OPPENHEIMER INTERNATIONAL BOND FUND
497, 1999-05-14
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Oppenheimer International Bond Fund


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

Statement of Additional Information dated January 29, 1999, revised
May 1, 1999

         This  Statement of Additional  Information  is not a  Prospectus.  This
document  contains  additional   information  about  the  Fund  and  supplements
information in the Prospectus dated January 29, 1999. It should be read together
with the  Prospectus.  You can  obtain the  Prospectus  by writing to the Fund's
Transfer Agent,  OppenheimerFunds  Services, at P.O. Box 5270, Denver,  Colorado
80217, or by calling the Transfer Agent at the toll-free  number shown above, or
by   downloading   it  from   the   OppenheimerFunds   Internet   web   site  at
www.oppenheimerfunds.com.

Contents
                                                                          Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.....  2
     The Fund's Investment Policies.......................................  2
     Other Investment Techniques and Strategies..........................   7
     Investment Restrictions..............................................  27
How the Fund is Managed ..................................................  29
     Organization and History.............................................  29
     Trustees and Officers................................................  31
     The Manager..........................................................  36
Brokerage Policies of the Fund............................................  37
Distribution and Service Plans............................................  39
Performance of the Fund...................................................  43
About Your Account
How To Buy Shares.........................................................  48
How To Sell Shares........................................................  56
How To Exchange Shares....................................................  62
Dividends, Capital Gains and Taxes........................................  64
Additional Information About the Fund.....................................  66

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




<PAGE>



ABOUT THE FUND


Additional Information About the Fund's Investment Policies and Risks

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

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

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

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

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

         Because  the  Fund  may  purchase  securities  denominated  in  foreign
currencies,  a change in the value of such  foreign  currency  against  the U.S.
dollar  will  result in a change in the amount of income the Fund has  available
for  distribution.  Because a portion  of the  Fund's  investment  income may be
received in foreign currencies,  the Fund will be required to compute its income
in U.S. dollars for  distribution to  shareholders,  and therefore the Fund will
absorb the cost of currency


fluctuations. After the Fund has distributed income, subsequent foreign currency
losses may result in the Fund's having  distributed  more income in a particular
fiscal period than was available from investment income, which could result in a
return of capital to shareholders.

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

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

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

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

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


                  |_|  Risks  of  Foreign  Investing.   Investments  in  foreign
securities  may offer  special  opportunities  for  investing  but also  present
special  additional  risks and  considerations  not  typically  associated  with
investments  in  domestic  securities.  Some of these  additional  risks  are: o
reduction  of  income  by  foreign  taxes;  o  fluctuation  in value of  foreign
investments  due to changes in currency  rates or currency  control  regulations
(for example,
              currency blockage);
o        transaction charges for currency exchange;
o        lack of public information about foreign issuers;
o             lack of  uniform  accounting,  auditing  and  financial  reporting
              standards in foreign  countries  comparable to those applicable to
              domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges; 

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

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

o greater  difficulties in commencing  lawsuits; 

o higher  brokerage  commission  rates than in the U.S.;

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

o  possibilities  in some  countries of  expropriation,  confiscatory  taxation,
political,  financial or social instability or adverse diplomatic  developments;
and o unfavorable differences between the U.S. economy and foreign economies.

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

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

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

o issuers in which the Fund  invests,  because  of  changes  in the  competitive
environment from a consolidated  currency market and greater  operational  costs
from converting to the new currency.  This might depress  securities  values.  o
vendors the Fund  depends on to carry out its  business,  such as its  Custodian
(which  holds the foreign  securities  the Fund buys),  the Manager  (which must
price  the  Fund's  investments  to deal  with the  conversion  to the euro) and
brokers, foreign markets and securities depositories.  If they are not prepared,
there could be delays in settlements and additional costs to the Fund.

o exchange  contracts and derivatives that are outstanding during the transition
to the  euro.  The lack of  currency  rate  calculations  between  the  affected
currencies and the need to update the Fund's contracts could pose extra costs to
the Fund.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         |X| Loans of Portfolio Securities. To raise cash for liquidity purposes
or income,  the Fund can lend its portfolio  securities to brokers,  dealers and
other types of financial  institutions approved by the Fund's Board of Trustees.
These  loans are  limited  to not more than 25% of the value of the  Fund's  net
assets.  The Fund  currently does not intend to engage in loans of securities in
the coming year,  but if it does so, such loans will not likely exceed 5% of the
Fund's total assets.

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

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

         |X| Borrowing  for  Leverage.  The Fund has the ability to borrow up to
one third of the value of its net  assets  from banks on an  unsecured  basis to
invest the borrowed funds in portfolio securities. This speculative technique is
known  as  "leverage."  The Fund may  borrow  only  from  banks.  Under  current
regulatory  requirements,  borrowings  can be made only to the  extent  that the
value of the Fund's assets, less its liabilities other than borrowings, is equal
to at least 300% of all borrowings  (including the proposed  borrowing).  If the
value of the Fund's assets fails to meet this 300% asset  coverage  requirement,
the Fund will reduce its bank debt within three days to meet the requirement. To
do  so,  the  Fund  might  have  to  sell a  portion  of  its  investments  at a
disadvantageous time.

         The Fund will pay interest on these loans,  and that  interest  expense
will raise the overall  expenses of the Fund and reduce its returns.  If it does
borrow,  its expenses will be greater than  comparable  funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more  than  that of funds  that do not  borrow.  Currently,  the  Fund  does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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



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

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

     |X| Temporary Defensive  Investments.  When market conditions are unstable,
or the  Manager  believes  it is  otherwise  appropriate  to reduce  holdings in
stocks,  the Fund can  invest  in a variety  of debt  securities  for  defensive
purposes.  The Fund can also purchase these securities for liquidity purposes to
meet cash needs due to the  redemption of Fund shares,  or to hold while waiting
to invest cash received from the sale of other  portfolio  securities.  The Fund
can buy: |_|  obligations  issued or guaranteed  by the U. S.  government or its
instrumentalities  or agencies,  |_| commercial  paper  (short-term,  unsecured,
promissory notes of domestic or foreign companies) rated in the three top rating
categories of a nationally  recognized rating organization,  |_| short-term debt
obligations of corporate issuers,  rated investment grade (rated at least Baa by
Moody's  Investors  Service,   Inc.  or  at  least  BBB  by  Standard  &  Poor's
Corporation, or a comparable rating by another rating organization),  or unrated
securities  judged  by  the  Manager  to  have a  comparable  quality  to  rated
securities  in those  categories,  |_|  certificates  of  deposit  and  bankers'
acceptances  of domestic  and foreign  banks having total assets in excess of $1
billion, and |_| repurchase agreements.

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

Investment Restrictions

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



|_| 67% or more of the shares  present or  represented by proxy at a shareholder
meeting,  if the holders of more than 50% of the outstanding  shares are present
or represented by proxy, or 

|_| more than 50% of the outstanding shares.

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

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

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

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

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

         |_| The  Fund  cannot  underwrite  securities  of  other  companies.  A
permitted  exception  is in case it is  deemed  to be an  underwriter  under the
Securities Act of 1933 when reselling any securities held in its own portfolio.

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

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

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


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

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

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

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

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

How the Fund is Managed

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

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

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

o has its own dividends and distributions,

o pays certain expenses which may be different for the different  classes, o may
have a different net asset value,

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

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

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

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

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

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

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


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

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



<PAGE>

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

      Ms. Macaskill and Messrs. Swain, Bishop, 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 January 4, 1999, the Trustees and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
The foregoing  statement  does not reflect  shares held of record by an employee
benefit plan for employees of the Manager other than shares  beneficially  owned
under that plan by the officers of the Fund listed below.  Ms. Macaskill and Mr.
Donohue, are trustees of that plan.




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

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

George C. Bowen, Trustee; Age: 62
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice  President  (since  September  1987) of the Manager;  Vice President
(since June 1983) and Treasurer (since March 1985) of the Distributor;  formerly
Treasurer (March 1995 - April 1999) of the Manager.

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

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

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

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

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

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


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

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

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

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

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






Brian W. Wixted, Vice President, Treasurer and Assistant Secretary; Age: 39
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice  President and Treasurer  (April 1999) of the Manager;  Treasurer of
HarbourView  Asset Management Corp.,  Shareholder  Services,  Inc.,  Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc. (since April
1999); Assistant Treasurer of Oppenheimer  Acquisition Corp. (since April 1999);
Assistant  Secretary of Centennial Asset  Management  Corp.  (since April 1999);
formerly President and Chief Operating  Officer,  Bankers Trust Company - Mutual
Fund  Services  Division  (March 1995 - March 1999);  Vice  President  and Chief
Financial Officer of CS First Boston Investment Management Corp. (September 1991
- - March 1995);  and Vice President and Accounting  Manager,  Merrill Lynch Asset
Management (November 1987 - September 1991).

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

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

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

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


<TABLE>
<CAPTION>

                                                                              Total Compensation
Trustee's Name and Other Positions     Aggregate Compensation                 From all Denver-Based
                                       from Fund                              Oppenheimer Funds 1
<S>                                    <C>                                    <C>
- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------

Robert G. Avis                          $234                                  $67,998

- -------------------------------------- -------------------------------------- --------------------------------------
- -------------------------------------- -------------------------------------- --------------------------------------
                                                       $252                                  $69,998
William A. Baker


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

Charles Conrad, Jr.                                    $242                                  $67,998

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

Jon. S. Fossel                                         $233                                $67,496.04

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

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

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

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

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

Robert M. Kirchner                                     $242                                  $67,998

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

Ned M. Steel                                           $234                                  $67,998

- -------------------------------------- -------------------------------------- --------------------------------------
</TABLE>

1.       For the 1998 calendar year.

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

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

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

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

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

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

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



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

  1996                                                     $311,128

  1997                                                    $1,465,1811

 1998                                                     $1,978,423

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

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

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

Brokerage Policies of the Fund

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

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

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

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

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

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

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

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

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

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




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

    1996                                              $976

    1997                                              $4,969

    1998                                              $31,9912

1. Amounts do not include spreads or concessions on principal  transactions on a
net trade basis.
2.   In the fiscal year ended 9/30/98,  no transactions were directed to brokers
     and no commissions were paid to to broker-dealers for research services.


Distribution and Service Plans

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

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


<TABLE>
<CAPTION>


                Aggregate           Class A Front-End   Commissions on       Commissions on      Commissions on
Fiscal Year     Front-End Sales     Sales Charges       Class A Shares       Class B Shares      Class C Shares
Ended 9/30:     Charges on Class    Retained by         Advanced by          Advanced by         Advanced by
                A Shares            Distributor         Distributor 1        Distributor 1       Distributor 1
<S>             <C>                 <C>                 <C>                  <C>                 <C>
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1996            $455,830            $126,085             $12,656            $1,115,490           $77,326
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1997           $1,124,978           $273,182             $23,126            $3,225,657           $209,570
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
     1998            $758,818            $197,195             $45,052            $2,036,881           $145,913
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
</TABLE>

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.


<TABLE>
<CAPTION>

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

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 plans were cast by the
Manager as the sole initial holder of each class of shares of the Fund.

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

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

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

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

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

      Under the plan for a class,  no payment  will be made to any  recipient in
any  quarter in which the  aggregate  net asset value of all Fund shares of that
class  held by the  recipient  for itself  and its  customers  does not exceed a
minimum  amount,  if any, that may be set from time to time by a majority of the
Independent Trustees.  The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.

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

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

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

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

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

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

o pays sales  commissions to authorized  brokers and dealers at the time of sale
and pays service fees as described above,

o may finance payment of sales commissions and/or the advance of the service fee
payment to recipients  under the plans,  or may provide such  financing from its
own  resources or from the  resources of an  affiliate,

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

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

      For the fiscal period ended September 30, 1998, payments under the Class B
plan  totaled  $1,287,968   (including  $5,333  paid  to  an  affiliate  of  the
Distributor's  parent). The Distributor retained $1,121,715 of the total amount.
For the fiscal period ended September 30, 1998,  payments under the Class C plan
totaled  $293,391,  (including  $1,830 paid to an affiliate of the Distributor's
parent). The Distributor retained $193,024 of the total amount.

      The  Distributor's  actual  expenses in selling Class B and Class C shares
may be more than the payments it receives  from the  contingent  deferred  sales
charges  collected on redeemed  shares and from the Fund under the plans.  As of
September 30, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the  amount  of  $5,581,385  (equal to 4.65% of the  Fund's  net
assets  represented  by Class B shares on that date) and  unreimbursed  expenses
under the Class C plan of  $492,685  (equal to 1.78% of the  Fund's  net  assets
represented by Class C shares on that date).  If either the Class B or the Class
C plan is  terminated  by the Fund,  the Board of Trustees may allow the Fund to
continue  payments  of the  asset-based  sales  charge  to the  Distributor  for
distributing shares before the plan was terminated.

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

Performance of the Fund

Explanation  of  Performance  Terminology.  The Fund uses a variety  of terms to
illustrate its performance.  These terms include "standardized yield," "dividend
yield,"  "average  annual total return,"  "cumulative  total  return,"  "average
annual total return at net asset value" and "total  return at net asset  value."
An  explanation  of how yields and total  returns  are  calculated  is set forth
below. The charts below show the Fund's performance as of the Fund's most recent
fiscal year end. You can obtain current  performance  information by calling the
Fund's  Transfer  Agent at  1-800-525-7048  or by visiting the  OppenheimerFunds
Internet web site at http://www.oppenheimerfunds.com.

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

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


         |_| Yields and total returns  measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's  account.  Your  account's  performance  will  vary from the model
performance  data if your  dividends  are  received in cash,  or you buy or sell
shares  during the period,  or you bought  your  shares at a different  time and
price than the shares used in the model.
         |_| The Fund's  performance  returns do not reflect the effect of taxes
on dividends and capital gains distributions.

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

         |_| The principal value of the Fund's shares,  and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.

         |_| When an investor's  shares are redeemed,  they may be worth more or
less than their original cost.


         |_|  Yields  and total  returns  for any given  past  period  represent
historical performance information and are not, and should not be considered,  a
prediction of future yields or returns.

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

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





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

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


                                               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 9/30/98

                               Standardized Yield               Dividend Yield

   Class of Shares
<TABLE>
<CAPTION>
                    Without             After                  Without                After
                    Sales               Sales                  Sales                  Sales
                    Charge              Charge                 Charge                 Charge
<S>                 <C>                 <C>                    <C>                    <C>
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   Class A                      13.57%                 12.90%                 12.15%                         11.56%
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   Class B                      12.83%                    N/A                 11.44%                            N/A
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
   Class C                      12.80%                    N/A                 11.44%                            N/A
   ---------------- ------------------- ---------------------- ---------------------- ------------------------------
</TABLE>

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

         In calculating  total returns for Class A shares,  the current  maximum
sales charge of 4.75% (as a percentage  of the offering  price) is deducted from
the initial  investment  ("P") (unless the return is shown without sales charge,
as described below).  For Class B shares,  payment of the applicable  contingent
deferred  sales charge is applied,  depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth  years,  2.0%  in the  fifth  year,  1.0%  in the  sixth  year  and  none
thereafter.  For Class C shares,  the 1%  contingent  deferred  sales  charge is
deducted for returns for the 1-year period.

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

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

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


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




                   The Fund's Total Returns for the Periods Ended 9/30/98

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


                                                1-Year           Life-of-Class
<TABLE>
<CAPTION>

               After        Without      After        Without      After        Without
               Sales        Sales        Sales        Sales        Sales        Sales Charge
               Charge       Charge       Charge       Charge       Charge
<S>            <C>          <C>          <C>          <C>          <C>          <C>
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
Class A        15.91%       21.69%       -16.65%      -12.50%      4.59%1       6.15%1
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
Class B        15.94%       18.52%       -17.08%      -13.16%      4.59%2       5.30%2
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
Class C        18.53%       18.53%       -13.94%      -13.16%      5.30%3       5.30%3
- -------------- ------------ ------------ ------------ ------------ ------------ -------------
</TABLE>

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

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

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

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

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

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

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

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

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



ABOUT YOUR ACCOUNT


How to Buy Shares

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

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

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

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

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

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

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

and the following money market funds:

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





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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         |X| Class B  Conversion.  The  conversion  of Class B shares to Class A
shares after six years is subject to the  continuing  availability  of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable  event for the  shareholder  under  Federal  income tax law. If such a
revenue  ruling or  opinion is no longer  available,  the  automatic  conversion
feature  may be  suspended,  in which  event no further  conversions  of Class B
shares would occur while such  suspension  remained in effect.  Altough  Class B
shares could then be  exchanged  for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the  shareholder,  and absent
such exchange,  Class B shares might  continue to be subject to the  asset-based
sales charge for longer than six years.





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

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

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

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

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

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


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

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

     (1) if last sale information is regularly reported,  they are valued at the
last reported  sale price on the principal  exchange on which they are traded or
on NASDAQ,  as applicable,  on that day, or (2) if last sale  information is not
available on a valuation  date,  they are valued at the last reported sale price
preceding the valuation date if it is within the spread of the closing "bid" and
"asked"  prices on the valuation  date or, if not, at the closing "bid" price on
the  valuation  date.  |_|  Equity  securities  traded on a  foreign  securities
exchange generally are valued in one of the following ways: (1) at the last sale
price available to the pricing service approved by the Board of Trustees, or (2)
at the last sale price  obtained by the Manager from the report of the principal
exchange  on which the  security  is traded at its last  trading  session  on or
immediately before the valuation date, or

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

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

     |_| The following  securities  are valued at the mean between the "bid" and
"asked" prices  determined by a pricing service  approved by the Fund's Board of
Trustees  or  obtained  by the  Manager  from two  active  market  makers in the
security on the basis of reasonable  inquiry:  (1) debt  instruments that have a
maturity  of more than 397 days when  issued,  (2) debt  instruments  that had a
maturity of 397 days or less when  issued and have a remaining  maturity of more
than 60 days, and (3) non-money  market debt  instruments that had a maturity of
397 days or less when issued and which have a  remaining  maturity of 60 days or
less.

         |_|  The  following   securities  are  valued  at  cost,  adjusted  for
amortization  of premiums  and  accretion  of  discounts:  (1) money market debt
securities held by a non-money  market fund that had a maturity of less than 397
days when issued that have
              a remaining maturity of 60 days or less, and

(2) debt instruments held by a money market fund that have a remaining  maturity
of 397 days or less. |_| Securities (including restricted securities) not having
readily-available  market  quotations are valued at fair value  determined under
the Board's  procedures.  If the  Manager is unable to locate two market  makers
willing to give  quotes,  a security may be priced at the mean between the "bid"
and "asked"  prices  provided by a single  active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).

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

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

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

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

How to Sell Shares

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

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

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

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

Reinvestment  Privilege.  Within six months of a redemption,  a shareholder  may
reinvest all or part of the redemption proceeds of:

         |_| Class A shares  purchased  subject  to an initial  sales  charge or
Class A shares on which a contingent deferred sales charge was paid, or

         |_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.

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

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

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

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

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

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


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

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

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

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

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

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




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

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

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

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

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

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


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

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

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

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

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

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

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

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

How to Exchange Shares

         As  stated  in  the  Prospectus,   shares  of  a  particular  class  of
Oppenheimer funds having more than one class of shares may be exchanged only for
shares of the same class of other Oppenheimer funds. Shares of Oppenheimer funds
that have a single class without a class designation are deemed "Class A" shares
for this purpose.  You can obtain a current list showing which funds offer which
classes by calling the Distributor at 1-800-525-7048.
         |_| All of the  Oppenheimer  funds  currently  offer  Class  A, B and C
shares  except  Oppenheimer  Money Market Fund,  Inc.,  Centennial  Money Market
Trust,  Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust,  Centennial  California Tax Exempt Trust,  and Centennial
America Fund, L.P., which only offer Class A shares.
         |_| Oppenheimer Main Street California  Municipal Fund currently offers
only Class A and Class B shares.
         |_|  Class B and  Class C  shares  of  Oppenheimer  Cash  Reserves  are
generally  available  only by  exchange  from the same  class of shares of other
Oppenheimer funds or through OppenheimerFunds-sponsored 401 (k) plans.
         |_| Class Y shares of Oppenheimer  Real Asset Fund may not be exchanged
for shares of any other Fund.

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

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

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

         Shares  of  the  Fund   acquired  by   reinvestment   of  dividends  or
distributions  from  any of  the  other  Oppenheimer  funds  or  from  any  unit
investment  trust for which  reinvestment  arrangements  have been made with the
Distributor  may be  exchanged  at net  asset  value  for  shares  of any of the
Oppenheimer funds.

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

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

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

         |X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder  must have an existing  account in the fund to which the exchange is
to be made.  Otherwise,  the  investors  must obtain a  Prospectus  of that fund
before the exchange request may be submitted.  For full or partial  exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic  Withdrawal Plans will be switched to the new account unless
the Transfer  Agent is instructed  otherwise.  If all  telephone  lines are busy
(which  might  occur,  for  example,   during  periods  of  substantial   market
fluctuations),  shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.

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

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

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

Dividends, Capital Gains and Taxes

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

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

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

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

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

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

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

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

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

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

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

Additional Information About the Fund

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

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

The Custodian.  The Bank of New York is the Custodian of the Fund's assets.  The
Custodian's  responsibilities  include  safeguarding  and controlling the Fund's
portfolio  securities  and handling the delivery of such  securities to and from
the Fund.  It will be the  practice of the Fund to deal with the  Custodian in a
manner uninfluenced by any banking  relationship the Custodian may have with the
Manager and its  affiliates.  The Fund's cash  balances  with the  custodian  in
excess of  $100,000  are not  protected  by  Federal  deposit  insurance.  Those
uninsured balances at times may be substantial. Independent Auditors. Deloitte &
Touche  LLP are the  independent  auditors  of the Fund.  They  audit the Fund's
financial statements and perform other related audit services.  They also act as
auditors for the Manager and for certain  other funds advised by the Manager and
its affiliates.

INDEPENDENT AUDITORS' REPORT

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

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

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

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


DELOITTE & TOUCHE LLP

Denver, Colorado
October 28, 1998




<PAGE>


STATEMENT OF INVESTMENTS  September 30, 1998

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

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

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

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

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

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





                    15  Oppenheimer International Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS  (Continued)

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

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

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

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

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

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





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

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

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

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

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

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





                    17  Oppenheimer International Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS  (Continued)

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


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





                    18  Oppenheimer International Bond Fund
<PAGE>

<TABLE>
<CAPTION>
                                                                                                            MARKET VALUE
                                                                                            SHARES          SEE NOTE 1
========================================================================================================================
<S>                                                                                               <C>       <C>
COMMON STOCKS--0.0%
- ------------------------------------------------------------------------------------------------------------------------
Air New Zealand Ltd., Cl. B (Cost $394,974)                                                       145,000   $    114,780
</TABLE>
<TABLE>
<CAPTION>
                                                                                             FACE
                                                                                             AMOUNT(1)
========================================================================================================================
<S>                                                                                           <C>           <C>
STRUCTURED INSTRUMENTS--14.3%
- ------------------------------------------------------------------------------------------------------------------------
Citibank, Argentine Peso Linked Nts., 10.75%, 10/30/98                                        $ 2,800,000      2,798,880
- ------------------------------------------------------------------------------------------------------------------------
Citibank, Greek Drachma Linked Nts., 11.30%, 11/30/98                                           1,400,000      1,405,040
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Morgan Grenfell, GKO Linked Nts.,
Zero Coupon, 5/19/99(7) (11) (RUR)                                                             14,515,000        181,154
- ------------------------------------------------------------------------------------------------------------------------
Hong Kong & Shanghai Banking Corp. Linked Receipt Nts.,
Linked to the Korean Exchange Bank Floating Rate Nts.
due 12/23/29, Zero Coupon, 13.25%, 12/28/99(6)                                                  2,900,000      2,431,650
- ------------------------------------------------------------------------------------------------------------------------
J.P. Morgan & Co., Inc., Turkish Lira Linked Nts., 84%, 10/2/98                                 7,200,000      7,200,684
- ------------------------------------------------------------------------------------------------------------------------
Korea Development Bank, Industrial Bank Finance Linked Nts.,
Zero Coupon, 11.50%, 3/5/99(6)(7)                                                               1,350,000      1,352,025
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Argentine Peso Linked Nts., 15%, 10/23/98                                                       2,820,881      2,824,040
Russian S-Account Credit Linked Nts., Zero Coupon, 1/20/99(7) (11)(RUR)                        11,515,000        427,472
- ------------------------------------------------------------------------------------------------------------------------
Standard Chartered Bank:
Chinese Renminbi Currency Linked Nts.:
9.50%, 11/5/98                                                                                  2,820,000      2,820,000
10%, 11/4/98                                                                                    2,820,000      2,814,642
New Taiwan Dollar/Japanese Yen Linked Nts., 23.50%, 10/2/98                                     1,405,000      1,370,718
Philippines Peso/Japanese Yen Linked Nts.:
20.25%, 11/9/98                                                                                 1,420,000      1,311,370
22.20%, 10/13/98                                                                                  487,000        448,965
22.25%, 10/13/98                                                                                1,705,000      1,576,955
22.70%, 10/21/98                                                                                  610,000        563,579
22.83%, 1/19/99                                                                                 1,410,000      1,299,597
Thai Baht/Japanese Yen Linked Nts.:
21.70%, 11/9/98                                                                                 1,400,000      1,372,420
23.80%, 11/4/98                                                                                 1,400,000      1,396,780
27.30%, 11/13/98                                                                                1,400,000      1,402,100
                                                                                                            ------------
Total Structured Instruments (Cost $37,531,109)                                                               34,998,071
</TABLE>





                    19  Oppenheimer International Bond Fund
<PAGE>
STATEMENT OF INVESTMENTS  (Continued)

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


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

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

</TABLE>





                    20  Oppenheimer International Bond Fund
<PAGE>
- -------------------------------------------------------------------------------
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:

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

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

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

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

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

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

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

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

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

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

</TABLE>

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

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

See accompanying Notes to Financial Statements.





                    21  Oppenheimer International Bond Fund
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES  September 30, 1998

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


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


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

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

</TABLE>





                    22  Oppenheimer International 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
$97,404,045 and 22,544,112 shares of beneficial interest outstanding)                                   $4.32
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price)                                                                                $4.54

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

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

See accompanying Notes to Financial Statements.
</TABLE>





                    23  Oppenheimer International Bond Fund
<PAGE>


STATEMENT OF OPERATIONS  For the Year Ended September 30, 1998

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

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

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

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

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

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

</TABLE>
See accompanying Notes to Financial Statements.





                    24  Oppenheimer International Bond Fund
<PAGE>


STATEMENTS OF CHANGES IN NET ASSETS


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

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

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

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





                    25  Oppenheimer International Bond Fund
<PAGE>
FINANCIAL HIGHLIGHTS

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

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

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

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

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

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

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

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

3. Annualized.





                    26  Oppenheimer International Bond Fund
<PAGE>

<TABLE>
<CAPTION>
CLASS B                                                                   CLASS C
- ------------------------------------------------                          -----------------------------------------------

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

<S>           <C>            <C>          <C>                             <C>              <C>         <C>          <C>
   $5.50         $5.48         $5.10       $5.00                            $5.50            $5.48       $5.09      $5.00
- -------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $866,084,106 and $851,580,023,
respectively.

See accompanying Notes to Financial Statements.





                    27  Oppenheimer International Bond Fund
<PAGE>

NOTES TO FINANCIAL STATEMENTS

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

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

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





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

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

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

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

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

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





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

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

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

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

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





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

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

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

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

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

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

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





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

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

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

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

Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of 0.75% of
the first $200 million of average annual net assets, 0.72% of the next $200
million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.60%
of the next $200 million and 0.50% of average annual net assets in excess of $1
billion. The Fund's management fee for the year ended September 30, 1998 was
0.74% of average annual net assets for Class A, Class B and Class C shares.

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

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





                    32  Oppenheimer International Bond Fund
<PAGE>
===============================================================================
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI for a
portion of its costs incurred in connection with the personal service and
maintenance of shareholder accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. OFDI uses the service fee to
reimburse brokers, dealers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their customers
that hold Class A shares. During the year ended September 30, 1998, OFDI paid
$17,549 to an affiliated broker/dealer as reimbursement for Class A personal
service and maintenance expenses.

        The Fund has adopted Distribution and Service Plans for Class B and
Class C shares to compensate OFDI for its costs in distributing Class B and
Class C shares and servicing accounts. Under the Plans, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year on Class B and Class C shares
for its services rendered in distributing Class B and Class C shares.  OFDI
also receives a service fee of 0.25% per year to compensate dealers for
providing personal services for accounts that hold Class B and Class C shares.
Each fee is computed on the average annual net assets of Class B or Class C
shares, determined as of the close of each regular business day. During the
year ended September 30, 1998, OFDI paid $5,333 and $1,830, respectively, to an
affiliated broker/dealer as compensation for Class B and Class C personal
service and maintenance expenses and retained $1,121,715 and $193,024,
respectively, as compensation for Class B and Class C sales commissions and
service fee advances, as well as financing costs. If either Plan is terminated
by the Fund, the Board of Trustees may allow the Fund to continue payments of
the asset-based sales charge to OFDI for distributing shares before the Plan
was terminated. As of September 30, 1998, OFDI had incurred excess distribution
and servicing costs of $5,581,385 for Class B and $492,685 for Class C.

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

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

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





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

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

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

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

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

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

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





                    34  Oppenheimer International Bond Fund
<PAGE>
===============================================================================
6. FUTURES CONTRACTS

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

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

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

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

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

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

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





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

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

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

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

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

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

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

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

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

</TABLE>





                    36  Oppenheimer International Bond Fund
<PAGE>
===============================================================================
8. ILLIQUID AND RESTRICTED SECURITIES

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

===============================================================================
9. BANK BORROWINGS

The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.

           The Fund had no borrowings outstanding during the year ended
September 30, 1998.


                                   Appendix A

                                                 RATINGS DEFINITIONS


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

Moody's Investors Service, Inc.


Long-Term (Taxable) Bond Ratings

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

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

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

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

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

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

Caa:  Bonds rated Caa are of poor standing and may be in default or there may be
present elements of danger with respect to principal or interest.

Ca: Bonds rated Ca represent  obligations which are speculative in a high degree
and are often in default or have other marked shortcomings.

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

Moody's  applies  numerical  modifiers  1,  2,  and  3 in  each  generic  rating
classification  from Aa  through  Caa.  The  modifier  "1"  indicates  that  the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range  ranking and the modifier "3"  indicates a ranking in the lower end of
the category.

Short-Term Ratings - Taxable Debt

These  ratings apply to the ability of issuers to repay  punctually  senior debt
obligations having an original maturity not exceeding one year:

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

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

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

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


Standard & Poor's Rating Services


Long-Term Credit Ratings

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

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

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

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

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

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

B: A bond rated B is more vulnerable to nonpayment than an obligation  rated BB,
but the obligor  currently has the capacity to meet its financial  commitment on
the obligation.

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

CC:  An obligation rated CC is currently highly vulnerable to nonpayment.

C: The C rating may used where a  bankruptcy  petition has been filed or similar
action has been taken, but payments on this obligation are being continued.

D: Bonds rated D are in default.  Payments on the  obligation are not being made
on the date due.

The  ratings  from AA to CCC may be  modified  by the  addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant  noncredit
risks.

Short-Term Issue Credit Ratings

A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong.  Within this  category,  a plus (+) sign
designation  indicates the issuer's capacity to meet its financial obligation is
very strong.

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

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

B:  Regarded  as having  significant  speculative  characteristics.  The obligor
currently has the capacity to meet its financial  commitment on the  obligation.
However, it faces major ongoing  uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

C: Currently  vulnerable to nonpayment and is dependent upon favorable business,
financial,  and  economic  conditions  for the  obligor  to meet  its  financial
commitment on the obligation.

D: In payment default.  Payments on the obligation have not been made on the due
date.  The rating may also be used if a  bankruptcy  petition  has been filed or
similar actions jeopardize payments on the obligation.


Fitch IBCA, Inc.


International Long-Term Credit Ratings

Investment Grade:

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

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

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

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

Speculative Grade:

BB:  Speculative.  "BB" ratings  indicate that there is a possibility  of credit
risk  developing,  particularly  as the result of adverse  economic  change over
time.  However,  business or  financial  alternatives  may be available to allow
financial commitments to be met.

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

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

DDD, DD, and D: Default.  Securities are not meeting current obligations and are
extremely  speculative.  "DDD" designates the highest  potential for recovery of
amounts outstanding on any securities involved.

Plus (+) and  minus  (-)  signs  may be  appended  to a rating  symbol to denote
relative status within the rating  category.  Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."

International Short-Term Credit Ratings

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


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

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

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

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

D:     Default. Denotes actual or imminent payment default.

Duff & Phelps Credit Rating Co. Ratings


Long-Term Debt and Preferred Stock

AAA:  Highest  credit  quality.  The risk  factors  are  negligible,  being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+, A & A-: Protection factors are average but adequate.  However,  risk factors
are more variable in periods of greater economic stress.

BBB+,  BBB &  BBB-:  Below  average  protection  factors  but  still  considered
sufficient  for  prudent  investment.  Considerable  variability  in risk during
economic cycles.

BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective  financial protection factors fluctuate according to
industry  conditions.  Overall quality may move up or down frequently within the
category.

B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles,  industry conditions and/or company fortunes.  Potential exists
for  frequent  changes in the rating  within  this  category or into a higher of
lower rating grade.

CCC: Well below investment-grade securities.  Considerable uncertainty exists as
to timely  payment of  principal,  interest or preferred  dividends.  Protection
factors   are   narrow   and   risk   can  be   substantial   with   unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD: Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.

DP:  Preferred stock with dividend arrearages.

Short-Term Debt:

                                   High Grade:

D-1+:  Highest certainty of timely payment.  Safety is just below risk-free U.S.
Treasury short-term debt.

D-1: Very high certainty of timely payment. Risk factors are minor.

D-1-: High certainty of timely payment. Risk factors are very small.

Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.

Satisfactory Grade:
D-3:  Satisfactory  liquidity and other protection  factors qualify issues as to
investment  grade.  Risk  factors  are  larger and  subject  to more  variation.
Nevertheless, timely payment is expected.

Non-Investment Grade:

D-4:  Speculative  investment  characteristics.  Liquidity is not  sufficient to
insure against disruption in debt service.

Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.


<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 & Truckers
Convenience Stores                                           Restaurants
Department Stores                                            Savings & Loans
Diversified Financial                                        Shipping
Diversified Media                                    Special Purpose Financial
Drug Wholesalers                                             Specialty Printing
Durable Household Goods                                      Specialty Retailing
Education                                                    Steel
Electric Utilities                           Telecommunications - Long Distance
Electrical Equipment                                Telephone - Utility
Electronics                                  Textile, Apparel & Home Furnishings
Energy Services                                              Tobacco
Entertainment/Film                                           Trucks and Parts
Environmental                                                Wireless Services
Food



<PAGE>


                                      C-11

                                   Appendix C


         OppenheimerFunds Special Sales Charge Arrangements and Waivers


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

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

         For the  purposes  of some of the  waivers  described  below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans:

(1) plans  qualified  under  Sections  401(a) or 401(k) of the Internal  Revenue
Code,

(2)       non-qualified deferred compensation plans,
(3)       employee benefit plans2
(4)       Group Retirement Plans3
(5)       403(b)(7) custodial plan accounts

(6) Individual  Retirement Accounts ("IRAs"),  including  traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

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

               Waivers  that  apply  at the time  shares  are  redeemed  must be
               requested  by the  shareholder  and/or  dealer in the  redemption
               request. -------------- 1. Certain waivers also apply to Class M.
               shares of Oppenheimer Convertible Securities Fund.

2.   An "employee benefit plan" means any plan or arrangement, whether or not it
     is "qualified"  under the Internal Revenue Code, under which Class A shares
     of an  Oppenheimer  fund or funds are  purchased  by a  fiduciary  or other
     administrator for the account of participants who are employees of a single
     employer  or of  affiliated  employers.  These may  include,  for  example,
     medical savings  accounts,  payroll  deduction plans or similar plans.  The
     fund  accounts  must  be  registered  in  the  name  of  the  fiduciary  or
     administrator  purchasing the shares for the benefit of participants in the
     plan.

3. The term  "Group  Retirement  Plan"  means  any  qualified  or  non-qualified
retirement plan for employees of a corporation or sole  proprietorship,  members
and  employees of a  partnership  or  association  or other  organized  group of
persons (the members of which may include other  groups),  if the group has made
special  arrangements  with  the  Distributor  and  all  members  of  the  group
participating in (or who are eligible to participate in) the plan purchase Class
A shares of an  Oppenheimer  fund or funds through a single  investment  dealer,
broker or other  financial  institution  designated  by the  group.  Such  plans
include 457 plans, SEP-IRAs,  SARSEPs,  SIMPLE plans and 403(b) plans other than
plans for  public  school  employees.  The term  "Group  Retirement  Plan"  also
includes  qualified  retirement plans and  non-qualified  deferred  compensation
plans and IRAs that  purchase  Class A shares  of an  Oppenheimer  fund or funds
through a single investment dealer,  broker or other financial  institution that
has made  special  arrangements  with the  Distributor  enabling  those plans to
purchase Class A shares at net asset value but subject to the Class A contingent
deferred sales charge.




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

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

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

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

     |_|  Purchases  by a  Retirement  Plan  (other  than  an IRA  or  403(b)(7)
     custodial plan) that: (1) buys shares costing $500,000 or more, or (2) has,
     at the time of  purchase,  100 or more  eligible  employees  or total  plan
     assets of $500,000 or more,  or (3)  certifies to the  Distributor  that it
     projects to have annual plan  purchases of $200,000 or more. 

     |_|  Purchases  by  an  OppenheimerFunds-sponsored  Rollover  IRA,  if  the
     purchases  are  made:  (1)  through a broker,  dealer,  bank or  registered
     investment adviser that has made special  arrangements with the Distributor
     for those purchases,  or (2) by a direct rollover of a distribution  from a
     qualified  Retirement  Plan if the  administrator  of that  Plan  has  made
     special  arrangements  with  the  Distributor  for  those  purchases.  

     |_|  Purchases of Class A shares by  Retirement  Plans that have any of the
     following record-keeping arrangements:  (1) The record keeping is performed
     by Merrill Lynch Pierce Fenner & Smith,  Inc.  ("Merrill Lynch") on a daily
     valuation basis for the Retirement Plan. On the date the plan sponsor signs
     the record-keeping service agreement with Merrill Lynch, the Plan must have
     $3 million or more of its assets  invested in (a) mutual funds,  other than
     those advised or managed by Merrill Lynch Asset Management,  L.P. ("MLAM"),
     that are made available under a Service Agreement between Merrill Lynch and
     the mutual  fund's  principal  underwriter  or  distributor,  and (b) funds
     advised or managed by MLAM (the funds described in (a) and (b) are referred
     to as "Applicable Investments").  (2) The record keeping for the Retirement
     Plan is  performed  on a daily  valuation  basis by a record  keeper  whose
     services  are  provided  under  a  contract  or  arrangement   between  the
     Retirement  Plan and Merrill Lynch.  On the date the plan sponsor signs the
     record keeping service  agreement with Merrill Lynch, the Plan must have $3
     million or more of its assets  (excluding  assets  invested in money market
     funds)  invested in Applicable  Investments.  (3) The record  keeping for a
     Retirement Plan is handled under a service agreement with Merrill Lynch and
     on the date the plan sponsor signs that agreement, the Plan has 500 or more
     eligible  employees (as  determined  by the Merrill  Lynch plan  conversion
     manager).  |_|  Purchases  by a Retirement  Plan whose record  keeper had a
     cost-allocation agreement with the Transfer Agent on or before May 1, 1999.


            II. Waivers of Class A Sales Charges of Oppenheimer Funds

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

Class A shares purchased by the following investors are not subject to any Class
A sales  charges  (and  no  commissions  are  paid  by the  Distributor  on such
purchases):
|_|      The Manager or its affiliates.
|_|           Present or former officers, directors, trustees and employees (and
              their  "immediate  families")  of the Fund,  the  Manager  and its
              affiliates,  and  retirement  plans  established by them for their
              employees.  The term  "immediate  family"  refers to one's spouse,
              children,  grandchildren,  grandparents,  parents, parents-in-law,
              brothers  and  sisters,  sons- and  daughters-in-law,  a sibling's
              spouse, a spouse's siblings,  aunts,  uncles,  nieces and nephews;
              relatives by virtue of a remarriage (step-children,  step-parents,
              etc.) are included.
|_|           Registered management  investment companies,  or separate accounts
              of insurance companies having an agreement with the Manager or the
              Distributor for that purpose.
|_|           Dealers  or  brokers  that  have  a  sales   agreement   with  the
              Distributor, if they purchase shares for their own accounts or for
              retirement plans for their employees.
|_|           Employees and  registered  representatives  (and their spouses) of
              dealers or brokers described above or financial  institutions that
              have entered into sales  arrangements with such dealers or brokers
              (and which are identified as such to the  Distributor) or with the
              Distributor.  The purchaser must certify to the Distributor at the
              time of  purchase  that the  purchase is for the  purchaser's  own
              account  (or for the  benefit of such  employee's  spouse or minor
              children).
|_|           Dealers,  brokers,  banks or registered  investment  advisors that
              have  entered  into an agreement  with the  Distributor  providing
              specifically  for  the use of  shares  of the  Fund in  particular
              investment products made available to their clients. Those clients
              may be charged a transaction fee by their dealer,  broker, bank or
              advisor for the purchase or sale of Fund shares.
|_|           Investment  advisors and financial  planners who have entered into
              an agreement for this purpose with the  Distributor and who charge
              an advisory,  consulting  or other fee for their  services and buy
              shares for their own accounts or the accounts of their clients.
|_|           "Rabbi  trusts"  that buy  shares for their own  accounts,  if the
              purchases  are made  through a broker or agent or other  financial
              intermediary   that  has  made  special   arrangements   with  the
              Distributor for those purchases.
|_|           Clients of investment  advisors or financial  planners  (that have
              entered into an agreement  for this purpose with the  Distributor)
              who buy shares for their own  accounts  may also  purchase  shares
              without  sales  charge but only if their  accounts are linked to a
              master account of their investment advisor or financial planner on
              the  books  and  records  of  the  broker,   agent  or   financial
              intermediary  with  which the  Distributor  has made such  special
              arrangements . Each of these investors may be charged a fee by the
              broker, agent or financial intermediary for purchasing shares.
|_|           Directors,  trustees,  officers or  full-time  employees  of OpCap
              Advisors or its affiliates, their relatives or any trust, pension,
              profit  sharing  or other  benefit  plan which  beneficially  owns
              shares for those persons.
|_|           Accounts for which  Oppenheimer  Capital (or its successor) is the
              investment  advisor  (the  Distributor  must  be  advised  of this
              arrangement)  and  persons  who are  directors  or trustees of the
              company or trust which is the beneficial owner of such accounts.

     |_| A unit investment trust that has entered into an appropriate  agreement
     with the Distributor.


|_|           Dealers,  brokers,  banks, or registered  investment advisers that
              have entered into an agreement with the Distributor to sell shares
              to defined  contribution  employee  retirement plans for which the
              dealer,  broker  or  investment  adviser  provides  administration
              services.
|_|           Retirement Plans and deferred  compensation  plans and trusts used
              to fund those plans  (including,  for example,  plans qualified or
              created  under  sections  401(a),  401(k),  403(b)  or  457 of the
              Internal  Revenue Code),  in each case if those purchases are made
              through a broker,  agent or other financial  intermediary that has
              made  special   arrangements   with  the   Distributor  for  those
              purchases.
|_|           A TRAC-2000  401(k) plan  (sponsored by the former Quest for Value
              Advisors)  whose  Class B or Class C shares of a Former  Quest for
              Value Fund were  exchanged  for Class A shares of that Fund due to
              the  termination  of the Class B and Class C TRAC-2000  program on
              November 24, 1995.
|_|           A qualified  Retirement Plan that had agreed with the former Quest
              for Value  Advisors to purchase  shares of any of the Former Quest
              for Value  Funds at net asset  value,  with such shares to be held
              through   DCXchange,    a   sub-transfer    agency   mutual   fund
              clearinghouse,  if that  arrangement  was  consummated  and  share
              purchases commenced by December 31, 1996.

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

Class A shares issued or purchased in the following transactions are not subject
to  sales  charges  (and no  commissions  are  paid by the  Distributor  on such
purchases): 

     |_|  Shares  issued  in plans of  reorganization,  such as  mergers,  asset
     acquisitions and exchange offers,  to which the Fund is a party.

     |_|  Shares   purchased   by  the   reinvestment   of  dividends  or  other
     distributions  reinvested from the Fund or other  Oppenheimer  funds (other
     than  Oppenheimer  Cash  Reserves)  or unit  investment  trusts  for  which
     reinvestment  arrangements have been made with the Distributor. 

     |_|  Shares  purchased  through a  broker-dealer  that has  entered  into a
     special  agreement with the Distributor to allow the broker's  customers to
     purchase  and pay for shares of  Oppenheimer  funds  using the  proceeds of
     shares  redeemed in the prior 30 days from a mutual fund (other than a fund
     managed  by the  Manager  or any of its  subsidiaries)  on which an initial
     sales charge or contingent deferred sales charge was paid. This waiver also
     applies to shares  purchased  by  exchange of shares of  Oppenheimer  Money
     Market Fund,  Inc. that were  purchased  and paid for in this manner.  This
     waiver must be requested  when the  purchase  order is placed for shares of
     the Fund, and the Distributor  may require  evidence of  qualification  for
     this waiver.

     |_| Shares  purchased with the proceeds of maturing  principal units of any
     Qualified Unit Investment Liquid Trust Series. 

     |_|  Shares   purchased  by  the  reinvestment  of  loan  repayments  by  a
     participant in a Retirement Plan for which the Manager or an affiliate acts
     as sponsor.

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

The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:

     |_| To make Automatic Withdrawal Plan payments that are limited annually to
     no more  than 12% of the  account  value  measured  at the time the Plan is
     established, adjusted annually.


     |_|  Involuntary  redemptions  of shares by operation of law or involuntary
     redemptions of small accounts  (please refer to "Shareholder  Account Rules
     and Policies," in the applicable fund Prospectus).




|_|           For  distributions  from Retirement Plans,  deferred  compensation
              plans or other  employee  benefit  plans for any of the  following
              purposes:
(1)               Following the death or disability  (as defined in the Internal
                  Revenue Code) of the participant or beneficiary.  The death or
                  disability  must occur  after the  participant's  account  was
                  established.
(2) To return excess contributions.
(3)      To return contributions made due to a mistake of fact.

(4)      Hardship withdrawals, as defined in the plan.4

     (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. 

          (10)Participant-directed  redemptions  to purchase  shares of a mutual
          fund (other than a fund managed by the Manager or a subsidiary  of the
          Manager)  if  the  plan  has  made  special   arrangements   with  the
          Distributor. 

          (11)Plan termination or "in-service  distributions," if the redemption
          proceeds  are rolled over  directly  to an  OppenheimerFunds-sponsored
          IRA.

          |_|  For  distributions  from  Retirement  Plans  having  500 or  more
          eligible employees,  except distributions due to termination of all of
          the Oppenheimer  funds as an investment option under the Plan.

          |_| For  distributions  from 401(k) plans sponsored by  broker-dealers
          that  have  entered  into a  special  agreement  with the  Distributor
          allowing this waiver.


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

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

A.  Waivers for Redemptions in Certain Cases.

The Class B and Class C  contingent  deferred  sales  charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in  "Shareholder  Account Rules and  Policies,"  in the  applicable
Prospectus.  |_| Redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving shareholder,
              including a trustee of a grantor  trust or revocable  living trust
              for which the trustee is also the sole  beneficiary.  The death or
              disability  must have occurred after the account was  established,
              and for disability you must provide evidence of a determination of
              disability by the Social Security Administration.
|_|           Distributions  from accounts for which the broker-dealer of record
              has entered into a special agreement with the Distributor allowing
              this waiver.
|_|           Redemptions  of  Class B shares  held by  Retirement  Plans  whose
              records are maintained on a daily valuation basis by Merrill Lynch
              or an  independent  record  keeper  under a contract  with Merrill
              Lynch.
|_|           Redemptions of Class C shares of Oppenheimer U.S. Government Trust
              from  accounts  of clients  of  financial  institutions  that have
              entered into a special  arrangement  with the Distributor for this
              purpose.
|_|           Redemptions  requested in writing by a Retirement  Plan sponsor of
              Class C shares of an Oppenheimer  fund in amounts of $1 million or
              more held by the  Retirement  Plan for more than one year,  if the
              redemption  proceeds are invested in Class A shares of one or more
              Oppenheimer funds.

          |_|  Distributions  from  Retirement  Plans or other employee  benefit
          plans for any of the following purposes:

(1)                    Following  the death or  disability  (as  defined  in the
                       Internal Revenue Code) of the participant or beneficiary.
                       The   death  or   disability   must   occur   after   the
                       participant's  account was  established in an Oppenheimer
                       fund.
(2) To return  excess  contributions  made to a  participant's  account.  (3) To
return  contributions  made  due to a  mistake  of  fact.  (4) To make  hardship
withdrawals, as defined in the plan.6
(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  (9) On account of the  participant's  separation from service.8
(10) Participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manager or a
                       subsidiary  of  the  Manager)  offered  as an  investment
                       option in a Retirement  Plan if the plan has made special
                       arrangements with the Distributor.
(11)                   Distributions  made on account of a plan  termination  or
                       "in-service"  distributions," if the redemption  proceeds
                       are rolled over directly to an OppenheimerFunds-sponsored
                       IRA.
(12)                   Distributions  from  Retirement  Plans having 500 or more
                       eligible  employees,  but  excluding  distributions  made
                       because of the Plan's  elimination as investment  options
                       under the Plan of all of the  Oppenheimer  funds that had
                       been offered.
(13)                   For distributions  from a participant's  account under an
                       Automatic  Withdrawal Plan after the participant  reaches
                       age  59 1/2,  as long  as the  aggregate  value  of the
                       distributions  does not exceed 10% of the account's value
                       annually   (measured  from  the   establishment   of  the
                       Automatic Withdrawal Plan).

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

The  contingent  deferred  sales  charge  is also  waived on Class B and Class C
shares sold or issued in the following  cases: |_| Shares sold to the Manager or
its affiliates. |_| Shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement
              with the Manager or the Distributor for that purpose.
|_|      Shares issued in plans of reorganization to which the Fund is a party.



<PAGE>


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

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

   Oppenheimer Quest Value Fund, Inc.  
   Oppenheimer Quest Small Cap Value Fund
   Oppenheimer Quest Balanced Value 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 Income Fund 
Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund
Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund 
Quest for Value California Tax-Exempt Fund

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

A.  Reductions or Waivers of Class A Sales Charges.

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

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

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

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

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

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

          |_|  Shareholders  who  acquired  shares of any Former Quest for Value
          Fund by merger of any of the portfolios of the Unified Funds.

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

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

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

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

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



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

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

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

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

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

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

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

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

<PAGE>


          any purchaser,  provided the total initial amount invested in the Fund
          or any one or more of the  Former  Connecticut  Mutual  Funds  totaled
          $500,000 or more, including  investments made pursuant to the Combined
          Purchases,  Statement of Intention and Rights of Accumulation features
          available at the time of the initial  purchase and such  investment is
          still held in one or more of the Former  Connecticut Mutual Funds or a
          Fund into which such Fund merged; 

               (2) any participant in a qualified plan,  provided that the total
               initial  amount  invested  by the  plan in the Fund or any one or
               more of the Former  Connecticut  Mutual Funds totaled $500,000 or
               more;

(3)  Directors of the Fund or any one or more of the Former  Connecticut  Mutual
Funds and  members of their  immediate  families;  (4)  employee  benefit  plans
sponsored by Connecticut Mutual Financial Services,  L.L.C.  ("CMFS"), the prior
distributor of the
              Former Connecticut Mutual Funds, and its affiliated companies;
(5)           one or more  members  of a group of at least  1,000  persons  (and
              persons  who are  retirees  from such  group)  engaged in a common
              business,  profession,  civic  or  charitable  endeavor  or  other
              activity,  and the  spouses and minor  dependent  children of such
              persons,  pursuant to a marketing  program  between  CMFS and such
              group; and
(6)           an institution acting as a fiduciary on behalf of an individual or
              individuals,  if such institution was directly  compensated by the
              individual(s)  for  recommending the purchase of the shares of the
              Fund or any one or more of the Former  Connecticut  Mutual  Funds,
              provided the institution had an agreement with CMFS.

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

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

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

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

(5)           in whole or in part, in connection  with shares sold to any state,
              county, or city, or any instrumentality, department, authority, or
              agency thereof,  that is prohibited by applicable  investment laws
              from paying a sales charge or commission  in  connection  with the
              purchase  of  shares  of  any  registered   investment  management
              company;
(6)           in connection  with the  redemption of shares of the Fund due to a
              combination with another investment company by virtue of a merger,
              acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the
Fund; (8)

<PAGE>


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


<PAGE>




Oppenheimer International Bond Fund


Internet Web Site:
         www.oppenheimerfunds.com

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

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

Transfer Agent
         OppenheimerFunds Services
         P.O. Box 5270
         Denver, Colorado 80217
         1-800-525-7048

Custodian Bank
         The Bank of New York
         One Wall Street
         New York, New York 10015

Independent Auditors
         Deloitte & Touche LLP
         555 Seventeenth Street
         Denver, Colorado 80202

Legal Counsel
         Myer, Swanson, Adams & Wolf, P.C.
         1600 Broadway
         Denver, Colorado 80202


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