UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-04797
Oppenheimer Equity Income Fund
(Exact name of registrant as specified in charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
(Address of principal executive offices) (Zip code)
Cynthia Lo Bessette
OFI Global Asset Management, Inc.
225 Liberty Street, New York, New York 10281-1008
(Name and address of agent for service)
Registrants telephone number, including area code: (303) 768-3200
Date of fiscal year end: October 31
Date of reporting period: 7/31/2018
Item 1. Schedule of Investments.
STATEMENT OF INVESTMENTS July 31, 2018 Unaudited
Shares | Value | |||||||
Common Stocks96.3% |
||||||||
Consumer Discretionary7.8% |
||||||||
Automobiles2.0% |
||||||||
General Motors Co. |
1,786,110 | $ | 67,711,430 | |||||
Hotels, Restaurants & Leisure2.8% |
||||||||
Extended Stay America, Inc. |
1,797,500 | 38,268,775 | ||||||
Las Vegas Sands Corp. |
271,840 | 19,545,296 | ||||||
McDonalds Corp. |
222,820 | 35,103,063 | ||||||
92,917,134 | ||||||||
Multiline Retail2.1% |
||||||||
Nordstrom, Inc. |
405,050 | 21,228,671 | ||||||
Target Corp. |
634,380 | 51,181,778 | ||||||
72,410,449 | ||||||||
Specialty Retail0.9% |
||||||||
Home Depot, Inc. (The) |
160,490 | 31,699,985 | ||||||
Consumer Staples7.7% |
||||||||
Beverages3.2% |
||||||||
Coca-Cola Co. (The) |
2,147,920 | 100,157,510 | ||||||
PepsiCo, Inc. |
76,400 | 8,786,000 | ||||||
108,943,510 | ||||||||
Food & Staples Retailing1.2% |
||||||||
Walmart, Inc. |
436,650 | 38,962,279 | ||||||
Food Products1.6% |
||||||||
General Mills, Inc. |
794,380 | 36,589,143 | ||||||
McCormick & Co., Inc. |
147,860 | 17,379,464 | ||||||
53,968,607 | ||||||||
Tobacco1.7% |
||||||||
Philip Morris International, Inc. |
675,830 | 58,324,129 | ||||||
Energy14.4% |
||||||||
Energy Equipment & Services0.8% |
||||||||
Schlumberger Ltd. |
397,100 | 26,812,192 | ||||||
Oil, Gas & Consumable Fuels13.6% |
||||||||
Andeavor |
59,260 | 8,892,555 | ||||||
BP plc, Sponsored ADR |
1,314,629 | 59,276,622 | ||||||
Chevron Corp. |
882,620 | 111,448,427 | ||||||
ConocoPhillips |
734,210 | 52,987,936 | ||||||
Enbridge, Inc. |
708,090 | 25,087,629 | ||||||
Marathon Petroleum Corp. |
484,430 | 39,156,477 | ||||||
Royal Dutch Shell plc, Cl. A, Sponsored ADR |
1,018,930 | 69,664,244 | ||||||
Ship Finance International Ltd. |
979,270 | 14,248,378 |
1 OPPENHEIMER EQUITY INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
Shares | Value | |||||||
Oil, Gas & Consumable Fuels (Continued) |
||||||||
Suncor Energy, Inc. |
1,884,390 | $ | 79,408,195 | |||||
460,170,463 | ||||||||
Financials27.0% |
||||||||
Capital Markets5.9% |
||||||||
Ameriprise Financial, Inc. |
181,310 | 26,411,428 | ||||||
Apollo Global Management LLC, Cl. A1 |
717,095 | 25,456,872 | ||||||
BlackRock, Inc., Cl. A |
102,940 | 51,754,114 | ||||||
Blackstone Group LP (The)1 |
843,100 | 29,441,052 | ||||||
Goldman Sachs Group, Inc. (The) |
278,520 | 66,129,004 | ||||||
199,192,470 | ||||||||
Commercial Banks14.1% |
||||||||
Bank of America Corp. |
3,687,730 | 113,877,103 | ||||||
BB&T Corp. |
1,170,720 | 59,484,283 | ||||||
Citigroup, Inc. |
2,025,000 | 145,577,250 | ||||||
JPMorgan Chase & Co. |
830,000 | 95,408,500 | ||||||
KeyCorp |
2,489,100 | 51,947,517 | ||||||
Zions Bancorporation |
229,290 | 11,854,293 | ||||||
478,148,946 | ||||||||
Consumer Finance1.3% |
||||||||
Navient Corp. |
3,384,650 | 44,711,226 | ||||||
Insurance1.1% |
||||||||
Prudential Financial, Inc. |
381,970 | 38,544,593 | ||||||
Real Estate Investment Trusts (REITs)4.6% |
||||||||
Crown Castle International Corp. |
151,930 | 16,838,402 | ||||||
Equity Residential |
346,600 | 22,678,038 | ||||||
Park Hotels & Resorts, Inc. |
1,293,120 | 40,448,793 | ||||||
Prologis, Inc. |
329,030 | 21,590,949 | ||||||
Starwood Property Trust, Inc. |
1,351,150 | 30,860,266 | ||||||
Uniti Group, Inc. |
1,212,400 | 21,435,232 | ||||||
153,851,680 | ||||||||
Health Care13.2% |
||||||||
Biotechnology1.3% |
||||||||
Gilead Sciences, Inc. |
573,910 | 44,667,415 | ||||||
Health Care Equipment & Supplies1.7% |
||||||||
Abbott Laboratories |
861,590 | 56,468,609 | ||||||
Health Care Providers & Services4.0% |
||||||||
Anthem, Inc. |
344,910 | 87,262,230 | ||||||
UnitedHealth Group, Inc. |
194,450 | 49,238,629 | ||||||
136,500,859 |
2 OPPENHEIMER EQUITY INCOME FUND
Shares | Value | |||||||
Pharmaceuticals6.2% |
||||||||
AstraZeneca plc, Sponsored ADR |
334,070 | $ | 13,072,159 | |||||
Bristol-Myers Squibb Co. |
342,330 | 20,111,888 | ||||||
GlaxoSmithKline plc, Sponsored ADR |
396,680 | 16,497,921 | ||||||
Merck & Co., Inc. |
1,290,000 | 84,972,300 | ||||||
Novartis AG, Sponsored ADR |
215,890 | 18,113,171 | ||||||
Pfizer, Inc. |
1,429,410 | 57,076,341 | ||||||
209,843,780 | ||||||||
Industrials6.3% |
||||||||
Aerospace & Defense1.0% |
||||||||
Lockheed Martin Corp. |
107,080 | 34,918,788 | ||||||
Airlines1.3% |
||||||||
Delta Air Lines, Inc. |
780,200 | 42,458,484 | ||||||
Electrical Equipment2.3% |
||||||||
Eaton Corp. plc |
946,560 | 78,725,395 | ||||||
Industrial Conglomerates0.6% |
||||||||
General Electric Co. |
1,450,000 | 19,763,500 | ||||||
Machinery1.1% |
||||||||
Caterpillar, Inc. |
248,890 | 35,790,382 | ||||||
Information Technology7.3% |
||||||||
Communications Equipment2.5% |
||||||||
Cisco Systems, Inc. |
2,012,100 | 85,091,709 | ||||||
Semiconductors & Semiconductor Equipment0.7% |
||||||||
Texas Instruments, Inc. |
193,110 | 21,497,005 | ||||||
Software2.2% |
||||||||
Microsoft Corp. |
708,410 | 75,148,133 | ||||||
Technology Hardware, Storage & Peripherals1.9% |
||||||||
Apple, Inc. |
187,200 | 35,622,288 | ||||||
HP, Inc. |
1,232,590 | 28,448,177 | ||||||
64,070,465 | ||||||||
Materials2.5% |
||||||||
Chemicals0.8% |
||||||||
Eastman Chemical Co. |
259,920 | 26,932,911 | ||||||
Containers & Packaging0.9% |
||||||||
International Paper Co. |
593,243 | 31,874,946 | ||||||
Metals & Mining0.8% |
||||||||
Freeport-McMoRan, Inc. |
1,593,300 | 26,289,450 |
3 OPPENHEIMER EQUITY INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
Shares | Value | |||||||
Telecommunication Services4.7% |
||||||||
Diversified Telecommunication Services4.7% |
||||||||
AT&T, Inc. |
2,728,230 | $ | 87,221,513 | |||||
CenturyLink, Inc. |
1,215,150 | 22,808,366 | ||||||
Verizon Communications, Inc. |
976,350 | 50,418,714 | ||||||
160,448,593 | ||||||||
Utilities5.4% |
||||||||
Electric Utilities5.4% |
||||||||
American Electric Power Co., Inc. |
460,870 | 32,786,292 | ||||||
Avangrid, Inc. |
640,470 | 32,061,928 | ||||||
Entergy Corp. |
436,160 | 35,451,085 | ||||||
Exelon Corp. |
1,150,840 | 48,910,700 | ||||||
NextEra Energy, Inc. |
205,330 | 34,400,988 | ||||||
183,610,993 | ||||||||
Total Common Stocks (Cost $2,724,216,928) |
3,260,470,510 | |||||||
Preferred Stock1.3% |
||||||||
Becton Dickinson & Co., 6.125% Cv., Series A, Non-Vtg. (Cost $40,187,979) |
673,589 | 42,752,693 | ||||||
Principal Amount | ||||||||
Non-Convertible Corporate Bond and Note0.0% |
||||||||
Reynolds American, Inc., 7.00% Sr. Unsec. Nts., 8/4/412 (Cost $358,862) |
$ | 354,000 | 431,613 | |||||
Shares | ||||||||
Investment Company2.2% |
||||||||
Oppenheimer Institutional Government Money Market Fund, Cl. E, 1.87%3,4 (Cost $74,438,174) |
74,438,174 | 74,438,174 | ||||||
Total Investments, at Value (Cost $2,839,201,943) |
99.8% | 3,378,092,990 | ||||||
Net Other Assets (Liabilities) |
0.2 | 8,125,541 | ||||||
Net Assets |
100.0% | $ | 3,386,218,531 | |||||
Footnotes to Statement of Investments
1. Security is a Master Limited Partnership.
2. 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 $431,613 or 0.01% of the Funds net assets at period end.
3. Rate shown is the 7-day yield at period end.
4. Is or was an affiliate, as defined in the Investment Company Act of 1940, as amended, at or during the reporting period, by virtue of the Fund owning at least 5% of the voting securities of the issuer or as a result of the Fund and the issuer having the same investment adviser. Transactions during the reporting period in which the issuer was an affiliate are as follows:
Shares October 31, 2017 |
Gross Additions |
Gross Reductions |
Shares July 31, 2018 |
|||||||||||||
Investment Company |
||||||||||||||||
Oppenheimer Institutional Government Money Market Fund, Cl. E | 15,538,728 | 915,348,169 | 856,448,723 | 74,438,174 |
4 OPPENHEIMER EQUITY INCOME FUND
Footnotes to Statement of Investments (Continued)
Value | Income | Realized Gain (Loss) |
Change in Unrealized Gain (Loss) |
|||||||||||||
Investment Company |
||||||||||||||||
Oppenheimer Institutional Government Money Market Fund, Cl. E | $ | 74,438,174 | $ | 618,856 | $ | | $ | |
5 OPPENHEIMER EQUITY INCOME FUND
NOTES TO STATEMENT OF INVESTMENTS July 31, 2018 Unaudited
1. Organization
Oppenheimer Equity Income Fund (the Fund) is a diversified open-end management investment company registered under the Investment Company Act of 1940 (1940 Act), as amended. The Funds investment objective is to seek total return. The Funds investment adviser is OFI Global Asset Management, Inc. (OFI Global or the Manager), a wholly-owned subsidiary of OppenheimerFunds, Inc. (OFI or the Sub-Adviser). The Manager has entered into a sub-advisory agreement with OFI.
2. Significant Accounting Policies
Security Valuation. All investments in securities are recorded at their estimated fair value, as described in Note 3.
Foreign Currency Translation. The books and records of the Fund are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:
(1) Value of investment securities, other assets and liabilities at the exchange rates prevailing at Market Close as described in Note 3.
(2) Purchases and sales of investment securities, income and expenses at the rates of exchange prevailing on the respective dates of such transactions.
3. Securities Valuation
The Fund calculates the net asset value of its shares as of 4:00 P.M. Eastern Time, on each day the New York Stock Exchange (the Exchange) is open for trading, except in the case of a scheduled early closing of the Exchange, in which case the Fund will calculate net asset value of the shares as of the scheduled early closing time of the Exchange.
The Funds Board has adopted procedures for the valuation of the Funds securities and has delegated the day-to-day responsibility for valuation determinations under those procedures to the Manager. The Manager has established a Valuation Committee which is responsible for determining a fair valuation for any security for which market quotations are not readily available. The Valuation Committees fair valuation determinations are subject to review, approval and ratification by the Funds Board at least quarterly or more frequently, if necessary.
Valuation Methods and Inputs
Securities are valued primarily using unadjusted quoted market prices, when available, as supplied by third party pricing services or broker-dealers.
The following methodologies are used to determine the market value or the fair value of the types of securities described below:
Equity securities traded on a securities exchange (including exchange-traded derivatives other than futures and futures options) are valued based on the official closing price on the principal exchange on which the security is traded, as identified by the Manager, prior to the time when the Funds assets are valued. If the official closing price is unavailable, the security is valued at the last sale price on the principal exchange on which it is traded, or if no sales
6 OPPENHEIMER EQUITY INCOME FUND
3. Securities Valuation (Continued)
occurred, the security is valued at the mean between the quoted bid and asked prices. Over-the-counter equity securities are valued at the last published sale price, or if no sales occurred, at the mean between the quoted bid and asked prices. Events occurring after the close of trading on foreign exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the time when the Funds assets are valued.
Shares of a registered investment company that are not traded on an exchange are valued at that investment companys net asset value per share.
Corporate and government debt securities (of U.S. or foreign issuers) and municipal debt securities, short-term notes, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities are valued at the mean between the bid and asked prices utilizing evaluated prices obtained from third party pricing services or broker-dealers who may use matrix pricing methods to determine the evaluated prices. Pricing services generally price debt securities assuming orderly transactions of an institutional round lot size, but some trades may occur in smaller, odd lot sizes, sometimes at lower prices than institutional round lot trades. Standard inputs generally considered by third-party pricing vendors include reported trade data, broker-dealer price quotations, benchmark yields, issuer spreads on comparable securities, the credit quality, yield, maturity, as well as other appropriate factors.
Securities for which market quotations are not readily available, or when a significant event has occurred that would materially affect the value of the security, are fair valued either (i) by a standardized fair valuation methodology applicable to the security type or the significant event as previously approved by the Valuation Committee and the Funds Board or (ii) as determined in good faith by the Managers Valuation Committee. The Valuation Committee considers all relevant facts that are reasonably available, through either public information or information available to the Manager, when determining the fair value of a security. Those standardized fair valuation methodologies include, but are not limited to, valuing securities at the last sale price or initially at cost and subsequently adjusting the value based on: changes in company specific fundamentals, changes in an appropriate securities index, or changes in the value of similar securities which may be further adjusted for any discounts related to security-specific resale restrictions. When possible, such methodologies use observable market inputs such as unadjusted quoted prices of similar securities, observable interest rates, currency rates and yield curves. The methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security.
Classifications
Each investment asset or liability of the Fund is assigned a level at measurement date based on the significance and source of the inputs to its valuation. Various data inputs may be used in determining the value of each of the Funds investments as of the reporting period end. These data inputs are categorized in the following hierarchy under applicable financial accounting standards:
1) Level 1-unadjusted quoted prices in active markets for identical assets or liabilities
7 OPPENHEIMER EQUITY INCOME FUND
NOTES TO STATEMENT OF INVESTMENTS Unaudited / Continued
3. Securities Valuation (Continued)
(including securities actively traded on a securities exchange)
2) Level 2-inputs other than unadjusted quoted prices that are observable for the asset or liability (such as unadjusted quoted prices for similar assets and market corroborated inputs such as interest rates, prepayment speeds, credit risks, etc.)
3) Level 3-significant unobservable inputs (including the Managers own judgments about assumptions that market participants would use in pricing the asset or liability).
The inputs used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.
The Fund classifies each of its investments in investment companies which are publicly offered as Level 1. Investment companies that are not publicly offered, if any, are classified as Level 2 in the fair value hierarchy.
The table below categorizes amounts at period end based on valuation input level:
Level 1 Unadjusted Quoted Prices |
Level 2 Other Significant Observable Inputs |
Level 3 Significant Unobservable Inputs |
Value | |||||||||||||
Assets Table |
||||||||||||||||
Investments, at Value: |
||||||||||||||||
Common Stocks |
||||||||||||||||
Consumer Discretionary |
$ | 264,738,998 | $ | | $ | | $ | 264,738,998 | ||||||||
Consumer Staples |
260,198,525 | | | 260,198,525 | ||||||||||||
Energy |
486,982,655 | | | 486,982,655 | ||||||||||||
Financials |
914,448,915 | | | 914,448,915 | ||||||||||||
Health Care |
447,480,663 | | | 447,480,663 | ||||||||||||
Industrials |
211,656,549 | | | 211,656,549 | ||||||||||||
Information Technology |
245,807,312 | | | 245,807,312 | ||||||||||||
Materials |
85,097,307 | | | 85,097,307 | ||||||||||||
Telecommunication Services |
160,448,593 | | | 160,448,593 | ||||||||||||
Utilities |
183,610,993 | | | 183,610,993 | ||||||||||||
Preferred Stock |
42,752,693 | | | 42,752,693 | ||||||||||||
Non-Convertible Corporate Bond and Note |
| 431,613 | | 431,613 | ||||||||||||
Investment Company |
74,438,174 | | | 74,438,174 | ||||||||||||
Total Assets |
$ | 3,377,661,377 | $ | 431,613 | $ | | $ | 3,378,092,990 |
Forward currency exchange contracts and futures contracts, if any, are reported at their unrealized appreciation/depreciation at measurement date, which represents the change in the contracts value from trade date. All additional assets and liabilities included in the above table are reported at their market value at measurement date.
For the reporting period, there were no transfers between levels.
4. Investments and Risks
Investments in Affiliated Funds. The Fund is permitted to invest in other mutual funds
8 OPPENHEIMER EQUITY INCOME FUND
4. Investments and Risks (Continued)
advised by the Manager (Affiliated Funds). Affiliated Funds are open-end management investment companies registered under the 1940 Act, as amended. The Manager is the investment adviser of, and the Sub-Adviser provides investment and related advisory services to, the Affiliated Funds. When applicable, the Funds investments in Affiliated Funds are included in the Statement of Investments. Shares of Affiliated Funds are valued at their net asset value per share. As a shareholder, the Fund is subject to its proportional share of the Affiliated Funds expenses, including their management fee. The Manager will waive fees and/ or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Funds investment in the Affiliated Funds.
Each of the Affiliated Funds in which the Fund invests has its own investment risks, and those risks can affect the value of the Funds investments and therefore the value of the Funds shares. To the extent that the Fund invests more of its assets in one Affiliated Fund than in another, the Fund will have greater exposure to the risks of that Affiliated Fund.
Investments in Money Market Instruments. The Fund is permitted to invest its free cash balances in money market instruments to provide liquidity or for defensive purposes. The Fund may invest in money market instruments by investing in Class E shares of Oppenheimer Institutional Government Money Market Fund (IGMMF), which is an Affiliated Fund. IGMMF is regulated as a money market fund under the 1940 Act, as amended. The Fund may also invest in money market instruments directly or in other affiliated or unaffiliated money market funds.
Master Limited Partnerships (MLPs). MLPs issue common units that represent an equity ownership interest in a partnership and provide limited voting rights. MLP common units are registered with the Securities and Exchange Commission (SEC), and are freely tradable on securities exchanges such as the NYSE and the NASDAQ Stock Market (NASDAQ), or in the over-the-counter (OTC) market. An MLP consists of one or more general partners, who conduct the business, and one or more limited partners, who contribute capital. MLP common unit holders have a limited role in the partnerships operations and management. The Fund, as a limited partner, normally would not be liable for the debts of the MLP beyond the amounts the Fund has contributed, but would not be shielded to the same extent that a shareholder of a corporation would be. In certain circumstances creditors of an MLP would have the right to seek return of capital distributed to a limited partner. This right of an MLPs creditors would continue after the Fund sold its investment in the MLP.
Equity Security Risk. Stocks and other equity securities fluctuate in price. The value of the Funds portfolio may be affected by changes in the equity markets generally. Equity markets may experience significant short-term volatility and may fall sharply at times. Different markets may behave differently from each other and U.S. equity markets may move in the opposite direction from one or more foreign stock markets. Adverse events in any part of the equity or fixed-income markets may have unexpected negative effects on other market segments.
The prices of individual equity securities generally do not all move in the same direction at
9 OPPENHEIMER EQUITY INCOME FUND
NOTES TO STATEMENT OF INVESTMENTS Unaudited / Continued
4. Investments and Risks (Continued)
the same time and a variety of factors can affect the price of a particular companys securities. These factors may include, but are not limited to, poor earnings reports, a loss of customers, litigation against the company, general unfavorable performance of the companys sector or industry, or changes in government regulations affecting the company or its industry.
5. Market Risk Factors
The Funds investments in securities and/or financial derivatives may expose the Fund to various market risk factors:
Commodity Risk. Commodity risk relates to the change in value of commodities or commodity indexes as they relate to increases or decreases in the commodities market. Commodities are physical assets that have tangible properties. Examples of these types of assets are crude oil, heating oil, metals, livestock, and agricultural products.
Credit Risk. Credit risk relates to the ability of the issuer of debt to meet interest and principal payments, or both, as they come due. In general, lower-grade, higher-yield debt securities are subject to credit risk to a greater extent than lower-yield, higher-quality securities.
Equity Risk. Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market.
Foreign Exchange Rate Risk. Foreign exchange rate risk relates to the change in the U.S. dollar value of a security held that is denominated in a foreign currency. The U.S. dollar value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the U.S. dollar value will increase as the dollar depreciates against the currency.
Interest Rate Risk. Interest rate risk refers to the fluctuations in value of fixed-income securities resulting from the inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of already issued fixed-income investments, and a decline in general interest rates will tend to increase their value. In addition, debt securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter maturities.
Volatility Risk. Volatility risk refers to the magnitude of the movement, but not the direction of the movement, in a financial instruments price over a defined time period. Large increases or decreases in a financial instruments price over a relative time period typically indicate greater volatility risk, while small increases or decreases in its price typically indicate lower volatility risk.
6. Use of Derivatives
The Funds investment objective not only permits the Fund to purchase investment securities, it also allows the Fund to enter into various types of derivatives contracts, including, but not limited to, futures contracts, forward currency exchange contracts, credit default swaps, interest rate swaps, total return swaps, variance swaps and purchased and written options.
10 OPPENHEIMER EQUITY INCOME FUND
6. Use of Derivatives (Continued)
In doing so, the Fund will employ strategies in differing combinations to permit it to increase, decrease, or change the level or types of exposure to market risk factors. These instruments may allow the Fund to pursue its objectives more quickly and efficiently than if it were to make direct purchases or sales of securities capable of effecting a similar response to market factors. Such contracts may be entered into through a bilateral over-the-counter (OTC) transaction, or through a securities or futures exchange and cleared through a clearinghouse.
Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost due to changes in the market risk factors and the overall market. This use of embedded leverage allows the Fund to increase its market value exposure relative to its net assets and can substantially increase the volatility of the Funds performance. In instances where the Fund is using derivatives to decrease, or hedge, exposures to market risk factors for securities held by the Fund, there are also risks that those derivatives may not perform as expected resulting in losses for the combined or hedged positions. Some derivatives have the potential for unlimited loss, regardless of the size of the Funds initial investment.
Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative and the Fund. Typically, the associated risks are not the risks that the Fund is attempting to increase or decrease exposure to, per its investment objectives, but are the additional risks from investing in derivatives. Examples of these associated risks are liquidity risk, which is the risk that the Fund will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Fund.
The Funds actual exposures to these market risk factors and associated risks during the period are discussed in further detail, by derivative type, below.
Option Activity
The Fund may buy and sell put and call options, or write put and call options. When an option is written, the Fund receives a premium and becomes obligated to sell or purchase the underlying security, currency or other underlying financial instrument at a fixed price, upon exercise of the option.
Options can be traded through an exchange or through a privately negotiated arrangement with a dealer in an OTC transaction. Options traded through an exchange are generally cleared through a clearinghouse (such as The Options Clearing Corporation). The difference between the premium received or paid, and market value of the option, is recorded as unrealized appreciation or depreciation. The net change in unrealized appreciation or depreciation is reported in the Statement of Operations in the annual and semiannual reports. When an option is exercised, the cost of the security purchased or the proceeds of the security sale are adjusted by the amount of premium received or paid. Upon the expiration or closing of the option transaction, a gain or loss is reported in the Statement of Operations in the annual and semiannual reports.
Index/Security Options. The Fund may purchase or write call and put options on individual equity securities and/or equity indexes to increase or decrease exposure to equity risk. A
11 OPPENHEIMER EQUITY INCOME FUND
NOTES TO STATEMENT OF INVESTMENTS Unaudited / Continued
6. Use of Derivatives (Continued)
purchased call or written put option becomes more valuable as the price of the underlying financial instrument appreciates relative to the strike price. A purchased put or written call option becomes more valuable as the price of the underlying financial instrument depreciates relative to the strike price.
During the reporting period, the Fund had an ending monthly average market value of $39,125 and $297,075 on purchased call options and purchased put options, respectively.
At period end, the Fund had no purchased options outstanding.
Options written, if any, are reported in a schedule following the Statement of Investments and as a liability in the Statement of Assets and Liabilities in the annual and semiannual reports. Securities held in collateral accounts to cover potential obligations with respect to outstanding written options are noted in the Statement of Investments.
The risk in writing a call option is the market price of the underlying security increasing above the strike price and the option being exercised. The Fund must then purchase the underlying security at the higher market price and deliver it for the strike price or, if it owns the underlying security, deliver it at the strike price and forego any benefit from the increase in the price of the underlying security above the strike price. The risk in writing a put option is the market price of the underlying security decreasing below the strike price and the option being exercised. The Fund must then purchase the underlying security at the strike price when the market price of the underlying security is below the strike price. Alternatively, the Fund could also close out a written option position, in which case the risk is that the closing transaction will require a premium to be paid by the Fund that is greater than the premium the Fund received. When writing options, the Fund has the additional risk that there may be an illiquid market where the Fund is unable to close the contact. The risk in buying an option is that the Fund pays a premium for the option, and the option may be worth less than the premium paid or expire worthless.
During the reporting period, the Fund had an ending monthly average market value of $661,011 and $607,526 on written call options and written put options, respectively.
At period end, the Fund had no written options outstanding.
Additional associated risks to the Fund include counterparty credit risk and liquidity risk.
Counterparty Credit Risk. Derivative positions are subject to the risk that the counterparty will not fulfill its obligation to the Fund. The Fund intends to enter into derivative transactions with counterparties that the Manager believes to be creditworthy at the time of the transaction.
With respect to centrally cleared swaps, such transactions will be submitted for clearing, and if cleared, will be held in accounts at futures commission merchants or brokers that are members of clearinghouses. While brokers, futures commission merchants and clearinghouses are required to segregate customer margin from their own assets, in the event that a broker, futures commission merchant or clearinghouse becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the broker, futures commission merchant or clearinghouse for all its customers, U.S. bankruptcy laws will typically allocate that shortfall on a pro-rata basis across all the brokers, futures commission
12 OPPENHEIMER EQUITY INCOME FUND
6. Use of Derivatives (Continued)
merchants or clearinghouses customers, potentially resulting in losses to the Fund.
There is the risk that a broker, futures commission merchant or clearinghouse will decline to clear a transaction on the Funds behalf, and the Fund may be required to pay a termination fee to the executing broker with whom the Fund initially enters into the transaction. Clearinghouses may also be permitted to terminate centrally cleared swaps at any time. The Fund is also subject to the risk that the broker or futures commission merchant will improperly use the Funds assets deposited/paid as initial or variation margin to satisfy payment obligations of another customer. In the event of a default by another customer of the broker or futures commission merchant, the Fund might not receive its variation margin payments from the clearinghouse, due to the manner in which variation margin payments are aggregated for all customers of the broker/futures commission merchant.
Collateral and margin requirements differ by type of derivative. Margin requirements are established by the broker, futures commission merchant or clearinghouse for exchange-traded and cleared derivatives, including centrally cleared swaps. Brokers, futures commission merchants and clearinghouses can ask for margin in excess of the regulatory minimum, or increase the margin amount, in certain circumstances.
For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund, if any, is reported separately on the Statement of Assets and Liabilities in the annual and semiannual reports as cash pledged as collateral. Non-cash collateral pledged by the Fund, if any, is noted in the Statement of Investments. Generally, the amount of collateral due from or to a party must exceed a minimum transfer amount threshold (e.g., $250,000) before a transfer has to be made. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance.
13 OPPENHEIMER EQUITY INCOME FUND
Item 2. Controls and Procedures.
(a) | Based on their evaluation of the registrants disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR 270.30a-3(c)) as of 7/31/2018, the registrants principal executive officer and principal financial officer found the registrants disclosure controls and procedures to provide reasonable assurances that information required to be disclosed by the registrant in the reports that it files under the Securities Exchange Act of 1934 (a) is accumulated and communicated to the registrants management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure, and (b) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the U.S. Securities and Exchange Commission. |
(b) | There have been no significant changes in the registrants internal controls over financial reporting that occurred during the registrants last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. |
Item 3. Exhibits.
Exhibits attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Equity Income Fund
By: | /s/ Arthur P. Steinmetz | |
Arthur P. Steinmetz | ||
Principal Executive Officer | ||
Date: | 9/21/2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Arthur P. Steinmetz | |
Arthur P. Steinmetz | ||
Principal Executive Officer | ||
Date: | 9/21/2018 |
By: | /s/ Brian S. Petersen | |
Brian S. Petersen | ||
Principal Financial Officer | ||
Date: | 9/21/2018 |
Exhibit 99.CERT
Section 302 Certifications
CERTIFICATIONS
I, Arthur P. Steinmetz, certify that:
1. | I have reviewed this report on Form N-Q of Oppenheimer Equity Income Fund; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of Trustees (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/Arthur P. Steinmetz |
Arthur P. Steinmetz
Principal Executive Officer
Date: 9/21/2018
Exhibit 99.CERT
Section 302 Certifications
CERTIFICATIONS
I, Brian S. Petersen, certify that:
1. | I have reviewed this report on Form N-Q of Oppenheimer Equity Income Fund; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed to the registrants auditors and the audit committee of the registrants board of Trustees (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Brian S. Petersen |
Brian S. Petersen
Principal Financial Officer
Date: 9/21/2018