of their
respective exchanges will be fair valued. Fair value is determined in good
faith using consistently applied procedures under the supervision of the Board
of Trustees. Short-term "money market type" debt securities with remaining
maturities of sixty days or less are valued at amortized cost (which
approximates market value).

43 | OPPENHEIMER BALANCED FUND

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

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

STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to
the change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss
when a structured note is sold or matures. As of September 30, 2004, the market
value of these securities comprised 1.0% of the Fund's net assets and resulted
in unrealized losses of $5,525.

--------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of September 30, 2004, the Fund had purchased
$173,773,843 of securities on a when-issued basis or forward commitment and
sold $15,571,863 of securities issued on a when-issued basis or forward
commitment.

In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of
each forward roll as realized gain (loss) on investments or as fee income in
the case of such transactions that have an associated fee in lieu of a
difference in the forward purchase and sale price.

Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the
potential pay down speed variance between the mortgage-related pools.

44 | OPPENHEIMER BALANCED FUND

--------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of September 30, 2004, securities with an
aggregate market value of $242,500, representing 0.03% of the Fund's net assets,
were in default.

--------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dol- lars as of the close of The New York Stock Exchange
(the Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is
open. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, cur- rency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.

--------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

--------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

45 | OPPENHEIMER BALANCED FUND

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

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

FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
---------------------------------------------------------------------------
$11,511,502 $24,338,284 $1,168,546 $104,937,188

1. The Fund had $1,168,546 of straddle losses which were deferred.

2. During the fiscal year ended September 30, 2004, the Fund utilized $4,257,280
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended September 30, 2003, the Fund did not utilize any
capital loss carryforward to offset capital gains realized in that fiscal year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for September 30, 2004. Net assets of
the Fund were unaffected by the reclassifications.

REDUCTION TO
REDUCTION TO ACCUMULATED NET
INCREASE TO ACCUMULATED NET REALIZED GAIN
PAID-IN CAPITAL INVESTMENT INCOME ON INVESTMENTS 4
----------------------------------------------------------------
$2,838,909 $2,391,288 $447,621

4. $2,468,087, including $1,675,575 of long-term capital gain, was distributed
in connection with Fund share redemptions.

The tax character of distributions paid during the years ended September 30,
2004 and September 30, 2003 was as follows:

46 | OPPENHEIMER BALANCED FUND

YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
--------------------------------------------------------------------

Distributions paid from:
Ordinary income $5,041,781 $10,883,158
Return of capital -- 1,707,026
--------------------------------
Total $5,041,781 $12,590,184
================================

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of September 30, 2004 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.

Federal tax cost of securities $ 860,958,324
Federal tax cost of other investments (42,618,910)
--------------
Total federal tax cost $ 818,339,414
==============

Gross unrealized appreciation $ 116,350,585
Gross unrealized depreciation (11,413,397)
--------------
Net unrealized appreciation $ 104,937,188
==============

--------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent trustees. Benefits are based on years of service and fees
paid to each trustee during the years of service. During the year ended
September 30, 2004, the Fund's projected benefit obligations were increased by
$13,731 and payments of $10,442 were made to retired trustees, resulting in an
accumulated liability of $128,819 as of September 30, 2004.

The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of the annual compensation they are entitled to receive from the Fund.
For purposes of determining the amount owed to the Trustee under the plan,
deferred amounts are treated as though equal dollar amounts had been invested in
shares of the Fund or in other Oppenheimer funds selected by the Trustee. The
Fund purchases shares of the funds selected for deferral by the Trustee in
amounts equal to his or her deemed investment, resulting in a Fund asset equal
to the deferred compensation liability. Such assets are included as a component
of "Other" within the asset section of the Statement of Assets and Liabilities.
Deferral of trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
investment income per share. Amounts will be deferred until distributed in
accordance to the Plan.

--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
and paid quarterly. Capital gain distributions, if any, are declared and paid
annually.

47 | OPPENHEIMER BALANCED FUND

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

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

INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.

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

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

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

The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:

YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------

CLASS A
Sold 6,122,137 $ 82,783,982 4,105,517 $ 47,076,255
Dividends and/or
distributions reinvested 313,143 4,294,088 867,685 10,173,237
Acquisition-Note 11 -- -- 460,912 5,789,058
Redeemed (4,905,906) (66,289,947) (5,572,268) (63,480,242)
------------------------------------------------------------------
Net increase (decrease) 1,529,374 $ 20,788,123 (138,154) $ (441,692)
==================================================================

------------------------------------------------------------------------------------------------
CLASS B
Sold 2,864,209 $ 38,137,332 1,845,061 $ 21,105,571
Dividends and/or
distributions reinvested 7,693 103,111 56,269 654,993
Acquisition-Note 11 -- -- 61,992 768,077
Redeemed (1,835,055) (24,393,751) (2,000,366) (22,538,032)
------------------------------------------------------------------
Net increase (decrease) 1,036,847 $ 13,846,692 (37,044) $ (9,391)
==================================================================

------------------------------------------------------------------------------------------------
CLASS C
Sold 2,004,496 $ 26,837,027 1,252,468 $ 14,407,664
Dividends and/or
distributions reinvested 8,365 112,683 40,146 469,075
Acquisition-Note 11 -- -- 93,553 1,163,802
Redeemed (801,328) (10,688,047) (787,972) (8,865,070)
------------------------------------------------------------------
Net increase 1,211,533 $ 16,261,663 598,195 $ 7,175,471
==================================================================

48 | OPPENHEIMER BALANCED FUND

YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------

CLASS N
Sold 553,663 $ 7,419,779 170,483 $ 1,997,262
Dividends and/or
distributions reinvested 2,182 29,726 2,505 29,692
Acquisition-Note 11 -- -- 47,795 597,438
Redeemed (181,488) (2,463,492) (28,893) (335,106)
----------------------------------------------------------------
Net increase 374,357 $ 4,986,013 191,890 $ 2,289,286
================================================================

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

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
September 30, 2004, were $466,372,216 and $377,036,982, respectively. There were
purchases of $58,191,211 and sales of $35,016,692 of U.S. government and
government agency obligations for the year ended September 30, 2004.

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

MANAGEMENT FEES. Management fees paid to the Manager are in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets of
the Fund, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66%
of the next $200 million, 0.60% of the next $700 million, and 0.58% of average
annual net assets in excess of $1.5 billion.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended September 30, 2004, the Fund paid
$1,057,674 to OFS for services to the Fund.

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

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

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to

49 | OPPENHEIMER BALANCED FUND

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

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

compensate the Distributor for its services in connection with the distribution
of those shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class B and
Class C shares and 0.25% per year on Class N shares. The Distributor also
receives a service fee of up to 0.25% per year under each plan. If either the
Class B, Class C or Class N plan is terminated by the Fund or by the
shareholders of a class, the Board of Trustees and its independent trustees must
determine whether the Distributor shall be entitled to payment from the Fund of
all or a portion of the service fee and/or asset-based sales charge in respect
to shares sold prior to the effective date of such termination. The
Distributor's aggregate uncompensated expenses under the plan at September 30,
2004 for Class B, Class C and Class N shares were $2,826,206, $1,206,054 and
$110,677, respectively. Fees incurred by the Fund under the plans are detailed
in the Statement of Operations.

--------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.

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

September 30, 2004 $385,955 $205 $141,739 $8,124 $1,701

--------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $16,530, an amount equivalent to certain of such
commissions incurred in prior years.

OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class.
During the year ended September 30, 2004, OFS waived $57,068, $6,387, $2,547 and
$291 for Class A, Class B, Class C and Class N shares, respectively. This
undertaking may be amended or withdrawn at any time.

--------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

50 | OPPENHEIMER BALANCED FUND

The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

As of September 30, 2004, the Fund had no outstanding foreign currency
contracts.

--------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported on the Statement of Operations.

Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

51 | OPPENHEIMER BALANCED FUND

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

--------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued

As of September 30, 2004, the Fund had outstanding futures contracts as follows:

UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS SEPT. 30, 2004 (DEPRECIATION)
-------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
U.S. Long Bonds 12/20/04 280 $31,421,250 $ 650,748
U.S. Treasury Nts., 10 yr 12/20/04 439 49,442,375 571,447
-----------
1,222,195
-----------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr 12/30/04 281 59,356,859 126,634
U.S. Treasury Nts., 5 yr 12/30/04 579 64,124,250 (165,641)
-----------
(39,007)
-----------
$1,183,188
===========

--------------------------------------------------------------------------------
7. OPTION ACTIVITY

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

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

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

Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.

The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.

52 | OPPENHEIMER BALANCED FUND

Written option activity for the year ended September 30, 2004 was as follows:

CALL OPTIONS
--------------------------
NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS
-------------------------------------------------------
Options outstanding as of
September 30, 2003 6,826 $1,028,981
Options closed or expired (2,929) (428,486)
Options exercised (3,897) (600,495)
----------------------
Options outstanding as of
September 30, 2004 -- $ --
======================

--------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS

The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to unrealized
gain (loss), in the amount due to or owed by the Fund at termination or
settlement. Total return swaps are subject to risks (if the counterparty fails
to meet its obligations).

As of September 30, 2004, the Fund had entered into the following total return
swap agreements:

PAID BY RECEIVED BY
NOTIONAL THE FUND AT THE FUND AT TERMINATION UNREALIZED
SWAP COUNTERPARTY AMOUNT SEPT. 30, 2004 SEPT. 30, 2004 DATES APPRECIATION
-----------------------------------------------------------------------------------------------------

Value of
One Month total return of
LIBOR less 50 Lehman Brothers
Deutsche Bank AG $5,500,000 basis points CMBS Index 1/1/05 $15,132
Value of
total return of
Goldman Sachs One Month Lehman Brothers
Capital Markets LP 5,500,000 LIBOR BBA CMBS Index 3/31/05 --
-------
$15,132
=======

Notional amount is reported in U.S. Dollars. Index abbreviations are as follows:

CMBS Commercial Mortgage Backed Securities Markets
LIBOR London-Interbank Offered Rate
LIBOR BBA London-Interbank Offered Rate British Bankers Association

53 | OPPENHEIMER BALANCED FUND

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

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

As of September 30, 2004, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. The aggregate value
of illiquid securities subject to this limitation as of September 30, 2004 was
$16,671,213, which represents 2.05% of the Fund's net assets.

--------------------------------------------------------------------------------
10. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of September 30, 2004,
the Fund had on loan securities valued at approximately $56,735,000. Cash of
$57,707,572 was received as collateral for the loans, and has been invested in
approved instruments.

--------------------------------------------------------------------------------
11. ACQUISITION OF OPPENHEIMER SELECT MANAGERS QM ACTIVE BALANCED FUND

On September 4, 2003, the Fund acquired all of the net assets of Oppenheimer
Select Managers QM Active Balanced Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Oppenheimer Select Managers QM Active Balanced
Fund shareholders on August 29, 2003. The Fund issued (at an exchange ratio of
0.743061 for Class A, 0.748082 for Class B, 0.746018 for Class C and 0.746337
for Class N of the Fund to one share of Oppenheimer Balanced Fund) 460,912,
61,992, 93,553 and 47,795 shares of beneficial interest for Class A, Class B,
Class C and Class N, respectively, valued at $5,789,058, $768,077, $1,163,802
and $597,438 in exchange for the net assets, resulting in combined Class A net
assets of $576,426,341, Class B net assets of $63,310,584, Class C net assets of
$45,976,371 and Class N net assets of $2,902,200 on September 4, 2003. The net
assets acquired included net unrealized appreciation of $535,545 and unused
capital loss carryforward of $28,532 potential utilization subject to tax
limitation. The exchange qualified as a tax-free reorganization for federal
income tax purposes.

54 | OPPENHEIMER BALANCED FUND

--------------------------------------------------------------------------------
12. LITIGATION

Six complaints have been filed as putative derivative and class actions against
the Manager, OFS and the Distributor (collectively, "OppenheimerFunds"), as well
as 51 of the Oppenheimer funds (collectively, the "Funds") including this Fund,
and nine Directors/ Trustees of certain of the Funds (collectively, the
"Directors/Trustees"). The complaints allege that the Manager charged excessive
fees for distribution and other costs, improperly used assets of the Funds in
the form of directed brokerage commissions and 12b-1 fees to pay brokers to
promote sales of the Funds, and failed to properly disclose the use of Fund
assets to make those payments in violation of the Investment Company Act of 1940
and the Investment Advisers Act of 1940. The complaints further allege that by
permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law. By order dated October 27, 2004, these
six actions, and future related actions, were consolidated by the U.S. District
Court for the Southern District of New York into a single consolidated
proceeding in contemplation of the filing of a superceding consolidated and
amended complaint.

OppenheimerFunds believes that it is premature to render any opinion as to
the likelihood of an outcome unfavorable to them, the Funds or the
Directors/Trustees and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss. However,
OppenheimerFunds, the Funds and the Directors/Trustees believe that the
allegations contained in the complaints are without merit and intend to defend
these lawsuits vigorously.

55 | OPPENHEIMER BALANCED FUND

Appendix A

RATINGS DEFINITIONS

Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly available information provided by the rating organizations.

Moody's Investors Service, Inc. ("Moody's")

LONG-TERM RATINGS: BONDS AND PREFERRED STOCK ISSUER RATINGS

Aaa: Bonds and preferred stock rated "Aaa" are judged to be the best quality.
They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, the changes
that can be expected are most unlikely to impair the fundamentally strong
position of such issues.

Aa: Bonds and preferred stock rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than that of "Aaa"
securities.

A: Bonds and preferred stock rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time in the
future.

Baa: Bonds and preferred stock rated "Baa" are considered medium-grade
obligations; that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well.

Ba: Bonds and preferred stock rated "Ba" are judged to have speculative
elements. Their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B: Bonds and preferred stock rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa: Bonds and preferred stock rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest. Ca: Bonds and preferred stock rated "Ca" represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C: Bonds and preferred stock rated "C" are the lowest class of rated bonds and
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa." The modifier "1" indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and the modifier "3" indicates a ranking in
the lower end of that generic rating category. Advanced refunded issues that are
secured by certain assets are identified with a # symbol.

PRIME RATING SYSTEM (SHORT-TERM RATINGS - TAXABLE DEBT)
These ratings are opinions of the ability of issuers to honor senior financial
obligations and contracts. Such obligations generally have an original maturity
not exceeding one year, unless explicitly noted.

Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.

Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.

Not Prime: Issuer does not fall within any Prime rating category.

Standard & Poor's Ratings Services ("Standard & Poor's"), a division of
The McGraw-Hill Companies, Inc.

LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.

AAA: An obligation rated "AAA" have the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

AA: An obligation rated "AA" differ from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A: An obligation rated "A" are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated "BBB" exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC, and C
An obligation rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

BB: An obligation rated "BB" are less vulnerable to nonpayment than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B: An obligation rated "B" are more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

CCC: An obligation rated "CCC" are currently vulnerable to nonpayment, and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated "CC" are currently highly vulnerable to nonpayment.

C: Subordinated debt or preferred stock obligations rated "C" are currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this obligation are being continued. A "C" also will be assigned to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.

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

The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

c: The `c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level and/or
the issuer's bonds are deemed taxable.

p: The letter `p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.

Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.

r: The `r' highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an `r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

N.R. Not rated.

Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

Bond Investment Quality Standards

Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories (`AAA', `AA', `A', `BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general

SHORT-TERM ISSUE CREDIT RATINGS
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days-including
commercial paper.

A-1: A short-term obligation rated "A-1" is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.

A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.

C: A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.

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

NOTES:

A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:

o Amortization schedule-the larger the final maturity relative to other
maturities, the more likely it will be treated as a note; and
o Source of payment-the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.

SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3: Speculative capacity to pay principal and interest.

Fitch, Inc.
International credit ratings assess the capacity to meet foreign currency or
local currency commitments. Both "foreign currency" and "local currency" ratings
are internationally comparable assessments. The local currency rating measures
the probability of payment within the relevant sovereign state's currency and
jurisdiction and therefore, unlike the foreign currency rating, does not take
account of the possibility of foreign exchange controls limiting transfer into
foreign currency.

INTERNATIONAL LONG-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings.

Investment Grade:

AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.

AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.

A: High Credit Quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.

BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

Speculative Grade:

BB: Speculative. "BB" ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.

B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.

CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.

DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.

Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the "AAA" category or to categories below "CCC," nor to short-term
ratings other than "F1" (see below).

INTERNATIONAL SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings. A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.

F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added "+" to denote any exceptionally strong credit
feature.

F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.

F3: Fair credit quality. Capacity for timely payment of financial commitments
is adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.

B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.

C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.

D: Default. Denotes actual or imminent payment default.

Appendix B

Industry Classifications

Aerospace & Defense Household Products
Air Freight & Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet & Catalog Retail
Automobiles Internet Software & Services
Beverages IT Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals & Mining
Commercial Services & Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers & Peripherals Office Electronics
Construction & Engineering Oil & Gas
Construction Materials Paper & Forest Products
Containers & Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Road & Rail
Services
Electric Utilities Semiconductors and Semiconductor
Equipment
Electrical Equipment Software
Electronic Equipment & Instruments Specialty Retail
Energy Equipment & Services Textiles, Apparel & Luxury Goods
Food & Staples Retailing Thrifts & Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies & Distributors
Health Care Equipment & Supplies Transportation Infrastructure
Health Care Providers & Services Water Utilities
Hotels Restaurants & Leisure Wireless Telecommunication Services
Household Durables

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.

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

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

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

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

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

Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no concessions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse, a
spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.

|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares for
their own accounts may also purchase shares without sales charge but only if
their accounts are linked to a master account of their investment advisor or
financial planner on the books and records of the broker, agent or financial
intermediary with which the Distributor has made such special arrangements .
Each of these investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares. |_| Directors, trustees, officers or
full-time employees of OpCap Advisors or its affiliates, their relatives or any
trust, pension, profit sharing or other benefit plan which beneficially owns
shares for those persons. |_| Accounts for which Oppenheimer Capital (or its
successor) is the investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company or trust
which is the beneficial owner of such accounts. |_| A unit investment trust that
has entered into an appropriate agreement with the Distributor. |_| Dealers,
brokers, banks, or registered investment advisers that have entered into an
agreement with the Distributor to sell shares to defined contribution employee
retirement plans for which the dealer, broker or investment adviser provides
administration services. |_| Retirement Plans and deferred compensation plans
and trusts used to fund those plans (including, for example, plans qualified or
created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases. |_| A TRAC-2000 401(k) plan (sponsored by the former Quest
for Value Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the termination of
the Class B and Class C TRAC-2000 program on November 24, 1995. |_| A qualified
Retirement Plan that had agreed with the former Quest for Value Advisors to
purchase shares of any of the Former Quest for Value Funds at net asset value,
with such shares to be held through DCXchange, a sub-transfer agency mutual fund
clearinghouse, if that arrangement was consummated and share purchases commenced
by December 31, 1996.

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 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.

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

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

A. Waivers for Redemptions in Certain Cases.

The Class B, Class C and Class N contingent deferred sales charges will be
waived for redemptions of shares in the following cases: |_| Shares redeemed
involuntarily, as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder. The death or
disability must have occurred after the account was established, and
for disability you must provide evidence of a determination of
disability by the Social Security Administration.
|_| The contingent deferred sales charges are generally not waived
following the death or disability of a grantor or trustee for a trust
account. The contingent deferred sales charges will only be waived in
the limited case of the death of the trustee of a grantor trust or
revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the
account was established, and for disability you must provide evidence
of a determination of disability 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 of Class C shares of an Oppenheimer fund in amounts of $1
million or more requested in writing by a Retirement Plan sponsor and
submitted more than 12 months after the Retirement Plan's first
purchase of Class C shares, if the redemption proceeds are invested to
purchase Class N shares of one or more Oppenheimer funds.
|_| 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.

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

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

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

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

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

A. Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
--------------------------------------------------------------------------------------------

Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Capital
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.

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

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

Oppenheimer Balanced Fund

Internet Website:
WWW.OPPENHEIMERFUNDS.COM

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

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

Transfer Agent
OppenheimerFunds Services
P.O. Box 5270 Denver, Colorado 80217 1.800.CALL OPP (225.5677)

Custodian Bank
JPMorgan Chase Bank
4 Chase Metro Tech Center
Brooklyn, New York, 11245

Independent Registered Public Accounting Firm
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202

Legal Counsel
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019

PX240.001.0205

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