OPPENHEIMER INTEGRITY FUNDS
497, 1999-10-15
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Oppenheimer Bond Fund
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6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048


Statement of Additional Information dated April 28, 1999
Revised October 15, 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 April 28, 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................................................29
How the Fund is Managed ...................................................31
    Organization and History...............................................31
    Trustees and Officers..................................................33
    The Manager............................................................38
Brokerage Policies of the Fund.............................................39
Distribution and Service Plans.............................................41
Performance of the Fund....................................................44

About Your Account

How To Buy Shares..........................................................50
How To Sell Shares.........................................................58
How To Exchange Shares.....................................................63
Dividends, Capital Gains and Taxes.........................................66
Additional Information About the Fund......................................68


Financial Information About the Fund
Independent Auditors' Report...............................................69
Financial Statements.......................................................70

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


<PAGE>


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

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 objectives.

The Fund's Investment Policies.  The composition of the Fund's portfolio and the
techniques  and  strategies  that the  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 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.  In the case of non-governmental  issues, that process may
include,  among other things,  evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part,  the issuer's  financial
condition,   its  pending  product  developments  and  business  (and  those  of
competitors),  the  effect of  general  market and  economic  conditions  on the
issuer's  business,  and legislative  proposals that might affect the issuer. In
the  case  of  foreign  issuers,  the  Manager  may  consider  general  economic
conditions,  the conditions of a particular country's economy in relation to the
U.S.  economy or other  foreign  economies,  general  political  conditions in a
country or region, the effect of taxes, the efficiencies and costs of particular
markets (as well as their liquidity) and other factors.


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

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


      The Fund's investments  primarily are investment-grade debt securities and
U.S. government securities.  U.S. government  securities,  although unrated, are
generally  considered  to be  equivalent  to  securities  in the highest  rating
categories.  Investment-grade  bonds are bonds  rated at least  "Baa" by Moody's
Investors  Service,  Inc., or at least "BBB" by Standard & Poor's Rating Service
or  Duff  &  Phelps,   Inc.,  or  that  have   comparable   ratings  by  another
nationally-recognized    rating   organization.    The   Fund   can   also   buy
non-investment-grade debt securities (commonly referred to as "junk bonds").

      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  securities  the  Fund  buys are
unrated,  to be  considered  part of the  Fund's  holdings  of  investment-grade
securities,  they must be judged by the Manager to be of  comparable  quality to
bonds rated as investment grade by a rating organization.


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


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


         o  Special  Risks of  Lower-Grade  Securities.  The Fund can  invest in
lower-grade debt securities. Because lower-grade securities tend to offer higher
yields than  investment-grade  securities,  the Fund might invest in lower-grade
securities if the Manager is trying to achieve higher income.


      "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.

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

      To the extent they can be converted into stock, convertible securities may
be less subject to some of the risks of  volatility  than  non-convertible  high
yield bonds,  since stock may be more liquid and less  affected by some of these
risk factors.

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


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


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

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

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

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

      During  periods  of  rapidly  rising   interest   rates,   prepayments  of
mortgage-related  securities  may occur at slower than  expected  rates.  Slower
prepayments  effectively  may lengthen a  mortgage-related  security's  expected
maturity.  Generally,  that would cause the value of the  security to  fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund's  mortgage-related   securities  were  to  decrease  broadly,  the  Fund's
sensitivity to interest rate changes would increase.
      As with other debt securities,  the values of mortgage-related  securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.

         o  Collateralized   Mortgage   Obligations.   Collateralized   mortgage
obligations  or  "CMOs,"  are  multi-class  bonds  that are  backed  by pools of
mortgage loans or mortgage pass-through certificates. They may be collateralized
by: (1) pass-through certificates issued or guaranteed by Government National
               Mortgage Association (Ginnie Mae), Federal National Mortgage
               Association (Fannie Mae), or Federal Home Loan Mortgage
               Corporation (Freddie Mac),
(2)            unsecuritized  mortgage  loans  insured  by the  Federal  Housing
               Administration  or  guaranteed  by the  Department  of  Veterans'
               Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.

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


      n U.S. Government Securities. These are securities issued or guaranteed by
the U.S.  Treasury  or other U.S.  government  agencies  or  federally-chartered
corporate entities referred to as  "instrumentalities."  The obligations of U.S.
government agencies or instrumentalities in which the Fund can 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 not be able to assert a
claim against the United States if the issuing  agency or  instrumentality  does
not meet its commitment.

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

         o  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.  Others  are  supported  only by the credit of the
entity  that  issued  them,  such as  Federal  Home  Loan  Mortgage  Corporation
obligations.
         o Mortgage-Related U.S. Government Securities.  These include interests
in pools of residential or commercial  mortgages,  in the form of collateralized
mortgage obligations 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.


      n Commercial  (Privately-Issued) Mortgage Related Securities. The Fund can
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.

      n  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.


      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.


      n Participation Interests. The Fund can invest in participation interests,
subject to the Fund's  limitation  on  investments  in illiquid  investments.  A
participation  interest is an  undivided  interest in a loan made by the issuing
financial institution in the proportion that the buyer's participation  interest
bears to the total principal  amount of the loan. Not 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.


      n 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,  but the Fund does not  expect to have a  portfolio  turnover
rate of more than 100% annually.


      Increased   portfolio   turnover  may  result  in  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.


      n  Foreign  Securities.  "Foreign  securities"  include  equity  and  debt
securities  issued  or  guaranteed  by  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,  such as the World  Bank.  Those  securities  may be traded on foreign
securities  exchanges  or in the foreign  over-the-counter  markets.  Securities
denominated in foreign  currencies issued by U.S.  companies are also considered
to be "foreign  securities."  The Fund  expects to have  investments  in foreign
securities as part of its normal investment strategy.



      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.

      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 income  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 securities 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.


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


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

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

      If  there  is  a  default  on  collateralized  Brady  Bonds  resulting  in
acceleration  of the payment  obligations of the issuer,  the  zero-coupon  U.S.
Treasury  securities held as collateral for the payment of principal will not be
distributed to investors,  nor will those  obligations be sold to distribute the
proceeds.  The collateral will be held by the collateral  agent to the scheduled
maturity of the  defaulted  Brady Bonds.  The  defaulted  bonds will continue to
remain  outstanding,  and the face  amount  of the  collateral  will  equal  the
principal  payments  which  would  have then been due on the Brady  Bonds in the
normal  course.  Because of the residual  risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries   issuing  Brady  Bonds,   Brady  Bonds  are  considered   speculative
investments.
      Because  the  Fund  can  purchase   securities   denominated   in  foreign
currencies,  a change in the value of a foreign currency against the U.S. dollar
could  result in a change in the  amount of income  the Fund has  available  for
distribution.  Because a portion of the Fund's investment income may be received
in foreign  currencies,  the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having  distributed more income
in a particular fiscal period than was available from investment  income,  which
could result in a return of capital to shareholders.


         o 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, securities 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.


         o Special Risks of Emerging  Markets.  Emerging and developing  markets
abroad may also offer special opportunities for investing but have greater risks
than more developed foreign markets, such as those in Europe, Canada, Australia,
New  Zealand and Japan.  There may be even less  liquidity  in their  securities
markets,  and settlements of purchases and sales of securities may be subject to
additional  delays.  They are  subject to greater  risks of  limitations  on the
repatriation of income and profits because of currency  restrictions  imposed by
local  governments.  Those  countries may also be subject to the risk of greater
political and economic  instability,  which can greatly affect the volatility of
prices of securities in those countries. The Manager will consider these factors
when  evaluating  securities in these  markets,  and the Fund currently does not
expect to invest a substantial portion of its assets in emerging markets.


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

            o  issuers  in which the Fund  invests,  because  of  changes in the
               competitive  environment from a consolidated  currency market and
               greater  operational  costs from  converting to the new currency.
               This might depress securities values.
            o  vendors the Fund  depends on to carry out its  business,  such as
               its custodian  bank (which holds the foreign  securities the Fund
               buys),  the Manager  (which must price the Fund's  investments to
               deal  with the  conversion  to the  euro)  and  brokers,  foreign
               markets and  securities  depositories.  If they are not prepared,
               there could be delays in settlements and additional  costs to the
               Fund.
            o  exchange  contracts and derivatives  that are outstanding  during
               the   transition   to  the  euro.   The  lack  of  currency  rate
               calculations  between  the  affected  currencies  and the need to
               update the Fund's contracts could pose extra costs to the Fund.

      The Manager has upgraded  (at its  expense)  its computer and  bookkeeping
systems to deal with the conversion.  The Fund's  custodian bank has advised the
Manager of its plans to deal with the  conversion,  including how it will update
its record keeping systems and handle the redenomination of outstanding  foreign
debt.  The  Fund's  portfolio  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.


      n   Zero-Coupon   Securities.   The   Fund   can   buy   zero-coupon   and
delayed-interest securities, and "stripped" securities.  Stripped securities are
debt securities  whose interest coupons are separated from the security and sold
separately.  The  Fund  can buy  different  types  of  zero-coupon  or  stripped
securities,  including,  among others, 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.


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


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

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


      |X| Floating Rate and Variable Rate Obligations. Variable rate obligations
may 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  note is  adjusted  automatically
according to a stated  prevailing  market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable  rate note is also based on a stated  prevailing  market  rate but is
adjusted  automatically at specified  intervals.  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 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.

      Step-coupon  bonds have a coupon  interest rate that changes  periodically
during the life of the  security  on  predetermined  dates that are set when the
security is issued.

      n "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.  The securities are
subject  to change in value from  market  fluctuations  during the period  until
settlement.  The value at  delivery  may be less than the  purchase  price.  For
example,  changes in interest  rates in a direction  other than that expected by
the Manager before  settlement  will affect the value of such securities and may
cause a loss to the Fund. During the period between purchase and settlement,  no
payment is made by the Fund to the issuer  and no  interest  accrues to the Fund
from the investment until it receives the security at settlement.

      The Fund may engage in when-issued transactions to secure what the Manager
considers to be an  advantageous  price and yield at the time the  obligation is
entered  into.  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.

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

      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.


      n 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.


      n 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 liquid assets
in an amount equal to the payment obligation under the roll.

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


      n Investments  in Equity  Securities.  Under normal market  conditions the
Fund can invest a portion of assets in common stocks, preferred stocks, warrants
(which might be acquired as part of a "unit" of  securities  that  includes debt
securities) and convertible debt securities,  which in some cases are considered
"equity  equivalents."  However,  it does  not  currently  anticipate  investing
significant  amounts  of its assets in equity  securities  as part of its normal
investment strategy.  Certain equity securities may be selected because they may
provide dividend income.

         o 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.

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


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

      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.

o Preferred Stocks.  Preferred stock, unlike common stock, has a stated dividend
rate payable from the corporation's  earnings.  Preferred stock dividends may be
cumulative  or  non-cumulative,  participating,  or auction  rate.  "Cumulative"
dividend  provisions  require all or a portion of prior  unpaid  dividends to be
paid before dividends can be paid on the issuer's common stock.  Preferred stock
may be "participating"  stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.

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


      n Loans of  Portfolio  Securities.  To raise cash for income or  liquidity
purposes,  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  total
assets. The Fund currently does not intend to engage in loans of securities, 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 or securities of the U.S.  government or
its agencies or  instrumentalities,  or other cash equivalents in which the Fund
is permitted to invest.  To be acceptable as collateral,  letters of credit must
obligate a bank to pay  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|   Money Market Instruments. The following is a brief description of
the types of the U.S. dollar denominated money market securities the Fund can
invest in. Money market securities are high-quality, short-term debt
instruments that may be issued by the U.S. government, corporations, banks or
other entities. They may have fixed, variable or floating interest rates.

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

instrumentalities, described above.


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

            o  obligations  issued or guaranteed by a domestic bank (including a
               foreign  branch of a domestic  bank)  having  total  assets of at
               least U.S. $1 billion, or
o      obligations of a foreign bank with total assets of at least U.S. $1
               billion.

      "Banks"  include  commercial  banks,  savings  banks and  savings and loan
associations,  which may or may not be members of the Federal Deposit  Insurance
Corporation.


         |_| Commercial  Paper. The Fund can invest in commercial paper if it is
rated within the top three rating categories of Standard & Poor's and Moody's or
other rating  organizations.  If the paper is not rated,  it may be purchased if
the Manager  determines that it is comparable to rated  commercial  paper in the
top three rating categories of national rating organizations.


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


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


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

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


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


      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.


      n  Hedging.  The  Fund  can use  hedging  instruments  although  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:

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

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

      The Fund is not  obligated to use hedging  instruments,  even though it is
permitted  to use them in the  Manager's  discretion,  as described  below.  The
Fund's  strategy  of  hedging  with  futures  and  options  on  futures  will be
incidental  to  the  Fund's  activities  in  the  underlying  cash  market.  The
particular  hedging  instruments the Fund can use are described  below. The Fund
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.


         o Futures.  The Fund can buy and sell futures  contracts that relate to
(1)  broadly-based  bond or other  security  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.  In some  cases,  these  futures may 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  invest  a  portion  of its  assets  in  commodity  futures
contracts.  Commodity  futures  may be based upon  commodities  within five main
commodity  groups:  (1) energy,  which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat,  corn,  soybeans,  cotton,  coffee,  sugar and cocoa;  (4)
industrial metals, which includes aluminum,  copper, lead, nickel, tin and zinc;
and (5) precious metals,  which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts,  options on futures contracts and
options  and  futures  on  commodity  indices  with  respect  to these five main
commodity  groups and the individual  commodities  within each group, as well as
other types of commodities.
      No money is paid or  received  by the  Fund on the  purchase  or sale of a
future. Upon entering into a futures  transaction,  the Fund will be required to
deposit an initial  margin  payment with the futures  commission  merchant  (the
"futures  broker").  Initial  margin  payments will be deposited with the Fund's
custodian bank in an account  registered in the futures broker's name.  However,
the  futures  broker  can gain  access  to that  account  only  under  specified
conditions.  As the future is marked to market (that is, its value on the Fund's
books is  changed) to reflect  changes in its market  value,  subsequent  margin
payments,  called  variation  margin,  will be paid to or by the futures  broker
daily.

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


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

         o Writing  Covered  Call  Options.  The Fund can write (that is,  sell)
covered calls. If the Fund sells a call option,  it must be covered.  That means
the  Fund  must  own  the  security  subject  to the  call  while  the  call  is
outstanding,  or, for calls on futures and  indices,  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.


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

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


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

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

      To  terminate  its  obligation  on a call it has  written,  the  Fund  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  identifying  on it
books an  equivalent  dollar  amount of liquid  assets.  The Fund will  identify
additional  liquid  assets  on its  books to cover  the call if the value of the
identified  assets drops below 100% of the current value of the future.  Because
of this asset coverage requirement, in no circumstances would the Fund's receipt
of an exercise  notice as to that  future  require the Fund to deliver a futures
contract.  It would simply put the Fund in a short  futures  position,  which is
permitted by the Fund's hedging policies.


         o Writing Put  Options.  The Fund 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  liquid  assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying  investment  remains
equal to or above the exercise price of the put. However,  the Fund also assumes
the obligation  during the option period to buy the underlying  investment  from
the buyer of the put at the exercise price,  even if the value of the investment
falls below the exercise price.

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

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

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

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


         o Purchasing Calls and Puts. The Fund can purchase calls 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 on  securities,  broadly-based  securities  indices,
foreign  currencies  and  futures,   whether  or  not  it  owns  the  underlying
investment.  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.

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

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

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


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


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

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

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


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


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

      The Fund could 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.


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


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


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

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

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

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



<PAGE>



         o Interest  Rate Swap  Transactions.  The Fund can enter into  interest
rate swap  agreements.  In an interest  rate swap,  the Fund and  another  party
exchange  their  right to  receive  or their  obligation  to pay  interest  on a
security.  For  example,  they  might swap the right to  receive  floating  rate
payments  for  fixed  rate  payments.  The Fund can  enter  into  swaps  only on
securities that it owns. The Fund will not enter into swaps with respect to more
than 25% of its total  assets.  Also,  the Fund will identify on its book 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  may terminate all of the swaps with that party.  Under
these  agreements,  if a default results in a loss to one party,  the measure of
that  party's  damages is  calculated  by  reference  to the  average  cost of a
replacement  swap for each swap. It is measured by the  mark-to-market  value at
the time of the  termination of each swap. The gains and losses on all swaps are
then netted, and the result is the  counterparty's  gain or loss on termination.
The  termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."


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


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

      Under the  Investment  Company Act, when the Fund  purchases a future,  it
must  maintain  liquid  assets in an  amount  equal to the  market  value of the
securities underlying the future, less the margin deposit applicable to it.


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


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

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

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



<PAGE>


Investment Restrictions


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


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


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

      o The Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in  securities of that issuer
or if it would then own more than 10% of that issuer's voting  securities.  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  concentrate  its  investments  (that means it cannot
invest  25% or more  of its  total  assets)  in any one  industry.  Gas,  water,
electric and telephone  utilities are  considered to be separate  industries for
this purpose.

      o The Fund cannot make loans.  However, the Fund can invest in obligations
that it can buy consistent  with its  investment  objective and policies and can
enter  into  repurchase  agreements.  The  Fund  may  also  lend  its  portfolio
securities.

      o The Fund cannot  invest in oil,  gas or other  mineral  leases,  rights,
royalty  contracts or exploration or development  programs,  real estate or real
estate mortgage loans. However, the Fund can purchase and sell securities issued
or secured by  companies  that invest in or deal in real estate and by companies
that are not  principally  engaged in the  business  of buying and  selling  the
leases, rights, contracts or programs described above.

      o The Fund cannot underwrite securities.  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.




<PAGE>



      o The Fund cannot  invest in or hold  securities  of any issuer if, to the
knowledge of the Fund or its parent Trust, officers and Directors or Trustees of
the Fund,  its parent  Trust or  Massachusetts  Mutual  Life  Insurance  Company
individually  beneficially  own more  than 1/2 of 1% of the  securities  of that
issuer and together own more than 5% of the securities of that issuer.

      o The Fund cannot mortgage,  pledge or hypothecate its assets. However, to
secure  permitted  borrowings,  the Fund can pledge  securities  having a market
value (at the time of the  pledge) not  exceeding  15% of the cost of the Fund's
total  assets.  This  restriction  does not  prohibit  the Fund  from  permitted
transactions  in  options,  futures  contracts  and  options  on futures or from
entering  into  reverse   repurchase   agreements   and  lending  its  portfolio
securities.

         o The Fund cannot make loans to an officer,  trustee or employee of the
Fund's  parent  Trust or to any officer,  director or employee of  Massachusetts
Mutual Life Insurance Company, or to that company.

         o The  Fund  cannot  borrow  money  or enter  into  reverse  repurchase
agreements for investment purposes but can borrow money from banks or enter into
reverse  repurchase  agreements  as a  temporary  measure for  extraordinary  or
emergency  purposes.  The aggregate  amount of borrowings and commitments  under
reverse  repurchase  agreements  must not exceed 10% of the market  value of the
Fund's  total  assets  at the  time of  borrowing  or  entering  into a  reverse
repurchase  agreement.  The Fund cannot purchase additional portfolio securities
while the aggregate  amount of its borrowings and reverse  repurchase  agreement
commitments exceed 5% of its net assets.  Portfolio lending is not considered to
be "borrowing money" under this restriction.

         |_| 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.

         |_| The Fund cannot make short sales except for  transactions  referred
to as "short-sales-against-the-box." (Because changes in federal income tax laws
would  not  enable  the Fund to defer  realization  of gain or loss for  federal
income tax purposes, these transactions are not likely to be used by the Fund).


      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. That is not a fundamental policy.

      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.




<PAGE>



      n  Does the Fund Have Additional Restrictions That Are Not
"Fundamental" Policies?


      The Fund has additional operating policies that are not "fundamental," and
which can be changed by the Board of Trustees without shareholder approval:

o The Fund cannot invest in any company for the purpose of exercising control or
management of that company.

o The  Fund  cannot  buy  the  securities  of any  company  that  has a  history
(including that of any  predecessor,  controlling  person,  guarantor or general
partner) of less than three years of continuous  operations or relevant business
experience if that purchase  would cause more than 5% of the Fund's assets to be
invested in those types of companies.


o The Fund cannot invest in securities of other investment companies,  except if
it acquires them as part of a merger, consolidation or acquisition of assets.



How the Fund is Managed

Organization  and History.  The Fund is a series of Oppenheimer  Integrity Funds
(referred to as the Fund's  parent Trust in this  document).  The Fund's  parent
Trust was  established  in 1982 as MassMutual  Liquid Assets Trust,  an open-end
diversified   management   investment  company,  with  an  unlimited  number  of
authorized  shares  of  beneficial  interest.  The Fund was  reorganized  from a
closed-end  investment  company called MassMutual Income Investors,  Inc. into a
series of the Trust on April 15,  1988.  The Fund and the Trust were  originally
managed by Massachusetts  Mutual Life Insurance Company,  the Manager's indirect
parent  company.  On March 29, 1991,  the Manager  became the Fund's  investment
advisor, and the Trust changed its name to Oppenheimer Integrity Funds. The Fund
was then called  Oppenheimer  Investment Grade Bond Fund and changed its name to
Oppenheimer Bond Fund on July 10, 1995.

      The Fund is governed by the Board of  Trustees  of its parent  Trust.  The
Board  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.


      |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 four  classes  of
shares:  Class A, Class B, Class C and Class Y. 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 of
the  Trust.  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 Trust,  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 the Trust's 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
Trust  valued at  $25,000  or more or  constituting  at least 1% of the  Trust'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
Trust's or 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 Trust shall  assume the defense of any claim made  against a
shareholder  for any act or  obligation  of the  Trust  and  shall  satisfy  any
judgment on that claim.  Massachusetts  law permits a shareholder  of a business
trust  (such as the Trust) 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 Trust is limited to
the  relatively  remote  circumstances  in which the Fund or the Trust  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 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 funds1:



<PAGE>



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


      Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund,  respectively hold the same offices with the other
Denver-based  Oppenheimer  funds. As of April 1, 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.

1. Ms.  Macaskill  and Mr. Bowen are not  Trustees or  Directors of  Oppenheimer
Integrity Funds,  Oppenheimer  Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of  Centennial  New York  Tax  Exempt  Trust or  Managing  General  Partners  of
Centennial America Fund, L.P. Mr. Armstrong is not a Trustee of Oppenheimer Cash
Reserves, Oppenheimer Champion Income Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Real Asset Fund, any of the Centennial  Trusts or a Managing General
Partner of Centennial America Fund, L.P.


William L. Armstrong, Trustee, Age:
62.
11 Carriage Lane, Littleton,
Colorado 80121 Chairman of the following  private  mortgage  banking  companies:
Cherry Creek Mortgage  Company (since 1991),  Centennial  State Mortgage Company
(since 1994),  The El Paso Mortgage  Company (since 1993),  Transland  Financial
Services,  Inc. (since 1997),  and Ambassador  Media  Corporation  (since 1984);
Chairman  of  the  following  private  companies:  Frontier  Real  Estate,  Inc.
(residential  real  estate  brokerage)  (since  1994),   Frontier  Title  (title
insurance agency) (since 1995) and Great Frontier  Insurance  (insurance agency)
(since 1995);  Director of the following public  companies:  Storage  Technology
Corporation  (computer equipment company) (since 1991),  Helmerich & Payne, Inc.
(oil and gas drilling/production company) (since 1992), UNUMProvident (insurance
company)  (since 1991);  formerly  Director of the following  public  companies:
International Family Entertainment  (television channel) (1991 - 1997) and Natec
Resources,  Inc. (air pollution  control equipment and services company) (1991 -
1995); formerly U.S. Senator (January 1979 - January 1991).



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: 84
197 Desert Lakes Drive, Palm
Springs, California 92264
Management Consultant.

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. ("OAC"), the Manager's parent
holding company, and Shareholder
Services, Inc. ("SSI") and
Shareholder Financial Services, Inc.
("SFSI"), transfer agent
subsidiaries of the Manager.

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
SSI, Chairman,  Chief Executive and Officer and director of SFSI, Vice President
and director of OAC and a director of OppenheimerFunds, Inc.

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

C. Howard Kast, Trustee; Age: 77
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).

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,   an  investment  adviser  subsidiary  of  the  Manager
("Centennial"), and Chairman of the Board of SSI.


Bridget A. Macaskill, President; 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  director  (since  June 1991) of  HarbourView  Asset  Management  Corp.,  an
investment  advisor  subsidiary of the Manager  ("HarbourView");  Chairman and a
director of SSI (since August 1994), and SFSI (September 1995); President (since
September  1995) and a director  (since October 1990) of OAC;  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 manager  subsidiary of the Manager ("OFIL");  Chairman,  President
and a  director  of  Oppenheimer  Millennium  Funds plc  (since  October  1997);
President  and a director of other  Oppenheimer  funds;  a director of Hillsdown
Holdings plc (a U.K. food company).

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

David P. Negri, Vice President and
Portfolio Manager; Age: 44.
Two World Trade Center, 34th Floor,
New York, New York 10048-0203
Senior Vice President of the Manager
(since June 1989); a portfolio
manager and officer of other
Oppenheimer funds.

John S. Kowalik,  Vice President and Portfolio Manager;  Age: 42 Two World Trade
Center,  34th Floor, New York, New York 10048-0203  Senior Vice President of the
Manager (since July 1998); a portfolio  manager and officer of other Oppenheimer
funds;  formerly  Managing  Director and Senior Portfolio  Manager of Prudential
Global Advisors (1989-1998).

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  and General  Counsel  (since
September  1993)  and a  director  (since  January  1992)  of  the  Distributor;
Executive Vice President,  General  Counsel and a director of HarbourView,  SSI,
SFSI and Oppenheimer  Partnership  Holdings,  Inc. (since  September 1995) and a
director of Centennial (since September 1995); President,  General Counsel and a
director of Oppenheimer Real Asset Management,  Inc. (since July 1996);  General
Counsel (since May 1996) and Secretary (since April 1997) of OAC; Vice President
and a director  of OFIL and  Oppenheimer  Millennium  Funds plc  (since  October
1997); an officer of other Oppenheimer funds.



<PAGE>


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

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

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


      n  Remuneration  of  Trustees.  The  officers  of the  Fund and one of the
Trustees of the Fund (Mr.  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  December  31,  1998.  The  compensation  from  all  of  the
Denver-based  Oppenheimer  funds  includes  the  compensation  from the Fund and
represents  compensation  received  as a  director,  trustee,  managing  general
partner or member of a committee of the Board during the calendar year 1998.



<PAGE>



- --------------------------------------------------------------------------
                                                     Total Compensation
 Trustee's Name and Other   Aggregate Compensation from all Denver-Based
         Positions                From Fund          Oppenheimer Funds1
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

William H. Armstrong                  $0                   None2

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert G. Avis                       $774                 $67,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William A. Baker                     $797                 $69,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Jon. S. Fossel                       $768                 $67,496
Review Committee Member

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

Sam Freedman                         $842                 $73,998
Review Committee Member

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

Raymond J. Kalinowski                $842                 $73,998
Audit Committee Member

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

C. Howard Kast
Chairman, Audit and Review           $878                 $76,998
Committees

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

Robert M. Kirchner                   $774                 $67,998
Audit Committee Member

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Ned M. Steel                         $774                 $67,998
- --------------------------------------------------------------------------
1.    For the 1998 calendar year.

2.    Mr.   Armstrong  was  not  a  Trustee  or  Director  of  the  Denver-based
      Oppenheimer funds during 1998.

      |X| Deferred  Compensation  Plan for  Trustees.  The Board of Trustees has
adopted a Deferred  Compensation  Plan for  disinterested  trustees that enables
them to elect to defer  receipt of all or a portion of the annual  fees they are
entitled to receive from the Fund. Under the plan, the compensation  deferred by
a Trustee  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 Trustees' fees under the plan will not  materially  affect the
Fund's assets,  liabilities or net income per share.  The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation  to any Trustee.  Pursuant to an Order issued by the 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.


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




<PAGE>


      Mass  Mutual  Life  Insurance  Company,  1295 State  Street,  Springfield,
      Massachusetts   01111-0001  which  owned   2,615,242.011  Class  A  shares
      (approximately  10.79% of the  Class A shares  then  outstanding)  for the
      benefit of its customers.

      Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer Lake Drive East, Floor
      3,  Jacksonville,  Florida  32246 which owned  976,522.137  Class B shares
      (approximately 10.92% of the Class B shares then outstanding), 602,316.270
      Class  C  shares   (approximately  26.29%  of  the  Class  C  shares  then
      outstanding).

      The Manager, as the initial shareholder of the Class Y shares,  owned 100%
      of the Class Y shares.

The Manager.  The Manager is  wholly-owned by Oppenheimer  Acquisition  Corp., a
holding company controlled by Massachusetts  Mutual Life Insurance Company.  The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees,  including  portfolio  managers,
that would compete with or take advantage of the Fund's portfolio  transactions.
Compliance  with the Code of Ethics is carefully  monitored  and enforced by the
Manager.


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


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

      The 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 12/31:     Management Fees Paid to OppenheimerFunds, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
             1996                                 $1,640,483
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
             1997                                 $1,751,986
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
             1998                                 $2,199,637
- -------------------------------------------------------------------------------

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

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

      Until March 1991,  Massachusetts  Mutual  Life  Insurance  Company was the
Fund's  investment  advisor.  The Manager became the Fund's  investment  advisor
March 28, 1991, and the Manager engaged MassMutual as sub-advisor from March 28,
1991 until July 10, 1995.


Brokerage Policies of the Fund

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

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

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

      Transactions  in securities  other than those for which an exchange is the
primary  market  are  generally  done  with  principals  or  market  makers.  In
transactions  on  foreign  exchanges,  the Fund  may be  required  to pay  fixed
brokerage  commissions  and  therefore  would not have the benefit of negotiated
commissions available in U.S. markets.  Brokerage commissions are paid primarily
for effecting  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.



<PAGE>


- ------------------------------------------------------------------------------
  Fiscal Year Ended 12/31:     Total Brokerage Commissions Paid by the Fund1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
            1996                                  $13,094
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
            1997                                  $21,630
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
            1998                                  $63,490
- ------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal  transactions on a
net trade basis.


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 different  classes of shares of the Fund. 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 most recent fiscal year
is shown in the table below.

- -------------------------------------------------------------------------------
          Aggregate     Class A
          Front-End     Front-End     Commissions   Commissions   Commissions
Fiscal    Sales         Sales         on Class A    on Class B    on Class C
Year      Charges on    Charges       Shares        Shares        Shares
Ended     Class A       Retained by   Advanced by   Advanced by   Advanced by
12/31:    Shares        Distributor   Distributor1  Distributor1  Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  1996      $299,893      $117,612      $ 19,970      $ 308,922     $ 24,281
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  1997      $346,782      $134,951       $ 9,888      $ 591,879     $ 49,753
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
  1998      $751,085      $221,787      $112,467     $1,420,342     $117,997
- -------------------------------------------------------------------------------
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    Class B Contingent     Class C Contingent
Fiscal      Deferred Sales        Deferred Sales         Deferred Sales
Year  Ended Charges Retained by   Charges Retained by    Charges Retained by
12/31       Distributor           Distributor            Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
   1998             None                 $186,638               $7,397
- -------------------------------------------------------------------------------

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 Trustees2,  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 plan for Class C shares
were cast by the Manager as the sole  initial  holder of that class of shares of
the Fund

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

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

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

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

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

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



<PAGE>


      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.


      |X| Class A Service Plan.  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 year ended  December 31, 1998,  payments  under the Class A
Plan totaled  $538,337,  all of which was paid by the Distributor to recipients.
An affiliate of the Distributor received $186,566. Any unreimbursed expenses the
Distributor  incurs with  respect to Class A shares in any fiscal year cannot be
recovered in subsequent  years.  The Distributor  may not use payments  received
under the Class A Plan to pay any of its interest expenses, carrying charges, or
other financial costs, or allocation of overhead.


      |X| Class B and Class C Service and  Distribution  Plan.  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.

      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.  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 to compensate it for its expenses  incurred 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.

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

Distribution Fees Paid to the Distributor in the Fiscal Year Ended 12/31/98

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

                                            Distributor's      Distributor's
                                            Aggregate          Unreimbursed
              Total         Amount          Unreimbursed       Expenses as % of
              Payments      Retained by     Expenses Under     Net Assets of
Class:        Under Plan    Distributor     Plan               Class

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Plan  $642,192      None            $2,413,027               3.75%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Plan  $151,634      None            $   253,281              1.67%
- --------------------------------------------------------------------------------


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.
      o 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:

                                    (a-b)    6
            Standardized Yield = 2 ((--- + 1)  - 1)
                                    ( cd)

      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 12/31/98
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
  Class of
  Shares            Standardized Yield                 Dividend Yield
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
             Without          After           Without          After
             Sales            Sales           Sales            Sales
             Charge           Charge          Charge           Charge
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
  Class A         6.13%            5.84%           6.62%            6.30%
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
  Class B         5.37%             N/A            5.84%             N/A
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
  Class C         5.37%             N/A            5.85%             N/A
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------
  Class Y         6.72%             N/A            6.48%             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. There is no sales charge for Class Y
shares.


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


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




         o 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 12/31/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
         Cumulative Total
Class    Returns (10
of       years or Life of
Shares   Class)                        Average Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                                                  5-Year           10-Year
                                                    (or              (or
                                1-Year        life-of-class)    life-of-class)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
         After    Without  After    Without  After    Without  After    Without
         Sales    Sales    Sales    Sales    Sales    Sales    Sales    Sales
         Charge   Charge   Charge   Charge   Charge   Charge   Charge   Charge
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A  112.09%  122.66%    0.59%   5.61%    5.48%    6.52%    7.81%1  8.33%1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B   35.82%   36.79%   -0.14%   4.81%    5.41%    5.73%    5.56%2  5.69%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C    N/A     23.73%    3.82%   4.81%     N/A     6.32%3    N/A      N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class Y    N/A      4.40%4   N/A      N/A      N/A      N/A      N/A      N/A
- --------------------------------------------------------------------------------
1.    Inception of Class A:   4/15/88.
2.    Inception of Class B:   5/3/93.
3. Inception of Class C:      7/11/95.
4. Inception of Class Y:      4/27/98.

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


      Morningstar  proprietary  star ratings  reflect  historical  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 is measured by a
fund's (or class's)  performance below 90-day U.S.  Treasury bill returns.  Risk
and  investment   return  are  combined  to  produce  star  ratings   reflecting
performance  relative to the other funds in the 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
rating is the fund's (or class's)  overall  rating,  which is the Fund's  3-year
rating or its combined 3- and 5-year rating (weighted 60%/40% respectively),  or
its  combined  3-,  5-,  and  10-year   rating   (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 total return  ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
rankings  are  percentages  from one percent to one hundred  percent and are not
risk-adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.


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


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

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


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

How to Buy Shares

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

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

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


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

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

      A fiduciary can count all shares  purchased  for a trust,  estate or other
fiduciary  account  (including  one or more  employee  benefit plans of the same
employer) that has multiple  accounts.  The  Distributor  will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of  current  purchases  to  determine  the sales  charge  rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
      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    Main   Street    California
Oppenheimer Bond Fund                      Municipal Fund
                                       Oppenheimer  Main Street  Growth & Income
Oppenheimer Capital Appreciation Fund      Fund
Oppenheimer Capital Preservation Fund     Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund      Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund           Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund    Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund        Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund    Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund       Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund                 Oppenheimer Quest Balanced Value Fund
                                       Oppenheimer  Quest  Capital  Value  Fund,
Oppenheimer Enterprise Fund                Inc.
                                       Oppenheimer   Quest  Global  Value  Fund,
Oppenheimer Capital Income Fund            Inc.
Oppenheimer  Europe Fund Oppenheimer  Quest  Opportunity  Value Fund Oppenheimer
Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund Oppenheimer Global
Fund Oppenheimer Quest Value Fund, Inc.  Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer
Strategic  Income Fund Oppenheimer  Growth Fund  Oppenheimer  Total Return Fund,
Inc.  Oppenheimer  High Yield Fund  Oppenheimer  Trinity  Core Fund  Oppenheimer
Insured Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer  Intermediate
Municipal Fund  Oppenheimer  Trinity Value Fund Oppenheimer  International  Bond
Fund Oppenheimer U.S.  Government Trust  Oppenheimer  International  Growth Fund
Oppenheimer  World  Bond  Fund  Oppenheimer  International  Small  Company  Fund
Limited-Term New York Municipal Fund Oppenheimer Large Cap Growth Fund Rochester
Fund Municipals Oppenheimer Limited-Term Government 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.


      |X| 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.


         o  Terms of Escrow That Apply to Letters of Intent.


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

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

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

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

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

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


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

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

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


Retirement  Plans.  Certain types of  Retirement  Plans are entitled to purchase
shares of the Fund without  sales 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 rather than another.

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


      |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.  Although Class B
shares could then be  exchanged  for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the  shareholder,  and absent
such exchange,  Class B shares might  continue to be subject to the  asset-based
sales charge for longer than six years.

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



<PAGE>


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

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

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

      Dealers  other  than  Exchange  members  may  conduct  trading  in certain
securities on days on which the Exchange is closed (including  weekends and U.S.
holidays)  or after 4:00 P.M. on a regular  business  day.  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.


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

      o Equity securities traded on a U.S.  securities exchange or on NASDAQ are
valued as follows:


(1)      if last sale information is regularly reported,  they are valued at the
         last reported  sale price on the  principal  exchange on which they are
         traded or on NASDAQ, as applicable, on that day, or
(2)      if last sale information is not available on a valuation date, they are
         valued at the last reported sale price  preceding the valuation date if
         it is within the spread of the closing "bid" and "asked"  prices on the
         valuation  date or, if not, at the closing "bid" price on the valuation
         date.

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

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

      o Long-term debt  securities  having a remaining  maturity in excess of 60
days  are  valued  based  on the mean  between  the  "bid"  and  "asked"  prices
determined  by a  portfolio  pricing  service  approved  by the Fund's  Board of
Trustees  or  obtained  by the  Manager  from two  active  market  makers in the
security on the basis of reasonable inquiry.
      o The  following  securities  are valued at the mean between the "bid" and
"asked" prices  determined by a pricing service  approved by the Fund's Board of
Trustees  or  obtained  by the  Manager  from two  active  market  makers in the
security on the basis of reasonable  inquiry:  (1) debt  instruments that have a
maturity of more than 397 days when

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

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

         maturity  of less  than 397 days  when  issued  that  have a  remaining
         maturity of 60 days or less, and
(2)      debt  instruments  held by a money  market  fund that have a  remaining
         maturity of 397 days or less.

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


      In the case of U.S.  government  securities,  mortgage-backed  securities,
corporate bonds and foreign government securities, when last sale information is
not generally  available,  the Manager may use pricing services  approved by the
Board of  Trustees.  The pricing  service may use  "matrix"  comparisons  to the
prices for  comparable  instruments  on the basis of quality,  yield,  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  bank. 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);
      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:


      o Class A shares  purchased  subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
      o Class B shares  that were  subject  to the Class B  contingent  deferred
sales charge when redeemed.


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

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

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

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

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary  redemption  of the shares held in any account if the  aggregate net
asset value of those  shares is less than  $1,000 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  state  the  reason  for  the
distribution;   (1)  state  the  owner's  awareness  of  tax  penalties  if  the
distribution is
         premature; and
(2)      conform to the requirements of the plan and the Fund's other redemption
         requirements.

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

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

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

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

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

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

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

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


      n 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.

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


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

      For  accounts  subject to Automatic  Withdrawal  Plans,  distributions  of
capital gains must be  reinvested  in shares of the Fund,  which will be done at
net asset value without a sales charge.  Dividends on shares held in the account
may be paid in cash or reinvested.
      Shares will be redeemed to make withdrawal payments at the net asset value
per share  determined on the redemption  date.  Checks or  AccountLink  payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date  selected for receipt of the payment,  according
to the choice specified in writing by the Planholder.  Receipt of payment on the
date selected cannot be guaranteed.

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

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

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

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


How to Exchange Shares

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


      o All of the  Oppenheimer  funds  currently  offer Class A, B and C shares
except  Oppenheimer  Money Market Fund,  Inc.,  Centennial  Money Market  Trust,
Centennial Tax Exempt Trust,  Centennial  Government Trust,  Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
      o Oppenheimer Main Street California  Municipal Fund currently offers only
Class A and Class B shares.
      o Class B and Class C shares of  Oppenheimer  Cash  Reserves are generally
available  only by exchange  from the same class of shares of other  Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
      o Class Y shares of  Oppenheimer  Real Asset Fund may not be exchanged for
shares of any other Fund.


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

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

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


      Shares of Oppenheimer  Capital  Preservation Fund may not be exchanged for
shares of  Oppenheimer  Money Market Fund,  Inc.,  Oppenheimer  Cash Reserves or
Oppenheimer   Limited-Term   Government  Fund.  Only   participants  in  certain
retirement plans may purchase shares of Oppenheimer  Capital  Preservation Fund,
and only those  participants may exchange shares of other  Oppenheimer funds for
shares of Oppenheimer Capital Preservation Fund.


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

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


<PAGE>



INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying statement of assets and liabilities,  including
the statement of investments, of Oppenheimer Bond Fund as of December 31,
1998,
the related  statement of operations for the year then ended,  the statements of
changes in net assets for the years ended  December  31, 1998 and 1997,  and the
financial highlights for the period January 1, 1994, to December 31, 1998. These
financial  statements  and financial  highlights are the  responsibility  of the
Fund's  management.  Our  responsibility  is to  express  an  opinion  on  these
financial statements and financial highlights based on our audits.

                  We conducted our audits in accordance with generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain  reasonable  assurance  about  whether the  financial  statements  and
financial  highlights  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the financial  statements.  Our procedures  included  confirmation of securities
owned as of December 31, 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  Bond Fund as of December 31, 1998,  the results of its  operations,
the changes in its net assets,  and the financial  highlights for the respective
stated periods, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Denver, Colorado
January 25, 1999


                           45  Oppenheimer Bond Fund


<PAGE>


STATEMENT OF INVESTMENTS December 31, 1998

<TABLE>
<CAPTION>


FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
=================================================================================================
<S>
<C>             <C>
ASSET-BACKED SECURITIES--0.6%
- -------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through
Certificates, Series 1998-C1, Cl. F, 6%, 5/17/40(2)
$2,500,000      $1,685,157
- -------------------------------------------------------------------------------------------------
Dayton Hudson Credit Card Master Trust, Asset-Backed
Certificates, Series 1997-1, Cl. A, 6.25%, 8/25/05
125,000         127,695
- -------------------------------------------------------------------------------------------------
IROQUOIS Trust, Asset-Backed Amortizing Nts.,
Series 1997-2, Cl. A, 6.752%, 6/25/07(2)
175,000         175,820
- -------------------------------------------------------------------------------------------------
Olympic Automobile Receivables Trust, Automobile
Receivables-Backed Nts.:
Series 1996-A, Cl. A-4, 5.85%, 7/15/01
97,569          97,524
Series 1997-A, Cl. A-5, 6.80%, 2/15/05
150,000         152,250

- ---------
Total Asset-Backed Securities (Cost
$2,565,556)                                        2,238,446

=================================================================================================
MORTGAGE-BACKED OBLIGATIONS--43.6%
- -------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--28.2%
- -------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--16.1%
Federal Home Loan Mortgage Corp., Certificates of Participation:
9%, 3/1/17
317,939         338,390
Series 17-039, 13.50%, 11/1/10
34,012          39,768
Series 17-094, 12.50%, 4/1/14
19,704          22,784
- -------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg
Obligations, Gtd. Multiclass Mtg. Participation Certificates:
Series 1343, Cl. LA, 8%, 8/15/22
1,600,000       1,719,008
Series 151, Cl. F, 9%, 5/15/21
866,526         912,825
Series 1711, Cl. EA, 7%, 3/15/24
200,000         204,562
Series 1712, Cl. B, 6%, 3/15/09
1,000,000         995,930
Series 1714, Cl. M, 7%, 8/15/23
1,000,000       1,019,060
- -------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg
Participation Certificates:
6%, 3/1/09
249,375         250,976
Series 1460, Cl. H, 7%, 5/15/07
1,500,000       1,520,625
Series 1843, Cl. VB, 7%, 4/15/03
85,000          86,806
Series 1849, Cl. VA, 6%, 12/15/10
195,514         197,225
Series G056, Cl. H, 9%, 7/20/24
2,493,000       2,679,196
- -------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg
Investment Conduit Pass-Through Certificates:
Series 1914, Cl. G, 6.50%, 2/15/24
3,000,000       3,036,540
Series 2054, Cl. TE, 6.25%, 4/15/24
850,000         858,228
- -------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 1583, Cl. IC, 0.312%, 1/15/20(3)
433,807          42,567
Series 1661, Cl. PK, 15.01%, 11/15/06(3)
455,645          29,332
Series 197, Cl. IO, 12.103%, 4/1/28(3)
8,297,692       2,157,400

</TABLE>

                           13  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)
<TABLE>
<CAPTION>



FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>               <C>
FHLMC/FNMA/SPONSORED (CONTINUED)
Federal National Mortgage Assn.:
6%, 12/1/03                                                          $
162,688      $   163,203
6.50%, 4/1/26-11/1/28
4,381,601        4,411,667
6.50%, 1/25/28(4)
8,500,000        8,557,120
7%, 1/25/28(4)
8,000,000        8,161,280
7%, 4/1/00-11/1/25
795,613          811,364
7.50%, 2/1/08-3/1/08
438,455          451,167
11%, 7/1/16
3,242,413        3,712,564
- -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg
Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates:
Trust 1992-34, Cl. G, 8%, 3/25/22
540,000          566,325
Trust 1993-181, Cl. C, 5.40%, 10/25/02
5,057            5,038
Trust 1993-190, Cl. Z, 5.85%, 7/25/08
153,137          152,850
- -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Mtg. Pass-Through
Certificates, 8%, 8/1/17
292,656          300,257
- -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1991-170, Cl. E, 8%, 12/25/06
2,186,008        2,260,464
Trust 1992-162, Cl. C, 7%, 10/25/21
8,400,000        8,583,708
Trust 1995-4, Cl. PC, 8%, 5/25/25
869,210          940,642
Trust 1997-25, Cl. B, 7%, 12/18/22
510,000          517,808
- -------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only
Stripped Mtg.-Backed Security:
Trust 277-C1, 36.333%, 4/1/27(5)
243,354          213,772
Trust 294, Cl. 1, 10.749%, 2/1/28(5)
1,694,264        1,440,125

- ----------

57,360,576
- -------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--12.1%
Government National Mortgage Assn.:
6%, 7/20/27
179,727          181,945
6.50%, 9/15/24
7,814,056        7,902,746
7%, 7/15/09-8/15/28
5,992,611        6,129,286
7%, 1/1/28(4)
8,000,000        8,185,040
7.50%, 1/15/28-9/15/28
13,720,355       14,157,276
8%, 6/15/05-8/15/28
4,812,670        4,999,816
9%, 2/15/09-6/15/09
350,604          375,347
10%, 11/15/09
172,729          189,813
10.50%, 12/15/17-5/15/21
218,905          239,909
11%, 10/20/19
595,709          678,364
12%, 1/15/99-5/15/14
907            1,018
13%, 12/15/14
26,874           30,897

- ----------

43,071,457
</TABLE>

                           14  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>


FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>               <C>
PRIVATE--15.4%
- -------------------------------------------------------------------------------------------------
COMMERCIAL--11.0%
AMRESCO Commercial Mortgage Funding I Corp., Multiclass Mtg
Pass-Through Certificates, Series 1997-C1, Cl. G, 7%, 6/17/29(2)     $
150,000       $  119,766
- -------------------------------------------------------------------------------------------------
Asset Securitization Corp., Commercial Mtg. Pass-Through
 Certificates:
Series 1996-D3, Cl. A5, 8.142%, 10/13/26(6)
800,000          813,250
Series 1996-MD6, Cl. A5, 7.164%, 11/13/26(6)
2,000,000        2,045,000
Series 1997-D4, Cl. B1, 7.525%, 4/14/29(6)
333,000          267,024
Series 1997-D4, Cl. B2, 7.525%, 4/14/29
333,000          258,179
Series 1997-D4, Cl. B3, 7.525%, 4/14/29(6)
334,000          235,783
Series 1997-D5, Cl. A6, 7.185%, 2/14/41(6)
1,500,000        1,373,203
Series 1997-D5, Cl. B1, 6.93%, 2/14/41
2,000,000        1,505,937
- -------------------------------------------------------------------------------------------------
Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed
Security, Series 1997-D5, Cl. PS1, 8.185%, 2/14/41(3)
6,165,761          596,345
- -------------------------------------------------------------------------------------------------
Capital Lease Funding Securitization LP, Interest-Only
Corporate-Backed Pass-Through Certificates,
Series 1997-CTL1, 9.55%, 6/22/24(2)(3)
13,286,717          547,413
- -------------------------------------------------------------------------------------------------
CBA Mortgage Corp., Mtg. Pass-Through Certificates,
Series 1993-C1, Cl. E, 7.76%, 12/25/03(2)(6)
250,000          232,969
- -------------------------------------------------------------------------------------------------
CMC Securities Corp. I, Collateralized Mtg. Obligations,
Series 1993-D, Cl. D-3, 10%, 7/25/23
294,615          297,654
- -------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., Interest-Only
Stripped Mtg.-Backed Security, Series 1996-C1,
Cl. X-2, 26.592%, 12/25/20(2)(3)
18,624,900          384,139
- -------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Series 1994-C1, Cl. 2-D, 8.70%, 9/25/25
1,000,000        1,020,000
Series 1994-C1, Cl. 2-E, 8.70%, 9/25/25
1,000,000          996,250
- -------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage
Trust, Commercial Mtg. Pass-Through Certificates,
Series 1998-C2, Cl. E, 6.778%, 5/18/13
2,000,000        1,731,250
- -------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
Interest-Only Stripped Mtg.-Backed Security,
Series 1997-C1, 10.019%, 4/18/27(3)
16,359,075        1,136,189
- -------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Collateralized
Mtg. Obligations:
Series 1997-C2, Cl. D, 7.192%, 1/15/08
1,500,000        1,486,875
Series 1997-C2, Cl. F, 6.75%, 4/16/29
1,000,000          680,937
Series 1998-C1, Cl. E, 7.086%, 3/15/11(6)
1,500,000        1,508,906
- -------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg
Pass-Through Certificates:
Series 1997-CL1, Cl. F, 7.154%, 7/13/30(6)
1,000,000        1,007,187
Series 1997-CL1, Cl. F, 7.624%, 7/13/30(6)
1,000,000          936,250
- -------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg
Pass-Through Certificates:
Series 1996-C1, Cl. D, 7.42%, 4/25/28
1,500,000        1,535,625
Series 1997-C2, Cl. D, 7.072%, 12/10/29(6)
1,000,000          969,375

</TABLE>

                           15  Oppenheimer Bond Fund


<PAGE>

STATEMENT OF INVESTMENTS (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
COMMERCIAL (CONTINUED)
Morgan Stanley Capital I, Inc., Commercial Mtg
Pass-Through Certificates:
Series 1996-C1, Cl. D-1, 7.436%, 2/15/28(2)(6)                       $
1,000,000      $ 1,028,125
Series 1996-C1, Cl. E, 7.436%, 3/15/06(2)(6)
1,100,000        1,029,187
Series 1997-HF1, Cl. F, 6.86%, 2/15/10(2)
225,000          201,938
Series 1997-RR, Cl. E, 7.762%, 4/30/39(2)(6)
400,000          362,500
Series 1997-RR, Cl. F, 7.762%, 4/30/39(2)
400,000          290,500
- -------------------------------------------------------------------------------------------------
NationsCommercial Corp., NB Commercial Mtg. Pass-Through
Certificates, Series-DMC, Cl. B, 8.562%, 8/12/11(2)
3,000,000        3,185,625
- -------------------------------------------------------------------------------------------------
PNC Mortgage Securities Corp., Commercial Mtg
Pass-Through Certificates, Series 1995-2, Cl. A3, 6.50%, 2/25/12
74,000           74,035
- -------------------------------------------------------------------------------------------------
Potomac Gurnee Financial Corp., Commercial Mtg
Pass-Through Certificates, Series 1, Cl. D, 7.68%, 12/21/26(2)
1,500,000        1,504,688
- -------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1994-C1, Cl. C, 8%, 6/25/26
1,500,000        1,505,391
Series 1995-C1, Cl. D, 6.90%, 2/25/27
2,500,000        2,484,961
- -------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Series 1996-C1, Cl. E,
9.184%, 1/20/06
700,000          715,750
- -------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1997-LLI, Cl. D, 7.15%, 4/12/12
2,500,000        2,495,313
- -------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through
Certificates, Series 1996-C3, Cl. D, 8%, 6/25/30(2)
2,500,000        2,514,063

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

39,077,582

- -------------------------------------------------------------------------------------------------
MULTI-FAMILY--0.7%
Countrywide Funding Corp., Mtg. Pass-Through
Certificates, Series 1994-10, Cl. A3, 6%, 5/25/09
250,000          248,358
- -------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., Commercial Mtg. Pass-Through
Certificates, Series 1997-MC1, Cl. F, 7.452%, 5/20/07(2)`
254,890          211,768
- -------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., Multifamily Mtg. Pass-Through
Certificates, Series 1996-MC1, Cl. G, 7.15%, 6/15/06(7)
2,250,000        1,854,492
- -------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1991-M5, Cl. A, 9%, 3/25/17(2)
60,453           60,000

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

2,374,618
- -------------------------------------------------------------------------------------------------
OTHER--0.4%
JHM Mtg. Acceptance Corp., Collateralized Mtg. Obligation
Bonds, Series E, Cl. 5, 8.96%, 4/1/19
1,181,467        1,208,783
- -------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI, Interest-Only Stripped
Mtg.-Backed Security, Series 1987-3, Cl. B, 15.68%, 10/23/17(3)
74,645           20,154
- -------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI, Principal-Only Stripped
Mtg.-Backed Security, Series 1987-3, Cl. A, 1.401%, 10/23/17(4)(5)
110,462           95,170

- ---------

1,324,107
</TABLE>

                           16  Oppenheimer Bond Fund


<PAGE>


<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
RESIDENTIAL--3.3%
CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Certificates:
Series 1997-C1, Cl. E, 7.50%, 3/1/11(2)
$1,000,000     $    956,875
Series 1997-C1, Cl. F, 7.50%, 6/20/13(2)
150,000          116,953
Series 1997-C1, Cl. G, 7.50%, 6/20/14(2)
150,000          107,391
Series 1997-C1, Cl. H, 7.50%, 8/20/14(2)
105,000           72,056
- -------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg.
Pass-Through Certificates:
Series 1997-CHL1, 8.098%, 2/25/11(2)(6)
750,000          582,891
Series 1997-CHL1, 8.098%, 5/25/08(2)(6)
750,000          644,297
- -------------------------------------------------------------------------------------------------
GE Capital Mortgage Services, Inc., Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates,
Series 1994-7, Cl. A18, 6%, 2/25/09
198,885          189,997
- -------------------------------------------------------------------------------------------------
NationsBank Trust, Lease Pass-Through Certificates,
Series 1997A-1, 7.442%, 1/10/11(6)
500,000          531,328
- -------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed
Pass-Through Certificates:
Series 1997-QS11, 7%, 10/25/12
6,479,342        6,588,681
Series 1997-QS9, Cl. 2, 6.75%, 9/25/27
119,763          119,389
- -------------------------------------------------------------------------------------------------
Residential Funding Mortgage Securities I, Inc., Mtg. Pass-Through
Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23
264,483          272,169
- -------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp. III Sub. Bonds,
Series 1992-A, Cl. 1A, 8.256%, 3/29/30(6)
310,291          314,073
- -------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII,
Series 1996-B, Cl. 1, 7.132%, 4/25/26(2)
1,937,218        1,429,910

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

11,926,010

- ------------
Total Mortgage-Backed Obligations (Cost
$154,585,683)                                 155,134,350

=================================================================================================
U.S. GOVERNMENT OBLIGATIONS--3.2%
- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
6%, 2/15/26
200,000          218,313
7.50%, 11/15/16
1,645,000        2,045,969
- -------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.50%, 5/31/00
4,500,000        4,553,437
5.625%, 2/15/06
550,000          580,250
5.75%, 8/15/03
325,000          339,320
6.50%, 8/15/05
650,000          714,391
7.50%, 11/15/01(8)(9)
2,625,000        2,821,875

- -----------
Total U.S. Government Obligations (Cost
$10,811,004)                                   11,273,555

</TABLE>
                           17  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
CORPORATE BONDS AND NOTES--51.8%
AEROSPACE/DEFENSE--2.2%
Amtran, Inc., 9.625% Nts., 12/15/05                                   $
200,000       $  201,000
- -------------------------------------------------------------------------------------------------
Atlas Air, Inc.:
10.75% Sr. Nts., 8/1/05
125,000          131,875
12.25% Pass-Through Certificates, 12/1/02
1,950,000        2,106,000
8.01% Nts., 1/2/10
1,000,000        1,007,444
9.375% Sr. Nts., 11/15/06(7)
1,000,000        1,025,000
- -------------------------------------------------------------------------------------------------
Boeing Co., 7.50% Debs., 8/15/42
2,000,000        2,271,774
- -------------------------------------------------------------------------------------------------
Rolls-Royce Capital, Inc., 7.125% Gtd. Nts., 7/29/03
1,000,000        1,046,250
- -------------------------------------------------------------------------------------------------
SC International Services, Inc., 9.25% Sr. Sub. Nts., Series B, 9/1/07
100,000          100,500

- ----------

7,889,843

- -------------------------------------------------------------------------------------------------
CHEMICALS--1.8%
FMC Corp., 8.75% Sr. Nts., 4/1/99
250,000          251,379
- -------------------------------------------------------------------------------------------------
IMC Global, Inc., 7.625% Bonds, 11/1/05
5,000,000        5,123,360
- -------------------------------------------------------------------------------------------------
Morton International, Inc., 9.25% Credit Sensitive Nts., 6/1/20
85,000          115,698
- -------------------------------------------------------------------------------------------------
NL Industries, Inc., 11.75% Sr. Sec. Nts., 10/15/03
492,000          525,210
- -------------------------------------------------------------------------------------------------
Pioneer Americas Acquisition Corp., 9.25% Sr. Nts., 6/15/07
100,000           80,500
- -------------------------------------------------------------------------------------------------
PPG Industries, Inc., 9% Debs., 5/1/21
85,000          108,730
- -------------------------------------------------------------------------------------------------
Sovereign Specialty Chemicals, Inc., 9.50% Sr. Unsec. Sub. Nts.,
Series B, 8/1/07
175,000          178,500

- ---------

6,383,377

- -------------------------------------------------------------------------------------------------
CONSUMER DURABLES--0.2%
Black & Decker Corp., 6.625% Nts., 11/15/00
145,000          147,479
- -------------------------------------------------------------------------------------------------
Icon Health & Fitness, Inc., 13% Sr. Sub. Nts., Series B, 7/15/02
250,000          151,250
- -------------------------------------------------------------------------------------------------
TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(2)
370,000          429,574

- ---------

728,303

- -------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--0.3%
Bell Sports, Inc., 11% Sr. Sub. Nts., 8/15/08(7)
125,000          127,500
- -------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11
500,000          450,476
- -------------------------------------------------------------------------------------------------
Kimberly-Clark Corp., 7.875% Debs., 2/1/23
85,000           94,483
- -------------------------------------------------------------------------------------------------
Phillips-Van Heusen Corp., 9.50% Sr. Unsec. Sub. Nts., 5/1/08
250,000          251,250
- -------------------------------------------------------------------------------------------------
Styling Technology Corp., 10.875% Sr. Sub. Nts., 7/1/08
145,000          138,475

- ----------

1,062,184

- -------------------------------------------------------------------------------------------------
ENERGY--4.0%
Coastal Corp.:
8.125% Sr. Nts., 9/15/02
85,000           91,106
8.75% Sr. Nts., 5/15/99
380,000          383,985
- -------------------------------------------------------------------------------------------------
Eastern Energy Ltd., 6.75% Sr. Nts., 12/1/06(7)
2,000,000        2,104,710

</TABLE>

                           18  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
ENERGY (CONTINUED)
ENSCO International, Inc.:
6.75% Nts., 11/15/07
$1,000,000     $ 1,019,222
7.20% Debs., 11/15/27
1,000,000       1,015,785
- -------------------------------------------------------------------------------------------------
Enterprise Oil plc, 6.70% Sr. Nts., 9/15/07
1,000,000         995,325
- -------------------------------------------------------------------------------------------------
Global Marine, Inc., 7.125% Nts., 9/1/07
2,000,000       2,032,056
- -------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd.:
8.25% Sr. Nts., 3/15/17
75,000          67,828
9% Debs., 8/15/99
75,000          75,375
- -------------------------------------------------------------------------------------------------
Louisiana Land & Exploration Co., 7.65% Debs., 12/1/23
100,000         108,135
- -------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02
100,000         106,819
- -------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 11.125% Sr. Debs., 6/1/19
2,000,000       2,156,442
- -------------------------------------------------------------------------------------------------
Ocean Rig Norway AS, 10.25% Sr. Sec. Nts., 6/1/08
200,000         161,000
- -------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08
400,000         406,000
- -------------------------------------------------------------------------------------------------
Petroleum Geo-Services ASA, 7.50% Nts., 3/31/07
75,000          79,910
- -------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., 9.375% Sr. Sub. Debs., 2/1/06
750,000         705,000
- -------------------------------------------------------------------------------------------------
Standard Oil, 9% Gtd. Debs., 6/1/19
85,000          85,924
- -------------------------------------------------------------------------------------------------
Stone Energy Corp., 8.75% Sr. Sub. Nts., 9/15/07
300,000         291,000
- -------------------------------------------------------------------------------------------------
Talisman Energy, Inc., 7.25% Debs., 10/15/27
500,000         482,251
- -------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21
1,500,000       1,923,855
- -------------------------------------------------------------------------------------------------
Williams Holdings of Delaware, Inc., 6.25% Sr. Unsec. Debs., 2/1/06
100,000         102,899

- ----------

14,394,627

- -------------------------------------------------------------------------------------------------
FINANCIAL--11.9%
Aetna Services, Inc., 8% Debs., 1/15/17
697,000          718,877
- -------------------------------------------------------------------------------------------------
Allmerica Capital I, 8.207% Debs., 2/3/27
2,000,000        2,241,142
- -------------------------------------------------------------------------------------------------
American General Institutional Capital B, 8.125% Bonds,
Series B, 3/15/46(7)
75,000           86,572
- -------------------------------------------------------------------------------------------------
Associates Corp. of North America, 7.40% Medium-Term Nts., 7/7/99
300,000          303,149
- -------------------------------------------------------------------------------------------------
BankAmerica Corp. (New), 8.50% Exchangeable Sub. Capital
Nts., 3/1/99 (exchangeable for common, perpetual preferred
stock or other capital securities)
60,000           60,230
- -------------------------------------------------------------------------------------------------
BHP Finance (USA) Ltd., 8.50% Gtd. Debs., 12/1/12
1,500,000        1,829,280
- -------------------------------------------------------------------------------------------------
Capital One Financial Corp., 7.25% Nts., 12/1/03
50,000           49,212
- -------------------------------------------------------------------------------------------------
CB Richard Ellis Services, Inc., 8.875% Sr. Unsec. Sub. Nts., 6/1/06
250,000          246,250
- -------------------------------------------------------------------------------------------------
Chelsea GCA Realty Partner, Inc., 7.75% Unsec. Nts., 1/26/01
60,000           59,616
- -------------------------------------------------------------------------------------------------
Citicorp Capital I, 7.933% Gtd. Bonds, 2/15/27
1,000,000        1,096,786
- -------------------------------------------------------------------------------------------------
Citicorp, 5.625% Sr. Nts., 2/15/01
90,000           90,268
- -------------------------------------------------------------------------------------------------
Commercial Credit Co., 5.55% Unsec. Nts., 2/15/01
145,000          145,161
- -------------------------------------------------------------------------------------------------
Conseco Financing Trust III, 8.796% Bonds, 4/1/27
100,000           95,931
- -------------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.05% Medium-Term
Nts., Series D, 3/1/01
90,000           90,374
- -------------------------------------------------------------------------------------------------
Farmers Exchange Capital, 7.05% Trust Surplus Nts., 7/15/28(7)
2,000,000        2,018,508

</TABLE>

                           19  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
FINANCIAL (CONTINUED)
Fleet Mtg./Norstar Group, Inc., 9.90% Sub. Nts., 6/15/01              $
145,000      $   159,017
- -------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 6.75% Nts., 8/15/08
1,000,000        1,064,037
- -------------------------------------------------------------------------------------------------
Franchise Finance Corp. of America, 8.25% Sr. Unsec. Nts., 10/30/03
3,950,000        4,017,450
- -------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.625% Nts., 2/15/01
175,000          175,625
- -------------------------------------------------------------------------------------------------
Integra Financial Corp., 6.50% Sub. Nts., 4/15/00
145,000          146,924
- -------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08
1,000,000        1,000,076
- -------------------------------------------------------------------------------------------------
Liberty Mutual Insurance Co., 7.697% Unsec. Nts., 10/15/2097(7)
1,000,000        1,009,920
- -------------------------------------------------------------------------------------------------
Long Island Savings Bank, 6.20% Nts., 4/2/01
1,000,000        1,009,648
- -------------------------------------------------------------------------------------------------
Lumbermens Mutual Casualty Co., 8.30% Surplus Nts., 12/1/37(7)
2,000,000        2,242,676
- -------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.:
6.50% Nts., 4/1/01
150,000          152,784
6.875% Nts., 11/15/18
3,300,000        3,444,289
6.875% Nts., 3/1/03
750,000          781,622
- -------------------------------------------------------------------------------------------------
Metropolitan Life Insurance Co., 6.30% Nts., 11/1/03(7)
1,000,000        1,005,652
- -------------------------------------------------------------------------------------------------
National Westminster Bank plc, 9.375% Gtd. Capital Nts., 11/15/03
70,000           80,300
- -------------------------------------------------------------------------------------------------
NationsBank Corp., 10.20% Sub. Nts., 7/15/15
1,300,000        1,761,717
- -------------------------------------------------------------------------------------------------
Ocwen Capital Trust I, 10.875% Capital Nts., 8/1/27
300,000          241,500
- -------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99
1,825,000        1,841,642
- -------------------------------------------------------------------------------------------------
Rank Group Finance plc, 6.75% Gtd. Nts., 11/30/04
1,000,000        1,006,178
- -------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group (The) plc, 10.125% Gtd.
Sub. Capital Nts., 3/1/04
500,000          593,841
- -------------------------------------------------------------------------------------------------
Ryder System, Inc., 8.75% Debs., Series J, 3/15/17
1,447,000        1,508,419
- -------------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc., 6.25% Bonds, 1/15/05
2,000,000        2,024,712
- -------------------------------------------------------------------------------------------------
Salomon, Inc., 7.30% Nts., 5/15/02
1,000,000        1,044,339
- -------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 9.75% Sr. Sec. Nts.,
Series B, 4/1/08
400,000          374,000
- -------------------------------------------------------------------------------------------------
Source One Mortgage Services Corp., 9% Debs., 6/1/12
1,250,000        1,258,395
- -------------------------------------------------------------------------------------------------
Travelers Group, Inc.:
6.875% Debs., 2/15/2098
1,000,000        1,018,395
7.25% Sr. Unsec. Nts., 5/1/01
1,700,000        1,758,788
- -------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 6.75% Nts., 4/15/01
145,000          148,489
- -------------------------------------------------------------------------------------------------
Veritas Holdings, Inc., 9.625% Sr. Nts., 12/15/03
135,000          135,000
- -------------------------------------------------------------------------------------------------
Washington Mutual Capital I, 8.375% Sub. Capital
Income Nts., 6/1/27
2,000,000        2,209,340

- ----------

42,346,131

- -------------------------------------------------------------------------------------------------
FOOD & DRUG--0.0%
Ameriking, Inc., 10.75% Sr. Nts., 12/1/06
160,000          167,600
- -------------------------------------------------------------------------------------------------
FOOD/TOBACCO--0.8%
B.A.T. Capital Corp., 6.66% Medium-Term Nts., 3/22/00(7)
250,000          254,405
- -------------------------------------------------------------------------------------------------
Coca-Cola Enterprises, Inc., 6.95% Debs., 11/15/26
2,000,000        2,134,210
- -------------------------------------------------------------------------------------------------
Dole Food Distributing, Inc., 6.75% Nts., 7/15/00
150,000          151,459

</TABLE>
                           20  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
FOOD/TOBACCO (CONTINUED)
Purina Mills, Inc., 9% Sr. Unsec. Sub. Nts., 3/15/10                  $
100,000       $  102,500
- -------------------------------------------------------------------------------------------------
SmithField Foods, Inc., 7.625% Sr. Unsec. Sub. Nts., 2/15/08
250,000          252,500

- ---------

2,895,074

- -------------------------------------------------------------------------------------------------
FOREST PRODUCTS/CONTAINERS--0.2%
Mail-Well I Corp., 8.75% Sr. Sub. Nts., 12/15/08(7)
200,000          201,000
- -------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.625% Sr. Unsec. Nts., 8/1/07
200,000          199,000
- -------------------------------------------------------------------------------------------------
U.S. Can Corp., 10.125% Sr. Sub. Nts., Series B, 10/15/06
250,000          257,500

- ---------

657,500

- -------------------------------------------------------------------------------------------------
GAMING/LEISURE--2.4%
Capstar Hotel Co., 8.75% Sr. Sub. Nts., 8/15/07
150,000          147,000
- -------------------------------------------------------------------------------------------------
Casino Magic of Louisiana Corp., 13% First Mtg. Nts., Series B, 8/15/03
235,000          266,725
- -------------------------------------------------------------------------------------------------
Empress Entertainment, Inc., 8.125% Sr. Sub. Nts., 7/1/06
200,000          200,000
- -------------------------------------------------------------------------------------------------
Hilton Hotels Corp.:
7.375% Nts., 6/1/02
75,000           75,622
7.95% Sr. Nts., 4/15/07
1,000,000        1,037,716
- -------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08
900,000          904,500
- -------------------------------------------------------------------------------------------------
Horseshoe Gaming LLC, 9.375% Sr. Sub. Nts., 6/15/07
100,000          103,750
- -------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08
250,000          257,500
- -------------------------------------------------------------------------------------------------
Marriott International, Inc., 6.875% Nts., 11/15/05(7)
4,500,000        4,522,433
- -------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority (Connecticut), 13.50%
Sr. Sec. Nts., Series B, 11/15/02
310,000          373,550
- -------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 7.875% Sr. Sub. Nts., 12/15/05(7)
150,000          150,938
- -------------------------------------------------------------------------------------------------
Rio Hotel & Casino, Inc.:
10.625% Sr. Sub. Nts., 7/15/05
100,000          109,500
9.50% Sr. Sub. Nts., 4/15/07
50,000           55,500
- -------------------------------------------------------------------------------------------------
Station Casinos, Inc.:
8.875% Sr. Sub. Nts., 12/1/08(7)
100,000          102,000
9.75% Sr. Sub. Nts., 4/15/07
150,000          157,500

- ---------

8,464,234

- -------------------------------------------------------------------------------------------------
HEALTHCARE--0.6%
Columbia/HCA Healthcare Corp., 6.875% Nts., 7/15/01
160,000          158,855
- -------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust II, 7.875% Nts., 2/1/08
150,000          148,500
- -------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 9.50% Sr. Sub. Nts., 4/1/01
500,000          515,000
- -------------------------------------------------------------------------------------------------
ICN Pharmaceutical, Inc., 8.75% Sr. Nts., 11/15/08(7)
140,000          142,100
- -------------------------------------------------------------------------------------------------
Imcera Group, Inc., 6% Nts., 10/15/03
500,000          512,520
- -------------------------------------------------------------------------------------------------
Integrated Health Services, Inc., 9.50% Sr. Sub. Nts., 9/15/07
20,000           19,100
- -------------------------------------------------------------------------------------------------
Oxford Health Plans, Inc., 11% Sr. Nts., 5/15/05(7)
350,000          330,750
- -------------------------------------------------------------------------------------------------
Sun Healthcare Group, Inc., 9.50% Sr. Sub. Nts., 7/1/07
205,000          167,075

- ---------

1,993,900

</TABLE>

                           21  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
HOUSING--1.6%
American Standard Cos., Inc., 10.875% Sr. Nts., 5/15/99               $
70,000       $   70,350
- -------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8% Sr. Nts., 12/1/08(7)
200,000          200,500
- -------------------------------------------------------------------------------------------------
First Industrial LP, 7.15% Bonds, 5/15/27
75,000           75,634
- -------------------------------------------------------------------------------------------------
Greystone Homes, Inc., 10.75% Sr. Nts., 3/1/04
50,000           53,000
- -------------------------------------------------------------------------------------------------
Nationwide Health Properties, Inc., 7.60% Nts., Series C, 11/20/28
3,450,000        3,467,250
- -------------------------------------------------------------------------------------------------
Nortek, Inc.:
9.125% Sr. Nts., Series B, 9/1/07
250,000          258,750
9.25% Sr. Nts., Series B, 3/15/07
250,000          257,500
- -------------------------------------------------------------------------------------------------
Trizec Hahn Corp., 7.95% Sr. Unsec. Debs., 6/1/07CAD
2,000,000        1,334,195

- ---------

5,717,179

- -------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--2.1%
Details, Inc., 10% Sr. Sub. Nts., Series B, 11/15/05
200,000          191,000
- -------------------------------------------------------------------------------------------------
Dyncorp, Inc., 9.50% Sr. Sub. Nts., 3/1/07
250,000          251,250
- -------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75% Debs., 5/21/07
1,000,000        1,216,122
- -------------------------------------------------------------------------------------------------
Motorola, Inc., 6.50% Unsec. Debs., 11/15/28
5,000,000        5,092,985
- -------------------------------------------------------------------------------------------------
Unisys Corp., 11.75% Sr. Nts., 10/15/04
300,000          349,500
- -------------------------------------------------------------------------------------------------
WAM!NET, Inc., 0%/13.25% Sr. Unsec. Disc. Nts., Series B, 3/1/05(11)
400,000          220,000

- ---------

7,320,857

- -------------------------------------------------------------------------------------------------
MANUFACTURING--1.2%
Caterpillar, Inc., 9.75% Debs., 6/1/19
1,750,000        1,861,003
- -------------------------------------------------------------------------------------------------
Communications & Power Industries, Inc., 12% Sr. Sub. Nts.,
Series B, 8/1/05
500,000          523,750
- -------------------------------------------------------------------------------------------------
Grove Worldwide LLC, 9.25% Sr. Sub. Nts., 5/1/08
200,000          181,000
- -------------------------------------------------------------------------------------------------
Hydrochem Industrial Services, Inc., 10.375% Sr. Sub. Nts., 8/1/07
325,000          310,375
- -------------------------------------------------------------------------------------------------
Polymer Group, Inc., 9% Sr. Sub. Nts., 7/1/07
150,000          149,250
- -------------------------------------------------------------------------------------------------
Roller Bearing Co. of America, Inc., 9.625% Sr. Sub. Nts.,
Series B, 6/15/07
200,000          195,000
- -------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., 8.375% Nts., 6/15/02
1,000,000        1,065,219

- ---------

4,285,597

- -------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: BROADCASTING--1.4%
Capstar Broadcasting Partners, Inc., 9.25% Sr. Sub. Nts., 7/1/07
175,000          182,000
- -------------------------------------------------------------------------------------------------
Chancellor Media Corp.:
8.75% Sr. Unsec. Sub. Nts., Series B, 6/15/07
1,200,000        1,236,000
9% Sr. Sub. Nts., 10/1/08(7)
800,000          848,000
- -------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 6.625% Nts., 6/15/08
2,000,000        2,030,552
- -------------------------------------------------------------------------------------------------
Young Broadcasting, Inc.:
8.75% Sr. Sub. Debs., 6/15/07
300,000          306,000
Series B, 1/15/06
400,000          406,000

- ---------

5,008,552

</TABLE>

                           22  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
MEDIA/ENTERTAINMENT: CABLE/WIRELESS VIDEO--0.7%
Adelphia Communications Corp., 9.25% Sr. Nts., 10/1/02                $
150,000       $  159,000
- -------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18
500,000          492,800
- -------------------------------------------------------------------------------------------------
EchoStar Communications Corp., 0%/12.875% Sr. Disc. Nts., 6/1/04(11)
250,000          257,500
- -------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 12.50% Sr. Sec. Nts., 7/1/02
200,000          231,000
- -------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07
1,125,000        1,224,896

- ---------

2,365,196

- -------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: DIVERSIFIED MEDIA--0.2%
Hollywood Theaters, Inc., 10.625% Sr. Sub. Nts., 8/1/07
100,000           74,250
- -------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05
400,000          406,000
- -------------------------------------------------------------------------------------------------
SFX Entertainment, Inc.:
9.125% Sr. Sub. Nts., 12/1/08(7)
150,000          150,938
9.125% Sr. Unsec. Sub. Nts., Series B, 2/1/08
125,000          124,375

- --------

755,563

- -------------------------------------------------------------------------------------------------
MEDIA/ENTERTAINMENT: TELECOMMUNICATIONS--1.6%
COLT Telecom Group plc, Units (each unit consists of $1,000
principal amount of 0%/12% sr. disc. nts., 12/15/06 and one
warrant to purchase 7.8 common shares)(11)(12)
350,000          295,750
- -------------------------------------------------------------------------------------------------
Diamond Holdings plc, 9.125% Sr. Nts., 2/1/08
100,000           96,000
- -------------------------------------------------------------------------------------------------
Focal Communications Corp., 0%/12.125% Sr.
Unsec. Disc. Nts., 2/15/08(11)
160,000           85,600
- -------------------------------------------------------------------------------------------------
Globix Corp., 13% Sr. Unsec. Nts., 5/1/05
200,000          165,000
- -------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., 0%/13.875% Cv.
Sr. Sub. Disc. Nts., 12/15/05(7)(11)
100,000           79,375
- -------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts.,
Series B, 6/1/08
450,000          429,750
- -------------------------------------------------------------------------------------------------
Long Distance International, Inc., 12.25% Sr. Nts., 4/15/08(7)
150,000          125,250
- -------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc.:
0%/9.45% Sr. Disc. Unsec. Nts., 4/15/08(11)
230,000          132,250
9.625% Sr. Nts., 10/1/07
900,000          864,000
- -------------------------------------------------------------------------------------------------
NTL, Inc.:
10% Sr. Nts., Series B, 2/15/07
100,000          103,000
11.50% Sr. Nts., 10/1/08(7)
250,000          274,375
- -------------------------------------------------------------------------------------------------
PSINet, Inc.:
10% Sr. Unsec. Nts., Series B, 2/15/05
350,000          348,250
11.50% Sr. Nts., 11/1/08(7)
500,000          526,250
- -------------------------------------------------------------------------------------------------
Qwest Communications International, Inc.:
0%/8.29% Sr. Unsec. Disc. Nts., Series B, 2/1/08(11)
400,000          304,000
0%/9.47% Sr. Disc. Nts., 10/15/07(11)
340,000          264,350
- -------------------------------------------------------------------------------------------------
TCI Communications, Inc., 6.875% Sr. Unsec. Nts., 2/15/06
1,400,000        1,505,517
- -------------------------------------------------------------------------------------------------
Viatel, Inc., 11.25% Sr. Sec. Nts., 4/15/08
200,000          205,500

- ---------

5,804,217
</TABLE>

                           23  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>              <C>
MEDIA/ENTERTAINMENT: WIRELESS COMMUNICATIONS--1.4%
Arch Communications, Inc., 12.75% Sr. Nts., 7/1/07(7)                 $
100,000       $  100,500
- -------------------------------------------------------------------------------------------------
Cellular Communications International, Inc., 0%/9.50%
Bonds, 4/1/05(11)XEU
600,000          595,347
- -------------------------------------------------------------------------------------------------
Geotek Communications, Inc., 12% Cv. Sr. Sub. Nts., 2/15/01(10)
25,000               --
- -------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 0%/10.65% Sr. Disc. Nts., 9/15/07(11)
30,000           19,275
- -------------------------------------------------------------------------------------------------
Omnipoint Corp., 11.625% Sr. Nts., 8/15/06
70,000           49,000
- -------------------------------------------------------------------------------------------------
Orion Network Systems, Inc., 0%/12.50% Sr. Disc. Nts., 1/15/07(11)
200,000          126,000
- -------------------------------------------------------------------------------------------------
Pinnacle Holdings, Inc., 0%/10% Sr. Unsec. Disc. Nts., 3/15/08(11)
200,000          117,500
- -------------------------------------------------------------------------------------------------
Price Communications Wireless, Inc., 9.125% Sr. Sec. Nts.,
 12/15/06(7)
500,000          507,500
- -------------------------------------------------------------------------------------------------
Real Time Data, Inc., Units (each unit consists of $1,000
principal amount of 0%/13.50% sub. disc. nts., 8/15/06 and
one warrant to purchase six common shares)(7)(11)(12)
1,000,000          465,000
- -------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08
500,000          503,750
- -------------------------------------------------------------------------------------------------
SBA Communications Corp., 0%/12% Sr. Unsec. Disc. Nts., 3/1/08(11)
800,000          464,000
- -------------------------------------------------------------------------------------------------
Spectrasite Holdings, Inc., 0%/12% Sr. Disc. Nts., 7/15/08(7)(11)
300,000          151,500
- -------------------------------------------------------------------------------------------------
Sprint Spectrum LP/Sprint Spectrum Finance
Corp., 0%/12.50% Sr. Disc. Nts., 8/15/06(11)
2,000,000        1,810,000
- -------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 9.50% Sr. Nts., 2/1/04
100,000           90,500

- ---------

4,999,872

- -------------------------------------------------------------------------------------------------
METALS/MINERALS--0.2%
AK Steel Corp., 9.125% Sr. Nts., 12/15/06
90,000           94,050
- -------------------------------------------------------------------------------------------------
Alcan Aluminum Ltd., 9.625% Debs., 7/15/19
165,000          176,355
- -------------------------------------------------------------------------------------------------
Great Lakes Carbon Corp., 10.25% Sr. Sub. Nts., Series B, 5/15/08
250,000          253,125
- -------------------------------------------------------------------------------------------------
International Utility Structures, Inc., 10.75% Sr. Sub. Nts., 2/1/08
175,000          165,375
- -------------------------------------------------------------------------------------------------
Keystone Consolidated Industries, Inc., 9.625% Sr. Sec. Nts., 8/1/07
200,000          192,000

- ---------

880,905

- -------------------------------------------------------------------------------------------------
RETAIL--1.4%
Boyds Collection Ltd., 9% Sr. Sub. Nts., 5/15/08(7)
650,000          666,250
- -------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 9.125% Sr. Sub. Nts., 5/1/08(7)
150,000          143,250
- -------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 9% Debs., 5/1/08
100,000           88,500
- -------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 8.375% Sr. Nts., 5/1/08
200,000          185,000
- -------------------------------------------------------------------------------------------------
Home Interiors & Gifts, Inc., 10.125% Sr. Sub. Nts., 6/1/08(7)
400,000          398,000
- -------------------------------------------------------------------------------------------------
May Department Stores Cos., 10.625% Debs., 11/1/10
405,000          567,239
- -------------------------------------------------------------------------------------------------
Neiman Marcus Group, Inc., 6.65% Sr. Nts., 6/1/08
2,000,000        2,009,992
- -------------------------------------------------------------------------------------------------
Price/Costco Cos., Inc., 7.125% Sr. Nts., 6/15/05
120,000          129,181
- -------------------------------------------------------------------------------------------------
Sears Canada, Inc., 11.70% Debs., 7/10/00CAD
500,000          356,461
- -------------------------------------------------------------------------------------------------
Sears Roebuck & Co., 8.39% Medium-Term Nts., 3/23/99
300,000          301,628

- ---------

4,845,501

</TABLE>

                           24  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
SERVICE--4.0%
Allied Waste North America, Inc., 7.875% Sr. Nts., 1/1/09(7)          $
165,000      $   167,888
- -------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 7.125% Debs., 3/1/13
750,000          849,599
- -------------------------------------------------------------------------------------------------
Arvin Industries, Inc., 6.75% Nts., 3/15/08
500,000          517,127
- -------------------------------------------------------------------------------------------------
Cendant Corp., 7.75% Sr. Unsec. Nts., 12/1/03
5,000,000        5,115,075
- -------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.:
9% Sr. Sub. Nts., 2/1/08(7)
50,000           50,250
9% Sr. Unsec. Sub. Nts., 2/1/08
275,000          276,375
- -------------------------------------------------------------------------------------------------
Great Lakes Dredge & Dock Corp., 11.25% Sr. Sub. Nts., 8/15/08(7)
150,000          153,000
- -------------------------------------------------------------------------------------------------
Lamar Advertising Co.:
8.625% Sr. Sub. Nts., 9/15/07
400,000          422,000
9.625% Sr. Sub. Nts., 12/1/06
150,000          161,250
- -------------------------------------------------------------------------------------------------
Sun Co., Inc., 7.95% Debs., 12/15/01
75,000           79,153
- -------------------------------------------------------------------------------------------------
Tyco International Group SA, 5.875% Nts., 11/1/04(7)
6,500,000        6,469,366
- -------------------------------------------------------------------------------------------------
USI American Holdings, Inc., 7.25% Sr. Nts., Series B, 12/1/0
680,000           79,273

- ----------

14,340,356

- -------------------------------------------------------------------------------------------------
TRANSPORTATION--6.0%
Cambridge Industries, Inc., 10.25% Sr. Sub. Nts., Series B, 7/15/07
100,000           86,500
- -------------------------------------------------------------------------------------------------
Canadian Pacific Ltd., 9.45% Debs., 8/1/21
1,000,000        1,285,440
- -------------------------------------------------------------------------------------------------
Chrysler Corp., 7.40% Debs., 8/1/2097
3,000,000        3,393,558
- -------------------------------------------------------------------------------------------------
Coach USA, Inc., 9.375% Sr. Sub. Nts., Series B, 7/1/07
40,000           41,000
- -------------------------------------------------------------------------------------------------
CSX Corp.:
6.80% Fixed Nts., 12/1/28
1,300,000        1,298,944
7.05% Debs., 5/1/02
85,000           88,813
7.25% Sr. Unsec. Debs., 5/1/27
2,410,000        2,572,740
- -------------------------------------------------------------------------------------------------
Ford Motor Co., 8.875% Debs., 11/15/22
2,000,000        2,259,324
- -------------------------------------------------------------------------------------------------
Hayes Wheels International, Inc., 11% Sr. Sub. Nts., 7/15/06
200,000          223,000
- -------------------------------------------------------------------------------------------------
Johnson Controls, Inc., 7.70% Debs., 3/1/15
500,000          574,979
- -------------------------------------------------------------------------------------------------
Kansas City Southern Industries, Inc., 6.625% Nts., 3/1/05
750,000          777,202
- -------------------------------------------------------------------------------------------------
Key Plastics, Inc., 10.25% Sr. Sub. Nts., Series B, 3/15/07
200,000          188,000
- -------------------------------------------------------------------------------------------------
Navigator Gas Transport plc:
10.50% First Priority Ship Mtg. Nts., 6/30/07(7)
400,000          354,000
Units (each unit consists of $1,000 principal amount of 12%
second priority ship mtg. nts., 6/30/07 and 7.66 warrants)(7)(12)
100,000           90,500
- -------------------------------------------------------------------------------------------------
Norfolk Southern Corp., 7.35% Nts., 5/15/07
75,000           82,769
- -------------------------------------------------------------------------------------------------
Oxford Automotive, Inc., 10.125% Sr. Unsec. Sub. Nts., 6/15/07
200,000          208,000
- -------------------------------------------------------------------------------------------------
Trans World Airlines, Inc., 11.50% Sr. Sec. Nts., 12/15/04
250,000          211,250
- -------------------------------------------------------------------------------------------------
Transtar Holdings LP/Transtar Capital Corp., 0%/13.375%
Sr. Disc. Nts., Series B, 12/15/03(11)
1,100,000        1,061,500

</TABLE>

                           25  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
- -------------------------------------------------------------------------------------------------
<S>
<C>            <C>
TRANSPORTATION (CONTINUED)
Union Pacific Corp.:
6.39% Medium-Term Nts., Series E, 11/1/04
$6,400,000     $  6,475,187
7% Nts., 6/15/00
150,000          152,883
9.65% Nts., 4/17/00
100,000          104,575

- ----------

21,530,164

- -------------------------------------------------------------------------------------------------
UTILITY--5.6%
AES Corp., 8% Sr. Nts., 12/31/08
3,400,000        3,367,938
- -------------------------------------------------------------------------------------------------
Ameritech Capital Funding Corp., 5.65% Unsec. Nts., 1/15/01
100,000          101,227
- -------------------------------------------------------------------------------------------------
California Energy, Inc., 10.25% Sr. Disc. Nts., 1/15/04
300,000          315,375
- -------------------------------------------------------------------------------------------------
Calpine Corp., 8.75% Sr. Nts., 7/15/07
185,000          187,775
- -------------------------------------------------------------------------------------------------
Cincinnati Bell Telephone Co., 6.30% Sr. Unsec. Bonds, 12/1/28
500,000          502,862
- -------------------------------------------------------------------------------------------------
Laclede Gas Co., 8.50% First Mtg. Bonds, 11/15/04
500,000          568,165
- -------------------------------------------------------------------------------------------------
Long Island Lighting Co., 8.20% Debs., 3/15/23
1,700,000        1,841,280
- -------------------------------------------------------------------------------------------------
National Fuel Gas Co., 7.75% Debs., 2/1/04
500,000          546,822
- -------------------------------------------------------------------------------------------------
New York Telephone Co., 9.375% Debs., 7/15/31
2,500,000        2,834,295
- -------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp.:
0%/8.50% Sr. Unsec. Nts., Series H, 7/1/10(11)
3,000,000        2,338,164
7.75% Sr. Unsec. Nts., Series G, 10/1/08
2,000,000        2,197,676
- -------------------------------------------------------------------------------------------------
Northern Illinois Gas Co., 6.45% First Mtg. Bonds, 8/1/01
220,000          223,439
- -------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22
250,000          275,580
- -------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., 9% Mtg. Bonds, 7/15/06
500,000          601,390
- -------------------------------------------------------------------------------------------------
Sprint Capital Corp., 6.875% Sr. Unsec. Nts., 11/15/28
3,400,000        3,541,916
- -------------------------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., 7.50% Bonds, 4/1/17
100,000          106,743
- -------------------------------------------------------------------------------------------------
Texas Gas Transmission Corp., 8.625% Nts., 4/1/04
500,000          565,720

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

20,116,367

- -----------
Total Corporate Bonds and Notes (Cost
$180,297,085)                                   184,953,099

                                                                          SHARES
=================================================================================================
PREFERRED STOCKS--2.2%
- -------------------------------------------------------------------------------------------------
Allstate Financing I, 7.95% Gtd. Quarterly Income Preferred
Securities, Series A
80,000        2,080,000
- -------------------------------------------------------------------------------------------------
Centaur Funding Corp., 9.08%, Cum. Preferred
Shares, 4/21/20(2)(13)
3,400        3,563,625
- -------------------------------------------------------------------------------------------------
CRIIMI MAE, Inc., 10.875% Cum. Cv., Series B, Non-Vtg.
13,000          182,000

</TABLE>

                           26  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

MARKET VALUE

SHARES    SEE NOTE 1
=================================================================================================
<S>
<C>            <C>
PREFERRED STOCKS (CONTINUED)
- -------------------------------------------------------------------------------------------------
EchoStar Communications Corp., 12.125% Sr. Redeemable
Exchangeable, Series B, Non-Vtg.(14)
115       $  133,687
- -------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc., 14% Cum. Exchangeable, Vtg.(14)
2,171          115,606
- -------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., Jr. Cv. Preferred Stock(13)
2,530            4,428
- -------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc./Capstar Broadcasting Corp., 12.625% Cum.,
Series E, Non-Vtg.(14)
213           25,773
- -------------------------------------------------------------------------------------------------
United Dominion Realty Trust, Inc., 8.50% Unsec.
Unsub. Preferred Nts.
65,000        1,681,875
- -------------------------------------------------------------------------------------------------
Viatel, Inc., 10% Cv., Series A(14)
99           10,915

- ---------
Total Preferred Stocks (Cost
$7,611,584)                                                7,797,909

=================================================================================================
COMMON STOCKS--0.0%
- -------------------------------------------------------------------------------------------------
Optel, Inc. (13) (Cost $0)
100               --


                                                                           UNITS
=================================================================================================
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -------------------------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp. 12/07 (2)
50            7,445
- -------------------------------------------------------------------------------------------------
Dairy Mart Convenience Stores, Inc. Wts., Exp. 12/01(2)
333               93
- -------------------------------------------------------------------------------------------------
e.spire Communications, Inc. Wts., Exp. 11/05
300            7,241
- -------------------------------------------------------------------------------------------------
Globix Corp. Wts., Exp. 5/05 (2)
200            2,000
- -------------------------------------------------------------------------------------------------
Gothic Energy Corp. Wts.:
Exp. 1/03(7)
2,621               26
Exp. 9/04(2)
2,800            3,150
- -------------------------------------------------------------------------------------------------
Intermedia Communications, Inc. Wts., Exp. 6/00(2)
50            3,052
- -------------------------------------------------------------------------------------------------
Long Distance International, Inc. Wts., 4/08(2)
150              375
- -------------------------------------------------------------------------------------------------
Price Communications Corp. Wts., Exp. 8/07(2)
258           12,321
- -------------------------------------------------------------------------------------------------
Signature Brands, Inc. Wts., Exp. 12/49(2)
50            1,006
- -------------------------------------------------------------------------------------------------
WAM!NET, Inc. Wts., Exp. 3/05(2)
1,200            9,600
- -------------------------------------------------------------------------------------------------
ICG Communications, Inc. Wts., Exp. 9/05(2)
1,980           27,137
- -------------------------------------------------------------------------------------------------
Orion Network Systems, Inc. Wts., Exp. 1/07(2)
200            2,500

- --------
Total Rights, Warrants and Certificates (Cost
$3,971)                                      75,946

</TABLE>

                           27  Oppenheimer Bond Fund


<PAGE>
                      Statement of Investments (Continued)

<TABLE>
<CAPTION>

FACE         MARKET VALUE

AMOUNT(1)    SEE NOTE 1
=================================================================================================
<S>
<C>            <C>
STRUCTURED INSTRUMENTS--1.0%
- -------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale (New York Branch),
Lehman High Yield Index Nts., 8.50%, 3/8/99
$1,100,000     $  1,036,750
- -------------------------------------------------------------------------------------------------
Bear Stearns High Yield Composite Index Linked Nts.:
8.50%, 4/9/99
1,000,000          929,380
9%, 2/16/99
900,000          828,594
- -------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 6.97%, 4/28/02
(representing a basket of reference loans and a total return
swap between Chase Manhattan Bank and the Trust)(2)(6)
750,000          672,606

- ---------
Total Structured Instruments (Cost
$3,750,000)                                          3,467,330

=================================================================================================
REPURCHASE AGREEMENTS--4.0%
- -------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
4.75%, dated 12/31/98, to be repurchased at $14,407,600 on
1/4/99, collateralized by U.S. Treasury Nts., 4%-8.875%, 2/15/99-
7/15/06, with a value of $14,693,818 (Cost $14,400,000)
4,400,000       14,400,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $374,024,883)
106.4%     379,340,635
- -------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS
(6.4)     (22,814,936)

- -------    -------------
NET ASSETS
100.0%    $356,525,699

========    ============
</TABLE>

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

CAD--Canadian Dollar

XEU--European Currency Units

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

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

4. When-issued security to be delivered and settled after December 31, 1998.

5.  Principal-Only  Strips represent the right to receive the monthly  principal
payments on an underlying pool of mortgage loans.  The value of these securities
generally  increases as interest  rates decline and  prepayment  rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity.  Interest rates disclosed  represent  current yields
based upon the current cost basis and estimated timing of future cash flows.

                           28  Oppenheimer Bond Fund


<PAGE>

- --------------------------------------------------------------------------------
6. Represents the current interest rate for a variable rate security.

7.  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  $29,100,374  or 8.16% of the Fund's net
assets as of December 31, 1998.

8.  Securities  with  an  aggregate   market  value  of  $537,500  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 securities has been  designated to cover  outstanding
forward foreign currency  exchange  contracts.  See Note 5 of Notes to Financial
Statements.

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

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

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

13. Non-income producing security.

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

See accompanying Notes to Financial Statements.

                           29  Oppenheimer Bond Fund


<PAGE>

STATEMENT OF ASSETS AND LIABILITIES December 31, 1998

<TABLE>
<CAPTION>
=========================================================================================================
<S>
<C>
ASSETS
Investments, at value (cost $374,024,883)--see accompanying
statement                        $379,340,635
- ---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal
paydowns                                                      4,015,982
Shares of beneficial interest
sold                                                                758,617

Other
6,524

- -----------
Total
assets
384,121,758

=========================================================================================================
LIABILITIES
Bank
overdraft
30,118
- ---------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency exchange contracts--Note
5                     11,075
- ---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis--Note
1                                           24,995,035
Shares of beneficial interest
redeemed                                                          1,703,153
Dividends
480,664
Distribution and service plan
fees                                                                215,295
Transfer and shareholder servicing agent
fees                                                      35,804
Daily variation on futures contracts--Note
6                                                       20,515
Other
104,400

- ----------
Total
liabilities
27,596,059

=========================================================================================================
NET
ASSETS
$356,525,699

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

=========================================================================================================
COMPOSITION OF NET ASSETS
Paid-in
capital
$353,474,626
- ---------------------------------------------------------------------------------------------------------
Overdistributed net investment
income                                                              (4,077)
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency
transactions
(2,327,236)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign
currencies                                        5,382,386

- ------------
Net
assets
$356,525,699

============
</TABLE>

                           30  Oppenheimer Bond Fund


<PAGE>

<TABLE>
=========================================================================================================
<S>
<C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net  asset  value  and  redemption  price  per  share  (based  on net  assets of
$246,668,278 and 22,711,225 shares of beneficial  interest  outstanding)  $10.86
Maximum  offering price per share (net asset value plus sales charge of 4.75% of
offering price) $11.40

- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and  offering  price per share (based on net assets of  $88,060,713  and
8,111,764 shares of beneficial interest outstanding) $10.86

- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and  offering  price per share (based on net assets of  $21,795,709  and
2,005,876 shares of beneficial interest outstanding) $10.87

- ---------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value,  redemption  price and  offering  price per share (based on net
assets of $999 and 92 shares of beneficial interest outstanding) $10.86

</TABLE>

See accompanying Notes to Financial Statements.

                           31  Oppenheimer Bond Fund


<PAGE>


STATEMENT OF OPERATIONS For the Year Ended December 31, 1998

<TABLE>
=========================================================================================================
<S>
<C>
INVESTMENT INCOME
Interest
$22,500,912
- ---------------------------------------------------------------------------------------------------------
Dividends
313,421

- ----------
Total
income
22,814,333

=========================================================================================================
EXPENSES
Management fees--Note
4
2,199,637
- ---------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class
A
538,337
Class
B
642,192
Class
C
151,634
- ---------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note
4                                             464,206
- ---------------------------------------------------------------------------------------------------------
Shareholder
reports
134,503
- ---------------------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees                                                        19,103
- ---------------------------------------------------------------------------------------------------------
Custodian fees and
expenses
16,323
- ---------------------------------------------------------------------------------------------------------
Trustees' fees and
expenses
7,223
- ---------------------------------------------------------------------------------------------------------
Other
49,286

- ---------
Total
expenses
4,222,444

=========================================================================================================
NET INVESTMENT
INCOME
18,591,889

=========================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments
1,492,426
Closing of futures contracts--Note
6                                                           (1,250,774)
Foreign currency
transactions
72,639

- ----------
Net realized
gain
314,291

- ---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
(3,003,865)
Translation of assets and liabilities denominated in foreign
currencies                          (72,467)

- -----------
Net
change
(3,076,332)


- -----------
Net realized and unrealized
loss                                                              (2,762,041)

=========================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS                                          $15,829,848

===========

</TABLE>

See accompanying Notes to Financial Statements.


                           32  Oppenheimer Bond Fund


<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                            YEAR
ENDED DECEMBER 31,

1998              1997
=========================================================================================================
<S>
<C>               <C>
OPERATIONS
Net investment income                                               $
18,591,889     $ 16,543,377
- ---------------------------------------------------------------------------------------------------------
Net realized gain
314,291        2,197,371
- ---------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(3,076,332)        3,665,014

- -----------       ----------
Net increase in net assets resulting from operations
15,829,848       22,405,762

=========================================================================================================
DIVIDENDS TO SHAREHOLDERS Dividends from net investment income:
Class A
(14,076,402)     (13,459,796)
Class B
(3,655,574)      (2,655,088)
Class C
(859,704)        (389,245)
Class Y
(47)             ---

=========================================================================================================
BENEFICIAL INTEREST TRANSACTIONS Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A
57,901,460       (7,491,024)
Class B
40,449,784        8,379,500
Class C
12,786,693        4,696,745
Class Y
999               --

=========================================================================================================
NET ASSETS
Total increase
108,377,057       11,486,854
- ---------------------------------------------------------------------------------------------------------
Beginning of period
248,148,642      236,661,788

- -----------      -----------
End of period [including undistributed (overdistributed) net
investment income of $(4,077) and $6,579, respectively]
$356,525,699     $248,148,642

============     ============
</TABLE>

See accompanying Notes to Financial Statements.

                           33  Oppenheimer Bond Fund


<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>

                                           CLASS A

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

                                           YEAR ENDED DECEMBER 31,
                                           1998       1997       1996
1995      1994
=============================================================================================
<S>                                        <C>        <C>        <C>
<C>       <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period       $10.97     $10.70     $10.98
$10.01    $11.12
- ---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                         .71        .77
 .78        .69       .65
Net realized and
unrealized gain (loss)                       (.11)       .27
(.28)       .96     (1.08)
                                           --------  --------   --------
- --------   --------
Total income (loss) from
investment operations                         .60       1.04        .50
1.65      (.43)

- ----------------------------------------------------------------------------------------------
Dividends and distributions to
 shareholders:
Dividends from net
investment income                            (.71)      (.77)      (.75)
(.68)     (.65)
Dividends in excess of net
investment income                              --         --
- --         --      (.03)
Tax return of capital                          --         --
(.03)        --        --
                                           --------  --------   --------
- --------   --------
Total dividends and distributions
to shareholders                              (.71)      (.77)      (.78)
(.68)     (.68)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period             $10.86     $10.97     $10.70
$10.98    $10.01
                                          ========   ========   ========
========   ========

==============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3)          5.61%     10.13%      4.87%
16.94%    (3.87)%

==============================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)                           $246,668   $190,706   $193,515
$169,059  $ 96,640
- ----------------------------------------------------------------------------------------------
Average net assets (in thousands)        $217,944   $187,458   $178,130
$116,940  $102,168
- ----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income                        6.46%      7.20%      7.35%
6.47%     6.25%
Expenses, before voluntary
reimbursement by the Manager                 1.22%      1.27%      1.30%
1.27%     1.06%
Expenses, net of voluntary
reimbursement by the Manager                 N/A        N/A        N/A
1.26%     N/A
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(5)                   67.3%      50.5%      53.7%
175.4%     70.3%

</TABLE>

1. For the period from April 27, 1998  (inception of offering),  to December 31,
1998.

2. For the period from July 11, 1995  (inception of  offering),  to December 31,
1995.

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

                           34  Oppenheimer Bond Fund


<PAGE>

<TABLE>
<CAPTION>

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

PERIOD
YEAR ENDED DECEMBER 31,                              YEAR ENDED DECEMBER
31,                    ENDED DEC. 31,
1998       1997       1996      1995        1994     1998       1997
1996      1995(2)    1998(1)
=============================================================================================================
 <S>       <C>        <C>        <C>      <C>        <C>        <C>
<C>        <C>            <C>
 $10.97     $10.69     $10.98     $10.01   $11.11     $10.98     $10.70
$10.99     $10.89         $10.88
- -------------------------------------------------------------------------------------------------------------

    .62        .69        .70        .63      .58        .62        .69
 .70        .28            .49

   (.10)       .28       (.29)       .94    (1.08)      (.10)       .28
(.29)       .10           (.02)
 ---------  --------   ---------  -------- --------  --------   ---------
- --------  --------       ---------

    .52        .97        .41       1.57     (.50)       .52        .97
 .41        .38            .47

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

   (.63)      (.69)      (.67)      (.60)    (.57)      (.63)      (.69)
(.67)      (.28)          (.49)

      --         --         --         --    (.03)         --
- --        --         --             --
      --         --      (.03)         --       --         --         --
(.03)         --             --
 ---------  --------   ---------  -------- --------  --------   ---------
- --------  --------       ---------

   (.63)      (.69)      (.70)      (.60)    (.60)      (.63)      (.69)
(.70)      (.28)          (.49)
- -------------------------------------------------------------------------------------------------------------

 $10.86     $10.97     $10.69     $10.98   $10.01     $10.87     $10.98
$10.70     $10.99         $10.86
 =======  ========   ========    =======  =======   ========   ========
========   ========        =======

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

   4.81%      9.41%      3.99%     16.06%    (4.53)%    4.81%      9.39%
4.00%      3.76%          4.40%

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

$88,061    $48,255    $38,826    $39,187    $3,451   $21,796     $9,188
$4,322     $3,971             $1
- -------------------------------------------------------------------------------------------------------------
$64,330    $41,439    $38,068    $12,823    $2,747   $15,198     $6,134
$3,404     $  979             $1
- -------------------------------------------------------------------------------------------------------------

   5.68%      6.42%      6.59%      5.84%     5.53%     5.66%      6.36%
6.60%      6.32%(4)       6.84%(4)

   1.97%      2.02%      2.05%      2.12%     1.78%     1.96%      2.02%
2.05%      2.25%(4)       0.74%(4)

    N/A        N/A        N/A       2.08%      N/A       N/A        N/A
N/A       1.96%(4)        N/A
- -------------------------------------------------------------------------------------------------------------
   67.3%      50.5%      53.7%     175.4%     70.3%     67.3%      50.5%
53.7%     175.4%          67.3%

</TABLE>

4. Annualized.

5. 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 December 31, 1998, were $263,925,338 and $208,096,512,  respectively.  For
the period ended December 31, 1995, purchases and sales of investment securities
included mortgage dollar-rolls.

See accompanying Notes to Financial Statements.

                           35  Oppenheimer Bond Fund


<PAGE>



NOTES TO FINANCIAL STATEMENTS

===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer  Bond Fund (the Fund) is a separate  fund of  Oppenheimer  Integrity
Funds, a diversified,  open-end  management  investment company registered under
the Investment Company Act of 1940, as amended.  The Fund's investment objective
is to  seek a  high  level  of  current  income  by  investing  mainly  in  debt
instruments. The Fund will, under normal market conditions,  invest at least 65%
of its  total  assets  in a  diversified  portfolio  of  investment  grade  debt
securities.  The  Fund's  investment  advisor  is  OppenheimerFunds,  Inc.  (the
Manager).  The Fund offers Class A, Class B, Class C and Class Y 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 expenses  directly  attributable  to that class and  exclusive
voting  rights with respect to matters  affecting  that class.  Class A, B and C
have separate  distribution  and/or service plans. No such plan has been adopted
for Class Y shares. 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 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.

                           36  Oppenheimer Bond Fund


<PAGE>

================================================================================
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been  purchased  by the Fund on a forward  commitment  or  when-issued
basis can take place a month or more after the  transaction  date.  During  this
period, such securities do not earn interest,  are subject to market fluctuation
and may  increase  or  decrease  in  value  prior to  their  delivery.  The Fund
maintains,  in a  segregated  account with its  custodian,  assets with a market
value  equal  to the  amount  of  its  purchase  commitments.  The  purchase  of
securities  on a  when-issued  or  forward  commitment  basis may  increase  the
volatility  of the  Fund's  net asset  value to the  extent  the Fund makes such
purchases while remaining substantially fully invested. As of December 31, 1998,
the Fund had entered into  outstanding  when-issued  or forward  commitments  of
$24,995,035.

                  In  connection  with its ability to purchase  securities  on a
when-issued  or  forward  commitment  basis,  the Fund may enter  into  mortgage
dollar-rolls  in which the Fund sells  securities  for  delivery  in the current
month and  simultaneously  contracts  with the same  counterparty  to repurchase
similar  (same type,  coupon and  maturity)  but not  identical  securities on a
specified  future date.  The Fund records each  dollar-roll  as a sale and a new
purchase transaction.

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

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

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

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


                           37  Oppenheimer Bond Fund


<PAGE>

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 December 31, 1998, the
Fund had  available  for  federal  income tax  purposes an unused  capital  loss
carryover of $6,236,000, which expires between 2002 and 2004.

- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS.  The Fund intends to declare dividends separately
for Class A, Class B,  Class C, and Class Y 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.

- --------------------------------------------------------------------------------
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 paydown  gains and losses and 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  December 31,  1998,  amounts  have been  reclassified  to
reflect a decrease in paid-in capital of $166,931,  a decrease in  undistributed
net investment  income of $10,818,  and a decrease in  accumulated  net realized
loss on investments of $177,749.

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

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

                           38  Oppenheimer Bond Fund


<PAGE>

================================================================================
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:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31, 1998(1)   YEAR ENDED
DECEMBER 31, 1997
                                --------------------------------
- -----------------------------
                                SHARES          AMOUNT
SHARES           AMOUNT
- -----------------------------------------------------------------------------------------------
<S>                            <C>           <C>
<C>             <C>
Class A:
Sold                            6,327,132     $ 68,506,645
2,678,397      $ 28,887,221
Dividends reinvested              929,158       10,176,270
831,219         8,947,815
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Income Fund--Note 9    2,792,886       30,889,321
- --                --
Redeemed                       (4,721,024)     (51,670,776)
(4,216,384)      (45,326,060)
                               -----------    ------------
- -----------      -------------
Net increase (decrease)         5,328,152     $ 57,901,460
(706,768)     $ (7,491,024)
                               ===========    ============
===========      =============

- -----------------------------------------------------------------------------------------------
Class B:
Sold                            5,173,605     $ 56,405,052
1,711,754      $ 18,512,789
Dividends reinvested              235,563        2,578,186
168,332         1,813,048
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Income Fund--Note 9       85,738          947,405
- --                --
Redeemed                       (1,783,066)     (19,480,859)
(1,110,660)      (11,946,337)
                               -----------    ------------
- -----------       ------------
Net increase                    3,711,840     $ 40,449,784
769,426       $ 8,379,500
                               ===========    ============
===========       ============

- -----------------------------------------------------------------------------------------------
Class C:
Sold                            1,595,718     $ 17,436,546
536,735       $ 5,809,737
Dividends reinvested               58,558          641,296
25,947           280,265
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Income Fund--Note 9        8,740           96,665
- --                --
Redeemed                         (494,157)      (5,387,814)
(129,410)       (1,393,257)
                               -----------    ------------
- -----------       ------------
Net increase                    1,168,859     $ 12,786,693
433,272       $ 4,696,745
                               ===========    ============
===========       ============

- -----------------------------------------------------------------------------------------------
Class Y:
Sold                                   92     $        999
- --       $        --
Dividends reinvested                   --               --
- --                --
Redeemed                               --               --
- --                --
                                 ---------    -------------
- ------------      ------------
Net increase                           92     $       $999
- --       $        --
                                 =========    =============
============      ============

</TABLE>

1. For the year  ended  December  31,  1998,  for Class A,  Class B, and Class C
shares,  and for the period  from April 27,  1998  (inception  of  offering)  to
December 31, 1998 for Class Y shares.

                           39  Oppenheimer Bond Fund


<PAGE>

NOTES TO FINANCIAL STATEMENTS (Continued)

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

As  of  December  31,  1998,  net  unrealized  appreciation  on  investments  of
$5,315,752  was  composed  of  gross  appreciation  of  $10,177,934,  and  gross
depreciation of $4,862,182.

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

Management  fees paid to the  Manager  were in  accordance  with the  investment
advisory  agreement with the Fund which provides for a fee of 0.75% of the first
$200  million of the Fund's  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 net assets in excess of $1 billion.  The
Fund's  management  fee for the year ended  December  31,  1998 was 0.74% of the
average annual net assets for Class A, Class B, Class C and Class Y shares.

                  For the year  ended  December  31,  1998,  commissions  (sales
charges paid by investors) on sales of Class A shares totaled $751,085, of which
$221,787 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary
of the Manager,  as general  distributor,  and by an  affiliated  broker/dealer.
Sales charges advanced to broker/dealers by OFDI on sales of the Fund's Class A,
Class  B  and  Class  C  shares  totaled  $112,467,   $1,420,342  and  $117,997,
respectively.  Amounts paid to an affiliated broker/dealer for Class B and Class
C shares were $93,828 and $3,459,  respectively.  During the year ended December
31,  1998,  OFDI  received  contingent  deferred  sales  charges of $186,638 and
$7,397,  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.

                  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
December  31,  1998,  OFDI  paid  $186,566  to an  affiliated  broker/dealer  as
reimbursement for Class A personal service and maintenance expenses.

                           40  Oppenheimer Bond Fund


<PAGE>

================================================================================
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 December 31, 1998,
OFDI paid $7,125 to an  affiliated  broker/dealer  as  compensation  for Class B
personal  service and maintenance  expenses and retained  $541,252 and $118,222,
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 December 31, 1998, OFDI had incurred excess  distribution and
servicing costs of $2,413,027 for Class B and $253,281 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.

                  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 segregated  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.

                           41  Oppenheimer Bond Fund

<PAGE>


NOTES TO FINANCIAL STATEMENTS (Continued)

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

As of December 31, 1998, the Fund had outstanding forward contracts as follows:

<TABLE>
<CAPTION>
                              EXPIRATION     CONTRACT       VALUATION AS
OF     UNREALIZED
CONTRACT DESCRIPTION          DATE           AMOUNT (000s)  DECEMBER 31,
1998   DEPRECIATION
- ---------------------------------------------------------------------------------------------
CONTRACTS TO SELL
- ------------------
<S>                           <C>            <C>
<C>               <C>
Canadian Dollar (CAD)         3/15/99        2,970 CAD
$1,939,647        $11,075

</TABLE>

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

                           42  Oppenheimer Bond Fund

<PAGE>

================================================================================
As of December 31, 1998, the Fund had outstanding futures contracts as follows:

<TABLE>
<CAPTION>

UNREALIZED
                             EXPIRATION     NUMBER OF      VALUATION AS
OF      APPRECIATION
CONTRACT DESCRIPTION         DATE           CONTRACTS      DECEMBER 31,
1998    (DEPRECIATION)
- ---------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
- ----------------------
<S>                            <C>             <C>
<C>                   <C>
U.S. Treasury Nts., 5 yr.      3/99            236
$26,749,125            $71,359
U.S. Treasury Nts., 20 yr.     3/99             77
9,839,156              8,625

- --------

79,984

- --------
CONTRACTS TO SELL
- ------------------
U.S. Treasury Nts., 10 yr.     3/99             18
2,144,813             (2,313)

- -------

$77,671

=======
</TABLE>

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

7. ILLIQUID AND RESTRICTED SECURITIES

As of December 31, 1998,  investments  in  securities  included  issues that are
illiquid or restricted.  Restricted  securities  are often  purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual  restrictions on resale,  and are valued under methods approved
by the Board of Trustees as reflecting  fair value. A security may be considered
illiquid  if it lacks a readily  available  market or if its  valuation  has not
changed for a certain  period of time.  The Fund  intends to invest no more than
10% of its  net  assets  (determined  at  the  time  of  purchase  and  reviewed
periodically)  in  illiquid  or  restricted   securities.   Certain   restricted
securities,  eligible for resale to qualified institutional  investors,  are not
subject to that limit. The aggregate value of illiquid or restricted  securities
subject to this  limitation  as of  December  31,  1998 was  $22,178,514,  which
represents 6.22% of the Fund's net assets.

================================================================================
8.  ACQUISITION OF OPPENHEIMER LIFESPAN INCOME FUND

On June 12, 1998, the Fund acquired all the net assets of  Oppenheimer  LifeSpan
Income Fund, pursuant to an agreement and plan of reorganization approved by the
Oppenheimer  LifeSpan Income Fund  shareholders on June 9, 1998. The Fund issued
(at an exchange ratio of 0.936419 for Class A, 0.940145 for Class B and
0.939042
for  Class C of the  Fund to one  share of  Oppenheimer  LifeSpan  Income  Fund)
2,792,886,  85,738 and 8,740 shares of beneficial interest for Class A, Class B,
and  Class  C,  respectively,  valued  at  $30,889,321,  $947,405  and  $96,665,
respectively,  in exchange for the net assets, resulting in combined Class A net
assets of $230,808,283, Class B net assets of $59,193,669 and Class C net assets
of $13,957,428 on June 12, 1998. The net assets acquired included net unrealized
appreciation of $514,326.  The exchange  qualified as a tax-free  reorganization
for federal income tax purposes.


                           43  Oppenheimer Bond Fund


<PAGE>


NOTES TO FINANCIAL STATEMENTS (continued)

================================================================================
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
December 31, 1998.

                           44  Oppenheimer Bond Fund


<PAGE>




<PAGE>


                                    A-1
                                  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.



<PAGE>


                                    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




<PAGE>


                                     C-13
                                  Appendix C

        OppenheimerFunds Special Sales Charge Arrangements and Waivers


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


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

For the purposes of some of the waivers  described  below and in the  Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term  "Retirement  Plan"  refers  to the  following  types of  plans:  (1) plans
qualified under Sections 401(a) or 401(k) of the Internal
         Revenue Code,

(2) non-qualified  deferred  compensation plans, (3) employee benefit plans3 (4)
Group  Retirement  Plans4 (5) 403(b)(7)  custodial  plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,

         Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

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

- --------------
1. Certain  waivers  also  apply to Class M shares  of  Oppenheimer  Convertible
   Securities Fund.

2. In the case of Oppenheimer Senior Floating Rate Fund, a  continuously-offered
   closed-end  fund,  references to contingent  deferred  sales charges mean the
   Fund's  Early  Withdrawal   Charges  and  references  to  "redemptions"  mean
   "repurchases" of shares.

3. An "employee  benefit plan" means any plan or arrangement,  whether or not it
   is "qualified" under the Internal Revenue Code, under which Class 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.
4. The term  "Group  Retirement  Plan"  means  any  qualified  or  non-qualified
   retirement  plan  for  employees  of a  corporation  or sole  proprietorship,
   members and  employees of a partnership  or  association  or other  organized
   group of persons  (the  members of which may include  other  groups),  if the
   group has made special  arrangements  with the Distributor and all members of
   the group  participating  in (or who are eligible to participate in) the plan
   purchase  Class A shares  of an  Oppenheimer  fund or funds  through a single
   investment dealer,  broker or other financial  institution  designated by the
   group.  Such plans  include 457 plans,  SEP-IRAs,  SARSEPs,  SIMPLE plans and
   403(b) plans other than plans for public  school  employees.  The term "Group
   Retirement Plan" also includes  qualified  retirement plans and non-qualified
   deferred  compensation  plans  and IRAs  that  purchase  Class A shares of an
   Oppenheimer fund or funds through a single investment dealer, broker or other
   financial institution that has made special arrangements with the Distributor
   enabling  those  plans to  purchase  Class A shares  at net  asset  value but
   subject to the Class A contingent deferred sales charge.
 I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases

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

      There is no initial  sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent  deferred  sales charge if redeemed  within 18
months of the end of the calendar month of their  purchase,  as described in the
Prospectus (unless a waiver described  elsewhere in this Appendix applies to the
redemption).  Additionally,  on shares  purchased  under these  waivers that are
subject to the Class A contingent  deferred sales charge,  the Distributor  will
pay the  applicable  commission  described  in the  Prospectus  under  "Class  A
Contingent  Deferred  Sales  Charge."3  This  waiver  provision  applies  to:

3 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more  (including any right of  accumulation)  by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.

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

o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:

(1)   buys shares costing $500,000 or more, or
(2)         has, at the time of  purchase,  100 or more  eligible  employees  or
            total plan assets of $500,000 or more, or
(3)         certifies  to the  Distributor  that it projects to have annual plan
            purchases of $200,000 or more.
o     Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
         purchases are made:
(1)         through a broker, dealer, bank or registered investment adviser that
            has  made  special  arrangements  with  the  Distributor  for  those
            purchases, or
(2)         by a direct rollover of a distribution  from a qualified  Retirement
            Plan if the administrator of that Plan has made special arrangements
            with the Distributor for those purchases.
o        Purchases  of Class A shares by  Retirement  Plans that have any of the
         following record-keeping arrangements:
(1)   The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
            Inc. ("Merrill Lynch") on a daily valuation basis for the
            Retirement Plan. On the date the plan sponsor signs the
            record-keeping service agreement with Merrill Lynch, the Plan
            must have $3 million or more of its assets invested in (a) mutual
            funds, other than those advised or managed by Merrill Lynch Asset
            Management, L.P. ("MLAM"), that are made available under a
            Service Agreement between Merrill Lynch and the mutual fund's
            principal underwriter or distributor, and  (b)  funds advised or
            managed by MLAM (the funds described in (a) and (b) are referred
            to as "Applicable Investments").
(2)   The record keeping for the Retirement Plan is performed on a daily
            valuation basis by a record keeper whose services are provided
            under a contract or arrangement between the Retirement Plan and
            Merrill Lynch. On the date the plan sponsor signs the record
            keeping service agreement with Merrill Lynch, the Plan must have
            $3 million or more of its assets (excluding assets invested in
            money market funds) invested in Applicable Investments.
(3)         The record keeping for a Retirement  Plan is handled under a service
            agreement  with Merrill Lynch and on the date the plan sponsor signs
            that  agreement,  the Plan has 500 or more  eligible  employees  (as
            determined by the Merrill Lynch plan conversion manager).
o        Purchases   by  a   Retirement   Plan   whose   record   keeper  had  a
         cost-allocation  agreement  with the Transfer Agent on or before May 1,
         1999.


<PAGE>


          II. Waivers of Class A Sales Charges of Oppenheimer Funds

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

Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no commissions are paid by the Distributor on such
purchases):
o     The Manager or its affiliates.
o     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.
o        Registered  management  investment  companies,  or separate accounts of
         insurance  companies  having  an  agreement  with  the  Manager  or the
         Distributor for that purpose.
o        Dealers or brokers that have a sales agreement with the Distributor, if
         they purchase shares for their own accounts or for retirement plans for
         their employees.
o     Employees and registered representatives (and their spouses) of dealers
         or brokers described 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).
o        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.
o        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.
o        "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.
o     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.
o        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.
o        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.
o        A unit investment trust that has entered into an appropriate  agreement
         with the Distributor.
o        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.
o        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.
o        A qualified  Retirement  Plan that had agreed with the former Quest for
         Value Advisors to purchase  shares of any of the Former Quest for Value
         Funds  at  net  asset  value,  with  such  shares  to be  held  through
         DCXchange,  a sub-transfer  agency mutual fund  clearinghouse,  if that
         arrangement was  consummated and share purchases  commenced by December
         31, 1996.

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

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

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

The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following  cases: o To make Automatic  Withdrawal Plan payments that are limited
annually to
         no more than 12% of the account value  measured at the time the Plan is
         established, adjusted annually.
o        Involuntary  redemptions  of shares by operation of law or  involuntary
         redemptions of small  accounts  (please refer to  "Shareholder  Account
         Rules and Policies," in the applicable fund Prospectus).
o        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.4

4 This provision does not apply to IRAs.

(5) Under a  Qualified  Domestic  Relations  Order,  as defined in the  Internal
Revenue  Code,  or, in the case of an IRA,  a divorce  or  separation  agreement
described in Section 71(b) of the Internal Revenue Code.

(6)         To  meet  the  minimum  distribution  requirements  of the  Internal
            Revenue Code.
(7)         To make  "substantially  equal  periodic  payments"  as described in
            Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.

(9) Separation from service.5

5 This provision does not apply to 403(b)(7)  custodial plans
if the  participant  is less than age 55, nor to IRAs.

(10)Participant-directed  redemptions  to  purchase  shares of a mutual
         fund (other than a fund managed by the Manager or a  subsidiary  of the
         Manager)  if  the  plan  has  made   special   arrangements   with  the
         Distributor.  (11) Plan termination or "in-service  distributions,"  if
         the   redemption    proceeds   are   rolled   over   directly   to   an
         OppenheimerFunds-sponsored IRA.
o        For  distributions  from  Retirement  Plans having 500 or more eligible
         employees,  except  distributions  due  to  termination  of  all of the
         Oppenheimer funds as an investment option under the Plan.
o        For distributions  from 401(k) plans sponsored by  broker-dealers  that
         have entered into a special  agreement  with the  Distributor  allowing
         this waiver.


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

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

A.  Waivers for Redemptions in Certain Cases.

The Class B and Class C  contingent  deferred  sales  charges will be waived for
redemptions of shares in the following  cases: o Shares redeemed  involuntarily,
as described in "Shareholder Account
         Rules and Policies," in the applicable Prospectus.
o     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.
o        Distributions  from accounts for which the  broker-dealer of record has
         entered into a special  agreement  with the  Distributor  allowing this
         waiver.
o        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.
o        Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
         accounts of clients of financial  institutions that have entered into a
         special arrangement with the Distributor for this purpose.
o        Redemptions  requested in writing by a Retirement Plan sponsor of Class
         C shares of an  Oppenheimer  fund in amounts of $1 million or more held
         by the  Retirement  Plan for  more  than one  year,  if the  redemption
         proceeds  are  invested  in Class A shares  of one or more  Oppenheimer
         funds.
o        Distributions from Retirement Plans or other employee benefit plans for
         any of the following purposes:
(1)             Following  the death or  disability  (as defined in the Internal
                Revenue Code) of the  participant or  beneficiary.  The death or
                disability  must  occur  after  the  participant's  account  was
                established in an Oppenheimer fund.
(2) To return  excess  contributions  made to a  participant's  account.

(3) To return contributions made due to a mistake of fact.

(4) To make  hardship
withdrawals, as defined in the plan.6

6 This provision does not apply to IRAs.

(5) To make distributions required under a
Qualified Domestic Relations
                Order  or,  in the  case  of an IRA,  a  divorce  or  separation
                agreement  described in Section  71(b) of the  Internal  Revenue
                Code.
(6)             To meet the minimum  distribution  requirements  of the Internal
                Revenue Code.
(7)             To make "substantially  equal periodic payments" as described in
                Section 72(t) of the Internal Revenue Code.
(8)  For  loans  to  participants  or  beneficiaries.7

7 This provision does not apply to loans from 403(b)(7) custodial
plans.

(9) On account of the participant's separation from service.8

8 This provision does not apply to 403(b)(7)  custodial plans if the participant
is less than age 55, nor to IRAs.

(10) Participant-directed redemptions to
purchase shares of a mutual fund
                (other than a fund managed by the Manager or a subsidiary of the
                Manager) offered as an investment option in a Retirement Plan if
                the plan has made special arrangements with the Distributor.
(11)            Distributions   made  on  account  of  a  plan   termination  or
                "in-service"  distributions,"  if the  redemption  proceeds  are
                rolled over directly to an OppenheimerFunds-sponsored IRA.
(12)            Distributions  from Retirement Plans having 500 or more eligible
                employees,  but  excluding  distributions  made  because  of the
                Plan's  elimination as investment  options under the Plan of all
                of the Oppenheimer funds that had been offered.
(13)            For  distributions   from  a  participant's   account  under  an
                Automatic  Withdrawal  Plan after the  participant  reaches  age
                59 1/2,  as long as the aggregate  value of the  distributions
                does not exceed 10% of the account's  value  annually  (measured
                from the establishment of the Automatic Withdrawal Plan).

         |_|Redemptions  of Class B shares or Class C shares  under an Automatic
            Withdrawal  Plan from an account other than a Retirement Plan if the
            aggregate  value of the  redeemed  shares does not exceed 10% of the
            account's value annually.


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

The  contingent  deferred  sales  charge  is also  waived on Class B and Class C
shares sold or issued in the following cases:
o     Shares sold to the Manager or its affiliates.
o        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.

o     Shares issued in plans of reorganization to which the Fund is a party.
      Shares sold to present or former officers, directors, trustees or
         employees (and their "immediate families" as defined above in
         Section I.A.) of the Fund, the Manager and its affiliates and
         retirement plans established by them for their employees.



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

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



<PAGE>



  Oppenheimer Quest Value Fund, Inc.    Oppenheimer   Quest   Small   Cap
                                   Value Fund

  Oppenheimer Quest Balanced Value Fund Oppenheimer  Quest  Global  Value
                                      Fund
  Oppenheimer  Quest  Opportunity Value
  Fund

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

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

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

A.  Reductions or Waivers of Class A Sales Charges.

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


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


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

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

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

      |X|   Waiver of Class A Sales Charges for Certain Shareholders.  Class
A shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o     Shareholders who were shareholders of the AMA Family of Funds on

         February  28, 1991 and who  acquired  shares of any of the Former Quest
         for Value Funds by merger of a portfolio of the AMA Family of Funds.
      Shareholders  who  acquired  shares of any Former  Quest for Value Fund by
         merger of any of the portfolios of the Unified Funds.


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


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

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


      |X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following  cases,  the  contingent  deferred sales charge will be waived for
redemptions  of Class A, Class B or Class C shares of an  Oppenheimer  fund. The
shares must have been  acquired  by the merger of a Former  Quest for Value Fund
into the fund or by exchange  from an  Oppenheimer  fund that was a Former Quest
for Value Fund or into  which  such fund  merged.  Those  shares  must have been
purchased  prior to March 6, 1995 in  connection  with: o  withdrawals  under an
automatic withdrawal plan holding only either

         Class B or Class C shares if the annual  withdrawal does not exceed 10%
         of the initial value of the account, and
o        liquidation of a shareholder's account if the aggregate net asset value
         of shares held in the account is less than the required  minimum  value
         of such accounts.


      |X| Waivers for Redemptions of Shares  Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent  deferred
sales  charge  will be waived  for  redemptions  of Class A,  Class B or Class C
shares of an Oppenheimer  fund. The shares must have been acquired by the merger
of a  Former  Quest  for  Value  Fund  into  the  fund  or by  exchange  from an
Oppenheimer  fund  that was a Former  Quest For Value  Fund or into  which  such
Former Quest for Value Fund merged.  Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: o redemptions following the
death or disability of the shareholder(s) (as
         evidenced by a determination of total disability by the U.S. Social
         Security Administration);

o        withdrawals under an automatic withdrawal plan (but only for Class B or
         Class C shares) where the annual  withdrawals  do not exceed 10% of the
         initial value of the account; and
o        liquidation of a shareholder's account if the aggregate net asset value
         of shares held in the account is less than the required minimum account
         value.


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



<PAGE>


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

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

  Connecticut Mutual Liquid Account         Connecticut   Mutual  Total  Return
                                            Account
  Connecticut Mutual Government  Securities CMIA LifeSpan Capital  Appreciation
Account                                     Account
  Connecticut Mutual Income Account         CMIA LifeSpan Balanced Account
  Connecticut Mutual Growth Account         CMIA Diversified Income Account

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

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

      Those  shareholders  who are  eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
         Connecticut  Mutual Funds were  $500,000  prior to March 18, 1996, as a
         result of direct purchases or purchases pursuant to the Fund's policies
         on Combined  Purchases or Rights of Accumulation,  who still hold those
         shares in that Fund or other Former Connecticut Mutual Funds, and

(2)      persons whose intended purchases under a Statement of Intention entered
         into prior to March 18, 1996,  with the former  general  distributor of
         the  Former  Connecticut  Mutual  Funds to  purchase  shares  valued at
         $500,000  or more over a  13-month  period  entitled  those  persons to
         purchase shares at net asset value without being subject to the Class A
         initial sales charge.


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

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

<PAGE>


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

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

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

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

In addition to the waivers  set forth in the  Prospectus  and in this  Appendix,
above,  the contingent  deferred sales charge will be waived for  redemptions of
Class A and Class B shares of a Fund and  exchanges of Class A or Class B shares
of a Fund into  Class A or Class B shares of a Former  Connecticut  Mutual  Fund
provided  that  the  Class A or Class B shares  of the  Fund to be  redeemed  or
exchanged  were (i)  acquired  prior to March 18, 1996 or (ii) were  acquired by
exchange from an  Oppenheimer  fund that was a Former  Connecticut  Mutual Fund.
Additionally,  the shares of such Former  Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased  shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
         the Internal Revenue Code;
(3)      for   retirement   distributions   (or   loans)  to   participants   or
         beneficiaries  from retirement plans qualified under Sections 401(a) or
         403(b)(7)of the Code, or from IRAs, deferred compensation plans created
         under Section 457 of the Code, or other employee benefit plans;

(4)      as  tax-free  returns of excess  contributions  to such  retirement  or
         employee benefit plans;

(5)      in whole or in part,  in  connection  with  shares  sold to any  state,
         county,  or city, or any  instrumentality,  department,  authority,  or
         agency thereof,  that is prohibited by applicable  investment laws from
         paying a sales charge or commission in connection  with the purchase of
         shares of any registered investment management company;
(6)      in  connection  with  the  redemption  of  shares  of the Fund due to a
         combination  with  another  investment  company  by virtue of a merger,
         acquisition or similar reorganization transaction;
(7)      in  connection  with  the  Fund's  right  to  involuntarily  redeem  or
         liquidate the Fund;
      in connection  with  automatic  redemptions  of Class A shares and Class B
         shares in certain  retirement  plan  accounts  pursuant to an Automatic
         Withdrawal  Plan but limited to no more than 12% of the original  value
         annually; or
(9)      as  involuntary  redemptions  of shares by  operation  of law, or under
         procedures  set forth in the Fund's  Articles of  Incorporation,  or as
         adopted by the Board of Directors of the Fund.



            VI. Special Reduced Sales Charge for Former Shareholders of

                           Advance America Funds, Inc.

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


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

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


<PAGE>



- ------------------------------------------------------------------------------
 Oppenheimer 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 & Wolfe, P.C.
      1600 Broadway
      Denver, Colorado 80202
67890








PX285.0499 (Rev. 1099)




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