Oppenheimer
U.S. Government Trust
Prospectus Dated December 19, 1997
Oppenheimer U.S. Government Trust (the "Fund") is a mutual fund with the
investment objective of seeking high current income, preservation of capital and
maintenance of liquidity primarily through investments in debt instruments
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Please refer to "Investment Policies and Strategies" for more
information about the types of securities the Fund invests in and refer to
"Investment Risks" for a discussion on the risks of investing in the Fund.
This Prospectus explains concisely what you should know before investing
in the Fund. Please read this Prospectus carefully and keep it for future
reference. You can find more detailed information about the Fund in the December
19, 1997 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency, and
involve investment risks, including the possible loss of the principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<PAGE>
Contents
A B O U T T H E F U N D
3 Expenses
5 Brief Overview of the Fund
8 Financial Highlights
10 Investment Objective and Policies
11 How the Fund is Managed
17 Performance of the Fund
18
ABOUT YOUR ACCOUNT
23 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
37 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
39 How to Sell Shares
By Mail
By Telephone
By Checkwriting
42 How to Exchange Shares
43 Shareholder Account Rules and Policies
45 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements
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<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly. The numbers below are
based on the Fund's expenses during the fiscal year ended August 31, 1997.
o Shareholder Transaction Expenses are charges you pay when you buy or sell
shares of the Fund. Please refer to "About Your Account" from pages 23 through
47 for an explanation of how and when these charges apply.
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge 4.75% None None
on Purchases (as a %
of offering price)
Maximum Deferred Sales None(1) 5% in the first 1.0%(2)
Charge (as a % of the year, declining
lower of the original to 1% in the
offering price or sixth year, and
redemption proceeds) eliminated
thereafter(2)
Maximum Sales Charge on None None None
Reinvested Dividends
Redemption Fee None(3) None(3) None(3)
Exchange Fee None None None
1. If you invest $1 million or more ($500,000 or more for purchases by
"Retirement Plans", as defined in "Class A Contingent Deferred Sales Charge") in
Class A shares, you may have to pay a sales charge of up to 1% if you sell your
shares within 12 calendar months (18 months for shares purchased prior to May 1,
1997) from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares - Buying Class A Shares," below. 2. See "How to
Buy Shares - Buying Class B Shares" and "How to Buy Shares - Buying Class C
Shares" below, for more information on the contingent deferred sales charges. 3.
There is a $10 transaction fee for redemptions paid by Federal Funds wire, but
not for redemption proceeds paid by check, or ACH transfer through AccountLink,
or, with respect to Class A shares only, for which checkwriting privileges are
used (see "How to Sell Shares").
o Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment adviser, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed," below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds the Fund's portfolio securities, audit fees and legal
expenses. Those expenses are detailed in the Fund's Financial Statements in the
Statement of Additional Information.
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
Class A Class B Class C
Shares Shares Shares
Management Fees 0.60% 0.60% 0.60%
12b-1 Distribution
Plan Fees 0.24% 1.00% 1.00%
Other Expenses 0.22% 0.21% 0.20%
Total Fund Operating
Expenses 1.06% 1.81% 1.80%
The numbers in the chart above are based upon the Fund's expenses in the
fiscal year ended August 31, 1997. These amounts are shown as a percentage of
the average net assets of each class of the Fund's shares for that year. The
"12b-1 Distribution Plan Fees" for Class A shares are the service fees (the fee
is 0.25% of average annual net assets of that class), and for Class B and Class
C shares, are the service fees (the service fee is 0.25% of average annual net
assets of that class) and the asset-based sales charge of 0.75%. These plans are
described in greater detail in "How to Buy Shares."
The actual expenses for each class of shares in future years may be more or
less, depending on a number of factors, including the actual amount of the
assets represented by each class of shares.
o Examples. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that
you make a $1,000 investment in each class of shares of the Fund, and that the
Fund's annual return is 5%, and that its operating expenses for each class are
the ones shown in the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your investment would
incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $58 $80 $103 $171
Class B Shares $68 $87 $118 $175
Class C Shares $28 $57 $97 $212
If you did not redeem your investment, it would incur the following expenses:
1 year 3 years 5 years 10 years*
Class A Shares $58 $80 $103 $171
Class B Shares $18 $57 $98 $175
Class C Shares $18 $57 $97 $212
* In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares
is designed to minimize the likelihood that this will occur. Please refer to
"How to Buy Shares -Buying Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o What is The Fund's Investment Objective? The Fund's investment objective
is to seek high current income, preservation of capital and maintenance of
liquidity.
o What Does the Fund Invest In? The Fund primarily invests in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements on such securities. The Fund may
write covered calls and use certain hedging instruments approved by its Board of
Trustees to try to manage investment risks. U.S. Government Securities that the
Fund invests in include collateralized mortgage obligations ("CMO's") whose
payment of principal and interest generated by the pool of mortgages is passed
through to the Fund. CMO's may be issued in a variety of classes or series
("tranches") that have different maturities and levels of volatility. The Fund
may also invest in "stripped" CMO's or mortgage-backed securities. Stripped
mortgage-backed securities usually have two classes that receive different
proportions of the interest and principal payments. In certain cases, one class
will receive all of the interest payments, while the other class will receive
all of the principal value on maturity. These investments are more fully
explained in "Investment Objective and Policies," starting on page 10.
o Who Manages the Fund? The Fund's investment adviser (the "Manager") is
OppenheimerFunds, Inc. Prior to January 6, 1996, the Manager was known as
Oppenheimer Management Corporation. The Manager (including subsidiaries) manages
investment company portfolios having over $75 billion in assets at September 30,
1997. The Manager is paid an advisory fee by the Fund, based on the Fund's net
assets. The Fund's portfolio manager, Jerry A. Webman, is employed by the
Manager and is primarily responsible for the selection of the Fund's securities.
The Fund's Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio manager. Please refer to "How the Fund is Managed,"
starting on page 17 for more information about the Manager and its fees.
o How Risky is the Fund? Although U.S. Government Securities involve little
credit risk, their values will fluctuate depending on prevailing interest rates.
When prevailing interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally decline. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term securities. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased for
the portfolio, and in some cases by using hedging techniques, there is no
guarantee of success in achieving the Fund's objective and your shares may be
worth more or less than their original cost when you redeem them. Please refer
to "Investment Objective and Policies" starting on page 10 for a more complete
discussion of the Fund's investment risks.
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page 23 for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund has three classes of
shares. Each class has the same investment portfolio, but different expenses.
Class A shares are offered with a front-end sales charge, starting at 4.75%, and
reduced for larger purchases. Class B shares are offered without a front-end
sales charge, but may be subject to a contingent deferred sales charge (starting
at 5% and declining as shares are held longer) if redeemed within 6 years of
purchase. Class C shares are offered without a front-end sales charge, but may
be subject to a contingent deferred sales charge of 1% if redeemed within 1 year
of purchase. There is also an annual asset- based sales charge on Class B and
Class shares. Please review "How to Buy Shares" starting on page 23 for more
details, including a discussion about factors you and your financial advisor
should consider in determining which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by telephone
call to the Transfer Agent on any business day, or through your dealer or by
writing a check against your current account (available for Class A shares
only). Please refer to "How to Sell Shares" on page 39. The Fund also offers
exchange privileges to other Oppenheimer funds, described in "How to Exchange
Shares" on page 42.
o How Has the Fund Performed? The Fund measures its performance by quoting
a yield, dividend yield, average annual total return and cumulative total
return, which measure historical performance. Those returns can be compared to
the yields and total returns (over similar periods) of other funds. Of course,
other funds may have different objectives, investments, and levels of risk. The
Fund's performance can also be compared to U.S. Government bond indices, which
we have done on pages 21 and 22. Please remember that past performance does not
guarantee future results.
Financial Highlights
The table on the following pages presents selected financial information about
the Fund, including per share data and expense ratios and other data based on
the Fund's average net assets. This information has been audited by KPMG Peat
Marwick LLP, the Fund's independent auditors, whose report on the Fund's
financial statements for the fiscal year ended August 31, 1997, is included in
the Statement of Additional Information.
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
-------------------------------------------------------------------------------------------
YEAR ENDED
AUGUST 31, YEAR ENDED JUNE 30,
1997 1996(2) 1996 1995 1994 1993 1992 1991
==================================================================================================================================
<S> <C> <C> <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 $9.25 $9.24
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .71 .10 .67 .68 .67 .68 .69 .83
Net realized and
unrealized gain (loss) .23 (.07) (.21) .31 (.74) .22 .48 .02
---- ---- ---- ---- ---- ---- ---- ----
Total income (loss) from
investment operations .94 .03 .46 .99 (.07) .90 1.17 .85
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.69) (.10) (.66) (.68) (.64) (.68) (.69) (.84)
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) (.69) (.84)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.48 $9.23 $9.30 $9.51 $9.20 $9.95 $9.73 $9.25
===== ===== ===== ===== ===== ===== ===== =====
==================================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 10.45% 0.42% 4.91% 11.22% (1.17)% 9.55% 13.05% 9.53%
==================================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $468,809 $503,693 $504,966 $312,607 $310,027 $380,916 $395,863 $342,220
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $478,410 $508,123 $452,236 $307,306 $355,698 $401,789 $376,532 $299,144
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.58% 6.64%(5) 7.07% 7.32% 6.61% 6.90% 7.23% 8.93%
Expenses 1.06% 1.09%(5) 1.08% 1.09% 1.14% 1.17% 1.17% 1.19%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 42.6% 5.6% 399.7% 303.5% 139.5% 96.8% 207.8% 133.9%
</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.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------------------------- --------------------------------- --------------------------------------------------------
PERIOD
YEAR ENDED ENDED YEAR ENDED
AUGUST 31, JUNE 30, AUGUST 31, YEAR ENDED JUNE 30,
1990 1989 1988 1997 1996(2) 1996(3) 1997 1996(2) 1996 1995 1994(1)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$9.54 $9.59 $9.77 $9.22 $9.29 $9.40 $9.22 $9.29 $9.50 $9.19 $9.83
- -------------------------------------------------------------------------------------------------------------------------------
.90 .91 .90 .64 .09 .56 .64 .09 .60 .61 .33
(.32) (.05) (.18) .23 (.07) (.11) .23 (.07) (.21) .30 (.64)
---- ---- ---- ---- ----- ---- ----- ----- ---- ---- ----
.58 .86 .72 .87 .02 .45 .87 .02 .39 .91 (.31)
- -------------------------------------------------------------------------------------------------------------------------------
(.88) (.91) (.90) (.62) (.09) (.55) (.62) (.09) (.59) (.60) (.33)
-- -- -- -- -- -- -- -- -- -- --
-- -- -- -- -- (.01) -- -- (.01) -- --
---- ---- ---- ---- ----- ---- ----- ----- ---- ---- ----
(.88) (.91) (.90) (.62) (.09) (.56) (.62) (.09) (.60) (.60) (.33)
- -------------------------------------------------------------------------------------------------------------------------------
$9.24 $9.54 $9.59 $9.47 $9.22 $9.29 $9.47 $9.22 $9.29 $9.50 $9.19
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
===============================================================================================================================
6.34% 9.51% 7.78% 9.63% 0.28% 4.80% 9.65% 0.28% 4.11% 10.31% (3.12)%
===============================================================================================================================
$264,728 $232,593 $203,857 $52,301 $36,504 $30,737 $21,625 $18,547 $18,531 $11,019 $4,261
- -------------------------------------------------------------------------------------------------------------------------------
$253,085 $210,060 $197,834 $41,420 $35,078 $19,227 $19,505 $18,620 $15,766 $ 6,503 $2,173
- -------------------------------------------------------------------------------------------------------------------------------
9.60% 9.65% 9.36% 6.77% 5.82%(5) 6.44%(5) 6.81% 5.90%(5) 6.27% 6.44% 5.97%(5)
1.16% 1.19% 1.13% 1.81% 1.88%(5) 1.93%(5) 1.80% 1.84%(5) 1.85% 1.89% 1.96%(5)
- -------------------------------------------------------------------------------------------------------------------------------
125.5% 76.9% 141.3% 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 years ended June 30, 1996
and 1995, purchases and sales include mortgage dollar-rolls.
9
Investment Objective and Policies
Objective. The Fund's investment objective is to seek high current income,
preservation of capital and maintenance of liquidity through investments in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities").
Investment Policies and Strategies. The Fund seeks to achieve its investment
objective by investing primarily in U.S. Government Securities and repurchase
agreements on such securities. U.S. Government Securities include the following:
o U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of two to ten years when issued) and Treasury bonds (which have
maturities generally greater than ten years when issued). U.S. Treasury
obligations are backed by the full faith and credit of the United States.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These are obligations supported by any of the following: (a)
the full faith and credit of the U.S. Government, such as Government National
Mortgage Association ("Ginnie Mae") modified pass- through certificates as
described below, (b) the right of the issuer to borrow an amount limited to a
specific line of credit from the U.S. Government, such as bonds issued by
Federal National Mortgage Association ("Fannie Mae"), (c) the discretionary
authority of the U.S. Government to purchase the obligations of the agency or
instrumentality, or (d) the credit of the instrumentality, such as obligations
of Federal Home Loan Mortgage Corporation ("Freddie Mac"). Securities of U.S.
Government agencies and instrumentalities that are supported by the
discretionary authority of the U.S. Government to purchase such securities and
which the Fund may purchase under (c) above include: Federal Land Banks, Farmers
Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Freddie Mac and Fannie Mae.
o Mortgage-Backed Securities. Also known as pass-through securities, the
homeowner's principal and interest payments pass from the originating bank or
savings and loan through the appropriate governmental agency to investors, net
of service charges. These pass-through securities include participation
certificates of Ginnie Mae, Freddie Mac and Fannie Mae.
The section below entitled "Mortgage-Backed Securities" and the Statement
of Additional Information contains additional information on these types of
securities as well as other U.S.
Government Securities.
As a matter of fundamental policy, the Fund will invest at least 80% of
its total assets in U.S. Government Securities, under normal market conditions
(when the manager believes that the financial markets are not in a volatile or
unstable period). The Fund expects that any investments in debt securities other
than U.S. Government Securities will be limited to debt securities rated within
the four highest rating categories of Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, judged by the Manager to be of
comparable quality to debt securities rated within such grades; although it is
not a fundamental policy that it do so. Such ratings are known as "investment
grade" ratings. The Fund is not obligated to dispose of securities if the rating
is reduced below investment grade. There is the increased credit risk potential
that issuers other than the U.S. Government or its agencies or instrumentalities
may not be able to make interest or principal payments as they become due.
o Can the Fund's Investment Objective and Policies Change? The Fund has an
investment objective, described above, as well as investment policies it follows
to try to achieve its objective. Additionally, the Fund uses certain investment
techniques and strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless this Prospectus
or the Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the approval
of a "majority" of the Fund's outstanding voting shares. The term "majority" is
defined in the Investment Company Act to be a particular percentage of
outstanding voting shares (and this term is explained in the Statement of
Additional Information). The Fund's Board of Trustees may change non-fundamental
policies without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
o Portfolio Turnover. "Portfolio turnover" describes the rate at which the
fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. Portfolio turnover affects brokerage costs the Fund
pays. The Fund may engage frequently in short-term trading to try to achieve its
objective. The Financial Highlights table above shows the Fund's portfolio
turnover rates during prior fiscal years.
Investment Risks
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change, there is
no assurance that the Fund will achieve its investment objective. When you
redeem your shares, they may be worth more or less than what you paid for them.
o Interest Rate Risks. Although U.S. Government Securities involve little
credit risk, their market values will fluctuate until they mature, depending on
prevailing interest rates. When prevailing interest rates go up, the market
value of already issued debt securities tends to go down. When interest rates go
down, the market value of already issued debt securities tends to go up. The
magnitude of those fluctuations generally will be greater when the average
maturity of the Fund's portfolio securities is longer. Because of this factor,
the Fund's share value and yield are not guaranteed and will fluctuate, and
there can be no assurance that the Fund's objective of seeking high current
income, conservation of principal and maintenance of liquidity will be achieved.
Additionally, there are risks involving mortgage-backed securities,
including the fact that the effective maturity of a mortgage-backed security may
be shortened by unscheduled or early payment of principal and interest on the
underlying mortgages, which may affect the effective yield of such securities.
The principal that is returned may be invested in instruments having a higher or
lower yield than the prepaid instruments depending on then-current market
conditions. Such securities therefore may be less effective as a means of
"locking in" attractive long-term interest rates and may have less potential for
appreciation during periods of declining interest rates than conventional bonds
with comparable stated maturities. If the Fund buys mortgage-backed securities
at a premium, prepayments of principal and foreclosures of mortgages may result
in some loss of the Fund's principal investment to the extent of the premium
paid.
o Hedging instruments can be volatile investments and may involve special
risks. In the broadest sense, exchange-traded options and futures contracts and
other hedging instruments the Fund can use may be defined as "derivative"
investments. In general, a derivative investment is a specially-designed
investment whose performance is linked to the performance of another investment,
security index, or other readily measurable economic variable. The use of
hedging instruments requires special skills and knowledge of investment
techniques that are different from what is required for normal portfolio
management. If the Manager uses a hedging instrument at the wrong time or judges
market conditions incorrectly, hedging strategies may reduce the Fund's return.
The Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it could not
close out a position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment at
the call price and will not be able to realize any profit if the investment has
increased in value above the call price. Interest rate swaps are subject to
credit risks (if the other party fails to meet its obligations) and also to
interest rate risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate changes.
These risks are described in greater detail in the Statement of Additional
Information.
o There are Special Risks in Investing in Derivative Investments. One risk
of investing in derivative investments is that the company issuing the
instrument might not pay the amount due on the maturity of the instrument. There
is also the risk that the underlying investment or security on which the
derivative is based, and the derivative itself, may not perform the way the
Manager expects it to perform. The performance of derivative investments may
also be influenced by interest rate changes in the U.S. and abroad. All of these
risks can mean that the Fund will realize less income than expected from its
investments, or that it can lose part of the value of its investments, which
will affect the Fund's share price. Certain derivative investments held by the
Fund may trade in the over-the-counter markets and may be illiquid. If that is
the case, the Fund's investment in them will be limited as discussed below.
Other Investment Techniques and Strategies. The Fund may also use the investment
techniques and strategies described below. These techniques involve certain
risks. The Statement of Additional Information contains more information about
these practices, including limitations on their use that are designed to reduce
some of the risks.
o Mortgage-Backed Securities. The Fund may invest in collateralized
mortgage obligations ("CMOs") that are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or that are collateralized by a
portfolio of mortgages or mortgage-related securities guaranteed by such an
agency or instrumentality. Payment of the interest and principal generated by
the pool of mortgages is passed through to the holders as the payments are
received by the issuer of the CMO. CMOs may be issued in a variety of classes or
series ("tranches") that have different maturities. The principal value of
certain CMO tranches may be more volatile than other types of mortgage-related
securities, because of the possibility that the principal value of the CMO may
be prepaid earlier than the maturity of the CMO as a result of prepayments of
the underlying mortgage loans by the borrowers.
The Fund may invest in "stripped" mortgage-backed securities or CMOs or
other such securities issued by agencies or instrumentalities of the U.S.
Government. Stripped mortgage-backed securities usually have two classes. The
classes receive different proportions of the interest and principal
distributions on the pool of mortgage assets that act as collateral for the
security. In certain cases, one class will receive all of the interest payments
(and is known as an "I/O"), while the other class will receive all of the
principal value (and is known as a "P/O").
The yield to maturity on the class that receives interest only (I/O) is
extremely sensitive to the rate of payment of the principal on the underlying
mortgages. Principal prepayments increase that sensitivity. I/Os are therefore
subject to greater price volatility when interest rates change, and they have
the additional risk that if the underlying mortgages are prepaid, the Fund will
lose the anticipated cash flow from the interest on the prepaid mortgages. That
risk is increased when general interest rates fall and prepayment rates
increase. In times of rapidly falling interest rates, the Fund might receive
back less than its investment. Conversely, the value of P/Os are very sensitive
to increases in interest rates. When interest rates increase, mortgage
prepayments decline and the cash flows accruing to P/Os decline. Therefore, in
times of rising interest rates, the value of principal only mortgage-backed
securities may decline.
As with other bond investments, the value of U.S. Government Securities and
mortgage-backed securities will tend to rise when interest rates fall and to
fall when interest rates rise. The value of mortgage-backed securities may also
be affected by changes in the market's perception of the creditworthiness of the
entity issuing or guaranteeing them or by changes in government regulations and
tax policies. Because of these factors, the Fund's share value and yield are not
guaranteed and will fluctuate, and there can be no assurance that the Fund's
objective will be achieved. The magnitude of these fluctuations generally will
be greater when the average maturity of the Fund's portfolio securities is
longer. Because the yields on U.S. Government Securities are generally lower
than on corporate debt securities, the Fund may attempt to increase the income
it can earn from U.S. Government Securities by writing covered call options
against them, when market conditions are appropriate. Writing covered call
options is explained below, under "Other Investment Techniques and Strategies."
The Fund may enter into "forward roll" transactions with banks or other
buyers that provide for future delivery of mortgage-backed securities in which
the Fund may invest. The Fund would be required to identify cash, U.S.
Government Securities or other high-grade debt securities to its custodian bank
in an amount equal to its purchase payment obligation under the roll.
o Loans of Portfolio Securities. To attempt to increase its income or to
raise cash for liquidity purposes, the Fund may lend its portfolio securities
other than in repurchase transactions to brokers, dealers and other financial
institutions. The Fund must receive collateral for a loan.
These loans are limited to not more than 25% of the Fund's total assets and are
subject to certain other conditions described in the Statement of Additional
Information. See "Loans of Portfolio Securities" in the Statement of Additional
Information on securities loans.
o "When-Issued" and "Delayed Delivery" Transactions. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed delivery" basis. These terms refer to securities that have been created
and for which a market exists, but which are not available for immediate
delivery. There may be a risk of loss to the Fund if the value of the security
declines prior to the settlement date. Additionally, if the Fund chooses to sell
its right to acquire the when-issued security prior to its acquisition, or to
dispose of its right to deliver or receive under a delayed delivery commitment,
the Fund may incur a gain or loss.
o Repurchase Agreements. The Fund may enter into repurchase agreements. In
a repurchase transaction, the Fund buys a security and simultaneously sells it
to the vendor for delivery at a future date. There is no limit on the amount of
the Fund's net assets that may be subject to repurchase agreements of seven days
or less. The Fund will not enter into a repurchase agreement that will cause
more than 10% of its net assets to be subject to repurchase agreements having a
maturity beyond seven days. Repurchase agreements must be fully collateralized.
However, if the vendor fails to pay the resale price on the delivery date, the
Fund may experience costs in disposing of the collateral and may experience
losses if there is any delay in doing so.
o Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements under which the Fund sells securities and agrees to
repurchase them at an agreed upon time and at an agreed upon price. The
difference between the amount the Fund receives for the securities and the
amount it pays on repurchase is deemed to be a payment of interest.
o Hedging. As described below, the Fund may buy and sell certain kinds of
futures contracts, put and call options, and options on futures, or enter into
interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them, described below. The hedging
instruments the Fund may use are described below and in greater detail in "Other
Investment Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options and futures for a number of purposes. It
may do so to try to manage its exposure to the possibility that the prices of
its portfolio securities may decline, or to establish a position in the
securities market as a temporary substitute for purchasing individual
securities. It may do so to try to manage its exposure to changing interest
rates. Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge the Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options and
writing put options, tend to increase the Fund's exposure to the securities
market as a temporary substitute for purchasing securities. Writing put options
or covered call options may also provide income to the Fund for liquidity
purposes or raise cash for the Fund to distribute to shareholders.
o Futures. The Fund may buy and sell futures contracts that relate to
interest rates (these are referred to as Interest Rate Futures). Interest Rate
Futures are described in "Hedging With Options and Futures Contracts" in the
Statement of Additional Information.
o Put and Call Options. The Fund may buy and sell exchange-traded and
over-the-counter put and call options, including index options, securities
options, currency options, commodities options, and options on the other types
of futures described in Futures, previously. A call or put may be purchased only
if, after the purchase, the value of all call and put options held by the Fund
will not exceed 5% of the Fund's total assets.
If the Fund sells (that is, writes) a call option, it much be "covered."
That means the Fund must own the security subject to the call while the call is
outstanding, or, for other types of written calls, the Fund must segregate
liquid assets to enable it to satisfy its obligations if the call is exercised.
Up to 25% of the Fund's total assets may be subject to calls.
The Fund may buy puts whether or not it holds the underlying investment in
the portfolio. If the Fund writes a put, the put must be covered by segregated
liquid assets. The Fund will not write puts if more than 25% of the Fund's net
assets would have to be segregated to cover put options.
o Interest Rate Swaps. In an interest rate swap, the Fund and another party
exchange their right to receive or their obligation to pay interest on a
security. For example, they may swap a right to receive floating rate payments
for fixed rate payments. The Fund enters into swaps only on securities it owns.
The Fund may not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash or U.S.
Government securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount daily, as
needed. Income from interest rate swaps may be taxable.
o Derivative Investments. The Fund can invest in a number of different
kinds of "derivative investments." The Fund may use some types of derivatives
for hedging purposes, and may invest in others because they offer the potential
for increased income and principal value. In the broadest sense, derivative
investments include exchange-traded options and futures contracts (please refer
to "Hedging," above).
Other Investment Restrictions. The Fund has other investment restrictions which
are fundamental policies. Under these fundamental policies, the Fund cannot do
any of the following: o make loans; however, the purchase of debt securities
which the Fund's investment policies and restrictions permit it to purchase,
whether or not subject to repurchase agreements, is permitted; the Fund may also
lend securities as described under "Loans of Portfolio Securities";
o borrow money in excess of 10% of the value of its net assets (and then
only as a temporary measure for extraordinary or emergency purposes) or make any
investment at a time during which such borrowing exceeds 5% of the value of its
assets; no assets of the Fund may be pledged, mortgaged or hypothecated to
secure a debt; the escrow arrangements involved in options trading are not
considered to involve such a mortgage, hypothecation or pledge; or
o enter into repurchase agreements maturing in more than seven days, or
invest in securities which are restricted as to resale, securities which are not
readily convertible to cash ("illiquid securities") or securities for which
market quotations are not readily available if more than 10% of the Fund's total
assets would be invested in such securities.
Unless the Prospectus states that a percentage restriction applies on an
ongoing basis, it applies only at the time the Fund makes an investment and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund.
Other investment restrictions are listed in "Investment Restrictions" in the
Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1982 as a Massachusetts
business trust. The Fund is an open-end, diversified management investment
company, with an unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible under
Massachusetts law for protecting the interests of shareholders. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. "Trustees and Officers
of the Fund" in the Statement of Additional Information names the Trustees and
officers and provides more information about them. Although the Fund will not
normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board has done
so, and the Fund currently has three classes of shares, Class A, Class B and
Class C. All classes invest in the same investment portfolio. Each class has its
own dividends and distributions and pays certain expenses which may be different
for the different classes. Each class may have a different net asset value. Each
share has one vote at shareholder meetings, with fractional shares voting
proportionally. Only shares of a particular class vote as a class on matters
that affect that class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and managing its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible for paying to conduct its business.
The Manager has operated as an investment adviser since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, and with more than 3 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company that is owned in part by senior
officers of the Manager and controlled by Massachusetts Mutual Life Insurance
Company.
o Portfolio Manager. The Portfolio Manager of the Fund is Jerry A. Webman.
He has been the person principally responsible for the day-to-day management of
the Fund's portfolio since July 15, 1997. Mr. Webman is a Senior Vice President
of the Manager and Vice President of the Fund. Mr. Webman also serves as an
officer and portfolio manager of other Oppenheimer funds. Previously he was an
officer and analyst with Prudential Mutual Fund - Investment Management, Inc. o
Fees and Expenses. Under the investment advisory agreement, the Fund pays the
Manager the following annual fees, which decline on additional assets as the
Fund grows: 0.65% of the first $200 million of aggregate net assets, 0.60% of
the next $100 million; 0.57% of the next $100 million, 0.55% of the next $400
million, and 0.50% of aggregate net assets over $800 million. The Fund's
management fee for its fiscal year ended August 31, 1997 was .60% of average
annual net assets for each class of shares.
The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. Because the Fund purchases most of its portfolio
securities directly from the sellers and not through brokers, it therefore
incurs relatively little expenses for brokerage. From time to time it may use
brokers when buying portfolio securities. When deciding which brokers to use,
the Manager is permitted by the investment advisory agreement to consider
whether brokers have sold shares of the Fund or any other funds for which the
Manager serves as investment adviser.
o The Distributor. The Fund's shares are sold through dealers, brokers and
other financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of the other
Oppenheimer funds managed by the Manager and is sub-distributor for funds
managed by a subsidiary of the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Shareholders should direct
inquiries about their account to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return"
and "yield" to illustrate its performance. The performance of each class of
shares is shown separately because each class of shares will usually have
different performance as a result of the different kinds of expenses each class
bears. These returns measure the performance of a hypothetical account in the
Fund over various periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash, or shares are sold
or purchased). This performance information may be useful to help you see how
well your investment has done over time and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. More detailed information about how total returns
and yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to measure and
compare the Fund's performance. The Fund's investment performance will vary over
time, depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
o Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the effect of the contingent deferred sales
charge that applies to the period for which total return is shown has been
deducted. However, total returns may also be quoted at "net asset value,"
without considering the effect of the sales charge, and those returns would be
less if sales charges were deducted.
o Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized yield by dividing the annualized net
investment income per share on the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The yield of each class
will differ because of the different expenses of each class of shares. The yield
data represents a hypothetical investment return on the portfolio, and does not
measure an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated.
Dividend yield is calculated by dividing the dividends of a class paid for
a stated period by the maximum offering price on the last day of the period and
annualizing the result. Yields for Class A shares normally reflect the deduction
of the maximum initial sales charge, but may also be shown without a deducting
sales charge. Yields for Class B and Class C shares do not reflect the deduction
of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the Fund's
performance during its last fiscal year ended August 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. During the first three months of
1997, the U.S. Government securities market was volatile as investors appeared
to become concerned about the high rate of economic growth and its potentially
adverse effects on inflation. Yields on U.S. Government securities were also
affected when the Federal Reserve raised short-term interest rates in March.
During the last six months of the Fund's fiscal year, long-term interest rates
have stabilized and remained within a relatively narrow range. During this
period, the Manager maintained a fairly large portion of the portfolio holdings
of the fund in mortgage-backed securities, which generally provided higher
yields than Treasury securities. Because of the relatively stable interest
rates, the risk of prepayment of mortgage-backed securities was reduced and the
strong performance of these securities helped the Fund's performance. Strong
economic conditions also 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 and as a
result, yields on most U.S. Treasury securities remained low relative to their
historical relationship with other fixed-income securities. The Fund's holdings
in U.S. Treasury securities were negatively affected by the lower yields. The
Fund's portfolio holdings, allocations and strategies are subject to change.
o Comparing the Fund's Performance to the Market. The graphs below show
the performance of a hypothetical $10,000 investment in each class of shares of
the Fund held until August 31, 1997. In the case of Class A shares, performance
is measured over a one- five- and ten-year period; in the case of Class B
shares, performance is measured over a one-year period and from the inception of
the Class on July 21, 1995; and in the case of Class C shares, performance is
measured over a one-year period and from the inception of the Class on December
1, 1993.
The performance of each class of the Fund's shares is compared to the
performance of the Lehman Brothers U.S. Government Bond Index, an unmanaged
index including all U.S. Treasury issues, publicly-issued debt of U.S.
Government agencies and quasi-public corporations and U.S. Government guaranteed
corporate debt, and is widely regarded as a general measurement of the
performance of the U.S. Government bond market. Index performance reflects the
reinvestment of dividends but does not consider the effect of capital gains or
transaction costs, and none of the data below shows the effect of taxes. Also,
the Fund's performance reflects the effect of Fund business and operating
expenses. While index comparisons may be useful to provide a benchmark for the
Fund's performance, it must be noted that the Fund's investments are not limited
to the securities in any one index. Moreover, the index data does not reflect
any assessment of the risk of the investments included in the index.
-4-
<PAGE>
Comparison of Change in Value
of a $10,000 Hypothetical Investment in
Oppenheimer U.S. Government Trust
and the Lehman Brothers U.S. Government Bond Index
[Graphs]
(1)
Average Annual Total Returns of Class A Shares Of The Fund at 08/31/97(2)
1-Year 5-Year 10-Year
5.20% 5.54% 7.54%
Average Annual Total Returns of Class B Shares Of The Fund at 08/31/97(3)
1-Year Life of Class
4.63% 5.61%
Average Annual Total Returns of Class C Shares Of The Fund at 08/31/97(4)
1-Year Life of Class
8.65% 5.50%
- ----------------------
The average annual total returns and the ending account value in the graph show
change in share value and include reinvestment of all dividends and capital
gains distributions.
(1) The Fund changed its fiscal year end from 6/30 to 8/31.
(2) Class A returns are shown net of the applicable 4.75% maximum initial sales
charge. The inception date of the Fund (Class A shares) was 8/16/85.
(3) Class B shares of the Fund were first publicly offered on 7/21/95. The
returns are shown net of the applicable 5% and 4% contingent deferred sales
charge, respectively, for the one year period and the life of the class. The
ending account value in the graph is net of the applicable 3% contingent
deferred sales charge.
(4) Class C shares of the Fund were first publicly offered on 12/1/93. The one
year return is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance. Graphs are not drawn
to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of shares.
The different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices.
o Class A Shares. If you buy Class A shares, you may pay an initial sales
charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 32). If you purchase Class A shares as part of an investment of at least $1
million ($500,000 for Retirement Plans) in shares of one or more Oppenheimer
funds, you will not pay an initial sales charge, but if you sell any of those
shares within 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), you may pay a contingent deferred sales charge.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as discussed in "Buying
Class B Shares," below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
discussed in "Buying Class C Shares," below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that apply to a
class of shares and the effect of the different types of sales charges on your
investment will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the sales
charge rates that apply to each class, considering the effect of the annual
asset-based sales charge on Class B and Class C expenses (which, like all
expenses, will affect your investment return). For the sake of comparison, we
have assumed that there is a 10% rate of appreciation in the investment each
year. Of course, the actual performance of your investment cannot be predicted
and will vary, based on the Fund's actual investment returns, and the operating
expenses borne by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are different.
The discussion below of the factors
to consider in purchasing a particular class of shares assumes that you will
purchase only one class of shares, and not a combination of shares of different
classes.
o How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment (which reduces the amount of
your investment dollars used to buy shares for your account), compared to the
effect over time of higher class-based expenses on Class B or Class C shares for
which no initial sales charge is paid.
o Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares, because of the effect of the Class B contingent deferred sales charge
if you redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in the
short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases toward
six years, Class C shares might not be as advantageous as Class A shares. That
is because the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced front-end
sales charge available for larger purchases of Class A shares. For example,
Class A might be more advantageous than Class C as well as Class B shares for
investments of more than $100,000 expected to be held for 5 or 6 years (or
more). For investments over $250,000 expected to be held 4 to 6 years (or more)
Class A shares may become more advantageous than Class C and Class B shares. If
investing $500,000 or more, Class A shares may be more advantageous as your
investment horizon approaches 3 years or more.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares, from a single investor.
o Investing for the Longer Term. If you are investing for the longer term,
for example, for retirement, and do not expect to need access to your money for
seven years or more, Class B shares may be an appropriate consideration, if you
plan to invest less than $100,000. If you plan to invest more than $100,000 over
the long term, Class A shares will likely be more advantageous than Class B
shares or Class C shares, as discussed above, because of the effect of the
expected lower expenses for Class A shares and the reduced initial sales charge
available for larger investments in Class A shares under the Fund's Right of
Accumulation.
Of course these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, using
the assumed annual performance return stated above, and you should analyze your
options carefully.
o Are There Differences in Account Features That Matter to You? Because
some account features (such as checkwriting) may not be available to Class B or
Class C shareholders, or other features (such as Automatic Withdrawal Plan) may
not be advisable (because of the effect of the contingent deferred sales charge
in non-retirement accounts) for Class B or Class C shareholders, you should
carefully review how you plan to use your investment account before deciding
which class of shares is better for you. For example, share certificates are not
available for Class B or Class C shares and if you are considering using your
shares as collateral for a loan, this may be a factor to consider. Additionally,
dividends payable to Class B and Class C shareholders will be reduced by the
additional expenses borne by those classes, such as the asset-based sales
charges as described below and in the Statement of Additional Information.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares, may receive different compensation for selling one class of shares
than for selling another class. It is important that investors understand that
the purpose of the Class B and Class C contingent deferred sales charge and
asset-based sales charges are the same as the purpose of the front-end sales
charge on sales of Class A shares: that is, to compensate the Distributor for
commissions it pays to dealers and financial institutions for selling shares.
The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
o With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least $25 can be
made by telephone through AccountLink.
o Under pension, profit-sharing and 401(k) plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250 (if
your IRA is established under an Asset Builder Plan, the $25 minimum applies);
and subsequent investments may be as little as $25.
o There is no minimum investment requirement if you are buying shares by
reinvesting dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your dealer
or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place your order with
the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure it is appropriate for you.
o Payment by Federal Fund Wire: Shares may be purchased by Federal Funds
wire. The minimum investment is $2,500. You must first call the Distributor's
Wire Department at 1-800-525-7041 to notify the Distributor of the wire
and receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds, or to transmit dividends and distributions to
your bank account.
Shares are purchased for your account through AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH transfer
to buy shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions used to
establish your account. Please refer to "AccountLink" below for more details.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are on the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (and any initial sales charge that applies)
that is next determined after the Distributor receives the purchase order in
Denver, Colorado, or the order is received and transmitted to the Distributor by
and entity authorized by the Fund to accept purchase or redemption orders. The
Fund has authorized the Distributor, certain broker-dealers and agents or
intermediaries designated by the Distributor or those broker-dealers to accept
orders. In most cases, to enable you to receive that day's offering price, the
Distributor or an authorized entity must receive your order by the time of day
The New York Stock Exchange closes, which is normally 4:00 P.M., New York time,
but may be earlier on some days (all references to time in this Prospectus mean
"New York time"). The net asset value of each class of shares is determined as
of that time on each day The New York Stock Exchange is open (which is a
"regular business day").
If you buy shares through a dealer, normally your order must be transmitted
to the Distributor so that it is received before the Distributor's close of
business that day, which is normally 5:00 P.M. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix A to this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the Former Quest for Value Funds or one of the Former Connecticut Mutual
Investment Accounts, Inc. (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
Front-End Sales Front-End Sales
Charge as a Charge as a Commission as
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
o Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under sections 401(a) or 401(k)
of the Internal Revenue Code, by a non-qualified deferred compensation plan (not
including Section 457 plans), employee benefit plan, group retirement plan (see
"How to Buy Shares - Retirement Plans" in the Statement of Additional
Information for further details), an employee's 403(b)(7) custodial plan
account, SEP IRA, SARSEP, or SIMPLE plan (all of these plans are collectively
referred to as "Retirement Plans"); that: (1) buys shares costing $500,000 or
more or (2) has, at the time of purchase, 100 or more eligible participants, or
(3) certifies that it projects to have annual plan purchases of $200,000 or
more;
o Purchases by an OppenheimerFunds-sponsored Rollover IRA if the purchases
are made (1) through a broker, dealer, bank or registered investment adviser
that has made special arrangements with the Distributor for these purchases, or
(2) by a direct rollover of a distribution from a qualified retirement plan if
the administrator of that plan has made special arrangements with the
Distributor for those purchases; or
o Purchases by a retirement plan qualified under section 401(a) if the
retirement plan has total plan assets of $500,000 or more.
The Distributor pays dealers of record commission on those purchases in an
amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of purchases over $5 million, calculated on a calendar
year basis. That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer commission. No sales
commission will be paid to the dealer, broker or financial institution on sales
of Class A shares purchased with the redemption proceeds of shares of a mutual
fund offered as an investment option in a Retirement Plan in which Oppenheimer
funds are also offered as investment options under a special arrangement with
the Distributor if the purchase occurs more than 30 days after the addition of
the Oppenheimer funds as an investment option to the Retirement Plan.
If you redeem any of those shares purchased prior to May 1, 1997, within 18
months of the end of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales charge") may be
deducted from the redemption proceeds. A Class A contingent deferred sales
charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may be equal to 1% of
the lesser of (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gains
distributions) or (2) the original offering price (which is the original net
asset value). However, the Class A contingent deferred sales charge will not
exceed the aggregate amount of the commissions the Distributor paid to your
dealer on all Class A shares of all Oppenheimer funds you purchased subject to
the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable, the
Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are redeemed within 12 months (18 months for shares
purchased prior to May 1, 1997) of the end of the calendar month of the purchase
of the exchanged shares, the contingent deferred sales charge will apply.
o Special Arrangements With Dealers. The Distributor may advance up to 13
months' commissions to dealers that have established special arrangements with
the Distributor for Asset Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy
Class A shares at reduced sales charge rates in one or more of the following
ways:
o Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together Class A and Class B shares you purchase for your individual accounts,
or jointly, or for trust or custodial accounts on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and Class
B shares of the Fund and other Oppenheimer funds to reduce the sales charge rate
that applies to current purchases of Class A shares. You can also include Class
A and Class B shares of Oppenheimer funds you previously purchased subject to an
initial contingent deferred sales charge to reduce the sales charge rate for
current purchases of Class A shares, provided that you still hold your
investment in one of
the Oppenheimer funds. The Distributor will add the value, at current offering
price, of the shares you previously purchased and currently own to the value of
current purchases to determine the sales charge rate that applies. The
Oppenheimer funds are listed in "Reduced Sales Charges" in the Statement of
Additional Information, or a list can be obtained from the Distributor. The
reduced sales charge will apply only to current purchases and must be requested
when you buy your shares.
Shareholders of the Fund who acquired (and still hold) Fund shares as a
result of a reorganization of the Fund with Advance America Funds, Inc. on
October 18, 1991, and who held shares of Advance America Funds, Inc. on March
30, 1990, may purchase shares of the Fund at a maximum sales charge of 4.50%.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A shares and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period you can reduce the sales charge rate that applies
to your purchases of Class A shares. The total amount of the intended purchases
of both Class A and Class B shares will determine your reduced sales charge rate
for the Class A shares purchased during that period. This can include purchases
made up to 90 days before the date of the Letter. More information is contained
in "Reduced Sales Charges" in the Statement of Additional Information.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent of which conditions apply.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
o the Manager or its affiliates; o present or former officers, directors,
trustees and employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for their
employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered into
sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers, banks or registered investment advisers that have
entered into an agreement with the Distributor (1) providing specifically for
the use of shares of the Fund in particular investment products made available
to their clients (those clients may be charged a transaction fee by their
dealer, broker or adviser on the purchase or sale of Fund shares) or (2) that
have entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services;
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) Retirement Plans and deferred compensation
plans and trusts used to fund those Plans (including, for example, plans
qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases and (3) clients of such investment advisors or financial
planners (who have entered into an agreement for this purpose with the
Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment adviser (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an appropriate agreement
with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995; or
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements were
consummated and share purchases commenced by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a participant
in a retirement plan for which the Manager or its affiliates acts as sponsor; o
shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver. There is a further discussion of
this policy in "Reduced Sales Charges" in the Statement of Additional
Information; or
o purchased with proceeds or maturing principal units of any Qualified
Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge does not apply to
purchases of Class A shares at net asset value without sales charge as described
in the two sections above. It is also waived if shares that would otherwise be
subject to the contingent deferred sales charge are redeemed in the following
cases:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o for distributions from a TRAC-2000 401(k) plan sponsored by the
Distributor due to the termination of the TRAC-2000 program;
o for distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant's account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact; (4) hardship withdrawals,
as defined in the plan; (5) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (6) to meet the minimum distribution
requirements of the Internal Revenue Code; (7) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue Code;
(8) for retirement distributions or loans to participants or beneficiaries; (9)
separation from service; (10) participant-directed redemptions to purchase
shares of a mutual fund (other than a fund managed by the Manager or its
subsidiary) offered as an investment option in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor; or (11) plan termination or "in-service
distributions", if the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA;
o for distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan; and o for distributions from
401(k) plans sponsored by broker-dealers that have entered into a special
agreement with the Distributor allowing this waiver.
o Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares to reimburse the Distributor for a portion of its costs incurred
in connection with the personal service and maintenance of 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. The Distributor uses those fees to compensate dealers, brokers, banks and
other financial institutions quarterly for providing personal service and
maintenance of accounts of their customers that hold Class A shares and to
reimburse itself (if the Fund's Board of Trustees authorizes such
reimbursements, which it has not yet done) for its other expenditures under the
Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service provider or
their customers. The payments under the Plan increase the annual expenses of
Class A shares. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the shares at the time of redemption or the original offering price
(which is the original net asset value). The contingent deferred sales charge is
not imposed on the amount of your account value represented by an increase in
net asset value over the initial purchase price. The Class B contingent deferred
sales charge is paid to the Distributor to reimburse its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period. The
contingent deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Years Since Contingent Deferred Sales Charge
Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are considered to
have been made on the first regular business day of the month in which the
purchase was made.
o Automatic Conversion of Class B Shares. 72 months after you purchase
Class B shares, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders at that time of the asset-based
sales charge that applies to Class B shares under the Class B Distribution and
Service Plan, described below. The conversion is based on the relative net asset
value of the two classes and no sales load or other charge is imposed. When
Class B shares convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares will also
convert to Class A shares. The conversion feature is subject to the continued
availability of a tax ruling described in "Alternative Sales Arrangements -Class
A, Class B and Class C Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption, or the
original offering price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial purchase price.
The Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12- month period.
All purchases are considered to have been made on the first regular business day
of the month in which the purchase was made.
o Distribution and Service Plans for Class B and Class C Shares. The Fund
has adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for distributing Class B and Class C shares and
servicing accounts. Under the Plans, the Fund pays the Distributor an annual
"asset-based sales charge" of 0.75% per year on Class B shares that are
outstanding for 6 years or less and on Class C shares. The Distributor also
receives a service fee of 0.25% per year under each plan.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge and service
fees increase Class B and Class C expenses by up to 1.00% of the net assets per
year of the respective class.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The asset-based sales charge allows investors to buy Class B or Class C
shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the assets-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor include paying
and financial the payment of sales commissions, service fees and other costs of
distributing and selling Class B and Class C shares.
The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is 4.00% of the
purchase price. The Fund pays the asset-based sales charge to the Distributor
for its services rendered in connection with the distribution of Class B shares.
Those payments, retained by the Distributor, are at a fixed rate which is not
related to the Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions, service
fees, and other costs of distributing and selling Class B shares. If a dealer
has a special agreement with the Distributor, the Distributor will pay the Class
B service fee and the asset-based sales charge to the dealer quarterly in lieu
of paying the sales commission and service fee advance at the time of purchase.
The Distributor currently pays sales commissions of 0.75% of the purchase
price to dealers from its own resources at the time of sale of Class C shares.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is 1.00% of the
purchase price. The Distributor retains the asset-based sales charge during the
first year Class C shares are outstanding to recoup sales commissions it has
paid, the advances of service fee payments it has made, and its financing costs
and other expenses. The Distributor plans to pay the asset-based sales charge as
an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more. If a dealer has a special agreement with the
Distributor, the Distributor shall pay the Class C service fee and asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee advance at the time of purchase.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B and Class C shares.
At August 31, 1997, the Distributor had incurred unreimbursed expenses in
connection with sales of Class B shares of $1,717,291 (equal to 3.28% of the
Fund's net assets represented by Class B shares on that date). At August 31,
1997, the Distributor had incurred unreimbursed expenses in connection with
sales of Class C shares of $275,792 (equal to 1.28% of the Fund's net assets
represented by Class C shares on that date). 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 the Distributor for distributing shares before the
Plan was terminated.
o Waivers of Class B and Class C Sales Charges. The Class B and Class C
contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions nor will it apply to Class B and Class C shares
redeemed in certain circumstances as described below. The reasons for this
policy are described in "Reduced Sales Charges" in the Statement of Additional
Information. In order to receive a waiver of the Class B or Class C contingent
deferred sales charge, you must notify the Transfer Agent of which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares in
the following cases:
o distributions to participants or beneficiaries from Retirement Plans, if
the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request), or (b) following the death or disability (as defined in the
Internal Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the request);
o shares redeemed involuntarily, as described in "Shareholder Account Rules
and Policies," below;
o distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans (1)
for hardship withdrawals; (2) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make "substantially
equal periodic payments" as described in Section 72(t) of the Internal Revenue
Code; (5) for separation from service; or (6) for loans to participants or
beneficiaries; or
o distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send money
electronically between those accounts to perform a number of types of account
transactions. These include purchases of shares by telephone (either through a
service representative or by PhoneLink, described below), automatic investments
under Asset Builder Plans, and sending dividends and distributions or Automatic
Withdrawal Plan payments directly to your bank account. Please refer to the
Application for details or call the Transfer Agent for more information.
AccountLink privileges should be requested on your dealer's settlement
instructions if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
o Using AccountLink to Buy Shares. You may purchase shares by telephone
only after your account has been established. To purchase shares in amounts up
to $250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer fund account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
Shareholder Transactions by Fax. Requests for certain account transactions may
be sent to the Transfer Agent by fax (telecopier). Please call 1-800-525-7048
for information about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as written and
telephone requests described in this Prospectus.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is $5,000 or more, you
can establish an Automatic Withdrawal Plan in order to receive payments of at
least $50 on a monthly, quarterly, semi-annual or annual basis. The checks may
be sent to you or sent automatically to your bank account through AccountLink.
You may even set up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Statement of Additional Information for more
details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each other
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to Class A shares that you
purchased subject to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed them. This
privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your reinvestment payment. Please
consult the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your retirement
plans. If you participate in a plan sponsored by your employer, the plan trustee
or administrator must make the purchase of shares for your retirement plan
account. The Distributor offers a number of different retirement plans that can
be used by individuals and employers:
o Individual Retirement Accounts including rollover IRAs, for individuals
and their spouses and SIMPLE IRAs offered by employers
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment, including SAR/SEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons and other
employers
o 401(k) Prototype Retirement Plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents, which
contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming)
some or all of your shares on any regular business day. Your shares will be sold
at the next net asset value calculated after your order is received and accepted
by the Transfer Agent. The Fund offers you a number of ways to sell your shares;
in writing, or by using the Fund's checkwriting privilege, or by telephone. You
can also set up Automatic Withdrawal Plans to redeem shares on a regular basis,
as described
above. If you have questions about any of these procedures, and especially if
you are redeeming shares in a special situation, such as due to the death of the
owner, or from a retirement plan, please call the Transfer Agent first, at
1-800-525-7048, for assistance.
o Retirement Accounts. To sell shares in an OppenheimerFunds-sponsored
retirement account in your name, call the Transfer Agent for a distribution
request form. There are special income tax withholding requirements for
distributions from retirement plans and you must submit a withholding form with
your request to avoid delay. If your retirement plan account is held for you by
your employer, you must arrange for the distribution request to be sent by the
plan administrator or trustee. There are additional details in the Statement of
Additional Information.
o Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, certain redemption requests must be in writing and must include
a signature guarantee in the following situations (there may be other situations
also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and receive a
check; o The redemption check is not payable to all shareholders listed on
the account statement; o The redemption check is not sent to the address
of record on your account statement; o Shares are being transferred to a
Fund account with a different owner or name; or o Shares are redeemed by
someone other than the owners (such as an Executor).
o Where Can I Have My Signature Guaranteed? The Transfer Agent will accept
a guarantee of your signature by a number of financial institutions, including:
a U.S. bank, trust company, credit union or savings association, a foreign bank
that has a U.S. correspondent bank, a U.S. registered dealer or broker in
securities, municipal securities or government securities, or by a U.S. national
securities exchange, a registered securities association or a clearing agency.
If you are signing as a fiduciary on behalf of a corporation, partnership or
other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
o Your name,
o The Fund's name,
o Your Fund account number (from your account statement), o The dollar
amount or number of shares you wish redeemed, o Any special payment
instructions, o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the account is
registered, and o Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for requests by Send courier or Express Mail requests
to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record may
also sell your shares by telephone. To receive the redemption price on a regular
business day, your call must be received by the Transfer Agent by the close of
The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. If your shares are held in an OppenheimerFunds-sponsored
retirement plan or are held under a share certificate, you may not redeem your
shares by telephone.
o To redeem shares through a service representative, call 1-800-852-8457;
or o To redeem shares automatically on PhoneLink, call 1-800-533-3310.
Whichever method you use, you may have a check sent to the address on your
account statement, or, if you have linked your Fund account to your bank account
through AccountLink, you may have the proceeds wired to that bank account.
o Telephone Redemptions Paid by Check. You may redeem up to $50,000 by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
o Telephone Redemptions Through AccountLink or By Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is initiated
on the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be wired.
You may also have the Transfer Agent send redemption proceeds of $2,500 or
more by Federal Funds wire to a designated commercial bank account. The bank
must be a member of the Federal Reserve wire system. There is a $10 fee for each
Federal Funds wire. To place a wire redemption request, call the Transfer Agent
at 1-800-852-8457. The wire will normally be transmitted on the next bank
business day after the shares are redeemed. There is a possibility that the wire
may be delayed up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of shares
that have been redeemed and are awaiting transmittal by wire. To establish wire
redemption privileges on an account that is already established, please contact
the Transfer Agent for instructions.
o Checkwriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact the
Transfer Agent for signature cards, which must be signed (with a signature
guarantee) by all owners of the account and returned to the Transfer Agent so
that checks can be sent to you to use. Shareholders with joint accounts can
elect in writing to have checks paid over the signature of one owner.
o Checks can be written to the order of whomever you wish, but may not be
cashed at the Fund's bank or custodian.
o Checkwriting privileges are not available for accounts holding Class B
shares or Class C shares, or Class A shares that are subject to a contingent
deferred sales charge.
o Checks must be written for at least $100.
o Checks cannot be paid if they are written for more than your account
value. Remember: your shares fluctuate in value and you should not write a
check close to the total account value. o You may not write a check that
would require the Fund to redeem shares that were purchased by check or
Asset Builder Plan payments within the prior 10 days.
o Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please call your dealer for more
information about this procedure. Please refer to "Special Arrangements for
Repurchase of Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence; o The prospectuses of this Fund and the fund whose
shares you want to buy must offer the exchange privilege;
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days, you
can exchange shares every regular business day;
o You must meet the minimum purchase requirements for the fund you purchase
by exchange; and o Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At present,
Oppenheimer Money Market Fund, Inc. offers only one class of shares, which are
considered "Class A" shares for this purpose. In some cases, sales charges may
be imposed on exchange transactions. Please refer to "How to Exchange Shares" in
the Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
o Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
addresses listed in "How to Sell Shares."
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. This list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased into the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M. but may be
earlier on some days. However, either fund may delay the purchase of shares of
the fund you are exchanging into up to 7 days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For example,
the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy might
require the sale of portfolio of securities at a time or price disadvantageous
to the Fund.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption of the shares
of the Fund you own and a purchase of the shares of the other fund, which may
result in a capital gain or loss. For more information about taxes affecting
exchanges, please refer to "How to Exchange Shares" in the Statement of
Additional Information.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a result,
those exchanges may be subject to notice requirements, delays and other
limitations that do not apply to shareholders who exchange their shares directly
by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange, (which is normally 4 P.M.), but may be
earlier on some days, on each day the Exchange is open by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset value. In
general, securities values are based on market value. There are special
procedures for valuing illiquid and restricted securities and obligations for
which market values cannot be readily obtained. These procedures are described
more completely in the Statement of Additional Information.
o The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be suspended
by the Board of Trustees at any time the Board believes it is in the Fund's best
interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or exchanges
may be modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of the
account and the dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner of the
account.
o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine; by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent during
periods of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the Transfer
Agent receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B and Class C shares. Therefore, the redemption value of your
shares may be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded by
check or through AccountLink (as elected by the shareholder under the redemption
procedures described above) within 7 days after the Transfer Agent receives
redemption instructions in proper form; except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, payment will
be forwarded within 3 business days. The Transfer Agent may delay forwarding a
check or processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as 10
days from the date the shares were purchased. That delay may be avoided if you
purchase shares by Federal Funds wire, certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $200 for reasons other than the fact that market
value of the shares has dropped. In some cases involuntary redemptions may also
be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of
31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a correct and properly certified
Social Security or Employer Identification Number when you sign your
application, or if you underreport your income to the Internal Revenue Service.
o The Fund does not charge a redemption fee, but if your dealer or broker
handles your redemption, they may charge a fee. That fee can be avoided by
redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How to Buy Shares," you may be subject to a
contingent deferred sales charge when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525- 7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and Class
C shares from net investment income each regular business day and pays those
dividends to shareholders monthly. Normally dividends are paid on or about the
last business day of each month, but the Board of Trustees can change that date.
The Board may also cause the Fund to declare dividends after the close of the
Fund's fiscal year (which ends August 31st). Normally, distributions paid on
Class A shares generally are expected to be higher than for Class B and Class C
shares because expenses allocable to Class B and Class C shares will generally
be higher. There is no fixed dividend rate and there can be no assurance as to
the payment of any dividends. The amount of a class's dividends or distributions
may vary from time to time depending on market conditions, the composition of
the Fund's portfolio and expenses borne by that class.
Capital Gains. The Fund may make distributions annually in December out of any
net short-term or long-term capital gains, and the Fund may make supplemental
distributions of capital gains following the end of its fiscal year. Long-term
capital gains will be separately identified in the tax information the Fund
sends you after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your application
how you want to receive your distributions. For OppenheimerFunds retirement
accounts, all distributions are reinvested. For other accounts, you have four
options:
o Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and long- term capital gains distributions in additional shares of the
Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or you
can have them sent to your bank account through AccountLink.
o Receive All Distributions in Cash. You can elect to receive a check for
all dividends and long-term capital gains distributions or have them sent to
your bank on AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Funds Account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
funds account you have
established.
Taxes. If your account is not a tax-deferred retirement account, you should be
aware of the following tax implications of investing in the Fund. Long-term
capital gains are taxable as long-term capital gains when distributed to
shareholders. It does not matter how long you held your shares. Dividends paid
from short-term capital gains and net investment income are taxable as ordinary
income. Distributions are subject to federal income tax and may be subject to
state or local taxes. Your distributions are taxable when paid, whether you
reinvest them in additional shares or take them in cash. Every year the Fund
will send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year. So that the Fund will not have
to pay taxes on the amount it distributes to shareholders as dividends and
capital gains, the Fund intends to manage its investments so that it will
qualify as a "regulated investment company" under the Internal Revenue Code,
although the Fund reserves the right not to qualify in a particular year.
o "Buying a Dividend": If you buy shares on or just before the Fund
declares a capital gains distribution, you will pay the full price for the
shares and then receive a portion of the price back as a taxable capital gain."
o Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally, a capital gain or loss
is the difference between the price you paid for the shares and the price you
received when you sold them.
o Returns of Capital: In certain cases, distributions made by the Fund may
be considered a non-taxable return of capital to shareholders. If that occurs,
it will be identified in the notices to shareholders. A non-taxable return of
capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
-5-
<PAGE>
APPENDIX A
I. Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere in this
Prospectus are modified as described below for those shareholders of (i) Quest
for Value Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value
Opportunity Fund, Quest for Value Small Capitalization Fund and Quest for Value
Global Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc.
became the investment adviser to those funds, and (ii) Quest for Value U.S.
Government Income Fund, Quest for Value Investment Quality Income Fund, Quest
for Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for
Value National Tax-Exempt Fund and Quest for Value California Tax-Exempt Fund
when those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement Plans. The
following table sets forth the initial sales charge rates for Class A shares
purchased by a "Qualified Retirement Plan" through a single broker, dealer or
financial institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement Plan or that
Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
Front-End Front-End Commission
Sales Charge Sales Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
- ------------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- ------------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations having 50 or
more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages 28 and 29 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not subject
to any Class A initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares of the Fund purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest For Value Funds pursuant to a special "strategic alliance"
with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge." Class A, Class B and Class C
Contingent Deferred Sales Charge Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6, 1995
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by merger
of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, if those shares were purchased prior to March 6, 1995: in connection
with (i) distributions to participants or beneficiaries of plans qualified under
Section 401(a) of the Internal Revenue Code or from custodial accounts under
Section 403(b)(7) of the Code, Individual Retirement Accounts, deferred
compensation plans under Section 457 of the Code, and other employee benefit
plans, and returns of excess contributions made to each type of plan, (ii)
withdrawals under an automatic withdrawal plan holding only either Class B or
Class C shares if the annual withdrawal does not exceed 10% of the initial value
of the account, and (iii) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than the
required minimum value of such accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by merger
of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such fund
merged, if those shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) distributions to participants or beneficiaries from
Individual Retirement Accounts under Section 408(a) of the Internal Revenue Code
or retirement plans under Section 401(a), 401(k), 403(b) and 457 of the Code, if
those distributions are made either (a) to an individual participant as a result
of separation from service or (b) following the death or disability (as defined
in the Code) of the participant or beneficiary; (2) returns of excess
contributions to such retirement plans; (3) redemptions other than from
retirement plans following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan (but only
for Class B or Class C shares) where the annual withdrawals do not exceed 10% of
the initial value of the account; and (5) liquidation of a shareholder's account
if the aggregate net asset value of shares held in the account is less than the
required minimum account value. A shareholder's account will be credited with
the amount of any contingent deferred sales charge paid on the redemption of any
Class A, Class B or Class C shares of the Fund described in this section if
within 90 days after that redemption, the proceeds are invested in the same
Class of shares in this Fund or another Oppenheimer fund.
II. Special Sale Charge Arrangements for Fund Shareholders of the Fund Who Were
Shareholders of the Former Connecticut Mutual Investment Accounts, Inc.
The initial and contingent sales charge rates and waivers for Class A and
Class B shares described elsewhere in this Prospectus are modified as described
below for those shareholders of the Fund who were shareholders of Connecticut
Mutual Investment Accounts, Inc. on March 17, 1996 ("former CMIA shareholders").
o Prior Class A CDSC and Class A Sales Charge Waivers
o Class A Contingent Deferred Sales Charge. Certain former CMIA
shareholders are entitled to continue to make additional purchases of Class A
shares of the Fund at net asset value without the Class A initial sales charge,
but subject to the Class A contingent deferred sales charge that was in effect
prior to March 18, 1996 (the "prior Class A CDSC"). Under the prior Class A
CDSC, if any of those shares are redeemed within one year of purchase, they will
be assessed a 1% contingent deferred sales charge on an amount equal to the
current market value or the original purchase price of the shares sold,
whichever is smaller (in such redemptions, any shares not subject to the prior
Class A CDSC will be redeemed first).
Those former CMIA shareholders who are eligible for the prior Class A CDSC
are: (1) persons whose purchases of Class A shares of the former CMIA funds were
$500,000 prior to March 18, 1996, as a result of direct purchases or purchases
pursuant to the CMIA funds' policies on Combined Purchases or Rights of
Accumulation, who still hold those shares in any of the Oppenheimer funds, and
(2) persons whose intended purchases under a Statement of Intention entered into
prior to March 18, 1996, with the CMIA funds' former general distributor to
purchase shares valued at $500,000 or more over a 13-month period entitled those
persons to purchase shares at net asset value without being subject to the Class
A initial sales charge.
Class A shares of the former CMIA funds that were purchased at net asset
value prior to March 18, 1996, remain subject to the prior Class A CDSC. If any
additional Class A shares are purchased by those shareholders at net asset value
pursuant to this arrangement they will be subject to the prior Class A CDSC.
o Class A Sales Charge Waivers. Additional Class A shares of the Fund may
be purchased without a sales charge by a person who was in one or more of the
categories described below and acquired Class A shares of the CMIA funds prior
to March 18, 1996 and still holds Class A shares of any Oppenheimer funds: (1)
any purchaser, provided the total initial amount invested in the former CMIA
funds totaled $500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of Accumulation features
available at the time of the initial purchase and such investment is still held
in one or more of the Oppenheimer funds; (2) any participant in a qualified
plan, provided that the total initial amount invested by the plan in any one or
more of the former CMIA funds totaled $500,000 or more; (3) Directors of the
former CMIA funds and members of their immediate families; (4) employee benefit
plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the
CMIA funds' prior distributor, and its affiliated companies; (5) one or more
members of a group of a least 1,000 persons (and persons who are retirees from
such group) engaged in a common business, profession, civic or charitable
endeavor or other activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such group; (6) any
holder of a variable annuity contract issued in New York State by Connecticut
Mutual Life Insurance Company through the Panorama Separate Account which was
beyond the applicable surrender charge period and which was used to fund a
qualified plan, if that holder exchanges the variable annuity contract for Class
A shares of the Fund; and (7) an institution acting as a fiduciary on behalf of
an individual or individuals, if such institution was directly compensated by
the individual(s) for recommending the purchase of the shares of the CMIA funds,
provided the institution had an agreement with CMFS. Purchases of Class A shares
made pursuant to (1) and (2) above may be subject to the applicable Class A
CDSC.
o Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth above under the caption "How to Buy
Shares," the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of the Fund and acquired through the reorganization
of the Connecticut Mutual Income Account Series of CMIA with the Fund and the
shares of that series were acquired prior to March 18, 1996, (ii) were acquired
by exchange from another CMIA fund and the shares of that fund were purchased
prior to March 18, 1996 and (iii) were exchanged or redeemed in the following
cases:
(1) by the estate of the deceased shareholder; (2) upon the disability of
the shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended (Code); (3) for retirement distributions (or loans) to
participants or beneficiaries from retirement plans qualified under Sections
401(a) or 403(b)(7) of the Code, or from IRAs, deferred compensation plans
created under Section 457 of the Code, or other employee benefit plans; (4) in
whole or in part, in connection with shares sold by any state, county, or city,
or any instrumentality, department, authority, or agency thereof, that is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
investment management company; (5) in connection with the former CMIA fund's
right to involuntarily redeem or liquidate a Fund; (6) in connection with
automatic redemptions of Class A shares and Class B shares in certain retirement
plan accounts pursuant to an Automatic Withdrawal Plan but limited to no more
than 12% of the original value annually; and (7) as involuntary redemptions of
shares by operation of law, or under procedures set forth in the former CMIA
fund's Articles of Incorporation, or as adopted by the Board of Directors of the
former CMIA funds.
A-1
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER U.S. GOVERNMENT TRUST
Graphic material included in Prospectus of Oppenheimer U.S. Government
Trust: "Comparison of Total Return of Oppenheimer U.S. Government Trust and the
Lehman Brothers Government Bond Index - Change in Value of a $10,000
Hypothetical Investment."
Linear graphs will be included in the Prospectus of Oppenheimer U.S.
Government Trust (the "Fund") depicting the initial account value and subsequent
account value of a hypothetical $10,000 investment in each class of shares of
the Fund. In the case of the Fund's Class A shares, that graph will cover the
last ten fiscal years ending August 31, 1997. In the of Class B shares, the
graph will cover the period from inception of the class (July 21, 1995) through
August 31, 1997. In the case of Class C shares, the graph will cover the period
from the inception of the Class (December 1, 1993) through August 31, 1997. The
graphs will compare such values with hypothetical $10,000 investments over the
same time periods in the Lehman Brothers Government Bond Index. Set forth below
are the relevant data points that will appear on the linear graphs. Additional
information with respect to the foregoing, including a description of the Lehman
Brothers Government Bond Index, is set forth in the Prospectus under "Comparing
the Fund's Performance to the Market."
Fiscal Year Oppenheimer Lehman Brothers
(Period) Ended U.S. Government Trust - Government Bond Index
06/30/87 $ 9,525 $10,000
06/30/88 $10,230 $10,719
06/30/89 $11,199 $12,014
06/30/90 $11,908 $12,846
06/30/91 $13,045 $14,148
06/30/92 $14,749 $16,093
06/30/93 $16,179 $18,170
06/30/94 $16,025 $17,927
06/30/95 $17,824 $20,089
06/30/96 $18,698 $20,995
08/31/96(1) $18,776 $21,000
08/31/97 $20,737 $22,959
Fiscal Oppenheimer Lehman Brothers
Period Ended U.S. Government Trust - Government Bond Index
07/31/95 $10,000 $10,000
06/30/96 $10,480 $10,490
08/31/96(1) $10,510 $10,492
08/31/97 $11,220 $11,471
Fiscal Oppenheimer Lehman Brothers
Period Ended U.S. Government Trust - Government Bond Index
12/01/93(2) $10,000 $10,000
06/30/94 $ 9,678 $10,492
06/30/95 $10,675 $10,786
06/30/96 $11,115 $11,273
08/31/96(1) $11,146 $11,276
08/31/97 $12,222 $12,327
- ----------------------
1. The Fund changed its fiscal year end from June to August. 2. Class B shares
of the Fund were first publicly offered on July 21, 1995. 3. Class C shares of
the Fund were first publicly offered on December 1, 1993.
A-2
<PAGE>
Oppenheimer U.S. Government Trust
Two World Trade Center
New York, New York 10048-0203
Telephone: 1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representations must not be relied upon as having
been authorized by the Fund, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc. or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
PR0220.001.1197 Printed on recycled paper
A-3
<PAGE>
Oppenheimer U.S. Government Trust
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated December 19, 1997
This Statement of Additional Information of Oppenheimer U.S. Government Trust is
not a Prospectus. This document contains additional information about the Fund
and supplements information in the Prospectus dated December 19, 1997. It should
be read together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number shown
above.
Contents
Page
About the Fund
Investment Objective and Policies....................................... 2
Investment Policies and Strategies...................................... 2
Other Investment Techniques and Strategies......................... 4
Other Investment Restrictions...................................... 13
How the Fund is Managed ................................................ 14
Organization and History........................................... 14
Trustees and Officers of the Fund.................................. 14
The Manager and Its Affiliates..................................... 20
Brokerage Policies of the Fund.......................................... 22
Performance of the Fund................................................. 23
Distribution and Service Plans.......................................... 29
About Your Account
How To Buy Shares....................................................... 31
How To Sell Shares...................................................... 39
How To Exchange Shares.................................................. 44
Dividends, Capital Gains and Taxes...................................... 46
Additional Information About the Fund................................... 48
Financial Information About the Fund
Independent Auditors' Report............................................ 49
Financial Statements.................................................... 50
Appendix A: Description of Securities Ratings........................... A-1
Appendix B: Corporate Industry Classifications.......................... B-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Fund are described in the Prospectus. Set forth below is supplemental
information about those policies and the types of securities in which the Fund
may invest, as well as the strategies the Fund may use to try to achieve its
objective. Certain capitalized terms used in this Statement of Additional
Information have the same meaning as those terms have in the Prospectus.
o U.S. Government Securities. The obligations of U.S. Government agencies
or instrumentalities in which the Fund may invest may or may not be guaranteed
or supported by the "full faith and credit" of the United States. Some are
backed by the right of the issuer to borrow from the U.S. Treasury; others, by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. All U.S. Treasury obligations are backed by the full faith and
credit of the United States. If the securities are not backed by the full faith
and credit of the United States, the owner of the securities must look
principally to the agency issuing the obligation for repayment and may not be
able to assert a claim against the United States in the event that the agency or
instrumentality does not meet its commitment. Under normal market conditions,
the Fund will invest at least 80% of its total assets in U.S. Government
Securities and the securities of such agencies and instrumentalities of the U.S.
Government when the Fund's investment manager, OppenheimerFunds, Inc. (the
"Manager") is satisfied that the credit risk with respect to such
instrumentality is minimal.
General changes in prevailing interest rates will affect the values of the
Fund's portfolio securities. The value will vary inversely to changes in such
rates. For example, if such rates go up after a security is purchased, the value
of the security will generally decline. A decrease in interest rates may affect
the maturity and yield of mortgage-backed securities by increasing unscheduled
prepayments of the underlying mortgages. With its objective of seeking interest
income while conserving capital, the Fund may purchase or sell securities
without regard to the length of time the security has been held, to take
advantage of short-term differentials in yields. While short-term trading
increases the portfolio turnover, the execution cost for U.S. Government
Securities is substantially less than for equivalent dollar values of equity
securities (see "Brokerage Provisions of the Investment Advisory Agreement,"
below).
The U.S. Government Securities in which the Fund may invest include the
following:
o GNMA Certificates. The Government National Mortgage Association ("GNMA")
is a wholly-owned corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs involve
its guarantees of privately-issued securities backed by pools of mortgages. GNMA
Certificates are debt securities representing an interest in one or a pool of
mortgages that are insured by the Federal Housing Administration ("FHA") or the
Farmers Home Administration ("FMHA") or guaranteed by the Veterans
Administration ("VA").
The GNMA Certificates in which the Fund invests are of the "fully modified
pass-through" type, that is, they provide that the registered holders of the
Certificates will receive timely monthly payments of the pro-rata share of the
scheduled principal payments on the underlying mortgages, whether or not those
amounts are collected by the issuers. Amounts paid include, on a pro rata basis,
any prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of such GNMA
Certificates, whether or not the interest on the underlying mortgages has been
collected by the issuers.
The GNMA Certificates purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. It is expected that payments received
by the issuers of GNMA Certificates on account of the mortgages backing the
Certificates will be sufficient to make the required payments of principal of
and interest on such GNMA Certificates, but if such payments are insufficient
for that purpose, the guaranty agreements between the issuers of the
Certificates and GNMA require the issuers to make advances sufficient for such
payments. If the issuers fail to make such payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts which may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under such guaranties.
GNMA Certificates are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages and, except to
the extent of payments received by the issuers on account of such mortgages,
GNMA Certificates do not constitute a liability of, nor evidence any recourse
against, such issuers, but recourse is solely against GNMA. Holders of GNMA
Certificates (such as the Fund) have no security interest in or lien on the
underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
GNMA Certificates held by the Fund. All of the mortgages in the pools relating
to the GNMA Certificates in the Fund are subject to prepayment without any
significant premium or penalty, at the option of the mortgagors. While the
mortgages on 1-to-4-family dwellings underlying certain GNMA Certificates have a
stated maturity of up to 30 years, it has been the experience of the mortgage
industry that the average life of comparable mortgages, as a result of
prepayments, refinancing and payments from foreclosures, is considerably less.
Periods of dropping interest rates may spur refinancing of existing mortgages,
accelerating the rate of prepayments. Prepayments on such mortgages received by
the Fund will be reinvested in additional GNMA Certificates or other U.S.
Government Securities. The yields on such additional securities may not
necessarily be the same as (and may be lower than) the yields on the prepaid
securities, which will affect the income the Fund receives and pays to its
shareholders.
o Federal Home Loan Mortgage Corporation ("FHLMC") Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in (i) interest payments less servicing and
guarantee fees, (ii) principal prepayments and (iii) the ultimate collection of
amounts representing such holder's proportionate interest in principal payments
on the mortgage loans in the pool represented by such FHLMC Certificate, in each
case whether or not such amounts are actually received. The obligations of FHLMC
under its guarantees are obligations solely of FHLMC and are not backed by the
full faith and credit of the United States.
o Federal National Mortgage Association ("FNMA") Certificates. FNMA, a
federally-chartered and privately-owned corporation, issues FNMA Certificates
which are backed by a pool of mortgage loans. FNMA guarantees to each registered
holder of a FNMA Certificate that the holder will receive amounts representing
such holder's proportionate interest in scheduled principal and interest
payments, and any principal prepayments, on the mortgage loans in the pool
represented by such FNMA Certificate, less servicing and guarantee fees, and
such holder's proportionate interest in the full principal amount of any
foreclosed or other liquidated mortgage loan, in each case whether or not such
amounts are actually received. The obligations of FNMA under its guarantees are
obligations solely of FNMA and are not backed by the full faith and credit of
the United States or any agency or instrumentality thereof other than FNMA.
Other Investment Techniques and Strategies
o Repurchase Agreements. The Fund may acquire securities that are subject
to repurchase agreements. In a repurchase transaction, the Fund purchases a U.S.
Government security from, and simultaneously resells it to, an approved vendor
for delivery on an agreed-upon future date. An "approved vendor" is a U.S.
commercial bank, the U.S. branch of a foreign bank or a broker-dealer which has
been designated a primary dealer in government securities which must meet the
audit requirements met by the Fund's Board of Trustees from time to time. The
resale price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day to day,
and delivery pursuant to the resale typically will occur within one to five days
of the purchase. Repurchase agreements are considered "loans" under the
Investment Company Act of 1940 (the "Investment Company Act"), collateralized by
the underlying security. The Fund's repurchase agreements require that at all
times while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness requirements
to confirm that the vendor is financially sound and will continuously monitor
the collateral's value.
o Reverse Repurchase Agreements. The Fund will maintain, in a segregated
account with its Custodian, cash, Treasury bills or other U.S. Government
Securities having an aggregate value equal to the amount of such commitment to
repurchase, including accrued interest, until payment is made. The Fund will use
reverse repurchase agreements as a source of funds on a short-term basis (and
not for leverage). In determining whether to enter into a reverse repurchase
agreement with a bank or broker-dealer, the Fund will take into account the
creditworthiness of such party. As a matter of fundamental policy, the Fund will
not enter into a reverse repurchase transaction unless the securities
collateralizing the transaction have a maturity date not later than the
settlement date for the transaction.
o Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral must,
on each business day, at least equal the market value of the loaned securities
and must consist of cash, bank letters of credit or U.S. Government Securities,
or other cash equivalents in which the Fund is permitted to invest. To be
acceptable as collateral, letters of credit must obligate a bank to pay amounts
demanded by the Fund if the demand meets the terms of the letter. The terms of
the letter and the issuing bank must be satisfactory to the Fund. In a portfolio
securities lending transaction, the Fund receives from the borrower an amount
equal to the interest paid or the dividends declared on the loaned securities
during the term of the loan as well as one or more of (a) negotiated loan fees,
(b) interest on securities used as collateral, or (c) interest on short-term
debt securities purchased with such loan collateral; either type of interest may
be shared with the borrower. The Fund may also pay reasonable finder's,
custodian and administrative or other fees and will not lend its portfolio
securities to any officer, trustee, employee or affiliate of the Fund or its
Manager. The terms of the Fund's loans must meet certain tests under the
Internal Revenue Code and permit the Fund to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
o Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities in which it can invest.
In a forward roll transaction, which is considered to be a borrowing by the
Fund, the Fund will sell a mortgage security to selected banks or other entities
and simultaneously agree to repurchase a similar security (same type, coupon and
maturity) from the institution at a specified later date at an agreed upon
price. The mortgage securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories than those sold. Risks of
mortgage-backed security rolls include: (i) the risk of prepayment prior to
maturity, (ii) the possibility that the Fund may not be entitled to receive
interest and principal payments on the securities sold and that the proceeds of
the sale may have to be invested in money market instruments (typically
repurchase agreements) maturing not later than the expiration of the roll, and
(iii) the possibility that the market value of the securities sold by the Fund
may decline below the price at which the Fund is obligated to purchase the
securities. The Fund will enter into only "covered" rolls. Upon entering into a
mortgage-backed security roll, the Fund will be required to identify cash, U.S.
Government Securities or other high-grade debt securities with its Custodian in
an amount equal to its obligation under the roll.
o "When-Issued" and Delayed Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed delivery" basis. Although the Fund will enter into such transactions
for the purpose of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the Fund may dispose of a
commitment prior to settlement. "When-issued" or "delayed delivery" refers to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery. When such
transactions are negotiated, the price (which is generally expressed in yield
terms) is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Such securities may bear interest at
a lower rate than longer-term securities. The Fund does not intend to make such
purchase for speculative purposes. The commitment to purchase a security for
which payment will be made on a future date may be deemed a separate security
and involve a risk of loss if the value of the security declines prior to the
settlement date. During the period between commitment by the Fund and settlement
(generally within 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation; the value at delivery may be
less than the purchase price. The Fund will identify with its Custodian cash,
U.S. Government securities or other high grade debt obligations at least equal
to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. At the time the Fund makes a commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. If the Fund chooses
to (i) dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objective and policies and not for the purposes
of investment leverage. Except for mortgage-backed security rolls, the Fund
enters into such transactions only with the intention of actually receiving or
delivering the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition, changes
in interest rates before settlement in a direction other than that expected by
the Manager will affect the value of such securities and may cause a loss to the
Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to attempt to
limit its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, the Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
o Hedging. As described in the Prospectus, the Fund may employ one or more
types of Hedging Instruments to manage its exposure to changing interest rates
and securities prices. The Fund's strategy of hedging with Futures and options
on Futures will be incidental to the Fund's activities in the underlying cash
market. Puts and covered calls may also be written on U.S. Government Securities
to attempt to increase the Fund's income. For hedging purposes, the Fund may use
Interest Rate Futures and call and put options on debt securities and Interest
Rate Futures (all of the foregoing are referred to as "Hedging Instruments").
Hedging Instruments may be used to attempt to do the following: (i) protect
against possible declines in the market value of the Fund's portfolio resulting
from downward trends in the debt securities markets (generally due to a rise in
interest rates), (ii) protect unrealized gains in the value of the Fund's debt
securities which have appreciated, (iii) facilitate selling debt securities for
investment reasons, (iv) establish a position in the debt securities markets as
a temporary substitute for purchasing particular debt securities, or (v) reduce
the risk of adverse currency fluctuations. A call or put may be purchased only
if, after such purchase, the net value of all call and put option positions held
by the Fund would not exceed 5% of the Fund's total assets. The Fund will not
use Futures and options on Futures for speculation. The Hedging Instruments the
Fund may use are described below.
The Fund may use hedging to attempt to protect against declines in the
market value of its portfolio, to permit the Fund to retain unrealized gains in
the value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons. To effect its hedges, the Fund may:
(i) sell Interest Rate Futures, (ii) buy puts on such Futures or U.S. Government
Securities, or (iii) write covered calls on securities held by it or on Futures.
When hedging to attempt to protect against the possibility that portfolio
securities are not fully included in a rise in value of the debt securities
market, the Fund may: (i) purchase Futures, or (ii) purchase calls on such
Futures or on U.S. Government Securities. Covered calls and puts may also be
written on debt securities to attempt to increase the Fund's income.
The Fund's strategy of hedging with Futures and options on Futures will be
incidental to the Fund's activities in the underlying cash market. At present,
the Fund does not intend to enter into Futures and options on Futures if, after
any such purchase or sale, the sum of the margin deposits on Futures and the
premiums paid on Futures options exceeds 5% of the value of the Fund's total
assets. The Fund may, in the future, employ Hedging Instruments and strategies
that are not presently contemplated to the extent such investment methods are
consistent with the Fund's investment objective, are legally permissible, and
are adequately disclosed.
o Writing Covered Calls. The Fund may write (i.e. sell) call options
("calls") on U.S. Government Securities to enhance income through the receipt of
premiums from expired calls and any net profits from closing purchase
transactions, subject to the limitations stated in the Prospectus. All such
calls written by the Fund must be "covered" while the call is outstanding (i.e.
the Fund must own the securities subject to the call or other securities
acceptable for applicable escrow requirements). Calls on Futures (discussed
below) must be covered by deliverable securities or by liquid assets segregated
to satisfy the Futures contract. When the Fund writes a call on a security, it
receives a premium and agrees to sell the callable investment to a purchaser of
a corresponding call on the same security during the call period (usually not
more than 9 months) at a fixed exercise price (which may differ from the market
price of the underlying security), regardless of market price changes during the
call period. The Fund has retained the risk of loss should the price of the
underlying security decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written was more
or less than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because the Fund retains the
underlying investment and the premium received. Any such profits are considered
short-term capital gains for Federal income tax purposes, and when distributed
by the Fund are taxable as ordinary income. If the Fund could not effect a
closing purchase transaction due to lack of a market, it would have to hold the
callable investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures contract
or a deliverable bond, provided that at the time the call is written, the Fund
covers the call by segregating in escrow an equivalent dollar amount of liquid
assets. The Fund will segregate additional liquid assets if the value of the
escrowed assets drops below 100% of the current value of the Future. In no
circumstances would an exercise notice require the Fund to deliver a futures
contract; it would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
o Writing Put Options. The Fund may write put options on U.S. Government
securities or Interest Rate Futures but only if such puts are covered by
segregated liquid assets. The Fund will not write puts if, as a result, more
than 50% of the Fund's net assets would be required to be segregated to cover
such put obligations. In writing puts, there is the risk that the Fund may be
required to buy the underlying security at a disadvantageous price. A put option
on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. Writing a put covered by segregated liquid assets equal to the
exercise price of the put has the same economic effect to the Fund as writing a
covered call. The premium the Fund receives from writing a put option represents
a profit, as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during the
option period to buy the underlying investment from the buyer of the put at the
exercise price, even though the value of the investment may fall below the
exercise price. If the put expires unexercised, the Fund (as the writer of the
put) realizes a gain in the amount of the premium less transaction costs. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price, which will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss, equal to the sum of the current market value of the underlying investment
and the premium received minus the sum of the exercise price and any transaction
costs incurred.
When writing put options on securities, to secure its obligation to pay
for the underlying security, the Fund will deposit in escrow liquid assets with
a value equal to or greater than the exercise price of the put option. The Fund
therefore foregoes the opportunity of investing the segregated assets or writing
calls against those assets. As long as the obligation of the Fund as the put
writer continues, it may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the Fund to take delivery of the
underlying security against payment of the exercise price. The Fund has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the termination of
its
obligation as the writer of the put. This obligation terminates upon expiration
of the put, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously sold. Once
the Fund has been assigned an exercise notice, it is thereafter not allowed to
effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option it has written or to prevent an underlying security
from being put. Furthermore, effecting such a closing purchase transaction will
permit the Fund to write another put option to the extent that the exercise
price thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by the Fund. The Fund will
realize a profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from writing the option.
As above for writing covered calls, any and all such profits described herein
from writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund may purchase calls on U.S.
Government Securities or on Interest Rate Futures, in order to protect against
the possibility that the Fund's portfolio will not fully participate in an
anticipated rise in value of the long-term debt securities market. The value of
U.S. Government Securities underlying calls purchased by the Fund will not
exceed the value of the portion of the Fund's portfolio invested in cash or cash
equivalents (i.e. securities with maturities of less than one year). When the
Fund purchases a call (other than in a closing purchase transaction), it pays a
premium and, except as to calls on indices or Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. When the Fund
purchases a call on a Future, it pays a premium, but settlement is in cash
rather than by delivery of the underlying investment to the Fund. In purchasing
a call, the Fund benefits only if the call is sold at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the exercise price, transaction costs and the premium paid, and the call is
exercised. If the call is not exercised or sold (whether or not at a profit), it
will become worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
The Fund may purchase put options ("puts") which relate to U.S. Government
Securities (whether or not it holds such securities in its portfolio) or
Futures. When the Fund purchases a put, it pays a premium and, except as to puts
on indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on an investment the Fund owns enables the Fund to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling such underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and as a result the put is not exercised or resold, the put will become
worthless at its expiration date, and the Fund will lose its premium payment and
the right to sell the underlying investment. The put may, however, be sold prior
to expiration (whether or not at a profit).
Buying a put on Interest Rate Futures or U.S. Government Securities permits
the Fund either to resell the put or buy the underlying investment and sell it
at the exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not exercised,
the put will become worthless on its expiration date. In the event of a decline
in the bond market, the Fund could exercise or sell the put at a profit to
attempt to offset some or all of its loss on its portfolio securities. When the
Fund purchases a put on Interest Rate Futures or U.S. Government Securities not
held by it, the put protects the Fund to the extent that the prices of the
underlying Future or U.S. Government Security move in a similar pattern to the
prices of the U.S. Government Securities in the Fund's portfolio.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund's
option activities may affect its turnover rate and brokerage commissions. The
exercise by the Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons which would not exist in the absence of the put. The
Fund may pay a brokerage commission each time it buys a put or call, sells a
call, or buys or sells an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher than those which would apply to
direct purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related investments,
and consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net asset
value being more sensitive to changes in the value of the underlying
investments.
o Interest Rate Futures. The Fund may buy and sell Interest Rate Futures.
No price is paid or received upon the purchase or sale of an Interest Rate
Future. An Interest Rate Future obligates the seller to deliver and the
purchaser to take a specific type of debt security at a specific future date for
a fixed price. That obligation may be satisfied by actual delivery of the debt
security or by entering into an offsetting contract.
Upon entering into a Futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with the
futures commission merchant (the "futures broker"). The initial margin will be
deposited with the Fund's Custodian in an account registered in the futures
broker's name; however the futures broker can gain access to that account only
under specified conditions. As the Future is marked to market to reflect changes
in its market value, subsequent margin payments, called variation margin, will
be made to or by the futures broker on a daily basis.
At any time prior to expiration of the Future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized. Although
Interest Rate Futures by their terms call for settlement by delivery or
acquisition of debt securities, in most cases the obligation is fulfilled by
entering into an offsetting transaction. All futures transactions are effected
through a clearinghouse associated with the exchange on which the contracts are
traded.
o Interest Rate Swap Transactions. Swap agreements entail both interest
rate risk and credit risk. There is a risk that, based on movements of interest
rates in the future, the payments made by the Fund under a swap agreement will
have been greater than those received by it. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to an
interest rate swap defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received. The Manager
will monitor the creditworthiness of counterparties to the Fund's interest rate
swap transactions on an ongoing basis. The Fund may engage in interest rate
swaps only with respect to securities it holds, and not in excess of 25% of its
total assets.
The Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under that master
agreement shall be regarded as parts of an integral agreement. If on any date
amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall be
paid. In addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a loss to
one party, the measure of that party's damages is calculated by reference to the
average cost of a replacement swap with respect to each swap (i.e., the
mark-to-market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's gain
or loss on termination. The termination of all swaps and the netting of gains
and losses on termination is generally referred to as "aggregation".
o Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the Fund's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the investments on which the Fund has written options
traded on exchanges or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the securities
covering a call on the expiration of the calls or upon the Fund entering into a
closing purchase transaction. An option position may be closed out only on a
market which provides secondary trading for options of the same series, and
there is no assurance that a liquid secondary market will exist for any
particular option.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer, which
would establish a formula price at which the Fund would have the absolute right
to repurchase that OTC option. That formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the extent to which the option "is in-the-money"). For any OTC option the
Fund writes, it will treat as illiquid (for purposes of the limit on its assets
that may be invested in illiquid securities, stated in the Prospectus) the
mark-to-market value of any OTC option held by it, unless subject to a buy-back
agreement with the executing broker. The Securities and Exchange Commission
("SEC") is evaluating whether OTC options should be considered liquid
securities, and the procedure described above could be affected by the outcome
of that evaluation.
o Regulatory Aspects of Hedging Instruments. The Fund is required to
operate within certain guidelines and restrictions with respect to its use of
futures and options thereon as established by the Commodities Futures Trading
Commission ("CFTC"). In particular, the Fund is excluded from registration as a
"commodity pool operator" if it complies with the requirements of Rule 4.5
adopted by the CFTC. Under the restrictions, the Fund also must, as to its short
positions, use Futures and options thereon solely for bona fide hedging purposes
within the meaning and intent of the applicable provisions of the CEA.
Transactions in options by the Fund are subject to limitations established
by each of the exchanges governing the maximum number of options which may be
written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus, the number of options
which the Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same or an
affiliated investment adviser. Position limits also apply to Futures. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions. Due to requirements under
the Investment Company Act, when the Fund purchases a Future, the Fund will
maintain, in a segregated account or accounts with its Custodian, cash or
readily-marketable, short-term (maturing in one year or less) debt instruments
in an amount equal to the market value of the securities underlying such Future,
less the margin deposit applicable to it.
o Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends
to qualify as a "regulated investment company" under the Internal Revenue Code.
That qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without the Fund having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders will
be taxed on the dividends and capital gains they receive from the Fund.
o Risks Of Hedging With Options and Futures. In addition to the risks with
respect to hedging discussed in the Prospectus and above, there is a risk in
using short hedging by selling Futures to attempt to protect against decline in
value of the Fund's portfolio securities (due to an increase in interest rates)
that the prices of such Futures will correlate imperfectly with the behavior of
the cash (i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First, all
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the U.S.
Government Securities markets as a temporary substitute for the purchase of
individual U.S. Government Securities (long hedging) by buying Interest Rate
Futures and/or calls on such Futures or on U.S. Government Securities, it is
possible that the market may decline; if the Fund then concludes not to invest
in such securities at that time because of concerns as to possible further
market decline or for other reasons, the Fund will realize a loss on the Hedging
Instruments that is not offset by a reduction in the price of the U.S.
Government Securities purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that the Fund must
follow that are also fundamental policies. Fundamental policies and the Fund's
investment objective cannot be changed without the vote of a "majority" of the
Fund's outstanding voting securities. Under the Investment Company Act, such a
"majority" vote is defined as the vote of the holders of the lesser of (1) 67%
or more of the shares present or represented by proxy at a shareholder meeting,
if the holders of more than 50% of the outstanding shares are present, or (2)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) invest in interests in oil, gas, or other mineral exploration or
development programs;
(2) invest in real estate;
(3) purchase securities on margin or make short sales of securities;
however, the Fund may make margin deposits in connection with any of the Hedging
Instruments which it may use as permitted by any of its other fundamental
policies;
(4) underwrite securities of other companies; or
(5) invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
The Fund will not concentrate investments to the extent of 25% of its
assets in any industry; there is no limit on obligations issued by the U.S.
Government or its agencies or instrumentalities. For purposes of that policy,
the Fund has adopted the industry classifications set forth in Appendix B to
this Statement of Additional Information. This is not a fundamental policy.
The percentage restrictions described above and in the Prospectus are
applicable only at the time of investment and require no action by the Fund as a
result of subsequent changes in value of the investments or the size of the
Fund.
How the Fund is Managed
Organization and History. The Fund was organized in 1982 as a Massachusetts
business trust. Effective August 16, 1985, the Fund changed its investment
objective and became a long-term government securities fund. Prior to August 16,
1985, the Fund operated as a money market fund with a fixed net asset value per
share.
As a Massachusetts business trust, the Fund is not required to hold, and
does not plan to hold, regular annual meetings of shareholders. The Fund will
hold meetings when required to do so by the Investment Company Act or other
applicable law, or when a shareholder meeting is called by the Trustees or upon
proper request of the shareholders. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding shares of the
Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of 10% of its outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least six
months) holding shares of the Fund valued at $25,000 or more or holding at least
1% of the Fund's outstanding shares, whichever is less, stating that they wish
to communicate with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set forth
under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any shareholder
of the Trust, agrees under the Trust's Declaration of Trust to look solely to
the assets of the Trust for satisfaction of any claim or demand which may arise
out of any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees And Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. The address of each Trustee and officer is Two World Trade Center,
New York, New York 10048-0203, unless another address is listed below. All of
the Trustees are also Trustees or Directors of Oppenheimer California Municipal
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Developing Markets
Fund, Oppenheimer Discovery Fund, Oppenheimer Enterprise Fund, Oppenheimer
Global Fund, Oppenheimer Global Growth & Income Fund, Oppenheimer Gold & Special
Minerals Fund, Oppenheimer Growth Fund, Oppenheimer International Growth Fund,
Oppenheimer International Small Company Fund, Oppenheimer Mid-Cap Fund,
Oppenheimer Money Market Fund, Inc., Oppenheimer Multiple Strategies Fund,
Oppenheimer Municipal Bond Fund, Oppenheimer Multi- Sector Income Trust,
Oppenheimer New York Municipal Fund, Oppenheimer Multi-State Municipal Trust,
Oppenheimer Series Fund, Inc. and Oppenheimer World Bond Fund (the "New
York-based Oppenheimer funds"), except that Ms. Macaskill is not a Director of
Oppenheimer Money Market Fund, Inc. Ms. Macaskill and Messrs. Spiro, Levy,
Bishop, Bowen, Donohue, Farrar and Zack respectively hold the same offices with
the other New York-based Oppenheimer funds as with the Fund. As of November 21,
1997, the officers and Trustees of the Fund as a group owned of record or
beneficially less than 1% of the outstanding shares of each class of the Fund.
The statement does not include ownership of shares held of record by an employee
benefit plan for employees of the Manager (for which plan a Trustee and an
officer listed below, Ms. Macaskill and Mr. Donohue, respectively, are
trustees), other than the shares beneficially owned under that plan by the
officers of the Fund listed below.
Leon Levy, Chairman of the Board of Trustees; Age: 72
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership)
(since 1982) and Chairman of Avatar Holdings, Inc.
(real estate development).
Robert G. Galli, Trustee*; Age: 64
Vice Chairman of OppenheimerFunds, Inc.(the "Manager") (since October
1995); formerly he held the following positions: Vice President and
Counsel of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent
holding company; Executive Vice President, General Counsel and a director
of the Manager and OppenheimerFunds Distributor, Inc. (the "Distributor"),
Vice President and a director of HarbourView Asset Management Corporation
("HarbourView") and Centennial Asset Management Corporation
("Centennial"), investment adviser subsidiaries of the Manager, a director
of Shareholder Financial Services, Inc. ("SFSI") and Shareholder Services,
Inc. ("SSI"), transfer agent subsidiaries of the Manager and an officer of
other Oppenheimer funds.
Benjamin Lipstein, Trustee; Age: 74
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex Publishers, Inc
(publishers of Psychology Today and
Mother Earth News) and of Spy Magazine, L.P.
Bridget A. Macaskill, President and Trustee*#; Age: 49
President (since June 1991), Chief Executive Officer (since September
1995) and a Director (since December 1994) of the Manager; President and
director (since June 1991) of HarbourView; Chairman and a director of SSI
(since August 1994), and SFSI (since September 1995); President (since
September 1995) and a director (since October 1990) director (since
October 1997) of OppenheimerFunds International Ltd., an offshore fund
manager subsidiary of the Manager ("OFIL") and Oppenheimer Millennium
Funds plc (since
------------------------
* A Trustee who is an "interested person" of the Fund # Not a Director of
Oppenheimer Money Market Fund, Inc. October 1997); of OAC; President (since
September 1995) and a director (since November 1989) of Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager; a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); President and a
President and a director of other Oppenheimer funds; a director of the NASDAQ
Stock Market, Inc. and of Hillsdown Holdings plc (a U.K. food company); formerly
an Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee; Age: 68
801 Pennsylvania Avenue, NW, Washington, DC 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution), the Institute of Fine Arts (New York
University) and National Building Museum; a member of the Trustees
Council, Preservation League of New York State, and of the Indo-U.S.
Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age: 70
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), Texan
Cogeneration Company (cogeneration company), Prime Retail, Inc. (real
estate investment trust); formerly President and Chief Executive Officer
of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance
Company.
Edward V. Regan, Trustee; Age: 67
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York;
Senior Fellow of Jerome Levy Economics Institute, Bard College; a member
of the U.S. Competitiveness Policy Council; a director of GranCare, Inc.
(health care provider); a director of River Bank America (real estate
manager); Trustee, Financial Accounting Foundation (FASB and ASB);
formerly New York State Comptroller and trustee of the New York State and
Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age: 65
8 Sound Shore Drive, Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directorship Inc. (corporate governance
consulting); a director of Professional Staff Limited (U.K.); a trustee
of Mystic Seaport Museum, International House and Greenwich Historical
Society.
Donald W. Spiro, President and Trustee*; Age: 72
Chairman Emeritus (since August 1991) and a director (since January 1969)
of the Manager; formerly Chairman of the Manager and the Distributor.
------------------------
* A Trustee who is an "interested person" of the Fund.
Pauline Trigere, Trustee; Age: 85
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee; Age: 67
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel, Hogan & Hartson (a law firm); a director of B.A.T. Industries,
Ltd. (tobacco and financial services), Caterpillar, Inc. (machinery),
ConAgra, Inc. (food and agricultural products), Farmers Insurance Company
(insurance), FMC Corp. (chemicals and machinery) and Texas Instruments,
Inc. (electronics); formerly (in descending chronological order) IMC
Global Inc. (chemicals and animal feed), Counselor to the President (Bush)
for Domestic Policy, Chairman of the Republican National Committee,
Secretary of the U.S. Department
of Agriculture, and U.S. Trade Representative.
Jerry A. Webman, Vice President and Portfolio Manager; Age: 48 Senior Vice
President of the Manager (since February 1996); an officer of other
Oppenheimer funds; previously an officer and portfolio manager with
Prudential Mutual Funds -- Investment Management Inc.
Andrew J. Donohue, Secretary; Age: 47
Executive Vice President (since January 1993), General Counsel (since
October 1991) and a Director (since September 1995) of the Manager;
Executive Vice President (since September 1993), and a director (since
January 1992) of the Distributor; Executive Vice President, General
Counsel and a director of HarbourView, SSI, SFSI and Oppenheimer
Partnership Holdings, Inc. (since September 1995) and MultiSource
Services, Inc. (a broker-dealer) (since December 1995); President and a
director of Centennial (since September 1995); President and a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); General Counsel
(since May 1996) and Secretary (since April 1997) of OAC; Vice President
of OFIL and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
George C. Bowen, Treasurer; Age: 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March
1985) of the Manager; Vice President (since June 1983) and Treasurer
(since March 1985) of the Distributor; Vice President (since October
1989) and Treasurer (since April 1986) of HarbourView; Senior Vice
President (since February 1992), Treasurer (since July 1991) and a
director (since December 1991) of Centennial; President, Treasurer and
a director of Centennial Capital Corporation (since June 1989); Vice
President and Treasurer (since August 1978) and Secretary (since April
1981) of SSI; Vice President, Treasurer and Secretary of SFSI (since
November 1989); Treasurer of OAC (since June 1990); Treasurer
of Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice
President and Treasurer of Oppenheimer Real Asset Management, Inc.
(since July 1996); Chief Executive Officer, Treasurer and a director
of MultiSource Services, Inc., a broker-dealer (since December 1995);
an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age: 49
Senior Vice President (since May 1985) and Associate General Counsel
(since May 1981) of the Manager, Assistant Secretary of SSI (since May
1985), and SFSI (since November 1989); Assistant Secretary of Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert Bishop, Assistant Treasurer; Age: 39
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President
of the Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund
Controller for the Manager.
Scott Farrar, Assistant Treasurer; Age: 32
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996);
Assistant Treasurer of Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds; formerly an Assistant Vice
President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and
a Fund Controller for the Manager.
o Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Messrs. Galli and Spiro) who are affiliated with
the Manager receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended August 31, 1997. The compensation from all
of the New York-based Oppenheimer funds includes the Fund and is compensation
received as a director, trustee or member of a committee of the Board during the
calendar year 1996.
Retirement BenefitTotal Compensation
Aggregate Accrued as Part from all
Name and Compensationof Fund New York-based
Position from Fund Expenses Oppenheimer funds1
Leon Levy $4,022 ($4,680)2 $152,750
Chairman and
Trustee
------------------------
1 For the 1996 calendar year.
2 A credit was made for the Fund's
projected benefit obligations and
payments were made to retired
trustees, resulting in an accumulated
liability at August 31, 1997.
Retirement BenefitTotal Compensation
Aggregate Accrued as Part from all
Name and Compensationof Fund New York-based
Position from Fund Expenses Oppenheimer funds1
Benjamin Lipstein $2,405 ($2,805)2 $ 91,350
Study Committee
Chairman, Audit
Committee Member
and Trustee3
Elizabeth B. Moynihan $2,405 ($2,805)2 $ 91,350
Study Committee
Member and
Trustee
Kenneth A. Randall $2,197 ($2,562)2 $ 83,450
Audit Committee
Chairman and
Trustee
Edward V. Regan $2,058 ($2,400)2 $ 78,150
Proxy Committee
Chairman, Audit
Committee Member
and Trustee
Russell S. Reynolds, Jr.$1,548 ($1,805)2 $58,800
Proxy Committee
Member and Trustee
Pauline Trigere $1,456 ($1,698)2 $ 55,300
Trustee
Clayton K. Yeutter $1,548 ($1,805)2 $ 58,800
Proxy Committee
Member and Trustee
------------------------
1 For the 1996 calendar year.
2 A credit was made for the Fund's projected benefit obligations and payments
were made to retired trustees, resulting in an accumulated liability at August
31, 1997. 3 Committee position held during a portion of the period shown.
The Fund has adopted a retirement plan that provides for payment to a
retired Trustee of up to 80% of the average compensation paid during that
Trustee's five years of service in which the highest compensation was received.
A Trustee must serve in that capacity for any of the New York- based Oppenheimer
funds for at least 15 years to be eligible for the maximum payment. Because each
Trustee's retirement benefits will depend on the amount of the Trustee's future
compensation and length of service, the amount of those benefits cannot be
determined at this time, nor can the Fund estimate the number of years of
credited service that will be used to determine those benefits.
Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds elected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds. Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
o Major Shareholders. As of November 21, 1997 the only persons who owned
of record or was known by the Fund to own beneficially 5% or more of the Fund's
outstanding Class A, Class B or Class C shares was Merrill Lynch Pierce Fenner &
Smith, Inc., 4800 Deer Lake Drive, East, Floor 3, Jacksonville, Florida
32246-6484, who owned 147,937.167 Class B shares (representing approximately
6.61% of the Fund's then outstanding Class B shares) and 383,434.569 Class C
shares (representing approximately 15.64% of the Fund's then outstanding Class C
shares).
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual
Life Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom also serve as officers of the Fund, and two
of whom (Messrs. Galli and Spiro) also serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
o The Investment Advisory Agreement. A management fee is payable monthly
to the Manager under the terms of the investment advisory agreement between the
Manager and the Fund requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment, and to provide and
supervise the activities of all administrative and clerical personnel required
to provide effective corporate administration for the Fund, including the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
Prior to the adoption of the current investment advisory agreement, the Manager
voluntarily reduced the management fee to the current rates, described in the
Prospectus.
Expenses not expressly assumed by the Manager under the advisory agreement
or by the Distributor under the Distribution Agreement are paid by the Fund. The
advisory agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions, fees to
certain Trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. For the Fund's fiscal years
ended June 30, 1995 and 1996, its fiscal period ended August 31, 1996 and its
fiscal year ended August 31, 1997, the management fees paid by the Fund to the
Manager were $1,980,189, $2,946,711, $569,144 and $3,233,578, respectively.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the advisory agreement,
the Manager is not liable for any loss resulting from a good faith error or
omission on its part with respect to any of its duties thereunder. The advisory
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation and to use the name "Oppenheimer" in connection with its
other investment companies for which it may act as investment adviser or general
distributor. If the Manager shall no longer act as investment adviser to the
Fund, the right of the Fund to use the name "Oppenheimer" as part of its
corporate name may be withdrawn.
o The Distributor. Under its Distribution Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B and Class C shares but is not obligated
to sell a specific number of shares. Expenses normally attributable to sales,
excluding payments under the Distribution and Service Plans, but including
advertising and the cost of printing and mailing prospectuses, other than those
furnished to existing shareholders), are borne by the Distributor. During the
Fund's fiscal years ended June 30, 1995 and 1996, its fiscal period ended August
31, 1996 and its fiscal year ended August 31, 1997, the aggregate sales charges
on sales of the Fund's Class A shares were $582,157, $880,535, $119,450 and
$709,843, respectively, of which the Distributor and an affiliated broker-dealer
retained in the aggregate $169,246, $277,638, $35,853 and $230,181 in those
respective years. During the fiscal years ended June 30, 1996, its fiscal period
ended August 31, 1996 and its fiscal year ended August 31, 1997, the contingent
deferred sales charges collected by the Distributor on the redemption of Class B
shares totaled $64,030, $9,733 and $130,311, respectively, all of which the
Distributor retained. During the Fund's fiscal year ended June 30, 1996, its
fiscal period ended August 31, 1996 and its fiscal year ended August 31,1997,
sales charges advanced to broker/dealers by the Distributor on sales of the
Fund's Class B shares totaled $692,568, $130,843 and $1,031,181, respectively,
of which $15,855, $6,477 and $25,474, respectively, were paid to an affiliated
broker/dealer. During the Fund's fiscal years ended June 30, 1995 and 1996, its
fiscal period ended August 31, 1996 and its fiscal year ended August 31, 1997,
the contingent deferred sales charges collected on Class C shares were $9,578,
$14,816, $2,260 and $3,984, respectively, all of which the Distributor retained.
During the Fund's fiscal years ended June 30, 1996, its fiscal period ended
August 31, 1996 and its fiscal year ended August 31, 1997, sales charges
advanced to broker/dealers by the Distributor on sales of the Fund's Class C
shares totaled $86,810, $9,765 and $65,115, of which $8,756, $1,030 and $3,250,
respectively, were paid to an affiliated broker/dealer. For additional
information about distribution of the Fund's shares and the expenses connected
with such activities, please refer to "Distribution and Service Plans," below.
o The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent,
is responsible for maintaining the Fund's shareholder registry and shareholder
accounting records, and for shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers ("brokers") to effect the Fund's portfolio
transactions. In doing so, the Manager is authorized by the advisory agreement
to employ such broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (prompt and reliable execution at the most
favorable price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions paid
to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would have charged if a good faith determination is made by the Manager and the
commission is fair and reasonable in relation to the services provided. Subject
to the foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or its
affiliates as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Most purchases made
by the Fund are principal transactions at net prices, and the Fund incurs little
or no brokerage costs. Subject to the provisions of the advisory agreement, the
procedures and rules described above, allocations of brokerage are generally
made by the Manager's portfolio traders based upon recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers of may
directly place trades and allocate brokerage, also subject to the provisions of
the advisory agreement and the procedures and rules described above. In either
case, brokerage is allocated under the supervision of the Manager's executive
officers.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. Brokerage
commissions are paid primarily for effecting transactions in listed securities
or for certain fixed income agency transactions in the secondary market and are
otherwise paid only if it appears likely that a better price or execution can be
obtained. When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any transaction
in the securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts managed
by the Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated in
accordance with the purchase or sale orders actually placed for each account.
The research services provided by a particular broker may be useful only
to one or more of the advisory accounts of the Manager and its affiliates, and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. Such research,
which may be supplied by a third party at the instance of a broker, includes
information and analyses on particular companies and industries as well as
market or economic trends and portfolio strategy, receipt of market quotations
for portfolio evaluations, information systems, computer hardware and similar
products and services. If a research service also assists the Manager in a
non-research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the Manager in
the investment decision-making process may be paid in commission dollars. The
Board of Trustees has permitted the Manager to use concessions on fixed price
offerings to obtain research in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use stated commissions
on secondary fixed-income agency trades to obtain research where the broker has
represented to the Manager that (i) the trade is not from or for the broker's
own inventory, (ii) the trade was executed by the broker on an agency basis at
the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Board of Trustees, including the
"independent" Trustees of the Fund (those Trustees of the Fund who are not
"interested persons" as defined in the Investment Company Act, and who have no
direct or indirect financial interest in the operation of the advisory agreement
or the Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers furnishing such
services so that the Board may ascertain whether the amount of such commissions
was reasonably related to the value or benefit of such services. The Board of
Trustees has permitted the Manager to use concessions on fixed price offerings
to obtain research in the same manner as is permitted for agency transactions.
During the Fund's fiscal year ended August 31, 1997, total brokerage
commissions paid by the Fund (not including spread or commissions on principal
transactions on a net trade basis) were $143,007. The transactions given rise to
this commission were allocated in accordance with the Manager's internal
allocation procedures.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, the
"standardized yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value" of an investment in a class of shares of the
Fund may be advertised. An explanation of how these yields and total returns are
calculated for each class and the components of those calculations is set forth
below.
The Fund's advertisement of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each class of shares of the Fund for the 1-, 5-, and 10-year
periods (or the life of the class, if less) as of the most recently-ended
calendar quarter prior to the publication of the advertisement. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yields, total returns and share prices are not
guaranteed and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original cost. Yields and
total returns for any given past period are not a prediction or representation
by the Fund of future yields or rates of return on its shares. The yields and
total returns of Class A, Class B and Class C shares of the Fund are affected by
portfolio quality, the type of investments the Fund holds and its operating
expenses allocated to a particular class.
Yields.
o Standardized Yield. The "standardized yield" (referred to as "yield") is
shown for a class of shares for a stated 30-day period. It is not based on
actual distributions paid by the Fund to shareholders in the 30-day period, but
is a hypothetical yield based upon the net investment income from the Fund's
portfolio investments for that period. It may therefore differ from the
"dividend yield" for the same class of shares, described below. It is calculated
using the following formula set forth in rules adopted by the Securities and
Exchange Commission designed to assure uniformity in the way that all funds
calculate their yields:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period. b = expenses
accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, using the current maximum sales charge rate adjusted
for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ
from the yield for other periods. The SEC formula assumes that the yield for a
30-day period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. Additionally, because each class of shares
is subject to different expenses, it is likely that the standardized yields of
the Fund's classes of shares will differ for any 30 day period. For the 30-day
period ended August 31, 1997 the standardized yields for the Fund's class of
shares were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 6.13% 5.84%
Class B: 5.36% N/A
Class C: 5.36% N/A
o Dividend Yield. The Fund may quote a "dividend yield" for each class of
shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. from net investment income during a stated
period. To calculate dividend yield, the dividends of a class declared during a
stated period are added together and the sum is multiplied by 12 (to annualize
the yield) and divided by the maximum offering price on the last day of the
dividend period. The formula is shown below:
Dividend Yield of the Class =
Dividends of the Class
----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the current
maximum initial sales charge. The maximum offering price for Class B shares and
Class C shares is the net asset value per share, without considering the effect
of contingent deferred sales charges. The Class A dividend yield may also be
quoted without deducting the maximum initial sales charge.
The dividend yields for the 30-day dividend period ended August 31, 1997
were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 7.09% 6.76%
Class B: 6.30% N/A
Class C: 6.30% N/A
Total Return Information. The Fund's advertisements of its performance data
must, under applicable rules of the Securities and Exchange Commission, include
the average annual total returns for each advertised class of shares of the Fund
for the 1-, 5- and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for comparison
with other investments. An investment in the Fund is not insured; its returns
and share prices are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and Class B
shares of the Fund are affected by portfolio quality, the type of investments
the Fund holds and its operating expenses allocated to the particular class.
o Average Annual Total Returns. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "average annual total returns" on an investment in Class A shares of
the Fund for the 1- 5- and 10-year periods ended August 31, 1997 were 5.20%,
5.54% and 7.54%, respectively.
The "average annual total returns" on an investment in Class B shares of
the Fund for the 1-year period ended August 31, 1997 was 4.63%, and for the
period July 21, 1995 (commencement of the Class) through August 31, 1997 was
5.61%.
The "average annual total returns" on an investment in Class C shares of
the Fund for the 1-year period ended August 31, 1997 was 8.65%, and for the
period December 1, 1993 (commencement of the Class) through August 31, 1997 was
5.50%.
o Cumulative Total Return. The "cumulative total return" calculation
measures the change in the value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, the payment of the applicable contingent
deferred sales charge (5.0% for the first year, 4.0% for the second year, 3.0%
for the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year
and none thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as described below).
For Class C shares, the payment of 1.0% contingent deferred sales charge is
applied to the investment result for the 1-year period (or less). Total returns
also assume that all dividends and capital gains distributions during the period
are reinvested to buy additional shares at net asset value per share, and that
the investment is redeemed at the end of the period.
The "cumulative total return" on an investment in Class A shares of the
Fund (using the method described above) for the 10-year period ended August 31,
1997 was 106.79%.
The "cumulative total return" on an investment in Class B shares of the
Fund (using the method described above) for the period July 21, 1995
(commencement of the Class) through August 31, 1997 was 12.21%.
The "cumulative total return" on an investment in Class C shares of the
Fund (using the method described above) for the period December 1, 1993
(commencement of the Class) through August 31, 1997 was 22.22%.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an "average annual total return at net asset value" or a "cumulative total
return at net asset value" for Class A or Class B shares. Each is based on the
difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions. The
"average annual total returns at net asset value" for the Fund's Class A shares
for the 1-, 5- and 10-year periods ended August 31, 1997 were 10.45%, 6.57% and
8.06%, respectively. The "average annual total returns at net asset value" for
the Fund's Class B shares for the 1-year period ended August 31, 1997, and for
the period July 21, 1995 (commencement of the Class) through August 31, 1997
were 9.63% and 6.94%, respectively. The "average annual total returns at net
asset value" for the Fund's Class C shares for the 1-year period ended August
31, 1997 and for the period December 1, 1993 (commencement of the Class) through
August 31, 1997 were 9.65% and 5.50%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, and Class B shares. However, when comparing
total return of an investment in shares of the Fund, a number of factors should
be considered before using such information as a basis for comparison with other
investments. No adjustment is made for taxes payable on distributions. An
investment in the Fund's shares is not insured; its total return is not
guaranteed and will fluctuate on a daily basis. Total return for any given past
period is not an indication or representation by the Fund of future rates of
return on its shares. The total return of the Fund's shares is affected by
portfolio quality, portfolio maturity, type of investments held and operating
expenses. When comparing total return of an investment in shares of the fund
with that of other investment instruments, investors should understand that
certain other investment alternatives such as money market instruments,
certificates of deposit, U.S. Government securities or bank accounts provide a
return which remains relatively constant over time and also that bank accounts
may be insured.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the
Fund, and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund's classes are
ranked against (i) all other funds (excluding money market funds), (ii) all
other U.S. Government funds and (iii) all other U.S. Government funds in a
specific size category. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gains distributions and income
dividends but does not take sales charges or taxes into consideration.
From time to time, the Fund may publish the star ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an independent
mutual fund monitoring service. Morningstar ranks mutual funds in broad
investment categories; domestic stock funds, international stock funds, taxable
bond funds an municipal bond funds, based on risk-adjusted total investment
returns. The Fund is ranked among intermediate government funds. Investment
return measures a fund's or class' 1- 3-, 5- and 10-year average annual total
returns (depending on the inception of the fund or class) in excess of 90-day
U.S. Treasury bill returns. Risk and investment return are combined to produce
star rankings reflecting performance relative to the average fund in the fund's
category. Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). The current star
ranking is the fund's or class' 3-year ranking or its combined 3- and 5-year
ranking (weighted 60%/40%, respectively, or its combined 3-, 5- and 10- year
ranking (weighted 40%, 30% and 30% respectively), depending on the inception of
the fund or class. Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star rankings, Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
The total return on an investment made in Class A, Class B or Class C
shares of the Fund may also be compared with the performance for the same period
of the Lehman Brothers U.S. Government Bond Index, an unmanaged index including
all U.S. Treasury issues, publicly- issued debt of U.S. Government agencies and
quasi-public corporations and U.S. Government-guaranteed corporate debt, and is
widely regarded as a measure of the performance of the U.S. Government bond
market. The foregoing bond index includes a factor for the reinvestment of
interest but does not reflect expenses or taxes. Other indices may be used from
time to time. The performance of the Fund's Class A, Class B and Class C shares
may also be compared in publications to (i) performance of various market
indices or other investments for which reliable performance data is available,
and (ii) to averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.
From time to time the Fund may also include in its advertisements and
sales literature performance information about the Fund or rankings of the
Fund's performance cited in newspapers
or periodicals, such as The New York Times which may include quotations of
performance from other sources, such as Lipper or Morningstar.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or the Transfer Agent), by independent third-parties, on the
investor services provided by them to shareholders of the Oppenheimer funds,
other than the performance rankings of the Oppenheimer funds themselves. Those
ratings or rankings of shareholder/investor services by third parties may
compare the Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services, and may be based upon the opinions
of the rating or ranking service itself, using its own research or judgment, or
based upon surveys of investors, brokers, shareholders or others.
When comparing yield, total return and investment risk of an investment
in Class A, Class B or Class C shares of the Fund with other investments,
investors should understand that certain other investments have different risk
characteristics than an investment in shares of the Fund. For example,
certificates of deposit may have fixed rates of return and may be insured as to
principal and interest by the FDIC, while the Fund's returns will fluctuate and
its share values and returns are not guaranteed. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and credit of the U.S.
government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares of the Fund under Rule 12b-1 of
the Investment Company Act, pursuant to which the Fund makes payments to the
Distributor in connection with the distribution and/or servicing of the shares
of that class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the Distribution and
Service Plans for Class B shares and Class C shares, such vote was cast by the
Manager as the sole initial holder of Class B shares and Class C shares of the
Fund.
In addition, under the Plans the Manager and the Distributor, in their
sole discretion, from time to time may use their own resources (which, in the
case of the Manager, may include profits from the advisory fee it receives from
the Fund) to make payments to brokers, dealers or other financial institutions
(each is referred to as a "Recipient" under the Plans) for distribution and
administrative services they perform, at no cost to the Fund. The Distributor
and the Manager may, in their sole discretion, increase or decrease the amount
of payments they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as such continuance is specifically approved at
least annually by the Fund's Board of Trustees including its Independent
Trustees by a vote cast in person at a meeting called for the purpose of voting
on such continuance. Each Plan may be terminated at any time by the vote of a
majority of the "Independent Trustees" or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class. No Plan may be amended to increase materially the amount of
payments to be made unless such amendment is approved by shareholders of the
class affected by the amendment. In addition, because Class B shares of the Fund
automatically convert into Class A shares after six years, the Fund is required
to obtain the approval of Class B as well as Class A shareholders for a proposed
amendment to the Class A Plan that would materially increase the amount to be
paid by Class A shareholders under the Class A Plan. Such approval must be by a
"majority" of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. All material amendments
must be approved by the Board and the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least quarterly on
the amount of all payments made pursuant to each Plan, the purpose for which the
payment was made and the identity of each Recipient that received any such
payment. The report for the Class B and Class C Plans shall also include the
distribution costs for that quarter, and such costs for previous fiscal years
that are carried forward, as explained in the Prospectus and below. Those
reports, including allocations on which they are based, will be subject to
review and approval of the Independent Trustees in the exercise of their
fiduciary duty. Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not "interested
persons" of the Fund is committed to the discretion of the Independent Trustees.
This does not prevent the involvement of others in such selection and nomination
if the final decision on any such selection or nomination is approved by a
majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers, did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fee at the maximum rate and set no
requirement for a minimum amount of assets.
For the fiscal year ended August 31, 1997, payment under the Class A Plan
totaled $1,151,704, all of which was paid by the Distributor to Recipients,
including $149,082, paid to an affiliate of the Distributor. Any unreimbursed
expenses incurred with respect to Class A shares for any fiscal year by the
Distributor may not be recovered in subsequent fiscal years. Payments received
by the Distributor under the Class A Plan will not be used to pay any interest
expense, carrying charges or other financial costs, or allocation of overhead by
the Distributor.
The Class B and Class C Plans allow the service fee payment to be paid by
the Distributor to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the shares sold.
An exchange of shares does not entitle the Recipient to an advance payment of
the service fee. In the event shares are redeemed during the first year such
shares are outstanding, the Recipient will be obligated to repay a pro rata
portion of the advance of the service fee payment to the Distributor. For the
fiscal year ended August 31, 1997, payment under Class B Plan totaled $413,443,
of which $358,181 was retained by the Distributor, including $1,070 paid to an
affiliate of the Distributor. Payments made under the Class C Plan during the
fiscal year ended August 31, 1997 totaled $194,792, of which $60,433 was
retained by the Distributor, including $15,008 paid to an affiliate of the
Distributor.
Although the Class B and the Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fees on such shares,
or to pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be established from
time to time under the Class B and the Class C Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B and the
Class C Plan are subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. on payments of asset-based
sales charges and service fees.
The Class B and Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund. Such payments are made in
recognition that the Distributor (i) pays sales commissions to authorized
brokers and dealers at the time of sale, as described in the Prospectus, (ii)
may finance such commissions and/or the advance of the service fee payment to
Recipients under those Plans, or may provide such financing from its own
resources, or from an affiliate, (iii) employs personnel to support distribution
of shares, and (iv) may bear the costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and state
"blue sky" registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits the individual investor to
choose the method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor expects
to hold shares and other relevant circumstances. Investors should understand
that the purpose and function of the deferred sales charge and asset-based sales
charge with respect to Class B and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson or other
person entitled to receive compensation for selling Fund shares may receive
different compensation with respect to one class of shares than the other. The
Distributor will not accept any order for $500,000 or more of Class B shares or
$1 million or more of Class C shares on behalf of a single investor (not
including dealer "street name" or omnibus accounts) because generally it will be
more advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on such Class B and Class C shares will be
reduced by incremental expenses borne solely by that class, including the
asset-based sales charge to which Class B and Class C shares are subject.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes two
types of expenses. General expenses that do not pertain specifically to any
class are allocated pro rata to the shares of each class, based on the
percentage of the net assets of such class to the Fund's total assets, and then
equally to each outstanding share within a given class. Such general expenses
include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii)
printing and mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders, (iv)
fees to Independent Trustees, (v) custodian expenses, (vi) share issuance costs,
(vii) organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (i) Distribution
and/or Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class rather
than to the Fund as a whole.
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event for
the holder under Federal income tax law. If such a revenue ruling or opinion is
no longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
Determination of Net Asset Values Per Share. The net asset values per share of
Class A, Class B and Class C shares of the Fund are determined as of the close
of business of The New York Stock Exchange on each day the Exchange is open by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The Exchange normally closes at 4:00
P.M. New York time, but may close earlier on some days (for example, in case of
weather emergencies or on days falling before a holiday). The Exchange's most
recent annual announcement (which is subject to change) states that it will
close New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
It may also close on other days. Trading may occur in U.S. Government Securities
at times when the Exchange is closed (including weekends and holidays or after
4:00 P.M., on a regular business day). Because the Fund's net asset value will
not be calculated at such times, the net asset value per share of Class A, Class
B and Class C shares of the Fund may be significantly affected at times when
shareholders do not have the ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the valuation
of the Fund's
securities, generally, as follows:(i) equity securities traded on a securities
exchange or on the Automated Quotation System ("NASDAQ") of the Nasdaq Stock
Market, Inc. for which last sale information is regularly reported are valued at
the last reported sale price on the principal exchange for such security or
NASDAQ that day (the "Valuation Date") or, in the absence of sales that day, at
the last reported sale price preceding the Valuation Date if it is within the
spread of the closing "bid" and "asked" prices on the Valuation Date or, if not,
the closing "bid" price on the Valuation Date; (ii) equity securities traded on
a foreign securities exchange are generally valued at the last sales price
available to the pricing service approved by the Fund's Board of Trustees or to
the Manager as reported by the principal exchange on which the security is
traded at its last trading session on or immediately preceding the valuation
date, or, if unavailable, at the mean between "bid" and "asked" prices obtained
from the principal exchange or two active market makers in the security on the
basis of reasonable inquiry; (iii) a non-money market fund will value (x) debt
instruments that had a maturity of more than 397 days when issued, (y) debt
instruments that had a maturity of 397 days or less when issued and have a
remaining maturity in excess of 60 days, and (z) non-money market type debt
instruments that had a maturity of 397 days or less when issued and have
remaining maturity of 60 days or less, at the mean between "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of Trustees
or, if unavailable, obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry; (iv) money market-type debt
securities held by a non-money market fund that had a maturity of less than 397
days when issued and have a remaining maturity of 60 days or less, and debt
instruments held by a money market fund that have a remaining maturity of 397
days or less, shall be valued at cost, adjusted for amortization of premiums and
accretion of discount; and (v) securities (including restricted securities) not
having readily-available market quotations are valued at fair value determined
under the Board's procedures. If the Manager is unable to locate two market
makers willing to give quotes (see (ii) and (iii) above), the security may be
priced at the mean between the "bid" and "asked" prices provided by a single
active market maker (which in certain cases may be in "bid" price if no "asked"
price is available) provided that the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect the current market
value.
In the case of U.S. Government Securities and mortgage-backed securities,
where last sale information is not generally available, such pricing procedures
may include "matrix" comparisons to the prices for comparable instruments on the
basis of quality, yield, maturity and other special factors involved. The
Manager may use pricing services approved by the Board of Trustees to price U.S.
Government Securities or mortgage-backed securities for which last sale
information is not generally available. The Manager will monitor the accuracy of
such pricing services, which may include comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts, calls and Futures held by the Fund are valued at the last sales
prices on the principal exchanges on which they are traded or on NASDAQ, as
applicable, or, if there are no sales that day, in accordance with (i) above.
When the Fund writes an option, an amount equal to the premium received by the
Fund is included in the Fund's Statement of Assets and Liabilities as an asset
and an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to- market" to reflect the current market value of
the option. In determining the Fund's gain on investments, if a call written by
the Fund is exercised, the proceeds are increased by the premium received. If a
call or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25.00. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy shares. Dividends will begin to accrue on shares purchased by
the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If the Federal Funds are received on a business day after the
close of the Exchange, the shares will be purchased and dividends will begin to
accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund three days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker incurs little or no selling
expenses. The term "immediate family" refers to one's spouse, children,
grandchildren, parents, grandparents, parents-in- law, sons- and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings, aunts,
uncles, nieces and nephews. Relations by virtue of a remarriage (step-children,
step-parents, etc.) are included.
o The Oppenheimer funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and include
the following:
Oppenheimer Bond Fund
Oppenheimer Bond Fund for Growth
Oppenheimer Capital Appreciation Fund
Oppenheimer Champion Income Fund
Oppenheimer California Municipal Fund
Oppenheimer Developing Markets Fund
Oppenheimer Discovery Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Enterprise Fund
Oppenheimer Equity Income Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund Oppenheimer High Yield Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
Oppenheimer International Small Company Fund
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income Fund
Limited Term New York Municipal Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street California Municipal
Fund
Oppenheimer Main Street Income & Growth
Fund
Oppenheimer Mid-Cap Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer Municipal Bond Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer New York Municipal Fund
Panorama Series Fund, Inc.
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Growth & Income Value
Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Real Asset Fund
Rochester Fund Municipals
Oppenheimer Series Fund, Inc.
Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer U.S. Government Trust
-2-
<PAGE>
and the following "Money Market Funds":
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Oppenheimer Cash Reserves
Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except money market funds (under certain
circumstances described herein, redemption proceeds of money market fund shares
may be subject to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares of the Fund (and Class A and Class B shares of other Oppenheimer
funds) during a 13-month period (the "Letter of Intend period"), which may, at
the investor's request, include purchases made up to 90 days prior to the date
of the Letter. The Letter states the investor's intention to make the aggregate
amount of purchases of shares which, when added to the investor's holdings of
shares of those funds, will equal or exceed the amount specified in the Letter.
Purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to count the
Class A and Class B shares purchased under the Letter to obtain the reduced
sales charge rate on purchases of Class A shares of the Fund (and other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price (including the sales charge) that
applies to a single lump-sum purchase of shares in the amount intended to be
purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of shares on the last day of that period, do not equal or exceed the intended
purchase amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below
(as those terms may be amended from time to time). The investor agrees that
shares equal in value to 5% of the intended purchase amount will be held in
escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor
agrees to be bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and if such
terms are amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchase amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no
adjustment of commissions paid to the broker-dealer or financial institution of
record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases.
If total eligible purchases during the Letter of Intent period exceed the
intended purchase amount and exceed the amount needed to qualify for the next
sales charge rate reduction set forth in the applicable prospectus, the sales
charges paid will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed or
paid to the dealer over the amount of commissions that apply to the actual
amount of purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net asset
value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the 13- month Letter of Intent period, the escrowed shares will
be promptly released to the investor.
3. If, at the end of the 13-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If such
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include (a) Class A shares
sold with a front-end sales charge or subject to a Class A contingent deferred
sales charge, (b) Class B shares of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and (c) Class A shares or Class B shares
acquired in exchange for either (i) Class A shares of one of the other
Oppenheimer funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other Oppenheimer
funds that were acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "Exchange Privilege," and the escrow will be
transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "How To Sell
Shares," in the Prospectus. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases
of shares of up to four other Oppenheimer funds. If payments are made from a
bank account to purchase shares of the Fund, the bank account will automatically
be debited normally four to five business days prior to the investment dates
selected in the Account Application. Neither the Distributor, the Transfer Agent
nor the Fund shall be responsible for any delays in purchasing shares resulting
from delays in ACH transmission.
There is a front-end sales charge on the purchase of certain Oppenheimer
funds, or a contingent deferred sales charge may apply to shares purchased by
Asset Builder payments. An application should be obtained from the Distributor,
completed and returned, and a prospectus of the selected fund(s) should be
obtained from the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to the
Transfer Agent. A reasonable period (approximately 15 days) is required after
the Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans at any
time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the Fund for the
loss, the Distributor will do so. The Fund may reimburse the Distributor for
that amount by redeeming shares from any account registered in that investor's
name, or the Fund or the Distributor may seek other redress.
Retirement Plans. In describing certain types of employee benefit plans that may
purchase Class A shares without being subject to the Class A contingent deferred
sales charge, the term "employee benefit plan" means any plan or arrangement,
whether or not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which Class A
shares are purchased by a fiduciary or other person for the account of
participants who are employees of a single employer or of affiliated employers,
if the Fund account is registered in the name of the fiduciary or other person
for the benefit of participants in the plan.
The term "group retirement plan" means any qualified or non-qualified
retirement plan (including 457 plans, SEPs, SARSEPs, 403(b) plans other than
public school 403(b) plans, and SIMPLE plans) for employees of a corporation or
a sole proprietorship, members and employees of a partnership or association or
other organized group of persons (the members of which may include other
groups), if the group or association has made special arrangements with the
Distributor and all members of the group or association participating in or who
are eligible to participate in the plan(s) purchase Class A shares of the Fund
through a single investment dealer, broker, or other financial institution
designated by the group. "Group retirement plan" also includes qualified
retirement plans and non-qualified deferred compensation plans and IRAs that
purchase Class A shares of the Fund through a single investment dealer, broker,
or other financial institution, if that broker-dealer has made special
arrangements with the Distributor enabling those plans to purchase Class A
shares of the Fund at net asset value but subject to a contingent deferred sales
charge.
In addition to the discussion in the Prospectus relating to the ability
of Retirement Plans to purchase Class A shares at net asset value in certain
circumstances, there is no initial sales charge on purchases of Class A shares
of any one or more of the Oppenheimer funds by a Retirement Plan in the
following cases:
(i) the record keeping for the Retirement Plan is performed on a daily
valuation basis by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch")
and, on the date the plan sponsor signs the Merrill Lynch record keeping service
agreement, the Retirement Plan has $3 million or more in assets invested in
mutual funds other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM") that are made available pursuant to a Service
Agreement between Merrill Lynch and the mutual fund's principal underwriter or
distributor and in funds advised or managed by MLAM (collectively, the
"Applicable Investments"); or
(ii) the record keeping for the Retirement Plan is performed on a daily
valuation basis by an independent record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and Merrill Lynch.
On the date the plan sponsor signs the Merrill Lynch record keeping service
agreement, the Plan must have $3 million or more is assets, excluding assets
held in money market funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by the
Merrill Lynch plan conversion manager on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement.
If a Retirement Plan's records are maintained on a daily valuation basis by
Merrill Lynch or an independent record keeper under a contract or alliance
arrangement with Merrill Lynch, and if on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement the Retirement Plan has less the
$3 million in assets, excluding money market funds, invested in Applicable
Investments, then the Retirement Plan may purchase only Class B shares of one or
more of the Oppenheimer funds. Otherwise, the Retirement Plan will be permitted
to purchase Class A shares of one or more of the Oppenheimer funds. Any of those
Retirement Plans that currently invest in Class B shares of the Fund will have
their Class B shares converted to Class A shares of the Fund once the Plan's
Applicable Investments have reached $5 million.
Any redemptions of shares of the Fund held by Retirement Plans whose
records are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch that are currently
invested in Class B shares of the Fund shall not be subject to the Class B
contingent deferred sales charge.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
Check Writing. When a check is presented to the Bank for clearance, the Bank
will ask the Fund to redeem a sufficient number of full and fractional shares in
the shareholder's account to cover the amount of the check. This enables the
shareholder to continue receiving dividends on those shares until the check is
presented to the Fund. Checks may not be presented for payment at the offices of
the Bank or the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The Fund
reserves the right to amend, suspend or discontinue offering checkwriting
privileges at any time without prior notice.
By choosing the Checkwriting privilege, whether done so by signing the
Account Application or by completing a Checkwriting card, the individual(s)
signing (1) represent that they are either the registered owner(s) of the shares
of the Fund, or are an officer, general partner, trustee or other fiduciary or
agent, as applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank through which
the Fund's drafts ("checks") are payable (the "Bank"), to pay all checks drawn
on the Fund account of such person(s) and to effect a redemption of sufficient
shares in that account to cover payment of such checks; (3) specifically
acknowledge(s) that if chosen to permit a single signature on checks drawn
against joint accounts, or accounts for corporations, partnerships, trusts or
other entities, the signature of any one signatory on a check will be sufficient
to authorize payment of that check and redemption from an account even if that
account is registered in the names of more than one person or even if more than
one authorized signature appears on the Checkwriting card or the Application, as
applicable; and (4) understand(s) that the Checkwriting privilege may be
terminated or amended at any time by the Fund and/or the Bank and neither shall
incur any liability for such amendment or termination of for effecting
redemptions to pay checks reasonably believed to be genuine, or for returning or
not paying checks which have not been accepted for any reason.
Selling Shares by Wire. The wire of redemption proceeds may be delayed if the
Fund's custodian bank is not open for business on a day when the Fund would
normally authorize the wire to be made, which is usually the Fund's next regular
business day following the redemption. In those circumstances, the wire will not
be transmitted until the next bank business day on which the Fund is open for
business. No dividends will be paid on the proceeds of redeemed shares awaiting
transfer by wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that you
purchase subject to an initial sales charge or (ii) Class B shares that were
subject to the Class B contingent deferred sales charge when redeemed. This
privilege does not apply to Class C shares. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other Oppenheimer
funds into which shares of the Fund are exchangeable as described in "How to
Exchange Shares" below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Distributor
for that privilege at the time of reinvestment. Any capital gain that was
realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the Internal
Revenue Code, if the redemption proceeds of Fund shares on which a sales charge
was paid are reinvested in shares of the Fund or another of the Oppenheimer
funds within 90 days of payment of the sales charge, the shareholder's basis in
the shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain recognized
from the redemption. However, in that case the sales charge would be added to
the basis of the shares acquired by the reinvestment of the redemption proceeds.
The Fund may amend, suspend or cease offering this reinvestment privilege at any
time as to shares redeemed after the date of such amendment, suspension or
cessation.
Transfers of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale).
The transferred shares will remain subject to the contingent deferred sales
charge, calculated as if the transferee shareholder had acquired the transferred
shares in the same manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all
shares in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B and Class C
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds- sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans, or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the plan and
the Fund's other redemption requirements. Participants (other than self-employed
persons maintaining a plan account in their own name) in
OppenheimerFunds-sponsored prototype pension, profit-sharing or 401(k) plans may
not directly redeem or exchange shares held for their account under those plans.
The employer or plan administrator must sign the request. Distributions from
pension plans or 401(k) profit sharing plans are subject to special requirements
under the Internal Revenue Code and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding requirements
under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer
Agent) must be submitted to the Transfer Agent with the distribution request, or
the distribution may be delayed. Unless the shareholder has provided the
Transfer Agent with a certified taxpayer identification number, the Internal
Revenue Code requires that tax be withheld from any distribution even if the
shareholder elects not to have tax withheld. The Fund, the Manager, the
Distributor, the Trustee and the Transfer Agent assume no responsibility to
determine whether a distribution satisfies the conditions of applicable tax laws
and will not be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. The shareholder should contact the
dealer or broker to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker from its
customer prior to the time the Exchange closes (normally, that is 4:00 P.M., but
may be earlier on some days) and the order was transmitted to and received by
the Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt the required redemption documents in
proper form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Automatic withdrawals of up to $1,500 per
month may be requested by telephone if payments are made by check, payable to
all shareholders of record, and sent to the address of record for the account
(and if the address has not been changed within the prior 30 days). Required
minimum distributions from OppenheimerFunds-sponsored retirement plans may not
be arranged on this basis. Payments are normally made by check, but shareholders
having AccountLink privileges may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed instructions.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the date selected in the account application. If a
contingent deferred sales charge applies to the redemption, the amount of the
check or payment will be reduced accordingly. The Fund cannot guarantee receipt
of a payment on the date requested and reserves the right to amend, suspend or
discontinue offering such plans at any time without prior notice. Because of the
sales charge assessed on Class A share purchases, shareholders should not make
regular additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the Class B or Class C contingent
deferred sales charge is waived as described in the Prospectus under "Waivers of
Class B and Class C Contingent Deferred Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below, as
well as the Prospectus. These provisions may be amended from time to time by the
Fund and/or the Distributor. When adopted, such amendments will automatically
apply to existing Plans.
o Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions) to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as set forth
in "How to Exchange Shares" in the Prospectus and below, in this Statement of
Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and thereafter shares acquired with reinvested dividends and
capital gains distributions will be redeemed next, followed by shares acquired
with a sales charge, to the extent necessary to make withdrawal payments.
Depending upon the amount withdrawn, the investor's principal may be depleted.
Payments made under withdrawal plans should not be considered as a yield or
income on your investment. It may not be desirable to purchase shares of Class A
shares while maintaining automatic withdrawal plans because of the sales charges
that apply to purchases when made. Accordingly, a shareholder normally may not
maintain an Automatic Withdrawal Plan while simultaneously making purchases of
Class A shares.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. Neither the
Transfer Agent nor the Fund shall incur any liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith to administer the
Plan. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made at
the net asset value per share determined on the redemption date. Checks or ACH
payments of the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment (receipt of
payment on the date selected cannot be guaranteed), according to the choice
specified in writing by the Planholder.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time in mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice (in proper form in accordance with
the requirements of the then-current Prospectus of the Fund) to redeem all, or
any part of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in
effect in accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to
the Transfer Agent. A Plan may also be terminated at any time by the Transfer
Agent upon receiving directions to that effect from the Fund. The Transfer Agent
will also terminate a Plan upon receipt of evidence satisfactory to it of the
death or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend- reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the Class A shares in
certificated form. Upon written request from the Planholder, the Transfer Agent
will determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the shares has fallen
below the stated minimum solely as a result of market fluctuations. Should the
Board elect to exercise this right, it may also fix, in accordance with the
Investment Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the Securities
and Exchange Commission. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage or other costs
in selling the securities for cash. The method of valuing securities used to
make redemptions in kind will be the same as the method the Fund uses to value
it portfolio securities described above under "Determination of Net Asset Values
Per Share" and that valuation will be made as of the time the redemption price
is determined.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other OppenheimerFunds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. All of the Oppenheimer funds offer Class A, B and C shares except,
Oppenheimer Money Market Fund, Inc., Centennial Tax Exempt Trust, Centennial
Government Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust and Centennial America Fund, L.P. which only offer Class A
shares and Oppenheimer Main Street California Tax Exempt Fund which only offers
Class A and Class B shares (Class B and Class C shares of Oppenheimer Cash
reserves are generally available only by exchange from the same class of shares
of other Oppenheimer funds or through OppenheimerFunds sponsored 401(k) plans).
A current list showing which funds offer which class can be obtained by calling
the
Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds, including Rochester Fund
Municipals and Limited Term New York Municipal Fund. Exchanges to Class M shares
of Oppenheimer Bond Fund for Growth are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange from Class M shares. Otherwise no exchanges of any class of
any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund. Shares of any money market fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc. purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 12 months prior
to that purchase may subsequently be exchanged for shares of other Oppenheimer
funds without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the
investor or the investor's dealer must notify the Distributor of eligibility for
this privilege at the time the shares of Oppenheimer Money Market Fund, Inc. are
purchased, and, if requested, must supply proof of entitlement to this
privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except Oppenheimer Cash
Reserves) or from any unit investment trust for which reinvestment arrangements
have been made with the Distributor may be exchanged at net asset value for
shares of any of the Oppenheimer funds. No contingent deferred sales charge is
imposed on exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged Class A shares, the
Class A contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus. The Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the
exchanged Class B shares. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B and Class C contingent deferred sales charge will be followed in
determining the order in which the shares are exchanged. Shareholders should
take into account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining
shares. Shareholders owning shares of more than one class must specify whether
they intend to exchange Class A, Class B or Class C shares.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed otherwise.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." However, daily dividends on newly purchased
shares will not be declared or paid until such time as Federal Funds (funds
credited to a member bank's account at the Federal Reserve Bank) are available
from the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers are normally paid for by the third business
day following the placement of the purchase order. Shares redeemed through
regular redemption procedures will be paid dividends through and including the
day on which the redemption request is received by the Transfer Agent in proper
form. Dividends will be paid with respect to shares repurchased by a dealer or
broker for three business days following the trade date (i.e., to and including
the day prior to settlement of the repurchase). If all shares in an account are
redeemed, all dividends accrued on shares in the account will be paid together
with the redemption proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money Market
Fund, Inc., as promptly as possible after the return of such checks to the
Transfer Agent, to enable the investor to earn a return on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is explained in the
Prospectus under the caption "Dividends, Capital Gains and Taxes." Special
provisions of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate shareholders.
Long-term capital gains distributions are not eligible for the deduction. In
addition, the amount of dividends paid by the Fund which may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from its portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
The amount of a class' distributions may vary from time to time depending
on market conditions, the composition of the Fund's portfolio, and expenses
borne by the Fund or borne separately by a class, as described in "Alternative
Sales Arrangements -- Class A, Class B and Class C shares," above. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares as a result of the asset-based sales
charges on Class B and Class C shares, and will also differ in amount as a
consequence of any difference in net asset value between the classes.
If prior distributions must be re-characterized at the end of the fiscal
year as a result of the effect of the Fund's investment policies, shareholders
may have a non-taxable return of capital, which will be identified in notices to
shareholders. There is no fixed dividend rate and there can be no assurance as
to the payment of any dividends or the realization of any capital gains.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year and intends to qualify in future
years, but reserves the right not to qualify. The Internal Revenue Code contains
a number of complex tests to determine whether the Fund will qualify, and the
Fund might not meet those tests in a particular year. If it does not qualify,
the Fund will be treated for tax purposes as an ordinary corporation and will
receive no tax deduction for payments of dividends and distributions made to
shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year, or
else the Fund must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements, the Fund's
Board and the Manager might determine in a particular year that it would be in
the best interest of shareholders for the Fund not to make such distributions at
the required levels and to pay the excise tax on the undistributed amounts. That
would reduce the amount of income or capital gains available for distribution to
shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed in "Reduced Sales Charges"
above, at net asset value without sales charge. To elect this option, the
shareholder must notify the Distributor in writing, and either must have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Transfer Agent to establish
an account. The investment will be made at net asset value per share in effect
at the close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from certain Oppenheimer funds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, collecting income on the portfolio securities and handling
the delivery of such securities to and from the Fund. The Manager has
represented to the Fund that its banking relationships between the Manager and
the Custodian have been and will continue to be unrelated to and unaffected by
the relationship between the Fund and the Custodian. It will be the practice of
the Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its affiliates. The
Fund's cash balances with the Custodian in excess of $100,000 are not protected
by Federal deposit insurance. Those uninsured balances at times may be
substantial.
Independent Auditors. The independent auditors of the Fund audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for certain other funds advised by the Manager and its affiliates.
-3-
<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.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Denver, Colorado
September 22, 1997
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
Appendix A
Description of Securities Ratings
Appendix A
Description of Securities Ratings
o Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, the changes that can be
expected are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than those of
"Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future. The
investments in which the Fund will principally invest will be in the lower-rated
categories described below.
Baa: Bonds which are rated "Baa" are considered medium grade obligations, i. e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are speculative in a
high degree and are often in default or have other marked shortcomings.
C: Bonds which are rated "C" are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
o Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and indicates an
extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of change in
circumstances and economic conditions. The investments in which the Fund will
principally invest will be in the lower-rated categories, described below.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the "A" category.
BB, B CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "CC" the highest degree.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C: Bonds on which no interest is being paid are rated "C".
D: Bonds rated "D" are in payment default and payment of interest and/or
repayment of principal is in arrears.
o Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Speculative Grade Bond Ratings
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflect the obligor's limited margin of safety
and the need for reasonable business and economic activity through out the life
of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA," "DDD," "DD," or "D" categories.
o Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk- free US Treasury debt.
AA+, AA & AA- High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB & BBB- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB- Below investment grade but deemed to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
A-1
<PAGE>
Appendix B
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities*
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Information Technology
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility*
Textile/Apparel
Tobacco
Toys
Trucking
Wireless
Services
------------------------
* For purposes of the Fund's investment policy not to concentrate in securities
of issuers in the same industry, utilities are divided into "industries"
according to their services (e.g., gas utilities, gas transmission utilities,
electric utilities and telephone utilities are each considered a separate
industry). Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036