Oppenheimer
U.S. Government Trust
Prospectus Dated November 1, 1995
Oppenheimer U.S. Government Trust is a mutual fund with the investment
objective of seeking high current income, preservation of capital and
maintenance of liquidity primarily through investments in debt
instruments issued or guaranteed by the U.S. Government or its agencies
or instrumentalities. The securities the Fund invests in are described
more completely in "Investment Objective and Policies," starting on
page 8.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep
it for future reference. You can find more detailed information about
the Fund in the November 1, 1995 Statement of Additional Information.
For a free copy, call Oppenheimer Shareholder Services, the Fund's
Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at
the address on the back cover. The Statement of Additional Information
has been filed with the Securities and Exchange Commission and is
incorporated into this Prospectus by reference (which means that it is
legally part of this Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
A B O U T T H E F U N D
3 Expenses
5 Brief Overview of the Fund
7 Financial Highlights
10 Investment Objective and Policies
16 How the Fund is Managed
18 Performance of the Fund
ABOUT YOUR ACCOUNT
21 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
33 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
35 How to Sell Shares
By Mail
By Telephone
By Checkwriting
37 How to Exchange Shares
39 Shareholder Account Rules and Policies
40 Dividends, Capital Gains and Taxes
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services,
and those expenses are subtracted from the Fund's assets to calculate
the Fund's net asset value per share. All shareholders therefore pay
those expenses indirectly. Shareholders pay other expenses directly,
such as sales charges and account transaction charges. The following
tables are provided to help you understand your direct expenses of
investing in the Fund and your share of the Fund's business operating
expenses that you will bear indirectly. The calculations are based on
the Fund's expenses during its last fiscal year ended June 30, 1995.
-- Shareholder Transaction Expenses are charges you pay when you
buy or sell shares of the Fund. Please refer to "About Your Account"
from pages 42 through 21 for an explanation of how and when these
charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
on Purchases (as a %
of offering price)
Sales Charge on None None None
Reinvested Dividends
Deferred Sales Charge None(1) 5% in the first 1.0%(2)
(as a % of the lower of year, declining
the original purchase to 1% in the
price or redemption sixth year, and
proceeds) eliminated
thereafter(2)
Redemption Fee(3) None None None
Exchange Fee None None None
</TABLE>
1. If you invest $1 million or more ($500,000 or more for purchases by
OppenheimerFunds prototype 401(k) plans) in Class A shares, you may
have to pay a sales charge of up to 1% if you sell your shares within
18 calendar months from the end of the calendar month in which you
purchased those shares. See "How to Buy Shares - Class A Shares"
below.
2. See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares" below.
3. There is a $10 transaction fee for redemptions paid by Federal Funds
wire, but not for redemption proceeds paid by check, or ACH transfer
through AccountLink, or, with respect to Class A shares only, for which
checkwriting privileges are used (see "How to Sell Shares").
-- Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business. For
example, the Fund pays management fees to its investment adviser,
Oppenheimer Management Corporation (which is referred to in this
Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds the Fund's portfolio securities, audit fees and
legal expenses. Those expenses are detailed in the Fund's Financial
Statements in the Statement of Additional Information.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of
each class of the Fund's shares for that year. The "12b-1 Distribution
Plan Fees" for Class A shares are the service plan fees (the maximum
service fee is 0.25% of average annual net assets of that class), and
for Class B and Class C shares, are the service plan fees of 0.25% and
the asset-based sales charges of 0.75%. These plans are described in
greater detail in "How to Buy Shares."
Class B shares were not publicly offered during the Fund's fiscal
year ended June 30, 1995. Therefore, the Annual Fund Operating
Expenses shown for Class B shares are estimates based on amounts that
would have been payable in that period assuming that Class B shares
were outstanding during that fiscal ear.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Management Fees 0.63% 0.63% 0.63%
12b-1 Distribution
Plan Fees 0.24%(1) 1.00%(2) 1.00%(2)
Other Expenses 0.22% 0.26% 0.26%
Total Fund Operating
Expenses 1.09% 1.89% 1.89%
</TABLE>
-- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the Annual Fund
Operating Expenses table above. If you were to redeem your shares at
the end of each period shown below, your investment would incur the
following expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years(1)
<S> <C> <C> <C> <C>
Class A Shares $58 $81 $105 $174
Class B Shares $69 $89 $122 $181
Class C Shares $29 $59 $102 $221
</TABLE>
If you did not redeem your investment, it would incur the following
expenses:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years(1)
<S> <C> <C> <C> <C>
Class A Shares $58 $81 $105 $174
Class B Shares $19 $59 $102 $181
Class C Shares $19 $59 $102 $221
1. The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your
Class B shares into Class A shares after 6 years. Because of the effect
of the asset-based sales charge and the contingent deferred sales
charge on Class B and Class C shares, long-term Class B and Class C
shareholders could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations. For the
Class B shareholders, the automatic conversion of Class B shares into
Class A is designed to minimize the likelihood that this will occur.
Please refer to "How to Buy Shares" for more information.
These examples show the effect of expenses on an investment, but
are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire
Prospectus before making a decision about investing in the Fund. Keep
the Prospectus for reference after you invest, particularly for
information about your account, such as how to sell or exchange shares.
-- What is The Fund's Investment Objective? The Fund's investment
objective is to seek high current income, preservation of capital and
maintenance of liquidity.
-- What Does the Fund Invest In? The Fund primarily invests in
U.S. Government Securities, and repurchase agreements on such
securities. The Fund may write covered calls and use certain hedging
instruments approved by its Board of Trustees to try to manage
investment risks. U.S. Government Securities that the Fund invests in
include collateralized mortgage obligations ("CMO's") whose payment of
principal and interest generated by the pool of mortgages is passed
through to the Fund. CMO's may be issued in a variety of classes or
series ("tranches") that have different maturities and levels of
volatility. The Fund may also invest in "stripped" CMO's or mortgage-
backed securities. Stripped mortgage-backed securities usually have
two classes that receive different proportions of the interest and
principal payments. In certain cases, one class will receive all of
the interest payments, while the other class will receive all of the
principal value on maturity. These investments are more fully
explained in "Investment Objective and Policies," starting on page 11.
-- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer Management Corporation. The Manager
(including a subsidiary) manages investment company portfolios having
over $38 billion in assets at September 30, 1995. The Fund's portfolio
manager, David A. Rosenberg, is a Vice President of the Manager and is
the person primarily responsible for the selection of the Fund's
securities. The Manager is paid an advisory fee by the Fund, based on
the Fund's net assets. The Fund's Board of Trustees, elected by
shareholders, oversees the investment adviser and the portfolio
manager. Please refer to "How the Fund is Managed," starting on page
16 for more information about the Manager and its fees.
-- How Risky is the Fund? Although U.S. Government Securities
involve little credit risk, their values will fluctuate depending on
prevailing interest rates. When prevailing interest rates fall, the
values of already-issued debt securities generally rise. When interest
rates rise, the values of already-issued debt securities generally
decline. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term securities. While the
Manager tries to reduce risks by diversifying investments, by carefully
researching securities before they are purchased for the portfolio, and
in some cases by using hedging techniques, there is no guarantee of
success in achieving the Fund's objective and your shares may be worth
more or less than their original cost when you redeem them. Please
refer to "Investment Objective and Policies" starting on page 10 for a
more complete discussion of the Fund's investment risks.
-- How Can I Buy Shares? You can buy shares through your dealer
or financial institution, or you can purchase shares directly through
the Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page 21 for more details.
-- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. Each class has the same investment portfolio, but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 4.75%, and reduced for larger purchases. Class B
shares and Class C shares are offered without a front-end sales
charges, but may be subject to a contingent deferred sales charge if
redeemed within 6 years or 12 months, respectively, of purchase. There
is also an annual asset-based sales charge on Class B and Class shares.
Please review "How To Buy Shares" starting on page 21 for more details,
including a discussion about factors you and your financial advisor
should consider in determining which class may be appropriate for you.
-- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through
your dealer or by writing a check against your current account
(available for Class A shares only). Please refer to "How To Sell
Shares" on page 35. The Fund also offers exchange privileges to other
Oppenheimer funds, described in "How to Exchange Shares" on page 37.
-- How Has the Fund Performed? The Fund measures its performance
by quoting a yield, dividend yield, average annual total return and
cumulative total return, which measure historical performance. Those
returns can be compared to the yields and total returns (over similar
periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The Fund's performance
can also be compared to U.S. Government bond indices, which we have
done on page 20. Please remember that past performance does not
guarantee future results.
Financial Highlights
Effective August 16, 1985, the Fund became a long-term government
securities fund which has a fluctuating net asset value per share.
Prior to that date, the Fund invested only in short-term (maturing in
one year or less) U.S. Government Securities and maintained a fixed net
asset value of $1.00 per share. The table on the following pages
presents selected financial information about the Fund, including per
share data and expense ratios and other data based on the Fund's
average net assets. This information has been audited by KPMG Peat
Marwick LLP, the Fund's independent auditors, whose report on the
Fund's financial statements for the fiscal year ended June 30, 1995, is
included in the Statement of Additional Information. Class B shares
were not publicly offered during the periods shown. Accordingly, no
information on Class B shares is included in the tables below or in the
Fund's other financial statements for the fiscal year ended June 30,
1995.
<PAGE>
FINANCIAL HIGHLIGHTS
</TABLE>
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77 $10.17
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .68 .67 .68 .69 .83 .90 .91 .90 .84
Net realized and unrealized gain (loss)
on investments and options written .31 (.74) .22 .48 .02 (.32) (.05) (.18) (.33)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total income (loss) from investment
operations .99 (.07) .90 1.17 .85 .58 .86 .72 .51
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.68) (.64) (.68) (.69) (.84) (.88) (.91) (.90) (.85)
Dividends in excess of net
investment income -- (.01) -- -- -- -- -- -- --
Distributions from net realized gain
on investments and options written -- -- -- -- -- -- -- -- (.06)
Tax return of capital distribuiton -- (.03) -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ------
Total dividends and distributions
to shareholders (.68) (.68) (.68) (.69) (.84) (.88) (.91) (.90) (.91)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.51 $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77
----- ----- ----- ----- ----- ----- ----- ----- ------
----- ----- ----- ----- ----- ----- ----- ----- ------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 11.22% (1.17)% 9.55% 13.05% 9.53% 6.34%
9.51% 7.78% 5.54%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $312,607 $310,027 $380,916 $395,863 $342,220 $264,728 $232,593 $203,857
$216,306
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $307,306 $355,698 $401,789 $376,532 $299,144 $253,085 $210,060 $197,834
$207,557
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 32,871 33,685 38,279 40,697 36,987 28,650 24,393 21,252
22,146
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.32% 6.61% 6.90% 7.23% 8.93% 9.60% 9.65% 9.36%
8.73%
Expenses 1.09% 1.14% 1.17% 1.17% 1.19% 1.16% 1.19% 1.13%
.99%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 303.5% 139.5% 96.8% 207.8% 133.9% 125.5% 76.9% 141.3%
263.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from August 16, 1985 to June 30, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$1,035,761,462 and $1,044,224,644, respectively.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund's investment objective is to seek high current
income, preservation of capital and maintenance of liquidity through
investments in debt instruments issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government
Securities").
Investment Policies and Strategies. The Fund seeks its investment
objective by investing primarily in U.S. Government Securities and
repurchase agreements on such securities. U.S. Government Securities
include the following:
-- U.S. Treasury Obligations. These include Treasury Bills (which
have maturities of one year or less when issued), Treasury Notes (which
have maturities of two to ten years when issued) and Treasury Bonds
(which have maturities generally greater than ten years when issued).
U.S. Treasury obligations are backed by the full faith and credit of
the United States.
-- Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These are obligations supported by any of the
following: (a) the full faith and credit of the U.S. Government, such
as Government National Mortgage Association ("Ginnie Mae") modified
pass-through certificates as described below, (b) the right of the
issuer to borrow an amount limited to a specific line of credit from
the U.S. Government, such as bonds issued by Federal National Mortgage
Association ("Fannie Mae"), (c) the discretionary authority of the U.S.
Government to purchase the obligations of the agency or
instrumentality, or (d) the credit of the instrumentality, such as
obligations of Federal Home Loan Mortgage Corporation ("Freddie Mac").
Securities of U.S. Government agencies and instrumentalities that are
supported by the discretionary authority of the U.S. Government to
purchase such securities and which the Fund may purchase under (c)
above include: Federal Land Banks, Farmers Home Administration,
Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Freddie Mac and Fannie Mae.
-- Mortgage-Backed Securities. Also known as pass-through
securities, the homeowner's principal and interest payments pass from
the originating bank or savings and loan through the appropriate
governmental agency to investors, net of service charges. These pass-
through securities include participation certificates of Ginnie Mae,
Freddie Mac and Fannie Mae.
The Statement of Additional Information contains additional
information on U.S. Government Securities. The effective maturity of a
mortgage-backed security may be shortened by unscheduled or early
payment of principal and interest on the underlying mortgages, which
may affect the effective yield of such securities. The principal that
is returned may be invested in instruments having a higher or lower
yield than the prepaid instruments depending on then-current market
conditions. Such securities therefore may be less effective as a means
of "locking in" attractive long-term interest rates and may have less
potential for appreciation during periods of declining interest rates
than conventional bonds with comparable stated maturities. If the Fund
buys mortgage-backed securities at a premium, prepayments of principal
and foreclosures of mortgages may result in some loss of the Fund's
principal investment to the extent of the premium paid.
As a matter of fundamental policy, the Fund will invest at least
80% of its total assets in U.S. Government Securities, under normal
market conditions. The Fund expects that any investments in debt
securities other than U.S. Government Securities will be limited to
debt securities rated within the four highest rating categories of
Moody's Investors Service, Inc. or Standard & Poor's Corporation, or,
if unrated, judged by the Manager to be of comparable quality to debt
securities rated within such grades, although it is not a fundamental
policy that it do so. Such ratings are known as "investment grade"
ratings. The Fund is not obligated to dispose of securities if the
rating is reduced below investment grade. There is the increased
credit risk potential that issuers other than the U.S. Government or
its agencies or instrumentalities may not be able to make interest or
principal payments as they become due.
The Fund may invest in collateralized mortgage obligations
("CMOs") that are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, or that are collateralized by a
portfolio of mortgages or mortgage-related securities guaranteed by
such an agency or instrumentality. Payment of the interest and
principal generated by the pool of mortgages is passed through to the
holders as the payments are received by the issuer of the CMO. CMOs
may be issued in a variety of classes or series ("tranches") that have
different maturities. The principal value of certain CMO tranches may
be more volatile than other types of mortgage-related securities,
because of the possibility that the principal value of the CMO may be
prepaid earlier than the maturity of the CMO as a result of prepayments
of the underlying mortgage loans by the borrowers.
The Fund may invest in "stripped" mortgage-backed securities or
CMOs or other such securities issued by agencies or instrumentalities
of the U.S. Government. Stripped mortgage-backed securities usually
have two classes. The classes receive different proportions of the
interest and principal distributions on the pool of mortgage assets
that act as collateral for the security. In certain cases, one class
will receive all of the interest payments (and is known as an "I/O"),
while the other class will receive all of the principal value (and is
known as a "P/O").
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the Fund
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall,
and in times of rapidly falling interest rates, the Fund might receive
back less than its investment.
As with other bond investments, the value of U.S. Government
Securities and mortgage-backed securities will tend to rise when
interest rates fall and to fall when interest rates rise. The value of
mortgage-backed securities may also be affected by changes in the
market's perception of the creditworthiness of the entity issuing or
guaranteeing them or by changes in government regulations and tax
policies. Because of these factors, the Fund's share value and yield
are not guaranteed and will fluctuate, and there can be no assurance
that the Fund's objective will be achieved. The magnitude of these
fluctuations generally will be greater when the average maturity of the
Fund's portfolio securities is longer. Because the yields on U.S.
Government Securities are generally lower than on corporate debt
securities, the Fund may attempt to increase the income it can earn
from U.S. Government Securities by writing covered call options against
them, when market conditions are appropriate. Writing covered call
options is explained below, under "Other Investment Techniques and
Strategies."
The Fund may enter into "forward roll" transactions with banks or
other buyers that provide for future delivery of mortgage-backed
securities in which the Fund may invest. The Fund would be required to
identify cash, U.S. Government securities or other high-grade debt
securities to its custodian bank in an amount equal to its purchase
payment obligation under the roll.
-- Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." U.S. Government Securities may
be purchased or sold without regard to the length of time they have
been held, to attempt to take advantage of short-term differentials in
yields. While short-term trading increases portfolio turnover, the
Fund incurs little or no brokerage costs for U.S. Government
Securities. High portfolio turnover may affect the ability of the Fund
to qualify as a "regulated investment company" under the Internal
Revenue Code to obtain tax deductions for dividends and distributions
paid to shareholders. The Fund qualified in its last fiscal year and
intends to do so in the coming year, although it reserves the right not
to qualify.
-- Can the Fund's Investment Objective and Policies Change? The
Fund has an investment objective, described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and practices are not "fundamental" unless this
Prospectus or the Statement of Additional Information says that a
particular policy is "fundamental." The Fund's investment objective is
a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's Board
of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments
to this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more detailed information about these practices, including limitations
on their use that may help to reduce some of the risks.
-- Loans of Portfolio Securities. To attempt to increase its
income or to raise cash for liquidity purposes, the Fund may lend its
portfolio securities other than in repurchase transactions to brokers,
dealers and other financial institutions. The Fund must receive
collateral for a loan. These loans are limited to not more than 25% of
the Fund's total assets and are subject to certain other conditions
described in the Statement of Additional Information. The Fund
presently intends that the value of securities loaned will not exceed
5% of the value of the Fund's total assets in the coming year. See
"Loans of Portfolio Securities" in the Statement of Additional
Information on securities loans.
-- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less. The Fund will
not enter into a repurchase agreement that will cause more than 10% of
its net assets to be subject to repurchase agreements having a maturity
beyond seven days. Repurchase agreements must be fully collateralized.
However, if the vendor fails to pay the resale price on the delivery
date, the Fund may experience costs in disposing of the collateral and
may experience losses if there is any delay in doing so.
-- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and options
on futures, or enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of
them, described below. The hedging instruments the Fund may use are
described below and in greater detail in "Other Investment Techniques
and Strategies" in the Statement of Additional Information.
The Fund may buy and sell options and futures for a number of
purposes. It may 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 may do so to try
to manage its exposure to changing interest rates. Some of these
strategies, such as selling futures, buying puts and writing covered
calls, hedge the Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options
and writing put options, tend to increase the Fund's exposure to the
securities market as a temporary substitute for purchasing securities.
Writing put options or covered call options may also provide income to
the Fund for liquidity purposes or raise cash for the Fund to
distribute to shareholders.
-- Futures. The Fund may buy and sell futures contracts that
relate to interest rates (these are referred to as Interest Rate
Futures). Interest Rate Futures are described in "Hedging With Options
and Futures Contracts" in the Statement of Additional Information.
-- Put and Call Options. The Fund may buy and sell certain kinds
of put options (puts) and call options (calls).
The Fund may buy calls only on securities or Interest Rate
Futures, or to terminate its obligation on a call the Fund previously
wrote. The Fund may write (that is, sell) covered call options. When
the Fund writes a call, it receives cash (called a premium). The call
gives the buyer the ability to buy the investment on which the call was
written from the Fund at the call price during the period in which the
call may be exercised. If the value of the investment does not rise
above the call price, it is likely that the call will lapse without
being exercised, while the Fund keeps the cash premium (and the
investment).
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a
seller of a put on that investment. The Fund can buy only those puts
that relate to (1) securities that the Fund owns, or (2) Interest Rate
Futures. The Fund can buy a put on an Interest Rate Future whether or
not the Fund owns the particular Future in its portfolio. The Fund may
write puts on securities or Interest Rate Futures in an amount up to
50% of its total assets only if such puts are covered by segregated
liquid assets. In writing puts, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, the Fund may
write calls on up to 100% of its total assets if the calls are listed
on a domestic securities or commodities exchange or quoted on the
Automated Quotation System of the National Association of Securities
Dealers, Inc. (NASDAQ); the limit is 10% of the Fund's total assets for
calls that are not listed or quoted; (2) calls the Fund buys or sells
must be listed on a securities or commodities exchange, or quoted on
NASDAQ or, in the case of debt securities, traded in the over-the-
counter market; (3) each call the Fund writes must be "covered" while
it is outstanding: that means the Fund must own the investment on which
the call was written or it must own other securities that are
acceptable for the escrow arrangements required for calls; (4) the Fund
may write calls on Futures contracts it owns, but these calls must be
covered by securities or other liquid assets the Fund owns and
segregates to enable it to satisfy its obligations if the call is
exercised; and (5) a call or put option may not be purchased if the
value of all of the Fund's put and call options would exceed 5% of the
Fund's total assets.
-- Interest Rate Swaps. 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 may swap a right to
receive floating rate payments for fixed rate payments. The Fund
enters into swaps only on securities it owns. The Fund may not enter
into swaps with respect to more than 25% of its total assets. Also,
the Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount
daily, as needed. Income from interest rate swaps may be taxable.
-- Hedging instruments can be volatile investments and may
involve special risks. In the broadest sense, exchange-traded options
and futures contracts and other hedging instruments the Fund can use
may be defined as "derivative" investments. In general, a derivative
investment is a specially-designed investment whose performance is
linked to the performance of another investment or security. The use
of hedging instruments requires special skills and knowledge of
investment techniques that are different from 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 or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. If a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required
to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the
call price. Interest rate swaps are subject to credit risks (if the
other party fails to meet its obligations) and also to interest rate
risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate
changes. These risks are described in greater detail in the Statement
of Additional Information.
-- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." The Fund may use some
types of derivatives for hedging purposes, and may invest in others
because they offer the potential for increased income and principal
value. In general, a "derivative investment" is a specially-designed
investment whose performance is linked to the performance of another
investment or security, such as an option future or index. In the
broadest sense, derivative investments include exchange-traded options
and futures contracts (please refer to "Hedging," above).
One risk of investing in derivative investments is that the
company issuing the instrument might not pay the amount due on the
maturity of the instrument. There is also the risk that the underlying
investment or security might not perform the way the Manager expected
it to perform. The performance of derivative investments may also be
influenced by interest rate changes in the U.S. and abroad. All of
these risks can mean that the Fund will realize less income than
expected from its investments, or that it can lose part of the value of
its investments, which will affect the Fund's share price. Certain
derivative investments held by the Fund may trade in the over-the-
counter markets and may be illiquid. If that is the case, the Fund's
investment in them will be limited as discussed in the following
paragraph.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these fundamental
policies, the Fund cannot do any of the following:
-- make loans; however, the purchase of debt securities which the
Fund's investment policies and restrictions permit it to purchase,
whether or not subject to repurchase agreements, is permitted; the Fund
may also lend securities as described under "Loans of Portfolio
Securities";
-- borrow money in excess of 10% of the value of its assets (and
then only as a temporary measure for extraordinary or emergency
purposes) or make any investment at a time during which such borrowing
exceeds 5% of the value of its assets; no assets of the Fund may be
pledged, mortgaged or hypothecated to secure a debt; the escrow
arrangements involved in options trading are not considered to involve
such a mortgage, hypothecation or pledge; or
-- enter into repurchase agreements maturing in more than seven
days, or invest in securities which are restricted as to resale,
securities which are not readily convertible to cash ("illiquid
securities") or securities for which market quotations are not readily
available if more than 10% of the Fund's total assets would be invested
in such securities.
All of the percentage restrictions described above and elsewhere
in this Prospectus apply only at the time the Fund purchases a
security, and the Fund need not dispose of a security merely because
the Fund's assets have changed or the security has increased in value
relative to the size of the Fund. There are other fundamental policies
discussed in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1982 as a
Massachusetts business trust. The Fund is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible
under Massachusetts law for protecting the interests of shareholders.
The Trustees meet periodically throughout the year to oversee the
Fund's activities, review its performance, and review the actions of
the Manager. "Trustees and Officers of the Fund" in the Statement of
Additional Information names the Trustees and provides more information
about them and the officers of the Fund. Although the Fund is not
required by law to hold annual meetings, 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.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has three classes of shares,
Class A, Class B and Class C. All classes invest in the same
investment portfolio. Each class has its own dividends and
distributions and pays certain expenses which may be different for the
different classes. Each class may have a different net asset value.
Each share has one vote at shareholder meetings, with fractional shares
voting proportionally on matters submitted to the vote of shareholders.
Shares of each class may have separate voting rights on matters in
which interests of one class are different from interests of another
class, and shares of a particular class vote as a class on matters that
affect that class alone. Shares are freely transferrable. Please
refer to "How the Fund is Managed" in the Statement of Additional
Information on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting
the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by
the Board of Trustees, under an Investment Advisory Agreement which
states the Manager's responsibilities and its fees. The agreement sets
forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995, and with more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
-- Portfolio Manager. The Portfolio Manager of the Fund (who is
also a Vice President of the Fund) is David A. Rosenberg, a Vice
President of the Manager. He has been the person principally
responsible for the day-to-day management of the Fund's portfolio since
January 3, 1994. Mr. Rosenberg also serves as a portfolio manager of
other Oppenheimer funds. Previously he was an officer and portfolio
manager for Delaware Investment Advisors and for one of its mutual
funds.
-- Fees and Expenses. Under the investment advisory agreement,
the Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.65% of the first $200 million
of aggregate net assets, 0.60% of the next $100 million; 0.57% of the
next $100 million, 0.55% of the next $400 million, and 0.50% of
aggregate net assets over $800 million.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal 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. More information about the
Investment Advisory Agreement and the other expenses paid by the Fund
is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. Because the Fund
purchases most of its portfolio securities directly from the sellers
and not through brokers, it therefore incurs relatively little expenses
for brokerage. From time to time it may use brokers when buying
portfolio securities. When deciding which brokers to use, the Manager
is permitted by the investment advisory agreement to consider whether
brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment adviser.
-- The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with Oppenheimer Funds
Distributor, Inc., a subsidiary of the Manager that acts as the
Distributor. The Distributor also distributes the shares of the other
Oppenheimer funds and is sub-distributor for funds managed by a
subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund on an "at-cost" basis. It
also acts as the 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 number shown below in
this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return" and "yield" to illustrate its performance. The performance of
each class of shares is shown separately because each class of shares
will usually have different performance as a result of the different
kinds of expenses each class bears. These 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 (which
will vary if dividends are received in cash, or shares are sold or
purchased). The Fund's performance data may help you see how well your
investment has done over time and to compare it to other funds or
market indices.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns
and yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to
measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the
composition of the portfolio, expenses and which class of shares you
purchase.
-- Total Returns. There are different types of "total returns"
used 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. 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
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, they include the
payment of the maximum initial sales charge. When total returns are
shown for Class B and Class C shares, they include the effect of the
contingent deferred sales charge that applies to the period for which
total return is shown. Total returns may also be quoted at "net asset
value," without including the effect of either the front-end or the
appropriate contingent deferred sales charge, as applicable, and those
returns would be reduced if sales charges were deducted.
-- Yield. Each class of shares calculates its yield by dividing
the annualized net investment income per share on the portfolio during
a 30-day period by the maximum offering price on the last day of the
period. The yield of each class will differ because of the different
expenses of each class of shares. The yield data represents a
hypothetical investment return on the portfolio, and does not measure
an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a class derived from
net investment income during a stated period by the maximum offering
price on the last day of the period. Yields and dividend yields for
Class A shares reflect the deduction of the maximum initial sales
charge, but may also be shown based on the Fund's net asset value per
share. Yields for Class B and Class C shares do not reflect the
deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended June 30, 1995,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
-- Management's Discussion of Performance. Between February, 1994
and February, 1995, the Federal Reserve aggressively raised interest
rates to attempt to prevent an increase in the rate of inflation.
During the last eight months of the Fund's fiscal year ended June 30,
1995, the Manager reduced the average maturity of the U.S. Treasury
securities held by the Fund and invested in adjustable rate mortgages
in the belief they offered prospects for increasing short-term yields
with relatively low risk of volatility. From February, 1995 through
June 30, 1995, general interest rates declined and prices of
outstanding bonds increased. The Manager responded by reducing the
Fund's investments in fixed-rate mortgage-backed securities because of
the risk of increased prepayments, and positioned the portfolio to
reflect overall a combination of U.S. Treasuries of very short and very
long maturities to seek an intermediate average portfolio maturity, and
to try to take advantage of a flattening yield curve.
-- Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in
Class A and Class C shares of the Fund held until June 30, 1995; in the
case of Class A shares, since August 16, 1985 (the date on which the
Fund's investment objective was changed), and in the case of Class C
shares, from the inception of the Class on December 1, 1993. In both
cases all dividends and capital gains distributions were reinvested in
additional shares. The graph reflects the deduction of the 4.75%
current maximum initial sales charge on Class A shares and the 1.0%
contingent deferred sales charge on Class C shares during the first
year. Class B shares were not publicly offered during the Fund's
fiscal year ended June 30, 1995. Accordingly, no performance
information is presented on Class B shares in the graphs below.
The Fund's performance is compared to the performance of the
Lehman Brothers U.S. Government Bond Index, an unmanaged index
including all U.S. Treasury issues, publicly-issued debt of U.S.
Government agencies and quasi-public corporations and U.S. Government
guaranteed corporate debt, and is widely regarded as a measure of the
performance of the U.S. Government bond market. Index performance
reflects the reinvestment of dividends but does not consider the effect
of capital gains or transaction costs, and none of the data above shows
the effect of taxes. Also, the Fund's performance reflects the effect
of Fund business and operating expenses. While index comparisons may
be useful to provide a benchmark for the Fund's performance, it must be
noted that the Fund's investments are not limited to the securities in
any one index. Moreover, the index data does not reflect any
assessment of the risk of the investments included in the index.
Comparison of Change in Value
of a $10,000 Hypothetical Investment in
Oppenheimer U.S. Government Trust
and the Lehman Brothers U.S. Government Bond Index
[Graph With Class A Shares Of The Fund]
[Graph With Class C Shares Of The Fund]
Past performance is not predictive of future performance.
Average Annual Total Returns of Class A Shares Of The Fund at 6/30/95(1)
1-Year 5-Year Life
5.94% 7.27% 8.00%
Average Annual Total Return of Class C Shares Of The Fund at 6/30/95(2)
1-Year Life
9.31% 4.22%
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes
of shares. The different classes of shares represent investments in the
same portfolio of securities but are subject to different expenses and
will likely have different share prices.
-- Class A Shares. If you buy Class A shares, you pay an initial
sales charge on investments up to $1 million (up to $500,000 for
purchases by OppenheimerFunds prototype 401(k) plans.) If you purchase
Class A shares as part of an investment of at least $1 million
($500,000 for Oppenheimer funds prototype 401(k) plans) in shares of
one or more Oppenheimer funds, you will not pay an initial sales charge
but if you sell any of those shares within 18 months of buying them,
you may pay a contingent deferred sales charge. The amount of that
sales charge will vary depending on the amount you invested. Sales
charge rates are described in "Buying Class A Shares" below.
-- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. It is described
below.
-- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred
sales charge of 1%.
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 better suited to your needs depends on a number of factors
which you should discuss with your financial advisor. 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 most important factors 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.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we have
made some assumptions using a hypothetical investment in the Fund. We
used the sales charge rates that apply to each class, and considered
the effect of the asset-based sales charge on Class B and Class C
expenses (which, like all expenses, will affect your investment
return). For the sake of comparison, we have assumed that there is a
10% rate of appreciation in your investment each year. Of course, the
actual performance of your investment cannot be predicted and will
vary, based on the Fund's actual investment returns, and the operating
expenses borne by each class of shares, and which class of shares you
invest in. The factors discussed below are not intended to be
investment advice, guidelines or recommendations, because each
investor's financial considerations are different. The discussion
below of the factors to consider in purchasing a particular class of
shares assumes that you will purchase only one class of shares, and not
a combination of shares of different classes.
-- 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 (which reduces the amount of
your investment dollars used to buy shares for your account), compared
to the effect over time or higher class-based expenses on the shares of
Class B or Class C for which no initial sales charge is paid.
-- Investing for the Short Term. If you have a 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, because of the effect of the
Class B contingent deferred sales charge if you redeem in less than 7
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 the more you invest and the more 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 economic impact on your account
over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares. For example, Class A might be
more advantageous than Class C (as well as Class B) for investments of
more than $100,000 expected to be held for 5 or 6 years (ore more),
Class A shares may become more advantageous than class C (and B). If
investing $500,000 ore more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for most 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 $1
million or more of Class B or Class C shares, respectively, from a
single investor.
-- Investing for the Longer Term. If you are investing 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 an
appropriate consideration, if you plan to invest less than $100,000.
If you plan o invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or C
shares, as discussed above, because of the effect of the expected lower
expenses for Class A shares and the reduced initial sales charge
available for larger investments in Class A shares under the Fund's
Right of Accumulation.
Of course all of these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return
stated above, and you should analyze your options carefully.
-- Are There Differences in Account Features That Matter to You?
Because some features (such as checkwriting) may not be available to
Class B or C shareholders, or other features (such as Automatic
Withdrawal Plans) may not be advisable (because of the effect of the
contingent deferred sales charge in non-retirement accounts) for Class
B or Class C shareholders, you should carefully review how you plan to
use your investment account before deciding which class of shares to
buy. For example, share certificates are not available for Class B or
Class C shares and if you are considering using your shares as
collateral for a loan, this may be a factor to consider. Additionally,
dividends payable to Class B and Class C shareholders will be reduced
by the additional expenses borne by those classes that are not borne by
Class A, such as the Class B and Class C asset-based sales charges
described below and in the Statement of Additional Information.
-- How Does It Affect Payments to My Broker? A salesperson, such
as a broker, or any other person who is entitled to receive
compensation for selling Fund shares, may receive different
compensation for selling one class than for selling another class. It
is important that investors understand that the purpose of the Class B
and Class C contingent deferred sales charges and asset-based sales
charges are the same as the purpose of the front-end sales charge on
sales of Class A shares: to reimburse the Distributor for commissions
it pays to dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any
time with as little as $25. There are reduced minimum investments under
special investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments for as little as $25; and subsequent purchases
of at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as
$250 (if your IRA is established under an Asset Builder Plan, the $25
minimum applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying
shares by 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
by reinvesting distributions from unit investment trusts that have made
arrangements with the Distributor.
-- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan
under the OppenheimerFunds AccountLink service. When you buy shares, be
sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
-- Buying Shares Through Your Dealer. 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 "Oppenheimer Funds 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 first
with a financial advisor, to be sure it is appropriate for you.
-- Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing House
(ACH) member to transmit funds electronically to purchase shares, to
have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to initiate
the ACH transfer to buy shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the application or
dealer settlement instructions used to establish your account. Please
refer to "AccountLink" below for more details.
-- 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 on the Application and in the
Statement of Additional Information.
-- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your
order by the time of day The New York Stock Exchange closes, which is
normally 4:00 P.M., but may be earlier on some days (all references to
time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day, and transmit it to the Distributor so that it is received before
the Distributor's close of business that day, which is normally 5:00
P.M. The Distributor in its sole discretion may reject any purchase
order for the Fund's shares.
Buying 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, where purchases are not
subject to an initial sales charge, the offering price may be net asset
value. In some cases, reduced sales charges may be available, as
described below. 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 and allocated to your dealer.
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 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 $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
-- 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 in the following cases:
-- purchases aggregating $1 million or more, or
-- purchases by an OppenheimerFunds prototype 401(k) plan that:
(1) buys shares costing $500,000 or more, or (2) has, at the time of
purchase, 100 more eligible participants, or (3) certifies that it
projects to have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class
of shares that has no designation are considered "Class A shares" for
this purpose. The Distributor pays dealers of record commissions on
those purchases in an amount equal to the sum of 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. That commission will be paid only on the amount of
those purchases in excess of $1 million ($500,000 for purchases by
OppenheimerFunds 401(k) prototype plans) that were not previously
subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of
the calendar month of their purchase, a contingent deferred sales
charge (called the "Class A contingent deferred sales charge") will be
deducted from the redemption proceeds. That sales charge will be equal
to 1.0% either (1) of the aggregate net asset value of the redeemed
shares (not including shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original cost of the shares,
whichever is less. However, the Class A contingent deferred sales
charge will not exceed the aggregate commissions the Distributor paid
to your dealer on all Class A shares of all Oppenheimer funds you
purchased subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to the
sales charge, including shares purchased by reinvestment of dividends
and capital gains, and then will redeem other shares in the order that
you purchased them. The Class A contingent deferred sales charge is
waived in certain cases described in "Waivers of Class A Sales Charges"
below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase of
the exchanged shares, the sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have established
special arrangements with the Distributor for Asset Builder Plans for
their clients. Dealers whose sales of Class A shares of Oppenheimer
funds (other than money market funds) under OppenheimerFunds-sponsored
403(b)(7) custodial plans exceed $5 million per year (calculated per
quarter), will receive monthly one-half of the Distributor's retained
commissions on those sales, and if those sales exceed $10 million per
year, those dealers will receive the Distributor's entire retained
commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of
the following ways:
-- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and Class B shares you purchase for
your individual accounts, or jointly, or for trust or custodial
accounts on behalf of your children who are minors. 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.
Additionally, you can add together current purchases of Class A
and Class B shares of the Fund and other Oppenheimer funds. To reduce
the sales charge rate for current purchases of Class A shares, you can
also include Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial 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. The value of those shares will be based on the
greater of the amount you paid for the shares or their current value
(at offering price). The Oppenheimer funds are listed in "Reduced
Sales Charges" in the Statement of Additional Information, or a list
can be obtained from the Distributor. The reduced sales charge will
apply only to current purchases and must be requested when you buy your
shares.
Shareholders of the Fund who acquired (and still hold) Fund shares
as a result of a reorganization of the Fund with Advance America Funds,
Inc. on October 18, 1991, and who held shares of Advance America Funds,
Inc. on March 30, 1990, may purchase shares of the Fund at a maximum
sales charge of 4.50%
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares or Class A shares 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 purchase 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. This can include purchases made
up to 90 days before the date of the Letter. More information is
contained in the Application and in "Reduced Sales Charges" in the
Statement of Additional Information.
-- Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the Statement
of Additional Information.
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:
-- the Manager or its affiliates;
-- present or former officers, directors, trustees and employees
(and their "immediate families" as defined in "Reduced Sales Charges"
in the Statement of Additional Information) of the Fund, the Manager
and its affiliates, and retirement plans established by them for their
employees;
-- 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
are identified 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 or registered investment advisers 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 or adviser on the purchase or
sale of Fund shares); or
-- dealers, brokers 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 administrative services.
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 Class A sales charges:
-- 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 loan repayments by a
participant in a retirement plan for which the Manager or its
affiliates acts as sponsor;
-- 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; or
-- shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months 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 your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver.
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:
-- for retirement distribution or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation
plans or other employee benefit plans, including OppenheimerFunds
prototype 401(k) plans (these are all referred to as "Retirement
Plans); or
-- to return excess contributions made to Retirement Plans; or
-- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
-- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below);
-- if, at the time a purchase order is placed for Class A shares
that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the
commission per month (and no further commission will be payable if the
shares are redeemed within 18 months of purchase); or
-- for distributions from OppenheimerFunds prototype 401(k) plans
for any of the following cases or 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) hardship withdrawals, as
defined in the plan; (3) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (4) to meet the minimum
distribution requirements of the Internal Revenue Code; (5) to
establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code, or (6) separation from
service.
-- Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal service
and maintenance of accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% of the
average annual net assets of Class A shares of the Fund. The
Distributor uses all of those fees to compensate dealers, brokers,
banks and other financial institutions quarterly for providing personal
service and maintenance of accounts of their customers that hold Class
A shares and to reimburse itself (if the Fund's Board of Trustees
authorizes such reimbursements, which it has not yet done) for its
other expenditures under the Plan.
Services to be provided 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.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details,
please refer to "Distribution and Service Plans" in the Statement of
Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of
dividends or capital gains distributions. The charge will be assessed
on the lesser of the net asset value of the shares at the time of
redemption or the original purchase price. The contingent deferred
sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of
dividends and capital gains distributions). The Class B contingent
deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 6 years, and (3) shares held
the longest during the 6-year period. The contingent deferred sales
charge is not imposed in the circumstances described in "Waivers of
Class B and Class C Sales Charges" below.
The amount of the contingent deferred sales charge will depend on
the number of years since you invested and the dollar amount being
redeemed, according to the following schedule:
Years Since Contingent Deferred Sales Charge
Beginning of Month In on Redemptions in that Year
Which 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. 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. 72 months after you
purchase Class B shares, those shares will automatically convert to
Class A shares. This conversion feature relieves Class B shareholders
of the asset-based sales charge that applies to Class B shares under
the Class B Distribution and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares
will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in "Alternative
Sales Arrangements - Class A, Class B and Class C Shares" in the
Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund
has adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares
that are outstanding for 6 years or less. The Distributor also
receives a service fee of 0.25% per year. Both fees are computed on
the average annual net assets of Class B shares, determined as of the
close of each regular business day. The asset-based sales charge allows
investors to buy Class B shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell Class B
shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The asset-based sales charge and service fees
increase Class B expenses by 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance
for the first year after Class B shares have been sold by the dealer.
After the shares have been held for a year, the Distributor pays the
fee on a quarterly basis. The Distributor pays sales commissions of
3.75% of the purchase price to dealers from its own resources at the
time of sale.
The Fund pays the asset-based sales charge to the Distributor for
its services rendered in connection with the distribution of Class B
shares. Those payments, retained by the Distributor, are at a fixed
rate which is not related to the Distributor's expenses. The services
rendered by the Distributor include paying and financing the payment of
sales commissions, service fees, and other costs of distributing and
selling Class B shares. If the Plan is terminated by the Fund, the
Board of Trustees may allow the Fund to continue payments of the
service fee and/or asset-based sales charge to the Distributor for
distributing Class B shares before the Plan was terminated.
-- Waivers of Class B Sales Charge. The Class B contingent
deferred sales charge will be waived under the circumstances described
below under "Waivers of Class B and Class C Sales Charges."
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds.
That sales charge will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions. The charge
will be assessed on the lesser of the net asset value of the shares at
the time of redemption or the original purchase price. The contingent
deferred sales charge is not imposed on the amount of your account
value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of
dividends and capital gains distributions). The Class C contingent
deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held
the longest during the 12-month period.
-- Distribution and Service Plan for Class C Shares. The Fund
has adopted a Distribution and Service Plan for Class C shares to
compensate the Distributor for distributing Class C shares and
servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of 0.25% per year. Both
fees are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. The asset-
based sales charge allows investors to buy Class C shares without a
front-end sales charge while allowing the Distributor to compensate
dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The asset-based sales charge and service fees
increase Class C expenses by 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance
for the first year after Class C shares have been sold by the dealer.
After the shares have been held for a year, the Distributor pays the
fee on a quarterly basis. The Distributor pays sales commissions of
0.75% of the purchase price to dealers from its own resources at the
time of sale. The total up-front commission paid by the Distributor to
the dealer at the time of sale of Class C shares is 1.00% of the
purchase price. The Distributor plans to pay 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 Fund pays the asset-based sales charge to the Distributor for
its services rendered in connection with the distribution of Class C
shares. Those payments are at a fixed rate which is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions, service
fees, and other costs of distributing and selling Class C shares,
including compensating personnel of the Distributor who support
distribution of Class C shares. If the Plan is terminated by the Fund,
the Board of Trustees may allow the Fund to continue payments of the
service fee and/or asset-based sales charge to the Distributor for
distributing Class C shares before the Plan was terminated.
-- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances as described
below. The reasons for this policy are in "Reduced Sales Charges" in
the Statement of Additional Information. 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:
-- distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made (a) under an Automatic Withdrawal
Plan after the participant reaches age 59-1/2, as long as the payments
are no more than 10% of the account value annually (measured from the
date the Transfer Agent receives the request), or (b) following the
death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must have occurred
after the account was established);
-- redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving shareholder (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);
-- to make returns of excess contributions to Retirement Plans;
-- to make distributions from IRAs (including SEP-IRAs and SAR/SEP
accounts) before the participant is age 59-1/2, and distributions from
403(b)(7) custodial plans or pension or profit sharing plans before the
participant is age 59-1/2 but only after the participant has separated
from service, if the distributions are made in substantially equal
periodic payments over the life (or life expectancy) of the participant
or the joint lives (or joint life and last survivor expectancy) of the
participant and the participant's designated beneficiary (and the
distributions must comply with other requirements for such
distributions under the Internal Revenue Code and may not exceed 10% of
the account value annually, measured from the date the Transfer Agent
receives the request);
-- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
-- for distributions from OppenheimerFunds prototype 401(k) plans
(1) for hardship withdrawals; (2) under a Qualified Domestic Relations
Order, as defined in the Internal Revenue Code; (3) to meet minimum
distribution requirements as defined in the Internal Revenue Code; (4)
to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
-- shares sold to the Manager or its affiliates;
-- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
-- shares issued in plans of reorganization to which the Fund is a
party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you
to send money electronically between those accounts to perform a number
of types of account transactions. These include purchases of shares by
telephone (either through a service representative or by PhoneLink,
described below), automatic investments under Asset Builder Plans, and
sending dividends and distributions or Automatic Withdrawal Plan
payments directly to your bank account. Please refer to the Application
for details or call the Transfer Agent for more information.
AccountLink privileges may be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy
your shares through your dealer. After your account is established, you
can request AccountLink privileges on 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.
-- Using AccountLink to Buy Shares. Purchases may be made 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.
-- 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 Oppenheimer funds account you
have already established by calling the special PhoneLink number.
Please refer to "How to Exchange Shares," below, for details.
-- 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.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to
another Oppenheimer funds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of
withdrawals of up to $1,500 per month by telephone. You should consult
the Application and Statement of Additional Information for more
details.
-- Automatic Exchange Plans. You can authorize the Transfer Agent
to exchange an amount you establish in advance automatically for shares
of up to five other OppenheimerFunds on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The minimum
purchase for each other OppenheimerFunds account is $25. These
exchanges are subject to the terms of the Exchange Privilege, described
below.
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 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. It does not
apply to Class C shares. You must be sure to ask the Distributor for
this privilege when you send your payment. Please consult the
Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your
employer, the plan trustee or administrator must make the purchase of
shares for your retirement plan account. The Distributor offers a
number of different retirement plans that can be used by individuals
and employers:
-- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
-- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
-- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR/SEP-
IRAs
-- Pension and Profit-Sharing Plans for self-employed persons and
small business owners
-- 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan
documents, which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers
you a number of ways to sell your shares: in writing, or 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, as
described above. 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, please
call the Transfer Agent first, at 1-800-525-7048, for assistance.
-- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must
submit a withholding form with your request to avoid delay. If your
retirement plan account is held for you by your employer, you must
arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement
of Additional Information.
-- Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a signature
guarantee):
-- You wish to redeem more than $50,000 worth of shares and
receive a check
-- The redemption check is not payable to all shareholders listed
on the account statement
-- The redemption check is not sent to the address of record on
your account statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as
an Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer Agent
will accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing as a fiduciary or on behalf of a corporation,
partnership or other business, you must also include your title in the
signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your account statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling
-- The signatures of all registered owners exactly as the account
is registered, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for Send courier or Express
requests by mail: Mail requests to:
Oppenheimer Shareholder Services Oppenheimer Shareholder Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular
business day, your call must be received by the Transfer Agent by the
close of The New York Stock Exchange that day, which is normally 4:00
P.M., but may be earlier on some days. Shares held in an
OppenheimerFunds retirement plan or under a share certificate may not
be redeemed by telephone.
-- To redeem shares through a service representative, call 1-800-
852-8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to
your bank account on AccountLink, you may have the proceeds wired to
that bank account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be payable
to all owners of record of the shares and must be sent to the address
on the account. This service is not available within 30 days of
changing the address on an account.
-- Telephone Redemptions Through AccountLink or By Wire. There
are no dollar limits on telephone redemption proceeds sent to a bank
account designated when you establish AccountLink. Normally the ACH
wire 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 wired.
Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal
Reserve wire system. There is a $10 fee for each Federal Funds wire.
To place a wire redemption request, call the Transfer Agent at 1-800-
852-8457. The wire will normally be transmitted on the next bank
business day after the shares are redeemed. There is a possibility that
the wire may be delayed up to seven days to enable the Fund to sell
securities to pay the redemption proceeds. No dividends are accrued or
paid on the proceeds of shares that have been redeemed and are awaiting
transmittal by wire. To establish wire redemption privileges on an
account that is already established, please contact the Transfer Agent
for instructions.
-- Checkwriting. To be able to write checks against your Fund
account, you may request that privilege on your account Application or
you can contact the Transfer Agent for signature cards, which 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.
-- Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
-- Checkwriting privileges are not available for accounts holding
Class B shares or Class C shares, or Class A shares that are subject to
a contingent deferred sales charge.
-- Checks must be written for at least $100.
-- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
-- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments
within the prior 10 days.
-- Don't use your checks if you changed your Fund account number.
Selling 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. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of exchange,
without sales charge. To exchange shares, you must meet several
conditions:
-- Shares of the fund selected for exchange must be available for
sale in your state of residence
-- The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
-- You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular business
day
-- You must meet the minimum purchase requirements for the fund
you purchase by exchange
-- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class 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. At present, Oppenheimer Money Market Fund, Inc. offers only one
class of shares, which are considered to be Class A shares for this
purpose. In some cases, sales charges may be imposed on exchange
transactions. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
-- Telephone Exchange Requests. Telephone exchange requests may
be made either by calling a service representative at 1-800-852-8457 or
by using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are
registered with the same name(s) and address. Shares held under
certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. This list can change from
time to time.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from
the other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request that is in
proper form 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 7 days if it determines it would be disadvantaged by a same-
day transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the disposition of securities at a time or price
disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- For tax purposes, exchanges of shares involve a redemption 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. For more
information about taxes affecting exchanges, please refer to "How to
Exchange Shares" in the Statement of Additional Information.
-- 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.
The Distributor has entered into agreements with certain dealers
and investment advisers permitting them to exchange their clients'
shares by telephone. These privileges are limited under those
agreements and the Distributor has the right to reject or suspend those
privileges. As a result, those exchanges may be subject to notice
requirements, delays and other limitations that do not apply to
shareholders who exchange their shares directly by calling or writing
to the Transfer Agent.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 P.M., but may be earlier on some days, on each day the
Exchange is open 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 Fund's Board of Trustees has established procedures
to value the Fund's securities to determine net asset value. In
general, securities values are based on market value. There are
special procedures for valuing illiquid and restricted securities and
obligations for which market values cannot be readily obtained. These
procedures are described more completely 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 and until 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. If the
Transfer Agent does not use reasonable procedures it may be liable for
losses due to unauthorized transactions, but otherwise neither the
Transfer Agent nor the Fund will be liable for losses or expenses
arising out of telephone instructions reasonably believed to be
genuine. If you are unable to reach the Transfer Agent during periods
of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
-- 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.
-- The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio fluctuates,
and the redemption price, which is the net asset value per share, will
normally be different for Class A, Class B and Class C shares.
Therefore, the redemption value of your shares may be more or less than
their original cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within 7
days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payment will be forwarded within 3 business days. 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
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 any reason other
than the market value of the shares has dropped, and in some cases
involuntary redemptions may be made to repay the Distributor for losses
from the cancellation of share purchase orders.
-- Under unusual circumstances, shares of the fund may be
redeemed "in kind", which means that the redemption proceeds will be
paid with securities from the Fund's portfolio. Please refer to "How
to Sell Shares" in the Statement of Additional Information for more
details.
-- "Backup Withholding" of Federal income tax may be applied at
the rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified
Social Security or Employer Identification Number when you sign your
application, or if you violate Internal Revenue Service regulations on
tax reporting of income.
-- The Fund does not charge a redemption fee, but if your dealer
or broker handles your redemption, they may charge a fee. That fee can
be avoided by redeeming your Fund shares directly through the Transfer
Agent. Under the circumstances described in "How to Buy Shares," you
may be subject to a contingent deferred sales charge when redeeming
certain Class A, Class B and Class C shares.
-- To avoid sending duplicate copies of materials to households,
the Fund will mail only one copy of each annual and semi-annual report
to shareholders having the same last name and address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-
800-525-7048 to ask that copies of those materials be sent personally
to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B
and Class C shares from net investment income each regular business day
and pays those dividends to shareholders monthly. Normally dividends
are paid on or about the last business day of each month, but the Board
of Trustees can change that date. The Board may also cause the Fund to
declare dividends after the close of the Fund's fiscal year (which ends
June 30th). Normally, distributions paid on Class A shares generally
are expected to be higher than for Class B and Class C shares because
expenses allocable to Class B and Class C shares will generally be
higher. There is no fixed dividend rate and there can be no assurance
as to the payment of any dividends. The amount of a class's dividends
or distributions may vary from time to time depending on market
conditions, the composition of the Fund's portfolio and expenses borne
by that class.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of
the year. Short-term capital gains are treated as dividends for tax
purposes. There can be no assurance that the Fund will pay any capital
gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
-- Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
-- Reinvest Capital Gains Only. You can elect to reinvest long-
term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
-- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or
have them sent to your bank on AccountLink.
-- Reinvest Your Distributions in Another Oppenheimer funds
Account. You can reinvest all distributions in another Oppenheimer
funds account you have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders. It does not matter how long you held
your shares. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Distributions are
subject to federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund
will send you and the IRS a statement showing the amount of each
taxable distribution you received in the previous year.
-- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares
on or just before the ex-dividend date, or just before the Fund
declares a capital gains distribution, you will pay the full price for
the shares and then receive a portion of the price back as a taxable
dividend or capital gain.
-- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. 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.
-- Returns of Capital: 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. A
non-taxable return of capital may reduce your tax basis in your Fund
shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained in
the Statement of Additional Information, and in addition you should
consult with your tax adviser about the effect of an investment in the
Fund on your particular tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER U.S. GOVERNMENT TRUST
Graphic material included in Prospectus of Oppenheimer U.S.
Government Trust: "Comparison of Total Return of Oppenheimer U.S.
Government Trust and the Lehman Brothers Government Bond Index - Change
in Value of a $10,000 Hypothetical Investment."
A linear graph will be included in the Prospectus of Oppenheimer
U.S. Government Trust (the "Fund") depicting the initial account value
and subsequent account value of a hypothetical $10,000 investment in
each Class of shares of the Funds held until June 30, 1995, in the case
of Class A shares, since August 16, 1985, and in the case of Class C
shares, from the inception of the Class on December 1, 1993, and
comparing such values with the same investments over the same time
periods in the Lehman Brothers Government Bond Index. No performance
information is set forth on the Fund's Class B shares because they were
not publicly offered during the fiscal year ended June 30, 1995. Set
forth below are the relevant data points that will appear on the linear
graph. Additional information with respect to the foregoing, including
a description of the Lehman Brothers Government Bond Index, is set
forth in the Prospectus under "Comparing the Fund's Performance to the
Market."
Fiscal Year Oppenheimer Lehman Brothers
(Period) Ended U.S. Government Trust - A Government Bond Index
08/16/85 $9,525 $10,000
06/30/86 $10,803 $11,887
06/30/87 $11,371 $12,377
06/30/88 $12,268 $13,267
06/30/89 $13,430 $14,869
06/30/90 $14,282 $15,900
06/30/91 $15,645 $17,512
06/30/92 $17,688 $19,920
06/30/93 $19,403 $22,489
06/30/94 $19,218 $22,187
06/30/95 $ $
Fiscal Oppenheimer Lehman Brothers
Period Ended U.S. Government Trust - C Government Bond Index
12/1/93(1) $10,000 $10,000
06/30/94 $9,591 $9,625
06/30/95 $ $
- ----------------------
(1) Class C shares of the Fund were first publicly offered on December
1, 1993.
<PAGE>
Oppenheimer U.S. Government Trust
Two World Trade Center
New York, New York 10048-0203
Telephone: 1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional
Information, and if given or made, such information and representations
must not be relied upon as having been authorized by the Fund,
Oppenheimer Management Corporation, Oppenheimer Funds Distributor, Inc.
or any affiliate thereof. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to
make such an offer in such state.
PR0220.001.1195 Printed on recycled paper
<PAGE>
Oppenheimer U.S. Government Trust
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 1, 1995
This Statement of Additional Information of Oppenheimer U.S.
Government Trust is not a Prospectus. This document contains
additional information about the Fund and supplements information in
the Prospectus dated November 1, 1995. It should be read together with
the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, Oppenheimer Shareholder Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number
shown above.
<TABLE>
<CAPTION>
Contents
Page
About the Fund
<S> <C>
Investment Objective and Policies . . . . . . . . . . . . . . 2
Investment Policies and Strategies. . . . . . . . . . . . . . 2
Other Investment Techniques and Strategies . . . . . . . . 2
Other Investment Restrictions. . . . . . . . . . . . . . . 9
How the Fund is Managed . . . . . . . . . . . . . . . . . . . 10
Organization and History . . . . . . . . . . . . . . . . . 10
Trustees and Officers of the Fund. . . . . . . . . . . . . 11
The Manager and Its Affiliates . . . . . . . . . . . . . . 16
Brokerage Policies of the Fund. . . . . . . . . . . . . . . . 17
Performance of the Fund . . . . . . . . . . . . . . . . . . . 19
Distribution and Service Plans. . . . . . . . . . . . . . . . 23
About Your Account
How To Buy Shares . . . . . . . . . . . . . . . . . . . . . . 25
How To Sell Shares. . . . . . . . . . . . . . . . . . . . . . 31
How To Exchange Shares. . . . . . . . . . . . . . . . . . . . 35
Dividends, Capital Gains and Taxes. . . . . . . . . . . . . . 37
Additional Information About the Fund . . . . . . . . . . . . 38
Financial Information About the Fund
Independent Auditors' Report. . . . . . . . . . . . . . . . . 39
Financial Statements. . . . . . . . . . . . . . . . . . . . . 40
Appendix A: Description of Securities Ratings . . . . . . . . A-1
Appendix B: Industry Classifications. . . . . . . . . . . . . B-1
</TABLE>
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund may invest, as well as the strategies the
Fund may use to try to achieve its objective. Certain capitalized
terms used in this Statement of Additional Information have the same
meaning as those terms have in the Prospectus.
-- U.S. Government Securities. 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. Some are backed by the right of the issuer to borrow
from the U.S. Treasury; others, by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. All U.S. Treasury
obligations are backed by the full faith and credit of the United
States. If the securities are not backed by the full faith and credit
of the United States, the owner of the securities must look principally
to the agency issuing the obligation for repayment and may not be able
to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. Under normal
market conditions, the Fund will invest at least 80% of its total
assets in "full faith and credit" U.S. Government Securities and in
U.S. Government Securities of such agencies and instrumentalities only
when the Fund's investment manager, Oppenheimer Management Corporation
(the "Manager") is satisfied that the credit risk with respect to such
instrumentality is minimal.
General changes in prevailing interest rates will affect the
values of the Fund's portfolio securities. The value will vary
inversely to changes in such rates. For example, if such rates go up
after a security is purchased, the value of the security will generally
decline. A decrease in interest rates may affect the maturity and
yield of mortgage-backed securities by increasing unscheduled
prepayments of the underlying mortgages. With its objective of seeking
interest income while conserving capital, the Fund may purchase or sell
securities without regard to the length of time the security has been
held, to take advantage of short-term differentials in yields. While
short-term trading increases the portfolio turnover, the execution cost
for U.S. Government Securities is substantially less than for
equivalent dollar values of equity securities (see "Brokerage
Provisions of the Investment Advisory Agreement," below).
Other Investment Techniques and Strategies
-- Repurchase Agreements. The Fund may acquire securities that
are subject to repurchase agreements. In a repurchase transaction, the
Fund purchases a U.S. Government security from, and simultaneously
resells it to, an approved vendor for delivery on an agreed-upon future
date. An "approved vendor" is a U.S. commercial bank, the U.S. branch
of a foreign bank or a broker-dealer which has been designated a
primary dealer in government securities which must meet the audit
requirements met by the Fund's Board of Trustees from time to time.
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. The majority of these transactions
run from day to day, and delivery pursuant to the resale typically will
occur within one to five days of the purchase. Repurchase agreements
are considered "loans" under the Investment Company Act of 1940 (the
"Investment Company Act"), collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must equal or
exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the
loan collateral must, on each business day, at least equal the market
value of the loaned securities and must consist of cash, bank letters
of credit or U.S. Government Securities, 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 and the issuing bank must be satisfactory to the Fund. In a
portfolio securities lending transaction, the Fund receives from the
borrower an amount equal to the interest paid or the dividends declared
on the loaned securities during the term of the loan as well as one or
more of (a) negotiated loan fees, (b) interest on securities used as
collateral, or (c) interest on 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 and will not lend its portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager.
The terms of the Fund's loans must meet certain tests under the
Internal Revenue Code and permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any
important matter.
-- Mortgage-Backed Security Rolls. The Fund may enter into
"forward roll" transactions with respect to mortgage-backed securities
in which it can invest. In a forward roll transaction, which is
considered to be a borrowing by the Fund, the Fund will sell a mortgage
security to selected banks or other entities and simultaneously agree
to repurchase a similar security (same type, coupon and maturity) from
the institution at a specified later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories than those sold.
Risks of mortgage-backed security rolls include: (i) the risk of
prepayment prior to maturity, (ii) the possibility that the Fund may
not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be
invested in money market instruments (typically repurchase agreements)
maturing not later than the expiration of the roll, and (iii) the
possibility that the market value of the securities sold by the Fund
may decline below the price at which the Fund is obligated to purchase
the securities. The Fund will enter into only "covered" rolls. Upon
entering into a mortgage-backed security roll, the Fund will be
required to place cash, U.S. Government Securities or other high-grade
debt securities in a segregated account with its Custodian in an amount
equal to its obligation under the roll.
-- Hedging. As described in the Prospectus, the Fund may employ
one or more types of Hedging Instruments to manage its exposure to
changing interest rates and securities prices. 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. Puts and covered
calls may also be written on U.S. Government Securities to attempt to
increase the Fund's income. For hedging purposes, the Fund may use
Interest Rate Futures and call and put options on debt securities and
Interest Rate Futures (all of the foregoing are referred to as "Hedging
Instruments"). Hedging Instruments may be used to attempt to do the
following: (i) protect against possible declines in the market value of
the Fund's portfolio resulting from downward trends in the debt
securities markets (generally due to a rise in interest rates), (ii)
protect unrealized gains in the value of the Fund's debt securities
which have appreciated, (iii) facilitate selling debt securities for
investment reasons, (iv) establish a position in the debt securities
markets as a temporary substitute for purchasing particular debt
securities, or (v) reduce the risk of adverse currency fluctuations. A
call or put may be purchased only if, after such purchase, the value of
all call and put options held by the Fund would not exceed 5% of the
Fund's total assets. The Fund will not use Futures and options on
Futures for speculation. The Hedging Instruments the Fund may use are
described below.
The Fund may use hedging to attempt to protect against declines in
the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment
reasons. To do so, the Fund may: (i) sell Interest Rate Futures, (ii)
buy puts on such Futures or U.S. Government Securities, or (iii) write
covered calls on securities held by it or on Futures. When hedging to
attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the debt securities
market, the Fund may: (i) purchase Futures, or (ii) purchase calls on
such Futures or on U.S. Government Securities. Covered calls and puts
may also be written on debt securities to attempt to increase the
Fund's income.
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. At present, the Fund does not intend to enter into Futures and
options on Futures if, after any such purchase or sale, the sum of
margin deposits on Futures and premiums paid on Futures options exceeds
5% of the value of the Fund's total assets. The Fund may, in the
future, employ Hedging Instruments and strategies that are not
presently contemplated to the extent such investment methods are
consistent with the Fund's investment objective, are legally
permissible, and are adequately disclosed.
-- Writing Covered Calls. The Fund may write (i.e. sell) call
options ("calls") on U.S. Government Securities to enhance income
through the receipt of premiums from expired calls and any net profits
from closing purchase transactions, subject to the limitations stated
in the Prospectus. All such calls written by the Fund must be
"covered" while the call is outstanding (i.e. the Fund must own the
securities subject to the call or other securities acceptable for
applicable escrow requirements). Calls on Futures (discussed below)
must be covered by deliverable securities or by liquid assets
segregated to satisfy the Futures contract. When the Fund writes a
call on a security, it receives a premium and agrees to sell the
callable investment to a purchaser of a corresponding call on the same
security during the call period (usually not more than 9 months) at a
fixed exercise price (which may differ from the market price of the
underlying security), regardless of market price changes during the
call period. The Fund has retained the risk of loss should the price
of the underlying security decline during the call period, which may be
offset to some extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call expires
unexercised, because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term capital
gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. If the Fund could not effect a closing
purchase transaction due to lack of a market, it would have to hold the
callable investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an
equivalent dollar amount of liquid assets. The Fund will segregate
additional liquid assets if the value of the escrowed assets drops
below 100% of the current value of the Future. In no circumstances
would an exercise notice 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 may write put options on U.S.
Government securities or Interest Rate Futures but only if such puts
are covered by segregated liquid assets. The Fund will not write puts
if, as a result, more than 50% of the Fund's net assets would be
required to be segregated to cover such put obligations. In writing
puts, there is the risk that the Fund may be required to buy the
underlying security at a disadvantageous price. 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. Writing a put covered by segregated liquid
assets equal to the exercise price of the put has the same economic
effect to the Fund as writing a covered call. The premium the Fund
receives from writing a put option represents a profit, as long as the
price of the underlying investment remains above the exercise price.
However, the Fund has also assumed the obligation during the option
period to buy the underlying investment from the buyer of the put at
the exercise price, even though the value of the investment may fall
below the exercise price. If the put expires unexercised, the Fund (as
the writer of the put) realizes a gain in the amount of the premium
less transaction costs. If the put is exercised, the Fund must fulfill
its obligation to purchase the underlying investment at the exercise
price, which will usually exceed the market value of the investment at
that time. In that case, the Fund may incur a loss, equal to the sum
of the current market value of the underlying investment and the
premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options on securities, 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 put option. The Fund therefore foregoes the opportunity of
investing the segregated assets or writing calls against those assets.
As long as the obligation of the Fund as the put writer continues, it
may be assigned an exercise notice by the broker-dealer through whom
such option was sold, requiring the Fund to take delivery of the
underlying security against payment of 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. This
obligation terminates upon expiration of the put, or such earlier time
at which the Fund effects a closing purchase transaction by purchasing
a put of the same series as that previously sold. Once the Fund has
been assigned an exercise notice, it is thereafter not allowed to
effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a
closing purchase transaction will permit the Fund to write another put
option to the extent that the exercise price thereof is secured by the
deposited assets, or to utilize the proceeds from the sale of such
assets for other investments by the Fund. The Fund will realize a
profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the
option. As above for writing covered calls, any and all such profits
described herein from writing puts are considered short-term gains for
Federal tax purposes, and when distributed by the Fund, are taxable as
ordinary income.
-- Purchasing Calls and Puts. The Fund may purchase calls on U.S.
Government Securities or on Interest Rate Futures, in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of the long-term debt
securities market. The value of U.S. Government Securities underlying
calls purchased by the Fund will not exceed the value of the portion of
the Fund's portfolio invested in cash or cash equivalents (i.e.
securities with maturities of less than one year). When the Fund
purchases a call (other than in a closing purchase transaction), it
pays a premium and, except as to calls on indices or Futures, 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. When the Fund purchases a call on a Future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying
investment to the Fund. In purchasing a call, the Fund benefits only
if the call is sold at a profit or if, during the call period, the
market price of the underlying investment is above the sum of the
exercise price, transaction costs and the premium paid, and the call is
exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Fund
will lose its premium payment and the right to purchase the underlying
investment.
The Fund may purchase put options ("puts") which relate to U.S.
Government Securities (whether or not it holds such securities in its
portfolio) or Futures. When the Fund purchases a put, it pays a
premium and, except as to puts on indices, has the right to sell the
underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a
put on an investment the Fund owns enables the Fund to protect itself
during the put period against a decline in the value of the underlying
investment below the exercise price by selling such 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, and the Fund will
lose its premium payment and the right to sell the underlying
investment. The put may, however, be sold prior to expiration (whether
or not at a profit).
Buying a put on Interest Rate Futures or U.S. Government
Securities permits the Fund either to resell the put or buy the
underlying investment and sell it at the exercise price. The resale
price of the put will vary inversely with the price of the underlying
investment. If the market price of the underlying investment is above
the exercise price and as a result the put is not exercised, the put
will become worthless on its expiration date. In the event of a
decline in the bond market, the Fund could exercise or sell the put at
a profit to attempt to offset some or all of its loss on its portfolio
securities. When the Fund purchases a put on Interest Rate Futures or
U.S. Government Securities not held by it, the put protects the Fund to
the extent that the prices of the underlying Future or U.S. Government
Security move in a similar pattern to the prices of the U.S. Government
Securities in the Fund's portfolio.
An option position may be closed out only on a market which
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's option activities may affect its
turnover rate and brokerage commissions. The exercise by the Fund of
puts on securities will cause the sale of related investments,
increasing portfolio turnover. Although such exercise is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons which would not exist in the absence of the
put. The Fund may pay a brokerage commission each time it buys a put
or call, sells a call, or buys or sells an underlying investment in
connection with the exercise of a put or call. Such commissions may be
higher than those which would apply to direct purchases or sales of
such underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and
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 investments.
-- Interest Rate Futures. The Fund may buy and sell Interest Rate
Futures. No price is paid or received upon the purchase or sale of an
Interest Rate Future. An Interest Rate Future obligates the seller to
deliver and the purchaser to take a specific type of debt security at a
specific future date for a fixed price. That obligation may be
satisfied by actual delivery of the debt security or by entering into
an offsetting contract.
Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. Treasury
bills with the futures commission merchant (the "futures broker"). The
initial margin will be deposited with the Fund's Custodian 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 to reflect changes in its market
value, subsequent margin payments, called variation margin, will be
made to or by the futures broker on a daily basis.
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 additional cash
is required to be paid by or released to the Fund. Any gain or loss is
then realized. Although Interest Rate Futures by their terms call for
settlement by delivery or acquisition of debt securities, in most cases
the obligation is fulfilled by entering into an offsetting transaction.
All futures transactions are effected through a clearinghouse
associated with the exchange on which the contracts are traded.
-- Interest Rate Swap Transactions. 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 have been greater than those received
by it. Credit risk arises from the possibility that the counterparty
will default. If the counterparty to an interest rate swap 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 may engage in interest rate
swaps only with respect to securities it holds, and not in excess of
25% of its total assets.
The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting
agreement provides that all swaps done between the Fund and that
counterparty under that master agreement shall be regarded as parts of
an integral agreement. If on any date amounts are payable in the same
currency in respect of one or more swap transactions, the net amount
payable on that date in that currency shall be paid. In addition, the
master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting 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 with respect to
each swap (i.e., 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".
-- Additional Information About Hedging Instruments and Their Use.
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 options traded on exchanges or as to other
acceptable escrow securities, so that no margin will be required for
such transactions. OCC will release the securities covering a call on
the expiration of the calls or upon the Fund entering into a closing
purchase transaction. An option position may be closed out only on a
market which 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.
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 would establish a formula price at which the Fund would
have the absolute right to repurchase that OTC option. That formula
price would 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 extent
to which the option "is in-the-money"). For any OTC option the Fund
writes, it will treat as illiquid (for purposes of the limit on its
assets that may be invested in illiquid securities, stated in the
Prospectus) the mark-to-market value of any OTC option held by it. The
Securities and Exchange Commission ("SEC") is evaluating whether OTC
options should be considered liquid securities, and the procedure
described above could be affected by the outcome of that evaluation.
-- Regulatory Aspects of Hedging Instruments. The Fund is
required to operate within certain guidelines and restrictions with
respect to its use of futures and options thereon as established by the
Commodities Futures Trading Commission ("CFTC"). In particular, the
Fund is excluded from registration as a "commodity pool operator" if it
complies with the requirements of Rule 4.5 adopted by the CFTC. Under
these restrictions, the Fund will not, as to any positions, whether
long, short or a combination thereof, enter into Futures and options
thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its net assets, with certain exclusions as
defined in the CFTC Rule. Under the restrictions, the Fund also must,
as to its short positions, use Futures and options thereon solely for
bona fide hedging purposes within the meaning and intent of the
applicable provisions of the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, 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 which the
Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same or
an affiliated investment adviser. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to
be in violation of those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases a Future, the Fund will maintain, in a segregated account or
accounts with its Custodian, cash or readily-marketable, short-term
(maturing in one year or less) debt instruments in an amount equal to
the market value of the securities underlying such Future, less the
margin deposit applicable to it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the
Internal Revenue Code. That qualification enables the Fund to "pass
through" its income and realized capital gains to shareholders without
the Fund having to pay tax on them. This avoids a "double tax" on that
income and capital gains, since shareholders will be taxed on the
dividends and capital gains they receive from the Fund. One of the
tests for the Fund's qualification is that less than 30% of its gross
income (irrespective of losses) must be derived from gains realized on
the sale of securities held for less than three months. To comply with
that 30% cap, the Fund will limit the extent to which it engages in the
following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held by
the Fund; (ii) purchasing calls or puts which expire in less than three
months; (iii) effecting closing transactions with respect to calls or
puts written or purchased less than three months previously; (iv)
exercising puts or calls held by the Fund for less than three months;
or (v) writing calls on investments held for less than three months.
-- Risks Of Hedging With Options and Futures. In addition to the
risks with respect to hedging discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against decline in value of the Fund's portfolio securities
(due to an increase in interest rates) that the prices of such Futures
will correlate imperfectly with the behavior of the cash (i.e., market
value) prices of the Fund's securities. The ordinary spreads between
prices in the cash and futures markets are subject to distortions due
to differences in the natures of those markets. First, all
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the
futures markets 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
markets could be reduced, thus producing distortion. Third, from the
point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in
the U.S. Government Securities markets as a temporary substitute for
the purchase of individual U.S. Government Securities (long hedging) by
buying Interest Rate Futures and/or calls on such Futures or on U.S.
Government Securities, it is possible that the market may decline; if
the Fund then concludes not to invest in such securities at that time
because of concerns as to possible further market decline 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 U.S. Government
Securities purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth
in the Prospectus. There are additional investment restrictions that
the Fund must follow that are also fundamental policies. Fundamental
policies and the Fund's investment objective cannot be changed without
the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as
the vote of the holders of the lesser of (1) 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 (2)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) invest in interests in oil, gas, or other mineral exploration
or development programs;
(2) invest in real estate;
(3) purchase securities on margin or make short sales of
securities; however, the Fund may make margin deposits in connection
with any of the Hedging Instruments which it may use as permitted by
any of its other fundamental policies;
(4) underwrite securities of other companies; or
(5) invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition
of assets.
The Fund will not concentrate investments to the extent of 25% of
its assets in any industry; there is no limit on obligations issued by
the U.S. Government or its agencies or instrumentalities. For purposes
of that policy, the Fund has adopted the industry classifications set
forth in Appendix B to this Statement of Additional Information. This
is not a fundamental policy.
The percentage restrictions described above and in the Prospectus
are applicable only at the time of investment and require no action by
the Fund as a result of subsequent changes in value of the investments
or the size of the Fund.
How the Fund is Managed
Organization and History. The Fund was organized in 1982 as a
Massachusetts business trust. Effective August 16, 1985, the Fund
changed its investment objective and became a long-term government
securities fund. Prior to August 16, 1985, the Fund operated as a
money market fund with a fixed net asset value per share.
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, or 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. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, 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, or the Trustees may take such other action as
set forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder
of a business trust (such as the Fund) to be held personally liable as
a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under
the Trust's Declaration of Trust to look solely to the assets of the
Trust for satisfaction of any claim or demand which may arise out of
any dealings with the Trust, and 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. The address of each Trustee and
officer is Two World Trade Center, New York, New York 10048-0203,
unless another address is listed below. All of the Trustees are also
trustees of Oppenheimer Fund, Oppenheimer Global Fund, Oppenheimer
Growth Fund, Oppenheimer Target Fund, Oppenheimer Discovery Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Global Emerging
Growth Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer New York Tax-
Exempt Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer Multi-
State Tax-Exempt Trust, Oppenheimer Asset Allocation Fund, Oppenheimer
Multi-Sector Income Trust and Oppenheimer Multi-Government Trust (the
"New York-based Oppenheimer funds"). Messrs. Spiro, Bishop, Bowen,
Donohue, Farrar and Zack respectively hold the same offices with the
other New York-based Oppenheimer funds as with the Fund. As of October
6, 1995, the officers and Trustees of the Fund as a group owned of
record or beneficially less than 1% of the outstanding shares of each
class of the Fund. The statement does not include ownership of shares
held of record by an employee benefit plan for employees of the Manager
(one of the Trustees listed below Ms. Macaskill and one of the
officers, Mr. Donohue, are trustees of that plan), other than the
shares beneficially owned under that plan by the officers of the Fund
listed below.
Leon Levy, Chairman of the Board of Trustees; Age: 70
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings, Inc. (real estate development).
Leo Cherne, Trustee; Age: 83
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee
(philanthropic organization); formerly Executive Director of The
Research Institute of America.
Robert G. Galli, Trustee*; Age: 62
Vice Chairman of the Manager and Vice President and Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding
company; formerly he held the following positions: a director of
the Manager and Oppenheimer Funds Distributor, Inc. (the
"Distributor"), Vice President and a director of HarbourView Asset
Management Corporation ("HarbourView") and Centennial Asset
Management Corporation ("Centennial"), investment advisory
subsidiaries of the Manager, a director of Shareholder Financial
Services, Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"),
transfer agent subsidiaries of the Manager, an officer of other
Oppenheimer funds and Executive Vice President and General Counsel
of the Manager and the Distributor.
Benjamin Lipstein, Trustee; Age: 73
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex
Publications, Inc. (publishers of Psychology Today and Mother
Earth News); and Director of Spy Magazine, L.P.
Bridget A. Macaskill, Trustee*; Age: 47
President, Chief Executive Officer and a Director of the Manager;
Chairman and a Director of SSI, Vice President and a Director of
OAC; a Director of HarbourView and Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager;
formerly an Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee; Age: 66
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee of the Freer Gallery
of Art (Smithsonian Institution), the Institute of Fine Arts (New
York University), and the National Building Museum; a member of
the Trustees Council, Preservation League of New York State; a
member of the Indo-U.S. Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age: 68
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil and gas
producer), Enron-Dominion Cogen Corp. (cogeneration company),
Kemper Corporation (insurance and financial services company) and
Fidelity Life Association (mutual life insurance company);
formerly Chairman of the Board of ICL, Inc. (information systems)
and President and Chief Executive Officer of The Conference Board,
Inc. (international economic and business research).
Edward V. Regan, Trustee; Age: 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New
York; President of Jerome Levy Economics Institute; a member of
the U.S. Competitiveness Policy Council; a director of GranCare,
Inc. (healthcare provider); formerly New York State Comptroller
and trustee of the New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age: 64
200 Park Avenue, New York, New York 10166
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting
and publishing); a trustee of Mystic Seaport Museum, International
House, Greenwich Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee; Age: 83
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting
Professor of Finance, University of Hawaii; a director of The
Korea Fund, Inc. (closed-end investment company); a member of the
Board of Advisors, Olympus Private Placement Fund, L.P.; Professor
Emeritus of Finance, Adelphi University.
David Rosenberg, Vice President and Portfolio Manager; Age: 37
Vice President of the Manager; an officer of other Oppenheimer
funds; formerly an Officer and Portfolio Manager for Delaware
Investment Advisers and for one of its mutual funds.
Donald W. Spiro, President and Trustee*; Age: 69
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee; Age: 82
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
Clayton K. Yeutter, Trustee; Age: 64
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar,
Inc. (machinery), ConAgra, Inc. (food and agricultural products),
Farmers Insurance Company (insurance), FMC Corp. (chemicals and
machinery), Lindsay Manufacturing Co. (irrigation equipment),
Texas Instruments, Inc. (electronics) and The Vigoro Corporation
(fertilizer manufacturer); formerly (in descending chronological
order) Counsellor to the President (Bush) for Domestic Policy,
Chairman of the Republican National Committee, Secretary of the
U.S. Department of Agriculture, and U.S. Trade Representative.
Andrew J. Donohue, Secretary; Age: 45
Executive Vice President and General Counsel of the Manager and
the Distributor; an officer of other Oppenheimer funds; formerly
Senior Vice President and Associate General Counsel of the Manager
and the Distributor, prior to which he was a partner in Kraft &
McManimon (a law firm), an officer of First Investors Corporation
(a broker-dealer) and First Investors Management Company, Inc.
(broker-dealer and investment adviser), and a director and an
officer of First Investors Family of Funds and First Investors
Life Insurance Company.
George C. Bowen, Treasurer; Age: 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and
SFSI; an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age: 47
Senior Vice President and Associate General Counsel of the
Manager; Assistant Secretary of SSI and SFSI; an officer of other
Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; previously a Fund Controller
for the Manager, prior to which he was an Accountant for Yale &
Seffinger, P.C., an accounting firm; and previously an Accountant
and Commissions Supervisor for Stuart James Company Inc., a
broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; previously a Fund Controller
for the Manager, prior to which he was an International Mutual
Fund Supervisor for Brown Brothers Harriman & Co., a bank, and
previously a Senior Fund Accountant for State Street Bank & Trust
Company.
[FN]
- -------------
A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Ms. Macaskill, Messrs. Galli and Spiro;
Mr. Spiro who is also an officer of the Fund) receive no salary or fee
from the Fund. The Trustees of the Fund (including Mr. Delaney, a
former Trustee, but excluding Ms. Macaskill and Messrs. Galli and
Spiro) received the total amounts shown below (i) from the Fund, during
its fiscal year ended June 30, 1995, and (ii) from all 17 of the New
York-based Oppenheimer funds (including the Fund) listed in the first
paragraph of this section (and from Oppenheimer Global Environment
Fund, Oppenheimer Time Fund and Oppenheimer Mortgage Income Fund
Oppenheimer, which ceased operation following the acquisition of their
assets by certain other funds), for services in the positions shown:
<TABLE>
<CAPTION>
Retirement Total
Benefits Compensation
Aggregate Accrued as From All
Compensation Part of New York-based
Name and Position from Fund Fund Expenses Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy $5,785 $3,730 $141,000.00
Chairman and
Trustee
Leo Cherne $2,823 $1,821 $ 68,800.00
Audit Committee
Member and
Trustee
Edmund T. Delaney $3,537 $2,281 $ 86,200.00
Study Committee
Member and Trustee2
Benjamin Lipstein $3,537 $2,281 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan$2,486 $1,604 $ 60,625.00
Study Committee
Member3 and Trustee
Kenneth A. Randall $3,217 $2,075 $ 78,400.00
Audit Committee
Member and Trustee
Edward V. Regan $2,307 $1,488 $ 56,275.00
Audit Committee
Member and Trustee
Russell S. Reynolds, Jr.$2,140 $1,380 $ 52,100.00
Trustee
Sidney M. Robbins $5,008 $3,230 $122,100.00
Study Committee
Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere $2,140 $1,380 $ 52,100.00
Trustee
Clayton K. Yeutter $2,140 $1,380 $ 52,100.00
Trustee
</TABLE>
______________________
1For the 1994 calendar year.
2Board and committee member positions held during a portion of the
period shown.
3Committee position held during a portion of the period shown.
The Fund has adopted a retirement plan that provides for payment
to a retired Trustee of up to 80% of the average compensation paid
during that Trustee's five years of service in which the highest
compensation was received. A Trustee must serve in that capacity for
any of the New York-based Oppenheimer funds for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement
benefits will depend on the amount of the Trustee's future compensation
and length of service, the amount of those benefits cannot be
determined at this time, nor can it be estimated the number of years of
credited service that will be used to determine these benefits. No
payments have been made by the Fund under the plan as of June 30, 1995.
-- Major Shareholders. As of October 6, 1995, the only persons
who owned of record or was known by the Fund to own beneficially 5% or
more of the Fund's outstanding shares were Merrill Lynch Pierce Fenner
& Smith, Inc., 97C22, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, who owned 218,208.000 Class C shares of the Fund
(representing approximately 16.75% of the Fund's Class C shares then
outstanding).
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Messrs. Galli and
Spiro) also serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including 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. Prior to the adoption of the current investment advisory
agreement, the Manager voluntarily reduced the management fee to the
current rates, described in the Prospectus.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's
Agreement are paid by the Fund. The advisory agreement lists examples
of expenses paid by the Fund, the major categories of which 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. For the Fund's fiscal
years ended June 30, 1993, 1994 and 1995, the management fees paid by
the Fund to the Manager were $2,911,199, $2,515,934 and $1,980,189,
respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the
Manager has voluntarily undertaken that the total expenses of the Fund
in any fiscal year (including the management fee but excluding taxes,
interest, brokerage commissions, distribution assistance payments and
extraordinary expenses such as litigation costs) shall not exceed the
most stringent expense limitation imposed under state law applicable to
the Fund. Pursuant to the undertaking, the Manager's fee will be
reduced at the end of a month so that there will not be any accrued but
unpaid liability under this undertaking. Currently, the most stringent
state expense limitation is imposed by California, and limits the
Fund's expenses (with specified exclusions) to 2.5% of the first $30
million of average annual net assets, 2% of the next $70 million of
average annual net assets, and 1.5% of average annual net assets in
excess of $100 million. The Manager reserves the right to terminate or
amend the undertaking at any time. Any assumption of the Fund's
expenses under this limitation would lower the Fund's overall expense
ratio and increase its total return during any period in which expenses
are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard for its obligations and duties under the
advisory agreement, the Manager is not liable for any loss resulting by
reason of any investment, or the purchase, sale or retention of any
security, or for any act or omission in performing the services
required by the Agreement. The advisory 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 its other
investment activities. If the Manager shall no longer act as
investment adviser to the Fund, the right of the Fund to use the name
"Oppenheimer" as part of its corporate name may be withdrawn.
-- The Distributor. Under its Distribution Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A, Class B and Class C
shares but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under
the Distribution and Service Plans, but including advertising and the
cost of printing and mailing prospectuses, other than those furnished
to existing shareholders), are borne by the Distributor. During the
Fund's fiscal years ended June 30, 1993, 1994 and 1995, the aggregate
sales charges on sales of the Fund's Class A shares were $1,823,585,
$876,525 and $582,157, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $594,110, $282,424
and $169,246 in those respective years. There were no contingent
deferred sales charges collected by the Distributor on the redemption
of Class B shares for the fiscal year ended June 30, 1995, because
Class B shares were not publicly offered during that fiscal year.
During the Fund's fiscal year ended June 30, 1995, sales charges
advanced to broker/dealers by the Distributor on sales of the Fund's
Class B shares totalled $76,562, of which $4,633 was paid to an
affiliated broker/dealer. During the Fund's fiscal period from
December 1, 1993 through June 30, 1994, and the fiscal year ended June
30, 1995, the contingent deferred sales charges collected on Class C
shares were $3,250 and $9,578, respectively, all of which the
Distributor retained. For additional information about distribution of
the Fund's shares and the expenses connected with such activities,
please refer to "Distribution and Service Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the
Fund's Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ such broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at
reasonable expense, the "best execution" (prompt and reliable execution
at the most favorable price obtainable) of such transactions. The
Manager need not seek competitive commission bidding but is expected to
minimize the commissions paid to the extent consistent with the
interest and policies of the Fund as established by its Board of
Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers 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 have charged if a good faith
determination is made by the Manager and the commission is fair and
reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or
its affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Most
purchases made by the Fund are principal transactions at net prices,
and the Fund incurs little or no brokerage costs. Subject to the
provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers
of may directly place trades and allocate brokerage, also subject to
the provisions of the advisory agreement and the procedures and rules
described above. In either case, brokerage is allocated under the
supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market
are generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed
securities or for certain fixed income agency transactions in the
secondary market and otherwise only if it appears likely that a better
price or execution can be obtained.
When the Fund engages in an option transaction, ordinarily the
same broker will be used for the purchase or sale of the option and any
transaction in the securities to which the option relates. When
possible, concurrent orders to purchase or sell the same security by
more than one of the accounts managed by the Manager and its affiliates
are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
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, and investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of
such other accounts. Such research, which may be supplied by a third
party at the instance of a broker, includes information and analyses on
particular companies and industries as well as market or economic
trends and portfolio strategy, receipt of 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 has
permitted the Manager to use concessions on fixed price offerings to
obtain research in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income trades to obtain research where
the broker has represented to the Manager that (i) the trade is not
from 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 research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The
Board of Trustees, including the "independent" Trustees of the Fund
(those Trustees of the Fund who are not "interested persons" as defined
in the Investment Company Act, and who have no direct or indirect
financial interest in the operation of the advisory agreement or the
Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers
furnishing such services so that the Board may ascertain whether the
amount of such commissions was reasonably related to the value or
benefit of such services.
Performance of the Fund
Yield and Total Return Information. From time to time the
"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" of an investment in a
class of shares of the Fund may be advertised. An explanation of how
these yields and total returns are calculated for each class and the
components of those calculations is set forth below. No total return
and yield calculations are presented below for Class B shares because
no shares of that class were publicly offered during the fiscal year
ended June 30, 1995.
The Fund's advertisement of its performance must, under applicable
rules of the Securities and Exchange Commission, include the average
annual total returns for each class of shares of the Fund for the 1, 5,
and 10-year periods (or the life of the class, if less) as of the most
recently-ended calendar quarter prior to the publication of the
advertisement. This 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 such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its yields, total returns and
share prices are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less
than their original cost. Yields and total returns for any given past
period are not a prediction or representation by the Fund of future
yields or rates of return on its shares. The yields and total returns
of Class A, Class B and Class C shares of the Fund are affected by
portfolio quality, the type of investments the Fund holds and its
operating expenses allocated to a particular class.
-- Standardized Yields
-- Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is calculated
using the following formula set forth in rules adopted by the
Securities and Exchange Commission that apply to all funds that quote
yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
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, using the current maximum sales
charge rate adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period
may differ from its yield for any other period. 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. This standardized yield 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 calculated for that period. The
standardized yield may differ from the "dividend yield" of that class,
described below. 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 the 30-day period ended June
30, 1995, the standardized yields for the Fund's Class A and Class C
shares were 6.17% and 5.59%, respectively. No standardized yields are
presented for Class B shares because no shares of that class were
publicly issued during the fiscal year ended June 30, 1995.
-- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the dividends paid on shares of a
class from dividends derived from net investment income during a stated
period. Distribution return includes dividends derived from net
investment income and from realized capital gains declared during a
stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one
year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of that class) on the
last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B or Class C shares, the maximum
offering price is the net asset value per share, without considering
the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its respective maximum offering price) at the end of the
period. The dividend yields on Class A shares for the 30-day period
ended June 30, 1995, were 6.64% and 6.97% when calculated at maximum
offering price and at net asset value, respectively. The dividend
yield on Class C shares for the 30-day period ended June 30, 1995, was
6.10% when calculated at net asset value.
-- Total Return Information
-- Average Annual Total Returns. 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") to achieve an
Ending Redeemable Value ("ERV") of that investment according to the
following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment
of $1,000 over an entire period of years. Its calculation uses some of
the same factors as average annual total return, but it does not
average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P
------- = Total Return
P
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 at net asset value, as described below). For Class B shares, the
payment of the current contingent deferred sales charge (5.0% for the
first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as
described below). For Class C shares, the 1.0% contingent deferred
sales charge is applied to the investment result for the one-year
period (or less). Total returns also assume that all dividends and
capital gains distributions during the period are reinvested to buy
additional shares at net asset value per share, and that the investment
is redeemed at the end of the period.
The "average annual total returns" on an investment in Class A
shares of the Fund for the one and five year periods ended June 30,
1995 and for the period from August 16, 1985 to June 30, 1995, were
5.94%, 7.27% and 8.00%, respectively. The cumulative "total return" on
Class A shares for the period from August 16, 1985 to June 30, 1995 was
113.76%. During a portion of the periods for which total returns are
shown for Class A shares, the Fund's maximum initial sales charge rate
was higher; as a result, performance returns on actual investments
during those periods may be lower than the results shown. The "average
annual total return" on an investment in Class C shares of the fund for
the one year period ended June 30, 1995 was 9.31%, and from its
inception on December 1, 1993 through June 30, 1995 was 4.22%. The
cumulative total return on Class C shares for the period from December
1, 1993 (the commencement of the offering of the shares) through June
30, 1995 was 6.75%.
-- Total Returns at Net Asset Value. From time to time the Fund
may also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or
Class C shares. Each is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions.
The cumulative total return at net asset value of the Fund's Class
A shares for the period from August 16, 1985 to June 30, 1995 was
124.41%. The cumulative total return at net asset value of the Fund's
Class C shares for the period from December 1, 1993 to June 30, 1995
was 6.75%. The average annual total returns at net asset value for the
one and five year periods ended June 30, 1995 and for the period from
August 16, 1985 to June 30, 1995, for Class A shares were 11.22%, 8.31%
and 8.53%, respectively. The average annual total returns at net asset
value for the one year period ended June 30, 1995 and the period from
December 1, 1993 to June 30, 1995 were 10.31% and 4.22%, respectively.
Total return information may be useful to investors in reviewing
the performance of the Fund's Class A, Class B or Class C shares.
However, when comparing total return of an investment in Class A or
Class C shares of the Fund with that of other alternatives, investors
should understand that as the Fund invests in high yield securities,
its shares are subject to greater market risks than shares of funds
having other investment objectives and that the Fund is designed for
investors who are willing to accept greater risk of loss in the hopes
of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish
the ranking of its Class A, Class B or Class C shares by Lipper
Analytical Services, Inc. ("Lipper"), a widely-recognized independent
mutual fund monitoring service. Lipper monitors the performance of
regulated investment companies, including the Fund, and ranks their
performance for various periods based on categories relating to
investment objectives. The performance of the Fund's classes are
ranked against (i) all other funds (excluding money market funds), (ii)
all other U.S. Government funds and (iii) all other U.S. Government
funds in a specific size category. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gains
distributions and income dividends but does not take sales charges or
taxes into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories
(equity, taxable bond, municipal bond and hybrid) based on risk-
adjusted investment return. Investment return measures a fund's three,
five and ten-year average annual total returns (when available) in
excess of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill monthly returns. Risk and return are combined to produce
star rankings reflecting performance relative to the average fund in a
fund's category. Five stars is the "highest" ranking (top 10%), 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%). Morningstar ranks the Fund's Class A, Class B
and Class C shares of the Fund in relation to other U.S. Government
funds. Rankings are subject to change.
The total return on an investment made in Class A, Class B or
Class C shares of the Fund may also be compared with the performance
for the same period of the Lehman Brothers U.S. Government Bond Index,
an unmanaged index including all U.S. Treasury issues, publicly- issued
debt of U.S. Government agencies and quasi-public corporations and U.S.
Government-guaranteed corporate debt, and is widely regarded as a
measure of the performance of the U.S. Government bond market. The
foregoing bond index includes a factor for the reinvestment of interest
but does not reflect expenses or taxes. Other indices may be used from
time to time. The performance of the Fund's Class A, Class B and Class
C shares may also be compared in publications to (i) performance of
various market indices or other investments for which reliable
performance data is available, and (ii) to averages, performance
rankings or other benchmarks prepared by recognized mutual fund
statistical services.
From time to time the Fund may also include in its advertisements
and sales literature performance information about the Fund or rankings
of the Fund's performance cited in newspapers or periodicals, such as
The New York Times which may include quotations of performance from
other sources, such as Lipper or Morningstar.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or the Transfer Agent), by independent third-
parties, on the investor services provided by them to shareholders of
the Oppenheimer funds, other than the performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of
shareholder/investor services by third parties may compare the
OppenheimerFunds services to those of other mutual fund families
selected by the rating or ranking services, and may be based upon the
opinions of the rating or ranking service itself, using its own
research or judgment, or based upon surveys of investors, brokers,
shareholders or others.
When comparing yield, total return and investment risk of an
investment in Class A, Class B or Class C shares of the Fund with other
investments, investors should understand that certain other investments
have different risk characteristics than an investment in shares of the
Fund. For example, certificates of deposit may have fixed rates of
return and may be insured as to principal and interest by the FDIC,
while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. U.S. Treasury securities are guaranteed as
to principal and interest by the full faith and credit of the U.S.
government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares of the
Fund under Rule 12b-1 of the Investment Company Act, pursuant to which
the Fund makes payments to the Distributor in connection with the
distribution and/or servicing of the shares of that class, as described
in the Prospectus. Each Plan has been approved by a vote of (i) the
Board of Trustees of the Fund, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting
on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for the Class B shares (the "Class B
Plan") and Class C shares (the "Class C Plan"), such votes were cast by
the Manager as the sole initial holder of Class B and Class C shares of
the Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the
advisory fee it receives from the Fund) to make payments to brokers,
dealers or other financial institutions (each is referred to as a
"Recipient" under the Plans) for distribution and administrative
services they perform, at no cost to the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount
of payments they make to Recipients from their own resources.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees
including its Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting on such continuance. Each
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. No Plan may be amended to increase materially the amount
of payments to be made unless such amendment is approved by
shareholders of the class affected by the amendment. In addition,
because Class B shares of the Fund automatically convert into Class A
shares after six years, the Fund is required to obtain the approval of
Class B as well as Class A shareholders for a proposed amendment to the
Class A Plan that would materially increase the amount to be paid by
Class A shareholders under the Class A Plan. Such approval must be by
a "majority" of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. All material
amendments must be approved by the Board and the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at
least quarterly for its review, detailing the amount of all payments
made pursuant to each Plan, the purpose for which the payment was made
and the identity of each Recipient that received any such payment and
the purpose of the payments. The report for the Class B and Class C
Plans shall also include the Distributor's distribution costs for that
quarter, and such costs for previous fiscal periods that have been
carried forward ("excess distribution expenses"). The Board may
consider whether to permit the Distributor to recover the excess
distribution expenses plus financing costs from future payments of the
asset-based sales charge or service following termination of the Plan.
Each Plan further provides 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 such
selection and nomination if the final decision on any such selection or
nomination is approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers, did not exceed a minimum
amount, if any, that may be determined from time to time by a majority
of the Fund's Independent Trustees. Initially, the Board of Trustees
has set the fee at the maximum rate and set no minimum amount.
Any unreimbursed expenses incurred by the Distributor with respect
to Class A shares for any fiscal year may not be recovered in
subsequent years. Payments received by the Distributor under the Class
A Plan will not be used to pay any interest expense, carrying charges,
or other financial costs, or allocation of overhead by the Distributor.
For the fiscal year ended June 30, 1995, payments under the Class
A Plan totalled $737,801, all of which was paid by the Distributor to
Recipients, including $53,292 paid to an affiliate of the Distributor.
Payments made under the Class C Plan during that fiscal period totalled
$65,084, of which the Distributor paid $2,782 to an affiliated broker-
dealer and retained $58,050 as reimbursement for Class C sales
commissions and service fee advances, as well as financing costs. No
payments have been made under the Class B Plan during that period, as
no Class B shares were outstanding.
The Class B and Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year
such shares are outstanding, and thereafter on a quarterly basis, as
described in the Prospectus. The advance payment is based on the net
assets of the shares sold. An exchange of shares does not entitle the
Recipient to an advance payment of the service fee. In the event
shares are redeemed during the first year such shares are outstanding,
the Recipient will be obligated to repay a pro rata portion of the
advance of the service fee payment to the Distributor.
Although the Class B and the Class C Plans permit the Distributor
to retain both the asset-based sales charges and the service fee, or to
pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may
be established from time to time under the Class B and the Class C Plan
by the Board. Initially, the Board has set no minimum holding period.
All payments under the Class B and the Class C Plan are subject to the
limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based
sales charges and service fees.
Asset-based sales charge payments are designed to permit an
investor to purchase shares of the Fund without the assessment of a
front-end sales load and at the same time permit the Distributor to
compensate brokers and dealers in connection with the sale of Class B
and Class C shares of the Fund. 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 during that period. Such payments are made in
recognition that the Distributor (i) pays sales commissions to
authorized brokers and dealers at the time of sale, as described in the
Prospectus, (ii) may finance such commissions and/or the advance of the
service fee payment to Recipients under those Plans, or may provide
such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may bear
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.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares.
The availability of three classes of shares permits an investor to
choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time
the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the
deferred sales charge and asset-based sales charge with respect to
Class B and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive
different compensation with respect to one class of shares than the
other. The Distributor will not accept (i) any order for $500,000 or
more of Class B or (ii) any order for $1 million or more of Class C
shares on behalf of a single investor (not including dealer "street
name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to
Class B and Class C shares and the dividends payable on Class B and
Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B and
Class C shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling
from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a revenue ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no
further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged
for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-
based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the
Fund's total assets, and then equally to each outstanding share within
a given class. Such general expenses include (i) management fees, (ii)
legal, bookkeeping and audit fees, (iii) printing and mailing costs of
shareholder reports, Prospectuses, Statements of Additional Information
and other materials for current shareholders, (iv) fees to unaffiliated
Trustees, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a class are allocated
equally to each outstanding share within that class. Such expenses
include (i) Distribution and/or Service Plan fees, (ii) incremental
transfer and shareholder servicing agent fees and expenses, (iii)
registration fees and (iv) shareholder meeting expenses, to the extent
that such expenses pertain to a specific class rather than to the Fund
as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day
the Exchange is open by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class
outstanding. The Exchange normally closes at 4:00 P.M., New York time,
but may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's most
recent annual holiday schedule (which is subject to change) states that
it will close New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
It may also close on other days. Trading may occur in U.S. Government
Securities at times when the Exchange is closed (including weekends and
holidays or after 4:00 P.M., on a regular business day). Because the
net asset values of the Fund will not be calculated at such times, if
securities held in the Fund's portfolio are traded at such times, the
net asset values per share of Class A, Class B and Class C shares of
the Fund may be significantly affected on such days when shareholders
do not have the ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally, as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale price on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of
the preceding trading day or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued
at the last sales price available to the pricing service approved by
the Fund's Board of Trustees or to the Manager as reported by the
principal exchange on which the security is traded; (iii) unlisted
foreign securities or listed foreign securities not actively traded are
valued as in (i) above, if available, or at the mean between "bid" and
"asked" prices obtained from active market makers in the security on
the basis of reasonable inquiry; (iv) long-term debt securities having
a remaining maturity in excess of 60 days are valued at the mean
between the "bid" and "asked" prices determined by a portfolio pricing
service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (v) debt instruments having a maturity of more than one year
when issued, and non-money market type instruments having a maturity of
one year or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between "bid" and "asked" prices
determined by a pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii)
securities (including restricted securities) not having readily-
available market quotations are valued at fair value under the Board's
procedures.
In the case of U.S. Government Securities and mortgage-backed
securities, where last sale information is not generally available,
such pricing procedures may include "matrix" comparisons to the prices
for comparable instruments on the basis of quality, yield, maturity and
other special factors involved. The Fund's Board of Trustees has
authorized the Manager to employ a pricing service to price U.S.
Government Securities for which last sale information is not generally
available. The Trustees will monitor the accuracy of such pricing
services by comparing prices used for portfolio evaluation to actual
sales prices of selected securities.
Puts, calls and Futures held by the Fund are valued at the last
sales prices on the principal exchanges on which they are traded or on
NASDAQ, as applicable, or, if there are no sales that day, in
accordance with (i) above. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset and an equivalent
deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the
option. In determining the Fund's gain on investments, if a call
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 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.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy shares. Dividends will begin
to accrue on shares purchased by the proceeds of ACH transfers on the
business day the Fund receives Federal Funds for the purchase through
the ACH system before the close of The New York Stock Exchange. The
Exchange normally closes at 4:00 P.M., but may close earlier on certain
days. If the Federal Funds are received on a business day after the
close of the Exchange, the shares will be purchased and dividends will
begin to accrue on the next regular business day. The proceeds of ACH
transfers are normally received by the Fund three days after the
transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from delays
in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales
efforts and reduction in expenses realized by the Distributor, dealers
and brokers making such sales. No sales charge is imposed in certain
other circumstances described in the Prospectus because the Distributor
or dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
parents, grandparents, parents-in-law, sons- and daughters-in-law,
siblings, and a sibling's spouse and a spouse's siblings.
-- The Oppenheimer funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer International Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the Oppenheimer funds except Money Market Funds (under
certain circumstances described herein, redemption proceeds of Money
Market Fund shares may be subject to a contingent deferred sales
charge).
-- Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor of
the intention to purchase Class A shares of the Fund (and Class A and
Class B shares of other Oppenheimer funds) during a 13-month period
(the "Letter of Intend period"), which may, at the investor's request,
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 public 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, but 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, as set forth in "Terms of Escrow," below (as those terms may
be amended 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 such
Letter of Intent, and if such terms are amended, as they may be from
time to time by the Fund, that those amendments will apply
automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended
purchase amount under the Letter 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.
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
applicable prospectus, the sales charges paid will be adjusted to the
lower rate, but 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.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter
of Intent period will be deducted. It is the responsibility of the
dealer of record and/or the investor to advise the Distributor about
the Letter in placing any purchase orders for the investor during the
Letter of Intent period. All of such purchases must be made through
the Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
up to 5% of the intended purchase amount specified in the Letter shall
be held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public 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 intended purchase amount 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. Such sales charge adjustment will apply to any shares
redeemed prior to the completion of the Letter. If such 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 shares or Class B shares acquired in exchange
for either (i) 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 (ii) 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 from a bank
account, a check (minimum $25) for the initial purchase must accompany
the application. Shares purchased by Asset Builder Plan payments from
bank accounts are subject to the redemption restrictions for recent
purchases described in "How To Sell Shares," in the Prospectus. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to
use those accounts for monthly automatic purchases of shares of up to
four other Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after
the Transfer Agent's receipt of such instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering
such plans at any time without prior notice.
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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
Check Writing. 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.
-- Selling Shares by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day
when the Fund would normally authorize the wire to be made, which is
usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next
bank business day on which the Fund is open for business. No dividends
will be paid on the proceeds of redeemed shares awaiting transfer by
wire.
-- 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 determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make
payment of a redemption order wholly or partly in cash. In that case
the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of securities from the portfolio of the Fund, in
lieu of cash, in conformity with applicable rules of the Securities and
Exchange Commission. The Fund has elected to be governed by Rule 18f-1
under the Investment Company Act, pursuant to which 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 method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value it portfolio securities described above under "Determination of
Net Asset Values Per Share" and 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 of Trustees
will not cause the involuntary redemption of shares in an account if
the aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board
elect to exercise this right, it may also fix, in accordance with the
Investment Company Act, the requirements for any notice to be given to
the shareholders in question (not less than 30 days), or the Board may
set requirements for granting permission to the Shareholder to increase
the investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of (i)
Class A shares, or (ii) Class B shares or (iii) Class C 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, at the net asset value next computed after the
Transfer Agent receives the reinvestment order. The shareholder must
ask the Distributor for that privilege at the time of reinvestment.
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. 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.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of
transfer to the name of another person or entity (whether the transfer
occurs by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain
subject to the contingent deferred sales charge, 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 and Class C contingent deferred sales charge
will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k)
plans or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at
its address listed in "How To Sell Shares" in the Prospectus or on the
back cover of this Statement of Additional Information. The request
must: (i) state the reason for the distribution; (ii) state the owner's
awareness of tax penalties if the distribution is premature; and (iii)
conform to the requirements of the plan and the Fund's other redemption
requirements. Participants (other than self-employed persons
maintaining a plan account in their own name) in OppenheimerFunds-
sponsored prototype pension, profit-sharing or 401(k) plans may not
directly redeem or exchange shares held for their account under those
plans. The employer or plan administrator 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 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, the Trustee 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. The repurchase price per share will be
the net asset value next computed after the Distributor receives the
order placed by the dealer or broker, except that 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 customer prior to the time the Exchange
closes (normally, that is 4:00 P.M., but may be earlier on some days)
and the order was 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 the required redemption
documents in proper form, with the signature(s) of the registered
owners guaranteed on the redemption document 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 (minimum $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, and sent to the
address of record for the account (and if the address has not 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 OppenheimerFunds New Account Application or
signature-guaranteed instructions. The Fund cannot guarantee receipt
of a payment on the date requested and reserves the right to amend,
suspend or discontinue offering such plans at any time without prior
notice. Because of the sales charge assessed on Class A share
purchases, shareholders should not make regular additional Class A
share purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal plans
because of the imposition of the Class B and Class C contingent
deferred sales charge on such withdrawals (except where the Class B and
Class C contingent deferred sales charge is waived as described in the
Prospectus under "Class B Contingent Deferred Sales Charge" or in
"Class C Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below and in the provisions of the OppenheimerFunds
Application relating to such Plans, as well as the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically apply to
existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) 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. 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 below, in this
Statement of Additional Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter 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 withdrawal plans should not be considered as a yield or income on
your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent and the Fund shall
incur no liability to the Planholder for any action taken or omitted by
the Transfer Agent in good faith to administer the Plan. 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.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption
date. Checks or AccountLink payments of the proceeds of Plan
withdrawals will normally be transmitted three business days prior to
the date selected for receipt of the payment (receipt of payment on the
date selected cannot be guaranteed), according to the choice specified
in writing by the Planholder.
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
in 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 (in proper form in accordance with the requirements
of the then-current Prospectus of the Fund) to redeem all, or any part
of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per
share in effect in accordance with the Fund's usual redemption
procedures and will mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at any
time by the Transfer Agent upon receiving directions to that effect
from the Fund. The Transfer Agent will also terminate a Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of a Plan by the Transfer Agent or
the Fund, shares that have not been redeemed from the account will be
held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder or his or her executor or guardian, or other 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
because of exhaustion of uncertificated shares needed to continue
payments. 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 OppenheimerFunds. Shares of
Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the Oppenheimer
funds offer Class A, B and C shares except Oppenheimer Money Market
Fund, Inc., Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt
Trust, Centennial America Fund, L.P. and Daily Cash Accumulation Fund
Inc., which only offer Class A shares and Oppenheimer Main Street
California Tax Exempt Fund which only offers Class A and Class B shares
(Class B and Class C shares of Oppenheimer Cash reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds sponsored 401 (k) plans).
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. 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 (or, if applicable, may be used to purchase shares of
Oppenheimer funds subject to a contingent deferred sales charge).
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the 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.
No contingent deferred sales charge is imposed on exchanges of
shares of either class purchased subject to a contingent deferred sales
charge. However, 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 12 months 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, whichever is
applicable. 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, and, if requested, must supply proof of entitlement to
this privilege. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed
within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B and Class C contingent deferred sales
charge will be followed in determining the order in which the shares
are exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of 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
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that
qualify for this privilege. 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.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtain acknowledge receipt of a
prospectus of, the fund to which the exchange is to be made. For full
or partial exchanges of an account made by telephone, any special
account features such as Asset Builder Plans, Automatic Withdrawal
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is instructed otherwise. If all
telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request exchanges by telephone and would have to submit written
exchange requests.
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 different Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and 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." However, daily
dividends on newly purchased shares will not be declared or paid 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. If all shares in
an account are redeemed, all dividends accrued on shares in the account
will be paid together with the redemption proceeds. Dividends will be
declared on shares repurchased by a dealer or broker for three business
days following the trade date (i.e., to and including the day prior to
settlement of the repurchase).
Dividends, distributions and the 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., 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.
The amount of a class's distributions may 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, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C shares," above. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are expected
to be lower than dividends on Class A shares as a result of the asset-
based sales charges on Class B and Class C shares, and will also differ
in amount as a consequence of any difference in net asset value between
the classes.
If prior distributions must be re-characterized at the end of the
fiscal year as a result of the effect of the Fund's investment
policies, shareholders may have a non-taxable return of capital, which
will be identified in notices to shareholders. There is no fixed
dividend rate and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
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 and
intends to qualify in future years, but reserves the right not to
qualify. The Internal Revenue Code contains a number of complex tests
to determine whether the Fund will qualify, and the Fund might not meet
those tests in a particular year. For example, if the Fund derives 30%
or more of its gross income from the sale of securities held less than
three months, it may fail to qualify (see "Tax Aspects of Covered Calls
and Hedging Instruments," above). If it does not qualify, the Fund will
be treated for tax purposes as an ordinary corporation and will receive
no tax deduction for payments of dividends and distributions made to
shareholders.
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, or else the Fund must pay an excise tax
on the amounts not distributed. While it is presently anticipated that
the Fund will meet those requirements, the Fund's Board and the Manager
might determine in a particular year that it would be in the best
interest 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.
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
in "Reduced Sales Charges" above, at net asset value without sales
charge. To elect this option, the shareholder must notify the Transfer
Agent in writing, and either must have an existing account in the fund
selected for reinvestment or must obtain a prospectus for that fund and
an application from the Transfer Agent to establish an account. The
investment will be made at net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from certain of the Oppenheimer funds
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets.
The Custodian's responsibilities include safeguarding and controlling
the Fund's portfolio securities, collecting income on the portfolio
securities and handling the delivery of such securities to and from the
Fund. The Manager has represented to the Fund that its banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between
the Fund and the Custodian. 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. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of Oppenheimer
U.S. Government Trust:
We have audited the accompanying statements of
investments and assets and liabilities of Oppenheimer
U.S. Government Trust as of June 30, 1995, and the
related statement of operations for the year then
ended, the statements of changes in net assets for each
of the years in the two-year period then ended and the
financial highlights for each of the years in the
ten-year 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
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements and financial highlights are free of
material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June
30, 1995, by correspondence with the custodian and
brokers; and where confirmations 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 U.S. Government Trust as of June 30, 1995,
the results of its operations for the year then ended,
the changes in its net assets for each of the years in
the two-year period then ended, and the financial
highlights for each of the years in the ten-year period
then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
---------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
July 27, 1995
<PAGE>
STATEMENT OF INVESTMENTS JUNE 30, 1995
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--108.8%
- ------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--106.2%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FHLMC/FNMA/ Federal Home Loan Mortgage Corp.:
SPONSORED--62.0% Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 10%, 6/15/20 $ 5,511,000 $ 6,203,456
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 14%, 1/1/11 596,715 686,059
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 6.65%, 4/15/21 10,750,000 10,544,996
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 6.80%, 3/15/16 15,000,000 15,083,400
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 8.50%, 10/15/19 2,476,908 2,526,843
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 9%, 7/15/21 2,815,075 2,887,676
Gtd. Multiclass Mtg. Participation Certificates, 11.50%, 6/1/20 1,966,543 2,250,463
Gtd. Multiclass Mtg. Participation Certificates, 13%, 8/1/15 3,000,000 3,537,188
Multiclass Gtd. Mtg. Participation Certificates, Series 1455, 7.50%, 12/15/22 5,000,000 5,068,750
-------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.: 7%, 7/15/25(1) 20,000,000 19,681,259
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 10.50%, 11/25/20 10,000,000 11,497,800
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 13%, 11/1/12 233,504 266,974
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 7%, 12/25/21 29,617,000 28,827,704
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8%, 12/1/22 3,361,862 3,440,008
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8%, 3/25/01 11,567,293 11,602,690
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8.75%, 11/25/05 4,000,000 4,280,400
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8.75%, 12/25/20 18,500,000 19,648,665
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 9%, 7/1/21 1,764,448 1,847,950
Gtd. Mtg. Pass-Through Certificates, 12%, 4/1/19 2,000,000 2,305,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8%, 7/25/19 18,000,000
18,725,938
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1992-112, 4%, 12/25/20 3,000,000 2,537,991
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1993-87, Inverse Floater, 4.933%, 6/25/23 (coupon inversely
indexed to 1-month US LIBOR, multiplied by 1.857)(2) 2,199,998 1,426,905
Interest-Only Stripped Mtg.-Backed Security, Trust 222, 8.19-10.03%, 6/25/23(3) 47,590,613
14,701,038
Interest-Only Stripped Mtg.-Backed Security, Trust 240, 7.84-8.74%, 9/25/23(3) 32,938,214 10,416,711
Principal-Only Stripped Mtg.-Backed Security, Series 1993-253,
Zero Coupon, 10.01% 11/25/23(4) 1,000,028 663,535
------------
200,659,399
</TABLE>
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GNMA/GUARANTEED--44.2% Government National Mortgage Assn.:
10%, 6/15/16--8/15/17 $ 2,823,084 $ 3,090,242
10.50%, 11/15/16--5/15/21 11,078,973 12,300,278
11%, 7/20/20 221,995 245,120
6.50%, 8/15/25(1) 63,000,000 63,826,875
7.50%, 3/15/23 41,194,649 41,511,228
8%, 4/15/22--8/15/24 21,381,336 21,933,532
------------
142,907,275
- -----------------------------------------------------------------------------------------------------------------------------
PRIVATE--2.6%
- -----------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY--2.6% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1991-M5, Cl. A, 9%, 3/25/17 5,001,065 5,233,928
---------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,600,000 3,328,875
------------
8,562,803
------------
Total Mortgage-Backed Obligations (Cost $345,269,392) 352,129,477
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--16.8%
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY--16.8% U.S. Treasury Bonds, 7.625%, 11/15/22 12,000,000
13,402,500
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125%, 8/15/19 15,643,000 18,253,426
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.875%, 8/15/17 3,000,000 3,748,125
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 11.625%, 11/15/04 3,500,000 4,813,592
---------------------------------------------------------------------------------------------
U.S. Treasury Nts., 8%, 10/15/96 13,610,000 13,980,014
------------
Total U.S. Government Obligations (Cost $51,984,471) 54,197,657
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $397,253,863) 125.6%
406,327,134
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (25.6) (82,701,609)
------------ ------------
NET ASSETS 100.0% $323,625,525
------------ ------------
------------ ------------
<FN>
1. When-issued security to be delivered and settled after June 30, 1995.
2. Represents the current interest rate for a variable rate bond. Variable
rate bonds known as "inverse floaters" pay interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than
the price of a comparable fixed-rate security. Inverse floaters amount to
$1,426,905 or 0.4% of the Fund's net assets, at June 30, 1995.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the notional amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates represent effective yield as of June 30, 1995.
4. Principal-Only Strips represent the right to receive the monthly
principal payments on an underlying pool of mortgage loans. The value of
these securities generally increases as interest rates decline and
prepayment rates rise. The price of these securities is typically more
volatile than that of coupon-bearing bonds of the same maturity. Interest
rates represent effective yield as of June 30, 1995.
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS Investments, at value (cost $397,253,863)--see accompanying statement $406,327,134
-----------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 346,867
Interest and principal paydowns 3,403,235
Shares of beneficial interest sold 178,525
-----------------------------------------------------------------------------------------------------------
Other 26,571
------------
Total assets 410,282,332
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES Bank overdraft 511,740
-----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis 84,306,946
Shares of beneficial interest redeemed 985,255
Dividends 480,932
Distribution and service plan fees--Note 4 192,504
Transfer and shareholder servicing agent fees--Note 4 23,977
Trustees' fees 120,007
Other 35,446
------------
Total liabilities 86,656,807
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $323,625,525
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $333,516,056
NET ASSETS -----------------------------------------------------------------------------------------------------------
Undistributed net investment income 87,075
-----------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment and written option transactions (19,050,877)
-----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 9,073,271
------------
Net assets $323,625,525
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $312,606,704 and 32,870,814 shares of beneficial interest outstanding) $9.51
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $9.98
-----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $11,018,821 and 1,159,733 shares of beneficial interest outstanding) $9.50
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME Interest $26,384,907
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 4 1,980,189
----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 737,801
Class C--Note 4 65,084
----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 347,882
----------------------------------------------------------------------------------------------------
Shareholder reports 144,824
----------------------------------------------------------------------------------------------------
Legal and auditing fees 53,814
----------------------------------------------------------------------------------------------------
Custodian fees and expenses 47,249
----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 40,121
----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,587
Class C 2,309
----------------------------------------------------------------------------------------------------
Other 58,846
-----------
Total expenses 3,479,706
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 22,905,201
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain on:
GAIN ON INVESTMENTS Investments 1,903,530
Closing and expiration of option contracts written--Note 5 276,563
-----------
Net realized gain 2,180,093
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 8,115,444
-----------
Net realized and unrealized gain on investments and options written 10,295,537
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$33,200,738
-----------
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS Net investment income $ 22,905,201 $ 23,618,222
-----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and options written 2,180,093 (11,210,170)
-----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 8,115,444 (15,469,786)
------------ ------------
Net increase (decrease) in net assets resulting from operations 33,200,738 (3,061,734)
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income:
TO SHAREHOLDERS Class A ($.676 and $.634 per share, respectively) (22,498,787)
(21,966,741)
Class C ($.599 and $.329 per share, respectively) (416,947) (76,280)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.012 per share) -- (418,629)
-----------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.034 per share) -- (1,145,537)
- -----------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net decrease in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 (7,455,681) (44,398,318)
-----------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C
beneficial interest transactions--Note 2 6,508,757 4,438,932
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase (decrease) 9,338,080 (66,628,307)
-----------------------------------------------------------------------------------------------
Beginning of period 314,287,445 380,915,752
------------ ------------
End of period (including undistributed net investment
income of $86,547 and $149,269, respectively) $323,625,525 $314,287,445
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer U.S. Government Trust
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77 $10.17
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .68 .67 .68 .69 .83 .90 .91 .90 .84
Net realized and unrealized gain (loss)
on investments and options written .31 (.74) .22 .48 .02 (.32) (.05) (.18) (.33)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total income (loss) from investment
operations .99 (.07) .90 1.17 .85 .58 .86 .72 .51
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.68) (.64) (.68) (.69) (.84) (.88) (.91) (.90) (.85)
Dividends in excess of net
investment income -- (.01) -- -- -- -- -- -- --
Distributions from net realized gain
on investments and options written -- -- -- -- -- -- -- -- (.06)
Tax return of capital distribuiton -- (.03) -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ------
Total dividends and distributions
to shareholders (.68) (.68) (.68) (.69) (.84) (.88) (.91) (.90) (.91)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.51 $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77
----- ----- ----- ----- ----- ----- ----- ----- ------
----- ----- ----- ----- ----- ----- ----- ----- ------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 11.22% (1.17)% 9.55% 13.05% 9.53% 6.34%
9.51% 7.78% 5.54%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $312,607 $310,027 $380,916 $395,863 $342,220 $264,728 $232,593 $203,857
$216,306
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $307,306 $355,698 $401,789 $376,532 $299,144 $253,085 $210,060 $197,834
$207,557
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 32,871 33,685 38,279 40,697 36,987 28,650 24,393 21,252
22,146
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.32% 6.61% 6.90% 7.23% 8.93% 9.60% 9.65% 9.36%
8.73%
Expenses 1.09% 1.14% 1.17% 1.17% 1.19% 1.16% 1.19% 1.13%
.99%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 303.5% 139.5% 96.8% 207.8% 133.9% 125.5% 76.9% 141.3%
263.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from August 16, 1985 to June 30, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$1,035,761,462 and $1,044,224,644, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C
-------- -------------------
YEAR ENDED JUNE 30,
1986(2) 1995 1994(1)
- ----------------------------------------------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.00 $9.19 $9.83
- ----------------------------------------------------- ------------------
Income (loss) from investment operations:
Net investment income 94 61 .33
Net realized and unrealized gain (loss)
on investments and options written .38 .30 (.64)
------ ----- -----
Total income (loss) from investment
operations 1.32 .91 (.31)
- ----------------------------------------------------- ------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.93) (.60) (.33)
Dividends in excess of net
investment income -- -- --
Distributions from net realized gain
on investments and options written (.22) -- --
Tax return of capital distribuiton -- -- --
------ ----- -----
Total dividends and distributions
to shareholders (1.15) (.60) (.33)
- ------------------------------------------------------ ------------------
Net asset value, end of period $10.17 $9.50 $9.19
------ ----- -----
------ ----- -----
- ----------------------------------------------------- ------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 14.95% 10.31% (3.12)%
- ----------------------------------------------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $160,389 $11,019 $4,261
- ---------------------------------------------------- --------------------
Average net assets (in thousands) $98,004 $6,503 $2,173
- ---------------------------------------------------- --------------------
Number of shares outstanding at
end of period (in thousands) 15,767 1,160 464
- ---------------------------------------------------- --------------------
Ratios to average net assets:
Net investment income 9.77%(4) 6.44% 5.97%(4)
Expenses .56%(4) 1.89% 1.96%(4)
- ----------------------------------------------------- --------------------
Portfolio turnover rate(5) 366.9% 303.5% 139.5%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer U.S. Government Trust (the Fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management
investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The
Fund offers both Class A and Class C shares. Class A
shares are sold with a front-end sales charge. Class C
shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to
earnings, assets and voting privileges, except that
each class has its own distribution and/or service
plan, expenses directly attributable to a particular
class and exclusive voting rights with respect to
matters affecting a single class. The following is a
summary of significant accounting policies consistently
followed by the Fund.
-------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which
such information is regularly reported are valued at
the last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading day.
Long-term and short-term ``non-money market'' debt
securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities
which cannot be valued by the approved portfolio
pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the
firm rendering the quotes is reliable and that the
quotes reflect current market value, or under
consistently applied procedures established by the
Board of Trustees to determine fair value in good
faith. Short-term "money market type" debt securities
having a remaining maturity of 60 days or less are
valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or
discount. Options are valued based upon the last sale
price on the principal exchange on which the option is
traded or, in the absence of any transactions that day,
the value is based upon the last sale price on the
prior trading date if it is within the spread between
the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used.
-------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery
and payment for securities that have been purchased by
the Fund on a forward commitment or when-issued basis
can take place a month or more after the transaction
date. During this period, such securities do not earn
interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery.
The Fund maintains, in a segregated account with its
custodian, assets with a market value equal to the
amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis
may increase the volatility of the Fund's net asset
value to the extent the Fund makes such purchases while
remaining substantially fully invested. As of June 30,
1995, the Fund had entered into outstanding when-issued
or forward commitments of $84,306,946.
In connection with its ability to purchase
securities on a when-issued or forward commitment
basis, the Fund may enter into mortgage "dollar-rolls"
in which the Fund sells securities for delivery in the
current month and simultaneously contracts with the
same counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a
specified future date. The Fund records each
dollar-roll as a sale and a new purchase transaction.
-------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated
daily to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a specific
class are charged against the operations of that class.
-------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply
with provisions of the Internal Revenue Code applicable
to regulated investment companies and to distribute all
of its taxable income, including any net realized gain
on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise
tax provision is required. At June 30, 1995, the Fund
had available for federal income tax purposes an unused
capital loss carryover of approximately $19,188,000,
$137,000 of which will expire in 1997, $3,193,000 in
1998, $7,358,000 in 1999, $1,187,000 in 2002 and
$7,313,000 in 2003.
-------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a
nonfunded retirement plan for the Fund's independent
trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service.
During the year ended June 30, 1995, the Fund's
projected benefit obligations were reduced by $12,061,
and a payment of $2,026 was made to a retired Trustee,
resulting in an accumulated liability of $107,913 at
June 30, 1995.
12 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends
POLICIES (CONTINUED) intends to declare dividends separately for Class A
and Class C shares from net investment income each
day the New York Stock Exchange is open for business
and pay such dividends monthly. Distributions from
net realized gains on investments, if any, will be
declared at least once each year.
-----------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net
investment income (loss) and net realized gain (loss)
may differ for financial statement and tax purposes
primarily because of paydown gains and losses. The
character of the distributions made during the year
from net investment income or net realized gains may
differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that
the income or realized gain (loss) was recorded by
the Fund.
During the year ended June 30, 1995, the Fund
changed the classification of distributions to
shareholders to better disclose the differences
between financial statement amounts and distributions
determined in accordance with income tax regulations.
Accordingly, during the year ended June 30, 1995,
amounts have been reclassified to reflect a decrease
in accumulated net realized loss on investments of
$66,251, a decrease in undistributed net investment
income of $51,661, and a decrease in paid-in capital
of $14,590.
-----------------------------------------------------
OTHER. Investment transactions are accounted for on
the date the investments are purchased or sold (trade
date). Discount on securities purchased is amortized
over the average life of the respective securities.
Realized gains and losses on investments and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is the
same basis used for federal income tax purposes.
- --------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no par
BENEFICIAL INTEREST value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 YEAR ENDED JUNE 30, 1994(1)
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 7,076,177 $65,369,039 6,237,904 $ 60,979,282
Dividends reinvested 1,868,269 17,288,287 1,913,674 18,566,281
Redeemed (9,758,134) (90,113,007) (12,746,027) (123,943,881)
---------- ----------- ----------- -------------
Net decrease (813,688) $(7,455,681) (4,594,449) $ (44,398,318)
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
-----------------------------------------------------------------------------------------------
Class C:
Sold 1,086,358 $10,120,239 531,550 $ 5,070,299
Dividends reinvested 35,316 327,690 5,284 49,363
Redeemed (425,453) (3,939,172) (73,322) (680,730)
---------- ----------- ----------- -------------
Net increase 696,221 $6,508,757 463,512 $ 4,438,932
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
</TABLE>
1. For the year ended June 30, 1994 for Class A shares
and for the period from December 1, 1993 to June 30,
1994 for Class C shares.
- -------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At June 30, 1995, net unrealized appreciation on
LOSSES ON INVESTMENTS investments of $9,073,271 was composed of gross
appreciation of $12,850,496, and gross depreciation of
$3,777,225.
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in accordance
OTHER TRANSACTIONS with the investment advisory agreement with the Fund
WITH AFFILIATES which provides for a fee of .65% of the first $200
million of average annual net assets of the Fund, .60%
of the next $100 million, .57% of the next $100
million, .55% of the next $400 million and .50% of net
assets in excess of $800 million. The Manager
voluntarily reduced the management fees to the current
levels. Prior to January 3, 1995, management fees were
as follows: .75% of the first $200 million of average
annual net assets, .70% of the next $200 million, .65%
of the next $400 million and .60% of net assets in
excess of $800 million. The Manager has agreed to
reimburse the Fund if aggregate expenses (with
specified exceptions) exceed the most stringent state
regulatory limit on Fund expenses.
13 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND For the year ended June 30, 1995, commissions (sales
OTHER TRANSACTIONS charges paid by investors) on sales of Class A shares
WITH AFFILIATES totaled $582,157, of which $169,246 was retained by
(CONTINUED) Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and
by an affiliated broker/dealer. Sales charges advanced
to broker/dealers by OFDI on sales of the Fund's Class
B shares totaled $76,562, of which $4,633 was paid to
an affiliated broker/dealer. During the period ended
June 30, 1995, OFDI received contingent deferred sales
charges of $9,578 upon redemption of Class C shares.
Oppenheimer Shareholder Services (OSS), a
division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of
providing such services are allocated ratably to these
companies.
Under separate approved plans, each class may
expend up to 25% of its net assets annually to
reimburse OFDI for costs incurred in connection with
the personal service and maintenance of accounts that
hold shares of the Fund, including amounts paid to
brokers, dealers, banks and other financial
institutions. In addition, Class C shares are subject
to an asset-based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid
from its own resources at the time of sale and
associated financing costs. In the event of termination
or discontinuance of the Class C plan, the Board of
Trustees may allow the Fund to continue payment of the
asset-based sales charge to OFDI for distribution
expenses incurred on Class C shares sold prior to
termination or discontinuance of the plan. During the
year ended June 30, 1995, OFDI paid $53,292 and $2,782
to an affiliated broker/dealer as reimbursement for
Class A and Class C personal service and maintenance
expenses, respectively, and retained $58,050 as
reimbursement for Class C sales commissions and service
fee advances, as well as financing costs.
- --------------------------------------------------------------------------------
5. OPTION ACTIVITY The Fund may buy and sell put and call options, or
write covered put and 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.
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 June 30,
1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
----------------------------- -----------------------------
NUMBER AMOUNT OF NUMBER
AMOUNT OF
OF OPTIONS PREMIUMS OF OPTIONS
PREMIUMS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at June 30, 1994 30,000 $290,625 80,000 $248,438
--------------------------------------------------------------------------------------------------------
Options closed (30,000) (290,625) (80,000) (248,438)
------- -------- ------- --------
Options outstanding at June 30, 1995 -- $ -- -- $ --
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
14 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
6. ACQUISITION OF On July 27, 1995, the Fund acquired all of the net
OPPENHEIMER assets of Oppenheimer Mortgage Income Fund, pursuant
MORTGAGE to an Agreement and Plan of Reorganization approved by
INCOME FUND the Oppenheimer Mortgage Income Fund shareholders on
July 12, 1995. The Fund issued 8,262,838 and 683,099
shares of beneficial interest for Class A and Class B,
respectively, valued at $77,918,563 and $6,434,794 in
exchange for the net assets, resulting in combined
Class A net assets of $385,440,401 and Class B net
assets of $6,806,465 on July 27, 1995. The exchange
qualifies as a tax-free reorganization for federal
income tax purposes.
- --------------------------------------------------------------------------------
7. FUTURES CONTRACTS The Fund may buy and sell interest rate futures
contracts in order to gain exposure to or protect
against changes in interest rates. The Fund may also
buy or write put or call options on these futures
contracts.
The Fund generally sells futures contracts to
hedge against increases in interest rates and the
resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase
futures contracts to gain exposure to changes in
interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the
Fund is required to deposit either cash or securities
in an amount (initial margin) 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.
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.
<PAGE>
Appendix A
Description of Securities Ratings
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") bond ratings:
Standard & Poor's describes its four highest ratings for corporate debt
as follows:
AAA: Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small
degree.
A: Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
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.
Moody's describes its four highest corporate bond ratings as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." 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, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are 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 in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., 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 in fact
have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
Appendix B
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities*
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility*
Textile/Apparel
Tobacco
Toys
Trucking
___________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, utilities are divided into
"industries" according to their services (e.g., gas utilities, gas
transmission utilities, electric utilities and telephone utilities are
each considered a separate industry)
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
