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Annual Report August 31, 1997
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OPPENHEIMER
U.S. Government
Trust
[GRAPHIC OMITTED]
[LOGO]
Oppenheimer Funds(SM)
THE RIGHT WAY TO INVEST
<PAGE>
Report highlights
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o 1st Quartile ranking: Lipper Analytical Services ranked the Fund's Class A
shares in the top quartile among U.S. government funds for the 1- and 5-year
periods ended August 31, 1997.(1)
o Mortgage-backed securities comprised approximately 70% of the Fund's assets
during the period.
o Long-term interest rates remained within a fairly narrow trading range,
creating a favorable environment for the Fund.
Contents
3 President's Letter
4 Fund Performance
6 An Interview with the Fund's Managers
9 Statement of Investments
14 Statement of Assets & Liabilities
16 Statement of Operations
17 Statements of Changes in Net Assets
18 Financial Highlights
20 Notes to Financial Statements
29 Independent Auditors' Report
30 Federal Income Tax Information
31 Officers & Trustees
32 Information & Services
=================================
Total Returns
=================================
For the Period Ended 8/31/97(2)
Class A
1 year
=================================
10.45%
=================================
Class B
1 year
=================================
9.63%
=================================
Class C
1 year
=================================
9.65%
=================================
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
In reviewing performance and rankings, please remember that 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.
(1) Source: Lipper Analytical Services, Inc., 8/31/97. Based on the comparisons
between changes in net asset value without considering sales charges, and with
dividends and capital gains distributions of the Fund's Class A shares
reinvested. The Fund's Class A shares were ranked 18 of 181 (1-year), 11 of 79
(5-year) and 16 of 48 (10-year) among general U.S. government funds for the
period ended 8/31/97. Past performance does not guarantee future results.
(2) Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken into
account.
2 Oppenheimer U.S. Government Trust
<PAGE>
Dear shareholder,
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[PHOTO OMITTED]
Bridget A. Macaskill
President
Oppenheimer
U.S. Government Trust
I'd like to welcome you to the premier issue of our newly redesigned shareholder
reports. As you can see, we've changed the format to allow easier access to the
information you need to monitor your investments. Some notable additions are
"at-a-glance" report highlights and charts that let you quickly assess how your
Fund has performed. On the following pages, your portfolio team discuss their
current investment thinking, your Fund's strategies, and performance. Before
these commentaries, I'd like to share a few global observations.
As we consider the world's financial markets over the past six months,
some global trends emerge. For example, inflation has hit its lowest level in
three decades worldwide, which has helped spur many bullish financial markets.
The United States has been a beneficiary of this low-inflation environment, as
well as of a strong dollar, robust corporate earnings and a healthy economy.
However, many financial analysts are now concerned that the United States has
reached a point in the business cycle where earnings could decline because
companies are unable to further reduce costs.
On the other hand, a wave of corporate restructuring throughout Europe has
resulted in some exciting changes and opportunities. Because a similar
restructuring took place in the United States ten years ago, European companies
have been able to enjoy the benefit of hindsight by following our footsteps.
Latin America, too, has begun to shift its economies more toward the U.S.
capitalist model and has reported positive earnings growth along the way.
With major changes occurring in today's economies around the globe, it's
more important than ever to maintain a diversified portfolio across different
countries and market sectors. Now is the time to speak to your financial adviser
to ensure that your assets are allocated properly, so you have the opportunity
to benefit from investments in both domestic and international funds. It's
important to remember that investing abroad can involve greater risk and
expenses--including political and economic uncertainties--and should be
undertaken with a long-term approach in mind.
To keep in touch with our views on the markets, visit our website,
www.oppenheimerfunds.com, where you can access your account information and fund
performance data, 24 hours a day. The site also features prospectuses, timely
market updates and insightful commentaries. Our new shareholder reports and
presence on the Internet are just two examples of our commitment to keeping you
well informed.
Thank you for your confidence in OppenheimerFunds, The Right Way to
Invest. We look forward to helping you reach your investment goals in the
future.
Sincerely,
/s/ Bridget A. Macaskill
Bridget A. Macaskill September 22, 1997
3 Oppenheimer U.S. Government Trust
<PAGE>
Performance update
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===================================
Avg Annual Total Returns
===================================
For the Period Ended 9/30/97(1)
Class A
1 year 5 year 10 year
===================================
5.14% 5.66% 7.84%
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Class B
Since
1 year 5 year Inception
===================================
4.57% N/A 6.10%
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Class C
Since
1 year 5 year Inception
===================================
8.48% N/A 5.74%
Oppenheimer U.S. Government Trust performed very well over the past twelve
months, largely because of its heavy weighting in mortgage-backed securities. In
fact, according to Lipper Analytical Services, the Fund's Class A shares ranked
in the top quartile of general U.S. government funds for the 1- and 5-year
periods ended 8/31/97.(2)
[GRAPHIC OMITTED]
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL]
Growth of $10,000
Over ten years
(without sales charge)(3)
Lehman Brothers Government Bond Index
Unit Value Base: Q3 B7 = $10,000.00
Q1 Q2 Q3 Q4
87 -- -- $10,000.00 $10,564.75
88 $10,913.38 $11,016.67 $11,202.65 $11,308.10
89 $11,427.10 $12,346.12 $12,448.13 $12,916.33
90 $12,757.13 $13,203.02 $13,312.73 $14,044.46
91 $14,348.45 $14,542.47 $15,373.12 $16,197.61
92 $15,914.28 $16,540.80 $17,356.66 $17,364.65
93 $18,148.79 $18,673.98 $19,279.85 $19,214.86
94 $18,636.22 $18,422.48 $18,500.62 $18,566.97
95 $19,440.64 $20,646.80 $21,010.86 $21,970.69
96 $21,473.96 $21,575.03 $21,839.63 $22,579.76
97 $22,396.30 $23,170.83 $23,946.87 --
Analysis Period: Q3 87 to Q3 97
Source: Micropal
Oppenheimer U.S. Government Trust Class A
Unit Value Base: Q3 B7 = $10,000.00
Q1 Q2 Q3 Q4
87 -- -- $10,000.00 $10,493.47
88 $10,802.22 $10,827.77 $11,108.22 $11,208.54
89 $11,304.93 $11,963.21 $12,067.38 $12,546.63
90 $12,391.34 $12,721.72 $12,879.08 $13,506.32
91 $13,791.97 $13,935.82 $14,680.14 $15,564.80
92 $15,225.27 $15,755.95 $16,176.13 $16,349.31
93 $16,864.77 $17,283.75 $17,674.85 $17,657.41
94 $17,293.24 $17,119.20 $17,302.40 $17,431.45
95 $18,374.79 $19,041.02 $19,382.09 $20,035.07
96 $19,856.66 $19,974.86 $20,368.95 $20,804.42
97 $20,940.43 $21,782.42 $22,461.65 --
Analysis Period: Q3 87 to Q3 97
Source: Micropal
(1) Total returns include changes in share price and reinvestment of dividends
and capital gains distributions in a hypothetical investment for the periods
shown. Class A returns include the current initial sales charge of 4.75%. Class
A shares were first publicly offered on 8/16/85. The Fund's maximum sales charge
for Class A shares was higher prior to 2/1/89, so actual performance may have
been lower. Class B returns include the applicable contingent deferred sales
charge of 5% (1-year) and 3% (since inception on 7/21/95). Class C returns
include the contingent deferred sales charge of 1% for the 1-year return. An
explanation of the different performance calculations is in the Fund's
prospectus. Class B and C shares are subject to an annual 0.75% asset-based
sales charge and 0.25% service fee. Class A shares are subject to an annual
service fee not to exceed 0.25%.
(2) Source: Lipper Analytical Services, Inc., 8/31/97. Based on the comparisons
between changes in net asset value without considering sales charges, and with
dividends and capital gains distributions of the Fund's Class A shares
reinvested. The Fund's Class A shares were ranked 18 of 181 (1-year), 11 of 79
(5-year) and 16 of 48 (10-year) among general U.S. government funds for the
period ended 8/31/97. Past performance does not guarantee future results.
4 Oppenheimer U.S. Government Trust
<PAGE>
Portfolio review
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Oppenheimer U.S. Government Trust is for investors looking for monthly income
mainly from U.S. Treasury and agency securities.
What We Look For
o Sectors of the government debt market that offer relative value.
o High income potential to help cushion against volatility.
o Opportunities in different types of government securities to help reduce
interest-rate risk, such as Fannie Maes, Ginnie Maes, or Freddie Macs.
o Securities that are less sensitive to changes in interest rates.
[GRAPHIC OMITTED]
[THE FOLLOWING TABLE WAS REPRESENTED AS A PIE GRAPH IN THE PRINTED MATERIAL]
Credit Allocation(4)
U.S. Gov't 32.4%
U.S. Agency 53.8
AAA/AA 1.0
A 1.4
BBB 3.4
Not Rated 8.0
Top Five Holdings
(Percentage of net assets)
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Federal National Mortgage Association 41.1%
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U.S. Treasury Notes 35.0
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Government National Mortgage Association 18.7
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Federal Home Loan Mortgage Association 14.4
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U.S. Treasury Bonds 10.3
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(3) Results of a hypothetical $10,000 investment in Class A shares on September
30, 1987. Lehman Brothers Government Bond Index includes a broad range of
government bonds. It is an unmanaged index, including reinvestment of income,
and cannot be purchased directly by investors. Past performance does not
guarantee future results.
(4) Portfolio is as of 8/31/97, and is subject to change. Portfolio is
dollar-weighted based on total market value of investments. Securities rated by
any rating organization are included in the equivalent Standard & Poor's rating
category. Average credit quality and allocation include rated securities and
those not rated by a national rating organization (currently 8.0% of total
market value of investments) but whose ratings given above have been assigned by
the Manager for internal purposes as being comparable, in the Manager's
judgment, to securities rated by a rating agency in the same category.
5 Oppenheimer U.S. Government Trust
<PAGE>
An interview with your Fund's managers
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- ----------------------
"We don't believe
that higher
inflation
is necessarily
imminent."
How has the Fund performed during the year ended August 31, 1997?
Oppenheimer U.S. Government Trust's Class A shares provided a total rate of
return of 10.45% before sales charges for the one-year period ended August 31,
1997.1 These returns helped the Fund outperform the general U.S. government
securities market.
What influences and events had the greatest effect on the market for U.S.
government securities?
During the first three months of 1997, the U.S. government securities market was
volatile as investors became concerned about the high rate of economic growth
and its potentially adverse effects on inflation. Yields on 30-year U.S.
Treasury bonds rose and, in March, the Federal Reserve raised short-term
interest rates in an effort to prevent a resurgence of inflation. By April,
however, it became clear to most investors that their inflation fears were
unjustified. Even though the economy was growing strongly and unemployment was
low, there were no signs in the economic data that inflation would become a
problem. As a result, long-term interest rates have remained within a relatively
narrow range over the last six months. That has continued to create a favorable
environment for this fund.
Why are stable long-term interest rates positive for the Fund?
The Fund primarily holds two types of securities-- U.S. Treasury bonds and
mortgage-backed securities. Treasury bonds are issued and guaranteed directly by
the federal government. The mortgage-backed securities that are held by the Fund
are pools of home mortgages that
(1) Includes changes in net asset value per share without deducting any sales
charges and with all dividends and distributions reinvested. Such performance
would have been lower if sales charges were taken into account.
6 Oppenheimer U.S. Government Trust
<PAGE>
[PHOTO OMITTED]
Portfolio Management
Team (l to r)
Jerry Webman
(Fund Manager)
Gina Palmieri
Leslie Falconio
are securitized and backed by government agencies, such as the Government
National Mortgage Association (GNMA) and Federal National Mortgage Association
(FNMA). Mortgage-backed securities usually offer higher yields than Treasury
securities, and they tend to perform best in an environment of declining
volatility. That's because stable interest rates reduce the risk that homeowners
in the pool will refinance their mortgages and return principal early to
bondholders. This phenomenon, known as prepayment risk, can adversely affect
mortgage-backed securities when interest rates decline substantially. We've
generally maintained a fairly large percentage--between 60% and 70% of the
portfolio during the past twelve months--in mortgage-backed securities, and
that's helped our performance.
Where did you find the best values in U.S. Treasury securities?
Strong economic conditions helped produce higher-than-expected federal tax
revenues, and a declining federal budget deficit required the federal government
to issue fewer bonds. Yet, demand for these investments remained high from
investors who sought the safety of a U.S. government guarantee. As a result,
yields on most U.S. Treasury securities remained low relative to their
historical relationship with other fixed-income securities. Even so, consistent
with our diversified investment approach, we generally invested between 30% and
40% of the portfolio in Treasuries during the past twelve months, and we found
some of the best values in the four- to five-year maturity range.
7 Oppenheimer U.S. Government Trust
<PAGE>
An interview with your Fund's managers
- --------------------------------------------------------------------------------
- ----------------------
"We've maintained
a fairly large
percentage of the
Fund's assets in
mortgage-backed
securities, which
helped our
performance."
What is your outlook for the future?
We expect the current economic environment to persist over the next few months,
although hints of stronger economic growth may cause some temporary concerns
among investors. Nevertheless, we do not believe that higher inflation is
necessarily imminent, so volatility should remain relatively low through the end
of 1998. Longer term, we are quite optimistic about the direction of interest
rates, which we believe will continue to decline slowly albeit not in a straight
line. Accordingly, we believe interest rates should exhibit lower highs and
lower lows within its trading range until the economic environment changes
fundamentally. If this gradual decline in interest rates occurs, it should be
good for investors in Oppenheimer U.S. Government Trust. The Fund may benefit
from both the competitive yield provided by mortgage-backed securities in this
environment, and the potential price gains of U.S. Treasury securities. We will
continue to seek higher yields, and we believe mortgage-backed securities are a
relatively low-risk way to earn additional yield.
8 Oppenheimer U.S. Government Trust
<PAGE>
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Statement of Investments August 31, 1997
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Face Market Value
Amount See Note 1
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Mortgage-Backed Obligations--92.7%
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Government Agency--75.1%
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FHLMC/FNMA/Sponsored--55.5%
Federal Home Loan Mortgage Corp.:
Collateralized Mtg. Obligations, Gtd.
Multiclass Mtg.
Participation Certificates:
14%, 1/1/11 $ 473,326 $ 559,207
9.50%, 12/1/02-10/1/03 386,540 410,889
Series 1065, Cl. H, 8.50%, 10/15/19 567,746 573,600
Series 1343, Cl. LA, 8%, 8/15/22 8,000,000 8,448,904
Series 1455, Cl. J, 7.50%, 12/15/22 2,625,000 2,704,441
Series 151, Cl. F, 9%, 5/15/21 2,500,000 2,707,704
Series 1914, Cl. H, 6.50%, 8/15/24 2,500,000 2,361,700
Series 192, Cl. H, 9%, 7/15/21 847,476 862,570
11.50%, 6/1/20 1,073,303 1,253,082
13%, 8/1/15 1,816,779 2,196,032
Government National Mortgage Assn., Gtd.
Multiclass Mtg.
Participation Certificates, Series 26,
Cl. B, 6%, 5/25/15 4,999,999 4,732,486
Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1610,
Cl. PM, 6.25%, 4/15/22 5,000,000 4,871,850
Interest-Only Stripped Mtg.-Backed Security:
Series 177, Cl. B, 9.968%-12.337%, 7/1/26(1) 93,810,248 32,555,088
Series 180, 13.736%, 10/1/26(1) 3,249,079 1,078,288
Principal-Only Stripped Mtg.-Backed Security,
Series 179, 2.657%-3.109%, 9/1/26(2) 17,416,137 12,667,519
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11%, 7/1/16 1,294,492 1,482,194
11.50%, 11/1/15 1,038,050 1,184,935
12%, 4/15/19 1,255,962 1,480,465
7%, 8/1/25 11,686,709 11,589,710
7%, 9/1/12(3) 28,980,000 29,070,707
7.50%, 8/1/25 4,295,297 4,348,559
7.50%, 9/1/27(3)(4) 77,600,000 78,376,000
7.50%, 9/25/12(3) 55,400,000 56,421,576
Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg.
Investment Conduit Pass-Through
Certificates:
13%, 11/1/12 162,840 190,663
8%, 12/1/22 2,600,115 2,687,792
Trust 1992-34, Cl. G, 8%, 3/25/22 2,520,000 2,661,750
Trust G92-42, Cl. C, 7%, 9/25/19(5) 35,833 35,699
Trust 1990-18, Cl. K, 9.60%, 3/25/20 5,000,000 5,635,757
Trust 1992-112, Cl. ED, 4%, 12/25/20 3,000,000 2,639,152
Trust 1995-4, Cl. PC, 8%, 5/25/25 3,885,880 4,120,630
Trust 1996-64, Cl. PB, 6.50%, 1/18/19 2,049,000 2,045,783
Trust 1997-25, Cl. B, 7%, 12/18/22 2,910,000 2,883,712
Trust 1997-27, Cl. J, 7.50%, 4/18/27 2,366,807 2,427,405
Trust 1997-5, Cl. B, 7%, 9/18/17 7,427,000 7,373,833
9 Oppenheimer U.S. Government Trust
<PAGE>
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Statement of Investments (Continued)
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Face Market Value
Amount See Note 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored (continued)
Federal National Mortgage Assn.:
Trust G93-31, Cl. PN, 7%, 9/25/23 $ 5,000,000 $ 4,905,862
Principal-Only Stripped Mtg.-Backed
Security, Trust 1997-7,
Cl. GA, 6.59%, 7/25/23(2) 2,980,588 1,487,500
------------
301,033,044
- --------------------------------------------------------------------------------
GNMA/Guaranteed--19.6%
Government National Mortgage Assn.:
6%, 9/20/27(3) 24,000,000 24,120,000
6.50%, 11/15/23-12/15/23 1,774,471 1,720,352
6.50%, 9/1/27(3) 23,500,000 23,859,844
7.125%, 4/20/17 347,822 357,823
7.25%, 12/15/05 34,513 35,050
7.50%, 10/15/06-7/15/26 20,885,453 21,115,299
8%, 4/15/02-5/15/25 3,181,688 3,294,074
8.25%, 4/15/08 120,540 126,283
8.50%, 6/15/01-1/15/06 93,387 95,495
9%, 9/15/08-5/15/09 426,314 457,744
9.50%, 4/15/01-1/15/20 1,339,677 1,458,120
10%, 6/15/16-8/15/19 2,791,759 3,108,634
10.50%, 1/15/98-5/15/21 6,623,157 7,423,457
11%, 10/20/19-7/20/20 5,351,344 6,125,424
11.50%, 1/15/98-4/15/13 106,538 121,040
12%, 12/15/12-3/15/14 65,531 76,370
12.50%, 1/15/14-6/15/19 984,795 1,160,962
13%, 4/15/11-12/15/14 167,711 199,442
13.50%, 4/15/11-8/15/14 199,244 239,466
14%, 6/15/11 35,011 42,249
15%, 7/15/11-9/15/12 168,920 206,797
Collateralized Mtg. Obligations, Gtd
Real Estate Mtg
Investment Conduit Pass-Through
Certificates,
Series 1994-5, Cl. PQ, 7.493%, 7/16/24 6,000,000 6,159,322
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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,
21.093%, 6/15/25(1)(5) 124,399,657 4,888,518
------------
106,391,765
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Private--17.6%
- --------------------------------------------------------------------------------
Commercial--11.9%
Asset Securitization Corp., Commercial Mtg
Pass-Through Certificates:
Series 1996-D3, Cl. A5, 8.332%, 10/13/26(5)(6) 3,700,000 3,968,250
Series 1996-MD6, Cl. A5, 7.225%, 11/13/26(6) 5,000,000 5,129,687
Series 1997-MD7, Cl. A6, 8.243%, 1/13/30(6) 1,150,000 1,196,000
10 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- --------------------------------------------------------------------------------
BKB Commercial Mortgage Trust, Commercial
Mtg. Obligations, Series 1997-C1, Cl. C,
7.45%, 10/25/00(5) $ 1,735,000 $ 1,747,470
- --------------------------------------------------------------------------------
Capital Lease Funding Securitization LP,
Interest-Only Corporate
Credit-Backed Pass-Through Certificates,
Series 1997-CTL1:
9.621%, 6/22/24(1)(5) 63,317,519 2,925,269
9.585%, 6/22/24(1)(5) 5,065,402 234,022
- --------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.,
Interest-Only Stripped
Mtg.-Backed Security, Series 1996-C1,
Cl. X-2, 10%, 12/25/20(1)(5) 24,833,200 822,600
- --------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg
Investment Conduit Pass-Through
Certificates, Series 1994-C1, Cl. 2-G,
8.70%, 9/25/25(5) 3,000,000 3,066,562
- --------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates, Series 1997-CL1, Cl. F,
7.353%, 7/13/30 3,000,000 3,018,750
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc.,
Mtg. Pass-Through Certificates, Series
1996-C1, 7.42%, 4/25/28 5,061,000 5,115,564
- --------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc.,
Commercial Mtg. Pass-Through
Certificates, Series 1996-C1, Cl. D-1,
7.51%, 2/15/28(5)(6) 3,000,000 3,000,937
- --------------------------------------------------------------------------------
Potomac Gurnee Financial Corp., Commercial
Mtg. Pass-Through Certificates, Cl. D,
7.683%, 12/21/26(5) 2,500,000 2,534,375
- --------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg
Pass-Through Certificates:
Series 1992-C5, Cl. C, 8.85%, 5/25/22 6,943,092 7,100,396
Series 1993-C1, Cl. D, 9.45%, 5/25/24 1,183,001 1,192,244
Series 1994-C1, Cl. C, 8%, 6/25/26 7,075,000 7,221,475
Series 1995-C1, Cl. D, 6.90%, 2/25/27 7,677,000 7,555,847
- --------------------------------------------------------------------------------
Structured Asset Securities Corp.,
Multiclass Pass-Through Certificates:
Series 1996-C3, Cl. C, 7.375%, 6/25/30(5)(6) 5,000,000 5,042,187
Series 1996-CFL, Cl. D, 7.034%, 2/25/28 3,700,000 3,703,469
-----------
64,575,104
- --------------------------------------------------------------------------------
Multi-Family--1.5%
Countrywide Funding Corp., Mtg
Pass-Through Certificates,
Series 1993-12, Cl. B1, 6.625%, 2/25/24 3,000,000 2,793,750
- --------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp.,
Mtg. Pass-Through Interest-Only
Certificates, Series 94-M1:
Cl. A-X, 0.52%, 2/15/02(1)(5) 88,100,000 55,062
Cl. B-X, 0.61%, 2/15/02(1)(5) 19,300,000 12,063
Cl. C-X, 0.66%, 2/15/02(1)(5) 15,400,000 9,625
Cl. D-X, 0.82%, 2/15/02(1)(5) 2,968,000 2,319
- --------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg
Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 4,667,319 4,738,058
Series 1992-M4, Cl. B, 7.20%, 9/25/21 494,104 495,262
-----------
8,106,139
11 Oppenheimer U.S. Government Trust
<PAGE>
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Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- --------------------------------------------------------------------------------
Residential--4.2%
CS First Boston Mortgage Securities Corp.,
Mtg. Pass-Through Certificates, Series
1997-C1, Cl. E, 7.50%, 3/20/11(5) $ 5,000,000 $ 4,989,063
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First Chicago/Lennar Trust 1, Commercial
Mtg. Pass-Through Certificates, Series
1997-CHL1, 8.13%, 7/25/06(5)(6) 5,000,000 5,084,375
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First Union-Lehman Brothers Commercial Mortgage
Trust, Interest-Only Stripped Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. D-3, 7.03%,
4/18/27(1) 33,934,578 2,682,953
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Morgan Stanley Capital I, Inc., Commercial
Mtg. Pass-Through Certificates, Series
1995-GAL-1, Cl. C, 7.95%, 8/15/27(5) 5,014,988 5,087,078
- --------------------------------------------------------------------------------
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(5)(6) 1,468,890 1,519,383
- --------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through
Certificates, Series 1993-S10, Cl. A9, 8.50%,
2/25/23 1,789,310 1,838,516
- --------------------------------------------------------------------------------
Salomon Brothers, Inc., Series 1997-TZH, Cl. D,
7.90%, 3/25/22(5) 1,700,000 1,764,281
------------
22,965,649
============
Total Mortgage-Backed Obligations
(Cost $498,775,644) 503,071,701
================================================================================
U.S. Government Obligations--45.3%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
11.75%, 11/15/14 19,700,000 28,177,165
7.50%, 11/15/24(7) 19,345,000 21,309,736
STRIPS, Zero Coupon, 6.39%, 2/15/07(8) 11,600,000 6,322,184
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
6.125%, 8/31/98 4,000,000 4,013,752
6.375%, 8/15/02 122,000 122,839
6.625%, 5/15/07 12,000,000 12,210,011
6.875%, 3/31/00 2,910,000 2,966,384
7.50%, 5/15/02 14,450,000 15,199,607
7.75%, 1/31/00 22,545,000 23,404,549
7.75%, 12/31/99 64,010,000 66,390,401
8%, 5/15/01 58,100,000 61,586,053
8.875%, 11/15/97 3,100,000 3,121,315
STRIPS, Zero Coupon, 7.03%, 8/15/16(8) 3,000,000 838,959
Total U.S. Government Obligations ------------
(Cost $248,227,659) 245,662,955
12 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Date Strike Contracts See Note 1
=======================================================================================
<S> <C> <C> <C> <C>
Call Options Purchased--0.0%
- ---------------------------------------------------------------------------------------
U.S. Treasury Nts.:
6.625%, 5/15/07 Call Opt. 10/97 105.19% 19,800 $ 17,016
6.625%, 5/15/07 Call Opt. 9/97 100.56 20,950 243,870
------------
Total Call Options Purchased (Cost $380,907) 260,886
- ---------------------------------------------------------------------------------------
Total Investments, at Value
(Cost $747,384,210) 138.0% 748,995,542
- ---------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (38.0) (206,261,008)
----- ------------
Net Assets 100.0% $542,734,534
===== ============
</TABLE>
1. 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.
2. 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.
3. When-issued security to be delivered and settled after August 31, 1997.
4. A sufficient amount of liquid assets has been designated to cover outstanding
written call options, as follows:
<TABLE>
<CAPTION>
Face Expiration Exercise Premium Market Value
Subject to Call Date Price Received See Note 1
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal National Mortgage
Assn., 7.50%, 8/1/25 Call
Option $35,000,000 9/4/97 99.703% $246,094 $393,750
</TABLE>
5. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.
6. Represents the current interest rate for a variable rate security.
7. Securities with an aggregate market value of $3,304,689 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
8. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
See accompanying Notes to Financial Statements.
13 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities August 31, 1997
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost
$747,384,210)--see accompanying statement $748,995,542
- --------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 7,175,501
Shares of beneficial interest sold 2,012,741
Daily variation on futures contracts--Note 5 40,531
- --------------------------------------------------------------------------------
Other 10,435
------------
Total assets 758,234,750
================================================================================
Liabilities
Bank overdraft 367,106
- --------------------------------------------------------------------------------
Options written, at value (premiums
received $246,094)--
see accompanying statement--Note 6 393,750
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued
basis--Note 1 212,814,109
Dividends 651,774
Shares of beneficial interest redeemed 626,711
Distribution and service plan fees 222,300
Trustees' fees--Note 1 172,734
Transfer and shareholder servicing agent fees 72,713
Other 179,019
------------
Total liabilities 215,500,216
================================================================================
Net Assets $542,734,534
============
================================================================================
Composition of Net Assets
Paid-in capital $554,551,060
- --------------------------------------------------------------------------------
Undistributed net investment income 1,240,651
- --------------------------------------------------------------------------------
Accumulated net realized loss on investment
transactions (14,498,802)
- --------------------------------------------------------------------------------
Net unrealized appreciation on
investments --Notes 3 and 5 1,441,625
-----------
Net assets $542,734,534
============
14 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on
net assets of $468,808,619 and 49,436,830 shares of
beneficial interest outstanding) $9.48
Maximum offering price per share (net asset value plus sales
charge of 4.75% of offering price) $9.95
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $52,300,814 and 5,520,655
shares of beneficial interest outstanding) $9.47
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $21,625,101 and 2,283,613
shares of beneficial interest outstanding) $9.47
See accompanying Notes to Financial Statements.
15 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $46,570,450
================================================================================
Expenses
Management fees--Note 4 3,233,578
- --------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,151,704
Class B 413,443
Class C 194,792
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 657,486
- --------------------------------------------------------------------------------
Shareholder reports 284,868
- --------------------------------------------------------------------------------
Custodian fees and expenses 119,172
- --------------------------------------------------------------------------------
Legal and auditing fees 44,567
- --------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 21,505
- --------------------------------------------------------------------------------
Registration and filing fees 16,581
- --------------------------------------------------------------------------------
Other 35,311
------------
Total expenses 6,173,007
================================================================================
Net Investment Income 40,397,443
================================================================================
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investments 8,962,434
Closing of futures contracts (1,379,539)
Closing and expiration of options written--Note 6 9,785
------------
Net realized gain 7,592,680
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments 5,493,413
------------
Net realized and unrealized gain 13,086,093
================================================================================
Net Increase in Net Assets Resulting from Operations $53,483,536
===========
See accompanying Notes to Financial Statements.
16 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Year Ended August 31, June 30,
1997 1996(1) 1996
============================================================================================
<S> <C> <C> <C>
Operations
Net investment income $ 40,397,443 $ 6,266,136 $ 34,112,103
- --------------------------------------------------------------------------------------------
Net realized gain (loss) 7,592,680 3,446,018 (5,345,762)
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation 5,493,413 (7,579,207) (5,672,502)
------------- ------------- -------------
Net increase in net assets resulting
from operations 53,483,536 2,132,947 23,093,839
============================================================================================
Dividends and Distributions to
Shareholders
Dividends from net investment income:
Class A (35,009,347) (5,731,651) (31,382,515)
Class B (2,694,329) (348,062) (1,137,105)
Class C (1,280,831) (186,423) (968,691)
- --------------------------------------------------------------------------------------------
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 (47,818,410) 2,449,140 202,362,216
Class B 14,753,876 6,033,028 31,353,131
Class C 2,555,447 161,928 7,965,917
============================================================================================
Net Assets
Total increase (decrease) (16,010,058) 4,510,907 230,608,160
- --------------------------------------------------------------------------------------------
Beginning of period 558,744,592 554,233,685 323,625,525
------------- ------------- -------------
End of period [including undistributed
(overdistributed) net investment income
of $1,240,651, $(90,989) and $57,809,
respectively] $ 542,734,534 $ 558,744,592 $ 554,233,685
============= ============= =============
</TABLE>
(1) For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
See accompanying Notes to Financial Statements.
17 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
Year Ended August 31, Year Ended June 30,
1997 1996(2) 1996 1995 1994 1993
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 9.23 $ 9.30 $ 9.51 $ 9.20 $ 9.95 $ 9.73
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .71 .10 .67 .68 .67 .68
Net realized and unrealized gain (loss) .23 (.07) (.21) .31 (.74) .22
-------- -------- -------- -------- -------- -----------
Total income (loss) from investment
operations .94 .03 .46 .99 (.07) .90
- -------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.69) (.10) (.66) (.68) (.64) (.68)
Dividends in excess of net
investment income -- -- -- -- (.01) --
Tax return of capital distribution -- -- (.01) -- (.03) --
-------- -------- -------- -------- -------- -----------
Total dividends and distributions
to shareholders (.69) (.10) (.67) (.68) (.68) (.68)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.48 $ 9.23 $ 9.30 $ 9.51 $ 9.20 $ 9.95
======== ======== ======== ======== ======== ===========
=========================================================================================================================
Total Return, at Net Asset Value(4) 10.45% 0.42% 4.91% 11.22% (1.17)% 9.55%
=========================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $468,809 $503,693 $504,966 $312,607 $310,027 $ 380,916
- -------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $478,410 $508,123 $452,236 $307,036 $355,698 $ 401,789
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.58% 6.64%(5) 7.07% 7.32% 6.61% 6.90%
Expenses 1.06% 1.09%(5) 1.08% 1.09% 1.14% 1.17%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 42.6% 5.6%(5) 399.7% 303.5% 139.5% 96.8%
</TABLE>
(1) For the period from December 1, 1993 (inception of offering) to June 30,
1994.
(2) For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
(3) For the period from July 21, 1995 (inception of offering) to June 30, 1996.
(4) 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.
18 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------ -------------------------------------------------
Period Ended
Year Ended August 31, June 30, Year Ended August 31, Year Ended June 30,
1997 1996(2) 1996(3) 1997 1996(2) 1996 1995 1994(1)
=======================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.22 $ 9.29 $ 9.40 $ 9.22 $ 9.29 $ 9.50 $ 9.19 $ 9.83
- ---------------------------------------------------------------------------------------
.64 .09 .56 .64 .09 .60 .61 .33
.23 (.07) (.11) .23 (.07) (.21) .30 (.64)
- ------- ------- ------- ------- ------- ------- ------- ------
.87 .02 .45 .87 .02 .39 .91 (.31)
- ---------------------------------------------------------------------------------------
(.62) (.09) (.55) (.62) (.09) (.59) (.60) (.33)
-- -- -- -- -- -- -- --
-- -- (.01) -- -- (.01) -- --
- ------- ------- ------- ------- ------- ------- ------- ------
(.62) (.09) (.56) (.62) (.09) (.60) (.60) (.33)
- ---------------------------------------------------------------------------------------
$ 9.47 $ 9.22 $ 9.29 $ 9.47 $ 9.22 $ 9.29 $ 9.50 $ 9.19
======= ======= ======= ======= ======= ======= ======= ======
=======================================================================================
9.63% 0.28% 4.80% 9.65% 0.28% 4.11% 10.31% (3.12)%
=======================================================================================
$52,301 $36,504 $30,737 $21,625 $18,547 $18,531 $11,019 $4,261
- ---------------------------------------------------------------------------------------
$41,420 $35,078 $19,227 $19,505 $18,620 $15,766 $ 6,503 $2,173
- ---------------------------------------------------------------------------------------
6.77% 5.82%(5) 6.44%(5) 6.81% 5.90%(5) 6.27% 6.44% 5.97%(5)
1.81% 1.88%(5) 1.93%(5) 1.80% 1.84%(5) 1.85% 1.89% 1.96%(5)
- ---------------------------------------------------------------------------------------
42.6% 5.6% 399.7% 42.6% 5.6% 399.7% 303.5% 139.5%
</TABLE>
(5) Annualized.
(6) 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 purchases
and sales from mortgage dollar-rolls) for the period ended August 31, 1997 were
$455,124,662 and $301,779,927, respectively. For the periods ended June 30, 1996
and 1995, purchases and sales include mortgage dollar-rolls.
See accompanying Notes to Financial Statements.
19 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 adviser 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 classes of
shares have identical rights to earnings, assets and voting privileges, except
that each class has its own distribution and/or service plan, expenses directly
attributable to that class and exclusive voting rights with respect to matters
affecting that class. The following is a summary of significant accounting
policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Options are valued based upon the last sale price on the
principal exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale price on the prior
trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid is used.
20 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
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 August 31, 1997,
the Fund had entered into outstanding when-issued or forward commitments of
$212,814,109.
In connection with its ability to purchase securities on a
when-issued or forward commitment basis, the Fund may enter into mortgage
"dollar-rolls" in which the Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity) but not identical securities on a
specified future date. The Fund records each dollar-roll as a sale and a new
purchase transaction.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, and Gains and Losses. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. At August 31, 1997, the Fund
had available for federal income tax purposes an unused capital loss carryover
of approximately $25,753,000, which expires between 1999 and 2005.
- --------------------------------------------------------------------------------
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
August 31, 1997, a credit of $25,077 was made for the Fund's projected benefit
obligations and payments of $24,051 were made to retired trustees, resulting in
an accumulated liability of $164,735 at August 31, 1997.
21 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
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 its ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the fiscal year in which the
income or realized gain was recorded by the Fund.
During the period ended August 31, 1997, the Fund adjusted the
classification of distributions to shareholders to reflect the differences
between financial statement amounts and distributions determined in accordance
with income tax regulations. Accordingly, during the period ended August 31,
1997, amounts have been reclassified to reflect a decrease in undistributed net
investment income of $81,296, an increase in accumulated net realized loss on
investments of $32,469, and an increase in paid-in capital of $113,765.
- --------------------------------------------------------------------------------
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.
22 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
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 August 31, 1997 Period Ended August 31, 1996(2) Year Ended June 30, 1996(1)
-------------------------- ------------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 7,147,373 $ 67,261,266 1,923,780 $ 17,886,206 10,356,711 $ 98,293,347
Dividends reinvested 2,947,978 27,722,663 493,845 4,572,687 2,643,981 25,030,137
Issued in connection with
the acquisition of:
Oppenheimer Mortgage
Income Fund--Note 8 -- -- -- -- 8,262,838 77,918,563
Quest for Value
U.S. Government
Income Fund--Note 8 -- -- -- -- 10,598,976 101,114,231
Connecticut Mutual
Government Account--
Note 8 -- -- -- -- 5,008,473 46,829,224
Redeemed (15,211,682) (142,802,339) (2,152,748) (20,009,753) (15,453,509) (146,823,286)
----------- ------------- ---------- ------------ ----------- -------------
Net increase (decrease) (5,116,331) $ (47,818,410) 264,877 $ 2,449,140 21,417,470 $ 202,362,216
=========== ============= ========== ============ =========== =============
- -----------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 3,179,059 $ 29,856,499 769,313 $ 7,144,526 2,376,966 $ 22,507,322
Dividends reinvested 194,821 1,831,039 26,786 247,712 81,288 766,568
Issued in connection with
the acquisition of:
Oppenheimer Mortgage
Income Fund--Note 8 -- -- -- -- 683,099 6,434,794
Quest for Value
U.S. Government
Income Fund--Note 8 -- -- -- -- 967,755 9,222,705
Connecticut Mutual
Government Account--
Note 8 -- -- -- -- 10,367 96,832
Redeemed (1,810,612) (16,933,662) (146,276) (1,359,210) (811,911) (7,675,090)
----------- ------------- ---------- ------------ ----------- -------------
Net increase 1,563,268 $ 14,753,876 649,823 $ 6,033,028 3,307,564 $ 31,353,131
=========== ============= ========== ============ =========== =============
- -----------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 882,280 $ 8,277,787 209,265 $ 1,946,901 1,386,839 $ 13,136,459
Dividends reinvested 109,121 1,025,173 16,389 151,584 85,473 807,582
Issued in connection with
the acquisition of Quest
for Value U.S. Government
Income Fund--Note 8 -- -- -- -- 284,411 2,710,439
Redeemed (718,810) (6,747,513) (209,156) (1,936,557) (921,932) (8,688,563)
----------- ------------- ---------- ------------ ----------- -------------
Net increase 272,591 $ 2,555,447 16,498 $ 161,928 834,791 $ 7,965,917
=========== ============= ========== ============ =========== =============
</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.
(2) The Fund changed its fiscal year end from June 30 to August 31.
23 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
3. Unrealized Gains and Losses on Investments
At August 31, 1997, net unrealized appreciation on investments and options
written of $1,463,676 was composed of gross appreciation of $7,176,100, and
gross depreciation of $5,712,424.
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Managers 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, 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 average
annual net assets over $800 million.
For the year ended August 31, 1997, commissions (sales charges paid
by investors) on sales of Class A shares totaled $709,843, of which $230,181 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 $1,031,181 and $65,115, of which $25,474 and $3,250,
respectively, was paid to an affiliated broker/dealer. During the year ended
August 31, 1997, OFDI received contingent deferred sales charges of $130,311 and
$3,984, 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 shareholder accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. OFDI uses the service fee to
reimburse brokers, dealers, banks and other financial institutions quarterly for
providing personal service and maintenance of accounts of their customers that
hold Class A shares. During the year ended August 31, 1997, OFDI paid $149,082
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
24 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The Fund has adopted 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 on Class B shares and Class C
shares, as compensation for sales commissions paid from its own resources at the
time of sale and associated financing costs. 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 August 31, 1997, OFDI paid $1,070 and $15,008 to an
affiliated broker/dealer as compensation for Class B and Class C personal
service and maintenance expenses and retained $358,181 and $60,433,
respectively, as compensation for Class B and Class C sales commissions and
service fee advances, as well as financing costs. If either Plan is terminated
by the Fund, the Board of Trustees may allow the Fund to continue payments of
the asset-based sales charge to OFDI for distributing shares before the Plan was
terminated. At August 31, 1997, OFDI had incurred unreimbursed expenses of
$1,717,291 for Class B and $275,792 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 (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund recognizes a realized gain or loss when the contract
is closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
25 Oppenheimer U.S. Government Trust
<PAGE>
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Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
5. Futures Contracts (continued)
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 August 31, 1997, the Fund had outstanding futures contracts to
purchase and sell debt securities as follows:
<TABLE>
<CAPTION>
Unrealized
Expiration Number of Valuation as of Appreciation
Date Contracts August 31, 1997 (Depreciation)
<S> <C> <C> <C> <C>
- ---------------------
Contracts to Purchase
U.S. Treasury Nts., 5-yr 9/97 51 $ 5,444,250 $(32,676)
Contracts to Sell
- -----------------
U.S. Treasury Nts., 2-yr 9/97 44 9,098,375 (24,063)
U.S. Treasury Nts., 10-yr 9/97 124 13,519,875 36,250
U.S. Treasury Bonds, 30-yr 9/97 20 2,262,500 (1,562)
--------
$(22,051)
========
</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.
26 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The risk in writing a call option is that the fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist. Written
option activity for the year ended August 31, 1997 was as follows:
<TABLE>
<CAPTION>
Call Options Put Options
----------------------- ----------------------
Number Amount Number Amount of
of Options of Premiums of Options Premiums
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at August 31, 1996 -- $ -- $ --
Options written 35,000 246,094 44 12,799
Options closed or expired -- -- (44) (12,799)
------ -------- --- --------
Options outstanding at August 31, 1997 35,000 $246,094 -- $ --
====== ======== === ========
</TABLE>
================================================================================
7. Illiquid and Restricted Securities
At August 31, 1997, investments in securities included issues that are illiquid
or restricted. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may be considered
illiquid if it lacks a readily-available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at August 31, 1997 was $46,789,138, which represents
8.62% of the Fund's net assets.
================================================================================
8. 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 qualified as a tax-free
reorganization for federal income tax purposes.
27 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
8. Acquisition of Oppenheimer Mortgage Income Fund, Quest for Value U.S.
Government Income Fund and Connecticut Mutual Government Account (continued)
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 qualified 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
qualified as a tax-free reorganization for federal income tax purposes.
28 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 August 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the year then ended, the two-month period ended August
31, 1996 and the year ended June 30, 1996, and the financial highlights for the
year ended August 31, 1997, the two-month period ended August 31, 1996 and for
each of the years in the four-year period ended June 30,1996. 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 and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1997, 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 August 31, 1997, the results
of its operations for the year then ended, the changes in its net assets for the
year then ended, the two-month period ended August 31,1996 and the year ended
June 30, 1996, and the financial highlights for the year ended August 31, 1997,
the two-month period ended August 31, 1996 and for each of the years in the
four-year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
September 22, 1997
29 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
- --------------------------------------------------------------------------------
================================================================================
In early 1998, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1997. 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 year ended August
31, 1997 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 adviser for specific
guidance.
30 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
Oppenheimer U.S. Government Trust
- --------------------------------------------------------------------------------
================================================================================
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
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Jerry A. Webman, 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
================================================================================
Investment Adviser OppenheimerFunds, Inc.
================================================================================
Distributor OppenheimerFunds Distributor, Inc.
================================================================================
Transfer and OppenheimerFunds Services
Shareholder
Servicing Agent
================================================================================
Custodian of Citibank, N.A.
Portfolio Securities
================================================================================
Independent Auditors KPMG Peat Marwick LLP
================================================================================
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.
31 Oppenheimer U.S. Government Trust
<PAGE>
Information and services
- --------------------------------------------------------------------------------
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, or visit us at our website at
www.oppenheimerfunds.com--we're here to help.
Internet
24-hr access to account information
www.oppenheimerfunds.com
General Information
Mon-Fri 8:30am-9pm ET
Sat 10am-4pm ET
1-800-525-7048
Account Transactions
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Sat 10am-4pm ET
1-800-852-8457
PhoneLink
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and automated transactions
1-800-533-3310
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