Oppenheimer International Bond Fund



Prospectus dated January 29, 1999

         Oppenheimer  International  Bond Fund is a mutual fund that seeks total
return as its primary goal. As a secondary goal, it seeks income when consistent
with total  return.  It invests  primarily in foreign  government  and corporate
bonds, emphasizing investments in both developed and emerging markets in Europe,
Latin America and the Pacific Rim.

         This  Prospectus  contains  important   information  about  the  Fund's
objective,  its  investment  policies,  strategies  and risks.  It also contains
important  information  about  how to buy and sell  shares of the Fund and other
account  features.  Please read this Prospectus  carefully before you invest and
keep it for future reference about your account.



                                             (OppenheimerFunds logo)




As with all  mutual  funds,  the  Securities  and  Exchange  Commission  has not
approved or disapproved  the Fund's  securities nor has it determined  that this
Prospectus  is  accurate  or  complete.  It is a criminal  offense to  represent
otherwise.






Contents

                  About the Fund


                  The Fund's Objectives and Investment Strategies

                  Main Risks of Investing in the Fund

                  The Fund's Past Performance

                  Fees and Expenses of the Fund

                  About the Fund's Investments

                  How the Fund is Managed


                  About Your Account


                  How to Buy Shares
                  Class A Shares
                  Class B Shares
                  Class C Shares

                  Special Investor Services
                  AccountLink
                  PhoneLink
                  OppenheimerFunds Web Site
                  Retirement Plans

                  How to Sell Shares
                  By Mail
                  By Telephone
                  By Checkwriting

                  How to Exchange Shares

                  Shareholder Account Rules and Policies

                  Dividends, Capital Gains and Taxes

                  Financial Highlights








About the Fund


The Fund's Objectives and Investment Strategies


What Are the Fund's  Investment  Objectives?  The Fund's primary objective is to
seek  total  return.  As a  secondary  objective,  the Fund  seeks  income  when
consistent with total return.


What Does the Fund  Invest In? The Fund  invests  mainly in debt  securities  of
foreign  government and corporate  issuers.  Those debt securities,  or "bonds,"
include  long-term and short-term  government  bonds,  as well as  participation
interests in loans, corporate debt obligations and other debt obligations.  They
may be "zero coupon" or "stripped"  securities.  Under normal market conditions,
the Fund  invests at least 65% of its total  assets in "bonds" and invests in at
least three countries other than the United States.  The Fund does not limit its
investments to securities of issuers in a particular market capitalization range
or rating category.

         The Fund  emphasizes  debt  securities of issuers in both developed and
emerging markets in Europe,  Latin America and Asian countries located along the
"Pacific Rim." The Fund can also use hedging  instruments and certain derivative
investments,  primarily "structured notes," to try to enhance total return or to
try to manage  investment  risks.  These investments are more fully explained in
"About the Fund's Investments," below.

|X| How Does the Manager  Decide What  Securities  to Buy or Sell?  In selecting
securities  for the Fund,  the Fund's  portfolio  manager  analyzes  the overall
investment  opportunities and risks in individual national economies by focusing
on business  cycle  analysis in developed  countries  and political and exchange
rate factors of emerging markets. The portfolio manager's overall strategy is to
build a broadly diversified portfolio of bonds,  emphasizing government bonds in
developed  and emerging  markets,  to help moderate the special risks of foreign
investing.  The portfolio  manager currently focuses on the factors below (which
may vary in particular cases and may change over time), looking for:

         |_| Opportunities for higher yields than are available in U.S. markets,

         |_| Overall country and currency diversification for the portfolio,

|_| Opportunities in government bonds in both developed and emerging markets.

         In selecting  securities for appreciation  potential,  the Manager will
select securities consistent with the goal of total return (the overall increase
in value of the portfolio)  with  opportunities  for income as a secondary goal.
The Fund's diversification  strategies,  with respect to securities of different
issuers, securities denominated in different currencies and securities issued in
different  countries,  are intended to reduce the volatility of the value of the
overall portfolio while seeking total return.

Who Is the Fund  Designed  For?  The Fund is designed  primarily  for  investors
seeking  total  return  in  their  investment  over  the  long  term,  with  the
opportunity for some income, from a fund that will have significant  investments
in foreign  debt  securities.  Those  investors  should be willing to assume the
risks  of  short-term  share  price  fluctuations  that are  typical  for a fund
focusing  on debt  investments  in  foreign  securities,  particularly  those in
emerging markets,  which have special risks.  Since the Fund's income level will
fluctuate,  it is not designed for investors needing an assured level of current
income.  Because  of its  focus  on  long-term  total  return,  the  Fund may be
appropriate for a part of an investor's retirement plan portfolio.  However, the
Fund is not a complete investment program.

Main Risks of Investing in the Fund

         All investments carry risks to some degree.  The Fund's  investments in
debt  securities are subject to changes in their value from a number of factors.
They  include  changes in general  bond market  movements in the U.S. and abroad
(this is referred  to as "market  risk"),  or the change in value of  particular
bonds because of an event affecting the issuer (this is known as "credit risk").
The  Fund  will  focus  significant   amounts  of  its  investments  in  foreign
securities.  Therefore, it will be subject to the risks that economic, political
or other events can have on the values of  securities  of issuers in  particular
foreign  countries.  These risks are  heightened in the case of emerging  market
debt securities. Changes in interest rates can also affect stock and bond prices
(this is known as "interest rate risk").

         These risks  collectively  form the risk  profile of the Fund,  and can
affect the value of the Fund's investments,  its investment  performance and its
price per share.  These risks mean that you can lose money by  investing  in the
Fund. When you redeem your shares,  they may be worth more or less than what you
paid for them.

         The Fund's investment Manager, OppenheimerFunds,  Inc., tries to reduce
risks by carefully researching securities before they are purchased, and in some
cases by using hedging  techniques.  The Fund attempts to reduce its exposure to
market  risks by  diversifying  its  investments,  that  is,  by not  holding  a
substantial  amount of  securities  of any one issuer and by not  investing  too
great a percentage of the Fund's assets in any one issuer.  Also,  the Fund does
not  concentrate  25% or more of its  investments  in the  securities of any one
foreign  government or in the debt and equity securities of companies in any one
foreign country or in any one industry.

         However,  changes in the overall  market prices of  securities  and the
income  they pay can  occur at any time.  The share  price and yield of the Fund
will change  daily based on changes in market  prices of  securities  and market
conditions, and in response to other economic events. There is no assurance that
the Fund will achieve its investment objectives.

         |X| Credit Risk.  Debt  securities  are subject to credit risk.  Credit
risk  relates to the  ability of the issuer of a security to make  interest  and
principal  payments on the  security as they become due. If the issuer  fails to
pay  interest,  the Fund's  income might be reduced,  and if the issuer fails to
repay  principal,  the  value of that  bond and of the  Fund's  shares  might be
reduced.

     |_| Special Risks of  Lower-Grade  Securities.  Because the Fund can invest
without  limit in  securities  below  investment  grade  (commonly  called "junk
bonds") to seek total  return and higher  income,  the Fund's  credit  risks are
greater than those of funds that buy only  investment  grade bonds.  Lower-grade
debt securities may be subject to greater market  fluctuations and greater risks
of  loss  of  income  and  principal  than   investment-grade  debt  securities.
Securities that are (or that have fallen) below  investment grade are exposed to
a greater  risk that the issuers of those  securities  might not meet their debt
obligations.  These risks can reduce the Fund's  share  prices and the income it
earns.

         |X|  Risks of  Foreign  Investing.  The Fund  emphasizes  investing  in
foreign debt  securities and can buy securities of governments  and companies in
both developed markets and emerging markets. The Fund will normally invest in at
least three  countries  (other than the United  States) and normally  expects to
invest significant  amounts of its assets in foreign  securities.  While foreign
securities offer special investment opportunities,  there are also special risks
that can reduce the Fund's share prices and returns.

         The change in value of a foreign  currency against the U.S. dollar will
result in a change in the U.S.  dollar value of securities  denominated  in that
foreign  currency.  Currency rate changes can also affect the  distributions the
Fund  makes from the  income it  receives  from  foreign  securities  as foreign
currency values change against the U.S. dollar.  Foreign investing can result in
higher  transaction  and operating  costs for the Fund.  Foreign issuers are not
subject to the same accounting and disclosure  requirements that U.S.  companies
are subject to.

         The value of foreign  investments  may be affected by exchange  control
regulations,  expropriation or  nationalization  of a company's assets,  foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad,  or other political and economic factors.
There may be transaction costs and risks from the conversion of certain European
currencies to the Euro that commenced in January 1999. For example,  brokers and
the Fund's  custodian must convert their computer systems and records to reflect
the Euro  values of  securities,  and if they are not  prepared,  there could be
delays in settlements of securities trades and additional costs to the Fund.

                  |_|  Special  Risks  of  Emerging  and   Developing   Markets.
Securities  in  emerging  and  developing  market  countries  may offer  special
investment  opportunities  but investments in these countries  present risks not
found in more mature markets.  Those securities may be more difficult to sell at
an acceptable  price and their prices may be more  volatile  than  securities of
issuers  in more  developed  markets.  Settlements  of trades  may be subject to
greater  delays so that the Fund may not  receive  the  proceeds  of a sale of a
security on a timely basis.

         Emerging  markets  might  have  less  developed   trading  markets  and
exchanges.  Emerging  countries  may have less  developed  legal and  accounting
systems  and   investments  may  be  subject  to  greater  risks  of  government
restrictions  on withdrawing  the sales proceeds of securities from the country.
Economies  of  developing  countries  may be more  dependent on  relatively  few
industries  that  may  be  highly   vulnerable  to  local  and  global  changes.
Governments may be more unstable and present greater risks of nationalization or
restrictions  on  foreign   ownership  of  stocks  of  local  companies.   These
investments may be  substantially  more volatile than debt securities of issuers
in the U.S. and other developed countries and may be very speculative.

         |X| Interest Rate Risks.  The values of debt  securities are subject to
change when  prevailing  interest  rates change.  When interest  rates fall, the
values of  already-issued  debt  securities  generally rise. When interest rates
rise, the values of already-issued debt securities generally fall. The magnitude
of these fluctuations will often be greater for longer-term debt securities than
shorter-term  debt  securities.  The Fund's  share prices can go up or down when
interest  rates change  because of the effect of the changes on the value of the
Fund's investments in debt securities.

         |X| There Are Special Risks in Using Derivative  Investments.  The Fund
can use  derivatives  to seek  increased  returns or to try to hedge  investment
risks.  In general terms, a derivative  investment is one whose value depends on
(or is derived from) the value of an underlying  asset,  interest rate or index.
Options,  futures,  structured  notes and  forward  contracts  are  examples  of
derivatives.

         If the issuer of the  derivative  does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself,  might not perform the
way the Manager expected it to perform. If that happens,  the Fund's share price
could  decline or the Fund could get less  income  than  expected.  The Fund has
limits on the amount of particular  types of derivatives  it can hold.  However,
using  derivatives  can cause the Fund to lose  money on its  investment  and/or
increase the volatility of its share prices.

How Risky is the Fund  Overall?  In the short term,  the values of foreign  debt
securities,  particularly those of issuers in emerging markets, can be volatile,
and the price of the Fund's shares can go up and down substantially.  The income
from some of the Fund's  investments  may help  cushion the Fund's  total return
from  changes in prices,  but debt  securities  are subject to other  credit and
interest  rate risks that can affect  their  values and the share  prices of the
Fund. In the  OppenheimerFunds  spectrum,  the Fund is generally more aggressive
and has more risks than bond funds that focus on U. S. government securities and
investment  grade bonds but is less  aggressive  than funds that focus solely on
investments in emerging markets.

An  investment  in the Fund is not a deposit  of any bank and is not  insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.


The Fund's Past Performance

         The bar  chart  and  table  below  show  one  measure  of the  risks of
investing in the Fund,  by showing  changes in the Fund's  performance  (for its
Class A  shares)  from year to year for the  calendar  years  since  the  Fund's
inception  and by showing how the  average  annual  total  returns of the Fund's
shares  compare  to  those  of a  broad-based  market  index.  The  Fund's  past
investment  performance  is not  necessarily  an indication of how the Fund will
perform in the future.

             Annual Total Returns (Class A) (as of 12/31 each year)

[See appendix to prospectus for data in bar chart showing annual total returns]

Sales charges are not included in the  calculations of return in this bar chart,
and if those charges were included,  the returns would be less than those shown.
During the period shown in the bar chart,  the highest  return (not  annualized)
for a calendar  quarter was 5.61% (4Q'98) and the lowest return (not annualized)
for a calendar quarter was -9.80% (3Q'98).


Average  Annual Total  Returns
for the periods ended                1 Year                  Life of Class
December 31, 1998

Class A Shares                       -8.90%                    5.87%*

Class B Shares                       -9.36%                    5.84%*

Class C Shares                       -5.93%                    6.49%*

Salomon Bros.  Non-U.S.$ World
Gov't Bond Index                      17.79%                   4.59%*

*  Inception  dates of classes:  6/15/95.  The index  performance  is shown from
5/31/95.

The Fund's  average  annual total  returns in the table  include the  applicable
sales  charge for Classes A, B and C shares:  for Class A, the  current  maximum
initial  sales  charge of  4.75%;  for Class B, the  contingent  deferred  sales
charges  of 5%  (1-year)  and 3%  (life  of  class);  and for  Class  C,  the 1%
contingent deferred sales charge for the 1-year period.

The returns  measure the  performance of a hypothetical  account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares.   Because  the  Fund  invests  primarily  in  foreign   government  debt
securities,  the Fund's performance is compared to the Salomon Brothers Non-U.S.
Dollar World Government Bond Index, an unmanaged  market-capitalization weighted
index of debt securities of 13 government bond markets outside the U.S. However,
it must be remembered that the index  performance  reflects the  reinvestment of
income but does not consider the effects of capital gains or transaction  costs.
Also, the index does not include corporate bonds or bonds from emerging markets,
and the Fund may have investments that vary from the index.

Fees and Expenses of the Fund

         The Fund pays a variety of  expenses  directly  for  management  of its
assets,  administration,  distribution of its shares and other  services.  Those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share.  All  shareholders  therefore  pay those  expenses  indirectly.
Shareholders  pay other  expenses  directly,  such as sales  charges and account
transaction  charges.  The following  tables are provided to help you understand
the fees and  expenses  you may pay if you buy and hold shares of the Fund.  The
numbers  below are based on the Fund's  expenses  during  its fiscal  year ended
September 30, 1998.

Shareholder Fees (charges paid directly from your investment):


                                    Class A         Class B      Class C 
                                    Shares          Shares       Shares
Maximum Sales Charge (Load) on
purchases                           4.75%           None          None
(as % of offering price)

Maximum Deferred Sales Charge
(Load) (as % of the lower of the
original offering price or          None(1)         5%(2)          1%(3)
redemption proceeds)

1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.

2. Applies to redemptions in first year after purchase.  The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.

3. Applies to shares redeemed within 12 months of purchase.

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)


                                    Class A         Class B      Class C 
                                    Shares          Shares       Shares

Management Fees                     0.74%            0.74%        0.74%

Distribution  and/or  Service
(12b-1)Fees                         0.24%            1.00%        1.00%

Other Expenses                      0.26%            0.26%        0.26%

Total Annual Operating Expenses     1.24%            2.00%        2.00%


Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.

Examples.  These examples are intended to help you compare the cost of investing
in the Fund with the cost of  investing  in other  mutual  funds.  The  examples
assume  that you  invest  $10,000  in a class of shares of the Fund for the time
periods indicated and reinvest your dividends and distributions.

         The first example assumes that you redeem all of your shares at the end
of those  periods.  The second example  assumes that you keep your shares.  Both
examples also assume that your investment has a 5% return each year and that the
class's  operating  expenses remain the same. Your actual costs may be higher or
lower because  expenses  will vary over time.  Based on these  assumptions  your
expenses would be as follows:


If shares are redeemed:   1 Year     3 Years   5 Years       10 Years(1)

Class A Shares             $595       $850     $1,124         $1,904

Class B Shares             $703       $927     $1,278         $1,951

Class C Shares             $303       $627     $1,078         $2,327


If shares are not
   redeemed:              1 Year      3 Years    5 Years      10 Years(1)

Class A Shares             $595        $850     $1,124         $1,904

Class B Shares             $203        $627     $1,078         $1,951

Class C Shares             $203        $627     $1,078         $2,327

In the first example,  expenses include the initial sales charge for Class A and
the applicable  Class B or Class C contingent  deferred  sales  charges.  In the
second example,  the Class A expenses include the sales charge,  but Class B and
Class C expenses do not include the contingent  deferred sales charges. 1. Class
B expenses  for years 7 through 10 are based on Class A expenses,  since Class B
shares automatically convert to Class A after 6 years.


About the Fund's Investments

The  Fund's  Principal  Investment  Policies.  The  composition  of  the  Fund's
portfolio among the different types of permitted investments will vary over time
based upon the  evaluation  of economic and market  trends by the  Manager.  The
Fund's  portfolio  might  not  always  include  all of the  different  types  of
investments described below. To seek total return, the Fund will normally invest
at least 65% of its  assets  in debt  securities  of  government  and  corporate
issuers.  At times it may focus more on investing  for growth with less emphasis
on income,  while at other times it may have both growth and income  investments
to seek total return.

         The  Fund  can  invest  up to 35% of its  assets  under  normal  market
conditions in securities other than debt securities, including common stocks and
other equity  securities of foreign and U.S.  companies,  and its investments in
debt securities can include debt securities of the U.S.  government and domestic
companies.  However, the Fund does not anticipate having significant investments
in those  types of  securities  as part of its normal  portfolio  strategy.  The
Statement of Additional Information contains more detailed information about the
Fund's investment policies and risks.

         |X| Foreign Debt Securities.  Debt securities are essentially a loan by
the  buyer to the  issuer of the debt  security,  who  promises  to pay back the
principal amount of the loan and normally pays interest,  at a fixed or variable
rate,  on the debt while it is  outstanding.  The Fund can  invest in  different
types of debt  securities,  such as foreign  government  securities  and foreign
corporate bonds and  debentures.  The debt securities the Fund buys may be rated
by nationally  recognized rating organizations or they may be unrated securities
assigned an  equivalent  rating by the Manager.  The Fund's  investments  may be
above or below  investment  grade in  credit  quality,  and the Fund can  invest
without limit in below-investment-grade  debt securities,  commonly called "junk
bonds."

         The Fund's foreign debt  investments can be denominated in U.S. dollars
or in foreign  currencies and can include  "Brady Bonds." Those are  U.S.-dollar
denominated  debt  securities   collateralized   by  zero-coupon  U.S.  Treasury
securities.  They are  typically  issued by emerging  markets  countries and are
considered  speculative  securities with higher risks of default.  The Fund will
buy foreign  currency only in  connection  with the purchase and sale of foreign
securities and not for speculation.

                  |_| Lower-Grade Securities.  While investment-grade securities
are subject to risks of  non-payment  of  interest  and  principal,  in general,
higher-yielding  lower-grade bonds, whether rated or unrated, have greater risks
than  investment-grade  securities.  They  may  be  subject  to  greater  market
fluctuations  and risk of loss of income and  principal  than  investment  grade
securities.  There may be less of a market  for them and  therefore  they may be
harder to sell at an acceptable price. There is a relatively greater possibility
that the issuer's  earnings may be insufficient to make the payments of interest
and principal  due on the bonds.  These risks mean that the Fund may not achieve
the expected income from lower-grade  securities,  and that the Fund's net asset
value per share could be reduced by declines in value of these securities.

                  |_|  Participation   Interests  in  Loans.   These  securities
represent an undivided  fractional  interest in a loan obligation by a borrower.
They are  typically  purchased  from banks or dealers that have made the loan or
are  members  of the  loan  syndicate.  The  loans  may be to  foreign  or  U.S.
companies.  The  Fund  does  not  invest  more  than  5% of its  net  assets  in
participation  interests  of any one  borrower.  They are subject to the risk of
default  by the  borrower.  If the  borrower  fails  to pay  interest  or  repay
principal, the Fund can lose money on its investment.


         |X| Can the Fund's  Investment  Objectives  and  Policies  Change?  The
Fund's Board of Trustees may change non-fundamental  investment policies without
shareholder  approval,   although  significant  changes  will  be  described  in
amendments  to this  Prospectus.  Fundamental  policies are those that cannot be
changed  without the  approval of a majority  of the Fund's  outstanding  voting
shares. The Fund's objectives are fundamental policies.  Investment restrictions
that  are  fundamental  policies  are  listed  in the  Statement  of  Additional
Information.  An investment policy is not fundamental  unless this Prospectus or
the Statement of Additional Information says that it is.


         |X| Portfolio  Turnover.  The Fund may engage in short-term  trading to
try to achieve its objective.  Portfolio  turnover  affects  brokerage costs the
Fund  pays.  If the Fund  realizes  capital  gains  when it sells its  portfolio
investments,  it must generally pay those gains out to shareholders,  increasing
their  taxable  distributions.  The Financial  Highlights  table below shows the
Fund's portfolio turnover rates during prior fiscal years.

Other Investment  Strategies.  To seek its objective,  the Fund may also use the
investment  techniques and  strategies  described  below.  The Manager might not
always use all of the different  types of techniques and  investments  described
below.  These  techniques  involve certain risks,  although some are designed to
help reduce investment or market risks.


         |X| Other Debt Securities. From time to time the Fund can invest (up to
35% of the Fund's total assets) in debt securities  issued by U.S.  companies or
the U.S. government to seek the Fund's goals. However, these are not expected to
be a significant  part of the Fund's normal long term investment  strategy.  The
Fund's  investments  in U.S.  government  securities  can include U.S.  Treasury
securities and securities issued or guaranteed by agencies or  instrumentalities
of the U.S. government,  such as collateralized  mortgage obligations (CMOs) and
other mortgage-related  securities.  Mortgage-related  securities are subject to
additional risks of unanticipated prepayments of the underlying mortgages, which
can affect the income stream to the Fund from those  securities as well as their
values.


         The  Fund  can also buy  U.S.  commercial  paper,  which is  short-term
corporate  debt,  and  asset-backed  securities,  which are interest in pools of
consumer loans and other trade receivables.  Prepayments on the underlying loans
may reduce the Fund's income on the securities and reduce their values,  as with
CMOs.

         |X| Zero-Coupon and "Stripped"  Securities.  Some of the government and
corporate  debt  securities  the Fund  buys are  zero-coupon  bonds  that pay no
interest  and are  issued at a  substantial  discount  from  their  face  value.
"Stripped"  securities are the separate income or principal components of a debt
security.  Some CMOs or other mortgage related securities may be stripped,  with
each component having a different  proportion of principal or interest payments.
One class  might  receive  all the  interest  and the  other  all the  principal
payments.

         Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing  securities.  The Fund
may  have to pay out the  imputed  income  on  zero  coupon  securities  without
receiving the actual cash currently.  Interest-only  securities are particularly
sensitive to changes in interest rates.

         The values of interest-only  mortgage related  securities are also very
sensitive to prepayments of underlying mortgages.  Principal-only securities are
also sensitive to changes in interest rates.  When prepayments tend to fall, the
timing  of the cash  flows to  these  securities  increases,  making  them  more
sensitive to changes in interest rates.  The market for some of these securities
may be limited,  making it difficult  for the Fund to dispose of its holdings at
an acceptable price.

         |X| "When-Issued"  and  "Delayed-Delivery"  Transactions.  The Fund can
purchase securities on a "when-issued" basis and may purchase or sell securities
on a  "delayed-delivery"  basis.  These terms refer to securities that have been
created and for which a market exists, but which are not available for immediate
delivery. There might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.

         |X|  Illiquid  and  Restricted  Securities.   Under  the  policies  and
procedures  established by the Fund's Board of Trustees,  the Manager determines
the liquidity of certain of the Fund's investments.  Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable  price. A restricted  security
is one that has a contractual  restriction on its resale or which cannot be sold
publicly until it is registered  under the Securities Act of 1933. The Fund will
not invest more than 10% of its net assets in illiquid or restricted  securities
(the Board can increase that limit to 15%). Certain  restricted  securities that
are eligible for resale to qualified institutional purchasers may not be subject
to that limit.  The Manager  monitors  holdings  of  illiquid  securities  on an
ongoing  basis to determine  whether to sell any  holdings to maintain  adequate
liquidity.

         |X|  Derivative  Investments.  The  Fund  can  invest  in a  number  of
different kinds of "derivative"  investments.  In the broadest sense, structured
notes, exchange-traded options, futures contracts, and other hedging instruments
the Fund might use may be considered  "derivative  investments."  In addition to
using hedging instruments, the Fund may use other derivative investments because
they offer the potential for increased income and principal value.

         Markets  underlying  securities and indices may move in a direction not
anticipated  by the Manager.  Interest rate and stock market changes in the U.S.
and abroad may also  influence the  performance of  derivatives.  As a result of
these risks the Fund could realize less  principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
                  |_| "Structured"  Notes. The Fund can buy "structured"  notes,
which are specially-designed derivative debt investments with principal payments
or  interest  payments  that are  linked  to the  value  of an index  (such as a
currency or securities  index) or commodity.  The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.

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


         |X|  Hedging.  The  Fund  can buy and sell  certain  kinds  of  futures
contracts,  put and call options,  forward  contracts and options on futures and
broadly-based  securities  indices.  These  are  all  referred  to  as  "hedging
instruments."  The Fund does not  currently use hedging  extensively  and is not
required  to do so to seek  its  objectives.  The  Fund  does  not  use  hedging
instruments for speculative purposes, and has limits on its use of them.


         The Fund could buy and sell options,  futures and forward contracts for
a number  of  purposes.  It might do so to try to  manage  its  exposure  to the
possibility  that the prices of its  portfolio  securities  may  decline,  or to
establish a position in the  securities  market as a  temporary  substitute  for
purchasing individual  securities.  It might do so to try to manage its exposure
to  changing  interest  rates.  Forward  contracts  can be used to try to manage
foreign currency risks on the Fund's foreign investments.

         Options  trading  involves  the payment of premiums and has special tax
effects  on the  Fund.  There  are  also  special  risks in  particular  hedging
strategies.  For example,  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 and will not be able to realize  any profit if the
investment has increased in value above the call price.  In writing a put, there
is a risk that the Fund may be  required  to buy the  underlying  security  at a
disadvantageous price.

         If the Manager  used a hedging  instrument  at the wrong time or judged
market conditions incorrectly,  the strategy could reduce the Fund's return. The
Fund  could  also  experience  losses if the price of its  futures  and  options
positions  were not  correlated  with its other  investments  or if it could not
close out a position because of an illiquid market.

Temporary Defensive Investments.  For cash management purposes the Fund may hold
cash equivalents such as commercial paper, repurchase agreements, Treasury bills
and other short-term U.S. government securities. In times of adverse or unstable
market or economic  conditions,  the Fund may invest up to 100% of its assets in
temporary  defensive  investments.  These would  ordinarily  be short-term U. S.
government  securities,  highly-rated  commercial  paper,  bank  obligations  or
repurchase  agreements.  To the extent  the Fund  invests  defensively  in these
securities, it may not achieve its primary investment objective of total return.

Year 2000 Risks.  Because  many  computer  software  systems in use today cannot
distinguish  the year 2000 from the year 1900,  the  markets for  securities  in
which the Fund  invests  could be  detrimentally  affected by computer  failures
beginning  January 1, 2000.  Failure of  computer  systems  used for  securities
trading could result in settlement and liquidity problems for the Fund and other
investors.  That  failure  could have a negative  impact on handling  securities
trades,  pricing and accounting  services.  Data processing errors by government
issuers of securities could result in economic uncertainties,  and those issuers
may incur substantial costs in attempting to prevent or fix such errors,  all of
which could have a negative effect on the Fund's investments and returns.

         The Manager,  the  Distributor and the Transfer Agent have been working
on necessary  changes to their  computer  systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success.  Additionally,  the services they provide depend
on the interaction of their computer systems with those of brokers,  information
services, the Fund's Custodian and other parties.  Therefore, any failure of the
computer  systems  of those  parties  to deal with the year 2000 may also have a
negative  effect on the services  they  provide to the Fund.  The extent of that
risk cannot be ascertained at this time.


How the Fund Is Managed

The Manager. The Fund's investment Manager, OppenheimerFunds,  Inc., chooses the
Fund's investments and handles its day-to-day business.  The Manager carries out
its duties, subject to the policies established by the Board of Trustees,  under
an Investment Advisory Agreement that states the Manager's responsibilities. The
Agreement  sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.

         The  Manager has  operated as an  investment  adviser  since 1959.  The
Manager  (including   subsidiaries)   currently  manages  investment  companies,
including other  Oppenheimer  funds,  with assets of more than $95 billion as of
December  31,  1998,  and with  more than 4 million  shareholder  accounts.  The
Manager is located at Two World Trade  Center,  34th Floor,  New York,  New York
10048-0203.

         |X| Portfolio  Manager.  The portfolio manager of the Fund is Ashwin K.
Vasan.  He is a Vice  President of the Fund and of the Manager.  He has been the
person  principally  responsible  for the  day-to-day  management  of the Fund's
portfolio  since the Fund's  inception,  June 15, 1995. He joined the Manager in
January  1992 as a  securities  analyst,  and has been an officer and  portfolio
manager for other  Oppenheimer  Funds since June 1993,  focusing on foreign debt
investments.


         |X| Advisory Fees. Under the Investment  Advisory  Agreement,  the Fund
pays the Manager an advisory fee at an annual rate that  declines on  additional
assets as the Fund grows:  0.75% of the first $200 million of average annual net
assets  of the  Fund,  0.72% of the next  $200  million,  0.69% of the next $200
million,  0.66% of the next $200  million,  0.60% of the next $200  million  and
0.50% of  average  annual  net  assets  in  excess  of $1  billion.  The  Fund's
management  fee for its last fiscal year ended  September  30, 1998 was 0.74% of
average annual net assets for each class of shares. 

About Your Account


How to Buy Shares

How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or  financial  institution  that has a sales  agreement  with the  Fund's
Distributor,  or directly through the Distributor,  or automatically  through an
Asset  Builder  Plan  under  the   OppenheimerFunds   AccountLink  service.  The
Distributor  may  appoint  certain  servicing  agents  to accept  purchase  (and
redemption)  orders.  The Distributor,  in its sole  discretion,  may reject any
purchase order for the Fund's shares.

|X| Buying  Shares  Through Your Dealer.  Your dealer will place your order with
the Distributor on your behalf.


         |X| Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to  "OppenheimerFunds
Distributor,  Inc." Mail it to P.O. Box 5270,  Denver,  Colorado  80217.  If you
don't list a dealer on the  application,  the Distributor will act as your agent
in buying the shares.  However,  we recommend  that you discuss your  investment
with a financial  advisor before you make a purchase to be sure that the Fund is
appropriate for you. 

         |X| Buying Shares by Federal Funds Wire.  Shares purchased  through the
Distributor  may be paid for by Federal  Funds wire.  The minimum  investment is
$2,500.  Before  sending  a wire,  call the  Distributor's  Wire  Department  at
1-800-525-7048  to notify the  Distributor of the wire,  and to receive  further
instructions.

         |X|  Buying   Shares   Through   OppenheimerFunds   AccountLink.   With
AccountLink,  shares are purchased for your account on the regular  business day
the  Distributor  is instructed by you to initiate the Automated  Clearing House
(ACH)  transfer  to  buy  the  shares.   You  can  provide  those   instructions
automatically,  under an Asset Builder Plan,  described  below,  or by telephone
instructions  using  OppenheimerFunds  PhoneLink,  also described below.  Please
refer to "AccountLink," below for more details.

|X| Buying Shares  Through Asset Builder Plans.  You may purchase  shares of the
Fund (and up to four other Oppenheimer funds) automatically each month from your
account at a bank or other  financial  institution  under an Asset  Builder Plan
with AccountLink. Details are in the Asset Builder Application and the Statement
of Additional Information.

How Much Must You Invest?  You can open a Fund  account  with a minimum  initial
investment of $1,000 and make additional  investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.

         |_| With Asset Builder Plans,  403(b) plans,  Automatic  Exchange Plans
and military  allotment plans,  you can make initial and subsequent  investments
for as  little  as $25.  Subsequent  purchases  of at  least  $25 can be made by
telephone through AccountLink.

         |_| Under retirement  plans, such as IRAs,  pension and  profit-sharing
plans and 401(k)  plans,  you can start your account with as little as $250.  If
your IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.

         |_| The minimum  investment  requirement  does not apply to reinvesting
dividends  from the Fund or other  Oppenheimer  funds (a list of them appears in
the Statement of Additional Information,  or you can ask your dealer or call the
Transfer Agent), or reinvesting  distributions  from unit investment trusts that
have made arrangements with the Distributor.

At What Price Are Shares Sold?  Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies).  The offering
price that applies to a purchase  order is based on the next  calculation of the
net asset  value per share  that is made  after  the  Distributor  receives  the
purchase order at its offices in Denver,  Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.

         |_| The net asset value of each class of shares is determined as of the
close of The New York  Stock  Exchange,  on each  day the  Exchange  is open for
trading  (referred  to in this  Prospectus  as a "regular  business  day").  The
Exchange  normally  closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").


         The net asset value per share is  determined  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.  To determine net asset value,  the Fund's Board of
Trustees has established  procedures to value the Fund's securities,  in general
based on market  value.  The Board has adopted  special  procedures  for valuing
illiquid and  restricted  securities  and  obligations  for which market  values
cannot be readily  obtained.  Because  foreign  securities  trade in markets and
exchanges that operate on holiday and weekends,  the value of some of the Fund's
foreign investments might change significantly on days when investors cannot buy
or redeem shraes. 

         |_| To receive the offering  price for a particular  day, in most cases
the  Distributor or its designated  agent must receive your order by the time of
day The New York Stock Exchange  closes that day. If your order is received on a
day when the  Exchange is closed or after it has closed,  the order will receive
the next offering price that is determined after your order is received.

         |_| If you buy shares  through a dealer,  your dealer must  receive the
order  by the  close of The New  York  Stock  Exchange  and  transmit  it to the
Distributor so that it is received before the Distributor's close of business on
a regular  business  day  (normally  5:00 P.M.) to receive  that day's  offering
price.  Otherwise,  the order  will  receive  the next  offering  price  that is
determined.


     What Classes of Shares Does the Fund Offer? The Fund offers investors three
     different  classes of shares.  The  different  classes of shares  represent
     investments  in the same  portfolio  of  securities,  but the  classes  are
     subject to different  expenses and will likely have different share prices.
     When you buy shares,  be sure to specify the class of shares. If you do not
     choose a class, your investment will be made in Class A shares.

         |X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on  investments  up to $1 million for regular  accounts or $500,000  for
certain  retirement  plans). The amount of that sales charge will vary depending
on the amount you invest.  The sales  charge  rates are listed in "How Can I Buy
Class A Shares?" below.

     |X| Class B Shares.  If you buy Class B shares,  you pay no sales charge at
the time of purchase,  but you will pay an annual  asset-based sales charge, and
if you sell your shares within six years of buying them, you will normally pay a
contingent  deferred sales charge.  That contingent deferred sales charge varies
depending on how long you own your shares,  as described in "How Can I Buy Class
B Shares?" below.


         |X| Class C Shares. If you buy Class C shares,  you pay no sales charge
at the time of purchase,  but you will pay an annual  asset-based  sales charge,
and if you sell your shares  within 12 months of buying them,  you will normally
pay a  contingent  deferred  sales  charge of 1%, as described in "How Can I Buy
Class C Shares?" below.

Which  Class of Shares  Should You  Choose?  Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your  investment.  If your  goals  and  objectives
change  over  time  and you  plan to  purchase  additional  shares,  you  should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different  types of sales charges on your  investment  will vary your investment
results over time.

         The  discussion  below is not  intended  to be  investment  advice or a
recommendation,  because each investor's financial considerations are different.
You should  review these factors with your  financial  advisor.  The  discussion
below  assumes  that  you will  purchase  only one  class of  shares,  and not a
combination of shares of different classes.

         |X| How  Long Do You  Expect  to Hold  Your  Investment?  While  future
financial needs cannot be predicted with certainty,  knowing how long you expect
to hold your investment  will assist you in selecting the  appropriate  class of
shares.  Because of the effect of  class-based  expenses,  your choice will also
depend on how much you plan to invest.  For example,  the reduced  sales charges
available  for larger  purchases  of Class A shares may,  over time,  offset the
effect of paying an initial  sales  charge on your  investment,  compared to the
effect over time of higher class-based  expenses on shares of Class B or Class C
 .

         |_| Investing  for the Short Term. If you have a relatively  short-term
investment  horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares rather
than Class B shares.  That is  because  of the effect of the Class B  contingent
deferred  sales charge if you redeem within six years,  as well as the effect of
the Class B asset-based  sales charge on the investment return for that class in
the short-term.  Class C shares might be the appropriate  choice (especially for
investments of less than $100,000),  because there is no initial sales charge on
Class C shares,  and the  contingent  deferred  sales  charge  does not apply to
amounts you sell after holding them one year.

         However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares might
not be as advantageous as Class A shares. That is because the annual asset-based
sales  charge on Class C shares will have a greater  impact on your account over
the longer term than the reduced  front-end  sales charge  available  for larger
purchases of Class A shares.

         And for  investors who invest $1 million or more, in most cases Class A
shares will be the most  advantageous  choice,  no matter how long you intend to
hold your shares.  For that reason,  the  Distributor  normally  will not accept
purchase  orders of  $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.

         |_|  Investing  for the Longer  Term.  If you are  investing  less than
$100,000 for the longer-term,  for example for retirement,  and do not expect to
need  access  to your  money  for  seven  years or more,  Class B shares  may be
appropriate.

         Of course,  these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the  considerations  in  selecting a class of shares.  You should  analyze  your
options carefully with your financial advisor before making that choice.

         |X| Are There  Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders.  Other
features (such as Automatic  Withdrawal Plans) may not be advisable  (because of
the  effect of the  contingent  deferred  sales  charge)  for Class B or Class C
shareholders.  Therefore,  you should  carefully review how you plan to use your
investment account before deciding which class of shares to buy.

         Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the  additional  expenses borne by those classes that are not
borne by Class A  shares,  such as the  Class B and  Class C  asset-based  sales
charge  described  below and in the Statement of Additional  Information.  Share
certificates  are not available  for Class B and Class C shares,  and if you are
considering  using your shares as collateral for a loan, that may be a factor to
consider.

         |X| How Does It Affect Payments to My Broker? A salesperson,  such as a
broker, may receive different  compensation for selling one class of shares than
for selling  another class. It is important to remember that Class B and Class C
contingent  deferred sales charges and  asset-based  sales charges have the same
purpose as the front-end sales charge on sales of Class A shares:  to compensate
the  Distributor  for  commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to  securities  dealers or financial  institutions  based
upon  the  value  of  shares  of the  Fund  owned  by the  dealer  or  financial
institution for its own account or for its customers.

Special Sales Charge  Arrangements  and Waivers.  Appendix C to the Statement of
Additional  Information  details the  conditions for the waiver of sales charges
that apply in certain  cases,  and the special  sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.

How Can I Buy Class A Shares?  Class A shares are sold at their offering  price,
which is normally net asset value plus an initial sales charge. However, in some
cases,  described  below,  purchases are not subject to an initial sales charge,
and the  offering  price will be the net asset value.  In other  cases,  reduced
sales  charges may be  available,  as  described  below or in the  Statement  of
Additional Information.  Out of the amount you invest, the Fund receives the net
asset value to invest for your account.

         The sales charge  varies  depending on the amount of your  purchase.  A
portion of the sales charge may be retained by the  Distributor  or allocated to
your dealer as  commission.  The  Distributor  reserves the right to reallow the
entire  commission to dealers.  The current  sales charge rates and  commissions
paid to dealers and brokers are as follows:






                                Front-End Sales Charge As    Front-End Sales Charge As
                                a Percentage of              a Percentage of Net Amount   Commission As Percentage
                                Offering Price               Invested                     of Offering Price
Amount of Purchase
                                                                                 

Less than $50,000               4.75%                        4.98%                        4.00%

$50,000 or more but less than
$100,000                        4.50%                        4.71%                        3.75%

$100,000 or more but less
than $250,000                   3.50%                        3.63%                        2.75%

$250,000 or more but less
than $500,000                   2.50%                        2.56%                        2.00%

$500,000 or more but less
than $1 million                 2.00%                        2.04%                        1.60%





         |X| Class A Contingent Deferred Sales Charge. There is no initial sales
charge  on  purchases  of Class A shares  of any one or more of the  Oppenheimer
funds  aggregating  $1 million or more or for certain  purchases  by  particular
types  of  retirement  plans  described  in the  Appendix  to the  Statement  of
Additional Information. The Distributor pays dealers of record commissions in an
amount  equal to 1.0% of  purchases  of $1  million  or more other than by those
retirement accounts.  For those retirement plan accounts, the commission is 1.0%
of the first $2.5 million,  plus 0.50% of the next $2.5  million,  plus 0.25% of
purchases over $5 million,  calculated on a calendar year basis. In either case,
the commission  will be paid only on purchases that were not previously  subject
to a front-end sales charge and dealer commission.1

         If you  redeem any of those  shares  within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent  deferred sales charge") may be deducted from the redemption
proceeds.  That  sales  charge  will be equal to 1.0% of the  lesser  of (1) the
aggregate  net asset  value of the  redeemed  shares  at the time of  redemption
(excluding  shares  purchased  by  reinvestment  of  dividends  or capital  gain
distributions)  or (2) the  original  net asset  value of the  redeemed  shares.
However,  the Class A  contingent  deferred  sales  charge  will not  exceed the
aggregate  amount of the commissions the Distributor  paid to your dealer on all
purchases of Class A shares of all Oppenheimer  funds you made that were subject
to the Class A contingent deferred sales charge.

         In  determining  whether a contingent  deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not subject
to the sales charge, including shares purchased by reinvestment of dividends and
capital gains.  Then the Fund will redeem other shares in the order in which you
purchased  them.  The  Class A  contingent  deferred  sales  charge is waived in
certain   cases   described  in  Appendix  C  in  the  Statement  of  Additional
Information.

         The  Class  A  contingent  deferred  sales  charge  is not  charged  on
exchanges  of shares  under the Fund's  exchange  privilege  (described  below).
However,  if the shares  acquired by exchange  are  redeemed  within 18 calendar
months of the end of the  calendar  month in which  the  exchanged  shares  were
originally purchased, then the sales charge will apply.

How Can I Reduce Sales Charges for Class A Share Purchases?  You may be eligible
to buy Class A shares at reduced  sales charge rates under the Fund's  "Right of
Accumulation" or a Letter of Intent,  as described in "Reduced Sales Charges" in
the Statement of Additional Information:


         |X|  Waivers  of  Class A  Sales  Charges.  The  Class  A  initial  and
contingent deferred sales charges are not imposed in the circumstances described
in Appendix C to the Statement of Additional Information.  In order to receive a
waiver of the Class A  contingent  deferred  sales  charge,  you must notify the
Transfer  Agent when  purchasing  shares  whether any of the special  conditions
apply. 

How Can I Buy Class B  Shares?  Class B shares  are sold at net asset  value per
share without an initial sales charge.  However,  if Class B shares are redeemed
within 6 years of their  purchase,  a contingent  deferred  sales charge will be
deducted from the  redemption  proceeds.  The Class B contingent  deferred sales
charge is paid to  compensate  the  Distributor  for its  expenses of  providing
distribution-related services to the Fund in connection with the sale of Class B
shares.


         The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:


         |_| the amount of your account value  represented by an increase in net
         asset value over the initial purchase price |_| shares purchased by the
         reinvestment of dividends or capital gains distributions, or |_| shares
         redeemed in the special  circumstances  described  in Appendix C to the
         Statement of Additional Information.

         To determine whether the contingent  deferred sales charge applies to a
redemption,  the Fund redeems shares in the following order: (1) shares acquired
by  reinvestment of dividends and capital gains  distributions,  (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period.

         The amount of the  contingent  deferred sales charge will depend on the
number  of years  since you  invested  and the  dollar  amount  being  redeemed,
according to the following schedule:



Years Since Beginning of           Contingent Deferred Sales Charge on
Month in Which Purchase Order      Redemptions in That Year
was Accepted                       (As % of Amount Subject to Charge)

0 - 1                                           5.0%

1 - 2                                           4.0%

2 - 3                                           3.0%

3 - 4                                           3.0%

4 - 5                                           2.0%

5 - 6                                           1.0%

6 and following                                 None


In the table, a "year" is a 12-month period.  In applying the sales charge,  all
purchases are considered to have been made on the first regular  business day of
the month in which the purchase was made.

         |X|   Automatic   Conversion   of  Class  B  Shares.   Class  B  shares
automatically  convert to Class A shares 72 months after you purchase them. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution  and Service Plan,
described  below. The conversion is based on the relative net asset value of the
two classes,  and no sales load or other charge is imposed.  When Class B shares
convert,  any other Class B shares that were  acquired  by the  reinvestment  of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in the Statement of Additional Information.

How Can I Buy Class C  Shares?  Class C shares  are sold at net asset  value per
share without an initial sales charge.  However,  if Class C shares are redeemed
within 12 months of their purchase,  a contingent  deferred sales charge of 1.0%
will be deducted from the redemption  proceeds.  The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.

         The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:

     |_| the amount of your  account  value  represented  by the increase in net
     asset value over the initial purchase price,

     |_| shares  purchased by the  reinvestment  of  dividends or capital  gains
     distributions, or

     |_| shares redeemed in the special circumstances described in Appendix C to
     the Statement of Additional Information.

         To determine whether the contingent  deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:

     (1)  shares  acquired  by  reinvestment  of  dividends  and  capital  gains
     distributions,  (2) shares held for over 12 months, and (3) shares held the
     longest during the 12-month period.

Distribution and Service (12b-1) Plans.

         |X|  Service  Plan for Class A Shares.  The Fund has  adopted a Service
Plan for Class A shares.  It  reimburses  the  Distributor  for a portion of its
costs  incurred  for  services  provided to  accounts  that hold Class A shares.
Reimbursement  is made quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor  currently uses
all  of  those  fees  to  pay  dealers,   brokers,  banks  and  other  financial
institutions  quarterly  for  providing  personal  service  and  maintenance  of
accounts of their customers that hold Class A shares.

         |X| Distribution and Service Plans for Class B and Class C Shares.  The
Fund has adopted  Distribution  and Service Plans for Class B and Class C shares
to pay the Distributor  for its services and costs in  distributing  Class B and
Class C shares  and  servicing  accounts.  Under  the  plans,  the Fund pays the
Distributor  an  annual  asset-based  sales  charge of 0.75% per year on Class B
shares and on Class C shares.  The  Distributor  also  receives a service fee of
0.25% per year under each plan.

         The  asset-based  sales  charge and service fees  increase  Class B and
Class C expenses  by 1.00% of the net assets per year of the  respective  class.
Because these fees are paid out of the Fund's assets on an on-going basis,  over
time these fees will increase the cost of your  investment and may cost you more
than other types of sales charges.

         The  Distributor  uses  the  service  fees to  compensate  dealers  for
providing  personal  services for accounts  that hold Class B or Class C shares.
The Distributor  pays the 0.25% service fees to dealers in advance for the first
year after the shares were sold by the  dealer.  After the shares have been held
for a year,  the  Distributor  pays the  service  fees to dealers on a quarterly
basis.

         The  Distributor  currently  pays  sales  commission  of  3.75%  of the
purchase  price of Class B shares to dealers from its own  resources at the time
of sale.  Including the advance of the service fee, the total amount paid by the
Distributor  to the  dealer at the time of sales of Class B shares is  therefore
4.00% of the purchase  price.  The  Distributor  retains the Class B asset-based
sales charge.

         The  Distributor  currently  pays  sales  commissions  of  0.75% of the
purchase  price of Class C shares to dealers from its own  resources at the time
of sale.  Including the advance of the service fee, the total amount paid by the
Distributor  to the  dealer at the time of sale of Class C shares  is  therefore
1.00% of the purchase price. The Distributor  pays the asset-based  sales charge
as an  ongoing  commission  to the  dealer  on Class C  shares  that  have  been
outstanding for a year or more.

Special Investor Services

     AccountLink.  You can use our AccountLink feature to link your Fund account
     with an account at a U.S. bank or other financial  institution.  It must be
     an Automated Clearing House (ACH) member. AccountLink lets you:

     |_| transmit funds  electronically to purchase shares by telephone (through
     a service  representative  or by  PhoneLink) or  automatically  under Asset
     Builder Plans, or

     |_| have the Transfer Agent send redemption  proceeds or transmit dividends
     and distributions directly to your bank account.

     Please call the Transfer Agent for more information.

         You may purchase  shares by telephone  only after your account has been
established.  To purchase  shares in amounts up to $250,000  through a telephone
representative,  call the Distributor at  1-800-852-8457.  The purchase  payment
will be debited from your bank account.

         AccountLink  privileges should be requested on your Application or your
dealer's settlement  instructions if you buy your shares through a dealer. After
your account is established,  you can request AccountLink  privileges by sending
signature-guaranteed  instructions to the Transfer Agent. AccountLink privileges
will apply to each  shareholder  listed in the  registration  on your account as
well as to your dealer  representative  of record  unless and until the Transfer
Agent receives written  instructions  terminating or changing those  privileges.
After you establish  AccountLink  for your  account,  any change of bank account
information  must be made by  signature-guaranteed  instructions to the Transfer
Agent signed by all shareholders who own the account.

PhoneLink.  PhoneLink is the  OppenheimerFunds  automated  telephone system that
enables shareholders to perform a number of account  transactions  automatically
using a touch-tone  phone.  PhoneLink  may be used on  already-established  Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1-800-533-3310.

         |X|  Purchasing  Shares.  You may  purchase  shares  in  amounts  up to
$100,000  by  phone,  by  calling  1-800-533-3310.  You  must  have  established
AccountLink  privileges to link your bank account with the Fund to pay for these
purchases.

         |X| Exchanging Shares.  With the  OppenheimerFunds  Exchange Privilege,
described below,  you can exchange shares  automatically by phone from your Fund
account to another  OppenheimerFunds  account you have  already  established  by
calling the special PhoneLink number.

         |X| Selling Shares. You can redeem shares by telephone automatically by
calling the  PhoneLink  number and the Fund will send the  proceeds  directly to
your AccountLink  bank account.  Please refer to "How to Sell Shares," below for
details.

Can I Submit  Transaction  Requests by Fax?  You may send  requests  for certain
types of account transactions to the Transfer Agent by fax (telecopier).  Please
call 1-800-525-7048 for information about which transactions may be handled this
way.  Transaction  requests  submitted  by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.

OppenheimerFunds  Internet Web Site. You can obtain  information about the Fund,
as well as your account balance, on the  OppenheimerFunds  Internet web site, at
http://www.oppenheimerfunds.com.   Additionally,   shareholders  listed  in  the
account  registration  (and the dealer of record)  may request  certain  account
transactions  through a special  section of that web site.  To  perform  account
transactions,  you must first obtain a personal  identification  number (PIN) by
calling  the  Transfer  Agent  at  1-800-533-3310.  If you do not  want  to have
Internet  account  transaction  capability  for your  account,  please  call the
Transfer Agent at 1-800-525-7048.

Automatic  Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares  automatically  or exchange them to another  OppenheimerFunds
account on a regular  basis.  Please  call the  Transfer  Agent or  consult  the
Statement of Additional Information for details.

Reinvestment  Privilege.  If you  redeem  some or all of your Class A or Class B
shares  of the  Fund,  you have up to 6 months  to  reinvest  all or part of the
redemption  proceeds  in Class A shares of the Fund or other  Oppenheimer  funds
without  paying a sales charge.  This  privilege  applies only to Class A shares
that you purchased  subject to an initial sales charge and to Class A or Class B
shares on which you paid a  contingent  deferred  sales charge when you redeemed
them.  This privilege does not apply to Class C shares.  You must be sure to ask
the Distributor for this privilege when you send your payment.

Retirement  Plans.  You may buy  shares  of the Fund for  your  retirement  plan
account.  If you  participate  in a plan  sponsored by your  employer,  the plan
trustee  or  administrator  must buy the  shares  for  your  plan  account.  The
Distributor also offers a number of different  retirement plans that can be used
by individuals and employers:

         |X| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
         IRAs, SIMPLE IRAs, rollover and Education IRAs.



     |X| SEP-IRAs,  which are Simplified  Employee  Pensions Plan IRAs for small
     business owners or self-employed individuals.

     |X| 403(b)(7) Custodial Plans, that are tax deferred plans for employees of
     eligible  tax-exempt   organizations,   such  as  schools,   hospitals  and
     charitable organizations.

         |X| 401(k) Plans, which are special retirement plans for businesses.

     |X|  Pension  and  Profit-Sharing   Plans,   designed  for  businesses  and
     self-employed individuals.

         Please  call  the  Distributor  for  OppenheimerFunds  retirement  plan
documents, which include applications and important plan information.

How to Sell Shares

         You  can  sell  (redeem)  some  or all of your  shares  on any  regular
business  day.  Your shares will be sold at the next net asset value  calculated
after your order is received  in proper  form  (which  means that it must comply
with the procedures  described below) and is accepted by the Transfer Agent. The
Fund  lets you sell  your  shares by  writing  a  letter,  by using  the  Fund's
checkwriting privilege or by telephone. You can also set up Automatic Withdrawal
Plans to redeem shares on a regular basis.  If you have  questions  about any of
these  procedures,  and  especially  if you are  redeeming  shares  in a special
situation,  such as due to the  death  of the  owner or from a  retirement  plan
account,   please  call  the  Transfer  Agent  first,  at  1-800-525-7048,   for
assistance.


         |X| Certain Requests Require a Signature Guarantee.  To protect you and
the Fund from fraud,  the following  redemption  requests must be in writing and
must include a signature  guarantee (although there may be other situations that
also require a signature guarantee):


         |_| You wish to redeem $50,000 or more and receive a check

         |_| The redemption check is not payable to all  shareholders  listed on
         the  account  statement 

     |_| The  redemption  check is not sent to the  address  of  record  on your
     account statement

     |_| Shares are being  transferred to a Fund account with a different  owner
     or name

     |_| Shares are being  redeemed by someone (such as an Executor)  other than
     the owners

     |X| Where Can I Have My  Signature  Guaranteed?  The  Transfer  Agent  will
     accept a guarantee of your signature by a number of financial institutions,
     including: a U.S. bank, trust company, credit union or savings association,
     or by a  foreign  bank  that has a U.S.  correspondent  bank,  or by a U.S.
     registered  dealer  or  broker  in  securities,   municipal  securities  or
     government  securities,  or  by a  U.S.  national  securities  exchange,  a
     registered securities  association or a clearing agency. If you are signing
     on  behalf  of  a  corporation,  partnership  or  other  business  or  as a
     fiduciary, you must also include your title in the signature.

         |X|  Retirement  Plan  Accounts.  There are special  procedures to sell
shares in an OppenheimerFunds  retirement plan account.  Call the Transfer Agent
for a distribution  request form.  Special income tax  withholding  requirements
apply to distributions from retirement plans. You must submit a withholding form
with your redemption  request to avoid delay in getting your money and if you do
not want tax withheld.  If your employer holds your  retirement plan account for
you in the name of the plan, you must ask the plan trustee or  administrator  to
request the sale of the Fund shares in your plan account.

How      Do I Sell Shares by Mail? Write a letter of instructions that includes:

     |_| Your name

     |_| The Fund's name

     |_| Your Fund account number (from your account statement)

     |_| The dollar amount or number of shares to be redeemed

     |_| Any special payment instructions

     |_| Any share certificates for the shares you are selling

     |_| The  signatures  of all  registered  owners  exactly as the  account is
     registered, and

     |_| Any special documents  requested by the Transfer Agent to assure proper
     authorization of the person asking to sell the shares.


Use the following address for requests by mail:

OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270


Send courier or express mail requests to:

OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231

How Do I Sell Shares by Telephone?  You and your dealer representative of record
may also sell your shares by  telephone.  To receive the  redemption  price on a
regular  business day,  your call must be received by the Transfer  Agent by the
close of The New York Stock  Exchange that day, which is normally 4:00 P.M., but
may  be  earlier  on  some  days.   You  may  not  redeem   shares  held  in  an
OppenheimerFunds  retirement  plan  account  or  under  a share  certificate  by
telephone.

     |_| To redeem shares through a service representative, call 1-800-852-8457

     |_| To redeem shares automatically on PhoneLink, call 1-800-533-3310

         Whichever  method you use,  you may have a check sent to the address on
the account  statement,  or, if you have  linked your Fund  account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.

Are There Limits on Amounts Redeemed by Telephone?

         |X| Telephone  Redemptions Paid by Check. Up to $50,000 may be redeemed
by  telephone  in any 7-day  period.  The check must be payable to all owners of
record of the shares and must be sent to the address on the  account  statement.
This  service is not  available  within 30 days of  changing  the  address on an
account.

         |X|  Telephone  Redemptions  Through  AccountLink.  There are no dollar
limits on telephone  redemption  proceeds sent to a bank account designated when
you establish  AccountLink.  Normally the ACH transfer to your bank is initiated
on the business day after the  redemption.  You do not receive  dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.

How Do I Write  Checks  Against My Account?  To write  checks  against your Fund
account,  request that  privilege on your  account  Application,  or contact the
Transfer  Agent for  signature  cards.  They must be  signed  (with a  signature
guarantee)  by all owners of the account and returned to the  Transfer  Agent so
that  checks can be sent to you to use.  Shareholders  with joint  accounts  can
elect in writing to have checks  paid over the  signature  of one owner.  If you
previously  signed  a  signature  card  to  establish  checkwriting  in  another
Oppenheimer  fund,  simply call  1-800-525-7048  to request  checkwriting for an
account in this Fund with the same registration as the other account.

     |_| Checks can be written to the order of whomever you wish, but may not be
     cashed at the Fund's bank or Custodian.

     |_|  Checkwriting  privileges are not available for accounts holding shares
     that are subject to a contingent deferred sales charge.

     |_| Checks must be written for at least $100.

     |_| Checks  cannot be paid if they are written  for more than your  account
     value.

     |_| You may not write a check that would  require the Fund to redeem shares
     that were  purchased  by check or Asset  Builder Plan  payments  within the
     prior 10 days.

     |_| Don't use your checks if you changed  your Fund account  number,  until
     you receive new checks.

Can I Sell Shares Through My Dealer?  The Distributor  has made  arrangements to
repurchase  Fund shares from  dealers and brokers on behalf of their  customers.
Brokers or dealers may charge for that  service.  If your shares are held in the
name of your dealer, you must redeem them through your dealer.

How to Exchange Shares

         Shares of the Fund may be exchanged  for shares of certain  Oppenheimer
funds at net  asset  value  per  share at the time of  exchange,  without  sales
charge. To exchange shares, you must meet several conditions:

     |_| Shares of the fund  selected for exchange must be available for sale in
     your state of residence.

     |_| The prospectuses of this Fund and the fund whose shares you want to buy
     must offer the exchange privilege.

     |_| You must hold the shares you buy when you establish your account for at
     least 7 days  before you can  exchange  them.  After the  account is open 7
     days, you can exchange shares every regular business day.

     |_| You  must  meet  the  minimum  purchase  requirements  for the fund you
     purchase by exchange.

     |_|  Before  exchanging  into a  fund,  you  should  obtain  and  read  its
     prospectus.

         Shares  of a  particular  class of the Fund may be  exchanged  only for
shares of the same class in the other  Oppenheimer  funds. For example,  you can
exchange Class A shares of this Fund only for Class A shares of another fund. In
some  cases,  sales  charges may be imposed on  exchange  transactions.  For tax
purposes,  exchanges of shares  involve a sale of the shares of the fund you own
and a purchase  of the shares of the other  fund,  which may result in a capital
gain or loss.  Please  refer to "How to  Exchange  Shares" in the  Statement  of
Additional Information for more details.

     How Do I Submit Exchange Requests? Exchanges may be requested in writing or
     by telephone:

         |X| Written  Exchange  Requests.  Submit an  OppenheimerFunds  Exchange
Request form, signed by all owners of the account. Send it to the Transfer Agent
at the address on the Back Cover.  Exchanges  of shares held under  certificates
cannot be processed unless the Transfer Agent receives the certificates with the
request.

         |X| Telephone  Exchange  Requests.  Telephone  exchange requests may be
made either by calling a service  representative at 1-800-852-8457,  or by using
PhoneLink for automated exchanges by calling 1-800-533-3310. Telephone exchanges
may be made only between  accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.

         You can  find a list  of  Oppenheimer  funds  currently  available  for
exchanges in the Statement of Additional  Information or obtain one by calling a
service  representative  at  1-800-525-7048.  That list can change  from time to
time.

     Are There Limitations on Exchanges? There are certain exchange policies you
     should be aware of:

         |_| Shares are normally  redeemed from one fund and purchased  from the
other fund in the exchange transaction on the same regular business day on which
the Transfer  Agent  receives an exchange  request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days.  However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to  seven  days if it  determines  it would be  disadvantaged  by a  same-day
exchange.  For example, the receipt of multiple exchange requests from a "market
timer"  might  require the Fund to sell  securities  at a  disadvantageous  time
and/or price.
         |_|  Because  excessive  trading  can hurt  fund  performance  and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
         |_| The Fund may amend,  suspend or terminate the exchange privilege at
any time.  Although the Fund will  attempt to provide you notice  whenever it is
reasonably able to do so, it may impose these changes at any time.
         |_| If the Transfer  Agent  cannot  exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.

Shareholder Account Rules and Policies

More  information  about the Fund's policies and procedures for buying,  selling
and exchanging shares is contained in the Statement of Additional Information.


         |X| The offering of shares may be suspended  during any period in which
the  determination  of net asset value is  suspended,  and the  offering  may be
suspended  by the Board of Trustees at any time the Board  believes it is in the
Fund's best interest to do so.

         |X| Telephone  Transaction  Privileges  for  purchases,  redemptions or
exchanges  may be modified,  suspended or terminated by the Fund at any time. If
an account has more than one owner,  the Fund and the Transfer Agent may rely on
the instructions of any one owner.  Telephone  privileges apply to each owner of
the account and the dealer  representative  of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.

         |X| The Transfer  Agent will record any telephone  calls to verify data
concerning  transactions  and has  adopted  other  procedures  to  confirm  that
telephone  instructions  are  genuine,  by  requiring  callers  to  provide  tax
identification  numbers  and  other  account  data  or by  using  PINs,  and  by
confirming such  transactions  in writing.  The Transfer Agent and the Fund will
not be liable for  losses or  expenses  arising  out of  telephone  instructions
reasonably believed to be genuine.

         |X|  Redemption  or  transfer  requests  will not be honored  until the
Transfer  Agent  receives  all required  documents in proper form.  From time to
time, the Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.

         |X| Dealers that can perform account  transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are  responsible  for  obtaining  their  clients'  permission  to perform  those
transactions,  and are responsible to their clients who are  shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.

     |X| The  redemption  price for shares will vary from day to day because the
value of the  securities  in the Fund's  portfolio  fluctuates.  The  redemption
price,  which is the net asset value per share,  will  normally  differ for each
class of shares.  The  redemption  value of your shares may be more or less than
their original cost.

         |X| Payment  for  redeemed  shares  ordinarily  is made in cash.  It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven days after the Transfer Agent receives  redemption  instructions in proper
form.  However,  under unusual  circumstances  determined by the  Securities and
Exchange  Commission,   payment  may  be  delayed  or  suspended.  For  accounts
registered  in the name of a  broker-dealer,  payment will normally be forwarded
within three business days after redemption. 
         |X| The Transfer  Agent may delay  forwarding  a check or  processing a
payment  via  AccountLink  for  recently  purchased  shares,  but only until the
purchase payment has cleared. That delay may be as much as 10 days from the date
the shares were  purchased.  That delay may be avoided if you purchase shares by
Federal  Funds wire or  certified  check,  or arrange  with your bank to provide
telephone or written  assurance to the Transfer Agent that your purchase payment
has cleared. 

         |X|  Involuntary  redemptions of small accounts may be made by the Fund
if the account  value has fallen below $200 for reasons other than the fact that
the market value of shares has dropped.  In some cases  involuntary  redemptions
may be made to repay the Distributor  for losses from the  cancellation of share
purchase orders.

         |X| Shares may be "redeemed in kind" under unusual  circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions).  This means
that the  redemption  proceeds  will be paid  with  securities  from the  Fund's
portfolio.

         |X| "Backup  Withholding"  of Federal income tax may be applied against
taxable dividends,  distributions and redemption proceeds (including  exchanges)
if you fail to furnish  the Fund your  correct,  certified  Social  Security  or
Employer  Identification  Number  when  you  sign  your  application,  or if you
under-report your income to the Internal Revenue Service.

         |X| To avoid sending  duplicate copies of materials to households,  the
Fund  will  mail  only  one  copy of  each  annual  and  semi-annual  report  to
shareholders  having  the same  last name and  address  on the  Fund's  records.
However,  each shareholder may call the Transfer Agent at  1-800-525-7048 to ask
that copies of those materials be sent personally to that shareholder.

Dividends, Capital Gains and Taxes


Dividends.  The Fund intends to declare  dividends  separately for each class of
shares from net investment  income on each regular business day and to pay those
dividends to  shareholders  monthly on a date selected by the Board of Trustees.
Daily  dividends  will not be declared or paid on  newly-purchased  shares until
Federal  Funds are  available  to the Fund  from the  purchase  payment  for the
shares.


         The Fund  attempts  to pay  dividends  on Class A shares at a  constant
level.  There  is no  assurance  that it will be  able to do so.  The  Board  of
Trustees may change the targeted  dividend rate at any time without prior notice
to shareholders.  Additionally,  the amount of those dividends and the dividends
paid on Class B and  Class C shares  may vary  over  time,  depending  on market
conditions,  the composition of the Fund's portfolio,  and expenses borne by the
particular class of shares.  Dividends and distributions  paid on Class A shares
will  generally be higher than  dividends for Class B and Class C shares,  which
normally have higher  expenses than Class A. The Fund cannot  guarantee  that it
will pay any dividends or distributions. 

Capital  Gains.  The Fund may  realize  capital  gains on the sale of  portfolio
securities.  If it does, it may make  distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions  of dividends  and capital  gains  following the end of its fiscal
year.  There  can be no  assurance  that the Fund  will  pay any  capital  gains
distributions in a particular year.

What Choices Do I Have for Receiving Distributions?  When you open your account,
specify  on  your  application  how you  want  to  receive  your  dividends  and
distributions. You have four options:

     |X| Reinvest All  Distributions  in the Fund. You can elect to reinvest all
dividends and long-term capital gains  distributions in additional shares of the
Fund.

         |X| Reinvest  Long-Term  Capital Gains Only.  You can elect to reinvest
long-term capital gains  distributions in the Fund while receiving  dividends by
check or having them sent to your bank account through AccountLink.

         |X| Receive All Distributions in Cash. You can elect to receive a check
for all dividends and long-term capital gains distributions or have them sent to
your bank through AccountLink.

     |X| Reinvest Your Distributions in Another  OppenheimerFunds  Account.  You
can  reinvest  all  distributions  in  the  same  class  of  shares  of  another
OppenheimerFunds account you have established.

Taxes.  If your shares are not held in a tax-deferred  retirement  account,  you
should be aware of the  following  tax  implications  of  investing in the Fund.
Distributions  are subject to federal  income tax and may be subject to state or
local taxes.  Dividends  paid from  short-term  capital gains and net investment
income are taxable as ordinary  income.  Long-term  capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your  shares.  Whether you  reinvest  your  distributions  in
additional shares or take them in cash, the tax treatment is the same.

         If  more  than  50%  of the  Fund's  assets  are  invested  in  foreign
securities at the end of any fiscal year,  the Fund may elect under the Internal
Revenue  Code to  permit  shareholders  to take a credit or  deduction  on their
federal income tax returns for foreign taxes paid by the Fund.


         Every year the Fund will send you and the IRS a  statement  showing the
amount of any taxable  distribution  you  received  in the  previous  year.  Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year. 

         |X| Avoid "Buying a Dividend".  If you buy shares on or just before the
Fund declares a capital gain  distribution,  you will pay the full price for the
shares and then receive a portion of the price back as a taxable capital gain.

         |X| Remember,  There Can be Taxes on  Transactions.  Because the Fund's
share  price  fluctuates,  you may have a capital  gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between the price
you paid for the  shares  and the price you  received  when you sold  them.  Any
capital gain is subject to capital gains tax.

     |X| Returns of Capital Can Occur. In certain cases,  distributions  made by
the Fund may be considered a non-taxable  return of capital to shareholders.  If
that occurs, it will be identified in notices to shareholders.

         This  information is only a summary of certain  federal tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.





Financial Highlights

The Financial  Highlights  Table is presented to help you  understand the Fund's
financial  performance for the fiscal years since the Fund's inception.  Certain
information  reflects  financial  results  for a single  Fund  share.  The total
returns in the table  represent the rate that an investor  would have earned [or
lost] on an investment in the Fund (assuming  reinvestment  of all dividends and
distributions).  This information has been audited by Deloitte & Touche LLP, the
Fund's  independent  auditors,  whose  report,  along with the Fund's  financial
statements,  is included in the  Statement of Additional  Information,  which is
available on request.




Financial Highlights



                                                    Class A                                                     
                                                    ------------------------------------------------------
                                                    Year Ended September 30,                  
                                                         1998             1997          1996          1995(1)      
==========================================================================================================
                                                                                                 
Per Share Operating Data
Net asset value, beginning of period                    $5.51            $5.49         $5.10         $5.00      
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                     .56              .52           .52           .15      
Net realized and unrealized gain (loss)                 (1.20)             .08           .40           .10      
                                                        -----            -----         -----         -----      
Total income (loss) from investment operations           (.64)             .60           .92           .25      
- ----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income                     (.53)            (.53)         (.53)         (.15)     
Distributions from net realized gain                     (.02)            (.05)           --            --      
                                                        -----            -----         -----         -----      
Total dividends and distributions to shareholders        (.55)            (.58)         (.53)         (.15)     
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period                          $4.32            $5.51         $5.49         $5.10      
                                                        =====            =====         =====         =====      
==========================================================================================================
Total Return, at Net Asset Value(2)                    (12.50)%          11.33%        18.82%         5.13%     

==========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands)             $ 97,404         $114,847       $52,128        $3,984      
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                    $108,264         $ 89,112       $19,817        $2,566      
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income                                   11.09%            9.24%         9.60%         9.94%(3)  
Expenses, before voluntary
reimbursement by the Manager                             1.24%            1.28%         1.59%         1.59%(3)  
Expenses, net of voluntary
reimbursement by the Manager                              N/A              N/A          1.49%         0.41%(3)  
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4)                              446.1%           280.1%        273.3%        122.0%     


1. For the period from June 15, 1995  (commencement  of operations) to September
30, 1995.

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

3. Annualized.

4. 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 September 30, 1998 were $866,084,106 and $851,580,023, respectively.


                                                                               1


Financial Highlights
(continued)

                                          
                                        
                                                  Class B                                                         
                                                  -------------------------------------------------------
                                                  Year Ended September 30,                    
                                                        1998             1997          1996          1995(1)         
=========================================================================================================
                                                                                                   
Per Share Operating Data                                                                                          
Net asset value, beginning of period                   $5.50            $5.48         $5.10         $5.00         
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:                                                                         
Net investment income                                    .52              .48           .48           .14         
Net realized and unrealized gain (loss)                (1.20)             .07           .39           .10         
                                                       -----            -----         -----         -----         
Total income (loss) from investment operations          (.68)             .55           .87           .24         
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:                                                                      
Dividends from net investment income                    (.49)            (.48)         (.49)         (.14)        
Distributions from net realized gain                    (.02)            (.05)           --            --         
                                                       -----            -----         -----         -----         
Total dividends and distributions to shareholders       (.51)            (.53)         (.49)         (.14)        
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $4.31            $5.50         $5.48         $5.10         
                                                       =====            =====         =====         =====         
=========================================================================================================
Total Return, at Net Asset Value(2)                   (13.16)%          10.52%        17.71%         4.92%        

=========================================================================================================
Ratios/Supplemental Data                                                                                          
Net assets, end of period (in thousands)            $119,998         $122,874       $45,207        $3,238         
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                   $128,789         $ 87,557       $17,891        $1,125         
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:                                                                                     
Net investment income                                  10.33%            8.57%         8.81%         9.20%(3)     
Expenses, before voluntary                                                                                        
reimbursement by the Manager                            2.00%            2.04%         2.36%         2.21%(3)     
Expenses, net of voluntary                                                                                        
reimbursement by the Manager                             N/A              N/A          2.26%         0.89%(3)     
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4)                             446.1%           280.1%        273.3%        122.0%        
                                         

1. For the period from June 15, 1995  (commencement  of operations) to September
30, 1995.

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

3. Annualized.

4. 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 September 30, 1998 were $866,084,106 and $851,580,023, respectively.


2


Financial Highlights
(continued)

                                          
                                        
                                                     Class C                                                   
                                                     -----------------------------------------------------     
                                                     Year Ended September 30,                
                                                         1998             1997          1996          1995(1)    
==========================================================================================================     
                                                                                               
Per Share Operating Data                                                                                       
Net asset value, beginning of period                    $5.50            $5.48         $5.09         $5.00     
- ----------------------------------------------------------------------------------------------------------     
Income (loss) from investment operations:                                                                      
Net investment income                                     .52              .48           .48           .14     
Net realized and unrealized gain (loss)                 (1.20)             .07           .39           .09     
                                                        -----            -----         -----         -----     
Total income (loss) from investment operations           (.68)             .55           .87           .23     
- ----------------------------------------------------------------------------------------------------------     
Dividends and distributions to shareholders:                                                                   
Dividends from net investment income                     (.49)            (.48)         (.48)         (.14)    
Distributions from net realized gain                     (.02)            (.05)           --            --     
                                                        -----            -----         -----         -----     
Total dividends and distributions to shareholders        (.51)            (.53)         (.48)         (.14)    
- ----------------------------------------------------------------------------------------------------------     
Net asset value, end of period                          $4.31            $5.50         $5.48         $5.09     
                                                        =====            =====         =====         =====     
==========================================================================================================     
Total Return, at Net Asset Value(2)                    (13.16)%          10.52%        17.92%         4.73%    

==========================================================================================================     
Ratios/Supplemental Data                                                                                       
Net assets, end of period (in thousands)              $27,636          $28,684       $10,282          $201     
- ----------------------------------------------------------------------------------------------------------     
Average net assets (in thousands)                     $29,336          $19,883       $ 4,039          $ 97     
- ----------------------------------------------------------------------------------------------------------     
Ratios to average net assets:                                                                                  
Net investment income                                   10.33%            8.62%         8.76%         9.36%(3) 
Expenses, before voluntary                                                                                     
reimbursement by the Manager                             2.00%            2.04%         2.36%         2.26%(3) 
Expenses, net of voluntary                                                                                     
reimbursement by the Manager                              N/A              N/A          2.25%         0.85%(3) 
- ----------------------------------------------------------------------------------------------------------     
Portfolio turnover rate(4)                              446.1%           280.1%        273.3%        122.0%    
                                             

1. For the period from June 15, 1995  (commencement  of operations) to September
30, 1995.

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

3. Annualized.

4. 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 September 30, 1998 were $866,084,106 and $851,580,023, respectively.


                                                                               3





For More  Information  on  Oppenheimer  International  Bond Fund:  The following
additional information about the Fund is available without charge upon request:

Statement of Additional Information
This  document  includes  additional  information  about the  Fund's  investment
policies,  risks,  and  operations.  It is  incorporated  by reference into this
Prospectus (which means it is legally part of this Prospectus).

Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders.  The Annual Report
includes a  discussion  of market  conditions  and  investment  strategies  that
significantly affected the Fund's performance during its last fiscal year.




How to Get More Information:



You can  request  the  Statement  of  Additional  Information,  the  Annual  and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048

By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

On the Internet:
You  can  read  or  down-load  documents  on  the   OppenheimerFunds  web  site:
http://www.oppenheimerfunds.com  You can also obtain  copies of the Statement of
Additional  Information  and other Fund  documents  and reports by visiting  the
SEC's Public Reference Room in Washington,  D.C. (Phone  1-800-SEC-0330)  or the
SEC's  Internet  web site at  http://www.sec.gov.  Copies may be  obtained  upon
payment of a duplicating fee by writing to the SEC's Public  Reference  Section,
Washington, D.C.
20549-6009.

No one has been authorized to provide any information  about the Fund or to make
any  representations  about  the  Fund  other  than  what is  contained  in this
Prospectus.  This  Prospectus is not an offer to sell shares of the Fund,  nor a
solicitation  of an offer to buy shares of the Fund,  to any person in any state
or other jurisdiction where it is unlawful to make such an offer.

The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.

SEC File No. 811-07255
PR0880.001.0199 Printed on recycled paper.





                            Appendix to Prospectus of
                       Oppenheimer International Bond Fund


     Graphic  material  included in the Prospectus of Oppenheimer  International
Bond: "Annual Total Return (Class A) (% as of 12/31 each year)":

         A  bar  chart  will  be  included  in  the  Prospectus  of  Oppenheimer
International  Bond Fund Fund (the "Fund") depicting the annual total returns of
a hypothetical  $10,000 investment in Class A shares of the Fund for each of the
three most recent calendar  years,  without  deducting sales charges.  Set forth
below is the relevant data point that will appear on the bar chart:

Calendar Oppenheimer
Year                                  International Bond Fund
Ended                                 Class A Shares

12/31/96                                  19.29%
12/31/97                                   2.46%
12/31/98                                  -4.36%



Oppenheimer International Bond Fund

6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048

Statement of Additional Information dated January 29, 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 January 29, 1999. It should be read together
with the  Prospectus.  You can  obtain the  Prospectus  by writing to the Fund's
Transfer Agent,  OppenheimerFunds  Services, at P.O. Box 5270, Denver,  Colorado
80217, or by calling the Transfer Agent at the toll-free  number shown above, or
by   downloading   it  from   the   OppenheimerFunds   Internet   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........................  7
     Investment Restrictions...........................................  28
How the Fund is Managed ...............................................  30
     Organization and History..........................................  30
     Trustees and Officers.............................................  31
     The Manager.......................................................  36
Brokerage Policies of the Fund.........................................  37
Distribution and Service Plans.........................................  39
Performance of the Fund...............................................   43

About Your Account
How To Buy Shares......................................................  48
How To Sell Shares.....................................................  57
How To Exchange Shares.................................................  62
Dividends, Capital Gains and Taxes.....................................  65
Additional Information About the Fund..................................  67

Financial Information About the Fund
Independent Auditors' Report........................................... 68
Financial Statements................................................... 69
Ratings Definitions ..................................................  A-1
Appendix B: Industry Classifications..................................  B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............  C-1






ABOUT THE FUND


Additional Information About the Fund's Investment Policies and Risks

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


The Fund's Investment Policies.  The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager 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 at all times in seeking its
goal. It may use some of the special  investment  techniques  and  strategies at
some times or not at all. 

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

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

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


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


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

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

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

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

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


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


     o fluctuation  in value of foreign  investments  due to changes in currency
     rates 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
and Canada,  Australia,  New Zealand and Japan. There may be even less liquidity
in  their  securities  markets,  and  settlements  of  purchases  and  sales  of
securities  may be subject to  additional  delays.  They are  subject to greater
risks of  limitations  on the  repatriation  of income  and  profits  because of
currency restrictions imposed by local governments.  Those countries may also be
subject to the risk of greater  political  and economic  instability,  which can
greatly  affect the volatility of prices of securities in those  countries.  The
Manager will consider these factors when evaluating securities in these markets,
because the selection of those  securities  must be  consistent  with the Fund's
goal of preservation of principal. 


            |_|  Risks of  Conversion  to  Euro.  On  January  1,  1999,  eleven
countries  in the  European  Union  have  adopted  the  euro as  their  official
currency.  However,  their current currencies (for example, the franc, the mark,
and the lire) 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  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.

     |X| Debt Securities. The Fund can invest in a variety of debt securities to
seek its objectives. Foreign debt securities are subject to the risks of foreign
securities described above. In general,  debt securities are also subject to two
additional types of risk: credit risk and interest rate risk.

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

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

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

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

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

                  |_|  Special  Risks of  Lower-Grade  Securities.  The Fund can
invest without limit in lower-grade debt securities,  if the Manager believes it
is consistent with the Fund's objectives. Because lower-rated securities tend to
offer higher yields than  investment  grade  securities,  the Fund may invest in
lower grade  securities if the Manager is trying to achieve greater  income.  In
some cases,  the appreciation  possibilities of lower-grade  securities may be a
reason they are selected for the Fund's  portfolio.  However,  these investments
will be made only when consistent with the Fund's overall goal of total return.

         "Lower-grade"  debt securities are those rated below "investment grade"
which  means they have a rating  lower than "Baa" by Moody's or lower than "BBB"
by  Standard  & Poor's or Duff & Phelps,  or  similar  ratings  by other  rating
organizations.  If they are unrated,  and are determined by the Manager to be of
comparable  quality to debt securities  rated below investment  grade,  they are
considered part of the Fund's portfolio of lower-grade securities.  The Fund can
invest in  securities  rated as low as "C" or "D" or which may be in  default at
the time the Fund buys them.

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

         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.  A description of the debt security  ratings  categories of the
principal  rating  organizations  is included in Appendix A to this Statement of
Additional Information.

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

         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.


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

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

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

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

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

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

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

     |_| Mortgage-Related U.S. Government Securities. These include interests in
pools of  residential  or commercial  mortgages,  in the form of  collateralized
mortgage obligations ("CMOs") and other "pass-through" mortgage securities. CMOs
that are U.S.  government  securities  have  collateral  to  secure  payment  of
interest and  principal.  They may be issued in different  series with different
interest rates and maturities.  The collateral is either in the form of mortgage
pass-through   certificates   issued  or   guaranteed   by  a  U.S.   agency  or
instrumentality or mortgage loans insured by a U.S.  government agency. The Fund
can have  significant  amounts of its assets  invested in mortgage  related U.S.
government securities.

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

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


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


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

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

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

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

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

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

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

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

         When such  transactions  are negotiated,  the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made.  Delivery
and payment for the securities take place at a later date  (generally  within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement.  The value at
delivery may be less than the purchase price.  For example,  changes in interest
rates in a direction  other than that expected by the Manager before  settlement
will  affect  the  value of such  securities  and may  cause a loss to the Fund.
During the period  between  purchase and  settlement,  no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.

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

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

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


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

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

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

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

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

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

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


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

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

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

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

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

         The Fund will only enter  into  "covered"  rolls.  To assure its future
payment of the purchase  price,  the Fund will identify on its books cash,  U.S.
government  securities or other high-grade debt securities in an amount equal to
the payment obligation under the roll.

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


         |X| Investments in Equity  Securities.  Under normal market  conditions
the Fund can  invest  up to 35% of its  assets  in  securities  other  than debt
securities,  including  equity  securities  of both foreign and U.S.  companies.
However, it does not anticipate  investing  significant amounts of its assets in
these securities as part of its normal  investment  strategy.  Equity securities
include common stocks,  preferred  stocks,  rights and warrants,  and securities
convertible  into common stock.  The Fund's  investments  can include  stocks of
companies  in any market  capitalization  range,  if the  Manager  believes  the
investment is consistent with the Fund's  objectives of total return and income.
Certain  equity  securities  may be  selected  not only for  their  appreciation
possibilities but because they may provide dividend income.

                  |_| Risks of Investing in Stocks.  Stocks  fluctuate in price,
and their  short-term  volatility at times may be great.  To the extent that the
Fund invests in equity  securities,  the value of the Fund's  portfolio  will be
affected by changes in the stock markets.  Market risk can affect the Fund's net
asset  value per  share,  which  will  fluctuate  as the  values  of the  Fund's
portfolio  securities change. The prices of individual stocks do not all move in
the same direction  uniformly or at the same time.  Different  stock markets may
behave differently from each other.

         Other  factors  can affect a  particular  stock's  price,  such as poor
earnings  reports  by the  issuer,  loss of major  customers,  major  litigation
against the issuer, or changes in government regulations affecting the issuer or
its industry.  The Fund can invest in securities of large companies and mid-size
companies,  but may also buy  stocks  of small  companies,  which  may have more
volatile stock prices than large companies.

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

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

          (1) whether, at the option of the investor,  the convertible  security
          can be  exchanged  for a fixed number of shares of common stock of the
          issuer,

          (2) whether the issuer of the convertible  securities has restated its
          earnings  per  share  of  common  stock  on  a  fully   diluted  basis
          (considering the effect of conversion of the convertible  securities),
          and

          (3) the extent to which the  convertible  security  may be a defensive
          "equity  substitute,"  providing  the  ability to  participate  in any
          appreciation in the price of the issuer's common stock.

                  |_| Rights and  Warrants.  The Fund may invest up to 5% of its
total  assets in warrants or rights.  That limit does not apply to warrants  and
rights the Fund has acquired as part of units of securities or that are attached
to other  securities  that the Fund buys.  The Fund does not expect that it will
have significant investments in warrants and rights.

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

         |X| Loans of Portfolio Securities. To raise cash for liquidity purposes
or income,  the Fund can lend its portfolio  securities to brokers,  dealers and
other types of financial  institutions approved by the Fund's Board of Trustees.
These  loans are  limited  to not more than 25% of the value of the  Fund's  net
assets.  The Fund  currently does not intend to engage in loans of securities in
the coming year,  but if it does so, such loans will not likely exceed 5% 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 if the borrower defaults.  The Fund
must  receive  collateral  for  a  loan.  Under  current  applicable  regulatory
requirements  (which  are  subject to  change),  on each  business  day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash,  bank letters of credit,  securities of the U.S.  Government or
its agencies or  instrumentalities,  or other cash equivalents in which the Fund
is permitted to invest.  To be acceptable as collateral,  letters of credit must
obligate a bank to pay  amounts  demanded  by the Fund if the  demand  meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.

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


         |X| Borrowing  for  Leverage.  The Fund has the ability to borrow up to
one third of the value of its net  assets  from banks on an  unsecured  basis to
invest the borrowed funds in portfolio securities. This speculative technique is
known  as  "leverage."  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
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more  than  that of funds  that do not  borrow.  Currently,  the  Fund  does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.

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

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

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

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

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

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

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

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

         |X| Hedging. Although the Fund does not anticipate the extensive use of
hedging instruments,  the Fund can use hedging instruments.  It is not obligated
to use them in seeking its objective.  To attempt to protect against declines in
the  market  value  of the  Fund's  portfolio,  to  permit  the  Fund to  retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons, the Fund could:
         |_|    sell futures contracts,
         |_| buy puts on such futures or on securities, or
         |_| write covered  calls on  securities  or futures.  Covered calls may
         also be used to increase  the Fund's  income,  but the Manager does not
         expect to engage extensively in that practice.

         The Fund can use  hedging  to  estalish a  position  in the  securities
market as a temporary substitute for purchasing particular  securities.  In that
case the Fund wouldl 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  bond or stock  indices  (these are  referred to as
          "financial futures"),

          (2) commodities (these are referred to as "commodity futures"),

          (3)  debt  securities   (these  are  referred  to  as  "interest  rate
          futures"), and

          (4) foreign currencies (these are referred to as "forward contracts").

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

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

         The Fund can  invests 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  are  effected  through a
clearinghouse associated with the exchange on which the contracts are traded.

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

                  |_| Writing Covered Call Options. The Fund may write (that is,
sell) covered calls. If the Fund sells a call option,  it must be covered.  That
means  the Fund  must own the  security  subject  to the call  while the call is
outstanding,  or,  for  certain  types of  calls,  the call  may be  covered  by
segregating  liquid assets to enable the Fund to satisfy its  obligations if the
call is exercised.  Up to 50% of the Fund's total assets may be subject to calls
the Fund writes.

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


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


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


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

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

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

                  |_|  Writing  Put  Options.  The Fund can sell put  options on
securities,  broadly-based securities indices, foreign currencies and futures. A
put option on securities  gives the purchaser the right to sell,  and the writer
the  obligation to buy, the  underlying  investment at the exercise price during
the option period.  The Fund will not write puts if, as a result,  more than 50%
of the Fund's net assets  would be required to be  segregated  to cover such put
options.

         If the Fund writes a put, the put must be covered by segregated  liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the  underlying  investment  remains  equal to or above the
exercise price of the put. However,  the Fund also assumes the obligation during
the option period to buy the underlying  investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price.

         If a put the Fund has written expires unexercised,  the Fund realizes a
gain in the amount of the premium less the transaction  costs  incurred.  If the
put is  exercised,  the  Fund  must  fulfill  its  obligation  to  purchase  the
underlying  investment at the exercise price. That price will usually exceed the
market value of the  investment at that time. In that case, the Fund may incur a
loss if it sells the underlying  investment.  That loss will be equal to the sum
of the sale price of the underlying  investment  and the premium  received minus
the sum of the exercise price and any transaction costs the Fund incurred.

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

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

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

                  |_|  Purchasing  Calls and Puts.  The Fund can purchase  calls
only on securities,  broadly-based  securities  indices,  foreign currencies and
futures.  It may do so to  protect  against  the  possibility  that  the  Fund's
portfolio will not participate in an anticipated rise in the securities  market.
When the Fund buys a call (other  than in a closing  purchase  transaction),  it
pays a  premium.  The Fund then has the right to buy the  underlying  investment
from a seller of a  corresponding  call on the same  investment  during the call
period at a fixed exercise price.

         The Fund  benefits  only if it sells the call at a profit or if, during
the call period, the market price of the underlying  investment is above the sum
of the call price plus the  transaction  costs and the premium paid for the call
and the Fund  exercises the call. If the Fund does not exercise the call or sell
it  (whether  or not  at a  profit),  the  call  will  become  worthless  at its
expiration  date.  In that case the Fund will have paid the premium but lost the
right to purchase the underlying investment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         The Fund can use  hedging  instruments  to  establish a position in the
securities  markets as a temporary  substitute  for the  purchase of  individual
securities  (long  hedging)  by buying  futures  and/or  calls on such  futures,
broadly-based  indices or on securities.  It is possible that when the Fund does
so the  market  might  decline.  If the Fund  then  concludes  not to  invest in
securities  because of concerns  that the market  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  might  enter  into a  forward  contract  for the
purchase or sale of the amount of foreign  currency  involved in the  underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a  "transaction  hedge." The  transaction  hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period  between the date on which the  security is  purchased  or sold or on
which the payment is  declared,  and the date on which the  payments are made or
received.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


         |_|  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,  Sction 1256
contracts   held  by  the   Fund  at  the  end  of   each   taxable   year   are
"marked-to-market,"  and  unrealized  gains or losses are treated as though they
were  realized.  These  contracts also may be  marked-to-market  for purposes of
determining the excise tax applicable to investment  company  distributions  and
for other purposes under rules prescribed pursuant to the Internal Revenue Code.
An  election  can be made by the Fund to  exempt  those  transactions  from this
marked-to-market treatment.

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

         Under the Internal  Revenue  Code,  the  following  gains or losses are
treated as ordinary income or loss:

(1)           gains or losses  attributable  to  fluctuations  in exchange rates
              that occur  between  the time the Fund  accrues  interest or other
              receivables or accrues expenses or other  liabilities  denominated
              in a foreign currency and the time the Fund actually collects such
              receivables or pays such liabilities, and
(2)           gains or losses  attributable  to  fluctuations  in the value of a
              foreign  currency  between  the  date  of  acquisition  of a  debt
              security  denominated  in a foreign  currency or foreign  currency
              forward contracts and the date of disposition.

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

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

     |_|  obligations  issued  or  guaranteed  by the U.  S.  government  or its
instrumentalities or agencies,

     |_| commercial paper (short-term,  unsecured,  promissory notes of domestic
or foreign companies) rated in the three top rating

     categories of a nationally  recognized rating organization,  |_| short-term
debt  obligations of corporate  issuers,  rated investment grade (rated at least
Baa by Moody's  Investors  Service,  Inc.  or at least BBB by  Standard & Poor's
Corporation, or a comparable rating by another rating organization),  or unrated
securities  judged  by  the  Manager  to  have a  comparable  quality  to  rated
securities in those categories,

     |_|  certificates  of deposit and  bankers'  acceptances  of  domestic  and
foreign banks having total assets in excess of $1 billion, and

     |_| repurchase agreements.

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

                  Investment Restrictions


         |X| What Are  "Fundamental  Policies?"  Fundamental  policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's  outstanding  voting  securities.
Under the  Investment  Company Act, a "majority"  vote is defined as the vote of
the holders of the lesser of:

     |_| 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 Trustees
can change  non-fundamental  policies  without  shareholder  approval.  However,
significant  changes to investment  policies will be described in supplements or
updates to the  Prospectus  or this  Statement  of  Additional  Information,  as
appropriate.  The Fund's most significant  investment  policies are described in
the Prospectus.

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

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

         |_|  The  Fund  cannot  lend  money.  However,  it can  invest  in debt
securities  and enter into  delayed-delivery  or  when-issued  transactions  and
forward  rolls or similar  securities  transactions.  The Fund may also lend its
portfolio securities and may enter into repurchase agreements.

         |_| The Fund  cannot  buy or sell real  estate.  However,  the Fund can
purchase debt  securities  secured by real estate or interests in real estate or
issued by companies,  including real estate investment  trusts,  which invest in
real estate or interests in real estate.

         |_| 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 in the securities  issued by any company for
the  purpose  of  exercising  management  control  of that  company,  except  in
connection  with a  merger,  consolidation,  reorganization  or  acquisition  of
assets.

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

         |_| The Fund cannot mortgage, pledge or otherwise encumber, transfer or
assign any of its assets to secure a debt.  However,  this does not prohibit the
Fund from  segregating  its assets for premium and margin payments in connection
with any of the hedging instruments it uses.

         |_| The Fund cannot buy  securities  on margin.  However,  the Fund can
make margin deposits in connection with its use of hedging instruments.

         |_| The Fund cannot invest in oil, gas or other mineral  exploration or
development programs or leases.


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


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

         The Fund cannot  concentrate  investments.  That means it cannot invest
25% or more of its total  assets in any one  industry.  The Fund will not invest
25% or more of its total  assets in  government  securities  of any one  foreign
company or in debt and equity securities issued by companies organized under the
laws of any  one  foreign  country.  Obligations  of the  U.S.  government,  its
agencies and  instrumentalities  are not  considered to be part of an "industry"
for the  purposes  of this  policy.  For  purposes  of the Fund's  policy not to
concentrate its investments,  the Fund has adopted the industry  classifications
set forth in Appendix B to this Statement of Additional Information. This is not
a fundamental policy.

How the Fund is Managed

Organization  and  History.  The  Fund is an  open-end,  diversified  management
investment  company with an unlimited number of authorized  shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in 1995.

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

         |X|  Classes of Shares.  The Board of Trustees  has the power,  without
shareholder  approval,  to divide  unissued  shares of the Fund into two or more
classes.  The Board has done so,  and the Fund  currently  has three  classes of
shares: Class A, Class B, and Class C. All classes invest in the same investment
portfolio.  Each class of shares: o has its own dividends and  distributions,

          o pays  certain  expenses  which may be  different  for the  different
          classes,

          o may have a different  net asset value, 

          o may have separate voting rights on matters in which interests of one
          class are different from interests of another class, and

          o votes as a class on matters that affect that class alone.

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

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

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

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

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

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

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






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

      Ms. Macaskill and Messrs. Swain, Bishop, Bowen, Donohue,  Farrar and Zack,
who are officers of the Fund,  respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of January 4, 1999, the Trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
The foregoing  statement  does not reflect  shares held of record by an employee
benefit plan for employees of the Manager other than shares  beneficially  owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue, are trustees of that plan.


Robert G. Avis,* Trustee; Age: 67
One North Jefferson Ave., St. Louis, Missouri 63103
          Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer)  and A.G.
          Edwards,  Inc. (its parent holding company);  Chairman of A.G.E. Asset
          Management and A.G.  Edwards Trust Company (its affiliated  investment
          adviser and trust company, respectively).


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


          George C. Bowen,* Vice President,  Assistant Secretary,  Treasurer and
          Trustee;  Age: 62 6803 South  Tucson Way,  Englewood,  Colorado  80112
          Senior Vice  President  (since  September  1987) and Treasurer  (since
          March  1985) of the  Manager;  Vice  President  (since  June 1983) and
          Treasurer (since March 1985) of the Distributor; Vice President (since
          October 1989) and Treasurer  (since April 1986) of  HarbourView  Asset
          Management  Corp.,  an investment  adviser  subsidiary of the Manager;
          Senior Vice President  (since  February 1992),  Treasurer  (since July
          1991)  and a  director  (since  December  1991)  of  Centennial  Asset
          Management  Corporation,  an  investment  adviser  subsidiary  of  the
          Manager;   Vice  President  and  Treasurer  (since  August  1978)  and
          Secretary (since April 1981) of Shareholder  Services Inc., a transfer
          agent  subsidiary  of  the  Manager;  Vice  President,  Treasurer  and
          Secretary  (since  November 1989) of Shareholder  Financial  Services,
          Inc., a transfer agent subsidiary of the Manager;  Assistant Treasurer
          (since  March  1998) of  Oppenheimer  Acquisition  Corp.,  the  parent
          company of the Manager; Treasurer of Oppenheimer Partnership Holdings,
          Inc.  (since   November   1989);   Vice  President  and  Treasurer  of
          Oppenheimer  Real  Asset  Management,   Inc.  (since  July  1996),  an
          investment  adviser  subsidiary  of the  Manager;  an officer of other
          Oppenheimer  funds;  formerly  Treasurer  (June  1990-  March 1998) of
          Oppenheimer Acquisition Corp.

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

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

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

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

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

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

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

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


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


Ashwin Vasan, Vice President and Portfolio Manager, Age: 36
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Vice President of the Manager (since July 1993); an officer of other Oppenheimer
funds;  previously a securities  analyst for the Manager  (from  January 1992 to
July 1993).


Andrew J. Donohue, Vice President and Secretary; Age: 48
Two World Trade Center, 34th Floor, New York, New York 10048
Executive Vice President  (since January 1993),  General  Counsel (since October
1991) and a Director  (since  September  1995) of the  Manager;  Executive  Vice
President  (since  September  1993) and a director  (since  January 1992) of the
Distributor;  Executive  Vice  President,  General  Counsel  and a  director  of
HarbourView  Asset Management Corp.,  Shareholder  Services,  Inc.,  Shareholder
Financial  Services,  Inc. and  Oppenheimer  Partnership  Holdings,  Inc. (since
September  1995);  President and a director of Centennial Asset Management Corp.
(since  September  1995);  President  and a director of  Oppenheimer  Real Asset
Management,  Inc.  (since  July  1996);  General  Counsel  (since  May 1996) and
Secretary (since April 1997) of Oppenheimer  Acquisition  Corp.;  Vice President
and a Director of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.


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


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

      |X| Remuneration of Trustees.  The officers of the Fund and three Trustees
of the Fund (Ms. Macaskill and Messrs.  Bowen and Swain) are affiliated with the
Manager and receive no salary or fee from the Fund.  The  remaining  Trustees of
the Fund received the compensation  shown below. The compensation  from the Fund
was paid during its fiscal year ended September 30, 1998. The compensation  from
all of the Denver-based  Oppenheimer  funds includes the  compensation  from the
Fund and  represents  compensation  received  as a director,  trustee,  managing
general  partner or member of a committee of the Board during the calendar  year
1998.




                                                                   Total Compensation
Trustee's Name and Other Positions     Aggregate Compensation       From all Denver-Based
                                       from Fund                    Oppenheimer Funds(1)
                                                              

Robert G. Avis                         $234                         $67,998

                                       $252                         $69,998
William A. Baker



Charles Conrad, Jr.                    $242                         $67,998


Jon. S. Fossel                         $233                         $67,496.04


Sam Freedman
Audit and Review Committee Member      $253                          $73,998


Raymond J. Kalinowski
Audit and Review Committee Member
                                       $257                         $73,998

C. Howard Kast
Audit and Review Committee Chairman
                                       $269                         $76,998

Robert M. Kirchner                     $242                         $67,998


Ned M. Steel                           $234                         $67,998



1.       For the 1998 calendar year.

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

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

         |X| Major  Shareholders.  As of January 4, 1999,  the only  persons who
owned of record or were known by the Fund to own  beneficially 5% or more of the
Fund's  outstanding  securities of any class were the following:  Merrill Lynch,
Pierce & Smith, 4800 Deer Lake Drive, E., Floor 3, Jacksonville,  Florida 32246,
which  owned  1,799,870.526  Class B shares  (6.35% of the  Class B shares  then
outstanding)  and 871,868.952  Class C shares (13.22% of the Class C 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 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.

      |X| The Investment  Advisory  Agreement.  The Manager provides  investment
advisory  and  management  services  to the Fund  under an  investment  advisory
agreement  between the Manager and the Fund. The Manager selects  securities for
the Fund's portfolio and handles its day-to-day business.  The portfolio manager
of the Fund is  employed  by the  Manager  and is the person who is  principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed-Income  Portfolio Team,  particularly Arthur P. Steinmetz
and David  Negri,  provide the  portfolio  manager  with  counsel and support in
managing the Fund's portfolio.

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

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



Fiscal Year ended 9/30:          Management Fees Paid to OppenheimerFunds, Inc.

    1996                                       $311,128

    1997                                       $1,465,1811

    1998                                       $1,978,423

          1. After a reduction  in the  management  fee in the amount of $41,927
          pursuant to a voluntary  waiver of expenses by the Manager  that is no
          longer in effect.

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

Brokerage Policies of the Fund

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

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


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

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

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

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

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

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

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

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


Fiscal Year Ended 9/30:         Total Brokerage Commissions Paid by the Fund(1)

     1996                                          $976

     1997                                          $4,969

     1998                                          $31,9912

1. Amounts do not include spreads or concessions on principal  transactions on a
net trade basis.

2.   In the fiscal year ended 9/30/98,  no transactions were directed to brokers
     and no commissions were paid to to broker-dealers for research services.


Distribution and Service Plans

The Distributor.  Under its General  Distributor's  Agreement with the Fund, the
Distributor  acts as the Fund's principal  underwriter in the continuous  public
offering  of the Fund's  different  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 Front-End   Commissions on       Commissions on      Commissions on
Fiscal Year     Front-End Sales     Sales Charges       Class A Shares       Class B Shares      Class C Shares
Ended 9/30:     Charges on Class    Retained by         Advanced by          Advanced by         Advanced by
                A Shares            Distributor         Distributor(1)       Distributor(1)      Distributor(1)
                                                                                  
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1996            $455,830            $126,085             $12,656            $1,115,490           $77,326
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1997           $1,124,978           $273,182             $23,126            $3,225,657           $209,570
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1998            $758,818            $197,195             $45,052            $2,036,881           $145,913
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------


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.





                  Class A Contingent Deferred     Class B Contingent Deferred      Class C Contingent Deferred
Fiscal Year       Sales Charges Retained by       Sales Charges Retained by        Sales Charges Retained by
Ended 9/30        Distributor                     Distributor                      Distributor
                                                                          
1998              $29,873                         $459,667                          $18,589



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

      Each plan has been approved by a vote of the Board of Trustees,  including
a majority of the Independent Trustees3,  cast in person at a meeting called for
the  purpose of voting on that  plan.  Each plan has also been  approved  by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable  class.  The shareholder  votes for the plans were cast by the
Manager as the sole initial holder of each class of shares of the Fund.

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

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

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

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

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

      |_| Class A Service  Plan  Fees.  Under  the  Class A  service  plan,  the
Distributor  currently  uses the fees it receives  from the Fund to pay brokers,
dealers and other financial  institutions (they are referred to as "recipients")
for personal  services and account  maintenance  services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer  inquiries about the Fund,  assisting in  establishing  and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other  services  at the request of the Fund or the  Distributor.  While the plan
permits the Board to authorize  payments to the Distributor to reimburse  itself
for  services  under the plan,  the Board has not yet done so.  The  Distributor
makes  payments  to plan  recipients  quarterly  at an annual rate not to exceed
0.25% of the average annual net assets  consisting of Class A shares held in the
accounts of the recipients or their customers.

      For the fiscal period ended  September 30, 1998 payments under the Class A
Plan totaled  $261,481,  all of which was paid by the Distributor to recipients.
That included $17,549 paid to an affiliate of the Distributor's  parent company.
Any unreimbursed  expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent  years. The Distributor may
not use  payments  received  under the  Class A Plan to pay any of its  interest
expenses, carrying charges, or other financial costs, or allocation of overhead.

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

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

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

      The  asset-based  sales  charges  on  Class  B and  Class C  shares  allow
investors to buy shares  without a front-end  sales  charge  while  allowing the
Distributor  to  compensate  dealers that sell those  shares.  The Fund pays the
asset-based  sales  charges to the  Distributor  for its  services  rendered  in
distributing  Class  B and  Class  C  shares.  The  payments  are  made  to  the
Distributor in recognition that the Distributor:

          o pays sales commissions to authorized brokers and dealers at the time
          of sale  and pays  service  fees as  described  above,  o may  finance
          payment of sales  commissions  and/or the  advance of the  service fee
          payment to recipients  under the plans,  or may provide such financing
          from its own resources or from the resources of an affiliate,

          o employs  personnel  to support  distribution  of Class B and Class C
          shares, and

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

      For the fiscal period ended September 30, 1998, payments under the Class B
plan  totaled  $1,287,968   (including  $5,333  paid  to  an  affiliate  of  the
Distributor's  parent). The Distributor retained $1,121,715 of the total amount.
For the fiscal period ended September 30, 1998,  payments under the Class C plan
totaled  $293,391,  (including  $1,830 paid to an affiliate of the Distributor's
parent). The Distributor retained $193,024 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
September 30, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the  amount  of  $5,581,385  (equal to 4.65% of the  Fund's  net
assets  represented  by Class B shares on that date) and  unreimbursed  expenses
under the Class C plan of  $492,685  (equal to 1.78% of the  Fund's  net  assets
represented by Class C shares on that date).  If either the Class B or the Class
C plan is  terminated  by the Fund,  the Board of Trustees may allow the Fund to
continue  payments  of the  asset-based  sales  charge  to the  Distributor  for
distributing shares before the plan was terminated.

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

Performance of the Fund

Explanation  of  Performance  Terminology.  The Fund uses a variety  of terms to
illustrate its performance.  These terms include "standardized yield," "dividend
yield,"  "average  annual total return,"  "cumulative  total  return,"  "average
annual total return at net asset value" and "total  return at net asset  value."
An  explanation  of how yields and 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).  Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.

         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:

         |_| Yields and 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 its yields 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.


         |_|  Yields  and total  returns  for any given  past  period  represent
historical performance information and are not, and should not be considered,  a
prediction of future yields or 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 yields and
total  returns  of each  class of  shares  of the Fund are  affected  by  market
conditions,  the  quality  of the  Fund's  investments,  the  maturity  of those
investments, the types of investments the Fund holds, and its operating expenses
that are allocated to the particular class.

         |X| Yields.  The Fund uses a variety of different  yields to illustrate
its  current  returns.  Each  class of shares  calculates  its yield  separately
because of the different expenses that affect each class.

                  |_| Standardized  Yield. The  "standardized  yield" (sometimes
referred to just as "yield") is shown for a class of shares for a stated  30-day
period. It is not based on actual distributions paid by the Fund to shareholders
in the 30-day period,  but is a hypothetical yield based upon the net investment
income from the Fund's portfolio  investments for that period.  It may therefore
differ from the "dividend yield" for the same class of shares, described below.

         Standardized  yield is calculated using the following formula set forth
in rules adopted by the Securities and Exchange  Commission,  designed to assure
uniformity in the way that all funds calculate their yields:


         The symbols above represent the following factors:

         a = dividends and interest earned during the 30-day period.

         b = expenses accrued for the period (net of any expense assumptions).

         c     = the average  daily  number of shares of that class  outstanding
               during the 30-day period that were entitled to receive dividends.

         d     = the maximum  offering price per share of that class on the last
               day of the period,  adjusted  for  undistributed  net  investment
               income.

         The standardized  yield for a particular  30-day period may differ from
the yield for other periods. The SEC formula assumes that the standardized yield
for a 30-day  period  occurs at a constant  rate for a  six-month  period and is
annualized at the end of the six-month period. Additionally,  because each class
of shares is subject to different  expenses,  it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.

                  |_| Dividend Yield.  The Fund may quote a "dividend yield" for
each class of its shares.  Dividend  yield is based on the  dividends  paid on a
class of shares during the actual dividend period. To calculate  dividend yield,
the dividends of a class declared during a stated period are added together, and
the sum is  multiplied by 12 (to annualize the yield) and divided by the maximum
offering  price on the last day of the  dividend  period.  The  formula is shown
below:

    Dividend Yield = dividends paid x 12/maximum offering price (payment date)

         The  maximum  offering  price for Class A shares  includes  the current
maximum initial sales charge. The maximum offering price for Class B and Class C
shares is the net asset  value per  share,  without  considering  the  effect of
contingent deferred sales charges. The Class A dividend yield may also be quoted
without deducting the maximum initial sales charge.


                     The Fund's Yields for the 30-Day Periods Ended 9/30/98



                               Standardized Yield             Dividend Yield

   Class of Shares
                    Without    After           Without                After
                    Sales      Sales           Sales                  Sales
                    Charge     Charge          Charge                 Charge

   Class A          13.57%     12.90%          12.15%                 11.56%

   Class B          12.83%     N/A             11.44%                  N/A

   Class C          12.80%     N/A             11.44%                  N/A


         |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 4.75% (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.

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

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


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


                              ERV - P
                              __________ = Total Return
                                 P


                  |_| Total  Returns at Net Asset  Value.  From time to time the
Fund may also quote a cumulative or an average annual total return "at net asset
value" (without deducting sales charges) for 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 9/30/98

               Cumulative Total                   Average Annual Total Returns
Class of       Returns (Life of Class)
Shares

                                                 1-Year        Life-of-Class

               After     Without   After    Without    After     Without
               Sales     Sales     Sales    Sales      Sales     Sales Charge
               Charge    Charge    Charge   Charge     Charge

Class A        15.91%     21.69%   -16.65%  -12.50%    4.59%(1)   6.15%(1)

Class B        15.94%     18.52%   -17.08%  -13.16%    4.59%(2)   5.30%(2)

Class C        18.53%     18.53%   -13.94%  -13.16%    5.30%(3)   5.30%(3)

1.       Inception of Class A:      6/15/95
2.       Inception of Class B:      6/15/95
3.     Inception of Class C:        6/15/95

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

         |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 international  income funds. The Lipper performance  rankings are based on
total returns that include the  reinvestment of capital gain  distributions  and
income  dividends  but do not take sales  charges  or taxes into  consideration.
Lipper also  publishes  "peer-group"  indices of the  performance  of all mutual
funds in a category  that it monitors  and  averages of the  performance  of the
funds in particular categories.

         |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 taxable
bond 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.



ABOUT YOUR ACCOUNT


                  How to Buy Shares

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

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

Reduced Sales Charges.  As discussed in the  Prospectus,  a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation  and Letters
of Intent  because of the  economies of sales  efforts and reduction in expenses
realized by the  Distributor,  dealers and brokers  making such sales.  No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional  Information because the Distributor or dealer or broker
incurs little or no selling expenses.
         |X| Right of Accumulation.  To qualify for the lower sales charge rates
that apply to larger  purchases  of Class A shares,  you and your spouse can add
together:

              |_| Class A and Class B shares you  purchase  for your  individual
                  accounts,  or  for  your  joint  accounts,  or  for  trust  or
                  custodial  accounts on behalf of your children who are minors,
                  and
              |_| 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.

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

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


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

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

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

         A Letter  enables an  investor  to count the Class A and Class B shares
purchased  under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other  Oppenheimer  funds) that applies under
the Right of Accumulation to current purchases of Class A shares.  Each purchase
of Class A shares under the Letter will be made at the 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.

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

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

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

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

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

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

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

Asset Builder Plans.  To establish an Asset Builder Plan to buy shares  directly
from a bank  account,  you must  enclose a check  (minimum  $25) for the initial
purchase with your application.  Shares purchased by Asset Builder Plan payments
from bank  accounts  are  subject  to the  redemption  restrictions  for  recent
purchases  described  in  the  Prospectus.   Asset  Builder  Plans  also  enable
shareholders  of  Oppenheimer  Cash  Reserves to use their fund  account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.


         If you make payments  from your bank account to purchase  shares of the
Fund,  your bank account will be  automatically  debited,  normally four to five
business days prior to the investment dates selected in the Application. Neither
the  Distributor,  the Transfer Agent nor the Fund shall be responsible  for any
delays in purchasing shares resulting from delays in ACH transmissions.

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

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

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

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

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

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

         |X| Class B  Conversion.  The  conversion  of Class B shares to Class A
shares after six years is subject to the  continuing  availability  of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable  event for the  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.  Altough  Class B
shares could then be  exchanged  for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the  shareholder,  and absent
such exchange,  Class B shares might  continue to be subject to the  asset-based
sales charge for longer than six years.

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

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

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

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

         Dealers  other than  Exchange  members may  conduct  trading in certain
securities  on days on which the  Exchange  is closed  (including  weekends  and
holidays)  or after 4:00 P.M. on a regular  business  day.  The Fund's net asset
values  will not be  calculated  on those  days,  and the  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
Manager  determines  that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.

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

          |_|  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  Trustees,  or (2) at the last sale price  obtained by
          the  Manager  from the report of the  principal  exchange on which the
          security  is  traded at its last  trading  session  on or  immediately
          before the  valuation  date,  or (3) at the mean between the "bid" and
          "asked"  prices  obtained  from the  principal  exchange  on which the
          security is traded or, on the basis of  reasonable  inquiry,  from two
          market makers in the security.


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

          (1) debt  instruments  that have a maturity of more than 397 days when
          issued,  (2) debt  instruments that had a maturity of 397 days or less
          when  issued and have a remaining  maturity of more than 60 days,  and
          (3) non-money  market debt instruments that had a maturity of 397 days
          or less when issued and which have a remaining  maturity of 60 days or
          less.

         |_|  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  Trustees.  The pricing  service may use  "matrix"  comparisons  to the
prices for comparable  instruments on the basis of quality,  yield and maturity.
Other  special  factors may be involved  (such as the  tax-exempt  status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing  services.  That  monitoring may include  comparing  prices used for
portfolio valuation to actual sales prices of selected securities.

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

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

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

How to Sell Shares

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

Checkwriting. When a check is presented to the Bank for clearance, the Bank will
ask the Fund to redeem a sufficient  number of full and fractional shares in the
shareholder's  account  to cover  the  amount of the  check.  This  enables  the
shareholder to continue  receiving  dividends on those shares until the check is
presented to the Fund. Checks may not be presented for payment at the offices of
the Bank or the Fund's  Custodian.  This  limitation  does not affect the use of
checks  for the  payment  of bills or to obtain  cash at other  banks.  The Fund
reserves  the right to  amend,  suspend  or  discontinue  offering  checkwriting
privileges at any time without prior notice.

         In choosing to take advantage of the Checkwriting privilege, by signing
the Account  Application or by completing a Checkwriting  card,  each individual
who signs:

              (1)  for  individual  accounts,   represents  that  they  are  the
              registered owner(s) of the shares of the Fund in that account; (2)
              for  accounts  for  corporations,  partnerships,  trusts and other
              entities,  represents that they are an officer,  general  partner,
              trustee  or  other  fiduciary  or  agent,   as  applicable,   duly
              authorized  to  act on  behalf  of the  registered  owner(s);  (3)
              authorizes the Fund, its Transfer Agent and any bank through which
              the Fund's drafts  (checks) are payable to pay all checks drawn on
              the Fund  account  of such  person(s)  and to redeem a  sufficient
              amount of shares from that account to cover payment of each check;
              (4) specifically acknowledges that if they choose to permit checks
              to be  honored  if there is a single  signature  on  checks  drawn
              against   joint   accounts,    or   accounts   for   corporations,
              partnerships,  trusts or other entities,  the signature of any one
              signatory on a check will be  sufficient  to authorize  payment of
              that check and redemption  from the account,  even if that account
              is  registered  in the names of more than one  person or more than
              one authorized  signature  appears on the Checkwriting card or the
              Application,  as applicable; (5) understands that the Checkwriting
              privilege  may be  terminated  or  amended at any time by the Fund
              and/or the  Fund's  bank;  and (6)  acknowledges  and agrees  that
              neither the Fund nor its bank shall incur any  liability  for that
              amendment  or  termination  of  checkwriting   privileges  or  for
              redeeming shares to pay checks  reasonably  believed by them to be
              genuine,  or for returning or not paying checks that have not been
              accepted for any reason.

          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 Trustees of the
Fund may determine  that it would be  detrimental  to the best  interests of the
remaining  shareholders of the Fund to make payment of a redemption order wholly
or partly in cash.  In that case,  the Fund may pay the  redemption  proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash.

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

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

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

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

     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 otherredemption requirements.

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

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

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

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

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

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

         The Fund cannot  guarantee  receipt of a payment on the date requested.
The Fund  reserves the right to amend,  suspend or  discontinue  offering  these
plans at any time without prior notice.  Because of the sales charge assessed on
Class A share purchases, shareholders should not make regular additional Class A
share purchases while participating in an Automatic Withdrawal Plan. Class B and
Class C  shareholders  should not  establish  withdrawal  plans,  because of the
imposition of the contingent  deferred sales charge on such withdrawals  (except
where the contingent  deferred sales charge is waived as described in Appendix C
to this Statement of Additional Information).

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

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

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

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

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

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

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

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

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

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

                  How to Exchange Shares

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

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

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

         |X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder  must have an existing  account in the fund to which the exchange is
to be made.  Otherwise,  the  investors  must obtain a  Prospectus  of that fund
before the exchange request may be submitted.  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.


         |X| 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.  Dividends will be payable on shares held of record
at the time of the previous  determination  of net asset value,  or as otherwise
described in "How to Buy Shares."  Daily  dividends will not be declared or paid
on newly purchased  shares until such time as Federal Funds (funds credited to a
member  bank's  account at the  Federal  Reserve  Bank) are  available  from the
purchase  payment for such  shares.  Normally,  purchase  checks  received  from
investors  are  converted  to Federal  Funds on the next  business  day.  Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.

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

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

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

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

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

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

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

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

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

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

Additional Information About the Fund

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

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

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

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



INDEPENDENT AUDITORS' REPORT

===============================================================================
The Board of Trustees and Shareholders of
Oppenheimer International Bond Fund:

We have audited the accompanying statement of assets and liabilities,  including
the  statement of  investments,  of  Oppenheimer  International  Bond Fund as of
September 30, 1998, the related statement of operations for the year then ended,
and the  statements  of changes in net assets for the years ended  September 30,
1998 and 1997,  and the  financial  highlights  for the period June 15, 1995, to
September 30, 1998. These financial  statements and financial highlights are the
responsibility  of the Fund's  management.  Our  responsibility is to express an
opinion on these  financial  statements  and financial  highlights  based on our
audits.

           We  conducted  our  audits  in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain  reasonable  assurance  about  whether the  financial  statements  and
financial  highlights  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial  statements.  Our procedures  included  confirmation of securities
owned at September 30, 1998, by  correspondence  with the custodian and brokers;
where  replies were not received  from  brokers,  we  performed  other  auditing
procedures.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

           In our opinion,  such financial  statements and financial  highlights
present fairly, in all material respects,  the financial position of Oppenheimer
International  Bond Fund at September 30, 1998,  the results of its  operations,
the changes in its net assets,  and the financial  highlights for the respective
stated periods, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
- ------------------------
DELOITTE & TOUCHE LLP

Denver, Colorado
October 28, 1998



STATEMENT OF INVESTMENTS  September 30, 1998



                                                                                               FACE         MARKET VALUE
                                                                                               AMOUNT(1)    SEE NOTE 1
========================================================================================================================
                                                                                                       
FOREIGN GOVERNMENT OBLIGATIONS--56.6%
- ------------------------------------------------------------------------------------------------------------------------
ARGENTINA--4.2% Argentina (Republic of):
Bonds, Bonos de Consolidacion de Deudas, Series I, 2.974%, 4/1/07(2) (ARP)                      8,915,676    $ 5,117,623
Nts., 9.15%, 11/30/02(2) (9)                                                                    4,060,000      3,582,950
- ------------------------------------------------------------------------------------------------------------------------
Banco Hipotecario Nacional (Argentina)
Medium-Term Nts., 10.625%, 8/7/06                                                                 600,000        522,000
- ------------------------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Series PBA1, 2.974%, 4/1/07(2) (ARP)                          2,125,041      1,061,586
                                                                                                             -----------
                                                                                                              10,284,159

- ------------------------------------------------------------------------------------------------------------------------
BRAZIL--1.6%
Banco Nac de Desen Econo Bonds, 10.30%, 6/16/08(2) (4)                                          2,820,000      1,952,850
- ------------------------------------------------------------------------------------------------------------------------
Banco Nac de Desen Econo Nts., 10.80%, 6/16/08(2)                                               2,730,000      1,890,525
                                                                                                             -----------
                                                                                                               3,843,375

- ------------------------------------------------------------------------------------------------------------------------
BULGARIA--1.5% Bulgaria (Republic of):
Disc. Bonds, Tranche A, 6.688%, 7/28/24(2)                                                        660,000        424,875
Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 2.50%, 7/28/12(5)                                                                    6,850,000      3,296,563
                                                                                                             -----------
                                                                                                               3,721,438

- ------------------------------------------------------------------------------------------------------------------------
CANADA--1.2%
Canada (Government of) Bonds, 10.25%, 12/1/98(CAD)                                              4,360,000      2,881,142
- ------------------------------------------------------------------------------------------------------------------------
COSTA RICA--0.1%
Banco Central Costa Rica Interest Claim Bonds, Series A,
6.568%, 5/21/05(2)                                                                                132,525        129,212
- ------------------------------------------------------------------------------------------------------------------------
Banco Central of Costa Rica Interest Claim Bonds, Series B,
6.568%, 5/21/05(2)                                                                                 71,575         69,697
                                                                                                             -----------
                                                                                                                 198,909

- ------------------------------------------------------------------------------------------------------------------------
CROATIA--0.5%
Croatia (Government of) Bonds, Series B, 6.563%, 7/31/06(2)                                     1,755,271      1,215,525
- ------------------------------------------------------------------------------------------------------------------------
DENMARK--2.2%
Denmark (Kingdom of) Bonds:
7%, 12/15/04(DKK)                                                                              16,580,000      2,955,176
8%, 5/15/03(DKK)                                                                               13,720,000      2,479,312
                                                                                                             -----------
                                                                                                               5,434,488

- ------------------------------------------------------------------------------------------------------------------------
FRANCE--1.2%
France (Government of) Bonds, Obligations Assimilables du Tresor
Coupon Strip, Series OC08, Zero Coupon, 4.83%, 10/25/08(6) (FRF)                               25,060,000      2,976,165






                    15  Oppenheimer International Bond Fund

STATEMENT OF INVESTMENTS  (Continued)



                                                                                            FACE            MARKET VALUE
                                                                                            AMOUNT(1)       SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------
                                                                                                      
GERMANY--2.6% Germany (Republic of):
Bonds, 6.25%, 4/26/06(DEM)                                                                      5,755,000   $  3,951,205
Nts., Series 96, 3.50%, 12/18/98(DEM)                                                           4,000,000      2,393,269
                                                                                                            ------------
                                                                                                               6,344,474

- ------------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN--2.4%
United Kingdom Treasury Bonds, 6.75%, 11/26/04(GBP)                                             3,160,000      5,851,745
- ------------------------------------------------------------------------------------------------------------------------
INDONESIA--1.0%
Perusahaan Listr, 17%, 8/21/01(7) (IDR)                                                     2,000,000,000        105,140
- ------------------------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Sr. Nts., 7.625%, 2/15/07(8)                                           5,653,000      2,331,863
- ------------------------------------------------------------------------------------------------------------------------
PT Hutama Karya Promissory Nts., Zero Coupon, 4/9/99(7) (11) (IDR)                          5,000,000,000        116,822
                                                                                                            ------------
                                                                                                               2,553,825

- ------------------------------------------------------------------------------------------------------------------------
ITALY--5.7%
Italy (Republic of) Treasury Bonds, Buoni del
Tesoro Poliennali, 8.50%, 1/1/04(ITL)                                                      19,000,000,000     13,880,480
- ------------------------------------------------------------------------------------------------------------------------
IVORY COAST--4.4%
Ivory Coast (Government of) Past Due Interest Bonds:
2%, 3/29/18(5)                                                                                  7,000,000      1,487,500
2%, 3/29/18(2) (4)                                                                             16,865,000      4,595,713
Series 20 yr., 2%, 3/29/18(5)                                                                   3,960,000      1,079,100
Series F, 1.90%, 3/29/18(5) (FRF)                                                              84,920,000      3,598,433
                                                                                                            ------------
                                                                                                              10,760,746

- ------------------------------------------------------------------------------------------------------------------------
JORDAN--3.0%
Hashemite (Kingdom of Jordan):
Bonds, Series DEF,  5%, 12/23/23(5)                                                             8,190,000      4,279,275
Disc. Bonds, 6.563%, 12/23/23(2)                                                                5,250,000      2,953,125
                                                                                                            ------------
                                                                                                               7,232,400

- ------------------------------------------------------------------------------------------------------------------------
KOREA, REPUBLIC OF (SOUTH)--4.1%
Export-Import Bank of Korea Unsec. Unsub. Bonds, 7.125%, 9/20/01                                3,600,000      2,799,000
- ------------------------------------------------------------------------------------------------------------------------
Industrial Bank of Korea Unsec. Unsub. Nts.,
Series 1BR, 2.80%, 7/5/01(7) (JPY)                                                            446,900,000      2,520,051
- ------------------------------------------------------------------------------------------------------------------------
Korea (Republic of) Nts.:
8.031%, 4/7/99(2) (7)                                                                           1,000,000        944,375
8.281%, 4/8/00(2) (7)                                                                           2,920,000      2,580,550
- ------------------------------------------------------------------------------------------------------------------------
Korea Electric Power Nts., 7%, 10/1/02(9)                                                       1,520,000      1,202,954
                                                                                                            ------------
                                                                                                              10,046,930

- ------------------------------------------------------------------------------------------------------------------------
MEXICO--1.1%
Mexican Williams Bonds, 6.25%, 11/15/08(2) (7)                                                    500,000        410,000
- ------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos Debs., 14.50%, 3/31/06(GBP)                                                 1,280,000      2,349,255
                                                                                                            ------------
                                                                                                               2,759,255






                    16  Oppenheimer International Bond Fund



                                                                                        FACE                MARKET VALUE
                                                                                        AMOUNT(1)           SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------
                                                                                                      
NEW ZEALAND--1.1%
New Zealand (Government of) Bonds, 10%, 3/15/02(NZD)                                            4,920,000   $  2,795,716
- ------------------------------------------------------------------------------------------------------------------------
NIGERIA--1.8%
Central Bank of Nigeria Gtd. Bonds, Series WW, 6.25%, 11/15/20                                  4,000,000      2,290,000
- ------------------------------------------------------------------------------------------------------------------------
Nigeria (Federal Republic of) Promissory Nts., Series RC,
5.092%, 1/5/10                                                                                  3,839,768      2,038,579
                                                                                                            ------------
                                                                                                               4,328,579

- ------------------------------------------------------------------------------------------------------------------------
NORWAY--2.7%
Norway (Government of) Bonds, 9.50%, 10/31/02(NOK)                                             43,710,000      6,715,434
- ------------------------------------------------------------------------------------------------------------------------
PERU--2.3% Peru (Republic of):
Front-Loaded Interest Reduction Bonds, 3.25%, 3/7/17(2)                                         2,630,000      1,190,075
Sr. Nts., Zero Coupon, 4.53%, 2/28/16(6)                                                       11,801,797      4,524,809
                                                                                                            ------------
                                                                                                               5,714,884

- ------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.5%
Philippines (Republic of) Debs., 6.563%, 12/1/09(2)                                             1,858,400      1,305,526
- ------------------------------------------------------------------------------------------------------------------------
POLAND--0.5%
Poland (Republic of) Treasury Bills, Series 26, Zero Coupon,
12.64%, 2/10/99(6) (PLZ)                                                                        4,400,000      1,162,981
- ------------------------------------------------------------------------------------------------------------------------
RUSSIA--0.4%
City of St. Petersburg Unsec. Nts., 9.50%, 6/18/02                                              1,700,000        340,000
- ------------------------------------------------------------------------------------------------------------------------
Russia (Government of) Unsec. Unsub. Bonds, 8.75%, 10/3/02(7)                                   3,570,000        714,000
                                                                                                            ------------
                                                                                                               1,054,000

- ------------------------------------------------------------------------------------------------------------------------
SPAIN--6.7%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
6%, 1/31/29(ESP)                                                                              953,260,000      7,263,603
6.75%, 4/15/00(ESP)                                                                           480,600,000      3,542,718
10%, 2/28/05(ESP)                                                                             604,550,000      5,669,105
                                                                                                            ------------
                                                                                                              16,475,426

- ------------------------------------------------------------------------------------------------------------------------
TURKEY--3.1%
Turkey (Republic of) Treasury Bills, Zero Coupon:
78.52%, 2/3/99(6) (TRL)                                                                 1,065,760,000,000      2,823,266
79.74%, 1/27/99(6) (TRL)                                                                1,044,300,000,000      3,068,338
83.91%, 11/4/98(6) (TRL)                                                                  497,400,000,000      1,628,189
                                                                                                            ------------
                                                                                                               7,519,793

- ------------------------------------------------------------------------------------------------------------------------
VIETNAM--0.7%
Vietnam (Government of) Bonds, 3%, 3/12/28(2)                                                   7,095,000      1,720,538
                                                                                                            ------------
Total Foreign Government Obligations (Cost $156,255,093)                                                     138,777,933






                    17  Oppenheimer International Bond Fund

STATEMENT OF INVESTMENTS  (Continued)



                                                                                            FACE             MARKET VALUE
                                                                                            AMOUNT(1)        SEE NOTE 1
========================================================================================================================
                                                                                                       
LOAN PARTICIPATIONS--5.2%
- ------------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Reprofiled Debt Loan Participation Nts.:
Tranche 1, 6.375%, 9/4/06(2)                                                                 $  8,634,363    $ 4,101,323
Tranche A, 1.438%, 9/4/06(2) (JPY)                                                             56,945,454        156,386
Tranche A, 2.125%, 3/4/00(2) (JPY)                                                             28,472,727        140,748
Tranche A, 7.188%, 3/4/00(2)                                                                    3,865,181      2,850,572
- ------------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts., 6.615%, 1/22/01(7) (JPY)                           476,833,318      2,374,563
- ------------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing Agreement Nts.,
Tranche A, 6.50%, 10/16/00(2) (7)                                                                  89,999         81,675
- ------------------------------------------------------------------------------------------------------------------------
Trinidad & Tobago Loan Participation Agreement:
Tranche A, 1.807%, 9/30/00(2) (7) (JPY)                                                       116,909,091        697,773
Tranche B, 1.807%, 9/30/00(2) (7) (JPY)                                                       389,658,566      2,325,681
                                                                                                              ----------
Total Loan Participations (Cost $17,023,742)                                                                  12,728,721


========================================================================================================================
CORPORATE BONDS AND NOTES--8.2%
- ------------------------------------------------------------------------------------------------------------------------
Bakrie Investindo, Zero Coupon Promissory Nts.:
3/16/99(7) (11) (IDR)                                                                       5,990,000,000        139,953
7/10/98(7) (11) (IDR)                                                                       2,000,000,000         46,729
- ------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc.,
0%/9.50% Bonds, 4/1/05(3) (9) (10) (XEU)                                                        1,340,000      1,143,964
- ------------------------------------------------------------------------------------------------------------------------
Empresa Electric Del Norte, 10.50% Sr. Debs., 6/15/05(7)                                          890,000        609,650
- ------------------------------------------------------------------------------------------------------------------------
European Bank Reconstruction & Development, Zero Coupon
Sr. Unsub. Nts., Series EMTN, 13.59%, 12/31/18(6) (ZAR)                                        96,550,000        903,101
- ------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 6.875% Sr. Unsec. Nts., 6/7/02(GBP)                            3,250,000      5,685,299
- ------------------------------------------------------------------------------------------------------------------------
Industrial Finance Corp. (Thailand), 6.875% Sr. Nts., 4/1/03(4)                                 1,940,000      1,411,752
- ------------------------------------------------------------------------------------------------------------------------
Internacional de Ceramica SA:
9.75% Unsec. Unsub. Nts., 8/1/02(3) (4) (9)                                                       700,000        469,000
9.75% Unsec. Unsub. Nts., 8/1/02                                                                  750,000        502,500
- ------------------------------------------------------------------------------------------------------------------------
Mechala Group Jamaica Ltd., 12% Bonds, 2/15/02(7) (8)                                             250,000        163,125
- ------------------------------------------------------------------------------------------------------------------------
Netia Holdings BV, 0%/11% Sr. Disc. Nts., 11/1/07(10) (DEM)                                     1,300,000        351,960
- ------------------------------------------------------------------------------------------------------------------------
NTL, Inc., 9.50% Sr. Unsub. Nts., Series REGS, 4/1/08(GBP)                                        580,000        813,164
- ------------------------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Gtd. Nts., 3/29/04(4) (11)                             365,000         20,075
- ------------------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
Zero Coupon Nts., Series 2, 7/15/98(7) (11) (IDR)                                           4,107,500,000         38,388
Zero Coupon Promissory Nts., 7/28/98(7) (11)                                                    1,000,000        100,000
Zero Coupon Promissory Nts., 7/14/98(7) (11)                                                      500,000         50,000
Zero Coupon Promissory Nts., 3/16/99(7) (11) (IDR)                                          3,000,000,000         28,037
Zero Coupon Promissory Nts., 7/10/98(7) (11) (IDR)                                          2,000,000,000         18,692
- ------------------------------------------------------------------------------------------------------------------------
Reliance Industries Ltd., 10.50% Bonds, 8/6/46(4)                                               1,937,000      1,488,978
- ------------------------------------------------------------------------------------------------------------------------
Shaw Communications, Inc., 8.54% Debs., 9/30/27(9) CAD                                          2,000,000      1,342,281
- ------------------------------------------------------------------------------------------------------------------------
Snap Ltd., 11.50% Sec. Bonds, 1/29/09(DEM)                                                      7,562,499      3,665,067
- ------------------------------------------------------------------------------------------------------------------------
TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(7) (9)                                     70,000         82,558
- ------------------------------------------------------------------------------------------------------------------------
Trizec Hahn Corp., 7.45% Sr. Unsec. Debs., 6/1/04(CAD)                                          1,600,000      1,038,226
                                                                                                              ----------
Total Corporate Bonds and Notes (Cost $27,627,274)                                                            20,112,499






                    18  Oppenheimer International Bond Fund




                                                                                                            MARKET VALUE
                                                                                            SHARES          SEE NOTE 1
========================================================================================================================
                                                                                                      
COMMON STOCKS--0.0%
- ------------------------------------------------------------------------------------------------------------------------
Air New Zealand Ltd., Cl. B (Cost $394,974)                                                       145,000   $    114,780



                                                                                             FACE
                                                                                             AMOUNT(1)
========================================================================================================================
                                                                                                      
STRUCTURED INSTRUMENTS--14.3%
- ------------------------------------------------------------------------------------------------------------------------
Citibank, Argentine Peso Linked Nts., 10.75%, 10/30/98                                        $ 2,800,000      2,798,880
- ------------------------------------------------------------------------------------------------------------------------
Citibank, Greek Drachma Linked Nts., 11.30%, 11/30/98                                           1,400,000      1,405,040
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Morgan Grenfell, GKO Linked Nts.,
Zero Coupon, 5/19/99(7) (11) (RUR)                                                             14,515,000        181,154
- ------------------------------------------------------------------------------------------------------------------------
Hong Kong & Shanghai Banking Corp. Linked Receipt Nts.,
Linked to the Korean Exchange Bank Floating Rate Nts.
due 12/23/29, Zero Coupon, 13.25%, 12/28/99(6)                                                  2,900,000      2,431,650
- ------------------------------------------------------------------------------------------------------------------------
J.P. Morgan & Co., Inc., Turkish Lira Linked Nts., 84%, 10/2/98                                 7,200,000      7,200,684
- ------------------------------------------------------------------------------------------------------------------------
Korea Development Bank, Industrial Bank Finance Linked Nts.,
Zero Coupon, 11.50%, 3/5/99(6)(7)                                                               1,350,000      1,352,025
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Argentine Peso Linked Nts., 15%, 10/23/98                                                       2,820,881      2,824,040
Russian S-Account Credit Linked Nts., Zero Coupon, 1/20/99(7) (11)(RUR)                        11,515,000        427,472
- ------------------------------------------------------------------------------------------------------------------------
Standard Chartered Bank:
Chinese Renminbi Currency Linked Nts.:
9.50%, 11/5/98                                                                                  2,820,000      2,820,000
10%, 11/4/98                                                                                    2,820,000      2,814,642
New Taiwan Dollar/Japanese Yen Linked Nts., 23.50%, 10/2/98                                     1,405,000      1,370,718
Philippines Peso/Japanese Yen Linked Nts.:
20.25%, 11/9/98                                                                                 1,420,000      1,311,370
22.20%, 10/13/98                                                                                  487,000        448,965
22.25%, 10/13/98                                                                                1,705,000      1,576,955
22.70%, 10/21/98                                                                                  610,000        563,579
22.83%, 1/19/99                                                                                 1,410,000      1,299,597
Thai Baht/Japanese Yen Linked Nts.:
21.70%, 11/9/98                                                                                 1,400,000      1,372,420
23.80%, 11/4/98                                                                                 1,400,000      1,396,780
27.30%, 11/13/98                                                                                1,400,000      1,402,100
                                                                                                            ------------
Total Structured Instruments (Cost $37,531,109)                                                               34,998,071






                    19  Oppenheimer International Bond Fund

STATEMENT OF INVESTMENTS  (Continued)



                                                                                                                    MARKET VALUE
                                                          DATE         STRIKE                    CONTRACTS          SEE NOTE 1
================================================================================================================================
                                                                                                        
CALL OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------------------------------------------------------
British Pound Sterling/German Mark Call Opt.              10/98         2.899(GBP/DEM)               3,955,000      $     93,065
- --------------------------------------------------------------------------------------------------------------------------------
Russia (Government of) Principal Loan
Debs., Series 24 yr.:
6.625%, 12/15/20 Call Opt.                                11/98        22.000%                           2,810                --
6.625%, 12/15/20 Call Opt.                                11/98        33.500                            2,820                --
6.625%, 12/15/20 Call Opt.                                11/98        38.875                            5,630                --
                                                                                                                    ------------
Total Call Options Purchased (Cost $529,900)                                                                              93,065


================================================================================================================================
PUT OPTIONS PURCHASED--0.9%
- --------------------------------------------------------------------------------------------------------------------------------
Brazilian Real Put Opt.                                   12/98          1.24(BRR)                   2,810,000           153,426
- --------------------------------------------------------------------------------------------------------------------------------
Brazilian Real Put Opt.                                    4/99         1.285(BRR)                   5,360,000           793,548
- --------------------------------------------------------------------------------------------------------------------------------
British Pound Sterling/German Mark Put Opt.               11/98          2.80(GBP/DEM)               3,335,000            86,710
- --------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Put Opt.                                  3/99          7.96(HKD)                  44,714,000            92,683
- --------------------------------------------------------------------------------------------------------------------------------
Japanese Yen Put Opt.                                     12/98           137(JPY)               1,918,000,000           501,883
- --------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index Futures,
11/98 Put Opt.                                            11/98        $1,025                               35           456,750
                                                                                                                    ------------
Total Put Options Purchased (Cost $1,209,979)                                                                          2,085,000




                                                                                                 FACE
                                                                                                 AMOUNT (1)
================================================================================================================================
                                                                                                            
REPURCHASE AGREEMENTS--12.8%
- --------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with J.P. Morgan Securities, Inc., 5.40%, dated 9/30/98, to
be repurchased at $31,304,695 on 10/1/98, collateralized by U.S. Treasury Bonds,
6.25%-10.625%,  8/15/15-8/15/25,  with a value of $29,743,076, and U.S. Treasury
Nts., 5.625%, 5/15/08, with a value
of $2,487,117 (Cost $31,300,000)                                                                   $31,300,000        31,300,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $271,872,071)                                                           98.0%      240,210,069
- --------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                                            2.0         4,827,997
                                                                                                   -----------      ------------
NET ASSETS                                                                                               100.0%     $245,038,066
                                                                                                   ===========      ============







                    20  Oppenheimer International Bond Fund

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

ARP--Argentine Peso                    ITL--Italian Lira
BRR--Brazilian Real                    JPY--Japanese Yen
CAD--Canadian Dollar                   NOK--Norwegian Krone
DEM--German Mark                       NZD--New Zealand Dollar
DKK--Danish Krone                      PLZ--Polish Zloty
ESP--Spanish Peseta                    RUR--Russian Ruble
FRF--French Franc                      TRL--Turkish Lira
GBP--British Pound Sterling            XEU--European Currency Units
HKD--Hong Kong Dollar                  ZAR--South African Rand
IDR--Indonesian Rupiah

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

3. A sufficient  amount of securities has been  designated to cover  outstanding
forward foreign currency  exchange  contracts.  See Note 5 of Notes to Financial
Statements.

4.  Represents   securities  sold  under  Rule  144A,   which  are  exempt  from
registration under the Securities Act of 1933, as amended. These securities have
been  determined  to be  liquid  under  guidelines  established  by the Board of
Trustees.  These  securities  amount to  $9,938,368  or 4.06% of the  Fund's net
assets as of September 30, 1998.

5. Represents the current interest rate for an increasing rate security.

6. For zero coupon bonds,  the interest rate shown is the effective yield on the
date of purchase.

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

8.  Securities  with  an  aggregate  market  value  of  $1,917,488  are  held in
collateralized  accounts to cover initial  margin  requirements  on open futures
sales contracts. See Note 6 of Notes to Financial Statements.

9. A sufficient amount of liquid assets has been designated to cover outstanding
options, as follows:



                                    CONTRACTS/FACE         EXPIRATION   EXERCISE             PREMIUM       MARKET VALUE
                                    SUBJECT TO CALL/PUT    DATE         PRICE                RECEIVED      SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------
                                                                                            
Brazilian Real Call Option               5,360,000           4/6/99       1.218(BRR)         $ 58,960        $   47,972
- -----------------------------------------------------------------------------------------------------------------------
Brazilian Real Put Option                5,360,000           4/6/99       1.414(BRR)          122,207           644,004
- -----------------------------------------------------------------------------------------------------------------------
British Pound Sterling Call Option       3,290,000         12/30/98       0.589(GBP)           83,895            85,540
- -----------------------------------------------------------------------------------------------------------------------
British Pound Sterling/German
Mark Call Option                         3,955,000          10/1/98        2.92(GBP/DEM)       49,975                --
- -----------------------------------------------------------------------------------------------------------------------
British Pound Sterling/German
Mark Call Option                         3,335,000         11/13/98        2.90(GBP/DEM)       34,418            35,685
- -----------------------------------------------------------------------------------------------------------------------
Japanese Yen Call Option             1,767,500,000         12/18/98      126.25(JPY)          177,100           167,647
- -----------------------------------------------------------------------------------------------------------------------
Japanese Yen Put Option              2,100,000,000         12/18/98      150.00(JPY)           53,899            88,683
- -----------------------------------------------------------------------------------------------------------------------
Russia (Government of) Principal
Loan Debs., Series 24 yr., 6.625%,
12/15/20 Put Option                         $2,820          11/9/98       29.50%              142,410           657,060
                                                                                             --------        ----------
                                                                                             $722,864        $1,726,591
                                                                                             ========        ==========



10. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

11. Non-income producing--issuer is in default.

See accompanying Notes to Financial Statements.





                    21  Oppenheimer International Bond Fund


STATEMENT OF ASSETS AND LIABILITIES  September 30, 1998


==========================================================================================================
                                                                                         
ASSETS
Investments, at value (cost $271,872,071)--see accompanying statement                         $240,210,069
- ----------------------------------------------------------------------------------------------------------
Cash                                                                                             2,390,066
- ----------------------------------------------------------------------------------------------------------
Unrealized appreciation on forward foreign currency exchange contracts--Note 5                     640,820
- ----------------------------------------------------------------------------------------------------------
Receivables:
Investments sold                                                                                23,975,521
Interest and principal paydowns                                                                  4,521,014
Shares of beneficial interest sold                                                               1,274,547
Closed forward foreign currency exchange contracts                                                 369,355
Daily variation on futures contracts--Note 6                                                        39,994
- ----------------------------------------------------------------------------------------------------------
Deferred organization costs--Note 1                                                                  5,228
- ----------------------------------------------------------------------------------------------------------
Other                                                                                               13,310
                                                                                               -----------
Total assets                                                                                   273,439,924


==========================================================================================================
LIABILITIES
Unrealized depreciation on forward foreign currency
exchange contracts--Note 5                                                                         772,323
- ----------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $722,864)--see
accompanying statement--Note 7                                                                   1,726,591
- ----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                                           23,485,950
Dividends                                                                                        1,000,278
Closed forward foreign currency exchange contracts                                                 704,299
Shares of beneficial interest redeemed                                                             379,518
Distribution and service plan fees                                                                 162,999
Transfer and shareholder servicing agent fees                                                       51,702
Shareholder reports                                                                                 49,358
Other                                                                                               68,840
                                                                                                ----------
Total liabilities                                                                               28,401,858


==========================================================================================================
NET ASSETS                                                                                    $245,038,066
                                                                                              ============

==========================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital                                                                               $306,789,887
- ----------------------------------------------------------------------------------------------------------
Undistributed net investment income                                                              1,061,401
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions                                                                  (30,686,813)
- ----------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies                                       (32,126,409)
                                                                                              ------------
Net assets                                                                                    $245,038,066
                                                                                              ============







                    22  Oppenheimer International Bond Fund



                                                                                                     
=============================================================================================================
NET ASSET VALUE PER SHARE

Class A Shares:
Net asset value and redemption price per share (based on net assets of
$97,404,045 and 22,544,112 shares of beneficial interest outstanding)                                   $4.32
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price)                                                                                $4.54

- -------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $119,997,680
and 27,840,326 shares of beneficial interest outstanding)                                               $4.31

- -------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $27,636,341
and 6,414,811 shares of beneficial interest outstanding)                                                $4.31

See accompanying Notes to Financial Statements.







                    23  Oppenheimer International Bond Fund



STATEMENT OF OPERATIONS  For the Year Ended September 30, 1998

                                                                                        
==========================================================================================================
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $703,296)                                       $ 32,824,616
- ----------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $5,114)                                              23,038
                                                                                                ----------
Total income                                                                                    32,847,654

==========================================================================================================
EXPENSES
Management fees--Note 4                                                                          1,978,423
- ----------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A                                                                                            261,481
Class B                                                                                          1,287,968
Class C                                                                                            293,391
- ----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4                                              390,395
- ----------------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                        122,264
- ----------------------------------------------------------------------------------------------------------
Shareholder reports                                                                                109,437
- ----------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees                                                         17,617
- ----------------------------------------------------------------------------------------------------------
Registration and filing fees                                                                        12,579
- ----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses                                                                          2,216
- ----------------------------------------------------------------------------------------------------------
Other                                                                                               26,308
                                                                                                ----------
Total expenses                                                                                   4,502,079

==========================================================================================================
NET INVESTMENT INCOME                                                                           28,345,575

==========================================================================================================
REALIZED AND UNREALIZED LOSS Net realized loss on:
Investments                                                                                    (20,968,555)
Closing of futures contracts                                                                    (1,301,855)
Foreign currency transactions                                                                   (9,802,511)
                                                                                                ----------
Net realized loss                                                                              (32,072,921)

- ----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments                                                                                    (31,094,487)
Translation of assets and liabilities denominated in foreign currencies                         (2,298,928)
                                                                                                ----------
Net change                                                                                     (33,393,415)
                                                                                                ----------
Net realized and unrealized loss                                                               (65,466,336)

==========================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS                                          $(37,120,761)
                                                                                              ============



See accompanying Notes to Financial Statements.





                    24  Oppenheimer International Bond Fund



STATEMENTS OF CHANGES IN NET ASSETS




                                                                    YEAR ENDED ENDED SEPTEMBER 30,
                                                                    1998                  1997
======================================================================================================
                                                                                    
OPERATIONS
Net investment income                                                $ 28,345,575         $ 17,455,425
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                              (32,072,921)           2,229,190
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation                 (33,393,415)            (660,295)
                                                                     ------------         ------------
Net increase (decrease) in net assets resulting from operations       (37,120,761)          19,024,320

======================================================================================================
DIVIDENDS  AND  DISTRIBUTIONS  TO  SHAREHOLDERS  Dividends  from net  investment
income:
Class A                                                               (11,278,509)          (8,439,637)
Class B                                                               (12,501,126)          (7,638,040)
Class C                                                                (2,851,020)          (1,735,744)
- ------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A                                                                  (464,690)            (703,789)
Class B                                                                  (544,637)            (644,945)
Class C                                                                  (123,007)            (147,671)

======================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A                                                                 8,857,621           62,811,767
Class B                                                                28,481,664           77,812,810
Class C                                                                 6,178,227           18,447,362

======================================================================================================
NET ASSETS
Total increase (decrease)                                             (21,366,238)         158,786,433
- ------------------------------------------------------------------------------------------------------
Beginning of period                                                   266,404,304          107,617,871
                                                                  ---------------         ------------
End of period (including undistributed net investment
income of $1,061,401 for the period ended 9/30/98)                   $245,038,066         $266,404,304
                                                                  ===============         ============

See accompanying Notes to Financial Statements.





                    25  Oppenheimer International Bond Fund

FINANCIAL HIGHLIGHTS



                                                             CLASS A
                                                             ------------------------------------------------------------
                                                             YEAR ENDED SEPTEMBER 30,
                                                             1998            1997                  1996           1995(1)
=========================================================================================================================
                                                                                                       
PER SHARE OPERATING DATA
Net asset value, beginning of period                             $5.51           $5.49               $5.10          $5.00
- -------------------------------------------------------------------------------------------------------------------------

Income (loss) from investment operations:
Net investment income                                              .56             .52                 .52            .15
Net realized and unrealized gain (loss)                          (1.20)            .08                 .40            .10
                                                                 -----           -----               -----          -----
Total income (loss) from investment operations                    (.64)            .60                 .92            .25

- -------------------------------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income              (.53)           (.53)               (.53)          (.15)
Distributions from net realized gain                              (.02)           (.05)                 --             --
                                                                 -----           -----               -----          -----

Total dividends and distributions to shareholders                 (.55)           (.58)               (.53)          (.15)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                   $4.32           $5.51               $5.49          $5.10
                                                                 =====           =====               =====          =====

=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2)                             (12.50)%         11.33%              18.82%          5.13%

=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)                      $ 97,404        $114,847             $52,128         $3,984
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                             $108,264        $ 89,112             $19,817         $2,566
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income                                            11.09%           9.24%               9.60%          9.94%(3)
Expenses, before voluntary reimbursement
by the Manager                                                    1.24%           1.28%               1.59%          1.59%(3)
Expenses, net of voluntary reimbursement
by the Manager                                                     N/A             N/A                1.49%          0.41%(3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4)                                       446.1%          280.1%              273.3%         122.0%


1. For the period from June 15, 1995  (commencement  of operations) to September
30, 1995.

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

3. Annualized.





                    26  Oppenheimer International Bond Fund




CLASS B                                                                   CLASS C
- ------------------------------------------------                          -----------------------------------------------

YEAR ENDED SEPTEMBER 30,                                                  YEAR ENDED SEPTEMBER 30,
1998          1997           1996         1995(1)                         1998             1997        1996         1995(1)
=========================================================================================================================

                                                                                               
   $5.50         $5.48         $5.10       $5.00                            $5.50            $5.48       $5.09      $5.00
- -------------------------------------------------------------------------------------------------------------------------

     .52           .48           .48         .14                              .52              .48         .48        .14
   (1.20)          .07           .39         .10                            (1.20)             .07         .39        .09
   -----         -----         -----       -----                            -----            -----       -----      -----
    (.68)          .55           .87         .24                             (.68)             .55         .87        .23
- -------------------------------------------------------------------------------------------------------------------------

    (.49)         (.48)         (.49)       (.14)                            (.49)            (.48)       (.48)      (.14)
    (.02)         (.05)           --          --                             (.02)            (.05)         --         --
   -----         -----         -----       -----                            -----            -----       -----      -----

    (.51)         (.53)         (.49)       (.14)                            (.51)            (.53)       (.48)      (.14)
- -------------------------------------------------------------------------------------------------------------------------
   $4.31         $5.50         $5.48       $5.10                            $4.31            $5.50       $5.48      $5.09
   =====         =====         =====       =====                            =====            =====       =====      =====

=========================================================================================================================
  (13.16)%       10.52%        17.71%       4.92%                          (13.16)%          10.52%      17.92%      4.73%

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

$119,998      $122,874       $45,207      $3,238                          $27,636          $28,684     $10,282      $ 201
- -------------------------------------------------------------------------------------------------------------------------
$128,789      $ 87,557       $17,891      $1,125                          $29,336          $19,883     $ 4,039      $  97
- -------------------------------------------------------------------------------------------------------------------------

   10.33%         8.57%         8.81%       9.20%(3)                        10.33%            8.62%       8.76%      9.36%(3)

    2.00%         2.04%         2.36%       2.21%(3)                         2.00%            2.04%       2.36%      2.26%(3)

    N/A           N/A           2.26%       0.89%(3)                         N/A              N/A         2.25%      0.85%(3)
- -------------------------------------------------------------------------------------------------------------------------
   446.1%        280.1%        273.3%      122.0%                           446.1%           280.1%      273.3%     122.0%


4. 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 September 30, 1998 were $866,084,106 and $851,580,023, respectively.

See accompanying Notes to Financial Statements.





                    27  Oppenheimer International Bond Fund


NOTES TO FINANCIAL STATEMENTS

===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer  International  Bond  Fund  (the  Fund) is a  registered  investment
company organized as a Massachusetts  Business Trust with a single series of the
same  name.  The  Fund  is  registered  as a  diversified,  open-end  management
investment  company under the  Investment  Company Act of 1940, as amended.  The
Fund's investment  objective is to seek total return primarily from foreign debt
securities.  The  Fund's  investment  advisor  is  OppenheimerFunds,  Inc.  (the
Manager).  The Fund offers  Class A, Class B and Class C shares.  Class A shares
are sold  with a  front-end  sales  charge.  Class B and  Class C shares  may be
subject to a  contingent  deferred  sales  charge.  All  classes of shares  have
identical  rights to earnings,  assets and voting  privileges,  except that each
class  has  its  own  distribution   and/or  service  plan,   expenses  directly
attributable  to that class and exclusive  voting rights with respect to matters
affecting  that  class.  Class B shares  will  automatically  convert to Class A
shares  six years  after the date of  purchase.  The  following  is a summary of
significant accounting policies consistently followed by the Fund.

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





                    28  Oppenheimer International Bond Fund

===============================================================================
STRUCTURED NOTES. The Fund invests in foreign  currency-linked  structured notes
whereby the market  value and  redemption  price are linked to foreign  currency
exchange  rates.  The Fund  also  invests  in  index-linked  notes  whereby  the
principal  and/or  interest  payment depend on one or more market  indices.  The
structured  notes  may be  leveraged,  which  increases  the  notes'  volatility
relative to the face of the security.  Fluctuations  in values of the securities
are  recorded  as  unrealized  gains and  losses in the  accompanying  financial
statements.  During the year ended September 30, 1998, the market value of these
securities comprised an average of 12% of the Fund's net assets, and resulted in
realized and unrealized losses of $15,519,664.

- -------------------------------------------------------------------------------
SECURITY  CREDIT RISK. The Fund invests in high yield  securities,  which may be
subject to a greater degree of credit risk, greater market fluctuations and risk
of  loss  of  income  and  principal,  and may be  more  sensitive  to  economic
conditions than lower yielding,  higher rated fixed income securities.  The Fund
may acquire securities in default, and is not obligated to dispose of securities
whose issuers subsequently default. As of September 30, 1998, securities with an
aggregate  market  value of  $1,167,322  representing  0.48% of the  Fund's  net
assets, were in default.

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

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

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

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





                    29  Oppenheimer  International  Bond  Fund    NOTES TO
FINANCIAL STATEMENTS (Continued)

===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.  As of September 30, 1998,
the Fund had  available for federal  income tax purposes an unused  capital loss
carryover of approximately $2,105,000 expiring in 2006.

- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS.  The Fund intends to declare dividends separately
for Class A, Class B and Class C shares from net investment  income each day the
New York Stock  Exchange is open for  business and pay such  dividends  monthly.
Distributions  from net realized gains on investments,  if any, will be declared
at least once each year.

- -------------------------------------------------------------------------------
ORGANIZATION  COSTS.  The Manager advanced $14,488 for organization and start-up
costs of the Fund.  Such expenses are being  amortized  over a five-year  period
from  the  date  operations  commenced.  In the  event  that  all or part of the
Manager's  initial  investment  in shares of the Fund is  withdrawn  during  the
amortization  period,  the redemption  proceeds will be reduced to reimburse the
Fund for any  unamortized  expenses,  in the same  ratio as the number of shares
redeemed bears to the number of initial  shares  outstanding at the time of such
redemption.

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

           The Fund adjusts the  classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax  regulations.  Accordingly,  during the
year ended  September  30,  1998,  amounts have been  reclassified  to reflect a
decrease  in  paid-in  capital  of  $9,868,  a  decrease  in  undistributed  net
investment  income of $653,519,  and a decrease in accumulated net realized loss
on investments of $663,387.





                    30  Oppenheimer International Bond Fund

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

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

===============================================================================
2. SHARES OF BENEFICIAL INTEREST

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



                             YEAR ENDED SEPTEMBER 30, 1998                  YEAR ENDED SEPTEMBER 30, 1997
                             -----------------------------                  ------------------------------
                             SHARES           AMOUNT                        SHARES            AMOUNT
- ----------------------------------------------------------------------------------------------------------
                                                                                  
Class A:
Sold                          11,871,238      $ 60,193,894                  18,015,830        $ 99,555,234
Dividends and
distributions reinvested       1,567,641         7,767,951                   1,145,316           6,327,582
Redeemed                     (11,744,939)      (59,104,224)                 (7,805,542)        (43,071,049)
                             -----------      ------------                  ----------        ------------
Net increase                   1,693,940      $  8,857,621                  11,355,604        $ 62,811,767
                             ===========      ============                  ==========        ============

- ----------------------------------------------------------------------------------------------------------
Class B:
Sold                          12,461,105      $ 62,756,778                  18,551,946        $102,345,548
Dividends and
distributions reinvested       1,334,005         6,596,728                     868,156           4,783,353
Redeemed                      (8,302,252)      (40,871,842)                 (5,318,785)        (29,316,091)
                             -----------      ------------                  ----------        ------------
Net increase                   5,492,858      $ 28,481,664                  14,101,317        $ 77,812,810
                             ===========      ============                  ==========        ============

- ----------------------------------------------------------------------------------------------------------
Class C:
Sold                           3,210,030      $ 16,168,643                   4,180,150        $ 23,070,240
Dividends and
distributions reinvested         387,861         1,917,981                     235,688           1,298,290
Redeemed                      (2,401,923)      (11,908,397)                 (1,073,077)         (5,921,168)
                             -----------      ------------                  ----------        ------------
Net increase                   1,195,968      $  6,178,227                   3,342,761        $ 18,447,362
                             ===========      ============                  ==========        ============






                    31  Oppenheimer  International  Bond  Fund    NOTES TO
FINANCIAL STATEMENTS (Continued)

===============================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS

As of September 30, 1998, net unrealized depreciation on investments and options
written of $32,665,730  was composed of gross  appreciation  of $6,507,875,  and
gross depreciation of $39,173,605.

===============================================================================
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 an annual fee of 0.75% of
the first  $200  million of average  annual net  assets,  0.72% of the next $200
million,  0.69% of the next $200 million,  0.66% of the next $200 million, 0.60%
of the next $200 million and 0.50% of average  annual net assets in excess of $1
billion.  The Fund's  management  fee for the year ended  September 30, 1998 was
0.74% of average annual net assets for Class A, Class B and Class C shares.

        For the year ended September 30, 1998,  commissions  (sales charges paid
by investors) on sales of Class A shares totaled $758,818, of which $197,195 was
retained by  OppenheimerFunds  Distributor,  Inc.  (OFDI),  a subsidiary  of the
Manager,  as general  distributor,  and by an  affiliated  broker/dealer.  Sales
charges  advanced to  broker/dealers  by OFDI on sales of the Fund's Class B and
Class C shares totaled $2,036,881 and $145,913,  respectively,  of which $51,677
and $1,297,  respectively,  was paid to an affiliated  broker/dealer for Class B
and Class C shares.  During the year ended  September  30, 1998,  OFDI  received
contingent  deferred sales charges of $459,667 and $18,589,  respectively,  upon
redemption of Class B and Class C shares as reimbursement  for sales commissions
advanced by OFDI at the time of sale of such shares.

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





                    32  Oppenheimer International Bond Fund

===============================================================================
The Fund has adopted a Service Plan for Class A shares to  reimburse  OFDI for a
portion of its costs  incurred  in  connection  with the  personal  service  and
maintenance of shareholder  accounts that hold Class A shares.  Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% of the average annual
net assets of Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal  service and maintenance of accounts of their customers that hold Class
A shares.  During the year ended  September  30,  1998,  OFDI paid $17,549 to an
affiliated  broker/dealer  as  reimbursement  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
September 30, 1998, OFDI paid $5,333 and $1,830, respectively,  to an affiliated
broker/dealer  as  compensation  for Class B and Class C  personal  service  and
maintenance  expenses and retained  $1,121,715  and $193,024,  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 Trustees  may allow the Fund to continue  payments of the  asset-based  sales
charge to OFDI for  distributing  shares before the Plan was  terminated.  As of
September 30, 1998, OFDI had incurred excess distribution and servicing costs of
$5,581,385 for Class B and $492,685 for Class C.

===============================================================================
5. FORWARD CONTRACTS

A forward foreign currency exchange contract (forward  contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.

        The Fund  uses  forward  contracts  to seek to manage  foreign  currency
risks.  They may also be used to tactically  shift portfolio  currency risk. The
Fund  generally  enters into  forward  contracts as a hedge upon the purchase or
sale of a security denominated in a foreign currency. In addition,  the Fund may
enter  into such  contracts  as a hedge  against  changes  in  foreign  currency
exchange rates on portfolio positions.





                    33  Oppenheimer  International  Bond  Fund    NOTES TO
FINANCIAL STATEMENTS (Continued)

===============================================================================
5. FORWARD CONTRACTS (CONTINUED)

Forward contracts are valued based on the closing prices of the forward currency
contract  rates in the  London  foreign  exchange  markets  on a daily  basis as
provided by a reliable bank or dealer. The Fund will realize a gain or loss upon
the closing or settlement of the forward transaction.

        Securities  held  in  designated  accounts  to  cover  net  exposure  on
outstanding  forward  contracts are noted in the Statement of Investments  where
applicable.  Unrealized  appreciation or  depreciation  on forward  contracts is
reported in the Statement of Assets and  Liabilities.  Realized gains and losses
are  reported  with all other  foreign  currency  gains and losses in the Fund's
Statement of Operations.

        Risks include the potential  inability of the  counterparty  to meet the
terms of the  contract  and  unanticipated  movements  in the value of a foreign
currency relative to the U.S. dollar.

As of September 30, 1998, the Fund had outstanding forward contracts as follows:



                                    VALUATION
                                 CONTRACT AS OF
                               EXPIRATION     AMOUNT           SEPTEMBER       UNREALIZED          UNREALIZED
                               DATES          (000'S)          30, 1998        APPRECIATION        DEPRECIATION
- ---------------------------------------------------------------------------------------------------------------
                                                                                      
CONTRACTS TO PURCHASE
- ---------------------
Danish Krone (DKK)              10/1/98       17,932 DKK       $ 2,821,716     $  7,525              $     --
German Mark (DEM)              10/26/98-
                               11/17/98       17,504 DEM        10,518,903      494,287                    --
Polish Zloty (PLZ)              10/1/98        4,153 PLZ         1,162,202           --                 3,597
                                                                               --------              --------
                                                                                501,812                 3,597
                                                                               --------              --------
CONTRACTS TO SELL
- -----------------
Brazilian Real (BRR)           11/16/98-
                                 3/4/99       11,522 BRR         8,648,209           --               388,118
Canadian Dollar (CAD)           10/5/98        8,460 CAD         5,533,692       53,222                    --
German Mark (DEM)               10/1/98-
                               11/24/98        5,243 DEM         3,137,637           --                30,460
Hungary Forints (HUF)           10/1/98      294,600 HUF         1,347,668           --                 6,137
New Zealand Dollar (NZD)        10/5/98        5,505 NZD         2,758,097       85,786                    --
Norwegian Krone (NOK)          10/26/98       47,830 NOK         6,449,322           --               267,419
South African Rand (ZAR)        10/5/98        6,610 ZAR         1,121,487           --                76,592
                                                                               --------              --------
                                                                                139,008               768,726
                                                                               --------              --------
Total Unrealized Appreciation and Depreciation                                 $640,820              $772,323
                                                                               ========              ========






                    34  Oppenheimer International Bond Fund

===============================================================================
6. FUTURES CONTRACTS

The Fund may buy and  sell  interest  rate  futures  contracts  in order to gain
exposure to or protect against changes in interest rates.  The Fund may also buy
or write put or call options on these futures contracts.

           The Fund generally sells futures contracts to hedge against increases
in interest rates and the resulting  negative  effect on the value of fixed rate
portfolio  securities.  The Fund may also  purchase  futures  contracts  to gain
exposure  to  changes  in  interest  rates as it may be more  efficient  or cost
effective than actually buying fixed income securities.

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

           Securities  held in  collateralized  accounts to cover initial margin
requirements   on  open  futures   contracts  are  noted  in  the  Statement  of
Investments.  The Statement of Assets and  Liabilities  reflects a receivable or
payable for the daily mark to market for variation margin.

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

As of September 30, 1998, the Fund had outstanding futures contracts as follows:



                                             NUMBER OF    VALUATION AS OF        UNREALIZED
                           EXPIRATION DATE   CONTRACTS    SEPTEMBER 30, 1998     DEPRECIATION
- ---------------------------------------------------------------------------------------------
                                                                     
CONTRACTS TO PURCHASE
- ---------------------
German Mark                12/98             79           $5,937,838             $398,950
United Kingdom Gilt        12/98              8            1,576,638               52,478
                                                                                 --------
                                                                                 $451,428
                                                                                 ========






                    35  Oppenheimer  International  Bond  Fund    NOTES TO
FINANCIAL STATEMENTS (Continued)

===============================================================================
7. OPTION ACTIVITY

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

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

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

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

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

Written option activity for the year ended September 30, 1998, was as follows:



                              CALL OPTIONS                              PUT OPTIONS
                              -------------------------------           ------------------------------
                              NUMBER OF         AMOUNT OF               NUMBER OF          AMOUNT OF
                              OPTIONS           PREMIUMS                OPTIONS            PREMIUMS
- ------------------------------------------------------------------------------------------------------
                                                                               
Options outstanding as of
September 30, 1997                29,590,450    $   208,406                  42,960,000    $    79,011
Options written                8,085,760,845      1,815,995               7,318,836,969      2,277,972
Options closed or expired     (6,326,339,235)    (1,408,071)             (2,455,369,149)    (1,692,828)
Options exercised                 (5,572,060)      (211,982)             (2,801,065,000)      (345,639)
                              --------------    -----------             ---------------    -----------
Options outstanding as of
September 30, 1998             1,783,440,000    $   404,348               2,105,362,820    $   318,516
                              ==============    ===========             ===============    ===========







                    36  Oppenheimer International Bond Fund

===============================================================================
8. ILLIQUID AND RESTRICTED SECURITIES

As of September 30, 1998,  investments  in securities  included  issues that are
illiquid or restricted.  Restricted  securities  are often  purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual  restrictions on resale,  and are valued under methods approved
by the Board of Trustees as reflecting  fair value. A security may be considered
illiquid  if it lacks a readily  available  market or if its  valuation  has not
changed for a certain  period of time.  The Fund  intends to invest no more than
10% of its  net  assets  (determined  at  the  time  of  purchase  and  reviewed
periodically)  in  illiquid  or  restricted   securities.   Certain   restricted
securities,  eligible for resale to qualified institutional  investors,  are not
subject to that limit. The aggregate value of illiquid or restricted  securities
subject to this  limitation  as of September  30, 1998,  was  $16,108,413  which
represents 6.57% of the Fund's net assets.

===============================================================================
9. 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
September 30, 1998.







                                  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
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 - Technology
Electrical Equipment                            Telephone - Utility
Electronics                                     Textile/Apparel
Energy Services & Producers                     Tobacco
Entertainment/Film                              Trucks and Parts
Environmental                                   Wireless Services
Food






                                      C-12

                                   Appendix C

         OppenheimerFunds Special Sales Charge Arrangements and Waivers


         In certain cases, the initial sales charge that applies to purchases of
Class A shares 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 the  Distributor  or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.

         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 plans1
(4)       Group Retirement Plans2
(5)       403(b)(7) custodial plan accounts
(6)       SEP-IRAs, SARSEPs or SIMPLE plans

     The  interpretation of these provisions as to the applicability of a waiver
in a particular  case is determined  solely by the  Distributor  or the Transfer
Agent of the fund.  These  waivers  and special  arrangements  may be amended or
terminated at any time by the applicable  Fund and/or the  Distributor.  Waivers
that apply at the time shares are redeemed must be requested by the  shareholder
and/or dealer in the redemption request.

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

     1. 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.

     2. 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.


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 these  purchases  the  Distributor  will pay the
applicable  commission  described  in the  Prospectus  under "Class A Contingent
Deferred Sales Charge":

          |_| Purchases of Class A shares aggregating $1 million or more.

 |_|  Purchases  by a  Retirement  Plan that: 

          (1) buys shares costing $500,000 or more, or

          (2) has, at the time of purchase, 100 or more eligible participants 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).


                  Waivers of Class A Sales Charges of Oppenheimer Funds


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.

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 and paid for with 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.

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 original account value.

          |_|  Involuntary   redemptions  of  shares  by  operation  of  law  or
          involuntary  redemptions of small accounts (see  "Shareholder  Account
          Rules and Policies," in the 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.

(5) Under a  Qualified  Domestic  Relations  Order,  as defined in the  Internal
Revenue Code.

          (6) To meet the  minimum  distribution  requirements  of the  Internal
          Revenue Code.

          (7) To establish  "substantially equal periodic payments" as described
          in Section 72(t) of the Internal Revenue Code.

          (8)  For  retirement   distributions   or  loans  to  participants  or
          beneficiaries.

          (9) Separation from service.

          (10)  Participant-directed  redemptions to purchase shares of a mutual
          fund other than a fund  managed by the  Manager or a  subsidiary.  The
          fund  must  be one  that  is  offered  as an  investment  option  in a
          Retirement  Plan in  which  Oppenheimer  funds  are  also  offered  as
          investment options under a special arrangement with the Distributor.

          (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 participants,  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.







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.

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.

          |_|  Distributions  to participants or  beneficiaries  from Retirement
          Plans, if the distributions are made:

(a)               under an  Automatic  Withdrawal  Plan  after  the  participant
                  reaches age 59-1/2,  as long as the  payments are no more than
                  10% of the account value annually  (measured from the date the
                  Transfer Agent receives the request), or

(b)               following the death or disability  (as defined in the Internal
                  Revenue Code) of the participant or beneficiary  (the death or
                  disability   must  have   occurred   after  the   account  was
                  established).
         |_| 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.
         |_|  Returns of excess contributions to Retirement Plans.
         |_| Distributions  from Retirement Plans to make  "substantially  equal
periodic  payments" as permitted in Section  72(t) of the Internal  Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the request.
         |_|Distributions from OppenheimerFunds  prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1)      for hardship withdrawals;
(2) under a  Qualified  Domestic  Relations  Order,  as defined in the  Internal
Revenue Code; (3) to meet minimum  distribution  requirements  as defined in the
Internal Revenue Code; (4) to make  "substantially  equal periodic  payments" as
described in Section 72(t) of the Internal Revenue Code; (5) for separation from
service; or (6) for loans to participants or beneficiaries.
         |_| Distributions  from 401(k) plans sponsored by  broker-dealers  that
have 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.

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.


          Special  Sales  Charge   Arrangements   for  Shareholders  of  Certain
          Oppenheimer  Funds Who Were Shareholders of the Former Quest for Value
          Funds


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

         Oppenheimer  Quest Value Fund, Inc.,  Oppenheimer  Quest Balanced Value
         Fund, Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small
         Cap Value Fund and Oppenheimer Quest Global Value Fund, Inc.

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

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

Reductions or Waivers of Class A Sales Charges.

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

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




Number of Eligible                                           Initial Sales Charge as a
Employees or Members         Initial Sales Charge as a %     % of Net Amount Invested     Commission as % of
                             of Offering Price                                            Offering Price
                                                                                 

9 or Fewer                               2.50%                          2.56%                        2.00%
- ---------------------------- ------------------------------- ---------------------------- ----------------------------
- ---------------------------- ------------------------------- ---------------------------- ----------------------------

At least 10 but not more
than 49                                  2.00%                          2.04%                        1.60%
- ---------------------------- ------------------------------- ---------------------------- ----------------------------


         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.

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.


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 Prospectus or this Appendix for
Oppenheimer  U.  S.  Government  Trust,   Oppenheimer  Bond  Fund,   Oppenheimer
Disciplined  Value Fund and  Oppenheimer  Disciplined  Allocation  Fund (each is
included in the reference to "Fund"  below) are modified as described  below for
those  shareholders who were shareholders of Connecticut  Mutual Liquid Account,
Connecticut  Mutual Government  Securities  Account,  Connecticut  Mutual Income
Account,  Connecticut  Mutual Growth  Account,  Connecticut  Mutual Total Return
Account,  CMIA LifeSpan Capital  Appreciation  Account,  CMIA LifeSpan  Balanced
Account and CMIA  Diversified  Income  Account (the "Former  Connecticut  Mutual
Funds") on March 1, 1996,  when  OppenheimerFunds,  Inc.  became the  investment
adviser to the Former Connecticut Mutual Funds.

Prior Class A CDSC and Class A Sales Charge Waivers

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

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

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

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

          (1) any purchaser,  provided the total initial amount  invested in the
          Fund or any one or more of the Former Connecticut Mutual Funds totaled
          $500,000 or more, including  investments made pursuant to the Combined
          Purchases,  Statement of Intention and Rights of Accumulation features
          available at the time of the initial  purchase and such  investment is
          still held in one or more of the Former  Connecticut Mutual Funds or a
          Fund into which such Fund merged;

          (2) any  participant  in a  qualified  plan,  provided  that the total
          initial amount  invested by the plan in the Fund or any one or more of
          the Former Connecticut Mutual Funds totaled $500,000 or more;

(3)  Directors of the Fund or any one or more of the Former  Connecticut  Mutual
Funds and members of their immediate families;

          (4) employee  benefit plans sponsored by Connecticut  Mutual Financial
          Services,  L.L.C.  ("CMFS"),  the  prior  distributor  of  the  Former
          Connecticut Mutual Funds, and its affiliated companies;

(5)           one or more  members  of a group of at least  1,000  persons  (and
              persons  who are  retirees  from such  group)  engaged in a common
              business,  profession,  civic  or  charitable  endeavor  or  other
              activity,  and the  spouses and minor  dependent  children of such
              persons,  pursuant to a marketing  program  between  CMFS and such
              group; and
(6)           an institution acting as a fiduciary on behalf of an individual or
              individuals,  if such institution was directly  compensated by the
              individual(s)  for  recommending the purchase of the shares of the
              Fund or any one or more of the Former  Connecticut  Mutual  Funds,
              provided the institution had an agreement with CMFS.

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

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






Class A and Class B Contingent Deferred Sales Charge Waivers

In addition to the waivers  set forth in the  Prospectus  and in this  Appendix,
above,  the contingent  deferred sales charge will be waived for  redemptions of
Class A and Class B shares of a Fund and  exchanges of Class A or Class B shares
of a Fund into  Class A or Class B shares of a Former  Connecticut  Mutual  Fund
provided  that  the  Class A or Class B shares  of the  Fund to be  redeemed  or
exchanged  were (i)  acquired  prior to March 18, 1996 or (ii) were  acquired by
exchange from an  Oppenheimer  fund that was a Former  Connecticut  Mutual Fund.
Additionally,  the shares of such Former  Connecticut Mutual Fund must have been
purchased prior to March 18, 1996:

 (1) by the estate of a deceased  shareholder;

(2) upon the disability of a shareholder,  as defined in Section 72(m)(7) of the
Internal Revenue Code;

          (3)  for  retirement  distributions  (or  loans)  to  participants  or
          beneficiaries from retirement plans qualified under Sections 401(a) or
          403(b)(7)of  the  Code,  or from  IRAs,  deferred  compensation  plans
          created  under  Section  457 of the Code,  or other  employee  benefit
          plans;

          (4) as tax-free returns of excess  contributions to such retirement or
          employee benefit plans;

(5)           in whole or in part, in connection  with shares sold to any state,
              county, or city, or any instrumentality, department, authority, or
              agency thereof,  that is prohibited by applicable  investment laws
              from paying a sales charge or commission  in  connection  with the
              purchase  of  shares  of  any  registered   investment  management
              company;
(6)           in connection  with the  redemption of shares of the Fund due to a
              combination with another investment company by virtue of a merger,
              acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the
Fund; (8) in connection with automatic redemptions of Class A shares and
              Class B shares in certain  retirement plan accounts pursuant to an
              Automatic  Withdrawal  Plan but limited to no more than 12% of the
              original value annually; or
(9)           as involuntary redemptions of shares by operation of law, or under
              procedures set forth in the Fund's Articles of  Incorporation,  or
              as adopted by the Board of Directors of the Fund.


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%.




Oppenheimer International Bond Fund


Internet Web Site:
         www.oppenheimerfunds.com

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

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

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

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

Independent Auditors
         Deloitte & Touche LLP
         555 Seventeenth Street
         Denver, Colorado 80202

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

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