N-30D 1 q62710n-30d.txt N-30D 1 ANNUAL REPORT AUGUST 31, 2000 OPPENHEIMER CAPITAL INCOME FUND [PHOTO] [OPPENHEIMER FUNDS LOGO] THE RIGHT WAY TO INVEST 2 CONTENTS 1 President's Letter 3 An Interview with Your Fund's Managers 8 Fund Performance 13 FINANCIAL STATEMENTS 38 INDEPENDENT AUDITORS' REPORT 39 Federal Income Tax Information 40 Officers and Trustees REPORT HIGHLIGHTS -------------------------------------------------------------------------------- WE TOOK ADVANTAGE OF CONVERTIBLE SECURITIES TO GAIN EXPOSURE TO GROWTH EQUITY MARKETS, as well as ongoing income. Many investors appear to be SEARCHING FOR ATTRACTIVE VALUATIONS IN THE CURRENT MARKET. AVERAGE ANNUAL TOTAL RETURNS* For the 1-Year Period Ended 8/31/00* Class A Without With Sales Chg. Sales Chg. ------------------------ 7.24% 1.07% Class B Without With Sales Chg. Sales Chg. ------------------------ 6.34% 1.61% Class C Without With Sales Chg. Sales Chg. ------------------------ 6.40% 5.46% *SEE NOTES ON PAGE 12 FOR FURTHER DETAILS. 3 [PHOTO] JAMES C. SWAIN Chairman Oppenheimer Capital Income Fund [PHOTO] BRIDGET A. MACASKILL President Oppenheimer Capital Income Fund PRESIDENT'S LETTER -------------------------------------------------------------------------------- Dear Shareholder, Over the past several decades, our investment teams have learned the importance of avoiding complacency when it comes to navigating the financial markets--especially when times are good. Right now, times appear particularly good. The U.S. economy is in its tenth year of expansion. In the bond market, U.S. Treasury issues have been performing favorably over the past year. In addition, despite volatility in the second quarter, the stock market has been providing attractive returns from a wide spectrum of industry sectors, capitalization ranges and investment styles. We have arrived at this juncture after months of monitoring the rapid pace of global economic growth and its implications for inflation, as well as the Federal Reserve Board's evolving monetary policy. At this point, economic indicators suggest a dampening of short-term inflationary pressures. While recent increases in oil prices are certainly taking their toll, we don't believe this signals a return to 1970's-style inflation. Accordingly, if the Fed continues in its diligence, the economy could maintain its healthy rate of growth. In the bond market, the achievement of a federal budget surplus has prompted the Treasury to buy back many of its long-term securities. The resulting supply shortage boosted these securities' returns, causing an inversion of the yield curve-- an unusual situation in which shorter term Treasuries yield more than their longer term counterparts. Other bond sectors are offering many opportunities in the form of attractive valuations. Perhaps most important is that we have begun to see encouraging signs in the stock market. Formerly high-flying Internet stocks have generally come down to earth, and investors have 1 OPPENHEIMER CAPITAL INCOME FUND 4 begun to refocus on companies with strong business fundamentals and justifiable valuations. Investors have also returned to long-neglected, value-oriented companies. What else do these various trends tell us? They tell us that the ability to discriminate between long-term potential and short-lived fads has become more critical than ever. Trying to generate good long-term performance requires tracking the best companies through intensive research, combined with hard-earned experience. At OppenheimerFunds, our seasoned portfolio management teams fight complacency by remaining constantly aware of the risks that face the economy and financial markets. Virtually anything could affect the overall markets--a surge in inflation, a decline in productivity, deteriorating corporate earnings, or even the new Administration's proposals regarding tax reform, healthcare and Social Security. However, by remaining vigilant in our quest for fundamentally sound businesses, we believe we can find good investments that can weather market volatility. In this environment, we encourage you to consult your financial advisor and to stay on track with your long-term financial plan. For our part, we will continue to monitor the opportunities and risks ever present in the financial markets. Thank you for your confidence in OppenheimerFunds, The Right Way to Invest. Sincerely, /s/ JAMES C. SWAIN /s/ BRIDGET A. MACASKILL James C. Swain Bridget A. Macaskill September 22, 2000 THESE GENERAL MARKET VIEWS REPRESENT OPINIONS OF OPPENHEIMERFUNDS, INC. AND ARE NOT INTENDED TO PREDICT OR DEPICT PERFORMANCE OF THE SECURITIES MARKETS OR ANY PARTICULAR FUND. SPECIFIC DISCUSSION, AS IT APPLIES TO YOUR FUND, IS CONTAINED IN THE PAGES THAT FOLLOW. STOCKS AND BONDS HAVE DIFFERENT TYPES OF INVESTMENT RISKS; STOCKS ARE SUBJECT TO MARKET VOLATILITY AND BONDS ARE SUBJECT TO CREDIT AND INTEREST RATE RISKS. 2 OPPENHEIMER CAPITAL INCOME FUND 5 [PHOTO] PORTFOLIO MANAGEMENT TEAM (L TO R) John Doney Michael Levine AN INTERVIEW WITH YOUR FUND'S MANAGERS -------------------------------------------------------------------------------- Q. HOW DID THE FUND PERFORM OVER THE FISCAL YEAR ENDED AUGUST 31, 2000? A. Oppenheimer Capital Income Fund achieved its primary goal of providing income to shareholders by maintaining its targeted dividend level over the one-year period. The Fund's secondary objectives are to preserve capital and provide capital appreciation. Both of these objectives were also met. Preservation of shareholder capital was achieved over the period, and the Fund provided reasonable capital appreciation during the second half of its fiscal year. WHAT WERE THE MARKET CONDITIONS THAT MADE MANAGING THE FUND SO DIFFICULT THIS YEAR? Essentially, the Fund operated in two distinct markets. Over the first six months of the reporting period, we experienced a market in which most value stocks, the type of securities in which the Fund typically invests, suffered severe declines. In the second half of the period, many of these stocks rebounded as investors began to realize that many of them were undervalued, given their current earnings and prospects for future growth. WHY DO YOU BELIEVE THE MARKET BEHAVED AS IT DID? During the first six months of the reporting period, we witnessed an enormous disparity between the performance of value and growth stocks. Growth stocks were propelled primarily by the technology sector, which experienced tremendous growth in revenues and future business prospects. As investor sentiment grew more feverish, value stocks declined--although, in most cases, their earnings remained as solid as ever. 3 OPPENHEIMER CAPITAL INCOME FUND 6 "We believe that recent market events have helped to turn investor attention back to the solid fundamentals of value stocks." AN INTERVIEW WITH YOUR FUND'S MANAGERS -------------------------------------------------------------------------------- By March 2000, valuations in technology stocks had risen to such heights that investors became concerned that such prices might not be sustainable. Due to these concerns about valuation, and because of an absence of meaningful earnings in many technology stocks, many investors reduced their growth positions and turned their attention to value stocks. Another factor that contributed to this change in investor attitude was the anti-trust case against Microsoft Corp., which compelled the market to reexamine the risks of holding technology stocks. A third event that significantly affected the environment was the widespread opinion among investors that perhaps the Federal Reserve (the Fed) had finally ended its series of interest rate increases for the near future. All of these factors have affected the market of late, potentially increasing investors' focus on value stocks. DID YOU DO ANYTHING TO ADAPT TO THIS INVESTMENT ENVIRONMENT? During the first half of the reporting period, we took measures to help compensate for the wide disparity between growth and value. We shifted the Fund's exposure by a small degree to the technology and broadcasting sectors of the market, which are traditionally growth areas. We accomplished this by buying stocks and purchasing convertible securities. Holding convertible securities permitted the Fund to assume an equity position while generating meaningful income. Apart from this move, we did not believe we could improve performance by simply moving out of one value sector and into another. Even though earnings were frequently solid, value stocks as a group were declining. No one industry fared significantly better than any other. 4 OPPENHEIMER CAPITAL INCOME FUND 7 AVERAGE ANNUAL TOTAL RETURNS For the Periods Ended 9/30/00(1)
Class A 1-Year 5-Year 10-Year 4.96% 11.84% 12.04%
Class B Since 1-Year 5-Year Inception 5.57% 12.01% 11.47%
Class C Since 1-Year 5-Year Inception 9.58% N/A 12.69%
WHAT ABOUT THE LAST SIX MONTHS OF THE REPORTING PERIOD? WHICH SECTORS OR INDIVIDUAL HOLDINGS PROVED TO BE YOUR TOP PERFORMERS? Interestingly, some of the sectors that performed negatively from September to February proved to be our biggest contributors during the turnaround we enjoyed from March to August. The tobacco industry, for one, which suffered from the same condition that affected virtually all value stocks last fall, was also hurt by the aftershocks of a class action lawsuit, in which a Florida jury ruled against the industry. However, as investors rediscovered value stocks in March and April, tobacco was at the forefront of the ensuing market rebound. Furthermore, our sizable position in Nabisco Group Holdings Corp. proved to be especially fortuitous, as the company was acquired by R.J. Reynolds Tobacco Holdings, Inc., at a significant premium to its prior trading range. Another stock market sector that has recovered nicely this year is utilities--in particular, Enron Corp. and Dynegy, Inc. Both of these companies are benefitting from the deregulation of the energy market. Rather than generate and provide power in a limited geographic area, as is the case with traditional power companies, Enron and Dynegy serve as "energy wholesalers." Such organizations sell excess power capacity throughout North America. Lastly, the financial sector also contributed to the Fund's positive performance. Financial stocks, including banks and insurance companies, recovered substantially during this period. 1. See page 12 for further details. 5 OPPENHEIMER CAPITAL INCOME FUND 8 AN INTERVIEW WITH YOUR FUND'S MANAGERS -------------------------------------------------------------------------------- OPPENHEIMER CAPITAL INCOME FUND ALSO INVESTS IN BONDS. WAS THE MARKET FOR BONDS AS PROBLEMATIC AS THAT FOR EQUITIES? We had reduced our bond holdings by the middle of 1999 in anticipation of the likelihood that the Fed would probably raise interest rates. As a result, when rates did increase, the Fund did not sustain severe negative effects. In the spring of 2000, the U.S. Treasury began buying back its 30-year securities in an effort to reduce its debt. As a result, lack of supply in long-term Treasury bonds pushed up these bonds' prices and decreased their yields. The result was that shorter term Treasuries offered higher yields than did their longer term counterparts. We seized this opportunity to increase yield for our shareholders, while reducing risk, by shortening the duration of the portfolio. WHAT KIND OF INVESTMENT ENVIRONMENT DO YOU SEE FOR THE FUND IN THE IMMEDIATE FUTURE? We're optimistic. We believe there are a large number of undervalued stocks in the market and that investors will seek them out as alternatives to overpriced holdings in the technology and Internet sectors. In fact, the flow of funds into value-oriented mutual funds has improved noticeably over the past few months, indicating that many investors may be searching for attractive valuations. In addition, while the Fed may continue to adjust interest rates in the future, its biggest moves appear to be behind us. This bodes well for banks, the industry in which the Fund maintains its largest position. In environments such as the current one, banks tend to benefit from spreads between the relatively low interest rates they pay on deposits and the higher interest rates they charge on outstanding loans. Valuations are also attractive throughout the industry, as many banks are continuing to generate good earnings growth. 6 OPPENHEIMER CAPITAL INCOME FUND 9
PORTFOLIO ALLOCATION(2) [PIE CHART] - Stocks 78.7% - Bonds 21.3
For these reasons, we believe that Oppenheimer Capital Income Fund will offer attractive opportunities for income-oriented investors in the coming months. Providing shareholders with income and offering useful portfolio diversification are two more reasons why Oppenheimer Capital Income Fund continues to be an important part of The Right Way to Invest.
TOP FIVE COMMON STOCK INDUSTRIES(3) ----------------------------------------------------------- Banks 14.8% ----------------------------------------------------------- Diversified Financial 5.7 ----------------------------------------------------------- Oil: Domestic 4.8 ----------------------------------------------------------- Gas Utilities 4.5 ----------------------------------------------------------- Insurance 3.9
TOP TEN COMMON STOCK HOLDINGS(3) ----------------------------------------------------------- Citigroup, Inc. 4.0% ----------------------------------------------------------- Bank of America Corp. 2.4 ----------------------------------------------------------- Clear Channel Communications, Inc. 2.2 ----------------------------------------------------------- Chase Manhattan Corp. 2.0 ----------------------------------------------------------- Dynegy, Inc. 1.9 ----------------------------------------------------------- Enron Corp. 1.8 ----------------------------------------------------------- Fleet Boston Financial Corp. 1.8 ----------------------------------------------------------- First Union Corp. 1.7 ----------------------------------------------------------- Nabisco Group Holdings Corp. 1.6 ----------------------------------------------------------- Philip Morris Cos., Inc. 1.6 -----------------------------------------------------------
2. Portfolio is subject to change. Percentages are as of August 31, 2000, and are based on total market value of investments. 3. Portfolio is subject to change. Percentages are as of August 31, 2000, and are based on net assets. 7 OPPENHEIMER CAPITAL INCOME FUND 10 FUND PERFORMANCE -------------------------------------------------------------------------------- HOW HAS THE FUND PERFORMED? Below is a discussion, by the Manager, of the Fund's performance during its fiscal year ended August 31, 2000, followed by a graphical comparison of the Fund's performance to an appropriate broad-based market index. MANAGEMENT'S DISCUSSION OF PERFORMANCE. The Fund operated in two distinct markets during the fiscal year that ended August 31, 2000. Over the first six months of the reporting period, the market favored growth stocks over the value stocks in which the Fund invests. Over the second half of the reporting period, value stocks appreciated, as investors began to realize that many of these securities were undervalued, given their earnings and future prospects. We believe this trend will continue, as investors seek alternatives to largely overpriced holdings in technology and other growth areas. COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the performance of a hypothetical $10,000 investment in Class A, Class B and Class C shares of the Fund held until August 31, 2000. In the case of Class A shares, performance is measured over a 10-year period, and in the case of Class B shares, performance is measured from the inception of the class on August 17, 1993. In the case of Class C shares, performance is measured from the inception of the class on November 1, 1995. The graphs assume that all dividends and capital gains distributions were reinvested in additional shares. The graphs reflect the deduction of the maximum initial sales charge on Class A shares and the applicable contingent deferred sales charge for Class B and Class C shares. The Fund's performance is compared to the performance of the Standard & Poor's (S&P) 500 Index. The S&P 500 Index is a broad-based index of U.S. equity securities widely regarded as a general measure of the performance of the U.S. equity securities 8 OPPENHEIMER CAPITAL INCOME FUND 11 market. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction cost, and none of the data in the graphs shows the effect of taxes. The Fund's performance reflects the effects of Fund business and operating expenses. While index comparisons may be useful to provide a benchmark for the Fund's performance, it must be noted that the Fund's investments are not limited to the securities in the S&P 500 Index, which does not include debt securities. 9 OPPENHEIMER CAPITAL INCOME FUND 12 FUND PERFORMANCE -------------------------------------------------------------------------------- CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: -- Oppenheimer Capital Income Fund (Class A) -- S&P 500 [The following table was originally a linegraph in the printed materials.]
Oppenheimer Capital Income Fund (Class A) S&P 500 $10000 $9425 8627 8851 9400 9117 10763 9880 10737 9771 11310 10301 12257 10692 11948 10530 12175 10775 12559 11034 13190 11446 13765 12232 13831 12581 14188 13035 14516 13112 13967 12624 14025 12662 14709 13200 14707 12749 16137 13657 17676 14648 19079 15762 20227 16307 21312 17054 22268 17373 21734 17327 25371 19835 26628 20817 28714 21437 30564 23113 32602 24589 35945 26374 37516 27267 33046 24537 40324 27676 43048 27401 45406 28427 46200 27243 48748 26378 48096 24904 50160 27922 53733 29214
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 8/31/00(2) 1-Year 1.07% 5-Year 12.42% Life 11.71% CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: -- Oppenheimer Capital Income Fund (Class B) -- S&P 500 [The following table was originally a linegraph in the printed materials.]
Oppenheimer Capital S&P 500 Income Fund (Class B) 8/17/93 $10000 $10000 9/30/93 10133 10299 12/31/93 10160 10538 3/31/94 9764 10139 6/30/94 9765 10181 9/30/94 10162 10678 12/31/94 9792 10676 3/31/95 10474 11714 6/30/95 11216 12831 9/30/95 12039 13850 12/31/95 12434 14683 3/31/96 12971 15471 6/30/96 13188 16165 8/31/96(1) 13141 15777 11/30/96 15014 18417 2/28/97 15714 19330 5/31/97 16142 20844 8/31/97 17369 22187 11/30/97 18455 23667 2/28/98 19758 26093 5/31/98 20371 27233 8/31/98 18292 23988 11/30/98 20612 29272 2/28/99 20359 31249 5/31/99 21087 32961 8/31/99 20167 33537 11/30/99 19527 35387 2/29/00 18436 34913 5/31/00 20669 36412 8/31/00 21626 39006
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 8/31/00(2) 1-Year 1.61% 5-Year 12.59% Life 11.58% THE PERFORMANCE INFORMATION FOR S&P 500 IN THE GRAPHS BEGINS ON 6/30/90 FOR CLASS A, 8/31/93 FOR CLASS B AND 10/31/95 FOR CLASS C. 1. The Fund changed its fiscal year end from 6/30 to 8/31. 2. See page 12 for further details. 10 OPPENHEIMER CAPITAL INCOME FUND 13 CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: -- Oppenheimer Capital Income Fund (Class C) -- S&P 500
Oppenheimer Capital S&P 500 Income Fund (Class B) $10000 $10000 10401 10420 11064 10864 11627 11050 11391 11001 13297 12569 13957 13169 15050 13525 16019 14554 17088 15458 18840 16541 19663 17067 17320 15327 21135 17259 22563 17048 23799 17658 24215 16882 25550 16320 25208 15384 26290 17209 28163 17964
AVERAGE ANNUAL TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 8/31/00(2) 1-Year 5.46% Life 12.88% PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. GRAPHS ARE NOT DRAWN TO THE SAME SCALE. 11 OPPENHEIMER CAPITAL INCOME FUND 14 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, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S PERFORMANCE MAY, FROM TIME TO TIME, BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES, PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR QUARTERLY 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 and the ending account values in the graphs include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. The Fund's total returns shown do not 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. Unless otherwise noted, Class A returns include the current maximum initial sales charge of 5.75%. The Fund's maximum sales charge for Class A shares was higher prior to 10/18/91, so actual performance may have been higher. CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to Class A shares 72 months after purchase, the "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 publicly offered on 11/1/95. Unless otherwise noted, Class C returns include the contingent deferred sales charge of 1% for the 1-year period. Class C shares are subject to an annual 0.75% asset-based sales charge. An explanation of the calculation of performance is in the Fund's Statement of Additional Information. 12 OPPENHEIMER CAPITAL INCOME FUND 15 STATEMENT OF INVESTMENTS August 31, 2000
MARKET VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS--67.1% ------------------------------------------------------------------------------------------------------------------------ BASIC MATERIALS--2.1% ------------------------------------------------------------------------------------------------------------------------ CHEMICALS--0.5% Dexter Corp. 91,500 $ 5,409,937 ------------------------------------------------------------------------------------------------------------------------ Engelhard Corp. 485,000 9,093,750 ------------ 14,503,687 ------------------------------------------------------------------------------------------------------------------------ PAPER--1.6% International Paper Co. 380,560 12,130,350 ------------------------------------------------------------------------------------------------------------------------ Smurfit-Stone Container Corp.(1) 657,142 8,624,989 ------------------------------------------------------------------------------------------------------------------------ Sonoco Products Co. 637,580 12,313,264 ------------------------------------------------------------------------------------------------------------------------ Westvaco Corp. 287,450 7,868,944 ------------------------------------------------------------------------------------------------------------------------ Weyerhaeuser Co. 122,600 5,677,912 ------------ 46,615,459 ------------------------------------------------------------------------------------------------------------------------ CAPITAL GOODS--3.8% ------------------------------------------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT--0.2% CommScope, Inc.(1) 175,000 4,364,062 ------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL SERVICES--0.6% Coflexip SA, Sponsored ADR 57,500 3,415,859 ------------------------------------------------------------------------------------------------------------------------ Republic Services, Inc.(1) 900,000 13,162,500 ------------ 16,578,359 ------------------------------------------------------------------------------------------------------------------------ MANUFACTURING--3.0% Cooper Industries, Inc. 137,500 4,855,469 ------------------------------------------------------------------------------------------------------------------------ Honeywell International, Inc. 324,200 12,501,962 ------------------------------------------------------------------------------------------------------------------------ Mettler-Toledo International, Inc.(1) 125,000 5,914,062 ------------------------------------------------------------------------------------------------------------------------ Packaging Corp. of America(1) 425,000 4,967,187 ------------------------------------------------------------------------------------------------------------------------ Pall Corp. 692,700 14,806,462 ------------------------------------------------------------------------------------------------------------------------ Photronics, Inc.(1) 100,000 2,931,250 ------------------------------------------------------------------------------------------------------------------------ Tyco International Ltd. 575,000 32,775,000 ------------------------------------------------------------------------------------------------------------------------ Veeco Instruments, Inc.(1) 92,500 8,290,312 ------------ 87,041,704 ------------------------------------------------------------------------------------------------------------------------ COMMUNICATION SERVICES--1.6% ------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS: LONG DISTANCE--1.3% AT&T Corp. 150,000 4,725,000 ------------------------------------------------------------------------------------------------------------------------ McLeodUSA, Inc., Cl. A(1) 3,279 51,849 ------------------------------------------------------------------------------------------------------------------------ Qwest Communications International, Inc.(1) 80,000 4,130,000 ------------------------------------------------------------------------------------------------------------------------ Sprint Corp. (Fon Group) 375,000 12,562,500 ------------------------------------------------------------------------------------------------------------------------ Verizon Communications 347,000 15,137,875 ------------------------------------------------------------------------------------------------------------------------ WorldCom, Inc.(1) 67,500 2,463,750 ------------ 39,070,974 ------------------------------------------------------------------------------------------------------------------------ TELEPHONE UTILITIES--0.3% SBC Communications, Inc. 245,000 10,228,750
13 OPPENHEIMER CAPITAL INCOME FUND 16 STATEMENT OF INVESTMENTS Continued
MARKET VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------------------------------------ CONSUMER CYCLICALS--3.1% ------------------------------------------------------------------------------------------------------------------------ AUTOS & HOUSING--0.7% Dana Corp. 100,000 $ 2,468,750 ------------------------------------------------------------------------------------------------------------------------ Ford Motor Co. 437,043 10,570,978 ------------------------------------------------------------------------------------------------------------------------ Snap-On, Inc. 261,750 8,065,172 ------------ 21,104,900 ------------------------------------------------------------------------------------------------------------------------ CONSUMER SERVICES--0.6% Dun & Bradstreet Corp. 188,200 6,210,600 ------------------------------------------------------------------------------------------------------------------------ H&R Block, Inc. 312,500 11,210,937 ------------ 17,421,537 ------------------------------------------------------------------------------------------------------------------------ LEISURE & ENTERTAINMENT--0.3% Harrah's Entertainment, Inc.(1) 200,000 5,675,000 ------------------------------------------------------------------------------------------------------------------------ Host Marriott Corp. 160,000 1,710,000 ------------ 7,385,000 ------------------------------------------------------------------------------------------------------------------------ MEDIA--0.5% Deluxe Corp. 300,000 6,600,000 ------------------------------------------------------------------------------------------------------------------------ Time Warner, Inc. 110,000 9,405,000 ------------ 16,005,000 ------------------------------------------------------------------------------------------------------------------------ RETAIL: GENERAL--0.3% Family Dollar Stores, Inc. 475,000 8,550,000 ------------------------------------------------------------------------------------------------------------------------ RETAIL: SPECIALTY--0.7% Abercrombie & Fitch Co., Cl. A(1) 150,000 3,478,125 ------------------------------------------------------------------------------------------------------------------------ AutoNation, Inc.(1) 425,000 2,762,500 ------------------------------------------------------------------------------------------------------------------------ Circuit City Stores-Circuit City Group 85,000 2,204,687 ------------------------------------------------------------------------------------------------------------------------ CSK Auto Corp.(1,2) 1,500,000 8,156,250 ------------------------------------------------------------------------------------------------------------------------ Sherwin-Williams Co. 175,000 4,025,000 ------------ 20,626,562 ------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES--8.7% ------------------------------------------------------------------------------------------------------------------------ BROADCASTING--3.1% Charter Communications, Inc., Cl. A (1) 450,000 6,890,625 ------------------------------------------------------------------------------------------------------------------------ Clear Channel Communications, Inc.(1) 888,900 64,334,137 ------------------------------------------------------------------------------------------------------------------------ Fox Entertainment Group, Inc., A Shares(1) 125,000 3,617,187 ------------------------------------------------------------------------------------------------------------------------ Infinity Broadcasting Corp., Cl. A(1) 280,000 10,605,000 ------------------------------------------------------------------------------------------------------------------------ RCN Corp.(1) 275,000 6,668,750 ------------ 92,115,699 ------------------------------------------------------------------------------------------------------------------------ ENTERTAINMENT--0.2% Viacom, Inc., Cl. B(1) 105,000 7,067,812 ------------------------------------------------------------------------------------------------------------------------ FOOD--1.8% Heinz (H.J.) Co. 175,000 6,671,875 ------------------------------------------------------------------------------------------------------------------------ Nabisco Group Holdings Corp. 1,675,000 47,004,687 ------------ 53,676,562
14 OPPENHEIMER CAPITAL INCOME FUND 17
MARKET VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------------------------------------ FOOD & DRUG RETAILERS--0.7% Albertson's, Inc. 75,000 $ 1,612,500 ------------------------------------------------------------------------------------------------------------------------ Kroger Co.(1) 235,000 5,331,562 ------------------------------------------------------------------------------------------------------------------------ SUPERVALU, Inc. 912,500 13,630,469 ------------ 20,574,531 ------------------------------------------------------------------------------------------------------------------------ HOUSEHOLD GOODS--0.9% Fort James Corp. 600,000 18,975,000 ------------------------------------------------------------------------------------------------------------------------ Newell Rubbermaid, Inc. 300,000 7,781,250 ------------ 26,756,250 ------------------------------------------------------------------------------------------------------------------------ TOBACCO--2.0% Philip Morris Cos., Inc. 1,580,000 46,807,500 ------------------------------------------------------------------------------------------------------------------------ R.J. Reynolds Tobacco Holdings, Inc. 250,000 8,968,750 ------------------------------------------------------------------------------------------------------------------------ UST, Inc. 200,000 4,325,000 ------------ 60,101,250 ------------------------------------------------------------------------------------------------------------------------ ENERGY--7.0% ------------------------------------------------------------------------------------------------------------------------ ENERGY SERVICES--1.8% Coastal Corp. 100,000 6,887,500 ------------------------------------------------------------------------------------------------------------------------ Constellation Energy Group, Inc. 487,500 18,646,875 ------------------------------------------------------------------------------------------------------------------------ ENSCO International, Inc. 60,000 2,392,500 ------------------------------------------------------------------------------------------------------------------------ Global Marine, Inc.(1) 187,500 6,058,594 ------------------------------------------------------------------------------------------------------------------------ Marine Drilling Cos., Inc.(1) 65,000 1,767,187 ------------------------------------------------------------------------------------------------------------------------ Santa Fe International Corp. 290,000 11,400,625 ------------------------------------------------------------------------------------------------------------------------ Tidewater, Inc. 125,000 5,046,875 ------------- 52,200,156 ------------------------------------------------------------------------------------------------------------------------ OIL: DOMESTIC--4.8% Chevron Corp. 100,000 8,450,000 ------------------------------------------------------------------------------------------------------------------------ Conoco, Inc., Cl. A 350,000 8,815,625 ------------------------------------------------------------------------------------------------------------------------ Conoco, Inc., Cl. B 575,000 15,021,875 ------------------------------------------------------------------------------------------------------------------------ EOG Resources, Inc. 200,000 7,650,000 ------------------------------------------------------------------------------------------------------------------------ Kerr-McGee Corp. 75,000 4,739,062 ------------------------------------------------------------------------------------------------------------------------ Occidental Petroleum Corp. 905,500 19,581,438 ------------------------------------------------------------------------------------------------------------------------ Tosco Corp. 245,000 7,472,500 ------------------------------------------------------------------------------------------------------------------------ Ultramar Diamond Shamrock Corp. 281,000 6,585,938 ------------------------------------------------------------------------------------------------------------------------ Unocal Corp. 500,000 16,687,500 ------------------------------------------------------------------------------------------------------------------------ USX-Marathon Group 1,079,800 29,627,013 ------------------------------------------------------------------------------------------------------------------------ Valero Energy Corp. 521,400 15,707,175 ------------- 140,338,126 ------------------------------------------------------------------------------------------------------------------------ OIL: INTERNATIONAL--0.4% Royal Dutch Petroleum Co., NY Shares 200,000 12,237,500
15 OPPENHEIMER CAPITAL INCOME FUND 18 STATEMENT OF INVESTMENTS Continued
MARKET VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------------------------------------ FINANCIAL--28.6% ------------------------------------------------------------------------------------------------------------------------ BANKS--14.8% AmSouth Bancorp 195,000 $ 3,558,750 ------------------------------------------------------------------------------------------------------------------------ Bank of America Corp. 1,296,537 69,445,763 ------------------------------------------------------------------------------------------------------------------------ Bank of New York Co., Inc. (The)(3) 655,000 34,346,563 ------------------------------------------------------------------------------------------------------------------------ Bank One Corp.(3) 895,000 31,548,750 ------------------------------------------------------------------------------------------------------------------------ Bank United Corp., Cl. A 25,000 1,125,000 ------------------------------------------------------------------------------------------------------------------------ Charter One Financial, Inc. 1,000,000 23,750,000 ------------------------------------------------------------------------------------------------------------------------ Chase Manhattan Corp. 1,027,500 57,411,563 ------------------------------------------------------------------------------------------------------------------------ Commercial Federal Corp. 357,500 6,457,344 ------------------------------------------------------------------------------------------------------------------------ Compass Bancshares, Inc. 150,000 2,737,500 ------------------------------------------------------------------------------------------------------------------------ First Union Corp. 1,720,000 49,772,500 ------------------------------------------------------------------------------------------------------------------------ FleetBoston Financial Corp. 1,220,000 52,078,750 ------------------------------------------------------------------------------------------------------------------------ KeyCorp 260,000 5,248,750 ------------------------------------------------------------------------------------------------------------------------ Mellon Financial Corp. 725,000 32,806,250 ------------------------------------------------------------------------------------------------------------------------ National City Corp. 271,000 5,674,063 ------------------------------------------------------------------------------------------------------------------------ PNC Financial Services Group 287,500 16,944,531 ------------------------------------------------------------------------------------------------------------------------ Summit Bancorp 685,500 18,979,781 ------------------------------------------------------------------------------------------------------------------------ SunTrust Banks, Inc. 225,000 11,109,375 ------------------------------------------------------------------------------------------------------------------------ U.S. Bancorp 200,000 4,350,000 ------------------------------------------------------------------------------------------------------------------------ Union Planters Corp. 329,324 9,982,634 ------------ 437,327,867 ------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL--5.7% Anthracite Capital, Inc. 470,600 3,529,500 ------------------------------------------------------------------------------------------------------------------------ Associates First Capital Corp., Cl. A 210,000 5,906,250 ------------------------------------------------------------------------------------------------------------------------ C.I.T. Group, Inc., Cl. A 317,500 5,556,250 ------------------------------------------------------------------------------------------------------------------------ Capital One Financial Corp.(3) 82,500 4,975,781 ------------------------------------------------------------------------------------------------------------------------ Citigroup, Inc.(3) 2,000,000 116,750,000 ------------------------------------------------------------------------------------------------------------------------ Household International, Inc. 644,732 30,947,136 ------------ 167,664,917 ------------------------------------------------------------------------------------------------------------------------ INSURANCE--3.9% ACE Ltd. 65,000 2,283,125 ------------------------------------------------------------------------------------------------------------------------ Aetna, Inc. 293,700 16,428,844 ------------------------------------------------------------------------------------------------------------------------ Allstate Corp. 225,000 6,539,063 ------------------------------------------------------------------------------------------------------------------------ American General Corp. 535,000 38,954,688 ------------------------------------------------------------------------------------------------------------------------ Enhance Financial Services Group, Inc. 703,425 11,078,944 ------------------------------------------------------------------------------------------------------------------------ Everest Re Group Ltd. 375,000 15,093,750 ------------------------------------------------------------------------------------------------------------------------ St. Paul Cos., Inc. 375,000 17,859,375 ------------------------------------------------------------------------------------------------------------------------ XL Capital Ltd., Cl. A 92,500 6,376,719 ------------- 114,614,508
16 OPPENHEIMER CAPITAL INCOME FUND 19
MARKET VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS--2.8% Archstone Communities Trust 400,000 $ 9,850,000 ------------------------------------------------------------------------------------------------------------------------ Avalonbay Communities, Inc. 300,000 13,406,250 ------------------------------------------------------------------------------------------------------------------------ Developers Diversified Realty Corp. 100,000 1,450,000 ------------------------------------------------------------------------------------------------------------------------ Equity Office Properties Trust 962,945 27,805,037 ------------------------------------------------------------------------------------------------------------------------ Equity Residential Properties Trust 375,000 18,000,000 ------------------------------------------------------------------------------------------------------------------------ Reckson Associates Realty Corp. 425,000 10,332,813 ------------- 80,844,100 ------------------------------------------------------------------------------------------------------------------------ SAVINGS & LOANS--1.4% Dime Bancorp, Inc. 100,000 1,837,500 ------------------------------------------------------------------------------------------------------------------------ Greenpoint Financial Corp. 460,000 12,017,500 ------------------------------------------------------------------------------------------------------------------------ Greenpoint Financial Corp.(4) 50,000 1,240,938 ------------------------------------------------------------------------------------------------------------------------ Washington Mutual, Inc. 785,000 27,475,000 ------------- 42,570,938 ------------------------------------------------------------------------------------------------------------------------ HEALTHCARE--1.3% ------------------------------------------------------------------------------------------------------------------------ HEALTHCARE/DRUGS--1.3% Abbott Laboratories 50,000 2,187,500 ------------------------------------------------------------------------------------------------------------------------ American Home Products Corp. 450,000 24,384,375 ------------------------------------------------------------------------------------------------------------------------ Bristol-Myers Squibb Co. 137,500 7,287,500 ------------------------------------------------------------------------------------------------------------------------ Pharmacia Corp. 90,000 5,270,625 ------------- 39,130,000 ------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY--4.1% ------------------------------------------------------------------------------------------------------------------------ COMPUTER HARDWARE--0.1% Compaq Computer Corp. 70,000 2,384,375 ------------------------------------------------------------------------------------------------------------------------ COMPUTER SERVICES--0.2% First Data Corp. 100,000 4,768,750 ------------------------------------------------------------------------------------------------------------------------ COMPUTER SOFTWARE--0.9% Computer Associates International, Inc. 100,000 3,175,000 ------------------------------------------------------------------------------------------------------------------------ Microsoft Corp.(1,3) 270,900 18,912,206 ------------------------------------------------------------------------------------------------------------------------ Unigraphics Solutions, Inc.(1) 215,000 4,420,938 ------------- 26,508,144 ------------------------------------------------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT--0.1% Antec Corp.(1) 100,000 3,606,250 ------------------------------------------------------------------------------------------------------------------------ ELECTRONICS--2.1% Amkor Technology, Inc.(1) 200,000 6,825,000 ------------------------------------------------------------------------------------------------------------------------ Applied Materials, Inc.(1) 64,900 5,601,681 ------------------------------------------------------------------------------------------------------------------------ DuPont Photomasks, Inc.(1) 50,000 3,793,750 ------------------------------------------------------------------------------------------------------------------------ Motorola, Inc.(3) 490,800 17,699,475
17 OPPENHEIMER CAPITAL INCOME FUND 20 STATEMENT OF INVESTMENTS Continued
MARKET VALUE SHARES SEE NOTE 1 -------------------------------------------------------------------------------------------------------------------------------- ELECTRONICS Continued National Semiconductor Corp.(1) 62,500 $ 2,781,250 -------------------------------------------------------------------------------------------------------------------------------- Waters Corp.(1,3) 300,000 23,868,750 ---------------- 60,569,906 -------------------------------------------------------------------------------------------------------------------------------- PHOTOGRAPHY--0.7% Eastman Kodak Co. 350,000 21,787,500 -------------------------------------------------------------------------------------------------------------------------------- UTILITIES--6.8% -------------------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES--2.3% Florida Progress Corp. 425,100 22,052,063 -------------------------------------------------------------------------------------------------------------------------------- PPL Corp. 150,000 5,025,000 -------------------------------------------------------------------------------------------------------------------------------- TXU Corp. 530,000 18,516,875 -------------------------------------------------------------------------------------------------------------------------------- Unicom Corp. 475,000 21,701,563 ---------------- 67,295,501 -------------------------------------------------------------------------------------------------------------------------------- GAS UTILITIES--4.5% Dynegy, Inc. 1,250,000 56,250,000 -------------------------------------------------------------------------------------------------------------------------------- Enron Corp. 625,000 53,046,875 -------------------------------------------------------------------------------------------------------------------------------- Kinder Morgan, Inc. 387,500 14,264,844 -------------------------------------------------------------------------------------------------------------------------------- Williams Cos., Inc. (The) 170,000 7,830,625 -------------------------------------------------------------------------------------------------------------------------------- 131,392,344 ---------------- Total Common Stocks (Cost $1,386,027,383) 1,975,028,980 -------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS--10.9% ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 165,000 12,251,250 -------------------------------------------------------------------------------------------------------------------------------- Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg. 100,000 11,462,500 -------------------------------------------------------------------------------------------------------------------------------- Alliant Energy Resources, Inc., 7.25% Cv.(5) 200,000 11,400,000 -------------------------------------------------------------------------------------------------------------------------------- Budget Group, Inc.: 6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg.(5) 30,000 626,250 6.25% Cv. Term Income Deferrable Equity Securities, Non-Vtg. 95,000 1,983,125 -------------------------------------------------------------------------------------------------------------------------------- California Federal Preferred Capital Corp., 9.125% Non-Cum. Exchangeable, Series A, Non-Vtg. 55,000 1,251,250 -------------------------------------------------------------------------------------------------------------------------------- Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity Securities(4) 25,000 531,250 -------------------------------------------------------------------------------------------------------------------------------- CMS Energy Trust III, $26.25 Cv. Premium Equity Participating Security Units(1) 200,000 5,012,500 -------------------------------------------------------------------------------------------------------------------------------- Coastal Corp., 6.625% Cv. Preferred Redeemable Increased Dividend Equity Securities 710,300 27,213,369 -------------------------------------------------------------------------------------------------------------------------------- DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of Maxtor Corp., Non-Vtg. 250,000 2,000,000 -------------------------------------------------------------------------------------------------------------------------------- Dollar General Corp., 8.50% Cv. Structured Yield Product Exchangeable for Stock 425,640 15,163,425 -------------------------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg. 150,000 7,500,000 -------------------------------------------------------------------------------------------------------------------------------- Enron Corp., 7% Cv. Exchangeable 125,000 4,296,875 -------------------------------------------------------------------------------------------------------------------------------- Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts., 12/1/06(4) 5,985,000 5,970,038
18 OPPENHEIMER CAPITAL INCOME FUND 21
MARKET VALUE SHARES SEE NOTE 1 -------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS Continued -------------------------------------------------------------------------------------------------------------------------------- Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating Security Units (each unit consists of a sr. deferrable nt., 8/16/04 and a purchase contract)(6) 110,000 $ 3,568,125 -------------------------------------------------------------------------------------------------------------------------------- Global Crossing Ltd., 6.75% Cv. 22,500 5,501,250 -------------------------------------------------------------------------------------------------------------------------------- Hanover Compressor Co., 7.25% Cv. Term Income Deferrable Equity Securities(5) 40,000 3,820,000 -------------------------------------------------------------------------------------------------------------------------------- Hercules Trust II, Units (each unit consists of $1,000 principal amount of 6.50% cv. sr. preferred stock and one warrant to purchase 23.1492 shares of common stock)(6) 2,500 1,379,700 -------------------------------------------------------------------------------------------------------------------------------- ICG Communications, Inc.: 6.75% Cum. Cv., Non-Vtg.(5) 37,500 698,437 6.75% Cum. Cv., Non-Vtg. 62,500 1,164,062 -------------------------------------------------------------------------------------------------------------------------------- Intermedia Communications, Inc.: 7% Cum. Cv., Non-Vtg.(5) 40,000 1,135,000 7% Cv.(5) 32,500 520,000 7% Cv. Jr., Series F, Non-Vtg. 45,000 720,000 7% Cv., Series E, Non-Vtg. 127,500 2,534,063 Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr., Series D, Non-Vtg. 35,000 993,125 -------------------------------------------------------------------------------------------------------------------------------- Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities 1,700,000 13,175,000 -------------------------------------------------------------------------------------------------------------------------------- McLeodUSA, Inc., 6.75% Cv., Series A 7,500 3,485,625 -------------------------------------------------------------------------------------------------------------------------------- MediaOne Group, Inc., 7% Cv. Premium Income Exchangeable Securities for Vodafone Airtouch plc common stock 137,500 5,568,750 -------------------------------------------------------------------------------------------------------------------------------- MetLife Capital Trust I, 8% Cv. 175,000 13,912,500 -------------------------------------------------------------------------------------------------------------------------------- Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security 200,000 10,037,500 -------------------------------------------------------------------------------------------------------------------------------- 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)(6) 500,000 13,312,500 -------------------------------------------------------------------------------------------------------------------------------- Newell Financial Trust I, 5.25% Cv. Quarterly Income Preferred Securities, Non-Vtg. 250,000 9,625,000 -------------------------------------------------------------------------------------------------------------------------------- Nisource, Inc., 7.75% Premium Income Equity Securities, Non-Vtg. 200,000 9,325,000 -------------------------------------------------------------------------------------------------------------------------------- Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred Securities, Non-Vtg.(5) 175,000 2,625,000 -------------------------------------------------------------------------------------------------------------------------------- PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 56,500 2,768,500 -------------------------------------------------------------------------------------------------------------------------------- Qwest Trends Trust, 5.75% Cv.(5) 125,000 10,578,125 -------------------------------------------------------------------------------------------------------------------------------- Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts. 98,000 8,219,750 -------------------------------------------------------------------------------------------------------------------------------- Seagram Co. Ltd. (The), 7.50% Automatic Common Exchangeable Securities 125,000 6,875,000 -------------------------------------------------------------------------------------------------------------------------------- Sinclair Broadcast Group, Inc., 6% Cv., Series D 50,000 1,687,500 -------------------------------------------------------------------------------------------------------------------------------- Six Flags, Inc., Cum. Cv. Premium Income Equity Securities 499,000 16,155,125 -------------------------------------------------------------------------------------------------------------------------------- Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity Redeemable Stock, Units (each unit consists of one preferred plus one warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(6) 350,000 18,615,625 -------------------------------------------------------------------------------------------------------------------------------- St. George Bank, ADR 9% Cv. Structured Yield Product Exchangeable for Common Stock of St. George Bank (5) 114,000 5,372,250
19 OPPENHEIMER CAPITAL INCOME FUND 22 STATEMENT OF INVESTMENTS Continued
SHARES MARKET VALUE SEE NOTE 1 --------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS Continued TXU Corp., 9.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 150,000 $ 6,384,375 --------------------------------------------------------------------------------------------------------------------------------- Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg. 131,400 5,338,125 --------------------------------------------------------------------------------------------------------------------------------- United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities 225,000 7,031,250 --------------------------------------------------------------------------------------------------------------------------------- Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security 285,800 7,466,525 --------------------------------------------------------------------------------------------------------------------------------- WBK Trust, 10% Cv. Structured Yield Product Exchangeable Stock 450,000 14,934,375 ---------------- Total Preferred Stocks (Cost $336,350,314) 321,188,994 UNITS --------------------------------------------------------------------------------------------------------------------------------- RIGHTS, WARRANTS AND CERTIFICATES--0.0% Golden State Bancorp, Inc. Wts., Exp. 1/1/01 (Cost $1,316,782) 390,650 512,728 PRINCIPAL AMOUNT --------------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--9.0% U.S. Treasury Bonds, STRIPS: 4.06%, 8/15/22(7) $170,000,000 47,633,320 6.58%, 2/15/15(7) 270,000,000 115,695,000 7.20%, 8/15/08(7) 133,000,000 83,300,960 --------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Nts., 6.625%, 5/31/02 17,000,000 17,116,875 ---------------- Total U.S. Government Obligations (Cost $240,914,511) 263,746,155 --------------------------------------------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT OBLIGATIONS--1.1% Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(5) 8,550,000 8,699,625 --------------------------------------------------------------------------------------------------------------------------------- New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD] 1,900,000 1,151,448 --------------------------------------------------------------------------------------------------------------------------------- Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%, 8/14/01 [AUD] 33,650,000 19,698,685 --------------------------------------------------------------------------------------------------------------------------------- South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR] 14,800,000 2,060,809 ---------------- Total Foreign Government Obligations (Cost $37,851,248) 31,610,567 --------------------------------------------------------------------------------------------------------------------------------- LOAN PARTICIPATIONS--0.5% Shoshone Partners Loan Trust Sr. Nts., 8.461%, 4/28/02 (representing a basket of reference loans and a total return swap between Chase Manhattan Bank and the Trust)(4,8) (Cost $17,251,201) 16,800,000 13,235,793 --------------------------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES--6.2% AK Steel Corp., 9.125% Sr. Nts., 12/15/06 4,000,000 4,030,000 --------------------------------------------------------------------------------------------------------------------------------- Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,995,000 4,526,719 --------------------------------------------------------------------------------------------------------------------------------- Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 2,745,000 --------------------------------------------------------------------------------------------------------------------------------- Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(8) 5,000,000 7,196,210 --------------------------------------------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,087,500 --------------------------------------------------------------------------------------------------------------------------------- Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 5,000,000 3,725,000 --------------------------------------------------------------------------------------------------------------------------------- Canandaigua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 2,250,000 2,272,500
20 OPPENHEIMER CAPITAL INCOME FUND 23
PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 --------------------------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09 $ 3,000,000 $ 2,752,500 --------------------------------------------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06 2,400,000 2,358,000 --------------------------------------------------------------------------------------------------------------------------------- Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,152,316 --------------------------------------------------------------------------------------------------------------------------------- Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,207,125 --------------------------------------------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,742,786 --------------------------------------------------------------------------------------------------------------------------------- EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 7,000,000 6,973,750 --------------------------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 8,000,000 7,580,000 --------------------------------------------------------------------------------------------------------------------------------- Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 1,750,000 1,321,250 --------------------------------------------------------------------------------------------------------------------------------- Fairchild Semiconductor International, Inc., 10.375% Sr. Unsec. Nts., 10/1/07 2,500,000 2,587,500 --------------------------------------------------------------------------------------------------------------------------------- Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(4) 5,000,000 4,925,000 --------------------------------------------------------------------------------------------------------------------------------- Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01 3,000,000 3,015,000 --------------------------------------------------------------------------------------------------------------------------------- Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 2,500,000 2,525,000 --------------------------------------------------------------------------------------------------------------------------------- HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 9,737,500 --------------------------------------------------------------------------------------------------------------------------------- Hollinger International Publishing, Inc.: 8.625% Sr. Unsec. Nts., 3/15/05 4,710,000 4,757,100 9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 4,242,000 --------------------------------------------------------------------------------------------------------------------------------- ICN Pharmaceutical, Inc., 9.75% Sr. Nts., 11/15/08(5) 2,000,000 1,977,500 --------------------------------------------------------------------------------------------------------------------------------- Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 4,812,500 --------------------------------------------------------------------------------------------------------------------------------- Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B, 6/1/08 3,000,000 2,490,000 --------------------------------------------------------------------------------------------------------------------------------- Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,015,000 --------------------------------------------------------------------------------------------------------------------------------- Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,550,000 --------------------------------------------------------------------------------------------------------------------------------- Level 3 Communications, Inc., 9.125% Sr. Unsec. Nts., 5/1/08 2,500,000 2,253,125 --------------------------------------------------------------------------------------------------------------------------------- McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09 4,500,000 4,106,250 --------------------------------------------------------------------------------------------------------------------------------- Metromedia Fiber Network, Inc.: 10% Sr. Nts., 12/15/09 [EUR] 2,000,000 1,710,361 10% Sr. Nts., 12/15/09 4,000,000 3,970,000 --------------------------------------------------------------------------------------------------------------------------------- Nextel Communications, Inc., 9.375% Sr. Unsec. Nts., 11/15/09 6,000,000 5,910,000 --------------------------------------------------------------------------------------------------------------------------------- NEXTLINK Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09 1,000,000 972,500 --------------------------------------------------------------------------------------------------------------------------------- Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07 7,500,000 7,162,500 --------------------------------------------------------------------------------------------------------------------------------- NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 7,650,000 7,841,250 --------------------------------------------------------------------------------------------------------------------------------- P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 4,000,000 3,880,000 --------------------------------------------------------------------------------------------------------------------------------- PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05 1,700,000 1,479,000 --------------------------------------------------------------------------------------------------------------------------------- RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 4,000,000 4,620,000 --------------------------------------------------------------------------------------------------------------------------------- Riverwood International Corp.: 10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,022,500 10.875% Sr. Sub. Nts., 4/1/08 1,000,000 950,000 --------------------------------------------------------------------------------------------------------------------------------- Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06 8,000,000 8,040,000 --------------------------------------------------------------------------------------------------------------------------------- Tenet Healthcare Corp.: 7.625% Sr. Unsec. Nts., Series B, 6/1/08 2,150,000 2,042,500 8.625% Sr. Sub. Nts., 1/15/07 2,000,000 1,980,000
21 OPPENHEIMER CAPITAL INCOME FUND 24 STATEMENT OF INVESTMENTS Continued
PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 --------------------------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09 $ 3,000,000 $ 2,595,000 --------------------------------------------------------------------------------------------------------------------------------- Tribasa Toll Road Trust I, Asset-Backed Securities, Series 1993-A, 10.50%, 12/1/11(4) 1,833,979 1,104,973 --------------------------------------------------------------------------------------------------------------------------------- VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09 8,596,720 9,327,441 --------------------------------------------------------------------------------------------------------------------------------- World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 1,000,000 934,271 ---------------- Total Non-Convertible Corporate Bonds and Notes (Cost $186,852,531) 183,206,427 --------------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS AND NOTES--3.9% American Tower Corp.: 5% Cv. Nts., 2/15/10(5) 6,000,000 5,677,500 5% Cv. Nts., 2/15/10 1,500,000 1,419,375 --------------------------------------------------------------------------------------------------------------------------------- Amkor Technology, Inc., 5% Cv. Nts., 3/15/07(5) 22,500,000 19,940,625 --------------------------------------------------------------------------------------------------------------------------------- Cypress Semiconductor Corp., 4% Cv. Unsec. Nts., 2/1/05 4,000,000 5,110,000 --------------------------------------------------------------------------------------------------------------------------------- Inco Ltd.: 5.75% Cv. Debs., 7/1/04 9,700,000 8,730,000 7.75% Cv. Debs., 3/15/16 6,500,000 5,695,625 --------------------------------------------------------------------------------------------------------------------------------- Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07 10,000,000 9,100,000 --------------------------------------------------------------------------------------------------------------------------------- LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05 12,500,000 10,875,000 --------------------------------------------------------------------------------------------------------------------------------- Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub. Debs., 5.25%, 10/30/15(5,7) 19,500,000 9,871,875 --------------------------------------------------------------------------------------------------------------------------------- Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs., 3.94%, 2/13/18(7) 25,000,000 9,843,750 --------------------------------------------------------------------------------------------------------------------------------- Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10(5) 7,500,000 7,509,375 --------------------------------------------------------------------------------------------------------------------------------- Photronics, Inc., 6% Cv. Sub. Nts., 6/1/04 10,000,000 11,575,000 --------------------------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02 12,500,000 5,656,250 --------------------------------------------------------------------------------------------------------------------------------- Valhi, Inc., Zero Coupon Cv. Sr. Sec. Liquid Yield Option Nts., 7.14%, 10/20/07(7) 3,500,000 2,778,125 ---------------- Total Convertible Corporate Bonds and Notes (Cost $112,809,971) 113,782,500 --------------------------------------------------------------------------------------------------------------------------------- STRUCTURED INSTRUMENTS--0.6% Bank of America NA, Lucent Technologies, Inc. Market Indexed Linked Nts., 6%, 2/9/02 5,000,000 3,991,000 --------------------------------------------------------------------------------------------------------------------------------- Credit Suisse First Boston Corp. (New York Branch), Carnival Corp. Equity Linked Nts., 7%, 7/17/02(4) 8,526,994 8,228,549 --------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch & Co., Inc. Medium-Term Stock-Linked Nts., Series B, 7%, 7/8/02 (Linked to the performance of the common stock of The Gap, Inc.) 7,500,000 5,475,000 ---------------- Total Structured Instruments (Cost $20,999,794) 17,694,549 --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $2,340,373,735) 99.3% 2,920,006,693 --------------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 0.7 21,005,323 --------------------------------------- NET ASSETS 100.0% $ 2,941,012,016 =======================================
22 OPPENHEIMER CAPITAL INCOME FUND 25 FOOTNOTES TO STATEMENT OF INVESTMENTS Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD Australian Dollar EUR Euro ZAR South African Rand 1. Non-income-producing security. 2. Affiliated company. Represents ownership of at least 5% of the voting securities of the issuer, and is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended August 31, 2000. The aggregate fair value of securities of affiliated companies held by the Fund as of August 31, 2000, amounts to $8,156,250. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES SHARES AUGUST 31, GROSS GROSS AUGUST 31, 1999 ADDITIONS REDUCTIONS 2000 --------------------------------------------------------------------------------------------------------------------- CSK Auto Corp. 750,000 750,000 -- 1,500,000
3. A sufficient amount of liquid assets has been designated to cover outstanding written call and put options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1 --------------------------------------------------------------------------------------------------------------------- Bank One Corp. 100 10/23/00 $38 $ 6,675 $ 8,750 Bank One Corp. 500 11/20/00 35 103,184 121,875 Bank One Corp. 1,750 11/20/00 38 233,709 218,750 Bank One Corp. 1,150 11/20/00 40 101,909 64,688 Bank of New York Co., Inc. (The) 775 10/23/00 55 141,110 145,313 Bank of New York Co., Inc. (The) 150 1/22/01 50 90,797 105,000 Bank of New York Co., Inc. (The) 150 1/22/01 55 61,423 61,875 Bank of New York Co., Inc. (The) 1,225 1/22/01 60 238,351 222,031 Capital One Financial Corp. 250 9/18/00 60 97,997 75,000 Capital One Financial Corp. 350 10/23/00 65 97,074 102,813 Citigroup, Inc. 150 10/23/00 64 22,050 17,456 Motorola, Inc. 450 10/23/00 45 80,524 19,687 Waters Corp. 700 9/18/00 65 633,304 1,303,750 Waters Corp. 1,050 11/20/00 63 1,172,800 2,008,125 Waters Corp. 850 11/20/00 60 968,634 1,944,375 Waters Corp. 400 11/20/00 65 390,643 690,000 ------------------------------- 4,440,184 7,109,488 ------------------------------- CONTRACTS SUBJECT TO PUT --------------------------------------------------------------------------------------------------------------------- Microsoft Corp. 291 10/23/00 85 475,623 436,500 -------------------------------- $4,915,807 $7,545,988 ================================
4. Identifies issues considered to be illiquid or restricted--See Note 7 of Notes to Financial Statements. 5. 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 $90,451,562 or 3.08% of the Fund's net assets as of August 31, 2000. 6. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in the future. For units which represent debt securities, principal amount disclosed represents total underlying principal. 7. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 8. Represents the current interest rate for a variable or increasing rate security. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 OPPENHEIMER CAPITAL INCOME FUND 26 STATEMENT OF ASSETS AND LIABILITIES August 31, 2000 ================================================================================================================================= ASSETS Investments, at value--see accompanying statement: Unaffiliated companies (cost $2,307,685,551) $ 2,911,850,443 Affiliated companies (cost $32,688,184) 8,156,250 ---------------- 2,920,006,693 --------------------------------------------------------------------------------------------------------------------------------- Cash 5,120,154 --------------------------------------------------------------------------------------------------------------------------------- Cash used for collateral on Microsoft Corp. written puts 17,262,770 --------------------------------------------------------------------------------------------------------------------------------- Receivables and other assets: Interest and dividends 12,850,906 Shares of beneficial interest sold 638,012 Investments sold 559,568 Other 444,847 ---------------- Total assets 2,956,882,950 ================================================================================================================================= LIABILITIES Options written, at value (premiums received $4,915,807)--see accompanying statement 7,545,988 --------------------------------------------------------------------------------------------------------------------------------- Payables and other liabilities: Shares of beneficial interest redeemed 4,455,117 Distribution and service plan fees 1,153,372 Investments purchased 1,101,525 Transfer and shareholder servicing agent fees 714,567 Trustees' compensation 42,489 Other 857,876 ---------------- Total liabilities 15,870,934 ---------------- NET ASSETS $ 2,941,012,016 ================ ================================================================================================================================= COMPOSITION OF NET ASSETS Paid-in capital $ 2,239,086,938 Undistributed net investment income 23,286,164 --------------------------------------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments and foreign currency transactions 101,639,755 --------------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 576,999,159 ---------------- NET ASSETS $ 2,941,012,016 ================ ================================================================================================================================= NET ASSET VALUE PER SHARE Class A Shares: Net asset value and redemption price per share (based on net assets of $2,395,444,343 and 186,044,479 shares of beneficial interest outstanding) $12.88 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.67 --------------------------------------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $472,221,589 and 37,002,203 shares of beneficial interest outstanding) $12.76 --------------------------------------------------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $73,346,084 and 5,749,222 shares of beneficial interest outstanding) $12.76
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 OPPENHEIMER CAPITAL INCOME FUND 27 STATEMENT OF OPERATIONS For the Year Ended August 31, 2000 ================================================================================================================================= INVESTMENT INCOME Dividends (net of foreign withholding taxes of $38,064) $ 82,829,752 --------------------------------------------------------------------------------------------------------------------------------- Interest 64,767,791 ---------------- Total income 147,597,543 ================================================================================================================================= EXPENSES Management fees 16,447,234 --------------------------------------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A 5,799,373 Class B 5,476,726 Class C 851,214 --------------------------------------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees 3,647,076 --------------------------------------------------------------------------------------------------------------------------------- Custodian fees and expenses 197,040 --------------------------------------------------------------------------------------------------------------------------------- Trustees' compensation 58,682 --------------------------------------------------------------------------------------------------------------------------------- Other 1,613,018 ---------------- Total expenses 34,090,363 Less expenses paid indirectly (21,672) ---------------- Net expenses 34,068,691 ================================================================================================================================= NET INVESTMENT INCOME 113,528,852 --------------------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments (including premiums on options exercised) 171,656,212 Closing and expiration of option contracts written 3,196,541 Foreign currency transactions (1,226,472) ---------------- Net realized gain 173,626,281 --------------------------------------------------------------------------------------------------------------------------------- Net change in unrealized depreciation on: Investments (129,441,814) Translation of assets and liabilities denominated in foreign currencies (837,481) ---------------- Net change (130,279,295) ---------------- Net realized and unrealized gain 43,346,986 ================================================================================================================================= NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 156,875,838 ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 OPPENHEIMER CAPITAL INCOME FUND 28 STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31, 2000 1999 ================================================================================================================================= OPERATIONS Net investment income $ 113,528,852 $ 134,128,244 --------------------------------------------------------------------------------------------------------------------------------- Net realized gain 173,626,281 338,994,470 --------------------------------------------------------------------------------------------------------------------------------- Net change in unrealized depreciation (130,279,295) (68,883,491) --------------------------------------------- Net increase in net assets resulting from operations 156,875,838 404,239,223 ================================================================================================================================= DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income: Class A (98,446,434) (106,190,111) Class B (17,009,478) (19,189,145) Class C (2,657,808) (3,049,848) --------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (220,897,327) (245,592,889) Class B (51,201,679) (57,343,807) Class C (8,187,175) (8,928,939) ================================================================================================================================= BENEFICIAL INTEREST TRANSACTIONS Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A (348,332,169) 60,856,819 Class B (198,760,762) 96,317,221 Class C (37,298,949) 26,567,442 ================================================================================================================================= NET ASSETS Total increase (decrease) (825,915,943) 147,685,966 --------------------------------------------------------------------------------------------------------------------------------- Beginning of period 3,766,927,959 3,619,241,993 ---------------------------------------------- End of period (including undistributed net investment income of $23,286,164 and $27,856,168, respectively) $2,941,012,016 $ 3,766,927,959 ==============================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 OPPENHEIMER CAPITAL INCOME FUND 29 FINANCIAL HIGHLIGHTS
YEAR YEAR ENDED ENDED AUGUST 31, JUNE 30, CLASS A 2000 1999 1998 1997 1996(1) 1996 ========================================================================================================================= PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $13.63 $13.75 $14.12 $11.36 $11.39 $10.25 ------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .49 .51 .50 .47 .09 .50 Net realized and unrealized gain (loss) .32 1.03 .41 3.17 (.12) 1.36 ------------------------------------------------------------------------------- Total income (loss) from investment operations .81 1.54 .91 3.64 (.03) 1.86 ------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.49) (.49) (.49) (.48) -- (.48) Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24) ------------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.56) (1.66) (1.28) (.88) -- (.72) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.88 $13.63 $13.75 $14.12 $11.36 $11.39 =============================================================================== ========================================================================================================================= TOTAL RETURN, AT NET ASSET VALUE(2) 7.24% 11.03% 6.17% 33.39% (0.26)% 18.61% ========================================================================================================================= RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $2,395 $2,927 $2,889 $2,722 $2,110 $2,141 ------------------------------------------------------------------------------------------------------------------------- Average net assets (in millions) $2,503 $3,156 $3,072 $2,446 $2,109 $2,054 ------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:(3) Net investment income 3.78% 3.51% 3.47% 3.97% 3.28% 4.51% Expenses 0.93% 0.89% 0.87%(4) 0.88%(4) 0.94%(4) 0.89%(4) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 37% 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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 OPPENHEIMER CAPITAL INCOME FUND 30 FINANCIAL HIGHLIGHTS Continued
YEAR YEAR ENDED ENDED AUGUST 31, JUNE 30, CLASS B 2000 1999 1998 1997 1996(1) 1996 ========================================================================================================================= PER SHARE OPERATING DATA Net asset value, beginning of period $13.51 $13.63 $14.01 $11.29 $11.33 $10.21 ------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .38 .39 .39 .37 .07 .41 Net realized and unrealized gain (loss) .32 1.03 .40 3.13 (.11) 1.35 ------------------------------------------------------------------------------- Total income (loss) from investment operations .70 1.42 .79 3.50 (.04) 1.76 ------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.38) (.37) (.38) (.38) -- (.40) Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24) ------------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.45) (1.54) (1.17) (.78) -- (.64) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.76 $13.51 $13.63 $14.01 $11.29 $11.33 =============================================================================== ========================================================================================================================= TOTAL RETURN, AT NET ASSET VALUE(2) 6.34% 10.22% 5.32% 32.17% (0.35)% 17.58% ========================================================================================================================= RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in millions) $472 $721 $635 $431 $260 $252 ------------------------------------------------------------------------------------------------------------------------- Average net assets (in millions) $546 $749 $575 $344 $255 $208 Ratios to average net assets:(3) Net investment income 3.01% 2.71% 2.68% 3.16% 2.48% 3.68% Expenses 1.70% 1.69% 1.67%(4) 1.69%(4) 1.76%(4) 1.72%(4) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 37% 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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 OPPENHEIMER CAPITAL INCOME FUND 31
YEAR YEAR ENDED ENDED AUGUST 31, JUNE 30, CLASS C 2000 1999 1998 1997 1996(1) 1996(2) ========================================================================================================================= 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 .38 .39 .39 .40 .07 .28 Net realized and unrealized gain (loss) .32 1.02 .40 3.12 (.12) .88 ------------------------------------------------------------------------------- Total income (loss) from investment operations .70 1.41 .79 3.52 (.05) 1.16 ------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.37) (.38) (.39) (.40) -- (.33) Distributions from net realized gain (1.07) (1.16) (.79) (.40) -- (.24) ------------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (1.44) (1.54) (1.18) (.80) -- (.57) ------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.76 $13.50 $13.63 $14.02 $11.30 $11.35 =============================================================================== ========================================================================================================================= TOTAL RETURN, AT NET ASSET VALUE(3) 6.40% 10.15% 5.30% 32.31% (0.44)% 10.50% ========================================================================================================================= RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $73 $119 $95 $48 $7 $6 Average net assets (in millions) $85 $120 $77 $25 $7 $3 Ratios to average net assets:(4) Net investment income 3.01% 2.70% 2.68% 3.15% 2.55% 3.53% Expenses 1.70% 1.69% 1.67%(5) 1.69%(5) 1.79%(5) 1.81%(5) ------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 37% 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. For the period from November 1, 1995 (inception of offering) to June 30, 1996. 3. 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. 4. Annualized for periods of less than one full year. 5. Expense ratio has not been grossed up to reflect the effect of expenses paid indirectly. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 OPPENHEIMER CAPITAL INCOME FUND 32 NOTES TO FINANCIAL STATEMENTS ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Capital Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment objective is to seek as much current income as is compatible with prudent investment. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B and Class C shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B and Class C shares are sold without a front-end 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 have separate distribution and/or service plans. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. ------------------------------------------------------------------------------- SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or other domestic or foreign exchanges are valued based on the last sale price of the security traded on that exchange prior to the time when the Fund's assets are valued. In the absence of a sale, the security is valued at the last sale price on the prior trading day, if it is within the spread of the closing bid and asked prices, and if not, at the closing bid price. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations, a portfolio pricing service authorized by the Board of Trustees, or at their fair value. Fair value is determined in good faith under consistently applied procedures under the supervision of the Board of Trustees. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). ------------------------------------------------------------------------------- STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes whose market value and redemption price are linked to foreign currency exchange rates. The structured notes are leveraged, which increases the notes' volatility relative to the principal of the security. Fluctuations in value of these securities are recorded as unrealized gains and losses in the accompanying financial statements. As of August 31, 2000, the market value of these securities comprised 0.6% of the Fund's net assets and resulted in unrealized losses at August 31, 2000, of $3,305,245. The Fund also hedges a portion of the foreign currency exposure generated by these securities, as discussed in Note 5. ------------------------------------------------------------------------------- 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. 30 OPPENHEIMER CAPITAL INCOME FUND 33 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 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of dividends and distributions made during the fiscal 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 dividends and 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. The Fund adjusts the classification of distributions to shareholders to reflect the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, during the year ended August 31, 2000, amounts have been reclassified to reflect an increase in paid-in capital of $21,166,020, an increase in undistributed net investment income of $14,864, and a decrease in accumulated net realized gain on investments of $21,180,884. This reclassification includes $21,183,778 distributed in connection with Fund share redemptions which increased paid-in capital and reduced accumulated net realized gain. Net assets of the Fund were unaffected by the reclassifications. 31 OPPENHEIMER CAPITAL INCOME FUND 34 NOTE TO FINANCIALS STATEMENTS Continued ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Continued EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of custodian fees for earnings on cash balances maintained by the Fund. ------------------------------------------------------------------------------ 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:
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999 SHARES AMOUNT SHARES AMOUNT --------------------------------------- ---------------------------------------------------------------------------------------- CLASS A Sold 19,575,634 $241,088,319 21,887,567 $314,043,113 Dividends and/or distributions reinvested 25,370,714 299,536,203 23,478,035 330,924,974 Redeemed (73,658,611) (888,956,691) (40,770,834) (584,111,268) --------------------------------------------------------- Net increase (decrease) (28,712,263) $(348,332,169) 4,594,768 $ 60,856,819 ========================================================= --------------------------------------------------------------------------------------------------------------------------------- CLASS B Sold 5,302,692 $64,844,082 13,221,669 $188,310,904 Dividends and/or distributions reinvested 5,572,573 65,132,048 5,207,911 72,839,456 Redeemed (27,234,627) (328,736,892) (11,626,909) (164,833,139) --------------------------------------------------------- Net increase (decrease) (16,359,362) $(198,760,762) 6,802,671 $96,317,221 ========================================================= -------------------------------------------------------------------------------------------------------------------------------- CLASS C Sold 1,053,764 $ 13,049,521 4,107,119 $ 58,508,668 Dividends and/or distributions reinvested 882,449 10,315,715 831,248 11,618,577 Redeemed (5,023,386) (60,664,185) (3,071,848) (43,559,803) --------------------------------------------------------- Net increase (decrease) (3,087,173) $(37,298,949) 1,866,519 $26,567,442 =========================================================
32 OPPENHEIMER CAPITAL INCOME FUND 35 ================================================================================ 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended August 31, 2000, were $1,100,751,266 and $1,617,683,897, respectively. As of August 31, 2000, unrealized appreciation (depreciation) based on cost of securities for federal income tax purposes of $2,343,658,869 was:
Gross unrealized appreciation $ 776,073,339 Gross unrealized depreciation (202,366,691) -------------- Net unrealized appreciation $ 573,706,648 ==============
================================================================================ 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 year ended August 31, 2000, was an annualized rate of 0.52%, before any waiver by the Manager if applicable. -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund on an "at-cost" basis. OFS also acts as the transfer and shareholder servicing agent for the other Oppenheimer 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 YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1) --------------------------------------------------------------------------------------------------------------------------------- August 31, 2000 $2,190,051 $631,452 $300,262 $1,621,384 $96,086
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 DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR --------------------------------------------------------------------------------------------------------------------------------- August 31, 2000 $58,792 $1,429,980 $20,807
33 OPPENHEIMER CAPITAL INCOME FUND 36 NOTES TO FINANCIAL STATEMENTS Continued ================================================================================ 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued 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. -------------------------------------------------------------------------------- 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 year ended August 31, 2000, payments under the Class A plan totaled $5,799,373 prior to Manager waivers if applicable, all of which were paid by the Distributor to recipients, and included $394,479 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 year ended August 31, 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 $5,476,726 $4,309,078 $12,531,453 2.65% Class C Plan 851,214 250,604 1,555,535 2.12
34 OPPENHEIMER CAPITAL INCOME FUND 37 ================================================================================ 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. Realized gains and losses are reported in the Statement of Operations. 35 OPPENHEIMER CAPITAL INCOME FUND 38 NOTES TO FINANCIAL STATEMENTS Continued ================================================================================ 6. OPTION ACTIVITY Continued The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Written option activity for the year ended August 31, 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 33,500 21,786,707 22,799 12,146,748 Options closed or expired (22,800) (17,106,126) (20,049) (7,199,158) Options exercised (700) (240,397) (2,709) (4,758,707) --------------------------------------------------- Options outstanding as of August 31, 2000 10,000 $ 4,440,184 291 $ 475,623 ===================================================
-------------------------------------------------------------------------------- 7. ILLIQUID OR RESTRICTED SECURITIES As of August 31, 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 August 31, 2000, was $35,236,541, which represents 1.20% of the Fund's net assets, of which $1,240,938 is considered restricted. Information concerning restricted securities is as follows:
VALUATION PER UNIT AS OF SECURITY ACQUISITION DATE COST PER UNIT AUGUST 31, 2000 --------------------------------------------------------------------------------------------------------------------------------- STOCKS & WARRANTS Greenpoint Financial Corp. 3/12/99 $30.00 $24.82
36 OPPENHEIMER CAPITAL INCOME FUND 39 ================================================================================ 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 year ended August 31, 2000. 37 OPPENHEIMER CAPITAL INCOME FUND 40 INDEPENDENT AUDITORS' REPORT ================================================================================ THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL INCOME FUND: We have audited the accompanying statement of assets and liabilities of Oppenheimer Capital Income Fund, including the statement of investments, as of August 31, 2000, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, the two-month period ended August 31, 1996, and the one year ended June 30, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2000, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Oppenheimer Capital Income Fund as of August 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, the two-month period ended August 31, 1996, and the one year ended June 30, 1996, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado September 22, 2000 38 OPPENHEIMER CAPITAL INCOME FUND 41 FEDERAL INCOME TAX INFORMATION Unaudited ================================================================================ In early 2001 shareholders will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 2000. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. Dividends and distributions of $1.1932, $1.1622 and $1.1609 per share were paid to Class A, Class B and Class C shareholders, respectively, on December 9, 1999, of which $1.0419 was designated as a "capital gain distribution" for federal income tax purposes. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of capital assets held for more than one year (long-term capital gains). Dividends paid by the Fund during the fiscal year ended August 31, 2000, which are not designated as capital gain distributions, should be multiplied by 65.83% to arrive at the net amount eligible for the corporate dividend-received deduction. The foregoing information is presented to assist shareholders in reporting distributions received from the Fund to the Internal Revenue Service. Because of the complexity of the federal regulations which may affect your individual tax return and the many variations in state and local tax regulations, we recommend that you consult your tax advisor for specific guidance. 39 OPPENHEIMER CAPITAL INCOME FUND 42 OPPENHEIMER CAPITAL INCOME FUND ================================================================================ OFFICERS AND TRUSTEES James C. Swain, Trustee and Chairman of the Board Bridget A. Macaskill, Trustee and President William L. Armstrong, Trustee Robert G. Avis, 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 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. For more complete information about Oppenheimer Capital Income Fund, please refer to the Prospectus. To obtain a copy, call your financial advisor, call OppenheimerFunds Distributor, Inc. at 1.800.525.7048 or visit the OppenheimerFunds Internet website at WWW.OPPENHEIMERFUNDS.COM. 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. OPPENHEIMER FUNDS ARE DISTRIBUTED BY OPPENHEIMERFUNDS DISTRIBUTOR, INC., TWO WORLD TRADE CENTER, NEW YORK, NY 10048-0203. (C)Copyright 2000 OppenheimerFunds, Inc. All rights reserved. 40 OPPENHEIMER CAPITAL INCOME FUND 43 44 INFORMATION AND SERVICES ------------------------------------------------------------------------------- As an Oppenheimer fund shareholder, you can benefit from special services designed to make investing simple. 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So call us today, or visit our website--we're here to help. ------------------------------------------------------------------------------- INTERNET 24-hr access to account information and transactions(1) WWW.OPPENHEIMERFUNDS.COM ------------------------------------------------------------------------------- GENERAL INFORMATION Mon-Fri 8am-9pm ET, Sat 10am-4pm ET 1.800.525.7048 ------------------------------------------------------------------------------- TELEPHONE TRANSACTIONS Mon-Fri 8am-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 9am-6:30pm ET 1.800.843.4461 ------------------------------------------------------------------------------- OPPENHEIMERFUNDS MARKET 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. 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TICKER SYMBOLS Class A: OPPEX Class B: OPEBX Class C: OPECX
1. At times this website may be inaccessible or its transaction feature may be unavailable. [OPPENHEIMER FUNDS LOGO] [RA0300.001.0800 October 30, 2000