[FRONT COVER]
Oppenheimer U.S. Government Trust
Annual Report June 30, 1996
[Picture of Walk in Park]
"We need
monthly
income,
and we need
to feel
comfortable
about how
our money is
invested."
[LOGO-OPPENHEIMERFUNDS (R)]
<PAGE>
News
Standardized Yields(3)
For the 30 Days Ended 6/30/96:
Class A
6.36%
Class B
5.90%
Class C
5.95%
Beat the Average
Total Return for the 3-Year Period
Ended 6/30/96:
Oppenheimer U.S. Government
Trust Class A
(at net asset value)(1)
15.31%
Lipper General U.S. Government
Funds Average(4)
11.64%
This Fund is for people who want monthly income and feel secure with a fund
emphasizing U.S. government-backed securities.
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
share prices and dividends fluctuate in value, the fact that most of 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 twelve months ended 6/30/96 was 4.91%
for Class A shares and 4.11% for Class C shares. Cumulative total return at net
asset value for Class B shares since inception on 7/21/95 was 4.80%.(1)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1-, 5- and 10-year periods ended 6/30/96 were (0.08)%,
6.34% and 7.03%, respectively. For Class B shares, average annual total return
since inception on 7/21/95 was (0.14)%. For Class C shares, average annual total
returns for the 1-year period ended 6/30/96 and since inception of the Class on
12/1/93 were 3.13% and 4.18%, respectively.(2)
Outlook
"Our outlook for the Fund remains strong. The aim of this Fund is to maximize
yield while reducing volatility. We expect to meet this goal well into the
coming months."
David Rosenberg, Portfolio Manager
June 30, 1996
Total returns include change in share price and reinvestment of dividends and
capital gains distributions. Past performance does not guarantee future results.
Investment return and principal value of 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. For more complete information, please review the
prospectus carefully before you invest.
1. Based on the change in net asset value per share for the period shown,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
2. Class A returns show results of hypothetical investments on 6/30/95, 6/30/91
and 6/30/86, after deducting the current maximum initial sales charge of 4.75%.
Class B shares show results of a hypothetical investment on 7/21/95 after
deducting the applicable contingent deferred sales charge of 5% (1-year). Class
C returns show results of hypothetical investments on 6/30/95 and 12/1/93
(inception of class), with the 1% contingent deferred sales charge deducted for
the 1-year result. 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. An explanation of the
different performance calculations is in the Fund's prospectus.
3. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 6/30/96, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
4. Source: Lipper Analytical Services, 6/30/96, an independent mutual fund
monitoring service. The Lipper total return average for the 3-year period was
for 103 U.S. government funds. The average is shown for comparative purposes
only. Oppenheimer U.S. Government Trust is characterized by Lipper as a general
U.S. government fund. Lipper performance does not take sales charges into
consideration.
2 Oppenheimer U.S. Government Trust
<PAGE>
[PHOTO-BRIDGET A. MACASKILL]
Bridget A. Macaskill
President
Oppenheimer
U.S. Government Trust
Dear Shareholder,
Because of rising interest rates, the bond market has been volatile during the
first half of 1996. But we believe inflation fears have been somewhat overblown
and for this reason the future remains bright for bonds.
Let's review the immediate past. During the first half of the year,
interest rates rose sharply, as investors became concerned about renewed
inflation. Why was inflation a worry? First, economic growth appeared to
accelerate, catching many by surprise. Second, gasoline and food prices
increased sharply. As a result, the yield on the benchmark 30-year U.S. Treasury
bond moved from 6% in January to 7% by mid-year.
Even though an increase of one percentage point may seem modest, to bond
market investors it means a significant reduction in the value of their bonds.
And the longer the bond's maturity, the larger its decline in value. As the
Fund's investment advisor, it's our job to seek to minimize and possibly avoid
the decline in bond values in a rising interest rate environment. We accomplish
this by monitoring interest rates and strategically allocating the Fund's assets
in favorable investments.
Our current outlook is that interest rates will ease by the end of the
year. There are two primary reasons for our forecast. First, the economy appears
to be growing less rapidly than it did in the second half of 1995. Retail sales,
for example, have slowed from their faster first-quarter clip. And, a slower
growing economy also suggests lower inflation and interest rates. Second,
because there is no shortage of crude oil, the rise in gasoline prices appears
to be temporary. Indeed, excluding energy and food prices, inflation is
virtually nonexistent.
With the yield on the 30-year Treasuries over 7%, bonds offer significant
value--providing investors with substantial income. Typically, the yield on a
bond is compared to the current inflation rate, which is currently about 3%.
This "spread" of approximately 4 percentage points between bond yields and
inflation is considered very generous, historically.
In addition to receiving higher income, the value of bonds would appreciate
if interest rates were to fall as we expect. The reason: if you're getting 7%
and other investors have to settle with 6.5% or 6%, then your bond is more
valuable in the marketplace. It's the mirror image of what happened during the
first half of 1996.
Recently, the stock market volatility has captured the attention of
investors and given bonds an even more attractive place in the portfolios of
many investors, particularly those who are nearing retirement. Given the current
circumstances, diversifying into other asset classes, rather than relying solely
on equities, may make more sense now than ever before.
Your portfolio managers discuss the outlook for your Fund in light of these
broad issues on the following pages. Thank you for your confidence in
OppenheimerFunds. We look forward to helping you reach your investment goals in
the future.
/s/ Bridget A. Macaskill
Bridget A. Macaskill
July 22, 1996
3 Oppenheimer U.S. Government Trust
<PAGE>
Q + A
[PHOTO-DAVID ROSENBERG] [PHOTO-DONNA COMPERT]
Q What investments
helped the Fund's
performance?
An interview with your Fund's managers.
How has the Fund performed over the past twelve months?
We've done relatively well for the full year, finishing in the top 10% of all
169 general U.S. government funds rated by Lipper Analytical Services for the
1-year period ending June 30, 1996. Our performance this year demonstrates the
value of a defensive, income-focused investment approach. By providing
competitive returns when the market was up, and limiting our volatility when the
market moved downward, we outperformed the majority of our peers.(1)
[PHOTO-LEN DARLING]
What factors made positive contributions to performance?
Performing well in both "normal" and down markets is a factor that is critically
important to the long-term success of our Fund. In order to provide investors
with the kind of performance they expect, we limited the average maturity of the
overall portfolio. Having achieved an intermediate average maturity for our
overall portfolio, it was less sensitive to the fluctuation in interest rates.
This defensive portfolio structure was one of the primary reasons for our strong
performance this period.
Another factor contributing to our strong performance was our reliance on
mortgage-backed securities, which were as much as 85% to 90% of the portfolio at
certain periods over the last twelve months. With interest rates stabilizing,
opportunities in the mortgage sector have improved because the threat that
rising rates would lead to prepayments has receded. Most important,
mortgage-backed bonds helped keep our income profile high, which was a real
benefit over the year, particularly as appreciation potential began to decline
when
1. Source: Lipper Analytical Services 6/30/96. Oppenheimer U.S. Government Trust
Class A shares for the 5-year period ended 6/30/96 was 25th out of 67 funds, and
for the 10-year period ended 6/30/96, the Fund was 11th out of 38 funds in the
category. Oppenheimer U.S. Government Trust is characterized by Lipper as a
general U.S. government fund. Lipper does not take sales charges into account.
4 Oppenheimer U.S. Government Trust
<PAGE>
Facing page
Top left: David Rosenberg, Portfolio Manager
Top right: Donna Compert, Member of Fixed Income Investments Team
Bottom: Len Darling, Executive VP, Director of Fixed Income Investments
This page
Top: Michael Maciolek, Member
of Fixed Income Investments Team
Bottom: David Rosenberg with Leslie Falconio and Gina Palmieri, Members of Fixed
Income Investments Team
A Mortgage-
backed bonds
were a real
benefit and
kept our
income
profile high.
interest rates began to increase.
Which investments didn't perform as well as expected?
None. In this type of market, the securities we owned allowed the Fund to
perform as we expected. The Fund participated in the positive returns available
during the bull market of 1995 and was then protected to some degree against
loss during the first half of 1996, because of our income-oriented objective.
What areas of the market are you currently targeting?
As interest rates show signs of stabilizing, we've begun adding to our holdings
in mortgage-backed securities. Mortgages perform well when rates are stable,
because the risk of prepayment is less than when rates go up. They also provide
extra yield compared to more creditworthy Treasuries.
Additionally, over the period, we've begun to position our investments in
the intermediate range of the yield curve. This is a switch from last year's
policy of "barbelling" the maturities in which we combined very short with
longer-term maturities to achieve our targeted intermediate maturity.(2)
[PHOTO-MICHAEL MACIOLEK]
What is your outlook for the Fund?
Our outlook for the Fund remains strong. We believe the rest of the year will
unveil an economy where growth continues to be relatively steady and where
inflation remains under control. As a result, we're anticipating an environment
where interest rates will remain in a trading range, without a strong trend up
or down. Although this type of environment is good for financial markets in
general, it is especially good for our Fund which seeks to maximize yield while
reducing volatility. We expect to meet this goal well into the coming months.
[solid box]
[PHOTO-DAVID ROSENBERG with LESLIE FALCONIO and GINA PALMIERI]
2. The portfolio is subject to change.
5 Oppenheimer U.S. Government Trust
<PAGE>
Financials
Contents
Statement of Investments 7
Statement of Assets and Liabilities 10
Statement of Operations 11
Statements of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 14
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments June 30, 1996
Face Market Value
Amount See Note 1
<S> <C> <C>
====================================================================================================================================
Mortgage-Backed Obligations--102.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Government Agency--90.9%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/
Sponsored--66.0%
Federal Home Loan Mortgage Corp.:
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation Certificates:
6.65%, 4/15/21 $10,750,000 $10,306,562
7.50%, 5/1/26 20,199,999 19,961,640
8.50%, 10/15/19 1,366,917 1,392,971
9%, 7/15/21 1,690,015 1,731,725
9.50%, 12/1/02--11/1/03 526,275 550,002
14%, 1/1/11 514,919 611,137
Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%, 4/15/21 3,000,000 2,840,610
Gtd. Multiclass Mtg. Participation Certificates:
11.50%, 6/1/20 1,458,780 1,644,319
13%, 8/1/15 2,406,995 2,823,706
Series 1347, Cl. I, 8%, 8/15/22 10,000,000 10,103,100
Series 1455, Cl. J, 7.50%, 12/15/22 5,000,000 4,960,900
-----------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
7%, 7/15/26(1) 52,750,000 50,739,170
7%, 8/1/25--5/1/26 57,310,609 55,152,297
7.50%, 8/1/25 4,673,297 4,613,759
8%, 7/1/26(1) 57,000,000 57,427,500
11%, 7/1/16 1,728,173 1,919,893
11.50%, 11/1/15 1,282,515 1,445,626
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates:
7%, 12/25/21 29,617,000 27,932,385
8%, 12/1/22 2,968,055 3,000,170
8.75%, 11/25/05--12/25/20 30,000,000 31,310,560
10.50%, 11/25/20 10,000,000 11,193,700
13%, 11/1/12 189,042 219,215
Gtd. Mtg. Pass-Through Certificates, 12%, 4/15/19 1,600,497 1,836,070
Gtd. Multiclass Mtg. Participation Certificates, Series 1989-4,
Cl. D, 10%, 2/25/19 3,000,000 3,337,500
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8%, 7/25/19 18,000,000 18,309,240
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Series 1992-112, Cl. ED, 4%, 12/25/20 3,000,000 2,567,790
Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, 8.838%--11.98%, 6/1/23(2) 82,752,795 28,084,231
Trust 240, Cl. 2, 14.083%--15.735%, 9/1/23(2) 16,393,125 5,645,383
Trust 254, Cl. 2, 14.083%, 1/1/24(2) 6,397,998 2,177,319
Principal-Only Stripped Mtg.-Backed Security, Trust 4,
Cl. J, 19.927%, 9/25/22(3) 3,400,000 1,640,500
Series G92-42, Cl. C, 7%, 9/25/19 544,179 544,685
-----------
366,023,665
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--24.9%
Government National Mortgage Assn.:
6%, 7/15/26(1) 34,000,000 33,723,750
6.50%, 11/15/23--12/15/23 2,027,458 1,900,770
7%, 7/15/26(1) 15,000,000 14,381,250
7%, 2/15/22--10/15/23 10,412,914 10,046,839
7.25%, 12/15/05 42,328 42,384
7.375%, 4/20/17 402,721 408,194
7.50%, 7/15/26(1) 31,800,000 31,343,034
7.50%, 10/15/06--5/15/24 7,726,885 7,662,303
8%, 7/15/26(1) 10,000,000 10,087,500
</TABLE>
7 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed
(continued)
8%, 4/15/02--5/15/25 $ 3,676,903 $ 3,750,843
8.25%, 4/15/08 153,004 157,842
8.50%, 6/15/01--1/15/06 140,070 145,381
9%, 9/15/08--5/15/09 544,304 578,390
9.50%, 4/15/01--1/15/20 1,575,825 1,692,757
10%, 6/15/16--8/15/19 3,835,145 4,185,987
10.50%, 1/15/98--5/15/21 9,188,226 10,121,862
11%, 7/20/20 125,414 140,268
11.50%, 1/15/98--4/15/13 150,957 166,336
12%, 12/15/12--3/15/14 68,010 78,167
12.50%, 1/15/14--6/15/19 1,286,216 1,491,094
13%, 4/15/11--12/15/14 205,658 241,749
13.50%, 4/15/11--8/15/14 217,886 258,573
14%, 6/15/11 49,029 59,111
15%, 7/15/11--9/15/12 195,385 239,023
-----------------------------------------------------------------------------------------------------------------
U.S. Department of Veterans Affairs, Interest-Only Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, Vendee Mtg. Trust,
Series 1995-2B, Cl. 2-IO, 21.665%, 6/15/25(2) 135,401,332 4,992,924
------------
137,896,331
- ------------------------------------------------------------------------------------------------------------------------------------
Private--11.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial--8.1%
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1994-C1, Cl. 2-G, 8.70%, 9/25/25(4) 3,000,000 3,030,000
-----------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through
Certificates, Series 1995-C2, Cl. C, 7.906%, 6/15/21(5) 2,893,343 2,901,481
-----------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc.:
Commercial Mtg. Pass-Through Certificates,
Series 1996-C1, Cl. D-1, 7.51%, 2/15/28(4)(5) 3,000,000 2,853,750
Collateralized Mtg. Obligations, Cl. C, 7.95%, 8/15/27(4) 5,014,988 5,002,451
-----------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1992-C5, Cl. C, 8.85%, 5/25/22 7,383,975 7,573,189
Series 1993-C1, Cl. D, 9.45%, 5/25/24 1,183,001 1,216,643
Series 1994-C1, Cl. C, 8%, 6/25/26 7,075,000 7,101,531
Series 1994-C2, Cl. D, 8%, 4/25/25 2,882,774 2,893,585
Series 1995-C1, Cl. D, 6.90%, 2/25/27 7,677,000 6,974,075
-----------------------------------------------------------------------------------------------------------------
SC Commercial Mortgage Pass-Through Certificates,
Series 93-01, Cl. A1, 6.65%, 11/28/13(4) 1,960,544 1,883,041
-----------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass Pass-Through
Certificates, Series 1996-CFL, Cl. D, 7.034%, 2/25/28 3,700,000 3,521,938
-----------
44,951,684
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Family--2.3%
Countrywide Funding Corp., Series 1993-12, Cl. B1, 6.625%, 2/25/24 3,000,000 2,626,641
-----------------------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Interest-Only Certificates:
Series 94-M1, Cl. A-X, .52%, 2/15/02(2)(4) 88,100,000 27,531
Series 94-M1, Cl. B-X, .61%, 2/15/02(2)(4) 19,300,000 6,031
Series 94-M1, Cl. C-X, .66%, 2/15/02(2)(4) 15,400,000 4,813
Series 94-M1, Cl. D-X, .82%, 2/15/02(2)(4) 2,968,000 928
-----------------------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Series 1996-CF1, Cl. B2, 8.27%, 3/13/28(4) 2,000,000 1,961,875
-----------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 6,928,849 7,128,054
Series 1992-M4, Cl. B, 7.20%, 9/25/21 1,122,180 1,121,128
-----------
12,877,001
</TABLE>
8 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Residential--0.7%
Prudential Home Mortgage Securities Corp.,
Sub. Fixed Rate Mtg. Securities, Real Estate Mtg
Investment Conduit Pass-Through Certificates,
Series 1995-A, Cl. B2, 8.684%, 3/28/25(4)(5) $ 1,485,483 $ 1,494,768
-----------------------------------------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 2,283,053 2,313,007
-----------
3,807,775
-----------
Total Mortgage-Backed Obligations (Cost $557,454,915) 565,556,456
====================================================================================================================================
U.S. Government Obligations--30.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury--30.1%
U.S. Treasury Bonds:
7.125%, 2/15/23 8,643,000 8,732,126
7.50%, 11/15/24 25,000,000 26,507,797
STRIPS, Zero Coupon, 7.19%, 8/15/22(6) 8,000,000 1,283,096
-----------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
6%, 8/31/97 50,000,000 50,046,844
7.25%, 11/15/96(7) 51,521,000 51,891,276
8%, 1/15/97 17,300,000 17,527,062
9.125%, 5/15/99 3,500,000 3,754,842
9.25%, 8/15/98 6,750,000 7,157,105
-----------
Total U.S. Government Obligations (Cost $170,260,207) 166,900,148
====================================================================================================================================
Repurchase Agreement--0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with J. P. Morgan Securities, Inc.,
5.45%, dated 6/28/96, to be repurchased at $4,301,953 on 7/1/96,
collateralized by U.S. Treasury Nts., 8.50%, 5/15/97 with a value of
$4,410,215 (Cost $4,300,000) 4,300,000 4,300,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $732,015,122) 132.9% 736,756,604
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (32.9) (182,522,919)
--------- ------------
Net Assets 100.0% $554,233,685
========= ============
</TABLE>
1. When-issued security to be delivered and settled after
June 30, 1996.
2. Interest-Only Strips represent the right to receive the
monthly interest payments on an underlying pool of mortgage
loans. These securities typically decline in price as
interest rates decline. Most other fixed-income securities
increase in price when interest rates decline. The principal
amount of the underlying pool represents the notional amount
on which current interest is calculated. The price of these
securities is typically more sensitive to changes in
prepayment rates than traditional mortgage-backed securities
(for example, GNMA pass-throughs). Interest rates disclosed
represent current yields based upon the current cost basis
and estimated timing and amount of future cash flows.
3. Principal-Only Strips represent the right to receive the
monthly principal payments on an underlying pool of mortgage
loans. The value of these securities generally increases as
interest rates decline and prepayment rates rise. The price
of these securities is typically more volatile than that of
coupon-bearing bonds of the same maturity. Interest rates
disclosed represent current yields based upon the current
cost basis and estimated timing of future cash flows.
4. Represents a security sold under Rule 144A, which is
exempt from registration under the Securities Act of 1933,
as amended. This security has been determined to be liquid
under guidelines established by the Board of Trustees. These
securities amount to $16,265,188 or 2.93% of the Fund's net
assets, at June 30, 1996.
5. Represents the current interest rate for a variable rate
security.
6. For zero coupon bonds, the interest rate shown is the
effective yield on the date of purchase.
7. Securities with an aggregate market value of $2,517,967
are held in collateralized accounts to cover initial margin
requirements on open futures sales contracts. See Note 5 of
Notes to Financial Statements.
See accompanying Notes to Financial Statements.
9 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1996
<S> <C>
====================================================================================================================================
Assets Investments, at value (cost $732,015,122)--see accompanying statement $736,756,604
-----------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 56,460,820
Interest and principal paydowns 6,614,910
Shares of beneficial interest sold 656,513
-----------------------------------------------------------------------------------------------------------------
Other 17,040
------------
Total assets 800,505,887
====================================================================================================================================
Liabilities Bank overdraft 9,190
-----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $196,902,837 purchased
on a when-issued basis)--Note 1 242,408,548
Shares of beneficial interest redeemed 1,985,520
Dividends 683,248
Daily variation on futures contracts--Note 5 543,552
Distribution and service plan fees 321,228
Trustees' fees 230,957
Transfer and shareholder servicing agent fees 11,281
Other 78,678
------------
Total liabilities 246,272,202
====================================================================================================================================
Net Assets $554,233,685
============
====================================================================================================================================
Composition of
Net Assets
Paid-in capital $575,047,130
-----------------------------------------------------------------------------------------------------------------
Undistributed net investment income 57,809
-----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (24,398,673)
-----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 3,527,419
------------
Net assets $554,233,685
============
====================================================================================================================================
Net Asset Value
Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $504,966,021 and 54,288,284 shares of beneficial interest outstanding) $9.30
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $9.76
-----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $30,736,590 and 3,307,564 shares of beneficial interest outstanding) $9.29
-----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $18,531,074 and 1,994,524 shares of beneficial interest outstanding) $9.29
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations For the Year Ended June 30, 1996
<S> <C>
====================================================================================================================================
Investment Income Interest $39,641,998
====================================================================================================================================
Expenses Management fees--Note 4 2,946,711
-----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,085,680
Class B 187,678
Class C 157,684
-----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 543,943
-----------------------------------------------------------------------------------------------------------------
Shareholder reports 219,630
-----------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 168,562
-----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 95,373
-----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 70,743
-----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 35,406
Class B 10,398
Class C 2,222
-----------------------------------------------------------------------------------------------------------------
Other 44,847
-----------
Total expenses 5,568,877
-----------
Less assumption of expenses by OppenheimerFunds, Inc.--Note 4 (38,982)
-----------
Net expenses 5,529,895
====================================================================================================================================
Net Investment Income 34,112,103
====================================================================================================================================
Realized and
Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (6,758,735)
Closing of futures contracts 976,460
Closing and expiration of options written 436,513
-----------
Net realized loss (5,345,762)
-----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (5,672,502)
-----------
Net realized and unrealized loss (11,018,264)
====================================================================================================================================
Net Increase in Net Assets Resulting From Operations $23,093,839
===========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended June 30,
1996 1995
<S> <C> <C>
====================================================================================================================================
Operations Net investment income $34,112,103 $22,905,201
----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (5,345,762) 2,180,093
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (5,672,502) 8,115,444
------------ ------------
Net increase in net assets resulting from operations 23,093,839 33,200,738
===================================================================================================================================
Dividends and Distributions
To Shareholders
Dividends from net investment income:
Class A (31,382,515) (22,498,787)
Class B (1,137,105) --
Class C (968,691) (416,947)
----------------------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A (618,306) --
Class B (37,635) --
Class C (22,691) --
===================================================================================================================================
Beneficial Interest
Transactions
Net increase (decrease) in net assets resulting from
beneficial interest transactions--Note 2:
Class A 202,362,216 (7,455,681)
Class B 31,353,131 --
Class C 7,965,917 6,508,757
===================================================================================================================================
Net Assets Total increase 230,608,160 9,338,080
----------------------------------------------------------------------------------------------------------------
Beginning of period 323,625,525 314,287,445
------------ ------------
End of period (including undistributed net investment
income of $57,809 and $87,075, respectively) $554,233,685 $323,625,525
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Class A Class B
------------------------------------------------------------- ------------
Period Ended
Year Ended June 30, June 30,
1996 1995 1994 1993 1992 1996(2)
<S> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
Per Share Operating Data:
Net asset value, beginning of period $9.51 $9.20 $9.95 $9.73 $9.25 $9.40
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .67 .68 .67 .68 .69 .56
Net realized and unrealized gain (loss) (.21) .31 (.74) .22 .48 (.11)
----- ----- ----- ----- ----- -----
Total income (loss) from investment
operations .46 .99 (.07) .90 1.17 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.66) (.68) (.64) (.68) (.69) (.55)
Dividends in excess of net
investment income -- -- (.01) -- -- --
Tax return of capital distribution (.01) -- (.03) -- -- (.01)
----- ----- ----- ----- ----- -----
Total dividends and distributions
to shareholders (.67) (.68) (.68) (.68) (.69) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.30 $9.51 $9.20 $9.95 $9.73 $9.29
===== ===== ===== ===== ===== =====
====================================================================================================================================
Total Return, at Net Asset Value(3) 4.91% 11.22% (1.17)% 9.55% 13.05% 4.80%
====================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $504,966 $312,607 $310,027 $380,916 $395,863 $30,737
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $452,236 $307,306 $355,698 $401,789 $376,532 $19,227
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.07% 7.32% 6.61% 6.90% 7.23% 6.44%(4)
Expenses 1.08% 1.09% 1.14% 1.17% 1.17% 1.93%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 399.7% 303.5% 139.5% 96.8% 207.8% 399.7%
<CAPTION>
Class C
----------------------------------------
Year Ended June 30,
1996 1995 1994(1)
<S> <C> <C> <C>
=======================================================================================
Per Share Operating Data:
Net asset value, beginning of period $9.50 $9.19 $9.83
- ---------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .60 .61 .33
Net realized and unrealized gain (loss) (.21) .30 (.64)
----- ----- -----
Total income (loss) from investment
operations .39 .91 (.31)
- ---------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.59) (.60) (.33)
Dividends in excess of net
investment income -- -- --
Tax return of capital distribution (.01) -- --
----- ----- -----
Total dividends and distributions
to shareholders (.60) (.60) (.33)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $9.29 $9.50 $9.19
===== ===== =====
=======================================================================================
Total Return, at Net Asset Value(3) 4.11% 10.31% (3.12)%
=======================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $18,531 $11,019 $4,261
- ---------------------------------------------------------------------------------------
Average net assets (in thousands) $15,766 $6,503 $2,173
- ---------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.27% 6.44% 5.97%(4)
Expenses 1.85% 1.89% 1.96%(4)
- ---------------------------------------------------------------------------------------
Portfolio turnover rate(5) 399.7% 303.5% 139.5%
</TABLE>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from July 21, 1995 (inception of offering) to June 30, 1996.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
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 and including
mortgage "dollar-rolls") for the period ended June 30, 1996 were $2,379,959,418
and $2,209,844,705, respectively.
See accompanying Notes to Financial Statements.
13 Oppenheimer U.S. Government Trust
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer U.S. Government Trust (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek 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 Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B and Class
C shares. Class A shares are sold with a front-end sales charge. Class B and C
shares may be subject to a contingent deferred sales charge. All three 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 are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount. 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, 1996, the
Fund had entered into outstanding when-issued or forward commitments of
$196,902,837.
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.
- --------------------------------------------------------------------------------
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.
14 Oppenheimer U.S. Government Trust
<PAGE>
================================================================================
1. Significant Accounting
Policies (continued)
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. At June 30, 1996, the Fund
had available for federal income tax purposes an unused capital loss carryover
of approximately $32,074,000 subject to certain limitations under IRC Section
382, which expires between 1998 and 2004.
- --------------------------------------------------------------------------------
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, 1996, a provision of $111,473 was made for the Fund's projected benefit
obligations and payments of $6,067 were made to retired trustees, resulting in
an accumulated liability of $213,319 at June 30, 1996.
- --------------------------------------------------------------------------------
Distributions to Shareholders. The Fund intends to declare dividends separately
for Class A, Class B and Class C shares from net investment income each day the
New York Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
- --------------------------------------------------------------------------------
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, 1996, 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, 1996,
amounts have been reclassified to reflect an increase in accumulated net
realized loss on investments of $2,561, an increase in undistributed net
investment income of $26,101, and a decrease in paid-in-capital of $23,540.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
2. Shares of
Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1996(1) Year Ended June 30, 1995
------------------------------ ------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A:
Sold 10,356,711 $ 98,293,347 7,076,177 $ 65,369,039
Dividends reinvested 2,643,981 25,030,137 1,868,269 17,288,287
Issued in connection with the acquisition of:
Oppenheimer Mortgage Income
Fund--Note 7 8,262,838 77,918,563 -- --
Quest for Value U.S. Government Income
Fund--Note 7 10,598,976 101,114,231 -- --
Connecticut Mutual Government
Account--Note 7 5,008,473 46,829,224 -- --
Redeemed (15,453,509) (146,823,286) (9,758,134) (90,113,007)
---------- ------------- ---------- -------------
Net increase (decrease) 21,417,470 $ 202,362,216 (813,688) $ (7,455,681)
========== ============= ========== =============
</TABLE>
15 Oppenheimer U.S. Government Trust
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
2. Shares of
Beneficial Interest
(continued)
<TABLE>
<CAPTION>
Year Ended June 30, 1996(1) Year Ended June 30, 1995
---------------------------- ----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 2,376,966 $ 22,507,322 -- $ --
Dividends reinvested 81,288 766,568 -- --
Issued in connection with the acquisition of:
Oppenheimer Mortgage Income
Fund--Note 7 683,099 6,434,794 -- --
Quest for Value U.S. Government Income
Fund--Note 7 967,755 9,222,705 -- --
Connecticut Mutual Government
Account--Note 7 10,367 96,832 -- --
Redeemed (811,911) (7,675,090) -- --
--------- ------------- --------- -------------
Net increase 3,307,564 $ 31,353,131 -- $ --
========= ============= ========= =============
- ------------------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 1,386,839 $ 13,136,459 1,086,358 $ 10,120,239
Dividends reinvested 85,473 807,582 35,316 327,690
Issued in connection with the acquisition
of Quest for Value U.S. Government
Income Fund--Note 7 284,411 2,710,439 -- --
Redeemed (921,932) (8,688,563) (425,453) (3,939,172)
--------- ------------- --------- -------------
Net increase 834,791 $ 7,965,917 696,221 $ 6,508,757
========= ============= ========= =============
</TABLE>
1. For the year ended June 30, 1996 for Class A and Class C shares and for the
period from July 21, 1995 (inception of offering) to June 30, 1996 for Class B
shares.
================================================================================
3. Unrealized Gains and
Losses on Investments
At June 30, 1996, net unrealized appreciation on investments of $4,741,482 was
composed of gross appreciation of $12,304,712, and gross depreciation of
$7,563,230.
================================================================================
4. Management Fees and
Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.65% of the first
$200 million of average annual net assets of the Fund, 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 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.
The Manager has agreed to reimburse the Fund for SEC fees incurred in
connection with the acquisition of Quest for Value U.S. Government Income Fund.
For the year ended June 30, 1996, commissions (sales charges paid by
investors) on sales of Class A shares totaled $880,535, of which $277,638 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $692,568 and $86,810, of which $15,855 and $8,756,
respectively, was paid to an affiliated broker/dealer. During the year ended
June 30, 1996, OFDI received contingent deferred sales charges of $64,030 and
$14,816, respectively, upon redemption of Class B and Class C shares as
reimbursement for sales commissions advanced by OFDI at the time of sale of such
shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI
for a portion of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average annual net
assets of Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold Class
A shares. During the year ended June 30, 1996, OFDI paid $83,455 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted compensation type Distribution and Service Plans for
Class B and Class C shares to compensate OFDI for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the Plans,
the Fund pays OFDI an annual asset-based sales charge of 0.75% per year
16 Oppenheimer U.S. Government Trust
<PAGE>
================================================================================
4. Management Fees and
Other Transactions
With Affiliates
(continued)
on Class B shares that are outstanding for 6 years or less and on Class C
shares, as compensation for sales commissions paid from its own resources at the
time of sale and associated financing costs. If the Plans are terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to OFDI for certain expenses it incurred before the
Plans were terminated. OFDI also receives a service fee of 0.25% per year as
compensation 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. Both fees are computed
on the average annual net assets of Class B and Class C shares, determined as of
the close of each regular business day. During the year ended June 30, 1996,
OFDI paid $9,640 to an affiliated broker/dealer as compensation for Class C
personal service and maintenance expenses and retained $187,678 and $99,336,
respectively, as compensation for Class B and Class C sales commissions and
service fee advances, as well as financing costs. At June 30, 1996, OFDI had
incurred unreimbursed expenses of $998,862 for Class B and $240,974 for Class C.
================================================================================
5. 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.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
At June 30, 1996, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Contracts to Sell Expiration Date Futures Contracts June 30, 1996 Depreciation
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes 9/96 950 $100,462,500 $1,214,063
</TABLE>
================================================================================
6. Option Activity
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a
footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
17 Oppenheimer U.S. Government Trust
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
6. Option Activity
(continued)
Written option activity for the year ended June 30, 1996 was as follows:
<TABLE>
<CAPTION>
Call Options Put Options
-------------------------- --------------------------
Number of Amount of Number of Amount of
Options Premiums Options Premiums
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at June 30, 1995 -- $ -- -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Options written 25,000 326,172 38,080 279,931
- ------------------------------------------------------------------------------------------------------------------------------------
Options closed or expired (25,000) (326,172) (38,080) (279,931)
------- -------- ------- --------
Options outstanding at June 30, 1996 -- $ -- -- $ --
======= ======== ======= ========
</TABLE>
================================================================================
7. Acquisition of Oppenheimer
Mortgage Income Fund,
Quest For Value U.S.
Government Income Fund
And Connecticut Mutual
Government Account
On July 28, 1995, the Fund acquired all of the net assets of Oppenheimer
Mortgage Income Fund, pursuant to an Agreement and Plan of Reorganization
approved by the Oppenheimer Mortgage Income Fund shareholders on July 12, 1995.
The Fund issued 8,262,838 and 683,099 shares of Class A and Class B beneficial
interest, 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 28, 1995. The net assets acquired included net
unrealized appreciation of $844,310. The exchange qualifies as a tax-free
reorganization for federal income tax purposes.
On November 24, 1995, the Fund acquired all of the net assets of Quest For
Value U.S. Government Income Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Quest For Value U.S. Government Income Fund
shareholders on November 16, 1995. The Fund issued 10,598,976, 967,755, and
284,411 shares of Class A, Class B, and Class C beneficial interest,
respectively, valued at $101,114,231, $9,222,705 and $2,710,439 in exchange for
the net assets, resulting in combined Class A net assets of $518,859,988, Class
B net assets of $21,270,443, and Class C net assets of $16,422,311 on November
24, 1995. The net assets acquired included net unrealized depreciation of
$533,506. The exchange qualifies as a tax-free reorganization for federal income
tax purposes.
On April 26, 1996, the Fund acquired all of the net assets of Connecticut
Mutual Government Account, pursuant to an Agreement and Plan of Reorganization
approved by the Connecticut Mutual Government Account shareholders on April 24,
1996. The Fund issued 5,008,473 and 10,367 shares of Class A and Class B
beneficial interest, respectively, valued at $46,829,224 and $96,832 in exchange
for the net assets, resulting in combined Class A net assets of $513,892,599 and
Class B net assets of $28,393,161 on April 26, 1996. The net assets acquired
included net unrealized depreciation of $184,154. The exchange qualifies as a
tax-free reorganization for federal income tax purposes.
18 Oppenheimer U.S. Government Trust
<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, 1996, 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 five-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, 1996, 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, 1996, 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 five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
July 22, 1996
19 Oppenheimer U.S. Government Trust
<PAGE>
Federal Income Tax Information (Unaudited)
================================================================================
In early 1997, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1996. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year ended June
30, 1996 are eligible for the corporate dividend-received deduction.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
20 Oppenheimer U.S. Government Trust
<PAGE>
Oppenheimer U.S. Government Trust
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Officers and Trustees
Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A Macaskill, Trustee and President
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
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
David A. Rosenberg, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
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Investment Advisor OppenheimerFunds, Inc.
================================================================================
Distributor OppenheimerFunds Distributor, Inc.
================================================================================
Transfer and Shareholder
Servicing Agent
OppenheimerFunds Services
================================================================================
Custodian of
Portfolio Securities
Citibank, N.A.
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Independent Auditors KPMG Peat Marwick LLP
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Legal Counsel Gordon Altman Butowsky Weitzen Shalov & Wein
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.
Shares of Oppenheimer funds are not deposits or obligations of any bank,
are not guaranteed by any bank, and are not insured by the FDIC or any other
agency, and involve investment risks, including possible loss of the principal
amount invested.
21 Oppenheimer U.S. Government Trust
<PAGE>
OppenheimerFunds Family
================================================================================
OppenheimerFunds offers over 50 funds designed to fit virtually every investment
goal. Whether you're investing for retirement, your children's education or
tax-free income, we have the funds to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfortable knowing
that you are investing with a respected financial institution with over 35 years
of experience in helping people just like you reach their financial goals. And
you're investing with a leader in global, growth stock and flexible fixed-income
investments--with over 3 million shareholder accounts and more than $50 billion
under OppenheimerFunds' management and that of our affiliates.
At OppenheimerFunds we don't charge a fee to exchange shares. And you can
exchange shares easily by mail or by telephone.(1) For more information on
Oppenheimer funds, please contact your financial advisor or call us at
1-800-525-7048 for a prospectus. You may also write us at the address shown on
the back cover. As always, please read the prospectus carefully before you
invest.
================================================================================
Stock Funds
Global Emerging Growth Fund Growth Fund
Enterprise Fund(2) Global Fund
International Growth Fund Quest Global Value Fund
Discovery Fund Disciplined Value Fund
Quest Small Cap Value Fund Oppenheimer Fund
Gold & Special Minerals Fund Value Stock Fund
Target Fund Quest Value Fund
================================================================================
Stock & Bond Funds
Main Street Income & Growth Fund Equity Income Fund
Quest Opportunity Value Fund Disciplined Allocation Fund
Total Return Fund Asset Allocation Fund
Quest Growth & Income Value Fund Strategic Income & Growth Fund
Global Growth & Income Fund Bond Fund for Growth
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Bond Funds
International Bond Fund Bond Fund
High Yield Fund U.S. Government Trust
Champion Income Fund Limited-Term Government Fund
Strategic Income Fund
================================================================================
Tax-Exempt Funds
California Tax-Exempt Fund (3) Insured Tax-Exempt Fund
Florida Tax-Exempt Fund (3) Intermediate Tax-Exempt Fund
New Jersey Tax-Exempt Fund (3)
New York Tax-Exempt Fund (3) Rochester Division
Pennsylvania Tax-Exempt Fund (3) Rochester Fund Municipals
Tax-Free Bond Fund Limited Term New York Municipal Fund
================================================================================
Money Market Funds(4)
Money Market Fund Cash Reserves
================================================================================
LifeSpan
Growth Fund Balanced Fund
Income Fund
1. Exchange privileges are subject to change or termination. Shares may be
exchanged only for shares of the same class of eligible funds.
2. Effective 4/1/96, the Fund is closed to new investors.
3. Available only to investors in certain states.
4. An investment in money market funds is neither insured nor guaranteed by the
U.S. government and there can be no assurance that a money market fund will be
able to maintain a stable net asset value of $1.00 per share.
Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc., Two
World Trade Center, New York, NY 10048-0203.
(C) Copyright 1996 OppenheimerFunds, Inc. All rights reserved.
22 Oppenheimer U.S. Government Trust
<PAGE>
[BACK COVER]
Information
General Information
Monday-Friday 8:30 a.m.-9 p.m. ET
Saturday 10 a.m.-2 p.m. ET
1-800-525-7048
Telephone Transactions
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-852-8457
PhoneLink
24 hours a day, automated
information and transactions
1-800-533-3310
Telecommunications Device
for the Deaf (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-843-4461
OppenheimerFunds
Information Hotline
24 hours a day, timely and insightful messages on the economy and issues that
affect your investments 1-800-835-3104
RA0220.001.0696 August 31, 1996
[Picture of Jennifer Leonard]
[Caption] Jennifer Leonard, Customer Service Representative
OppenheimerFunds Services
"How may I help you?"
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your Oppenheimer funds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer funds' transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
[Oppenheimer Logo(R)]
OppenheimerFunds Distributor, Inc.
P.O. Box 5270
Denver, CO 80217-5270
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Bulk Rate
U.S. Postage
PAID
Permit No. 469
Denver, CO
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