-----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, RdjROZEBhiqHJ4guvlRT1ttSTl54zf8XQ7kWmVMmgKaS+i/D3lxjxlWh9AOv6BWE FfS40ShOLtanpdygjP3+Ww== 0000935069-03-000517.txt : 20030424 0000935069-03-000517.hdr.sgml : 20030424 20030423182721 ACCESSION NUMBER: 0000935069-03-000517 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030228 FILED AS OF DATE: 20030424 EFFECTIVENESS DATE: 20030424 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: 03660886 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 303-768-3200 MAIL ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 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 rs0300_6822vef.txt RS0300_6822VEF February 28, 2003 - -------------------------------------------------------------------------------- Semiannual Oppenheimer Report ------------ Capital Income Fund Management Commentaries - -------------------------------------------------------------------------------- [GRAPHIC] Fund Highlights Performance Update Investment Strategy Discussion Financial Statements "Although it's difficult to know what the future may bring, we think the Fund is well positioned for a variety of potential scenarios. For now, we plan to keep the Fund's defensive orientation, and we're ready to increase our equity exposure if the overall investing environment changes for the better." [LOGO] OppenheimerFunds(R) The Right Way to Invest HIGHLIGHTS Fund Objective Oppenheimer Capital Income Fund primarily seeks as much current income as is compatible with prudent investment. The Fund's secondary objective seeks to conserve principal while providing an opportunity for capital appreciation. Fund Highlight The Fund's Class A shares (without sales charge) considerably outperformed its benchmark index, the S&P 500 Index, over the six- and 12-month periods ended February 28, 2003. 1 CONTENTS 1 Letter to Shareholders 2 An Interview with Your Fund's Manager 8 Financial Statements 37 Trustees and Officers Cumulative Total Returns* For the 6-Month Period Ended 2/28/03 Without With Sales Chg. Sales Chg. - ---------------------------------- Class A 0.86% -4.94% - ---------------------------------- Class B 0.38 -4.53 - ---------------------------------- Class C 0.42 -0.57 - ---------------------------------- Class N 0.55 -0.43 - ---------------------------------- Average Annual Total Returns* For the 1-Year Period Ended 2/28/03 Without With Sales Chg. Sales Chg. - ---------------------------------- Class A -11.42% -16.51% - ---------------------------------- Class B -12.18 -16.41 - ---------------------------------- Class C -12.15 -12.99 - ---------------------------------- Class N -11.72 -12.56 - ---------------------------------- 1. The Fund's performance is compared to the S&P 500 Index, an unmanaged index of equity securities. For periods ended 2/28/03, the S&P 500 Index had a six-month return of -7.28% and a 12-month return of -22.67%. 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 6 for further details. LETTER TO SHAREHOLDERS Dear Shareholder, At OppenheimerFunds, we take very seriously the responsibility of helping you achieve your goals. We understand that your investments with us may represent a future home, a college education or retirement. In good markets and in bad, we are committed to partnering with your advisor to provide you with investment products and services that can help you reach your financial objectives. In recent years, many of us have seen some of our assets decrease in value--sometimes significantly--making it difficult to maintain our long-term investing plans. Shifting markets can often blindside investors and unbalance portfolios. We believe it has never been more important than it is now to allocate your assets among stocks, bonds, and other investments based on what would be most appropriate depending on your goals and risk tolerance. Diversification is key. We encourage you to hold true to your long-term goals and adhere to the time-tested investment principles of asset allocation and diversification. Of course, when the financial markets make major moves, portfolio changes may be necessary to adjust risk exposure, rebalance asset class allocations or seek to maintain sufficient income flows. Monitor your investments, stay informed and--most importantly--work with your financial advisor so that any adjustments ultimately support your long-term goals. We continue to believe in the growth, ingenuity and underlying strengths of the economy and the markets. That said, we also expect the road ahead to present new and unique challenges. We strongly believe that one of the best ways to pursue your goals is to adhere to core investment principles. We hope you share our convictions, and we wish you the best in 2003. Thank you for your continued confidence in OppenheimerFunds, The Right Way to Invest. Sincerely, /s/ James C. Swain /s/ John V. Murphy - ------------------ ------------------ James C. Swain John V. Murphy February 28, 2003 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. [PHOTOS OF JAMES C. SWAIN AND JOHN V. MURPHY] James C. Swain Chairman Oppenheimer Capital Income Fund John V. Murphy President Oppenheimer Capital Income Fund 1 | OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGER Q How did Oppenheimer Capital Income Fund perform during the six-month period that ended February 28, 2003? A. The Fund's performance was slightly positive during the past six months--a decent accomplishment considering the challenging investment environment. Results were even better when measured against the Standard & Poor's 500 Index, the Fund's benchmark and a common measure of broad stock-market performance. During the last six months, the Fund (Class A shares at NAV) outperformed the S&P 500 by approximately seven percentage points. 2 How would you describe the market environment of the past six months? The environment was generally unfavorable for stocks, but positive for fixed-income securities. Stocks were dragged down by a variety of factors, including a still-sluggish economy, fears of war in Iraq and on-going concerns about terrorism. But on the positive side, inflation remained under control and interest rates, at near-historic lows, helped keep consumer spending at strong levels. These factors, along with preliminary indications of a rebound in corporate earnings, helped send stock prices higher during the final months of 2002. The rally was short-lived, though, and by the end of February 2003, stocks had given back almost all of their recent gains. Throughout the six-month period, stocks' losses, for the most part, were bonds' gains. Investors eagerly snapped up high-quality fixed-income securities offering the prospect of stability in a volatile market environment. U.S. government bonds and, to a lesser extent, high-grade corporate bonds were helped by this sentiment. Low-grade corporate bonds--"junk" bonds--fared poorly. These securities, because they are backed by financially challenged companies, were not as appealing to investors because of the significant risk they entailed. [SIDEBAR] Portfolio Manager Mike Levine 2. The Fund's performance is compared to the S&P 500 Index, an unmanaged index of equity securities. For the period ended 2/28/03, the S&P 500 Index had a six-month return of -7.28%. 2 | OPPENHEIMER CAPITAL INCOME FUND Given this market environment, what was your approach to managing the Fund? We continued with the Fund's defensive positioning. As the reporting period began, roughly half of the Fund's assets were invested in stocks, while the other half were in bonds and other fixed-income securities. As the period progressed, we sold some of our equity holdings and moved much of the proceeds into corporate and convertible bonds, which we thought offered better future potential than U.S. government bonds did. As of February 28, 2003, the Fund's asset breakdown was similar to that at the start of the period. Otherwise, our overall management approach was consistent throughout the past six months. We looked for reasonably valued stocks with solid fundamentals and good dividend yields. In particular, we sought stocks with a catalyst that could generate positive future performance. With respect to the Fund's largest holdings, we made few changes to the portfolio during the period. We did, however, establish new positions in a handful of well-known businesses, including cable companies Cablevision Systems Corp. and Comcast Corp., energy giant BP plc and insurance company Hartford Financial Services Group, Inc., though they are not among the Fund's larger holdings. Can you mention some securities that helped the Fund's performance? As of February 28, 2003, the Fund's largest holding, Kinder Morgan, Inc., was our strongest contributor to results. Investors were attracted to this company, an operator of natural gas and other energy pipelines, because of its stable earnings, healthy cash flow and attractive dividend yield. We were also helped by our investment in Nextel Communications, Inc. convertible bonds. Nextel, a wireless communications provider, differentiated itself from its competitors by paying down large amounts of debt and focusing on commercial customers, a profitable niche. [SIDEBAR] "We looked for reasonably valued stocks with solid fundamentals and good dividend yields." 3 | OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGER Which investments hurt performance? Two of the Fund's larger holdings at the end of the period, financial stocks Citigroup, Inc. and J.P Morgan Chase & Co., saw their stock prices decline. Financial companies faced a number of challenges, including a depressed market for investment-banking services and continued stock-market weakness. Also, both companies were weighed down by on-going industry-wide investigations about conflicts of interest during the late-1990's bull market. A handful of the Fund's insurance investments also hurt performance, especially late in the period. For example, we were disappointed by investment in Everest Re Group Ltd. This company, along with many of their competitors, was dragged down, in part, by investors' concerns that liability surrounding asbestos exposure would prove very costly. Why was the Fund's dividend recently reduced? The Board of Trustees approved a reduction in the Fund's quarterly dividend from $0.12 per share to $0.0975 per share. In a low interest rate environment, maintaining a high distribution rate requires increasing allocations to higher-yielding, riskier investments. We perceived these risks to be too high relative to the reward and inconsistent with the Fund's mandate. As of February 28, 2003, ten-year treasury yields were just 3.71%, so the income stream from the Fund remains relatively attractive. We believe that this reduction will enable the Fund to have the potential to perform better on a total return basis going forward. What do you see ahead for the markets and the Fund? As long as the economic and geopolitical environment remains cloudy, we think the investing climate will stay challenging. If, however, the economy gradually continues to improve and the crisis in Iraq is resolved quickly, we do think that the underpinnings are there for improvement in stock prices. With bond yields now flirting with record lows, we anticipate that future conditions may favor equities. Average Annual Total Returns with Sales Charge For the Periods Ended 3/31/03 4 Class A 1-Year 5-Year 10-Year - -------------------------- - -20.14% -2.20% 7.18% Class B Since 1-Year 5-Year Inception - -------------------------- - -20.00% -2.08% 7.03% Class C Since 1-Year 5-Year Inception - -------------------------- - -16.82% -1.82% 6.22% Class N Since 1-Year 5-Year Inception - -------------------------- - -16.46% N/A -8.76% 4. See Notes on page 6 for further details. 4 | OPPENHEIMER CAPITAL INCOME FUND Although it's difficult to know what the future may bring, we think the Fund is well positioned for a variety of potential scenarios. For now, we plan to keep the Fund's defensive orientation, and we're ready to increase our stock exposure if the overall investing environment changes for the better. This strategy is part of what makes Oppenheimer Capital Income Fund, The Right Way to Invest. Top Ten Common Stock Holdings 6 - -------------------------------------------------------------------------------- Kinder Morgan Management LLC 3.7% - -------------------------------------------------------------------------------- Altria Group, Inc. 3.7 - -------------------------------------------------------------------------------- Citigroup, Inc. 3.1 - -------------------------------------------------------------------------------- CSK Auto Corp. 2.6 - -------------------------------------------------------------------------------- Kinder Morgan, Inc. 2.5 - -------------------------------------------------------------------------------- Everest Re Group Ltd. 2.1 - -------------------------------------------------------------------------------- FleetBoston Financial Corp. 1.7 - -------------------------------------------------------------------------------- J.P. Morgan Chase & Co. 1.6 - -------------------------------------------------------------------------------- ConocoPhillips 1.3 - -------------------------------------------------------------------------------- U.S. Bancorp 1.2 For up-to-date Top 10 Fund holdings, please visit www.oppenheimerfunds.com. Top Five Common Stock Industries 6 - -------------------------------------------------------------------------------- Gas Utilities 6.2% - -------------------------------------------------------------------------------- Banks 5.9 - -------------------------------------------------------------------------------- Diversified Financials 5.4 - -------------------------------------------------------------------------------- Tobacco 4.7 - -------------------------------------------------------------------------------- Oil & Gas 3.9 Portfolio Allocation 5 [PIE CHART] o Bonds 53.4% o Stocks 45.4 o Cash Equivalents 1.2 5. Portfolio's holdings and allocations are subject to change. Percentages are as of February 28, 2003, and are based on total market value of investments. 6. Portfolio's holdings and allocations are subject to change. Percentages are as of February 28, 2003, and are based on net assets. 5 | 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 include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. Cumulative total returns are not annualized. 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% for the 1-year period. 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. 6 | OPPENHEIMER CAPITAL INCOME FUND Financial Statements Pages 8-36 7 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS February 28, 2003 / Unaudited
Market Value Shares See Note 1 - ---------------------------------------------------------------------------------------------- Common Stocks--36.4% - ---------------------------------------------------------------------------------------------- Consumer Discretionary--2.6% - ---------------------------------------------------------------------------------------------- Specialty Retail--2.6% CSK Auto Corp. 1,2 6,395,000 $ 56,020,200 - ---------------------------------------------------------------------------------------------- Consumer Staples--4.7% - ---------------------------------------------------------------------------------------------- Food & Drug Retailing--0.0% Safeway, Inc. 1 2,500 49,725 - ---------------------------------------------------------------------------------------------- Tobacco--4.7% Altria Group, Inc. 3 2,097,500 81,068,375 - ---------------------------------------------------------------------------------------------- Loews Corp./Carolina Group 3 970,000 20,758,000 ---------------- 101,826,375 - ---------------------------------------------------------------------------------------------- Energy--3.9% - ---------------------------------------------------------------------------------------------- Oil & Gas--3.9% BP plc, ADR 217,500 8,288,925 - ---------------------------------------------------------------------------------------------- ChevronTexaco Corp. 210,000 13,475,700 - ---------------------------------------------------------------------------------------------- ConocoPhillips 570,000 28,899,000 - ---------------------------------------------------------------------------------------------- Enbridge Energy Management LLC 2 512,228 19,976,892 - ---------------------------------------------------------------------------------------------- Kerr-McGee Corp. 100,000 4,124,000 - ---------------------------------------------------------------------------------------------- Marathon Oil Corp. 3 475,000 10,967,750 ---------------- 85,732,267 - ---------------------------------------------------------------------------------------------- Financials--15.7% - ---------------------------------------------------------------------------------------------- Banks--5.9% Bank of New York Co., Inc. (The) 75,000 1,708,500 - ---------------------------------------------------------------------------------------------- Charter One Financial, Inc. 750,000 21,682,500 - ---------------------------------------------------------------------------------------------- FleetBoston Financial Corp. 3 1,500,000 36,840,000 - ---------------------------------------------------------------------------------------------- PNC Financial Services Group 3 350,000 15,725,500 - ---------------------------------------------------------------------------------------------- U.S. Bancorp 3 1,250,000 26,150,000 - ---------------------------------------------------------------------------------------------- Washington Mutual, Inc. 750,000 25,897,500 ---------------- 128,004,000 - ---------------------------------------------------------------------------------------------- Diversified Financials--5.4% CIT Group, Inc. 1,000,000 17,170,000 - ---------------------------------------------------------------------------------------------- Citigroup, Inc. 2,000,000 66,680,000 - ---------------------------------------------------------------------------------------------- J.P. Morgan Chase & Co. 3 1,500,000 34,020,000 ---------------- 117,870,000 - ---------------------------------------------------------------------------------------------- Insurance--3.6% ACE Ltd. 230,000 6,373,300 - ---------------------------------------------------------------------------------------------- American International Group, Inc. 35,000 1,725,150 - ---------------------------------------------------------------------------------------------- Everest Re Group Ltd. 835,000 44,589,000 - ---------------------------------------------------------------------------------------------- Radian Group, Inc. 475,000 16,563,250 - ---------------------------------------------------------------------------------------------- XL Capital Ltd., Cl. A 125,000 8,867,500 ---------------- 78,118,200
8 | OPPENHEIMER CAPITAL INCOME FUND
Market Value Shares See Note 1 - ---------------------------------------------------------------------------------------------- Real Estate--0.8% Anthracite Capital, Inc. 925,000 $ 10,471,000 - ---------------------------------------------------------------------------------------------- Archstone-Smith Trust 300,000 6,615,000 ---------------- 17,086,000 - ---------------------------------------------------------------------------------------------- Health Care--1.0% - ---------------------------------------------------------------------------------------------- Pharmaceuticals--1.0% Bristol-Myers Squibb Co. 500,000 11,650,000 - ---------------------------------------------------------------------------------------------- Pharmacia Corp. 247,750 10,237,030 ---------------- 21,887,030 - ---------------------------------------------------------------------------------------------- Industrials--1.2% - ---------------------------------------------------------------------------------------------- Industrial Conglomerates--1.2% Tyco International Ltd. 1,750,000 25,900,000 - ---------------------------------------------------------------------------------------------- Information Technology--0.0% - ---------------------------------------------------------------------------------------------- Semiconductor Equipment & Products--0.0% Micron Technology, Inc. 1 12,700 101,473 - ---------------------------------------------------------------------------------------------- Materials--0.3% - ---------------------------------------------------------------------------------------------- Paper & Forest Products--0.3% Sappi Ltd., Sponsored ADR 500,000 6,800,000 - ---------------------------------------------------------------------------------------------- Telecommunication Services--0.6% - ---------------------------------------------------------------------------------------------- Diversified Telecommunication Services--0.4% BellSouth Corp. 3 167,900 3,638,393 - ---------------------------------------------------------------------------------------------- SBC Communications, Inc. 3 262,500 5,460,000 ---------------- 9,098,393 - ---------------------------------------------------------------------------------------------- Wireless Telecommunication Services--0.2% AT&T Corp. 200,000 3,708,000 - ---------------------------------------------------------------------------------------------- Utilities--6.4% - ---------------------------------------------------------------------------------------------- Electric Utilities--0.2% Duke Energy Corp. 3 100,000 1,351,000 - ---------------------------------------------------------------------------------------------- Exelon Corp. 3 50,000 2,457,500 Xcel Energy, Inc. 3 100,000 1,109,000 ---------------- 4,917,500 - ---------------------------------------------------------------------------------------------- Gas Utilities--6.2% Kinder Morgan Management LLC 2,547,500 81,316,200 - ---------------------------------------------------------------------------------------------- Kinder Morgan, Inc. 1,175,000 53,497,750 ---------------- 134,813,950 ---------------- Total Common Stocks (Cost $677,390,181) 791,933,113
9 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Market Value Shares See Note 1 - ---------------------------------------------------------------------------------------------- Preferred Stocks--11.4% ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 325,000 $ 17,936,750 - ---------------------------------------------------------------------------------------------- Baxter International, Inc., 7% Cv. Equity Units (each equity unit has a stated value of $50 and consists of a purchase contract to purchase Baxter International, Inc. common stock and $50 principal amount of Baxter International, Inc., 3.60% sr. nts., 2/16/08), Non-Vtg. 5 100,000 5,047,000 - ---------------------------------------------------------------------------------------------- California Federal Preferred Capital Corp., 9.125% Non-Cum. Exchangeable, Series A, Non-Vtg. 100,000 2,640,000 - ---------------------------------------------------------------------------------------------- Capital One Financial Corp., 6.25% Cv. Upper DECS (each upper DECS has a stated amount of $50 and consists of a forward purchase contract to purchase Capital One Financial Corp. common stock and $50 principal amount of Capital One Financial Corp., 6.25% sr. nts., 5/17/07) 5 200,000 5,840,000 - ---------------------------------------------------------------------------------------------- CenterPoint Energy, Inc., 2% Cv. Zero-Exchangeable Sub. Nts., 9/15/29 6 1,000,000 22,027,000 - ---------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 6% Cv. Nts. 1,4 23,900 1,259,243 - ---------------------------------------------------------------------------------------------- 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) 5 500,000 11,850,000 - ---------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 400,000 17,250,000 - ---------------------------------------------------------------------------------------------- Equity Securities Trust I/Cablevision Systems Corp., 6.50% Cv., Series CVC 875,000 17,885,000 - ---------------------------------------------------------------------------------------------- Hartford Financial Services Group, Inc. (The), 6% Cv. Equity Units (each equity unit has a stated amount of $50 and consists of a purchase contract to purchase $50 principal amount of Hartford Financial Services Group, Inc. (The), 4.10% sr. nts., 11/16/08 and Hartford Financial Services Group, Inc. (The) common stock) 5 105,000 4,389,000 - ---------------------------------------------------------------------------------------------- McKesson Financing Trust, 5% Cv., Non-Vtg. 75,000 3,656,250 - ---------------------------------------------------------------------------------------------- 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 16,500,000 - ---------------------------------------------------------------------------------------------- Prudential Financial, Inc./Prudential Financial Capital Trust I, 6.75% Cum. 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), Non-Vtg. 5 257,500 13,361,675 - ---------------------------------------------------------------------------------------------- Sempra Energy, 8.50% Cv. Equity Units (each equity unit consists of income equity units, each has 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 16,058,250 - ---------------------------------------------------------------------------------------------- Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity Redeemable Shares, Non-Vtg. 700,000 11,550,000 - ---------------------------------------------------------------------------------------------- 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) 5 175,000 13,387,500 - ---------------------------------------------------------------------------------------------- Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 680,000 16,218,000 - ---------------------------------------------------------------------------------------------- Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg. 150,000 7,762,500 - ---------------------------------------------------------------------------------------------- United Rentals Trust I, 6.50% Cv. Quarterly Income Preferred Securities, Non-Vtg. 550,000 15,743,750
10 | OPPENHEIMER CAPITAL INCOME FUND
Market Value Shares See Note 1 - ---------------------------------------------------------------------------------------------- Preferred Stocks Continued Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security 225,000 $ 6,637,500 - ---------------------------------------------------------------------------------------------- Washington Mutual, Inc., Cum. Cv. Units (each unit consists of one preferred security of Washington Mutual Capital Trust 2001 and one warrant to purchase 1.2081 shares of Washington Mutual, Inc. common stock), Non-Vtg. 5 325,000 16,786,900 - ---------------------------------------------------------------------------------------------- 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. 5 331,800 2,989,518 ---------------- Total Preferred Stocks (Cost $278,289,926) 246,775,836 Principal Amount - ---------------------------------------------------------------------------------------------- Asset-Backed Securities--2.3% Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts., Series 2002-4, Cl. A2B, 1.74%, 1/17/05 $ 4,680,000 4,688,453 - ---------------------------------------------------------------------------------------------- CitiFinancial Mortgage Securities, Inc., Home Equity Collateralized Mtg. Obligations, Series 2002-1, Cl. AF1, 2.474%, 9/25/32 7 2,027,053 2,034,996 - ---------------------------------------------------------------------------------------------- Daimler Chrysler Auto Trust, Automobile Loan Pass-Through Certificates, Series 2002-B, Cl. A2, 2.20%, 4/6/05 7 2,778,217 2,789,088 - ---------------------------------------------------------------------------------------------- Ford Credit Auto Owner Trust, Automobile Loan Certificates, Series 2002-D, Cl. A2A, 2.10%, 3/15/05 5,140,000 5,160,318 - ---------------------------------------------------------------------------------------------- Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts., Series 2002-2, Cl. A1, 1.91%, 4/16/07 2,374,323 2,385,293 - ---------------------------------------------------------------------------------------------- Honda Auto Receivables Owner Trust, Automobile Receivables Obligations: Series 2002-3, Cl. A2, 2.26%, 12/18/04 3,560,000 3,575,983 Series 2002-4, Cl. A2, 1.66%, 6/15/05 2,530,000 2,536,127 - ---------------------------------------------------------------------------------------------- Household Automotive Trust, Automobile Loan Certificates, Series 2002-2, Cl. A2, 2.15%, 12/19/05 2,570,000 2,582,513 - ---------------------------------------------------------------------------------------------- M&I Auto Loan Trust, Automobile Loan Certificates, Series 2002-1, Cl. A2, 1.95%, 7/20/05 1,680,000 1,685,878 - ---------------------------------------------------------------------------------------------- MMCA Auto Lease Trust, Auto Retail Installment Contracts, Series 2002-A, Cl. A2, 1.51%, 5/16/05 6,7 2,400,000 2,402,082 - ---------------------------------------------------------------------------------------------- Nissan Auto Lease Trust, Auto Lease Obligations, Series 2002-A, Cl. A2, 1.86%, 11/15/04 4 5,050,000 5,058,680 - ---------------------------------------------------------------------------------------------- Nissan Auto Receivables Owner Trust, Auto Receivable Nts., Series 2002-C, Cl. A2, 1.94%, 9/15/04 3,730,000 3,739,875 - ---------------------------------------------------------------------------------------------- Salomon Smith Barney Auto Loan Trust, Asset-Backed Auto Loan Obligations, Series 2002-1, Cl. A2, 1.83%, 9/15/05 3,540,000 3,535,575 - ---------------------------------------------------------------------------------------------- USAA Auto Owner Trust, Automobile Loan Asset-Backed Certificates, Series 2002-1, Cl. A2, 1.95%, 3/15/05 1,160,000 1,163,413 - ---------------------------------------------------------------------------------------------- Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities, Series 2002-A, Cl. A2, 1.77%, 2/20/05 4,590,000 4,597,344 - ---------------------------------------------------------------------------------------------- Whole Auto Loan Trust, Automobile Loan Receivables, Series 2002-1, Cl. A2, 1.88%, 6/15/05 2,170,000 2,174,747 ---------------- Total Asset-Backed Securities (Cost $49,977,262) 50,110,365
11 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Mortgage-Backed Obligations--6.6% Federal Home Loan Mortgage Corp., Gtd. Mtg. Pass-Through Participation Certificates: 8%, 4/1/16 $ 2,776,307 $ 3,013,123 9%, 8/1/22-5/1/25 691,271 773,940 - ---------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Home Equity Loan Structured Pass-Through Certificates: Series HOO2, Cl. A2, 1.861%, 12/15/06 2,760,000 2,783,204 Series HOO3, Cl. A2, 1.88%, 1/15/07 3,260,000 3,254,397 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn.: 6%, 3/25/33 8 31,000,000 32,240,000 6.50%, 3/1/33 8 46,148,000 48,267,947 7%, 3/1/33 8 37,798,000 39,876,890 - ---------------------------------------------------------------------------------------------- Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 784,111 867,896 - ---------------------------------------------------------------------------------------------- Granite Mortgages plc, Mtg.-Backed Obligations, Series 2002-2, Cl. 1A1, 1.479%, 1/21/17 6,7 1,897,846 1,897,846 - ---------------------------------------------------------------------------------------------- Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates, Series 1996-WF1, Cl. A2, 7.351%, 11/15/28 4,6 2,620,544 2,701,043 - ---------------------------------------------------------------------------------------------- Washington Mutual Mortgage Securities Corp., Collateralized Mtg. Obligations, Pass-Through Certificates: Series 2002-AR15, Cl. A1, 2.26%, 12/25/32 2,228,595 2,239,623 Series 2002-AR19, Cl. A1, 1.771%, 1/25/33 3,143,767 3,145,486 - ---------------------------------------------------------------------------------------------- Wells Fargo Mortgage Backed Securities Trust, Collateralized Mtg. Obligations, Series 2003-A, Cl. A1, 1.79%, 2/25/33 7 1,848,538 1,849,693 ---------------- Total Mortgage-Backed Obligations (Cost $142,249,749) 142,911,088 - ---------------------------------------------------------------------------------------------- U.S. Government Obligations--7.2% Federal Home Loan Mortgage Corp. Unsec. Nts.: 4.875%, 3/15/07 5,800,000 6,322,765 6.25%, 7/15/32 5,500,000 6,373,493 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn. Unsec. Nts., 6.375%, 6/15/09 13,500,000 15,776,370 - ---------------------------------------------------------------------------------------------- Tennessee Valley Authority Bonds, 7.125%, 5/1/30 863,000 1,098,055 - ---------------------------------------------------------------------------------------------- U.S. Treasury Bonds: 5.375%, 2/15/31 10,487,000 11,630,335 6.25%, 5/15/30 15,004,000 18,297,273 STRIPS, 4.96%, 2/15/16 9 1,157,000 638,787 STRIPS, 5.48%, 11/15/27 9 3,425,000 970,772 - ---------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 3%, 2/15/08 9,963,000 10,117,895 3.875%, 2/15/13 8,265,000 8,389,306 4.875%, 2/15/12 2,475,000 2,714,768 5%, 2/15/11 23,400,000 25,952,987 6.50%, 2/15/10 39,600,000 47,649,967 ---------------- Total U.S. Government Obligations (Cost $144,278,865) 155,932,773
12 | OPPENHEIMER CAPITAL INCOME FUND
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Foreign Government Obligations--0.0% United Mexican States Nts., 7.50%, 1/14/12 (Cost $950,117) $ 940,000 $ 1,011,675 - ---------------------------------------------------------------------------------------------- Non-Convertible Corporate Bonds and Notes--12.4% ABN Amro NA Holding Capital NV, 6.473% Bonds, 12/29/49 4 920,000 995,799 - ---------------------------------------------------------------------------------------------- AEP Resources, Inc., 6.50% Sr. Nts., 12/1/03 4 1,170,000 1,176,844 - ---------------------------------------------------------------------------------------------- Albertson's, Inc., 7.45% Unsec. Debs., 8/1/29 765,000 876,887 - ---------------------------------------------------------------------------------------------- Allied Waste North America, Inc.: 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,000,000 4,000,000 8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,575,000 - ---------------------------------------------------------------------------------------------- American International Group, Inc./ SunAmerica Global Financing VI, 6.30% Sr. Sec. Nts., 5/10/11 4 1,365,000 1,552,569 - ---------------------------------------------------------------------------------------------- Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 1,068,750 - ---------------------------------------------------------------------------------------------- Anthem, Inc., 6.80% Unsec. Unsub. Bonds, 8/1/12 1,430,000 1,619,672 - ---------------------------------------------------------------------------------------------- AT&T Corp., 8.50% Sr. Nts., 11/15/31 6 620,000 672,807 - ---------------------------------------------------------------------------------------------- AT&T Wireless Services, Inc.: 7.50% Sr. Unsec. Nts., 5/1/07 11 1,770,000 1,891,498 8.75% Sr. Unsec. Nts., 3/1/31 640,000 682,213 - ---------------------------------------------------------------------------------------------- Auburn Hills Trust, 12.375% Gtd. Exchangeable Certificates, 5/1/20 6 5,000,000 7,587,955 - ---------------------------------------------------------------------------------------------- AXA Group, 8.60% Unsec. Sub. Nts., 12/15/30 1,650,000 1,904,739 - ---------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07 7 2,500,000 2,690,625 - ---------------------------------------------------------------------------------------------- Beazer Homes USA, Inc., 8.375% Sr. Nts., 4/15/12 800,000 852,000 - ---------------------------------------------------------------------------------------------- Boeing Capital Corp., 7.375% Sr. Nts., 9/27/10 2,080,000 2,370,977 - ---------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co., 5.75% Nts., 10/1/11 1,780,000 1,937,400 - ---------------------------------------------------------------------------------------------- British Sky Broadcasting Group plc, 8.20% Sr. Unsec. Nts., 7/15/09 680,000 761,267 - ---------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp., 5.90% Sr. Nts., 7/1/12 1,355,000 1,498,585 - ---------------------------------------------------------------------------------------------- Cardinal Health, Inc., 4.45% Nts., 6/30/05 1,360,000 1,429,974 - ---------------------------------------------------------------------------------------------- Charter Communications Holdings LLC/ Charter Communications Holdings Capital Corp.: 0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 10 3,250,000 1,064,375 8.625% Sr. Unsec. Nts., 4/1/09 8,500,000 4,122,500 - ---------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 8.125% Sr. Unsec. Nts., 4/1/11 5,000,000 5,250,000 - ---------------------------------------------------------------------------------------------- CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,050,000 1,201,546 - ---------------------------------------------------------------------------------------------- Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 880,000 1,090,817 - ---------------------------------------------------------------------------------------------- Clear Channel Communications, Inc., 7.65% Sr. Nts., 9/15/10 912,000 1,056,660 - ---------------------------------------------------------------------------------------------- Coast Hotels & Casinos, Inc., 9.50% Sr. Unsec. Sub. Nts., 4/1/09 300,000 318,375 - ---------------------------------------------------------------------------------------------- Cox Communications, Inc., 7.75% Sr. Nts., 11/1/10 1,387,000 1,630,696 - ---------------------------------------------------------------------------------------------- Credit Suisse First Boston (USA), Inc., 6.125% Nts., 11/15/11 1,980,000 2,109,413 - ---------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,797,500 - ---------------------------------------------------------------------------------------------- CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06 2 10,000,000 10,850,000 - ---------------------------------------------------------------------------------------------- DaimlerChrysler NA Holding Corp., 6.40% Nts., 5/15/06 1,530,000 1,654,346 - ---------------------------------------------------------------------------------------------- Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 695,000 649,825 - ---------------------------------------------------------------------------------------------- Delphi Corp., 6.55% Nts., 6/15/06 1,125,000 1,208,857 - ---------------------------------------------------------------------------------------------- Deutsche Telekom International BV, 8.25% Unsec. Unsub. Nts., 6/15/05 6 1,800,000 1,976,598
13 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Non-Convertible Corporate Bonds and Notes Continued - ---------------------------------------------------------------------------------------------- Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 $ 1,160,000 $ 1,393,095 - ---------------------------------------------------------------------------------------------- Duke Energy Corp., 5.625% Nts., 11/30/12 875,000 881,962 - ---------------------------------------------------------------------------------------------- EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 7,500,000 8,025,000 - ---------------------------------------------------------------------------------------------- Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 9,000,000 9,360,000 - ---------------------------------------------------------------------------------------------- Entravision Communications Corp., 8.125% Sr. Sub. Nts., 3/15/09 400,000 404,000 - ---------------------------------------------------------------------------------------------- EOP Operating LP, 7.75% Unsec. Nts., 11/15/07 1,240,000 1,431,922 - ---------------------------------------------------------------------------------------------- Fairchild Semiconductor Corp., 10.375% Sr. Unsec. Nts., 10/1/07 2,500,000 2,643,750 - ---------------------------------------------------------------------------------------------- Federated Department Stores, Inc., 6.625% Sr. Nts., 4/1/11 970,000 1,071,901 - ---------------------------------------------------------------------------------------------- FirstEnergy Corp., 7.375% Sr. Unsub. Nts., Series C, 11/15/31 1,770,000 1,786,861 - ---------------------------------------------------------------------------------------------- Fleming Cos., Inc., 9.25% Sr. Nts., 6/15/10 5,000,000 2,800,000 - ---------------------------------------------------------------------------------------------- Ford Motor Co., 7.45% Bonds, 7/16/31 5,370,000 4,527,560 - ---------------------------------------------------------------------------------------------- France Telecom SA: 8.70% Sr. Unsec. Nts., 3/1/06 760,000 856,490 9.25% Sr. Unsec. Nts., 3/1/11 725,000 860,299 - ---------------------------------------------------------------------------------------------- General Electric Capital Corp.: 6% Nts., 6/15/12 550,000 601,556 6.75% Nts., Series A, 3/15/32 650,000 743,751 - ---------------------------------------------------------------------------------------------- General Motors Acceptance Corp., 6.875% Unsec. Unsub. Nts., 8/28/12 3,480,000 3,474,070 - ---------------------------------------------------------------------------------------------- Hertz Corp. (The), 7.625% Sr. Nts., 6/1/12 2,735,000 2,626,303 - ---------------------------------------------------------------------------------------------- HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 9,450,000 - ---------------------------------------------------------------------------------------------- Household Finance Corp., 7% Nts., 5/15/12 1,990,000 2,256,873 - ---------------------------------------------------------------------------------------------- Hutchison Whampoa International Ltd., 6.50% Nts., 2/13/13 4 812,000 831,646 - ---------------------------------------------------------------------------------------------- Hypovereinsbank, 8.741% Bonds, 6/30/31 4 801,000 683,803 - ---------------------------------------------------------------------------------------------- Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 4,025,000 - ---------------------------------------------------------------------------------------------- Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,030,000 - ---------------------------------------------------------------------------------------------- Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,022,500 - ---------------------------------------------------------------------------------------------- J.P. Morgan Chase & Co., 6.75% Sub. Nts., 2/1/11 1,115,000 1,249,838 - ---------------------------------------------------------------------------------------------- John Hancock Global Funding II: 5% Nts., 7/27/07 4 1,410,000 1,504,889 7.90% Nts., 7/2/10 4 875,000 1,049,911 - ---------------------------------------------------------------------------------------------- K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,632,000 - ---------------------------------------------------------------------------------------------- Kinder Morgan, Inc., 6.50% Nts., 9/1/12 4 940,000 1,027,295 - ---------------------------------------------------------------------------------------------- Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,955,000 - ---------------------------------------------------------------------------------------------- Kroger Co. (The), 6.75% Nts., 4/15/12 775,000 868,109 - ---------------------------------------------------------------------------------------------- Level 3 Communications, Inc., 0%/10.50% Sr. Disc. Nts., 12/1/08 8,10 5,000,000 2,887,500 - ---------------------------------------------------------------------------------------------- Lockheed Martin Corp., 8.50% Bonds, 12/1/29 1,350,000 1,806,597 - ---------------------------------------------------------------------------------------------- Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 27,500,000 16,500,000 - ---------------------------------------------------------------------------------------------- Marsh & McLennan Cos., Inc., 4.85% Nts., 2/15/13 694,000 712,489 - ---------------------------------------------------------------------------------------------- MBNA America Bank NA, 6.625% Sub. Nts., 6/15/12 1,520,000 1,591,940 - ---------------------------------------------------------------------------------------------- MidAmerican Energy Holdings Co., 5.875% Sr. Nts., 10/1/12 2,300,000 2,411,472 - ---------------------------------------------------------------------------------------------- Morgan Stanley, 6.60% Nts., 4/1/12 900,000 1,007,413 - ---------------------------------------------------------------------------------------------- Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 1,090,000 1,142,019
14 | OPPENHEIMER CAPITAL INCOME FUND
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Non-Convertible Corporate Bonds and Notes Continued News America Holdings, Inc., 7.75% Sr. Unsec. Debs., 12/1/45 $ 1,510,000 $ 1,655,224 - ---------------------------------------------------------------------------------------------- Nextel Communications, Inc., 9.75% Sr. Disc. Nts., 10/31/07 16,000,000 16,320,000 - ---------------------------------------------------------------------------------------------- NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 1,680,000 1,962,986 - ---------------------------------------------------------------------------------------------- Nortek, Inc., 9.125% Sr. Unsec. Nts., Series B, 9/1/07 7,500,000 7,706,250 - ---------------------------------------------------------------------------------------------- OM Group, Inc., 9.25% Sr. Sub. Nts., 12/15/11 1,000,000 685,000 - ---------------------------------------------------------------------------------------------- P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 3,224,000 3,397,290 - ---------------------------------------------------------------------------------------------- Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 620,000 699,050 - ---------------------------------------------------------------------------------------------- Pharmacia Corp., 6.60% Sr. Unsec. Nts., 12/1/28 11 620,000 728,057 - ---------------------------------------------------------------------------------------------- Progress Energy, Inc., 7.10% Nts., 3/1/11 1,310,000 1,483,182 - ---------------------------------------------------------------------------------------------- Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 4 1,500,000 1,797,478 - ---------------------------------------------------------------------------------------------- Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 4 2,080,000 2,533,346 - ---------------------------------------------------------------------------------------------- Pulte Corp., 8.125% Sr. Unsec. Nts., 3/1/11 980,000 1,139,341 - ---------------------------------------------------------------------------------------------- Raytheon Co., 5.70% Sr. Unsec. Nts., 11/1/03 2,280,000 2,317,536 - ---------------------------------------------------------------------------------------------- RCN Corp., 10.125% Sr. Unsec. Nts., 1/15/10 14,284,000 4,142,360 - ---------------------------------------------------------------------------------------------- Reed Elsevier Capital, Inc., 6.75% Bonds, 8/1/11 970,000 1,109,477 - ---------------------------------------------------------------------------------------------- Rite Aid Corp.: 6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 3,725,000 7.125% Sr. Unsub. Nts., 1/15/07 5,000,000 4,325,000 - ---------------------------------------------------------------------------------------------- Riverwood International Corp.: 10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,030,000 10.875% Sr. Sub. Nts., 4/1/08 1,000,000 992,500 - ---------------------------------------------------------------------------------------------- Safeway, Inc., 4.80% Sr. Unsec. Nts., 7/16/07 1,430,000 1,490,663 - ---------------------------------------------------------------------------------------------- Sears Roebuck Acceptance Corp.: 6% Unsec. Bonds, 3/20/03 1,225,000 1,226,795 6.90% Nts., 8/1/03 850,000 862,427 - ---------------------------------------------------------------------------------------------- Simon DeBartolo Group LP, 6.875% Unsec. Nts., 11/15/06 1,305,000 1,442,315 - ---------------------------------------------------------------------------------------------- Sinclair Broadcast Group, Inc., 8% Sr. Sub. Nts., 3/15/12 1,000,000 1,028,750 - ---------------------------------------------------------------------------------------------- Sprint Capital Corp., 8.75% Nts., 3/15/32 1,355,000 1,314,350 - ---------------------------------------------------------------------------------------------- Standard Pacific Corp., 9.25% Sr. Sub. Nts., 4/15/12 300,000 306,000 - ---------------------------------------------------------------------------------------------- Target Corp., 5.40% Nts., 10/1/08 1,060,000 1,157,284 - ---------------------------------------------------------------------------------------------- TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 2,200,000 2,722,742 - ---------------------------------------------------------------------------------------------- Telus Corp., 7.50% Nts., 6/1/07 665,000 675,806 - ---------------------------------------------------------------------------------------------- Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 955,000 - ---------------------------------------------------------------------------------------------- Time Warner Entertainment Co. LP: 8.375% Sr. Debs., 3/15/23 225,000 260,889 10.15% Sr. Nts., 5/1/12 501,000 640,972 - ---------------------------------------------------------------------------------------------- Time Warner, Inc., 9.125% Debs., 1/15/13 1,130,000 1,332,731 - ---------------------------------------------------------------------------------------------- Tyco International Group SA, 6.75% Sr. Unsub. Nts., 2/15/11 1,705,000 1,619,750 - ---------------------------------------------------------------------------------------------- Union Carbide Corp., 6.25% Nts., 6/15/03 1,310,000 1,318,136 - ---------------------------------------------------------------------------------------------- United Auto Group, Inc., 9.625% Sr. Sub. Nts., 3/15/12 4 400,000 387,000 - ---------------------------------------------------------------------------------------------- Verizon Global Funding Corp., 7.75% Sr. Unsub. Nts., 12/1/30 1,775,000 2,152,122 - ---------------------------------------------------------------------------------------------- Viacom, Inc., 7.70% Sr. Unsec. Nts., 7/30/10 2,130,000 2,583,241 - ---------------------------------------------------------------------------------------------- VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09 64,000 70,720
15 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Non-Convertible Corporate Bonds and Notes Continued Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 $ 1,180,000 $ 1,219,826 - ---------------------------------------------------------------------------------------------- Walt Disney Co. (The): 6.375% Sr. Unsec. Nts., 3/1/12 750,000 823,074 6.75% Sr. Nts., 3/30/06 1,255,000 1,385,017 - ---------------------------------------------------------------------------------------------- Waste Management, Inc.: 7% Sr. Nts., 7/15/28 1,560,000 1,649,097 7.75% Sr. Unsec. Nts., 5/15/32 215,000 249,768 - ---------------------------------------------------------------------------------------------- WellPoint Health Networks, Inc., 6.375% Nts., 1/15/12 960,000 1,066,192 - ---------------------------------------------------------------------------------------------- World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 1,000,000 1,032,503 - ---------------------------------------------------------------------------------------------- Wyeth, 5.875% Nts., 3/15/04 11 1,400,000 1,458,412 -------------- Total Non-Convertible Corporate Bonds and Notes (Cost $259,708,720) 270,442,542 - ---------------------------------------------------------------------------------------------- Convertible Corporate Bonds and Notes--21.0% Consumer Discretionary--9.5% - ---------------------------------------------------------------------------------------------- Hotels, Restaurants & Leisure--0.7% Royal Carribean Cruises Ltd., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 5.29%, 2/2/21 9 40,000,000 15,400,000 - ---------------------------------------------------------------------------------------------- Media--8.4% America Online, Inc., Zero Coupon Cv. Nts., 3.84%, 12/6/19 9 67,500,000 39,065,625 - ---------------------------------------------------------------------------------------------- Charter Communications, Inc.: 4.75% Cv. Sr. Unsec. Nts., 6/1/06 22,500,000 4,331,250 5.75% Cv. Sr. Unsec. Nts., 10/15/05 100,000,000 23,000,000 - ---------------------------------------------------------------------------------------------- Liberty Media Corp.: 3.25% Exchangeable Sr. Sec. Debs., 3/15/31 (exchangeable for Viacom, Inc. Cl. B common stock) 4 15,000,000 14,062,500 3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for Viacom, Inc. Cl. B common stock or cash based on the value thereof) 65,000,000 60,937,500 3.50% Exchangeable Sr. Unsec. Debs., 1/15/31 (exchangeable for Motorola, Inc. common stock or cash based on the value of that stock) 17,500,000 11,681,250 3.75% Exchangeable Sr. Unsec. Debs., 2/15/30 (exchangeable for Sprint Corp. PCS, Series 1 common stock or cash based on the value of that stock) 17,750,000 9,474,062 4% Exchangeable Sr. Unsec. Debs., 11/15/29 (exchangeable for Sprint Corp. PCS, Series 1 common stock or cash based on the value of that stock) 34,750,000 19,677,188 -------------- 182,229,375 - ---------------------------------------------------------------------------------------------- Specialty Retail--0.4% Gap, Inc. (The), 5.75% Cv. Sr. Nts., 3/15/09 4 7,500,000 8,737,500 - ---------------------------------------------------------------------------------------------- Consumer Staples--1.6% - ---------------------------------------------------------------------------------------------- Food & Drug Retailing--1.6% Rite Aid Corp., 4.75% Cv. Nts., 12/1/06 4 40,000,000 33,950,000 - ---------------------------------------------------------------------------------------------- Financials--0.7% - ---------------------------------------------------------------------------------------------- Diversified Financials--0.7% Providian Financial Corp., Zero Coupon Cv. Sr. Unsec. Unsub. Nts., 6.75%, 2/15/21 9 40,000,000 14,100,000
16 | OPPENHEIMER CAPITAL INCOME FUND
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Industrials--3.0% - ---------------------------------------------------------------------------------------------- Construction & Engineering--0.1% Shaw Group, Inc. (The), Zero Coupon Cv. Sr. Unsec. Liquid Yield Option Nts., 3.24%, 5/1/21 9 $ 3,000,000 $ 1,897,500 - ---------------------------------------------------------------------------------------------- Industrial Conglomerates--2.9% Tyco International Group SA, 3.125% Cv. Sr. Nts., Series B, 1/15/23 4 27,500,000 26,640,625 - ---------------------------------------------------------------------------------------------- Tyco International Ltd., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 2.56%, 11/17/20 9 50,000,000 37,625,000 ---------------- 64,265,625 - ---------------------------------------------------------------------------------------------- Information Technology--4.2% - ---------------------------------------------------------------------------------------------- Communications Equipment--0.7% Commscope, Inc., 4% Cv. Unsec. Sub. Nts., 12/15/06 10,500,000 9,187,500 - ---------------------------------------------------------------------------------------------- Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 10,000,000 7,312,500 ---------------- 16,500,000 - ---------------------------------------------------------------------------------------------- Electronic Equipment & Instruments--0.9% Solectron Corp., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 2.44%, 11/20/20 9 35,000,000 18,900,000 - ---------------------------------------------------------------------------------------------- Semiconductor Equipment & Products--2.6% Advanced Micro Devices, Inc., 4.75% Cv. Sr. Debs., 2/1/22 4,950,000 3,081,375 - ---------------------------------------------------------------------------------------------- Amkor Technology, Inc., 5.75% Cv. Unsec. Sub. Nts., 6/1/06 30,000,000 19,462,500 - ---------------------------------------------------------------------------------------------- LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 11/1/06 37,500,000 31,921,875 - ---------------------------------------------------------------------------------------------- Micron Technology, Inc., 2.50% Cv. Sub. Nts., 2/1/10 4 2,500,000 2,409,375 ---------------- 56,875,125 - ---------------------------------------------------------------------------------------------- Telecommunication Services--0.8% - ---------------------------------------------------------------------------------------------- Diversified Telecommunication Services--0.1% Level 3 Communications, Inc., 6% Cv. Nts., 9/15/09 6,500,000 3,193,125 - ---------------------------------------------------------------------------------------------- Wireless Telecommunication Services--0.7% Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10 17,500,000 14,240,625 - ---------------------------------------------------------------------------------------------- Utilities--1.2% - ---------------------------------------------------------------------------------------------- Electric Utilities--0.8% Calpine Corp.: 4% Cv. Sr. Nts., 12/26/06 2,500,000 1,387,500 4% Cv. Sr. Unsec. Nts., 12/26/06 4 27,500,000 15,262,500 ---------------- 16,650,000 - ---------------------------------------------------------------------------------------------- Gas Utilities--0.4% El Paso Corp., Zero Coupon Cv. Debs., 7.05%, 2/28/21 9 27,500,000 9,487,500 ---------------- Total Convertible Corporate Bonds and Notes (Cost $488,310,201) 456,426,375 - ---------------------------------------------------------------------------------------------- Structured Notes--6.6% Bank of America Corp., Linked Sr. Nts., Series RTY, 7%, 3/3/04 (redemption linked to russell 2000 index) 10,000,000 10,025,000 - ---------------------------------------------------------------------------------------------- Credit Suisse First Boston Corp. (New York Branch): Cendant Corp. Equity Linked Nts., 5%, 2/7/04 1,400,000 16,800,000 Comcast Corp. Cv. Equity Linked Nts., 8%, 12/23/03 430,000 11,771,250
17 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Principal Market Value Amount See Note 1 - ---------------------------------------------------------------------------------------------- Structured Notes Continued Deutsche Bank AG, COUNTS Corp. Sec. Bond Linked Nts., Series 2003-1, 3.128%, 1/7/05 6,7 $ 7,150,000 $ 160,725 - ---------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The): Abbott Laboratories Cv. Medium Term Linked Nts., Series B, 7%, 7/27/03 684,300 23,536,499 GlobalSantaFe Corp. Cv. Linked Nts., 9%, 8/1/03 700,000 14,944,300 - ---------------------------------------------------------------------------------------------- Wyeth Cv. Medium Term Linked Nts., Series B, 11.50%, 7/27/03 836,100 27,267,729 - ---------------------------------------------------------------------------------------------- JPMorgan Chase Bank, High Yield Index Credit Linked Trust Nts., 8.75%, 11/15/07 13,390,000 13,724,750 - ---------------------------------------------------------------------------------------------- Merrill Lynch & Co., Inc., Capped Appreciation Linked Nts., 6%, 10/7/03 (linked to the performance of the standard & poor's 500 index) 10,000,000 10,519,850 - ---------------------------------------------------------------------------------------------- UBS AG, High Grade Credit-Linked Nts., 3.065%, 12/10/04 6 7,150,000 7,124,975 ---------------- Total Structured Notes (Cost $135,217,824) 142,875,078 - ---------------------------------------------------------------------------------------------- Joint Repurchase Agreements--1.3% Undivided interest of 2.92% in joint repurchase agreement (Market Value $933,657,000) with PaineWebber, Inc., 1.33%, dated 2/28/03, to be repurchased at $27,257,021 on 3/3/03, collateralized by Federal Home Loan Mortgage Corp., 6.50%, 8/1/32, with a value of $953,087,866 (Cost $27,254,000) 27,254,000 27,254,000 - ---------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $2,203,626,845) 105.2% 2,285,672,845 - ---------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets (5.2) (112,172,528) ------------------------------------- Net Assets 100.0% $2,173,500,317 =====================================
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 February 28, 2003. The aggregate fair value of securities of affiliated companies held by the Fund as of February 28, 2003 amounts to $86,847,092. Transactions during the period in which the issuer was an affiliate are as follows:
Shares/ Shares/ Unrealized Dividend/ Principal Gross Gross Principal Appreciation Interest August 31, 2002 Additions Reductions February 28, 2003 (Depreciation) Income - ----------------------------------------------------------------------------------------------------------------- Stocks and/or Warrants CSK Auto Corp. 1,862,614 4,532,386* -- 6,395,000 $(8,771,321) $ -- CSK Auto Corp., Restricted 4,524,886 -- 4,524,886* -- -- -- Enbridge Energy Management LLC -- 512,228 -- 512,228 1,726,528 -- Bonds and Notes CSK Auto, Inc., 12% Unsec. Nts., 6/15/06 $10,000,000 -- -- $10,000,000 972,770 850,549 -------------------------- $(6,072,023) $850,549 ==========================
*A portion of the transactions (4,524,886) was the result of a conversion from restricted common stock. 18 | OPPENHEIMER CAPITAL INCOME FUND 3. 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 Dates Price Received See Note 1 - ---------------------------------------------------------------------------------------------------------- Altria Group, Inc. 7,750 3/24/03 $40.00 $ 405,199 $232,500 Altria Group, Inc. 500 3/24/03 42.50 12,000 5,000 Altria Group, Inc. 1,000 4/21/03 42.50 24,000 15,000 Altria Group, Inc. 1,500 3/24/03 45.00 100,998 7,500 Altria Group, Inc. 500 3/24/03 50.00 15,000 -- Altria Group, Inc. 1,750 3/24/03 47.50 90,751 -- Altria Group, Inc. 250 6/23/03 50.00 12,250 -- BellSouth Corp. 1,000 4/21/03 25.00 336,995 30,000 Duke Energy Corp. 1,000 3/24/03 15.00 33,687 15,000 Exelon Corp. 500 3/24/03 50.00 94,749 65,000 FleetBoston Financial Corp. 500 3/24/03 27.50 28,250 -- FleetBoston Financial Corp. 3,350 4/21/03 30.00 248,144 -- FleetBoston Financial Corp. 250 7/21/03 35.00 13,400 -- J.P. Morgan Chase & Co. 1,250 3/24/03 30.00 111,248 -- J.P. Morgan Chase & Co. 1,000 3/24/03 27.50 51,499 -- J.P. Morgan Chase & Co. 500 3/24/03 32.50 22,000 -- Loews Corp./Carolina Group 250 4/21/03 22.50 10,500 12,500 Marathon Oil Corp. 750 3/24/03 22.50 41,124 60,000 Marathon Oil Corp. 1,500 4/21/03 25.00 33,499 15,000 Marathon Oil Corp. 2,500 7/21/03 25.00 139,998 137,500 PNC Financial Services Group 500 3/24/03 45.00 72,249 55,000 PNC Financial Services Group 500 3/24/03 47.50 15,400 15,000 PNC Financial Services Group 375 4/21/03 47.50 16,500 30,000 SBC Communications, Inc. 875 3/24/03 25.00 102,373 43,750 SBC Communications, Inc. 500 3/24/03 25.00 58,499 2,500 U.S. Bancorp 1,000 3/24/03 25.00 36,749 -- U.S. Bancorp 750 3/24/03 25.00 32,999 -- Xcel Energy, Inc. 500 3/24/03 12.50 19,500 5,000 ---------------------------- 2,179,560 746,250 ----------------------------
Contracts Subject to Put - ---------------------------------------------------------------------------------------------------------- Abbott Laboratories 500 5/19/03 42.50 240,996 355,000 ACE Ltd. 750 5/19/03 30.00 232,746 255,000 American International Group, Inc. 228 5/19/03 65.00 239,852 355,680 American International Group, Inc. 422 8/18/03 65.00 636,063 670,980 Boeing Co. 1,100 3/24/03 30.00 150,948 297,000 Bristol-Myers Squibb Co. 800 3/24/03 25.00 118,098 152,000 Bristol-Myers Squibb Co. 254 6/24/03 30.00 141,476 182,880 Cendant Corp. 1,000 4/21/03 10.00 26,500 10,000 Citigroup, Inc. 1,750 6/23/03 35.00 678,490 612,500 Citigroup, Inc. 250 6/23/03 35.00 112,998 87,500 Clear Channel Communications, Inc. 450 3/24/03 40.00 140,398 166,500 Clear Channel Communications, Inc. 550 4/21/03 30.00 86,599 27,500 Comcast Corp., Cl. A 1,250 3/24/03 22.50 112,773 6,250 Comcast Corp., Cl. A 1,000 4/21/03 25.00 106,998 80,000 Comcast Corp., Cl. A 1,250 4/21/03 22.50 195,472 37,500 ENSCO International, Inc. 1,000 3/24/03 30.00 276,800 225,000 Everest Re Group Ltd. 1,500 3/24/03 50.00 386,544 60,000 Everest Re Group Ltd. 1,000 4/21/03 50.00 307,245 90,000 Everest Re Group Ltd. 400 4/21/03 55.00 277,796 116,000 FleetBoston Financial Corp. 2,250 3/24/03 25.00 246,379 247,500 FleetBoston Financial Corp. 250 4/21/03 25.00 41,124 35,000
19 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued Footnotes to Statement of Investments Continued 3. Outstanding written options continued
Contracts Expiration Exercise Premium Market Value Subject to Put Dates Price Received See Note 1 - ---------------------------------------------------------------------------------------------------------- Hewlett-Packard Co. 2,000 4/21/03 $15.00 $ 153,248 $ 150,000 Home Depot, Inc. 500 3/24/03 20.00 44,499 -- J.P. Morgan Chase & Co. 500 3/24/03 25.00 143,498 127,500 Kraft Foods, Inc., Cl. A 1,000 4/21/03 30.00 141,998 135,000 Lockheed Martin Corp. 2,250 3/24/03 45.00 344,120 281,250 Lockheed Martin Corp. 750 3/24/03 55.00 432,743 682,500 Lyondell Chemical Co. 500 3/24/03 12.50 58,499 37,500 Micron Technology, Inc. 1,500 4/21/03 10.00 345,495 360,000 Micron Technology, Inc. 250 4/21/03 12.50 76,749 110,000 Micron Technology, Inc. 109 4/21/03 17.50 54,172 102,460 Morgan Stanley 450 4/21/03 45.00 372,144 369,000 Morgan Stanley 113 4/21/03 50.00 158,428 149,160 Pfizer, Inc. 1,250 3/24/03 32.50 316,245 325,000 Pfizer, Inc. 3,875 3/24/03 30.00 530,242 387,500 Pfizer, Inc. 1,120 3/24/03 35.00 541,644 560,000 Pharmacia Corp. 1,250 3/24/03 40.00 153,185 81,250 Pharmacia Corp. 500 4/21/03 40.00 108,498 75,000 SBC Communications, Inc. 375 3/24/03 25.00 66,374 153,750 Safeway, Inc. 600 3/24/03 25.00 122,698 294,000 Safeway, Inc. 875 6/23/03 25.00 420,369 437,500 Target Corp. 500 3/24/03 27.50 77,999 27,500 Unocal Corp. 500 4/21/03 30.00 103,498 190,000 Verizon Communications, Inc. 250 3/24/03 35.00 50,499 37,500 Verizon Communications, Inc. 366 4/21/03 35.00 89,242 82,350 ---------------------------- 9,662,381 9,225,510 ---------------------------- $11,841,941 $9,971,760 ============================
4. 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 $123,622,047 or 5.69% of the Fund's net assets as of February 28, 2003. 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 the current interest rate for a variable or increasing rate security. 7. Identifies issues considered to be illiquid. See Note 7 of Notes to Financial Statements. 8. When-issued security to be delivered and settled after February 28, 2003. 9. Zero coupon bond reflects effective yield on the date of purchase. 10. Denotes a step bond: a zero coupon bond that converts to a fixed or variable interest rate at a designated future date. 11. Securities with an aggregate market value of $4,077,967 are held in collateralized accounts to cover initial margin requirements on open futures sales contracts. See Note 5 of Notes to Financial Statements. See accompanying Notes to Financial Statements. 20 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES Unaudited
February 28, 2003 - ------------------------------------------------------------------------------------- Assets Investments, at value--see accompanying statement: Unaffiliated companies (cost $2,110,707,730) $2,198,825,753 Affiliated companies (cost $92,919,115) 86,847,092 ------------------- 2,285,672,845 - ------------------------------------------------------------------------------------- Cash used for collateral on written puts 6,537,718 - ------------------------------------------------------------------------------------- Receivables and other assets: Investments sold 22,502,087 Interest, dividends and principal paydowns 16,706,748 Shares of beneficial interest sold 1,635,214 Other 13,793 ------------------- Total assets 2,333,068,405 - ------------------------------------------------------------------------------------- Liabilities Bank overdraft 598,084 - ------------------------------------------------------------------------------------- Options written, at value (premiums received $11,841,941)--see accompanying statement 9,971,760 - ------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased (including $120,133,243 purchased on a when-issued basis) 143,584,737 Shares of beneficial interest redeemed 3,001,268 Distribution and service plan fees 843,608 Daily variation on futures contracts 775,046 Shareholder reports 366,990 Transfer and shareholder servicing agent fees 294,026 Trustees' compensation 6,966 Other 125,603 ------------------- Total liabilities 159,568,088 - ------------------------------------------------------------------------------------- Net Assets $2,173,500,317 =================== - ------------------------------------------------------------------------------------- Composition of Net Assets Par value of shares of beneficial interest $ 226,789 - ------------------------------------------------------------------------------------- Additional paid-in capital 2,266,182,308 - ------------------------------------------------------------------------------------- Undistributed net investment income 27,386,899 - ------------------------------------------------------------------------------------- Accumulated net realized loss on investment transactions (202,691,978) - ------------------------------------------------------------------------------------- Net unrealized appreciation on investments 82,396,299 ------------------- Net Assets $2,173,500,317 ===================
21 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES Unaudited / Continued
- ------------------------------------------------------------------------------------ Net Asset Value Per Share Class A Shares: Net asset value and redemption price per share (based on net assets of $1,802,699,396 and 187,780,732 shares of beneficial interest outstanding) $ 9.60 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $10.19 - ------------------------------------------------------------------------------------ Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $296,029,382 and 31,137,723 shares of beneficial interest outstanding) $ 9.51 - ------------------------------------------------------------------------------------ Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $69,145,441 and 7,281,617 shares of beneficial interest outstanding) $ 9.50 - ------------------------------------------------------------------------------------ Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $5,626,098 and 588,503 shares of beneficial interest outstanding) $ 9.56
See accompanying Notes to Financial Statements. 22 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF OPERATIONS Unaudited
For the Six Months Ended February 28, 2003 - ------------------------------------------------------------------------------------- Investment Income Interest: Unaffiliated companies (net of foreign withholding taxes of $21,250) $ 48,355,418 Affiliated companies 850,549 - ------------------------------------------------------------------------------------- Dividends (net of foreign withholding taxes of $13,363) 25,217,095 ------------------ Total investment income 74,423,062 - ------------------------------------------------------------------------------------- Expenses Management fees 5,759,462 - ------------------------------------------------------------------------------------- Distribution and service plan fees: Class A 2,080,978 Class B 1,504,874 Class C 346,108 Class N 11,189 - ------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 1,143,146 Class B 386,497 Class C 70,518 Class N 6,627 - ------------------------------------------------------------------------------------- Shareholder reports 133,193 - ------------------------------------------------------------------------------------- Custodian fees and expenses 34,808 - ------------------------------------------------------------------------------------- Trustees' compensation 22,835 - ------------------------------------------------------------------------------------- Other 214,819 ------------------ Total expenses 11,715,054 Less reduction to custodian expenses (2,974) ------------------ Net expenses 11,712,080 - ------------------------------------------------------------------------------------- Net Investment Income 62,710,982 - ------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments (including premiums on options exercised) (119,541,235) Closing of futures contracts (5,805,996) Closing and expiration of option contracts written 14,651,785 ------------------ Net realized loss (110,695,446) - ------------------------------------------------------------------------------------- Net change in unrealized appreciation on investments 60,152,951 ------------------ Net realized and unrealized loss (50,542,495) - ------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $12,168,487 ==================
See accompanying Notes to Financial Statements. 23 | OPPENHEIMER CAPITAL INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS
Six Months Year Ended Ended February 28, 2003 August 31, (Unaudited) 2002 - --------------------------------------------------------------------------------------------------- Operations Net investment income $ 62,710,982 $ 118,056,600 - --------------------------------------------------------------------------------------------------- Net realized loss (110,695,446) (90,115,149) Net change in unrealized appreciation (depreciation) 60,152,951 (553,296,798) ---------------------------------------------- Net increase (decrease) in net assets resulting from operations 12,168,487 (525,355,347) - --------------------------------------------------------------------------------------------------- Dividends and/or Distributions to Shareholders Dividends from net investment income: Class A (45,535,971) (93,931,397) Class B (6,350,837) (14,424,307) Class C (1,474,453) (2,953,586) Class N (96,304) (106,899) - --------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A -- (64,030,274) Class B -- (12,137,001) Class C -- (2,393,666) Class N -- (61,281) - --------------------------------------------------------------------------------------------------- Beneficial Interest Transactions Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A (36,892,676) (904,695) Class B (25,295,473) (41,599,972) Class C (2,337,442) 5,678,706 Class N 1,626,284 4,218,615 - --------------------------------------------------------------------------------------------------- Net Assets Total decrease (104,188,385) (748,001,104) - --------------------------------------------------------------------------------------------------- Beginning of period 2,277,688,702 3,025,689,806 ---------------------------------------------- End of period [including undistributed net investment income of $27,386,899 and $18,133,482, respectively] $2,173,500,317 $2,277,688,702 ==============================================
See accompanying Notes to Financial Statements. 24 | OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS
Six Months Year Ended Ended February 28, 2003 August 31, Class A (Unaudited) 2002 2001 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 9.76 $12.72 $ 12.88 $ 13.63 $ 13.75 $ 14.12 - --------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .28 .51 .42 .49 .51 .50 Net realized and unrealized gain (loss) (.20) (2.66) .41 .32 1.03 .41 ------------------------------------------------------------------------- Total from investment operations .08 (2.15) .83 .81 1.54 .91 - --------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.24) (.48) (.48) (.49) (.49) (.49) Distributions from net realized gain -- (.33) (.51) (1.07) (1.17) (.79) ------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.24) (.81) (.99) (1.56) (1.66) (1.28) - --------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.60 $9.76 $12.72 $12.88 $13.63 $13.75 ========================================================================= - --------------------------------------------------------------------------------------------------------------------------- Total Return, at Net Asset Value 1 0.86% (17.75)% 6.84% 7.24% 11.03% 6.17% - --------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $1,802,699 $1,873,458 $2,458,272 $2,395,444 $2,926,923 $2,889,472 - --------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $1,794,708 $2,224,911 $2,432,151 $2,502,535 $3,156,294 $3,071,928 - --------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 2 Net investment income 5.97% 4.48% 3.21% 3.78% 3.51% 3.47% Expenses 0.93% 0.98% 0.91% 0.93% 0.89% 0.87% 3 - --------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 73% 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. 25 | OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS Continued
Six Months Year Ended Ended February 28, 2003 August 31, Class B (Unaudited) 2002 2001 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 9.67 $12.60 $ 12.76 $ 13.51 $ 13.63 $ 14.01 - ---------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .24 .41 .32 .38 .39 .39 Net realized and unrealized gain (loss) (.21) (2.62) .41 .32 1.03 .40 -------------------------------------------------------------------- Total from investment operations .03 (2.21) .73 .70 1.42 .79 - ---------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.19) (.39) (.38) (.38) (.37) (.38) Distributions from net realized gain -- (.33) (.51) (1.07) (1.17) (.79) -------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.19) (.72) (.89) (1.45) (1.54) (1.17) - ---------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.51 $9.67 $12.60 $12.76 $13.51 $13.63 ==================================================================== - ---------------------------------------------------------------------------------------------------------------------- Total Return, at Net Asset Value 1 0.38% (18.31)% 6.05% 6.34% 10.22% 5.32% - ---------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $296,029 $327,368 $477,223 $472,222 $720,721 $634,775 - ---------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $303,297 $410,652 $469,690 $546,390 $749,020 $574,986 - ---------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 2 Net investment income 5.08% 3.67% 2.44% 3.01% 2.71% 2.68% Expenses 1.83% 1.76% 1.68% 1.70% 1.69% 1.67% 3 - ---------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 73% 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
Six Months Year Ended Ended February 28, 2003 August 31, Class C (Unaudited) 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 9.66 $12.59 $ 12.76 $ 13.50 $ 13.63 $ 14.02 - ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .24 .42 .32 .38 .39 .39 Net realized and unrealized gain (loss) (.20) (2.62) .40 .32 1.02 .40 --------------------------------------------------------------- Total from investment operations .04 (2.20) .72 .70 1.41 .79 - ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.20) (.40) (.38) (.37) (.38) (.39) Distributions from net realized gain -- (.33) (.51) (1.07) (1.16) (.79) --------------------------------------------------------------- Total dividends and/or distributions to shareholders (.20) (.73) (.89) (1.44) (1.54) (1.18) - ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.50 $ 9.66 $12.59 $12.76 $13.50 $13.63 =============================================================== - ----------------------------------------------------------------------------------------------------------------- Total Return, at Net Asset Value 1 0.42% (18.30)% 6.00% 6.40% 10.15% 5.30% - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $69,145 $72,792 $89,547 $73,346 $119,284 $94,995 - ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $69,776 $84,049 $80,390 $84,898 $119,594 $77,052 - ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 2 Net investment income 5.14% 3.74% 2.44% 3.01% 2.70% 2.68% Expenses 1.77% 1.76% 1.68% 1.70% 1.69% 1.67% 3 - ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 73% 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
Six Months Year Ended Ended February 28, 2003 August 31, Class N (Unaudited) 2002 2001 1 - ----------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 9.73 $12.69 $ 12.96 - ----------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .25 .50 .28 Net realized and unrealized loss (.20) (2.66) (.30) ---------------------------------- Total from investment operations .05 (2.16) (.02) - ----------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.22) (.47) (.25) Distributions from net realized gain -- (.33) -- ---------------------------------- Total dividends and/or distributions to shareholders (.22) (.80) (.25) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $9.56 $ 9.73 $12.69 ================================== - ----------------------------------------------------------------------------------------------------------- Total Return, at Net Asset Value 2 0.55% (17.89)% (0.18)% - ----------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $5,626 $4,071 $648 - ----------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $4,521 $2,839 $214 - ----------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 5.61% 4.74% 2.94% Expenses 1.37% 1.25% 1.17% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 73% 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. 28 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited - -------------------------------------------------------------------------------- 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. 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 February 28, 2003, the market value of these securities comprised 6.6% of the Fund's net assets, and resulted in unrealized gains in the current period of $7,657,254. 29 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Continued 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 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 commitments. These transactions of securities on a when-issued basis may increase the volatility of the Fund's net asset value to the extent the Fund executes such transactions while remaining substantially fully invested. As of February 28, 2003, the Fund had entered into when-issued purchase commitments of $120,133,243. 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. - -------------------------------------------------------------------------------- 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 30 | OPPENHEIMER CAPITAL INCOME FUND 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 February 28, 2003, the Fund had available for federal income tax purposes an estimated unused capital loss carryforward of $181,996,494. This estimated capital loss carryforward represents losses deferred under tax accounting rules for the current fiscal year and is increased or decreased by capital losses or gains realized in the first six months of the current fiscal year. During the period, the Fund used $0 of carryforward to offset capital gains realized. - -------------------------------------------------------------------------------- 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 paydown gains and losses and 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. The tax character of distributions paid during the six months ended February 28, 2003 and the year ended August 31, 2002 was as follows: Six Months Ended Year Ended February 28, 2003 August 31, 2002 ------------------------------------------------------------------------------- Distributions paid from: $53,457,565 $ 118,904,111 Ordinary income -- 71,134,300 Long-term capital gain -- -- Return of capital ----------------------------- $53,457,565 $ 190,038,411 Total ============================= 31 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Continued 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. - -------------------------------------------------------------------------------- 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:
Six Months Ended February 28, 2003 Year Ended August 31, 2002 Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------------- Class A Sold 10,024,149 $ 95,168,721 18,148,756 $ 206,380,355 Dividends and/or distributions reinvested 4,412,625 41,892,074 12,606,412 145,364,495 Redeemed (18,534,873) (173,953,471) (32,149,618) (352,649,545) ------------------------------------------------------------------------ Net decrease (4,098,099) $ (36,892,676) (1,394,450) $ (904,695) ======================================================================== - ---------------------------------------------------------------------------------------------------- Class B Sold 2,563,378 $ 24,037,381 6,320,365 $ 70,958,107 Dividends and/or distributions reinvested 640,435 6,027,315 2,201,008 25,204,122 Redeemed (5,928,787) (55,360,169) (12,525,612) (137,762,201) ------------------------------------------------------------------------ Net decrease (2,724,974) $ (25,295,473) (4,004,239) $ (41,599,972) ======================================================================== - ---------------------------------------------------------------------------------------------------- Class C Sold 800,735 $ 7,513,374 1,886,328 $ 21,124,579 Dividends and/or distributions reinvested 144,262 1,356,491 432,179 4,940,085 Redeemed (1,200,786) (11,207,307) (1,891,475) (20,385,958) ------------------------------------------------------------------------ Net increase (decrease) (255,789) $ (2,337,442) 427,032 $ 5,678,706 ========================================================================
32 | OPPENHEIMER CAPITAL INCOME FUND
Six Months Ended February 28, 2003 Year Ended August 31, 2002 Shares Amount Shares Amount - --------------------------------------------------------------------------------------------------- Class N Sold 221,341 $2,096,967 472,713 $ 5,351,965 Dividends and/or distributions reinvested 10,088 95,374 14,683 167,638 Redeemed (61,531) (566,057) (119,826) (1,300,988) ------------------------------------------------------------------- Net increase 169,898 $1,626,284 367,570 $ 4,218,615 ===================================================================
- -------------------------------------------------------------------------------- 3. Purchases and Sales of Securities The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the six months ended February 28, 2003, were $1,623,764,218 and $1,719,494,959, respectively. - -------------------------------------------------------------------------------- 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 of the Fund, 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. - -------------------------------------------------------------------------------- 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. 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 Six Months on Class A Retained by Advanced by Advanced by Advanced by Advanced by Ended Shares Distributor Distributor 1 Distributor 1 Distributor 1 Distributor 1 - ----------------------------------------------------------------------------------------------------------------------- February 28, 2003 $752,123 $189,157 $118,624 $587,733 $43,125 $17,344
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. 33 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued - -------------------------------------------------------------------------------- 4. Fees and Other Transactions with Affiliates Continued
Class A Class B Class C Class N Contingent Contingent Contingent Contingent Deferred Deferred Deferred Deferred Sales Charges Sales Charges Sales Charges Sales Charges Six Months Retained by Retained by Retained by Retained by Ended Distributor Distributor Distributor Distributor - --------------------------------------------------------------------------------------------------------------------------- February 28, 2003 $5,509 $500,413 $4,614 $1,328
- -------------------------------------------------------------------------------- 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 six months ended February 28, 2003, payments under the Class A Plan totaled $2,080,978, all of which were paid by the Distributor to recipients, and included $128,913 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 six months ended February 28, 2003, 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 $1,504,874 $1,177,139 $10,197,680 3.44% Class C Plan 346,108 66,741 2,262,078 3.27 Class N Plan 11,189 9,697 128,084 2.28
- -------------------------------------------------------------------------------- 5. 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 34 | OPPENHEIMER CAPITAL INCOME FUND 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 on the Statement of Operations as closing and expiration of futures contracts. 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 February 28, 2003, the Fund had outstanding futures contracts as follows:
Unrealized Expiration Number of Valuation as of Appreciation Contract Description Dates Contracts February 28, 2003 (Depreciation) - ------------------------------------------------------------------------------------------------------- Contracts to Purchase Euro-Bundesobligation 6/6/03 151 $ 18,844,568 $ 52,079 U.S. Treasury Nts., 2 yr. 6/26/03 179 38,543,734 52,188 ------------- 104,267 ------------- Contracts to Sell U.S. Long Bonds 6/19/03 283 32,394,656 (495,250) U.S. Treasury Nts., 5 yr. 6/19/03 654 74,361,844 (263,945) U.S. Treasury Nts., 10 yr. 6/19/03 908 104,760,500 (864,953) ------------- (1,624,148) ------------- $(1,519,881) =============
- -------------------------------------------------------------------------------- 6. Option Activity The Fund may buy and sell put and call options, or write put and covered call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Fund generally purchases put options or writes covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Fund receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase 35 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued - -------------------------------------------------------------------------------- 6. Option Activity Continued 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. Written option activity for the six months ended February 28, 2003 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, 2002 2,000 $ 337,870 21,072 $ 10,362,607 Options written 120,371 9,868,782 108,820 27,966,064 Options closed or expired (84,791) (6,518,271) (82,726) (24,893,713) Options exercised (4,980) (1,508,821) (7,829) (3,772,577) -------------------------------------------------------- Options outstanding as of February 28, 2003 32,600 $ 2,179,560 39,337 $ 9,662,381 ========================================================
- -------------------------------------------------------------------------------- 7. Illiquid Securities As of February 28, 2003, investments in securities included issues that are illiquid. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. The Fund intends to invest no more than 10% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid securities. The aggregate value of illiquid securities subject to this limitation as of February 28, 2003 was $20,825,055, which represents 0.96% of the Fund's net assets. - -------------------------------------------------------------------------------- 8. Bank Borrowings The Fund had the ability to borrow from a bank for temporary or emergency purposes provided asset coverage for borrowings exceeded 300%. The Fund and other Oppenheimer funds participated in a $400 million unsecured line of credit with a bank. Under that unsecured line of credit, interest was charged to each fund, based on its borrowings, at a rate equal to the Federal Funds Rate plus 0.45%. Under that credit facility, the Fund paid 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 credit facility was terminated on November 12, 2002. The Fund had no borrowings through November 12, 2002. 36 | OPPENHEIMER CAPITAL INCOME FUND OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- Trustees and Officers James C. Swain, Chairman and Trustee John V. Murphy, President and Trustee William L. Armstrong, Trustee Robert G. Avis, Trustee George C. Bowen, Trustee Edward L. Cameron, Trustee Jon S. Fossel, Trustee Sam Freedman, Trustee Beverly L. Hamilton, Trustee Robert J. Malone, Trustee F. William Marshall, Jr., Trustee Michael Levine, Vice President Robert G. Zack, Vice President and Secretary Brian W. Wixted, Treasurer - -------------------------------------------------------------------------------- Investment Advisor OppenheimerFunds, Inc. - -------------------------------------------------------------------------------- Distributor OppenheimerFunds Distributor, Inc. - -------------------------------------------------------------------------------- Transfer and Shareholder OppenheimerFunds Services Servicing Agent - -------------------------------------------------------------------------------- Independent Auditors Deloitte & Touche LLP - -------------------------------------------------------------------------------- Legal Counsel Myer, Swanson, Adams & Wolf, P.C. to the Fund - -------------------------------------------------------------------------------- Legal Counsel to the Mayer Brown Rowe & Maw Independent Trustees The financial statements included herein have been taken from the records of the Fund without examination of those records by the independent auditors. (C)Copyright 2003 OppenheimerFunds, Inc. All rights reserved. 37 | OPPENHEIMER CAPITAL INCOME FUND INFORMATION AND SERVICES [GRAPHIC] 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. [LOGO] OppenheimerFunds(R) Distributor, Inc. RS0300.001.0203 April 29, 2003 -----END PRIVACY-ENHANCED MESSAGE-----