Oppenheimer U.S. Government Trust
Semiannual Report December 31, 1994
[photo depicting couple relaxing]
"We need
monthly
income,
and we
need to feel
comfortable
about how
our money
is invested."
[logo] OppenheimerFunds
<PAGE>
This Fund is for people who want monthly income and feel secure investing in a
fund holding bonds backed by the U.S. government and its agencies and
instrumentalities.
How Your Fund Is Managed
Oppenheimer U.S. Government Trust seeks high current income and safety of
principal by investing primarily in a portfolio of fixed income securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
While an investment in the Fund is neither insured nor guaranteed and
its shares fluctuate in value, the fact that the securities in the Fund's
portfolio are government-backed means investors enjoy superior credit safety and
assurance of timely payment to the Fund of principal and interest on those
securities.
In addition, the Fund is also designed to provide higher income than
more conservative fixed income investments.
Performance
Total return at net asset value for the 6 months ended 12/31/94 was 1.82% for
Class A shares and 1.41% for Class C shares.(2)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1- and 5-year periods ended 12/31/94 and since inception
of the Class on 8/16/85 were -5.97%, 5.76% and 7.42%, respectively. For Class C
shares, average annual total returns for the 1-year period ended 12/31/94 and
since inception of the Class on 12/1/93 were -3.17% and -1.71%, respectively.(3)
Outlook
"The interest rate increases we've seen over the last 12 months represent one of
the most challenging periods the bond markets have faced in more than six
decades. Our conservative management approach, combined with the ability to
diversify our investments across the full range of U.S. government and agency
securities, allowed us to deliver an attractive, dependable level of income and
above-average principal stability, compared with the market as a whole."
David Rosenberg, Portfolio Manager
December 31, 1994
Yield
Standardized Yield
For the 30 Days Ended 12/31/94:(1)
Class A
6.92%
Class B
6.33%
1. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 12/31/94, divided by the maximum offering
price at the end of the period, compounded semi-annually and then annualized.
Falling net asset values will tend to artificially raise yields.
2. Based on the change in net asset value per share from 6/30/94 to 12/31/94,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
3. Average annual total returns are based on a hypothetical investment held
until 12/31/94, after deducting the current maximum initial sales charge of
4.75% for Class A shares. The Fund's maximum sales charge rate for Class A
shares was higher during a portion of some of the periods shown, and actual
investment results will be different as a result of the change. Total return
for Class C shares was based on a hypothetical investment held for that period,
after deducting the 1% contingent deferred sales charge (for the 1-year
performance). Class A and Class C shares were first publicly offered on 8/16/85
and 12/1/93, respectively. All figures assume reinvestment of dividends and
capital gains distributions. Past performance is not indicative of future
results. Investment and principal value on an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original cost.
2Oppenheimer U.S. Government Trust
<PAGE>
Dear OppenheimerFunds Shareholder,
The past year was marked by one of the greatest tests the bond markets faced in
more than six decades. As the U.S. Federal Reserve undertook one of the most
aggressive series of moves to raise interest rates in its history, bond prices
declined across the board, leaving many investors to wonder what the future
holds for interest rates and the fixed income markets.
Changing interest rates and fluctuating bond prices are facts of life
affecting all bond markets, and it's a bond market basic principle that when
interest rates rise, bond prices generally decline. That is why we believe the
best measure for any fixed income investment is its performance over the long
term. And we believe the long-term outlook for the bond markets is excellent.
We expect the Fed's attempt to preempt possible inflation, while
temporarily disconcerting, to have its desired effect in 1995. The economy
should start to slow, and although short-term rates may move up modestly from
their present levels, long-term interest rates should stabilize in their current
range. Long-term rates may even begin to decline as overblown concerns about
inflation abate.
Those concerns are, in fact, already fading. While the prices of some
commodities have risen over the past year and U.S. manufacturing capacity
utilization and employment rose to their highest levels in years, in today's
globally competitive environment, price increases are difficult to pass on to
either consumers or businesses. The inflation rate--as measured by the Consumer
Price Index--continues to run at less than 3% a year, and there's
nothing on the horizon to suggest to us that it will increase substantially
anytime soon. As a result, bonds today offer some of the highest real,
inflation-adjusted returns we have seen in years.
At the same time, the changing political landscape reflected in results
of the mid-term election bode well for the bond market over time. In addition to
limiting the expectation that Congress will pass potentially inflationary
government spending proposals, the realignment in Washington has raised the
possibility of tax relief in the form of an expanded deduction for individual
retirement savings or possibly a reduction in the capital gains tax rate. What
specific action, if any, Congress will take on these proposals remains to be
seen. But any action to reduce the federal deficit, cut spending, and reduce
taxes should be good news for the investment markets overall. Together, these
factors suggest to us that 1995 will be a rewarding time for bond market
investors.
We expect that as short-term rates rise and inflation holds at its
current level, short-term investments should provide more attractive real,
inflation-adjusted yields. Longer-term bonds in all sectors--corporate,
municipal, and U.S. government--may also provide very attractive total return
opportunities. Along with strong yields, longer-term bonds offer the prospect of
modest price appreciation during 1995 as well.
Your portfolio manager discusses your Fund's outlook on the following
pages. We appreciate your confidence in OppenheimerFunds and we look forward to
helping you continue to reach your investment goals.
Donald W. Spiro
President
Oppenheimer
U.S. Government
Trust
Jon S. Fossel
Chairman and CEO
Oppenheimer
Management
Corporation
Donald W. Spiro Jon S. Fossel
January 23, 1995
3Oppenheimer U.S. Government Trust
<PAGE>
Q + A
An interview with your Fund's manager.
In light of the bond market's challenging year, this Fund performed better than
many of its competitors, as measured by the Lipper U.S. government funds
average.(1) What accounts for that performance?
We believe that superior long-term returns depend as much on maintaining
principal value in difficult markets as on increasing it in favorable markets.
Reflecting this conservative approach, we began positioning the portfolio
against rising interest rates over a year ago, as rates approached their
post-war lows. This defensive positioning paid off over the past year.
Doesn't reducing risk mean giving up returns?
Not over the long term. In bull bond markets, this Fund may
modestly underperform other government securities funds. But when interest rates
are rising, it tends to hold its principal value better than many other bond
funds. This approach has produced supe-rior returns in the past, and we believe
that it will continue to do so in the future.
Are you finding opportunities to improve yield and reduce risk today?
Yes, and we're taking full advantage of them in three ways. First, we're
controlling the portfolio's duration--a technical measure of a bond portfolio's
sensitivity to changing interest rates. Second, we're investing in market
sectors that provide a premium over Treasuries. And third, we're taking a
"barbell" approach to portfolio construction, focusing our investments heavily
on bonds with shorter maturities, to take advantage of rising interest rates,
and longer maturities, which offer exceptional real rates of return over
inflation.(2)
Q How
did the Fund
perform
in 1994's difficult markets?
1. Source: Lipper Analytical Services. The Lipper total return average for
the year ended was for 145 U.S. government funds. Oppenheimer U.S. Government
Trust Fund is characterized by Lipper as a U.S. government fund. Lipper
performance does not take sales charges into consideration.
2. The Fund's portfolio is subject to change.
4Oppenheimer U.S. Government Trust
<PAGE>
How do those approaches translate into specific investment strategies?
We believe that the real risk in the bond market today lies in the intermediate
maturity sectors--bonds maturing in three to ten years. As a result, we've
reduced our exposure to intermediate bonds, notably in U.S. Treasury securities,
and used the proceeds to buy mortgage-backed bonds, whose payment patterns and
prices have become much more stable and predictable as interest rates have
risen. With interest rates at their current levels, the mortgage-backed market
is much more stable and predictable than it was a year ago. Of course, to keep
potential price fluctuations to a minimum, we continue to invest in
well-seasoned, well-structured collateralized mortgage obligations.
I've read a lot about the dangers of derivatives lately. Do you use derivatives
in managing the Fund's portfolio?
We have a carefully limited amount of standard derivatives in the portfolio,
which we use to manage interest rate risk, and these instruments played an
important role in helping preserve our shareholders' principal over the past
year. We're well aware of the negative publicity derivatives have received
lately, but we believe the riskiest action we could take would be to do nothing
to manage risk when the tools to do so efficiently are available. Our
performance in 1994 bears out that view.
What's your outlook for the Fund and the government securities market?
In the short-term, we remain cautious, given all the uncertainties hanging over
the economy. Looking out longer, however, we're extremely optimistic. It's
difficult to remember a period when the market offered better real,
inflation-adjusted returns, and we feel the Fund is well-positioned to make the
most of all the opportunities the market offers.
Facing page
Top left: David Rosenberg, Portfolio Manager
Top right: Art Steinmetz, Senior
VP Fixed Income Investments Portfolio Management Team
Bottom left: Len Darling, Executive VP, Director of Fixed Income Investments,
consults with Jon Fossel
This page
Right: David Rosenberg with
Gina Palmieri, Mortgage Analyst
Below: Eva Zeff, Assistant VP
Fixed Income Investments
Portfolio Management Team
A When interest rates are rising, the Fund tends to hold its principal value
better than many other bond funds.
5 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Statement of Investments December 31, 1994 (Unaudited)
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<CAPTION>
Face Market Value
Amount See Note 1
===================================================================================================================================
<S> <C> <C>
Mortgage-Backed Obligations--92.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency--92.9%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/ Federal Home Loan Mortgage Corp., Collateralized Mtg.
Sponsored--50.9% Obligations, Gtd. Multiclass Mtg. Participation Certificates:
10%, 6/15/20 $ 5,511,000 $ 5,949,345
14%, 1/11/11 651,212 727,977
6.65%, 4/15/21 10,750,000 9,466,771
6.80%, 3/15/16 15,000,000 14,591,249
8.50%, 10/15/19 2,801,766 2,811,684
9%, 7/15/21 3,154,441 3,191,349
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collaterized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
13%, 11/1/12 281,412 311,642
8%, 3/25/01--12/1/22 15,167,643 15,035,752
8.50%, 1/25/00 29,617,000 24,949,950
8.75%, 12/25/20 22,500,000 22,801,147
9%, 7/1/21 1,845,984 1,866,457
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
10.50%, 11/25/20 10,000,000 11,034,599
8%, 7/25/19 18,000,000 17,481,778
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, Trust 218, CI. 2, 7.50%, 4/25/23(2) 19,173,448 7,184,052
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, Trust 240, Cl.2, 7%, 9/25/23(2) 38,355,636 14,305,455
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, Trust 252, Cl. 2, 7.50%, 11/30/23(2) 11,383,932 4,338,345
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped
Mtg.-Backed Security, Trust 253, Cl. G, 0%, 11/25/23(1) 1,000,028 421,340
------------
156,468,892
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--42.0% Government National Mortgage Assn.:
10%, 6/15/16--8/18/17 2,911,513 3,082,300
10.50%, 2/15/13--8/15/19 12,351,693 13,205,169
11%, 7/20/20 222,743 239,387
7.50%, 3/1/25(3) 25,000,000 24,960,938
8%, 4/15/22--9/15/24 48,416,361 46,421,678
8.50%, 12/1/24--12/15/24 41,650,000 40,947,157
------------
128,856,629
------------
Total Mortgage-Backed Obligations (Cost $286,446,651) 285,325,521
===================================================================================================================================
U.S. Government Obligations--14.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury--14.6% U.S. Treasury Bonds, 8.75%, 8/15/00(4) (Cost $44,838,594) 43,000,000 44,800,625
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $331,285,245) 107.5% 330,126,146
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (7.5) (23,122,477)
----- ------------
Net Assets 100.0% $307,003,669
===== ============
1. 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.
2. Interest-Only Strips represent the right to receive the monthly interest payment 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).
3. When-issued security to be delivered and settled after December 31, 1994.
4. Securities with an aggregate market value of $36,465,625 are held in escrow to cover initial margin requirements on open
interest rate futures sales contracts, as follows:
Type of Contract Number of Contracts Face Amount
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 3/95 350 $35,000,000
The market value of the open contracts was $35,032,813 at December 31, 1994, with a net unrealized gain of $10,938.
See accompanying Notes to Financial Statements.
</TABLE>
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Statement of Assets and Liabilities December 31, 1994 (Unaudited)
------------------------------------------------------------------------------------------------
===================================================================================================================================
<S> <C> <C>
Assets Investments, at value (cost $331,285,245)--see accompanying statement $330,126,146
------------------------------------------------------------------------------------------------
Cash 137,179
------------------------------------------------------------------------------------------------
Unrealized appreciation on futures contracts--Note 6 10,938
------------------------------------------------------------------------------------------------
Receivables:
Investments sold 24,532,185
Interest and principal paydowns 3,841,574
Shares of beneficial interest sold 540,561
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Other 85,511
------------
Total assets 359,274,094
===================================================================================================================================
Liabilities Payables and other liabilities:
Investments purchased 49,297,813
Shares of beneficial interest redeemed 2,161,906
Distribution and service plan fees--Note 4 182,191
Other 628,515
------------
Total liabilities 52,270,425
===================================================================================================================================
Net Assets $307,003,669
============
===================================================================================================================================
Composition of Paid-in capital $333,284,570
Net Assets ------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 136,356
------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) from investment transactions (25,269,096)
------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments--Note 3 (1,148,161)
------------
Net assets $307,003,669
============
===================================================================================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets
of $300,992,755 and 33,339,540 shares of beneficial interest outstanding) $9.03
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $9.48
------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $6,010,914 and 666,567 shares of beneficial interest outstanding) $9.02
See accompanying Notes to Financial Statements.
</TABLE>
7 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Statement of Operations For the Six Months Ended December 31, 1994 (Unaudited)
------------------------------------------------------------------------------------------------
===================================================================================================================================
<S> <C> <C>
Investment Income Interest $13,056,094
===================================================================================================================================
Expenses Management fees--Note 4 987,787
------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 366,495
Class C--Note 4 24,315
------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 150,730
------------------------------------------------------------------------------------------------
Shareholder reports 75,898
------------------------------------------------------------------------------------------------
Custodian fees and expenses 34,040
------------------------------------------------------------------------------------------------
Legal and auditing fees 16,544
------------------------------------------------------------------------------------------------
Trustees' fees and expenses 14,971
------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,587
Class C 593
------------------------------------------------------------------------------------------------
Other 17,816
------------
Total expenses 1,690,776
===================================================================================================================================
Net Investment Income (Loss) 11,365,318
===================================================================================================================================
Realized and Unrealized Net realized gain (loss) on:
Gain (Loss) on Investments Investments (3,962,064)
Closing of futures contracts (9,811)
------------
Net realized gain (loss) (3,971,875)
------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (2,105,988)
------------
Net realized and unrealized gain (loss) on investments (6,077,863)
===================================================================================================================================
Net Increase (Decrease) in Net Assets Resulting From Operations $ 5,287,455
============
See accompanying Notes to Financial Statements.
</TABLE>
8 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------
Six Months Ended
December 31, 1994 Year Ended
(Unaudited) June 30, 1994
===================================================================================================================================
<S> <C> <C>
Operations Net investment income (loss) $ 11,365,318 $ 23,618,222
------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (3,971,875) (11,210,170)
------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments (2,105,988) (15,469,786)
------------ ------------
Net increase (decrease) in net assets resulting from operations 5,287,455 (3,061,734)
===================================================================================================================================
Dividends and Distributions Dividends from net investment income:
To Shareholders Class A ($.337 and $.634 per share, respectively) (11,212,167) (21,966,741)
Class C ($.299 and $.329 per share, respectively) (166,064) (76,280)
Dividends in excess of net investment income:
Class A ($.012 per share) -- (418,629)
------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.034 per share) -- (1,145,537)
===================================================================================================================================
Beneficial Interest Net increase (decrease) in net assets resulting from Class A
Transactions beneficial interest transactions--Note 2 (3,035,592) (44,398,318)
------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from Class C
beneficial interest transactions--Note 2 1,842,592 4,438,932
===================================================================================================================================
Net Assets Total increase (decrease) (7,283,776) (66,628,307)
------------------------------------------------------------------------------------------------
Beginning of period 314,287,445 380,915,752
------------ ------------
End of period (including undistributed net investment
income of $136,356 and $149,269, respectively) $307,003,669 $314,287,445
============ ============
See accompanying Notes to Financial Statements.
</TABLE>
9 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
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Financial Highlights
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Class A Class C
-------------------------------------------------------------------------- ------------------------
Six Months Six Months Period
Ended Ended Ended
Dec. 31, 1994 Year Ended June 30, Dec. 31, 1994 June 30
(Unaudited) 1994 1993 1992 1991 1990 (Unaudited) 1994(1)
===================================================================================================================================
<S> <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 $ 9.19 $ 9.83
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .34 .67 .68 .69 .83 .90 .30 .33
Net realized and unrealized
gain (loss) on investments
and options written (.17) (.74) .22 .48 .02 (.32) (.17) (.64)
-------- -------- -------- -------- -------- -------- -------- --------
Total income from investment
operations .17 (.07) .90 1.17 .85 .58 .13 (.31)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment
income (.34) (.64) (.68) (.69) (.84) (.88) (.30) (.33)
Dividends in excess of net
investment income -- (.01) -- -- -- -- -- --
Distributions from net
realized gain on investments
and options written -- -- -- -- -- -- -- --
Tax return of capital
distributions -- (.03) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions to shareholders (.34) (.68) (.68) (.69) (.84) (.88) (.30) (.33)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.03 $ 9.20 $ 9.95 $ 9.73 $ 9.25 $ 9.24 $ 9.02 $ 9.19
======== ======== ======== ======== ======== ======== ======== ========
===================================================================================================================================
Total Return, at Net
Asset Value(2) 1.82% (1.17)% 9.55% 13.05% 9.53% 6.34% 1.41% (3.12)%
===================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $300,993 $310,027 $380,916 $395,863 $342,220 $264,728 $ 6,011 $ 4,261
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $304,675 $355,698 $401,789 $376,532 $299,144 $253,085 $5,185 $2,173
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 33,340 33,685 38,279 40,697 36,987 28,650 667 464
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.40%(3) 6.61% 6.90% 7.23% 8.93% 9.60% 6.66%(3) 5.97%(3)
Expenses 1.08%(3) 1.14% 1.17% 1.17% 1.19% 1.16% 1.80%(3) 1.96%(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 98.2% 139.5% 96.8% 207.8% 133.9% 125.5% 98.2% 139.5%
1. For the period from December 1, 1993 (inception of offering) to June 30, 1994.
2. 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.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period. Securities with a
maturity or expiration date at the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-term securities) for
the six months ended December 31, 1994 were $322,707,560 and $410,118,313, respectively.
See accompanying Notes to Financial Statements.
</TABLE>
10 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Notes to Financial Statements (Unaudited)
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===================================================================================================================================
<S> <C>
1. Significant Oppenheimer U.S. Government Trust (the Fund) is registered under the Investment Company Act of
Accounting Policies 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 4:00 p.m. (New York time) on each
trading day. Long-term debt securities are valued by a portfolio pricing service approved by the
Board of Trustees. Long-term debt 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 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 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.
------------------------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's
vault, all securities held as collateral for repurchase agreements. The market value of the
underlying securities is required to be at least 102% of the resale price at the time of
purchase. If the seller of the agreement defaults and the value of the collateral declines, or
if the seller enters an insolvency proceeding, realization of the value of the collateral by the
Fund may be delayed or limited.
------------------------------------------------------------------------------------------------
Allocation of Income, Expenses 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 Income 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 tax provision is required. At December 31, 1994, the
Fund had available for federal income tax purposes an unused capital loss carryover of
approximately $11,875,000, $3,330,000 of which will expire in 1998, $7,358,000 in 1999 and
$1,187,000 in 2000.
------------------------------------------------------------------------------------------------
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. The accumulated liability for the Fund's projected benefit of
obligations was $109,656 at December 31, 1994. No payments have been made under the plan.
------------------------------------------------------------------------------------------------
Distributions to Shareholders. The Fund 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.
------------------------------------------------------------------------------------------------
Change in Accounting 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. Effective July 1, 1993, the Fund adopted
Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result,
the Fund changed the classification of distributions to
</TABLE>
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
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Notes to Financial Statements (Unaudited) (Continued)
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===================================================================================================================================
<S> <C>
1. Significant Accounting shareholders to better disclose the differences between financial statement amounts and
Policies (continued) distributions determined in accordance with income tax regulations. Accordingly, amounts have
been reclassified to reflect an increase in accumulated net realized gain on investments of
$1,754,888, a decrease in undistributed net investment income of $438,124 and a decrease in
paid-in capital of $1,316,764.
------------------------------------------------------------------------------------------------
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 value shares of beneficial interest of
Beneficial Interest each class. Transactions in shares of beneficial interest were as follows:
<CAPTION>
Six Months Ended
December 31, 1994 Year Ended June 30, 1994(1)
-------------------------------- -------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 3,670,698 $ 33,542,501 6,237,904 $ 60,979,282
Dividends reinvested 779,523 7,141,369 1,913,674 18,566,281
Redeemed (4,795,183) (43,719,462) (12,746,027) (123,943,881)
------------- ------------- ------------- -------------
Net increase (decrease) (344,962) $ (3,035,592) (4,594,449) $ (44,398,318)
============= ============= ============= =============
------------------------------------------------------------------------------------------------
Class C:
Sold 305,060 $ 2,771,843 531,550 $ 5,070,299
Dividends reinvested 11,270 102,986 5,284 49,363
Redeemed (113,275) (1,032,237) (73,322) (680,730)
------------- ------------- ------------- -------------
Net increase 203,055 $ 1,842,592 463,512 $ 4,438,932
============= ============= ============= =============
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.
===================================================================================================================================
<S> <C>
3. Unrealized Gains and At December 31, 1994, net unrealized depreciation on investments of $1,148,161 was composed of
Losses on Investments gross appreciation of $3,032,950, and gross depreciation of $4,181,111.
===================================================================================================================================
4. Management Fees and Management fees paid to the Manager were in accordance with the investment advisory agreement
Other Transactions with the Fund which provides for an annual fee of .75% of the first $200 million of net assets,
With Affiliates .70% of the next $200 million, .65% of the next $400 million and .60% of net assets in excess of
$800 million. The Manager voluntarily reduced the management fees to provide for an annual fee
of .65% of the first $200 million of net assets, .60% of the next $200 million, .55% of the next
$400 million and .50% of net assets in excess of $800 million. Effective January 3, 1995 the
Manager will voluntarily reduce the management fees to provide for an annual fee of .65% of the
first $200 million of 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 has agreed to reimburse the Fund if aggregate expenses (with specified exceptions)
exceed the most stringent applicable regulatory limit on Fund expenses.
For the six months ended December 31, 1994, commissions (sales charges paid by investors)
on sales of Class A shares totaled $268,060, of which $76,878 was retained by Oppenheimer Funds
Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor, and by an
affiliated broker/dealer. During the six months ended December 31, 1994, OFDI received
contingent deferred sales charges of $5,068 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
</TABLE>
12 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
===================================================================================================================================
<S> <C>
4. Management Fees and institutions. In addition, Class C shares are subject to an asset-based sales charge of .75% of
Other Transactions net assets annually, to reimburse OFDI for sales commissions paid from its own resources at the
With Affiliates (continued) 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 six months ended December 31, 1994,
OFDI paid $26,595 to an affiliated broker/dealer as reimbursement for Class A personal service
and maintenance expenses and retained $26,001 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 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. The Fund segregates assets to cover its obligations under
option contracts.
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.
In this report, securities segregated to cover outstanding call options are noted in the
Statement of Investments. Shares subject to call, expiration date, exercise price, premium
received and market value are detailed in a footnote to the Statement of Investments. Options
written are reported as a liability in the Statement of Assets and Liabilities. Gains and losses
are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity for profit if
the market price of the security increases and the option is exercised. The risk in writing a
put option is that the Fund may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Fund pays a premium whether or
not the option is exercised. The Fund also has the additional risk of not being able to enter
into a closing transaction if a liquid secondary market does not exist.
Option activity for the six months ended December 31, 1994 was as follows:
<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 written -- -- -- --
------------------------------------------------------------------------------------------------
Options expired prior to exercise -- -- -- --
------------------------------------------------------------------------------------------------
Options closed 30,000 290,625 80,000 248,438
-------- -------- -------- --------
Options outstanding at December 31, 1994 -- $ -- -- $ --
======== ======== ======== ========
</TABLE>
13 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited) (Continued)
------------------------------------------------------------------------------------------------
===================================================================================================================================
<S> <C>
6. Futures Contracts The Fund may buy and sell interest rate futures contracts in order to gain exposure to or
protect against changes in interest rates. The Fund may also buy or write put or call options on
these futures contracts.
The Fund generally sells futures contracts to hedge against increases in interest rates and
the resulting negative effect on the value of fixed rate portfolio securities. The Fund may also
purchase futures contracts to gain exposure to changes in interest rates as it may be more
efficient or cost-effective than actually buying fixed income securities. The Fund will
segregate assets to cover its commitments under futures contracts.
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.
In this report, the number of open futures contracts, face amount, market value and
unrealized gain or loss are reported in a footnote to the Statement of Investments. In addition,
securities segregated to cover initial margin requirements on open futures contracts are noted
in the Statement of Investments. Gains and losses (unrealized appreciation or depreciation on
futures contracts) are reported in the Statement of Assets and Liabilities.
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.
At December 31, 1994, the Fund had outstanding futures contracts to sell debt securities as
follows:
<CAPTION>
Expiration Number of Valuation as of Unrealized
Date Futures Contracts December 31, 1994 Appreciation
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts. 3/95 350 $35,032,813 $10,938
</TABLE>
14 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
Oppenheimer U.S. Government Trust
------------------------------------------------------------------------------------------------
===================================================================================================================================
<S> <C>
Officers and Trustees Leon Levy, Chairman of the Board of Trustees
Leo Cherne, Trustee
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Sidney M. Robbins, Trustee
Donald W. Spiro, Trustee and President
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
David Rosenberg, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
===================================================================================================================================
Investment Advisor Oppenheimer Management Corporation
===================================================================================================================================
Distributor Oppenheimer Funds Distributor, Inc.
===================================================================================================================================
Transfer and Shareholder Oppenheimer Shareholder Services
Servicing Agent
===================================================================================================================================
Custodian of Citibank, N.A.
Portfolio Securities
===================================================================================================================================
Independent Auditors KPMG Peat Marwick LLP
===================================================================================================================================
Legal Counsel Gordon Altman Butowsky Weitzen Shalov & Wein
The financial statements included herein have been taken from the records of the Fund without
examination by the independent auditors. This is a copy of a report to shareholders of
Oppenheimer U.S. Government Trust. This report must be preceded or accompanied by a Prospectus
of Oppenheimer U.S. Government Trust. For material information concerning the Fund, see the
Prospectus.
</TABLE>
15 Oppenheimer U.S. Government Trust
<PAGE>
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