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Oppenheimer Quest Capital Value Fund, Inc.
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Two World Trade Center, 34th Floor, New York, New York 10048-0203
1-800-525-7048

Statement of Additional  Information  dated  February 26, 1999,  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  February  26,  1999.  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..............10
   Investment Restrictions.................................24
How the Fund is Managed ...................................26
   Organization and History................................26
   Directors and Officers..................................27
   The Manager.............................................32
Brokerage Policies of the Fund.............................35
Distribution and Service Plans.............................37
Performance of the Fund....................................41

About Your Account
How To Buy Shares..........................................45
How To Sell Shares.........................................53
How To Exchange Shares.....................................58
Dividends, Capital Gains and Taxes.........................60
Additional Information About the Fund......................61

Financial Information About the Fund
Independent Accountants ' Report...........................63
Financial Statements.......................................64

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  objective,  the principal investment policies and the main
risks of the Fund are described in the Prospectus.  This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund invests in. Additional information is also
provided about the Fund's investment  Manager,  OppenheimerFunds,  Inc., and the
strategies that the Fund might 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 Sub-Advisor,  OpCap Advisors,  may use
in selecting portfolio  securities will vary over time. The Fund is not required
to use all of the  investment  techniques  and  strategies  described  below  in
seeking its goal. It may use some of the special  techniques  and  strategies at
some times or not at all.

      In  selecting  securities  for  the  Fund's  portfolio,   the  Sub-Advisor
evaluates the merits of particular  securities primarily through the exercise of
its own investment analysis.  In the case of corporate issuers, that process may
include,  among other things,  evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part,  the issuer's  financial
condition,   its  pending  product  developments  and  business  (and  those  of
competitors),  the  effect of  general  market and  economic  conditions  on the
issuer's  business,  and legislative  proposals that might affect the issuer. In
the case of foreign securities, the Sub-Advisor may also consider the conditions
of a  particular  country's  economy in  relation  to the U.S.  economy or other
foreign  economies,  general  political  conditions in a country or region,  the
effect of taxes,  the  efficiencies  and costs of  particular  markets and other
factors when evaluating the securities of issuers in a particular country.

      ? Investments in Equity  Securities.  While the Fund currently  emphasizes
investments in equity securities of mid-size companies,  the Fund does not limit
its investments in equity  securities to issuers having a market  capitalization
of a specified size or range,  and therefore can invest in securities of small-,
mid- and large-capitalization issuers. At times, the Fund might focus its equity
investments in securities of one or more capitalization  ranges,  based upon the
Sub-Advisor'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  mid-and
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 mid-and/or  smaller-capitalization companies at times
of market  volatility,  the Fund's share price could fluctuate more than that of
funds focusing on larger-capitalization issuers.

           ? Value  Investing.  In selecting  equity  investments for the Fund's
portfolio,  the portfolio  manager  currently uses a value  investing  style. In
using a value  approach,  the  portfolio  manager  seeks stock and other  equity
securities that appear to be temporarily undervalued,  by various measures, such
as  price/earnings  ratios.  This  approach  is  subject to change and might 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:
      ? 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 the  market as a whole or that of similar  companies  may offer
      attractive  investment  opportunities.  ? Price/book value ratio, which is
      the stock price divided by the book value of the company per share,  which
      measures  the  company's  stock price in relation  to its asset  value.  ?
      Dividend  Yield is measured by dividing  the annual  dividend by the stock
      price per share.  ? 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.

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

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

           ? Rights and  Warrants.  Warrants  basically  are options to purchase
equity  securities at specific prices valid for a specific period of time. Their
prices  do not  necessarily  move  parallel  to  the  prices  of the  underlying
securities.  Rights are similar to warrants,  but normally have a short duration
and are  distributed  directly  by the  issuer to its  shareholders.  Rights and
warrants  have no voting  rights,  receive no dividends  and have no rights with
respect to the assets of the  issuer.  The Fund will not invest  more than 5% of
its net assets in warrants. That limit does not apply to warrants that have been
acquired in units or attached to other securities.

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

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

      While  convertible  securities are a form of debt security,  in many cases
their conversion feature (allowing  conversion into equity securities) may cause
them to be  regarded  more as  "equity  equivalents."  As a result,  the  rating
assigned  to the  security  has  less  impact  on the  Sub-Advisor'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  Sub-Advisor  may
consider 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.

      ?  Investments  in Debt  Securities.  The Fund can  invest in a variety of
domestic and foreign debt  securities  including  bonds,  notes,  debentures and
other debt securities,  including U.S. government securities. It can also invest
in short-term  debt  securities  primarily for liquidity or defensive  purposes.
Because the Fund currently emphasizes investments in equity securities,  such as
stocks,  it is not  anticipated  that more than 25% of the Fund's assets will be
invested in debt securities under normal market conditions.

      Foreign  debt  securities  are  subject to the risks of foreign  investing
described  below.  In general,  domestic  and foreign debt  securities  are also
subject to credit risk and interest rate risk.

           ?  Credit  Risk.  In  making  investments  in  debt  securities,  the
Sub-Advisor may rely to some extent on the ratings of ratings  organizations  or
it may use its own  research  to  evaluate a  security's  creditworthiness.  The
Fund's debt investments can include investment grade and below  investment-grade
bonds (commonly referred to as "junk bonds").  Investment-grade  bonds are bonds
rated at least  "Baa" by Moody's  Investors  Service,  Inc.,  at least  "BBB" by
Standard & Poor's Rating Service or Duff & Phelps, Inc., or that have comparable
ratings by another nationally recognized statistical rating organization. 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 Sub-Advisor
to be of  comparable  quality  to bonds  rated as  investment  grade by a rating
organization.  The debt  security  ratings  definitions  of Moody's,  Standard &
Poor's,  Fitch  IBCA  and Duff &  Phelps  are  included  in  Appendix  A to this
Statement of Additional Information.

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

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

           ?  U.S.  Government  Securities.   Obligations  of  U.S.  government
agencies or  instrumentalities  (including  mortgage-backed  securities) may or
may not be  guaranteed  or  supported  by the "full  faith and  credit"  of the
United  States.  Some are backed by the right of the issuer to borrow  from the
U.S.  Treasury;  others, by discretionary  authority of the U.S.  government to
purchase the  agencies'  obligations;  while others are  supported  only by the
credit of the instrumentality.

      All U.S.  Treasury  obligations are backed by the full faith and credit of
the United States. If the securities are not backed by the full faith and credit
of the United States,  the owner of the securities must look  principally to the
agency  issuing the  obligation  for repayment and might not be able to assert a
claim against the United States in the event that the agency or  instrumentality
does not meet its commitment. The Fund will invest in U.S. government securities
of such agencies and  instrumentalities  only when the  Sub-Advisor is satisfied
that the credit risk with respect to such instrumentality is minimal.

           ? Special Risks of Lower-Grade Securities.  While it is not currently
anticipated  that the Fund will  invest  more  than 25% of its  total  assets in
lower-grade  debt  securities,  the Fund can  invest a portion  of its assets in
these  securities.  Because  lower-grade  securities tend to offer higher yields
than  investment-grade   securities,  the  Fund  could  invest  in  lower  grade
securities  if the  Sub-Advisor  is trying to achieve  greater  income.  In some
cases,  the  appreciation  possibilities  of lower-grade  securities  might be a
reason they are selected for the Fund's portfolio.

      "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 Sub-Advisor to be
of comparable  quality to debt securities rated below investment grade, they are
included in determining 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."

      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  risks of
foreign  investing  discussed  in  the  Prospectus  and  in  this  Statement  of
Additional Information.

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

      While  securities  rated "Baa" by Moody's or "BBB" by Standard & Poor's or
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.

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

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

           ? Bank  Obligations.  The Fund can buy time  deposits,  certificates
of deposit  and  bankers'  acceptances.  Time  deposits,  other than  overnight
deposits,  may be subject to withdrawal  penalties  and, if so, they are deemed
"illiquid" investments.

      The Fund can  purchase  bank  obligations  that are fully  insured  by the
Federal Deposit Insurance  Corporation.  The FDIC insures the deposits of member
banks up to $100,000 per account.  Insured bank  obligations  may have a limited
market and a particular  investment of this type may be deemed "illiquid" unless
the Board of Directors of the Fund  determines that a  readily-available  market
exists for that  particular  obligation,  or unless the obligation is payable at
principal  amount plus  accrued  interest  on demand or within  seven days after
demand.

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

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

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

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

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

      ? Foreign  Securities.  The Fund can purchase  equity and debt  securities
issued 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 and their agencies and  instrumentalities.  Those  securities 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,  European Depository Receipts or Global Depository  Receipts,  or that
are listed on a U.S. securities exchange or traded in the U.S.  over-the-counter
markets  are  considered  "foreign  securities"  for the  purpose  of the Fund's
investment allocations.  That is because they are subject to many of the special
considerations  and risks,  discussed  below,  that apply to foreign  securities
traded and held abroad.

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

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

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

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

           ? 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.

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

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

      o issuers in which the Fund invests, because of changes in the competitive
      environment  from a consolidated  currency market and greater  operational
      costs from converting to the new currency.  This might depress  securities
      values.  o vendors the Fund depends on to carry out its business,  such as
      its  Custodian  (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 bank has advised the
Manager of its plans to deal with the  conversion,  including how it will update
its record keeping systems and handle the redenomination of outstanding  foreign
debt.  The  Fund's  portfolio  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%  annually.  The Fund's  portfolio  turnover  rate will
fluctuate  from year to year,  but 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 use the types of  investment  strategies  and  investments
described  below. It is not required to use all of these strategies at all times
and at times may not use them.

      ?  Investing  in  Small,  Unseasoned  Companies.  The Fund may  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.

      ? Investing in Other Investment  Companies.  The Fund can invest up to 10%
of its total assets in shares of other investment companies. It can invest up to
5% of its total assets in any one  investment  company (but cannot own more than
3% of the outstanding  voting stock of that company).  These limits do not apply
to shares acquired in a merger, consolidation,  reorganization or acquisition of
another  investment  company.  Because  the Fund would be subject to its ratable
share of the other investment  company's expenses,  the Fund will not make these
investments  unless  the  Sub-Advisor  believes  that the  potential  investment
benefits justify the added costs and expenses.

      ? "When-Issued" and "Delayed-Delivery"  Transactions.  The Fund can invest
in securities on a "when-issued"  basis and can purchase or sell securities on a
"delayed-delivery"    or   "forward    commitment"   basis.    When-issued   and
delayed-delivery  are terms that refer to  securities  whose terms and indenture
are  available  and for which a market  exists,  but which are not available for
immediate delivery. The Fund limits its when-issued commitments to not more than
15% of its net assets.

      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  Sub-Advisor  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
Sub-Advisor  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  Sub-Advisor
considers to be advantageous.

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

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

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

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

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

      ?  Reverse  Repurchase  Agreements.  The Fund can use  reverse  repurchase
agreements and would normally do so as a cash management  tool. These agreements
create leverage, a speculative investment technique. The Fund does not currently
use reverse repurchase  agreements,  but may do so in the future.  When the Fund
enters into a reverse repurchase agreement, it segregates on its books an amount
of cash or U.S.  government  securities  equal in value to the purchase price of
the securities it has committed to buy, plus accrued interest, until the payment
is  made to the  seller.  Before  the  Fund  enters  into a  reverse  repurchase
agreement, the Manager evaluates the creditworthiness of the seller, typically a
bank or broker-dealer. Reverse repurchase agreements are considered to be a form
of borrowing by the Fund and are subject to the Fund's limitations on borrowing.

      These  agreements  are subject to certain  risks.  The market value of the
securities  retained in lieu of sale by the Fund may decline more or  appreciate
more than the securities  the Fund has sold but is obligated to  repurchase.  If
the buyer of the securities  under the agreement files for bankruptcy or becomes
insolvent, there may be delays in the Fund's use of the proceeds.

      ?  Illiquid  and  Restricted  Securities.  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.

      ?  Loans  of  Portfolio  Securities.  The  Fund  can  lend  its  portfolio
securities  to certain  types of  eligible  borrowers  approved  by the Board of
Directors.  It may do so to try to provide income or to raise cash for liquidity
purposes.  As a  fundamental  policy,  these  loans are limited to not more than
one-third  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 engage in loans of
securities,  but if the Fund  does  lend its  securities,  those  loans  are not
expected to exceed 5% 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.

      ? Borrowing.  As a fundamental policy, the Fund cannot borrow money except
as a temporary  measure for extraordinary or emergency  purposes,  and loans may
not  exceed  one  third of the  lower of the  market  value or cost of its total
assets.  Additionally,  as part of that  fundamental  policy,  the Fund will not
purchase securities at times when loans exceed 5% of its total assets.

      The  Fund  may  borrow  only  from   banks.   Under   current   regulatory
requirements,  borrowings  can be made only to the extent  that the value of the
Fund's assets, less its liabilities other than borrowings,  is equal to at least
300% of all borrowings  (including the proposed borrowing).  If the value of the
Fund's assets fails to meet this 300% asset coverage requirement,  the Fund will
reduce its bank debt within  three days to meet the  requirement.  To do so, the
Fund might have to sell a portion of its investments at a disadvantageous time.

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

      ?  Hedging.  Although  the Fund  can use  hedging  instruments,  it is not
obligated  to  use  them  in  seeking  its  objective.  It  does  not  currently
contemplate  using them to any significant  degree.  The Fund may 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.

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

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

      ? Futures.  The Fund can buy and sell futures contracts that relate to (1)
broadly-based  stock indices  (these are referred to as "stock index  futures"),
(2) foreign currencies (these are referred to as "forward  contracts"),  and (3)
commodities (these are referred to as "commodity futures").

      A  broadly-based  stock index is used as the basis for trading stock index
futures.  These  indices  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.  These contracts  obligate the seller to deliver,
and the purchaser to take, cash to settle the futures transactions.  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.

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

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

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

      ? Put and Call  Options.  The Fund can buy and sell  certain  kinds of put
options  ("puts")  and  call  options  ("calls").  The  Fund  can buy  and  sell
exchange-traded and over-the-counter put and call options,  including options on
broadly-based  stock  indices,  securities,  foreign  currencies and stock index
futures.

           ? Writing  Covered Call  Options.  The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered.  For options
on  securities,  that means the Fund must own the  security  subject to the call
while the call is outstanding. For stock index options, that means the call must
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).
For calls on securities,  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 a call on a stock index  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.

      Settlement  of puts and calls on  broadly-based  stock indices is in cash.
Gain or loss on  options  on stock  indices  depends  on changes in the index in
question (and thus on price movements in the stock market generally).

      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.  The 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 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  escrowed
assets in escrow until the call expires or is exercised.

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

           ?  Writing  Put  Options.  The Fund can  sell  put  options  on stock
indices,  foreign  currencies or stock index futures.  If the Fund writes a put,
the put must be covered by  segregated  liquid  assets.  The Fund will not write
puts if, as a result,  more than 25% of the Fund's  net assets  would have to be
segregated to cover such put options.

      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 settle the transaction in cash with the buyer of the put at
the exercise price,  even if the value of the underlying  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
settle in cash at the exercise price.  That price will usually exceed the market
value of the investment at that time.

      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 settle the  transaction  in cash at the
exercise  price.  The Fund has no control over when it may be required to settle
the  transaction,  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.  The Fund will  realize a
profit or loss from a closing purchase transaction depending on whether the cost
of the  transaction  is less or more than the premium  received from writing the
put option.  Any profits  from writing puts are  considered  short-term  capital
gains for federal tax purposes, and when distributed by the Fund, are taxable as
ordinary income.

           ? Purchasing  Calls and Puts. The Fund can buy calls on securities it
intends to purchase and puts on securities  that it owns.  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.  Buying a call on a  security  or future  gives the Fund 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.

      In the  case  of a  purchase  of a call  on a  stock  index,  if the  Fund
exercises the call during the call period,  a seller of a corresponding  call on
the same  index  will pay the Fund an amount  of cash to settle  the call if the
closing  level of the stock  index upon which the call is based is greater  than
the exercise  price of the call.  That cash  payment is equal to the  difference
between the closing price of the call and the exercise price of the call times a
specified  multiple (the  "multiplier")  which determines the total dollar value
for each point of difference.

      When the Fund buys a put, it pays a premium.  It has the right  during the
put period to require a seller of a corresponding  put, upon the Fund's exercise
of its put, to buy the underlying security (in the case of puts on securities or
futures) or in the case of puts on stock indices, to deliver cash to the Fund to
settle  the put if the  closing  level of the stock  index upon which the put is
based  is less  than  the  exercise  price  of the put.  That  cash  payment  is
determined by the multiplier, in the same manner as described above as to calls.

      Buying  a put on a  security  or  future  enables  the  Fund to  sell  the
underlying  investment to a seller of a corresponding put on the same 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.

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

      When the Fund purchases a put on a stock index,  the put protects the Fund
to the extent that the index moves in a similar  pattern to the  securities  the
Fund holds.  The Fund can resell the put.  The resale price of the put will vary
inversely  with the price of the underlying  investment.  If the market price of
the underlying  investment is above the exercise price,  and as a result the put
is not exercised,  the put will become  worthless on the expiration date. In the
event of a  decline  in  price  of the  underlying  investment,  the Fund  could
exercise  or sell the put at a profit to  attempt  to offset  some or all of its
loss on its portfolio securities.

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

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

      If the  Sub-Advisor  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 Sub-Advisor 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.

      ?  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
Sub-Advisor  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 may affect its costs.

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

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

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

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

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

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

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

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

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

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

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

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

      The Fund could also use forward contracts to lock in the U.S. dollar value
of  portfolio  positions.  This is  called  a  "position  hedge."  When the Fund
believes that foreign currency may 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 could enter into a forward  contract to
sell a different  foreign  currency for a fixed U.S.  dollar  amount if the Fund
believes that the U.S. dollar value of the foreign  currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."

      The Fund will cover its short  positions in these cases by  identifying 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 Sub-Advisor 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.

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

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

      Under the  Investment  Company Act, when the Fund  purchases a future,  it
must maintain  cash or readily  marketable  short-term  debt  instruments  in an
amount equal to the market value of the securities  underlying the future,  less
the margin deposit applicable to it. The account must be a segregated account or
accounts held by the Fund's custodian bank.

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

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

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

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

Investment Restrictions

      ? What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments  that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities.  Under the
Investment  Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
      ? 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
      ?  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 Directors
can change  non-fundamental  policies  without  shareholder  approval.  However,
significant  changes to investment  policies will be described in supplements or
updates to the  Prospectus  or this  Statement  of  Additional  Information,  as
appropriate.  The Fund's most significant  investment  policies are described in
the Prospectus.

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

      ? 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  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.

      ? The Fund cannot lend money or property to any person.  However, the Fund
can  purchase  fixed income  securities  consistent  with the Fund's  investment
objective and policies. The Fund may also make loans of portfolio securities, in
an  amount  that  does  not  exceed   one-third  of  the  Fund's  total  assets.
Additionally,  the Fund can enter into repurchase agreements. For the purpose of
this restriction, collateral arrangements with respect to stock options, options
on securities and stock indices, stock index futures and options on such futures
are not deemed to be loans of assets.

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

      ? The Fund cannot  purchase  real estate or in  interests  in real estate.
However, the Fund can purchase or sell securities of companies that deal in real
estate or interests in real estate.

      ? The Fund  cannot  invest for the  purpose of  exercising  control  over
management of any company.

      ? 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.

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

      ? The Fund cannot  invest in physical  commodities  or physical  commodity
contracts.  However, the Fund may buy and sell hedging instruments to the extent
specified in its Prospectus and Statement of Additional Information from time to
time.  The Fund can also buy and sell options  futures,  and securities or other
instruments backed by physical  commodities or whose investment return is linked
to changes in the price of physical commodities.

      ? The Fund  cannot  pledge,  mortgage  or  hypothecate  any of its assets.
However,  the Fund can  pledge  assets to  secure  permitted  borrowings  and in
connection with collateral arrangements with respect to options and futures.

      ? The Fund cannot issue senior  securities,  as defined in the  Investment
Company Act of 1940.  However,  the Fund can enter into  repurchase  agreements,
lend its  portfolio  securities  and borrow  money from banks for  temporary  or
emergency purposes.

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

      ? Does the Fund Have Any Restrictions  That Are Not Fundamental?  The Fund
has a number of other investment restrictions that are not fundamental policies,
which  means  that  they  can be  changed  by the  Board  of  Directors  without
shareholder approval.

      ? The Fund cannot  purchase  oil,  gas or other  mineral  leases,  rights,
royalty contracts or exploration or development programs.  However, the Fund can
invest in securities of companies that invest in or sponsor such programs.

      ? The Fund cannot  purchase  securities on margin  (except for  short-term
loans that are necessary for the clearance of  transactions) or make short sales
of securities.

      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.




How the Fund is Managed

Organization  and  History.  The  Fund is an  open-end,  diversified  management
investment  company  organized  as a  Maryland  corporation  in  1986.  The Fund
commenced its operations on February 13, 1987 as a closed-end investment company
with a  "dual-purpose"  structure.  The Fund originally had two objectives:  (1)
long-term  capital  appreciation  and  preservation of capital,  and (2) current
income and long-term  growth of income.  The Fund  originally  had common stock,
denominated  as "capital  shares," and preferred  stock,  denominated as "income
shares."

      Under the Fund's original dual-purpose structure,  the capital shares were
entitled  to all of the  Fund's  gains  and  losses on its  assets,  and no Fund
expenses were allocated to those shares.  The income shares were entitled to all
of the Fund's income and bore all of the Fund's operating  expenses.  The income
shares were redeemed on January 31, 1997, and the Fund's dual-purpose  structure
was terminated.

      On  March  3,  1997,  the Fund was  converted  to an  open-end  management
investment company with a single investment  objective of capital  appreciation.
The outstanding capital shares of the Fund were re-denominated as Class A shares
of common stock, which bear their allocable share of Fund expenses.

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

      ? Classes  of  Shares.  The Board of  Directors  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 Directors  are  authorized to create new series and classes of shares.
The  Directors  may  reclassify  unissued  shares  of the Fund or its  series or
classes into  additional  series or classes of shares.  The  Directors  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.  Although the Fund is not required by Maryland
law to hold annual meetings,  it may hold shareholder meetings from time to time
on important matters.  The Fund's  shareholders have the right to call a meeting
to remove a Director or to take certain  other action  described in the Articles
of Incorporation of the Fund's parent corporation.

      The Fund will  hold  meetings  when  required  to do so by the  Investment
Company  Act or other  applicable  law.  The Fund will  hold a meeting  when the
Directors  call a meeting or upon proper  request of  shareholders.  If the Fund
receives  a  written  request  of the  record  holders  of at  least  25% of the
outstanding  shares  eligible  to be voted at a meeting to call a meeting  for a
specified purpose (which might include the removal of a Director), the Fund will
call a meeting of shareholders for that specified purpose.

      Shareholders  of the  different  classes of the Fund vote  together in the
aggregate on certain matters at  shareholders'  meetings.  Those matters include
the election of Directors and  ratification  of appointment  of the  independent
auditors.  Shareholders  of a  particular  series or class  vote  separately  on
proposals  that affect that series or class.  Shareholders  of a series or class
that is not affected by a proposal are not entitled to vote on the proposal. For
example, only shareholders of a particular series vote on any material amendment
to the investment  advisory  agreement for that series.  Only  shareholders of a
particular  class of a series  vote on certain  amendments  to the  Distribution
and/or Service Plans if the amendments affect only that class.

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

Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest For Value Funds, a series Fund having the following series:
    Oppenheimer Quest Small Cap Value Fund,
    Oppenheimer Quest Balanced Value Fund and
    Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Capital Value Fund, Inc.,
Rochester  Portfolio Series, a series Fund having one series:  Limited-Term New
York Municipal
    Fund,
Rochester Fund Municipals,
Bond Fund  Series,  a series Fund having one  series:  Oppenheimer  Convertible
Securities Fund, and
Oppenheimer MidCap Fund

    Ms. Macaskill and Messrs.  Bishop, Doll, Donohue,  Farrar,  Wixted and Zack,
who are  officers of the Fund,  respectively  hold the same offices of the other
Oppenheimer  funds  listed  above.  As of February 1, 1999,  the  Directors  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.

Bridget A. Macaskill*, Chairman of the Board of Directors and President, Age: 50
Two World Trade Center,  New York,  New York  10048-0203  President  (since June
1991),  Chief  Executive  Officer (since  September  1995) and a Director (since
December  1994) of the  Manager;  President  and  director  (since June 1991) of
HarbourView  Asset  Management  Corp., an investment  advisor  subsidiary of the
Manager;  Chairman and a director of Shareholder  Services,  Inc.  (since August
1994) and Shareholder Financial Services,  Inc. (since September 1995), transfer
agent  subsidiaries  of the  Manager;  President  (since  September  1995) and a
director (since October 1990) of Oppenheimer  Acquisition  Corp.,  the Manager's
parent holding  company;  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 of Oppenheimer Millennium Funds plc; President and a director of
other  Oppenheimer  funds;  a director of Hillsdown  Holdings  plc (a U.K.  food
company), formerly (until October 1998) a director of NASDAQ Stock Market, Inc.

Paul Y. Clinton, Director, Age: 68
39 Blossom Avenue, Osterville, Massachusetts 02655
Principal of Clinton  Management  Associates,  a financial  and venture  capital
consulting  firm;   Trustee  or  Director  of  Capital  Cash  Management  Trust,
Narrangansett   Tax-Free  Fund,  OCC  Accumulation  Trust,  OCC  Cash  Reserves,
investment companies; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation.

Thomas W. Courtney, Director, Age 65
833 Wyndemere Way, Naples, Florida 34105
Principal of Courtney  Associates,  Inc., a venture  capital  firm;  Director or
Trustee of OCC Cash Reserves,  Inc., OCC Accumulation  Trust, Cash Assets Trust,
Hawaiian  Tax-Free  Trust and Tax Free Trust of Arizona,  investment  companies;
Director of several  privately  owned  corporations;  former General  Partner of
Trivest  Venture  Fund, a private  venture  capital  fund;  former  President of
Investment  Counseling Federated  Investors,  Inc., an investment advisory firm;
former Director of Financial Analysts Federation.

Robert G. Galli, Director, Age: 65
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 to
December 1997);  Vice President (June 1990 to March 1994) and General Counsel of
Oppenheimer  Acquisition  Corp.;  Executive  Vice  President  (December  1977 to
October 1995), General Counsel and a director (December 1975 to October 1993) of
the Manager; Executive Vice President and a director (July 1978 to October 1993)
and General  Counsel of the  Distributor,  OppenheimerFunds  Distributor,  Inc.;
Executive  Vice  President  and a  director  (April  1986 to  October  1995)  of
HarbourView  Asset Management Corp.; Vice President and a director (October 1988
to October  1993) of  Centennial  Asset  Management  Corporation,  an investment
advisor subsidiary of the Manager; and an officer of other Oppenheimer funds.

Lacy B. Herrmann, Director, Age: 69
380 Madison Avenue, Suite 2300, New York, New York 10017
Chairman  and Chief  Executive  Officer of Aquila  Management  Corporation,  the
sponsoring  organization and manager,  administrator  and/or  sub-advisor to the
following open-end investment  companies,  and Chairman of the Board of Trustees
and President of each:  Churchill Cash Reserves  Trust,  Aquila  Cascadia Equity
Fund,  Pacific Capital Cash Assets Trust,  Pacific Capital U.S.  Treasuries Cash
Assets Trust,  Pacific  Capital  Tax-Free  Cash Assets  Trust,  Prime Cash Fund,
Narragansett  Insured  Tax-Free Income Fund,  Tax-Free Fund For Utah,  Churchill
Tax-Free Fund of Kentucky,  Tax-Free Fund of Colorado, Tax-Free Trust of Oregon,
Tax-Free Trust of Arizona,  Hawaiian  Tax-Free Trust,  and Aquila Rocky Mountain
Equity Fund;  Vice President,  Director,  Secretary,  and formerly  Treasurer of
Aquila  Distributors,  Inc.,  distributor  of the  above  funds;  President  and
Chairman of the Board of Trustees of Capital Cash Management Trust, and a former
officer and Trustee/Director of its predecessors; President and Director of STCM
Management Company,  Inc., sponsor and advisor to Capital Cash Management Trust;
Chairman,  President  and a Director  of InCap  Management  Corporation,  a fund
sub-advisor and administrator;  Director of OCC Cash Reserves, Inc., and Trustee
of OCC Accumulation Trust,  open-end investment  companies;  Trustee Emeritus of
Brown University.

George Loft, Director, Age: 84
51 Herrick Road, Sharon, Connecticut 06069
Private  Investor;  Director  of OCC Cash  Reserves,  Inc.,  and  Trustee of OCC
Accumulation Trust, open-end investment companies.

Robert C. Doll, Jr., Vice President, Age: 44
Two World Trade Center, New York, New York 10048-0203
Executive  Vice  President  and Director  (since  January  1993) and Director of
Investments  (since January 1999) of the Manager;  Vice President and a Director
of  Oppenheimer   Acquisition  Corp.  (since  September  1995);  Executive  Vice
President of HarbourView Asset Management Corp. (since January 1993); an officer
and portfolio manager of other Oppenheimer funds.

Andrew J. Donohue, Secretary, Age: 48
Two World Trade Center, New York, New York 10048-0203
Executive Vice President  (since January 1993),  General  Counsel (since October
1991) and a Director  (since  September  1995) of the  Manager;  Executive  Vice
President  and General  Counsel  (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 (since  September 1995)  Oppenheimer
Partnership  Holdings,  Inc.;  President  and a  director  of  Centennial  Asset
Management Corporation (since September 1995); President,  General Counsel 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; Treasurer
of  HarbourView  Asset  Management  Corporation,   Shareholder  Services,  Inc.,
Shareholder Financial Services,  Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer  Acquisition Corp. (since
April 1999);  Assistant  Secretary of Centennial  Asset  Management  Corporation
(since April 1999);  formerly  Principal and Chief  Operating  Officer,  Bankers
Trust Company - Mutual Fund Services  Division  (March 1995 - March 1999);  Vice
President and Chief Financial Officer of CS First Boston  Investment  Management
Corp.  (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).

Robert 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 T. 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, 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 of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.

    ? Remuneration of Directors.  The officers of the Fund and one Director, Ms.
Macaskill, are affiliated with the Manager and receive no salary or fee from the
Fund. The remaining Directors of the Fund received the compensation shown below.
The compensation from the Fund was paid during its fiscal year ended October 31,
1998.  The  table  below  also  shows  the  total  compensation  from all of the
Oppenheimer funds listed above, including the compensation from the Fund and two
other funds that are not Oppenheimer funds but for which the Sub-Advisor acts as
investment advisor. That amount represents  compensation received as a director,
trustee, or member of a committee of the Board during the calendar year 1998.









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

                                                   Total
                                                   Compensation
                                                   From all
                Aggregate         Retirement       Oppenheimer
                Compensation      Benefits         Quest/Rochester
Director's Name from the Fund 1   Accrued as Part  Funds
                                  of Fund Expenses (11 Funds)2 and
                                                   Two Other Funds3
- --------------------------------------------------------------------
- --------------------------------------------------------------------

Paul Y. Clinton $5,873            $1,442           $ 135,100
- --------------------------------------------------------------------
- --------------------------------------------------------------------

Thomas W.       $5,483            $1,052           $ 135,100
Courtney
- --------------------------------------------------------------------
- --------------------------------------------------------------------

Robert G. Galli $1,9334           None             $ 113,383.33
- --------------------------------------------------------------------
- --------------------------------------------------------------------

Lacy B.         $5,988            $1,621           $ 135,100
Herrmann
- --------------------------------------------------------------------
- --------------------------------------------------------------------

George Loft     $6,132            $1,702           $ 135,100
- --------------------------------------------------------------------

1. Aggregate  compensation  includes fees and any retirement plan benefits for a
   Director.
2. For the 1998 calendar year.  Includes  compensation for a portion of the year
   paid by Oppenheimer  Quest Officers Value Fund,  which was  reorganized  into
   another fund in June 1998. Each series of an investment company is considered
   a separate "fund" for this purpose. For Mr. Galli, compensation is for period
   from 6/2/98 to 12/31/98.
3. Includes  compensation  paid by two funds for which the  Sub-Advisor  acts as
   investment  advisor.  Those  funds  are  not  Oppenheimer  funds  and are not
   affiliated with the Oppenheimer  funds, the Manager or the  Distributor.  The
   amount of aggregate  compensation paid to certain Fund Directors by those two
   other funds was as follows: Mr. Clinton: $63,400; Mr. Courtney:  $63,400; Mr.
   Hermann: $63,400; and Mr. Loft: $63,400.
4. For Mr.  Galli,  the aggregate  compensation  from the Fund is for the period
   from 6/2/98 to 10/31/98.  His total  compensation  for the 1998 calendar year
   also  includes  compensation  from 20 other  Oppenheimer  funds  for which he
   serves as a Trustee or Director.

      |X| Retirement Plan for Directors.  The Fund has adopted a retirement plan
that provides for payments to retired  Directors.  Payments are up to 80% of the
average compensation paid during a Director's five years of service in which the
highest  compensation was received. A Director must serve as Director for any of
the Oppenheimer  Quest/Rochester/MidCap funds listed above for at least 15 years
to be eligible for the maximum payment. Each Director's retirement benefits will
depend  on the  amount  of the  Director's  future  compensation  and  length of
service.  Therefore  the amount of those  benefits  cannot be determined at this
time,  nor can we estimate the number of years of credited  service that will be
used to determine those benefits.

    ? Deferred  Compensation  Plan for  Directors.  The Board of  Directors  has
adopted a Deferred  Compensation Plan for  disinterested  directors 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 Director  is  periodically  adjusted as though an  equivalent  amount had been
invested in shares of one or more  Oppenheimer  funds  selected by the Director.
The amount paid to the Director under the plan will be determined based upon the
performance of the selected funds.

    Deferral of Directors'  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 Director or to pay any  particular  level
of compensation  to any Director.  Pursuant to an Order issued by the Securities
and  Exchange  Commission,  the Fund may  invest  in the funds  selected  by the
Director under the plan without shareholder  approval for the limited purpose of
determining the value of the Director's deferred fee account.

    ? Major  Shareholders.  As of February 1, 1999,  the only persons who owned
of  record  or were  known by the Fund to own of record 5% or more of any class
of the Fund's outstanding shares were:

    Smith Barney,  Inc., 388 Greenwich Street,  New York, New York 10013,  which
owned  562,777.794  Class A shares (equal to approximately  7.09% of the Class A
shares then outstanding) for the benefit of its customers;

    Charles Schwab & Co., Inc., 101 Montgomery Street,  Floor 10, San Francisco,
California  94104-4122,  which  owned  403,879.085  Class  A  shares  (equal  to
approximately  5.09% of the Class A shares then  outstanding) for the benefit of
its customers; and

    Merrill Lynch Pierce Fenner & Smith Inc.,  4800 Deer Lake Drive East,  Floor
3,  Jacksonville,  Florida  32246-6484,  which owned  27,423.560  Class B shares
(equal to  approximately  7.33% of the Class B shares then  outstanding) for the
benefit of its customers.

The Manager.  The Manager is  wholly-owned by Oppenheimer  Acquisition  Corp., a
holding company controlled by Massachusetts  Mutual Life Insurance Company.  The
Manager became the Fund's investment  advisor February 28, 1997. 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.

    ?  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  handles the Fund's
day-to-day   business  and  permits  the  Manager  to  enter  into  sub-advisory
agreements  with other  registered  investment  advisors  to obtain  specialized
services  for  the  Fund,  as  long  as the  Fund  is not  obligated  to pay any
additional  fees for those  services.  The Manager has retained the  Sub-Advisor
pursuant to a separate Sub-Advisory Agreement,  under which the Sub-Advisor buys
and sells portfolio  securities for the Fund. The portfolio  manager of the Fund
is employed by the Sub-Advisor and is the person who is principally  responsible
for the day-to-day management of the Fund's portfolio, as described below.

    The investment  advisory agreement between the Fund and the Manager 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  Manager  also  calculates  the Fund's net asset  value  without  additional
compensation.

    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  calculation of the Fund's net asset
values  per  share,  interest,  taxes,  brokerage  commissions,  fees to certain
Directors,  legal and audit  expenses,  custodian and transfer  agent  expenses,
share issuance costs,  certain printing and registration costs and non-recurring
expenses,  including  litigation  costs. The management fees paid by the Fund to
the Manager are calculated at the rates described in the  Prospectus,  which are
applied to the  assets of the Fund as a whole.  The fees are  allocated  to each
class of shares  based  upon the  relative  proportion  of the Fund's net assets
represented by that class.

    The  investment  advisory  agreement  provides that the Manager will waive a
portion of its  advisory  fee for a period of two years from  February 28, 1997.
Under that  provision,  the Manager waived the portion of its fee equal to 0.15%
of the first $200 million of average  annual net assets,  0.40% of the next $200
million,  0.30% of the next $400 million and 0.25% of average  annual net assets
over $800 million.  That provision will terminate  effective  February 28, 1999,
and the Fund  will pay the  management  fees at the full  rate set  forth in the
Prospectus.

- ---------------------------------------------------------------------
                                               Gross Management Fee
                      Management Fees Paid to     (without giving
Fiscal   Year   ended OppenheimerFunds, Inc.2   effect to Manager's
10/31:                                                waiver)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------

        19971                $2,670,444             $3,312,119
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------

        1998                 $2,223,087             $2,871,810
- ---------------------------------------------------------------------

1. For the portion of the 1997 fiscal period commencing  February 28, 1997, when
   the Manager became the Fund's investment advisor. The Fund changed its fiscal
   year from December 31 to October 31 during that fiscal period. For the period
   from January 1, 1996 to December  31, 1996,  the Fund paid an advisory fee of
   $4,916,973 and an  administrative  fee of $883,395 to the Sub-Advisor,  which
   was then the Fund's  investment  advisor.  For the portion of the 1997 fiscal
   period from January 1, 1997 to February  28, 1997,  the Fund paid an advisory
   fee of $730,855  and an  administrative  fee of $130,006 to the  Sub-Advisor,
   which was then the Fund's investment advisor.
2. Amounts  are shown net of the  Manager's  waiver of a portion of its fee,  as
   described above.

    The  investment  advisory  agreement  states  that in the absence of willful
misfeasance,  bad faith,  gross  negligence in the  performance of its duties or
reckless  disregard of its obligations and duties under the investment  advisory
agreement,  the Manager is not liable for any loss  resulting  from a good faith
error or  omission  on its part  with  respect  to any of its  duties  under the
agreement.

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

The Sub-Advisor.  The Sub-Advisor is a majority-owned  subsidiary of Oppenheimer
Capital, a registered investment advisor. From the Fund's inception on April 30,
1980,  until November 22, 1995, the Sub-Advisor  (which was then named Quest for
Value  Advisors) or the  Sub-Advisor's  parent  served as the Fund's  investment
advisor.  The  Sub-Advisor  acts  as  investment  advisor  to  other  investment
companies and for other investors.

      On November 4, 1997, PIMCO Advisors L.P., a registered  investment advisor
with $125 billion in assets under  management  through various  subsidiaries and
affiliates,  acquired  control of Oppenheimer  Capital and the  Sub-Advisor.  On
November  30,  1997,  Oppenheimer  Capital  merged  with a  subsidiary  of PIMCO
Advisors.  As a result,  Oppenheimer Capital and the Sub-Advisor became indirect
wholly-owned  subsidiaries  of PIMCO  Advisors.  PIMCO  Advisors has two general
partners:  PIMCO Partners,  G.P., a California  general  partnership,  and PIMCO
Advisors Holdings L.P. (formerly  Oppenheimer Capital,  L.P.), an New York Stock
Exchange-listed  Delaware limited  partnership of which PIMCO Partners,  G.P. is
the sole general partner.

      PIMCO Partners,  G.P.  beneficially owns or controls (through its general
partner  interest in Oppenheimer  Capital,  L.P.) more than 80% of the units of
limited  partnership of PIMCO Advisors.  PIMCO  Partners,  G.P. has two general
partners.  The  first of these is  Pacific  Investment  Management  Company,  a
wholly-owned  subsidiary  of Pacific  Financial  Asset  Management  Company,  a
direct subsidiary of Pacific Life Insurance Company ("Pacific Life").

      The managing  general partner of PIMCO  Partners,  G.P. is PIMCO Partners
L.L.C.  ("PPLLC"),  a California  limited  liability  company.  PPLLC's members
are the  Managing  Directors  (the  "PIMCO  Managers")  of  Pacific  Investment
Management    Company,   a   subsidiary   of   PIMCO   Advisors   (the   "PIMCO
Subpartnership").  The PIMCO Managers are:  William H. Gross,  Dean S. Meiling,
James F.  Muzzy,  William F.  Podlich,  III,  Brent R.  Harris,  John L. Hague,
William  S.  Thompson  Jr.,  William C.  Powers,  David H.  Edington,  Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III.

      PIMCO  Advisors is  governed  by a  Management  Board,  which  consists of
sixteen  members,  pursuant  to a  delegation  by its  general  partners.  PIMCO
Partners  G.P. has the power to  designate up to nine members of the  Management
Board and the PIMCO Subpartnership, of which the PIMCO Managers are the Managing
Directors,  has the power to  designate up to two  members.  In addition,  PIMCO
Partners,  G.P., as the controlling  general partner of PIMCO Advisors,  has the
power to revoke the delegation to the Management  Board and exercise  control of
PIMCO  Advisors.  As a result,  Pacific  Life and/or the PIMCO  Managers  may be
deemed to control PIMCO Advisors.  Pacific Life and the PIMCO Managers  disclaim
such control.

      ? The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between the
Manager and the Sub-Advisor,  the Sub-Advisor shall regularly provide investment
advice with respect to the Fund and invest and reinvest cash, securities and the
property  comprising the assets of the Fund. Under the  Sub-Advisory  Agreement,
the Sub-Advisor  agrees not to change the portfolio  manager of the Fund without
the written  approval of the  Manager.  The  Sub-Advisor  also agrees to provide
assistance in the distribution and marketing of the Fund.

      Under the  Sub-Advisory  Agreement,  the Manager pays the  Sub-Advisor  an
annual fee in monthly installments, based on the average daily net assets of the
Fund. The fee paid to the Sub-Advisor  under the Sub-Advisory  agreement is paid
by the  Manager,  not by the  Fund.  The fee is equal  to 40% of the  investment
advisory  fee  collected  by the  Manager  from the Fund  based on the total net
assets of the Fund as of February 28, 1997 (the "Base  Amount") that remained in
the Fund 120 days later,  plus 30% of the  investment  advisory fee collected by
the  Manager  based on the total net  assets  of the Fund that  exceed  the Base
Amount.  In each case the fee is calculated  after any waivers by the Manager of
its fee.

      The  Sub-Advisory   Agreement  states  that  in  the  absence  of  willful
misfeasance,  bad  faith,  negligence  or  reckless  disregard  of its duties or
obligations,  the Sub-Advisor  shall not be liable to the Manager for any act or
omission  in the  course  of or  connected  with  rendering  services  under the
Sub-Advisory  Agreement or for any losses that may be sustained in the purchase,
holding or sale of any security.


Brokerage Policies of the Fund

Brokerage  Provisions of the Investment  Advisory Agreement and the Sub-Advisory
Agreement. One of the duties of the Sub-Advisor under the Sub-Advisory Agreement
is to arrange the portfolio  transactions  for the Fund.  The Fund's  investment
advisory  agreement  with the Manager  and the  Sub-Advisory  Agreement  contain
provisions  relating to the  employment of  broker-dealers  to effect the Fund's
portfolio transactions. The Manager and the Sub-Advisor are authorized to employ
broker-dealers,  including  "affiliated" brokers, as that term is defined in the
Investment Company Act. They may employ broker-dealers that they think, in their
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  and the  Sub-Advisor  need  not  seek  competitive  commission
bidding. However, they are 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 Directors.

      The Manager and the Sub-Advisor 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, the Sub-Advisor or their respective  affiliates
have investment  discretion.  The commissions paid to such brokers may be higher
than another  qualified broker would charge,  if the Manager or Sub-Advisor,  as
applicable,  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 and the Sub-Advisor may also consider sales of shares
of the Fund and other investment companies for which the Manager or an affiliate
serves as investment advisor.

      The  Sub-Advisory   Agreement   permits  the  Sub-Advisor  to  enter  into
"soft-dollar"  arrangements  through  the  agency  of third  parties  to  obtain
services for the Fund.  Pursuant to these  arrangements,  the  Sub-Advisor  will
undertake to place brokerage business with broker-dealers that pay third parties
that  provide  services.  Any such  "soft-dollar"  arrangements  will be made in
accordance  with  policies  adopted  by the  Fund's  Board of  Directors  and in
compliance with applicable law.

Brokerage  Practices.  Brokerage  for  the  Fund  is  allocated  subject  to the
provisions of the investment  advisory agreement and the Sub-Advisory  agreement
and the procedures  and rules  described  above.  Generally,  the  Sub-Advisor's
portfolio traders allocate brokerage based upon  recommendations from the Fund's
portfolio manager.  In certain instances,  portfolio managers may directly place
trades and allocate  brokerage.  In either  case,  the  Sub-Advisor'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.

    The  Sub-Advisor  serves  as  investment  manager  to a number  of  clients,
including other  investment  companies,  and may in the future act as investment
manager or advisor to others.  It is the practice of the Sub-Advisor to allocate
purchase or sale  transactions  among the Fund and other clients whose assets it
manages  in a manner  it deems  equitable.  In  making  those  allocations,  the
Sub-Advisor considers several main factors,  including the respective investment
objectives,  the relative  size of portfolio  holdings of the same or comparable
securities,  the  availability  of cash for  investment,  the size of investment
commitments  generally  held and the  opinions  of the persons  responsible  for
managing the portfolios of the Fund and each other client's accounts.

    When  orders to purchase or sell the same  security on  identical  terms are
placed by more than one of the funds and/or other advisory  accounts  managed by
the Sub-Advisor or its affiliates,  the transactions  are generally  executed as
received,  although a fund or advisory  account that does not direct trades to a
specific  broker  (these are called "free  trades")  usually will have its order
executed  first.  Orders  placed by accounts  that  direct  trades to a specific
broker will  generally be executed  after the free trades.  All orders placed on
behalf of the Fund are considered free trades.  However,  having an order placed
first in the market does not  necessarily  guarantee the most  favorable  price.
Purchases are combined where  possible for the purpose of negotiating  brokerage
commissions.  In some cases that practice might have a detrimental effect on the
price or volume of the security in a particular transaction for the Fund.

    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
Sub-Advisor 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 and the Sub-Advisory  agreement permit the
Manager and the  Sub-Advisor 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  Sub-Advisor  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  Sub-Advisor's  other  accounts.
Investment  research may be supplied to the  Sub-Advisor 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 Sub-Advisor in a non-research capacity (such as bookkeeping or other
administrative  functions),  then only the percentage or component that provides
assistance to the Sub-Advisor in the investment  decision-making  process may be
paid in commission dollars.

    The research services provided by brokers broadens the scope and supplements
the research  activities of the Sub-Advisor.  That research provides  additional
views and  comparisons  for  consideration,  and helps the Sub-Advisor 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 Sub-Advisor provides
information to the Manager and the Board about the  commissions  paid to brokers
furnishing such services,  together with the Sub-Advisor's  representation  that
the amount of such commissions was reasonably related to the value or benefit of
such services.

    Because the  Sub-Advisor  was an affiliate  of  Oppenheimer  & Co.,  Inc., a
broker-dealer  ("OpCo"),  until  November  3,  1997,  the table  below  includes
information  about brokerage  commissions  paid to OpCo for the Fund's portfolio
transactions.

- ----------------------------------------------------------------------
                                               Total $ Amount of
             Total                             Transactions for
             Brokerage  Brokerage Commissions  Which Brokerage
Fiscal Year  CommissionsPaid to OpCo:          Commissions Were Paid
Ended:       Paid1                             to OpCo:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
                        Dollar      % of Total Dollar     % of Total
                        Amount                 Amount
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
  12/31/96   $1,040,957 $319,406    30.7%      $245,963,0331.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
  10/31/97   $772,516   $264,046    34.2%      $158,017,4819.6%
- ------------------------
- ----------------------------------------------------------------------
  10/31/98   $373,1162
- ----------------------------------------------------------------------

1. Amounts do not include spreads or concessions on principal  transactions on a
   net trade basis.
2. In the fiscal year ended  10/31/98,  the amount of  transactions  directed to
   brokers  for  research   services  was  $8,716,480  and  the  amount  of  the
   commissions paid to broker-dealers for those services was $6,300.


Distribution and Service Plans

The Distributor.  Under its General  Distributor's  Agreement with the Fund, the
Distributor  acts as the Fund's principal  underwriter in the continuous  public
offering  of shares of the  Fund's  classes of shares.  The  Distributor  is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.

    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     Commissions Commissions Commissions
Fiscal   Front-End   Front-End   on Class A  on Class B  on Class
Year     Sales       Sales       Shares      Shares      C Shares
Ended    Charges on  Charges     Advanced    Advanced    Advanced
10/31:   Class A     Retained    by          by          by
         Shares      by          Distributor1Distributor1Distributor1
                     Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
 19972    $117,049     $21,937     $ 1,721     $40,420    $ 4,312
- --------------------------------------------------------------------
- --------------------------------------------------------------------
  1998    $330,196     $99,219     $27,620    $291,004    $22,732
- --------------------------------------------------------------------
1. The Distributor  advances commission payments to dealers for certain sales of
   Class A  shares  and for  sales of  Class B and  Class C shares  from its own
   resources at the time of sale.
2. For the period  from  2/28/97 to  10/31/97.  The Fund's  shares were not sold
   subject to a sales charge  prior to its  conversion  to an open-end  fund and
   prior to the  commencement  of the  Fund's  offering  by the  Distributor  on
   3/3/97.

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

           Class A           Class B Contingent  Class C
Fiscal     Contingent        Deferred Sales      Contingent
Year       Deferred Sales    Charges Retained    Deferred Sales
Ended      Charges Retained  by Distributor      Charges Retained
10/31      by Distributor                        by Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
   1998           $0               $7,353                $0
- --------------------------------------------------------------------

Distribution  and Service Plans.  The Fund has adopted  Distribution and Service
Plans for Class A, Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund compensates 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  Directors,  including  a  majority  of the  Independent
Directors1, cast in person at a meeting called for the purpose of voting on that
plan.  The Class A plan has been  approved by a vote of the Fund's  shareholders
and the Class B and Class C plans have been  approved by the Manager as the sole
initial shareholder of those classes.

    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 Directors and its  Independent
Directors  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  Directors  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  Directors  and the  Independent  Directors  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  Directors  at least
quarterly  for its review.  The reports  shall detail the amount of all payments
made under a plan,  and the  purpose  for which the  payments  were made.  Those
reports are subject to the review and approval of the Independent Directors.

    Each plan states that while it is in effect, the selection and nomination of
those  Directors  of the Fund who are not  "interested  persons"  of the Fund is
committed to the discretion of the Independent Directors.  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 Directors.

    Under the plan 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  Directors.  The Board of  Directors  has set no  minimum  amount of
assets to qualify for payments under the plans.

    |X| Service Plans.  Under the service plans, 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 shares of
a particular  Class, A, B or C. 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 service plans
permits  compensation  to the  Distributor  at a rate of up to 0.25% of  average
annual net assets of the  applicable  class.  The Board has set the rate at that
level. While the plans permit 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 shares of the
applicable class held in the accounts of the recipients or their customers.

    |X| 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 plans  compensate the Distributor at a flat rate for its
services and costs in distributing  shares and servicing  accounts,  whether the
Distributor's  expenses are more or less than the amounts paid by the Fund under
the plans  during the period  for which the fee is paid.  The types of  services
recipients  provide are similar to the services  provided under the service plan
described above.

      The 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 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.

    Under  the  Class  A  plan,  the  Distributor  currently  pays  all  of  the
asset-based  sales charge to brokers,  dealers and financial  institutions.  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 it
receives on Class C shares 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 A,
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 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 October 31, 1998  payments  under the Class A plan
totaled $1,405,206,  (including $2,109 paid to an affiliate of the Distributor's
parent company).

    For the fiscal year ended October 31, 1998,  payments under the Class B plan
totaled $45,629. The Distributor retained $43,422 of the total amount.

    For the fiscal year ended October 31, 1998,  payments under the Class C plan
totaled $15,759. The Distributor retained $13,898 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 October
31, 1998, the Distributor had incurred  unreimbursed  expenses under the Class B
plan in the  amount  of  $376,529  (equal  to 3.94%  of the  Fund's  net  assets
represented by Class B shares on that date) and unreimbursed  expenses under the
Class C plan of $40,709 (equal to 1.37% of the Fund's net assets  represented by
Class C shares on that date).  If a plan is terminated by the Fund, the Board of
Directors  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 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.
      |_| 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.

      The  historical  performance  of Class A shares is restated to reflect the
fees and  expenses  of Class A that were in effect as of March 3, 1997,  without
giving effect to any fee waivers,  to reflect the  re-denomination of the Fund's
prior  capital  shares (which bore no expenses) as Class A shares after the Fund
converted to an open-end investment company.

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

- -------------------------------------------------------------------------------
                               [OBJECT OMITTED]
- -------------------------------------------------------------------------------

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

- -------------------------------------------------------------------------------
                               [OBJECT OMITTED]
- -------------------------------------------------------------------------------

           |_| Total Returns at Net Asset Value.  From time to time the Fund may
also quote a cumulative  or an average  annual total return "at net asset value"
(without  deducting sales charges) for Class A, Class B or Class C 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 10/31/98
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
         Cumulative             Average Annual Total Returns
Class    Total Returns
of       (10 years or
Shares   Life of Class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
                                           5-Year         10-Year
                            1-Year           (or            (or
                                       life-of-class)  life-of-class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
         After   WithoutAfter   WithoutAfter   Without After  Without
         Sales   Sales  Sales   Sales  Sales   Sales   Sales  Sales
         Charge  Charge Charge  Charge Charge  Charge  Charge Charge
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A  393.85% 424.00%  6.77% 13.28% 12.39%  13.73%  17.32%118.01%1
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B                   8.72% 12.55% 12.94%2 14.83%2 N/A    N/A
         22.40%2 25.82%3
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C                 11.72%  12.49% 14.81%3 14.81%3 N/A    N/A
         25.79%  25.79%3
- ----------------------------------------------------------------------
1.  Inception  of Class A:  2/13/87.  Class A  returns  have been  restated,  as
described  above,  to reflect  Class A fees and expenses  that were in effect on
3/3/97,  when the  offering  of the Fund's  Class A shares as an  open-end  fund
commenced. 2. Inception of Class B: 3/3/97 3. Inception of Class C: 3/3/97

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

      |X| Lipper Rankings. From time to time the Fund may publish the ranking of
the  performance of its classes of shares by Lipper  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 growth 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.

      |X| 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.

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

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

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


- -------------------------------------------------------------------------------
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.

      ? 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:
         ? 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,
        ?  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
        ?  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.

      ? 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            Limited-Term
                                  Government Fund
Oppenheimer  Capital  Appreciation   Oppenheimer  Main  Street  California  Fund
Municipal Fund Oppenheimer California Municipal Oppenheimer Main Street Growth &
Fund Income  Fund  Oppenheimer  Champion  Income  Fund  Oppenheimer  MidCap Fund
Oppenheimer  Convertible  Oppenheimer  Multiple Strategies  Securities Fund Fund
Oppenheimer  Developing Markets Oppenheimer Municipal Bond Fund Fund Oppenheimer
Disciplined  Oppenheimer  New York Municipal Fund  Allocation  Fund  Oppenheimer
Disciplined  Value  Oppenheimer  New  Jersey  Municipal  Fund  Fund  Oppenheimer
Discovery Fund Oppenheimer Pennsylvania Municipal
                                  Fund
Oppenheimer Enterprise Fund       Oppenheimer  Quest  Balanced  Value
                                  Fund
Oppenheimer Equity Income Fund    Oppenheimer   Quest  Capital  Value
                                  Fund, Inc.
Oppenheimer   Florida   Municipal Oppenheimer   Quest   Global  Value
Fund                              Fund, Inc.
Oppenheimer Global Fund           Oppenheimer    Quest    Opportunity
                                  Value Fund
Oppenheimer   Global   Growth   & Oppenheimer  Quest  Small Cap Value
Income Fund                       Fund
Oppenheimer    Gold   &   Special Oppenheimer Quest Value Fund, Inc.
Minerals Fund
Oppenheimer Growth Fund           Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund       Oppenheimer Strategic Income Fund
Oppenheimer   Insured   Municipal Oppenheimer   Total   Return  Fund,
Fund                              Inc.
Oppenheimer          Intermediate Oppenheimer U.S. Government Trust
Municipal Fund
Oppenheimer   International  Bond Oppenheimer World Bond Fund
Fund
Oppenheimer  International Growth Limited-Term   New  York  Municipal
Fund                              Fund
Oppenheimer  International  Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund

and the  following  money  market
funds:

Centennial America Fund, L. P.    Centennial   New  York  Tax  Exempt
                                  Trust
Centennial  California Tax Exempt Centennial Tax Exempt Trust
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 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 a class of
shares  and the  dividends  payable  on a class of  shares  will be  reduced  by
incremental  expenses  borne solely by that class.  Those  expenses  include the
asset-based sales charges to which Class A, 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 are normally 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 rather than another.

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

      ? Class 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
advisor, to the effect that the conversion of Class B shares does not constitute
a taxable  event for the  shareholder  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, Directors' 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
Directors,  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  values of some of the
Fund's  portfolio  securities  may  change  significantly  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
Board of  Directors  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.

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

      ? 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.
      ? 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 Directors, or
(2)          at the last sale price  obtained by the Manager  from the report of
             the principal  exchange on which the security is traded at its last
             trading session on or immediately before the valuation date, or
(3)          at the mean between the "bid" and "asked" prices  obtained from the
             principal exchange on which the security is traded or, on the basis
             of reasonable inquiry, from two market makers in the security.
      ? Long-term debt  securities  having a remaining  maturity in excess of 60
days  are  valued  based  on the mean  between  the  "bid"  and  "asked"  prices
determined  by a  portfolio  pricing  service  approved  by the Fund's  Board of
Directors  or  obtained  by the  Manager  from two active  market  makers in the
security on the basis of reasonable inquiry.
      ? The  following  securities  are valued at the mean between the "bid" and
"asked" prices  determined by a pricing service  approved by the Fund's Board of
Directors  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.
      ?  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.
      ?    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  Directors.  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  Directors 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:
|_|   Class A shares  purchased  subject to an initial  sales charge or Class A
        shares on which a  contingent  deferred  sales  charge was paid,  or |_|
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 Directors of the
Fund may determine  that it would be  detrimental  to the best  interests of the
remaining  shareholders of the Fund to make payment of a redemption order wholly
or partly in cash.  In that case,  the Fund may pay the  redemption  proceeds in
whole or in part by a  distribution  "in  kind" of  liquid  securities  from the
portfolio of the Fund, in lieu of cash.

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

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

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

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

Selling Shares by Wire.  The wire of redemptions  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.

      ? 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.

      ? 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.
      ? 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.
      ? Oppenheimer  Main Street  California  Municipal  Fund currently  offers
only Class A and Class B shares.
      ? 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.
      ? 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 wish to exchange.

      ? Limits on  Multiple  Exchange  Orders.  The Fund  reserves  the right to
reject  telephone or written  exchange  requests  submitted in bulk by anyone on
behalf of more than one account.  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  investors  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 higher 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 each class 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 Directors 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. The Fund pays the Transfer Agent a fixed
annual maintenance fee for each shareholder  account and reimburses the Transfer
Agent for its  out-of-pocket  expenses.  It also acts as  shareholder  servicing
agent for the other  Oppenheimer  funds.  Shareholders  should direct  inquiries
about their accounts to the Transfer Agent at the address and toll-free  numbers
shown on the back cover.

The  Custodian.  Citibank,  N.A.  is the  Custodian  of 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  Accountants.   PricewaterhouseCoopers,   LLP  are  the  independent
accountants of the Fund. They audit the Fund's financial  statements and perform
other related audit  services.  They also act as  accountants  for certain other
funds advised by the Manager and its affiliates.




- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------

================================================================================
To the Board of Directors and Shareholders of
Oppenheimer Quest Capital Value Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities,  including
the statement of  investments,  and the related  statements of operations and of
changes  in net assets  and the  financial  highlights  present  fairly,  in all
material  respects,  the financial  position of Oppenheimer  Quest Capital Value
Fund, Inc. (the Fund) at October 31, 1998, the results of its operations for the
year then ended, the changes in its net assets and the financial  highlights for
each of the periods indicated,  in conformity with generally accepted accounting
principles.  These  financial  statements  and financial  highlights  (hereafter
referred  to as  financial  statements)  are the  responsibility  of the  Fund's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our  audits.  We  conducted  our audits of these  financial
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.  We believe that our audits,  which included
confirmation  of  securities  at October  31,  1998 by  correspondence  with the
custodian, provide a reasonable basis for the opinion expressed above.



/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

Denver, Colorado
November 20, 1998





- --------------------------------------------------------------------------------
Statement of Investments  October 31, 1998
- --------------------------------------------------------------------------------

                                                                    Market Value
                                                         Shares     See Note 1
================================================================================
Common Stocks--79.9%
- --------------------------------------------------------------------------------
Consumer Cyclicals--8.6%
- --------------------------------------------------------------------------------
Leisure & Entertainment--4.7%
Tricon Global Restaurants, Inc.(1)                       300,000     $13,050,000
- --------------------------------------------------------------------------------
Retail: Specialty--3.9%
Fred Meyer, Inc.(1)                                      200,000      10,662,500
- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--7.6%
- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--7.6%
Allegiance Corp.                                         559,500      20,806,406
- --------------------------------------------------------------------------------
Energy--2.9%
- --------------------------------------------------------------------------------
Oil-Integrated--2.9%
PanCanadian Petroleum Ltd.                               600,000       7,896,271
- --------------------------------------------------------------------------------
Financial--27.2%
- --------------------------------------------------------------------------------
Diversified Financial--12.5%
Countrywide Credit Industries, Inc.                      300,000      12,956,250
- --------------------------------------------------------------------------------
H&R Block, Inc.                                          475,000      21,285,938
                                                                    ------------
                                                                      34,242,188

- --------------------------------------------------------------------------------
Insurance--14.7%
ACE Ltd.                                                 375,000      12,703,125
- --------------------------------------------------------------------------------
Exel Ltd., Cl. A                                         363,870      27,813,313
                                                                    ------------
                                                                      40,516,438

- --------------------------------------------------------------------------------
Industrial--9.7%
- --------------------------------------------------------------------------------
Manufacturing--4.8%
LucasVarity plc, ADR                                     380,000      13,300,000
- --------------------------------------------------------------------------------
Transportation--4.9%
Canadian Pacific Ltd. (New)                              600,000      13,575,000
- --------------------------------------------------------------------------------
Technology--12.5%
- --------------------------------------------------------------------------------
Telecommunications/Technology--12.5%
General Instrument Corp.(1)                              246,000       6,319,125
- --------------------------------------------------------------------------------
Tele-Communications, Inc. (New),
TCI Ventures Group, A Shares(1)                        1,500,000      27,937,500
                                                                    ------------
                                                                      34,256,625


                 13 Oppenheimer Quest Capital Value Fund, Inc.


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

                                                                    Market Value
                                                         Shares     See Note 1
- --------------------------------------------------------------------------------
Utilities--11.4%
- --------------------------------------------------------------------------------
Electric Utilities--1.4%
Niagara Mohawk Power Corp.(1)                            265,000      $3,875,625
- --------------------------------------------------------------------------------
Telephone Utilities--10.0%
MCI WorldCom, Inc.(1)                                    500,000      27,625,000
                                                                    ------------
Total Common Stocks (Cost $128,525,400)                              219,806,053

                                                     Face
                                                     Amount
================================================================================
Short-Term Notes--19.0%(2)
- --------------------------------------------------------------------------------
American Express Credit Corp., 5.28%, 11/3/98        $10,000,000       9,997,067
- --------------------------------------------------------------------------------
Federal Home Loan Bank, 4.78%, 11/18/98                8,040,000       8,021,852
- --------------------------------------------------------------------------------
Federal Home Loan Bank, 5.40%, 11/2/98                 2,725,000       2,724,591
- --------------------------------------------------------------------------------
Ford Motor Credit Corp., 5.05%, 12/1/98                  120,000         119,495
- --------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.08%, 11/20/98      12,532,000      12,498,400
- --------------------------------------------------------------------------------
Household Finance Corp., 5.28%, 11/9/98                9,099,000       9,088,324
- --------------------------------------------------------------------------------
John Deere Capital Corp., 5.27%, 11/9/98              10,000,000       9,988,289
                                                                    ------------
Total Short-Term Notes (Cost $52,438,018)                             52,438,018

- --------------------------------------------------------------------------------
Total Investments, at Value (Cost $180,963,418)             98.9%    272,244,071
- --------------------------------------------------------------------------------
Other Assets Net of Liabilities                              1.1       2,958,684
                                                          ------    ------------
Net Assets                                                 100.0%   $275,202,755
                                                          ======    ============

1. Non-income producing security.

2. 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.


                 14 Oppenheimer Quest Capital Value Fund, Inc.


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

================================================================================
Assets
Investments, at value (cost $180,963,418)--see
accompanying statement                                              $272,244,071
- --------------------------------------------------------------------------------
Cash                                                                       5,772
- --------------------------------------------------------------------------------
Receivables and other assets:
Investments sold                                                       3,907,106
Interest and dividends                                                   200,405
Shares of capital stock sold                                             200,265
Other                                                                    331,838
                                                                    ------------
Total assets                                                         276,889,457

================================================================================
Liabilities Payables and other liabilities:
Shares of capital stock redeemed                                       1,031,950
Redemption of income certificates                                        495,045
Distribution and service plan fees                                        54,472
Transfer and shareholder servicing agent fees                             22,554
Directors' fees                                                            5,817
Dividends                                                                  3,490
Other                                                                     73,374
                                                                    ------------
Total liabilities                                                      1,686,702

================================================================================
Net Assets                                                          $275,202,755
                                                                    ============

================================================================================
Composition of Net Assets
Par value of shares of capital stock                                        $858
- --------------------------------------------------------------------------------
Additional paid-in capital                                           174,670,637
- --------------------------------------------------------------------------------
Undistributed net investment income                                      307,305
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions               8,943,302
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3                    91,280,653
                                                                    ------------
Net assets                                                          $275,202,755
                                                                    ============

================================================================================
Net Asset Value Per Share

Class A Shares:

Net  asset  value  and  redemption  price  per  share  (based  on net  assets of
$262,668,893 and 8,180,887 shares of capital stock outstanding) $32.11

Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price)                                               $34.07

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

Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and  offering  price per share  (based on net assets of  $9,561,755  and
301,575 shares of capital stock outstanding) $31.71

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

Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and  offering  price per share  (based on net assets of  $2,972,107  and
93,666 shares of capital stock outstanding) $31.73

See accompanying Notes to Financial Statements.


                 15 Oppenheimer Quest Capital Value Fund, Inc.


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

================================================================================
Investment Income
Dividends (net of foreign withholding taxes of $124,795)             $2,590,836
- --------------------------------------------------------------------------------
Interest                                                              1,492,576
                                                                   ------------
Total income                                                          4,083,412

================================================================================
Expenses
Management fees--Note 4                                               2,871,810
- --------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A                                                               1,405,206
Class B                                                                  45,629
Class C                                                                  15,759
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4                   212,625
- --------------------------------------------------------------------------------
Registration and filing fees                                            113,807
- --------------------------------------------------------------------------------
Shareholder reports                                                      69,618
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees                              28,350
- --------------------------------------------------------------------------------
Directors' fees and expenses                                             25,409
- --------------------------------------------------------------------------------
Custodian fees and expenses                                               2,350
- --------------------------------------------------------------------------------
Other                                                                    35,846
                                                                   ------------
Total expenses                                                        4,826,409
Less reimbursement of expenses by
OppenheimerFunds, Inc.--Note 4                                       (1,070,287)
                                                                   ------------
Net expenses                                                          3,756,122

================================================================================
Net Investment Income                                                   327,290
================================================================================
Realized and Unrealized Gain
Net realized gain on investments                                      8,958,278
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation on investments                                          27,834,805
                                                                   ------------
Net realized and unrealized gain                                     36,793,083

================================================================================
Net Increase in Net Assets Resulting from Operations                $37,120,373
                                                                   ============

See accompanying Notes to Financial Statements.


                 16 Oppenheimer Quest Capital Value Fund, Inc.


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



                                                              Year Ended October 31,
                                                              1998             1997(1)
============================================================================================
                                                                                   
Operations
Net investment income                                         $     327,290    $   4,621,550
- --------------------------------------------------------------------------------------------
Net realized gain                                                 8,958,278      112,202,017
- --------------------------------------------------------------------------------------------
Provision/reduction of income taxes on capital gains                     --          101,806
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation            27,834,805      (81,440,121)
                                                              -------------    -------------
Net increase in net assets resulting from operations             37,120,373       35,485,252

============================================================================================
Dividends  and  Distributions  to  Shareholders  Dividends  from net  investment
income:
Class A                                                          (1,033,878)      (1,463,750)
Class B                                                              (2,195)              --
Class C                                                                (816)              --
- --------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                        (111,344,042)              --
Class B                                                            (438,272)              --
Class C                                                            (247,999)              --

============================================================================================
Capital Stock Transactions Net increase  (decrease) in net assets resulting from
capital stock transactions--Note 2:
Class A                                                          (5,120,973)    (361,670,071)
Class B                                                           8,589,646        1,137,545
Class C                                                           2,372,167          743,541
Redemption of income shares                                              --     (208,857,924)

============================================================================================
Net Assets                                                   
Total decrease                                                  (70,105,989)    (534,625,407)
- --------------------------------------------------------------------------------------------
Beginning of period                                             345,308,744      879,934,151
                                                              -------------    -------------
End of period (including undistributed net investment        
income of $307,305 and $1,025,380, respectively)              $ 275,202,755    $ 345,308,744
                                                              =============    =============


1. For the ten months  ended  October 31,  1997,  for Class A shares and for the
period from March 3, 1997  (inception of offering) to October 31, 1997 for Class
B and Class C shares.

See accompanying Notes to Financial Statements.


                 17 Oppenheimer Quest Capital Value Fund, Inc.


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



                                                         Class A                                                           
                                                         ------------------------------------------------------------------
                                                         Year Ended October 31,               Year Ended December 31,      
                                                         1998            1997(2)              1996               1995      
===========================================================================================================================
                                                                                                            
Per Share Operating Data
Net asset value, beginning of period                     $41.63          $37.25               $33.65             $25.79    
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                .05             .44                   --                 --    
Net realized and unrealized gain (loss)                    4.28            3.93                 6.91               9.46    
Provision/reduction for corporate income
taxes on net realized long-term capital gain                 --             .01                (3.31)             (1.57)   
                                                         ------          ------               ------             ------    
Total income (loss) from investment operations             4.33            4.38                 3.60               7.89    
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income                       (.13)             --                   --                 --    
Distributions from net realized gain                     (13.72)             --                   --                 --    
Distributions from net realized short-term gain              --              --                   --               (.03)   
                                                         ------          ------               ------             ------    
Total dividends and distributions to shareholders        (13.85)             --                   --               (.03)   
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                           $32.11          $41.63               $37.25             $33.65    
                                                         ======          ======               ======             ======    
Market value, end of period                                 N/A             N/A               $36.13             $31.88    
                                                         ======          ======               ======             ======    
===========================================================================================================================
Total Return, at Net Asset Value(4)                       13.28%          11.76%               20.46%(3)          36.68%(3)

===========================================================================================================================
Total Return, at Market Value(5)                            N/A             N/A                23.63%             45.58%   

===========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands)               $262,669        $343,329             $879,934           $815,179    
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $280,821        $434,401             $883,395                N/A    
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income                                      0.13%           1.28%(6)(8)          2.82%              3.20%   
Expenses, before voluntary assumption
or reimbursement by the Manager                            1.67%           1.54%(6)(8)          0.72%(7)           0.73%   
Expenses, net of voluntary assumption
or reimbursement by the Manager                            1.29%           1.11%(6)(8)           N/A                N/A    
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(9)                                 30.2%           33.8%                  74%                72%   


1. For the  period  from  March 3, 1997  (inception  of  offering  of shares) to
October 31, 1997.

2. For the ten months  ended  October  31,  1997,  for Class A shares  (formerly
Capital  Shares).  On  February  28,  1997,  OppenheimerFunds,  Inc.  became the
investment advisor to the Fund and on March 3, 1997, the Fund was converted from
a closed-end  fund to an open-end fund, and Capital Shares were  redesignated as
Class A shares. The Fund changed its fiscal year end from December 31 to October
31.

3. Total returns of Class A shares  (formerly,  the Capital Shares) at net asset
value for  periods  prior to March 3, 1997,  the date the Fund  converted  to an
open-end  fund,  are not audited and have not been  restated to reflect the fees
and  expenses  (without  giving  effect to fee waivers) to which the Fund became
subject on March 3,  1997.  Had such a  restatement  been  made,  total  returns
(unaudited)  at net asset value for each of the years ended  December  31, 1996,
1995,  1994  and 1993  would  have  been  18.25%,  34.20%,  (3.11)%  and  7.32%,
respectively.

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


                 18 Oppenheimer Quest Capital Value Fund, Inc.


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

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


                                            
                                          
                                                                                     Class B                  Class C
                                                      ----------------------         ----------------------   ----------------------
                                                                                     Year Ended October 31,   Year Ended October 31,
                                                      1994            1993           1998        1997(1)      1998        1997(1)   
================================================================================================================================    
                                                                                                               
Per Share Operating Data                                                                                                            
Net asset value, beginning of period                  $27.09          $26.29         $41.41      $37.04       $41.42      $37.04    
- --------------------------------------------------------------------------------------------------------------------------------    
Income (loss) from investment operations:                                                                                           
Net investment income (loss)                              --              --           (.06)        .01         (.13)        .01    
Net realized and unrealized gain (loss)                 (.38)           2.45           4.15        4.36         4.21        4.37    
Provision/reduction for corporate income                                                                                            
taxes on net realized long-term capital gain            (.53)          (1.43)            --          --           --          --    
                                                      ------          ------         ------      ------       ------      ------    
Total income (loss) from investment operations          (.91)           1.02           4.09        4.37         4.08        4.38    
- --------------------------------------------------------------------------------------------------------------------------------    
Dividends and distributions to shareholders:                                                                                        
Dividends from net investment income                      --              --           (.07)         --         (.05)         --    
Distributions from net realized gain                      --              --         (13.72)         --       (13.72)         --    
Distributions from net realized short-term gain         (.39)           (.22)            --          --           --          --    
                                                      ------          ------         ------      ------       ------      ------    
Total dividends and distributions to shareholders       (.39)           (.22)        (13.79)         --       (13.77)         --    
- --------------------------------------------------------------------------------------------------------------------------------    
Net asset value, end of period                        $25.79          $27.09         $31.71      $41.41       $31.73      $41.42    
                                                      ======          ======         ======      ======       ======      ======    
Market value, end of period                           $23.00          $23.75            N/A         N/A          N/A         N/A    
                                                      ======          ======         ======      ======       ======      ======    
================================================================================================================================    
Total Return, at Net Asset Value(4)                    (1.29)%(3)       9.34%(3)      12.54%      11.80%       12.49%      11.82%   

================================================================================================================================    
Total Return, at Market Value(5)                        0.89%          10.50%           N/A         N/A          N/A         N/A    

================================================================================================================================    
Ratios/Supplemental Data                                                                                                            
Net assets, end of period (in thousands)            $673,742        $696,803         $9,562      $1,208       $2,972        $773    
- --------------------------------------------------------------------------------------------------------------------------------    
Average net assets (in thousands)                        N/A             N/A         $4,586        $552       $1,582        $372    
- --------------------------------------------------------------------------------------------------------------------------------    
Ratios to average net assets:                                                                                                       
Net investment income                                   3.47%           3.29%         (0.57)%      0.07%(6)    (0.58)%      0.06%(6)
Expenses, before voluntary assumption                                                                                               
or reimbursement by the Manager                         0.74%           0.74%          2.24%       2.14%(6)     2.23%       2.13%(6)
Expenses, net of voluntary assumption                                                                                               
or reimbursement by the Manager                          N/A             N/A           2.01%       1.86%(6)     2.01%       1.85%(6)
- --------------------------------------------------------------------------------------------------------------------------------    
Portfolio turnover rate(9)                                45%             51%          30.2%       33.8%        30.2%       33.8%   
                                           

full year. Prior to March 3, 1997, the Fund operated as a closed-end  investment
company and total return was calculated based on market value.

5. Change in market price  assuming  reinvestment  of  short-term  capital gains
distributions,  if any,  at payable  date and  federal  taxes paid on  long-term
capital gains on year end (both at market).

6. Annualized.

7. The expense ratio  reflects the effect of gross  expenses paid  indirectly by
the Fund.

8. Due to the change from the Fund's dual purpose  structure and conversion from
a  closed-end  to an  open-end  fund,  the  ratios  for  Class A shares  are not
necessarily comparable to those of prior periods.

9. 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 October 31, 1998, were $77,468,971 and $209,752,585, respectively.

See accompanying Notes to Financial Statements


                 19 Oppenheimer Quest Capital Value Fund, Inc.


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

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

Oppenheimer  Quest Capital Value Fund,  Inc. (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  capital
appreciation.  The Fund invests in securities  (primarily equity  securities) of
companies  believed  by  management  to be  undervalued  in the  marketplace  in
relation to factors such as the companies'  assets,  earnings,  growth potential
and cash flows. The Fund's  investment  advisor is  OppenheimerFunds,  Inc. (the
Manager).  The Manager  has entered  into a  sub-advisory  agreement  with OpCap
Advisors.  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 Directors. 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  Directors  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.


                 20 Oppenheimer Quest Capital Value Fund, Inc.


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

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

================================================================================
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.

- --------------------------------------------------------------------------------
Directors' Fees and Expenses.  The Fund has adopted a nonfunded  retirement plan
for the Fund's independent directors. Benefits are based on years of service and
fees paid to each  director  during the years of service.  During the year ended
October  31,  1998,  a  provision  of $5,817 was made for the  Fund's  projected
benefit  obligations,  resulting  in an  accumulated  liability  of $5,817 as of
October 31, 1998.

- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.


                 21 Oppenheimer Quest Capital Value Fund, Inc.


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

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

Classification  of Distributions to Shareholders.  Net investment  income (loss)
and net  realized  gain  (loss)  may  differ  for  financial  statement  and 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  October  31,  1998,  amounts  have been  reclassified  to
reflect a decrease in undistributed net investment income of $8,476. Accumulated
net realized gain on investments was increased by the same amount.

- --------------------------------------------------------------------------------
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.  Interest income is accrued on a daily basis.  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.

               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.


                 22 Oppenheimer Quest Capital Value Fund, Inc.


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

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

================================================================================
2. Capital Stock

The Fund has  authorized  one billion  shares of $.0001 par value capital stock.
Transactions in shares of capital stock were as follows:



                                   Year Ended October 31, 1998         Period Ended October 31, 1997(1)
                                   ------------------------------      --------------------------------
                                   Shares           Amount             Shares             Amount
- -------------------------------------------------------------------------------------------------------
                                                                                        
Class A:                                                                                
Sold                                     945,259    $  29,059,913            487,331      $  16,807,176
Dividends and distribution                                                              
reinvested                             1,567,868       46,330,517                 --                 --
Redeemed                              (2,579,261)     (80,511,403)       (10,244,612)      (378,477,247)
                                   -------------    -------------      -------------      -------------
Net decrease                             (66,134)   $  (5,120,973)        (9,757,281)     $(361,670,071)
                                   =============    =============      =============      =============
- -------------------------------------------------------------------------------------------------------
Class B:                                                                                
Sold                                     356,498    $  11,089,979             29,862      $   1,164,926
Dividends and distribution                                                              
reinvested                                13,702          402,300                 --                 --
Redeemed                                 (97,788)      (2,902,633)              (699)           (27,381)
                                   -------------    -------------      -------------      -------------
Net increase                             272,412    $   8,589,646             29,163      $   1,137,545
                                   =============    =============      =============      =============
- -------------------------------------------------------------------------------------------------------
Class C:                                                                                
Sold                                      85,612    $   2,722,308             22,769      $     916,393
Dividends and distribution                                                              
reinvested                                 5,959          175,123                 --                 --
Redeemed                                 (16,559)        (525,264)            (4,115)          (172,852)
                                   -------------    -------------      -------------      -------------
Net increase                              75,012    $   2,372,167             18,654      $     743,541
                                   =============    =============      =============      =============
- -------------------------------------------------------------------------------------------------------
Income Shares:                                                                          
Redeemed                                      --               --         18,004,302      $ 208,857,924
                                   =============    =============      =============      =============


1. For the ten months  ended  October 31,  1997,  for Class A shares and for the
period from March 3, 1997  (inception of offering) to October 31, 1997 for Class
B and Class C shares.

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

As  of  October  31,  1998,  net  unrealized   appreciation  on  investments  of
$91,280,653  was  composed  of gross  appreciation  of  $92,283,087,  and  gross
depreciation of $1,002,434.


23  Oppenheimer Quest Capital Value Fund, Inc.


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

================================================================================
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 1.00% of the first
$400  million of average  daily net assets,  0.90% of the next $400  million and
0.85% of average daily net assets over $800 million.  Pursuant to the Agreement,
until  February 28, 1999,  the Manager will waive the  following  portion of the
advisory  fee:  0.15% of the first $200  million of average  annual net  assets,
0.40% of the next  $200  million,  0.30% of the next $400  million  and 0.25% of
average  annual net assets  over $800  million.  For the year ended  October 31,
1998, the waiver  amounted to $648,723.  The Fund's  management fee for the year
ended October 31, 1998,  was 1.00% of the average annual net assets for Class A,
Class B and Class C shares.

               The Manager pays OpCap  Advisors (the  Sub-Advisor)  based on the
fee schedule set forth in the  Prospectus.  For the year ended October 31, 1998,
the Manager paid $885,761 to the Sub-Advisor.

               For the year ended October 31, 1998,  commissions  (sales charges
paid by investors) on sales of Class A shares totaled $330,196, of which $99,219
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 A, Class
B and Class C shares totaled $27,620,  $291,004 and $22,732.  The amount paid to
an  affiliated  broker/dealer  for Class B shares was  $15,131.  During the year
ended  October 31, 1998,  OFDI  received  contingent  deferred  sales charges of
$7,353 upon redemption of Class B 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 other Oppenheimer
funds.  The Fund pays OFS an  annual  maintenance  fee of  $18.00  for each Fund
shareholder  account and reimburses OFS for its out-of-pocket  expenses.  During
the year ended October 31, 1998,  the Fund paid OFS  $197,200.  Effective May 1,
1998, the Board of Directors  approved an increase in the annual maintenance fee
from $14.85 to $18.00 for each Fund shareholder account.


24  Oppenheimer Quest Capital Value Fund, Inc.


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

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

================================================================================
The Fund has  adopted  a  Distribution  and  Service  Plan for Class A shares to
compensate  OFDI for a portion  of its costs  incurred  in  connection  with the
personal  service and  maintenance  of  shareholder  accounts  that hold Class A
shares. Under the Plan, the Fund pays an annual asset-based sales charge to OFDI
of 0.25% per year on Class A shares. The Fund also pays a service fee to OFDI of
0.25% per year. Each fee is computed on the average annual net assets of Class A
shares of the Fund,  determined  as of the close of each regular  business  day.
OFDI uses all of the service fee and the asset-based  sales charge to compensate
brokers, dealers, banks and other financial institutions quarterly for providing
personal  service and maintenance of accounts of their customers that hold Class
A  shares.  The  Distributor  has  voluntarily  agreed  to  waive  0.15%  of the
distribution  fee payable under the plan until  February 28, 1999.  For the year
ended October 31, 1998, the waiver  amounted to $421,564.  During the year ended
October  31,  1998,  OFDI  paid  $2,109  to  an  affiliated   broker/dealer   as
compensation for Class A personal service and maintenance expenses.

               The Fund has adopted  Distribution  and Service Plans for Class B
and Class C shares to compensate OFDI for its costs in distributing  Class B and
Class C shares and servicing  accounts.  Under the Plans,  the Fund pays OFDI an
annual  asset-based sales charge of 0.75% per year on Class B and Class C shares
for its services rendered in distributing Class B and 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 B and Class C shares. Each fee is
computed  on the  average  annual  net  assets  of  Class B or  Class C  shares,
determined as of the close of each regular  business day.  During the year ended
October  31,  1998,  OFDI  retained  $43,422  and  $13,898,   respectively,   as
compensation for Class B and Class C sales commissions and service fee advances,
as well as financing  costs. If either Plan is terminated by the Fund, the Board
of Directors 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
October 31, 1998, OFDI had incurred excess  distribution  and servicing costs of
$376,529 for Class B and $40,709 for Class C.


                 25 Oppenheimer Quest Capital Value Fund, Inc.


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

================================================================================
5. 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
October 31, 1998.

================================================================================
6. Other Matters

As of September 24, 1998,  the Fund changed its custodian bank from State Street
Bank and Trust Company to Citibank, N.A.




                                  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.






                                      B-1
                                  Appendix B

- -------------------------------------------------------------------------------
                      Industry Classifications
- -------------------------------------------------------------------------------

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









                                     C-11
                                  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.
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."2  This  waiver  provision  applies to: |_|
Purchases of Class A shares  aggregating  $1 million or more. |_| 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.
|_|   Purchases  by  an   OppenheimerFunds-sponsored   Rollover   IRA,  if  the
        purchases are made:
(1)        through a broker,  dealer, bank or registered investment adviser that
           has  made  special   arrangements  with  the  Distributor  for  those
           purchases, or
(2)        by a direct  rollover of a distribution  from a qualified  Retirement
           Plan if the administrator of that Plan has made special  arrangements
           with the Distributor for those purchases.
|_|     Purchases  of Class A shares by  Retirement  Plans  that have any of the
        following record-keeping arrangements:
(1)   The record  keeping is performed by Merrill  Lynch Pierce Fenner & Smith,
           Inc.   ("Merrill   Lynch")  on  a  daily  valuation  basis  for  the
           Retirement   Plan.   On  the  date  the  plan   sponsor   signs  the
           record-keeping  service  agreement with Merrill Lynch, the Plan must
           have $3 million or more of its assets  invested in (a) mutual funds,
           other  than  those   advised  or  managed  by  Merrill  Lynch  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).
|_|     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.3
(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.4
        (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.
|_|     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.
|_|     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.5 (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.6  (9)  On  account  of the
participant's separation from service.7 (10) Participant-directed redemptions to
purchase shares of a mutual fund
              (other than a fund managed by the Manager or a  subsidiary  of the
              Manager)  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, Oppenheimer  Quest  Small  Cap
  Inc.                           Value Fund
  Oppenheimer   Quest   Balanced Oppenheimer    Quest    Global
  Value Fund                     Value 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 Quest    for   Value   New   York
Income Fund                        Tax-Exempt Fund
Quest   for    Value    Investment Quest    for    Value    National
Quality Income Fund                Tax-Exempt Fund
Quest for Value Global Income Fund Quest   for   Value    California
                                   Tax-Exempt Fund

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

A.  Reductions or Waivers of Class A Sales Charges.

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

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

- ---------------------------------------------------------------------
    Number of      Initial Sales    Initial Sales                    
    Eligible       Charge as a %    Charge as a %   Commission as %
  Employees or      of Offering     of Net Amount     of Offering
     Members           Price           Invested          Price
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
9 or Fewer             2.50%            2.56%            2.00%
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
At  least  10 but      2.00%            2.04%            1.60%
not 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 CMIA      LifeSpan       Capital
Securities Account                   Appreciation Account
Connecticut Mutual Income Account    CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account    CMIA Diversified Income Account

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

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

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

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

      |X| Class A Sales  Charge  Waivers.  Additional  Class A shares of a Fund
may be purchased  without a sales charge,  by a person who was in one (or more)
of the  categories  below and acquired  Class A shares prior to March 18, 1996,
and still holds Class A shares:
(1)




      any purchaser,  provided the total initial amount  invested in the Fund or
        any one or more of the Former  Connecticut Mutual Funds totaled $500,000
        or more, including  investments made pursuant to the Combined Purchases,
        Statement of Intention and Rights of Accumulation  features available at
        the time of the initial  purchase and such  investment  is still held in
        one or more of the Former  Connecticut Mutual Funds or a Fund into which
        such Fund merged;
(2)     any  participant  in a qualified  plan,  provided that the total initial
        amount invested by the plan in the Fund or any one or more of the Former
        Connecticut Mutual Funds totaled $500,000 or more;
(3)     Directors  of the  Fund or any one or  more  of the  Former  Connecticut
        Mutual Funds and members of their immediate families;
(4)     employee  benefit  plans  sponsored  by  Connecticut   Mutual  Financial
        Services,   L.L.C.   ("CMFS"),  the  prior  distributor  of  the  Former
        Connecticut Mutual Funds, and its affiliated companies;
(5)     one or more  members of a group of at least 1,000  persons  (and persons
        who  are  retirees  from  such  group)  engaged  in a  common  business,
        profession,  civic or  charitable  endeavor or other  activity,  and the
        spouses  and minor  dependent  children of such  persons,  pursuant to a
        marketing program between CMFS and such group; and
(6)     an  institution  acting as a  fiduciary  on behalf of an  individual  or
        individuals,  if  such  institution  was  directly  compensated  by  the
        individual(s) for recommending the purchase of the shares of the Fund or
        any one or more of the Former  Connecticut  Mutual  Funds,  provided the
        institution had an agreement with CMFS.

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

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

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

In addition to the waivers  set forth in the  Prospectus  and in this  Appendix,
above,  the contingent  deferred sales charge will be waived for  redemptions of
Class A and Class B shares of a Fund and  exchanges of Class A or Class B shares
of a Fund into  Class A or Class B shares of a Former  Connecticut  Mutual  Fund
provided  that  the  Class A or Class B shares  of the  Fund to be  redeemed  or
exchanged  were (i)  acquired  prior to March 18, 1996 or (ii) were  acquired by
exchange from an  Oppenheimer  fund that was a Former  Connecticut  Mutual Fund.
Additionally,  the shares of such Former  Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased  shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
        the Internal Revenue Code;
(3)     for retirement distributions (or loans) to participants or beneficiaries
        from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
        Code, or from IRAs,  deferred  compensation  plans created under Section
        457 of the Code, or other employee benefit plans;
(4)     as  tax-free  returns  of excess  contributions  to such  retirement  or
        employee benefit plans;
(5)     in  whole or in part,  in  connection  with  shares  sold to any  state,
        county,  or city,  or any  instrumentality,  department,  authority,  or
        agency  thereof,  that is prohibited by applicable  investment laws from
        paying a sales charge or 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; 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
(8)     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:

|_|   the Manager and its affiliates,
|_|     present or former officers, directors, trustees and employees (and their
        "immediate  families" as defined in the Fund's  Statement of  Additional
        Information) of the Fund, the Manager and its affiliates, and retirement
        plans  established by them or the prior  investment  advisor of the Fund
        for their employees,
|_|     registered  management  investment  companies  or  separate  accounts of
        insurance  companies  that  had  an  agreement  with  the  Fund's  prior
        investment advisor or distributor for that purpose,
|_|     dealers or brokers that have a sales agreement with the Distributor,  if
        they purchase shares for their own accounts or for retirement  plans for
        their employees,
|_|     employees and registered  representatives (and their spouses) of dealers
        or brokers described in the preceding section or financial  institutions
        that have entered into sales  arrangements with those dealers or brokers
        (and  whose  identity  is made  known  to the  Distributor)  or with the
        Distributor,  but only if the purchaser  certifies to the Distributor at
        the time of purchase that the purchaser meets these qualifications,
|_|     dealers,  brokers,  or registered  investment  advisors that had entered
        into an agreement with the  Distributor or the prior  distributor of the
        Fund specifically providing for the use of Class M shares of the Fund in
        specific investment products made available to their clients, and
|_|     dealers, brokers or registered investment advisors that had entered into
        an agreement  with the  Distributor  or prior  distributor of the Fund's
        shares to sell shares to defined contribution  employee retirement plans
        for  which  the  dealer,   broker,   or  investment   advisor   provides
        administrative services.






- -------------------------------------------------------------------------------
Oppenheimer Quest Capital Value Fund, Inc.
- -------------------------------------------------------------------------------

Internet Web Site:
      www.oppenheimerfunds.com

Investment Advisor
      OppenheimerFunds, Inc.
      Two World Trade Center
      New York, New York 10048-0203

Sub-Advisor
      OpCap Advisors
      One World Financial Center
      New York, New York 10281

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
      1-800-525-7048

Custodian Bank
      Citibank, N.A.
      111 Wall Street
      New York, New York 10005

Independent Accountants
      PricewaterhouseCoopers LLP
      950 Seventeenth Street
      Denver, Colorado 80202

Legal Counsel
      Gordon Altman Butowsky Weitzen
        Shalov & Wein
      114 West 47th Street
      New York, New York 10036
67890

PX835.0299


- --------
1. In  accordance  with  Rule  12b-1 of the  Investment  Company  Act,  the term
"Independent  Directors" in this Statement of Additional  Information  refers to
those  Directors  who are not  "interested  persons"  of the Fund (or its parent
corporation)  and who do not have any direct or indirect  financial  interest in
the  operation  of the  distribution  plan or any  agreement  under the plan.  2
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.  3 This
provision  does not apply to IRAs. 4 This  provision does not apply to 403(b)(7)
custodial  plans if the  participant  is less than age 55,  nor to IRAs.  5 This
provision  does not apply to IRAs. 6 This provision does not apply to loans from
403(b)(7)  custodial  plans.  7 This  provision  does  not  apply  to  403(b)(7)
custodial  plans if the  participant  is less than age 55, nor to IRAs.