OPPENHEIMER INTERNATIONAL BOND FUND
497, 2001-01-19
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Oppenheimer
INTERNATIONAL BOND FUND



Prospectus dated January 17, 2001




                                         Oppenheimer  International Bond Fund is
                                         a mutual fund that seeks  total  return
                                         as its  primary  goal.  As a  secondary
                                         goal,  it seeks income when  consistent
                                         with   total    return.    It   invests
                                         primarily  in  foreign  government  and
                                         corporate  bonds, in both developed and
                                         emerging markets.
                                               This     Prospectus      contains
                                         important  information about the Fund's
                                         objectives,  its  investment  policies,
                                         strategies and risks.  It also contains
                                         important  information about how to buy
                                         and sell  shares  of the Fund and other
                                         account  features.   Please  read  this
                                         Prospectus  carefully before you invest
As with all mutual funds, the            and keep it for future  reference about
Securities and Exchange Commission has   your account.
not approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete. It is a criminal offense to
represent otherwise.






<PAGE>



Contents

            ABOUT THE FUND
------------------------------------------------------------------------------

            The Fund's Investment Objectives and Strategies

            Main Risks of Investing in the Fund

            The Fund's Past Performance

            Fees and Expenses of the Fund

            About the Fund's Investments

            How the Fund is Managed


            ABOUT YOUR ACCOUNT
------------------------------------------------------------------------------

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

            Special Investor Services
            AccountLink
            PhoneLink
            OppenheimerFunds Internet Web Site
            Retirement Plans

            How to Sell Shares
            By Mail
            By Telephone
            By Checkwriting

            How to Exchange Shares

            Shareholder Account Rules and Policies

            Dividends, Capital Gains and Taxes

            Financial Highlights


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


<PAGE>


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

The Fund's Investment Objectives and Strategies

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?  The Fund's primary objective is to
seek total  return.  As a  secondary  objective,  the Fund seeks  income  when
consistent with total return.


WHAT  DOES  THE  FUND  MAINLY  INVEST  IN?  The Fund  invests  mainly  in debt
securities of foreign government and corporate issuers.  Those debt securities
generally referred to as "bonds," include long-term and short-term  government
bonds,   participation   interests  in  loans,   corporate  debt  obligations,
"structured" notes and other debt obligations.  They may include "zero coupon"
or "stripped" securities.  Under normal market conditions, the Fund invests at
least 65% of its  total  assets  in  "bonds"  and  invests  in at least  three
countries  other  than  the  United  States.  The  Fund  does  not  limit  its
investments to securities of issuers in a particular market  capitalization or
maturity range or rating category,  and can hold rated and unrated  securities
below investment grade.


      The Fund invests in debt  securities  of issuers in both  developed  and
emerging  markets  throughout  the  world.  These  investments  are more fully
explained in "About the Fund's Investments," below.

HOW DOES THE  PORTFOLIO  MANAGER  DECIDE WHAT  SECURITIES  TO BUY OR SELL?  In
selecting  securities for the Fund, the Fund's portfolio  manager analyzes the
overall  investment  opportunities and risks in individual  national economies
by analyzing  the business  cycle in developed  countries  and  political  and
exchange rate factors of emerging  markets.  The portfolio  manager  currently
focuses  on the  factors  below  (which may vary in  particular  cases and may
change over time), looking for:

o     Opportunities for higher yields than are available in U.S. markets, and
o     Opportunities  in  government  bonds  in  both  developed  and  emerging
            markets.

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

Main Risks of Investing in the Fund

      All investments carry risks to some degree.  The Fund's  investments are
subject to changes in their value from a number of factors,  described  below.
There is also the risk that poor security  selection by the Fund's  investment
Manager,  OppenheimerFunds,  Inc., will cause the Fund to  underperform  other
funds having similar objectives.

CREDIT RISK.  Debt  securities are subject to credit risk.  Credit risk is the
risk that the  issuer of a  security  might not make  interest  and  principal
payments  on the  security  as they  become  due.  If the issuer  fails to pay
interest,  the Fund's  income  might be  reduced,  and if the issuer  fails to
repay  principal,  the value of that bond and of the Fund's shares might fall.
A  downgrade  in an  issuer's  credit  rating or other  adverse  news about an
issuer can reduce the market value of that issuer's securities.

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

RISKS OF FOREIGN INVESTING.  While foreign securities offer special investment
opportunities,  there are also special  risks that can reduce the Fund's share
prices and  returns.  The change in value of a foreign  currency  against  the
U.S.  dollar will result in a change in the U.S.  dollar  value of  securities
denominated  in that foreign  currency.  Currency rate changes can also affect
the  distributions  the Fund makes from the income it  receives  from  foreign
securities as foreign currency values change against the U.S. dollar.  Foreign
investing can result in higher  transaction  and operating costs for the Fund.
Foreign  issuers  are  not  subject  to the  same  accounting  and  disclosure
requirements that U.S. companies are subject to.

      The value of foreign  investments  may be affected  by exchange  control
regulations,  expropriation or nationalization of a company's assets,  foreign
taxes, delays in settlement of transactions,  changes in governmental economic
or monetary  policy in the U.S. or abroad,  or other  political  and  economic
factors.

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

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

INTEREST RATE RISKS.  The values of debt securities are subject to change when
prevailing  interest  rates change.  When interest  rates fall,  the values of
already-issued  debt securities  generally rise. When interest rates rise, the
values of  already-issued  debt  securities  generally  fall. The magnitude of
these  fluctuations will often be greater for longer-term debt securities than
shorter-term  debt securities.  The Fund's share prices can go up or down when
interest  rates  change  because of the effect of the  changes on the value of
the Fund's  investments in debt securities.  Also, if interest rates fall, the
Fund's  investments  in new  securities at lower yields will reduce the Fund's
income.


RISKS  OF  NON-DIVERSIFICATION.   The  Fund  is  "non-diversified"  under  the
Investment  Company  Act of 1940.  Accordingly,  the Fund can invest a greater
portion  of  its  assets  in the  debt  securities  of a  single  issuer  than
"diversified"  funds.  For example,  the Fund may invest a greater  portion of
its  assets in the debt  obligations  issued by the  government  of any single
country  ("sovereign  debt") or corporate  issuer.  This policy gives the Fund
more  flexibility to invest in the debt  securities of a single issuer than if
it were a  "diversified"  fund.  However,  the Fund intends to  diversify  its
investments so that it will qualify as a "regulated  investment company" under
the Internal Revenue Code (although it reserves the right not to qualify).  To
the extent the Fund invests a relatively  high percentage of its assets in the
debt  securities of a single issuer or a limited  number of issuers,  the Fund
is subject to  additional  risk of loss if those debt  securities  lose market
value.


RISKS  OF  DERIVATIVE  INVESTMENTS.  The  Fund  can  use  derivatives  to seek
increased  returns or to try to hedge  investment and interest rate risks.  In
general  terms,  a derivative  investment is one whose value depends on (or is
derived  from)  the  value of an  underlying  asset,  interest  rate or index.
Options,  futures,  structured  notes and forward  contracts  are  examples of
derivatives the Fund uses.

      If the issuer of the  derivative  does not pay the amount due,  the Fund
can lose money on the investment.  Also, the underlying security or investment
on which  the  derivative  is  based,  and the  derivative  itself,  might not
perform the way the  Manager  expected it to  perform.  If that  happens,  the
Fund's  share  price  could  fall and the Fund  could  get  less  income  than
expected.  Some derivatives may be illiquid,  making it difficult to sell them
at an acceptable  price.  Using derivatives can increase the volatility of the
Fund's share prices.

      HOW RISKY IS THE FUND OVERALL?  The risks described  above  collectively
form the  overall  risk  profile of the Fund,  and can affect the value of the
Fund's  investments,  its investment  performance and its price per share. The
Fund is  non-diversified  and may focus its  investments in the sovereign debt
of a limited  number of  countries.  It will  therefore be  vulnerable  to the
effects  of  economic   changes  that  affect  those   countries.   Particular
investments and investment  strategies also have risks.  These risks mean that
you can lose money by  investing  in the Fund.  When you redeem  your  shares,
they may be worth  more or less  than  what  you  paid for  them.  There is no
assurance that the Fund will achieve its investment  objectives.  In the short
term,  the values of foreign debt  securities,  particularly  those of issuers
in emerging markets,  can be volatile,  and the price of the Fund's shares can
go up and down  substantially.  The income from some of the Fund's investments
may help  cushion the Fund's  total  return from  changes in prices,  but debt
securities  are  subject  to credit  and  interest  rate risks that can affect
their  values  and  income  and  the  share   prices  of  the  Fund.   In  the
OppenheimerFunds  spectrum, the Fund is generally more aggressive and has more
risks  than  bond  funds  that  focus  on  U.  S.  government  securities  and
investment-grade  bonds but is less  aggressive  than funds that invest solely
in emerging markets.

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

The Fund's Past Performance

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

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

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

Sales  charges  are not  included  in the  calculations  of return in this bar
chart,  and if those  charges were  included,  the returns  would be less than
those shown.

During the period shown in the bar chart,  the highest return (not annualized)
for  a  calendar  quarter  was  6.01%  (4Q'99)  and  the  lowest  return  (not
annualized) for a calendar quarter was -9.80% (3Q'98).


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

Average Annual Total
Returns for the periods
Ended December 31, 2000     1 Year     5 Year      Life of Class*

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

Class A Shares               1.77%     5.72%         6.96%

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

Salomon Brothers Non-
U.S. World Gov't Bond       -2.63%     1.64%         1.49%
Index

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

Class B Shares               1.20%     5.72%         6.97%

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

Class C Shares               5.13%     5.99%         7.09%

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


*Inception  date of all  classes:  6/15/95.  Index  performance  is shown from
5/31/95.
The Fund's average annual total returns  include the applicable  sales charge:
for Class A, the current maximum  initial sales charge of 4.75%;  for Class B,
the  contingent  deferred sales charges of 5% (1 year) and 2% (life of class);
and for  Class C, the 1%  contingent  deferred  sales  charge  for the  1-year
period.  Because  Class N shares  were not  offered for sale during the Fund's
fiscal year ended  September 30, 2000, no performance  information is included
in the table above for Class N shares.


The returns measure the performance of a hypothetical  account and assume that
all  dividends  and  capital  gains  distributions  have  been  reinvested  in
additional shares. The Salomon Brothers Non-U.S.  Dollar World Government Bond
Index is a market-capitalization-weighted  index that tracks performance of 13
government  bond  markets  in  developed  countries.   The  index  performance
reflects  the  reinvestment  of income but does not  consider  the  effects of
transaction  costs.  Also, the index does not include corporate bonds or bonds
from emerging markets,  and the Fund has investments that differ from those in
the index.

Fees and Expenses of the Fund

      The Fund pays a variety  of  expenses  directly  for  management  of its
assets,  administration,  distribution of its shares and other services. Those
expenses are  subtracted  from the Fund's  assets to calculate  the Fund's net
asset  values  per  share.  All  shareholders  therefore  pay  those  expenses
indirectly.  Shareholders pay other expenses  directly,  such as sales charges
and account  transaction  charges.  The following tables are meant to help you
understand  the fees and  expenses  you may pay if you buy and hold  shares of
the Fund.  The  numbers  below are based on the  Fund's  expenses  during  its
fiscal  year ended  September  30,  2000,  except that the numbers for Class N
shares,  which is a new class of shares,  are based on the Fund's  anticipated
expenses for Class N shares during the coming year.

Shareholder Fees (charges paid directly from your investment):

-------------------------------------------------------------------------------
                         Class A       Class B       Class C      Class N
                         Shares        Shares        Shares       Shares
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Maximum Sales Charge
(Load) on purchases       4.75%         None          None           None
(as % of offering
price)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Maximum Deferred
Sales Charge (Load)
(as % of the lower        None1          5%2           1%3           1%4
of the original
offering price or
redemption proceeds)
-------------------------------------------------------------------------------
1.    A  contingent   deferred  sales  charge  may  apply  to  redemptions  of
   investments of $1 million or more  ($500,000 for retirement  plan accounts)
   of Class A shares. See "How to Buy Shares" for details.
2.    Applies to  redemptions  in first year after  purchase.  The  contingent
   deferred  sales charge  declines to 1% in the sixth year and is  eliminated
   after that.

1.    Applies to shares redeemed within3.  twelve (12) months of purchase.
4.    Applies to shares  redeemed  within  eighteen  (18) months of retirement
   plan's first purchase.


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

--------------------------------------------------------------------------------
                         Class A Shares   Class B       Class C      Class N
                                           Shares       Shares        Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Management Fees                0.74%         0.74%          0.74%        0.74%

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

Distribution        and/or
Service (12b-1) Fees           0.25%         1.00%          1.00%        0.25%

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

Other Expenses                 0.32%         0.31%          0.31%        0.32%

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

Total   Annual   Operating     1.31%         2.05%          2.05%        1.31%
Expenses

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

"Total  Annual  Operating  Expenses"  were 1.29%,  2.03%,  2.03% and 1.29% for
Class  A,  Class B Class C and  Class N  shares,  respectively,  after  giving
effect to an expense  offset  arrangement  that  reduced the Fund's  custodian
fees.  Expenses may vary in future years.  "Other  expenses"  include transfer
agent fees,  custodial  expenses,  and  accounting and legal expenses the Fund
pays.  Class N shares  were not offered for sale during the Fund's last fiscal
year.  The  expenses  above  for  Class N shares  are  based  on the  expected
expenses for that class for the current fiscal year.


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

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

--------------------------------------------------------------------------------
If shares are redeemed:      1 Year        3 Years       5 Years     10 Years1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Class A Shares                $602          $870         $1,159        $1,979

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

Class B Shares                $708          $943         $1,303        $2,015

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

Class C Shares                $308          $643         $1,103        $2,379

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

Class N Shares                $233          $415          $718         $1,579

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

--------------------------------------------------------------------------------
If shares are not            1 Year        3 Years       5 Years     10 Years1
redeemed:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Class A Shares                $602          $870         $1,159        $1,979

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

Class B Shares                $208          $643         $1,103        $2,015

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

Class C Shares                $208          $643         $1,103        $2,379

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

Class N Shares                $133          $415          $718         $1,579

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

About the Fund's Investments

THE  FUND'S  PRINCIPAL  INVESTMENT  POLICIES.  The  allocation  of the  Fund's
portfolio  among  different  investments  will vary over time  based  upon the
Manager's  evaluation  of economic  and market  trends.  The Fund's  portfolio
might not always include all of the different  types of investments  described
below.  At times the Fund may focus more on  investing  for  growth  with less
emphasis  on income,  while at other  times it may have both growth and income
investments  to seek total return.  The  Statement of  Additional  Information
contains more detailed  information about the Fund's  investment  policies and
risks.

      The  Manager  tries  to  reduce  risks  by  carefully  researching
securities  before  they  are  purchased,  and in some  cases  by  using
hedging  techniques.  The Fund is non-diversified and may at times focus
its  investments in the debt  securities of a limited number of issuers.
The  Fund  does  not  concentrate  25% or more of its  total  assets  in
investments  in the  securities of any one foreign  government or in the
debt and equity  securities  of companies in any one foreign  country or
in any one industry.

      The debt securities the Fund buys may be rated by nationally  recognized
rating  organizations or they may be unrated securities assigned an equivalent
rating  by  the  Manager.  The  Fund's  investments  may  be  above  or  below
investment  grade in credit quality,  and the Fund can invest without limit in
below-investment-grade debt securities, commonly called "junk bonds."

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

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

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

o      "Structured"  Notes.  The  Fund  buys  "structured"  notes,  which  are
         specially-designed   derivative  debt  investments   whose  principal
         payments  or  interest  payments  are linked to the value of an index
         (such as a currency or securities  index) or commodity.  The terms of
         the  instrument may be  "structured"  by the purchaser (the Fund) and
         the borrower issuing the note.

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

      o  Hedging.  The Fund can buy and sell futures  contracts,  put and call
         options,  and  forward  contracts.  These  are  all  referred  to  as
         "hedging  instruments."  The  Fund is not  required  to hedge to seek
         its  objectives.  The  Fund  does  not use  hedging  instruments  for
         speculative purposes, and has limits on its use of them.

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

               Options  trading  involves  the  payment  of  premiums  and has
         special  tax  effects on the Fund.  There are also  special  risks in
         particular  hedging  strategies.  In  writing a put,  there is a risk
         that the Fund may be  required  to buy the  underlying  security at a
         disadvantageous  price.  If the Manager used a hedging  instrument at
         the wrong time or judged market conditions incorrectly,  the strategy
         could  reduce the  Fund's  return.  The Fund  could  also  experience
         losses if the price of its  futures and  options  positions  were not
         correlated with its other  investments or if it could not close out a
         position because of an illiquid market.

Portfolio  Turnover.  The  Fund  engages  in  short-term  trading  to seek its
objectives.  Portfolio  turnover affects  brokerage and transaction  costs the
Fund  pays.  If the  Fund  realizes  capital  gains  when it  sells  portfolio
investments,   it  must  generally  pay  those  gains  out  to   shareholders,
increasing their taxable distributions.  The Financial Highlights table at the
end of this  Prospectus  shows the  Fund's  portfolio  turnover  rates  during
recent fiscal years.

CAN THE FUND'S INVESTMENT  OBJECTIVES AND POLICIES CHANGE? The Fund's Board of
Trustees can change  non-fundamental  investment  policies without shareholder
approval,  although  significant  changes will be described in  amendments  to
this Prospectus.  Fundamental  policies cannot be changed without the approval
of a majority of the Fund's  outstanding  voting shares. The Fund's investment
objectives are fundamental  policies.  Other investment  restrictions that are
fundamental  policies are listed in the Statement of  Additional  Information.
An  investment  policy  is  not  fundamental  unless  this  Prospectus  or the
Statement of Additional Information says that it is.

OTHER  INVESTMENT  STRATEGIES.  To seek its  objectives,  the Fund can use the
investment  techniques  and  strategies  described  below.  The Fund might not
always  use all of  them.  These  techniques  have  risks,  although  some are
designed to help reduce overall investment or market risks.

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

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

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

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

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


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

How the Fund Is Managed

THE  MANAGER.  The  Manager  chooses  the Fund's  investments  and handles its
day-to-day  business.  The  Manager  carries  out its  duties,  subject to the
policies  established  by the Fund's  Board of Trustees,  under an  investment
advisory agreement that states the Manager's  responsibilities.  The agreement
sets the fees the Fund pays to the Manager and  describes  the  expenses  that
the Fund is responsible to pay to conduct its business.


      The Manager has been an  investment  advisor  since  January  1960.  The
Manager (including  subsidiaries)  managed more than $125 billion in assets as
of December  31,  2000,  including  other  Oppenheimer  funds with more than 5
million  shareholder  accounts.  The  Manager is  located  at Two World  Trade
Center, 34th Floor, New York, New York 10048-0203.

Portfolio  Managers.  The portfolio  managers of the Fund, Arthur P. Steinmetz
and  Ruggero  de'Rossi,  are  Vice  Presidents  of the  Fund  and the  persons
principally   responsible   for  the  day-to-day   management  of  the  Fund's
investments.  Mr. Steinmetz became a portfolio  manager of the Fund on May 20,
1999,  and Mr.  de'Rossi  on March 6, 2000.  Mr.  Steinmetz  is a Senior  Vice
President  of the  Manager.  He joined  the  Manager  in 1986,  and has been a
portfolio  manager of other  Oppenheimer funds since 1989. Mr. de'Rossi joined
the  Manager  as a Vice  President  and  portfolio  manager  on March 6, 2000.
Since 1990 he had been associated with other  international  money  management
firms,  most recently as a Senior Vice  President and Chief  Emerging  Markets
Strategist  for ING Barings from July,  1998  through  March,  2000,  and Vice
President  and  head of  emerging  markets  trading  strategies  for  Citicorp
Securities  from May, 1995 through July 1998. Mr.  Steinmetz and Mr.  de'Rossi
are also officers and portfolio managers of other Oppenheimer funds.

Advisory Fees.  Under the  investment  advisory  agreement,  the Fund pays the
Manager an advisory fee at an annual rate that declines on  additional  assets
as the Fund  grows:  0.75% of the first $200  million  of  average  annual net
assets of the Fund,  0.72% of the next  $200  million,  0.69% of the next $200
million,  0.66% of the next $200  million,  0.60% of the next $200 million and
0.50% of  average  annual  net  assets  in excess of $1  billion.  The  Fund's
management fee for its last fiscal year ended  September 30, 2000 was 0.74% of
average annual net assets for each class of shares.


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

How to Buy Shares

HOW DO YOU BUY SHARES?  You can buy shares  several ways, as described  below.
The  Fund's  Distributor,  OppenheimerFunds  Distributor,  Inc.,  may  appoint
servicing agents to accept purchase (and redemption)  orders. The Distributor,
in its sole discretion, may reject any purchase order for the Fund's shares.

Buying  Shares  Through  Your Dealer.  You can buy shares  through any dealer,
broker  or  financial   institution  that  has  a  sales  agreement  with  the
Distributor.  Your dealer will place your order with the  Distributor  on your
behalf.

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

o     Paying by Federal Funds Wire.  Shares purchased  through the Distributor
         may be paid for by Federal  Funds  wire.  The minimum  investment  is
         $2,500.   Before  sending  a  wire,  call  the   Distributor's   Wire
         Department at  1.800.525.7048  to notify the Distributor of the wire,
         and to receive further instructions.

o     Buying Shares Through  OppenheimerFunds  AccountLink.  With AccountLink,
         you pay for  shares  by  electronic  funds  transfer  from  your bank
         account.  Shares are  purchased  for your  account  by a transfer  of
         money from your bank account  through the  Automated  Clearing  House
         (ACH)  system.  You can  provide  those  instructions  automatically,
         under  an  Asset  Builder  Plan,  described  below,  or by  telephone
         instructions using OppenheimerFunds  PhoneLink, also described below.
         Please refer to "AccountLink," below for more details.

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

HOW MUCH MUST YOU  INVEST?  You can buy Fund  shares  with a  minimum  initial
investment of $1,000.  You can make  additional  investments  at any time with
as  little  as $25.  There  are  reduced  minimum  investments  under  special
investment plans.

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

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

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

AT WHAT PRICE ARE SHARES SOLD?  Shares are sold at their  offering price which
is the net asset value per share plus any initial  sales charge that  applies.
The  offering  price that  applies  to a  purchase  order is based on the next
calculation  of the  net  asset  value  per  share  that  is  made  after  the
Distributor  receives the purchase order at its offices in Colorado,  or after
any agent appointed by the Distributor  receives the order and sends it to the
Distributor.

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

The net asset  value  per share is  determined  by  dividing  the value of the
Fund's  net  assets  attributable  to a class by the  number of shares of that
class that are  outstanding.  To determine  net asset value,  the Fund's Board
of Trustees has  established  procedures  to value the Fund's  securities,  in
general based on market value.  The Board has adopted  special  procedures for
valuing  illiquid and restricted  securities and  obligations for which market
values  cannot  be  readily  obtained.  Because  foreign  securities  trade in
markets and exchanges  that operate on U.S.  holidays and weekends,  the value
of some of the Fund's foreign investments might change  significantly on those
days, when investors cannot buy or redeem shares.

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

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

------------------------------------------------------------------------------
WHAT  CLASSES OF SHARES DOES THE FUND OFFER?  The Fund offers  investors  four
(4) different  classes of shares.  The different  classes of shares  represent
investments in the same  portfolio of securities,  but the classes are subject
to different  expenses and will likely have different  share prices.  When you
buy  shares,  be sure to specify  the class of shares.  If you do not choose a
class, your investment will be made in Class A shares.
------------------------------------------------------------------------------
------------------------------------------------------------------------------

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

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

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


Class N Shares.  Class N shares are  offered  only  through  retirement  plans
(including  IRAs and 403(b) plans) that  purchase  $500,000 or more of Class N
shares of one or more  Oppenheimer  funds,  or through  retirement  plans (not
including  IRAs and 403(b)  plans) that have assets of $500,000 or more or 100
or more eligible plan participants.  Non-retirement  plan investors cannot buy
Class N shares  directly.  If you buy Class N shares,  you pay no sales charge
at the  time of  purchase,  but  you  will  pay an  annual  asset-based  sales
charge.   If  you  sell  your  shares  within  eighteen  (18)  months  of  the
retirement  plan's first purchase of Class N shares,  you may pay a contingent
deferred  sales  charge  of 1.0%,  as  described  in "How Can You Buy  Class N
Shares?" below

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

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


      The  discussion  below is not  intended  to be  investment  advice  or a
recommendation,   because  each  investor's   financial   considerations   are
different.  The discussion below assumes that you will purchase only one class
of shares,  and not a combination of shares of different  classes.  Of course,
these  examples are based on  approximations  of the effects of current  sales
charges  and  expenses  projected  over  time,  and do not  detail  all of the
considerations  in  selecting  a class of  shares.  You  should  analyze  your
options carefully with your financial advisor before making that choice.

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


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

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


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


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

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

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


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



SPECIAL  SALES CHARGE  ARRANGEMENTS  AND WAIVERS.  Appendix C to the Statement
of  Additional  Information  details  the  conditions  for the waiver of sales
charges that apply in certain  cases,  and the special sales charge rates that
apply  to  purchases  of  shares  of the  Fund by  certain  groups,  or  under
specified   retirement  plan   arrangements  or  in  other  special  types  of
transactions.  To  receive a waiver or special  sales  charge  rate,  you must
advise the  Distributor  when  purchasing  shares or the  Transfer  Agent when
redeeming shares that the special conditions apply.

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

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

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

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

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

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

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

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

Class A Contingent  Deferred  Sales  Charge.  There is no initial sales charge
on  purchases  of Class A shares of any one or more of the  Oppenheimer  funds
aggregating  $1 million or more or for certain  purchases by particular  types
of retirement  plans  described in the Appendix to the Statement of Additional
Information.  The Distributor pays dealers of record  commissions in an amount
equal  to  1.0%  of  purchases  of $1  million  or more  other  than by  those
retirement  accounts.  For those  retirement plan accounts,  the commission is
1.0% of the first  $2.5  million,  plus 0.50% of the next $2.5  million,  plus
0.25% of purchases over $5 million,  based on the cumulative  purchases during
the prior 12 months  ending with the current  purchase.  In either  case,  the
commission will be paid only on purchases that were not previously  subject to
a front-end sales charge and dealer commission.1  That  commission will not be
paid on  purchases of shares in amounts of $1 million or more  (including  any
rights of  accumulation)  by a retirement plan that pays for the purchase with
the  redemption  proceeds of Class C shares of one or more  Oppenheimer  funds
held by the plan for more than one year.

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

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


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


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

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

                                         Contingent  Deferred  Sales  Charge  on
Years Since  Beginning of Month in Which Redemptions in That Year
Purchase Order was Accepted              (as % of amount subject to charge)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
0 - 1                                    5.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1 - 2                                    4.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2 - 3                                    3.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3 - 4                                    3.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4 - 5                                    2.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5 - 6                                    1.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6 and following                          None
--------------------------------------------------------------------------------

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

Automatic Conversion of Class B Shares.  Class B shares automatically  convert
to Class A shares 72 months after you purchase them. This  conversion  feature
relieves Class B shareholders of the asset-based  sales charge that applies to
Class B shares  under the Class B  Distribution  and Service  Plan,  described
below.  The  conversion  is based on the  relative  net asset value of the two
classes,  and no sales  load or other  charge  is  imposed.  When any  Class B
shares  you hold  convert,  any other  Class B shares  that were  acquired  by
reinvesting  dividends and  distributions  on the  converted  shares will also
convert to Class A shares.  For further  information on the conversion feature
and its tax  implications,  see  "Class  B  Conversion"  in the  Statement  of
Additional Information.


HOW CAN YOU BUY CLASS C  SHARES?  Class C shares  are sold at net asset  value
per share  without an initial  sales  charge.  However,  if Class C shares are
redeemed  within a holding  period of 12 months  from the end of the  calendar
month of their  purchase,  a contingent  deferred sales charge of 1.0% will be
deducted from the redemption  proceeds.  The Class C contingent deferred sales
charge is paid to  compensate  the  Distributor  for its expenses of providing
distribution-related  services  to the  Fund in  connection  with  the sale of
Class C shares.

HOW CAN YOU BUY  CLASS N  SHARES?  Class N shares  are  offered  only  through
retirement plans  (including IRAs and 403(b) plans) that purchase  $500,000 or
more of Class N shares of one or more Oppenheimer funds or through  retirement
plans (not  including  IRAs and 403(b)  plans) that have assets of $500,000 or
more or 100 or  more  eligible  participants.  Non-retirement  plan  investors
cannot buy Class N shares directly.

A contingent deferred sales charge of 1.0% will be imposed if:

         The  retirement  plan  (not  including  IRAs  and  403(b)  plans)  is
            terminated  or  Class  N  shares  of  all  Oppenheimer  funds  are
            terminated as an investment  option of the plan and Class N shares
            are redeemed  within 18 months after the plan's first  purchase of
            Class N shares of any Oppenheimer fund, or

o     With respect to an individual  retirement  plan or 403(b) plan,  Class N
            shares are redeemed  within 18 months of the plan's first purchase
            of Class N shares of any Oppenheimer fund.

      Retirement  plans that offer  Class N shares may impose  charges on plan
participant  accounts.  The  procedures  for buying,  selling,  exchanging and
transferring  the Fund's  other  classes of shares  (other than the time those
orders must be received by the  Distributor or Transfer Agent in Colorado) and
the special account  features  applicable to purchasers of those other classes
of  shares  described  elsewhere  in this  prospectus  do not apply to Class N
shares offered through a group retirement  plan.  Instructions for purchasing,
redeeming,  exchanging or transferring  Class N shares offered through a group
retirement  plan must be submitted by the plan, not by plan  participants  for
whose benefit the shares are held.


DISTRIBUTION AND SERVICE (12b-1) PLANS.

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


Distribution  and Service  Plans for Class B, Class C and Class N Shares.  The
Fund has  adopted  Distribution  and  Service  Plans for Class B,  Class C and
Class  N  shares  to pay  the  Distributor  for  its  services  and  costs  in
distributing  Class B,  Class C and  Class N shares  and  servicing  accounts.
Under the plans,  the Fund pays the  Distributor an annual  asset-based  sales
charge  of 0.75% per year on Class B shares  and Class C shares  and 0.25% per
year on Class N shares.  The Distributor  also receives a service fee of 0.25%
per year  under  the  Class B and  Class C  Distribution  and  Service  Plans.
Although  the  Distributor  is  entitled to receive a service fee of 0.25% per
year under the Class N  Distribution  and Service  Plan,  the Fund's  Trustees
have not authorized the Fund to pay a service fee at this time.


      The  asset-based  sales  charge and service  fees  increase  Class B and
Class C expenses by 1.00% and the asset-based  sales charge  increases Class N
expenses by 0.25% of the net assets per year of the respective class.  Because
these fees are paid out of the Fund's assets on an on-going  basis,  over time
these fees will  increase  the cost of your  investment  and may cost you more
than other types of sales charges.

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

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

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

      The  Distributor  currently  pays  sales  concessions  of  1.00%  of the
purchase  price of Class N shares to  dealers  from its own  resources  at the
time of sale. The Distributor  retains the  asset-based  sales charge on Class
N shares.

Special Investor Services

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

o     transmit funds  electronically to purchase shares by telephone  (through
         a service  representative  or by  PhoneLink) or  automatically  under
         Asset Builder Plans, or
o     have the Transfer Agent send redemption  proceeds or transmit  dividends
         and  distributions  directly  to your bank  account.  Please call the
         Transfer Agent for more information.

      You may purchase  shares by  telephone  only after your account has been
established.  To purchase shares in amounts up to $250,000 through a telephone
representative,  call the Distributor at 1.800.852.8457.  The purchase payment
will be debited from your bank account.

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

PHONELINK.  PhoneLink is the OppenheimerFunds  automated telephone system that
enables   shareholders   to   perform   a  number  of   account   transactions
automatically   using  a   touch-tone   phone.   PhoneLink   may  be  used  on
already-established  Fund accounts after you obtain a Personal  Identification
Number (PIN), by calling the special PhoneLink number, 1.800.533.3310.

Purchasing  Shares.  You may  purchase  shares in  amounts up to  $100,000  by
phone,  by  calling  1.800.533.3310.  You must  have  established  AccountLink
privileges to link your bank account with the Fund to pay for these purchases.

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

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

CAN YOU  SUBMIT  TRANSACTION  REQUESTS  BY  FAX?  You may  send  requests  for
certain  types  of  account   transactions   to  the  Transfer  Agent  by  fax
(telecopier).   Please  call   1.800.525.7048   for  information  about  which
transactions may be handled this way.  Transaction  requests  submitted by fax
are  subject  to the same rules and  restrictions  as  written  and  telephone
requests described in this Prospectus.


OPPENHEIMERFUNDS  INTERNET  WEB SITE.  You can  obtain  information  about the
Fund, as well as your account balance,  on the  OppenheimerFunds  Internet web
site, at  http://www.oppenheimerfunds.com.  Additionally,  shareholders listed
in the account  registration  (and the dealer of record)  may request  certain
account  transactions  through a special  section of that web site. To perform
account transactions,  you must first obtain a personal  identification number
(PIN) by calling the Transfer Agent at  1.800.533.3310.  If you do not want to
have Internet  account  transaction  capability for your account,  please call
the  Transfer  Agent  at  1.800.525.7048.  At  times,  the  web  site  may  be
inaccessible or its transaction features may be unavailable.


AUTOMATIC  WITHDRAWAL  AND  EXCHANGE  PLANS.  The Fund has several  plans that
enable  you  to  sell  shares   automatically  or  exchange  them  to  another
OppenheimerFunds  account on a regular  basis.  Please call the Transfer Agent
or consult the Statement of Additional Information for details.


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


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

Individual  Retirement  Accounts  (IRAs).  These include  regular  IRAs,  Roth
IRAs, SIMPLE IRAs, rollover IRAs and Education IRAs.

SEP-IRAs.   These  are  Simplified  Employee  Pensions  Plan  IRAs  for  small
business owners or self-employed individuals.

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

401(k) Plans.   These plans are special retirement plans for businesses.

Pension and Profit-Sharing  Plans. These plans are designed for businesses and
self-employed individuals.

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

How to Sell Shares

      You  can  sell  (redeem)  some  or all of  your  shares  on any  regular
business  day.  Your  shares  will  be  sold  at  the  next  net  asset  value
calculated  after your order is received  in proper form (which  means that it
must  comply  with the  procedures  described  below) and is  accepted  by the
Transfer  Agent.  The Fund lets you sell your  shares by writing a letter,  by
using the Fund's checkwriting  privilege or by telephone.  You can also set up
Automatic  Withdrawal  Plans to redeem shares on a regular basis.  If you have
questions about any of these  procedures,  and especially if you are redeeming
shares in a special  situation,  such as due to the death of the owner or from
a  retirement  plan  account,   please  call  the  Transfer  Agent  first,  at
1.800.525.7048, for assistance.

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

o     You wish to redeem more than $100,000 and receive a check
o     The redemption  check is not payable to all  shareholders  listed on the
         account statement
o     The  redemption  check  is not sent to the  address  of  record  on your
         account statement
o     Shares are being  transferred  to a Fund account with a different  owner
         or name
o     Shares are being  redeemed by someone  (such as an Executor)  other than
         the owners


Where Can You Have Your Signature  Guaranteed The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions, including:

      o    a U.S. bank, trust company, credit union or savings association,
      o    a foreign bank that has a U.S. correspondent bank,
      o  a  U.S.   registered  dealer  or  broker  in  securities,   municipal
         securities or government securities, or
      o  a  U.S.  national  securities  exchange,   a  registered   securities
         association or a clearing agency.
      If you are  signing  on behalf of a  corporation,  partnership  or other
      business  or as a  fiduciary,  you must also  include  your title in the
      signature.

Retirement  Plan Accounts.  There are special  procedures to sell shares in an
OppenheimerFunds  retirement  plan  account.  Call the  Transfer  Agent  for a
distribution  request form. Special income tax withholding  requirements apply
to distributions from retirement plans.

You must  submit a  withholding  form with your  redemption  request  to avoid
delay in  getting  your  money  and if you do not want tax  withheld.  If your
employer holds your  retirement  plan account for you in the name of the plan,
you must ask the plan  trustee or  administrator  to  request  the sale of the
Fund shares in your plan account.

HOW  DO YOU  SELL  SHARES  BY  MAIL?  Write  a  letter  of  instructions  that
includes:

o     Your name
o     The Fund's name
o     Your Fund account number (from your account statement)
o     The dollar amount or number of shares to be redeemed
o     Any special payment instructions
o     Any share certificates for the shares you are selling
o     The  signatures  of all  registered  owners  exactly  as the  account is
         registered, and
o     Any special  documents  requested by the Transfer Agent to assure proper
         authorization of the person asking to sell the shares.

Use the following address for requests by mail: Send  courier or express  mail
requests to:
OppenheimerFunds Services                       OppenheimerFunds Services
P.O. Box 5270                                   10200   E.   Girard    Avenue,
Building D
Denver, Colorado 80217-5270               Denver, Colorado 80231

HOW DO YOU SELL SHARES BY  TELEPHONE?  You and your dealer  representative  of
record  may also sell your  shares by  telephone.  To receive  the  redemption
price  calculated on a particular  business day, your call must be received by
the  Transfer  Agent by the  close of The New York  Stock  Exchange  that day,
which is  normally  4:00 P.M.,  but may be  earlier on some days.  You may not
redeem shares held in an  OppenheimerFunds  retirement plan account or under a
share certificate by telephone.

o     To redeem shares through a service representative, call 1.800.852.8457
o     To redeem shares automatically on PhoneLink, call 1.800.533.3310

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


Are There Limits on Amounts Redeemed by Telephone?


o     Telephone  Redemptions  Paid by Check. Up to $100,000 may be redeemed by
         telephone  in any 7-day  period.  The check  must be  payable  to all
         owners of record of the  shares  and must be sent to the  address  on
         the account  statement.  This service is not available within 30 days
         of changing the address on an account.

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

CHECKWRITING.  To  write  checks  against  your  Fund  account,  request  that
privilege  on your  account  Application,  or contact the  Transfer  Agent for
signature  cards.  They must be signed  (with a  signature  guarantee)  by all
owners of the account and  returned to the  Transfer  Agent so that checks can
be sent to you to use.  Shareholders  with joint accounts can elect in writing
to have  checks  paid  over the  signature  of one  owner.  If you  previously
signed a  signature  card to  establish  checkwriting  in another  Oppenheimer
fund,  simply call  1.800.525.7048  to request  checkwriting for an account in
this Fund with the same registration as the other account.

o     Checks can be written to the order of whomever you wish,  but may not be
         cashed at the bank the checks are payable  through or the Fund's bank
         or custodian bank.
o     Checkwriting  privileges  are not available for accounts  holding shares
         that are subject to a contingent deferred sales charge.
o     Checks must be written for at least $100.
o     Checks  cannot be paid if they are  written  for more than your  account
         value.  Remember,  your shares  fluctuate in value and you should not
         write a check close to the total account value.
o     You may not write a check that would  require the Fund to redeem  shares
         that were  purchased by check or Asset Builder Plan  payments  within
         the prior 10 days.
o     Don't use your checks if you changed  your Fund  account  number,  until
         you receive new checks.


HOW  CONTINGENT  DEFERRED SALES CHARGES  AFFECT  REDEMPTIONS.  If you purchase
shares  subject to a Class A, Class B, Class C or Class N contingent  deferred
sales  charge and redeem any Class A, Class B or Class C shares or all Class N
shares  during the  applicable  holding  period  for the class of shares,  the
contingent  deferred  sales  charge  will  be  deducted  from  the  redemption
proceeds  (unless you are  eligible for a waiver of that sales charge based on
the   categories   listed  in  Appendix  C  to  the  Statement  of  Additional
Information  and you advise the  Transfer  Agent of your  eligibility  for the
waiver when you place your redemption request).

      With respect to Class N shares, a 1.0% contingent  deferred sales charge
will be imposed if:

o     The retirement  plan (not including IRAs and 403(b) plans) is terminated
         or Class N shares  of all  Oppenheimer  funds  are  terminated  as an
         investment  option of the plan and Class N shares are redeemed within
         18 months  after the plan's  first  purchase of Class N shares of any
         Oppenheimer fund, or,

o     With respect to an individual  retirement  plan or 403(b) plan,  Class N
         shares are redeemed  within 18 months of the plan's first purchase of
         Class N shares of any Oppenheimer fund.


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

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

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

      (1) shares  acquired by  reinvestment  of  dividends  and capital  gains
      distributions,
(2)   shares held for the holding period that applies to the class, and
(3)   shares held the longest during the holding period.

      Contingent  deferred  sales  charges are not charged  when you  exchange
shares of the Fund for  shares of other  Oppenheimer  funds.  However,  if you
exchange them within the applicable  contingent  deferred sales charge holding
period,  the  holding  period  will carry  over to the Fund  whose  shares you
acquire.  Similarly,  if you acquire shares of this Fund by exchanging  shares
of another  Oppenheimer  fund that are still subject to a contingent  deferred
sales charge holding period, that holding period will carry over to this Fund.

CAN  YOU  SELL  SHARES  THROUGH  YOUR  DEALER?   The   Distributor   has  made
arrangements  to repurchase  Fund shares from dealers and brokers on behalf of
their  customers.  Brokers or dealers  may  charge for that  service.  If your
shares are held in the name of your dealer,  you must redeem them through your
dealer.

How to Exchange Shares

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

o     Shares of the fund  selected for exchange  must be available for sale in
         your state of residence.
      o  The prospectuses of both funds must offer the exchange privilege.
o     You must hold the shares you buy when you establish  your account for at
         least 7 days before you can exchange them.  After the account is open
         7 days, you can exchange shares every regular business day.
o     You must  meet the  minimum  purchase  requirements  for the fund  whose
         shares you purchase by exchange.
o     Before exchanging into a fund, you must obtain and read its prospectus.

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

      You  can  find a list  of  Oppenheimer  funds  currently  available  for
exchanges in the Statement of Additional  Information or obtain one by calling
a service  representative  at  1.800.525.7048.  That list can change from time
to time.

HOW DO YOU SUBMIT EXCHANGE REQUESTS?  Exchanges may be requested in writing or
by telephone:

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

      |X| Telephone  Exchange  Requests.  Telephone  exchange  requests may be
made  either by  calling a service  representative  at  1.800.852.8457,  or by
using PhoneLink for automated exchanges by calling  1.800.533.3310.  Telephone
exchanges may be made only between  accounts that are registered with the same
name(s) and address.  Shares held under  certificates  may not be exchanged by
telephone.

ARE THERE  LIMITATIONS ON EXCHANGES?  There are certain exchange  policies you
should be aware of:

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

Shareholder Account Rules and Policies

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

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

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

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

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

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

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

Payment for redeemed  shares  ordinarily  is made in cash.  It is forwarded by
check or by  AccountLink  (as elected by the  shareholder)  within  seven days
after the Transfer  Agent  receives  redemption  instructions  in proper form.
However,  under  unusual  circumstances   determined  by  the  Securities  and
Exchange  Commission,  payment  may be  delayed  or  suspended.  For  accounts
registered in the name of a broker-dealer,  payment will normally be forwarded
within three business days after redemption.

The Transfer  Agent may delay  forwarding a check or  processing a payment via
AccountLink  for  recently  purchased  shares,  but only  until  the  purchase
payment  has  cleared.  That delay may be as much as 10 days from the date the
shares were  purchased.  That delay may be avoided if you  purchase  shares by
Federal  Funds wire or certified  check,  or arrange with your bank to provide
telephone  or written  assurance  to the  Transfer  Agent  that your  purchase
payment has cleared.

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

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

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


To avoid sending  duplicate  copies of materials to households,  the Fund will
mail  only one copy of each  prospectus,  annual  and  semi-annual  report  to
shareholders  having the same last name and  address  on the  Fund's  records.
The consolidation of these mailings,  called  householding,  benefits the Fund
through reduced mailing expense.

If you want to receive  multiple copies of these  materials,  you may call the
Transfer  Agent at  1.800.525.7048.  You may also notify the Transfer Agent in
writing.  Individual  copies of  prospectuses  and reports will be sent to you
within  30 days  after  the  Transfer  Agent  receives  your  request  to stop
householding.


Dividends, Capital Gains and Taxes

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

      Dividends  and  distributions  paid on Class A shares will  generally be
higher than dividends for Class B, Class C and Class N shares,  which normally
have higher  expenses  than Class A. The Fund has no fixed  dividend  rate and
cannot guarantee that it will pay any dividends or distributions.

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

WHAT  ARE YOUR  CHOICES  FOR  RECEIVING  DISTRIBUTIONS?  When  you  open  your
account,  specify on your  application  how you want to receive your dividends
and distributions.  You have four options:

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

Reinvest   Dividends  or  Capital  Gains.  You  can  elect  to  reinvest  some
distributions (dividends,  short-term capital gains or long-term capital gains
distributions)  in the Fund while  receiving the other types of  distributions
by check or having them sent to your bank account through AccountLink.

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

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

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

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

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

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

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

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

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

Financial Highlights


The Financial  Highlights Table is presented to help you understand the Fund's
financial  performance  for the  fiscal  years  since  the  Fund's  inception.
Certain  information  reflects  financial results for a single Fund share. The
total  returns in the table  represent  the rate that an  investor  would have
earned (or lost) on an investment in the Fund  (assuming  reinvestment  of all
dividends and distributions).  This information has been audited by Deloitte &
Touche LLP, the Fund's  independent  auditors,  whose  report,  along with the
Fund's  financial  statements,  is included  in the  Statement  of  Additional
Information,  which is available  on request.  Class N shares were not offered
for sale during the periods  shown below.  Therefore,  information  on Class N
shares  is not  included  in the  following  tables  or in  the  fund's  other
financial statements.


<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
 CLASS A    YEAR ENDED SEPTEMBER 30,                   2000         1999        1998            1997           1996
===================================================================================================================
<S>                                                <C>          <C>         <C>             <C>             <C>
 PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period              $   4.23     $   4.32    $   5.51        $   5.49        $  5.10
-------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                  .45          .58         .56             .52            .52
 Net realized and unrealized gain (loss)               (.08)        (.14)      (1.20)            .08            .40
                                                   ----------------------------------------------------------------
 Total income (loss) from
 investment operations                                  .37          .44        (.64)            .60            .92
-------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                  (.21)        (.53)       (.53)           (.53)          (.53)
 Return of capital distribution                        (.20)          --          --              --             --
 Distributions from net realized gain                    --           --        (.02)           (.05)            --
                                                   ----------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                       (.41)        (.53)       (.55)           (.58)          (.53)
-------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $   4.19     $   4.23    $   4.32        $   5.51        $  5.49
                                                   ================================================================

===================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(1)                   8.93%       10.58%     (12.50)%         11.33%         18.82%
-------------------------------------------------------------------------------------------------------------------

===================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)          $100,928     $102,236    $ 97,404        $114,847        $52,128
-------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                 $110,968     $101,948    $108,264        $ 89,112        $19,817
-------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                10.23%       13.47%      11.09%           9.24%          9.60%
 Expenses                                              1.31%        1.26%       1.24%(3)        1.28%(3)       1.59%(3)
 Expenses, net of indirect
 and waiver of expenses                                1.29%        1.25%        N/A             N/A           1.49%
-------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                288%         285%        446%            280%           273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

 OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   28

 FINANCIAL HIGHLIGHTS CONTINUED

<TABLE>
<CAPTION>
 CLASS B        YEAR ENDED SEPTEMBER 30,                      2000         1999          1998            1997           1996
============================================================================================================================
<S>                                                       <C>          <C>           <C>             <C>             <C>
 PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period                     $   4.22     $   4.31      $   5.50        $   5.48        $  5.10
----------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                         .42          .55           .52             .48            .48
 Net realized and unrealized gain (loss)                      (.09)        (.14)        (1.20)            .07            .39
                                                          ------------------------------------------------------------------
 Total income (loss) from
 investment operations                                         .33          .41          (.68)            .55            .87
----------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                         (.20)        (.50)         (.49)           (.48)          (.49)
 Return of capital distribution                               (.18)          --            --              --             --
 Distributions from net realized gain                           --           --          (.02)           (.05)            --
                                                          ------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                              (.38)        (.50)         (.51)           (.53)          (.49)
----------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                              $4.17     $   4.22      $   4.31        $   5.50        $  5.48
                                                          ==================================================================

----------------------------------------------------------------------------------------------------------------------------
 TOTAL RETURN, AT NET ASSET VALUE(1)                          7.94%        9.79%       (13.16)%         10.52%         17.71%
----------------------------------------------------------------------------------------------------------------------------

============================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)                 $ 98,272     $118,632      $119,998        $122,874        $45,207
----------------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                        $115,116     $122,878      $128,789        $ 87,557        $17,891

----------------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                        9.63%       12.70%        10.33%           8.57%          8.81%
 Expenses                                                     2.05%        2.02%         2.00%(3)        2.04%(3)       2.36%(3)
 Expenses, net of indirect
 and waiver of expenses                                       2.03%        2.01%          N/A             N/A           2.26%

----------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                       288%         285%          446%            280%           273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

 OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   29

<TABLE>
<CAPTION>
 CLASS C        YEAR ENDED SEPTEMBER 30,                      2000        1999        1998          1997          1996
======================================================================================================================
<S>                                                        <C>         <C>         <C>           <C>           <C>
 PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period                      $  4.22     $  4.31     $  5.50       $  5.48       $  5.09
----------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                         .41         .55         .52           .48           .48
 Net realized and unrealized gain (loss)                      (.08)       (.14)      (1.20)          .07           .39
                                                           -----------------------------------------------------------
 Total income (loss) from
 investment operations                                         .33         .41        (.68)          .55           .87
----------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                         (.19)       (.50)       (.49)         (.48)         (.48)
 Return of capital distribution                               (.19)         --          --            --            --
 Distributions from net realized gain                           --          --        (.02)         (.05)           --
                                                           -----------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                              (.38)       (.50)       (.51)         (.53)         (.48)
----------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                              $4.17       $4.22     $  4.31       $  5.50       $  5.48
                                                           ===========================================================

======================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(1)                          7.95%       9.80%     (13.16)%       10.52%        17.92%
----------------------------------------------------------------------------------------------------------------------

======================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)                  $27,663     $29,456     $27,636       $28,684       $10,282
----------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                         $30,710     $28,918     $29,336       $19,883       $ 4,039
----------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                        9.55%      12.76%      10.33%         8.62%         8.76%
 Expenses                                                     2.05%       2.02%       2.00%(3)      2.04%(3)      2.36%(3)
 Expenses, net of indirect
 and waiver of expenses                                       2.03%       2.01%        N/A           N/A          2.25%
----------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                       288%        285%        446%          280%          273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

 OPPENHEIMER INTERNATIONAL BOND FUND













<PAGE>


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

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

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

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


How to Get More Information:


---------------------------------------------------------------------------
You can request the  Statement of  Additional  Information,  the Annual and
Semi-Annual Reports, and other information about the Fund or your account:

By Telephone:
Call OppenheimerFunds Services toll-free:
1.800.525.7048

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

On the Internet:
You can send us a request by e-mail or read or  down-load  documents on the
OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional  Information  and
other Fund  documents  and reports by visiting the SEC's  Public  Reference
Room in Washington,  D.C. (Phone  1.202.942.8090)  or the EDGAR database on
the SEC's Internet web site at  http://www.sec.gov.  Copies may be obtained
after  payment  of a  duplicating  fee by  electronic  request at the SEC's
e-mail  address:  [email protected]  or by  writing  to the  SEC's  Public
Reference Section, Washington, D.C. 20549-0102.

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

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


The Fund's SEC File No. is 811-07255
PR0880.001.0101 Printed on recycled paper.



<PAGE>


Appendix to Prospectus of
Oppenheimer International Bond Fund


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


      A bar chart will be included  in the  Prospectus  of the Fund  depicting
the annual total  returns of a  hypothetical  investment  in Class A shares of
the Fund for each of the five most recent  calendar years,  without  deducting
sales  charges.  Set forth below is the  relevant  data point that will appear
on the bar chart:



Year
Ended:                                Annual Total Return:


12/31/96                     19.29%
12/31/97                      2.46%
12/31/98                     -4.36%
12/31/99                     11.00%
12/31/00                      6.85%


--------
1. No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.


<PAGE>


Oppenheimer International Bond Fund

6803 South Tucson Way, Englewood, Colorado 80112
1.800.525.7048

Statement of Additional Information dated January 17, 2001

      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  17,  2001.  It should be read
together with the Prospectus.  You can obtain the Prospectus by writing to the
Fund's Transfer Agent,  OppenheimerFunds  Services,  at P.O. Box 5270, Denver,
Colorado  80217,  or by calling the  Transfer  Agent at the  toll-free  number
shown above, or by downloading it from the OppenheimerFunds  Internet web site
at www.oppenheimerfunds.com.

Contents
                                                                        Page
About the Fund

Additional Information About the Fund's Investment Policies and Risks.. 2
    The Fund's Investment Policies..................................... 2
    Other Investment Techniques and Strategies......................... 7
    Investment Restrictions............................................ 28
How the Fund is Managed ............................................... 30
    Organization and History........................................... 30
    Trustees and Officers.............................................. 31
    The Manager........................................................ 38
Brokerage Policies of the Fund......................................... 39
Distribution and Service Plans......................................... 41
Performance of the Fund................................................ 45


About Your Account

How To Buy Shares...................................................... 51
How To Sell Shares..................................................... 60
How To Exchange Shares................................................. 65
Dividends, Capital Gains and Taxes..................................... 68
Additional Information About the Fund.................................. 70


Financial Information About the Fund

Independent Auditors' Report........................................... 72
Financial Statements................................................... 73


Appendix A: Ratings Definitions ....................................... A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
------------------------------------------------------------------------------
                           A B O U T T H E F U N D
------------------------------------------------------------------------------

    Additional Information About the Fund's Investment Policies and Risks

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

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

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

      The Manager is upgrading  (at its expense) its computer and  bookkeeping
systems to deal with the  conversion.  The Fund's  Custodian  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 Fitch,
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 Fitch,  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 Fitch  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  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 objectives,  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.  The  market  for  some of  these  securities  may be  limited,
making it difficult  for the Fund to dispose of its holdings at an  acceptable
price.

      |X| 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  objectives  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 Manager 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.

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


      These  transactions  have risks.  During the period between the sale and
the  repurchase,  the Fund  will  not be  entitled  to  receive  interest  and
principal  payments on the securities that have been sold. It is possible that
the market value of the  securities the Fund sells 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.  The value of a convertible  security
is a function of its  "investment  value" and its  "conversion  value." If the
investment  value exceeds the conversion  value, the security will behave more
like a debt  security  and the  security's  price will  likely  increase  when
interest  rates fall and decrease when interest  rates rise. If the conversion
value  exceeds the  investment  value,  the security  will behave more like an
equity  security.  In that  case it will  likely  sell at a  premium  over its
conversion value and its price will tend to fluctuate  directly with the price
of the underlying security.

      While some convertible  securities are a form of debt security,  in many
cases their conversion  feature (allowing  conversion into equity  securities)
causes them to be regarded by the Manager more as "equity  equivalents."  As a
result,  the rating  assigned to the security has less impact on the Manager's
investment  decision  than in the case of  non-convertible  debt fixed  income
securities.

      To  determine  whether  convertible  securities  should be  regarded  as
"equity equivalents," the Manager examines the following factors:
(1)   whether, at the option of the investor,  the convertible security can be
         exchanged  for a fixed  number  of  shares  of  common  stock  of the
         issuer,
(2)   whether  the  issuer of the  convertible  securities  has  restated  its
         earnings  per  share  of  common  stock  on  a  fully  diluted  basis
         (considering   the   effect   of   conversion   of  the   convertible
         securities), and
(3)   the extent to which the convertible  security may be a defensive "equity
         substitute,"   providing   the   ability   to   participate   in  any
         appreciation in the price of the issuer's common stock.

            |_|  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 may  borrow  for  leverage  as
described below under  "Investment  Restrictions."  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  objectives.  To  attempt  to  protect
against  declines in the market value of the Fund's  portfolio,  to permit the
Fund to retain  unrealized  gains in the value of portfolio  securities  which
have appreciated,  or to facilitate selling securities for investment reasons,
the Fund could:

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

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


o     buy futures, or
o     buy calls on 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  objectives  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,  options on commodities
indices, 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
identifying  liquid  assets on the Fund's  books 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  identifying an
equivalent  dollar amount of liquid assets on the Fund's books.  The Fund will
identify  additional  liquid  assets on the  Fund's  books if the value of the
identified  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,  options on
commodities  indices  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 identified to cover such put options.


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

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

      When  writing a put option on a security,  to secure its  obligation  to
pay for the underlying  security the Fund will deposit in escrow liquid assets
with a value equal to or greater  than the  exercise  price of the  underlying
securities.  The Fund  therefore  forgoes the  opportunity  of  investing  the
identified 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,  options
on  commodities  indices  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,  broadly-based  securities
indices,   foreign  currencies  and  futures,  whether  or  not  it  owns  the
underlying  investment.  When the Fund purchases a put, it pays a premium and,
except as to puts on indices, has the right to sell the underlying  investment
to a seller of a put on a corresponding  investment during the put period at a
fixed exercise price.

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

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

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

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

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

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

|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:

o     obligations  issued  or  guaranteed  by  the  U.  S.  government  or its
         instrumentalities or agencies,
o     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,
o     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,
o     certificates  of  deposit  and  bankers'  acceptances  of  domestic  and
   foreign banks  having total assets in excess of $1 billion, and
o     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:

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

      The  Fund's  investment  objectives  are  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.

o     The Fund cannot make loans  except (a)  through  lending of  securities,
   (b)  through the  purchase  of debt  instruments  or similar  evidences  of
   indebtedness,   (c)  through  an  inter-fund  lending  program  with  other
   affiliated funds, and (d) through repurchase agreements.
o     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.
o     The Fund cannot  underwrite  securities of other companies.  A permitted
   exception  is  in  case  it  is  deemed  to be  an  underwriter  under  the
   Securities  Act of  1933  when  reselling  any  securities  held in its own
   portfolio.
o     The Fund cannot 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.
o     The Fund  cannot  borrow  money in excess of 33 1/3% of the value of its
         total assets.  The Fund may borrow only from banks and/or  affiliated
         investment  companies.  The Fund cannot make any investment at a time
         during  which its  borrowings  exceed 5% of the value of its  assets.
         With respect to this fundamental  policy, the Fund can borrow only if
         it  maintains  a 300% ratio of assets to  borrowings  at all times in
         the manner set forth in the Investment Company Act or 1940.

      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.

Non-Diversification    of   the    Fund's    Investments.    The    Fund    is
"non-diversified,"  as defined in the  Investment  Company Act of 1940.  Funds
that are diversified  have  restrictions  against  investing too much of their
assets in the  securities  of any one  "issuer."  That means that the Fund can
invest  more of its assets in the  securities  of a single  issuer than a fund
that is diversified.

      Being  non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer  issuers,  the value of its shares is
subject to greater  fluctuations from adverse conditions  affecting any one of
those  issuers.   However,   the  Fund  does  limit  its  investments  in  the
securities  of any one  issuer to qualify  for tax  purposes  as a  "regulated
investment  company" under the Internal  Revenue Code. By qualifying,  it does
not have to pay  federal  income  taxes if more than 90% of its  earnings  are
distributed  to  shareholders.  To  qualify,  the Fund  must  meet a number of
conditions.  First,  not more than 25% of the market value of the Fund's total
assets may be invested in the  securities  of a single  issuer.  Second,  with
respect to 50% of the market  value of its total  assets,  (1) no more than 5%
of the market value of its total assets may be invested in the  securities  of
a  single  issuer,  and  (2)  the  Fund  must  not own  more  than  10% of the
outstanding  voting  securities of a single issuer.  This is not a fundamental
policy.

                           How the Fund is Managed

Organization and History. The Fund is an open-end,  non-diversified management
investment   company  with  an  unlimited  number  of  authorized   shares  of
beneficial interest.  On November 14, 2000 shareholders  approved the proposal
of the Board of  Trustees  to change the Fund's  diversification  status  from
diversified  to  non-diversified.  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 four (4) classes
of shares:  Class A, Class B, Class C and Class N. All  classes  invest in the
same investment portfolio.  Only retirement plans may purchase Class N shares.
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.  Additionally,  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 funds2:


Oppenheimer Cash Reserves             Oppenheimer   Senior  Floating  Rate
                                      Fund
Oppenheimer Champion Income Fund      Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund       Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund           Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund   Panorama Series Fund, Inc.
Oppenheimer Integrity Funds           Centennial America Fund, L. P.
Oppenheimer  Limited-Term  Government Centennial   California  Tax  Exempt
Fund                                  Trust
Oppenheimer Main Street Funds, Inc.   Centennial Government Trust
Oppenheimer  Main Street  Opportunity
Fund                                  Centennial Money Market Trust
Oppenheimer  Main  Street  Small  Cap
Fund                                  Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund            Centennial Tax Exempt Trust
Oppenheimer Real Asset 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 8, 2001, 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.


James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 67.
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,   a  wholly-owned
subsidiary of the Manager and Chairman of the Board of  Shareholder  Services,
Inc., a transfer agent subsidiary of the Manager.

Bridget A. Macaskill*, President and Trustee, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000),  Chief Executive  Officer (since September 1995)
and a  director  (since  December  1994)  of  the  Manager;  President  (since
September   1995)  and  a  director   (since   October  1990)  of  Oppenheimer
Acquisition  Corp.,  the Manager's parent holding  company;  President,  Chief
Executive   Officer  and  a  director   (since  March  2000)  of  OFI  Private
Investments,  Inc., an investment adviser subsidiary of the Manager;  Chairman
and  a  director  of  Shareholder  Services,  Inc.  (since  August  1994)  and
Shareholder  Financial Services,  Inc. (since September 1995),  transfer agent
subsidiaries of the Manager;  President  (since September 1995) and a director
(since  November 1989) of Oppenheimer  Partnership  Holdings,  Inc., a holding
company  subsidiary of the Manager;  President and a director  (since  October
1997) of  OppenheimerFunds  International  Ltd., an offshore  fund  management
subsidiary of the Manager and of Oppenheimer  Millennium Funds plc; a director
of  HarbourView  Asset  Management   Corporation  (since  July  1991)  and  of
Oppenheimer Real Asset Management,  Inc. (since July 1996), investment adviser
subsidiaries   of  the   Manager;   a   director   (since   April   2000)   of
OppenheimerFunds  Legacy Program,  a charitable  trust program  established by
the  Manager;  a director  of  Prudential  Corporation  plc (a U.K.  financial
service  company);  President  and  a  trustee  of  other  Oppenheimer  funds;
formerly President of the Manager (June 1991 - August 2000).

William L. Armstrong, Trustee, Age: 63.
11 Carriage Lane, Littleton, Colorado 80121

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


Robert G. Avis*, Trustee, Age: 69.
10369 Clayton Road, St. Louis, Missouri 63131

Director and  President of A.G.  Edwards  Capital,  Inc.  (General  Partner of
private equity funds),  formerly,  until March 2000,  Chairman,  President and
Chief Executive Officer of A.G. Edwards Capital,  Inc.; formerly,  until March
1999,  Vice Chairman and Director of A.G.  Edwards,  Inc. and Vice Chairman of
A.G.  Edwards & Sons,  Inc. (its brokerage  company  subsidiary);  until March
1999,  Chairman of A.G.  Edwards  Trust  Company and A.G.E.  Asset  Management
(investment advisor);  until March 2000, a Director of A.G. Edwards & Sons and
A.G. Edwards Trust Company.


George C. Bowen, Trustee, Age: 64.
9224 Bauer Ct., Lone Tree, Colorado 80124

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


Edward L. Cameron, Trustee, Age: 62.
Spring Valley Road, Morristown, New Jersey 07960
Formerly  (from  1974-1999)  a  partner  with  PricewaterhouseCoopers  LLC (an
accounting  firm)  and  Chairman,   Price  Waterhouse  LLP  Global  Investment
Management Industry Services Group (from 1994-1998).

Jon S. Fossel, Trustee, Age: 58.
P.O. Box 44, Mead Street, Waccabuc, New York 10597

Formerly  (until  October  1995)  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: 60.
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly  (until  October  1994)  Chairman  and  Chief  Executive  Officer  of
OppenheimerFunds  Services,  Chairman,  Chief Executive Officer and a director
of Shareholder Services,  Inc., Chairman, Chief Executive Officer and director
of  Shareholder  Financial  Services,  Inc.,  Vice  President  and director of
Oppenheimer Acquisition Corp. and a director of OppenheimerFunds, Inc.

Raymond J. Kalinowski, Trustee, Age: 71.
44 Portland Drive, St. Louis, Missouri 63131
Formerly a director  of Wave  Technologies  International,  Inc.  (a  computer
products training company), self-employed consultant (securities matters).

C. Howard Kast, Trustee, Age: 78.
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).

Robert M. Kirchner, Trustee, Age: 79.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).

F. William Marshall, Jr., Trustee, Age: 58.
87 Ely Road, Longmeadow, MA  01106
Formerly  (until 1999)  Chairman of SIS & Family Bank,  F.S.B.  (formerly  SIS
Bank); President,  Chief Executive Officer and Director of SIS Bankcorp., Inc.
and SIS Bank  (formerly  Springfield  Institution  for  Savings)  (1993-1999);
Executive Vice President  (until 1999) of Peoples  Heritage  Financial  Group,
Inc.;  Chairman and Chief Executive  Office of Bank of Ireland First Holdings,
Inc.  and First New  Hampshire  Banks  (1990-1993);  Trustee  (since  1996) of
MassMutual  Institutional  Funds and of MML Series  Investment  Fund (open-end
investment companies).

Ruggero de'Rossi, Vice President and Portfolio Manager, Age: 37.
Two World Trade Center, New York, New York 10048-0203
Vice  President of the Manager  (since March 2000);  an officer and  portfolio
manager of another  Oppenheimer  fund.  Prior to joining  the manager he was a
Senior Vice President and Chief Emerging Markets Debt and Currency  Strategist
of ING Barings,  a global  investment  bank (July 1998 - March  2000);  before
that he was a Vice President,  head of emerging markets trading  strategies at
Citicorp Securities,  after having run the bank's proprietary trading activity
on  international  fixed income and foreign  exchange  derivatives (May 1995 -
July 1998).

Arthur P. Steinmetz, Vice President and Portfolio Manager, Age: 42.
Two World Trade Center, New York, New York 10048-0203
Senior Vice  President of the Manager  (since  March 1993) and of  HarbourView
Asset  Management  Corporation  (since March 2000);  an officer and  portfolio
manager of other Oppenheimer funds.


Andrew J. Donohue, Vice President and Secretary, Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993),  General Counsel (since October
1991) and a director  (since  September  1995) of the Manager;  Executive Vice
President and General  Counsel (since  September  1993) and a director  (since
January  1992)  of   OppenheimerFunds   Distributor,   Inc.;   Executive  Vice
President,   General  Counsel  and  a  director  (since   September  1995)  of
HarbourView  Asset  Management   Corporation,   Shareholder  Services,   Inc.,
Shareholder  Financial Services,  Inc. and Oppenheimer  Partnership  Holdings,
Inc., of OFI Private Investments,  Inc. (since March 2000), and of PIMCO Trust
Company  (since  May  2000);  President  and a director  of  Centennial  Asset
Management  Corporation  (since  September 1995) and of Oppenheimer Real Asset
Management,  Inc.  (since July 1996);  Vice  President  and a director  (since
September  1997)  of  OppenheimerFunds   International  Ltd.  and  Oppenheimer
Millennium  Funds plc;  a  director  (since  April  2000) of  OppenheimerFunds
Legacy Program;  General  Counsel (since May 1996) and Secretary  (since April
1997) of Oppenheimer Acquisition Corp.; an officer of other Oppenheimer funds.

Brian W. Wixted,  Treasurer and Principal  Financial and  Accounting  Officer,
Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior  Vice  President  and  Treasurer  (since  March  1999) of the  Manager;
Treasurer  (since March 1999) of  HarbourView  Asset  Management  Corporation,
Shareholder  Services,  Inc.,  Oppenheimer Real Asset Management  Corporation,
Shareholder  Financial Services,  Inc. and Oppenheimer  Partnership  Holdings,
Inc.,   of  OFI  Private   Investments,   Inc.   (since  March  2000)  and  of
OppenheimerFunds  International  Ltd.  and  Oppenheimer  Millennium  Funds plc
(since May 2000);  Treasurer and Chief  Financial  Officer (since May 2000) of
PIMCO Trust  Company;  Assistant  Treasurer  (since March 1999) of Oppenheimer
Acquisition Corp. and of Centennial Asset Management  Corporation;  an officer
of other Oppenheimer  funds;  formerly  Principal and Chief Operating Officer,
Bankers  Trust  Company - Mutual Fund  Services  Division  (March 1995 - March
1999);  Vice  President  and  Chief  Financial  Officer  of  CS  First  Boston
Investment Management Corp. (September 1991 - March 1995).




Robert J. Bishop, Assistant Treasurer, Age: 42.
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 of the Manager.

Scott T. Farrar, Assistant Treasurer, Age: 35.
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 of the Manager.

Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President  (since May 1985) and Associate  General  Counsel (since
May 1981) of the Manager;  Assistant Secretary of Shareholder  Services,  Inc.
(since May 1985),  Shareholder Financial Services, Inc. (since November 1989);
OppenheimerFunds  International  Ltd.  and  Oppenheimer  Millennium  Funds plc
(since October 1997); an officer of other Oppenheimer funds.

    |X|  Remuneration  of Trustees.  The officers of the Fund and two Trustees
of the Fund (Ms.  Macaskill and Mr. Swain) are affiliated with the Manager and
receive no salary or fee from the Fund.  The  remaining  Trustees  of the Fund
received the  compensation  shown below.  The  compensation  from the Fund was
paid during its fiscal year ended  September 30, 2000. 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 2000.

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

                                                     Total Compensation
Trustee's Name and Other  Aggregate Compensation     From all Denver-Based
Positions1                from Fund                  Oppenheimer Funds2
                                                     (23 Funds)

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


William L. Armstrong3                $146                     $49,270
Review Committee Member


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


Robert G. Avis                       $281                     $72,000

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


                                     $185       George C. Bowe$55,948

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


Edward Cameron3                      $ 69                     $ 26,709
Audit Committee Member


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


Jon S. Fossel                        $297                     $77,880
Review Committee Member

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


Sam Freedman
Review Committee Chairman            $307                     $80,100


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


Raymond J. Kalinowski
Audit Committee Member               $297                     $73,500


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


C. Howard Kast
Audit Committee Chairman
and Review Committee                 $335                     $86,150
Member


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


Robert M. Kirchner                   $292                     $76,950
Audit Committee Member


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


F. William Marshall, Jr.4             $0                      $ 3,768


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

1.    Effective  July 1, 2000,  William A. Baker and Ned M. Steel  resigned as
   Trustees  of the Fund and  subsequently  became  Trustees.  Emeritus of the
   Fund.  For the fiscal year ended  September  30,  2000,  Messrs.  Baker and
   Steel each received $282 aggregate  compensation  from the Fund and for the
   calendar year ended  December 31, 2000,  they each  received  $63,999 total
   compensation from all Denver-based Oppenheimer funds.
2.    For  the  2000  calendar  year.  There  were  23  investment   companies
   included.
3.    Mr.  Cameron  was  not a  Trustee  or a  Director  of  the  Denver-based
   Oppenheimer funds prior to December 14, 1999.

4. Mr. Marshall became a Trustee of the Fund on November 14, 2000.

    |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 8, 2001,  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:  Charles
Schwab & Co., Inc.,  101 Montgomery  Street,  San Francisco,  CA 94104,  which
owned  2,450,541.006  Class  A  shares  (11.08%  of the  Class A  shares  then
outstanding)  for the  benefit of its  customers  and Merrill  Lynch,  Pierce,
Fenner & Smith,  4800 Deer Lake  Drive,  E.,  Floor 3,  Jacksonville,  Florida
32246,  which owned  667,863.437  Class C shares (10.43% 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.

      |X| Code of Ethics.  The Fund,  the Manager and the  Distributor  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.  Covered
persons  include  persons with  knowledge of the  investments  and  investment
intentions  of the Fund and other funds  advised by the  Manager.  The Code of
Ethics  does  permit  personnel  subject to the Code to invest in  securities,
including  securities that may be purchased or held by the Fund,  subject to a
number of  restrictions  and controls.  Compliance  with the Code of Ethics is
carefully monitored and enforced by the Manager.


    The Code of Ethics is an  exhibit  to the  Fund's  registration  statement
filed with the  Securities  and  Exchange  Commission  and can be reviewed and
copied at the SEC's Public  Reference Room in Washington,  D.C. You can obtain
information  about the hours of  operation  of the  Public  Reference  Room by
calling  the SEC at  1-202-942-8090.  The Code of Ethics can also be viewed as
part of the Fund's  registration  statement on the SEC's EDGAR database at the
SEC's Internet web site at http://www.sec.gov.  Copies may be obtained,  after
paying a  duplicating  fee,  by  electronic  request at the  following  e-mail
address:  [email protected],  or by  writing to the SEC's  Public  Reference
Section, Washington, D.C.  20549-0102.


    |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 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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

           1998                                 $1,978,423
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

           1999                                 $1,886,864
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


           2000                                 $1,910,655

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


    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 Fund1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

           1998                                   $31,991
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

           1999                                         $71,0902
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


           2000                                   $166,755

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

2.    In the fiscal year ended 9/30/00,  the amount of  transactions  directed
   to brokers  for  research  services  was  $7,832,524  and the amount of the
   commissions paid to broker-dealers for those services was $1,503.


                        Distribution and Service Plans

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

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

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



           Aggregate    Class A       Commissions    Commissions  Commissions
Fiscal     Front-End    Front-End     on Class A     on Class B   on Class C
Year       Sales        Sales         Shares         Shares       Shares
Ended      Charges on   Charges       Advanced by    Advanced by  Advanced by
9/30:      Class A      Retained by   Distributor2   Distributor2 Distributor2
           Shares       Distributor1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
   1998      $758,818     $197,195       $45,052      $2,036,881    $145,913
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
   1999      $427,421     $118,394       $41,586        $           $ 83,883
                                                     887,632
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

   2000      $255,294      $70,759       $32,659       $551,662      $95,774

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

1.    Includes amounts  retained by a broker/dealer  that is an affiliate or a
    parent of the Distributor.

2.    The  Distributor  advances  commission  payments  to dealers for certain
    sales of Class A shares  and for sales of Class B and Class C shares  from
    its own resources at the time of sale.


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

            Class A Contingent    Class B Contingent    Class C Contingent
Fiscal      Deferred Sales        Deferred Sales        Deferred Sales Charges
Year  Ended Charges Retained by   Charges Retained by   Retained by Distributor
9/30        Distributor           Distributor
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

   2000              $0                 $482,771                $18,769

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

Distribution  and  Service  Plans.  The Fund has  adopted a  Service  Plan for
Class A shares and  Distribution  and  Service  Plans for Class B, Class C and
Class N shares under Rule 12b-1 of the  Investment  Company  Act.  Under those
plans  the  Fund  pays  the  Distributor  for all or a  portion  of its  costs
incurred in connection with the  distribution  and/or  servicing of the shares
of the particular class.
    Each plan has been approved by a vote of the Board of Trustees,  including
a majority of the Independent Trustees3, cast in person  at a  meeting  called
for the purpose of voting on that plan.  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  may make  payments to
affiliates and, in their sole discretion,  from time to time may use their own
resources  (at no  direct  cost to the  Fund)  to make  payments  to  brokers,
dealers or other financial  institutions for  distribution and  administrative
services  they  perform  at no cost to the fund to make  those  payments.  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.

    |X| 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, 2000,  payments under the Class
A Plan  totaled  $277,421,  all of  which  was  paid  by  the  Distributor  to
recipients.  That included  $14,953 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.

    |X| Class B,  Class C and  Class N Service  and  Distribution  Plan  Fees.
Under the Class B and Class C plans,  service fees and distribution  fees, and
with respect to the Class N plan,  the  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,
Class C and Class N 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.


    Each Plan permits 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 paid under the Class B and Class C
plans 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 under the Class B and Class C
plans.  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  asset-based  sales charge and service fees increase Class B and Class
C  expenses  by 1.00%  and the  asset-based  sales  charge  and  service  fees
increases  Class N  expenses  by  0.25%  of the  net  assets  per  year of the
respective class.


    The Distributor  retains the asset-based sales charge on Class B and Class
N 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,  Class C and  Class N 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, Class C and Class N 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, Class C and Class
       N shares, and

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


    The Distributor's  actual expenses in selling Class B, Class C and Class N
shares may be more than the payments it receives from the contingent  deferred
sales  charges  collected  on  redeemed  shares  and from the Fund  under  the
plans.  If either  the Class B, Class C or Class N 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.


 -------------------------------------------------------------------------------
  Distribution Fees Paid to the Distributor in the Fiscal Year Ended 9/30/00*
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------
 Class:     Total Payments   Amount Retained  Distributor's    Distributor's
                                              Aggregate        Unreimbursed
                                              Unreimbursed     Expenses as %
                                              Expenses Under   of Net Assets
            Under Plan       by Distributor   Plan             of Class
 -------------------------------------------------------------------------------
 -------------------------------------------------------------------------------

 Class B    $1,152,536       $  919,820       $  5,139,502          5.23%
 Plan

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

 Class C    $   307,355      $  82,214        $   701,203           2.53%
 Plan

 -------------------------------------------------------------------------------
*Class N shares were not offered for sale during the Fund's  fiscal year ended
9/30/00.

    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:


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

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

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

o     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:

------------------------------------------------------------------------------
                               [OBJECT OMITTED]
------------------------------------------------------------------------------
      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 = Distribution Paid / No. of Days in the Period x No. of Days
-----------------------------------------------------------------------------
                             in the Calendar Year
                    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 9/30/00*
  -----------------------------------------------------------------------------
  -----------------------------------------------------------------------------

                  Standardized Yield                 Dividend Yield

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

  Class A       11.71%         11.14%          9.87%             9.40%

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

  Class B       10.94%           N/A           9.11%              N/A

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

  Class C       10.93%           N/A           9.10%              N/A

  -----------------------------------------------------------------------------
*Class N shares were not offered for sale during the Fund's  fiscal year ended
9/30/00.

      |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:

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

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

            |_| Total  Returns at Net Asset Value.  From time to time the Fund
may also quote a  cumulative  or an average  annual total return "at net asset
value"  (without  deducting  sales  charges)  for Class A, Class B, Class C or
Class N 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.



<PAGE>





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

            The Fund's Total Returns for the Periods Ended 9/30/004
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
         Cumulative Total              Average Annual Total Returns
Class    Returns (Life of
of       Class)
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                 1-Year                    5-Year                  Life of Class

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

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

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

       7.49%11  46.58%1   3.75%    8.93%   Class5.84%1   6.87%1    6.51%1

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

Class B  39.63%2  40.46%2   3.00%    7.94%    5.75%2  6.01%2   6.51%2   6.63%2

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

Class C  40.49%3  40.49%3   6.96%    7.95%    6.05%3  6.05%3   6.64%3   6.64%3

--------------------------------------------------------------------------------
1.    Inception of Class A:   6/15/95
2.    Inception of Class B:   6/15/95
3.     Inception of Class C:  6/15/95
4. Class N shares  were not  offered  for sale  during the Fund's  fiscal year
ended 9/30/00.

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  in
categories  based on investment  style.  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
ranking  and/or  star  rating of the  performance  of its classes of shares by
Morningstar,   Inc.,   an   independent   mutual  fund   monitoring   service.
Morningstar  rates  and ranks  mutual  funds in broad  investment  categories:
domestic  stock  funds,  international  stock  funds,  taxable  bond funds and
municipal  bond  funds.  The  Fund  is  included  in the  taxable  bond  funds
category.

      Morningstar   star   proprietary   star   ratings   reflect   historical
risk-adjusted  total investment  return.  Investment  return measures a fund's
(or class's)  one-,  three-,  five- and ten-year  average annual total returns
(depending  on the  inception  of the fund or class) in excess of 90-day  U.S.
Treasury  bill  returns  after   considering  the  fund's  sales  charges  and
expenses.  Risk  measures a fund's (or class's)  performance  below the 90-day
U.S.  Treasury  bill  returns.  Risk and  investment  return are  combined  to
produce star rankings reflecting  performance relative to the other funds 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)  overall rating,  which is the fund's 3-year rating,  or its combined
3-, 5- and 10-year rating  (weighted  60%/40%  respectively),  or its combined
3-, 5-, and 10-year rating (weighted 40%/30%/30%,  respectively), depending on
the  inception  date of the fund (or  class).  Rankings  are subject to change
monthly.

      The Fund may also  compare  its total  return  ranking  to that of other
funds in its  Morningstar  category,  in addition to its star rankings.  Those
total return rankings are percentages  from one percent to one hundred percent
and are not risk adjusted.  For example,  if a fund is in the 94th percentile,
that means that 94% of the funds in the same  category  performed  better than
it did.

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

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

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











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

How to Buy Shares

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

AccountLink.  When shares are  purchased  through  AccountLink,  each purchase
must be at least $25.  Shares will be  purchased  on the regular  business day
you instruct the Distributor 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
Distributor  is  instructed  to initiate the ACH transfer  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.  The  proceeds  of ACH  transfers  are
normally  received by the Fund 3 days after the  transfers are  initiated.  If
the  proceeds of the ACH  transfer  are not  received on a timely  basis,  the
Distributor   reserves   the  right  to  cancel  the   purchase   order.   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:

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

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

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


      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.

Oppenheimer Bond Fund                   Oppenheimer  Limited-Term  Government
                                        Fund
Oppenheimer California Municipal Fund   Oppenheimer  Main  Street  California
                                        Municipal Fund
Oppenheimer Capital Appreciation Fund   Oppenheimer   Main  Street  Growth  &
                                        Income Fund
Oppenheimer Capital Preservation Fund   Oppenheimer  Main Street  Opportunity
                                        Fund
Oppenheimer Capital Income Fund         Oppenheimer  Main  Street  Small  Cap
                                        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 Emerging Growth Fund        Oppenheimer Quest Balanced Value Fund
Oppenheimer Emerging Technologies Fund  Oppenheimer   Quest   Capital   Value
                                        Fund, Inc.
Oppenheimer Enterprise Fund             Oppenheimer  Quest Global Value Fund,
                                        Inc.
Oppenheimer Europe Fund                 Oppenheimer  Quest  Opportunity Value
                                        Fund
Oppenheimer Florida Municipal Fund      Oppenheimer Quest Small Cap Fund
Oppenheimer Global Fund                   Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer Real Asset Fund
Oppenheimer  Gold  &  Special  Minerals Op
Fund                                      penheimer Senior Floating Rate Fund
Oppenheimer Growth Fund                 Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund             Oppenheimer Total Return Fund, Inc.
Oppenheimer Insured Municipal Fund      Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund     Oppenheimer Trinity Value Fund
Oppenheimer International Growth Fund   Oppenheimer U.S. Government Trust
Oppenheimer     International     Small Op
Company Fund                              penheimer World Bond Fund
Oppenheimer Large Cap Growth Fund       Limited-Term New York Municipal Fund
                                        Rochester Fund Municipals
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 (the minimum is $25)
for the initial  purchase  with your  application.  Shares  purchased by Asset
Builder  Plan  payments  from bank  accounts  are  subject  to the  redemption
restrictions for recent purchases  described in the Prospectus.  Asset Builder
Plans are  available  only if your bank is an ACH member.  Asset Builder Plans
may  not  be  used  to  buy  shares  for  OppenheimerFunds  employer-sponsored
qualified  retirement  accounts.  Asset Builder Plans also enable shareholders
of  Oppenheimer  Cash  Reserves  to use their  fund  account  to make  monthly
automatic purchases of shares of up to four other Oppenheimer funds.

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

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

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

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

Classes of Shares.  Each class of shares of the Fund represents an interest in
the same  portfolio  of  investments  of the  Fund.  However,  each  class has
different  shareholder  privileges and features.  The net income  attributable
to Class B,  Class C of Class N shares and the  dividends  payable on Class B,
Class C or  Class N shares  will be  reduced  by  incremental  expenses  borne
solely by that class.  Those expenses include the asset-based sales charges to
which Class B, Class C and Class N shares 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, Class C and Class N shares  have no initial  sales  charge,  the purpose of
the  deferred  sales charge and  asset-based  sales charge on Class B, Class C
and Class N shares is the same as that of the initial  sales charge on Class A
shares - to  compensate  the  Distributor  and brokers,  dealers and financial
institutions  that sell shares of the Fund. A  salesperson  who is entitled to
receive  compensation from his or her firm for selling Fund shares may receive
different  levels of compensation  for selling one class of shares rather than
another.

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

      |X| Class B  Conversion.  Under  current  interpretations  of applicable
federal  income tax law by the Internal  Revenue  Service,  the  conversion of
Class B shares to Class A shares  after six years is not  treated as a taxable
event for the shareholder.  If those laws or the IRS  interpretation  of those
laws should  change,  the automatic  conversion  feature may be suspended.  In
the event,  no further  conversions  of Class B shares  would occur while that
suspension  remained  in  effect.  Although  Class  B  shares  could  then  be
exchanged  for Class A shares on the basis of relative  net asset value of the
two classes,  without the  imposition  of a sales charge or fee, such exchange
could  constitute  a  taxable  event  for the  shareholder,  and  absent  such
exchange,  Class B shares  might  continue  to be subject  to the  asset-based
sales charge for longer than six years.

      |X| Allocation of Expenses.  The Fund pays expenses related to its daily
operations,  such as custodian  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
U.S.  holidays) or after 4:00 P.M. on a regular  business  day. The Fund's net
asset values will not be calculated  on those days,  and the values of some of
the Fund's portfolio  securities may change  significantly on those days, when
shareholders  may not  purchase  or redeem  shares.  Additionally,  trading on
European and Asian stock exchanges and  over-the-counter  markets  normally is
completed before the close of The New York Stock Exchange.

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

      |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:

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

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

o     Equity securities traded on a foreign securities  exchange generally are
   valued in one of the following ways:

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

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

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

o     The following  securities are valued at cost,  adjusted for amortization
   of premiums and accretion of discounts:

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

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

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

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

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

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

                              How to Sell Shares

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

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:

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

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

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

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

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

Involuntary  Redemptions.  The Fund's Board of Trustees has the right to cause
the involuntary  redemption of the shares held in any account if the aggregate
net asset  value of those  shares is less than $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,
Class C or Class N  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,  Class C and Class N  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  Money  Market  Fund,  Inc.  are  deemed  to be "Class A
      Shares" for this  purpose.  You can obtain a current list showing  which
      funds offer which classes by calling the Distributor at 1.800.525.7048.


o     All of the  Oppenheimer  funds  currently  offer Class A, B and C shares
   except Oppenheimer Money Market Fund, Inc.,  Centennial Money Market Trust,
   Centennial Tax Exempt Trust,  Centennial  Government Trust,  Centennial New
   York  Tax  Exempt  Trust,  Centennial  California  Tax  Exempt  Trust,  and
   Centennial America Fund, L.P., which only offer Class A shares.
o     Oppenheimer Main Street California  Municipal Fund currently offers only
         Class A and Class B shares.
o     Class B and Class C shares of  Oppenheimer  Cash  Reserves are generally
   available  only by  exchange  from  the  same  class  of  shares  of  other
   Oppenheimer funds or through OppenheimerFunds-sponsored 401 (k) plans.

o     Only certain  Oppenheimer funds currently offer Class Y shares.  Class Y
   shares of  Oppenheimer  Real Asset Fund may not be exchanged  for shares of
   any other fund.
o     Only certain  Oppenheimer  funds currently  offer Class N shares,  which
   are only  offered  to  retirement  plans as  described  in the  Prospectus.
   Class  N  shares  can be  exchanged  only  for  Class  N  shares  of  other
   Oppenheimer funds.

o     Class  M  Shares  of  Oppenheimer  Convertible  Securities  Fund  may be
   exchanged  only for Class A shares  of other  Oppenheimer  funds.  They may
   not  be  acquired  by  exchange  of  shares  of  any  class  of  any  other
   Oppenheimer  funds except Class A shares of  Oppenheimer  Money Market Fund
   or Oppenheimer Cash Reserves acquired by exchange of Class M shares.

o     Class  A  shares  of  Oppenheimer  Senior  Floating  Rate  Fund  are not
   available by exchange of shares of  Oppenheimer  Money Market Fund or Class
   A shares of  Oppenheimer  Cash  Reserves.  If any Class A shares of another
   Oppenheimer  fund that are  exchanged  for  Class A shares  of  Oppenheimer
   Senior  Floating  Rate Fund are subject to the Class A contingent  deferred
   sales charge of the other  Oppenheimer  fund at the time of  exchange,  the
   holding  period for that Class A  contingent  deferred  sales  charge  will
   carry over to the Class A shares of Oppenheimer Senior Floating Rate o
   Fund acquired in the  exchange.  The Class A shares of  Oppenheimer  Senior
   Floating  Rate Fund  acquired in that exchange will be subject to the Class
   A Early Withdrawal Charge of Oppenheimer  Senior Floating Rate Fund if they
   are repurchased before the expiration of the holding period.

o     Class X shares of Limited Term New York  Municipal Fund can be exchanged
   only for Class B shares of other  Oppenheimer funds and no exchanges may be
   made to Class X shares.
o     Shares of  Oppenheimer  Capital  Preservation  Fund may not be exchanged
         for shares of Oppenheimer  Money Market Fund, Inc.,  Oppenheimer Cash
         Reserves  or   Oppenheimer   Limited-Term   Government   Fund.   Only
         participants  in  certain  retirement  plans may  purchase  shares of
         Oppenheimer  Capital  Preservation  Fund, and only those participants
         may  exchange  shares  of  other  Oppenheimer  funds  for  shares  of
         Oppenheimer Capital Preservation Fund.

      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 an early withdrawal charge or 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.

      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.

      The Fund may amend,  suspend or terminate the exchange  privilege at any
time.  Although the Fund may impose these changes at any time, it will provide
you  with  notice  of  those  changes  whenever  it  is  required  to do so by
applicable  law.  It may be  required  to  provide  60 days  notice  prior  to
materially  amending  or  terminating  the  exchange  privilege.  That  60 day
notice is not required in extraordinary circumstances.


      |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.  With respect to Class N
shares,  a 1.0%  contingent  deferred  sales  charge  will be  imposed  if the
retirement  plan (not  including IRAs and 403(b) plans) is terminated or Class
N shares of all  Oppenheimer  funds are terminated as an investment  option of
the plan and Class N shares  are  redeemed  within 18 months  after the plan's
first  purchase of Class N shares of any  Oppenheimer  fund or with respect to
an  individual  retirement  plan or 403(b)  plan,  Class N shares are redeemed
within  18  months  of the  plan's  first  purchase  of Class N shares  of any
Oppenheimer fund.


      When  Class B,  Class C or Class N 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, Class C or the Class N 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.  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.  When
you exchange some or all of your shares from one fund to another,  any special
account  feature such as an Asset Builder Plan or Automatic  Withdrawal  Plan,
will be switched to the new fund account  unless you tell the  Transfer  Agent
not to do so.  However,  special  redemption  and  exchange  features  such as
Automatic Exchange Plans and Automatic  Withdrawal Plans cannot be switched to
an account in Oppenheimer Senior Floating Rate Fund.

      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 has no fixed  dividend  rate.  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, Class C and Class N 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, Class C and Class N
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  serves as the  Transfer  Agent
for an annual per account  fee. 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.

<PAGE>


INDEPENDENT AUDITORS' REPORT

================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER INTERNATIONAL BOND FUND:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer International Bond Fund, including the statement of investments, as
of September 30, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Oppenheimer International Bond Fund as of September 30, 2000, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.


DELOITTE & TOUCHE LLP


Denver, Colorado
October 20, 2000


<PAGE>
                                                                      FINANCIALS


                    13 OPPENHEIMER INTERNATIONAL BOND FUND



STATEMENT OF INVESTMENTS  September 30, 2000

<TABLE>
<CAPTION>
                                                                                                PRINCIPAL             MARKET VALUE
                                                                                                   AMOUNT               SEE NOTE 1
==================================================================================================================================
<S>                                                                                         <C>                     <C>
FOREIGN GOVERNMENT OBLIGATIONS--62.6%
----------------------------------------------------------------------------------------------------------------------------------
ARGENTINA--6.3%
Argentina (Republic of) Bonds:
9.75%, Series WW, 12/4/05                                                                   $      285,000          $      259,350
11.75%, 6/15/15                                                                                  3,945,000               3,619,537
Bonos de Consolidacion de Deudas, Series PRE3, 2.696%, 9/1/02(1) [ARP]                           3,084,239               2,828,868
----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Par Bonds, 6%, 3/31/23(1)                                                  705,000                 479,400
----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Unsec. Unsub. Nts., 11.75%, 4/7/09                                         510,000                 481,950
----------------------------------------------------------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds, Bonos de Consolidacion de Deudas,
Series BPR01, 2.693%, 4/1/07(1) [ARP]                                                            3,913,350               2,765,835
----------------------------------------------------------------------------------------------------------------------------------
City of Buenos Aires Bonds, Series 3, 10.50%, 5/28/04 [ARP]                                      4,410,000               3,872,098
                                                                                                                    --------------
                                                                                                                        14,307,038

----------------------------------------------------------------------------------------------------------------------------------
BELGIUM--2.2%
Belgium (Kingdom of) Bonds, Series 35, 5.75%, 9/28/10 [EUR]                                      5,620,000               5,018,670
----------------------------------------------------------------------------------------------------------------------------------
BRAZIL--6.6%
Brazil (Federal Republic of) Bonds:
10.125%, 5/15/27                                                                                 3,310,000               2,573,525
12.25%, 3/6/30                                                                                     315,000                 286,650
12.75%, 1/15/20                                                                                 10,510,000              10,089,600
----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Gtd. Disc. Bonds, 7.375%, 4/15/24(1)                                  460,000                 366,275
----------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Unsec. Unsub. Bonds, 11%, 8/17/40                                   1,979,000               1,581,221
                                                                                                                    --------------
                                                                                                                        14,897,271

----------------------------------------------------------------------------------------------------------------------------------
BULGARIA--1.0%
Bulgaria (Republic of) Front-Loaded Interest Reduction Bearer Bonds,
Tranche A, 3%, 7/28/12(1)                                                                        1,885,000               1,373,694
----------------------------------------------------------------------------------------------------------------------------------
Bulgaria (Republic of) Interest Arrears Bonds, 7.75%, 7/28/11(1)                                 1,165,000                 891,225
                                                                                                                    --------------
                                                                                                                         2,264,919

----------------------------------------------------------------------------------------------------------------------------------
CANADA--1.9%
Canada (Government of) Bonds, 7%, 12/1/06 [CAD]                                                  5,990,000               4,235,479
----------------------------------------------------------------------------------------------------------------------------------
COLOMBIA--0.6%
Colombia (Republic of) Bonds, 9.75%, 4/23/09                                                     1,780,000               1,432,900
----------------------------------------------------------------------------------------------------------------------------------
ECUADOR--0.6%
Ecuador (Republic of) Bonds, 4%, 8/15/30(1,2)                                                    1,847,000                 729,565
----------------------------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Unsec. Bonds:
4%, 8/15/30(1)                                                                                     806,000                 318,370
12%, 11/15/12(2)                                                                                   114,000                  80,085
12%, 11/15/12                                                                                      435,000                 305,587
                                                                                                                    --------------
                                                                                                                         1,433,607

----------------------------------------------------------------------------------------------------------------------------------
FRANCE--3.3%
France (Government of) Bonds, Obligations Assimilables du Tresor,
5.50%, 4/25/07 [EUR]                                                                             8,470,000               7,580,095
</TABLE>


                    14   OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   17


<TABLE>
<CAPTION>
                                                                                                PRINCIPAL             MARKET VALUE
                                                                                                   AMOUNT               SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                     <C>
GERMANY--1.5%
Germany (Republic of) Bonds, 7.50%, 9/9/04 [EUR]                                                 3,690,000          $    3,516,613
----------------------------------------------------------------------------------------------------------------------------------
GREAT BRITAIN--5.0%
United Kingdom Treasury Bonds, 8.50%, 12/7/05 [GBP]                                              6,750,000              11,259,295
----------------------------------------------------------------------------------------------------------------------------------
GREECE--0.5%
Hellenic (Republic of) Bonds, 8.60%, 3/26/08 [GRD]                                             362,000,000               1,085,110
----------------------------------------------------------------------------------------------------------------------------------
INDONESIA--0.1%
Perusahaan Listr Nts., 17%, 8/21/01 [IDR]                                                    2,000,000,000                 229,345
----------------------------------------------------------------------------------------------------------------------------------
IVORY COAST--0.5%
Ivory Coast (Government of) Past Due Interest Bonds,
Series F, 1.90%, 3/29/18(3) [FRF]                                                               41,994,750               1,031,092
----------------------------------------------------------------------------------------------------------------------------------
JAPAN--2.4%
Japan (Government of) Bonds, Series 187, 3.30%, 6/20/06 [JPY]                                  537,400,000               5,476,944
----------------------------------------------------------------------------------------------------------------------------------
MEXICO--3.9%
United Mexican States Bonds:
10.375%, 2/17/09                                                                                   215,000                 234,458
11.375%, 9/15/16                                                                                 2,335,000               2,720,275
11.50%, 5/15/26(4)                                                                               4,780,000               5,814,870
                                                                                                                    --------------
                                                                                                                         8,769,603

----------------------------------------------------------------------------------------------------------------------------------
NORWAY--1.6%
Norway (Government of) Bonds:
5.50%, 5/15/09 [NOK]                                                                            21,270,000               2,220,752
9.50%, 10/31/02 [NOK]                                                                           12,255,000               1,408,358
                                                                                                                    --------------
                                                                                                                         3,629,110

----------------------------------------------------------------------------------------------------------------------------------
PANAMA--0.8%
Panama (Republic of) Bonds, 8.875%, 9/30/27                                                        222,000                 185,925
----------------------------------------------------------------------------------------------------------------------------------
Panama (Republic of) Interest Reduction Bonds, 4.50%, 7/17/14(1)                                 2,140,000               1,712,000
                                                                                                                    --------------
                                                                                                                         1,897,925

----------------------------------------------------------------------------------------------------------------------------------
PERU--2.1%
Peru (Republic of) Sr. Nts., Zero Coupon, 6.12%, 2/28/16(5)                                     10,538,933               4,710,903
----------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES--0.6%
Philippines (Republic of) Nts., 10.625%, 3/16/25                                                 1,520,000               1,295,800
----------------------------------------------------------------------------------------------------------------------------------
RUSSIA--7.1%
Russian Federation Bonds, 8.25%, 3/31/30(6)                                                      2,444,160               1,619,256
----------------------------------------------------------------------------------------------------------------------------------
Russian Federation Unsec. Unsub. Nts.:
8.75%, 7/24/05                                                                                   1,511,000               1,201,245
12.75%, 6/24/28                                                                                    350,000                 304,938
----------------------------------------------------------------------------------------------------------------------------------
Russian Federation Unsub. Bonds, 2.50%, 3/31/30(1,7)                                            33,336,000              12,907,283
                                                                                                                    --------------
                                                                                                                        16,032,722

----------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA--3.4%
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR]                                58,005,000               7,770,809
----------------------------------------------------------------------------------------------------------------------------------
SPAIN--2.7%
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
4.95%, 7/30/05 [EUR]                                                                             7,130,000               6,180,538
</TABLE>

                    15   OPPENHEIMER INTERNATIONAL BOND FUND


<PAGE>   18


STATEMENT OF INVESTMENTS  Continued

<TABLE>
<CAPTION>
                                                                                                PRINCIPAL             MARKET VALUE
                                                                                                   AMOUNT               SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                     <C>
SWEDEN--0.4%
Sweden (Kingdom of) Debs., Series 1038, 6.50%, 10/25/06 [SEK]                                    9,300,000          $    1,029,710
----------------------------------------------------------------------------------------------------------------------------------
THE NETHERLANDS--3.5%
Netherlands (Government of) Bonds, 6.75%, 11/15/05 [EUR]                                         8,350,000               7,844,167
----------------------------------------------------------------------------------------------------------------------------------
TURKEY--0.3%
Turkey (Republic of) Bonds, 11.75%, 6/15/10                                                        718,000                 719,616
----------------------------------------------------------------------------------------------------------------------------------
VENEZUELA--3.7%
Venezuela (Republic of) Bonds, 9.25%, 9/15/27(4)                                                 1,810,000               1,229,895
----------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Collateralized Par Bonds:
Series W-A, 6.75%, 3/31/20                                                                       3,250,000               2,413,125
Series W-B, 6.75%, 3/31/20                                                                         375,000                 278,438
----------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Disc. Bonds, Series DL, 7.875%, 12/18/07(1)                              5,215,714               4,482,228
                                                                                                                    --------------
                                                                                                                         8,403,686
                                                                                                                    --------------
Total Foreign Government Obligations (Cost $145,898,454)                                                               142,052,967

==================================================================================================================================
LOAN PARTICIPATIONS--3.0%

Algeria (Republic of) Reprofiled Debt Loan Participation Nts.,
Tranche 1, 1.312%, 9/4/06(1,6) [JPY]                                                            52,565,039                 383,074
----------------------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Trust III Nts., Tranche 3, 2.387%, 3/4/10(1,6,7) [JPY]                   314,532,000               1,993,841
----------------------------------------------------------------------------------------------------------------------------------
Algeria (Republic of) Unrestructured Nts., 6.615%, 1/22/01(6) [JPY]                             95,366,666                 858,265
----------------------------------------------------------------------------------------------------------------------------------
ING Barings LLC, Bank Mandiri Linked Nts., Series 5C, 8.344%, 6/1/05(1,6)                          250,000                 189,062
----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Bank Mandiri Loan:
Series 3C, 8.344%, 6/1/03(1,6)                                                                     250,000                 182,500
Series 4C, 8.344%, 6/1/04(1,6)                                                                     250,000                 175,000
Series 5 yr., 8.344%, 6/1/05(1,6)                                                                  250,000                 170,000
----------------------------------------------------------------------------------------------------------------------------------
PT Bank Negara Indonesia Gtd. Nts.:
Series 3 yr., 10.094%, 8/25/01(1,6)                                                              1,670,000               1,544,750
Series 4 yr., 10.344%, 8/25/02(1,6)                                                                890,000                 764,287
----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc., Bank Umum Loan,
Series C, 10.094%, 8/25/01(1,6)                                                                    500,000                 462,500
                                                                                                                    --------------
Total Loan Participations (Cost $6,539,357)                                                                              6,723,279

==================================================================================================================================
CORPORATE BONDS AND NOTES--11.4%
Bakrie Investindo:
Zero Coupon Promissory Nts., 3/16/1999(3,6,8) [IDR]                                          5,990,000,000                 102,393
Zero Coupon Promissory Nts., 7/10/1998(3,6,8) [IDR]                                          2,000,000,000                  34,188
----------------------------------------------------------------------------------------------------------------------------------
Development Bank of Japan Gtd. Unsec. Bonds,
2.875%, 12/20/06 [JPY]                                                                         860,000,000               8,607,561
----------------------------------------------------------------------------------------------------------------------------------
Empresa Electrica del Norte Grande SA, 7.75% Bonds, 3/15/06(6,9)                                 1,420,000                 315,950
----------------------------------------------------------------------------------------------------------------------------------
Hanvit Bank:
0%/12.75% Unsec. Sub. Nts., 3/1/10(2,10)                                                         3,400,000               3,459,500
0%/12.75% Unsec. Sub. Nts., 3/1/10(10)                                                             765,000                 778,387
----------------------------------------------------------------------------------------------------------------------------------
Mexican Williams Sr. Nts., 7.671%, 11/15/08(1)                                                     500,000                 470,000
----------------------------------------------------------------------------------------------------------------------------------
Ongko International Finance Co. BV, 10.50% Sec. Nts., 3/29/04(3,6,8)                               365,000                  10,038
----------------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos Bonds, 9.50%, 9/15/27                                                          855,000                 884,925
----------------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Co., 1.50% Sr. Unsec. Unsub. Bonds, 12/7/05 [JPY]                             895,000,000               8,281,193
</TABLE>


                    16   OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   19


<TABLE>
<CAPTION>
                                                                                                PRINCIPAL             MARKET VALUE
                                                                                                   AMOUNT               SEE NOTE 1
==================================================================================================================================
<S>                                                                                         <C>                     <C>
CORPORATE BONDS AND NOTES Continued
PT Polysindo Eka Perkasa:
11% Nts., 6/18/03(3,6,8)                                                                    $      500,000          $       65,000
11% Nts., 7/2/03(3,6,8)                                                                          1,000,000                 130,000
20% Nts., 3/6/01(3,8) [IDR]                                                                  3,000,000,000                  44,444
24% Nts., 6/16/03(3,8) [IDR]                                                                 2,000,000,000                  29,630
24% Nts., 6/19/03(3,8) [IDR]                                                                 4,107,500,000                  60,852
----------------------------------------------------------------------------------------------------------------------------------
Reliance Industries Ltd.:
10.25% Unsec. Nts., Series B, 1/15/97(4,11)                                                      2,605,000               2,240,975
10.25% Unsec. Nts., Series B, 1/15/97(2)                                                           250,000                 215,065
----------------------------------------------------------------------------------------------------------------------------------
TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(6)                                          70,000                  74,683
                                                                                                                    --------------
Total Corporate Bonds and Notes (Cost $29,465,687)                                                                      25,804,784
</TABLE>

<TABLE>
<CAPTION>
                                                                                                    UNITS
==================================================================================================================================
<S>                                                                                         <C>                     <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Mexico Value Rts., Exp. 6/30/03 (Cost $0)                                                          984,000                      --
</TABLE>

<TABLE>
<CAPTION>
                                                                                                PRINCIPAL
                                                                                                   AMOUNT
==================================================================================================================================
<S>                                                                                         <C>                     <C>
STRUCTURED INSTRUMENTS--12.6%
Citibank NA (Nassau Branch), Mexican Nuevo Peso Linked Nts.:
18.70%, 3/3/03 [MXN]                                                                            29,160,361               3,151,011
27.40%, 9/20/01 [MXN]                                                                           32,103,244               3,518,643
----------------------------------------------------------------------------------------------------------------------------------
Citibank NA, Brazilian Real Linked Nts.:
24.10%, 5/26/03 [BRR]                                                                            2,400,000               1,332,033
24.25%, 5/23/03 [BRR]                                                                            4,794,118               2,663,659
----------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch),
Russian Obligatzii Federal'nogo Zaima Linked Nts.:
Series 25030, Zero Coupon, 146.53%, 12/15/01(5,6) [RUR]                                          2,143,000                  53,085
Series 27001, 20.11%, 2/6/02(1,6) [RUR]                                                          1,378,970                  41,699
Series 27002, 20.11%, 5/22/02(1,6) [RUR]                                                           625,200                  18,453
Series 27003, 20.11%, 6/5/02(1,6) [RUR]                                                          1,185,010                  34,921
Series 27004, 20.11%, 9/18/02(1,6) [RUR]                                                           686,610                  19,937
Series 27005, 20.11%, 10/9/02(1,6) [RUR]                                                         1,395,980                  39,665
Series 27006, 20.11%, 1/22/03(1,6) [RUR]                                                         1,973,290                  54,911
Series 27007, 20.11%, 2/5/03(1,6) [RUR]                                                          2,144,860                  59,555
Series 27008, 20.11%, 5/21/03(1,6) [RUR]                                                           625,200                  17,051
Series 27009, 20.11%, 6/4/03(1,6) [RUR]                                                          2,949,470                  80,345
Series 27009, 20.11%, 6/4/03(1,6) [RUR]                                                          6,363,674                 173,351
Series 27010, 20.11%, 9/17/03(1,6) [RUR]                                                           625,200                  16,788
Series 27011, 20.11%, 10/8/03(1,6) [RUR]                                                         3,635,620                  95,229
Series 28001, 20.11%, 1/21/04(1,6) [RUR]                                                           625,200                  16,007
Series L, 20.11%, 2/6/02(1,6) [RUR]                                                                566,080                  17,118
Series L, 20.11%, 5/22/02(1,6) [RUR]                                                               566,080                  16,708
Series L, 20.11%, 6/5/02(1,6) [RUR]                                                                566,080                  16,682
Series L, 20.11%, 9/18/02(1,6) [RUR]                                                               566,080                  16,437
Series L, 20.11%, 10/9/02(1,6) [RUR]                                                               566,080                  16,085
Series L, 20.11%, 1/22/03(1,6) [RUR]                                                               566,080                  15,752
Series L, 20.11%, 2/5/03(1,6) [RUR]                                                                566,080                  15,718
Series L, 20.11%, 5/21/03(1,6) [RUR]                                                               566,080                  15,439
Series L, 20.11%, 6/4/03(1,6) [RUR]                                                                566,080                  15,420
Series L, 20.11%, 9/17/03(1,6) [RUR]                                                               566,080                  15,200
</TABLE>


                    17   OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   20


STATEMENT OF INVESTMENTS  Continued

<TABLE>
<CAPTION>
                                                                                                PRINCIPAL             MARKET VALUE
                                                                                                   AMOUNT               SEE NOTE 1
==================================================================================================================================
<S>                                                                                         <C>                     <C>
STRUCTURED INSTRUMENTS Continued
Credit Suisse First Boston Corp. (New York Branch),
Russian Obligatzii Federal'nogo Zaima Linked Nts.: Continued
Series L, 20.11%, 10/8/03(1,6) [RUR]                                                               566,080          $       14,827
Series L, 20.11%, 1/21/04(1,6) [RUR]                                                               566,080                  14,493
Series L, Zero Coupon, 53.77%, 12/15/01(5,6) [RUR]                                               1,940,000                  48,057
----------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, Turkish Lira Linked Nts., 11%, 12/11/00                                        8,500,000               8,573,950
----------------------------------------------------------------------------------------------------------------------------------
ING Barings LLC, Zero Coupon USD Russian Equity Linked Nts., 4/19/01                                 3,500                 264,495
----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Brazilian Real Linked Nts., 23.30%, 5/30/03 [BRR]                     4,760,000               2,689,258
----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Mexican Nuevo Peso Linked Nts.,
18.65%, 8/25/03 [MXN]                                                                           31,390,088               3,273,291
----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney, Inc. Turkish Lira Linked Nts., 11%, 1/16/01                                2,209,261               2,230,735
                                                                                                                    --------------
Total Structured Instruments (Cost $28,684,723)                                                                         28,656,008
</TABLE>


<TABLE>
<CAPTION>
                                                                 DATE             STRIKE         CONTRACTS
==================================================================================================================================
<S>                                                         <C>              <C>            <C>                     <C>
OPTIONS PURCHASED--0.1%
European Monetary Unit Call                                   12/5/00           EUR0.937         5,029,005                  22,766
----------------------------------------------------------------------------------------------------------------------------------
European Monetary Unit/
Japanese Yen Call(6)                                         10/24/00             $97.86         6,435,000                  28,333
----------------------------------------------------------------------------------------------------------------------------------
South Korean Won Call                                        11/28/00        KRW1,100.00         8,700,000                  52,200
----------------------------------------------------------------------------------------------------------------------------------
Thailand Baht Call(6)                                         12/6/00           THB38.00       649,040,000                  64,904
                                                                                                                    --------------
Total Options Purchased (Cost $543,758)                                                                                    168,203
</TABLE>


<TABLE>
<CAPTION>
                                                                                                PRINCIPAL
                                                                                                   AMOUNT
==================================================================================================================================
<S>                                                                                         <C>                     <C>
REPURCHASE AGREEMENTS--8.7%
Repurchase agreement with PaineWebber, Inc., 6.50%,
dated 9/29/00, to be repurchased at $19,837,740 on 10/2/00,
collateralized by U.S. Treasury Nts., 4.25%-5.50%,
7/31/01-11/15/03, with a value of $20,241,415 (Cost $19,827,000)                                19,827,000              19,827,000
----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $230,958,979)                                                       98.4%            223,232,241
----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                                                        1.6               3,630,364
                                                                                            --------------------------------------
NET ASSETS                                                                                           100.0%           $226,862,605
                                                                                            ======================================
</TABLE>


                    18   OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   21


FOOTNOTES TO STATEMENT OF INVESTMENTS

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

<TABLE>
<S>     <C>                                      <C>    <C>
ARP     Argentine Peso                           JPY    Japanese Yen
BRR     Brazilian Real                           KRW    South Korean Won
CAD     Canadian Dollar                          MXN    Mexican Nuevo Peso
EUR     Euro                                     NOK    Norwegian Krone
FRF     French Franc                             RUR    Russian Ruble
GBP     British Pound Sterling                   SEK    Swedish Krona
GRD     Greek Drachma                            THB    Thai Baht
IDR     Indonesian Rupiah                        ZAR    South African Rand
</TABLE>

1. Represents the current interest rate for a variable or increasing rate
security.

2. 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 $4,484,215 or 1.98% of the Fund's net
assets as of September 30, 2000.

3. Issuer is in default.

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

<TABLE>
<CAPTION>
                                          PRINCIPAL/CONTRACTS           EXPIRATION       EXERCISE         PREMIUM     MARKET VALUE
                                          SUBJECT TO CALL/PUT                 DATE          PRICE        RECEIVED       SEE NOTE 1
----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                           <C>              <C>             <C>          <C>
European Monetary Unit Put                          4,594,035              12/5/00        EUR0.856       $ 47,778        $  37,359
European Monetary Unit/Japanese Yen Put            $6,435,000             10/24/00         $ 91.00         44,897           19,157
United Mexican States Bonds Call                        4,780             10/10/00          128.00%        35,850              110
United Mexican States Bonds Put                         4,780             10/10/00          124.50        169,690          157,023
Venezuela (Republic of) Bonds Call                        840             11/13/00           68.80          9,912            6,888
                                                                                                         -------------------------
                                                                                                         $308,127         $220,537
                                                                                                         =========================
</TABLE>

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

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

7. When-issued security to be delivered and settled after September 30, 2000.

8. Non-income-producing security.

9. Securities with an aggregate market value of $315,950 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.

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

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


                    19   OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   22

STATEMENT OF INVESTMENTS Continued

FOOTNOTES TO STATEMENT OF INVESTMENTS Continued

DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC DIVERSIFICATION, AS A
PERCENTAGE OF TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:

<TABLE>
<CAPTION>
GEOGRAPHICAL DIVERSIFICATION                                      MARKET VALUE            PERCENT
--------------------------------------------------------------------------------------------------
<S>                                                             <C>                       <C>
United States                                                      $28,276,396               12.7%
Brazil                                                              21,582,220                9.7
Mexico                                                              20,067,473                9.0
Russia                                                              17,256,149                7.7
Argentina                                                           14,307,039                6.4
Japan                                                               14,084,505                6.3
Turkey                                                              11,524,301                5.2
Great Britain                                                       11,259,295                5.0
Venezuela                                                            8,403,686                3.8
The Netherlands                                                      7,844,167                3.5
South Africa                                                         7,770,809                3.5
France                                                               7,580,095                3.4
Spain                                                                6,180,538                2.8
Belgium                                                              5,018,670                2.2
Peru                                                                 4,710,903                2.1
Korea, Republic of (South)                                           4,237,888                1.9
Canada                                                               4,235,479                1.9
Indonesia                                                            4,193,989                1.9
Norway                                                               3,629,111                1.6
Germany                                                              3,516,613                1.6
Algeria                                                              3,235,179                1.4
India                                                                2,456,039                1.1
Bulgaria                                                             2,264,919                1.0
Panama                                                               1,897,925                0.9
Ecuador                                                              1,433,608                0.6
Colombia                                                             1,432,900                0.6
Philippines                                                          1,295,800                0.6
Greece                                                               1,085,110                0.5
Ivory Coast                                                          1,031,092                0.5
Sweden                                                               1,029,710                0.5
Chile                                                                  315,950                0.1
Switzerland                                                             74,683                0.0
                                                                ---------------------------------
Total                                                             $223,232,241              100.0%
                                                                =================================
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                    20   OPPENHEIMER INTERNATIONAL BOND FUND


<PAGE>   23
STATEMENT OF ASSETS AND LIABILITIES                           September 30, 2000

<TABLE>
<S>                                                                                         <C>
==========================================================================================================
 ASSETS

 Investments, at value (cost $230,958,979)--see accompanying statement                      $223,232,241
----------------------------------------------------------------------------------------------------------
 Cash                                                                                            351,989
----------------------------------------------------------------------------------------------------------
 Cash--foreign currencies (cost $937,567)                                                        937,567
----------------------------------------------------------------------------------------------------------
 Cash--collateral for futures                                                                    410,000
----------------------------------------------------------------------------------------------------------
 Unrealized appreciation on foreign currency contracts                                           103,418
----------------------------------------------------------------------------------------------------------
 Receivables and other assets:
 Interest, dividends and principal paydowns                                                    4,747,027
 Shares of beneficial interest sold                                                              277,576
 Other                                                                                             3,425
                                                                                            --------------
 Total assets                                                                                230,063,243

==========================================================================================================
 LIABILITIES

 Unrealized depreciation on foreign currency contracts                                           254,961
----------------------------------------------------------------------------------------------------------
 Options written, at value (premiums received $308,127)--see accompanying statement              220,537
----------------------------------------------------------------------------------------------------------
 Payables and other liabilities:
 Investments purchased on a when-issued basis                                                    795,117
 Shares of beneficial interest redeemed                                                          717,385
 Dividends                                                                                       687,702
 Closed foreign currency contracts                                                               249,618
 Distribution and service plan fees                                                              146,250
 Daily variation on futures contracts                                                             26,248
 Trustees' compensation                                                                            1,571
 Other                                                                                           101,249
                                                                                            --------------
 Total liabilities                                                                             3,200,638

==========================================================================================================
 NET ASSETS                                                                                 $226,862,605
                                                                                            ==============

==========================================================================================================
 COMPOSITION OF NET ASSETS

 Paid-in capital                                                                            $286,287,868
----------------------------------------------------------------------------------------------------------
 Overdistributed net investment income                                                          (565,330)
----------------------------------------------------------------------------------------------------------
 Accumulated net realized loss on investments and foreign currency transactions              (50,944,836)
----------------------------------------------------------------------------------------------------------
 Net unrealized depreciation on investments and translation of
 assets and liabilities denominated in foreign currencies                                     (7,915,097)
                                                                                            --------------
 NET ASSETS                                                                                 $226,862,605
                                                                                            ==============
</TABLE>


                    21  OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   24


STATEMENT OF ASSETS AND LIABILITIES  Continued

<TABLE>
<S>                                                                                         <C>
==========================================================================================================
 NET ASSET VALUE PER SHARE
----------------------------------------------------------------------------------------------------------
 Class A Shares:
 Net asset value and redemption price per share (based on net assets of
 $100,928,119 and 24,106,571 shares of beneficial interest outstanding)                            $4.19
 Maximum offering price per share (net asset value plus sales charge of 4.75% of
 offering price)                                                                                   $4.40
----------------------------------------------------------------------------------------------------------
 Class B Shares:
 Net asset value, redemption price (excludes applicable contingent deferred
 sales charge) and offering price per share (based on net assets of $98,271,661
 and 23,551,443 shares of beneficial interest outstanding)                                         $4.17
----------------------------------------------------------------------------------------------------------
 Class C Shares:
 Net asset value, redemption price (excludes applicable contingent deferred
 sales charge) and offering price per share (based on net assets of $27,662,825
 and 6,631,791 shares of beneficial interest outstanding)                                          $4.17
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                    22  OPPENHEIMER INTERNATIONAL BOND FUND



<PAGE>   25


STATEMENT OF OPERATIONS  For the Year Ended September 30, 2000

<TABLE>
<S>                                                                                          <C>
==========================================================================================================
INVESTMENT INCOME

 Interest (net of foreign withholding taxes of $151,591)                                     $29,787,397
----------------------------------------------------------------------------------------------------------
 Dividends (net of foreign withholding taxes of $72)                                                 410
                                                                                             -------------
 Total income                                                                                 29,787,807

==========================================================================================================
 EXPENSES

 Management fees                                                                               1,910,655
----------------------------------------------------------------------------------------------------------
 Distribution and service plan fees:
 Class A                                                                                         277,421
 Class B                                                                                       1,152,536
 Class C                                                                                         307,355
----------------------------------------------------------------------------------------------------------
 Transfer and shareholder servicing agent fees                                                   388,411
----------------------------------------------------------------------------------------------------------
 Shareholder reports                                                                             185,088
----------------------------------------------------------------------------------------------------------
 Custodian fees and expenses                                                                     145,027
----------------------------------------------------------------------------------------------------------
 Trustees' compensation                                                                            2,773
----------------------------------------------------------------------------------------------------------
 Other                                                                                            90,651
                                                                                             -------------
 Total expenses                                                                                4,459,917
 Less expenses paid indirectly                                                                   (39,430)
                                                                                             -------------
 Net expenses                                                                                  4,420,487

==========================================================================================================
 NET INVESTMENT INCOME                                                                        25,367,320

==========================================================================================================
 REALIZED AND UNREALIZED GAIN (LOSS)

 Net realized gain (loss) on:
 Investments (including premiums on options exercised)                                         7,287,599
 Closing of futures contracts                                                                    329,009
 Closing and expiration of option contracts written                                              118,557
 Foreign currency transactions                                                               (19,029,644)
                                                                                             -------------
 Net realized loss                                                                           (11,294,479)
----------------------------------------------------------------------------------------------------------
 Net change in unrealized appreciation (depreciation) on:
 Investments                                                                                   8,460,132
 Translation of assets and liabilities denominated in foreign currencies                      (1,785,490)
                                                                                             -------------
 Net change                                                                                    6,674,642
                                                                                             -------------
 Net realized and unrealized loss                                                             (4,619,837)

==========================================================================================================
 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                        $20,747,483
                                                                                             =============
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                    23  OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   26

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
 YEAR ENDED SEPTEMBER 30,                                                 2000              1999
================================================================================================
<S>                                                              <C>               <C>
 OPERATIONS
------------------------------------------------------------------------------------------------
 Net investment income                                           $  25,367,320     $  33,032,068
------------------------------------------------------------------------------------------------
 Net realized loss                                                 (11,294,479)      (26,122,910)
------------------------------------------------------------------------------------------------
 Net change in unrealized appreciation                               6,674,642        17,536,670
                                                                 -------------------------------
 Net increase in net assets resulting from operations               20,747,483        24,445,828

================================================================================================
 DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------------------------------------
 Dividends from net investment income:
 Class A                                                            (5,798,494)      (12,490,131)
 Class B                                                            (5,737,841)      (14,069,900)
 Class C                                                            (1,454,587)       (3,315,800)
------------------------------------------------------------------------------------------------
 Return of capital distribution:
 Class A                                                            (4,694,873)               --
 Class B                                                            (4,486,212)               --
 Class C                                                            (1,251,966)               --

================================================================================================
 BENEFICIAL INTEREST TRANSACTIONS
------------------------------------------------------------------------------------------------
 Net increase (decrease) in net assets resulting from
 beneficial interest transactions:
 Class A                                                                16,710         7,013,720
 Class B                                                           (19,365,519)        1,272,305
 Class C                                                            (1,436,387)        2,430,203

================================================================================================
 NET ASSETS
------------------------------------------------------------------------------------------------
 Total increase (decrease)                                         (23,461,686)        5,286,225
------------------------------------------------------------------------------------------------
 Beginning of period                                               250,324,291       245,038,066
                                                                 -------------------------------
 End of period [including undistributed (overdistributed) net
 investment income of $(565,330) and $744,959, respectively]      $226,862,605      $250,324,291
                                                                 ===============================
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                     24 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   27

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
 CLASS A    YEAR ENDED SEPTEMBER 30,                   2000         1999        1998            1997           1996
===================================================================================================================
<S>                                                <C>          <C>         <C>             <C>             <C>
 PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period              $   4.23     $   4.32    $   5.51        $   5.49        $  5.10
-------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                  .45          .58         .56             .52            .52
 Net realized and unrealized gain (loss)               (.08)        (.14)      (1.20)            .08            .40
                                                   ----------------------------------------------------------------
 Total income (loss) from
 investment operations                                  .37          .44        (.64)            .60            .92
-------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                  (.21)        (.53)       (.53)           (.53)          (.53)
 Return of capital distribution                        (.20)          --          --              --             --
 Distributions from net realized gain                    --           --        (.02)           (.05)            --
                                                   ----------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                       (.41)        (.53)       (.55)           (.58)          (.53)
-------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $   4.19     $   4.23    $   4.32        $   5.51        $  5.49
                                                   ================================================================

===================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(1)                   8.93%       10.58%     (12.50)%         11.33%         18.82%
-------------------------------------------------------------------------------------------------------------------

===================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)          $100,928     $102,236    $ 97,404        $114,847        $52,128
-------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                 $110,968     $101,948    $108,264        $ 89,112        $19,817
-------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                10.23%       13.47%      11.09%           9.24%          9.60%
 Expenses                                              1.31%        1.26%       1.24%(3)        1.28%(3)       1.59%(3)
 Expenses, net of indirect
 and waiver of expenses                                1.29%        1.25%        N/A             N/A           1.49%
-------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                288%         285%        446%            280%           273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                     25 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   28

 FINANCIAL HIGHLIGHTS CONTINUED

<TABLE>
<CAPTION>
 CLASS B        YEAR ENDED SEPTEMBER 30,                      2000         1999          1998            1997           1996
============================================================================================================================
<S>                                                       <C>          <C>           <C>             <C>             <C>
 PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period                     $   4.22     $   4.31      $   5.50        $   5.48        $  5.10
----------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                         .42          .55           .52             .48            .48
 Net realized and unrealized gain (loss)                      (.09)        (.14)        (1.20)            .07            .39
                                                          ------------------------------------------------------------------
 Total income (loss) from
 investment operations                                         .33          .41          (.68)            .55            .87
----------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                         (.20)        (.50)         (.49)           (.48)          (.49)
 Return of capital distribution                               (.18)          --            --              --             --
 Distributions from net realized gain                           --           --          (.02)           (.05)            --
                                                          ------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                              (.38)        (.50)         (.51)           (.53)          (.49)
----------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                              $4.17     $   4.22      $   4.31        $   5.50        $  5.48
                                                          ==================================================================

----------------------------------------------------------------------------------------------------------------------------
 TOTAL RETURN, AT NET ASSET VALUE(1)                          7.94%        9.79%       (13.16)%         10.52%         17.71%
----------------------------------------------------------------------------------------------------------------------------

============================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)                 $ 98,272     $118,632      $119,998        $122,874        $45,207
----------------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                        $115,116     $122,878      $128,789        $ 87,557        $17,891

----------------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                        9.63%       12.70%        10.33%           8.57%          8.81%
 Expenses                                                     2.05%        2.02%         2.00%(3)        2.04%(3)       2.36%(3)
 Expenses, net of indirect
 and waiver of expenses                                       2.03%        2.01%          N/A             N/A           2.26%

----------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                       288%         285%          446%            280%           273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                     26 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   29

<TABLE>
<CAPTION>
 CLASS C        YEAR ENDED SEPTEMBER 30,                      2000        1999        1998          1997          1996
======================================================================================================================
<S>                                                        <C>         <C>         <C>           <C>           <C>
 PER SHARE OPERATING DATA
----------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period                      $  4.22     $  4.31     $  5.50       $  5.48       $  5.09
----------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                         .41         .55         .52           .48           .48
 Net realized and unrealized gain (loss)                      (.08)       (.14)      (1.20)          .07           .39
                                                           -----------------------------------------------------------
 Total income (loss) from
 investment operations                                         .33         .41        (.68)          .55           .87
----------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                         (.19)       (.50)       (.49)         (.48)         (.48)
 Return of capital distribution                               (.19)         --          --            --            --
 Distributions from net realized gain                           --          --        (.02)         (.05)           --
                                                           -----------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                              (.38)       (.50)       (.51)         (.53)         (.48)
----------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                              $4.17       $4.22     $  4.31       $  5.50       $  5.48
                                                           ===========================================================

======================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(1)                          7.95%       9.80%     (13.16)%       10.52%        17.92%
----------------------------------------------------------------------------------------------------------------------

======================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in thousands)                  $27,663     $29,456     $27,636       $28,684       $10,282
----------------------------------------------------------------------------------------------------------------------
 Average net assets (in thousands)                         $30,710     $28,918     $29,336       $19,883       $ 4,039
----------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(2)
 Net investment income                                        9.55%      12.76%      10.33%         8.62%         8.76%
 Expenses                                                     2.05%       2.02%       2.00%(3)      2.04%(3)      2.36%(3)
 Expenses, net of indirect
 and waiver of expenses                                       2.03%       2.01%        N/A           N/A          2.25%
----------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                                       288%        285%        446%          280%          273%
</TABLE>

1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.

2. Annualized for periods of less than one full year.

3. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

                    27 OPPENHEIMER INTERNATIONAL BOND FUND

<PAGE>   30

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 an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek total return. 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 at their offering price, which is normally net asset value plus a front-end
sales charge. Class B and Class C shares are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. 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.

--------------------------------------------------------------------------------
SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).

--------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign-currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes are leveraged, which increases the notes' volatility
relative to the principal of the security. Fluctuations in value of these
securities are recorded as unrealized gains and losses in the accompanying
financial statements. As of September 30, 2000, the market value of these
securities comprised 12.6% of the Fund's net assets and resulted in unrealized
losses at September 30, 2000, of $28,715. The Fund also hedges a portion of the
foreign currency exposure generated by these securities, as discussed in Note 5.

--------------------------------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a when-issued basis can take place a
month or more after the trade date. Normally the settlement date occurs within
six months after the trade date; however, the Fund may, from time to time,
purchase securities whose settlement date extends beyond six months and possibly
as long as two years or more beyond trade date. During this period, such
securities do not earn interest, are subject to

                     28 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   31

market fluctuation and may increase or decrease in value prior to their
delivery. The Fund maintains segregated assets with a market value equal to or
greater than the amount of its purchase commitments. The purchase of securities
on a when-issued or forward commitment basis may increase the volatility of the
Fund's net asset value to the extent the Fund makes such purchases while
remaining substantially fully invested. As of September 30, 2000, the Fund had
entered into outstanding net when-issued or forward commitments of $795,117.

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

--------------------------------------------------------------------------------
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, 2000, securities with an
aggregate market value of $1,507,637, representing 0.66% 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 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>   32

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 to shareholders. Therefore, no federal
income or excise tax provision is required.

As of September 30, 2000, the Fund had available for federal tax purposes unused
capital loss carryovers as follows:

<TABLE>
<CAPTION>
EXPIRING
-------------------------------
<S>                 <C>
2006                $ 3,413,515
2007                 24,055,190
2008                  4,438,059
</TABLE>

--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.

--------------------------------------------------------------------------------
CLASSIFICATION OF DIVIDENDS AND 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 dividends and distributions made during the fiscal 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
dividends and 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, 2000, amounts have been reclassified to reflect a
decrease in paid-in capital of $10,433,051, a decrease in undistributed net
investment income of $3,253,636, and a decrease in accumulated net realized loss
on investments of $13,686,687. Net assets of the Fund were unaffected by the
reclassifications.

--------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.

--------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Discount on securities purchased is
accreted 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. Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on payment-in-kind
debt instruments is accrued as income at the coupon rate and a market adjustment
is made periodically.

                     30 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   33

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, 2000      YEAR ENDED SEPTEMBER 30, 1999
                                      SHARES           AMOUNT           SHARES            AMOUNT
------------------------------------------------------------------------------------------------
<S>                              <C>             <C>               <C>              <C>
 CLASS A
 Sold                             17,212,754     $ 74,398,275       11,247,933      $ 48,852,991
 Dividends and/or
 distributions reinvested          1,563,403        6,713,788        1,806,309         7,837,034
 Redeemed                        (18,821,217)     (81,095,353)     (11,446,723)      (49,676,305)
                                 ---------------------------------------------------------------
 Net increase (decrease)             (45,060)    $     16,710        1,607,519      $  7,013,720
                                 ===============================================================

------------------------------------------------------------------------------------------------
 CLASS B
 Sold                              6,037,848     $ 25,959,092        7,369,029      $ 32,003,600
 Dividends and/or
 distributions reinvested          1,114,634        4,770,337        1,549,542         6,704,118
 Redeemed                        (11,704,016)     (50,094,948)      (8,655,920)      (37,435,413)
                                 ---------------------------------------------------------------
 Net increase (decrease)          (4,551,534)    $(19,365,519)         262,651      $  1,272,305
                                 ===============================================================

------------------------------------------------------------------------------------------------
 CLASS C
 Sold                              3,016,468     $ 12,968,071        2,727,759      $ 11,829,225
 Dividends and/or
 distributions reinvested            343,343        1,468,887          450,539         1,948,375
 Redeemed                         (3,708,122)     (15,873,345)      (2,613,007)      (11,347,397)
                                 ---------------------------------------------------------------
 Net increase (decrease)            (348,311)    $ (1,436,387)         565,291      $  2,430,203
                                 ===============================================================
</TABLE>

================================================================================
3.      PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended September 30, 2000, were
$651,136,495 and $676,300,522, respectively.

As of September 30, 2000, unrealized appreciation (depreciation) based on cost
of securities for federal income tax purposes of $231,514,255 was:

<TABLE>
<CAPTION>
<S>                                      <C>
 Gross unrealized appreciation           $  2,930,214
 Gross unrealized depreciation           $(11,212,228)
                                         ------------
 Net unrealized depreciation             $ (8,282,014)
                                         ============
</TABLE>

                     31 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   34

NOTES TO FINANCIAL STATEMENTS Continued

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

MANAGEMENT FEES. 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 of the Fund, 0.72%
of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million and 0.50% of average annual net assets
in excess of $1 billion. The Fund's management fee for the year ended September
30, 2000, was an annualized rate of 0.74%, before any waiver by the Manager if
applicable.

--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund on an
"at-cost" basis. OFS also acts as the transfer and shareholder servicing agent
for the other Oppenheimer funds.

--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.

The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.

<TABLE>
<CAPTION>
                            AGGREGATE        CLASS A      COMMISSIONS      COMMISSIONS     COMMISSIONS
                            FRONT-END      FRONT-END       ON CLASS A       ON CLASS B      ON CLASS C
                        SALES CHARGES  SALES CHARGES           SHARES           SHARES          SHARES
                           ON CLASS A    RETAINED BY      ADVANCED BY      ADVANCED BY     ADVANCED BY
 YEAR ENDED                    SHARES    DISTRIBUTOR   DISTRIBUTOR(1)   DISTRIBUTOR(1)  DISTRIBUTOR(1)
------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>              <C>              <C>             <C>
 September 30, 2000          $255,294        $70,759          $32,659          $551,662        $95,774
</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                      CLASS B                      CLASS C
                          CONTINGENT DEFERRED          CONTINGENT DEFERRED          CONTINGENT DEFERRED
                                SALES CHARGES                SALES CHARGES                SALES CHARGES
 YEAR ENDED           RETAINED BY DISTRIBUTOR      RETAINED BY DISTRIBUTOR      RETAINED BY DISTRIBUTOR
 ----------------------------------------------------------------------------------------------
<S>                                       <C>                     <C>                           <C>
 September 30, 2000                       $--                     $482,771                      $18,769
</TABLE>

        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.

--------------------------------------------------------------------------------
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. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares purchased. 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 of the Fund. For the year ended September 30, 2000, payments
under the Class A plan totaled $277,421 prior to Manager waiver if applicable,
all of which were paid by the Distributor to recipients, and included $14,953
paid to an affiliate of the Manager. Any unreimbursed expenses the Distributor
incurs with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.

                     32 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   35

--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE 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 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. 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 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 asset-based sales charges from the Fund
under the plans. If any 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. The plans
allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.

Distribution fees paid to the Distributor for the year ended September 30, 2000,
were as follows:

<TABLE>
<CAPTION>
                                                                 DISTRIBUTOR'S     DISTRIBUTOR'S
                                                                     AGGREGATE      UNREIMBURSED
                                                                  UNREIMBURSED     EXPENSES AS %
                              TOTAL PAYMENTS  AMOUNT RETAINED         EXPENSES     OF NET ASSETS
                                  UNDER PLAN   BY DISTRIBUTOR       UNDER PLAN          OF CLASS
------------------------------------------------------------------------------------------------
<S>                               <C>                <C>            <C>                     <C>
 Class B Plan                     $1,152,536         $919,820       $5,139,502              5.23%
 Class C Plan                        307,355           82,214          701,203              2.53
</TABLE>

================================================================================
5.      FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.

        The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided by
a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities.

                     33 OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   36
NOTES TO FINANCIAL STATEMENTS Continued

================================================================================
5. FOREIGN CURRENCY CONTRACTS Continued

       The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Realized gains and losses are reported with all
other foreign currency gains and losses in the Statement of Operations.

       Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.


As of September 30, 2000, the Fund had outstanding foreign currency contracts as
follows:

<TABLE>
<CAPTION>
                                                         CONTRACT
                                          EXPIRATION       AMOUNT    VALUATION AS OF     UNREALIZED      UNREALIZED
CONTRACT DESCRIPTION                            DATE        (000s)    SEPT. 30, 2000   APPRECIATION    DEPRECIATION
---------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                <C>           <C>               <C>             <C>
CONTRACTS TO PURCHASE
Japanese Yen (JPY)                  10/5/00-10/26/00   JPY695,798        $ 6,468,529     $       --        $ 31,873
                                                                                       ------------------------------

CONTRACTS TO SELL
Brazilian Real (BRR)                         10/4/00    BRR12,618          6,831,428             --          80,224
British Pound Sterling (GBP)                11/27/00     GBP5,120          7,577,299             --         102,406
Canadian Dollar (CAD)                       10/31/00     CAD6,390          4,250,014          3,860              --
Euro (EUR)                                  10/26/00     EUR6,435          5,686,250             --          14,762
Japanese Yen (JPY)                   10/2/00-9/10/01   JPY416,714          3,918,937         50,050              --
Mexican Nuevo Peso (MXN)                     10/4/00    MXN95,539         10,103,988             --          25,696
South African Rand (ZAR)                    10/19/00    ZAR56,232          7,772,442         49,508              --
                                                                                       ------------------------------
                                                                                            103,418         223,088
                                                                                       ------------------------------
Total Unrealized Appreciation and Depreciation                                           $  103,418        $254,961
                                                                                       ==============================
</TABLE>

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

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Fund may buy and sell futures contracts that relate to
broadly-based securities indices "financial futures" or debt securities
"interest rate futures" in order to gain exposure to or to seek to protect
against changes in market value of stock and bonds or 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 decreases in market value of 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.


                    34  OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   37


       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
and/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, 2000, the Fund had outstanding futures contracts as follows:

<TABLE>
<CAPTION>
                                                                                         UNREALIZED
                                       EXPIRATION    NUMBER OF   VALUATION AS OF       APPRECIATION
CONTRACT DESCRIPTION                         DATE    CONTRACTS    SEPT. 30, 2000     (DEPRECIATION)
------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>         <C>                 <C>
CONTRACTS TO PURCHASE
U.S. Long Bond                           12/19/00           47       $ 4,636,844         $    5,875
                                                                                       ---------------

CONTRACTS TO SELL
Japan (Government of) Bonds, 10 yr.      12/11/00            6         7,353,137            (89,395)
U.S. Treasury Nts., 10 yr.               12/19/00          200        20,043,750            (39,062)
                                                                                       ---------------
                                                                                           (128,457)
                                                                                       ---------------
                                                                                         $ (122,582)
                                                                                       ===============
</TABLE>

================================================================================
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 note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.


                    35  OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   38
NOTES TO FINANCIAL STATEMENTS Continued

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

       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, 2000, was as follows:

<TABLE>
<CAPTION>
                                                CALL OPTIONS                        PUT OPTIONS
                             ---------------------------------------------------------------------
                                  NUMBER OF        AMOUNT OF        NUMBER OF         AMOUNT OF
                                  CONTRACTS         PREMIUMS        CONTRACTS          PREMIUMS
--------------------------------------------------------------------------------------------------
<S>                            <C>                  <C>           <C>                 <C>
Options outstanding as of
September 30, 1999                       --         $     --       52,083,537          $188,728
Options written                 537,007,416          127,135       13,908,815           275,059
Options closed or expired      (537,000,000)         (55,603)     (32,685,000)          (79,631)
Options exercised                    (1,796)         (25,770)     (22,273,537)         (121,791)
Options outstanding as of
September 30, 2000                    5,620          $45,762       11,033,815          $262,365
                             =====================================================================
</TABLE>

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

As of September 30, 2000, 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 also 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 limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of September 30, 2000, was $10,126,957,
which represents 4.46% of the Fund's net assets, of which $74,683 is considered
restricted. Information concerning restricted securities is as follows:

<TABLE>
<CAPTION>
                                                                                         VALUATION
                                                                                    PER UNIT AS OF
SECURITY                                    ACQUISITION DATE    COST PER UNIT       SEPT. 30, 2000
----------------------------------------------------------------------------------------------------
<S>                                         <C>                 <C>                 <C>
BONDS
Tag Heuer International SA, 12% Sr. Sub.
Nts., 12/15/05                                       5/14/96           105.25%              106.69%
</TABLE>


                    36  OPPENHEIMER INTERNATIONAL BOND FUND
<PAGE>   39


================================================================================
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 0.45%. 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 0.08%
per annum.

       The Fund had no borrowings outstanding during the year ended September
30, 2000.

<PAGE>


                                  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 risk appear somewhat larger than
that 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 some time 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 thereby 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 the 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. Such issues 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. Such issues 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.

Con. (...):  Bonds for which the security  depends on the completion of some act
or the fulfillment of some condition are rated conditionally.  These bonds are
secured by (a)  earnings  of  projects  under  construction,  (b)  earnings of
projects  unseasoned  in  operating  experience,  (c) rentals  that begin when
facilities  are  completed,  or (d)  payments  to which  some  other  limiting
condition attaches.  The parenthetical  rating denotes probable credit stature
upon completion of construction or elimination of the basis of the condition.

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 generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category. Advanced refunded
issues that are secured by certain assets are identified with a # symbol.

Short-Term Ratings - Taxable Debt

These ratings apply to the ability of issuers to honor 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 ratios, while sound, may be more
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 the 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.

BB, B, CCC, CC, and C

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  ongoing  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: Bonds rated "B" are more  vulnerable to nonpayment than  obligations  rated
"BB",  but the  obligor  currently  has the  capacity  to meet  its  financial
commitment  on  the  obligation.  Adverse  business,  financial,  or  economic
conditions  will likely impair the obligor's  capacity or  willingness to meet
its financial commitment on the obligation.

CCC:  Bonds  rated  "CCC" are  currently  vulnerable  to  nonpayment,  and are
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:  Bonds rated "CC" are currently highly vulnerable to nonpayment.

C: A subordinated  debt or preferred stock  obligation  rated "C" is currently
highly  vulnerable  to  nonpayment.  The "C"  rating  may be  used to  cover a
situation  where a bankruptcy  petition  has been filed or similar  action has
been taken,  but payments on this obligation are being  continued.  A "C" also
will be  assigned  to a  preferred  stock  issue in  arrears on  dividends  or
sinking fund payments, but that is currently paying.

D: Bonds rated "D" are in default.  Payments on the  obligation  are not being
made on the date due even if the  applicable  grace  period  has not  expired,
unless  Standard and Poor's  believes  that such  payments will be made during
such  grace  period.  The "D"  rating  will also be used upon the  filing of a
bankruptcy  petition  or the  taking of a similar  action  if  payments  on an
obligation are jeopardized.

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: Obligation is 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 obligor's capacity to
meet its financial obligation is extremely 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: Obligation 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: Obligation is 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: Obligation 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.

D: Obligation is in payment default. Payments on the obligation have not been
made on the due date even if the applicable grace period has not expired,
unless Standard and Poor's believes that such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.

Fitch, 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. Securities rated in this category are not
investment grade.

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. The ratings of obligations in this category are
based on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery values
are highly speculative and cannot be estimated with any precision, the
following serve as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding amounts and accrued
interest. "DD" indicates potential recoveries in the range of 50%-90%, and
"D" the lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories.  Plus and minus signs are
not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).

                                                International       Short-Term
Credit Ratings

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

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

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

B:    Speculative. Minimal capacity for timely payment of financial
commitments, 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.

                                    B-1A-1






<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-13


                                  Appendix C


        OppenheimerFunds Special Sales Charge Arrangements and Waivers


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


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

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

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

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

           Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

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

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

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

3.    An "employee benefit plan" means any plan or arrangement, whether or
   not it is "qualified" under the Internal Revenue Code, under which Class A
   shares of an Oppenheimer fund or funds are purchased by a fiduciary or
   other administrator for the account of participants who are employees of a
   single employer or of affiliated employers. These may include, for
   example, medical savings accounts, payroll deduction plans or similar
   plans. The fund accounts must be registered in the name of the fiduciary
   or administrator purchasing the shares for the benefit of participants in
   the plan.
4.    The term "Group Retirement Plan" means any qualified or non-qualified
   retirement plan for employees of a corporation or sole proprietorship,
   members and employees of a partnership or association or other organized
   group of persons (the members of which may include other groups), if the
   group has made special arrangements with the Distributor and all members
   of the group participating in (or who are eligible to participate in) the
   plan purchase Class A shares of an Oppenheimer fund or funds through a
   single investment dealer, broker or other financial institution designated
   by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE
   plans and 403(b) plans other than plans for public school employees. The
   term "Group Retirement Plan" also includes qualified retirement plans and
   non-qualified deferred compensation plans and IRAs that purchase Class A
   shares of an Oppenheimer fund or funds through a single investment dealer,
   broker or other financial institution that has made special arrangements
   with the Distributor enabling those plans to purchase Class A shares at
   net asset value but subject to the Class A contingent deferred sales
   charge.


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

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

      There is no initial sales charge on purchases of Class A shares of any
of the Oppenheimer funds in the cases listed below. However, these purchases
may be subject to the Class A contingent deferred sales charge if redeemed
within 18 months of the end of the calendar month of their purchase, as
described in the Prospectus (unless a waiver described elsewhere in this
Appendix applies to the redemption). Additionally, on shares purchased under
these waivers that are subject to the Class A contingent deferred sales
charge, the Distributor will pay the applicable commission described in the
Prospectus under "Class A Contingent Deferred Sales Charge."4 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 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.5
(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.6
         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.
         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, Class C and Class N 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.7
(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.8
(9)   On account of the participant's separation from service.9
(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, adjusted annually.
           Redemptions of Class B shares under an Automatic Withdrawal Plan
               for an account other than a Retirement Plan, if the aggregate
               value of the redeemed shares does not exceed 10% of the
               account's value, adjusted annually.


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

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


The contingent deferred sales charge is also waived on Class B, Class C and
Class N 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.
|_|       Shares sold to present or former officers, directors, trustees or
         employees (and their "immediate families" as defined above in
         Section I.A.) of the Fund, the Manager and its affiliates and
         retirement plans established by them for their employees.


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

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



<PAGE>


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

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

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

      All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds."  The waivers of initial and contingent
deferred sales charges described in this Appendix apply to shares of an
Oppenheimer fund that are either:


|_|   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 Charge.


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

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


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

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

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


      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.


      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 value, adjusted
            annually, 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.


      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 value; adjusted annually, and

|_|   liquidation of a shareholder's account if the aggregate net asset value
            of shares held in the account is less than the required minimum
            account value.


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



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

The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix)
of the following Oppenheimer funds (each is referred to as a "Fund" in this
section):

o     Oppenheimer U. S. Government Trust,
o     Oppenheimer Bond Fund,
o     Oppenheimer Disciplined Value Fund and
o     Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:

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

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


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


      Those shareholders who are eligible for the prior Class A CDSC are:

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

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


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


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


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

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

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

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


In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B
shares of a Fund into Class A or Class B shares of a Former Connecticut
Mutual Fund provided that the Class A or Class B shares of the Fund to be
redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were
acquired by exchange from an Oppenheimer fund that was a Former Connecticut
Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund
must have been purchased prior to March 18, 1996:


(1)   by the estate of a deceased shareholder;
(2)   upon the disability of a shareholder, as defined in Section 72(m)(7) of
           the Internal Revenue Code;
(3)   for retirement distributions (or loans) to participants or
           beneficiaries from retirement plans qualified under Sections 401(a)
           or 403(b)(7)of the Code, or from IRAs, deferred compensation plans
           created under Section 457 of the Code, or other employee benefit
           plans;

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

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



            VI. Special Reduced Sales Charge for Former Shareholders of

                            Advance America Funds, Inc.

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



         VII. Sales Charge Waivers on Purchases of Class M Shares of

                   Oppenheimer Convertible Securities Fund

Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to
purchase those shares at net asset value without sales charge:

|_|   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
890


PX880.0101


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