-----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, ATX8aVhljJyQ7xAbOVHFLJ//SW3Qkbr7OopZiP67BbE/I0Yzq8nvYR3Bm7A9YhYW bCfjJ0NJk0uh1CC/I8OHkA== 0000950130-00-002649.txt : 20000509 0000950130-00-002649.hdr.sgml : 20000509 ACCESSION NUMBER: 0000950130-00-002649 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER CAPITAL INCOME FUND CENTRAL INDEX KEY: 0000045156 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 840578481 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01512 FILM NUMBER: 621832 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3036713200 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19830428 N-30D 1 OPPENHEIMER CAPITAL INCOME FUND [GRAPHIC] Semiannual Report February 29, 2000 Oppenheimer Capital Income Fund [LOGO OF OPPENHEIMER FUNDS] REPORT HIGHLIGHTS CONTENTS 1 President's Letter 3 An Interview with Your Fund's Managers 9 Financial Statements 37 Officers and Trustees Value stocks continued to underperform growth stocks over the reporting period. Rising interest rates hindered the returns of the Fund's holdings in the banking sector. Oil and energy holdings in the portfolio contributed to the Fund's performance. Cumulative Total Returns For the 6-Month Period Ended 2/29/00* Class A Without With Sales Chg. Sales Chg. - ---------------------------- - -8.58% -13.84% Class B Without With Sales Chg. Sales Chg. - ---------------------------- - -8.94% -13.05% Class C Without With Sales Chg. Sales Chg. - ---------------------------- - -8.88% -9.70% Not FDIC Insured. No Bank Guarantee. May Lose Value. *See page 7 for further details. PRESIDENT'S LETTER Dear shareholder, [PHOTO] [PHOTO] James C. Swain Bridget A. Macaskill Chairman President Oppenheimer Oppenheimer Capital Income Fund Capital Income Fund For many years, we have encouraged investors to consider whether they could tolerate more risk in their long-term investments by participating in the stock market, which has historically provided higher long-term returns than any other asset class. Today, however, we have a very different concern: some investors may be assuming too much risk by concentrating their investments in just a handful of stocks or sectors or by "chasing performance." Alan Greenspan, the Chairman of the Federal Reserve Board, has stated his view that the recent spectacular returns of some sectors of the market are partly responsible for pushing our economy to growth rates that could lead to higher inflation. The dramatic rise in the prices of a narrow segment of the market has created enormous wealth for some investors. In turn, those investors are spending at a rate that the Fed believes may threaten the healthy growth of our economy. That's why the Fed has been raising interest rates steadily and decisively over the past year. By making borrowing more expensive, the Fed is attempting to slow economic growth. It is a precarious balancing act: too much tightening creates the risk of recession, while too little opens the door to inflation. The implications are clear: investors must be prepared for near-term market volatility. In the bond market, higher interest rates usually lead to lower bond prices. In the stock market, slower economic growth could reduce corporate earnings and put downward pressure on stock prices. Highly valued stocks may be particularly vulnerable to a correction. The Securities and Exchange Commission Chairman, Arthur Levitt, has cautioned investors against the expectation that the types of returns seen in the recent bull market will last forever. We agree. 1 OPPENHEIMER CAPITAL INCOME FUND PRESIDENT'S LETTER Because of the prospect of continued market volatility, we encourage you to consider diversifying your investments. Indeed, diversification may help you mitigate the effects of sharp declines in any one area. It may also help you better position your portfolio to seek greater returns over the long run. While "new economy" stocks have risen since our last report to you, many "old economy" stocks are selling at unusually low prices. In the bond market, higher interest rates over the short term may reduce inflation concerns, which should be beneficial over the long term. By buying out-of-favor investments, you may be able to profit when and if they return to favor in the future. Of course, there is no assurance that value investing will return to favor in the market, but it may be a diversification strategy to consider for part of your portfolio. What specific investments should you consider today so that you are prepared for tomorrow? The answer depends on your individual investing goals, risk tolerance and financial circumstances. We urge you to talk with your financial advisor about ways to diversify your portfolio. This may include considering global diversification as part of your strategy. While investing abroad has special risks, such as the effects of foreign currency fluctuation, it also offers opportunities to participate in global economic growth and to hedge against the volatility in U.S. markets. We thank you for your continued confidence in OppenheimerFunds, The Right Way to Invest. Sincerely, /s/ James C. Swain /s/ Bridget A. Macaskill James C. Swain Bridget A. Macaskill March 21, 2000 2 OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGERS [PHOTO] Portfolio Management Team (l to r) John Doney, Michael Levine How would you describe the Fund's performance for the six-month period that ended February 29, 2000? A. Oppenheimer Capital Income Fund's primary objective is to provide current income for its shareholders. On that front, we were successful, as the Fund maintained a steady dividend during the last six months. However, we were less successful in producing capital appreciation for the portfolio while seeking to preserve capital. The markets in general have overlooked many of the stocks we invest in, and have instead focused on growth and technology stocks. What other factors affected the Fund's performance? Market conditions over the period were highly unusual. While the overall stock market has produced strong results for the last six months, less than half of the issues listed on the New York Stock Exchange produced positive returns. The exceptional performance we've heard so much about was limited to a narrow group of stocks. In addition, we've seen the average holding period of stocks by investors fall steadily downward. Part of this trend is due to investors capitalizing on the strong gains posted by the technology sector and, in particular, Internet stocks. Our long-term, value-oriented investment style did not lead us to the areas that produced the strongest results. 3 OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGERS "We believe that value stocks' compelling business fundamentals and appreciation opportunities should again prove attractive to investors." How would you characterize the environment for value stocks? It has been a very challenging period for value stocks.To a great extent,investors have turned their backs on these investments.As a result,we've seen the prices of many growth stocks rise to historically high levels compared to their value counterparts.This has occurred despite good earnings and excellent business prospects of many value companies as measured by historical standards. How has this impacted Oppenheimer Capital Income Fund? Our investment strategy focuses on dividend paying equities- many of which we classify as value stocks.We also typically hold a meaningful portion of the portfolio in fixed income securities to help generate additional income.The past year proved to be one of the worst on record for the overall bond market.All told,these factors made it extremely difficult for the Fund to meet its primary investment objective of providing current income while also attempting to provide capital appreciation. Have you altered your investment strategy in this environment? We have continued to manage the Fund's portfolio in a consistent manner,with an emphasis on long-term opportunities. While our strategy was not rewarded in recent months,we have not abandoned our approach.It's our opinion that many of the current market trends are not sustainable.In particular, we believe that many growth stocks are excessively priced.As valuations move toward more historical levels we expect investors will once again embrace the positive fundamentals offered by many value stocks. 4 OPPENHEIMER CAPITAL INCOME FUND Average Annual Total Returns For the Periods Ended 3/31/00/1/ Class A 1-Year 5-Year 10-Year - ------------------------------------------ - -7.38% 13.50% 10.79% Class B Since 1-Year 5-Year Inception - ------------------------------------------ - -6.80% 13.69% 11.20% Class C Since 1-Year 5-Year Inception - ------------------------------------------ - -3.27% N/A 12.53% What were some of the Fund's strongest performers in recent months? Few value stock sectors demonstrated consistently positive performance, due to the general market conditions favoring growth stocks and the technology sector. However, our oil and energy investments during the last six months have performed well. Oil prices have risen sharply, as foreign producers have lived up to their promise to restrain output levels. This, coupled with an increase in demand, has led to appreciation in our oil and energy stocks. Conversely, what areas were the weakest performers? 1999 proved to be the worst year for bank stocks in over half a century, as rising interest rates negatively impacted the sector. One of the Fund's largest holdings, Bank One Corporation, was extremely disappointing, as it experienced poor results in various business operations. We have subsequently reduced our exposure. Our electric utilities holdings suffered as well, due to the fact that these stocks tend to be sensitive to interest rate fluctuations. In addition, the federal government's desire to rein in costs and reduce medicaid and medicare expenditures negatively impacted the returns of our holdings in pharmaceutical stocks. As such, we have reduced our exposure to this sector. What is your outlook over the coming months? We believe that the disparity of returns of growth and value stocks cannot continue indefinitely. We anticipate that this trend will begin to reverse when high growth and technology stocks experience a correction. In the short term, a market adjustment in these sectors could drag down other sectors as well. Therefore, we have taken a defensive stance by focusing on stocks that have historically held up well during periods of market fluctuation. 1. See page 7 for further details. 5 OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGERS Portfolio Allocation2 [GRAPH] . Stocks 73.7% . Bonds 25.6 . Cash Equivalents 0.7 Overall, we believe that the compelling business fundamentals and appreciation opportunities offered by value stocks will again prove appealing to investors. As such, we remain optimistic about the long-term prospects for the Fund, and believe it continues to be an important part of The Right Way to Invest. Top Five Common Stock Industries3 - ----------------------------------------------------------- Banks 13.6% - ----------------------------------------------------------- Oil - Domestic 5.3 - ----------------------------------------------------------- Diversified Financial 4.6 - ----------------------------------------------------------- Electric Utilities 3.3 - ----------------------------------------------------------- Insurance 3.2 Top Ten Common Stock Holdings3 - ----------------------------------------------------------- Citigroup Inc. 3.0% - ----------------------------------------------------------- Bank of America Corp. 2.2 - ----------------------------------------------------------- Chase Manhattan Corp. 2.0 - ----------------------------------------------------------- First Union Corp. 2.0 - ----------------------------------------------------------- Enron Corp. 1.9 - ----------------------------------------------------------- SFX Entertainment, Inc. Cl.A 1.4 - ----------------------------------------------------------- FleetBoston Financial Corp. 1.3 - ----------------------------------------------------------- Bank One Corp. 1.1 - ----------------------------------------------------------- Dynegy, Inc. 1.1 - ----------------------------------------------------------- Motorola, Inc. 1.0 2. Portfolio is subject to change. Percentages are as of February 29, 2000, and are based on total market value of investments. 3. Portfolio is subject to change. Percentages are as of February 29, 2000, and are based on net assets. 6 OPPENHEIMER CAPITAL INCOME FUND NOTES In reviewing performance and rankings,please remember that past performance does not guarantee future results.Investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares,when redeemed,maybe worth more or less than the original cost.Because of ongoing market volatility,the Fund's performance maybe subject to substantial short-term changes.For updates on the Fund's performance,please contact your financial advisor,call us at 1.800.525.7048 or 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 show the effects 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. Class A The inception date of the Fund was 12/1/70.Class Are turns include the current maximum initial sales charge of 5.75%,except where noted.The Fund's maximum sales charge for Class As shares was higher prior to 10/18/91,so an individual's account performance may have been less for that period. Class B shares of the Fund were first publicly offered on 8/17/93.Except where noted,Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 1% (5-year).Because Class B shares convert to Class A shares 72 months after purchase,the "life-of-class"return for Class B uses Class A performance for the period after conversion.Class B shares are subject to an annual 0.75% asset-based sales charge. Class C shares of the Fund were first public offered on 11/1/95. 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. An explanation of the different performance calculations is in the Fund's prospectus. 7 OPPENHEIMER CAPITAL INCOME FUND Financials 8 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS February 29, 2000 / Unaudited Market Value Shares See Note 1 ================================================================================ Common Stocks--62.0% - -------------------------------------------------------------------------------- Basic Materials--2.9% - -------------------------------------------------------------------------------- Chemicals--0.7% Dexter Corp. 316,400 $14,593,950 - -------------------------------------------------------------------------------- Engelhard Corp. 485,000 6,608,125 ---------- 21,202,075 - -------------------------------------------------------------------------------- Gold & Precious Minerals--0.4% Barrick Gold Corp. 200,000 3,262,500 - -------------------------------------------------------------------------------- Homestake Mining Co. 500,000 3,250,000 - -------------------------------------------------------------------------------- Newmont Mining Corp. 200,000 4,425,000 ---------- 10,937,500 - -------------------------------------------------------------------------------- Metals--0.1% AK Steel Holding Corp. 28,585 237,613 - -------------------------------------------------------------------------------- Freeport-McMoRan Copper & Gold, Inc., Cl. B1 200,000 2,750,000 ---------- 2,987,613 - -------------------------------------------------------------------------------- Paper--1.7% International Paper Co. 340,413 12,531,454 - -------------------------------------------------------------------------------- Smurfit-Stone Container Corp.1 257,142 3,503,560 - -------------------------------------------------------------------------------- Sonoco Products Co. 642,580 11,847,569 - -------------------------------------------------------------------------------- Westvaco Corp. 374,050 10,309,753 - -------------------------------------------------------------------------------- Weyerhaeuser Co. 200,000 10,262,500 ---------- 48,454,836 - -------------------------------------------------------------------------------- Capital Goods--3.4% - -------------------------------------------------------------------------------- Electrical Equipment--0.3% CommScope, Inc.1 100,000 3,893,750 - -------------------------------------------------------------------------------- Etec Systems, Inc.1 50,000 5,889,062 ---------- 9,782,812 - -------------------------------------------------------------------------------- Industrial Services--0.4% Coflexip SA, Sponsored ADR1 45,000 2,016,562 - -------------------------------------------------------------------------------- Republic Services, Inc.1 885,000 9,624,375 ----------- 11,640,937 9 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Manufacturing--2.7% Cooper Industries, Inc. 120,858 $ 3,655,954 - -------------------------------------------------------------------------------- Honeywell International, Inc. 300,000 14,437,500 - -------------------------------------------------------------------------------- Mettler-Toledo International, Inc.1 100,000 3,862,500 - -------------------------------------------------------------------------------- Packaging Corp. of America1 200,000 2,175,000 - -------------------------------------------------------------------------------- Pall Corp. 792,700 15,655,825 - -------------------------------------------------------------------------------- Temple-Inland, Inc. 248,000 12,679,000 - -------------------------------------------------------------------------------- Tyco International Ltd. 647,942 24,581,300 ---------- 77,047,079 - -------------------------------------------------------------------------------- Communication Services--1.7% - -------------------------------------------------------------------------------- Telecommunications-Long Distance--0.8% MCI WorldCom, Inc.1 50,000 2,231,250 - -------------------------------------------------------------------------------- Sprint Corp. (Fon Group) 350,000 21,350,000 ---------- 23,581,250 - -------------------------------------------------------------------------------- Telephone Utilities--0.9% GTE Corp. 265,000 15,635,000 - -------------------------------------------------------------------------------- SBC Communications, Inc. 185,000 7,030,000 - -------------------------------------------------------------------------------- U S West, Inc. 32,500 2,360,312 ---------- 25,025,312 - -------------------------------------------------------------------------------- Consumer Cyclicals--3.8% - -------------------------------------------------------------------------------- Autos & Housing--0.6% Dana Corp. 77,500 1,651,719 - -------------------------------------------------------------------------------- Delphi Automotive Systems Corp. 300,000 5,006,250 - -------------------------------------------------------------------------------- Snap-On, Inc. 494,900 10,795,006 ---------- 17,452,975 - -------------------------------------------------------------------------------- Consumer Services--0.9% Dun & Bradstreet Corp. 440,600 11,538,212 - -------------------------------------------------------------------------------- H&R Block, Inc. 295,400 12,960,675 ---------- 24,498,887 - -------------------------------------------------------------------------------- Leisure & Entertainment--0.2% Harrah's Entertainment, Inc.1 200,000 3,825,000 - -------------------------------------------------------------------------------- Host Marriott Corp. 125,000 1,109,375 ----------- 4,934,375 10 OPPENHEIMER CAPITAL INCOME FUND Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Media--1.0% Deluxe Corp. 651,800 $15,276,562 - -------------------------------------------------------------------------------- Hollinger International, Inc 694,800 8,381,025 - -------------------------------------------------------------------------------- Time Warner, Inc 50,000 4,275,000 ---------- 27,932,587 - -------------------------------------------------------------------------------- Retail: General--0.3% Family Dollar Stores, Inc 450,000 7,818,750 - -------------------------------------------------------------------------------- Retail: Specialty--0.8% Abercrombie & Fitch Co., Cl. A1 155,000 2,276,562 - -------------------------------------------------------------------------------- Circuit City Stores-Circuit City Group 45,000 1,816,875 - -------------------------------------------------------------------------------- CSK Auto Corp.1, 2 1,475,000 16,962,500 - -------------------------------------------------------------------------------- Tandy Corp. 37,500 1,427,344 ---------- 22,483,281 - -------------------------------------------------------------------------------- Consumer Staples--7.2% - -------------------------------------------------------------------------------- Broadcasting--1.8% AMFM, Inc.1 275,000 16,878,125 - -------------------------------------------------------------------------------- CBS Corp.1 100,000 5,956,250 - -------------------------------------------------------------------------------- Charter Communications,Inc., Cl. A1 275,700 4,841,981 - -------------------------------------------------------------------------------- Fox Entertainment Group, Inc., A Shares1 125,000 3,289,062 - -------------------------------------------------------------------------------- Infinity Broadcasting Corp., Cl. A1 175,000 5,589,062 - -------------------------------------------------------------------------------- RCN Corp.1, 3 250,000 14,968,750 ---------- 51,523,230 - -------------------------------------------------------------------------------- Entertainment--1.5% Royal Caribbean Cruises Ltd. 50,000 1,768,750 - -------------------------------------------------------------------------------- SFX Entertainment, Inc., Cl. A1 1,050,000 40,425,000 ---------- 42,193,750 - -------------------------------------------------------------------------------- Food--1.1% General Mills, Inc 100,000 3,293,750 - -------------------------------------------------------------------------------- Heinz (H.J.) Co. 400,000 12,775,000 - -------------------------------------------------------------------------------- Nabisco Group Holdings Corp. 1,675,000 14,446,875 ---------- 30,515,625 - -------------------------------------------------------------------------------- Food & Drug Retailers--0.8% Albertson's, Inc 90,000 2,205,000 - -------------------------------------------------------------------------------- Kroger Co.1 150,000 2,231,250 - -------------------------------------------------------------------------------- SUPERVALU, Inc 990,800 17,029,375 ---------- 21,465,625 11 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Household Goods--0.7% Fort James Corp. 660,300 $ 12,421,894 - -------------------------------------------------------------------------------- Newell Rubbermaid, Inc. 269,800 6,239,125 ---------- 18,661,019 Tobacco--1.3% - -------------------------------------------------------------------------------- Philip Morris Cos., Inc. 1,175,000 23,573,437 - -------------------------------------------------------------------------------- R.J. Reynolds Tobacco Holdings, Inc. 250,000 4,500,000 - -------------------------------------------------------------------------------- UST, Inc. 400,000 7,725,000 ---------- 35,798,437 - -------------------------------------------------------------------------------- Energy--7.5% - -------------------------------------------------------------------------------- Energy Services--1.8% Coastal Corp. 100,000 4,206,250 - -------------------------------------------------------------------------------- Constellation Energy Group 150,000 4,462,500 - -------------------------------------------------------------------------------- Cooper Cameron Corp.1 40,000 2,210,000 - -------------------------------------------------------------------------------- Dynegy, Inc. 650,000 30,468,750 - -------------------------------------------------------------------------------- ENSCO International, Inc. 60,000 1,815,000 - -------------------------------------------------------------------------------- Global Marine, Inc.1 160,000 3,590,000 - -------------------------------------------------------------------------------- Santa Fe International Corp. 25,000 717,187 - -------------------------------------------------------------------------------- Stolt Comex Seaway SA, ADR1 35,000 389,375 - -------------------------------------------------------------------------------- Tidewater, Inc. 125,000 3,539,062 ---------- 51,398,124 - -------------------------------------------------------------------------------- Oil: Domestic--5.3% Atlantic Richfield Co. 239,300 16,990,300 - -------------------------------------------------------------------------------- Chevron Corp. 300,000 22,406,250 - -------------------------------------------------------------------------------- Conoco, Inc., Cl. B 1,168,500 23,004,844 - -------------------------------------------------------------------------------- EOG Resources, Inc. 180,000 2,745,000 - -------------------------------------------------------------------------------- Kerr-McGee Corp. 35,000 1,566,250 - -------------------------------------------------------------------------------- Occidental Petroleum Corp. 905,500 14,544,594 - -------------------------------------------------------------------------------- Tosco Corp. 300,000 8,025,000 - -------------------------------------------------------------------------------- Ultramar Diamond Shamrock Corp. 411,800 8,930,913 - -------------------------------------------------------------------------------- Unocal Corp. 500,000 13,375,000 - -------------------------------------------------------------------------------- USX-Marathon Group 1,000,000 21,625,000 - -------------------------------------------------------------------------------- Valero Energy Corp. 700,000 17,850,000 ----------- 151,063,151 12 OPPENHEIMER CAPITAL INCOME FUND Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Oil: International--0.4% Royal Dutch Petroleum Co., NY Shares 200,000 $ 10,500,000 - -------------------------------------------------------------------------------- Financial--24.9% - -------------------------------------------------------------------------------- Banks--13.6% AmSouth Bancorp 65,000 942,500 - -------------------------------------------------------------------------------- Bank of America Corp. 1,338,657 61,661,888 - -------------------------------------------------------------------------------- Bank of New York Co., Inc. (The) 750,000 24,984,375 - -------------------------------------------------------------------------------- Bank One Corp. 1,218,500 31,452,531 - -------------------------------------------------------------------------------- Charter One Financial, Inc. 636,000 10,017,000 - -------------------------------------------------------------------------------- Chase Manhattan Corp. 723,872 57,638,308 - -------------------------------------------------------------------------------- Commercial Federal Corp. 357,500 4,625,156 - -------------------------------------------------------------------------------- Compass Bancshares, Inc. 165,000 2,670,938 - -------------------------------------------------------------------------------- First Union Corp. 1,922,980 56,727,910 - -------------------------------------------------------------------------------- FleetBoston Financial Corp. 1,305,000 35,561,250 - -------------------------------------------------------------------------------- KeyCorp 585,000 9,908,438 - -------------------------------------------------------------------------------- Mellon Financial Corp. 725,000 21,840,625 - -------------------------------------------------------------------------------- National City Corp. 266,000 5,120,500 - -------------------------------------------------------------------------------- PNC Bank Corp. 283,300 10,960,169 - -------------------------------------------------------------------------------- Summit Bancorp 714,250 17,097,359 - -------------------------------------------------------------------------------- SunTrust Banks, Inc. 271,680 13,804,740 - -------------------------------------------------------------------------------- U.S. Bancorp 400,000 7,325,000 - -------------------------------------------------------------------------------- Union Planters Corp. 389,324 10,657,745 ------------ 382,996,432 - -------------------------------------------------------------------------------- Diversified Financial--4.6% Anthracite Capital, Inc. 470,600 2,970,663 - -------------------------------------------------------------------------------- Associates First Capital Corp., Cl. A 210,000 4,173,750 - -------------------------------------------------------------------------------- C.I.T. Group, Inc., Cl. A 310,000 4,340,000 - -------------------------------------------------------------------------------- Capital One Financial Corp. 82,500 3,037,031 - -------------------------------------------------------------------------------- Citigroup, Inc. 1,649,999 85,284,323 - -------------------------------------------------------------------------------- Household International, Inc. 644,732 20,591,128 - -------------------------------------------------------------------------------- Imperial Credit Commercial Mortgage Investment Corp. 500,000 5,718,750 - -------------------------------------------------------------------------------- Merrill Lynch & Co., Inc. 27,500 2,818,750 ------------ 128,934,395 13 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Insurance--3.2% ACE Ltd. 100,000 $ 1,787,500 - -------------------------------------------------------------------------------- Aetna, Inc. 292,300 12,020,838 - -------------------------------------------------------------------------------- Allstate Corp. 225,000 4,387,500 - -------------------------------------------------------------------------------- American General Corp. 493,600 25,759,750 - -------------------------------------------------------------------------------- Enhance Financial Services Group, Inc. 703,425 8,265,244 - -------------------------------------------------------------------------------- Everest Re Group Ltd. 325,000 7,982,813 - -------------------------------------------------------------------------------- IPC Holdings Ltd. 238,264 2,799,602 - -------------------------------------------------------------------------------- Reliance Group Holdings, Inc. 1,000,000 4,437,500 - -------------------------------------------------------------------------------- St. Paul Cos., Inc. 996,600 22,298,925 - -------------------------------------------------------------------------------- XL Capital Ltd., Cl. A 47,500 1,920,781 ---------- 91,660,453 - -------------------------------------------------------------------------------- Real Estate Investment Trusts--2.4% Archstone Communities Trust 400,000 7,825,000 - -------------------------------------------------------------------------------- Avalonbay Communities, Inc. 300,000 10,125,000 - -------------------------------------------------------------------------------- Cornerstone Properties, Inc. 500,000 8,437,500 - -------------------------------------------------------------------------------- Developers Diversified Realty Corp. 90,000 1,035,000 - -------------------------------------------------------------------------------- Equity Office Properties Trust 750,000 17,953,125 - -------------------------------------------------------------------------------- Equity Residential Properties Trust 375,000 14,976,563 - -------------------------------------------------------------------------------- Reckson Associates Realty Corp. 425,000 7,862,500 ---------- 68,214,688 - -------------------------------------------------------------------------------- Savings & Loans--1.1% - -------------------------------------------------------------------------------- Dime Bancorp, Inc. 75,000 914,063 - -------------------------------------------------------------------------------- Golden State Bancorp, Inc.1 300,650 3,870,869 - -------------------------------------------------------------------------------- Greenpoint Financial Corp. 405,000 6,454,688 - -------------------------------------------------------------------------------- Greenpoint Financial Corp.4 50,000 757,000 - -------------------------------------------------------------------------------- Sovereign Bancorp, Inc. 325,000 2,356,250 - -------------------------------------------------------------------------------- Washington Mutual, Inc. 815,000 18,031,875 ---------- 32,384,745 - -------------------------------------------------------------------------------- Healthcare--1.1% - -------------------------------------------------------------------------------- Healthcare/Drugs--1.1% - -------------------------------------------------------------------------------- Abbott Laboratories 50,000 1,637,500 - -------------------------------------------------------------------------------- American Home Products Corp. 500,000 21,750,000 - -------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 100,000 5,681,250 - -------------------------------------------------------------------------------- Pharmacia & Upjohn, Inc. 75,000 3,571,875 ---------- 32,640,625 14 OPPENHEIMER CAPITAL INCOME FUND Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Technology--3.7% - -------------------------------------------------------------------------------- Computer Hardware--0.1% Compaq Computer Corp. 50,000 $ 1,243,750 - -------------------------------------------------------------------------------- Hewlett-Packard Co.3 10,000 1,345,000 ---------- 2,588,750 - -------------------------------------------------------------------------------- Computer Services--0.2% First Data Corp. 100,000 4,500,000 - -------------------------------------------------------------------------------- Computer Software--0.2% Unigraphics Solutions, Inc.1 200,000 5,537,500 - -------------------------------------------------------------------------------- Communications Equipment--0.2% Antec Corp.1 100,000 5,293,750 - -------------------------------------------------------------------------------- Electronics--2.3% Amkor Technology, Inc.1 200,000 10,387,500 - -------------------------------------------------------------------------------- Micron Technology, Inc.1, 3 60,000 5,883,750 - -------------------------------------------------------------------------------- Motorola, Inc.3 163,600 27,893,800 - -------------------------------------------------------------------------------- Photronics, Inc.1 20,000 851,250 - -------------------------------------------------------------------------------- Veeco Instruments, Inc.1 50,000 4,106,250 - -------------------------------------------------------------------------------- Waters Corp.1 150,000 14,709,375 ---------- 63,831,925 - -------------------------------------------------------------------------------- Photography--0.7% Eastman Kodak Co. 350,000 20,059,375 - -------------------------------------------------------------------------------- Utilities--5.8% - -------------------------------------------------------------------------------- Electric Utilities--3.3% Central & South West Corp. 537,200 9,031,675 - -------------------------------------------------------------------------------- Edison International 276,500 7,275,406 - -------------------------------------------------------------------------------- Florida Progress Corp. 600,100 25,579,263 - -------------------------------------------------------------------------------- New Century Energies, Inc. 100,000 2,706,250 - -------------------------------------------------------------------------------- Potomac Electric Power Co. 409,100 8,309,844 - -------------------------------------------------------------------------------- SCANA Corp. 195,859 4,663,892 - -------------------------------------------------------------------------------- Texas Utilities Co. 501,600 16,364,700 - -------------------------------------------------------------------------------- Unicom Corp. 501,700 18,970,531 - -------------------------------------------------------------------------------- Western Resources, Inc. 20,000 308,750 ---------- 93,210,311 15 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Market Value Shares See Note 1 - --------------------------------------------------------------------------------------------- Gas Utilities--2.5% Columbia Energy Group 100,000 $ 5,900,000 - --------------------------------------------------------------------------------------------- Enron Corp. 775,000 53,475,000 - --------------------------------------------------------------------------------------------- Kinder Morgan, Inc 150,000 4,181,250 - --------------------------------------------------------------------------------------------- MCN Energy Group, Inc 126,250 3,037,891 - --------------------------------------------------------------------------------------------- Williams Cos., Inc. (The) 92,500 3,867,656 ------------- 70,461,797 ------------- Total Common Stocks (Cost $1,540,931,604) 1,751,213,976 ============================================================================================= Preferred Stocks--10.8% Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg 45,000 7,537,500 - --------------------------------------------------------------------------------------------- Alliant Energy Resources, Inc., 7.25% Cv.1, 6 175,000 14,962,500 - --------------------------------------------------------------------------------------------- American General Delaware LLC, 6% Cum. Cv. Monthly Income Preferred Securities, Series A, Non-Vtg 75,000 4,903,125 - --------------------------------------------------------------------------------------------- Automatic Commission Exchange Security Trust II, 6.50% Cv (exchangeable to Common Stock of Republic Industries, Inc Trust Automatic Common Exchange Securities effective 5/1/00) 300,000 2,268,750 - --------------------------------------------------------------------------------------------- Banco Commercial Portuguese International Bank Ltd., 8% 98,300 10,124,900 - --------------------------------------------------------------------------------------------- Cv., Series A Budget Group, Inc.: 6.25% Cum. Cv. Term Income Deferred Equity Securities, Non-Vtg.6 10,000 305,000 6.25% Cv. Term Income Deferrable Equity Securities, Non-Vtg 85,000 2,592,500 - --------------------------------------------------------------------------------------------- California Federal Preferred Capital Corp., 9.125% Non-Cum Exchangeable, Series A, Non-Vtg 55,000 1,210,000 - --------------------------------------------------------------------------------------------- Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity Securities6 57,500 1,451,875 - --------------------------------------------------------------------------------------------- Chiquita Brands International, Inc., $3.75 Cum. Cv., Series B, Non-Vtg 180,000 3,600,000 - --------------------------------------------------------------------------------------------- Coastal Corp., 6.625% Cv. Preferred Redeemable Increased Dividend Equity Securities 710,300 18,112,650 - --------------------------------------------------------------------------------------------- DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of Maxtor Corp., Non-Vtg 250,000 2,062,500 - --------------------------------------------------------------------------------------------- Dollar General Corp., 8.50% Cv. Structured Yield Product Exchangeable for Stock 425,640 13,673,685 - --------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cv., Cl. A 105,000 5,788,125 - --------------------------------------------------------------------------------------------- Enron Corp., 7% Cv. Exchangeable 125,000 2,046,875 - --------------------------------------------------------------------------------------------- Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts., 12/1/06 5,985,000 5,730,638 - --------------------------------------------------------------------------------------------- Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating Security Units 25,000 970,312 - --------------------------------------------------------------------------------------------- Hanover Compressor Co., 7.25% Cv. Term Income Deferrable Equity Securities1, 6 40,000 2,930,000
16 OPPENHEIMER CAPITAL INCOME FUND
Market Value Shares See Note 1 =========================================================================================================== Preferred Stocks Continued Hercules Trust II, Units (each unit consists of $1,000 principal amount of 6.50% sr. exchangeable preferred stock and one warrant to purchase 23.1492 shares of common stock)5 22,000 $12,595,000 - ----------------------------------------------------------------------------------------------------------- ICG Communications, Inc.: 6.75% Cum. Cv., Non-Vtg.6 37, 500 2,554,687 6.75% Cum. Cv., Non-Vtg 62,500 4,257,812 - ----------------------------------------------------------------------------------------------------------- Intermedia Communications, Inc.: 7% Cum. Cv., Non-Vtg.6 40,000 3,275,000 7% Cv 42,500 1,737,187 7% Cv.6 32,500 1,328,437 7% Cv., Series E, Non-Vtg 125,000 6,671,875 - ----------------------------------------------------------------------------------------------------------- Intermedia Communications, Inc., Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr.: Series D, Non-Vtg 35,000 2,865,625 Series E, Non-Vtg.6 2,500 133,438 - ----------------------------------------------------------------------------------------------------------- Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities 1,700,000 11,050,000 - ----------------------------------------------------------------------------------------------------------- McLeodUSA, Inc., 6.75% Cv., Series A 10,000 7,756,250 - ----------------------------------------------------------------------------------------------------------- MCN Energy Group, Inc., 8% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg 50,000 2,046,875 - ----------------------------------------------------------------------------------------------------------- MediaOne Group, Inc., 7% Cv 25,000 1,364,062 - ----------------------------------------------------------------------------------------------------------- Merrill Lynch & Co., Inc., 6.25% Structured Yield Product Exchangeable for Stock of IMC Global, Inc 25,000 401,563 - ----------------------------------------------------------------------------------------------------------- Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security 190,000 6,946,875 - ----------------------------------------------------------------------------------------------------------- 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) 5 542,500 13,223,438 - ----------------------------------------------------------------------------------------------------------- Newell Financial Trust I, 5.25% Cv. Quarterly Income Preferred Securities, Non-Vtg 240,600 7,849,575 - ----------------------------------------------------------------------------------------------------------- Nisource, Inc., 7.75% Premium Income Equity Securities, Non-Vtg 200,000 6,025,000 - ----------------------------------------------------------------------------------------------------------- Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred Securities, Non-Vtg.6 200,000 6,150,000 - ----------------------------------------------------------------------------------------------------------- PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg 56,500 2,270,594 - ----------------------------------------------------------------------------------------------------------- Premier Parks, Inc., 7.50% Cum. Cv. Premium Income Equity Securities, Non-Vtg 499,000 21,457,000 - ----------------------------------------------------------------------------------------------------------- Qwest Trends Trust, 5.75% Cv.6 125,000 9,578,125 - ----------------------------------------------------------------------------------------------------------- Reliant Energy, Inc.: 2% Zero Exchangeable Sub. Nts 98,000 8,244,250 7% Automatic Common Exchange Securities for Time Warner, Inc. Common Stock 25,000 3,548,438
17 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Market Value Shares See Note 1 ======================================================================================================= Preferred Stocks Continued Seagram Co. Ltd. (The), 7.50% Automatic Common Exchangeable Securities 125,000 $ 6,781,250 - ------------------------------------------------------------------------------------------------------- Sinclair Broadcast Group, Inc., 6% Cv. Sub. Debs 50,000 1,493,750 - ------------------------------------------------------------------------------------------------------- Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity Redeemable Stock, Units (each unit consists of one preferred security & one warrant of Sovereign Bancorp, Inc.)1, 5 237,900 11,419,200 - ------------------------------------------------------------------------------------------------------- St. George Bank, ADR 9% Cv. Structured Yield Product Exchangeable for Common Stock of St. George Bank1, 6 114,000 5,521,875 - ------------------------------------------------------------------------------------------------------- Texas Utilities Co., 9.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg 176,500 7,247,531 - ------------------------------------------------------------------------------------------------------- Trans World Airlines, Inc., $4.625 Cum. Cv.6 150,000 2,287,500 Union Pacific Capital Trust, 6.25% Cum. Term Income Deferrable Equity Securities, Non-Vtg 131,400 5,124,600 - ------------------------------------------------------------------------------------------------------- United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities 225,000 7,059,375 - ------------------------------------------------------------------------------------------------------- WBK Trust, 10% Cv. Structured Yield Product Exchangeable Stock 450,000 13,612,500 ------------ Total Preferred Stocks (Cost $334,379,153) 304,149,622 Units ======================================================================================================= Rights, Warrants and Certificates--0.0% Golden State Bancorp, Inc. Wts., Exp. 1/1/01 (Cost $1,316,782) 390,650 415,066 Principal Amount8 ======================================================================================================= U.S. Government Obligations--10.9% U.S. Treasury Bonds, STRIPS: 6.45%, 8/15/22/7/ $200,000,000 50,096,800 6.58%, 2/15/15/7/ 270,000,000 103,705,650 6.94%, 5/15/21/7/ 100,000,000 26,781,900 7.20%, 8/15/08/7/ 150,000,000 85,900,200 - ------------------------------------------------------------------------------------------------------- U.S. Treasury Nts., STRIPS, 6.73%, 5/15/09/7/ 75,000,000 40,885,875 ------------ Total U.S. Government Obligations (Cost $297,385,238) 307,370,425 ======================================================================================================= Foreign Government Obligations--1.7% Argentina (Republic of) Bonds, Series L, 6.812%, 3/31/05/9/ 3,520,000 3,264,800 - ------------------------------------------------------------------------------------------------------- Canada (Government of) Bonds, 7.50%, 9/1/00 [CAD] 19,460,000 13,573,451 - ------------------------------------------------------------------------------------------------------- Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09/6/ 9,000,000 8,955,000 - ------------------------------------------------------------------------------------------------------- New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD] 1,900,000 1,232,097 - ------------------------------------------------------------------------------------------------------- Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%, 8/14/01 [AUD] 33,650,000 21,150,150 - ------------------------------------------------------------------------------------------------------- South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR] 14,800,000 2,248,690 ----------- Total Foreign Government Obligations (Cost $56,453,979) 50,424,188
18 OPPENHEIMER CAPITAL INCOME FUND
Principal Market Value Amount\8\ See Note 1 ========================================================================================================= Loan Participations--0.5% Shoshone Partners Loan Trust Sr.Nts.,7.799%,4/28/02 (representing a basket of reference loans and a total return swap between Chase Manhattan Bank and the Trust)\49\ (Cost $17,240,879) $16,800,000 $15,139,856 ========================================================================================================= Non-Convertible Corporate Bonds and Notes--8.7% AK Steel Corp., 9.125% Sr. Nts., 12/15/06 4,000,000 3,940,000 - --------------------------------------------------------------------------------------------------------- Aldelphia Communications Corp., 9.375% Sr. Nts., 11/15/09\3\ 9,000,000 8,662,500 - --------------------------------------------------------------------------------------------------------- Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,995,000 4,233,263 - --------------------------------------------------------------------------------------------------------- Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 2,745,000 - --------------------------------------------------------------------------------------------------------- Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20\9\ 5,000,000 7,248,050 - --------------------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 1,862,500 - --------------------------------------------------------------------------------------------------------- Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 5,000,000 4,356,250 - --------------------------------------------------------------------------------------------------------- Canandaiqua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 2,250,000 2,227,500 - --------------------------------------------------------------------------------------------------------- Charter Communication Holdings LLC/Charter Communication Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09 3,000,000 2,745,000 - --------------------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06 2,400,000 2,196,000 - --------------------------------------------------------------------------------------------------------- Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,208,218 - --------------------------------------------------------------------------------------------------------- Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,175,375 - --------------------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,769,090 - --------------------------------------------------------------------------------------------------------- EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 7,000,000 6,877,500 - --------------------------------------------------------------------------------------------------------- El Paso Electric Co., 9.40% First Mtg. Sec. Nts., Series E, 5/1/11 5,000,000 5,282,910 - --------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 10,000,000 9,450,000 - --------------------------------------------------------------------------------------------------------- Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 2,000,000 1,410,000 - --------------------------------------------------------------------------------------------------------- Fairchild Semiconductor International,Inc., 10.375% Sr. Unsec. Nts., 10/1/07 2,500,000 2,487,500 - --------------------------------------------------------------------------------------------------------- Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06 5,000,000 4,900,000 - --------------------------------------------------------------------------------------------------------- Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01 3,000,000 3,003,750 - --------------------------------------------------------------------------------------------------------- Gaylord Container Corp., 9.75% Sr. Nts., 6/15/07 1,000,000 920,000 - --------------------------------------------------------------------------------------------------------- Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 2,500,000 2,446,875 - --------------------------------------------------------------------------------------------------------- HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 9,025,000 - --------------------------------------------------------------------------------------------------------- Hollinger International Publishing, Inc.: 8.625% Sr. Unsec. Nts., 3/15/05 4,710,000 4,545,150 9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 3,990,000 - --------------------------------------------------------------------------------------------------------- ICN Pharmaceutical, Inc., 8.75% Sr. Nts., 11/15/08\6\ 2,000,000 1,880,000 - --------------------------------------------------------------------------------------------------------- Imax Corp., 7.875% Sr. Nts., 12/1/05\4\ 5,000,000 4,650,000 - --------------------------------------------------------------------------------------------------------- Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B, 6/1/08 5,000,000 4,600,000
19 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued
Principal Market Value Amount\8\ See Note 1 ====================================================================================================== Non-Convertible Corporate Bonds and Notes Continued Intrawest Corp., 9.75% Sr. Nts., 8/15/08 $ 2,000,000 $ 1,935,000 - ------------------------------------------------------------------------------------------------------ Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,655,000 - ------------------------------------------------------------------------------------------------------ Level 3 Communications, Inc., 9.125% Sr. Unsec. Nts., 5/1/08 2,500,000 2,275,000 - ------------------------------------------------------------------------------------------------------ McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09 4,500,000 4,050,000 - ------------------------------------------------------------------------------------------------------ Metromedia Fiber Network, Inc.: 10% Sr. Nts., 12/15/09 4,000,000 3,960,000 10% Sr. Nts., 12/15/09 [EUR] 2,000,000 1,961,801 - ------------------------------------------------------------------------------------------------------ Mohegan Tribal Gaming Authority: 8.125% Sr. Nts., 1/1/06 1,000,000 952,500 8.75% Sr. Unsec. Sub. Nts., 1/1/09 2,000,000 1,925,000 - ------------------------------------------------------------------------------------------------------ Nextel Communications,Inc., 9.375% Sr. Unsec. Nts., 11/15/09 7,000,000 6,781,250 - ------------------------------------------------------------------------------------------------------ NEXTLINK Communications,Inc., 10.75% Sr. Unsec. Nts., 6/1/09 3,000,000 3,030,000 - ------------------------------------------------------------------------------------------------------ Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07 7,500,000 7,031,250 - ------------------------------------------------------------------------------------------------------ NTL Communications Corp., 11.50%, Sr. Unsec. Nts., Series B, 10/1/08 7,650,000 8,109,000 - ------------------------------------------------------------------------------------------------------ Omnipoint Corp., 11.625% Sr. Nts., Series A, 8/15/06 8,000,000 8,520,000 - ------------------------------------------------------------------------------------------------------ P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 4,000,000 3,690,000 - ------------------------------------------------------------------------------------------------------ PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05 3,000,000 2,895,000 - ------------------------------------------------------------------------------------------------------ RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 4,000,000 4,200,000 - ------------------------------------------------------------------------------------------------------ Regal Cinemas, Inc., 8.875% Sr. Unsec. Sub. Nts., 12/15/10 6,000,000 3,630,000 - ------------------------------------------------------------------------------------------------------ Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03 9,000,000 6,885,000 - ------------------------------------------------------------------------------------------------------ Revlon Consumer Products Corp., 8.625% Sr. Unsec. Sub. Nts., 2/1/08 750,000 300,000 - ------------------------------------------------------------------------------------------------------ Riverwood International Corp.: 10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,015,000 10.875% Sr. Sub. Nts., 4/1/08 1,000,000 960,000 - ------------------------------------------------------------------------------------------------------ SFX Entertainment, Inc., 9.125% Sr. Unsec. Sub. Nts., 12/1/08 7,000,000 7,070,000 - ------------------------------------------------------------------------------------------------------ Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06 8,000,000 8,140,000 - ------------------------------------------------------------------------------------------------------ Tenet Healthcare Corp.: 7.625% Sr. Unsec. Nts., Series B, 6/1/08 5,750,000 5,232,500 8.625% Sr. Sub. Nts., 1/15/07 2,000,000 1,910,000 - ------------------------------------------------------------------------------------------------------ Tenneco,Inc., 11.625% Sr. Sub. Nts.,10/15/09\6\ 3,000,000 3,063,750 - ------------------------------------------------------------------------------------------------------ Time Warner Telecom LLC, 9.75% Sr. Nts., 7/15/08 6,000,000 6,030,000 - ------------------------------------------------------------------------------------------------------ Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11\4\ 1,874,742 998,300 - ------------------------------------------------------------------------------------------------------ TV Guide, Inc., 8.125% Sr. Unsec. Sub. Nts., 3/1/09 5,500,000 5,445,000 - ------------------------------------------------------------------------------------------------------ VoiceStream Wireless Corp., 10.375% Sr. Nts., 11/15/096 4,000,000 4,155,000 - ------------------------------------------------------------------------------------------------------ World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 2,000,000 1,874,708 ------------ Total Non-Convertible Corporate Bonds and Notes (Cost $254,717,580) 244,517,490
20 OPPENHEIMER CAPITAL INCOME FUND
Principal Market Value Amount\8\ See Note 1 Convertible Corporate Bonds and Notes--3.3% America Online, Inc., Zero Coupon Cv. Nts., 3.59%, 12/6/19/7/ $ 2,000,000 $ 1,035,000 - ------------------------------------------------------------------------------------------------------------------- American Tower Corp., 5% Cv. Nts., 2/15/10/6/ 6,000,000 6,570,000 - ------------------------------------------------------------------------------------------------------------------- Burr-Brown Corp., 4.25% Cv. Nts., 2/15/07/6/ 4,500,000 5,141,250 - ------------------------------------------------------------------------------------------------------------------- Cirrus Logic, Inc.: 6% Cv. Unsec. Sub. Nts., 12/15/03 2,000,000 2,020,000 6% Cv. Unsec. Sub. Nts., 12/15/03/6/ 11,000,000 11,110,000 - ------------------------------------------------------------------------------------------------------------------- Cypress Semiconductor Corp., 4% Cv. Unsec. Nts., 2/1/05 2,500,000 2,940,625 - ------------------------------------------------------------------------------------------------------------------- Inco Ltd.: 5.75% Cv. Debs., 7/1/04 9,700,000 8,887,625 7.75% Cv. Debs., 3/15/16 9,800,000 8,354,500 - ------------------------------------------------------------------------------------------------------------------- Kerr-McGee Corp., 7.50% Cv. Sub. Debs., 5/15/14 4,648,000 4,334,260 - ------------------------------------------------------------------------------------------------------------------- Lennar Corp., Zero Coupon Cv. Debs., 4.34%, 7/29/18/7/ 4,000,000 1,580,000 - ------------------------------------------------------------------------------------------------------------------- Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07 10,000,000 8,100,000 - ------------------------------------------------------------------------------------------------------------------- Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub. Debs., 5.25%, 10/30/15/6,7/ 19,500,000 8,701,875 - ------------------------------------------------------------------------------------------------------------------- Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs., 6.56%, 2/13/18/7/ 15,000,000 5,681,250 - ------------------------------------------------------------------------------------------------------------------- Photronics, Inc., 6% Cv. Sub. Nts., 6/1/04 5,000,000 7,681,250 - ------------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02 7,500,000 3,750,000 - ------------------------------------------------------------------------------------------------------------------- Solectron Corp., Zero Coupon Cv. Liquid Yield Option Nts., 3.05%, 1/27/19/7/ 1,000,000 582,500 - ------------------------------------------------------------------------------------------------------------------- Valhi, Inc., Zero Coupon Cv. Sr. Sec. Liquid Yield Option Nts., 7.10%, 10/20/07/7/ 7,500,000 4,621,875 ------------- Total Convertible Corporate Bonds and Notes (Cost $88,742,815) 91,092,010 =================================================================================================================== Structured Instruments--0.2% Bank of America NA, Lucent Market Indexed Deposits, 6%, 2/9/02 (Cost $5,000,000) 5,000,000 5,139,885 =================================================================================================================== Repurchase Agreements--0.7% Repurchase agreement with Deutsche Bank Securities Inc., 5.74%, dated 2/29/00, to be repurchased at $20,703,301 on 3/1/00, collateralized by U.S. Treasury Nts., 4%-6.625%,10/31/00-5/15/07, with a value of $13,325,470 and U.S. Treasury Bonds, 6.50%-8.125%, 8/15/19-11/15/26, with a value of $7,818,138 (Cost $20,700,000) 20,700,000 20,700,000 - ------------------------------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $2,616,868,030) 98.8% 2,790,162,518 - ------------------------------------------------------------------------------------------------------------------- Other Assets Net of Liabilities 1.2 34,625,387 ------------------------------ Net Assets 100.0% $2,824,787,905 ==============================
21 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Unaudited / Continued 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 29,2000. The aggregate fair value of securities of affiliated companies held by the Fund as of February 29, 2000 amounts to $16,962,500. Transactions during the period in which the issuer was an affiliate were as follows: Shares Shares Aug. 31, Gross Gross Feb. 29, 1999 Additions Reductions 2000 - -------------------------------------------------------------------------------- CSK Auto Corp.* 750,000 725,000 -- 1,475,000 *Not an affiliate as of August 31,1999. 3. A sufficient amount of liquid assets has been designated to cover outstanding written call options and written put options, as follows:
Shares Expiration Exercise Premium Market Value Subject to Call Date Price Receive See Note 1 - -------------------------------------------------------------------------------------------------------- Hewlett-Packard Co. 100 3/20/00 $120 $ 95,947 $ 165,000 Micron Technology, Inc. 600 3/20/00 85 144,450 982,500 Motorola, Inc. 400 4/24/00 125 748,800 1,985,000 Motorola, Inc. 350 4/24/00 130 1,114,575 1,592,500 Motorola, Inc. 250 4/24/00 150 374,250 684,375 RCN Corp. 400 3/20/00 50 352,234 425,000 RCN Corp. 500 3/20/00 55 679,750 300,000 RCN Corp. 800 3/20/00 60 629,718 250,000 RCN Corp. 800 3/20/00 65 396,596 110,000 ----------------------------- 4,536,320 6,494,375 ----------------------------- Shares Subject to Put - -------------------------------------------------------------------------------------------------------- Microsoft Corp. 2,000 3/20/00 95 896,500 1,500,000 Microsoft Corp. 3,500 3/20/00 90 843,123 1,487,500 ----------------------------- 1,739,623 2,987,500 ----------------------------- $6,275,943 $9,481,875 =============================
4. Identifies issues considered to be illiquid or restricted--See Note 7 of Notes to Financial Statements. 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, face amount disclosed represents total underlying principal. 6. Represents securities sold under Rule 144A, which are exempt from registration under the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $100,055,312 or 3.54% of the Fund's net assets as of February 29, 2000. 7. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 8. Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD Australian Dollar EUR Euro CAD Canadian Dollar ZAR South African Rand 9. Represents the current interest rate for a variable or increasing rate security. See accompanying Notes to Financial Statements. 22 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES Unaudited February 29,2000 - -------------------------------------------------------------------------------- Assets Investments, at value--see accompanying statement: Unaffiliated companies (cost $2,584,546,971) $2,773,200,018 Affiliated companies (cost $32,321,059) 16,962,500 - -------------------------------------------------------------------------------- Cash used for collateral on Microsoft Corp. written puts 25,866,015 - -------------------------------------------------------------------------------- Receivables and other assets: Investments sold 28,077,334 Interest and dividends 13,024,854 Shares of beneficial interest sold 3,946,784 Other 145,106 -------------- Total assets 2,861,222,611 ================================================================================ Liabilities - -------------------------------------------------------------------------------- Bank overdraft 1,608,187 - -------------------------------------------------------------------------------- Options written, at value (premiums received $6,275,943)-- see accompanying statement 9,481,874 Payables and other liabilities: Investments purchased 12,420,470 Shares of beneficial interest redeemed 10,658,632 Distribution and service plan fees 1,200,205 Transfer and shareholder servicing agent fees 666,035 Trustees' compensation 16,840 Other 382,463 -------------- Total liabilities 36,434,706 ================================================================================ Net Assets $2,824,787,905 ============== ================================================================================ Composition of Net Assets Paid-in capital $2,503,101,513 - -------------------------------------------------------------------------------- Undistributed net investment income 26,439,633 - -------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions 125,156,992 - -------------------------------------------------------------------------------- Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 170,089,767 -------------- Net assets $2,824,787,905 ============== See accompanying Notes to Financial Statements 23 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 $2,262,601,247 and 201,952,785 shares of beneficial interest outstanding) $11.20 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $11.88 - -------------------------------------------------------------------------------- Class B Shares: Net asset value,redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $490,399,222 and 44,175,277 shares of beneficial interest outstanding) $11.10 - -------------------------------------------------------------------------------- Class C Shares: Net asset value,redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $71,787,436 and 6,469,152 shares of beneficial interest outstanding) $11.10 See accompanying Notes to Financial Statements. 24 OPPENHEIMER CAPITAL INCOME FUND STATMENT OF OPERATIONS Unaudited For the Six Months Ended February 29, 2000 ================================================================================ Investment Income Dividends $ 41,771,530 - -------------------------------------------------------------------------------- Interest 38,005,667 -------------- Total income 79,777,197 ================================================================================ Expenses Management fees 8,802,352 - -------------------------------------------------------------------------------- Distribution and service plan fees: Class A 3,041,261 Class B 3,079,828 Class C 489,588 - -------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees 2,224,173 - -------------------------------------------------------------------------------- Custodian fees and expenses 40,554 - -------------------------------------------------------------------------------- Trustees' compensation 17,940 - -------------------------------------------------------------------------------- Other 650,029 -------------- Total expenses 18,345,725 Less expenses paid indirectly (6,600) -------------- Net expenses 18,339,125 ================================================================================ Net Investment Income 61,438,072 ================================================================================ Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments 176,092,142 Closing and expiration of option contracts written 109,058 Foreign currency transactions (241,153) -------------- Net realized gain 175,960,047 - -------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation on: Investments (537,081,149) Translation of assets and liabilities denominated in foreign currencies (107,538) -------------- Net change (537,188,687) -------------- Net realized and unrealized loss (361,228,640) ================================================================================ Net Decrease in Net Assets Resulting from Operations $(299,790,568) ============== See accompanying Notes to Financial Statements 25 OPPENHEIMER CAPITAL INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended February 29,2000 Year Ended (Unaudited) August 31,1999 ======================================================================================================================= Operations Net investment income $ 61,438,072 $ 134,128,244 - ----------------------------------------------------------------------------------------------------------------------- Net realized gain 175,960,047 338,994,470 - ----------------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation or depreciation (537,188,687) (68,883,491) ------------------------------------ Net increase (decrease) in net assets resulting from operations (299,790,568) 404,239,223 ======================================================================================================================= Dividends and/or Distributions to Shareholders Dividends from net investment income: Class A (51,919,786) (106,190,111) Class B (9,406,875) (19,189,145) Class C (1,527,946) (3,049,848) - ----------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (220,894,199) (245,592,889) Class B (51,202,210) (57,343,807) Class C (8,187,185) (8,928,939) ======================================================================================================================= Beneficial Interest Transactions Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A (156,997,175) 60,856,819 Class B (113,348,622) 96,317,221 Class C (28,865,488) 26,567,442 ======================================================================================================================= Net Assets Total increase (decrease) (942,140,054) 147,685,966 - ----------------------------------------------------------------------------------------------------------------------- Beginning of period 3,766,927,959 3,619,241,993 ------------------------------------ End of period (including undistributed net investment income of $26,439,633 and $27,856,168,respectively) $ 2,824,787,905 $ 3,766,927,959 ====================================
See accompanying Notes to Financial Statements. 26 OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS
6 Mos. Year Year Ended Ended Ended Feb.29, 2000 Aug.31, June 30, Class A (Unaudited) 1999 1998 1997 1996/1/ 1996 1995 ======================================================================================================================= Per Share Operating Data Net asset value, beginning of period $ 13.63 $ 13.75 $ 14.12 $11.36 $ 11.39 $10.25 $ 9.44 - ----------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .25 .51 .50 .47 .09 .50 .50 Net realized and unrealized gain (loss) (1.36) 1.03 .41 3.17 (.12) 1.36 .92 -------------------------------------------------------------------------- Total income (loss) from investment operations (1.11) 1.54 .91 3.64 (.03) 1.86 1.42 - ----------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.25) (.49) (.49) (.48) -- (.48) (.48) Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24) (.13) -------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.32) (1.66) (1.28) (.88) -- (.72) (.61) - ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.20 $13.63 $13.75 $14.12 $11.36 $11.39 $10.25 ========================================================================== ======================================================================================================================= Total Return, at Net Asset Value2 (8.58)% 11.03% 6.17% 33.39% (0.26)% 18.61% 15.66% ======================================================================================================================= Ratios/Supplemental Data Net assets,end of period (in $2,263 $2,927 $2,889 $2,722 $2,110 $2,141 $1,893 millions) - ----------------------------------------------------------------------------------------------------------------------- Average net assets (in millions) $2,663 $3,156 $3,072 $2,446 $2,109 $2,054 $1,798 - ----------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:3 Net investment income 3.82% 3.51% 3.47% 3.97% 3.28% 4.51% 5.15% Expenses 0.93% 0.89% 0.87%/4/ 0.88%/4/ 0.94%/4/ 0.89%/4/ 0.96%/4/ - ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate5 22% 40% 18% 24% 14% 43% 46%
1. For the two months ended August 31,1996. The Fund changed its fiscal year end from June 30 to August 31. 2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period (or inception of offering),with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has not been grossed up to reflect the effect of expenses paid indirectly. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the period ended February 29, 2000 were $687,277,078 and $979,440,356, respectively. See accompanying Notes to Financial Statements. 27 OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS Continued
6 Mos. Year Year Ended Ended Ended Feb.29,2000 Aug.31, June 30, Class B (unaudited) 1999 1998 1997 1996/1/ 1996 1995 =================================================================================================================== Per Share Operating Data Net asset value,beginning of period $ 13.51 $ 13.63 $ 14.01 $ 11.29 $11.33 $ 10.21 $ 9.40 - ------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .20 .39 .39 .37 .07 .41 .43 Net realized and unrealized gain (loss) (1.35) 1.03 .40 3.13 (.11) 1.35 .91 ---------------------------------------------------------------------- Total income (loss) from investment operations (1.15) 1.42 .79 3.50 (.04) 1.76 1.34 - ------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.19) (.37) (.38) (.38) -- (.40) (.40) Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24) (.13) ---------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.26) (1.54) (1.17) (.78) -- (.64) (.53) - ------------------------------------------------------------------------------------------------------------------- Net asset value,end of period $11.10 $13.51 $13.63 $14.01 $11.29 $11.33 $10.21 ====================================================================== =================================================================================================================== Total Return,at Net Asset Value2 (8.94)% 10.22% 5.32% 32.17% (0.35)% 17.58% 14.87% =================================================================================================================== Ratios/Supplemental Data Net assets,end of period (in millions) $490 $721 $635 $431 $260 $252 $161 - ------------------------------------------------------------------------------------------------------------------- Average net assets (in millions) $617 $749 $575 $344 $255 $208 $122 - ------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:3 Net investment income 3.05% 2.71% 2.68% 3.16% 2.48% 3.68% 4.34% Expenses 1.70% 1.69% 1.67%/4/ 1.69%/4/ 1.76%/4/ 1.72%/4/ 1.79%/4/ - ------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate5 22% 40% 18% 24% 14% 43% 46%
1. For the two months ended August 31,1996. The Fund changed its fiscal year end from June 30 to August 31. 2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period (or inception of offering), with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period.Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has not been grossed up to reflect the effect of expenses paid indirectly. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the period ended February 29, 2000 were $687,277,078 and $979,440,356, respectively. See accompanying Notes to Financial Statements. 28 OPPENHEIMER CAPITAL INCOME FUND
6 Mos. Year Period Ended Ended Ended Feb. 29, 2000 Aug. 31, June 30, Class C (Unaudited) 1999 1998 1997 1996/1/ 1996/6/ ===================================================================================================================== Per Share Operating Data Net asset value, beginning of period $13.50 $13.63 $14.02 $11.30 $11.35 $10.76 - --------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .19 .39 .39 .40 .07 .28 Net realized and unrealized gain (loss) (1.33) 1.02 .40 3.12 (.12) .88 ----------------------------------------------------------------------- Total income (loss) from investment operations (1.14) 1.41 .79 3.52 (.05) 1.16 - --------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.19) (.38) (.39) (.40) -- (.33) Distributions from net realized gain (1.07) (1.16) (.79) (.40) -- (.24) ----------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.26) (1.54) (1.18) (.80) -- (.57) - --------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.10 $13.50 $13.63 $14.02 $11.30 $11.35 ======================================================================= ===================================================================================================================== Total Return, at Net Asset Value/2/ (8.88)% 10.15% 5.30% 32.31% (0.44)% 10.50% ===================================================================================================================== Ratios/Supplemental Data Net assets, end of period (in millions) $72 $119 $95 $48 $7 $6 - --------------------------------------------------------------------------------------------------------------------- Average net assets (in millions) $98 $120 $77 $25 $7 $3 - --------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:/3/ Net investment income 3.05% 2.70% 2.68% 3.15% 2.55% 3.53% Expenses 1.70% 1.69% 1.67%/4/ 1.69%/4/ 1.79%/4/ 1.81%/4/ - --------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate/5/ 22% 40% 18% 24% 14% 43%
1. For the two months ended August 31, 1996. The Fund changed its fiscal year end from June 30 to August 31. 2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period (or inception of offering), with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has not been grossed up to reflect the effect of expenses paid indirectly. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the period ended February 29, 2000 were $687,277,078 and $979,440,356, respectively. 6. For the period from November 1, 1995 (inception of offering) to June 30,1996. See accompanying Notes to Financial Statements. 29 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 and Class C shares. Class A shares are sold at their offering price, which is normally net asset value plus an initial sales charge. Class B and Class C shares are sold without an initial sales charge but may be subject to a contingent deferred sales charge (CDSC). All classes of shares have identical rights to earnings, assets and voting privileges, except that each class has its own expenses directly attributable to that class and exclusive voting rights with respect to matters affecting that class. Classes A, B and C shares 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 for which quotations are readily available are valued at the last sale price, or if in the absence of a sale, 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. Foreign currency contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank, dealer or pricing service. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at cost (or last determined market value) and adjusted for amortization or accretion to maturity of any premium or discount. 30 OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Repurchase Agreements. The Fund requires the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. The market value of the underlying securities is required to be at least 102% of the resale price at the time of purchase. If the seller of the agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the value of the collateral by the Fund may be delayed or limited. - -------------------------------------------------------------------------------- Allocation of Income, Expenses, 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 loss carryovers, to shareholders. Therefore, no federal income or excise tax provision is required. - -------------------------------------------------------------------------------- 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 Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund. - -------------------------------------------------------------------------------- Expense Offset Arrangements. Expenses paid indirectly represent a reduction of custodian fees for earnings on cash balances maintained by the Fund. 31 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued ================================================================================ 1. Significant Accounting Policies Continued Other. Investment transactions are accounted for as of trade date and dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Realized gains and losses on investments and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. ================================================================================ 2. Shares of Beneficial Interest The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
Six Months Ended February 29, 2000 Year Ended August 31, 1999 Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------ Class A Sold 10,530,325 $ 131,750,210 21,887,567 $ 314,043,113 Dividends and/or distributions reinvested 21,855,148 257,250,275 23,478,035 330,924,974 Redeemed (45,189,430) (545,997,660) (40,770,834) (584,111,268) ---------------------------------------------------------------------- Net increase (decrease) (12,803,957) $(156,997,175) 4,594,768 $ 60,856,819 ====================================================================== - ------------------------------------------------------------------------------------------------ Class B Sold 2,455,436 $ 30,507,825 13,221,669 $ 188,310,904 Dividends and/or distributions reinvested 4,974,797 57,997,230 5,207,911 72,839,456 Redeemed (16,616,521) (201,853,677) (11,626,909) (164,833,139) ---------------------------------------------------------------------- Net increase (decrease) (9,186,288) $(113,348,622) 6,802,671 $ 96,317,221 ====================================================================== - ------------------------------------------------------------------------------------------------ Class C Sold 600,853 $ 7,566,960 4,107,119 $ 58,508,668 Dividends and/or distributions reinvested 796,493 9,289,154 831,248 11,618,577 Redeemed (3,764,589) (45,721,602) (3,071,848) (43,559,803) ---------------------------------------------------------------------- Net increase (decrease) (2,367,243) $ (28,865,488) 1,866,519 $ 26,567,442 ====================================================================== ================================================================================================
3. Unrealized Gains and Losses on Securities As of February 29, 2000, net unrealized appreciation on securities and options written of $170,088,557 was composed of gross appreciation of $510,703,429, and gross depreciation of $340,614,872. 32 OPPENHEIMER CAPITAL INCOME FUND ================================================================================ 4. Fees and Other Transactions with Affiliates Management Fees. Management fees paid to the Manager were in accordance with the investment advisory agreement with the Fund which provides for a fee of 0.75% of the first $100 million of average annual net assets, 0.70% of the next $100 million, 0.65% of the next $100 million, 0.60% of the next $100 million, 0.55% of the next $100 million and 0.50% of average annual net assets in excess of $500 million. The Fund's management fee for the six months ended February 29, 2000 was 0.52% of average annual net assets for each class of shares, annualized for periods of less than one full year. - -------------------------------------------------------------------------------- Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager, is the transfer and shareholder servicing agent for the Fund and for other Oppenheimer funds. OFS's total costs of providing such services are allocated ratably to these funds. - -------------------------------------------------------------------------------- Distribution and Service Plan Fees. Under its General Distributor's Agreement with the Manager, 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 Commissions Commissions Commissions Front-End Front-End on Class A on Class B on Class C Sales Charges Sales Charges Shares Shares Shares on Class A Retained by Advanced by Advanced by Advanced by Six Months Ended Shares Distributor Distributor/1/ Distributor/1/ Distributor/1/ - --------------------------------------------------------------------------------------------------------- February 29,2000 $1,236,277 $355,341 $194,082 $924,895 $61,532
1. The Distributor advances commission payments to dealers for certain sales of Class A shares and for sales of Class B and Class C shares from its own resources at the time of sale.
Class A Class B Class C Contingent Contingent Contingent Deferred Sales Deferred Sales Deferred Sales Charges Retained Charges Retained Charges Retained Six Months Ended by Distributor by Distributor by Distributor - --------------------------------------------------------------------------------------------------------- February 29, 2000 $56,124 $796,397 $14,413
The Fund has adopted a Service Plan for Class A shares and Distribution and Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the Distributor for all or a portion of its costs incurred in connection with the distribution and/or servicing of the shares of the particular class. 33 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued ================================================================================ 4. Fees and Other Transactions with Affiliates Continued Class A Service Plan Fees. Under the Class A service plan, the Distributor currently uses the fees it receives from the Fund to pay brokers, dealers and other financial institutions. The Class A service plan permits reimbursements to the Distributor at a rate of up to 0.25% of average annual net assets of Class A shares purchased. The Distributor makes payments to plan recipients quarterly at an annual rate not to exceed 0.25% of the average annual net assets consisting of Class A shares of the Fund. For the six months ended February 29, 2000, payments under the Class A plan totaled $3,041,261, all of which was paid by the Distributor to recipients. That included $219,197 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. - -------------------------------------------------------------------------------- Class B and Class C Distribution and Service Plan Fees. Under each plan, service fees and distribution fees are computed on the average of the net asset value of shares in the respective class, determined as of the close of each regular business day during the period. The Class B and Class C plans provide for the Distributor to be compensated at a flat rate, whether the Distributor's distribution expenses are more or less than the amounts paid by the Fund under the plan during the period for which the fee is paid. The Distributor retains the asset-based sales charge on Class B shares.The Distributor retains the asset-based sales charge on Class C shares during the first year the shares are outstanding. The asset-based sales charges on Class B and Class C shares allow investors to buy shares without a front-end sales charge while allowing the Distributor to compensate dealers that sell those shares. The Distributor's actual expenses in selling Class B and Class C shares may be more than the payments it receives from the contingent deferred sales charges collected on redeemed shares and asset-based sales charges from the Fund under the plans. If any plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the asset-based sales charge to the Distributor for distributing shares before the plan was terminated. The plans allow for the carry-forward of distribution expenses, to be recovered from asset-based sales charges in subsequent fiscal periods. Distribution fees paid to the Distributor for the six months ended February 29, 2000, were as follows: Distributor's Distributor's Aggregate Unreimbursed Unreimbursed Expenses as % Total Payments Amount Retained Expenses of Net Assets Under Plan by Distributor Under Plan of Class - -------------------------------------------------------------------------------- Class B Plan $3,079,828 $2,167,559 $13,891,055 2.83% Class C Plan 489,588 145,308 1,541,128 2.15 34 OPPENHEIMER CAPITAL INCOME FUND ================================================================================ 5. Foreign Currency Contracts A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts for operational purposes and to seek to protect against adverse exchange rate fluctuations. Risks to the Fund include the potential inability of the counterparty to meet the terms of the contract. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates as provided by a reliable bank, dealer or pricing service. Unrealized appreciation and depreciation on foreign currency contracts are reported in the Statement of Assets and Liabilities. The Fund may realize a gain or loss upon the closing or settlement of the foreign currency transactions. Realized gains and losses are reported with all other foreign currency gains and losses in the Statement of Operations. Securities denominated in foreign currency to cover net exposure on outstanding foreign currency contracts are noted in the Statement of Investments where applicable. ================================================================================ 6. Option Activity The Fund may buy and sell put and call options, or write put and covered call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Fund generally purchases put options or writes covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Fund receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call options are noted in the Statement of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a note to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. 35 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Unaudited / Continued ================================================================================ 6. Option Activity Continued Written option activity for the six months ended February 29,2000,was as follows: Call Options Put Options -------------------------------------------------------- Number of Amount of Number of Amount of Options Premiums Options Premiums - -------------------------------------------------------------------------------- Options outstanding as of August 31, 1999 -- $ -- 250 $ 286,740 Options written 11,825 8,544,380 13,725 3,710,482 Options closed or expired (7,625) (4,008,060) (8,475) (2,257,599) ---------------------------------------------------- Options outstanding as of February 29, 2000 4,200 $4,536,320 5,500 $1,739,623 ==================================================== ================================================================================ 7. Illiquid or Restricted Securities As of February 29, 2000, investments in securities included issues that are illiquid or restricted. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may also be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. The Fund intends to invest no more than 10% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid or restricted securities. Certain restricted securities, eligible for resale to qualified institutional investors, are not subject to that limitation. The aggregate value of illiquid or restricted securities subject to this limitation as of February 29, 2000, was $21,545,156, which represents 0.76% of the Fund's net assets, of which $757,000 is considered restricted. Information concerning restricted securities is as follows: Valuation Per Unit as of Security Acquisition Date Cost Per Unit February 29, 2000 - -------------------------------------------------------------------------------- Stocks and Warrants Greenpoint Financial Corp. 3/12/99 $30.00 $15.14 ================================================================================ 8. Bank Borrowings The Fund may borrow from a bank for temporary or emergency purposes including, without limitation, funding of shareholder redemptions provided asset coverage for borrowings exceeds 300%. The Fund has entered into an agreement which enables it to participate with other Oppenheimer funds in an unsecured line of credit with a bank, which permits borrowings up to $400 million, collectively. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such loan is executed. The Fund also pays a commitment fee equal to its pro rata share of the average unutilized amount of the credit facility at a rate of 0.08% per annum. The Fund had no borrowings outstanding during the six months ended February 29, 2000. 36 OPPENHEIMER CAPITAL INCOME FUND OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- Officers and Trustees James C. Swain, Trustee and Chairman of the Board Bridget A. Macaskill, Trustee and President William H. Armstrong, Trustee Robert G. Avis, Trustee William A. Baker, Trustee George C. Bowen, Trustee Edward L. Cameron, Trustee Jon S. Fossel, Trustee Sam Freedman, Trustee Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Ned M. Steel, Trustee John P. Doney, Vice President Michael S. Levine, Vice President Andrew J. Donohue, Vice President and Secretary Brian W. Wixted, Treasurer Robert J. Bishop, Assistant Treasurer Scott T. Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary - -------------------------------------------------------------------------------- Investment Advisor OppenheimerFunds, Inc. - -------------------------------------------------------------------------------- Distributor OppenheimerFunds Distributor, Inc. - -------------------------------------------------------------------------------- Transfer and Shareholder OppenheimerFunds Services Servicing Agent - -------------------------------------------------------------------------------- Custodian of The Bank of New York Portfolio Securities - -------------------------------------------------------------------------------- Independent Auditors Deloitte & Touche LLP - -------------------------------------------------------------------------------- Legal Counsel Myer, Swanson, Adams & Wolf, P.C. The financial statements included herein have been taken from the records of the Fund without examination of those records bythe independent auditors. This is a copy of a report to shareholders of Oppenheimer Capital Income Fund. This report must be preceded by a Prospectus of Oppenheimer Capital Income Fund. For material information concerning the Fund, see the Prospectus. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. 37 OPPENHEIMER CAPITAL INCOME FUND INFORMATION AND SERVICES As an Oppenheimer fund shareholder, you can benefit from special services designed to make investing simple. Whether it's automatic investment plans, timely market updates, or immediate account access, you can count on us whenever you need assistance. So call us today, or visit our website -- we're here to help. - -------------------------------------------------------------------------------- Internet 24-hr access to account information and transactions www.oppenheimerfunds.com - -------------------------------------------------------------------------------- General Information Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET 1.800.525.7048 - -------------------------------------------------------------------------------- Telephone Transactions Mon-Fri 8:30am-9pm ET, Sat 10am-4pm ET 1.800.852.8457 - -------------------------------------------------------------------------------- PhoneLink 24-hr automated information and automated transactions 1.800.533.3310 - -------------------------------------------------------------------------------- Telecommunications Device for the Deaf (TDD) Mon-Fri 8:30am-7pm ET 1.800.843.4461 - -------------------------------------------------------------------------------- OppenheimerFunds Information Hotline 24 hours a day, timely and insightful messages on the economy and issues that may affect your investments 1.800.835.3104 - -------------------------------------------------------------------------------- Transfer and Shareholder Servicing Agent OppenheimerFunds Services P.O.Box 5270, Denver, CO 80217-5270 - -------------------------------------------------------------------------------- [LOGO OF OPPENHEIMER FUNDS] -----END PRIVACY-ENHANCED MESSAGE-----