UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-01512
OPPENHEIMER CAPITAL 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)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
498 Seventh Avenue, New York, New York 10018
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(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
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Date of fiscal year end: August 31
Date of reporting period: September 1, 2002 - August 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2003, FOLLOWED BY
A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED
MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. Thanks in part to a recovering
market environment, the Fund enjoyed favorable performance on both an absolute
and relative basis during the reporting period. For the 12 months that ended
August 31, 2003, the Fund had a total return of 20.10% (Class A shares without
sales charge). This result was better than the Fund's benchmark, the S&P 500
Index, which returned 12.06% during the same time frame. We attribute the Fund's
relative outperformance in part to the strong results of some of our holdings in
the financial industry. Also helping the Fund's performance were some of our
positions in convertible bonds. This sector performed better overall in the
second half of the fiscal year as investors became less risk averse compared to
the flight-to-safety days of 2002.
When the reporting period began, the Fund's asset allocation was
approximately 50% in stocks, 22% in convertible bonds and 28% in traditional
fixed-income securities. By the end of the period, we made the Fund less equity
sensitive by adjusting its asset allocation to approximately 40% in stocks, 22%
in convertibles and 31% in fixed income. We made this shift because we thought
that many of the Fund's holdings had approached or exceeded their fair value. We
especially looked to sell stocks of companies with relatively weak credit
quality. In addition, we cut back our exposure to the financial sector, which
had performed very well and grown to occupy a larger-than-desired portion of the
Fund.
Our positions in convertible bonds (22% of total market value of investments)
generally helped Fund performance during the period. Some of our strongest-
performing convertibles were from technology, energy and cable companies. As the
bond market rallied throughout the period and investors became less risk averse,
we gradually sought to reduce our lower-quality convertible holdings and began
to focus instead on more senior bonds, which we believed offered less downside
risk.
As we mentioned, several financial stocks were strong performers for the
Fund, rebounding off of significantly depressed levels in the previous year. As
investors' concerns about corporate accounting scandals abated, Fund holdings
Citigroup, Inc. and J.P. Morgan Chase & Co. performed well. Both of these
companies, along with FleetBoston Financial Corp., benefited from an improving
economy and better corporate credit characteristics, while FleetBoston also was
helped by a stabilizing political and economic situation in South America. Two
other positive-performing financial stocks were Washington Mutual, Inc. and
Everest Re Group Ltd., which benefited from substantial mortgage refinancing
activity and strong fundamentals in the insurance business, respectively.
Outside of the financial sector, the Fund was helped by investments in Tyco
International Ltd., which bounced back from a series of questions about its
accounting
5 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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methods, and Kinder Morgan, Inc., a pipeline company whose strong fundamentals
were rewarded by investors during the period.
On the negative side, the Fund was hurt by its exposure to the tobacco
industry. The major detractor to performance in this area was Altria Group, Inc.
(formerly Philip Morris). Altria, weakened by an increasingly challenging
business environment, sought to overcome increased tobacco taxes as well as
increased competition from low-cost cigarette makers. The company was further
hurt by an unfavorable Illinois court ruling. Though the ultimate outcome of the
case was still uncertain at the end of the reporting period, the litigation
weighed on the entire tobacco industry.
Other detractors from performance included Pfizer, Inc., ACE Ltd. and
Travelers Property Casualty Corp., as well as a convertible bond position in Six
Flags, Inc. Pfizer, a large pharmaceutical company, was hurt by questions about
future patent expirations as well as the potential for declines in earnings
growth. Insurance companies ACE and Travelers were weakened by investor concerns
about exposure to asbestos claims along with worse-than-expected earnings. Six
Flags, an operator of regional theme parks, was dragged down in part by bad
weather, which depressed attendance and reduced profits. The Fund's holdings,
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 each class of shares of the
Fund held until August 31, 2003. In the case of Class A and Class B shares,
performance is measured over a ten-year period. In the case of Class C shares,
performance is measured from the inception of the Class on November 1, 1995. In
the case of Class N shares, performance is measured from inception of the Class
on March 1, 2001. 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, Class C and Class N shares, and reinvestment of all dividends
and capital gains distributions.
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.
6 | OPPENHEIMER CAPITAL INCOME FUND
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class A) S&P 500 Index
06/30/1993 9,425 10,000
09/30/1993 9,765 10,258
12/31/1993 9,824 10,495
03/31/1994 9,457 10,098
06/30/1994 9,486 10,140
09/30/1994 9,889 10,635
12/31/1994 9,550 10,633
03/31/1995 10,231 11,667
06/30/1995 10,972 12,779
09/30/1995 11,808 13,794
12/31/1995 12,216 14,624
03/31/1996 12,776 15,409
06/30/1996 13,014 16,099
08/31/1996 1 12,980 15,714
11/30/1996 14,859 18,343
02/28/1997 15,594 19,252
05/31/1997 16,058 20,760
08/31/1997 17,314 22,097
11/30/1997 18,420 23,571
02/28/1998 19,757 25,988
05/31/1998 20,427 27,124
08/31/1998 18,382 23,892
11/30/1998 20,733 29,154
02/28/1999 20,527 31,123
05/31/1999 21,295 32,829
08/31/1999 20,409 33,402
11/30/1999 19,761 35,245
02/29/2000 18,657 34,773
05/31/2000 20,917 36,265
08/31/2000 21,885 38,849
11/30/2000 21,169 33,756
02/28/2001 23,343 31,923
05/31/2001 24,625 32,440
08/31/2001 23,382 29,379
11/30/2001 22,378 29,633
02/28/2002 21,898 28,888
05/31/2002 22,273 27,952
08/31/2002 19,231 24,095
11/30/2002 19,596 24,741
02/28/2003 19,397 22,339
05/31/2003 22,349 25,697
08/31/2003 23,096 27,000
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES OF THE FUND AT 8/31/03 2
1-YEAR 13.19% 5-YEAR 3.44% 10-YEAR 8.35%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class B) S&P 500 Index
08/31/2003 10,000 10,000
09/30/1993 10,005 9,923
12/31/1993 10,033 10,153
03/31/1994 9,641 9,769
06/30/1994 9,642 9,810
09/30/1994 10,034 10,288
12/31/1994 9,669 10,287
03/31/1995 10,343 11,287
06/30/1995 11,076 12,363
09/30/1995 11,889 13,345
12/31/1995 12,278 14,147
03/31/1996 12,808 14,907
06/30/1996 13,022 15,575
08/31/1996 1 12,976 15,202
11/30/1996 14,825 17,745
02/28/1997 15,517 18,625
05/31/1997 15,940 20,083
08/31/1997 17,151 21,377
11/30/1997 18,223 22,803
02/28/1998 19,510 25,141
05/31/1998 20,116 26,240
08/31/1998 18,063 23,113
11/30/1998 20,353 28,204
02/28/1999 20,103 30,109
05/31/1999 20,822 31,759
08/31/1999 19,913 32,314
11/30/1999 19,282 34,096
02/29/2000 18,204 33,640
05/31/2000 20,409 35,084
08/31/2000 21,354 37,583
11/30/2000 20,655 32,656
02/28/2001 22,777 30,883
05/31/2001 24,027 31,383
08/31/2001 22,815 28,422
11/30/2001 21,835 28,667
02/28/2002 21,366 27,947
05/31/2002 21,732 27,041
08/31/2002 18,765 23,310
11/30/2002 19,120 23,935
02/28/2003 18,926 21,611
05/31/2003 21,807 24,860
08/31/2003 22,535 26,120
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES OF THE FUND AT 8/31/03 2
1-YEAR 13.94% 5-YEAR 3.56% 10-YEAR 8.46%
1. The Fund changed its fiscal year end from June 30 to August 31.
2. See Notes on page 9 for further details.
THE PERFORMANCE INFORMATION FOR THE S&P 500 INDEX IN THE GRAPHS BEGINS ON
6/30/93 FOR CLASS A, 8/31/93 FOR CLASS B, 10/31/95 FOR CLASS C AND 2/28/01 FOR
CLASS N SHARES.
PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. GRAPHS ARE NOT DRAWN TO SAME
SCALE.
7 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class C) S&P 500 Index
11/01/1995 10,000 10,000
12/31/1995 10,420 10,640
03/31/1996 10,864 11,211
06/30/1996 11,050 11,713
08/31/1996 1 11,001 11,432
11/30/1996 12,569 13,345
02/28/1997 13,169 14,007
05/31/1997 13,525 15,104
08/31/1997 14,555 16,077
11/30/1997 15,458 17,149
02/28/1998 16,541 18,907
05/31/1998 17,068 19,734
08/31/1998 15,327 17,382
11/30/1998 17,260 21,211
02/28/1999 17,049 22,643
05/31/1999 17,659 23,884
08/31/1999 16,883 24,301
11/30/1999 16,320 25,642
02/29/2000 15,384 25,299
05/31/2000 17,209 26,385
08/31/2000 17,964 28,264
11/30/2000 17,335 24,559
02/28/2001 19,093 23,226
05/31/2001 20,086 23,602
08/31/2001 19,042 21,375
11/30/2001 18,194 21,559
02/28/2002 17,782 21,018
05/31/2002 18,030 20,336
08/31/2002 15,557 17,530
11/30/2002 15,805 18,000
02/28/2003 15,622 16,253
05/31/2003 17,945 18,696
08/31/2003 18,520 19,644
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES OF THE FUND AT 8/31/03 2
1-YEAR 18.05% 5-YEAR 3.86% SINCE INCEPTION 8.18%
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class N) S&P 500 Index
03/01/2001 10,000 10,000
05/31/2001 10,520 10,162
08/31/2001 9,982 9,203
11/30/2001 9,550 9,283
02/28/2002 9,335 9,049
05/31/2002 9,485 8,756
08/31/2002 8,196 7,548
11/30/2002 8,331 7,750
02/28/2003 8,241 6,998
05/31/2003 9,488 8,050
08/31/2003 9,790 8,458
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES OF THE FUND AT 8/31/03 2
1-YEAR 18.45% SINCE INCEPTION -0.84%
1. The Fund changed its fiscal year end from June 30 to August 31.
2. See Notes on page 9 for further details.
THE PERFORMANCE INFORMATION FOR THE S&P 500 INDEX IN THE GRAPHS BEGINS ON
6/30/93 FOR CLASS A, 8/31/93 FOR CLASS B, 10/31/95 FOR CLASS C AND 2/28/01 FOR
CLASS N SHARES.
PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. GRAPHS ARE NOT DRAWN TO SAME
SCALE.
8 | OPPENHEIMER CAPITAL INCOME FUND
NOTES
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IN REVIEWING PERFORMANCE AND RANKINGS, 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 graph includes 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 reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares. For more complete information
about the Fund, including charges, expenses and risks, please refer to the
prospectus. To obtain a copy, call your financial advisor, call OppenheimerFunds
Distributor, Inc. at 1.800.CALL OPP (1.800.225.5677). Read the prospectus
carefully before you invest or send money.
CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%. The Fund's maximum sales charge for Class A shares was higher
prior to 10/18/91, so actual performance may have been higher.
CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the "since inception" return for Class
B uses Class A performance for the period after conversion and the ending
account value does not reflect the deduction of any sales charges. Class B
shares are subject to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
9 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS August 31, 2003
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MARKET VALUE
SHARES SEE NOTE 1
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COMMON STOCKS--34.0%
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CONSUMER DISCRETIONARY--4.0%
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SPECIALTY RETAIL--4.0%
CSK Auto Corp. 1,2 6,270,000 $103,455,000
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CONSUMER STAPLES--4.4%
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FOOD & STAPLES RETAILING--0.0%
Safeway, Inc. 1,3 50,000 1,220,500
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FOOD PRODUCTS--0.3%
Kraft Foods, Inc., Cl. A 3 100,000 2,970,000
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Sara Lee Corp. 200,000 3,796,000
--------------
6,766,000
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TOBACCO--4.1%
Altria Group, Inc. 2,016,400 83,116,008
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Loews Corp./Carolina Group 3 1,000,000 22,710,000
--------------
105,826,008
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ENERGY--3.8%
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ENERGY EQUIPMENT & SERVICES--0.1%
ENSCO International, Inc. 3 100,000 2,795,000
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OIL & GAS--3.7%
BP plc, ADR 275,000 11,473,000
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ChevronTexaco Corp. 232,500 16,942,275
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ConocoPhillips 500,000 27,920,000
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Enbridge Energy Management LLC 2 534,518 24,748,183
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Kerr-McGee Corp. 145,000 6,372,750
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Marathon Oil Corp. 3 35,000 976,150
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Unocal Corp. 3 50,000 1,531,000
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Valero Energy Corp. 150,000 5,910,000
--------------
95,873,358
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FINANCIALS--11.3%
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COMMERCIAL BANKS--3.0%
Charter One Financial, Inc. 750,000 23,250,000
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FleetBoston Financial Corp. 3 423,000 12,516,570
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U.S. Bancorp 1,250,000 29,875,000
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Washington Mutual, Inc. 312,500 12,181,250
--------------
77,822,820
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DIVERSIFIED FINANCIAL SERVICES--3.2%
CIT Group, Inc. 3 798,200 21,750,950
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Citigroup, Inc. 3 1,419,500 61,535,325
--------------
83,286,275
10 | OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE
SHARES SEE NOTE 1
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INSURANCE--3.7%
ACE Ltd. 825,000 $ 26,565,000
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Everest Re Group Ltd. 850,000 62,305,000
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XL Capital Ltd., Cl. A 75,000 5,681,250
--------------
94,551,250
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REAL ESTATE--0.5%
Anthracite Capital, Inc. 975,000 10,617,750
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Archstone-Smith Trust 3 1,100 28,765
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Heritage Property Investment Trust 130,000 3,562,000
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14,208,515
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THRIFTS & MORTGAGE FINANCE--0.9%
Fannie Mae 16,000 1,036,640
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Radian Group, Inc. 450,000 21,415,500
--------------
22,452,140
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HEALTH CARE--1.4%
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BIOTECHNOLOGY--0.2%
Wyeth 3 100,000 4,285,000
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HEALTH CARE PROVIDERS & SERVICES--0.2%
Aetna, Inc. 3 100,000 5,700,000
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PHARMACEUTICALS--1.0%
Abbott Laboratories 100,000 4,030,000
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Bristol-Myers Squibb Co. 3 182,200 4,622,414
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Pfizer, Inc. 500,000 14,960,000
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Schering-Plough Corp. 3 130,000 1,974,700
--------------
25,587,114
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INDUSTRIALS--2.0%
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AEROSPACE & DEFENSE--0.7%
Honeywell International, Inc. 3 50,000 1,449,500
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Lockheed Martin Corp. 75,000 3,842,250
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Raytheon Co. 3 400,000 12,824,000
--------------
18,115,750
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INDUSTRIAL CONGLOMERATES--1.3%
Tyco International Ltd. 3 1,567,500 32,259,150
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INFORMATION TECHNOLOGY--0.1%
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COMMUNICATIONS EQUIPMENT--0.1%
Nokia Corp., Sponsored ADR, A Shares 3 100,000 1,629,000
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MATERIALS--0.3%
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PAPER & FOREST PRODUCTS--0.3%
Sappi Ltd., Sponsored ADR 500,000 6,440,000
11 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
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MARKET VALUE
SHARES SEE NOTE 1
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TELECOMMUNICATION SERVICES--0.1%
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DIVERSIFIED TELECOMMUNICATION SERVICES--0.1%
BellSouth Corp. 3 37,600 $ 947,520
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SBC Communications, Inc. 90,100 2,026,349
--------------
2,973,869
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UTILITIES--6.6%
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ELECTRIC UTILITIES--0.1%
AES Corp. (The) 1 375,000 2,430,000
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Pepco Holdings, Inc. 65,000 1,129,050
--------------
3,559,050
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GAS UTILITIES--6.4%
Kinder Morgan Management LLC 2,682,500 100,057,250
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Kinder Morgan, Inc. 1,200,000 63,900,000
--------------
163,957,250
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MULTI-UTILITIES & UNREGULATED POWER--0.1%
Equitable Resources, Inc. 75,000 2,960,250
--------------
Total Common Stocks (Cost $633,247,031) 875,723,299
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PREFERRED STOCKS--9.0%
Allied Waste Industries, Inc., 6.25% Cv. Sr., Non-Vtg. 62,500 3,959,375
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Baxter International, Inc., 7% Cv. Equity Units (each
equity unit has a stated value of $50 and consists of a
purchase contract to purchase Baxter International,
Inc. common stock and $50 principal amount of Baxter
International, Inc., 3.60% sr. nts., 2/16/08),
Non-Vtg. 4 50,000 2,586,500
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CenterPoint Energy, Inc., 2% Cv. Zero-Exchangeable
Sub. Nts. 5 1,000,000 29,658,000
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Constellation Brands, Inc., 5.75% Cv. 1 75,000 2,111,250
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Emmis Communications Corp., 6.25% Cum. Cv.,
Series A, Non-Vtg. 400,000 18,700,000
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Equity Securities Trust I/Cablevision Systems Corp.,
6.50% Cv., Series CVC 875,000 19,678,750
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McKesson Financing Trust, 5% Cv., Non-Vtg. 112,500 5,667,188
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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) 4 400,000 14,192,000
- -----------------------------------------------------------------------------------
Prudential Financial, Inc./Prudential Financial Capital
Trust I, 6.75% Cum. Cv. Equity Security Units (each
unit consists of a contract to purchase Prudential
Financial, Inc. common stock and a redeemable capital
security of Prudential Financial Capital Trust I),
Non-Vtg. 4 262,500 15,382,500
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Regency Centers Corp., 2% Cv. 1 262,500 8,815,800
- -----------------------------------------------------------------------------------
Sempra Energy, 8.50% Cv. Equity Units (each equity unit
consists of income equity units, each has a stated
value of $25 and consists of a purchase contract to
purchase Sempra Energy common stock and $25 principal
amount of Sempra Energy, 5.60% sr. nts., 5/17/07) 4 675,000 18,765,000
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Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity
Redeemable Shares, Non-Vtg. 695,000 12,927,000
12 | OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE
SHARES SEE NOTE 1
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PREFERRED STOCKS Continued
Travelers Property Casualty Corp., 4.50% Cv. Jr.
Unsec. Sub. Nts. 762,500 $ 17,590,875
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Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income
Deferrable Equity Securities, Non-Vtg. 46,899 2,397,711
- -----------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly Income
Preferred Securities, Non-Vtg. 550,000 20,350,000
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UnumProvident Corp., 8.25% Cv. 225,000 6,970,500
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Washington Mutual, Inc., Cv. Units (each unit consists
of one preferred and one warrant to purchase 1.208 shares
of Washington Mutual, Inc. wts. exp. 8/3/41), Non-Vtg. 4 547,500 28,913,475
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Xerox Corp., 6.25% Cv. 1 40,000 4,278,000
--------------
Total Preferred Stocks (Cost $231,515,140) 232,943,924
PRINCIPAL
AMOUNT
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MORTGAGE-BACKED OBLIGATIONS--9.0%
Federal Home Loan Mortgage Corp.:
8%, 4/1/16 $ 1,899,966 2,054,922
9%, 8/1/22-5/1/25 536,160 597,144
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Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass Pass-Through Certificates:
Series 2500, Cl. FD, 1.607%, 6/15/32 5 1,765,458 1,777,596
Series 2526, Cl. FE, 1.51%, 6/15/29 5 1,861,161 1,873,876
- -----------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Real Estate Mtg.
Investment Conduit Multiclass Certificates,
Series 2551, Cl. FD, 1.51%, 1/15/33 5 1,651,508 1,656,921
- -----------------------------------------------------------------------------------
Federal National Mortgage Assn.:
5%, 9/1/33 6 7,566,000 7,322,466
5.50%, 9/1/33 6 35,496,000 35,351,815
6%, 9/25/33 6 34,442,000 35,023,209
6.50%, 9/1/33 6 46,148,000 47,719,893
7%, 9/25/33 6 77,961,000 82,127,080
8.50%, 7/1/32 644,572 693,768
- -----------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg.
Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Trust 2002-77, Cl. WF,
1.51%, 12/18/32 5 2,783,409 2,791,437
- -----------------------------------------------------------------------------------
FHLMC Structured Pass-Through Securities, Collateralized
Mtg. Obligations:
Series H003, Cl. A2, 1.88%, 1/15/07 1,886,381 1,896,154
Series H006, Cl. A1, 1.724%, 4/15/08 7 1,797,541 1,769,753
- -----------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%,
8/15/17-12/15/17 616,134 678,877
- -----------------------------------------------------------------------------------
Granite Mortgages plc, Mtg.-Backed Obligations,
Series 2002-2, Cl. 1A1, 1.479%, 1/21/17 5,7 612,846 612,822
- -----------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-WF1, Cl. A2,
7.385%, 11/15/28 5,8 1,016,282 1,022,461
- -----------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg.
Pass-Through Certificates, Series PRU-HTG 2000-C1,
Cl. A2, 7.306%, 10/6/15 2,380,000 2,689,871
- -----------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp.,
Collateralized Mtg. Obligations, Pass-Through
Certificates:
Series 2003-AR3, Cl. A1A, 1.675%, 4/25/33 5 118,330 118,399
Series 2003-AR7, Cl. A1, 1.507%, 8/25/33 5 4,101,624 4,098,127
--------------
Total Mortgage-Backed Obligations (Cost $231,671,833) 231,876,591
13 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.5%
BMW Vehicle Owner Trust, Automobile Loan Certificates,
Series 2003-A, Cl. A2, 1.45%, 11/25/05 7 $3,780,000 $ 3,783,517
- -----------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile
Mtg.-Backed Nts., Series 2002-4, Cl. A2B, 1.74%,
1/17/05 7 2,693,259 2,698,654
- -----------------------------------------------------------------------------------
Caterpillar Financial Asset Trust, Equipment Loan
Pass-Through Certificates, Series 2003-A, Cl. A2,
1.25%, 10/25/05 2,140,000 2,115,466
- -----------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed
Certificates, Series 2003-B, Cl. AF1, 1.64%, 2/25/18 7 1,239,638 1,238,244
- -----------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2003-3, Cl. 1A1, 1.18%, 8/25/17 5 1,838,175 1,837,681
Series 2003-4, Cl. 1A1, 1.23%, 9/25/17 5 3,720,000 3,719,070
- -----------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan
Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.26%, 1/16/06 7 1,350,000 1,348,916
Series 2003-B, Cl. A2, 1.287%, 3/15/06 1,670,000 1,666,343
- -----------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity
Collateralized Mtg. Obligations:
Series 2002-1, Cl. AF1, 2.474%, 9/25/32 1,177,097 1,182,125
Series 2003-2, Cl. AF1, 1.21%, 5/25/33 5,7 2,270,492 2,269,772
- -----------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-B, Cl. A2, 2.20%, 4/6/05 1,439,158 1,443,484
Series 2003-A, Cl. A2, 1.52%, 12/8/05 5,200,000 5,200,000
- -----------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan
Certificates, Series 2002-D, Cl. A2A, 2.10%, 3/15/05 2,981,306 2,991,320
- -----------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle
Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/16/07 3,052,675 3,063,256
Series 2003-3, Cl. A1, 1.50%, 1/15/08 5,560,000 5,551,312
- -----------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile
Receivables Obligations:
Series 2002-3, Cl. A2, 2.26%, 12/18/04 1,843,640 1,848,713
Series 2002-4, Cl. A2, 1.66%, 6/15/05 2,300,536 2,304,614
Series 2003-2, Cl. A2, 1.34%, 12/21/05 3,878,000 3,877,013
Series 2003-3, Cl. A2, 1.52%, 4/21/06 5,780,000 5,776,388
- -----------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan
Certificates, Series 2002-2, Cl. A2, 2.15%, 12/19/05 1,466,738 1,471,160
- -----------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates,
Series 2002-1, Cl. A2, 1.95%, 7/20/05 959,276 961,360
- -----------------------------------------------------------------------------------
MMCA Auto Lease Trust, Auto Retail Installment
Contracts, Series 2002-A, Cl. A2, 1.28%, 5/16/05 5,8 1,709,165 1,710,529
- -----------------------------------------------------------------------------------
Nissan Auto Lease Trust, Auto Lease Obligations,
Series 2002-A, Cl. A2, 1.86%, 11/15/04 7 4,226,429 4,233,681
- -----------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust,
Auto Receivable Nts.:
Series 2002-C, Cl. A2, 1.94%, 9/15/04 2,024,601 2,027,760
Series 2003-B, Cl. A2, 1.20%, 11/15/05 5,180,000 5,173,695
- -----------------------------------------------------------------------------------
Salomon Smith Barney Auto Loan Trust,
Asset-Backed Auto Loan Obligations, Series 2002-1,
Cl. A2, 1.83%, 9/15/05 7 2,527,797 2,533,769
- -----------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust,
Automobile Mtg.-Backed Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 1,690,000 1,720,162
Series 2003-A, Cl. A2, 1.28%, 8/15/05 5,380,000 5,378,249
14 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.,
Series 2002-1, Cl. A2, 1.95%, 3/15/05 $512,340 $ 513,199
Series 2003-1, Cl. A2, 1.22%, 4/17/06 3,080,000 3,075,210
- -----------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease
Asset-Backed Securities, Series 2002-A, Cl. A2,
1.77%, 2/20/05 3,878,805 3,887,183
- -----------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust, Automobile Loan
Receivables, Series 2003-1, Cl. A2, 1.11%, 12/20/05 2,175,000 2,170,216
- -----------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivables,
Series 2002-1, Cl. A2, 1.88%, 6/15/05 1,852,410 1,857,372
--------------
Total Asset-Backed Securities (Cost $90,605,603) 90,629,433
- -----------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--4.2%
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.50%, 1/15/13-7/15/13 6,600,000 6,356,598
4.875%, 3/15/07 5,800,000 6,130,194
6.25%, 7/15/32 2,750,000 2,892,304
- -----------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.25%, 7/15/07 6,300,000 6,506,394
6.375%, 6/15/09 14,100,000 15,721,514
7.25%, 5/15/30 2,655,000 3,145,891
- -----------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%, 11/13/08 908,000 969,682
7.125%, 5/1/30 863,000 1,010,948
- -----------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.25%, 8/15/13 1,389,000 1,366,864
5.375%, 2/15/31 247,000 252,384
5.50%, 8/15/28 9 16,098,000 16,382,242
6.125%, 11/15/27 4,405,000 4,849,976
6.25%, 5/15/30 4,140,000 4,673,998
8.875%, 8/15/17 2,887,000 4,012,255
STRIPS, 2.99%, 2/15/10 10 2,075,000 1,598,754
STRIPS, 3.66%, 2/15/13 10 643,000 410,608
STRIPS, 3.76%, 2/15/11 10 5,023,000 3,641,725
STRIPS, 4.96%, 2/15/16 10 1,157,000 605,272
STRIPS, 5.48%, 11/15/27 10 3,425,000 872,512
- -----------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.875%, 2/15/12 2,475,000 2,575,839
5%, 2/15/11 13,400,000 14,156,376
5.75%, 8/15/10 3,422,000 3,785,054
6.50%, 2/15/10 6,300,000 7,242,789
--------------
Total U.S. Government Obligations (Cost $110,390,360) 109,160,173
- -----------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.1%
United Mexican States Nts., 7.50%, 1/14/12
(Cost $1,244,899) 1,205,000 1,318,270
15 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.5%
AEP Resources, Inc., 6.50% Sr. Nts., 12/1/03 8 $2,120,000 $ 2,140,068
- -----------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 936,000 1,031,735
- -----------------------------------------------------------------------------------
Albertson's, Inc., 7.45% Unsec. Debs., 8/1/29 941,000 990,645
- -----------------------------------------------------------------------------------
Allied Waste North America, Inc.:
7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,000,000 4,115,000
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,668,750
10% Sr. Unsec. Sub. Nts., Series B, 8/1/09 1,010,000 1,098,375
- -----------------------------------------------------------------------------------
American International Group, Inc./SunAmerica Global
Financing VI, 6.30% Sr. Sec. Nts., 5/10/11 8 1,365,000 1,479,903
- -----------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec.
Nts., 5/1/07 9 1,770,000 1,977,798
- -----------------------------------------------------------------------------------
Auburn Hills Trust, 12.375% Gtd. Exchangeable
Certificates, 5/1/20 5,000,000 6,960,675
- -----------------------------------------------------------------------------------
AXA Group, 8.60% Unsec. Sub. Nts., 12/15/30 1,810,000 2,143,259
- -----------------------------------------------------------------------------------
Bank of America Corp., 4.75% Sub. Nts., 8/15/13 1,430,000 1,374,665
- -----------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 7 2,500,000 2,690,625
- -----------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 250,000 282,946
- -----------------------------------------------------------------------------------
Beazer Homes USA, Inc., 8.375% Sr. Nts., 4/15/12 800,000 848,000
- -----------------------------------------------------------------------------------
Boeing Capital Corp., 7.375% Sr. Nts., 9/27/10 9 3,310,000 3,711,109
- -----------------------------------------------------------------------------------
British Sky Broadcasting Group plc, 8.20% Sr. Unsec.
Nts., 7/15/09 1,040,000 1,192,100
- -----------------------------------------------------------------------------------
British Telecommunications plc, 7.625% Nts., 12/15/05 1,836,000 2,044,274
- -----------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp., 5.90% Sr.
Nts., 7/1/12 1,355,000 1,419,868
- -----------------------------------------------------------------------------------
Cardinal Health, Inc., 4.45% Nts., 6/30/05 1,360,000 1,412,903
- -----------------------------------------------------------------------------------
CenterPoint Energy, Inc., 5.875% Nts., 6/1/08 8 1,710,000 1,655,620
- -----------------------------------------------------------------------------------
Charter Communications Holdings LLC/Charter
Communications Holdings Capital Corp.:
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 11 3,250,000 1,868,750
8.625% Sr. Unsec. Nts., 4/1/09 8,500,000 6,545,000
- -----------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125% Sr. Unsec. Nts., 4/1/11 5,000,000 5,250,000
- -----------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,150,000 1,311,943
- -----------------------------------------------------------------------------------
Citizens Communications Co.:
6.375% Sr. Unsec. Unsub. Nts., 8/15/04 277,000 289,745
9.25% Sr. Nts., 5/15/11 880,000 1,086,326
- -----------------------------------------------------------------------------------
Coast Hotels & Casinos, Inc., 9.50% Sr. Unsec. Sub.
Nts., 4/1/09 300,000 321,000
- -----------------------------------------------------------------------------------
Continental Airlines, Inc., 8% Sr. Nts., 12/15/05 3,000,000 2,655,000
- -----------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (USA), 6.125%
Nts., 11/15/11 2,240,000 2,358,662
- -----------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,865,000
- -----------------------------------------------------------------------------------
CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06 2 10,000,000 11,125,000
- -----------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 1,460,000 1,596,170
- -----------------------------------------------------------------------------------
DaimlerChrysler NA Holding Corp., 6.40% Nts., 5/15/06 1,930,000 2,069,072
- -----------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 695,000 728,013
- -----------------------------------------------------------------------------------
Delphi Corp., 6.55% Nts., 6/15/06 1,225,000 1,288,461
- -----------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50%
Unsub. Nts., 6/15/10 1,750,000 2,062,653
- -----------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts.,
6/15/10 1,300,000 1,522,567
- -----------------------------------------------------------------------------------
DTE Energy Co., 6.375% Sr. Nts., 4/15/33 1,615,000 1,480,643
16 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 $7,500,000 $ 8,015,625
- -----------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts.,
Series B, 3/15/09 9,000,000 9,337,500
- -----------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 268,000 293,761
7.75% Unsec. Nts., 11/15/07 1,240,000 1,411,146
- -----------------------------------------------------------------------------------
FirstEnergy Corp., 7.375% Sr. Unsub. Nts.,
Series C, 11/15/31 2,290,000 2,172,544
- -----------------------------------------------------------------------------------
Fleming Cos., Inc., 9.25% Sr. Nts., 6/15/10 1,12 5,000,000 625,000
- -----------------------------------------------------------------------------------
Ford Motor Co., 7.45% Bonds, 7/16/31 1,530,000 1,363,037
- -----------------------------------------------------------------------------------
France Telecom SA:
9.25% Sr. Unsec. Nts., 3/1/11 725,000 866,886
10% Sr. Unsec. Nts., 3/1/31 5 755,000 976,490
- -----------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 970,000 951,488
- -----------------------------------------------------------------------------------
Gap, Inc. (The), 6.90% Nts., 9/15/07 1,255,000 1,328,731
- -----------------------------------------------------------------------------------
General Electric Capital Corp.:
6% Nts., 6/15/12 1,500,000 1,586,373
6.75% Nts., Series A, 3/15/32 650,000 697,085
- -----------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Unsec. Unsub.
Nts., 8/28/12 3,480,000 3,447,942
- -----------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs., 7/15/33 2,160,000 2,140,737
- -----------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 6.60% Sr. Unsec.
Nts., 1/15/12 1,650,000 1,799,292
- -----------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375%
Nts., 6/1/06 800,000 786,272
- -----------------------------------------------------------------------------------
Health Net, Inc., 8.375% Sr. Unsec. Unsub. Nts., 4/15/11 1,145,000 1,320,204
- -----------------------------------------------------------------------------------
Hertz Corp. (The), 7.625% Sr. Nts., 6/1/12 4,235,000 4,279,904
- -----------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 10,262,500
- -----------------------------------------------------------------------------------
Household Finance Corp., 7% Nts., 5/15/12 1,990,000 2,213,220
- -----------------------------------------------------------------------------------
Hutchison Whampoa International Ltd., 6.50% Nts.,
2/13/13 8 1,805,000 1,788,896
- -----------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 4,925,000
- -----------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,090,000
- -----------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,085,000
- -----------------------------------------------------------------------------------
J.P. Morgan Chase & Co., 6.75% Sub. Nts., 2/1/11 1,115,000 1,236,339
- -----------------------------------------------------------------------------------
John Hancock Global Funding II:
5% Nts., 7/27/07 8 1,410,000 1,478,279
7.90% Nts., 7/2/10 8 1,065,000 1,246,230
- -----------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub.
Nts., 4/1/12 1,600,000 1,672,000
- -----------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 1,450,000 1,560,823
- -----------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub.
Nts., 2/15/09 6,000,000 6,060,000
- -----------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 2,230,000 2,502,655
- -----------------------------------------------------------------------------------
Level 3 Communications, Inc.:
0%/10.50% Sr. Disc. Nts., 12/1/08 11 5,000,000 4,125,000
11% Sr. Unsec. Nts., 3/15/08 5,000,000 4,425,000
- -----------------------------------------------------------------------------------
Lockheed Martin Corp., 8.50% Bonds, 12/1/29 1,435,000 1,827,522
- -----------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 27,500,000 18,425,000
- -----------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 4.85% Nts., 2/15/13 694,000 678,338
17 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
MidAmerican Energy Holdings Co., 5.875% Sr.
Nts., 10/1/12 $ 2,300,000 $ 2,337,150
- -----------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 1,370,000 1,490,175
- -----------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 1,090,000 1,122,873
- -----------------------------------------------------------------------------------
News America Holdings, Inc., 7.75% Sr. Unsec. Debs.,
12/1/45 1,880,000 2,054,985
- -----------------------------------------------------------------------------------
Nextel Communications, Inc., 9.75% Sr. Disc. Nts.,
10/31/07 16,000,000 16,560,000
- -----------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375% Sr. Unsec.
Nts., 10/1/04 865,000 894,939
- -----------------------------------------------------------------------------------
NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 2,083,811
- -----------------------------------------------------------------------------------
NorAm Energy Corp., 6.375% Unsec. Term Enhanced
Remarketable Nts., 11/1/03 236,000 237,193
- -----------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Unsec. Nts.,
Series B, 9/1/07 7 7,500,000 7,687,500
- -----------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 1,000,000 1,128,925
- -----------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 920,000 1,051,100
- -----------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts.,
Series B, 6/1/13 8 1,130,000 1,069,697
- -----------------------------------------------------------------------------------
Progress Energy, Inc., 6.55% Sr. Unsec. Nts., 3/1/04 2,700,000 2,763,339
- -----------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C,
12/18/23 8 2,140,000 2,540,670
- -----------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25 8 2,230,000 2,651,127
- -----------------------------------------------------------------------------------
Pulte Homes, Inc., 8.375% Sr. Nts., 8/15/04 518,000 539,823
- -----------------------------------------------------------------------------------
Raytheon Co., 5.70% Sr. Unsec. Nts., 11/1/03 2,280,000 2,289,797
- -----------------------------------------------------------------------------------
RCN Corp., 10.125% Sr. Unsec. Nts., 1/15/10 12,500,000 4,875,000
- -----------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 6.75% Bonds, 8/1/11 1,470,000 1,645,836
- -----------------------------------------------------------------------------------
Rite Aid Corp.:
6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 4,375,000
7.125% Sr. Unsub. Nts., 1/15/07 7,500,000 7,387,500
- -----------------------------------------------------------------------------------
Rogers Wireless Communications, Inc., 9.625% Sr.
Sec. Nts., 5/1/11 429,000 474,581
- -----------------------------------------------------------------------------------
Safeway, Inc.:
3.80% Sr. Unsec. Nts., 8/15/05 100,000 101,462
4.80% Sr. Unsec. Nts., 7/16/07 1,430,000 1,468,611
- -----------------------------------------------------------------------------------
Sears Roebuck Acceptance Corp., 3.03% Nts., Series VII,
2/25/04 5 985,000 992,683
- -----------------------------------------------------------------------------------
Shopping Center Associates, 6.75% Sr. Unsec. Nts.,
1/15/04 8 471,000 479,925
- -----------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub.
Nts., 3/15/12 1,000,000 1,047,500
- -----------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32 2,115,000 2,411,307
- -----------------------------------------------------------------------------------
Target Corp.:
5.40% Nts., 10/1/08 1,060,000 1,125,834
5.875% Sr. Unsec. Nts., 11/1/08 810,000 876,580
- -----------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs.,
2/1/12 3,550,000 4,474,999
- -----------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts., 12/1/07 1,280,000 1,422,400
- -----------------------------------------------------------------------------------
Telefonos de Mexico SA, 8.25% Sr. Unsec. Nts., 1/26/06 1,200,000 1,335,000
- -----------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 1,072,500
- -----------------------------------------------------------------------------------
Time Warner Entertainment Co. LP:
8.375% Sr. Debs., 3/15/23 225,000 268,005
10.15% Sr. Nts., 5/1/12 501,000 655,892
- -----------------------------------------------------------------------------------
Time Warner, Inc., 9.125% Debs., 1/15/13 1,130,000 1,383,325
- -----------------------------------------------------------------------------------
Tyco International Group SA, 6.75% Sr.
Unsub. Nts., 2/15/11 2,770,000 2,832,325
18 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Vornado Realty LP, 5.625% Sr. Unsec. Unsub.
Nts., 6/15/07 $ 1,720,000 $ 1,791,488
- -----------------------------------------------------------------------------------
Walt Disney Co. (The), 6.75% Sr. Nts., 3/30/06 1,255,000 1,367,351
- -----------------------------------------------------------------------------------
Waste Management, Inc., 7% Sr. Nts., 7/15/28 1,050,000 1,087,114
- -----------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts., 3/15/05 2,020,000 2,114,029
- -----------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub.
Nts., 2/15/09 1,000,000 1,043,511
- -----------------------------------------------------------------------------------
Wyeth, 5.875% Nts., 3/15/04 9 1,400,000 1,432,642
--------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $280,164,717) 296,709,646
- -----------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--23.7%
- -----------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--9.8%
- -----------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.7%
Royal Carribean Cruises Ltd., Zero Coupon Cv.
Sr. Unsec. Unsub. Liquid Yield Option Nts.,
5.29%, 2/2/21 10 40,000,000 18,200,000
- -----------------------------------------------------------------------------------
MEDIA--9.1%
America Online, Inc., Zero Coupon Cv. Nts.,
3.85%, 12/6/19 10 67,500,000 41,428,125
- -----------------------------------------------------------------------------------
Charter Communications, Inc., 5.75% Cv. Sr. Unsec.
Nts., 10/15/05 75,000,000 60,000,000
- -----------------------------------------------------------------------------------
EchoStar Communications Corp., 4.875% Cv. Sub.
Nts., 1/1/07 9,135,000 9,260,606
- -----------------------------------------------------------------------------------
Liberty Media Corp.:
3.25% Exchangeable Sr. Sec. Debs., 3/15/31
(exchangeable for Viacom, Inc., Cl. B common stock) 8 7,500,000 7,612,500
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31
(exchangeable for Viacom, Inc., Cl. B common stock or
cash based on the value thereof) 70,000,000 71,050,000
3.50% Exchangeable Sr. Unsec. Debs., 1/15/31
(exchangeable for Motorola, Inc., common stock or
cash based on the value of that stock) 17,500,000 12,578,125
3.75% Exchangeable Sr. Unsec. Debs., 2/15/30
(exchangeable for Sprint Corp. PCS, Series 1 common
stock or cash based on the value of that stock) 17,750,000 10,450,313
4% Exchangeable Sr. Unsec. Debs., 11/15/29
(exchangeable for Sprint Corp. PCS, Series 1 common
stock or cash based on the value of that stock) 34,750,000 21,197,500
--------------
233,577,169
- -----------------------------------------------------------------------------------
CONSUMER STAPLES--1.6%
- -----------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.6%
Rite Aid Corp., 4.75% Cv. Unsec. Unsub. Nts., 12/1/06 37,500,000 40,125,000
- -----------------------------------------------------------------------------------
FINANCIALS--0.9%
- -----------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.9%
Providian Financial Corp., Zero Coupon Cv.
Sr. Unsec. Unsub. Nts., 6.20%, 2/15/21 10 55,000,000 24,337,500
- -----------------------------------------------------------------------------------
HEALTH CARE--0.3%
- -----------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs., 2/2/07 7,500,000 5,784,375
- -----------------------------------------------------------------------------------
Intermune, Inc., 5.75% Cv. Unsec. Sub. Nts., 7/15/06 2,500,000 2,362,500
--------------
8,146,875
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
INDUSTRIALS--3.8%
- -----------------------------------------------------------------------------------
AIRLINES--0.2%
Continental Airlines, Inc., 4.50% Cv. Sr. Unsec.
Unsub. Nts., 2/1/07 $ 3,250,000 $ 2,526,875
- -----------------------------------------------------------------------------------
Delta Air Lines, Inc., 8% Cv. Sr. Bonds, 6/3/23 8 2,750,000 2,509,375
- -----------------------------------------------------------------------------------
Northwest Airlines Corp., 6.625% Cv. Sr. Unsec.
Unsub. Nts., 5/15/23 5 1,000,000 895,000
--------------
5,931,250
- -----------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.4%
Shaw Group, Inc. (The), Zero Coupon Cv. Sr. Unsec.
Liquid Yield Option Nts., 3.24%, 5/1/21 7,10 15,000,000 9,525,000
- -----------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--3.2%
Tyco International Group SA:
2.75% Cv. Sr. Nts., Series A, 1/15/18 8 36,000,000 39,330,000
3.125% Cv. Sr. Nts., Series B, 1/15/23 8 37,500,000 42,234,375
--------------
81,564,375
- -----------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--4.6%
- -----------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.4%
Commscope, Inc., 4% Cv. Unsec. Sub. Nts., 12/15/06 12,500,000 11,656,250
- -----------------------------------------------------------------------------------
Lucent Technologies, Inc., 2.75% Cv. Sr. Unsec. Debs.,
Series A, 6/15/23 15,000,000 12,768,750
- -----------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts.,
9/1/08 15,000,000 12,637,500
--------------
37,062,500
- -----------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.8%
Solectron Corp., Zero Coupon Cv. Sr. Unsec. Unsub.
Liquid Yield Option Nts., 4.30%, 11/20/20 10 35,000,000 19,862,500
- -----------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--2.2%
Advanced Micro Devices, Inc., 4.75% Cv. Sr. Unsec.
Nts., 2/1/22 3,950,000 3,500,687
- -----------------------------------------------------------------------------------
Amkor Technology, Inc., 5.75% Cv. Unsec. Sub.
Nts., 6/1/06 17,500,000 16,756,250
- -----------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 11/1/06 37,500,000 35,484,375
--------------
55,741,312
- -----------------------------------------------------------------------------------
SOFTWARE--0.2%
Manugistics Group, Inc., 5% Cv. Unsec. Sub. Nts.,
11/1/07 7,500,000 5,784,375
- -----------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.5%
- -----------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.5%
Nextel Communications, Inc., 5.25% Cv. Sr. Nts.,
1/15/10 15,000,000 13,668,750
- -----------------------------------------------------------------------------------
UTILITIES--2.2%
- -----------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.1%
Calpine Corp.:
4% Cv. Sr. Unsec. Nts., 12/26/06 8 27,500,000 25,025,000
4% Cv. Sr. Nts., 12/26/06 2,500,000 2,275,000
--------------
27,300,000
- -----------------------------------------------------------------------------------
GAS UTILITIES--1.1%
El Paso Corp., Zero Coupon Cv. Debs.,
6.16%, 2/28/21 10 66,750,000 28,702,500
--------------
Total Convertible Corporate Bonds and Notes
(Cost $534,965,349) 609,529,106
20 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------
STRUCTURED NOTES--5.7%
Bank of America Corp., Linked Sr. Nts., Series RTY,
7%, 3/3/04 (redemption linked to Russell 2000 Index) $ 10,000,000 $ 11,251,902
- -------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch):
Cendant Corp. Equity Linked Nts., 5%, 2/7/04 1,400,000 20,825,000
Comcast Corp. Cv. Equity Linked Nts., 8%, 12/23/03 590,000 17,146,875
- -------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit Linked Nts.,
Series 2003-1, 2.85%, 1/7/05 5,7 7,150,000 7,044,895
- -------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Abbott Laboratories Cv. Medium-Term Linked Nts.,
5.50%, 7/29/04 363,200 14,665,544
Clear Channel Communications, Inc., Cv. Medium-Term
Linked Nts., 5.25%, 7/29/04 366,400 15,481,133
GlobalSantaFe Corp. Cv. Linked Nts., 4%, 4/5/04 682,460 17,195,262
- -------------------------------------------------------------------------------------
JPMorgan Chase Bank, High Yield Index-100 Nts.,
8%, 6/20/08 13,464,000 13,665,960
- -------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.,
AT&T Wireless Services, Inc., Yield Enhanced
Equity Linked Debt Securities, 4%, 8/21/04 1,254,706 10,351,325
- -------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Capped Appreciation
Linked Nts., 6%, 10/7/03 (linked to the performance
of the Standard & Poor's 500 Index) 10,000,000 11,846,240
- -------------------------------------------------------------------------------------
UBS AG, High Grade Credit Linked Nts.,
2.849%, 12/10/04 5 7,150,000 7,157,150
--------------
Total Structured Notes (Cost $132,705,389) 146,631,286
- -------------------------------------------------------------------------------------
SHORT-TERM NOTES--1.9%
Crown Point Capital Co., 1.11%, 9/2/03
(Cost $49,998,458) 50,000,000 49,998,458
- -------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--5.4%
Undivided interest of 18.29% in joint repurchase
agreement (Principal Amount/Market Value $754,227,000,
with a maturity value of $754,311,641) with
PaineWebber, Inc., 1.01%, dated 8/29/03, to be
repurchased at $137,970,482 on 9/2/03, collateralized
by Federal National Mortgage Assn., 5.50%, 6/1/33,
with a value of $770,199,757 (Cost $137,955,000) 137,955,000 137,955,000
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,434,463,779) 108.0% 2,782,475,186
- -------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (8.0) (206,094,845)
-----------------------------
NET ASSETS 100.0% $2,576,380,341
=============================
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended August 31, 2003.
The aggregate fair value of securities of affiliated companies held by the Fund
as of August 31, 2003 amounts to $139,328,183. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES/ SHARES/
PRINCIPAL PRINCIPAL DIVIDEND/
AUGUST 31, GROSS GROSS AUGUST 31, UNREALIZED INTEREST REALIZED
2002 ADDITIONS REDUCTIONS 2003 APPRECIATION INCOME LOSS
- -------------------------------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
CSK Auto Corp. 1,862,614 4,547,700* 140,314 6,270,000 $42,473,050 $ -- $1,753,340
CSK Auto Corp.,
Restricted 4,524,886 -- 4,524,886* -- -- -- --
Enbridge Energy
Management LLC -- 534,518 -- 534,518 6,497,819 -- --
BONDS AND NOTES
CSK Auto, Inc.,
12% Sr. Unsec.
Nts., 6/15/06 10,000,000 -- -- 10,000,000 1,228,977 1,455,738 --
-----------------------------------------
$50,199,846 $1,455,738 $1,753,340
=========================================
*A portion of the transactions (4,524,886) was the result of a conversion from
restricted common stock.
3. A sufficient amount of liquid assets has been designated to cover outstanding
written options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
CALLS SUBJECT TO CALL DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------
Aetna, Inc. 1,000 9/22/03 $60.00 $ 97,995 $ 35,000
Archstone-Smith Trust 11 9/22/03 25.00 429 1,210
BellSouth Corp. 376 9/22/03 25.00 53,389 24,440
Bristol-Myers Squibb Co. 1,625 9/22/03 25.00 479,363 97,500
CIT Group, Inc. 2,768 9/22/03 30.00 121,897 --
CIT Group, Inc. 4,232 10/20/03 22.50 1,151,049 2,031,360
Citigroup, Inc. 2,195 9/22/03 42.50 637,546 329,250
ENSCO International, Inc. 500 9/22/03 30.00 29,499 32,500
FleetBoston Financial Corp. 4,230 9/22/03 30.00 391,030 148,050
Honeywell International, Inc. 500 9/22/03 30.00 26,999 15,000
Kraft Foods, Inc., Cl. A 500 10/20/03 30.00 21,999 32,500
Loews Corp./Carolina Group 300 9/22/03 22.50 10,200 21,000
Marathon Oil Corp. 350 9/22/03 27.50 15,399 24,500
Nokia Corp., Sponsored ADR, A Shares 1,000 9/22/03 15.00 41,498 140,000
Raytheon Co. 250 9/22/03 32.50 9,750 10,000
Safeway, Inc. 500 9/22/03 22.50 39,498 97,500
Schering-Plough Corp. 1,100 9/22/03 17.50 53,397 --
Schering-Plough Corp. 150 9/22/03 17.50 8,724 3,750
Tyco International Ltd. 1,000 9/22/03 20.00 46,498 85,000
Tyco International Ltd. 7,450 9/22/03 17.50 1,119,972 2,197,750
Tyco International Ltd. 4,300 10/20/03 22.50 145,068 150,500
Unocal Corp. 500 9/22/03 30.00 34,498 42,500
Wyeth 1,000 9/22/03 45.00 26,499 30,000
------------------------
4,562,196 5,549,310
------------------------
22 | OPPENHEIMER CAPITAL INCOME FUND
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
PUTS SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 1
- --------------------------------------------------------------------------------------------
Abbott Laboratories 1,000 9/22/03 $40.00 $ 161,992 $ 60,000
Abbott Laboratories 500 9/22/03 42.50 143,493 105,000
ACE Ltd. 250 9/22/03 35.00 66,747 67,500
Aetna, Inc. 375 9/22/03 55.00 35,248 24,375
Altria Group, Inc. 3,250 9/22/03 40.00 613,740 227,500
Altria Group, Inc. 1,000 9/22/03 42.50 291,995 205,000
Altria Group, Inc. 1,000 12/22/03 37.50 276,987 175,000
American International Group, Inc. 500 9/22/03 65.00 193,491 265,000
Archstone-Smith Trust 1,000 9/22/03 25.00 116,246 --
Clear Channel Communications, Inc. 2,500 9/22/03 40.00 438,617 37,500
Comcast Corp., Cl. A Special, Non-Vtg. 4,000 9/22/03 25.00 185,996 20,000
Equitable Resources, Inc. 2,250 9/22/03 40.00 249,742 191,250
Everest Re Group Ltd. 5,000 9/22/03 75.00 1,387,884 1,075,000
Fannie Mae 500 9/22/03 60.00 90,996 22,500
Fannie Mae 500 9/22/03 65.00 193,491 92,500
Fannie Mae 2,340 9/22/03 70.00 1,655,671 1,263,600
General Motors Corp., Cl. H 1,000 9/22/03 12.50 57,499 --
Kinder Morgan, Inc. 1,000 9/22/03 50.00 58,822 5,000
Kohl's Corp. 1,000 10/20/03 45.00 223,757 5,000
Kraft Foods, Inc., Cl. A 1,000 9/22/03 27.50 63,997 5,000
Liberty Media Corp., Cl. A 2,000 10/20/03 10.00 82,996 --
Lockheed Martin Corp. 1,000 9/22/03 45.00 220,247 --
Morgan Stanley 750 9/22/03 45.00 146,493 22,500
Morgan Stanley 76 9/22/03 50.00 30,171 14,060
Pfizer, Inc. 2,500 9/22/03 32.50 241,742 700,000
Pfizer, Inc. 3,250 9/22/03 30.00 321,745 227,500
Pfizer, Inc. 1,500 10/20/03 30.00 177,991 187,500
Pfizer, Inc. 1,000 12/22/03 30.00 129,494 175,000
Raytheon Co. 2,915 9/22/03 32.50 575,928 204,050
Raytheon Co. 500 10/20/03 32.50 65,997 67,500
SBC Communications, Inc. 1,325 9/22/03 25.00 237,826 311,375
Schering-Plough Corp. 950 9/22/03 17.50 123,019 213,750
Schering-Plough Corp. 1,000 10/20/03 15.00 33,998 55,000
Schering-Plough Corp. 1,250 11/24/03 15.00 143,118 118,750
Schlumberger Ltd. 500 9/22/03 45.00 90,996 --
Tenet Healthcare Corp. 1,000 11/24/03 10.00 53,999 --
Transocean, Inc. 1,000 9/22/03 20.00 156,993 30,000
Valero Energy Corp. 750 9/22/03 35.00 51,748 --
Verizon Communications, Inc. 750 9/22/03 35.00 93,371 45,000
Viacom, Inc., Cl. B 625 9/22/03 45.00 166,867 93,750
XL Capital Ltd., Cl. A 250 9/22/03 80.00 104,245 117,500
XL Capital Ltd., Cl. A 1,000 10/20/03 75.00 274,787 255,000
-----------------------
10,030,182 6,684,960
-----------------------
$14,592,378 $12,234,270
=======================
23 | OPPENHEIMER CAPITAL INCOME FUND
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 the current interest rate for a variable or increasing rate
security.
6. When-issued security to be delivered and settled after August 31, 2003. See
Note 1 of Notes to Financial Statements.
7. Identifies issues considered to be illiquid. See Note 9 of Notes to Financial
Statements.
8. 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 $135,974,655 or 5.28% of the Fund's net
assets as of August 31, 2003.
9. Securities with an aggregate market value of $4,072,797 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
10. Zero coupon bond reflects effective yield on the date of purchase.
11. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
12. Issuer is in default. See Note 1 of Notes to Financial Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES August 31, 2003
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
ASSETS
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,345,335,442) $ 2,643,147,003
Affiliated companies (cost $89,128,337) 139,328,183
---------------
2,782,475,186
- -----------------------------------------------------------------------------------
Cash 560,313
- -----------------------------------------------------------------------------------
Cash used for collateral on written puts 537,549
- -----------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 18,476,624
Investments sold 3,478,587
Shares of beneficial interest sold 2,504,781
Futures margins 84,943
Swap contract 70,072
Other 23,759
---------------
Total assets 2,808,211,814
- -----------------------------------------------------------------------------------
LIABILITIES
Options written, at value (premiums received $14,592,378)--
see accompanying statement 12,234,270
- -----------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $207,885,279 purchased on a
when-issued basis) 212,266,044
Shares of beneficial interest redeemed 5,496,524
Distribution and service plan fees 1,030,599
Shareholder reports 419,476
Transfer and shareholder servicing agent fees 327,543
Trustees' compensation 6,029
Other 50,988
---------------
Total liabilities 231,831,473
- -----------------------------------------------------------------------------------
NET ASSETS $2,576,380,341
===============
- -----------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Par value of shares of beneficial interest $ 230,082
- -----------------------------------------------------------------------------------
Additional paid-in capital 2,302,574,860
- -----------------------------------------------------------------------------------
Undistributed net investment income 43,094,417
- -----------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (119,501,592)
- -----------------------------------------------------------------------------------
Net unrealized appreciation on investments 349,982,574
---------------
NET ASSETS $2,576,380,341
===============
25 | 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
$2,130,486,469 and 189,909,987 shares of beneficial interest outstanding) $11.22
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $11.90
- -----------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$343,073,558 and 30,902,561 shares of beneficial interest outstanding) $11.10
- -----------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$93,797,150 and 8,461,403 shares of beneficial interest outstanding) $11.09
- -----------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$9,023,164 and 808,385 shares of beneficial interest outstanding) $11.16
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended August 31, 2003
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
INVESTMENT INCOME
Interest:
Unaffiliated companies $ 96,269,375
Affiliated companies 1,455,738
- -----------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $35,025) 47,780,989
-------------
Total investment income 145,506,102
- -----------------------------------------------------------------------------------
EXPENSES
Management fees 12,219,761
- -----------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 4,448,938
Class B 3,124,136
Class C 754,007
Class N 29,774
- -----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,549,137
Class B 759,011
Class C 155,098
Class N 16,583
- -----------------------------------------------------------------------------------
Shareholder reports 455,555
- -----------------------------------------------------------------------------------
Trustees' compensation 53,810
- -----------------------------------------------------------------------------------
Custodian fees and expenses 14,654
- -----------------------------------------------------------------------------------
Other 236,701
-------------
Total expenses 24,817,165
Less reduction to custodian expenses (14,654)
-------------
Net expenses 24,802,511
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME 120,703,591
- -----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) (52,469,216)
Affiliated companies (1,753,340)
Closing of futures contracts (4,072,789)
Closing and expiration of option contracts written 30,809,051
Foreign currency transactions (19,699)
-------------
Net realized loss (27,505,993)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 328,098,559
Futures contracts (359,333)
-------------
Net change in unrealized appreciation 327,739,226
- -----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $420,936,824
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2003 2002
- --------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 120,703,591 $ 118,056,600
- --------------------------------------------------------------------------------------
Net realized loss (27,505,993) (90,115,149)
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 327,739,226 (553,296,798)
---------------------------------
Net increase (decrease) in net assets resulting
from operations 420,936,824 (525,355,347)
- --------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (81,815,372) (93,931,397)
Class B (11,054,004) (14,424,307)
Class C (2,657,642) (2,953,586)
Class N (214,705) (106,899)
- --------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (64,030,274)
Class B -- (12,137,001)
Class C -- (2,393,666)
Class N -- (61,281)
- --------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (14,008,667) (904,695)
Class B (26,837,289) (41,599,972)
Class C 10,405,145 5,678,706
Class N 3,937,349 4,218,615
- --------------------------------------------------------------------------------------
NET ASSETS
Total increase (decrease) 298,691,639 (748,001,104)
- --------------------------------------------------------------------------------------
Beginning of period 2,277,688,702 3,025,689,806
---------------------------------
End of period [including undistributed net
investment income of $43,094,417 and
$18,133,482, respectively] $2,576,380,341 $2,277,688,702
=================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 9.76 $12.72 $12.88 $13.63 $13.75
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .54 .51 .42 .49 .51
Net realized and unrealized gain (loss) 1.35 (2.66) .41 .32 1.03
-----------------------------------------------------------------
Total from investment operations 1.89 (2.15) .83 .81 1.54
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.43) (.48) (.48) (.49) (.49)
Distributions from net realized gain -- (.33) (.51) (1.07) (1.17)
-----------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.43) (.81) (.99) (1.56) (1.66)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.22 $9.76 $12.72 $12.88 $13.63
=================================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 20.10% (17.75)% 6.84% 7.24% 11.03%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,130,486 $1,873,458 $2,458,272 $2,395,444 $2,926,923
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,900,896 $2,224,911 $2,432,151 $2,502,535 $3,156,294
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 5.41% 4.48% 3.21% 3.78% 3.51%
Total expenses 0.93% 3 0.98% 3 0.91% 3 0.93%3 0.89% 3
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 148% 74% 37% 40%
<FN>
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 9.67 $12.60 $12.76 $13.51 $13.63
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .41 .32 .38 .39
Net realized and unrealized gain (loss) 1.33 (2.62) .41 .32 1.03
-----------------------------------------------------
Total from investment operations 1.78 (2.21) .73 .70 1.42
- -------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.35) (.39) (.38) (.38) (.37)
Distributions from net realized gain -- (.33) (.51) (1.07) (1.17)
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (.35) (.72) (.89) (1.45) (1.54)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $11.10 $9.67 $12.60 $12.76 $13.51
=====================================================
- -------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 18.94% (18.31)% 6.05% 6.34% 10.22%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $343,074 $327,368 $477,223 $472,222 $720,721
- -------------------------------------------------------------------------------------------------
Average net assets (in thousands) $312,457 $410,652 $469,690 $546,390 $749,020
- -------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.55% 3.67% 2.44% 3.01% 2.71%
Total expenses 1.81% 3 1.76% 3 1.68% 3 1.70% 3 1.69% 3
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 148% 74% 37% 40%
<FN>
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER CAPITAL INCOME FUND
CLASS C YEAR ENDED AUGUST 31 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 9.66 $12.59 $12.76 $13.50 $13.63
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .42 .32 .38 .39
Net realized and unrealized gain (loss) 1.34 (2.62) .40 .32 1.02
----------------------------------------------------
Total from investment operations 1.79 (2.20) .72 .70 1.41
- -------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.40) (.38) (.37) (.38)
Distributions from net realized gain -- (.33) (.51) (1.07) (1.16)
----------------------------------------------------
Total dividends and/or distributions
to shareholders (.36) (.73) (.89) (1.44) (1.54)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $11.09 $9.66 $12.59 $12.76 $13.50
====================================================
- -------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 19.05% (18.30)% 6.00% 6.40% 10.15%
- -------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $93,797 $72,792 $89,547 $73,346 $119,284
- -------------------------------------------------------------------------------------------------
Average net assets (in thousands) $75,459 $84,049 $80,390 $84,898 $119,594
- -------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 4.55% 3.74% 2.44% 3.01% 2.70%
Total expenses 1.78% 3 1.76% 3 1.68% 3 1.70% 3 1.69% 3
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 148% 74% 37% 40%
<FN>
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
CLASS N YEAR ENDED AUGUST 31 2003 2002 2001 1
- --------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 9.73 $12.69 $12.96
- --------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .46 .50 .28
Net realized and unrealized gain (loss) 1.37 (2.66) (.30)
-----------------------------
Total from investment operations 1.83 (2.16) (.02)
- --------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.40) (.47) (.25)
Distributions from net realized gain -- (.33) --
-----------------------------
Total dividends and/or distributions to shareholders (.40) (.80) (.25)
- --------------------------------------------------------------------------------------
Net asset value, end of period $11.16 $ 9.73 $12.69
=============================
- --------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 19.45% (17.89)% (0.18)%
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $9,023 $4,071 $648
- --------------------------------------------------------------------------------------
Average net assets (in thousands) $5,968 $2,839 $214
Ratios to average net assets: 3
Net investment income 4.92% 4.74% 2.94%
Total expenses 1.35% 4 1.25% 4 1.17% 4
- --------------------------------------------------------------------------------------
Portfolio turnover rate 141% 148% 74%
<FN>
1. For the period from March 1, 2001 (inception of offering) to August 31, 2001.
2. Assumes an investment on the business day before the first day of the fiscal
period (or inception of offering), with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year. Returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | 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 and voting privileges. Earnings, net assets and net
asset value per share may differ by minor amounts due to each class having its
own expenses directly attributable to that class. Classes A, B, C and N have
separate distribution and/or service plans. Class B shares will automatically
convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. Securities traded on NASDAQ are valued based on the closing price
provided by NASDAQ 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
using 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, 2003,
the market value of these securities comprised 5.7% of the Fund's net assets,
and resulted in unrealized gains of $13,925,897.
33 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
SECURITIES ON A WHEN-ISSUED BASIS. Delivery and payment for securities that have
been purchased by the Fund on a when-issued basis can take place a month or more
after the trade date. Normally the settlement date occurs within six months
after the trade date; however, the Fund may, from time to time, purchase
securities whose settlement date extends six months or more beyond trade date.
During this period, such securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to their delivery. The
Fund maintains segregated assets with a market value equal to or greater than
the amount of its purchase commitments. The purchase of securities on a
when-issued 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, 2003, the Fund had entered into when-issued purchase
commitments of $207,885,279.
In connection with its ability to purchase securities on a when-issued basis,
the Fund may enter into forward roll transactions with respect to
mortgage-related securities. Forward roll transactions require the sale of
securities for delivery in the current month, and a simultaneous agreement with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. The forward roll may not
extend for a period of greater than one year. The Fund records the incremental
difference between the forward purchase and sale of each forward roll as
interest income.
Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities to what was sold to the counterparty
at redelivery; counterparty credit risk; and the potential pay down speed
variance between the mortgage-related pools.
- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of August 31, 2003, securities with an
aggregate market value of $625,000, representing 0.02% of the Fund's net assets,
were in default.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records 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.
34 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. Secured by U.S. government securities, these balances
are invested in one or more repurchase agreements. Securities pledged as
collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal. In the
event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of investment for federal income tax
purposes.
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED BASED ON COST OF
NET INVESTMENT LONG-TERM LOSS SECURITIES FOR FEDERAL
INCOME GAIN CARRYFORWARD 1,2,3,4 INCOME TAX PURPOSES
-----------------------------------------------------------------------
$43,094,421 $-- $110,971,355 $341,687,275
1. As of August 31, 2003, the Fund had $105,823,276 of net capital loss
carryforward available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of August 31, 2003,
details of the capital loss carryforward were as follows:
EXPIRING
----------------------
2011 $105,823,276
2. During the fiscal years ended August 31, 2003 and August 31, 2002, the Fund
did not utilize any capital loss carryforwards.
3. As of August 31, 2003, the Fund had $19,699 of post-October foreign currency
losses which were deferred.
4. The Fund had $5,128,380 of straddle losses which were deferred.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from 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
35 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
fiscal year in which the income or net realized gain was recorded by the Fund.
Accordingly, the following amounts have been reclassified for August 31, 2003.
Net assets of the Fund were unaffected by the reclassifications.
FROM FROM NET
ORDINARY CAPITAL TAX RETURN INVESTMENT
INCOME LOSS OF CAPITAL LOSS
------------------------------------------------------
$933 $933 $-- $--
The tax character of distributions paid during the years ended August 31, 2003
and August 31, 2002 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2003 AUGUST 31, 2002
------------------------------------------------------
Distributions paid from:
Ordinary income $95,741,723 $118,904,111
Long-term capital gain -- 71,134,300
-----------------------------
Total $95,741,723 $190,038,411
=============================
The aggregate cost of investments and the composition of unrealized appreciation
and depreciation of investments for federal income tax purposes as of August 31,
2003 are noted below. The primary difference between book and tax appreciation
or depreciation of investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.
Federal tax cost $2,442,759,078
==============
Gross unrealized appreciation $ 399,784,768
Gross unrealized depreciation 58,097,493
--------------
Net unrealized appreciation $ 341,687,275
==============
- --------------------------------------------------------------------------------
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. Income distributions, if any, are declared
and paid quarterly. Capital gain distributions, if any, are declared and paid
annually.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees represents earnings
on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
36 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED AUGUST 31, 2003 YEAR ENDED AUGUST 31, 2002
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
CLASS A
Sold 23,888,388 $ 242,116,329 18,148,756 $ 206,380,355
Dividends and/or
distributions reinvested 7,646,622 75,313,569 12,606,412 145,364,495
Redeemed (33,503,854) (331,438,565) (32,149,618) (352,649,545)
------------------------------------------------------------
Net decrease (1,968,844) $ (14,008,667) (1,394,450) $ (904,695)
============================================================
- ----------------------------------------------------------------------------------------
CLASS B
Sold 7,062,687 $ 71,550,088 6,320,365 $ 70,958,107
Dividends and/or
distributions reinvested 1,076,863 10,485,911 2,201,008 25,204,122
Redeemed (11,099,686) (108,873,288) (12,525,612) (137,762,201)
------------------------------------------------------------
Net decrease (2,960,136) $ (26,837,289) (4,004,239) $ (41,599,972)
============================================================
- ----------------------------------------------------------------------------------------
CLASS C
Sold 2,646,850 $ 27,258,931 1,886,328 $ 21,124,579
Dividends and/or
distributions reinvested 249,803 2,435,681 432,179 4,940,085
Redeemed (1,972,656) (19,289,467) (1,891,475) (20,385,958)
------------------------------------------------------------
Net increase 923,997 $ 10,405,145 427,032 $ 5,678,706
============================================================
- ----------------------------------------------------------------------------------------
CLASS N
Sold 531,993 $ 5,367,224 472,713 $ 5,351,965
Dividends and/or
distributions reinvested 21,477 213,022 14,683 167,638
Redeemed (163,690) (1,642,897) (119,826) (1,300,988)
------------------------------------------------------------
Net increase 389,780 $ 3,937,349 367,570 $ 4,218,615
============================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2003, were
$3,232,081,943 and $3,364,326,809, respectively.
37 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 at an
annual rate of 0.75% of the first $100 million of average annual net assets of
the Fund, 0.70% of the next $100 million, 0.65% of the next $100 million, 0.60%
of the next $100 million, 0.55% of the next $100 million and 0.50% of average
annual net assets in excess of $500 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended August 31, 2003, the Fund paid
$3,782,725 to OFS for services to the Fund.
OFS has voluntarily agreed to limit transfer and shareholder servicing agent
fees for all classes, up to an annual rate of 0.35% of average net assets per
class. This undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12B-1) FEES. Under its General Distributor's
Agreement with the Manager, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
AGGREGATE CLASS A CONCESSIONS CONCESSIONS CONCESSIONS CONCESSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C ON CLASS N
SALES CHARGES SALES CHARGES SHARES SHARES SHARES SHARES
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, 2003 $1,898,819 $492,515 $236,351 $1,420,826 $146,356 $40,439
1. The Distributor advances concession payments to dealers for certain sales of
Class A shares and for sales of Class B, Class C and Class N shares from its own
resources at the time of sale.
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, 2003 $18,476 $759,454 $7,861 $14,754
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
Shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. For the year ended August 31, 2003, expense under
the Class A Plan totaled $4,448,938, all of which were paid by the Distributor
to recipients, which included $14,945 retained by the Distributor and $304,815
which was 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.
38 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares. Under the plans, the Fund pays the Distributor an annual asset-based
sales charge of 0.75% per year on Class B shares and on Class C shares and the
Fund pays the Distributor an annual asset-based sales charge of 0.25% per year
on Class N shares. The Distributor also receives a service fee of 0.25% per year
under each plan.
Distribution fees paid to the Distributor for the year ended August 31, 2003,
were as follows:
DISTRIBUTOR'S
DISTRIBUTOR'S AGGREGATE
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
- -------------------------------------------------------------------------------------
Class B Plan $3,124,136 $2,435,096 $10,037,366 2.93%
Class C Plan 754,007 127,414 2,453,816 2.62
Class N Plan 29,774 23,557 191,036 2.12
- --------------------------------------------------------------------------------
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 to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. 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 prevailing foreign currency exchange rates.
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 transaction. Contracts closed or settled with the same broker are
recorded as net realized gain or loss. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of August 31, 2003, the Fund had no outstanding foreign currency
contracts.
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
"financial futures" or debt securities "interest rate futures" in order to gain
exposure to or protection from changes in market value of stock and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.
39 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying fixed income
securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities (initial margin) in an amount equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or has expired.
Cash held by the broker to cover initial margin requirements on open futures
contracts is noted in the Statement of Assets and Liabilities. Securities held
in collateralized accounts to cover initial margin requirements on open futures
contracts are noted in the Statement of Investments. The Statement of Assets and
Liabilities reflects a receivable and/or payable for the daily mark to market
for variation margin. Realized gains and losses are reported on the Statement of
Operations as closing and expiration of futures contracts. The net change in
unrealized appreciation and depreciation is reported on the Statement of
Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of August 31, 2003, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2003 (DEPRECIATION)
- --------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Treasury Nts., 5 yr. 12/19/03 25 $ 2,746,484 $ 8,890
--------------
CONTRACTS TO SELL
U.S. Long Bonds 12/19/03 250 26,500,000 (380,750)
U.S. Treasury Nts., 2 yr. 12/29/03 1 213,047 90
U.S. Treasury Nts., 10 yr. 12/19/03 144 15,799,500 (85,243)
--------------
(465,903)
--------------
$(457,013)
==============
- --------------------------------------------------------------------------------
7. 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.
40 | OPPENHEIMER CAPITAL INCOME FUND
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
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, 2003 was as follows:
CALL OPTIONS PUT OPTIONS
----------------------- ------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ----------------------------------------------------------------------------------
Options outstanding as of
August 31, 2002 2,000 $ 337,870 21,072 $10,362,607
Options written 346,395 34,208,363 294,562 57,285,433
Options closed or expired (259,400) (22,144,196) (244,585) (51,237,049)
Options exercised (53,158) (7,839,841) (15,193) (6,380,809)
----------------------------------------------------
Options outstanding as of
August 31, 2003 35,837 $ 4,562,196 55,856 $10,030,182
====================================================
- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP TRANSACTIONS
The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to interest
income, in the amount due to or owed by the Fund at termination or settlement.
Total return swaps are subject to risks (if the counterparty fails to meet its
obligations).
41 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP TRANSACTIONS Continued
As of August 31, 2003, the Fund had entered into the following total return swap
agreement:
PAID BY RECEIVED BY
THE FUND AT THE FUND AT
SWAP AUGUST 31, AUGUST 31, TERMINATION UNREALIZED
COUNTERPARTY NOTIONAL 2003 2003 DATE APPRECIATION
- -------------------------------------------------------------------------------------------
Value of total
Six-Month return of
LIBOR less 40 Lehman Brothers
Deutsche Bank $11,892,000 basis points CMBS Index 12/31/03 $70,072
- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES
As of August 31, 2003, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 10% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of August
31, 2003 was $47,437,148, which represents 1.84% of the Fund's net assets.
- --------------------------------------------------------------------------------
10. BORROWING AND LENDING ARRANGEMENTS
The Fund entered into an "interfund borrowing and lending arrangement" with
other funds in the Oppenheimer funds complex, to allow funds to borrow for
liquidity purposes. The arrangement was initiated pursuant to exemptive relief
granted by the Securities and Exchange Commission to allow these affiliated
funds to lend money to, and borrow money from, each other, in an attempt to
reduce borrowing costs below those of bank loan facilities. Under the
arrangement the Fund may lend money to other Oppenheimer funds and may borrow
from other Oppenheimer funds at a rate set by the Fund's Board of Trustees,
based upon a recommendation by the Manager. The Fund's borrowings, if any, are
subject to asset coverage requirements under the Investment Company Act and the
provisions of the SEC order and other applicable regulations. If the Fund
borrows money, there is a risk that the loan could be called on one day's
notice, in which case the Fund might have to borrow from a bank at higher rates
if a loan were not available from another Oppenheimer fund. If the Fund lends
money to another fund, it will be subject to the risk that the other fund might
not repay the loan in a timely manner, or at all.
The Fund had no interfund borrowings or loans outstanding during the year
ended or at August 31, 2003.
42 | OPPENHEIMER CAPITAL INCOME FUND
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO 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, 2003, 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, 2003, 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, 2003, 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
October 15, 2003
43 | OPPENHEIMER CAPITAL INCOME FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2004, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2003. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends paid by the Fund during the fiscal year ended August 31, 2003 which
are not designated as capital gain distributions should be multiplied by 31.59%
to arrive at the amount eligible for the corporate dividend-received deduction.
A portion of the dividends paid by the Fund during the fiscal year ended
August 31, 2003 which are not designated as capital gain distributions are
eligible for lower individual income tax rates to the extent that the Fund has
received qualified dividend income as stipulated by recent tax legislation.
$47,816,014 of the Fund's fiscal year taxable income is eligible for the lower
individual income tax rates. In early 2004, shareholders of record will receive
information regarding the percentage of distributions that are eligible for
lower individual income tax rates.
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.
- --------------------------------------------------------------------------------
PORTFOLIO PROXY VOTING
POLICIES AND PROCEDURES Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.225.5677, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund will be
required to file new Form N-PX, with its complete proxy voting record for the 12
months ended June 30th, no later than August 31st of each year. The first such
filing is due no later than August 31, 2004, for the twelve months ended June
30, 2004. Once filed, the Fund's Form N-PX filing will be available (i) without
charge, upon request, by calling the Fund toll-free at 1.800.225.5677, and (ii)
on the SEC's website at www.sec.gov.
44 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS; OTHER
FUND, LENGTH OF SERVICE, AGE TRUSTEESHIPS/DIRECTORSHIPS HELD BY TRUSTEE; NUMBER OF
PORTFOLIOS IN FUND COMPLEX CURRENTLY OVERSEEN BY
TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803
TRUSTEES S. TUCSON WAY, CENTENNIAL, CO 80112-3924. EACH TRUSTEE
SERVES FOR AN INDEFINITE TERM, UNTIL HIS OR HER
RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
JAMES C. SWAIN, Formerly, Chief Executive Officer (until August 27,
Chairman and Trustee 2002) of the Board II Funds, Vice Chairman (until
(since 1970) January 2, 2002) of OppenheimerFunds, Inc. (the
Age: 69 Manager) and President and a director (until 1997) of
Centennial Asset Management Corporation (a wholly-owned
investment advisory subsidiary of the Manager).
Oversees 43 portfolios in the OppenheimerFunds complex.
WILLIAM L. ARMSTRONG, Chairman of the following private mortgage banking
Vice Chairman and Trustee companies: Cherry Creek Mortgage Company (since 1991),
(since 1999) Centennial State Mortgage Company (since 1994), The El
Age: 66 Paso Mortgage Company (since 1993), Transland Financial
Services, Inc. (since 1997); Chairman of the following
private companies: Great Frontier Insurance (insurance
agency) (since 1995), Ambassador Media Corporation and
Broadway Ventures (since 1984); a director of the
following public companies: Helmerich & Payne, Inc.
(oil and gas drilling/production company) (since 1992)
and UNUMProvident (insurance company) (since 1991). Mr.
Armstrong is also a Director/Trustee of Campus Crusade
for Christ and the Bradley Foundation. Formerly a
director of the following: Storage Technology
Corporation (a publicly-held computer equipment
company) (1991-February 2003), and International Family
Entertainment (television channel) (1992-1997),
Frontier Real Estate, Inc. (residential real estate
brokerage) (1994-1999), and Frontier Title (title
insurance agency) (1995-June 1999); a U.S. Senator
(January 1979-January 1991). Oversees 43 portfolios in
the OppenheimerFunds complex.
ROBERT G. AVIS, Formerly, Director and President of A.G. Edwards
Trustee (since 1993) Capital, Inc. (General Partner of private equity funds)
Age: 72 (until February 2001); Chairman, President and Chief
Executive Officer of A.G. Edwards Capital, Inc. (until
March 2000); Vice Chairman and Director of A.G.
Edwards, Inc. and Vice Chairman of A.G. Edwards & Sons,
Inc. (its brokerage company subsidiary) (until March
1999); Chairman of A.G. Edwards Trust Company and
A.G.E. Asset Management (investment advisor) (until
March 1999); and a Director (until March 2000) of A.G.
Edwards & Sons and A.G. Edwards Trust Company. Oversees
43 portfolios in the OppenheimerFunds complex.
GEORGE C. BOWEN, Formerly (until April 1999): Senior Vice President
Trustee (since 1997) (from September 1987) and Treasurer (from March 1985)
Age: 66 of the Manager; Vice President (from June 1983) and
Treasurer (since March 1985) of OppenheimerFunds
Distributor, Inc. (a subsidiary of the Manager); Senior
Vice President (since February 1992), Treasurer (since
July 1991) Assistant Secretary and a director (since
December 1991) of Centennial Asset Management
Corporation; Vice President (since October 1989) and
Treasurer (since April 1986) of HarbourView Asset
Management Corporation (an investment advisory
subsidiary of the Manager); President, Treasurer and a
director (June 1989-January 1990) of Centennial Capital
Corporation (an investment advisory subsidiary of the
Manager); Vice President and Treasurer (since August
1978) and Secretary (since April 1981) of Shareholder
Services, Inc. (a transfer agent subsidiary of the
Manager); Vice President, Treasurer and Secretary
(since November 1989) of Shareholder Financial
Services, Inc. (a transfer agent subsidiary of the
Manager); Assistant Treasurer (since March 1998) of
Oppenheimer Acquisition Corp. (the Manager's parent
corporation); Treasurer (since November 1989) of
Oppenheimer Partnership Holdings, Inc. (a holding
company subsidiary of the Manager); Vice President and
Treasurer (since July
45 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- -------------------------------------------------------
GEORGE C. BOWEN, 1996) of Oppenheimer Real Asset Management, Inc. (an
Continued investment advisory subsidiary of the Manager); Chief
Executive Officer and director (since March 1996) of
MultiSource Services, Inc. (a broker-dealer subsidiary
of the Manager); Treasurer (since October 1997) of
OppenheimerFunds International Ltd. and
OppenheimerFunds plc (offshore fund management
subsidiaries of the Manager). Oversees 43 portfolios in
the OppenheimerFunds complex.
EDWARD L. CAMERON, A member of The Life Guard of Mount Vernon, George
Trustee (since 1999) Washington's home (since June 2000). Formerly (March
Age: 65 2001 - May 2002) Director of Genetic ID, Inc. and its
subsidiaries (a privately held biotech company); a
partner with PricewaterhouseCoopers LLP (from
1974-1999) (an accounting firm) and Chairman (from
1994-1998), Price Waterhouse LLP Global Investment
Management Industry Services Group. Oversees 43
portfolios in the OppenheimerFunds complex.
JON S. FOSSEL, Chairman and Director (since 1998) of Rocky Mountain
Trustee (since 1990) Elk Foundation (a not-for-profit foundation); and a
Age: 61 director (since October 1999) of P.R. Pharmaceuticals
(a privately held company) and UNUMProvident (an
insurance company) (since June 1, 2002). Formerly
Chairman and a director (until October 1996) and
President and Chief Executive Officer (until October
1995) of the Manager; President, Chief Executive
Officer and a director of Oppenheimer Acquisition
Corp., Shareholders Services Inc. and Shareholder
Financials Services, Inc. (until October 1995).
Oversees 43 portfolios in the OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado Uplift (a non-profit charity)
Trustee (since 1996) (since September 1984). Formerly (until October 1994)
Age: 62 Mr. Freedman held several positions in subsidiary or
affiliated companies of the Manager. Oversees 43
portfolios in the OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee (since 1996) of MassMutual Institutional Funds
Trustee (since 2002) and of MML Series Investment Fund (open-end investment
Age: 56 companies); Director of MML Services (since April 1987)
and America Funds Emerging Markets Growth Fund (since
October 1991) (both are investment companies), The
California Endowment (a philanthropy organization)
(since April 2002), and Community Hospital of Monterey
Peninsula, (since February 2002); a trustee (since
February 2000) of Monterey International Studies (an
educational organization), and an advisor to Unilever
(Holland)'s pension fund and to Credit Suisse First
Boston's Sprout venture capital unit. Mrs. Hamilton
also is a member of the investment committees of the
Rockefeller Foundation, the University of Michigan and
Hartford Hospital. Formerly, President (February
1991-April 2000) ARCO Investment Management Company.
Oversees 44 portfolios in the OppenheimerFunds complex.
ROBERT J. MALONE, Chairman and CEO (since August 2003) of Steele Street
Trustee (since 2002) Bank (a commercial bank entity), Director (since 2001)
Age: 59 of Jones Knowledge, Inc. (a privately held company),
U.S. Exploration, Inc., (since 1997), Colorado UpLIFT
(a non-profit organization) (since 1986) and a trustee
of the Gallagher Family Foundation (non-profit
organization) (since 2000). Formerly, Chairman of U.S.
Bank (a subsidiary of U.S. Bancorp and formerly
Colorado National Bank) (July 1996-April 1, 1999) and a
director of Commercial Assets, Inc. (a REIT)
(1993-2000). Oversees 44 portfolios in the
OppenheimerFunds complex.
46 | OPPENHEIMER CAPITAL INCOME FUND
F. WILLIAM MARSHALL, JR., Trustee (since 1996) of MassMutual Institutional Funds
Trustee (since 2000) and of MML Series Investment Fund (open-end investment
Age: 61 companies); Trustee (since 1987), Chairman of the Board
(since 2003) and Chairman of the investment committee
(since 1994) for the Worcester Polytech Institute;
President and Treasurer (since January 1999) of the SIS
Fund (a private not for profit charitable fund);
Trustee (since 1995) of the Springfield Library and
Museum Association; Trustee (since 1996) of the
Community Music School of Springfield. Formerly, member
of the investment committee of the Community Foundation
of Western Massachusetts (1998 - 2003); Chairman
(January 1999-July 1999) of SIS & Family Bank, F.S.B.
(formerly SIS Bank); President, Chief Executive Officer
and Director (May 1993-December 1998) of SIS Bankcorp,
Inc. and SIS Bank (formerly Springfield Institution for
Savings) and Executive Vice President (January
1999-July 1999) of Peoples Heritage Financial Group,
Inc. Oversees 43 portfolios in the OppenheimerFunds
complex.
- ------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS 498
AND OFFICER SEVENTH AVENUE, NEW YORK, NY 10018. MR. MURPHY SERVES
FOR AN INDEFINITE TERM, UNTIL HIS RESIGNATION, DEATH OR
REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director (since
President and Trustee June 2001) and President (since September 2000) of the
(since 2001) Manager; President and a director or trustee of other
Age: 54 Oppenheimer funds; President and a director (since July
2001) of Oppenheimer Acquisition Corp. and of
Oppenheimer Partnership Holdings, Inc.; a director
(since November 2001) of OppenheimerFunds Distributor,
Inc.; Chairman and a director (since July 2001) of
Shareholder Services, Inc. and of Shareholder Financial
Services, Inc.; President and a director (since July
2001) of OppenheimerFunds Legacy Program (a charitable
trust program established by the Manager); a director
of the following investment advisory subsidiaries of
OppenheimerFunds, Inc.: OFI Institutional Asset
Management, Inc. and Centennial Asset Management
Corporation (since November 2001), HarbourView Asset
Management Corporation and OFI Private Investments,
Inc. (since July 2001); President (since November 1,
2001) and a director (since July 2001) of Oppenheimer
Real Asset Management, Inc.; a director (since November
2001) of Trinity Investment Management Corp. and
Tremont Advisers, Inc. (investment advisory affiliates
of the Manager); Executive Vice President (since
February 1997) of Massachusetts Mutual Life Insurance
Company (the Manager's parent company); a director
(since June 1995) of DLB Acquisition Corporation (a
holding company that owns shares of David L. Babson &
Company, Inc.); formerly, Chief Operating Officer
(September 2000-June 2001) of the Manager; President
and trustee (November 1999-November 2001) of MML Series
Investment Fund and MassMutual Institutional Funds
(open-end investment companies); a director (September
1999-August 2000) of C.M. Life Insurance Company;
President, Chief Executive Officer and director
(September 1999-August 2000) of MML Bay State Life
Insurance Company; a director (June 1989-June 1998) of
Emerald Isle Bancorp and Hibernia Savings Bank (a
wholly-owned subsidiary of Emerald Isle Bancorp).
Oversees 75 portfolios in the OppenheimerFunds complex.
47 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- -------------------------------------------------------
- ------------------------------------------------------------------------------------------
OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS AS
FOLLOWS: FOR MESSRS. LEVINE AND ZACK, 498 SEVENTH
AVENUE, NEW YORK, NY 10018, FOR MR. WIXTED, 6803 S.
TUCSON WAY, CENTENNIAL, CO 80112-3924. EACH OFFICER
SERVES FOR AN ANNUAL TERM OR UNTIL HIS OR HER EARLIER
RESIGNATION, DEATH OR REMOVAL.
MICHAEL S. LEVINE, Vice President (since June 1998) of the Manager; an
Vice President (since 1999) officer of 1 portfolio in the OppenheimerFunds complex;
Age: 37 formerly Assistant Vice President and Portfolio Manager
of the Manager (April 1996 - June 1998).
BRIAN W. WIXTED, Senior Vice President and Treasurer (since March 1999)
Treasurer (since 1999) of the Manager; Treasurer (since March 1999) of
Age: 43 HarbourView Asset Management Corporation, Shareholder
Services, Inc., Oppenheimer Real Asset Management
Corporation, Shareholder Financial Services, Inc.,
Oppenheimer Partnership Holdings, Inc., OFI Private
Investments, Inc. (since March 2000), OppenheimerFunds
International Ltd. and OppenheimerFunds plc (offshore
fund management subsidiaries of the Manager) (since May
2000) and OFI Institutional Asset Management, Inc.
(since November 2000); Treasurer and Chief Financial
Officer (since May 2000) of Oppenheimer Trust Company
(a trust company subsidiary of the Manager); Assistant
Treasurer (since March 1999) of Oppenheimer Acquisition
Corp. and OppenheimerFunds Legacy Program (since April
2000); formerly Principal and Chief Operating Officer
(March 1995-March 1999), Bankers Trust Company-Mutual
Fund Services Division. An officer of 91 portfolios in
the OppenheimerFunds complex.
ROBERT G. ZACK, Senior Vice President (since May 1985) and General
Vice President & Secretary Counsel (since February 2002) of the Manager; General
(since 2001) Counsel and a director (since November 2001) of
Age: 55 OppenheimerFunds Distributor, Inc.; Senior Vice
President and General Counsel (since November 2001) of
HarbourView Asset Management Corporation; Vice
President and a director (since November 2000) of
Oppenheimer Partnership Holdings, Inc.; Senior Vice
President, General Counsel and a director (since
November 2001) of Shareholder Services, Inc.,
Shareholder Financial Services, Inc., OFI Private
Investments, Inc., Oppenheimer Trust Company and OFI
Institutional Asset Management, Inc.; General Counsel
(since November 2001) of Centennial Asset Management
Corporation; a director (since November 2001) of
Oppenheimer Real Asset Management, Inc.; Assistant
Secretary and a director (since November 2001) of
OppenheimerFunds International Ltd.; Vice President
(since November 2001) of OppenheimerFunds Legacy
Program; Secretary (since November 2001) of Oppenheimer
Acquisition Corp.; formerly Acting General Counsel
(November 2001-February 2002) and Associate General
Counsel (May 1981-October 2001) of the Manager;
Assistant Secretary of Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services,
Inc. (November 1989-November 2001); OppenheimerFunds
International Ltd. And OppenheimerFunds plc (October
1997-November 2001). An officer of 91 portfolios in the
OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST.
48 | OPPENHEIMER CAPITAL INCOME FUND
ITEM 2. CODE OF ETHICS
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Fund has determined that Edward L. Cameron, the
Chairman of the Board's Audit Committee, and George C. Bowen, a member of the
Board's Audit Committee, possess the technical attributes identified in
Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit committee
financial experts," and has designated Messrs. Cameron and Bowen as the Audit
Committee's financial experts. Messrs. Cameron and Bowen are "independent"
Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES - NOT REQUIRED
ITEM 5. NOT APPLICABLE
ITEM 6. RESERVED
ITEM 7. NOT APPLICABLE
ITEM 8. RESERVED
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of August 31, 2003, registrant's
principal executive officer and principal financial officer found
registrant's disclosure controls and procedures to be appropriately
designed to ensure that information required to be disclosed by
registrant in the reports that it files under the Securities Exchange
Act of 1934 (a) is accumulated and communicated to registrant's
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 registrant's internal
controls or in other factors that could significantly affect
registrant's internal controls subsequent to the date of the most
recent evaluation as indicated, including no significant deficiencies
or material weaknesses that required corrective action.
ITEM 10. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)