0000950133-01-502996.txt : 20011031 0000950133-01-502996.hdr.sgml : 20011031 ACCESSION NUMBER: 0000950133-01-502996 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20011029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER CAPITAL INCOME FUND CENTRAL INDEX KEY: 0000045156 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 840578481 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01512 FILM NUMBER: 1769157 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3036713200 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19830428 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 q72227n-30d.txt OPPENHEIMER CAPITAL INCOME FUND AR DATED 8/31/2001 [PHOTO] ANNUAL REPORT AUGUST 31, 2001 Oppenheimer CAPITAL INCOME FUND [OPPENHEIMER FUNDS LOGO] THE RIGHT WAY TO INVEST REPORT HIGHLIGHTS -------------------------------------------------------------------------------
CONTENTS 1 Letter to Shareholders 2 An Interview with Your Fund's Manager 6 Fund Performance 12 FINANCIAL STATEMENTS 40 INDEPENDENT AUDITORS' REPORT 41 Federal Income Tax Information 42 Officers and Trustees
FUND OBJECTIVE Oppenheimer Capital Income Fund seeks as much current income as is compatible with prudent investment. The Fund has a secondary objective to conserve principal while providing an opportunity for capital appreciation.
------------------------------ AVERAGE ANNUAL TOTAL RETURNS* For the 1-Year Period Ended 8/31/01 Without With Sales Chg. Sales Chg. ------------------------------ Class A 6.84% 0.70% ------------------------------ Class B 6.05 1.11 ------------------------------ Class C 6.00 5.01 ------------------------------
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. *SEE NOTES ON PAGE 10 FOR FURTHER DETAILS. LETTER TO SHAREHOLDERS ----------------------------------------------------------------------- [PHOTO] JOHN V. MURPHY Chairman, President and Chief Executive Officer OppenheimerFunds, Inc. DEAR SHAREHOLDER, September 11, 2001, was a tragic day for our country. As you may know, our corporate headquarters were located at Two World Trade Center in New York City. Although we are thankful that all OppenheimerFunds employees were able to safely evacuate the World Trade Center, our thoughts and prayers remain with the countless families whose lives have been affected by these terrible events. As a company and as individuals, we will be forever indebted to the hundreds of law enforcement officers, firefighters and rescue workers who continue to serve so heroically in this time of great need. To express our gratitude, we have established a 501(c)3 charity, the "World Trade Center Legacy Relief Fund," in which we will match the first $1 million in donations. All donations will be sent to qualified, pre-screened charities that support the families of victims of this tragic event, such as the American Red Cross and the New York Fire Fighters 9-11 Disaster Relief Fund. As the events of September 11 unfolded, OppenheimerFunds quickly and efficiently implemented its emergency recovery plans. By the next day, our portfolio managers, analysts and other employees were overseeing the assets in your fund's portfolio and accessing vital information in real time. And, thanks to our multiple operating locations, well-distributed resources and rigorous back-up procedures, our shareholder-account and Fund investment records remained intact. In these difficult times, it is important to remember that our portfolio management team is a sophisticated group of investment professionals with extensive experience. They are diligently monitoring the events that are shaping the financial world and economy. Just as your financial advisor employs diversification and asset allocation to determine the appropriate balance of risk and reward for your portfolio, OppenheimerFunds portfolio managers are guided by similar principles: broad diversification, a focus on business fundamentals and a long-term investment perspective. At OppenheimerFunds we understand that these are trying times for investors. We encourage you to work closely with your financial advisor and to stay focused on your long-term investment goals. Once again, thank you for your continued confidence. We look forward to showing and sharing with you the strength, expertise and resolve which makes OppenheimerFunds The Right Way to Invest. Sincerely, /s/ JOHN V. MURPHY John V. Murphy September 24, 2001 1 OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGER ----------------------------------------------------------------------- PORTFOLIO MANAGER MICHAEL LEVINE HOW DID OPPENHEIMER CAPITAL INCOME FUND PERFORM OVER THE 12-MONTH PERIOD THAT ENDED AUGUST 31, 2001? A. We are pleased with the Fund's positive returns during a challenging period in which many other equity funds lost money. The equity portion of our portfolio particularly benefited from value stocks' return to favor over the past year. This shift in market leadership began when the speculative bubble surrounding growth stocks burst in the spring of 2000, sending high-priced technology and telecommunications shares into a steep and protracted decline. Ever since, investors have been pulling money out of the market's growth areas, redeploying those assets into the more reasonably priced stocks of companies with lower, but more consistent earnings-growth records. Because these are the types of companies we seek, the Fund has benefited accordingly. The current 12-month reporting period was also significant because of the retirement of John Doney, the Fund's co-portfolio manager from mid-1992 until the end of 2000. We wish John well in all of his future endeavors. John and I had worked closely together since June 1999, so I anticipate few changes to the Fund's investment approach in his absence. WHAT WAS THE MARKET ENVIRONMENT LIKE DURING THE PERIOD? Slowing economic growth throughout the reporting period adversely affected most areas of the stock market. However, the Fund's holdings fared better than the overall financial markets. In the equity markets, investors turned their backs on growth stocks when it became apparent that their valuations and earnings growth rates had become too high. As their stocks plunged, the issuing companies found it increasingly difficult to obtain financing. As a result, many stopped spending money on new 2 OPPENHEIMER CAPITAL INCOME FUND -------------------------------------------------------------------------------- THE FUND'S RECENT PERFORMANCE WAS DRIVEN BY OUR HOLDINGS OF PREVIOUSLY UNDERPERFORMING STOCKS THAT EXPERIENCED STEADY EARNINGS GROWTH IN A DIFFICULT ECONOMIC ENVIRONMENT. -------------------------------------------------------------------------------- facilities; some laid off workers. At the same time, many companies that had previously been big customers of high-growth businesses curtailed their capital spending. This left businesses with fewer customers, lower sales and bloated inventories. And, besides experiencing reduced demand from the U.S. business community, many former growth companies were also hurt by the spread of the economic slowdown to overseas markets. This was especially applicable for U.S. businesses that rely on exports for a significant portion of their revenues. To prevent the U.S. economy from entering a full-blown recession, the Federal Reserve Board ("the Fed") in January 2001 began an aggressive campaign to reduce short-term interest rates, with the hope that lower financing costs would cause many companies to resume spending. During the first eight months of 2001, the Fed reduced the benchmark federal funds rate by 3.0% in seven separate moves. HOW DID THE ECONOMIC SLOWDOWN AFFECT THE FUND'S HOLDINGS? For a number of reasons, the Fund and its holdings held up quite well under these difficult conditions. First, many of the Fund's "old economy" companies, such as TXU Corp. and Tyco International Ltd., began the reporting period with attractive valuations because investors had been ignoring them in favor of rapidly emerging growth companies. With prices already low, there was less room for them to fall when the economy weakened. Second, the Fund's energy and utilities holdings, including Dynegy, Inc., prospered as demand for a limited supply of energy rose, causing prices and profits to rise as well. Third, the Fund's financial services holdings, such as Fannie Mae and Citigroup, Inc., benefited from lower interest rates. Finally, the Fund benefited from the recovery of companies that had been hindered by temporary negative influences--a prime example was the easing of litigation concerns surrounding Philip Morris Cos., Inc. 3 OPPENHEIMER CAPITAL INCOME FUND AN INTERVIEW WITH YOUR FUND'S MANAGER --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS For the Periods Ended 9/30/01(1) Class A 1-Year 5-Year 10-Year ----------------------------------- -8.03% 8.51% 10.08% Class B Since 1-Year 5-Year Inception ----------------------------------- -7.63% 8.67% 9.66% Class C Since 1-Year 5-Year Inception ----------------------------------- -4.08% 8.94% 9.84% -----------------------------------
HOW HAVE THE FUND'S FIXED INCOME INVESTMENTS FARED? With approximately 25% of total assets invested in fixed income securities (as of August 31, 2001), the Fund's bond component has performed quite well. Part of that strong performance is the result of lower interest rates. As bond yields fall, their prices rise. The Fund's bond portfolio was also positively influenced by our sector allocation strategy, which emphasized convertible securities during the second half of the Fund's fiscal year. We like convertibles because they've historically outperformed corporate and government bonds, while also providing a high degree of correlation with stock market performance. So, while convertibles allow the Fund to participate in stock market gains, we believe they also provide protection from stock market declines and an attractive income contribution. We have also maintained a healthy allocation to U.S. Government securities, whose prices have risen as interest rates have fallen. WHAT IS YOUR OUTLOOK FOR THE NEAR FUTURE? We are optimistic that value stocks will continue to rank among the market leaders over the next several months. In addition, we are optimistic that the Fund's longstanding investment approach--which looks for growing companies whose stocks are trading inexpensively--will continue to lead us to stocks with the potential for substantial gains. For example, we are currently finding both compelling values and promising growth prospects among the stocks of pharmaceutical companies, which recently suffered price declines. Similarly, the prices of many energy stocks have recently dropped after earlier gains, making them attractive from both valuation and growth standpoints, in our opinion. 1. See Notes on page 10 for further details. 4 OPPENHEIMER CAPITAL INCOME FUND PORTFOLIO ALLOCATION(2) [PIECHART] - Stocks 75.4% - Bonds 24.4 Cash Equivalents 0.2
Regardless of where we find the best opportunities at any given moment, we intend to adhere to our investment discipline, which seeks reasonably priced stocks that we expect to experience above-average earnings growth. Our longstanding investment approach remains an important part of what makes Oppenheimer Capital Income Fund The Right Way to Invest.
TOP FIVE COMMON STOCK INDUSTRIES(3) ............................................................. Banks 14.6% ............................................................. Gas Utilities 7.0 ............................................................. Diversified Financial 5.8 ............................................................. Oil: Domestic 4.9 ............................................................. Manufacturing 4.6
TOP TEN COMMON STOCK HOLDINGS(3) ............................................................. Philip Morris Cos., Inc. 3.9% ............................................................. Citigroup, Inc. 3.4 ............................................................. Bank of America Corp. 2.5 ............................................................. Tyco International Ltd. 2.4 ............................................................. FleetBoston Financial Corp. 2.4 ............................................................. J.P. Morgan Chase & Co. 1.7 ............................................................. Dynegy, Inc. 1.7 ............................................................. Kinder Morgan, Inc. 1.7 ............................................................. Washington Mutual, Inc. 1.7 ............................................................. First Union Corp. 1.4
2. Portfolio is subject to change. Percentages are as of August 31, 2001, and are based on total market value of common stock holdings. 3. Portfolio is subject to change. Percentages are as of August 31, 2001, and are based on net assets. 5 OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE -------------------------------------------------------------------------------- HOW HAS THE FUND PERFORMED? Below is a discussion, by OppenheimerFunds, Inc., of the Fund's performance during its fiscal year ended August 31, 2001, followed by a graphical comparison of the Fund's performance to an appropriate broad-based market index. MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the fiscal year that ended August 31, 2001, Oppenheimer Capital Income Fund's performance was strongly influenced by its portfolio manager's investment approach, which seeks companies with reasonably priced stocks and sustainable growth rates. Such opportunities were found primarily in traditional, value-oriented market sectors including financial services, energy and utilities. Strong, but volatile price performance in these areas drove the Fund's progress. The Fund's returns were also positively influenced by its fixed income investments, which consisted primarily of convertible securities and U.S. Government securities. The Fund's portfolio allocations, management and strategies are subject to change. 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, 2001. 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. Because Class N shares of the Fund were first publicly offered on March 1, 2001, no performance information for Class N shares is included. The Fund's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B and Class C shares, and reinvestment of all dividends and capital gains distributions. 6 OPPENHEIMER CAPITAL INCOME FUND The Fund's performance is compared to the performance of the Standard & Poor's (S&P) 500 Index. The S&P 500 Index is a broad-based index of U.S. equity securities widely regarded as a general measure of the performance of the U.S. equity securities market. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction costs, and none of the data in the graphs shows the effect of taxes. The Fund's performance reflects the effects of Fund business and operating expenses. While index comparisons may be useful to provide a benchmark for the Fund's performance, it must be noted that the Fund's investments are not limited to the securities in the S&P 500 index, which does not include debt securities. 7 OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE -------------------------------------------------------------------------------- CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: --Oppenheimer Capital Income Fund (Class A) --S&P 500 Index [The following table was originally a line graph in the printed materials.]
Oppenheimer Capital Date Income Fund (Class A) S&P 500 Index 06/30/91 9425 10000 09/30/91 9936 10534 12/31/91 10312 11416 03/31/92 10156 11128 06/30/92 10392 11339 09/30/92 10643 11697 12/31/92 11040 12284 03/31/93 11797 12820 06/30/93 12135 12882 09/30/93 12572 13214 12/31/93 12648 13520 03/31/94 12176 13008 06/30/94 12214 13062 09/30/94 12731 13700 12/31/94 12296 13697 03/31/95 13173 15029 06/30/95 14127 16462 09/30/95 15203 17769 12/31/95 15728 18838 03/31/96 16449 19849 06/30/96 16756 20739 08/31/96(1) 16712 20242 11/30/96 19131 23629 02/28/97 20077 24800 05/31/97 20675 26743 08/31/97 22292 28465 11/30/97 23716 30364 02/28/98 25437 33477 05/31/98 26300 34940 08/31/98 23666 30777 11/30/98 26694 37555 02/28/99 26428 40093 05/31/99 27417 42289 08/31/99 26276 43028 11/30/99 25442 45402 02/29/00 24021 44794 05/31/00 26930 46716 08/31/00 28177 50044 11/30/00 27254 43483 02/28/01 30054 41123 05/31/01 31704 41789 08/31/01 30104 37846
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES OF THE FUND AT 8/31/01(1,2) 1-YEAR 0.70% 5-YEAR 11.17% 10-YEAR 11.09% CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: --Oppenheimer Capital Income Fund (Class B) --S&P 500 Index [The following table was originally a line graph in the printed materials.]
Oppenheimer Capital Date Income Fund (Class B) S&P 500 Index 08/17/93 10000 10000 09/30/93 10133 9923 12/31/93 10161 10153 03/31/94 9763 9769 06/30/94 9765 9810 09/30/94 10162 10288 12/31/94 9792 10287 03/31/95 10474 11287 06/30/95 11216 12363 09/30/95 12040 13345 12/31/95 12434 14147 03/31/96 12971 14907 06/30/96 13188 15575 08/31/96(1) 13141 15202 11/30/96 15013 17745 02/28/97 15715 18625 05/31/97 16142 20083 08/31/97 17369 21377 11/30/97 18455 22803 02/28/98 19759 25141 05/31/98 20372 26240 08/31/98 18292 23113 11/30/98 20611 28204 02/28/99 20359 30109 05/31/99 21087 31759 08/31/99 20167 32314 11/30/99 19527 34096 02/29/00 18436 33640 05/31/00 20669 35084 08/31/00 21626 37583 11/30/00 20918 32656 02/28/01 23067 30883 05/31/01 24333 31383 08/31/01 23105 28422
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES OF THE FUND AT 8/31/01(1,2) 1-YEAR 1.11% 5-YEAR 11.33% SINCE INCEPTION 10.98% 1. The Fund changed its fiscal year end from 6/30 to 8/31. 2. See page 10 for further details. 8 OPPENHEIMER CAPITAL INCOME FUND CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: --Oppenheimer Capital Income Fund (Class C) --S&P 500 Index [The following table was originally a line graph in the printed materials.]
Oppenheimer Capital Date Income Fund (Class C) S&P 500 Index 11/01/95 10000 10000 12/31/95 10420 10640 03/31/96 10864 11211 06/30/96 11050 11713 08/31/96(1) 11001 11432 11/30/96 12569 13345 02/28/97 13168 14007 05/31/97 13525 15104 08/31/97 14555 16077 11/30/97 15458 17149 02/28/98 16541 18907 05/31/98 17068 19734 08/31/98 15327 17382 11/30/98 17260 21211 02/28/99 17049 22643 05/31/99 17659 23884 08/31/99 16883 24301 11/30/99 16320 25642 02/29/00 15384 25299 05/31/00 17209 26385 08/31/00 17964 28264 11/30/00 17335 24559 02/28/01 19093 23226 05/31/01 20086 23602 08/31/01 19042 21375
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES OF THE FUND AT 8/31/01(1,2) 1-YEAR 5.01% 5-YEAR 11.60% SINCE INCEPTION 11.67% THE PERFORMANCE INFORMATION FOR THE S&P 500 INDEX IN THE GRAPHS BEGINS ON 6/30/91 FOR CLASS A, 8/31/93 FOR CLASS B AND 10/31/95 FOR CLASS C. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. GRAPHS ARE NOT DRAWN TO THE SAME SCALE. 9 OPPENHEIMER CAPITAL INCOME FUND NOTES -------------------------------------------------------------------------------- IN REVIEWING PERFORMANCE, PLEASE REMEMBER THAT PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. BECAUSE OF ONGOING MARKET VOLATILITY, THE FUND'S PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS, AND CURRENT PERFORMANCE MAY BE MORE OR LESS THAN THE RESULTS SHOWN. FOR UPDATES ON THE FUND'S PERFORMANCE, VISIT OUR WEBSITE AT WWW.OPPENHEIMERFUNDS.COM. Total returns and the ending account values in the graphs include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. The Fund's total returns shown do not 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. For more complete information about the Fund, including charges, expenses and risks, please refer to the prospectus. To obtain a copy, call your financial advisor, call OppenheimerFunds Distributor, Inc. at 1.800.525.7048 or visit the OppenheimerFunds website at WWW.OPPENHEIMERFUNDS.COM. Read the prospectus carefully before you invest or send money. CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless otherwise noted, Class A returns include the current maximum initial sales charge of 5.75%. The Fund's maximum sales charge for Class A shares was higher prior to 10/18/91, so actual performance may have been higher. CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to Class A shares 72 months after purchase, the "life-of-class" return for Class B uses Class A performance for the period after conversion and the ending account value does not reflect the deduction of any sales charges. Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless otherwise noted, Class C returns include the contingent deferred sales charge of 1% for the 1-year period. Class C shares are subject to an annual 0.75% asset-based sales charge. CLASS N shares of the Fund were first publicly offered on 3/1/01, therefore no performance information on Class N shares is included in this report. Class N shares are offered only through retirement plans. Class N shares are subject to an annual 0.25% asset-based sales charge. An explanation of the calculation of performance is in the Fund's Statement of Additional Information. 10 OPPENHEIMER CAPITAL INCOME FUND FINANCIALS 11 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS AUGUST 31, 2001 --------------------------------------------------------------------------------
MARKET VALUE SHARES SEE NOTE 1 ============================================================================================================================ COMMON STOCKS--67.8% ---------------------------------------------------------------------------------------------------------------------------- BASIC MATERIALS--0.5% ---------------------------------------------------------------------------------------------------------------------------- PAPER--0.5% Sappi Ltd., Sponsored ADR 1,600,000 $ 16,576,000 ---------------------------------------------------------------------------------------------------------------------------- CAPITAL GOODS--5.4% ---------------------------------------------------------------------------------------------------------------------------- AEROSPACE/DEFENSE--0.2% Boeing Co. 107,500 5,504,000 ---------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL SERVICES--0.6% Republic Services, Inc.(1) 960,000 19,056,000 ---------------------------------------------------------------------------------------------------------------------------- MANUFACTURING--4.6% Honeywell International, Inc. 437,500 16,301,250 ---------------------------------------------------------------------------------------------------------------------------- Packaging Corp. of America(1) 1,500,000 27,570,000 ---------------------------------------------------------------------------------------------------------------------------- Pall Corp. 610,000 13,639,600 ---------------------------------------------------------------------------------------------------------------------------- Titan Corp. (The)(1) 500,000 9,275,000 ---------------------------------------------------------------------------------------------------------------------------- Tyco International Ltd. 1,412,500 73,379,375 ------------------ 140,165,225 ---------------------------------------------------------------------------------------------------------------------------- COMMUNICATION SERVICES--1.6% ---------------------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS-LONG DISTANCE--1.0% Sprint Corp. (Fon Group) 400,000 9,336,000 ---------------------------------------------------------------------------------------------------------------------------- Verizon Communications, Inc. 400,000 20,000,000 ------------------ 29,336,000 ---------------------------------------------------------------------------------------------------------------------------- TELEPHONE UTILITIES--0.6% SBC Communications, Inc. 410,000 16,773,100 ---------------------------------------------------------------------------------------------------------------------------- CONSUMER CYCLICALS--2.5% ---------------------------------------------------------------------------------------------------------------------------- AUTOS & HOUSING--0.9% KB Home 530,000 17,156,100 ---------------------------------------------------------------------------------------------------------------------------- Snap-On, Inc. 250,000 6,365,000 ---------------------------------------------------------------------------------------------------------------------------- Visteon Corp. 270,000 4,617,000 ------------------ 28,138,100 ---------------------------------------------------------------------------------------------------------------------------- LEISURE & ENTERTAINMENT--0.1% Host Marriott Corp. 287,500 3,680,000 ---------------------------------------------------------------------------------------------------------------------------- MEDIA--0.4% Deluxe Corp. 350,000 11,487,000 ---------------------------------------------------------------------------------------------------------------------------- RETAIL: GENERAL--0.3% Federated Department Stores, Inc.(1) 140,000 5,083,400 ---------------------------------------------------------------------------------------------------------------------------- May Department Stores Co. 140,000 4,711,000 ------------------ 9,794,400 ---------------------------------------------------------------------------------------------------------------------------- RETAIL: SPECIALTY--0.8% AutoNation, Inc.(1) 550,000 5,918,000 ---------------------------------------------------------------------------------------------------------------------------- CSK Auto Corp.(1,2) 1,839,300 15,726,015 ---------------------------------------------------------------------------------------------------------------------------- Gap, Inc. 125,000 2,456,250 ------------------ 24,100,265
12 OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE SHARES SEE NOTE 1 ---------------------------------------------------------------------------------------------------------------------------- CONSUMER STAPLES--8.3% ---------------------------------------------------------------------------------------------------------------------------- BROADCASTING--2.0% Charter Communications, Inc., Cl. A(1) 700,000 $ 14,140,000 ---------------------------------------------------------------------------------------------------------------------------- Clear Channel Communications, Inc.(1) 775,000 38,959,250 ---------------------------------------------------------------------------------------------------------------------------- Comcast Corp., Cl. A Special(1) 200,000 7,326,000 ------------------ 60,425,250 ---------------------------------------------------------------------------------------------------------------------------- ENTERTAINMENT--0.4% McDonald's Corp. 150,000 4,504,500 ---------------------------------------------------------------------------------------------------------------------------- Viacom, Inc., Cl. B(1) 200,000 8,480,000 ------------------ 12,984,500 ---------------------------------------------------------------------------------------------------------------------------- FOOD & DRUG RETAILERS--1.8% Kroger Co. (The)(1) 1,097,500 29,215,450 ---------------------------------------------------------------------------------------------------------------------------- SUPERVALU, Inc. 1,025,000 21,504,500 ---------------------------------------------------------------------------------------------------------------------------- Winn-Dixie Stores, Inc. 145,000 3,255,250 ------------------ 53,975,200 ---------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD GOODS--0.0% Kimberly-Clark Corp. 5,000 310,250 ---------------------------------------------------------------------------------------------------------------------------- TOBACCO--4.1% Philip Morris Cos., Inc. 2,500,000 118,500,000 ---------------------------------------------------------------------------------------------------------------------------- UST, Inc. 200,000 6,600,000 ------------------ 125,100,000 ---------------------------------------------------------------------------------------------------------------------------- ENERGY--6.5% ---------------------------------------------------------------------------------------------------------------------------- ENERGY SERVICES--1.6% BJ Services Co.(1) 435,000 9,757,050 ---------------------------------------------------------------------------------------------------------------------------- Cooper Cameron Corp.(1) 85,000 3,676,250 ---------------------------------------------------------------------------------------------------------------------------- ENSCO International, Inc. 525,000 9,576,000 ---------------------------------------------------------------------------------------------------------------------------- Global Marine, Inc.(1) 325,000 4,680,000 ---------------------------------------------------------------------------------------------------------------------------- Santa Fe International Corp. 600,000 15,180,000 ---------------------------------------------------------------------------------------------------------------------------- Tidewater, Inc. 200,000 6,222,000 ------------------ 49,091,300 ---------------------------------------------------------------------------------------------------------------------------- OIL: DOMESTIC--4.9% Conoco, Inc., Cl. A 850,000 25,202,500 ---------------------------------------------------------------------------------------------------------------------------- EOG Resources, Inc. 200,000 6,324,000 ---------------------------------------------------------------------------------------------------------------------------- Kerr/McGee Corp. 150,000 8,761,500 ---------------------------------------------------------------------------------------------------------------------------- Occidental Petroleum Corp. 1,000,000 27,520,000 ---------------------------------------------------------------------------------------------------------------------------- Texaco, Inc. 100,000 6,965,000 ---------------------------------------------------------------------------------------------------------------------------- Unocal Corp. 500,000 17,650,000 ---------------------------------------------------------------------------------------------------------------------------- USX-Marathon Group, Inc. 1,075,000 33,873,250 ---------------------------------------------------------------------------------------------------------------------------- Valero Energy Corp.(3) 500,000 20,750,000 ------------------ 147,046,250
13 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued --------------------------------------------------------------------------------
MARKET VALUE SHARES SEE NOTE 1 ---------------------------------------------------------------------------------------------------------------------------- FINANCIAL--29.6% ---------------------------------------------------------------------------------------------------------------------------- BANKS--14.6% AmSouth Bancorp 425,000 $ 8,083,500 ---------------------------------------------------------------------------------------------------------------------------- Bank of America Corp.(3) 1,250,000 76,875,000 ---------------------------------------------------------------------------------------------------------------------------- Bank of New York Co., Inc. (The)(3) 675,000 26,797,500 ---------------------------------------------------------------------------------------------------------------------------- Bank One Corp.(3) 875,000 30,353,750 ---------------------------------------------------------------------------------------------------------------------------- Charter One Financial, Inc. 1,150,000 33,580,000 ---------------------------------------------------------------------------------------------------------------------------- First Union Corp.(3) 1,192,500 41,045,850 ---------------------------------------------------------------------------------------------------------------------------- FleetBoston Financial Corp.(3) 1,945,250 71,643,558 ---------------------------------------------------------------------------------------------------------------------------- J.P. Morgan Chase & Co. 1,325,000 52,205,000 ---------------------------------------------------------------------------------------------------------------------------- KeyCorp 550,000 13,805,000 ---------------------------------------------------------------------------------------------------------------------------- Mellon Financial Corp.(3) 725,000 25,556,250 ---------------------------------------------------------------------------------------------------------------------------- PNC Financial Services Group 287,500 19,144,625 ---------------------------------------------------------------------------------------------------------------------------- U.S. Bancorp(3) 1,200,000 29,088,000 ---------------------------------------------------------------------------------------------------------------------------- Union Planters Corp.(3) 330,000 14,685,000 ------------------ 442,863,033 ---------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL--5.8% Anthracite Capital, Inc. 850,000 9,333,000 ---------------------------------------------------------------------------------------------------------------------------- Capital One Financial Corp.(3) 100,000 5,561,000 ---------------------------------------------------------------------------------------------------------------------------- Citigroup, Inc. 2,225,000 101,793,750 ---------------------------------------------------------------------------------------------------------------------------- Fannie Mae 52,500 4,001,025 ---------------------------------------------------------------------------------------------------------------------------- Household International, Inc.(3) 600,000 35,460,000 ---------------------------------------------------------------------------------------------------------------------------- John Hancock Financial Services, Inc. 400,000 15,980,000 ---------------------------------------------------------------------------------------------------------------------------- Smith (Charles E.) Residential Realty, Inc. 59,275 3,143,353 ------------------ 175,272,128 ---------------------------------------------------------------------------------------------------------------------------- INSURANCE--3.6% Allstate Corp. 250,000 8,482,500 ---------------------------------------------------------------------------------------------------------------------------- Everest Re Group Ltd. 450,000 29,205,000 ---------------------------------------------------------------------------------------------------------------------------- Hartford Financial Services Group, Inc. 50,000 3,240,000 ---------------------------------------------------------------------------------------------------------------------------- Protective Life Corp. 300,000 8,949,000 ---------------------------------------------------------------------------------------------------------------------------- Radian Group, Inc. 625,000 25,068,750 ---------------------------------------------------------------------------------------------------------------------------- St. Paul Cos., Inc. 300,000 12,609,000 ---------------------------------------------------------------------------------------------------------------------------- XL Capital Ltd., Cl. A 250,000 20,750,000 ------------------ 108,304,250
14 OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE SHARES SEE NOTE 1 ---------------------------------------------------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS--3.3% Archstone Communities Trust 655,000 $ 17,685,000 ---------------------------------------------------------------------------------------------------------------------------- Avalonbay Communities, Inc. 300,000 15,147,000 ---------------------------------------------------------------------------------------------------------------------------- Boston Properties, Inc. 200,000 7,880,000 ---------------------------------------------------------------------------------------------------------------------------- Equity Office Properties Trust 1,100,000 35,299,000 ---------------------------------------------------------------------------------------------------------------------------- Equity Residential Properties Trust 385,000 22,680,350 ------------------ 98,691,350 ---------------------------------------------------------------------------------------------------------------------------- SAVINGS & LOANS--2.3% Greenpoint Financial Corp. 500,000 19,750,000 ---------------------------------------------------------------------------------------------------------------------------- Washington Mutual, Inc. 1,350,000 50,544,000 ------------------ 70,294,000 ---------------------------------------------------------------------------------------------------------------------------- HEALTHCARE--2.5% ---------------------------------------------------------------------------------------------------------------------------- HEALTHCARE/DRUGS--2.5% Abbott Laboratories(3) 77,500 3,851,750 ---------------------------------------------------------------------------------------------------------------------------- American Home Products Corp. 400,000 22,400,000 ---------------------------------------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 225,000 12,631,500 ---------------------------------------------------------------------------------------------------------------------------- Johnson & Johnson(3) 220,500 11,622,555 ---------------------------------------------------------------------------------------------------------------------------- Merck & Co., Inc. 162,500 10,578,750 ---------------------------------------------------------------------------------------------------------------------------- Pharmacia Corp. 150,000 5,940,000 ---------------------------------------------------------------------------------------------------------------------------- Schering-Plough Corp. 200,000 7,626,000 ---------------------------------------------------------------------------------------------------------------------------- Zimmer Holdings, Inc.(1) 10,000 272,000 ------------------ 74,922,555 ---------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY--1.0% ---------------------------------------------------------------------------------------------------------------------------- COMPUTER SERVICES--0.2% First Data Corp.(3) 100,000 6,585,000 ---------------------------------------------------------------------------------------------------------------------------- COMPUTER SOFTWARE--0.8% Microsoft Corp.(1) 400,000 22,820,000 ---------------------------------------------------------------------------------------------------------------------------- ELECTRONICS--0.0% Waters Corp.(1,3) 25,000 828,250 ---------------------------------------------------------------------------------------------------------------------------- UTILITIES--9.9% ---------------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES--2.9% Constellation Energy Group, Inc. 700,000 21,014,000 ---------------------------------------------------------------------------------------------------------------------------- Exelon Corp. 500,000 27,300,000 ---------------------------------------------------------------------------------------------------------------------------- TXU Corp. 800,000 37,984,000 ------------------ 86,298,000 ---------------------------------------------------------------------------------------------------------------------------- GAS UTILITIES--7.0% Dynegy, Inc. 1,225,000 51,658,250 ---------------------------------------------------------------------------------------------------------------------------- El Paso Corp. 225,000 10,932,750 ---------------------------------------------------------------------------------------------------------------------------- Enron Corp. 650,000 22,743,500 ---------------------------------------------------------------------------------------------------------------------------- Kinder Morgan Management LLC 558,160 40,996,852
15 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued --------------------------------------------------------------------------------
MARKET VALUE SHARES SEE NOTE 1 ---------------------------------------------------------------------------------------------------------------------------- GAS UTILITIES Continued Kinder Morgan, Inc. 925,000 $ 51,430,000 ---------------------------------------------------------------------------------------------------------------------------- Sempra Energy 325,000 8,804,250 ---------------------------------------------------------------------------------------------------------------------------- Williams Cos., Inc. (The) 775,000 25,226,250 ------------------ 211,791,852 ------------------ Total Common Stocks (Cost $1,447,170,445) 2,052,213,258 ============================================================================================================================ PREFERRED STOCKS--10.6% ---------------------------------------------------------------------------------------------------------------------------- ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend Equity Securities, Non-Vtg. 287,500 20,412,500 ---------------------------------------------------------------------------------------------------------------------------- Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg. 375,000 40,453,125 ---------------------------------------------------------------------------------------------------------------------------- California Federal Preferred Capital Corp., 9.125% Non-Cum. Exchangeable, Series A, Non-Vtg. 100,000 2,577,000 ---------------------------------------------------------------------------------------------------------------------------- CMS Energy Trust III, 7.25% Cv. Premium Equity Participating Security Units 200,000 5,150,000 ---------------------------------------------------------------------------------------------------------------------------- Coastal Corp., $37.75 Cv. Preferred Redeemable Increased Dividend Equity Securities 725,000 24,331,000 ---------------------------------------------------------------------------------------------------------------------------- Duke Energy Corp., 8.25% Cv. Equity Units, Non-Vtg. (each equity unit consists of units referred to as corporate units which consist of $25 principal amount of Duke Energy Corp., 5.87% sr. nts., due 2006 and a contract to purchase Duke Energy Corp. common stock)(4) 325,000 8,645,000 ---------------------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg. 300,000 12,450,000 ---------------------------------------------------------------------------------------------------------------------------- Enron Corp., 7% Cv. Exchangeable, Non-Vtg. 183,050 5,231,569 ---------------------------------------------------------------------------------------------------------------------------- Fresenius Medical Care Capital Trust III, 9% Trust Securities 5,985,000 6,209,438 ---------------------------------------------------------------------------------------------------------------------------- Global Crossing Ltd., 7% Cum. Cv. 200,000 11,300,000 ---------------------------------------------------------------------------------------------------------------------------- Hercules Trust II, Units (each unit consists of one preferred security of the Trust and one warrant to purchase 23.4192 shares of Hercules, Inc. common stock)(4) 7,500 3,823,500 ---------------------------------------------------------------------------------------------------------------------------- McLeodUSA, Inc., 6.75% Cv., Series A, Non-Vtg. 55,000 3,190,000 ---------------------------------------------------------------------------------------------------------------------------- National Australia Bank Ltd., ExCaps (each ExCap consists of $25 principal amount of 7.875% Perpetual Capital Security and a purchase contract entitling the holder to exchange ExCaps for ordinary shares of the bank)(4) 500,000 16,100,000 ---------------------------------------------------------------------------------------------------------------------------- Nisource, Inc., 7.75% Cv. Premium Income Equity Securities, Non-Vtg. 200,000 9,720,000 ---------------------------------------------------------------------------------------------------------------------------- NRG Energy, Inc., Equity Units, Non-Vtg. (each equity unit consists of units referred to as corporate units which consist of $25 principal amount of NRG Energy, Inc., 6.50% sr. debs., 5/16/01 and a purchase contract to purchase NRG Energy, Inc. common stock)(4) 225,000 4,722,750 ---------------------------------------------------------------------------------------------------------------------------- Pharmacia Corp., 6.50% Cv. Adjustable Conversion-rate Equity Security 228,800 8,545,680 ---------------------------------------------------------------------------------------------------------------------------- Qwest Trends Trust, 5.75% Cv.(5) 250,000 10,187,500 ---------------------------------------------------------------------------------------------------------------------------- Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts. 100,000 5,935,000 ---------------------------------------------------------------------------------------------------------------------------- Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity Redeemable Stock 715,000 17,875,000 ---------------------------------------------------------------------------------------------------------------------------- Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity Redeemable Stock, Units (each unit consists of one preferred plus one warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(4) 475,000 30,780,000
16 OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE SHARES SEE NOTE 1 ============================================================================================================================ PREFERRED STOCKS Continued ---------------------------------------------------------------------------------------------------------------------------- Sprint Corp., Equity Units [each equity unit consists of units referred to as corporate units which consist of $25 principal amount of Sprint Capital Corp., 6% sr. nts., 8/17/06 and a purchase contract to purchase Sprint Corp. (PCS Group) common stock](1,4) 760,000 $ 19,790,400 ---------------------------------------------------------------------------------------------------------------------------- Tribune Co., 2% Unsec. Participation Hybrid Option Note Exchangeable Securities (exchangeable for shares of America Online, Inc.) 225,000 21,150,000 ---------------------------------------------------------------------------------------------------------------------------- Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg. 135,000 6,395,625 ---------------------------------------------------------------------------------------------------------------------------- United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities, Non-Vtg. 350,000 12,337,500 ---------------------------------------------------------------------------------------------------------------------------- Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security 312,500 10,296,875 ---------------------------------------------------------------------------------------------------------------------------- WorldCom, Inc., 7% Cum. Cv., Series E 200,000 4,525,000 ------------------ Total Preferred Stocks (Cost $332,203,404) 322,134,462
PRINCIPAL AMOUNT ============================================================================================================================ MORTGAGE-BACKED OBLIGATIONS--4.9% ---------------------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn.: 6%, 9/25/31(6) $ 126,000,000 123,834,060 6.50%, 9/1/28(6) 25,000,000 25,093,750 ------------------ Total Mortgage-Backed Obligations (Cost $147,347,188) 148,927,810 ============================================================================================================================ U.S. GOVERNMENT OBLIGATIONS--4.6% ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds, STRIPS, 6.33%, 2/15/15(7) 150,000,000 72,226,350 ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Nts., 5%, 2/15/11 65,000,000 65,446,940 ------------------ Total U.S. Government Obligations (Cost $128,872,494) 137,673,290 ============================================================================================================================ FOREIGN GOVERNMENT OBLIGATIONS--0.6% ---------------------------------------------------------------------------------------------------------------------------- Banco Nac de Desen Econo Cv. Sr. Nts., 6.50%, 6/15/06 [cv. into Empresa Brasileira de Aeronautica SA (Embraer), ADR common stock](5) 7,750,000 6,897,500 ---------------------------------------------------------------------------------------------------------------------------- South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR] 14,800,000 1,975,525 ---------------------------------------------------------------------------------------------------------------------------- United Mexican States Sec. Nts., Fideicomiso Petacalco Trust, 10.16%, 12/23/09(5) 7,650,000 8,300,250 ------------------ Total Foreign Government Obligations (Cost $18,112,991) 17,173,275 ============================================================================================================================ LOAN PARTICIPATIONS--0.3% ---------------------------------------------------------------------------------------------------------------------------- Shoshone Partners Loan Trust Sr. Nts., 3.696%, 4/28/02 (representing a basket of reference loans and a total return swap between Chase Manhattan Bank and the Trust)(8,9) (Cost $16,849,811) 16,800,000 10,269,221 ============================================================================================================================ NON-CONVERTIBLE CORPORATE BONDS AND NOTES--4.9% ---------------------------------------------------------------------------------------------------------------------------- AK Steel Corp., 9.125% Sr. Nts., 12/15/06 4,000,000 4,130,000 ---------------------------------------------------------------------------------------------------------------------------- Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,995,000 5,057,438 ---------------------------------------------------------------------------------------------------------------------------- Amtran, Inc., 9.625% Nts., 12/15/05(8) 3,000,000 2,595,000
17 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 ============================================================================================================================ NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued ---------------------------------------------------------------------------------------------------------------------------- Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(9) $ 5,000,000 $ 7,303,520 ---------------------------------------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,715,625 ---------------------------------------------------------------------------------------------------------------------------- Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09 9,250,000 9,018,750 ---------------------------------------------------------------------------------------------------------------------------- Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,034,014 ---------------------------------------------------------------------------------------------------------------------------- Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,492,875 ---------------------------------------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,828,337 ---------------------------------------------------------------------------------------------------------------------------- EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 4,000,000 4,145,000 ---------------------------------------------------------------------------------------------------------------------------- Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09 9,000,000 8,752,500 ---------------------------------------------------------------------------------------------------------------------------- Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 1,750,000 1,408,750 ---------------------------------------------------------------------------------------------------------------------------- Fairchild Semiconductor Corp., 10.375% Sr. Unsec. Nts., 10/1/07 2,500,000 2,525,000 ---------------------------------------------------------------------------------------------------------------------------- Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06 5,000,000 5,056,250 ---------------------------------------------------------------------------------------------------------------------------- HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 10,125,000 ---------------------------------------------------------------------------------------------------------------------------- Hollinger International Publishing, Inc.: 8.625% Sr. Unsec. Nts., 3/15/05(8) 4,210,000 4,146,850 9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 4,137,000 ---------------------------------------------------------------------------------------------------------------------------- ICN Pharmaceuticals, Inc., 9.75% Sr. Nts., 11/15/08(5) 2,000,000 2,290,000 ---------------------------------------------------------------------------------------------------------------------------- Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 1,775,000 ---------------------------------------------------------------------------------------------------------------------------- Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,040,000 ---------------------------------------------------------------------------------------------------------------------------- Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09(8) 6,000,000 5,910,000 ---------------------------------------------------------------------------------------------------------------------------- McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09 25,000,000 11,312,500 ---------------------------------------------------------------------------------------------------------------------------- Metromedia Fiber Network, Inc.: 10% Sr. Nts., 12/15/09 4,000,000 980,000 10% Sr. Nts., 12/15/09 [EUR] 2,000,000 472,368 ---------------------------------------------------------------------------------------------------------------------------- Nortek, Inc., 9.125% Sr. Unsec. Nts., Series B, 9/1/07 7,500,000 7,537,500 ---------------------------------------------------------------------------------------------------------------------------- NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 7,650,000 4,513,500 ---------------------------------------------------------------------------------------------------------------------------- P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 3,224,000 3,449,680 ---------------------------------------------------------------------------------------------------------------------------- RCN Corp., 10.125% Sr. Unsec. Nts., 1/15/10 14,284,000 5,499,340 ---------------------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 11.25% Sr. Nts., 7/1/08(5) 2,500,000 2,637,500 ---------------------------------------------------------------------------------------------------------------------------- Riverwood International Corp.: 10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,045,000 10.875% Sr. Sub. Nts., 4/1/08 1,000,000 990,000 ---------------------------------------------------------------------------------------------------------------------------- Tenet Healthcare Corp.: 7.625% Sr. Unsec. Nts., Series B, 6/1/08 2,150,000 2,327,375 8.625% Sr. Sub. Nts., 1/15/07 2,000,000 2,110,000 ---------------------------------------------------------------------------------------------------------------------------- Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09 1,000,000 500,000 ---------------------------------------------------------------------------------------------------------------------------- Tribasa Toll Road Trust I, 10.50% Sr. Asset-Backed Securities, Series 1993-A, 12/1/11(8) 1,745,919 1,104,294 ---------------------------------------------------------------------------------------------------------------------------- VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09 96,000 110,880 ---------------------------------------------------------------------------------------------------------------------------- Williams Communications Group, Inc., 10.875% Sr. Unsec. Nts., 10/1/09 3,000,000 1,380,000
18 OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 ============================================================================================================================ NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued ---------------------------------------------------------------------------------------------------------------------------- World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 $ 1,000,000 $ 1,012,684 ---------------------------------------------------------------------------------------------------------------------------- XO Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09 5,000,000 1,950,000 ------------------ Total Non-Convertible Corporate Bonds and Notes (Cost $165,714,418) 147,419,530 ============================================================================================================================ CONVERTIBLE CORPORATE BONDS AND NOTES--9.3% ---------------------------------------------------------------------------------------------------------------------------- Adelphia Communications Corp., 6% Cv. Unsec. Nts., 2/15/06 40,000,000 34,350,000 ---------------------------------------------------------------------------------------------------------------------------- American Tower Corp.: 5% Cv. Nts., 2/15/10(5) 7,000,000 5,398,750 5% Cv. Nts., 2/15/10 5,500,000 4,241,875 ---------------------------------------------------------------------------------------------------------------------------- Amkor Technology, Inc.: 5% Cv. Sub. Nts., 3/15/07(5) 23,000,000 15,898,750 5% Cv. Unsec. Sub. Nts., 3/15/07 7,000,000 4,838,750 ---------------------------------------------------------------------------------------------------------------------------- Charter Communications, Inc., 4.75% Cv. Sr. Unsec. Nts., 6/1/06 7,500,000 7,434,375 ---------------------------------------------------------------------------------------------------------------------------- Clear Channel Communications, Inc., 2.625% Cv. Sr. Nts., 4/1/03 10,000,000 10,300,000 ---------------------------------------------------------------------------------------------------------------------------- Commscope, Inc., 4% Cv. Unsec. Sub. Nts., 12/15/06 10,500,000 8,859,375 ---------------------------------------------------------------------------------------------------------------------------- CSK Auto Corp., 7% Cv. Sub. Nts., 8/1/06(2,8) 30,000,000 40,044,600 ---------------------------------------------------------------------------------------------------------------------------- Enron Corp., Zero Coupon Cv. Sr. Unsec. Nts., 2.68%, 2/7/21(7) 15,000,000 8,981,250 ---------------------------------------------------------------------------------------------------------------------------- Juniper Networks, Inc., 4.75% Cv. Unsec. Sub. Nts., 3/15/07 6,250,000 4,500,000 ---------------------------------------------------------------------------------------------------------------------------- Level 3 Communications, Inc., 6% Cv. Nts., 9/15/09 52,500,000 16,012,500 ---------------------------------------------------------------------------------------------------------------------------- Liberty Media Corp., 3.25% Cv. Sr. Nts., 3/15/31 (cv. into Viacom, Inc., Cl. B common stock)(5) 20,000,000 18,925,000 ---------------------------------------------------------------------------------------------------------------------------- LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05 17,500,000 14,896,875 ---------------------------------------------------------------------------------------------------------------------------- Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub. Debs., 5.25%, 10/30/15(5,7) 19,500,000 8,214,375 ---------------------------------------------------------------------------------------------------------------------------- Network Associates, Inc., Zero Coupon Cv. Unsec Sub. Debs., 3.94%, 2/13/18(7) 25,000,000 11,000,000 ---------------------------------------------------------------------------------------------------------------------------- Nextel Communications, Inc.: 5.25% Cv. Sr. Nts., 1/15/10(5) 12,500,000 7,328,125 5.25% Cv. Sr. Nts., 1/15/10 25,000,000 14,656,250 ---------------------------------------------------------------------------------------------------------------------------- Nortel Networks Corp., 4.25% Cv. Sr. Nts., 9/1/08(5) 6,500,000 6,150,625 ---------------------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02 20,000,000 19,300,000 ---------------------------------------------------------------------------------------------------------------------------- Royal Carribean Cruises Ltd., Zero Coupon Cv. Sr. Unsec. Unsub Liquid Yield Option Nts., 5.15%, 2/2/21(7) 36,000,000 13,320,000 ---------------------------------------------------------------------------------------------------------------------------- Solectron Corp., Zero Coupon Cv. Sr. Unsec. Unsub. Liquid Yield Option Nts., 3.63%, 5/8/20(7) 15,000,000 7,650,000 ------------------ Total Convertible Corporate Bonds and Notes (Cost $290,924,388) 282,301,475
19 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE AMOUNT SEE NOTE 1 ============================================================================================================================ STRUCTURED INSTRUMENTS--0.7% ---------------------------------------------------------------------------------------------------------------------------- Credit Suisse First Boston Corp. (New York Branch), Carnival Corp. Equity Linked Nts., 7%, 7/17/02(8) $ 11,558,946 $ 16,182,524 ---------------------------------------------------------------------------------------------------------------------------- Merrill Lynch & Co., Inc., Medium-Term Stock Linked Nts., Series B, 7%, 7/8/02 (linked to the performance of The Gap, Inc. common stock) 7,500,000 5,250,000 ------------------ Total Structured Instruments (Cost $19,615,358) 21,432,524 ============================================================================================================================ REPURCHASE AGREEMENTS--0.3% ---------------------------------------------------------------------------------------------------------------------------- Repurchase agreement with Deutsche Bank Securities, Inc., 3.62%, dated 8/31/01, to be repurchased at $7,664,081 on 9/4/01, collateralized by U.S. Treasury Bonds, 6.50%-8.125%, 8/15/21-11/15/26, with a value of $7,839,821 (Cost $7,661,000) 7,661,000 7,661,000 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $2,574,471,497) 104.0% 3,147,205,845 ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (4.0) (121,516,039) ---------------------------------------- NET ASSETS 100.0% $ 3,025,689,806 ========================================
FOOTNOTES TO STATEMENT OF INVESTMENTS Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: 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, 2001. The aggregate fair value of securities of affiliated companies held by the Fund as of August 31, 2001, amounts to $55,770,615. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES/ SHARES/ PRINCIPAL PRINCIPAL UNREALIZED AUGUST 31, GROSS GROSS AUGUST 31, APPRECIATION INTEREST 2000 ADDITIONS REDUCTIONS 2001 (DEPRECIATION) INCOME -------------------------------------------------------------------------------------------------------------------------- STOCKS AND WARRANTS CSK Auto Corp. 1,500,000 339,300 -- 1,839,300 $(18,737,975) $ -- BONDS AND NOTES CSK Auto Corp., 7% Cv. Sub. Nts., 8/1/06 -- $30,000,000 -- $30,000,000 10,044,600 93,333 --------- $ 93,333 =========
20 OPPENHEIMER CAPITAL INCOME FUND FOOTNOTES TO STATEMENT OF INVESTMENTS Continued 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 ------------------------------------------------------------------------------------------------------------ Abbott Laboratories 500 9/24/01 $55 $ 33,249 $ 5,000 Bank of America Corp. 500 9/24/01 70 13,250 -- Bank of America Corp. 250 10/22/01 70 17,249 2,500 Bank of America Corp. 875 11/19/01 70 79,622 30,625 Bank of New York Co., Inc. (The) 1,500 10/22/01 60 266,241 -- Bank of New York Co., Inc. (The) 4,500 1/21/02 70 402,511 -- Bank One Corp. 1,000 11/19/01 43 57,499 -- Capital One Financial Corp. 375 9/24/01 65 50,123 7,500 First Data Corp. 875 9/24/01 65 417,611 210,000 First Data Corp. 125 9/24/01 70 17,224 5,000 First Union Corp. 725 9/24/01 35 98,947 25,375 First Union Corp. 1,325 9/24/01 38 48,233 19,875 First Union Corp. 950 10/22/01 35 150,395 90,250 FleetBoston Financial Corp. 1,750 10/22/01 50 129,996 -- Household International, Inc. 1,000 9/24/01 70 88,497 -- Household International, Inc. 250 10/22/01 65 119,246 22,500 Johnson & Johnson 1,200 10/22/01 58 112,046 54,000 Johnson & Johnson 1,000 10/22/01 55 114,496 70,000 Mellon Financial Corp. 750 9/24/01 55 54,248 -- U.S. Bancorp 250 9/24/01 25 11,000 6,250 Union Planters Corp. 3,300 11/19/01 48 217,793 82,500 Valero Energy Corp. 500 9/24/01 40 264,991 100,000 Valero Energy Corp. 250 9/24/01 45 89,247 10,000 Valero Energy Corp. 1,500 9/24/01 50 676,027 -- Valero Energy Corp. 750 9/24/01 55 235,692 -- Waters Corp. 25 9/24/01 35 3,050 1,750 -------------------------- 3,768,483 743,125 --------------------------
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE SUBJECT TO PUT DATE PRICE RECEIVED SEE NOTE 1 ------------------------------------------------------------------------------------------------------------ Charter Communications, Inc., Cl. A 250 9/24/01 $20 $ 30,499 $ 21,250 Cisco Systems, Inc. 86 1/21/02 18 26,401 25,800 Comcast Corp., Cl. A 500 9/24/01 35 19,499 27,500 Comcast Corp., Cl. A 1,750 10/22/01 40 654,478 647,500 EMC Corp. 130 10/22/01 23 42,075 93,600 Gap, Inc. 500 9/24/01 23 48,498 140,000 JDS Uniphase Corp. 5 9/24/01 40 8,953 16,300 Kinder Morgan, Inc. 250 9/24/01 50 13,500 1,250 Kinder Morgan, Inc. 1,000 9/24/01 55 244,992 110,000 Merck & Co., Inc. 375 9/24/01 70 86,996 191,250 Morgan Stanley Dean Witter & Co. 1,000 10/22/01 60 658,235 790,000 Providian Financial Corp. 500 10/22/01 35 73,498 90,000 Washington Mutual, Inc. 500 10/22/01 35 58,499 32,500 -------------------------- 1,966,123 2,186,950 -------------------------- $5,734,606 $2,930,075 ==========================
21 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued -------------------------------------------------------------------------------- FOOTNOTES TO STATEMENT OF INVESTMENTS Continued 4. 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. 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 $92,228,375 or 3.05% of the Fund's net assets as of August 31, 2001. 6. When-issued security to be delivered and settled after August 31, 2001. 7. Zero coupon bond reflects the effective yield on the date of purchase. 8. Identifies issues considered to be illiquid or restricted--See Note 7 of Notes to Financial Statements. 9. Represents the current interest rate for a variable or increasing rate security. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES August 31, 2001 -------------------------------------------------------------------------------- ============================================================================================================ ASSETS ------------------------------------------------------------------------------------------------------------ Investments, at value--see accompanying statement: Unaffiliated companies (cost $2,510,007,507) $ 3,091,435,230 Affiliated companies (cost $64,463,990) 55,770,615 ----------------- 3,147,205,845 ------------------------------------------------------------------------------------------------------------ Cash 137,765 ------------------------------------------------------------------------------------------------------------ Cash used for collateral on written puts 25,098,169 ------------------------------------------------------------------------------------------------------------ Receivables and other assets: Interest and dividends 12,434,517 Shares of beneficial interest sold 2,308,573 Investments sold 729,917 Other 276,015 ----------------- Total assets 3,188,190,801 ============================================================================================================ LIABILITIES ------------------------------------------------------------------------------------------------------------ Options written, at value (premiums received $5,734,606)--see accompanying statement 2,930,075 ------------------------------------------------------------------------------------------------------------ Payables and other liabilities: Investments purchased (including $147,755,410 purchased on a when-issued basis) 155,216,909 Shares of beneficial interest redeemed 2,362,912 Distribution and service plan fees 1,243,098 Shareholder reports 404,922 Transfer and shareholder servicing agent fees 227,863 Trustees' compensation 10,918 Other 104,298 ----------------- Total liabilities 162,500,995 ============================================================================================================ NET ASSETS $ 3,025,689,806 ================= ============================================================================================================ COMPOSITION OF NET ASSETS ------------------------------------------------------------------------------------------------------------ Paid-in capital $ 2,361,915,750 ------------------------------------------------------------------------------------------------------------ Undistributed (overdistributed) net investment income 9,104,384 ------------------------------------------------------------------------------------------------------------ Accumulated net realized gain (loss) on investments and foreign currency transactions 79,129,526 ------------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies 575,540,146 ----------------- NET ASSETS $ 3,025,689,806 =================
23 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES Continued -------------------------------------------------------------------------------- ==================================================================================================== NET ASSET VALUE PER SHARE ---------------------------------------------------------------------------------------------------- Class A Shares: Net asset value and redemption price per share (based on net assets of $2,458,271,634 and 193,273,281 shares of beneficial interest outstanding) $12.72 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.50 ---------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $477,223,195 and 37,866,936 shares of beneficial interest outstanding) $12.60 ---------------------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $89,547,438 and 7,110,374 shares of beneficial interest outstanding) $12.59 ---------------------------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $647,539 and 51,035 shares of beneficial interest outstanding) $12.69
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF OPERATIONS For the Year Ended August 31, 2001 -------------------------------------------------------------------------------- ==================================================================================================== INVESTMENT INCOME ---------------------------------------------------------------------------------------------------- Dividends (net of foreign withholding taxes of $4,199) $ 69,370,606 ---------------------------------------------------------------------------------------------------- Interest: Unaffiliated companies 53,259,685 Affiliated companies 93,333 --------------- Total income 122,723,624 ==================================================================================================== EXPENSES ---------------------------------------------------------------------------------------------------- Management fees 15,646,888 ---------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A 5,698,019 Class B 4,692,665 Class C 802,801 Class N 530 ---------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees 2,881,669 ---------------------------------------------------------------------------------------------------- Shareholder reports 883,004 ---------------------------------------------------------------------------------------------------- Custodian fees and expenses 210,276 ---------------------------------------------------------------------------------------------------- Trustees' compensation 60,715 ---------------------------------------------------------------------------------------------------- Other 451,241 --------------- Total expenses 31,327,808 Less reduction to custodian expenses (35,920) --------------- Net expenses 31,291,888 ==================================================================================================== NET INVESTMENT INCOME 91,431,736 ==================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) ---------------------------------------------------------------------------------------------------- Net realized gain (loss) on: Investments (including premiums on options exercised) 98,645,690 Closing and expiration of option contracts written 8,284,419 Foreign currency transactions (8,366,175) --------------- Net realized gain (loss) 98,563,934 ---------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on: Investments (7,378,735) Translation of assets and liabilities denominated in foreign currencies 5,919,722 --------------- Net change (1,459,013) --------------- Net realized and unrealized gain (loss) 97,104,921 ==================================================================================================== NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 188,536,657 ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 OPPENHEIMER CAPITAL INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2001 2000 ======================================================================================================================= OPERATIONS ----------------------------------------------------------------------------------------------------------------------- Net investment income (loss) $ 91,431,736 $ 113,528,852 ----------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) 98,563,934 173,626,281 ----------------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) (1,459,013) (130,279,295) ---------------------------------------- Net increase (decrease) in net assets resulting from operations 188,536,657 156,875,838 ======================================================================================================================= DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS ----------------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (89,710,614) (98,446,434) Class B (13,856,744) (17,009,478) Class C (2,367,695) (2,657,808) Class N (1,361) -- ----------------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (92,805,879) (220,897,327) Class B (17,996,313) (51,201,679) Class C (2,930,775) (8,187,175) Class N -- -- ======================================================================================================================= BENEFICIAL INTEREST TRANSACTIONS ----------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A 88,120,939 (348,332,169) Class B 9,692,620 (198,760,762) Class C 17,337,172 (37,298,949) Class N 659,783 -- ======================================================================================================================= NET ASSETS ----------------------------------------------------------------------------------------------------------------------- Total increase (decrease) 84,677,790 (825,915,943) ----------------------------------------------------------------------------------------------------------------------- Beginning of period 2,941,012,016 3,766,927,959 ---------------------------------------- End of period [including undistributed (overdistributed) net investment income of $9,104,384 and $23,286,164, respectively] $ 3,025,689,806 $ 2,941,012,016 ========================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ================================================================================================================================== PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.88 $13.63 $13.75 $14.12 $11.36 ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .42(1) .49 .51 .50 .47 Net realized and unrealized gain (loss) .41(1) .32 1.03 .41 3.17 -------------------------------------------------------------------------- Total income (loss) from investment operations .83 .81 1.54 .91 3.64 ---------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.48) (.49) (.49) (.49) (.48) Distributions from net realized gain (.51) (1.07) (1.17) (.79) (.40) -------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.99) (1.56) (1.66) (1.28) (.88) ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.72 $12.88 $13.63 $13.75 $14.12 ========================================================================== ================================================================================================================================== TOTAL RETURN, AT NET ASSET VALUE(2) 6.84% 7.24% 11.03% 6.17% 33.39% ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================== RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,458,272 $2,395,444 $2,926,923 $2,889,472 $2,721,672 ---------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $2,432,151 $2,502,535 $3,156,294 $3,071,928 $2,446,081 ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:(3) Net investment income 3.21%(1) 3.78% 3.51% 3.47% 3.97% Expenses 0.91% 0.93% 0.89% 0.87%(4) 0.88%(4) ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 74% 37% 40% 18% 24%
1. Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements, these amounts would have been: Net investment income Unchanged Net realized and unrealized gain (loss) Unchanged Net investment income ratio 3.24%
2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has been calculated without adjustment for the reduction to custodian expenses. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 =============================================================================================================================== PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $12.76 $13.51 $13.63 $14.01 $11.29 ------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .32(1) .38 .39 .39 .37 NET REALIZED AND UNREALIZED GAIN (LOSS) .41(1) .32 1.03 .40 3.13 -------------------------------------------------------------------------- Total income (loss) from investment operations .73 .70 1.42 .79 3.50 ------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.38) (.38) (.37) (.38) (.38) Distributions from net realized gain (.51) (1.07) (1.17) (.79) (.40) -------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.89) (1.45) (1.54) (1.17) (.78) ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $12.60 $12.76 $13.51 $13.63 $14.01 ========================================================================== =============================================================================================================================== TOTAL RETURN, AT NET ASSET VALUE(2) 6.05% 6.34% 10.22% 5.32% 32.17% ------------------------------------------------------------------------------------------------------------------------------- =============================================================================================================================== RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $477,223 $472,222 $720,721 $634,775 $431,481 ------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $469,690 $546,390 $749,020 $574,986 $344,254 ------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets:(3) Net investment income 2.44%(1) 3.01% 2.71% 2.68% 3.16% Expenses 1.68% 1.70% 1.69% 1.67%(4) 1.69%(4) ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 74% 37% 40% 18% 24%
1. Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements, these amounts would have been: Net investment income Unchanged Net realized and unrealized gain (loss) Unchanged Net investment income ratio 2.47%
2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has been calculated without adjustment for the reduction to custodian expenses. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 OPPENHEIMER CAPITAL INCOME FUND
CLASS C YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ============================================================================================================================== PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $12.76 $13.50 $13.63 $14.02 $11.30 ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .32(1) .38 .39 .39 .40 Net realized and unrealized gain (loss) .40(1) .32 1.02 .40 3.12 -------------------------------------------------------------------------- Total income (loss) from investment operations .72 .70 1.41 .79 3.52 ------------------------------------------------------------------------------------------------------------------------------ Dividends and/or distributions to shareholders: Dividends from net investment income (.38) (.37) (.38) (.39) (.40) Distributions from net realized gain (.51) (1.07) (1.16) (.79) (.40) -------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.89) (1.44) (1.54) (1.18) (.80) ------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $12.59 $12.76 $13.50 $13.63 $14.02 ========================================================================== ============================================================================================================================== TOTAL RETURN, AT NET ASSET VALUE(2) 6.00% 6.40% 10.15% 5.30% 32.31% ------------------------------------------------------------------------------------------------------------------------------ ============================================================================================================================== RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $89,547 $73,346 $119,284 $94,995 $48,368 ------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $80,390 $84,898 $119,594 $77,052 $24,514 ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets:(3) Net investment income 2.44%(1) 3.01% 2.70% 2.68% 3.15% Expenses 1.68% 1.70% 1.69% 1.67%(4) 1.69%(4) ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 74% 37% 40% 18% 24%
1. Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements, these amounts would have been: Net investment income Unchanged Net realized and unrealized gain (loss) Unchanged Net investment income ratio 2.47%
2. Assumes a $1,000 hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. 3. Annualized for periods of less than one full year. 4. Expense ratio has been calculated without adjustment for the reduction to custodian expenses. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
PERIOD ENDED CLASS N AUGUST 31, 2001(1) ============================================================================================= PER SHARE OPERATING DATA --------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.96 --------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .28 (2) Net realized and unrealized gain (loss) (.30)(2) --------- Total income (loss) from investment operations (.02) --------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.25) Distributions from net realized gain -- --------- Total dividends and/or distributions to shareholders (.25) --------------------------------------------------------------------------------------------- Net asset value, end of period $12.69 ========= ============================================================================================= TOTAL RETURN, AT NET ASSET VALUE(3) (0.18)% --------------------------------------------------------------------------------------------- ============================================================================================= RATIOS/SUPPLEMENTAL DATA --------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $648 --------------------------------------------------------------------------------------------- Average net assets (in thousands) $214 --------------------------------------------------------------------------------------------- Ratios to average net assets:(4) Net investment income 2.94%(2) Expenses 1.17% --------------------------------------------------------------------------------------------- Portfolio turnover rate 74%
1. For the period from March 1, 2001 (inception of offering) to August 31, 2001. 2. Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements, these amounts would have been: Net investment income Unchanged Net realized and unrealized gain (loss) Unchanged Net investment income ratio 2.97%
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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Capital Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment objective is to seek as much current income as is compatible with prudent investment. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B, Class C and Class N shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. All classes of shares have identical rights 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, C and N have separate distribution and/or service plans. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. -------------------------------------------------------------------------------- SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or other domestic or foreign exchanges are valued based on the last sale price of the security traded on that exchange prior to the time when the Fund's assets are valued. In the absence of a sale, the security is valued at the last sale price on the prior trading day, if it is within the spread of the closing bid and asked prices, and if not, at the closing bid price. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations, a portfolio pricing service authorized by the Board of Trustees, or at their fair value. Fair value is determined in good faith under consistently applied procedures under the supervision of the Board of Trustees. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). -------------------------------------------------------------------------------- STRUCTURED NOTES. The Fund invests in structured notes whose market values and redemption prices are linked to the market value of specific securities. The structured notes are leveraged, which increases the Fund's exposure to changes in prices of the underlying securities and increases the volatility of each note's market value relative to the change in the underlying security prices. Fluctuations in value of these securities are recorded as unrealized gains and losses in the accompanying financial statements. The Fund records a realized gain or loss when a structured note is sold or matures. As of August 31, 2001, the market value of these securities comprised 0.7% of the Fund's net assets, and resulted in unrealized gains in the current period of $1,817,166. 31 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Continued SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis can take place a month or more after the trade date. Normally the settlement date occurs within six months after the trade date; however, the Fund may, from time to time, purchase securities whose settlement date extends beyond six months or more beyond trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a when-issued or forward commitment basis may increase the volatility of the Fund's net asset value to the extent the Fund makes such purchases while remaining substantially fully invested. As of August 31, 2001, the Fund had entered into outstanding net when-issued or forward commitments of $147,755,410. In connection with its ability to purchase securities on a when-issued basis, the Fund may enter into mortgage dollar-rolls in which the Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Fund records each dollar-roll as a sale and a new purchase transaction. -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Fund's Statement of Operations. -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS. The Fund requires its custodian bank 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. 32 OPPENHEIMER CAPITAL INCOME FUND -------------------------------------------------------------------------------- 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 primarily because of the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or 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, 2001, amounts have been reclassified to reflect an increase in paid-in capital of $7,018,298, an increase in undistributed net investment income of $322,898, and a decrease in accumulated net realized gain on investments of $7,341,196. This reclassification includes $7,018,298 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. -------------------------------------------------------------------------------- INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon ex-dividend notification in the case of certain foreign dividends where the ex-dividend date may have passed. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned. -------------------------------------------------------------------------------- SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. -------------------------------------------------------------------------------- OTHER. The Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, effective for fiscal years beginning after December 15, 2000. The Fund elected to begin amortizing premiums on debt securities effective January 1, 2001. Prior to this date, the Fund did not amortize premiums on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $1,761,642 decrease to cost of securities and a corresponding $1,761,642 increase in net unrealized appreciation, based on securities held as of December 31, 2000. For the year ended August 31, 2001, interest income decreased by 33 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- ================================================================================ 1. SIGNIFICANT ACCOUNTING POLICIES Continued $846,086, net realized gain on investments decreased by $1,068,218, and the change in net unrealized depreciation on investments decreased by $1,914,304. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. ================================================================================ 2. SHARES OF BENEFICIAL INTEREST The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED AUGUST 31, 2001(1) YEAR ENDED AUGUST 31, 2000 SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------------------------- CLASS A Sold 19,693,851 $ 253,926,557 19,575,634 $ 241,088,319 Dividends and/or distributions reinvested 13,680,385 168,977,357 25,370,714 299,536,203 Redeemed (26,145,434) (334,782,975) (73,658,611) (888,956,691) ---------------------------------------------------------------------------- Net increase (decrease) 7,228,802 $ 88,120,939 (28,712,263) $(348,332,169) ============================================================================ ------------------------------------------------------------------------------------------------------------------- CLASS B Sold 7,837,432 $ 99,951,476 5,302,692 $ 64,844,082 Dividends and/or distributions reinvested 2,479,247 30,352,277 5,572,573 65,132,048 Redeemed (9,451,946) (120,611,133) (27,234,627) (328,736,892) ---------------------------------------------------------------------------- Net increase (decrease) 864,733 $ 9,692,620 (16,359,362) $(198,760,762) ============================================================================ ------------------------------------------------------------------------------------------------------------------- CLASS C Sold 3,211,146 $ 41,111,852 1,053,764 $ 13,049,521 Dividends and/or distributions reinvested 401,329 4,914,815 882,449 10,315,715 Redeemed (2,251,323) (28,689,495) (5,023,386) (60,664,185) ---------------------------------------------------------------------------- Net increase (decrease) 1,361,152 $ 17,337,172 (3,087,173) $ (37,298,949) ============================================================================ ------------------------------------------------------------------------------------------------------------------- CLASS N Sold 50,932 $ 658,442 -- $ -- Dividends and/or distributions reinvested 103 1,341 -- -- Redeemed -- -- -- -- ---------------------------------------------------------------------------- Net increase (decrease) 51,035 $ 659,783 -- $ -- ============================================================================
1. For the year ended August 31, 2001, for Class A, B and C shares and for the period from March 1, 2001 (inception of offering) to August 31, 2001, for Class N shares. 34 OPPENHEIMER CAPITAL INCOME FUND ================================================================================ 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended August 31, 2001, were $2,426,890,936 and $2,243,512,209, respectively. As of August 31, 2001, unrealized appreciation (depreciation) based on cost of securities for federal income tax purposes of $2,576,810,842 was: Gross unrealized appreciation $ 714,693,283 Gross unrealized depreciation (144,298,280) ------------- Net unrealized appreciation (depreciation) $ 570,395,003 =============
================================================================================ 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, 2001, was an annualized rate of 0.52%. -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund. The Fund pays OFS an agreed-upon per account fee. -------------------------------------------------------------------------------- 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 COMMISSIONS FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C ON CLASS N SALES CHARGES SALES CHARGES SHARES SHARES SHARES SHARES ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY ADVANCED BY YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1) ------------------------------------------------------------------------------------------------------------------------------- August 31, 2001 $2,709,328 $813,198 $286,624 $2,326,642 $173,514 $6,563
1. The Distributor advances commission payments to dealers for certain sales of Class A shares and for sales of Class B, Class C and Class N shares from its own resources at the time of sale.
CLASS A CLASS B CLASS C CLASS N CONTINGENT CONTINGENT CONTINGENT CONTINGENT DEFERRED DEFERRED DEFERRED DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES RETAINED BY RETAINED BY RETAINED BY RETAINED BY YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR ------------------------------------------------------------------------------------------------------------- August 31, 2001 $7,594 $643,432 $24,027 $--
35 OPPENHEIMER CAPITAL INCOME FUND 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, Class C and Class N 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, 2001, payments under the Class A plan totaled $5,698,019, all of which were paid by the Distributor to recipients, and included $370,332 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, CLASS C AND CLASS N 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, Class C and Class N 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 Distributor retains the asset-based sales charge on Class N shares. The asset-based sales charges on Class B, Class C and Class N 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, Class C and Class N 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 carryforward of distribution expenses, to be recovered from asset-based sales charges in subsequent fiscal periods. 36 OPPENHEIMER CAPITAL INCOME FUND Distribution fees paid to the Distributor for the year ended August 31, 2001, were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S AGGREGATE AGGREGATE UNREIMBURSED UNREIMBURSED EXPENSES AS % TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS ------------------------------------------------------------------------------------------------- Class B Plan $4,692,665 $3,631,050 $11,679,144 2.45% Class C Plan 802,801 97,524 1,835,823 2.05 Class N Plan 530 337 -- --
================================================================================ 5. FOREIGN CURRENCY CONTRACTS A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts for operational purposes and to seek to protect against adverse exchange rate fluctuations. Risks to the Fund include the potential inability of the counterparty to meet the terms of the contract. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates as provided by a reliable bank, dealer or pricing service. Unrealized appreciation and depreciation on foreign currency contracts are reported in the Statement of Assets and Liabilities as a receivable or payable and in the Statement of Operations with the change in unrealized appreciation or depreciation. The Fund may realize a gain or loss upon the closing or settlement of the foreign currency transactions. Such realized gains and losses are reported with all other foreign currency gains and losses in the Statement of Operations. ================================================================================ 6. 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. 37 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- ================================================================================ 6. OPTION ACTIVITY Continued Securities designated to cover outstanding call options are noted in the Statement of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a note to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Realized gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Written option activity for the year ended August 31, 2001, was as follows:
CALL OPTIONS PUT OPTIONS ----------------------------------------------------------------- NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF CONTRACTS PREMIUMS CONTRACTS PREMIUMS -------------------------------------------------------------------------------------------------- Options outstanding as of August 31, 2000 10,000 $ 4,440,182 291 $ 475,623 Options written 112,191 24,138,451 45,429 13,892,033 Options closed or expired (93,891) (24,070,668) (34,564) (9,379,793) Options exercised (2,275) (739,482) (4,310) (3,021,740) ----------------------------------------------------------------- Options outstanding as of August 31, 2001 26,025 $ 3,768,483 6,846 $ 1,966,123 =================================================================
================================================================================ 7. ILLIQUID OR RESTRICTED SECURITIES As of August 31, 2001, 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, 2001, was $80,252,489, which represents 2.65% of the Fund's net assets, of which $40,044,600 is considered restricted. Information concerning restricted securities is as follows:
VALUATION UNREALIZED AS OF APPRECIATION SECURITY ACQUISITION DATE COST AUGUST 31, 2001 (DEPRECIATION) ---------------------------------------------------------------------------------------------------- BONDS CSK Auto Corp., 7% Cv. Sub. Nts., 8/1/06 8/14/01 $30,000,000 $40,044,600 $10,044,600
38 OPPENHEIMER CAPITAL INCOME FUND ================================================================================ 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 or at August 31, 2001. 39 OPPENHEIMER CAPITAL INCOME FUND 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, 2001, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2001, 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, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado September 24, 2001 40 OPPENHEIMER CAPITAL INCOME FUND FEDERAL INCOME TAX INFORMATION Unaudited -------------------------------------------------------------------------------- ================================================================================ In early 2002, shareholders will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 2001. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. Dividends and distributions of $0.6290, $0.6020 and $0.6030 per share were paid to Class A, Class B and Class C shareholders, respectively, on December 11, 2000, of which $0.5090 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, 2001, which are not designated as capital gain distributions should be multiplied by 54.86% to arrive at the amount eligible for the corporate dividend-received deduction. The foregoing information is presented to assist shareholders in reporting distributions received from the Fund to the Internal Revenue Service. Because of the complexity of the federal regulations which may affect your individual tax return and the many variations in state and local tax regulations, we recommend that you consult your tax advisor for specific guidance. > 41 OPPENHEIMER CAPITAL INCOME FUND OPPENHEIMER CAPITAL INCOME FUND -------------------------------------------------------------------------------- ================================================================================================== OFFICERS AND TRUSTEES James C. Swain, Trustee, CEO and Chairman of the Board William L. Armstrong, Trustee Robert G. Avis, Trustee George C. Bowen, Trustee Edward L. Cameron, Trustee Jon S. Fossel, Trustee Sam Freedman, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee F. William Marshall, Jr., Trustee 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. OPPENHEIMER FUNDS ARE DISTRIBUTED BY OPPENHEIMERFUNDS DISTRIBUTOR, INC., 6803 S. TUCSON WAY, ENGLEWOOD, CO 80112-3924
(C)Copyright 2001 OppenheimerFunds, Inc. All rights reserved. 42 OPPENHEIMER CAPITAL INCOME FUND OPPENHEIMERFUNDS FAMILY -------------------------------------------------------------------------------- GLOBAL EQUITY Developing Markets Fund Global Fund International Small Company Fund Quest Global Value Fund Europe Fund Global Growth & Income Fund International Growth Fund ---------------------------------------------------------------------------------------------------------------- EQUITY Stock Stock & Bond Emerging Technologies Fund Quest Opportunity Value Fund Emerging Growth Fund Total Return Fund Enterprise Fund Quest Balanced Value Fund Discovery Fund Capital Income Fund Main Street(R) Small Cap Fund Multiple Strategies Fund Small Cap Value Fund(1) Disciplined Allocation Fund MidCap Fund Convertible Securities Fund Main Street(R) Opportunity Fund Specialty Growth Fund Real Asset Fund(R) Capital Appreciation Fund Gold & Special Minerals Fund Main Street(R) Growth & Income Fund Large Cap Growth Fund Value Fund(2) Quest Capital Value Fund Quest Value Fund Trinity Growth Fund Trinity Core Fund Trinity Value Fund ---------------------------------------------------------------------------------------------------------------- INCOME Taxable Municipal International Bond Fund California Municipal Fund(4) High Yield Fund Florida Municipal Fund(4) Champion Income Fund New Jersey Municipal Fund(4) Strategic Income Fund New York Municipal Fund(4) Bond Fund Pennsylvania Municipal Fund(4) Senior Floating Rate Fund Municipal Bond Fund U.S. Government Trust Intermediate Municipal Fund Limited-Term Government Fund Capital Preservation Fund(3) Rochester Division Rochester Fund Municipals Limited Term New York Municipal Fund ---------------------------------------------------------------------------------------------------------------- SELECT MANAGERS Stock Stock & Bond Mercury Advisors Focus Growth Fund QM Active Balanced Fund(3) Gartmore Millennium Growth Fund II(5) Jennison Growth Fund Salomon Brothers Capital Fund Mercury Advisors S&P 500(R) Index Fund(3) ---------------------------------------------------------------------------------------------------------------- MONEY MARKET(6) Money Market Fund Cash Reserves
1. The Fund's name was changed from "Oppenheimer Quest Small Cap Fund(SM)" on 3/1/01. 2. The Fund's name was changed from "Oppenheimer Disciplined Value Fund" on 2/28/01. 3. Available only through qualified retirement plans. 4. Available to investors only in certain states. 5. The Fund's name was changed from "Oppenheimer Select Managers Gartmore Millennium Growth Fund" on 5/11/01. 6. An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although these funds may seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these funds. For more complete information about any of the Oppenheimer funds, including charges, expenses and risks, ask for a prospectus from your financial advisor, call OppenheimerFunds Distributor, Inc. at 1.800.525.7048 or visit the OppenheimerFunds website at WWW.OPPENHEIMERFUNDS.COM. Read the prospectus carefully before you invest or send money. 43 OPPENHEIMER CAPITAL INCOME FUND THIS PAGE INTENTIONALLY LEFT BLANK. INFORMATION AND SERVICES -------------------------------------------------------------------------------- As an Oppenheimer fund shareholder, you can benefit from special services designed to make investing simple. Whether it's automatic investment plans, timely market updates, or immediate account access, you can count on us whenever you need assistance.(1) So call us today, or visit our website--we're here to help. -------------------------------------------------------------------------------- INTERNET 24-hr access to account information and transactions(2) 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(2) 24-hr automated information and automated transactions 1.800.CALL OPP (1.800.225.5677) -------------------------------------------------------------------------------- TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD) Mon-Fri 9am-6:30pm ET1.800.843.4461 -------------------------------------------------------------------------------- TRANSFER AND SHAREHOLDER SERVICING AGENT OppenheimerFunds Services P.O. Box 5270, Denver, CO 80217-5270 -------------------------------------------------------------------------------- eDOCS DIRECT Receive shareholder report and prospectus notifications for your funds via email. Sign up at WWW.OPPENHEIMERFUNDS.COM -------------------------------------------------------------------------------- TICKER SYMBOLS Class A: OPPEX Class B: OPEBX Class C: OPECX Class Y: OCINX -------------------------------------------------------------------------------- 1. Automatic investment plans do not assure profit or protect against losses in declining markets. 2. At times the website or PhoneLink may be inaccessible or their transaction features may be unavailable. [OPPENHEIMERFUNDS LOGO] RA0300.001.0801 October 30, 2001