-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LeZWYAhXCZxzeTupz+6yk5fIitd3XKcfSj9FILUprK06pJ4wkXjN4MHPsxCDMkGS LRbrvAOuXl03qtcQYG9vKw== 0000935069-02-001152.txt : 20021021 0000935069-02-001152.hdr.sgml : 20021021 20021018173837 ACCESSION NUMBER: 0000935069-02-001152 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021021 EFFECTIVENESS DATE: 20021021 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER CAPITAL INCOME FUND CENTRAL INDEX KEY: 0000045156 IRS NUMBER: 840578481 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01512 FILM NUMBER: 02793186 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112 BUSINESS PHONE: 303-768-3200 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19830428 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND DATE OF NAME CHANGE: 19980710 N-30D 1 ra0300_5781ve1.txt CAPITAL INCOME OPPENHEIMER CAPITAL INCOME FUND ANNUAL REPORT AUGUST 31, 2002 FUND HIGHLIGHTS PERFORMANCE UPDATE INVESTMENT STRATEGY DISCUSSION LISTING OF INDIVIDUAL INVESTMENTS "WE SOUGHT TO MAKE THE FUND MORE DEFENSIVE THROUGHOUT THE LAST 12 MONTHS. FOR EXAMPLE, DURING THE PAST YEAR WE HAVE GRADUALLY DECREASED THE FUND'S WEIGHTING IN STOCKS AS WE SOUGHT TO LOCK IN GAINS BY SELLING STOCKS THAT REACHED OUR PRICE OBJECTIVES, REDEPLOYING THE PROCEEDS IN SECURITIES THAT APPEARED TO OFFER GREATER FUTURE APPRECIATION POTENTIAL." [GRAPHIC OMITTED] OPPENHEIMERFUNDS(R) The Right Way to Invest REPORT HIGHLIGHTS FUND OBJECTIVE Oppenheimer Capital Income Fund seeks as much current income as is compatible with prudent investment. The Fund has a secondary objective to conserve principal while providing an opportunity for capital appreciation. CONTENTS 1 Letter to Shareholders 3 An Interview with your Fund's Manager 7 Fund Performance 11 FINANCIAL STATEMENTS 40 INDEPENDENT AUDITORS' REPORT 41 Federal Income Tax Information 42 Trustees and Officers 48 Privacy Policy Notice - --------------------------------- AVERAGE ANNUAL TOTAL RETURNS* For the 1-Year Period Ended 8/31/02 Without With Sales Chg. Sales Chg. - --------------------------------- Class A -17.75% -22.48% - --------------------------------- Class B -18.31% -22.15% - --------------------------------- Class C -18.30% -19.07% - --------------------------------- Class N -17.89% -18.66% - --------------------------------- SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. *SEE NOTES ON PAGE 10 FOR FURTHER DETAILS. LETTER TO SHAREHOLDERS DEAR SHAREHOLDER, As we near the end of 2002, global tensions and economic challenges that began in 2001 continue to impact events around the world and in the financial markets. When it comes to investing, words like trust, experience and consistency have never been more meaningful. Recently, accounting scandals and an overall lack of investor confidence in corporate America have weakened the stock market and caused the prices of many individual securities to drop sharply during the period. On the other hand, the overall bond market has provided some positive returns and stability, helping to provide investors with a safe haven from the equity markets. Not surprisingly, many investors are unsure what their next step should be and where they should turn to invest their money. Despite the continued challenges, there are signs of a moderate recovery in the U.S. economy. Rooted in a combination of low inflation and little pressure on the Federal Reserve Board to raise interest rates, business conditions are slowly improving, and we believe the prospects for long-term investors look bright. With that said, we expect the economy and markets to return to historical levels and not the exaggerated growth levels that typified the late 1990s and early 2000s. Now more than ever, investors can see on two levels the fundamental advantage of mutual funds: diversification. Investors can diversify their portfolios by investing among several types of funds to reduce short-term risks. The right asset allocation among equity and fixed-income funds can help cushion an [GRAPHIC OMITTED] JAMES C. SWAIN OPPENHEIMER CAPITAL INCOME FUND JOHN V. MURPHY PRESIDENT OPPENHEIMER CAPITAL INCOME FUND 1 | OPPENHEIMER CAPITAL INCOME FUND | LETTER TO SHAREHOLDERS investor's portfolio from tough market conditions. Secondly, mutual funds, while certainly not immune to volatility and declines in either the equity or fixed-income markets, offer clear-cut advantages over direct ownership of individual securities. Because fund portfolios often contain a number of different investments, one security's poor performance usually does not have a dramatic effect on the fund as a whole. Your financial advisor is also an equally important player on your team of investment professionals. Even if you consult with your advisor on a regular basis, now may be a good time to make sure that your portfolio still reflects the right mix of investments to help you reach your long-term goals. We at OppenheimerFunds appreciate and thank you for your continued trust as we strive toward our ongoing goal of investment excellence. To us, this is not a phrase uttered lightly. It's a commitment to providing shareholders with world-class asset management, top-quality service and strong fund performance over time. In other words, it's what makes OppenheimerFunds THE RIGHT WAY TO INVEST. Sincerely, /s/ JAMES C. SWAIN /s/ JOHN V. MURPHY James C. Swain John V. Murphy September 23, 2002 THESE GENERAL MARKET VIEWS REPRESENT OPINIONS OF OPPENHEIMERFUNDS, INC. AND ARE NOT INTENDED TO PREDICT PERFORMANCE OF THE SECURITIES MARKETS OR ANY PARTICULAR FUND. SPECIFIC INFORMATION THAT APPLIES TO YOUR FUND IS CONTAINED IN THE PAGES THAT FOLLOW. 2 | OPPENHEIMER CAPITAL INCOME FUND | AN INTERVIEW WITH YOUR FUND'S MANAGER PORTFOLIO MANAGER MICHAEL LEVINE Q HOW DID OPPENHEIMER CAPITAL INCOME FUND PERFORM DURING THE 12-MONTH PERIOD THAT ENDED AUGUST 31, 2002? A. On an absolute basis, the Fund's performance was weaker than we would have liked. Results relative to major stock market indexes, such as the Standard & Poor's 500 Index or the NASDAQ Composite Index, however, were more in line with our expectations. Although we were disappointed with the Fund's negative returns, we continue to be struck by the magnitude of the challenges that investors--especially stock investors--faced throughout the past 12 months. WHAT WERE SOME OF THESE FACTORS THAT MADE THE INVESTMENT ENVIRONMENT SO CHALLENGING? The September 11 terrorist attacks seriously derailed financial markets less than two weeks into the reporting period. Stock prices soon made up these initial losses, yet investor sentiment quickly turned negative again when questions arose about the integrity of corporate accounting practices. The questions began last fall with Enron Corp., which hid its debts through a series of complex partnerships. It soon became clear, Enron had company. For example, WorldCom and Adelphia Communications Corporation committed accounting fraud and declared bankruptcy. In addition, corporate greed and abuse was highlighted by Tyco's CEO. These accounting and corporate governance concerns overshadowed some positive economic data, including surprisingly strong consumer spending--due largely to continued low interest rates--and further evidence that the economy was rebounding from its recession. In this environment, stock prices fell steadily during the first eight months of 2002. Government and high quality bond prices fared much better, as investors flocked to opportunities offering the potential for safety in an otherwise volatile market. At the same time, lower quality fixed income investments performed very poorly. 3 | OPPENHEIMER CAPITAL INCOME FUND | AN INTERVIEW WITH YOUR FUND'S MANAGER - -------------------------------------------------------------------------------- EVEN IF STOCKS RECOVER SOME OF THEIR LOSSES, THE CURRENT MARKET REMAINS VULNERABLE TO FUTURE SHOCKS. IN THIS ENVIRONMENT, WE BELIEVE THAT THE BEST PROTECTION IS A STRONG DEFENSE. - -------------------------------------------------------------------------------- IN LIGHT OF THESE FACTORS, HOW DID YOU MANAGE THE FUND? We sought to make the Fund more defensive throughout the last 12 months. For example, during the past year we have gradually decreased the Fund's weighting in stocks while increasing its weighting in fixed-income securities. As of August 31, 2002, stocks made up approximately 54% of portfolio assets, while fixed-income investments represented approximately 47%. We were particularly attracted to government and high-grade corporate bonds, which investors prized for their stability. We also invested in a variety of convertible bonds, which, besides providing regular income, can be redeemed for stock once a certain stock price is reached. Our changes to the Fund's equity portfolio during the last 12 months were relatively modest. We sought to lock in gains by selling stocks that reached our price objectives, redeploying the proceeds in securities that appeared to offer greater future appreciation potential. For example, we sold some of our holdings in bank stocks. In their place, we added to our holdings in the property and casualty insurance sector, which we believe may provide a better near-term investment opportunity. WHAT WERE SOME SECURITIES THAT HELPED PERFORMANCE? As we mentioned, bank stocks were strong performers during the period. Bank of America Corp., formerly one of the Fund's largest holdings, produced strong results, as did Bank One Corp. and Wachovia Corp. All were large banks benefiting from the low-interest-rate environment and reasonable valuations. We also benefited from owning stock in Philip Morris Cos., Inc., which was the Fund's largest equity holding as of August 31, 2002. Many investors viewed Philip Morris, a tobacco and food manufacturer, as somewhat of a safe haven. Besides offering a reasonable valuation and high dividend yield, the company's core businesses held up extremely well despite the economic slowdown. 4 | OPPENHEIMER CAPITAL INCOME FUND | - ------------------------ AVERAGE ANNUAL TOTAL RETURNS WITH SALES CHARGE For the Periods Ended 9/30/02(1) Class A 1-Year 5-Year 10-Year - ------------------------ - -20.79% -1.36% 7.44% Class B Since 1-Year 5-Year Inception - ------------------------ - -20.56% -1.23% 6.51% Class C Since 1-Year 5-Year Inception - ------------------------ - -17.42% -0.98% 5.54% Class N Since 1-Year 5-Year Inception - ------------------------ - -16.90% N/A -15.54% - ------------------------ DID ANY SECURITIES HURT RESULTS? Unfortunately, accounting and corporate governance concerns had a substantial impact on Fund performance. Adelphia Communications Corp., formerly the sixth-largest U.S. cable operator, was one such company. We owned Adelphia convertible bonds as well as a small amount of convertible preferred stock. When it became clear that the company produced fraudulent financial statements and was deeply in debt, our holdings realized significant losses before we were able to sell them. Other cable companies, such as Charter Communications, Inc., were dragged down because of "guilt by association" with Adelphia, in our opinion. As of August 31, 2002, we continued to own Charter Communications convertible bonds because we believe that the company's financial position appears solid. Also hurting results was Tyco International Ltd., whose stock we still held at period-end. In addition to having concerns about the company's accounting methods--concerns that we have not shared--investors reacted strongly when Tyco's chief executive was indicted for tax fraud. Despite the stock's poor recent performance, we believe that Tyco's problems may stem more from personal improprieties than deep-rooted business problems. WHAT IS YOUR NEAR-TERM OUTLOOK? Accounting concerns appear to be easing somewhat, which is helping to stabilize the market. Despite evidence that the economy may be backing up, we are looking for a continued gradual economic recovery. With bond yields near historic lows, stocks may start to look like a more compelling opportunity. We are cautiously optimistic that the market will finally take its cue and turn in moderately better performance. 1. See Notes on page 10 for further details. 5 | OPPENHEIMER CAPITAL INCOME FUND | AN INTERVIEW WITH YOUR FUND'S MANAGER [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC - ----------------------- PORTFOLIO ALLOCATION(2) Bonds 50.1% Stocks 49.9 - ----------------------- We are comfortable with the Fund's current allocation between stocks and bonds. Even if stocks recover some of their losses, the current market remains vulnerable to future shocks. In this environment, we believe that the best protection is a strong defense. Maintaining a diversified portfolio may help cushion the Fund against future declines. As long as market uncertainty remains widespread, we believe such a strategy is THE RIGHT WAY TO INVEST. TOP TEN COMMON STOCK HOLDINGS(3) - ------------------------------------------------------------- Philip Morris Cos., Inc. 4.9% - ------------------------------------------------------------- Kinder Morgan Management LLC 3.0 - ------------------------------------------------------------- Citigroup, Inc. 2.9 - ------------------------------------------------------------- CSK Auto Corp. 2.5 - ------------------------------------------------------------- Washington Mutual, Inc. 2.5 - ------------------------------------------------------------- J.P. Morgan Chase & Co. 2.0 - ------------------------------------------------------------- Everest Re Group Ltd. 1.9 - ------------------------------------------------------------- FleetBoston Financial Corp. 1.9 - ------------------------------------------------------------- Tyco International Ltd. 1.2 - ------------------------------------------------------------- U.S. Bancorp 1.2 TOP FIVE COMMON STOCK INDUSTRIES(3) - ------------------------------------------------------------- Banks 8.1% - ------------------------------------------------------------- Diversified Financials 6.5 - ------------------------------------------------------------- Tobacco 5.8 - ------------------------------------------------------------- Gas Utilities 5.6 - ------------------------------------------------------------- Insurance 3.9 2. Portfolio is subject to change. Percentages are as of August 31, 2002, and are based on total market value of investments. 3. Portfolio is subject to change. Percentages are as of August 31, 2002, and are based on net assets. 6 | OPPENHEIMER CAPITAL INCOME FUND | FUND PERFORMANCE HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION, BY OPPENHEIMERFUNDS, INC., OF THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2002, FOLLOWED BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX. MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the fiscal year that ended August 31, 2002, Oppenheimer Capital Income Fund's performance was positively influenced by the strong results generated by fixed-income securities, and negatively influenced by the continued challenging environment for equities. The primary factors generating stock market weakness were a slow economy and investor distrust of corporate financial statements. As the period progressed, the manager gradually shifted a portion of the Fund's equity holdings into high-quality, fixed-income securities, an approach that was favorable to total returns. Stocks remaining in the Fund conformed to the manager's investment approach, which seeks companies with reasonably priced stocks and sustainable growth rates. COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the performance of a hypothetical $10,000 investment in Class A, Class B, Class C and Class N shares of the Fund held until August 31, 2002. In the case of Class A shares, performance is measured over a ten-year period, and in the case of Class B shares, performance is measured from the inception of the class on August 17, 1993. In the case of Class C shares, performance is measured from the inception of the class on November 1, 1995. In the case of Class N shares, performance is measured from inception of the class on March 1, 2001. The Fund's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B, Class C and Class N shares, and reinvestment of all dividends and capital gains distributions. The Fund's performance is compared to the performance of the Standard & Poor's (S&P) 500 Index. The S&P 500 Index is a broad based index of U.S. equity securities widely regarded as a general measure of the performance of the U.S. equity securities 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 in the graphs shows the effect of taxes. The Fund's performance reflects the effects 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 the S&P 500 index, which does not include debt securities. 7 | OPPENHEIMER CAPITAL INCOME FUND | FUND PERFORMANCE CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Oppenheimer Capital Standard & Poor's Income Fund (Class A) 500 Index 06/30/1992 $9,425.00 $10,000.00 09/30/1992 9,652.00 10,315.00 12/31/1992 10,012.00 10,834.00 03/31/1993 10,699.00 11,306.00 06/30/1993 11,005.00 11,361.00 09/30/1993 11,402.00 11,653.00 12/31/1993 11,471.00 11,923.00 03/31/1994 11,043.00 11,472.00 06/30/1994 11,077.00 11,520.00 09/30/1994 11,546.00 12,082.00 12/31/1994 11,151.00 12,080.00 03/31/1995 11,947.00 13,255.00 06/30/1995 12,812.00 14,518.00 09/30/1995 13,788.00 15,671.00 12/31/1995 14,264.00 16,614.00 03/31/1996 14,917.00 17,505.00 06/30/1996 15,196.00 18,290.00 08/31/1996(1) 15,156.00 17,852.00 11/30/1996 17,350.00 20,839.00 02/28/1997 18,209.00 21,872.00 05/31/1997 18,750.00 23,584.00 08/31/1997 20,217.00 25,104.00 11/30/1997 21,509.00 26,778.00 02/28/1998 23,069.00 29,524.00 05/31/1998 23,852.00 30,814.00 08/31/1998 21,463.00 27,142.00 11/30/1998 24,209.00 33,120.00 02/28/1999 23,968.00 35,358.00 05/31/1999 24,865.00 37,295.00 08/31/1999 23,830.00 37,947.00 11/30/1999 23,074.00 40,040.00 02/29/2000 21,785.00 39,504.00 05/31/2000 24,424.00 41,200.00 08/31/2000 25,554.00 44,135.00 11/30/2000 24,718.00 38,348.00 02/28/2001 27,257.00 36,267.00 05/31/2001 28,753.00 36,854.00 08/31/2001 27,302.00 33,377.00 11/30/2001 26,129.00 33,665.00 02/28/2002 25,569.00 32,819.00 05/31/2002 26,007.00 31,755.00 08/31/2002 22,455.00 27,373.00 AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES OF THE FUND AT 8/31/02(2) 1-YEAR -22.48% 5-YEAR 0.92% 10-YEAR 8.23% CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Oppenheimer Capital Standard & Poor's Income Fund (Class B) 500 Index 8/17/93 $10,000.00 $10,000.00 9/30/93 10,133.00 9,923.00 12/31/93 10,161.00 10,153.00 3/31/94 9,763.00 9,769.00 6/30/94 9,765.00 9,810.00 9/30/94 10,162.00 10,288.00 12/31/94 9,792.00 10,287.00 3/31/95 10,474.00 11,287.00 6/30/95 11,216.00 12,363.00 9/30/95 12,040.00 13,345.00 12/31/95 12,434.00 14,147.00 3/31/96 12,971.00 14,907.00 6/30/96 13,188.00 15,575.00 8/31/96(1) 13,141.00 15,202.00 11/30/96 15,013.00 17,745.00 2/28/97 15,715.00 18,625.00 5/31/97 16,142.00 20,083.00 8/31/97 17,369.00 21,377.00 11/30/97 18,455.00 22,803.00 2/28/98 19,759.00 25,141.00 5/31/98 20,372.00 26,240.00 8/31/98 18,292.00 23,113.00 11/30/98 20,611.00 28,204.00 2/28/99 20,359.00 30,109.00 5/31/99 21,087.00 31,759.00 8/31/99 20,167.00 32,314.00 11/30/99 19,527.00 34,096.00 2/29/00 18,436.00 33,640.00 5/31/00 20,669.00 35,084.00 8/31/00 21,626.00 37,583.00 11/30/00 20,918.00 32,656.00 2/28/01 23,067.00 30,883.00 5/31/01 24,333.00 31,383.00 8/31/01 23,105.00 28,422.00 11/30/01 22,113.00 28,667.00 2/28/02 21,638.00 27,947.00 5/31/02 22,009.00 27,041.00 8/31/02 19,003.00 23,310.00 AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES OF THE FUND AT 8/31/02(2) 1-YEAR -22.15% 5-YEAR 1.08% SINCE INCEPTION 7.36% 1. The Fund changed its fiscal year end from June to August. 2. See Notes on page 10 for further details. 8 | OPPENHEIMER CAPITAL INCOME FUND | CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Oppenheimer Capital Standard & Poor's Income Fund (Class C) 500 Index 11/01/1995 $10,000.00 $10,000.00 12/31/1995 10,420.00 10,438.00 03/31/1996 10,864.00 11,104.00 06/30/1996 11,050.00 11,669.00 08/31/1996(1) 11,001.00 11,432.00 11/30/1996 12,569.00 13,345.00 02/28/1997 13,169.00 14,007.00 05/31/1997 13,525.00 15,104.00 08/31/1997 14,555.00 16,077.00 11/30/1997 15,458.00 17,149.00 02/28/1998 16,541.00 18,907.00 05/31/1998 17,068.00 19,734.00 08/31/1998 15,327.00 17,382.00 11/30/1998 17,260.00 21,211.00 02/28/1999 17,049.00 22,643.00 05/31/1999 17,659.00 23,884.00 08/31/1999 16,883.00 24,301.00 11/30/1999 16,320.00 25,642.00 02/29/2000 15,384.00 25,299.00 05/31/2000 17,209.00 26,385.00 08/31/2000 17,964.00 28,264.00 11/30/2000 17,335.00 24,559.00 02/28/2001 19,093.00 23,226.00 05/31/2001 20,086.00 23,602.00 08/31/2001 19,042.00 21,375.00 11/30/2001 18,194.00 21,559.00 02/28/2002 17,782.00 21,018.00 05/31/2002 18,030.00 20,336.00 08/31/2002 15,557.00 17,530.00 AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES OF THE FUND AT 8/31/02(2) 1-YEAR -19.07% 5-YEAR 1.34% SINCE INCEPTION 6.68% CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Capital Income Fund (Class N) Standard & Poor's 500 Index [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Oppenheimer Capital Standard & Poor's Income Fund (Class N) 500 Index 3/1/01 $10,000.00 $10,000.00 5/31/01 10,520.00 10,162.00 8/31/01 9,982.00 9,203.00 11/30/01 9,550.00 9,283.00 2/28/02 9,335.00 9,049.00 5/31/02 9,485.00 8,756.00 8/31/02 8,121.00 7,548.00 AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES OF THE FUND AT 8/31/02(2) 1-YEAR -18.66% SINCE INCEPTION -12.96% THE PERFORMANCE INFORMATION FOR THE S&P 500 INDEX IN THE GRAPHS BEGINS ON 6/30/92 FOR CLASS A, 8/31/93 FOR CLASS B, 10/31/95 FOR CLASS C AND 2/28/01 FOR CLASS N. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. GRAPHS ARE NOT DRAWN TO SAME SCALE. 9 | OPPENHEIMER CAPITAL INCOME FUND | NOTES IN REVIEWING PERFORMANCE, PLEASE REMEMBER THAT PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. BECAUSE OF ONGOING MARKET VOLATILITY, THE FUND'S PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS, AND CURRENT PERFORMANCE MAY BE MORE OR LESS THAN THE RESULTS SHOWN. FOR UPDATES ON THE FUND'S PERFORMANCE, VISIT OUR WEBSITE AT WWW.OPPENHEIMERFUNDS.COM. Total returns and the ending account values in the graphs include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. The Fund's total returns shown do not reflect the deduction of income taxes on an individual's investment. Taxes may reduce your actual investment returns on income or gains paid by the Fund or any gains you may realize if you sell your shares. For more complete information about the Fund, including charges, expenses and risks, please refer to the prospectus. To obtain a copy, call your financial advisor, call OppenheimerFunds Distributor, Inc. at 1.800.CALL OPP (1.800.225.5677) or visit the OppenheimerFunds website at WWW.OPPENHEIMERFUNDS.COM. Read the prospectus carefully before you invest or send money. CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless otherwise noted, Class A returns include the current maximum initial sales charge of 5.75%. The Fund's maximum sales charge for Class A shares was higher prior to 10/18/91, so actual performance may have been higher. CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to Class A shares 72 months after purchase, the "since inception" return for Class B uses Class A performance for the period after conversion and the ending account value does not reflect the deduction of any sales charges. Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless otherwise noted, Class C returns include the contingent deferred sales charge of 1% for the 1-year period. Class C shares are subject to an annual 0.75% asset-based sales charge. CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares are offered only through retirement plans. Unless otherwise noted, Class N returns include the contingent deferred sales charge of 1% (since inception) if redeemed within the first 18 months. Class N shares are subject to an annual 0.25% asset-based sales charge. An explanation of the calculation of performance is in the Fund's Statement of Additional Information. 10 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS AUGUST 31, 2002
MARKET VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- COMMON STOCKS--42.3% - -------------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--3.5% - -------------------------------------------------------------------------------------------------------------- SPECIALTY RETAIL--3.5% CSK Auto Corp.(1,2) 1,862,614 $ 23,562,067 - -------------------------------------------------------------------------------------------------------------- CSK Auto Corp.(1,2,3) 4,524,886 57,239,808 ---------------- 80,801,875 - -------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--5.8% - -------------------------------------------------------------------------------------------------------------- TOBACCO--5.8% Loews Corp./Carolina Group 775,000 20,072,500 - -------------------------------------------------------------------------------------------------------------- Philip Morris Cos., Inc.(4) 2,250,000 112,500,000 ---------------- 132,572,500 - -------------------------------------------------------------------------------------------------------------- ENERGY--3.3% - -------------------------------------------------------------------------------------------------------------- OIL & GAS--3.3% ChevronTexaco Corp. 200,000 15,326,000 - -------------------------------------------------------------------------------------------------------------- Conoco, Inc. 250,000 6,137,500 - -------------------------------------------------------------------------------------------------------------- Marathon Oil Corp. 1,025,000 25,368,750 - -------------------------------------------------------------------------------------------------------------- Phillips Petroleum Co. 450,000 23,661,000 - -------------------------------------------------------------------------------------------------------------- Unocal Corp.(4) 150,000 4,960,500 ---------------- 75,453,750 - -------------------------------------------------------------------------------------------------------------- FINANCIALS--19.5% - -------------------------------------------------------------------------------------------------------------- BANKS--8.1% Charter One Financial, Inc. 750,000 25,275,000 - -------------------------------------------------------------------------------------------------------------- FleetBoston Financial Corp. 1,750,000 42,227,500 - -------------------------------------------------------------------------------------------------------------- Mellon Financial Corp. 500,000 13,825,000 - -------------------------------------------------------------------------------------------------------------- PNC Financial Services Group 400,000 18,436,000 - -------------------------------------------------------------------------------------------------------------- U.S. Bancorp 1,275,000 27,399,750 - -------------------------------------------------------------------------------------------------------------- Washington Mutual, Inc.(4) 1,500,000 56,715,000 ---------------- 183,878,250 - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS--6.5% CIT Group, Inc.(1) 775,000 16,856,250 - -------------------------------------------------------------------------------------------------------------- Citigroup, Inc. 2,050,000 67,137,500 - -------------------------------------------------------------------------------------------------------------- Household International, Inc. 500,000 18,055,000 - -------------------------------------------------------------------------------------------------------------- J.P. Morgan Chase & Co. 1,750,000 46,200,000 ---------------- 148,248,750 11 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS CONTINUED MARKET VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- INSURANCE--3.9% ACE Ltd. 222,100 $ 7,065,001 - -------------------------------------------------------------------------------------------------------------- Everest Re Group Ltd. 815,000 44,173,000 - -------------------------------------------------------------------------------------------------------------- Radian Group, Inc. 475,000 20,643,500 - -------------------------------------------------------------------------------------------------------------- Travelers Property Casualty Corp., Cl. B(1) 181,969 2,964,275 - -------------------------------------------------------------------------------------------------------------- XL Capital Ltd., Cl. A 200,000 14,722,000 ---------------- 89,567,776 - -------------------------------------------------------------------------------------------------------------- REAL ESTATE--1.0% Anthracite Capital, Inc. 925,000 11,423,750 - -------------------------------------------------------------------------------------------------------------- Archstone-Smith Trust 380,000 10,013,000 ---------------- 21,436,750 - -------------------------------------------------------------------------------------------------------------- HEALTH CARE--1.0% - -------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS--1.0% Bristol-Myers Squibb Co. 525,000 13,098,750 - -------------------------------------------------------------------------------------------------------------- Pharmacia Corp. 200,000 8,740,000 ---------------- 21,838,750 - -------------------------------------------------------------------------------------------------------------- INDUSTRIALS--1.2% - -------------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES--1.2% Tyco International Ltd. 1,750,000 27,457,500 - -------------------------------------------------------------------------------------------------------------- MATERIALS--0.6% - -------------------------------------------------------------------------------------------------------------- CHEMICALS--0.0% Lyondell Chemical Co. 34,000 487,220 - -------------------------------------------------------------------------------------------------------------- PAPER & FOREST PRODUCTS--0.6% Sappi Ltd., Sponsored ADR 1,072,500 13,245,375 - -------------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES--1.6% - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES--1.1% BellSouth Corp. 225,000 5,247,000 - -------------------------------------------------------------------------------------------------------------- SBC Communications, Inc. 400,000 9,896,000 - -------------------------------------------------------------------------------------------------------------- Verizon Communications, Inc. 300,000 9,300,000 ---------------- 24,443,000 - -------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--0.5% AT&T Corp. 1,000,000 12,220,000 - -------------------------------------------------------------------------------------------------------------- UTILITIES--5.8% - -------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES--0.2% Exelon Corp. 100,000 4,682,000 - -------------------------------------------------------------------------------------------------------------- GAS UTILITIES--5.6% El Paso Corp. 599,330 10,134,670 - -------------------------------------------------------------------------------------------------------------- Kinder Morgan Energy Partners LP 108,500 3,532,760 12 | OPPENHEIMER CAPITAL INCOME FUND | MARKET VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- GAS UTILITIES Continued Kinder Morgan Management LLC 2,155,969 $ 69,012,568 - -------------------------------------------------------------------------------------------------------------- Kinder Morgan, Inc. 1,070,000 44,073,300 ---------------- 126,753,298 - -------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES--0.0% Dynegy, Inc. 175,000 364,000 ---------------- Total Common Stocks (Cost $774,220,217) 963,450,794 - -------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS--10.3% - -------------------------------------------------------------------------------------------------------------- ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 325,000 21,693,750 - -------------------------------------------------------------------------------------------------------------- Broadwing Communications, Inc., 12.50% Jr. Exchangeable Cum., Series B, Non-Vtg.(3) 3,500 350,000 - -------------------------------------------------------------------------------------------------------------- California Federal Preferred Capital Corp., 9.125% Non-Cum. Exchangeable, Series A, Non-Vtg. 100,000 2,655,000 - -------------------------------------------------------------------------------------------------------------- Duke Energy Corp., 8% Cv. Equity Units, Series B (each equity unit consists of units referred to as corporate units with a stated value of $25 per corporate unit; each corporate unit consists of a purchase contract to purchase Duke Energy Corp. common stock and $25 principal amount of Duke Capital Corp., 4.32% sr. nts., 2006), Non-Vtg.(5) 108,100 2,248,480 - -------------------------------------------------------------------------------------------------------------- El Paso Corp., 9% Cv. Equity Security Units (each unit has a stated value of $50 and consists of a purchase contract to purchase El Paso Corp. common stock and $50 principal amount of El Paso Corp., 6.14% sr. nts., 8/16/07)(5) 375,000 16,537,500 - -------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 400,000 11,700,000 - -------------------------------------------------------------------------------------------------------------- Equity Securities Trust I, 6.50% Cv., Series CVC 875,000 12,118,750 - -------------------------------------------------------------------------------------------------------------- Ford Motor Co. Capital Trust II, 6.50% Cum. Cv. Trust Preferred Securities, Non-Vtg. 225,000 10,338,750 - -------------------------------------------------------------------------------------------------------------- Lucent Technologies, Inc., 8% Redeemable Cv., Non-Vtg. 30,000 13,777,500 - -------------------------------------------------------------------------------------------------------------- NRG Energy, Inc., Equity Units (each unit consists of units referred to as corporate units which consist of $25 principal amount of NRG Energy, Inc., 6.50% sr. debs., 5/16/01 and a purchase contract to purchase NRG Energy, Inc. common stock), Non-Vtg.(5) 456,100 1,377,422 - -------------------------------------------------------------------------------------------------------------- National Australia Bank Ltd., ExCaps (each ExCap consists of $25 principal amount of 7.875% Perpetual Capital Security and a purchase contract entitling the holder to exchange ExCaps for ordinary shares of the Bank)(5) 500,000 16,825,000 - -------------------------------------------------------------------------------------------------------------- Prudential Financial, Inc., 6.75% Cv. Equity Security Units (each unit consists of a contract to purchase Prudential Financial, Inc. common stock and a redeemable capital security of Prudential Financial Capital Trust I)(5) 242,500 12,677,900 - -------------------------------------------------------------------------------------------------------------- Qwest Trends Trust, 5.75% Cv., Non-Vtg.(6) 400,000 3,926,400 - -------------------------------------------------------------------------------------------------------------- Reliant Energy, Inc., 2% Cv. Zero-Premium Exchangeable Sub. Nts. (exchangeable for cash based on value of Time Warner, Inc. common stock) 1,175,000 22,301,500 13 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS CONTINUED MARKET VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS Continued - -------------------------------------------------------------------------------------------------------------- Sempra Energy, 8.50% Cv. Equity Units (each equity unit consists of income equity units, each with a stated value of $25 and consists of a purchase contract to purchase Sempra Energy common stock and $25 principal amount of Sempra Energy, 5.60% sr. nts., 5/17/07)(5) 675,000 $ 16,341,750 - -------------------------------------------------------------------------------------------------------------- Six Flags, Inc., 7.25% Cum. Cv Preferred Income Equity Redeemable Stock 700,000 10,164,000 - -------------------------------------------------------------------------------------------------------------- Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity Redeemable Stock Units (each unit consists of one preferred plus one warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(5) 225,000 18,900,000 - -------------------------------------------------------------------------------------------------------------- Toys R Us, Inc., 6.25% Cv. Equity Security Units (each equity security unit has a stated amount of $50 and consists of a contract to purchase Toys R Us, Inc. common stock and $50 principal amount of Toys R Us, Inc., 6.25% sr. nts., 8/16/07)(5) 40,000 1,674,400 - -------------------------------------------------------------------------------------------------------------- Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 512,500 11,403,125 - -------------------------------------------------------------------------------------------------------------- Union Pacific Capital Trust, 6 25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg. 140,000 7,227,500 - -------------------------------------------------------------------------------------------------------------- United Rental Trust I, 6.50% Cv Quarterly Income Preferred Securities, Non-Vtg. 375,000 10,218,750 - -------------------------------------------------------------------------------------------------------------- Valero Energy Corp., 7.75% Cv Premium Equity Participating Security 250,000 6,507,500 - -------------------------------------------------------------------------------------------------------------- Williams Cos., Inc. (The), 9% Cv. Flexible Equity-Linked Security PACS Units [each unit is referred to as Income PACS, each has a stated amount of $25 and consists of a purchase contract to purchase Williams Cos., Inc. (The) common stock and $25 principal amount of Williams Cos., Inc., (The), 6.50% sr. nts., 2/16/07], Non-Vtg.(5) 500,000 3,915,000 ---------------- Total Preferred Stocks (Cost $311,341,613) 234,879,977 PRINCIPAL AMOUNT - -------------------------------------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS--8 1% - -------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Mtg. Pass-Through Participation Certificates, 9%, 8/1/22-5/1/25 $ 846,261 937,249 - -------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn.: 6%, 9/25/32(7) 126,000,000 128,441,250 6.50%, 9/1/32(7) 30,000,000 30,975,000 7%, 9/25/32(7) 15,000,000 15,623,430 - -------------------------------------------------------------------------------------------------------------- Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates, Series 1996-WF1, Cl. A2, 7.319%, 11/15/28(6,8) 4,031,143 4,124,048 - -------------------------------------------------------------------------------------------------------------- Washington Mutual Mortgage Securities Corp., Collateralized Mtg. Pass-Through Certificates, Series 2002-AR10, Cl. A1, 2.359%, 10/25/32(3,8) 4,070,000 4,072,544 -------------- Total Mortgage-Backed Obligations (Cost $183,027,411) 184,173,521 - -------------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES--0.9% - -------------------------------------------------------------------------------------------------------------- Daimler Chrysler Auto Trust, Automobile Loan Pass-Through Certificates, Series 2002-B, Cl A2, 2.20%, 4/6/05 2,810,000 2,810,000 - -------------------------------------------------------------------------------------------------------------- Ford Credit Auto Owner Trust, Automobile Loan Certificates, Series 2002-D, Cl. A2A, 2.13%, 3/15/05(3) 5,140,000 5,139,560 14 | OPPENHEIMER CAPITAL INCOME FUND | PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES Continued - -------------------------------------------------------------------------------------------------------------- Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts., Series 2002-2, Cl. A1, 1.91%, 4/15/07(3) $ 3,080,000 $ 3,072,300 - -------------------------------------------------------------------------------------------------------------- Honda Auto Receivables Owner Trust, Automobile Mtg. Obligations, Series 2002-3, Cl. A2, 2.26%, 12/18/04 3,560,000 3,570,819 - -------------------------------------------------------------------------------------------------------------- Household Automotive Trust, Automobile Loan Certificates, Series 2002-2, Cl. A2, 2.15%, 12/19/05(3) 2,570,000 2,566,659 - -------------------------------------------------------------------------------------------------------------- Nissan Auto Receivables Owner Trust, Auto Receivable Nts., Series 2002-C, Cl. A2, 1.94%, 9/15/04 3,730,000 3,729,869 ---------------- Total Asset-Backed Securities (Cost $20,888,706) 20,889,207 - -------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--7 4% - -------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. Unsec. Nts., 6.25%, 7/15/32 4,000,000 4,390,240 - -------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn Unsec. Nts., 6.375%, 6/15/09 9,500,000 10,731,418 - -------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds: 4.375%, 8/15/12 22,060,000 22,486,552 5.375%, 2/15/31 32,635,000 34,816,193 - -------------------------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 3.25%, 8/15/07 18,085,000 18,124,570 5%, 2/15/11 30,000,000 32,146,890 6.50%, 2/15/10 39,600,000 46,297,984 ---------------- Total U.S. Government Obligations (Cost $161,841,334) 168,993,847 - -------------------------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT OBLIGATIONS--0.0% - -------------------------------------------------------------------------------------------------------------- United Mexican States Nts., 7.50%, 1/14/12 (Cost $950,438) 940,000 964,675 - -------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES--8.9% - -------------------------------------------------------------------------------------------------------------- AT&T Corp., 8% Sr. Nts., 11/15/31 3,810,000 3,382,327 - -------------------------------------------------------------------------------------------------------------- AT&T Wireless Services, Inc., 7 50% Sr. Unsec. Nts., 5/1/07 6,000,000 5,285,970 - -------------------------------------------------------------------------------------------------------------- AXA Group, 8.60% Unsec. Sub. Nts., 12/15/30 1,650,000 1,828,603 - -------------------------------------------------------------------------------------------------------------- Albertson's, Inc., 7.45% Unsec Debs., 8/1/29 1,845,000 2,027,365 - -------------------------------------------------------------------------------------------------------------- Allied Waste North America, Inc. 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,000,000 3,920,000 8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,500,000 - -------------------------------------------------------------------------------------------------------------- American International Group, Inc./SunAmerica Global Financing VI, 6.30% Sr. Sec. Nts., 5/10/11(6) 1,365,000 1,469,799 - -------------------------------------------------------------------------------------------------------------- Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 1,425,000 - -------------------------------------------------------------------------------------------------------------- Anthem, Inc., 6.80% Bonds, 8/1/12 1,430,000 1,482,848 - -------------------------------------------------------------------------------------------------------------- Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(8) 5,000,000 7,568,545 - -------------------------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07(3) 2,500,000 2,687,500 - -------------------------------------------------------------------------------------------------------------- Beazer Homes USA, Inc., 8.375% Sr. Nts., 4/15/12(6) 800,000 808,000 - -------------------------------------------------------------------------------------------------------------- BellSouth Corp., 5% Nts., 10/15/06 1,885,000 1,905,961 - -------------------------------------------------------------------------------------------------------------- Boeing Capital Corp., 5.65% Sr Unsec. Nts., 5/15/06 1,750,000 1,801,100 - -------------------------------------------------------------------------------------------------------------- Boyd Gaming Corp., 8.75% Sr. Sub. Nts., 4/15/12 300,000 312,000 - -------------------------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co., 5.75% Nts., 10/1/11 1,780,000 1,842,855 15 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS CONTINUED PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued - -------------------------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp., 5.90% Sr. Nts., 7/1/12 $ 1,355,000 $ 1,419,118 - -------------------------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr Unsec. Debs., 7/15/18 3,000,000 2,280,000 - -------------------------------------------------------------------------------------------------------------- CSK Auto, Inc., 12% Sr. Unsec Nts., 6/15/06(2) 10,000,000 10,612,500 - -------------------------------------------------------------------------------------------------------------- Cardinal Health, Inc., 4.45% Nts., 6/30/05 1,360,000 1,405,805 - -------------------------------------------------------------------------------------------------------------- Carolina Power & Light Co., 6.50% Nts., 7/15/12 270,000 288,134 - -------------------------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 8.125% Sr. Unsec. Nts., 4/1/11 5,000,000 4,925,000 - -------------------------------------------------------------------------------------------------------------- Citigroup, Inc., 7.25% Sub. Nts. 10/1/10 2,760,000 3,096,916 - -------------------------------------------------------------------------------------------------------------- Coast Hotels & Casinos, Inc., 9 50% Sr. Unsec. Sub. Nts., 4/1/09 300,000 312,750 - -------------------------------------------------------------------------------------------------------------- Credit Suisse First Boston (USA), Inc., 5.75% Nts., 4/15/07 1,750,000 1,839,901 - -------------------------------------------------------------------------------------------------------------- DaimlerChrysler NA Holdings Corp., 8.50% Nts., 1/18/31 15,000 17,537 - -------------------------------------------------------------------------------------------------------------- Delphi Corp., 6.55% Nts., 6/15/06 1,125,000 1,187,205 - -------------------------------------------------------------------------------------------------------------- Deutsche Telekom International BV, 8.25% Unsec. Unsub. Nts., 6/15/05(8) 1,800,000 1,905,345 - -------------------------------------------------------------------------------------------------------------- Dole Food Co., Inc., 7.25% Sr Nts., 5/1/09 500,000 515,973 - -------------------------------------------------------------------------------------------------------------- EOP Operating LP, 7.34% Unsec Nts., 11/15/07 110,000 122,651 - -------------------------------------------------------------------------------------------------------------- EchoStar DBS Corp., 9.375% Sr Unsec. Nts., 2/1/09 7,500,000 7,500,000 - -------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 9,000,000 9,000,000 - -------------------------------------------------------------------------------------------------------------- Entravision Communications Corp. 8.125% Sr. Sub. Nts., 3/15/09 400,000 411,000 - -------------------------------------------------------------------------------------------------------------- Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 1,500,000 1,402,500 - -------------------------------------------------------------------------------------------------------------- Fairchild Semiconductor Corp., 10.375% Sr. Unsec. Nts., 10/1/07 2,500,000 2,625,000 - -------------------------------------------------------------------------------------------------------------- Federated Department Stores, Inc., 6.30% Sr. Nts., 4/1/09 1,850,000 1,938,794 - -------------------------------------------------------------------------------------------------------------- Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(3) 5,000,000 5,175,000 - -------------------------------------------------------------------------------------------------------------- Fleming Cos., Inc., 9.25% Sr. Nts., 6/15/10 5,000,000 4,850,000 - -------------------------------------------------------------------------------------------------------------- Ford Motor Co., 7.45% Bonds, 7/16/31 5,370,000 4,686,318 - -------------------------------------------------------------------------------------------------------------- France Telecom SA, 7.70% Sr. Unsec. Nts., 3/1/06(8) 760,000 789,230 - -------------------------------------------------------------------------------------------------------------- General Electric Capital Corp.: 6% Nts., 6/15/12 550,000 579,680 6.75% Nts., Series A, 3/15/32 1,100,000 1,176,004 - -------------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp. 6.875% Unsec. Unsub. Nts., 8/28/12(3) 3,480,000 3,440,484 - -------------------------------------------------------------------------------------------------------------- HMH Properties, Inc., 8.45% Sr Nts., Series C, 12/1/08 10,000,000 9,737,500 - -------------------------------------------------------------------------------------------------------------- Hollinger International Publishing, Inc., 9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 4,284,000 - -------------------------------------------------------------------------------------------------------------- Huntsman International LLC, 9.875% Sr. Nts., 3/1/09(6) 400,000 412,000 - -------------------------------------------------------------------------------------------------------------- Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 3,725,000 - -------------------------------------------------------------------------------------------------------------- Intrawest Corp., 9.75% Sr. Nts. 8/15/08 2,000,000 2,050,000 - -------------------------------------------------------------------------------------------------------------- Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,017,500 - -------------------------------------------------------------------------------------------------------------- J.P. Morgan Chase & Co., 6.625% Sub. Nts., 3/15/12 1,000,000 1,058,874 - -------------------------------------------------------------------------------------------------------------- John Hancock Global Funding II, 5% Nts., 7/27/07(6) 2,770,000 2,855,319 - -------------------------------------------------------------------------------------------------------------- K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub. Nts., 4/1/12(6) 1,600,000 1,448,000 - -------------------------------------------------------------------------------------------------------------- Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,730,000 - -------------------------------------------------------------------------------------------------------------- Kraft Foods, Inc., 6.50% Bonds, 11/1/31 1,350,000 1,451,086 - -------------------------------------------------------------------------------------------------------------- Kroger Co. (The), 6.75% Nts., 4/15/12 1,710,000 1,847,216 - -------------------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., 6.625% Nts., 1/18/12 675,000 723,073 16 | OPPENHEIMER CAPITAL INCOME FUND | PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued - -------------------------------------------------------------------------------------------------------------- Lockheed Martin Corp., 8.20% Nts., 12/1/09 $ 1,060,000 $ 1,262,575 - -------------------------------------------------------------------------------------------------------------- MBNA America Bank NA, 6.625% Sub. Nts., 6/15/12 1,520,000 1,459,743 - -------------------------------------------------------------------------------------------------------------- Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 825,000 838,289 - -------------------------------------------------------------------------------------------------------------- NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 1,230,000 1,209,436 - -------------------------------------------------------------------------------------------------------------- Nortek, Inc., 9.125% Sr. Unsec Nts., Series B, 9/1/07 7,500,000 7,631,250 - -------------------------------------------------------------------------------------------------------------- OM Group, Inc., 9.25% Sr. Sub. Nts., 12/15/11 1,000,000 1,005,000 - -------------------------------------------------------------------------------------------------------------- Oncor Electric Delivery Co., 7% Nts., 9/1/22(3) 1,320,000 1,333,200 - -------------------------------------------------------------------------------------------------------------- P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 3,224,000 3,401,320 - -------------------------------------------------------------------------------------------------------------- Petroleos Mexicanos, 9.50% Sr Sub. Nts., 9/15/27 620,000 651,000 - -------------------------------------------------------------------------------------------------------------- Pharmacia Corp., 6.60% Sr. Unsec. Nts., 12/1/28(9) 620,000 672,677 - -------------------------------------------------------------------------------------------------------------- Prudential Insurance Co. of America, 8.30% Nts., 7/1/25(6) 2,080,000 2,294,993 - -------------------------------------------------------------------------------------------------------------- Pulte Corp., 8.125% Sr. Unsec Nts., 3/1/11 1,350,000 1,486,308 - -------------------------------------------------------------------------------------------------------------- RCN Corp., 10.125% Sr. Unsec. Nts., 1/15/10 14,284,000 2,928,220 - -------------------------------------------------------------------------------------------------------------- Raytheon Co., 5.70% Sr. Unsec Nts., 11/1/03 2,280,000 2,327,891 - -------------------------------------------------------------------------------------------------------------- Reed Elsevier Capital, Inc., 6 75% Bonds, 8/1/11 970,000 1,045,671 - -------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 2,925,000 - -------------------------------------------------------------------------------------------------------------- Riverwood International Corp.: 10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,040,000 10.875% Sr. Sub. Nts., 4/1/08 1,000,000 1,020,000 - -------------------------------------------------------------------------------------------------------------- SBC Communications, Inc.: 5.75% Sr. Nts., 5/2/06 590,000 618,067 5.875% Nts., 8/15/12 1,080,000 1,099,074 - -------------------------------------------------------------------------------------------------------------- Safeway, Inc., 4.80% Sr. Unsec Nts., 7/16/07 1,430,000 1,452,770 - -------------------------------------------------------------------------------------------------------------- Simon DeBartolo Group LP, 6.875% Unsec. Nts., 11/15/06 1,305,000 1,404,017 - -------------------------------------------------------------------------------------------------------------- Sinclair Broadcast Group, Inc., 8% Sr. Sub. Nts., 3/15/12 1,000,000 995,000 - -------------------------------------------------------------------------------------------------------------- Sprint Capital Corp., 8.75% Nts. 3/15/32 870,000 675,072 - -------------------------------------------------------------------------------------------------------------- Standard Pacific Corp., 9.25% Sr. Sub. Nts., 4/15/12 300,000 289,500 - -------------------------------------------------------------------------------------------------------------- Tenet Healthcare Corp., 6.375% Sr. Nts., 12/1/11 1,410,000 1,476,957 - -------------------------------------------------------------------------------------------------------------- Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 987,500 - -------------------------------------------------------------------------------------------------------------- United Auto Group, Inc., 9.625% Sr. Sub. Nts., 3/15/12(6) 400,000 406,000 - -------------------------------------------------------------------------------------------------------------- Viacom, Inc., 7.70% Sr. Unsec Nts., 7/30/10 700,000 801,224 - -------------------------------------------------------------------------------------------------------------- VoiceStream Wireless Corp., 10 375% Sr. Unsec. Nts., 11/15/09 64,000 64,320 - -------------------------------------------------------------------------------------------------------------- Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 1,180,000 1,192,288 - -------------------------------------------------------------------------------------------------------------- Walt Disney Co. (The), 7.30% Nts., 2/8/05 1,160,000 1,244,701 - -------------------------------------------------------------------------------------------------------------- Waste Management, Inc., 7.75% Bonds, 5/15/32(6) 1,170,000 1,149,179 - -------------------------------------------------------------------------------------------------------------- WellPoint Health Networks, Inc. 6.375% Nts., 1/15/12 960,000 1,013,193 - -------------------------------------------------------------------------------------------------------------- World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 1,000,000 1,004,751 - -------------------------------------------------------------------------------------------------------------- Wyeth, 5.875% Nts., 3/15/04 1,400,000 1,438,842 ---------------- Total Non-Convertible Corporate Bonds and Notes (Cost $206,055,306) 201,935,314 17 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS CONTINUED PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS AND NOTES--23.1% - -------------------------------------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--9.8% - -------------------------------------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE--0.5% Royal Carribean Cruises Ltd., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 5.25%, 2/2/21(10) $ 37,500,000 $ 12,750,000 - -------------------------------------------------------------------------------------------------------------- MEDIA--8.7% America Online, Inc., Zero Coupon Cv. Nts., 3.81%, 12/6/19(10) 54,000,000 27,472,500 - -------------------------------------------------------------------------------------------------------------- Charter Communications, Inc.: 4.75% Cv. Sr. Unsec. Nts., 6/1/06 45,000,000 20,700,000 5.75% Cv. Sr. Unsec. Nts., 10/15/05 80,000,000 41,200,000 - -------------------------------------------------------------------------------------------------------------- Clear Channel Communications, Inc., 1.50% Cv. Nts., 12/1/02 10,000,000 9,950,000 - -------------------------------------------------------------------------------------------------------------- Liberty Media Corp.: 3.25% Sr. Exchangeable Debs., 3/15/31 (exchangeable for Viacom, Inc., Cl. B common stock)(6) 15,000,000 13,612,500 3.25% Sr. Exchangeable Unsec. Debs., 3/15/31 (exchangeable for Viacom, Inc., Cl. B common stock or cash based on the value thereof) 57,000,000 51,727,500 3.50% Sr. Exchangeable Debs., 1/15/31 (exchangeable for Motorola, Inc. common stock or cash based on the value of that stock) 12,500,000 8,140,625 3.75% Sr. Exchangeable Debs., 2/15/30 (exchangeable for Sprint Corp. PCS common stock, series 1 or cash based on the value of that stock) 19,750,000 9,010,938 4% Sr. Exchangeable Debs., 11/15/29 (exchangeable for Sprint Corp. PCS common stock, series 1 or cash based on the value of that stock) 32,750,000 16,047,500 ---------------- 197,861,563 - -------------------------------------------------------------------------------------------------------------- SPECIALTY RETAIL--0.6% Gap, Inc. (The), 5.75% Cv. Sr Nts., 3/15/09(6) 13,000,000 13,308,750 - -------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--3.9% - -------------------------------------------------------------------------------------------------------------- FOOD & DRUG RETAILING--3.9% Rite Aid Corp.: 4.75% Cv. Nts., 12/1/06(6) 45,000,000 29,925,000 5.25% Cv. Sub. Nts., 9/15/02(3) 43,000,000 42,570,000 - -------------------------------------------------------------------------------------------------------------- Supervalu, Inc., Zero Coupon Cv. Sr. Liquid Yield Option Nts., 4.47%, 11/2/31(6,10) 60,455,000 17,456,381 ---------------- 89,951,381 - -------------------------------------------------------------------------------------------------------------- ENERGY--0.6% - -------------------------------------------------------------------------------------------------------------- OIL & GAS--0.6% Kerr-McGee Corp., 5.25% Cv. Unsec. Sub. Nts., 2/15/10 12,000,000 12,960,000 - -------------------------------------------------------------------------------------------------------------- FINANCIALS--0.7% - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS--0.6% Providian Financial Corp.: 3.25% Cv. Sr. Unsec. Nts., 8/15/05 10,000,000 6,025,000 Zero Coupon Cv. Sr. Unsec. Unsub. Nts., 6.49%, 2/15/21(3,10) 27,500,000 7,287,500 ---------------- 13,312,500 - -------------------------------------------------------------------------------------------------------------- INSURANCE--0.1% Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub. Debs., 5.25%, 10/30/15(3,10) 19,500,000 1,657,500 18 | OPPENHEIMER CAPITAL INCOME FUND | PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- INDUSTRIALS--1.5% - -------------------------------------------------------------------------------------------------------------- CONSTRUCTION & ENGINEERING--0.1% Shaw Group, Inc. (The), Zero Coupon Cv. Sr. Unsec. Liquid Yield Option Nts., 3.24%, 5/1/21(10) $ 3,000,000 $ 1,556,250 - -------------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES--1.4% Tyco International Ltd., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 2.56%, 11/17/20(10) 49,500,000 31,803,750 - -------------------------------------------------------------------------------------------------------------- INFORMATION TECHNOLOGY--3.8% - -------------------------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT--0.6% Commscope, Inc., 4% Cv. Unsec Sub. Nts., 12/15/06 10,500,000 7,796,250 - -------------------------------------------------------------------------------------------------------------- Juniper Networks, Inc., 4.75% Cv. Unsec. Sub. Nts., 3/15/07 10,000,000 7,150,000 ---------------- 14,946,250 - -------------------------------------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS--0.9% Solectron Corp.: Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 3.34%, 5/8/20(10) 20,000,000 11,700,000 Zero Coupon Sr. Unsec. Unsub. Liquid Yield Option Nts., 4.27% 10/20/20(10) 20,000,000 8,800,000 ---------------- 20,500,000 - -------------------------------------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--2.3% Amkor Technology, Inc.: 5% Cv. Sub. Nts., 3/15/07(6) 20,655,000 6,170,681 5% Cv. Unsec. Sub. Nts., 3/15/07 5,000,000 1,493,750 5.75% Unsec. Sub. Nts., 6/1/06 6,845,000 2,258,850 - -------------------------------------------------------------------------------------------------------------- LSI Logic Corp., 4% Cv. Unsec Sub. Nts., 11/1/06 37,500,000 27,609,375 - -------------------------------------------------------------------------------------------------------------- Vitesse Semiconductor Corp., 4% Cv. Sub. Nts., 3/15/05 20,000,000 14,000,000 ---------------- 51,532,656 - -------------------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES--2.1% - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES--0.8% Level 3 Communications, Inc., 6% Cv. Nts., 9/15/09 54,000,000 18,630,000 - -------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--1.3% Nextel Communications, Inc.: 4.75% Cv. Nts., 7/1/07 22,500,000 15,890,625 5.25% Cv. Sr. Nts., 1/15/10 22,500,000 14,512,500 ---------------- 30,403,125 - -------------------------------------------------------------------------------------------------------------- UTILITIES--0.7% - -------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES--0.7% Calpine Corp., 4% Cv. Sr. Unsec Nts., 12/26/06(6) 27,500,000 15,675,000 ---------------- Total Convertible Corporate Bonds and Notes (Cost $626,365,968) 526,848,725 19 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF INVESTMENTS CONTINUED PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------- STRUCTURED NOTES--4.4% - -------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The), Abbott Laboratories Cv. Medium Term Linked Nts., Series B, 7%, 7/27/03 $ 684,300 $ 24,185,215 - -------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The), GlobalSantaFe Corp. Cv. Linked Nts., 9%, 8/1/03 700,000 14,060,200 - -------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The), Schering-Plough Corp. Cv. Medium Term Linked Nts., Series B, 9%, 7/27/03 1,005,000 21,352,230 - -------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The), Wyeth Cv. Medium Term Linked Nts., Series B, 11.50%, 7/27/03 836,100 27,903,165 - -------------------------------------------------------------------------------------------------------------- JPMorgan Chase Bank, High Yield Index Linked Nts., 8.75%, 5/15/07 12,250,000 11,469,063 ---------------- Total Structured Notes (Cost $97,155,399) 98,969,873 - -------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $2,381,846,392) 105.4% 2,401,105,933 - -------------------------------------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (5.4) (123,417,231) ------------------------------------ NET ASSETS 100.0% $2,277,688,702 ====================================
FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Non-income producing security. 2. Affiliated company. Represents ownership of at least 5% of the voting securities of the issuer, and is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended August 31, 2002. The aggregate fair value of securities of affiliated companies held by the Fund as of August 31, 2002 amounts to $91,414,375. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES/ SHARES/ PRINCIPAL PRINCIPAL UNREALIZED DIVIDEND/ AUGUST 31, GROSS GROSS AUGUST 31, APPRECIATION INTEREST REALIZED 2001 ADDITIONS REDUCTIONS 2002 (DEPRECIATION) INCOME LOSS - ------------------------------------------------------------------------------------------------------------------------------------ STOCKS CSK Auto Corp. 1,839,300 25,000 1,686 1,862,614 $(11,149,875) $ -- $26,947 CSK Auto Corp., Restricted -- 4,524,886* -- 4,524,886 27,239,808 -- -- BONDS AND NOTES CSK Auto Corp., 7% Cv. Sub. Nts., 8/1/06 $30,000,000 $ -- $30,000,000* $ -- -- -- -- CSK Auto, Inc., 12% Unsec. Nts., 6/15/06 -- 10,000,000 -- 10,000,000 753,757 580,000 -- --------------------- $580,000 $26,947 ======================
* Result of conversion from convertible bond to restricted common stock. 3. Identifies issues considered to be illiquid or restricted--See Note 8 of Notes to Financial Statements. 20 | OPPENHEIMER CAPITAL INCOME FUND | 4. A sufficient amount of liquid assets has been designated to cover outstanding written options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1 - ----------------------------------------------------------------------------------------------------------------------------------- Philip Morris Cos., Inc. 500 10/21/02 $55.00 $ 19,500 $ 20,000 Unocal Corp. 500 10/21/02 37.50 172,872 5,000 Unocal Corp. 500 10/21/02 40.00 105,998 -- Washington Mutual, Inc. 500 10/21/02 40.00 39,500 45,000 ------------------------------- 337,870 70,000 ------------------------------- CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE SUBJECT TO PUT DATE PRICE RECEIVED SEE NOTE 1 - ----------------------------------------------------------------------------------------------------------------------------------- Abbott Laboratories 449 11/18/02 42.50 227,109 175,110 ACE Ltd. 500 9/23/02 30.00 171,497 40,000 American International Group, Inc. 1,000 9/23/02 65.00 491,493 340,000 Bristol-Myers Squibb Co. 250 10/21/02 25.00 36,999 47,500 Bristol-Myers Squibb Co. 250 10/21/02 27.50 84,249 85,000 Bristol-Myers Squibb Co. 299 12/23/02 30.00 214,380 170,430 Cisco Systems, Inc. 500 10/21/02 15.00 163,498 92,500 Citigroup, Inc. 500 12/23/02 30.00 213,497 77,500 Citigroup, Inc. 500 12/23/02 35.00 160,998 160,000 Clear Channel Communications, Inc. 2,000 1/20/03 25.00 783,988 280,000 Clear Channel Communications, Inc. 750 1/20/03 30.00 437,743 187,500 Clear Channel Communications, Inc. 500 10/21/02 35.00 468,493 135,000 Clear Channel Communications, Inc. 3,000 10/21/02 40.00 2,623,761 1,830,000 Comcast Corp., Cl. A 544 10/21/02 35.00 335,053 598,400 ENSCO International, Inc. 250 9/23/02 30.00 122,648 87,500 ENSCO International, Inc. 250 12/23/02 30.00 130,498 122,500 General Mills, Inc. 500 10/21/02 45.00 170,997 175,000 Kinder Morgan, Inc. 250 10/21/02 45.00 114,248 115,000 Kinder Morgan, Inc. 1,250 11/18/02 45.00 743,739 637,500 Mattel, Inc. 500 10/21/02 17.50 63,499 15,000 Merck & Co., Inc. 500 10/21/02 50.00 98,499 100,000 Microsoft Corp. 500 9/23/02 50.00 218,497 115,000 Microsoft Corp. 500 10/21/02 50.00 170,997 170,000 Micron Technology, Inc. 1,500 10/21/02 22.50 880,487 855,000 Morgan Stanley 275 10/21/02 40.00 133,673 55,000 Morgan Stanley 550 10/21/02 45.00 343,345 214,500 Morgan Stanley 255 10/21/02 50.00 208,332 193,800 Pfizer, Inc. 500 9/23/02 32.50 53,499 40,000 Pfizer, Inc. 500 9/23/02 30.00 83,498 15,000 Pfizer, Inc. 1,950 9/23/02 35.00 413,393 419,250 ------------------------------- 10,362,607 7,548,990 ------------------------------- $10,700,477 $7,618,990 ===============================
5. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in the future. For units, which represent debt securities, principal amount disclosed represents total underlying principal. 6. Represents securities sold under Rule 144A, which are exempt from registration under the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $115,042,050 or 5.05% of the Fund's net assets as of August 31, 2002. 7. When-issued security to be delivered and settled after August 31, 2002. 8. Represents the current interest rate for a variable or increasing rate security. 9. Securities with an aggregate market value of $216,993 are held in collateralized accounts to cover initial margin requirements on open futures sales contracts. See Note 6 of Notes to Financial Statements. 10. Zero coupon bond reflects effective yield on the date of purchase. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2002
- ----------------------------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------------------------- Investments, at value--see accompanying statement: Unaffiliated companies (cost $2,307,275,707) $2,309,691,558 Affiliated companies (cost $74,570,685) 91,414,375 -------------- 2,401,105,933 - ----------------------------------------------------------------------------------------------------------------- Cash 18,970 - ----------------------------------------------------------------------------------------------------------------- Cash used for collateral on written puts 26,598,169 - ----------------------------------------------------------------------------------------------------------------- Receivables and other assets: Investments sold 65,726,831 Interest, dividends and principal paydowns 18,056,207 Shares of beneficial interest sold 1,247,436 Other 105,663 -------------- Total assets 2,512,859,209 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES - ----------------------------------------------------------------------------------------------------------------- Options written, at value (premiums received $10,700,477)--see accompanying statement 7,618,990 - ----------------------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased (including 174,306,875 purchased on a when-issued basis) 222,657,984 Shares of beneficial interest redeemed 2,632,690 Distribution and service plan fees 912,905 Transfer and shareholder servicing agent fees 630,439 Shareholder reports 534,799 Daily variation on futures contracts 46,317 Trustees' compensation 2,415 Other 133,968 -------------- Total liabilities 235,170,507 - ----------------------------------------------------------------------------------------------------------------- NET ASSETS $2,277,688,702 ============== - ----------------------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS - ----------------------------------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 233,698 - ----------------------------------------------------------------------------------------------------------------- Additional paid-in capital 2,329,074,706 - ----------------------------------------------------------------------------------------------------------------- Undistributed net investment income 18,133,482 - ----------------------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (91,996,532) - ----------------------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 22,243,348 -------------- NET ASSETS $2,277,688,702 ==============
22 | OPPENHEIMER CAPITAL INCOME FUND |
- --------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE - --------------------------------------------------------------------------------------- Class A Shares: Net asset value and redemption price per share (based on net assets of $1,873,457,904 and 191,878,831 shares of beneficial interest outstanding) $ 9.76 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $10.36 - --------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $327,367,943 and 33,862,697 shares of beneficial interest outstanding) $ 9.67 - --------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $72,791,504 and 7,537,406 shares of beneficial interest outstanding) $ 9.66 - --------------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $4,071,351 and 418,605 shares of beneficial interest outstanding) $ 9.73
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2002
- ---------------------------------------------------------------------------------- INVESTMENT INCOME - ---------------------------------------------------------------------------------- Dividends $ 77,101,105 - ---------------------------------------------------------------------------------- Interest: Unaffiliated companies 70,915,443 Affiliated companies 580,000 ------------- Total investment income 148,596,548 - ---------------------------------------------------------------------------------- EXPENSES - ---------------------------------------------------------------------------------- Management fees 14,372,477 - ---------------------------------------------------------------------------------- Distribution and service plan fees: Class A 5,199,797 Class B 4,110,610 Class C 840,947 Class N 14,148 - ---------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 3,835,934 Class B 730,035 Class C 147,369 Class N 4,913 - ---------------------------------------------------------------------------------- Shareholder reports 901,359 - ---------------------------------------------------------------------------------- Custodian fees and expenses 213,848 - ---------------------------------------------------------------------------------- Trustees' compensation 29,499 - ---------------------------------------------------------------------------------- Other 148,394 ------------- Total expenses 30,549,330 Less reduction to custodian expenses (9,382) ------------- Net expenses 30,539,948 - ---------------------------------------------------------------------------------- NET INVESTMENT INCOME 118,056,600 - ---------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - ---------------------------------------------------------------------------------- Net realized gain (loss) on: Investments: Unaffiliated companies (including premiums on options exercised) (109,030,441) Affiliated companies (26,947) Closing of futures contracts 45,335 Closing and expiration of option contracts written 20,228,225 Foreign currency transactions (1,344,871) Net increase from payments by affiliates 13,550 ------------- Net realized loss (90,115,149) - ---------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on: Investments (554,600,481) Translation of assets and liabilities denominated in foreign currencies 1,303,683 ------------- Net change (553,296,798) ------------- Net realized and unrealized loss (643,411,947) - ---------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(525,355,347) =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 | OPPENHEIMER CAPITAL INCOME FUND | STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31, 2002 2001 - ---------------------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------------------- Net investment income $ 118,056,600 $ 91,431,736 - ---------------------------------------------------------------------------------------------------------------- Net realized gain (loss) (90,115,149) 98,563,934 - ---------------------------------------------------------------------------------------------------------------- Net change in unrealized depreciation (553,296,798) (1,459,013) ----------------------------------- Net increase (decrease) in net assets resulting from operations (525,355,347) 188,536,657 - ---------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (93,931,397) (89,710,614) Class B (14,424,307) (13,856,744) Class C (2,953,586) (2,367,695) Class N (106,899) (1,361) - ---------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (64,030,274) (92,805,879) Class B (12,137,001) (17,996,313) Class C (2,393,666) (2,930,775) Class N (61,281) -- - ---------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A (904,695) 88,120,939 Class B (41,599,972) 9,692,620 Class C 5,678,706 17,337,172 Class N 4,218,615 659,783 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------------------------------- Total increase (decrease) (748,001,104) 84,677,790 - ---------------------------------------------------------------------------------------------------------------- Beginning of period 3,025,689,806 2,941,012,016 ----------------------------------- End of period [including undistributed net investment income of $18,133,482 and $9,104,384, respectively] $2,277,688,702 $3,025,689,806 ===================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 | OPPENHEIMER CAPITAL INCOME FUND | FINANCIAL HIGHLIGHTS
CLASS A YEAR ENDED AUGUST 31, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.72 $ 12.88 $ 13.63 $ 13.75 $ 14.12 - ------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .51 .42 .49 .51 .50 Net realized and unrealized gain (loss) (2.66) .41 .32 1.03 .41 ---------------------------------------------------------- Total from investment operations (2.15) .83 .81 1.54 .91 - ------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.48) (.48) (.49) (.49) (.49) Distributions from net realized gain (.33) (.51) (1.07) (1.17) (.79) ---------------------------------------------------------- Total dividends and/or distributions to shareholders (.81) (.99) (1.56) (1.66) (1.28) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.76 $12.72 $12.88 $13.63 $13.75 ========================================================== - ------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(1) (17.75)% 6.84% 7.24% 11.03% 6.17% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,873,458 $2,458,272 $2,395,444 $2,926,923 $2,889,472 - ------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $2,224,911 $2,432,151 $2,502,535 $3,156,294 $3,071,928 - ------------------------------------------------------------------------------------------------------- Ratios to average net assets:(2) Net investment income 4.48% 3.21% 3.78% 3.51% 3.47% Expenses 0.98% 0.91% 0.93% 0.89% 0.87%(3) - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate 148% 74% 37% 40% 18% 1. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 2. Annualized for periods of less than one full year. 3. Expense ratio has been calculated without adjustment for the reduction to custodian expenses.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 | OPPENHEIMER CAPITAL INCOME FUND |
CLASS B YEAR ENDED AUGUST 31, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.60 $ 12.76 $ 13.51 $ 13.63 $ 14.01 - ------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .41 .32 .38 .39 .39 Net realized and unrealized gain (loss) (2.62) .41 .32 1.03 .40 ---------------------------------------------------------- Total from investment operations (2.21) .73 .70 1.42 .79 - ------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.39) (.38) (.38) (.37) (.38) Distributions from net realized gain (.33) (.51) (1.07) (1.17) (.79) ---------------------------------------------------------- Total dividends and/or distributions to shareholders (.72) (.89) (1.45) (1.54) (1.17) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.67 $12.60 $12.76 $13.51 $13.63 ========================================================== - ------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(1) (18.31)% 6.05% 6.34% 10.22% 5.32% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $327,368 $477,223 $472,222 $720,721 $634,775 - ------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $410,652 $469,690 $546,390 $749,020 $574,986 - ------------------------------------------------------------------------------------------------------- Ratios to average net assets:(2) Net investment income 3.67% 2.44% 3.01% 2.71% 2.68% Expenses 1.76% 1.68% 1.70% 1.69% 1.67%(3) - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate 148% 74% 37% 40% 18% 1. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 2. Annualized for periods of less than one full year. 3. Expense ratio has been calculated without adjustment for the reduction to custodian expenses.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 | OPPENHEIMER CAPITAL INCOME FUND | FINANCIAL HIGHLIGHTS CONTINUED
CLASS C YEAR ENDED AUGUST 31, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.59 $ 12.76 $ 13.50 $ 13.63 $ 14.02 - ------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .42 .32 .38 .39 .39 Net realized and unrealized gain (loss) (2.62) .40 .32 1.02 .40 ---------------------------------------------------------- Total from investment operations (2.20) .72 .70 1.41 .79 - ------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.40) (.38) (.37) (.38) (.39) Distributions from net realized gain (.33) (.51) (1.07) (1.16) (.79) ---------------------------------------------------------- Total dividends and/or distributions to shareholders (.73) (.89) (1.44) (1.54) (1.18) - ------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.66 $12.59 $12.76 $13.50 $13.63 ========================================================== - ------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(1) (18.30)% 6.00% 6.40% 10.15% 5.30% - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $72,792 $89,547 $73,346 $119,284 $94,995 - ------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $84,049 $80,390 $84,898 $119,594 $77,052 - ------------------------------------------------------------------------------------------------------- Ratios to average net assets:(2) Net investment income 3.74% 2.44% 3.01% 2.70% 2.68% Expenses 1.76% 1.68% 1.70% 1.69% 1.67%(3) - ------------------------------------------------------------------------------------------------------- Portfolio turnover rate 148% 74% 37% 40% 18% 1. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 2. Annualized for periods of less than one full year. 3. Expense ratio has been calculated without adjustment for the reduction to custodian expenses.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 | OPPENHEIMER CAPITAL INCOME FUND | CLASS N YEAR ENDED AUGUST 31, 2002 2001(1) - ------------------------------------------------------------------- PER SHARE OPERATING DATA - ------------------------------------------------------------------- Net asset value, beginning of period $12.69 $ 12.96 - ------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .50 .28 Net realized and unrealized loss (2.66) (.30) ---------------------- Total from investment operations (2.16) (.02) - ------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.47) (.25) Distributions from net realized gain (.33) -- ---------------------- Total dividends and/or distributions to shareholders (.80) (.25) - ------------------------------------------------------------------- Net asset value, end of period $ 9.73 $12.69 ====================== - ------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(2) (17.89)% (0.18)% - ------------------------------------------------------------------- - ------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------- Net assets, end of period (in thousands) $4,071 $648 - ------------------------------------------------------------------- Average net assets (in thousands) $2,839 $214 - ------------------------------------------------------------------- Ratios to average net assets:(3) Net investment income 4.74% 2.94% Expenses 1.25% 1.17% - ------------------------------------------------------------------- Portfolio turnover rate 148% 74% 1. For the period from March 1, 2001 (inception of offering) to August 31, 2001. 2. Assumes an 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. 3. Annualized for periods of less than one full year. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 | OPPENHEIMER CAPITAL INCOME FUND | NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Capital Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment objective is to seek as much current income as is compatible with prudent investment. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B, Class C and Class N shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. All classes of shares have identical rights and voting privileges. Earnings, net assets and net asset value per share may differ by minor amounts due to each class having its own expenses directly attributable to that class. Classes A, B, C and N have separate distribution and/or service plans. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. - -------------------------------------------------------------------------------- SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or other domestic or foreign exchanges are valued based on the last sale price of the security traded on that exchange prior to the time when the Fund's assets are valued. In the absence of a sale, the security is valued at the last sale price on the prior trading day, if it is within the spread of the closing bid and asked prices, and if not, at the closing bid price. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations, a portfolio pricing service authorized by the Board of Trustees, or at their fair value. Fair value is determined in good faith under consistently applied procedures under the supervision of the Board of Trustees. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). - -------------------------------------------------------------------------------- STRUCTURED NOTES. The Fund invests in structured notes whose market values and redemption prices are linked to the market value of specific securities. The structured notes are leveraged, which increases the Fund's exposure to changes in prices of the underlying securities and increases the volatility of each note's market value relative to the change in the underlying security prices. The Fund also invests in "index-linked" notes whose principal and/or interest payments depend on the performance of an underlying index. Fluctuations in value of these securities are recorded as unrealized gains and losses in the accompanying financial statements. The Fund records a realized gain or loss when a structured note is sold or matures. As of August 31, 2002, the market value of these securities comprised 4.4% of the Fund's net assets, and resulted in unrealized gains in the current period of $1,814,474. 30 | OPPENHEIMER CAPITAL INCOME FUND | - -------------------------------------------------------------------------------- SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis can take place a month or more after the trade date. Normally the settlement date occurs within six months after the trade date; however, the Fund may, from time to time, purchase securities whose settlement date extends beyond six months or more beyond trade 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 segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a when-issued 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, 2002, the Fund had entered into when-issued purchase commitments of $174,306,875. In connection with its ability to purchase securities on a when-issued basis, the Fund may enter into forward roll transactions with respect to mortgage-related securities. Forward roll transactions require the sale of securities for delivery in the current month, and a simultaneous agreement with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The forward roll may not extend for a period of greater than one year. The Fund generally records the incremental difference between the forward purchase and sell of each forward roll as interest income. Risks to the Fund of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Fund to receive inferior securities to what was sold to the counterparty at redelivery; counterparty credit risk; and the potential pay down speed variance between the mortgage-related pools. - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Fund's Statement of Operations. 31 | OPPENHEIMER CAPITAL INCOME FUND | NOTES TO FINANCIAL STATEMENTS CONTINUED - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued JOINT REPURCHASE AGREEMENTS. The Fund, along with other affiliated funds of the Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. government securities. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings. - -------------------------------------------------------------------------------- ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than those attributable to a specific class), 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 capital loss carryforwards, if any, to shareholders. Therefore, no federal income or excise tax provision is required. As of August 31, 2002, the Fund had approximately $71,301,000 of post-October losses available to offset future capital gains, if any. Such losses, if unutilized, will expire in 2011. Additionally, the Fund had approximately $184,000 of post-October foreign currency losses which were deferred. - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. - -------------------------------------------------------------------------------- CLASSIFICATION OF DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or net realized gain was recorded by the Fund. 32 | OPPENHEIMER CAPITAL INCOME FUND | The Fund adjusts 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 year ended August 31, 2002, amounts have been reclassified to reflect an increase in undistributed net investment income of $2,388,687. Accumulated net realized loss on investments was increased by the same amount. Net assets of the Fund were unaffected by the reclassifications. The tax character of distributions paid during the years ended August 31, 2002 and August 31, 2001 was as follows: YEAR ENDED YEAR ENDED AUGUST 31, 2002 AUGUST 31, 2001 --------------------------------------------------------------- Distributions paid from: Ordinary income $118,904,111 $105,936,414 Long-term capital gain 71,134,300 113,732,967 Return of capital -- -- -------------------------------- Total $190,038,411 $219,669,381 ================================ As of August 31, 2002, the components of distributable earnings on a tax basis were as follows: Undistributed net investment income $ 18,133,482 Accumulated net realized loss (91,996,532) Net unrealized appreciation 22,243,348 ------------ Total $(51,619,702) ============ - -------------------------------------------------------------------------------- INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon ex-dividend notification in the case of certain foreign dividends where the ex-dividend date may have passed. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned. - -------------------------------------------------------------------------------- SECURITY TRANSACTIONS. Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. - -------------------------------------------------------------------------------- OTHER. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 33 | OPPENHEIMER CAPITAL INCOME FUND | NOTES TO FINANCIAL STATEMENTS CONTINUED - -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Fund has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED AUGUST 31, 2002 YEAR ENDED AUGUST 31, 2001(1) SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------- CLASS A Sold 18,148,756 $206,380,355 19,693,851 $253,926,557 Dividends and/or distributions reinvested 12,606,412 145,364,495 13,680,385 168,977,357 Redeemed (32,149,618) (352,649,545) (26,145,434) (334,782,975) -------------------------------------------------------------------------- Net increase (decrease) (1,394,450) $ (904,695) 7,228,802 $ 88,120,939 ========================================================================== - ----------------------------------------------------------------------------------------------------------- CLASS B Sold 6,320,365 $ 70,958,107 7,837,432 $ 99,951,476 Dividends and/or distributions reinvested 2,201,008 25,204,122 2,479,247 30,352,277 Redeemed (12,525,612) (137,762,201) (9,451,946) (120,611,133) -------------------------------------------------------------------------- Net increase (decrease) (4,004,239) $(41,599,972) 864,733 $ 9,692,620 ========================================================================== - ----------------------------------------------------------------------------------------------------------- CLASS C Sold 1,886,328 $ 21,124,579 3,211,146 $ 41,111,852 Dividends and/or distributions reinvested 432,179 4,940,085 401,329 4,914,815 Redeemed (1,891,475) (20,385,958) (2,251,323) (28,689,495) -------------------------------------------------------------------------- Net increase 427,032 $ 5,678,706 1,361,152 $ 17,337,172 ========================================================================== - ----------------------------------------------------------------------------------------------------------- CLASS N Sold 472,713 $ 5,351,965 50,932 $ 658,442 Dividends and/or distributions reinvested 14,683 167,638 103 1,341 Redeemed (119,826) (1,300,988) -- -- -------------------------------------------------------------------------- Net increase 367,570 $ 4,218,615 51,035 $ 659,783 ========================================================================== 1. For the year ended August 31, 2001, for Class A, B and C shares and for the period from March 1, 2001 (inception of offering) to August 31, 2001, for Class N shares.
34 | OPPENHEIMER CAPITAL INCOME FUND | - -------------------------------------------------------------------------------- 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended August 31, 2002, were $4,120,889,642 and $4,258,719,476, respectively. As of August 31, 2002, unrealized appreciation (depreciation) based on cost of securities for federal income tax purposes of $2,402,455,714 was composed of: Gross unrealized appreciation $ 294,934,776 Gross unrealized depreciation (296,284,557) ------------- Net unrealized depreciation $ (1,349,781) ============= The difference between book-basis and tax-basis unrealized appreciation and depreciation, if applicable, is attributable primarily to the tax deferral of losses on wash sales, or return of capital dividends, and the realization for tax purposes of unrealized gain (loss) on certain futures contracts, investments in passive foreign investment companies, and forward foreign currency exchange contracts. - -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the investment advisory agreement with the Fund which provides for a fee of 0.75% of the first $100 million of average annual net assets, 0.70% of the next $100 million, 0.65% of the next $100 million, 0.60% of the next $100 million, 0.55% of the next $100 million and 0.50% of average annual net assets in excess of $500 million. The Manager will reimburse the fund for certain losses (realized or unrealized) on a portfolio investment, often caused by a situation outside the Fund's, or its Manager's, direct control, such as an issuer default or a decline in fair value. For the year ended August 31, 2002, the Manager made reimbursements in the amount of $13,550 related to losses incurred by changes in security valuation. - -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund. The Fund pays OFS a $19.75 per account fee. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes, up to an annual rate of 0.35% of average net assets per class. This undertaking may be amended or withdrawn at any time. - -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN (12B-1) FEES. Under its General Distributor's Agreement with the Manager, OppenheimerFunds Distributor, Inc. (the Distributor) acts as the Fund's principal underwriter in the continuous public offering of the different classes of shares of the Fund. 35 | OPPENHEIMER CAPITAL INCOME FUND | NOTES TO FINANCIAL STATEMENTS CONTINUED - -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued The compensation paid to (or retained by) the Distributor from the sale of shares or on the redemption of shares is shown in the table below for the period indicated.
AGGREGATE CLASS A CONCESSIONS CONCESSIONS CONCESSIONS CONCESSIONS FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C ON CLASS N SALES CHARGES SALES CHARGES SHARES SHARES SHARES SHARES YEAR ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY ADVANCED BY ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1) - ----------------------------------------------------------------------------------------------------------------------- August 31, 2002 $2,233,812 $667,845 $203,793 $1,929,632 $154,139 $45,149 1. The Distributor advances concession payments to dealers for certain sales of Class A shares and for sales of Class B, Class C and Class N shares from its own resources at the time of sale.
CLASS A CLASS B CLASS C CLASS N CONTINGENT CONTINGENT CONTINGENT CONTINGENT DEFERRED DEFERRED DEFERRED DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES YEAR RETAINED BY RETAINED BY RETAINED BY RETAINED BY ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR - ------------------------------------------------------------------------------------------- August 31, 2002 $9,652 $736,732 $10,425 $261
- -------------------------------------------------------------------------------- SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A Shares. It reimburses the Distributor for a portion of its costs incurred for services provided to accounts that hold Class A shares. Reimbursement is made quarterly at an annual rate of up to 0.25% of the average annual net assets of Class A shares of the Fund. For the year ended August 31, 2002 , payments under the Class A Plan totaled $5,199,797, all of which were paid by the Distributor to recipients, and included $338,493 paid to an affiliate of the Manager. Any unreimbursed expenses the Distributor incurs with respect to Class A shares in any fiscal year cannot be recovered in subsequent years. - -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund has adopted Distribution and Service Plans for Class B, Class C and Class N shares. Under the plans, the Fund pays the Distributor an annual asset-based sales charge of 0.75% per year on Class B shares and on Class C shares and the Fund pays the Distributor an annual asset-based sales charge of 0.25% per year on Class N shares. The Distributor also receives a service fee of 0.25% per year under each plan. Distribution fees paid to the Distributor for the year ended August 31, 2002, were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S AGGREGATE AGGREGATE UNREIMBURSED UNREIMBURSED EXPENSES AS % TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS - ---------------------------------------------------------------------------------------------- Class B Plan $4,110,610 $3,224,608 $10,921,681 3.34% Class C Plan 840,947 163,048 2,143,424 2.94 Class N Plan 14,148 14,204 117,059 2.88
36 | OPPENHEIMER CAPITAL INCOME FUND | - -------------------------------------------------------------------------------- 5. FOREIGN CURRENCY CONTRACTS A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts for operational purposes and to seek to protect against adverse exchange rate fluctuations. Risks to the Fund include the potential inability of the counterparty to meet the terms of the contract. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates as provided by a reliable bank, dealer or pricing service. Unrealized appreciation and depreciation on foreign currency contracts are reported in the Statement of Assets and Liabilities as a receivable or payable and in the Statement of Operations with the change in unrealized appreciation or depreciation. The Fund may realize a gain or loss upon the closing or settlement of the foreign currency transactions. Such realized gains and losses are reported with all other foreign currency gains and losses in the Statement of Operations. - -------------------------------------------------------------------------------- 6. FUTURES CONTRACTS A futures contract is a commitment to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date at a negotiated price. Futures contracts are traded on a commodity exchange. The Fund may buy and sell futures contracts that relate to broadly based securities indices "financial futures" or debt securities "interest rate futures" in order to gain exposure to or to seek to protect against changes in market value of stock and bonds or 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 decreases in market value of portfolio securities. The Fund may also purchase futures contracts to gain exposure to market changes 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 and/or payable for the daily mark to market for variation margin. Realized gains and losses are reported in the Statement of Operations as closing and expiration of futures contracts. 37 | OPPENHEIMER CAPITAL INCOME FUND | NOTES TO FINANCIAL STATEMENTS CONTINUED - -------------------------------------------------------------------------------- 6. 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. As of August 31, 2002, the Fund had outstanding futures contracts as follows:
UNREALIZED EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2002 (DEPRECIATION) - ---------------------------------------------------------------------------------------- CONTRACTS TO PURCHASE U.S. Treasury Nts., 5 yr. 12/19/02 156 $17,342,813 $ (11,656) U.S. Treasury Nts., 10 yr. 12/19/02 439 49,071,969 40,539 --------- 28,883 --------- CONTRACTS TO SELL U.S. Long Bonds 12/19/02 456 50,017,500 (71,250) U.S. Treasury Nts., 2 yr. 12/27/02 177 37,648,453 (55,313) --------- (126,563) --------- $ (97,680) =========
- -------------------------------------------------------------------------------- 7. 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 note to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Realized gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. 38 | OPPENHEIMER CAPITAL INCOME FUND | Written option activity for the year ended August 31, 2002 was as follows:
CALL OPTIONS PUT OPTIONS ------------------------------ ------------------------------ NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ---------------------------------------------------------------------------------------------------- Options outstanding as of August 31, 2001 26,025 $ 3,768,483 6,846 $ 1,966,123 Options written 264,140 27,665,915 103,205 31,404,540 Options closed or expired (253,246) (27,586,434) (68,816) (15,583,904) Options exercised (34,919) (3,510,094) (20,163) (7,424,152) -------------------------------------------------------------------- Options outstanding as of August 31, 2002 2,000 $ 337,870 21,072 $ 10,362,607 ====================================================================
- -------------------------------------------------------------------------------- 8. ILLIQUID OR RESTRICTED SECURITIES As of August 31, 2002, 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 also 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 limitation. The aggregate value of illiquid or restricted securities subject to this limitation as of August 31, 2002 was $136,592,055, which represents 6% of the Fund's net assets, of which $57,239,808 is considered restricted. Information concerning restricted securities is as follows:
ACQUISITION VALUATION AS OF UNREALIZED SECURITY DATE COST AUGUST 31, 2002 APPRECIATION - --------------------------------------------------------------------------------------------------- STOCKS AND/OR WARRANTS CSK Auto Corp. 8/14/02 $30,000,000 $57,239,808 $27,239,808
- -------------------------------------------------------------------------------- 9. BANK BORROWINGS The Fund may borrow from a bank for temporary or emergency purposes including, without limitation, funding of shareholder redemptions provided asset coverage for borrowings exceeds 300%. The Fund has entered into an agreement which enables it to participate with other Oppenheimer funds in an unsecured line of credit with a bank, which permits borrowings up to $400 million, collectively. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Funds Rate plus 0.45%. Borrowings are payable within 30 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the average unutilized amount of the credit facility at a rate of 0.08% per annum. The Fund had no borrowings outstanding during the year ended or at August 31, 2002. 39 | OPPENHEIMER CAPITAL INCOME FUND | INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL INCOME FUND: We have audited the accompanying statement of assets and liabilities of Oppenheimer Capital Income Fund, including the statement of investments, as of August 31, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2002, by correspondence with the custodian and brokers; where replies 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 Capital Income Fund as of August 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado September 23, 2002 40 | OPPENHEIMER CAPITAL INCOME FUND | FEDERAL INCOME TAX INFORMATION UNAUDITED - -------------------------------------------------------------------------------- In early 2003, shareholders of record will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 2002. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. Dividends and distributions of $0.4512, $0.4282, $0.4292 and $0.4502 per share were paid to Class A, Class B, Class C and Class N shareholders, respectively, on December 19, 2001, of which $0.2997 was designated as a "capital gain distribution" for federal income tax purposes. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of capital assets held for more than one year (long-term capital gains). Dividends paid by the Fund during the fiscal year ended August 31, 2002 which are not designated as capital gain distributions should be multiplied by 60.22% to arrive at the amount eligible for the corporate dividend-received deduction. The foregoing information is presented to assist shareholders in reporting distributions received from the Fund to the Internal Revenue Service. Because of the complexity of the federal regulations which may affect your individual tax return and the many variations in state and local tax regulations, we recommend that you consult your tax advisor for specific guidance. 41 | OPPENHEIMER CAPITAL INCOME FUND | TRUSTEES AND OFFICERS
- ----------------------------------------------------------------------------------------------------------------------- NAME, ADDRESS,(1) AGE, PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS / OTHER TRUSTEESHIPS/DIRECTORSHIPS POSITION(S) HELD WITH FUND HELD BY TRUSTEE / NUMBER OF PORTFOLIOS IN FUND COMPLEX CURRENTLY OVERSEEN AND LENGTH OF TIME SERVED(2) BY TRUSTEE INDEPENDENT TRUSTEES JAMES C. SWAIN, Formerly Chief Executive Officer (until August 27, 2002) of the Funds, Vice Chairman and Trustee Chairman (until January 2, 2002) of the Manager and President and a director (since 1992) (until 1997) of Centennial Asset Management Corporation (a wholly-owned Age: 68 investment advisory subsidiary of the Manager). Oversees 41 portfolios in the OppenheimerFunds complex. WILLIAM L. ARMSTRONG, Chairman of the following private mortgage banking companies: Cherry Creek Trustee (since 1999) Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994), Age: 65 The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc. (since 1997); Chairman of the following private companies: Great Frontier Insurance (insurance agency) (since 1995) and Ambassador Media Corporation (since 1984); a director of the following public companies: Storage Technology Corporation (computer equipment company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production company) (since 1992), UNUMProvident (insurance company) (since 1991). Formerly Director of International Family Entertainment (television channel) (1992-1997) and Natec Resources, Inc. (air pollution control equipment and services company) (1991-1995), Frontier Real Estate, Inc. (residential real estate brokerage) (1994-1999), and Frontier Title (title insurance agency) (1995-June 1999); a U.S. Senator (January 1979-January 1991). Oversees 41 portfolios in the OppenheimerFunds complex. ROBERT G. AVIS, Formerly Mr. Avis held the following positions: Director and President of A.G. Trustee (since 1993) Edwards Capital, Inc. (General Partner of private equity funds) (until February Age: 71 2001); Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc. (until March 2000); Vice Chairman and Director of A.G. Edwards, Inc. and Vice Chairman of A.G. Edwards & Sons, Inc. (its brokerage company subsidiary) (until March 1999); Chairman of A.G. Edwards Trust Company and A.G.E. Asset Management (investment advisor) (until March 1999); and a Director (until March 2000) of A.G. Edwards & Sons and A.G. Edwards Trust Company. Oversees 41 portfolios in the OppenheimerFunds complex. GEORGE C. BOWEN, Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice Trustee (since 1997) President (from September 1987) and Treasurer (from March 1985) of the Manager; Age: 65 Vice President (from June 1983) and Treasurer (since March 1985) of OppenheimerFunds Distributor, Inc. (a subsidiary of the Manager); Senior Vice President (since February 1992), Treasurer (since July 1991) Assistant Secretary and a director (since December 1991) of Centennial Asset Management Corporation; Vice President (since October 1989) and Treasurer (since April 1986) of HarbourView Asset Management Corporation (an investment advisory subsidiary of the Manager); President, Treasurer and a director (June 1989-January 1990) of Centennial Capital Corporation (an investment advisory subsidiary of the Manager); Vice President and Treasurer (since August 1978) and Secretary (since April 1981) of Shareholder Services, Inc. (a transfer agent subsidiary of the Manager); Vice President, Treasurer and Secretary (since November 1989) of Shareholder Financial Services, Inc. (a transfer agent subsidiary of the Manager); Assistant Treasurer (since March 1998) of Oppenheimer Acquisition 1. The address of each Trustee is 6803 S. Tucson Way, Centennial, CO 80112-3924. 2. Each Trustee serves for an indefinite term, until his or her resignation, retirement, death or removal. 42 | OPPENHEIMER CAPITAL INCOME FUND | GEORGE C. BOWEN, Corp. (the Manager's parent corporation); Treasurer (since November 1989) of Continued Oppenheimer Partnership Holdings, Inc. (a holding company subsidiary of the Manager); Vice President and Treasurer (since July 1996) of Oppenheimer Real Asset Management, Inc. (an investment advisory subsidiary of the Manager); Chief Executive Officer and director (since March 1996) of MultiSource Services, Inc. (a broker-dealer subsidiary of the Manager); Treasurer (since October 1997) of OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc (offshore fund management subsidiaries of the Manager). Oversees 41 portfolios in the OppenheimerFunds complex. EDWARD L. CAMERON, A member of The Life Guard of Mount Vernon, George Washington's home (since June Trustee (since 1999) 2000). Formerly (March 2001-May 2002) Director of Genetic ID, Inc. and its Age: 63 subsidiaries (a privately held biotech company); a partner with PricewaterhouseCoopers LLP (from 1974-1999) (an accounting firm) and Chairman (from 1994-1998), Price Waterhouse LLP Global Investment Management Industry Services Group. Oversees 41 portfolios in the OppenheimerFunds complex. JON S. FOSSEL, Chairman and Director (since 1998) of Rocky Mountain Elk Foundation Trustee (since 1992) (a not-for-profit foundation); and a director (since October 1999) of P.R. Age: 60 Pharmaceuticals (a privately held company) and UNUMProvident (an insurance company) (since June 1, 2002). Oversees 41 portfolios in the OppenheimerFunds complex. SAM FREEDMAN, A trustee or director of other Oppenheimer funds. Formerly (until October 1994) Trustee (since 1996) Mr. Freedman held several positions in subsidiary or affiliated companies of the Age: 61 Manager. Oversees 41 portfolios in the OppenheimerFunds complex. BEVERLY L. HAMILTON, Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Trustee (since 2002) Investment Fund (open-end investment companies); Director of MML Services (since Age: 55 April 1987) and America Funds Emerging Markets Growth Fund (since October 1991) (both are investment companies), The California Endowment (a philanthropy organization) (since April 2002), and Community Hospital of Monterey Peninsula, (since February 2002); a trustee (since February 2000) of Monterey International Studies (an educational organization), and an advisor to Unilever (Holland)'s pension fund and to Credit Suisse First Boston's Sprout venture capital unit. Mrs. Hamilton also is a member of the investment committees of the Rockefeller Foundation, the University of Michigan and Hartford Hospital. Formerly, Mrs. Hamilton held the following position: President (February 1991-April 2000) ARCO Investment Management Company. Oversees 40 portfolios in the OppenheimerFunds complex. ROBERT J. MALONE, Director (since 2001) of Jones Knowledge, Inc. (a privately held company), U.S. Trustee (since 2002) Exploration, Inc., (since 1997), Colorado UpLIFT (a non-profit organization) Age: 57 (since 1986) and a trustee of the Gallagher Family Foundation (since 2000). Formerly, Mr. Malone held the following positions: Chairman of U.S. Bank (a subsidiary of U.S. Bancorp and formerly Colorado National Bank,) (July 1996-April 1, 1999) and a director of Commercial Assets, Inc. (1993-2000). Oversees 40 portfolios in the OppenheimerFunds complex. F. WILLIAM MARSHALL, JR., Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Trustee (since 2000) Investment Fund (open-end investment companies); Trustee and Chairman (since May Age: 60 1987) of the investment committee for the Worcester Polytech Institute; President and Treasurer (since January 1999) of the SIS Fund (a private not for profit charitable organization); Trustee (since 1995) of the Springfield Library and Museum Association; Trustee (since 1996) of the Community Music 43 | OPPENHEIMER CAPITAL INCOME FUND | TRUSTEES AND OFFICERS CONTINUED F. WILLIAM MARSHALL, JR., School of Springfield; Member of the investment committee of the Community Continued Foundation of Western Massachusetts (since 1998). Formerly Chairman (January 1999-July 1999) of SIS & Family Bank, F.S.B. (formerly SIS Bank); President, Chief Executive Officer and Director (May 1993-December 1998) of SIS Bankcorp, Inc. and SIS Bank (formerly Springfield Institution for Savings) and Executive Vice President (January 1999-July 1999) of Peoples Heritage Financial Group, Inc. Oversees 41 portfolios in the OppenheimerFunds complex. - ----------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE AND OFFICER JOHN V. MURPHY,(3,4) Chairman, Chief Executive Officer and director (since June 2001) and President President and Trustee, (since September 2000) of the Manager; President and a director or trustee of Trustee (since October 2001) other Oppenheimer funds; President and a director (since July 2001) of Age: 53 Oppenheimer Acquisition Corp. and of Oppenheimer Partnership Holdings, Inc.; a director (since November 2001) of OppenheimerFunds Distributor, Inc.; Chairman and a director (since July 2001) of Shareholder Services, Inc. and of Shareholder Financial Services, Inc.; President and a director (since July 2001) of OppenheimerFunds Legacy Program (a charitable trust program established by the Manager); a director of the following investment advisory subsidiaries of OppenheimerFunds, Inc.: OFI Institutional Asset Management, Inc. and Centennial Asset Management Corporation (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and a director (since July 2001) of Oppenheimer Real Asset Management, Inc.; a director (since November 2001) of Trinity Investment Management Corp. and Tremont Advisers, Inc. (investment advisory affiliates of the Manager); Executive Vice President (since February 1997) of Massachusetts Mutual Life Insurance Company (the Manager's parent company); a director (since June 1995) of DBL Acquisition Corporation; formerly, Chief Operating Officer (September 2000-June 2001) of the Manager; President and trustee (November 1999-November 2001) of MML Series Investment Fund and MassMutual Institutional Funds (open-end investment companies); a director (September 1999-August 2000) of C.M. Life Insurance Company; President, Chief Executive Officer and director (September 1999-August 2000) of MML Bay State Life Insurance Company; a director (June 1989-June 1998) of Emerald Isle Bancorp and Hibernia Savings Bank (a wholly-owned subsidiary of Emerald Isle Bancorp). Oversees 69 portfolios in the OppenheimerFunds complex. - ------------------------------------------------------------------------------------------------------------------------ OFFICERS(5,6) MICHAEL S. LEVINE, Vice President (since June 1998) of the Manager; an officer of 4 portfolios in Vice President (since 1999) the OppenheimerFunds complex; formerly Assistant Vice President and Portfolio Age: 36 Manager of the Manager (April 1996-June 1998); prior to joining the Manager in June 1994, he was a portfolio manager and research associate for Amas Securities, Inc. (February 1990-February 1994). 3. The address of Mr. Murphy is 498 Seventh Avenue, New York, NY 10018. 4. Mr. Murphy serves for an indefinite term, until his resignation, death or removal. 5. The address of each Officer is 498 Seventh Avenue, New York, NY 10018 except for Messrs. Masterson, Vottiero, Wixted and Ms. Ives, whose address is 6803 S. Tucson Way, Centennial, CO 80112-3924. 6. Each Officer serves for an annual term or until his or her resignation, death or removal. 44 | OPPENHEIMER CAPITAL INCOME FUND | BRIAN W. WIXTED, Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer Treasurer, Principal Financial (since March 1999) of HarbourView Asset Management Corporation, Shareholder and Accounting Officer Services, Inc., Oppenheimer Real Asset Management Corporation, Shareholder (since 1999) Financial Services, Inc., Oppenheimer Partnership Holdings, Inc., OFI Private Age: 42 Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc (since May 2000) and OFI Institutional Asset Management, Inc. (since November 2000); Treasurer and Chief Financial Officer (since May 2000) of Oppenheimer Trust Company (a trust company subsidiary of the Manager); Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp. and OppenheimerFunds Legacy Program (since April 2000); formerly Principal and Chief Operating Officer (March 1995-March 1999), Bankers Trust Company-Mutual Fund Services Division. An officer of 85 portfolios in the OppenheimerFunds complex. PHILIP F. VOTTIERO, Vice President/Fund Accounting of the Manager (since March 2002); formerly Vice Assistant Treasurer President/Corporate Accounting of the Manager (July 1999-March 2002) prior to (since August 2002) which he was Chief Financial Officer at Sovlink Corporation (April 1996-June Age: 39 1999). An officer of 72 portfolios in the OppenheimerFunds complex. ROBERT G. ZACK, Senior Vice President (since May 1985) and General Counsel (since February 2002) Vice President & Secretary of the Manager; General Counsel and a director (since November 2001) of (since November 2001) OppenheimerFunds Distributor, Inc.; Senior Vice President and General Counsel Age: 54 (since November 2001) of HarbourView Asset Management Corporation; Vice President and a director (since November 2000) of Oppenheimer Partnership Holdings, Inc.; Senior Vice President, General Counsel and a director (since November 2001) of Shareholder Services, Inc., Shareholder Financial Services, Inc., OFI Private Investments, Inc., Oppenheimer Trust Company and OFI Institutional Asset Management, Inc.; General Counsel (since November 2001) of Centennial Asset Management Corporation; a director (since November 2001) of Oppenheimer Real Asset Management, Inc.; Assistant Secretary and a director (since November 2001) of OppenheimerFunds International Ltd.; Vice President (since November 2001) of OppenheimerFunds Legacy Program; Secretary (since November 2001) of Oppenheimer Acquisition Corp.; formerly Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001); OppenheimerFunds International Ltd. And Oppenheimer Millennium Funds plc (October 1997-November 2001). An officer of 85 portfolios in the OppenheimerFunds complex. PHILIP T. MASTERSON, Vice President and Assistant Counsel of the Manager (since July 1998); formerly, Assistant Secretary an associate with Davis, Graham, & Stubbs LLP (January 1997-June 1998). An (since August 2002) officer of 72 portfolios in the OppenheimerFunds complex. Age: 38 DENIS R. MOLLEUR, Vice President and Senior Counsel of the Manager (since July 1999); formerly a Assistant Secretary Vice President and Associate Counsel of the Manager (September 1995-July 1999). (since November 2001) An officer of 82 portfolios in the OppenheimerFunds complex. Age: 44 KATHERINE P. FELD, Vice President and Senior Counsel (since July 1999) of the Manager; Vice Assistant Secretary President (since June 1990) of OppenheimerFunds Distributor, Inc.; Director, (since November 2001) Vice President and Secretary (since June 1999) of Centennial Asset Management Age: 44 Corporation; Vice President (since 1997) of Oppenheimer Real Asset Management, Inc.; formerly Vice President and Associate Counsel of the Manager (June 1990-July 1999). An officer of 85 portfolios in the OppenheimerFunds complex. 45 | OPPENHEIMER CAPITAL INCOME FUND | TRUSTEES AND OFFICERS CONTINUED KATHLEEN T. IVES, Vice President and Assistant Counsel (since June 1998) of the Manager; Vice Assistant Secretary President (since 1999) of OppenheimerFunds Distributor, Inc.; Vice President and (since November 2001) Assistant Secretary (since 1999) of Shareholder Services, Inc.; Assistant Age: 36 Secretary (since December 2001) of OppenheimerFunds Legacy Program and Shareholder Financial Services, Inc.; formerly Assistant Vice President and Assistant Counsel of the Manager (August 1997-June 1998); Assistant Counsel of the Manager (August 1994-August 1997). An officer of 85 portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE FUND'S TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST. 46 | OPPENHEIMER CAPITAL INCOME FUND | OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- INVESTMENT ADVISOR OppenheimerFunds, Inc. - -------------------------------------------------------------------------------- DISTRIBUTOR OppenheimerFunds Distributor, Inc. - -------------------------------------------------------------------------------- TRANSFER AND SHAREHOLDER OppenheimerFunds Services SERVICING AGENT - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS Deloitte & Touche LLP - -------------------------------------------------------------------------------- LEGAL COUNSEL TO THE FUND Myer, Swanson, Adams & Wolf, P.C. - -------------------------------------------------------------------------------- LEGAL COUNSEL TO THE Mayer Brown Rowe & Maw INDEPENDENT TRUSTEES OPPENHEIMER FUNDS ARE DISTRIBUTED BY OPPENHEIMERFUNDS DISTRIBUTOR, INC., 498 SEVENTH AVENUE, NEW YORK, NY, 10018. (C)Copyright 2002 OppenheimerFunds, Inc. All rights reserved. 47 | OPPENHEIMER CAPITAL INCOME FUND | PRIVACY POLICY NOTICE AS AN OPPENHEIMER FUND SHAREHOLDER, YOU ARE ENTITLED TO KNOW HOW WE PROTECT YOUR PERSONAL INFORMATION AND HOW WE LIMIT ITS DISCLOSURE. INFORMATION SOURCES We obtain nonpublic personal information about our shareholders from the following sources: o Applications or other forms o When you create a user ID and password for online account access o When you enroll in eDocs Direct o Your transactions with us, our affiliates or others o A software program on our website, often referred to as a "cookie," which indicates which parts of our site you've visited If you visit www.oppenheimerfunds.com and do not log on to the secure account information areas, we do not obtain any personal information about you. When you do log on to a secure area, we do obtain your user ID and password to identify you. We also use this information to provide you with products and services you have requested, to inform you about products and services that you may be interested in and to assist you in other ways. PROTECTION OF INFORMATION We do not disclose any nonpublic personal information (such as names on a customer list) about current or former customers to anyone, except as permitted by law. DISCLOSURE OF INFORMATION We send your financial advisor (as designated by you) copies of confirmations, account statements and other documents reporting activity in your fund accounts. We may also use details about you and your investments to help us, our financial service affiliates or firms that jointly market their financial products and services with ours, to better serve your investment needs or suggest financial services or educational material that may be of interest to you. RIGHT OF REFUSAL We will not disclose your personal information to unaffiliated third parties (except as permitted by law), unless we first offer you a reasonable opportunity to refuse or "opt out" of such disclosure. SECURITY In the coming months, an Internet browser that supports 128-bit encryption will be required to view the secure pages of www.oppenheimerfunds.com. These areas include: o Account access o Create a user ID and profile o User profile o eDocs Direct, our electronic document delivery service 48 | OPPENHEIMER CAPITAL INCOME FUND | To find out if your Internet browser supports 128-bit encryption, or for instructions on how to upgrade your browser, visit the HELP section of www.oppenheimerfunds.com. EMAILS AND ENCRYPTION As a security measure, we do not include personal or account information in nonsecure emails, and we advise you not to send such information to us in nonsecure emails. Instead, you may take advantage of the secure features of our website to encrypt your email correspondence. To do this, you will need to use an Internet browser that supports 128-bit encryption. If you are not sure if your Internet browser supports 128-bit encryption, or need instructions on how to upgrade your browser, visit the HELP section of www.oppenheimerfunds.com for assistance. o All transactions, including redemptions, exchanges and purchases are secured by Secure Socket Layers (SSL) and encryption. SSL is used to establish a secure connection between your PC and OppenheimerFunds' server. It transmits information in an encrypted and scrambled format. o Encryption is achieved through an electronic scrambling technology that uses a "key" to code and then decode the data. Encryption acts like the cable converter box you may have on your television set. It scrambles data with secret code so that no one can make sense of it while it is being transmitted. When the data reaches its destination, the same software unscrambles the data. o You can exit the secure area by either closing your browser, or for added security, you can use the LOG OUT OF ACCOUNT AREA button before you close your browser. OTHER SECURITY MEASURES We maintain physical, electronic and procedural safeguards to protect your personal account information. Our employees and agents have access to that information only so that they may offer you products or provide services to you, for example, when responding to your account questions. HOW YOU CAN HELP You can also do your part to keep your account information private, and to prevent unauthorized transactions. If you obtain a user ID and password for your account, do not allow it to be used by anyone else. Also, take special precautions when accessing your account on a computer used by others. - -------------------------------------------------------------------------------- This joint notice describes the privacy policies of Oppenheimer funds, OppenheimerFunds Distributor, Inc., the trustee of OppenheimerFunds Individual Retirement Accounts (IRAs) and the custodian of the OppenheimerFunds 403(b)(7) tax-sheltered custodial accounts. It applies to all Oppenheimer fund accounts you presently have, or may open in the future, using your Social Security number--whether or not you remain a shareholder of our funds. If you have any questions about these privacy policies, write to us at P.O. Box 5270, Denver, CO 80217-5270, email us by clicking on the CONTACT US section of our website at WWW.OPPENHEIMERFUNDS.COM or call us at 1.800.CALL OPP (1.800.225.5677). 49 | OPPENHEIMER CAPITAL INCOME FUND | INFORMATION AND SERVICES [GRAPHIC OMITTED] eDOCSDIRECT GET THIS REPORT ONLINE! You can quickly view, download and print this report at your convenience. It's EASY, FAST, CONVENIENT, and FREE! With OppenheimerFunds EDOCS DIRECT, you'll receive email notification when shareholder reports, prospectuses or prospectus supplements for your fund(s) become available online, instead of receiving them through the mail. You'll cut down on paper mail and help reduce fund expenses!! Sign up for EDOCS DIRECT today at WWW.OPPENHEIMERFUNDS.COM - -------------------------------------------------------------------------------- INTERNET 24-hr access to account information and transactions(1) WWW.OPPENHEIMERFUNDS.COM - -------------------------------------------------------------------------------- PHONELINK(1) and GENERAL INFORMATION 24-hr automated information and automated transactions Representatives also available Mon-Fri 8am-9pm ET Sat (January-April) 10am-4pm ET 1.800.CALL OPP (1.800.225.5677) - -------------------------------------------------------------------------------- WRITTEN CORRESPONDENCE AND TRANSACTION REQUESTS OppenheimerFunds Services P.O. Box 5270, Denver, CO 80217-5270 FOR OVERNIGHT DELIVERY OppenheimerFunds Services 10200 East Girard Avenue, Building D Denver, CO 80231 - -------------------------------------------------------------------------------- TICKER SYMBOLS Class A: OPPEX Class B: OPEBX Class C: OPECX Class N: OCINX - -------------------------------------------------------------------------------- 1. At times the website or PhoneLink may be inaccessible or their transaction features may be unavailable. [GRAPHIC OMITTED] OPPENHEIMERFUNDS(R) Distribution, Inc. RA0300.001.0802 October 30, 2002 -----END PRIVACY-ENHANCED MESSAGE-----