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Oppenheimer Capital Income Fund
    

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6803 South Tucson Way, Englewood, Colorado 80112

1-800-525-7048

   
Statement of Additional Information dated December 22, 1998,
Revised May 1, 1999
    

      This  Statement  of  Additional  Information  is  not a  Prospectus.  This
document  contains  additional   information  about  the  Fund  and  supplements
information  in the  Prospectus  dated  December  22,  1998.  It  should be read
together  with the  Prospectus,  which may be  obtained by writing to the Fund's
Transfer Agent,  OppenheimerFunds  Services, at P.O. Box 5270, Denver,  Colorado
80217, or by calling the Transfer Agent at the toll-free  number shown above, or
by   downloading   it  from   the   OppenheimerFunds   Internet   web   site  at
www.oppenheimerfunds.com.

Contents

                                                                            Page

About the Fund

Additional Information About the Fund's Investment Policies and Risks.. 2
    The Fund's Investment Policies..................................... 2
    Other Investment Techniques and Strategies......................... 8
    Investment Restrictions............................................ 23

How the Fund is Managed ............................................... 25
    Organization and History........................................... 25
    Trustees and Officers.............................................. 27
    The Manager........................................................ 31

   
Brokerage Policies of the Fund......................................... 33
Distribution and Service Plans......................................... 35
Performance of the Fund................................................ 38
    

About Your Account

   
How To Buy Shares...................................................... 42
How To Sell Shares..................................................... 51
How To Exchange Shares................................................. 55
Dividends, Capital Gains and Taxes..................................... 57
Additional Information About the Fund.................................. 59
    

Financial Information About the Fund

Independent Auditors' Report........................................... 60
Financial Statements................................................... 61

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

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

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Additional Information About the Fund's Investment Policies and Risks

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

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

      Using value  investing  requires  research as to the  issuer's  underlying
financial  condition and prospects.  Some of the measures used to identify these
securities include, among others:

      o Price/Earnings ratio, which is the stock's price divided by its earnings
per share.  A stock  having a  price/earnings  ratio  lower than its  historical
range,  or lower  than the market as a whole or that of  similar  companies  may
offer attractive investment opportunities.

      o  Price/book  value ratio,  which is the stock price  divided by the book
value of the  company  per share.  It  measures  the  company's  stock  price in
relation to its asset value.

      o Dividend Yield, which is measured by dividing the annual dividend by the
stock price per share.

      o Valuation of Assets  which  compares the stock price to the value of the
company's underlying assets,  including their projected value in the marketplace
and liquidation value.

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

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

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

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

            o Preferred  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 call/redemption provisions prior to maturity, which can be a negative feature
when interest  rates  decline.  Preferred  stock also 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.   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.

            The Fund can invest in preferred stock of an issuer that has omitted
the  dividend or may be in danger of doing so. Those  investments  would be made
primarily for the appreciation  potential of the stock. Some preferred stock may
be  convertible  into common  stock or  exchangeable  for a set number of common
shares. The prices of that type of preferred stock tend to be more volatile than
the  prices  of  nonconvertible  preferred  stock,  which  behaves  more  like a
fixed-income security.

            o Convertible Securities. While convertible securities are a form of
debt security in many cases, their conversion feature (allowing  conversion into
equity securities) causes them to be regarded more as "equity equivalents." As a
result,  the 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  fixed  income  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.

      n Investments in Bonds and Other Debt  Securities.  The Fund can invest in
bonds,  debentures  and other debt  securities to seek current income as part of
its investment objective. However, under normal market conditions,  normally not
more than 35% of the Fund's  total  assets will be invested in debt  securities.
However, if stock market conditions are volatile,  the Manager may shift more of
the Fund's investments into debt securities as a defensive measure.

      The   Fund's   debt   investments   can   include   investment-grade   and
non-investment-grade   bonds   (commonly   referred   to   as   "junk   bonds").
Investment-grade  bonds  are bonds  rated at least  "Baa" by  Moody's  Investors
Service,  Inc.,  or at least  "BBB" by Standard & Poor's  Corporation  or Duff &
Phelps,  Inc.,  ____ or that  have ____  comparable  ____  ratings  ____ by ____
another nationally-recognized 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  the Fund buys are
unrated,  to be  considered  part of the  Fund's  holdings  of  investment-grade
securities,  they must be judged by the Manager to be of  comparable  quality to
bonds rated as investment grade by a rating organization.

            |_| Interest Rate Risks.  An increase in prevailing  interest  rates
will tend to reduce the market value of already-issued  fixed-income securities.
A decline in interest rates will tend to increase their value.  Debt  securities
having longer  maturities are subject to  potentially  greater  fluctuations  in
their prices from changes in prevailing  interest rates than  securities  having
shorter maturities.

            Fluctuations  in the market value of a  fixed-income  security after
the Fund buys it will not affect the amount of interest payable on the security,
and  therefore  the cash income from the  security is not affected by changes in
interest rates. However, the effect of the change of interest rates on the value
of the security could affect the Fund's net asset value per share.

      |X| U.S. Government Securities.  These are securities issued or guaranteed
by the U.S. Treasury or other government agencies or 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
(maturities of one year or less when issued), Treasury notes (maturities of from
one to ten  years),  and  Treasury  bonds  (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 as Treasury
Inflation-Protection Securities ("TIPS").

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

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

            |_|  Special  Risks  of  Lower-Grade  Securities.  While  it is  not
anticipated that the Fund normally will invest more than 35% of its total assets
in debt securities,  the Fund can invest in them to seek current income. Because
lower  rated  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  (and,  in  some  cases,  the  appreciation
possibilities  of  lower-grade  securities may be a reason they are selected for
the Fund's portfolio)

      The Fund can invest up to 25% of its total  assets in "lower  grade"  debt
securities.  "Lower-grade"  debt  securities  are those rated below  "investment
grade," which means they have a rating lower than "Baa" by Moody's or lower than
"BBB" by Standard & Poor's or Duff & Phelps,  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  limitation  on the  percentage  of the Fund's  assets  that can be
invested in lower-grade  securities.  The Fund can invest in securities rated as
low as "C" or "D" or which may be in default at the time the Fund buys them. The
Fund may  invest  no more  than 10% of its  total  assets  in  lower-grade  debt
securities that are not convertible

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

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

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

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

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

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

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

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

      n Foreign  Securities.  The Fund may purchase  equity and debt  securities
issued or  guaranteed  by  foreign  companies  or foreign  governments  or their
agencies.  "Foreign  securities" include equity and debt securities of companies
organized  under the laws of  countries  other than the  United  States and debt
securities  of foreign  governments.  They may be traded on  foreign  securities
exchanges or in the foreign over-the-counter markets.

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

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

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

o      reduction of income by foreign taxes;

o      fluctuation in value of foreign  investments  due to changes in currency
                  rates  or  currency   control   regulations   (for  example,
                  currency blockage);

o      transaction charges for currency exchange;
o      lack of public information about foreign issuers;

o      lack of uniform  accounting,  auditing and financial reporting standards
                  in  foreign  countries  comparable  to those  applicable  to
                  domestic issuers;

o      less volume on foreign exchanges than on U.S. exchanges;
o      greater  volatility  and less  liquidity on foreign  markets than in the

                  U.S.;

o      less  governmental  regulation of foreign  issuers,  stock exchanges and
                  brokers than in the U.S.;

o      greater difficulties in commencing lawsuits;
o      higher brokerage commission rates than in the U.S.;

o      increased  risks of delays in  settlement of portfolio  transactions  or
                  loss of certificates for portfolio securities;

o      possibilities   in  some   countries  of   expropriation,   confiscatory
                  taxation,  political,  financial  or social  instability  or
                  adverse diplomatic developments; and

o      unfavorable differences between the U.S. economy and foreign economies.

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





   
            [_]  Risks of  Conversion  to Euro.  On January  1, 1999,  eleven
countries  in the European  Union will have  adopted the euro as their  official
currency.  However,  their current currencies (for example, the franc, the mark,
and the lira) will also continue in use until January 1, 2002.  After that date,
it is  expected  that  only the euro will be used in those  countries.  A common
currency is expected to confer some benefits in those markets,  by consolidating
the government  debt market for those countries and reducing some currency risks
and  costs.  But the  conversion  to the  new  currency  will  affect  the  Fund
operationally  and also has  potential  risks,  some of which are listed  below.
Among other things, the conversion will affect:
    

               o  issuers in which the Fund  invests,  because of changes in the
                  competitive  environment  from a consolidated  currency market
                  and  greater  operational  costs  from  converting  to the new
                  currency. This might depress stock values.

               o  vendors the Fund depends on to carry out its business, such as
                  its  Custodian  (which holds the foreign  securities  the Fund
                  buys), the Manager (which must price the Fund's investments to
                  deal with the  conversion  to the euro) and  brokers,  foreign
                  markets and securities depositories. If they are not prepared,
                  there could be delays in settlements  and additional  costs to
                  the Fund.

               o  exchange contracts and derivatives that are outstanding during
                  the transition to the euro.

      The lack of currency rate calculations between the affected currencies and
the need to update the Fund's contracts could pose extra costs to the Fund.

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

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

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

      n  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.  As a fundamental  policy,  the Fund may invest not more than 5% of
its net assets in securities of small, unseasoned issuers.

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

      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  (generally  within 45
days of the date the offer is accepted). 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.

      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 cash,  U.S.  government  securities or other
high-grade  debt  obligations 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.

   
      n  Repurchase  Agreements.  The Fund may  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.
It may also do so for  defensive  purposes  when  stock  market  conditions  are
unstable or when the Manager is unable to find other attractive investments.
    

      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 Board of Trustees 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 impose creditworthiness  requirements to confirm that
the vendor is financially sound and will  continuously  monitor the collateral's
value.

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

      The  Fund  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.

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

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

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

      n Derivatives.  The Fund can invest in a variety of derivative investments
to seek income or for hedging purposes. Some derivative investments the Fund may
use are the hedging instruments  described below in this Statement of Additional
Information.

         |_|  Structured  Notes.  The Fund can invest in a variety of derivative
investments that are ____  specially-designed.  ____ They include "index-linked"
notes and "commodity-linked"  notes. Principal and/or interest payments on these
notes depend on the  performance of an underlying  index.  The principal  and/or
interest  payments on these types of notes depend on the  performance  of one or
more market indices,  such as the S&P 500 Index or a weighted index of commodity
futures (such as crude oil, gasoline and natural gas).

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

      Other derivative  investments the Fund can buy 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.

   
      n Hedging. The Fund can use hedging to attempt to protect against declines
in the  market  value of the  Fund's  portfolio,  to  permit  the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate  selling  securities  for investment  reasons.  To do so, the Fund
could:
    

         |_|      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:

         o  buy futures, or

         o  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. The Fund is not
obligated to use hedging instruments, even though it is permitted to use them in
the Manager's discretion, as described below.

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

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

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

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

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

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

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

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

            o 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.

                  o 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 25% 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.

                  o Writing Put Options.  The Fund may 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 deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying  securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.

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

      The Fund 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   
            o Forward Contracts. Forward contracts are foreign currency exchange
contracts.  They are used to buy or sell foreign currency for future delivery at
a fixed  price.  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 may suffer a substantial  decline  against a foreign  currency,  it
might enter into a forward  contract to buy that  foreign  currency  for a fixed
dollar amount.  Alternatively,  the Fund might enter into a forward  contract to
sell a different  foreign  currency for a fixed U.S.  dollar  amount if the Fund
believes that the U.S. dollar value of the foreign  currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."

      The Fund will cover its short  positions in these cases by  identifying to
its Custodian  bank assets  having a value equal to the aggregate  amount of the
Fund's commitment under forward contracts.  The Fund will not enter into forward
contracts or maintain a net exposure to such  contracts if the  consummation  of
the contracts  would obligate the Fund to deliver an amount of foreign  currency
in  excess of the  value of the  Fund's  portfolio  securities  or other  assets
denominated  in that  currency  or another  currency  that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund 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  might have to
purchase  additional  foreign  currency on the "spot"  (that is, cash) market to
settle the security trade.  If the market value of the security  instead exceeds
the amount of foreign  currency  the Fund is  obligated to deliver to settle the
trade,  the Fund  might  have to sell on the  spot  market  some of the  foreign
currency  received  upon  the sale of the  security.  There  will be  additional
transaction costs on the spot market in those cases.

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

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

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

      Although  the Fund values its assets  daily in terms of U.S.  dollars,  it
does not intend to convert its holdings of foreign  currencies into U.S. dollars
on a daily basis.  The Fund 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.

            o 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 segregate liquid assets (such
as cash or U.S.  government  securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.

      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."

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

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

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

   
            o 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  company  income  available  for  distribution  to its
shareholders.

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

Investment Restrictions

      n 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.

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

      o The Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in  securities of that issuer
or if it would then own more than 10% of that issuer's voting  securities.  This
limitation  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  invest in physical  commodities  or physical  commodity
contracts.  However,  the  Fund may buy and sell  hedging  instruments  that are
permitted  by any of its other  investment  policies.  The Fund may also buy and
sell options,  futures and other instruments  backed by physical  commodities or
the  investment  return from which is linked to changes in the price of physical
commodities.

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

      o The Fund cannot borrow money, except for temporary emergency purposes or
under other unusual circumstances.

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

      o The Fund cannot engage in short sales or purchase  securities on margin.
However, the Fund can make margin deposits in connection with its investments.

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

      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 or hold  securities of any issuer if officers
and Trustees or directors 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  from, or sell securities to, any officer
or Trustee of the Fund, or any officer or director of the Manager,  or any firms
of which any of them are members  (although  such persons may act as brokers for
the Fund).  This restriction does not apply to purchases and sales of the Fund's
shares.

o _____ The Fund cannot cease to maintain its business as an investment company,
as defined in the Investment Company Act.

o _____ The Fund cannot accept the purchase  price for any of its shares without
immediately thereafter issuing an appropriate number of shares.

o _____ The Fund cannot pledge, mortgage or hypothecate its assets.  Collateral,
escrow and margin  arrangements  in connection  with any of its  investments are
permitted.

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  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. 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.

      The Fund currently has an operating  policy (which is not  fundamental but
will not be changed  without the approval of  shareholders)  that  prohibits the
Fund from lending  money,  however,  that policy does not prohibit the Fund from
purchasing debt securities,  entering into repurchase agreements or making loans
of  portfolio  securities,  subject to the  restrictions  stated under "Loans of
Portfolio Securities."

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

How the Fund is Managed

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

      The Fund is  governed by a Board of  Trustees,  which is  responsible  for
protecting the interests of shareholders  under  Massachusetts law. The Trustees
meet periodically  throughout the year to oversee the Fund's activities,  review
its performance,  and review the actions of the Manager.  Although the Fund will
not normally hold annual meetings of its  shareholders,  it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other  action  described in the
Fund's Declaration of Trust.

      o  Classes  of  Shares.  The  Board of  Trustees  has the  power,  without
shareholder  approval,  to divide  unissued  shares of the Fund into two or more
classes.  The Board has done so,  and the Fund  currently  has three  classes of
shares: Class A, Class B, and Class C. All classes invest in the same investment
portfolio.  Each class of shares: o has its own dividends and  distributions,  o
pays certain  expenses which may be different for the different  classes,  o may
have a different net asset value,  o may have separate  voting rights on matters
in which interests of one

         class are different from  interests of another class,  and o votes as a
class on matters that affect that class alone.

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

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

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

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

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

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

Trustees  and Officers of the Fund.  The Fund's  Trustees and officers and their
principal  occupations and business  affiliations during the past five years are
listed  below.  Trustees  denoted  with an  asterisk  (*) below are deemed to be
"interested  persons" of the Fund under the  Investment  Company Act. All of the
Trustees  are also  trustees,  directors  or  managing  general  partners of the
following Denver-based Oppenheimer funds1:

   
Oppenheimer Capital Income Fund       Oppenheimer Strategic Income Fund
Oppenheimer Cash Reserves             Oppenheimer Total Return Fund, Inc.
Oppenheimer Champion Income Fund      Oppenheimer Variable Account Funds
Oppenheimer High Yield Fund           Panorama Series Fund, Inc.
Oppenheimer International Bond Fund   Centennial America Fund, L. P.
Oppenheimer Integrity Funds           Centennial California Tax Exempt Trust
Oppenheimer  Limited-Term  Government Centennial Government Trust
Fund
Oppenheimer Main Street Funds, Inc.   Centennial Money Market Trust
Oppenheimer Municipal Fund            Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund           Centennial Tax Exempt Trust

      Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund,  respectively hold the same offices with the other
Denver-based  Oppenheimer  funds.  As of  December  1, 1998,  the  Trustees  and
officers of the Fund as a group owned less than 1% of the outstanding  shares of
the Fund.  The foregoing  statement does not reflect shares held of record by an
employee    benefit  plan for  employees  of the  Manager  other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.

1 Ms.  Macaskill  and Mr. Bowen are not  Trustees or  Directors  of  Oppenheimer
Integrity Funds,  Oppenheimer  Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of  Centennial  New York  Tax  Exempt  Trust or  Managing  General  Partners  of
Centennial  America Fund, L.P. 
    

Robert G. Avis,* Trustee; Age 67
One North  Jefferson Ave., St. Louis, Missouri 63103

Vice  Chairman  of  A.G.   Edwards  & Sons,  Inc.  (a  broker-dealer)   and
A.G.   Edwards,   Inc.   (its  parent holding company);  Chairman of A.G.E.
Asset  Management  and  A.G.  Edwards Trust    Company   (its    affiliated
investment    adviser    and    trust company, respectively).

William A. Baker, Trustee; Age 83
197   Desert   Lakes   Drive,    Palm Springs, California 92264
Management Consultant.

George C. Bowen,* Trustee; Age 62
6803  South  Tucson  Way,  Englewood, Colorado 80112

   
Formerly   (until   April  1999)  Mr. Bowen held the  following  positions:
Senior    Vice    President    (since September 1987) and Treasurer  (since
March  1985)  of  the  Manager;  Vice President   (since   June  1983)  and
Treasurer  (since  March 1985) of the Distributor;  Vice  President  (since
October  1989) and  Treasurer  (since April  1986)  of  HarbourView   Asset
Management  ; Senior  Vice  President (since  February   1992),   Treasurer
(since  July  1991)  and  a  director (since  December  1991) of Centennial
Asset     Management;      President, Treasurer    and   a   director    of
Centennial    Capital     Corporation (since  June  1989);  Vice  President
and  Treasurer  (since  August  1978) and  Secretary  (since April 1981) of
Shareholder   Services,   Inc.;  Vice President,  Treasurer  and  Secretary
of  Shareholder  Financial  Services, Inc.     (since    November    1989);
Assistant  Treasurer  of  Oppenheimer Acquisition    Corp.   (since   March
1998);   Treasurer   of   Oppenheimer Partnership  Holdings,   Inc.  (since
November  1989);  Vice  President and Treasurer of  Oppenheimer  Real Asset
Management,  Inc.  (since July 1996); Chief Executive  Officer,  Treasurer;
Treasurer     of     OppenheimerFunds International  Ltd.  and  Oppenheimer
Millennium  Funds plc (since  October 1997).
    

Charles Conrad, Jr., Trustee; Age 68
1501 Quail Street,  Newport Beach,  CA 92660 
Chairman and CEO of Universal  Space Lines,  Inc. (a space  services  management
company);  formerly Vice President of McDonnell  Douglas Space Systems Co. prior
to  which  he  was   associated   with  the  National   Aeronautics   and  Space
Administration.

Jon S. Fossel, Trustee; Age 56
P.O. Box 44, Mead  Street,  Waccabuc, New York 10597
Formerly  Chairman  and a director of the Manager,  President  and a director of
Oppenheimer  Acquisition  Corp.,  Shareholder  Services,  Inc.  and  Shareholder
Financial Services, Inc.

Sam Freedman, Trustee; Age: 58
4975  Lakeshore   Drive,   Littleton, Colorado 80123
Formerly  Chairman and Chief  Executive  Officer of  OppenheimerFunds  Services,
Chairman,  Chief Executive Officer and a director of Shareholder Services,  Inc.
and  Shareholder  Financial  Services,  Inc.,  Vice  President and a director of
Oppenheimer Acquisition Corp. and a director of the Manager.

Raymond J. Kalinowski,  Trustee;  Age 69
44   Portland   Drive,   St.   Louis, Missouri 63131
Director of Wave Technologies International,  Inc. (a computer products training
company).

C. Howard Kast, Trustee; Age 76
2552 East Alameda,  Denver,  Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).

Robert M. Kirchner, Trustee; Age 77
7500  E.  Arapahoe  Road,  Englewood, Colorado 80112
President  of  The  Kirchner  Company
(management consultants).

Bridget A. Macaskill*,  President and
Trustee; Age: 50
Two World Trade  Center,  34th Floor,
New York, New York 10048 President  (since June 1991),  Chief Executive  Officer
(since  September  1995) and a director  (since  December  1994) of the Manager;
President  and a director  (since  June 1991) of  HarbourView  Asset  Management
Corp.; Chairman and a director (since August 1994) of Shareholder Services, Inc.
and (since  September 1995)  Shareholder  Financial  Services,  Inc.;  President
(since  September  1995) and a  director  (since  October  1990) of  Oppenheimer
Acquisition  Corp.;  President  (since  September  1995) and a  director  (since
November  1989) of Oppenheimer  Partnership  Holdings,  Inc., a holding  company
subsidiary of the Manager; a director of Oppenheimer Real Asset Management, Inc.
(since  July  1996);   President  and  a  director   (since   October  1997)  of
OppenheimerFunds  International Ltd., an offshore fund management  subsidiary of
the Manager,  and Oppenheimer  Millennium Funds plc; President and a director of
other  Oppenheimer  funds;  a director of Hillsdown  Holdings  plc (a U.K.  food
company).

Ned M. Steel, Trustee; Age 83
3416  South Race  Street,  Englewood, Colorado 80110
Chartered  Property  and  Casualty  Underwriter;  a director of  Visiting  Nurse
Corporation of Colorado.

James  C.  Swain*,   Chairman,  Chief Executive Officer and Trustee; Age 65
6803  South  Tucson  Way,  Englewood, Colorado 80112
Vice Chairman of the Manager (since  September 1988);  formerly  President and a
director of Centennial Asset Management  Corporation,  and Chairman of the Board
of Shareholder

Services, Inc.

John P.  Doney,  Vice  President  and Portfolio Manager; Age: 68.
Two World Trade  Center,  34th Floor, New York, New York 10048-0203

Vice President of the Manager (since June 1992). Prior to joining the Manager he
was a Senior Vice President and Chief Investment Officer - Equities, of National
Securities & Research  Corporation (a mutual fund  investment  adviser) and Vice
President of the National-affiliated investment companies.

Andrew  J.  Donohue,  Vice  President and Secretary; Age 48
Two World Trade  Center,  34th Floor, New York, New York 10048 

Executive Vice President  (since January 1993),  General  Counsel (since October
1991) and a Director  (since  September  1995) of the  Manager;  Executive  Vice
President  (since  September  1993) and a director  (since  January 1992) of the
Distributor;  Executive  Vice  President,  General  Counsel  and a  director  of
HarbourView  Asset Management Corp.,  Shareholder  Services,  Inc.,  Shareholder
Financial  Services,  Inc. and  Oppenheimer  Partnership  Holdings,  Inc. (since
September  1995);  President and a director of Centennial Asset Management Corp.
(since  September  1995);  President  and a director of  Oppenheimer  Real Asset
Management,  Inc.  (since  July  1996);  General  Counsel  (since  May 1996) and
Secretary (since April 1997) of Oppenheimer  Acquisition  Corp.;  Vice President
and a Director of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.





   
Brian W. Wixted, Treasurer; Age: 39.
6803  South  Tucson  Way,  Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager;  formerly
Principal  and Chief  Operating  Officer,  Bankers  Trust  Company - Mutual Fund
Services Division (1995-1999);  Vice President and Chief Financial Officer of CS
First Boston  Investment  Management Corp.  (1991-1995);  and Vice President and
Accounting Manager, Merrill Lynch Asset Management (1987-1991).
    

Robert    J.    Bishop,     Assistant Treasurer; Age 40
6803  South  Tucson  Way,  Englewood, Colorado 80112
Vice  President  of the  Manager/Mutual  Fund  Accounting  (since May 1996);  an
officer of other Oppenheimer funds;  formerly an Assistant Vice President of the
Manager/Mutual  Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.

Scott  Farrar,  Assistant  Treasurer; Age 33
6803  South  Tucson  Way,  Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer  Millennium  Funds plc (since October 1997); an officer
of  other  Oppenheimer  funds;  formerly  an  Assistant  Vice  President  of the
Manager/Mutual  Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.

Robert G. Zack, Assistant Secretary;  Age 50 
Two World Trade Center, 34th Floor, New  York,  New York  10048-0203  
Senior Vice President (since May 1985) and Associate  General Counsel (since May
1981) of the Manager,  Assistant Secretary of Shareholder Services,  Inc. (since
May 1985),  and  Shareholder  Financial  Services,  Inc.  (since November 1989);
Assistant Secretary (since October 1997) of Oppenheimer Millennium Funds plc and
OppenheimerFunds International Ltd.; an officer of other Oppenheimer funds.

     n Remuneration of Trustees.  The officers of the Fund and three Trustees of
the Fund (Ms.  Macaskill and Messrs.  Bowen and Swain) are  affiliated  with the
Manager and receive no salary or fee from the Fund.  The  remaining  Trustees of
the Fund received the compensation  shown below. The compensation  from the Fund
was paid during its fiscal year ended August 31, 1998. The compensation from all
of the Denver-based  Oppenheimer  funds includes the compensation  from the Fund
and represents  compensation received as a director,  trustee,  managing general
partner or member of a committee of the Board during the calendar year 1997.








- --------------------------------------------------------------------------
   
                                                     Total Compensation

    Director's Name and     Aggregate Compensation from all Denver-Based
         Position                 from Fund          Oppenheimer Funds1
    

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert G. Avis                      $7,231                $63,501
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William A. Baker                    $8,546                $77,502
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Charles Conrad, Jr.3                $8,029                $72,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Jon. S. Fossel                      $7,201                $63,277
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Sam Freedman                                                              
Audit and Review Committee                                                
Member2                             $7,624                $66,501
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Raymond J. Kalinowski                                                     
Audit and Review                                                          
Committee Member2                   $8,100                $71,561
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
C. Howard Kast                                                            
Audit and Review                                                          
Committee Chairman2                 $8,620                $76,503
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert M. Kirchner3                 $8,029                $72,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Ned M. Steel                        $7,231                $63,501
- --------------------------------------------------------------------------
1.    For the 1997 calendar year. Compensation is only from funds on whose Board
      a Director served, as described above.

2.  Committee positions effective July 1, 1997.

3. Prior to July 1, 1997, Messrs. Baker, Conrad and Kirchner were members of the
   Audit and Review Committee.

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

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

The Manager.  The Manager is  wholly-owned by Oppenheimer  Acquisition  Corp., a
holding company controlled by Massachusetts  Mutual Life Insurance Company.  The
Manager and the Fund 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.
Compliance  with the Code of Ethics is carefully  monitored  and enforced by the
Manager.

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

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

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











- -------------------------------------------------------------------------------
Fiscal Year ended 8/31:      Management Fees Paid to OppenheimerFunds, Inc.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
     1996 (2 months)1                          $2,134,834
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
           1997                                $14,800,449
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
           1998                                $19,364,160
- -------------------------------------------------------------------------------
1. Fiscal period from 7/1/96 to 8/31/96.  The  management  fees for the 12 month
fiscal year ended 6/30/96 were $12,078,956.

      The investment advisory agreement contains an indemnity of the Manager. As
long as it has acted with due care and in good faith,  the Manager is not liable
for any  loss  sustained  by  reason  of any  investment,  the  adoption  of any
investment policy, or the purchase,  sale or retention of any security.  However
the  investment  advisory  agreement does not exculpate the Manager from 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  agreement  permits the Manager to act as  investment  adviser 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
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund,  the Manager may  withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.

Brokerage Policies of the Fund

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

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

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

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

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

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

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

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

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

- --------------------------------------------------------------------------------
 Fiscal Year Ended 8/31:      Total Brokerage Commissions Paid by the Fund1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
    1996 (2 months) 2                            $168,229
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
           1997                                  $706,049
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
           1998                                 $829,8753
- --------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal  transactions on a
   net trade basis.

2. For the fiscal period from 7/1/96 to 8/31/96. The total brokerage commissions
   paid by the Fund for the 12 month fiscal year ended 6/30/96 were $766,137.

3. In the fiscal  year ended  8/31/98,  the amount of  transactions  directed to
   brokers  for  research  services  was  $487,036,339  and  the  amount  of the
   commissions paid to broker-dealers for those services was $617,002.

Distribution and Service Plans

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

      The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.







- -------------------------------------------------------------------------------
          Aggregate    Class A                                                 
          Front-End    Front-End     Commissions    Commissions  Commissions

Fiscal    Sales        Sales         on Class A     on Class B   on Class C

Year      Charges on   Charges       Shares         Shares       Shares

Ended     Class A      Retained by   Advanced by    Advanced by  Advanced by

8/31:     Shares       Distributor   Distributor1   Distributor1 Distributor1

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  19962     $632,850     $218,008         N/A         $489,862      $15,300
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  1997     $5,179,851   $1,573,826        N/A        $4,076,061    $367,675
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  1998     $8,057,145   $2,429,799      $468,532     $8,780,583    $551,784
- -------------------------------------------------------------------------------
1. Includes amounts paid to a dealer affiliated with the  Distributor's  parent.
2. Fiscal  period from  7/1/96 to  8/31/96.  For the 12 month  fiscal year ended
6/30/96 the aggregate  sales charges on Class A shares were  $4,966,513 of which
$1,546,454  was  retained  by the  Distributor.  For the  same  period,  Class B
contingent  deferred  sales  charges  in the  amount  of  $360,582  and  Class C
contingent  deferred  sales charges in the amount of $1,547 were retained by the
Distributor.





- -------------------------------------------------------------------------------
           Class A Contingent    Class B Contingent                            
Fiscal     Deferred Sales        Deferred Sales        Class C Contingent
Year       Charges Retained by   Charges Retained by   Deferred Sales Charges
Ended 8/31 Distributor           Distributor           Retained by Distributor

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
   1998             $0                 $631,183                $23,959
- -------------------------------------------------------------------------------

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

Distribution  and Service Plans. The Fund has adopted a Service Plan for Class A
shares and  Distribution  and Service Plans for Class B and Class C shares under
Rule 12b-1 of the  Investment  Company  Act.  Under  those  plans the Fund makes
payments  to the  Distributor  for all or a  portion  of its costs  incurred  in
connection  with  the  distribution  and/or  servicing  of  the  shares  of  the
particular class.

      Each plan has been approved by a vote of the Board of Trustees,  including
a majority of the Independent  Trustees,2 cast in person at a meeting called for
the  purpose of voting on that  plan.  Each plan has also been  approved  by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class.

2 In accordance with Rule 12b-1 of the Investment
Company Act, the term  "Independent  Trustees" in this  Statement of  Additional
Information  refers to those  Trustees who are not  "interested  persons" of the
Fund  and who do not have any  direct  or  indirect  financial  interest  in the
operation of the  distribution  plan or any agreement under the plan. 

      Under  the  plans,  the  Manager  and  the  Distributor,   in  their  sole
discretion, from time to time, may use their own resources (at no direct cost to
the Fund) to make payments to brokers,  dealers or other financial  institutions
for distribution and administrative  services they perform.  The Manager may use
its  profits  from the  advisory  fee it receives  from the Fund.  In their sole
discretion,  the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.

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

      The Board of  Trustees  and the  Independent  Trustees  must  approve  all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by  shareholders  of the class
affected  by the  amendment.  Because  Class B shares of the Fund  automatically
convert into Class A shares  after six years,  the Fund must obtain the approval
of both Class A and Class B shareholders  for a proposed  material  amendment to
the Class A Plan that would  materially  increase  payments under the Plan. That
approval must be by a "majority" (as defined in the  Investment  Company Act) of
the shares of each class, voting separately by class.

      While the Plans are in effect,  the  Treasurer  of the Fund shall  provide
separate  written  reports  on the  plans  to the  Board  of  Trustees  at least
quarterly  for its review.  The Reports  shall detail the amount of all payments
made under a plan, the purpose for which the payments were made and the identity
of each recipient of a payment. The reports on the Class B Plan and Class C Plan
shall also include the Distributor's  distribution costs for that quarter. 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.

      o  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 for shares  acquired  on or after  April 1, 1991,
and 0.15% for shares acquired before that date. While the plan permits the Board
to authorize  payments to the Distributor to reimburse itself for services under
the plan, the Board has not yet done so. The Distributor  makes payments to plan
recipients quarterly at an annual rate not to exceed 0.25% of the average annual
net assets  consisting of Class A shares acquired on or after April 1, 1991, and
held in the accounts of the recipients or their customers. The rate is 0.15% for
shares acquired earlier and held in such accounts.

      For the fiscal year ended August 31, 1998 payments  under the Class A Plan
totaled $6,047,155, all of which was paid by the Distributor to recipients. That
included $436,769 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.

      o Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution  fees are computed on the average of the net asset
value of  shares in the  respective  class,  determined  as of the close of each
regular business day during the period.  The Class B and Class C plans allow the
Distributor to be compensated for its services and costs in distributing Class B
and Class C shares and servicing accounts. The types of services that recipients
provide are similar to the  services  provided  under the Class A service  plan,
described above.

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

      The Distributor  retains the  asset-based  sales charge on Class B 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  commission 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 and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.

      The  asset-based  sales  charges  on  Class  B and  Class C  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 and  Class  C  shares.  The  payments  are  made  to  the
Distributor in recognition  that the  Distributor:  o pays sales  commissions to
authorized brokers and dealers at the time of

         sale and pays service fees as described above,

o        ______ may finance payment of sales  commissions  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 and  Class C
         shares, and

o        ______   bears  the  costs  of  sales   literature,   advertising   and
         prospectuses  (other than those furnished to current  shareholders) and
         state  "blue sky"  registration  fees and  certain  other  distribution
         expenses.

      For the fiscal year ended August 31, 1998, payments under the Class B Plan
totaled $5,744,260  (including $85,448 paid to an affiliate of the Distributor's
parent). The Distributor retained $4,717,686 of the total amount. For the fiscal
year ended August 31, 1998,  payments  under the Class C Plan totaled  $769,244,
(including  $4,936  paid  to an  affiliate  of the  Distributor's  parent).  The
Distributor retained $535,009 of the total amount.

      The  Distributor's  actual  expenses in selling Class B and Class C shares
may be more than the payments it receives  from the  contingent  deferred  sales
charges  collected on redeemed  shares and from the Fund under the plans.  As of
August 31, 1998, the  Distributor had incurred  unreimbursed  expenses under the
Class B plan in the  amount of  $15,529,526  (equal to 2.45% of the  Fund's  net
assets  represented  by Class B shares on that date) and  unreimbursed  expenses
under the Class C plan of  $1,178,202  (equal to 1.24% of the  Fund's net assets
represented by Class C shares on that date).  If either the Class B or the Class
C Plan is  terminated  by the Fund,  the Board of Trustees may allow the Fund to
continue  payments  of the  asset-based  sales  charge  to the  Distributor  for
distributing shares before the plan was terminated.

      All  payments  under the Class B and the Class C 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  1-800-525-7048
or    by    visiting    the    OppenheimerFunds    Internet    web    site    at
http://www.oppenheimerfunds.com.

      The Fund's  illustrations of its performance data in  advertisements  must
comply  with  rules of the  Securities  and  Exchange  Commission.  Those  rules
describe  the  types of  performance  data  that may be used and how it is to be
calculated.  In general,  any  advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund.  Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class,  if less) ending as of the most recently  ended  calendar
quarter prior to the  publication  of the  advertisement  (or its submission for
publication).

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

      |_| 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.

      |_| The Fund's  performance  returns do not reflect the effect of taxes on
dividends and capital gains distributions.

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

      |_|   The  principal  value of the Fund's  shares and total  returns are
not guaranteed and normally will fluctuate on a daily basis.
o     When an investor's  shares are redeemed,  they may be worth more or less

         than their original cost.

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

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

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

         In calculating  total returns for Class A shares,  the current  maximum
sales charge of 5.75% (as a percentage  of the offering  price) is deducted from
the initial  investment  ("P") (unless the return is shown without sales charge,
as described below).  For Class B shares,  payment of the applicable  contingent
deferred  sales charge is applied,  depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth  years,  2.0%  in the  fifth  year,  1.0%  in the  sixth  year  and  none
thereafter.  For Class C shares,  the 1%  contingent  deferred  sales  charge is
deducted for returns for the 1-year period.

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 )

      |_| 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

      |_| 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 each class of shares. Each is based on the
difference  in net asset  value per  share at the  beginning  and the end of the
period  for  a  hypothetical   investment  in  that  class  of  shares  (without
considering  front-end  or  contingent  deferred  sales  charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.

- --------------------------------------------------------------------------------
             The Fund's Total Returns for the Periods Ended 8/31/98

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
          Cumulative Total                                                      
Class of  Returns (10                                                           
Shares    years or Life of                                                      

          Class)                        Average Annual Total Returns

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                                   5-Year           10-Year
                                                     (or              (or

                                 1-Year        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 A   210.89%  229.85%  0.06%    6.17%    12.15%   13.49%   12.01%1 12.68%1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B   51.92%   82.92%   0.45%    5.32%    12.30%2  12.55%2  12.61%2 12.75%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C   53.27%   53.27%   4.33%    5.30%    16.27%3  16.27%3  N/A     N/A
- --------------------------------------------------------------------------------
1. Inception of Class A:      12/1/70
2. Inception of Class B:      8/17/93
3. Inception of Class C:      11/1/95





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

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

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

      Morningstar  star  rankings are based on  risk-adjusted  total  investment
return. Investment return measures a fund's (or class's) one-, three-, five- and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S.  Treasury  bill returns  after  considering  the
fund's  sales  charges  and  expenses.  Risk  measures  a  fund's  (or  class's)
performance below 90-day U.S. Treasury bill returns.  Risk and investment return
are combined to produce star  rankings  reflecting  performance  relative to the
average fund in a fund's category.  Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average"  (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest"  (bottom  10%).  The current star ranking is the fund's (or class's)
3-year  ranking  or  its  combined  3-  and  5-year  ranking  (weighted  60%/40%
respectively),  or its combined 3-, 5-, and 10-year  ranking  (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).

Rankings are subject to change monthly.

      The Fund may also  compare its  performance  to that of other funds in its
Morningstar  category.  In  addition  to its  star  rankings,  Morningstar  also
categorizes  and compares a fund's  3-year  performance  based on  Morningstar's
classification of the fund's investments and investment style, rather than how a
fund  defines its  investment  objective.  Morningstar's  four broad  categories
(domestic  equity,  international  equity,  municipal bond and taxable bond) are
each  further  subdivided  into  categories  based on types of  investments  and
investment  styles.  Those comparisons by Morningstar are based on the same risk
and return  measurements  as its star rankings but do not consider the effect of
sales charges.

      |_|   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.

- ------------------------------------------------------------------------------
   
A B O U T  Y O U R  A C C O U N T
    

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

How to Buy Shares

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

AccountLink.  When shares are purchased through AccountLink,  each purchase must
be at least $25.  Shares  will be  purchased  on the  regular  business  day the
Distributor  is  instructed  to initiate the  Automated  Clearing  House ("ACH")
transfer to buy the shares.  Dividends will begin to accrue on shares  purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase  through the ACH system  before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular  business  day. The proceeds of ACH  transfers  are normally
received by the Fund 3 days after the transfers are initiated.  The  Distributor
and the Fund are not responsible for any delays in purchasing  shares  resulting
from delays in ACH  transmissions.  Reduced Sales  Charges.  As discussed in the
Prospectus, a reduced sales charge rate may be obtained for Class A shares under
Right of  Accumulation  and Letters of Intent  because of the economies of sales
efforts and  reduction  in expenses  realized  by the  Distributor,  dealers and
brokers  making  such  sales.  No sales  charge  is  imposed  in  certain  other
circumstances   described  in  Appendix  C  to  this   Statement  of  Additional
Information  because the  Distributor  or dealer or broker  incurs  little or no
selling expenses.

      n Right of Accumulation.  To qualify for the lower sales charge rates that
apply to  larger  purchases  of Class A  shares,  you and  your  spouse  can add
together:

         o Class A and Class B shares you purchase for your individual accounts,
         or for your  joint  accounts,  or for trust or  custodial  accounts  on
         behalf of your  children  who are minors,  and o current  purchases  of
         Class A and Class B shares of the Fund and other  Oppenheimer  funds to
         reduce the sales charge rate that applies to current purchases of Class
         A shares,  and o Class A and Class B shares  of  Oppenheimer  funds you
         previously purchased subject to an initial or contingent deferred sales
         charge to reduce the sales charge rate for current purchases of Class A
         shares,  provided  that you still  hold your  investment  in one of the
         Oppenheimer funds.

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

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

   
Oppenheimer Bond Fund                   Oppenheimer Large Cap Growth Fund
Oppenheimer California Municipal Fund   Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund   Oppenheimer   Main   Street   California
    

                                        Municipal Fund

   
Oppenheimer Capital Income Fund         Oppenheimer  Main Street Growth & Income

                                      Fund

Oppenheimer  Champion Income Fund ________  Oppenheimer  MidCap Fund Oppenheimer
Convertible  Securities Fund  Oppenheimer  Multiple  Strategies Fund Oppenheimer
Developing  Markets  Fund  _____  Oppenheimer  Municipal  Bond Fund  Oppenheimer
Disciplined  Allocation  Fund  Oppenheimer  New York Municipal Fund  Oppenheimer
Disciplined Value Fund ______  Oppenheimer New Jersey Municipal Fund Oppenheimer
Discovery   Fund   ______________   Oppenheimer   Pennsylvania   Municipal  Fund
Oppenheimer Enterprise Fund _____________  Oppenheimer Quest Balanced Value Fund
Oppenheimer Europe Fund _________________ Oppenheimer Quest Capital Value Fund,

                                      Inc.
    

Oppenheimer Florida Municipal Fund      Oppenheimer  Quest  Global  Value  Fund,

                                      Inc.

Oppenheimer Global Fund                 Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer  Gold  &  Special  Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund                 Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund             Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund      Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund     Oppenheimer World Bond Fund
Oppenheimer International Growth Fund   Limited-Term New York Municipal Fund
Oppenheimer     International     Small Rochester Fund Municipals
Company Fund

and the following money market funds:

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

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

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

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

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

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

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

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

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

      [_]  Terms of Escrow That Apply to Letters of Intent.

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

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

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

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

5. ____ The shares  eligible  for  purchase  under the Letter (or the holding of
which may be counted toward completion of a Letter) include:  (a) Class A shares
sold with a front-end sales charge or subject to a Class

            A contingent deferred sales charge,

(b)         Class B shares of other  Oppenheimer  funds  acquired  subject  to a
            contingent deferred sales charge, and

(c)         Class A or Class B shares acquired by exchange of either (1) Class A
            shares  of one of the other  Oppenheimer  funds  that were  acquired
            subject to a Class A initial or contingent  deferred sales charge or
            (2) Class B shares of one of the other  Oppenheimer  funds that were
            acquired subject to a contingent deferred sales charge.

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

Asset Builder Plans.  To establish an Asset Builder Plan to buy shares  directly
from a bank  account,  you must  enclose a check  (minimum  $25) for the initial
purchase with your application.  Shares purchased by Asset Builder Plan payments
from bank  accounts  are  subject  to the  redemption  restrictions  for  recent
purchases  described  in  the  Prospectus.   Asset  Builder  Plans  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  automatically  debited,  normally four to five
business days prior to the investment dates selected in the Application. Neither
the  Distributor,  the Transfer Agent nor the Fund shall be responsible  for any
delays in purchasing shares resulting from delays in ACH transmissions.





      Before  initiating  Asset  Builder  payments,  obtain a prospectus  of the
selected  fund(s) from the Distributor or your financial  advisor and request an
application from the  Distributor,  complete it and return it. The amount of the
Asset  Builder  investment  may be changed or the automatic  investments  may be
terminated  at any time by writing to the Transfer  Agent.  The  Transfer  Agent
requires a  reasonable  period  (approximately  15 days)  after  receipt of such
instructions to implement  them. The Fund reserves the right to amend,  suspend,
or discontinue offering Asset Builder plans at any time without prior notice.

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

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

Classes of Shares.  Each class of shares of the Fund  represents  an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder  privileges and features.  The net income attributable to Class B or
Class C shares and the  dividends  payable on Class B or Class C shares  will be
reduced by  incremental  expenses  borne  solely by that class.  Those  expenses
include the asset-based sales charges to which Class B and Class C 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 and
Class C shares have no initial sales charge,  the purpose of the deferred  sales
charge and asset-based sales charge on Class B and Class C 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 than another.

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

      [_] Class B  Conversion.  The  conversion  of Class B shares to Class A
shares after six years is subject to the  continuing  availability  of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable  event for the share  holder under  Federal  income tax law. If such a
revenue  ruling or  opinion is no longer  available,  the  automatic  conversion
feature  may be  suspended,  in which  event no further  conversions  of Class B
shares would occur while such  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.

      [_] 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  value of shares,  and  therefore  are  indirectly  borne by  shareholders
through their investment.

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

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

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

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

      Changes in the values of securities traded on foreign exchanges or markets
as a result of  events  that  occur  after the  prices of those  securities  are
determined,  but before the close of The New York  Stock  Exchange,  will not be
reflected in the Fund's  calculation of its net asset values that day unless the
Manager  determines  that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.

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

         o Equity securities traded on a U.S.  securities  exchange or on NASDAQ
are valued as follows: (1) if last sale information is regularly reported,  they
are valued at the

               last  reported  sale price on the  principal  exchange on which
               they are traded or on NASDAQ, as applicable, on that day, or

(2)            if last sale  information  is not available on a valuation  date,
               they are valued at the last  reported  sale price  preceding  the
               valuation  date if it is within the spread of the  closing  "bid"
               and  "asked"  prices on the  valuation  date or,  if not,  at the
               closing "bid" price on the valuation date.

         o Equity securities traded on a foreign  securities  exchange generally
are valued in one of the following ways: (1) at the last sale price available to
the pricing service approved by the

               Board of Trustees, or

(2)            at the last sale price obtained by the Manager from the report of
               the  principal  exchange  on which the  security is traded at its
               last trading session on or immediately before the valuation date,
               or

(3)            at the mean between the "bid" and "asked"  prices  obtained  from
               the principal exchange on which the security is traded or, on the
               basis of  reasonable  inquiry,  from  two  market  makers  in the
               security.

         o Long-term debt securities having a remaining maturity in excess of 60
days  are  valued  based  on the mean  between  the  "bid"  and  "asked"  prices
determined  by a  portfolio  pricing  service  approved  by the Fund's  Board of
Trustees  or  obtained  by the  Manager  from two  active  market  makers in the
security on the basis of reasonable inquiry.

         o The following securities are valued at the mean between the "bid" and
"asked" prices  determined by a pricing service  approved by the Fund's Board of
Trustees  or  obtained  by the  Manager  from two  active  market  makers in the
security on the basis of reasonable  inquiry:  (1) debt  instruments that have a
maturity of more than 397 days when

               issued,

(2)            debt  instruments  that had a  maturity  of 397 days or less when
               issued and have a remaining maturity of more than 60 days, and

(3)            non-money market debt instruments that had a maturity of 397 days
               or less when  issued and which have a  remaining  maturity  of 60
               days or less.

         o  The  following   securities   are  valued  at  cost,   adjusted  for
amortization  of premiums  and  accretion  of  discounts:  (1) money market debt
securities held by a non-money market fund that had a

               maturity  of less than 397 days when issued that have a remaining
               maturity of 60 days or less, and

(2)            debt  instruments  held  by a  money  market  fund  that  have  a
               remaining maturity of 397 days or less.

         o   Securities   (including    restricted    securities)   not   having
readily-available  market  quotations are valued at fair value  determined under
the Board's  procedures.  If the  Manager is unable to locate two market  makers
willing to give  quotes,  a security may be priced at the mean between the "bid"
and "asked"  prices  provided by a single  active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).

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

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

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

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

How to Sell Shares.

Information on how to sell shares of the Fund is stated in the  Prospectus.  The
information  below  provides  additional  information  about the  procedures and
conditions for redeeming shares.

Reinvestment Privilege.  Within six months of a redemption,  a shareholder may
reinvest all or part of the redemption proceeds of:
o     Class A shares  purchased  subject to an initial sales charge or Class A

         shares on which a contingent deferred sales charge was paid, or o Class
B shares that were subject to the Class B contingent deferred

         sales charge when redeemed.

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

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

Payments "In Kind".  The Prospectus  states that payment for shares tendered for
redemption is  ordinarily  made in cash.  However,  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 securities from the portfolio of
the Fund, in lieu of cash.

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

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

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

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

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

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

           premature; and

(3)        conform  to the  requirements  of  the  plan  and  the  Fund's  other
           redemption requirements.

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





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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How to Exchange Shares

      As stated in the Prospectus,  shares of a particular  class of Oppenheimer
funds having more than one class of shares may be  exchanged  only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class  designation are deemed "Class A" shares for this
purpose.  You can obtain a current list showing  which funds offer which classes
by calling the Distributor at 1-800-525-7048.

      o All of the  Oppenheimer  funds  currently  offer Class A, B and C shares
except  Oppenheimer  Money Market Fund,  Inc.,  Centennial  Money Market  Trust,
Centennial Tax Exempt Trust,  Centennial  Government Trust,  Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.

      o Oppenheimer Main Street California  Municipal Fund currently offers only
Class A and Class B shares.

      o Class B and Class C shares of  Oppenheimer  Cash  Reserves are generally
available  only by exchange  from the same class of shares of other  Oppenheimer
funds or through OppenheimerFunds sponsored 401 (k) plans.

      o Class Y shares of  Oppenheimer  Real Asset Fund may not be exchanged for
shares of any other Fund.

      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
a contingent deferred sales charge.

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

      For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other  Oppenheimer  funds.  Exchanges to Class M shares of
Oppenheimer  Convertible  Securities  Fund are permitted  from Class A shares of
Oppenheimer  Money Market Fund,  Inc. or  Oppenheimer  Cash  Reserves  that were
acquired by exchange of Class M shares.  No other exchanges may be made to Class
M shares.

      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.

      [_]  How  Exchanges  Affect  Contingent   Deferred  Sales  Charges.  No
contingent  deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge.  However,  when Class A
shares  acquired  by  exchange  of Class A shares  of  other  Oppenheimer  funds
purchased  subject to a Class A  contingent  deferred  sales charge are redeemed
within 18 months of the end of the calendar month of the initial purchase of the
exchanged  Class A  shares,  the Class A  contingent  deferred  sales  charge is
imposed on the redeemed shares. The Class B contingent  deferred sales charge is
imposed on Class B shares  acquired by exchange  if they are  redeemed  within 6
years of the  initial  purchase  of the  exchanged  Class B shares.  The Class C
contingent  deferred  sales  charge is  imposed  on Class C shares  acquired  by
exchange if they are  redeemed  within 12 months of the initial  purchase of the
exchanged Class C shares.

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

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

      [_] Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder  must have an existing  account in the fund to which the exchange is
to be made. Otherwise, the investor must obtain a Prospectus of that fund before
the  exchange  request may be  submitted.  For full or partial  exchanges  of an
account made by telephone,  any special  account  features such as Asset Builder
Plans and Automatic  Withdrawal Plans will be switched to the new account unless
the Transfer  Agent is instructed  otherwise.  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.

      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 and Class C 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 and Class C shares.  Those
dividends  will also differ in amount as a consequence  of any difference in the
net asset values of the different classes of shares.

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

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

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

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

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

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

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

Additional Information About the Fund

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

The Transfer Agent.  OppenheimerFunds  Services, the Fund's Transfer Agent, is a
division  of  the  Manager.   It  is  responsible  for  maintaining  the  Fund's
shareholder  registry  and  shareholder   accounting  records,  and  for  paying
dividends  and  distributions  to  shareholders.  It  also  handles  shareholder
servicing and administrative  functions.  It acts on an "at-cost" basis. 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.  The Bank of New York 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 will be 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 Auditors. Deloitte &
Touche,  LLP are the  independent  auditors  of the Fund.  They audit the Fund's
financial statements and perform other related audit services.  They also act as
auditors for the Manager and certain  other funds advised by the Manager and its
affiliates.






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 Independent Auditors' Report

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================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Equity Income Fund:

We have audited the accompanying statement of assets and liabilities,  including
the statement of investments, of Oppenheimer Equity Income Fund as of August

31,

1998,  the  related  statement  of  operations  for the  year  then  ended,  the
statements of changes in net assets for the two-year period then ended,  and the
financial  highlights  for the period July 1, 1993,  to August 31,  1998.  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  generally  accepted
auditing  standards.  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 at August 31, 1998, by correspondence with the custodian and brokers;  and
where  replies were not received  from  brokers,  we  performed  other  auditing
procedures.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

            In our opinion,  such financial  statements and financial highlights
present fairly, in all material respects,  the financial position of Oppenheimer
Equity  Income  Fund at August 31,  1998,  the  results of its  operations,  the
changes in its net  assets,  and the  financial  highlights  for the  respective
stated periods, in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Denver, Colorado
September 22, 1998



 Financials

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



                        12 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Investments  August 31, 1998

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


                                                                    Market Value
                                                        Shares        See Note 1

================================================================================
Common Stocks--49.7%

- --------------------------------------------------------------------------------
Basic Materials--2.3%

- --------------------------------------------------------------------------------
Chemicals--0.9%

Betzdearborn, Inc.                                   200,000      $
12,300,000
- --------------------------------------------------------------------------------
Dexter Corp.                                         500,000
12,375,000

- --------------------------------------------------------------------------------
Lyondell Chemical Co.                                396,160
8,542,200

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

33,217,200

- --------------------------------------------------------------------------------
Metals--0.2%

Reynolds Metals Co.                                  131,200
6,289,400

- --------------------------------------------------------------------------------
Paper--1.2%

Sonoco Products Co.                                  660,000
16,912,500

- --------------------------------------------------------------------------------
Stone Container Corp.(1)                             259,740
2,711,036

- --------------------------------------------------------------------------------
Union Camp Corp.                                     200,000
7,412,500

- --------------------------------------------------------------------------------
Westvaco Corp.                                       375,000
7,875,000

- --------------------------------------------------------------------------------
Weyerhaeuser Co.                                     250,000
9,390,625

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

44,301,661

- --------------------------------------------------------------------------------
Consumer Cyclicals--2.6%

- --------------------------------------------------------------------------------
Autos & Housing--0.6%

Ford Motor Co.                                       100,000
4,400,000

- --------------------------------------------------------------------------------
Snap-On, Inc.                                        675,000
17,718,750

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

22,118,750

- --------------------------------------------------------------------------------
Media--0.9%

Dun & Bradstreet Corp. (New)                         900,000
21,150,000

- --------------------------------------------------------------------------------
Hollinger International, Inc.                        736,000
10,304,000

- --------------------------------------------------------------------------------
R.H. Donnelley Corp.                                 160,000
2,110,000

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

33,564,000

- --------------------------------------------------------------------------------
Retail: General--1.1%

Family Dollar Stores, Inc.                         1,400,000
17,762,500

- --------------------------------------------------------------------------------
Penney (J.C.) Co., Inc.                              183,300
9,084,806

- --------------------------------------------------------------------------------
Sears Roebuck & Co.                                  300,000
13,631,250

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

40,478,556

                        13 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Investments  (Continued)

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


                                                                    Market Value
                                                        Shares        See Note 1

- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--8.6%

- --------------------------------------------------------------------------------
Food--0.8%

SUPERVALU, Inc.                                    1,400,000      $
28,437,500
- --------------------------------------------------------------------------------
Healthcare/Drugs--2.3%

American Home Products Corp.                         300,000
15,037,500

- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co.                             300,000
29,362,500

- --------------------------------------------------------------------------------
Merck & Co., Inc.                                    250,000
28,984,375

- --------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc.                             250,000
10,390,625

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

83,775,000

- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.8%

Hillenbrand Industries, Inc.                         300,000
16,068,750

- --------------------------------------------------------------------------------
United States Surgical Corp.                         300,000
11,981,250

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

28,050,000

- --------------------------------------------------------------------------------
Household Goods--0.8%

Fort James Corp.                                     644,420
18,768,733

- --------------------------------------------------------------------------------
Newell Co.                                           200,000
9,550,000

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

28,318,733

- --------------------------------------------------------------------------------
Tobacco--3.9%

Philip Morris Cos., Inc.                           2,000,000
83,125,000

- --------------------------------------------------------------------------------
RJR Nabisco Holdings Corp.                         2,200,000
47,712,500

- --------------------------------------------------------------------------------
UST, Inc.                                            400,000
10,450,000

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

141,287,500

- --------------------------------------------------------------------------------
Energy--2.1%

- --------------------------------------------------------------------------------
Oil-Integrated--2.1%

Enron Corp.                                          425,000
17,982,813

- --------------------------------------------------------------------------------
Mobil Corp.                                          100,000
6,912,500

- --------------------------------------------------------------------------------
Occidental Petroleum Corp.                           878,734
16,256,579

- --------------------------------------------------------------------------------
Phillips Petroleum Co.                               200,000
8,162,500

- --------------------------------------------------------------------------------
Royal Dutch Petroleum Co., NY Shares                 100,000
3,975,000

- --------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp.                      400,000
9,250,000

- --------------------------------------------------------------------------------
Unocal Corp.                                         200,000
6,262,500

- --------------------------------------------------------------------------------
USX-Marathon Group                                   300,000
7,800,000

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

76,601,892

                        14 Oppenheimer Equity Income Fund



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

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


                                                                    Market Value
                                                        Shares        See Note 1

- --------------------------------------------------------------------------------
Financial--26.8%

- --------------------------------------------------------------------------------
Banks--19.1%

Banc One Corp.                                       800,000      $
30,400,000
- --------------------------------------------------------------------------------
Bank of New York Co., Inc. (The)                   1,300,000
31,443,750

- --------------------------------------------------------------------------------
BankAmerica Corp.                                  1,100,000
70,468,750

- --------------------------------------------------------------------------------
BankBoston Corp.                                     850,000
30,334,375

- --------------------------------------------------------------------------------
Bankers Trust Corp.                                  100,000
7,431,250

- --------------------------------------------------------------------------------
Chase Manhattan Corp. (New)                        1,600,000
84,800,000

- --------------------------------------------------------------------------------
Citicorp                                             525,000
56,765,625

- --------------------------------------------------------------------------------
Crestar Financial Corp.                              550,000
27,775,000

- --------------------------------------------------------------------------------
First Chicago NBD Corp.                              550,000
34,856,250

- --------------------------------------------------------------------------------
First Union Corp.                                  2,000,000
97,000,000

- --------------------------------------------------------------------------------
Fleet Financial Group, Inc.                          350,000
22,946,875

- --------------------------------------------------------------------------------
Greenpoint Financial Corp.                           450,000
11,334,375

- --------------------------------------------------------------------------------
KeyCorp                                              750,000
19,125,000

- --------------------------------------------------------------------------------
Mellon Bank Corp.                                    700,000
36,400,000

- --------------------------------------------------------------------------------
National City Corp.                                  425,000
24,968,750

- --------------------------------------------------------------------------------
NationsBank Corp.                                    475,000
27,075,000

- --------------------------------------------------------------------------------
PNC Bank Corp.                                       301,600
12,968,800

- --------------------------------------------------------------------------------
Sovereign Bancorp, Inc.                              262,216
3,195,758

- --------------------------------------------------------------------------------
Summit Bancorp                                       700,000
23,887,500

- --------------------------------------------------------------------------------
Union Planters Corp.                                 387,440
15,594,460

- --------------------------------------------------------------------------------
Washington Mutual, Inc.                              750,000
24,000,000

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

692,771,518

- --------------------------------------------------------------------------------
Diversified Financial--3.0%

American Express Co.                                 500,000
39,000,000

- --------------------------------------------------------------------------------
Anthracite Capital, Inc.                             600,000
5,812,500

- --------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A                 78,625
4,648,703
- --------------------------------------------------------------------------------
Capital One Financial Corp.                          300,000
26,250,000

- --------------------------------------------------------------------------------
Household International, Inc.                        766,650
28,318,134

- --------------------------------------------------------------------------------
Imperial Credit Commercial Mortgage Investment Corp  500,000
4,500,000

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

108,529,337

- --------------------------------------------------------------------------------
Insurance--4.2%

Allstate Corp.                                     1,000,000
37,500,000

- --------------------------------------------------------------------------------
American General Corp.                               700,000
44,975,000

- --------------------------------------------------------------------------------
Hartford Financial Services Group, Inc.              300,000
13,425,000

- --------------------------------------------------------------------------------
IPC Holdings Ltd.                                    359,500
8,942,563

- --------------------------------------------------------------------------------
Reliance Group Holdings, Inc.                      2,141,500
27,036,438

- --------------------------------------------------------------------------------
St. Paul Cos., Inc.                                  700,000
21,393,750

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

153,272,751

                        15 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Investments  (Continued)

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


                                                                    Market Value
                                                         Shares       See Note 1

- --------------------------------------------------------------------------------
Real Estate Investment Trusts--0.5%

FBR Asset Investment Corp.(2)(3)                     500,000      $
7,250,000
- --------------------------------------------------------------------------------
Horizon Group Properties, Inc.(1)                     30,000
105,000

- --------------------------------------------------------------------------------
Prime Retail, Inc.                                   600,000
5,625,000

- --------------------------------------------------------------------------------
Wilshire Real Estate Investment Trust, Inc.          330,000
4,455,000

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

17,435,000

- --------------------------------------------------------------------------------
Industrial--2.0%

- --------------------------------------------------------------------------------
Electrical Equipment--0.5%

AMP, Inc.                                            500,000
17,843,750

- --------------------------------------------------------------------------------
Industrial Services--0.6%

- --------------------------------------------------------------------------------
Browning-Ferris Industries, Inc.                     225,000
7,312,500

- --------------------------------------------------------------------------------
H&R Block, Inc.                                      400,000
15,650,000

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

22,962,500

- --------------------------------------------------------------------------------
Manufacturing--0.9%

Cooper Industries, Inc.                              163,333
6,951,861

- --------------------------------------------------------------------------------
Pall Corp.                                           400,000
8,200,000

- --------------------------------------------------------------------------------
Tenneco, Inc. (New)                                  500,000
15,843,750

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

30,995,611

- --------------------------------------------------------------------------------
Utilities--5.3%

- --------------------------------------------------------------------------------
Electric Utilities--3.7%

Allegheny Energy, Inc.                               300,000
7,987,500

- --------------------------------------------------------------------------------
Central & South West Corp.                           500,000
13,062,500

- --------------------------------------------------------------------------------
FirstEnergy Corp.                                    400,000
11,550,000

- --------------------------------------------------------------------------------
Florida Progress Corp.                               500,000
21,093,750

- --------------------------------------------------------------------------------
Illinova Corp.                                       700,000
18,068,750

- --------------------------------------------------------------------------------
New Century Energies, Inc.                           200,000
9,225,000

- --------------------------------------------------------------------------------
Potomac Electric Power Co.                           400,000
9,800,000

- --------------------------------------------------------------------------------
SCANA Corp.                                          300,000
9,206,250

- --------------------------------------------------------------------------------
Texas Utilities Co.                                  500,000
21,250,000

- --------------------------------------------------------------------------------
Unicom Corp.                                         300,000
10,687,500

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

131,931,250

- --------------------------------------------------------------------------------
Telephone Utilities--1.6%

GTE Corp.                                            550,000
27,500,000

- --------------------------------------------------------------------------------
Portugal Telecom SA, Sponsored ADR                    75,700
3,146,281

- --------------------------------------------------------------------------------
SBC Communications, Inc.                             700,000
26,600,000

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

57,246,281

- --------------
Total Common Stocks (Cost $1,176,067,467)
1,799,428,190

                        16 Oppenheimer Equity Income Fund



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

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




Market Value

Shares     See Note 1

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

        

Preferred Stocks--4.4%

- --------------------------------------------------------------------------------------------------------
American Heritage Life Investment Corp., 8.50% Cv.
Preferred                      35,000  $    2,047,500

- --------------------------------------------------------------------------------------------------------
Armco, Inc., $3.625 Cv.

Cum                                                      200,000
8,550,000

- --------------------------------------------------------------------------------------------------------
Banco Commercial Portuguese International Bank Ltd.,
8% Cv. Preferred Stock, Series

A                                                 165,400      16,540,000
- --------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum
Exchangeable Preferred, Series A,
Non-Vtg                                         55,000       1,454,063

- --------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., $3.75 Cv., Series
B                         180,000       8,730,000

- --------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Preferred

Stock                                  451,800      14,457,600
- --------------------------------------------------------------------------------------------------------
Elsag Bailey Financing Trust, 5.50% Cv. Trust Originated
Preferred

Securities(4)
250,000      10,187,500

- --------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Gtd. Nts.,
12/1/06(2)             1,600,000       1,608,000

- --------------------------------------------------------------------------------------------------------
Golden State Bancorp, 8.75% Cv. Preferred Stock, Series
A                        162,500       8,287,500

- --------------------------------------------------------------------------------------------------------
IXC Communications, Inc., 7.25% Cv. Cum. Jr. Preferred,
Non-Vtg.(4)(5)            53,723       5,969,968

- --------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity

Securities                                           1,450,000      11,146,875
- --------------------------------------------------------------------------------------------------------
National  Australia  Bank Ltd.,  ExCaps  (each ExCap  consists of $25  principal
amount of 7.875% Perpetual  Capital Security and a purchase  contract  entitling
the holder to exchange ExCaps for ordinary shares of the bank)(6) 590,000 ______
16,003,750

- --------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Preferred
Stock(1)(4)                        244,000      13,999,500

- --------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cv. Cum. Preferred Redeemable
Income Dividend Enhanced
Securities                                               56,500

3,121,625

- --------------------------------------------------------------------------------------------------------
St. George Bank, ADR $1.35 Cv. Structured Yield Product
Exchangeable for Common Stock of St. George Bank,
ADR(1)(2)                       96,000       4,416,000

- --------------------------------------------------------------------------------------------------------
Texas Utilities Co., 9.25% Cv. Preferred Redeemable
Increased Dividend Equity

Securities                                             176,500       9,277,281
- --------------------------------------------------------------------------------------------------------
Trans World Airlines, Inc., $4.625 Cv. Cum. Preferred
Stock(1)(4)                200,000      11,100,000

- --------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Term Income
Deferrable Equity Securities,

Non-Vtg.(1)                                        131,400       5,863,725
- --------------------------------------------------------------------------------------------------------
WBK Trust, 6% Structured Yield Product Exchangeable
for Stock of WestPac Bank Corp.,

11/15/00                                        205,000       5,125,000

- --------------
Total Preferred Stocks (Cost

$156,437,127)                                                   157,885,887


                        17 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Investments  (Continued)

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




Market Value

Shares     See Note 1

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

        

Other Securities--3.1%

- -------------------------------------------------------------------------------------------------
American General Delaware LLC, $3.00 Cv. Monthly
Income Preferred Securities, Series A

75,000    $    6,150,000
- -------------------------------------------------------------------------------------------------
Corning Delaware LP, 6% Cv. Monthly Income Preferred Securities
150,000         7,200,000

- -------------------------------------------------------------------------------------------------
Enron Corp., 6.25% Cv. Automatic Common Exchangeable Securities,
Redeemable into Enron Oil & Gas Co. Common Stock

270,000         3,864,375

- -------------------------------------------------------------------------------------------------
Houston Industries, Inc., 7% Automatic Common Exchange Securities,
Exchangeable for Time Warner, Inc. Common Stock, 7/1/00

175,800        12,569,700

- -------------------------------------------------------------------------------------------------
MCN Energy Group, Inc., 8% Cv. Preferred Redeemable
Increased Dividend Equity Securities

50,000         1,787,500

- -------------------------------------------------------------------------------------------------
MCN Energy Group, Inc., 8.75% Cv. Preferred Redeemable
Increased Dividend Equity Securities

135,000         2,438,437

- -------------------------------------------------------------------------------------------------
MediaOne Group, Inc., 7.625% Cv. Debt Exchangeable
for Common Stock

415,000        17,793,125

- -------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Structured Yield
Product Exchangeable for Common Stock of

Cox Communications, Inc., 6/1/99
300,000        10,650,000

- -------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income
Preferred Securities, Non-Vtg.(4)

200,000        10,325,000

- -------------------------------------------------------------------------------------------------
Premier Parks, Inc., 7.50% Cum. Cv. Premium Income
Equity Securities, Non-Vtg

499,000        19,710,500

- -------------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc., 7.625% Cv. Preferred,
Debt Exchangeable for Common Stock of Financial Security

Assurance Holdings Ltd., 5/15/99
460,000        18,917,500

- --------------
Total Other Securities (Cost

$95,619,625)                                             111,406,137



                                                                            Face
                                                                       Amount(7)

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

               

U.S. Government Obligations--14.6%

- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.94%, 5/15/21(8)
$700,000,000      200,649,400

- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.20%, 8/15/08(8)
150,000,000       89,549,850

- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.20%, 8/15/20(8)
800,000,000      238,468,800

- --------------
Total U.S. Government Obligations (Cost
$391,442,076)                                 528,668,050

=================================================================================================
Foreign Government Obligations--1.5%

- -------------------------------------------------------------------------------------------------
Argentina (Republic of) Bonds, Series L, 6.625%, 3/31/05(9)
6,175,000         4,191,281

- -------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, 7.50%, 9/1/00CAD
19,460,000        12,845,331

- -------------------------------------------------------------------------------------------------
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(4)
9,000,000         6,907,500

- -------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.45%, 12/23/23(9)
1,250,000           903,125

- -------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03AUD
9,900,000         6,249,442

- -------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Exchangeable Gtd. Nts., 8%, 8/14/01AUD
33,650,000        20,242,885

- -------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10ZAR
27,500,000         2,930,555

- -------------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02AUD
3,000,000         1,869,092

- --------------
Total Foreign Government Obligations (Cost
$69,521,544)                                56,139,211



                        18 Oppenheimer Equity Income Fund



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

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




Face          Market Value

Amount(7)     See Note 1

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

          

Non-Convertible Corporate Bonds and Notes--2.9%

- --------------------------------------------------------------------------------------------------
AK Steel Corp., 9.125% Sr. Nts., 12/15/06
$3,000,000   $    3,007,500

- --------------------------------------------------------------------------------------------------
Auburn Hills Trust, 11.74% Gtd. Exchangeable Certificates, 5/1/20(9)
5,000,000        8,279,665

- --------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07
2,500,000        2,787,500

- --------------------------------------------------------------------------------------------------
California Energy, Inc., 10.25% Sr. Disc. Nts., 1/15/04
4,350,000        4,632,750

- --------------------------------------------------------------------------------------------------
Calpine Corp., 8.75% Sr. Nts., 7/15/07
875,000          879,375

- --------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06
2,400,000        1,956,000

- --------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01
6,000,000        6,330,000

- --------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05
6,350,000        6,318,250

- --------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 9.875% Sr. Sub. Debs., 4/1/23
2,000,000        2,130,000

- --------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Bonds, Series E, 5/1/11
6,000,000        6,630,000

- --------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(2)
5,000,000        4,950,000

- --------------------------------------------------------------------------------------------------
First Nationwide Holdings, Inc., 10.625% Sr. Sub. Nts., 10/1/03
6,190,000        6,793,525

- --------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.625% Gtd. Sr. Nts., 12/15/01
3,000,000        3,045,000

- --------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9.25% Gtd. Sr
Sub. Nts., 2/1/06

5,000,000        5,025,000

- --------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09
3,000,000        2,857,500

- --------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., 8.375% Sr. Unsec. Nts., 11/1/05
6,000,000        6,270,000

- --------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07
2,000,000        1,870,000

- --------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03(2)
9,000,000        9,292,500

- --------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.625% Sr. Sub. Nts., 1/15/07
2,000,000        1,985,000

- --------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(2)
1,984,872        1,421,665

- --------------------------------------------------------------------------------------------------
Viacom International, Inc., 10.25% Sr. Sub. Nts., 9/15/01
12,000,000       13,204,968

- --------------------------------------------------------------------------------------------------
WorldCom, Inc., 9.375% Sr. Nts., 1/15/04(2)
3,343,000        3,678,597

- --------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$96,917,070)                     103,344,795

==================================================================================================
Convertible Corporate Bonds and Notes--2.3%

- --------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06
10,000,000       11,800,000

- --------------------------------------------------------------------------------------------------
Apple Computer, Inc., 6% Cv. Sub. Nts., 6/1/01
10,500,000       12,862,500

- --------------------------------------------------------------------------------------------------
Cirrus Logic, Inc., 6% Cv. Sub. Nts., 12/15/03(4)
11,000,000        7,493,750

- --------------------------------------------------------------------------------------------------
Inco Ltd., 5.75% Cv. Debs., 7/1/04
9,700,000        8,245,000

- --------------------------------------------------------------------------------------------------
Inco Ltd., 7.75% Cv. Debs., 3/15/16
9,800,000        8,807,750

- --------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc., 5.50% Cv. Sub. Nts., 6/1/02
7,000,000        5,372,500

- --------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon
Exchangeable Sub. Debs., 5.25%, 10/30/15(4)(8)

19,500,000       12,918,750

- --------------------------------------------------------------------------------------------------
Oryx Energy Co., 7.50% Cv. Sub. Debs., 5/15/14
7,000,000        6,746,250

- --------------------------------------------------------------------------------------------------
VLSI Technology, Inc., 8.25% Cv. Sub. Nts., 10/1/05
10,100,000        9,405,625

- --------------
Total Convertible Corporate Bonds and Notes (Cost
$77,954,401)                          83,652,125



                        19 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Investments  (Continued)

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




Face            Market Value

Amount(7)       See Note 1

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

             

Structured Instruments--0.4%

- ------------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 5/31/02 (representing

a basket of reference loans and a total return swap between

Chase Manhattan Bank and the Trust)(2)(10)                              $
7,681,000     $    7,681,000

- ------------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 7.44%, 4/28/02
(representing a basket of reference loans and a total return
swap between Chase Manhattan Bank and the Trust)(2)(9)
7,319,000          7,484,168

- --------------
Total Structured Instruments (Cost

$15,485,088)                                             15,165,168

======================================================================================================
Short-Term Notes--14.5%(11)

- ------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.50%, 10/2/98
50,000,000         49,763,194

- ------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.51%, 9/23/98
50,000,000         49,831,639

- ------------------------------------------------------------------------------------------------------
Baxter International, Inc., 5.55%, 9/3/98
30,000,000         29,990,750

- ------------------------------------------------------------------------------------------------------
Baxter International, Inc., 5.56%, 9/8/98
30,000,000         29,967,567

- ------------------------------------------------------------------------------------------------------
CIESCO, LP, 5.52%, 10/5/98
50,000,000         49,739,333

- ------------------------------------------------------------------------------------------------------
CIT Group Holdings, Inc., 5.53%, 9/2/98
50,000,000         49,992,319

- ------------------------------------------------------------------------------------------------------
Countrywide Home Loans, 5.54%, 9/28/98
25,000,000         24,895,938

- ------------------------------------------------------------------------------------------------------
Countrywide Home Loans, 5.58%, 9/2/98
26,000,000         25,995,970

- ------------------------------------------------------------------------------------------------------
First Data Corp., 5.52%, 9/22/98
40,000,000         39,871,200

- ------------------------------------------------------------------------------------------------------
First Data Corp., 5.52%, 9/8/98
50,000,000         49,946,333

- ------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.53%, 9/24/98
50,000,000         49,823,347

- ------------------------------------------------------------------------------------------------------
Norwest Corp., 5.51%, 10/8/98
50,000,000         49,716,847

- ------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.52%, 9/14/98
25,000,000         24,950,167

- --------------
Total Short-Term Notes (Cost

$524,484,604)                                                 524,484,604

======================================================================================================
Repurchase Agreements--7.0%

- ------------------------------------------------------------------------------------------------------
Repurchase  agreement with First Chicago Capital Markets,  5.75%, dated 8/31/98,
to be repurchased at $253,340,458  on 9/1/98,  collateralized  by U.S.  Treasury
Bonds, 7.625%-13.125%,  5/15/01-11/15/22, with a value of $244,798,746, and U.S.
Treasury Nts.,  5.50%-6.50%,  1/31/03-10/15/06,with a value of $14,033,919 (Cost
$253,300,000) 253,300,000 253,300,000

- ------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $2,857,229,002)
100.4%     3,633,474,167

- ------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other

Assets                                          (0.4)       (14,232,174)

- -----------     --------------
Net Assets
100.0%    $3,619,241,993

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


                        20 Oppenheimer Equity Income Fund



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

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


- --------------------------------------------------------------------------------
1. Non-income producing security.

2.  Identifies  issues  considered to be illiquid or  restricted--See  Note 5 of
Notes to Financial Statements.

3.  Affiliated  company.  Represents  ownership  of at  least  5% of the  voting
securities  of  the  issuer  and  is or  was an  affiliate,  as  defined  in the
Investment  Company Act of 1940,  at or during the period ended August 31, 1998.
The aggregate fair value of securities of affiliated  companies held by the Fund
as of August 31, 1998, amounts to $7,250,000.  Transactions during the period in
which the issuer was an affiliate are as follows:




                            Shares                              Shares
                            August 31,  Gross       Gross       August 31,

Dividend

                            1997        Additions   Reductions  1998

Income

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



FBR Asset Investment Corp.  --          500,000     --          500,000
$275,000


4.  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 $78,901,968 or 2.18% of the Fund's net

assets as of August 31, 1998.

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

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

principal.

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

AUD--Australian Dollar
CAD--Canadian Dollar
ZAR--South African Rand

8. For zero coupon bonds, the interest rate shown is the effective yield on
the

date of purchase.

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

10. When-issued security to be delivered and settled after August 31,1998.

11. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.

See accompanying Notes to Financial Statements.

                        21 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Assets and Liabilities  August 31, 1998

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


================================================================================
Assets

Investments, at value--see accompanying statement:

Unaffiliated companies (cost $2,847,229,002)
$3,626,224,167
Affiliated companies (cost $10,000,000)

7,250,000

- --------------------------------------------------------------------------------
Receivables:
Interest and dividends

10,201,018

Shares of beneficial interest sold
5,021,164

- --------------------------------------------------------------------------------
Other
102,998

- --------------
Total assets
3,648,799,347

================================================================================
Liabilities
Bank overdraft

2,683,739

- --------------------------------------------------------------------------------
Payables and other liabilities:

Investments purchased
17,811,783

Shares of beneficial  interest redeemed 6,450,657  Distribution and service plan
fees 1,338,174 Transfer and shareholder servicing agent fees 586,335 Shareholder
reports 425,446 Custodian fees 60,267 Other 200,953

- --------------
Total liabilities
29,557,354

================================================================================
Net Assets
$3,619,241,993

==============
================================================================================
Composition of Net Assets
Paid-in capital

$2,618,657,524

- --------------------------------------------------------------------------------
Undistributed net investment income
24,389,841

- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
200,032,683

- --------------------------------------------------------------------------------
Net unrealized appreciation on investments
776,161,945

- --------------
Net assets
$3,619,241,993

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


                        22 Oppenheimer Equity Income Fund



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

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


================================================================================
Net Asset Value Per Share
Class A Shares:

Net  asset  value  and  redemption  price  per  share  (based  on net  assets of
$2,889,472,020 and 210,161,974 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  $634,775,074  and
46,558,894 shares of beneficial interest outstanding) $13.63

- --------------------------------------------------------------------------------
Class C Shares:

Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and  offering  price per share (based on net assets of  $94,994,899  and
6,969,876 shares of beneficial interest outstanding) $13.63

See accompanying Notes to Financial Statements.

                        23 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statement of Operations  For the Year Ended August 31, 1998

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






=======================================================================================
Investment Income

Interest                                                                  $
88,135,493

- ---------------------------------------------------------------------------------------
Dividends:

Unaffiliated companies (net of foreign withholding taxes of $144,403)

69,819,505

Affiliated

companies                                                            275,000

- -------------
Total income
158,229,998

=======================================================================================
Expenses
Management fees--Note 4

19,364,160

- ---------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:

Class A

6,047,155

Class B

5,744,260

Class

C
769,244

- ---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
3,984,343

- ---------------------------------------------------------------------------------------
Shareholder

reports                                                             885,703

- ---------------------------------------------------------------------------------------
Registration and filing

fees                                                    277,086

- ---------------------------------------------------------------------------------------
Custodian fees and

expenses                                                     147,571

- ---------------------------------------------------------------------------------------
Legal, auditing and other professional
fees                                      82,493

- ---------------------------------------------------------------------------------------
Trustees' fees and

expenses                                                      70,611

- ---------------------------------------------------------------------------------------
Insurance

expenses                                                               29,675

- ---------------------------------------------------------------------------------------
Other
60,430

- -------------
Total expenses
37,462,731

=======================================================================================
Net Investment Income
120,767,267

=======================================================================================
Realized and Unrealized Gain (Loss)

Net realized gain (loss) on:

Investments
235,576,019

Foreign currency transactions

(3,519,103)

- -------------
Net realized gain
232,056,916

- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:

Investments

(168,879,300)

Translation of assets and liabilities denominated in foreign currencies
(7,659,603)

- -------------
Net change

(176,538,903)

- -------------
Net realized and unrealized gain
55,518,013

=======================================================================================
Net Increase in Net Assets Resulting from Operations                      $
176,285,280

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



See accompanying Notes to Financial Statements.

                        24 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Statements of Changes in Net Assets

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




                                                          Year Ended August

31,

                                                          1998

1997

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



Operations

Net investment income                                     $  120,767,267   $
108,795,712
- -----------------------------------------------------------------------------------------
Net realized gain                                            232,056,916
156,172,442

- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation       (176,538,903)
524,310,151

                                                          --------------
- --------------
Net increase in net assets resulting from operations         176,285,280
789,278,305

=========================================================================================
Dividends  and  Distributions  to  Shareholders  Dividends  from net  investment
income:

Class A                                                      (99,500,973)

(90,387,132)

Class B

(13,977,579)      (9,876,167)

Class C

(1,859,540)        (666,754)

- -----------------------------------------------------------------------------------------
Distributions from net realized gain:

Class A                                                     (154,035,012)

(74,843,781)

Class B

(26,561,696)      (9,970,652)

Class C

(3,223,836)        (386,132)

=========================================================================================
Beneficial  Interest  Transactions  Net  increase in net assets  resulting  from
beneficial interest transactions--Note 2:

Class A

253,723,804       85,811,376

Class B

234,393,363       99,076,120

Class C
52,477,300       36,069,145

=========================================================================================
Net Assets

Total increase                                               417,721,111
824,104,328

- -----------------------------------------------------------------------------------------
Beginning of period                                        3,201,520,882
2,377,416,554

                                                          --------------
- --------------
End of period (including undistributed net investment

income of $24,389,841 and $18,883,337, respectively)      $3,619,241,993
$3,201,520,882
                                                          ==============
==============


See accompanying Notes to Financial Statements.

                        25 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Financial Highlights

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




                                              Class

A

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

                                              Year Ended August

31,            Year Ended June 30,

                                              1998      1997

1996(2)      1996       1995
==================================================================================================
                                                  

                 

Per Share Operating Data

Net asset value, beginning of period          $14.12    $11.36
$11.39       $10.25     $9.44
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:

Net investment income                            .50       .47
 .09          .50       .50
Net realized and unrealized gain (loss)          .41      3.17
(.12)        1.36       .92
                                              ------    ------
- ------       ------    ------
Total income (loss) from investment

operations                                       .91      3.64
(.03)        1.86      1.42

- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income            (.49)     (.48)

- --         (.48)     (.48)
Dividends in excess of net investment

income                                            --        --
- --           --        --
Distributions from net realized gain            (.79)     (.40)
- --         (.24)     (.13)
Distributions in excess of net realized gain      --        --
- --           --        --
                                              ------    ------
- ------       ------    ------
Total dividends and distributions

to shareholders                                (1.28)     (.88)
- --         (.72)     (.61)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period                $13.75    $14.12
$11.36       $11.39    $10.25
                                              ======    ======
======       ======    ======
==================================================================================================
Total Return, at Net Asset Value(4)             6.17%    33.39%
(0.26)%      18.61%    15.66%

==================================================================================================
Ratios/Supplemental Data

Net assets, end of period (in millions)       $2,889    $2,722
$2,110       $2,141    $1,893

- --------------------------------------------------------------------------------------------------
Average net assets (in millions)              $3,072    $2,446
$2,109       $2,054    $1,798
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:

Net investment income                           3.47%     3.97%
3.28%(5)     4.51%     5.15%
Expenses                                        0.87%     0.88%
0.94%(5)     0.89%     0.96%
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6)                      18.1%     23.7%
13.5%        42.9%     45.7%


1. For the period from  November 1, 1995  (inception  of  offering)  to June 30,
1996.

2. For the two months ended  August 31,  1996.  The Fund changed its fiscal year
end from June 30 to August 31.

3. For the period from August 17, 1993 (inception of offering) to June 30, 1994.

4.  Assumes a  hypothetical  initial  investment  on the business day before the
first day of the fiscal period (or  inception of  offering),  with all dividends
and distributions  reinvested in additional shares on the reinvestment date, and
redemption  at the net asset value  calculated  on the last  business day of the
fiscal  period.  Sales  charges are not  reflected in the total  returns.  Total
returns are not annualized for periods of less than one full year.

5. Annualized.

                        26 Oppenheimer Equity Income Fund



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

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




                                                         Class B

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

                                                         Year Ended August

31,            Year Ended June 30,

                                               1994      1998      1997
1996(2)      1996       1995     1994(3)
====================================================================================================================
                                                          

                        

Per Share Operating Data

Net asset value, beginning of period           $10.01    $14.01    $11.29
$11.33       $10.21     $9.40    $10.22
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:

Net investment income                             .47       .39
 .37       .07          .41       .43       .36
Net realized and unrealized gain (loss)          (.39)      .40
3.13      (.11)        1.35       .91      (.58)
                                               ------    ------    ------
- ------       ------    ------    ------
Total income (loss) from investment

operations                                        .08       .79
3.50      (.04)        1.76      1.34      (.22)

- --------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income             (.47)     (.38)
(.38)       --         (.40)     (.40)     (.42)
Dividends in excess of net investment
income                                           (.01)       --
- --        --           --        --      (.01)
Distributions from net realized gain             (.12)     (.79)
(.40)       --         (.24)     (.13)     (.12)
Distributions in excess of net realized gain     (.05)       --
- --        --           --        --      (.05)
                                               ------    ------    ------
- ------       ------    ------    ------
Total dividends and distributions

to shareholders                                  (.65)    (1.17)
(.78)       --         (.64)     (.53)     (.60)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                  $9.44    $13.63    $14.01
$11.29       $11.33    $10.21     $9.40
                                               ======    ======    ======
======       ======    ======    ======
====================================================================================================================
Total Return, at Net Asset Value(4)              0.65%     5.32%    32.17%
(0.35)%      17.58%    14.87%    (2.35)%

====================================================================================================================
Ratios/Supplemental Data

Net assets, end of period (in millions)        $1,773      $635
$431      $260         $252      $161       $88

- --------------------------------------------------------------------------------------------------------------------
Average net assets (in millions)               $1,832      $575
$344      $255         $208      $122       $47
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:

Net investment income                            4.72%     2.68%
3.16%     2.48%(5)     3.68%     4.34%     3.99%(5)
Expenses                                         0.90%     1.67%
1.69%     1.76%(5)     1.72%     1.79%     1.82%(5)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6)                       30.4%     18.1%
23.7%     13.5%        42.9%     45.7%     30.4%


6. The  lesser  of  purchases  or sales of  portfolio  securities  for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period.  Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term  securities) for the period
ended August 31, 1998 were $572,000,878 and $670,953,766, respectively.

                        27 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Financial Highlights  (Continued)

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




                                                     Class C

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

Period

Ended

                                                     Year Ended August

31,            June 30,

                                                     1998      1997

1996(2)      1996(1)

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

          

Per Share Operating Data

Net asset value, beginning of period                 $14.02    $11.30
$11.35       $10.76
- --------------------------------------------------------------------------------------------
Income (loss) from investment operations:

Net investment income                                   .39       .40
 .07          .28
Net realized and unrealized gain (loss)                 .40      3.12
(.12)         .88

                                                     ------    ------
- ------       ------
Total income (loss) from investment operations          .79      3.52
(.05)        1.16

- --------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:

Dividends from net investment income                   (.39)     (.40)
- --         (.33)
Dividends in excess of net investment income             --        --
- --           --
Distributions from net realized gain                   (.79)     (.40)
- --         (.24)
Distributions in excess of net realized gain             --        --
- --           --
                                                     ------    ------
- ------       ------
Total dividends and distribution to shareholders      (1.18)     (.80)
- --         (.57)

- --------------------------------------------------------------------------------------------
Net asset value, end of period                       $13.63    $14.02
$11.30       $11.35
                                                     ======    ======
======       ======
============================================================================================
Total Return, at Net Asset Value(4)                    5.30%    32.31%
(0.44)%      10.50%

============================================================================================
Ratios/Supplemental Data

Net assets, end of period (in millions)                 $95       $48
$7           $6
- --------------------------------------------------------------------------------------------
Average net assets (in millions)                        $77       $25
$7           $3
- --------------------------------------------------------------------------------------------
Ratios to average net assets:

Net investment income                                  2.68%     3.15%
2.55%(5)     3.53%(5)
Expenses                                               1.67%     1.69%
1.79%(5)     1.81%(5)

- --------------------------------------------------------------------------------------------
Portfolio turnover rate(6)                             18.1%     23.7%
13.5%        42.9%


1. For the period from  November 1, 1995  (inception  of  offering)  to June 30,
1996.

2. For the two months ended  August 31,  1996.  The Fund changed its fiscal year
end from June 30 to August 31.

3. For the period from August 17, 1993 (inception of offering) to June 30, 1994.

4.  Assumes a  hypothetical  initial  investment  on the business day before the
first day of the fiscal period (or  inception of  offering),  with all dividends
and distributions  reinvested in additional shares on the reinvestment date, and
redemption  at the net asset value  calculated  on the last  business day of the
fiscal  period.  Sales  charges are not  reflected in the total  returns.  Total
returns are not annualized for periods of less than one full year.

5. Annualized.

6. The  lesser  of  purchases  or sales of  portfolio  securities  for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period.  Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term  securities) for the period
ended August 31, 1998 were $572,000,878 and $670,953,766, respectively.

See accompanying Notes to Financial Statements.

                        28 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Notes to Financial Statements

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


================================================================================
1. Significant Accounting Policies

Oppenheimer  Equity  Income Fund (the Fund) is registered  under the  Investment
Company  Act  of  1940,  as  amended,  as  a  diversified,  open-end  management
investment company.  The Fund's investment  objective is to seek as much current
income as is compatible with prudent  investment.  Its secondary objective is to
conserve principal while providing an opportunity for capital appreciation.  The
Fund's  investment  advisor is  OppenheimerFunds,  Inc. (the Manager).  The Fund
offers  Class A,  Class B and  Class C  shares.  Class A shares  are sold with a
front-end  sales  charge.  Class  B and  Class  C  shares  may be  subject  to a
contingent deferred sales charge. All classes of shares have identical rights to
earnings,  assets  and  voting  privileges,  except  that each class has its own
distribution and/or service plan,  expenses directly  attributable to that class
and exclusive voting rights with respect to matters affecting that class.  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.

- --------------------------------------------------------------------------------
Investment  Valuation.  Portfolio  securities are valued at the close of the New
York Stock  Exchange on each trading day.  Listed and  unlisted  securities  for
which such  information is regularly  reported are valued at the last sale price
of the day or, in the  absence of sales,  at values  based on the closing bid or
the  last  sale  price  on the  prior  trading  day.  Long-term  and  short-term
"non-money  market" debt  securities are valued by a portfolio  pricing  service
approved by the Board of Trustees.  Such securities which cannot be valued by an
approved portfolio pricing service are valued using  dealer-supplied  valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and  that  the  quotes  reflect  current  market  value,  or  are  valued  under
consistently  applied  procedures  established  by  the  Board  of  Trustees  to
determine  fair  value  in good  faith.  Short-term  "money  market  type"  debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last  determined  market  value)  adjusted for  amortization  to maturity of any
premium or discount.  Forward  foreign  currency  exchange  contracts are valued
based on the closing prices of the forward currency contract rates in the London
foreign  exchange  markets on a daily basis as  provided  by a reliable  bank or
dealer.

- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are
maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.

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

                        29 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Notes to Financial Statements  (Continued)

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


================================================================================
1. Significant Accounting Policies  (continued)

Repurchase  Agreements.  The Fund requires the custodian to take possession,  to
have  legally  segregated  in the Federal  Reserve  Book Entry System or to have
segregated  within the custodian's  vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of  purchase.  If the seller
of the agreement  defaults and the value of the collateral  declines,  or if the
seller  enters  an  insolvency  proceeding,  realization  of  the  value  of the
collateral by the Fund may be delayed or limited.

- --------------------------------------------------------------------------------
Allocation of Income,  Expenses,  Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each  class  of  shares  based  upon  the  relative  proportion  of  net  assets
represented  by  such  class.  Operating  expenses  directly  attributable  to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
Federal  Taxes.  The Fund intends to continue to comply with  provisions  of the
Internal  Revenue Code  applicable  to  regulated  investment  companies  and to
distribute  all of its  taxable  income,  including  any  net  realized  gain on
investments  not  offset by loss  carryovers,  to  shareholders.  Therefore,  no
federal income or excise tax provision is required.

- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders

are

recorded on the ex-dividend date.

- --------------------------------------------------------------------------------
Classification  of Distributions to Shareholders.  Net investment  income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily  because of the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes.  The character of the  distributions
made during the year from net investment income or net realized gains may differ
from its ultimate characterization for federal income tax purposes. Also, due to
timing  of  dividend  distributions,  the  fiscal  year  in  which  amounts  are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.

            The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax  regulations.  Accordingly,  during the
year  ended  August  31,  1998,  amounts  have been  reclassified  to reflect an
increase  in  undistributed  net  investment  income of  $77,329,  a decrease in
paid-in capital of $1,648,429,  and an increase in accumulated  realized gain on
investments of $1,571,100.

                        30 Oppenheimer Equity Income Fund



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

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


================================================================================
Other. Investment transactions are accounted for on the date the investments are
purchased  or  sold  (trade  date)  and  dividend  income  is  recorded  on  the
ex-dividend date. Discount on securities purchased is amortized over the life of
the respective  securities,  in accordance with federal income tax requirements.
Realized  gains and  losses  on  investments  and  unrealized  appreciation  and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes. Dividends-in-kind are recognized as income
on the ex-dividend date at the current market value of the underlying  security.
Interest on payment-in-kind  debt instruments is accrued as income at the coupon
rate and a market adjustment is made periodically.

            The preparation of financial statements in conformity with 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 August 31, 1998   Year Ended August

31, 1997

                             --------------------------
- --------------------------
                             Shares        Amount         Shares        Amount

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


Class A:

Sold                          28,301,749   $425,894,349    22,312,307
$286,390,507

Dividends and distributions

reinvested                    16,366,250    238,084,133    12,636,963
155,744,291
Redeemed                     (27,270,231)  (410,254,678)  (27,925,816)
(356,323,422)

                             -----------   ------------   -----------
- ------------
Net increase                  17,397,768   $253,723,804     7,023,454
$85,811,376
                             ===========   ============   ===========
============

- ------------------------------------------------------------------------------------
Class B:

Sold                          17,875,704   $267,182,429     9,869,512
$126,478,575

Dividends and distributions

reinvested                     2,649,899     38,263,417     1,509,887
18,517,384
Redeemed                      (4,755,561)   (71,052,483)   (3,589,063)
(45,919,839)

                             -----------   ------------   -----------
- ------------
Net increase                  15,770,042   $234,393,363     7,790,336
$99,076,120
                             ===========   ============   ===========
============

- ------------------------------------------------------------------------------------
Class C:

Sold                           4,117,941    $61,626,191     3,032,244
$39,122,283

Dividends and distributions

reinvested                       342,326      4,949,150        81,260
1,020,485
Redeemed                        (941,057)   (14,098,041)     (315,866)
(4,073,623)

                             -----------   ------------   -----------
- ------------
Net increase                   3,519,210    $52,477,300     2,797,638
$36,069,145
                             ===========   ============   ===========
============


                        31 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Notes to Financial Statements  (Continued)

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


================================================================================
3. Unrealized Gains and Losses on Investments

At August 31, 1998, net unrealized  appreciation  on investments of $776,245,165
was composed of gross  appreciation of $890,740,506,  and gross  depreciation of
$114,495,341.

================================================================================
4. Management Fees and Other Transactions with Affiliates

Management  fees paid to the  Manager  were in  accordance  with the  investment
advisory  agreement with the Fund which provides for a fee of 0.75% of the first
$100 million of average annual net assets, 0.70% of the next $100 million,

0.65%

of the next $100 million, 0.60% of the next $100 million, 0.55% of the next $100
million, and 0.50% of average annual net assets in excess of $500 million.

            For the year ended August 31, 1998,  commissions (sales charges paid
by investors) on sales of Class A shares totaled $8,057,145, of which

$2,429,799

was retained by OppenheimerFunds  Distributor,  Inc. (OFDI), a subsidiary of the
Manager,  as general  distributor,  and by an  affiliated  broker/dealer.  Sales
charges  advanced to  broker/dealers  by OFDI on sales of the Fund's Class B and
Class C shares totaled $8,780,583 and $551,784,  respectively, of which $779,103
and $37,137, respectively,  was paid to an affiliated broker/dealer.  During the
year ended August 31, 1998, OFDI received  contingent  deferred sales charges of
$631,183  and  $23,959,  respectively,  upon  redemption  of Class B and Class C
shares as reimbursement  for sales  commissions  advanced by OFDI at the time of
sale of such shares.

            OppenheimerFunds  Services (OFS), a division of the Manager,  is the
transfer and shareholder  servicing agent for the Fund and for other Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to

these funds.

            The Fund has adopted a Service  Plan for Class A shares to reimburse
OFDI for a portion of its costs incurred in connection with the personal service
and maintenance of shareholder accounts that hold Class A shares.  Reimbursement
is made  quarterly  at an annual  rate that may not exceed  0.25% of the average
annual net assets of Class A shares of the Fund.  OFDI uses the  service  fee to
reimburse brokers, dealers, banks and other financial institutions quarterly for
providing  personal  service and maintenance of accounts of their customers that
hold Class A shares.  During the year ended August 31, 1998,  OFDI paid $436,769
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.

                        32 Oppenheimer Equity Income Fund



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

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


================================================================================
The Fund has  adopted  a  Distribution  and  Service  Plan for Class B shares to
reimburse  OFDI for its  services and costs in  distributing  Class B shares and
servicing  accounts.  Under the Plan,  the Fund pays OFDI an annual  asset-based
sales charge of 0.75% per year on Class B shares.  OFDI also  receives a service
fee of 0.25% per year to reimburse  dealers for providing  personal services for
accounts  that hold Class B shares.  Each fee is computed on the average  annual
net  assets  of Class B  shares,  determined  as of the  close  of each  regular
business  day.  During the year ended August 31,  1998,  OFDI paid $85,448 to an
affiliated  broker/dealer  as  reimbursement  for Class B personal  service  and
maintenance  expenses and retained $4,717,686 as reimbursement for Class B sales
commissions and service fee advances, as well as financing costs. If the Plan is
terminated  by the Fund,  the Board of  Trustees  may allow the Fund to continue
payments of the asset-based sales charge to OFDI for distributing  shares before
the Plan was  terminated.  As of  August  31,  1998,  OFDI had  incurred  excess
distribution and servicing costs of $15,529,526 for Class B.

            The Fund has adopted a  Distribution  and  Service  Plan for Class C
shares to  compensate  OFDI for its  costs in  distributing  Class C shares  and
servicing  accounts.  Under the Plan,  the Fund pays OFDI an annual  asset-based
sales charge of 0.75% per year on Class C shares.  OFDI also  receives a service
fee of 0.25% per year to compensate  dealers for providing personal services for
accounts  that hold Class C shares.  Each fee is computed on the average  annual
net  assets  of Class C  shares,  determined  as of the  close  of each  regular
business  day.  During the year ended  August 31,  1998,  OFDI paid $4,936 to an
affiliated  broker/dealer  as  compensation  for Class C  personal  service  and
maintenance  expenses and retained  $535,009 as  compensation  for Class C sales
commissions and service fee advances, as well as financing costs. If the Plan is
terminated  by the Fund,  the Board of  Trustees  may allow the Fund to continue
payments of the asset-based sales charge to OFDI for distributing  shares before
the Plan was  terminated.  As of  August  31,  1998,  OFDI had  incurred  excess
distribution and servicing costs of $1,178,202 for Class C.

                        33 Oppenheimer Equity Income Fund



- --------------------------------------------------------------------------------
 Notes to Financial Statements  (Continued)

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


================================================================================
5. Illiquid and Restricted Securities

At August 31, 1998,  investments in securities included issues that are illiquid
or restricted.  Restricted  securities are often purchased in private  placement
transactions,  are not  registered  under the  Securities  Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of  Trustees  as  reflecting  fair  value.  A security  may be  considered
illiquid  if it lacks a readily  available  market or if its  valuation  has not
changed for a certain  period of time.  The Fund  intends to invest no more than
10% of its  net  assets  (determined  at  the  time  of  purchase  and  reviewed
periodically)  in  illiquid  or  restricted   securities.   Certain   restricted
securities,  eligible for resale to qualified institutional  investors,  are not
subject to that limit. The aggregate value of illiquid or restricted  securities
subject to this limitation at August 31, 1998, was $47,781,930, which represents
1.32% of the Fund's net assets.

================================================================================
6. Bank Borrowings

The Fund may borrow from a bank for temporary or emergency  purposes  including,
without limitation,  funding of shareholder  redemptions provided asset coverage
for  borrowings  exceeds  300%.  The Fund has entered  into an  agreement  which
enables it to participate with other  Oppenheimer  funds in an unsecured line of
credit with a bank, which permits  borrowings up to $400 million,  collectively.
Interest is charged to each fund,  based on its  borrowings,  at a rate equal to
the  Federal  Funds Rate plus 0.35%.  Borrowings  are payable 30 days after such
loan is  executed.  The Fund  also pays a  commitment  fee equal to its pro rata
share of the  average  unutilized  amount of the  credit  facility  at a rate of
0.0575% per annum.

            The Fund had no borrowings outstanding during the year ended
August

31, 1998.

                        34 Oppenheimer Equity Income Fund







                                       A-5

                                   Appendix A

- ------------------------------------------------------------------------------
      RATINGS DEFINITIONS

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

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

Moody's Investors Service, Inc.

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

Long-Term (Taxable) Bond Ratings

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

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

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

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

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

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

Caa:  Bonds rated Caa are of poor  standing and may be in default or there may
be present elements of danger with respect to principal or interest.

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

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

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 category; the modifier "2" indicates a
mid-range  ranking and the modifier "3"  indicates a ranking in the lower end of
the category. Short-Term Ratings - Taxable Debt

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

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

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

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

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

Standard & Poor's Rating Services

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

Long-Term Credit Ratings

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

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

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

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

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

BB: Bonds rated BB are less  vulnerable  to  nonpayment  than other  speculative
issues. However, these face major 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: A bond rated B is more vulnerable to nonpayment than an obligation  rated BB,
but the obligor  currently has the capacity to meet its financial  commitment on
the obligation.

CCC: A bond rated CCC 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.  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 is currently highly vulnerable to nonpayment.

C: The C rating may used where a  bankruptcy  petition has been filed or similar
action has been taken, but payments on this obligation are being continued.

D: Bonds rated D are in  default.  Payments  on the  obligation  are not being
made on the date due.

The  ratings  from AA to CCC may be  modified  by the  addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant  noncredit
risks.

Short-Term Issue Credit Ratings

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

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

A-3:  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:  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:  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: In payment  default.  Payments on the obligation  have not been made on the
due date. The rating may also be used if a bankruptcy  petition has been filed
or similar actions jeopardize payments on the obligation.

Fitch IBCA, Inc.

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

International Long-Term Credit Ratings

Investment Grade:

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

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

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

Speculative Grade:

BB:  Speculative.  "BB" ratings indicate that there is a possibility of credit
risk  developing,  particularly as the result of adverse  economic change over
time.  However,  business or financial  alternatives may be available to allow

financial commitments to be met.

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.  Securities are not meeting  current  obligations and
are  extremely  speculative.   "DDD"  designates  the  highest  potential  for
recovery of amounts outstanding on any securities involved.

Plus (+) and  minus  (-)  signs  may be  appended  to a rating  symbol to denote
relative status within the rating  category.  Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."

International Short-Term Credit Ratings

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

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

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

B:  Speculative.  Minimal capacity for timely payment,  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.

- ------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co. Ratings

Long-Term Debt and Preferred Stock

AAA:  Highest  credit  quality.  The risk factors are  negligible,  being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-:  High credit  quality.  Protection  factors are strong.  Risk is
modest but may vary slightly from time to time because of economic conditions.

A+, A & A-: Protection factors are average but adequate.  However,  risk factors
are more variable in periods of greater economic stress.

BBB+,  BBB &  BBB-:  Below  average  protection  factors  but  still  considered
sufficient  for  prudent  investment.  Considerable  variability  in risk during
economic cycles.

BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective  financial protection factors fluctuate according to
industry  conditions.  Overall quality may move up or down frequently within the
category.

B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles,  industry conditions and/or company fortunes.  Potential exists
for  frequent  changes in the rating  within  this  category or into a higher of
lower rating grade.

CCC: Well below investment-grade securities.  Considerable uncertainty exists as
to timely  payment of  principal,  interest or preferred  dividends.  Protection
factors   are   narrow   and   risk   can  be   substantial   with   unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD:  Defaulted debt  obligations.  Issuer failed to meet  scheduled  principal
and/or interest payments.

DP:  Preferred stock with dividend arrearages.

Short-Term Debt:

High Grade:

D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.

D-1: Very high certainty of timely payment. Risk factors are minor.

D-1-: High certainty of timely payment. Risk factors are very small.

Good Grade:

D-2: Good certainty of timely payment. Risk factors are small.

Satisfactory Grade:

D-3:  Satisfactory  liquidity and other protection  factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.

Nevertheless, timely payment is expected.

Non-Investment Grade:

D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.

Default:

D-5: Issuer failed to meet scheduled principal and/or interest payments.





                                   Appendix B

- ------------------------------------------------------------------------------
                            Industry Classifications

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

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

               C-1B-1
    






   
                C-13
    

             Appendix C

   OppenheimerFunds Special Sales
  Charge Arrangements and Waivers

   
      In certain  cases,  the initial  sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may  apply to Class A,  Class B or Class C shares  may be  waived.  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 that were merged into or became Oppenheimer 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 plans2 (4) Group Retirement  Plans3 (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.

- --------------
   
1.    Certain  waivers also apply to
   Class M.  shares  of  Oppenheimer
   Convertible Securities Fund.
    

2. An "employee  benefit plan" means any plan or arrangement,  whether or not it
   is "qualified" under the Internal Revenue Code, under which Class A 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.

3. 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 Class A 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  Class A 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 enabling
   those plans to purchase  Class A shares at net asset value but subject to the
   Class A contingent deferred sales charge.

   
     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 of the end 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  commission  described  in the  Prospectus  under  "Class  A
Contingent  Deferred  Sales  Charge."1  This  waiver  provision  applies  to:

1 However, that commission 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.


o Purchases of Class A shares
    

         aggregating  $1  million or  more.

   
o        Purchases  by a  Retirement  Plan  (other  than  an  IRA  or  403(b)(7)
         custodial plan) that:
    

(1)   buys shares  costing  $500,000 or more, or

   
(2)         has, at the time of  purchase,  100 or more  eligible  employees  or
            total plan assets of $500,000 or more, or
    

(3)   certifies  to the  Distributor that  it   projects   to
            have     annual     plan purchases   of  $200,000
            or more.

o     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.

o    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 Asset  Management,  L.P.  ("MLAM"),  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
     MLAM (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).
   
o        Purchases  by  a  Retirement  Plan  whose  record  keeper  had  a  
         cost-allocation  agreement  with  the Transfer  Agent on or before
         May 1, 1999.
    





   
          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  commissions  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  commissions  are  paid by the  Distributor  on such
purchases):

     Shares  issued  in  plans  of  reorganization,   such  as  mergers,   asset
acquisitions and exchange offers, to which the Fund is a party.

     Shares  purchased by the  reinvestment of dividends or other  distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment  trusts for which  reinvestment  arrangements  have
been made with the Distributor.

   
     Shares  purchased  through a broker-dealer  that has entered into a special
agreement with the  Distributor to allow the broker's  customers to purchase and
pay for shares of Oppenheimer funds using the proceeds of shares redeemed in the
prior 30 days from a mutual fund  (other  than a fund  managed by the Manager or
any of its subsidiaries) on which an initial sales charge or contingent deferred
sales charge was paid. This waiver also applies to shares  purchased by exchange
of shares of  Oppenheimer  Money Market Fund,  Inc. that were purchased and paid
for in this  manner.  This waiver must be requested  when the purchase  order is
placed for shares of the Fund,  and the  Distributor  may  require  evidence  of
qualification for this waiver.
    

     Shares  purchased  with the  proceeds  of maturing  principal  units of any
Qualified Unit Investment Liquid Trust Series.

     Shares purchased by the reinvestment of loan repayments by a participant in
a Retirement Plan for which the Manager or an affiliate acts as sponsor.

   
C.    Waivers   of   the   Class   A
    

Contingent   Deferred  Sales  Charge
for Certain Redemptions.

The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:

   
     To make Automatic  Withdrawal Plan payments that are limited annually to no
more than 12% of the account value measured at the time the Plan is established,
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.2

2 This provision does not apply to IRAs.

(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.3

3 This provision does not apply to 403(b)(7)  custodial plans if the participant
is less than age 55, nor to IRAs.



         (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  Retirement  Plans  having  500 or  more  eligible
employees,  except  distributions  due to termination of all of the  Oppenheimer
funds as an investment option under
    

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

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

The Class B and Class C 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 and Class C  contingent  deferred  sales  charges will be waived for
redemptions of shares in the following cases: Shares redeemed involuntarily,  as
described  in  "Shareholder  Account  Rules  and  Policies,"  in the  applicable
Prospectus.  Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder,  including a trustee of a
grantor  trust or revocable  living trust for which the trustee is also the sole
beneficiary.  The death or disability  must have occurred  after the account was
established,  and for disability you must provide evidence of a determination of
disability by the Social Security Administration.

   
Distributions  from accounts for which the  broker-dealer  of record has entered
into a special agreement with the Distributor allowing this
    

waiver. Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent  record
keeper under a contract with Merrill Lynch.

Redemptions of Class C shares of Oppenheimer U.S. Government Trust from accounts
of  clients  of  financial   institutions  that  have  entered  into  a  special
arrangement with the Distributor for this purpose.

   
     o Redemptions  requested in writing by a Retirement Plan sponsor of Class C
     shares of an Oppenheimer  fund in amounts of $1 million or more held by the
     Retirement  Plan for more than one year,  if the  redemption  proceeds  are
     invested in Class A shares of one or more Oppenheimer funds.

o        Distributions 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.4

4 This provision does not apply to IRAs.

(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.5

5 This provision does not apply to loans from 403(b)(7) custodial plans.

(9) On account of the participant's separation from service.6

6 This provision does not apply to 403(b)(7)  custodial plans if the participant
is less than age 55, nor to IRAs.

(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)  Distributions  from  Retirement  Plans  having  500 or more  eligible
     employees,   but  excluding   distributions  made  because  of  the  Plan's
     elimination as investment  options under the Plan of all of the Oppenheimer
     funds that had been offered.  (13) 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 annually (measured from the establishment
     of the Automatic Withdrawal Plan).

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.





   
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  Quest  Small Cap Value

                                      Fund

  Oppenheimer  Quest  Balanced  Value Oppenheimer Quest Global Value Fund
  Fund
  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 Quest  for  Value  New York  Tax-Exempt
Fund                                    Fund
Quest  for  Value  Investment   Quality Quest  for  Value  National  Tax-Exempt
Income Fund                             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                       

 Number of Eligible   Charge as a % of    Charge as a % of    Commission as %

Employees or Members   Offering Price    Net Amount Invested of Offering 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:

      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.

      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:

      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, and

      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:

      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);

      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; and

      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):  o Oppenheimer  U. S.  Government  Trust,  o Oppenheimer  Bond Fund, o
Oppenheimer Disciplined Value Fund and o 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 CMIA  LifeSpan  Capital  Appreciation
Account                                    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.

      n 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.

      n 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)





      anypurchaser,  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 commission 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  Municipal Bond Fund,  Oppenheimer  U.S.  Government
Trust,  Oppenheimer Strategic Income Fund and Oppenheimer Equity 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:

o     the Manager and its affiliates,

o        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,

o        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,

o        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,

o        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,

o        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

o        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.







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Oppenheimer Capital Income Fund

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Internet Web Site:

      www.oppenheimerfunds.com

Investment Adviser
      OppenheimerFunds, Inc.
      Two World Trade Center
      New York, New York 10048-0203

Distributor

      OppenheimerFunds Distributor, Inc.
      Two World Trade Center
      New York, New York 10048-0203

Transfer Agent

      OppenheimerFunds Services
      P.O. Box 5270
      Denver, Colorado 80217-5270

      1-800-525-7048

Custodian Bank

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

Independent Auditors

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

Legal Counsel

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

67890

PX300.1298(Rev. 5/99)