<PAGE> 1
ANNUAL REPORT AUGUST 31, 2000
OPPENHEIMER
CAPITAL INCOME FUND
[PHOTO]
[OPPENHEIMER FUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE> 2
CONTENTS
1 President's Letter
3 An Interview
with Your Fund's
Managers
8 Fund Performance
13 FINANCIAL
STATEMENTS
38 INDEPENDENT
AUDITORS' REPORT
39 Federal
Income Tax
Information
40 Officers and Trustees
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
WE TOOK ADVANTAGE OF CONVERTIBLE SECURITIES TO GAIN EXPOSURE TO GROWTH EQUITY
MARKETS, as well as ongoing income.
Many investors appear to be SEARCHING FOR ATTRACTIVE VALUATIONS IN THE CURRENT
MARKET.
AVERAGE ANNUAL
TOTAL RETURNS*
For the 1-Year Period
Ended 8/31/00*
Class A
Without With
Sales Chg. Sales Chg.
------------------------
7.24% 1.07%
Class B
Without With
Sales Chg. Sales Chg.
------------------------
6.34% 1.61%
Class C
Without With
Sales Chg. Sales Chg.
------------------------
6.40% 5.46%
*SEE NOTES ON PAGE 12 FOR FURTHER DETAILS.
<PAGE> 3
[PHOTO]
JAMES C. SWAIN
Chairman
Oppenheimer
Capital Income Fund
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
Capital Income Fund
PRESIDENT'S LETTER
--------------------------------------------------------------------------------
Dear Shareholder,
Over the past several decades, our investment teams have learned the importance
of avoiding complacency when it comes to navigating the financial
markets--especially when times are good. Right now, times appear particularly
good. The U.S. economy is in its tenth year of expansion. In the bond market,
U.S. Treasury issues have been performing favorably over the past year. In
addition, despite volatility in the second quarter, the stock market has been
providing attractive returns from a wide spectrum of industry sectors,
capitalization ranges and investment styles.
We have arrived at this juncture after months of monitoring the rapid
pace of global economic growth and its implications for inflation, as well as
the Federal Reserve Board's evolving monetary policy. At this point, economic
indicators suggest a dampening of short-term inflationary pressures. While
recent increases in oil prices are certainly taking their toll, we don't believe
this signals a return to 1970's-style inflation. Accordingly, if the Fed
continues in its diligence, the economy could maintain its healthy rate of
growth.
In the bond market, the achievement of a federal budget surplus has
prompted the Treasury to buy back many of its long-term securities. The
resulting supply shortage boosted these securities' returns, causing an
inversion of the yield curve-- an unusual situation in which shorter term
Treasuries yield more than their longer term counterparts. Other bond sectors
are offering many opportunities in the form of attractive valuations.
Perhaps most important is that we have begun to see encouraging signs in
the stock market. Formerly high-flying Internet stocks have generally come down
to earth, and investors have
1 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 4
begun to refocus on companies with strong business fundamentals and justifiable
valuations. Investors have also returned to long-neglected, value-oriented
companies.
What else do these various trends tell us? They tell us that the ability
to discriminate between long-term potential and short-lived fads has become more
critical than ever. Trying to generate good long-term performance requires
tracking the best companies through intensive research, combined with
hard-earned experience.
At OppenheimerFunds, our seasoned portfolio management teams fight
complacency by remaining constantly aware of the risks that face the economy and
financial markets. Virtually anything could affect the overall markets--a surge
in inflation, a decline in productivity, deteriorating corporate earnings, or
even the new Administration's proposals regarding tax reform, healthcare and
Social Security. However, by remaining vigilant in our quest for fundamentally
sound businesses, we believe we can find good investments that can weather
market volatility.
In this environment, we encourage you to consult your financial advisor
and to stay on track with your long-term financial plan. For our part, we will
continue to monitor the opportunities and risks ever present in the financial
markets. Thank you for your confidence in OppenheimerFunds, The Right Way to
Invest.
Sincerely,
/s/ JAMES C. SWAIN /s/ BRIDGET A. MACASKILL
James C. Swain Bridget A. Macaskill
September 22, 2000
THESE GENERAL MARKET VIEWS REPRESENT OPINIONS OF OPPENHEIMERFUNDS, INC.
AND ARE NOT INTENDED TO PREDICT OR DEPICT PERFORMANCE OF THE SECURITIES MARKETS
OR ANY PARTICULAR FUND. SPECIFIC DISCUSSION, AS IT APPLIES TO YOUR FUND, IS
CONTAINED IN THE PAGES THAT FOLLOW. STOCKS AND BONDS HAVE DIFFERENT TYPES OF
INVESTMENT RISKS; STOCKS ARE SUBJECT TO MARKET VOLATILITY AND BONDS ARE SUBJECT
TO CREDIT AND INTEREST RATE RISKS.
2 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 5
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
John Doney
Michael Levine
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM OVER THE FISCAL YEAR ENDED AUGUST 31, 2000?
A. Oppenheimer Capital Income Fund achieved its primary goal of providing income
to shareholders by maintaining its targeted dividend level over the one-year
period. The Fund's secondary objectives are to preserve capital and provide
capital appreciation. Both of these objectives were also met. Preservation of
shareholder capital was achieved over the period, and the Fund provided
reasonable capital appreciation during the second half of its fiscal year.
WHAT WERE THE MARKET CONDITIONS THAT MADE MANAGING THE FUND SO DIFFICULT THIS
YEAR?
Essentially, the Fund operated in two distinct markets. Over the first six
months of the reporting period, we experienced a market in which most value
stocks, the type of securities in which the Fund typically invests, suffered
severe declines. In the second half of the period, many of these stocks
rebounded as investors began to realize that many of them were undervalued,
given their current earnings and prospects for future growth.
WHY DO YOU BELIEVE THE MARKET BEHAVED AS IT DID?
During the first six months of the reporting period, we witnessed an enormous
disparity between the performance of value and growth stocks. Growth stocks were
propelled primarily by the technology sector, which experienced tremendous
growth in revenues and future business prospects. As investor sentiment grew
more feverish, value stocks declined--although, in most cases, their earnings
remained as solid as ever.
3 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 6
"We believe that recent market events have helped to turn investor attention
back to the solid fundamentals of value stocks."
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
By March 2000, valuations in technology stocks had risen to such heights that
investors became concerned that such prices might not be sustainable. Due to
these concerns about valuation, and because of an absence of meaningful earnings
in many technology stocks, many investors reduced their growth positions and
turned their attention to value stocks. Another factor that contributed to this
change in investor attitude was the anti-trust case against Microsoft Corp.,
which compelled the market to reexamine the risks of holding technology stocks.
A third event that significantly affected the environment was the widespread
opinion among investors that perhaps the Federal Reserve (the Fed) had finally
ended its series of interest rate increases for the near future. All of these
factors have affected the market of late, potentially increasing investors'
focus on value stocks.
DID YOU DO ANYTHING TO ADAPT TO THIS INVESTMENT ENVIRONMENT?
During the first half of the reporting period, we took measures to help
compensate for the wide disparity between growth and value. We shifted the
Fund's exposure by a small degree to the technology and broadcasting sectors of
the market, which are traditionally growth areas. We accomplished this by buying
stocks and purchasing convertible securities. Holding convertible securities
permitted the Fund to assume an equity position while generating meaningful
income. Apart from this move, we did not believe we could improve performance by
simply moving out of one value sector and into another. Even though earnings
were frequently solid, value stocks as a group were declining. No one industry
fared significantly better than any other.
4 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 7
AVERAGE ANNUAL TOTAL RETURNS
For the Periods Ended 9/30/00(1)
<TABLE>
<CAPTION>
Class A
1-Year 5-Year 10-Year
<S> <C> <C>
4.96% 11.84% 12.04%
</TABLE>
<TABLE>
<CAPTION>
Class B Since
1-Year 5-Year Inception
<S> <C> <C>
5.57% 12.01% 11.47%
</TABLE>
<TABLE>
<CAPTION>
Class C Since
1-Year 5-Year Inception
<S> <C> <C>
9.58% N/A 12.69%
</TABLE>
WHAT ABOUT THE LAST SIX MONTHS OF THE REPORTING PERIOD? WHICH SECTORS OR
INDIVIDUAL HOLDINGS PROVED TO BE YOUR TOP PERFORMERS?
Interestingly, some of the sectors that performed negatively from September to
February proved to be our biggest contributors during the turnaround we enjoyed
from March to August. The tobacco industry, for one, which suffered from the
same condition that affected virtually all value stocks last fall, was also hurt
by the aftershocks of a class action lawsuit, in which a Florida jury ruled
against the industry. However, as investors rediscovered value stocks in March
and April, tobacco was at the forefront of the ensuing market rebound.
Furthermore, our sizable position in Nabisco Group Holdings Corp. proved to be
especially fortuitous, as the company was acquired by R.J. Reynolds Tobacco
Holdings, Inc., at a significant premium to its prior trading range.
Another stock market sector that has recovered nicely this year is
utilities--in particular, Enron Corp. and Dynegy, Inc. Both of these companies
are benefitting from the deregulation of the energy market. Rather than generate
and provide power in a limited geographic area, as is the case with traditional
power companies, Enron and Dynegy serve as "energy wholesalers." Such
organizations sell excess power capacity throughout North America.
Lastly, the financial sector also contributed to the Fund's positive
performance. Financial stocks, including banks and insurance companies,
recovered substantially during this period.
1. See page 12 for further details.
5 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 8
AN INTERVIEW WITH YOUR FUND'S MANAGERS
--------------------------------------------------------------------------------
OPPENHEIMER CAPITAL INCOME FUND ALSO INVESTS IN BONDS. WAS THE MARKET FOR BONDS
AS PROBLEMATIC AS THAT FOR EQUITIES?
We had reduced our bond holdings by the middle of 1999 in anticipation of the
likelihood that the Fed would probably raise interest rates. As a result, when
rates did increase, the Fund did not sustain severe negative effects. In the
spring of 2000, the U.S. Treasury began buying back its 30-year securities in an
effort to reduce its debt. As a result, lack of supply in long-term Treasury
bonds pushed up these bonds' prices and decreased their yields. The result was
that shorter term Treasuries offered higher yields than did their longer term
counterparts. We seized this opportunity to increase yield for our shareholders,
while reducing risk, by shortening the duration of the portfolio.
WHAT KIND OF INVESTMENT ENVIRONMENT DO YOU SEE FOR THE FUND IN THE IMMEDIATE
FUTURE?
We're optimistic. We believe there are a large number of undervalued stocks in
the market and that investors will seek them out as alternatives to overpriced
holdings in the technology and Internet sectors. In fact, the flow of funds into
value-oriented mutual funds has improved noticeably over the past few months,
indicating that many investors may be searching for attractive valuations. In
addition, while the Fed may continue to adjust interest rates in the future, its
biggest moves appear to be behind us. This bodes well for banks, the industry in
which the Fund maintains its largest position. In environments such as the
current one, banks tend to benefit from spreads between the relatively low
interest rates they pay on deposits and the higher interest rates they charge on
outstanding loans. Valuations are also attractive throughout the industry, as
many banks are continuing to generate good earnings growth.
6 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 9
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION(2)
[PIE CHART]
<S> <C>
- Stocks 78.7%
- Bonds 21.3
</TABLE>
For these reasons, we believe that Oppenheimer Capital Income Fund will offer
attractive opportunities for income-oriented investors in the coming months.
Providing shareholders with income and offering useful portfolio diversification
are two more reasons why Oppenheimer Capital Income Fund continues to be an
important part of The Right Way to Invest.
<TABLE>
<CAPTION>
TOP FIVE COMMON STOCK INDUSTRIES(3)
-----------------------------------------------------------
<S> <C>
Banks 14.8%
-----------------------------------------------------------
Diversified Financial 5.7
-----------------------------------------------------------
Oil: Domestic 4.8
-----------------------------------------------------------
Gas Utilities 4.5
-----------------------------------------------------------
Insurance 3.9
</TABLE>
<TABLE>
<CAPTION>
TOP TEN COMMON STOCK HOLDINGS(3)
-----------------------------------------------------------
<S> <C>
Citigroup, Inc. 4.0%
-----------------------------------------------------------
Bank of America Corp. 2.4
-----------------------------------------------------------
Clear Channel Communications, Inc. 2.2
-----------------------------------------------------------
Chase Manhattan Corp. 2.0
-----------------------------------------------------------
Dynegy, Inc. 1.9
-----------------------------------------------------------
Enron Corp. 1.8
-----------------------------------------------------------
Fleet Boston Financial Corp. 1.8
-----------------------------------------------------------
First Union Corp. 1.7
-----------------------------------------------------------
Nabisco Group Holdings Corp. 1.6
-----------------------------------------------------------
Philip Morris Cos., Inc. 1.6
-----------------------------------------------------------
</TABLE>
2. Portfolio is subject to change. Percentages are as of August 31, 2000, and
are based on total market value of investments.
3. Portfolio is subject to change. Percentages are as of August 31, 2000, and
are based on net assets.
7 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 10
FUND PERFORMANCE
--------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED?
Below is a discussion, by the Manager, of the Fund's performance during its
fiscal year ended August 31, 2000, followed by a graphical comparison of the
Fund's performance to an appropriate broad-based market index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE. The Fund operated in two distinct
markets during the fiscal year that ended August 31, 2000. Over the first six
months of the reporting period, the market favored growth stocks over the value
stocks in which the Fund invests. Over the second half of the reporting period,
value stocks appreciated, as investors began to realize that many of these
securities were undervalued, given their earnings and future prospects. We
believe this trend will continue, as investors seek alternatives to largely
overpriced holdings in technology and other growth areas.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in Class A, Class B and Class C
shares of the Fund held until August 31, 2000. In the case of Class A shares,
performance is measured over a 10-year period, and in the case of Class B
shares, performance is measured from the inception of the class on August 17,
1993. In the case of Class C shares, performance is measured from the inception
of the class on November 1, 1995. The graphs assume that all dividends and
capital gains distributions were reinvested in additional shares. The graphs
reflect the deduction of the maximum initial sales charge on Class A shares and
the applicable contingent deferred sales charge for Class B and Class C shares.
The Fund's performance is compared to the performance of the Standard &
Poor's (S&P) 500 Index. The S&P 500 Index is a broad-based index of U.S. equity
securities widely regarded as a general measure of the performance of the U.S.
equity securities
8 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 11
market. Index performance reflects the reinvestment of dividends but does not
consider the effect of capital gains or transaction cost, and none of the data
in the graphs shows the effect of taxes. The Fund's performance reflects the
effects of Fund business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund's performance, it must be noted that
the Fund's investments are not limited to the securities in the S&P 500 Index,
which does not include debt securities.
9 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 12
FUND PERFORMANCE
--------------------------------------------------------------------------------
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
-- Oppenheimer Capital Income Fund (Class A)
-- S&P 500
[The following table was originally a linegraph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Capital
Income Fund (Class A) S&P 500
<S> <C>
$10000 $9425
8627 8851
9400 9117
10763 9880
10737 9771
11310 10301
12257 10692
11948 10530
12175 10775
12559 11034
13190 11446
13765 12232
13831 12581
14188 13035
14516 13112
13967 12624
14025 12662
14709 13200
14707 12749
16137 13657
17676 14648
19079 15762
20227 16307
21312 17054
22268 17373
21734 17327
25371 19835
26628 20817
28714 21437
30564 23113
32602 24589
35945 26374
37516 27267
33046 24537
40324 27676
43048 27401
45406 28427
46200 27243
48748 26378
48096 24904
50160 27922
53733 29214
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 8/31/00(2)
1-Year 1.07% 5-Year 12.42% Life 11.71%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
-- Oppenheimer Capital Income Fund (Class B)
-- S&P 500
[The following table was originally a linegraph in the printed materials.]
<TABLE>
<CAPTION>
Oppenheimer Capital
S&P 500 Income Fund (Class B)
<S> <C> <C>
8/17/93 $10000 $10000
9/30/93 10133 10299
12/31/93 10160 10538
3/31/94 9764 10139
6/30/94 9765 10181
9/30/94 10162 10678
12/31/94 9792 10676
3/31/95 10474 11714
6/30/95 11216 12831
9/30/95 12039 13850
12/31/95 12434 14683
3/31/96 12971 15471
6/30/96 13188 16165
8/31/96(1) 13141 15777
11/30/96 15014 18417
2/28/97 15714 19330
5/31/97 16142 20844
8/31/97 17369 22187
11/30/97 18455 23667
2/28/98 19758 26093
5/31/98 20371 27233
8/31/98 18292 23988
11/30/98 20612 29272
2/28/99 20359 31249
5/31/99 21087 32961
8/31/99 20167 33537
11/30/99 19527 35387
2/29/00 18436 34913
5/31/00 20669 36412
8/31/00 21626 39006
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 8/31/00(2)
1-Year 1.61% 5-Year 12.59% Life 11.58%
THE PERFORMANCE INFORMATION FOR S&P 500 IN THE GRAPHS BEGINS ON 6/30/90 FOR
CLASS A, 8/31/93 FOR CLASS B AND 10/31/95 FOR CLASS C.
1. The Fund changed its fiscal year end from 6/30 to 8/31.
2. See page 12 for further details.
10 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 13
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
-- Oppenheimer Capital Income Fund (Class C)
-- S&P 500
<TABLE>
<CAPTION>
Oppenheimer Capital
S&P 500 Income Fund (Class B)
<S> <C>
$10000 $10000
10401 10420
11064 10864
11627 11050
11391 11001
13297 12569
13957 13169
15050 13525
16019 14554
17088 15458
18840 16541
19663 17067
17320 15327
21135 17259
22563 17048
23799 17658
24215 16882
25550 16320
25208 15384
26290 17209
28163 17964
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 8/31/00(2)
1-Year 5.46% Life 12.88%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. GRAPHS ARE NOT DRAWN
TO THE SAME SCALE.
11 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 14
NOTES
--------------------------------------------------------------------------------
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL
VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. THE FUND'S
PERFORMANCE MAY, FROM TIME TO TIME, BE SUBJECT TO SUBSTANTIAL SHORT-TERM
CHANGES, PARTICULARLY DURING PERIODS OF MARKET OR INTEREST RATE VOLATILITY. FOR
QUARTERLY UPDATES ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL
ADVISOR, CALL US AT 1.800.525.7048 OR VISIT OUR WEBSITE AT
WWW.OPPENHEIMERFUNDS.COM.
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not show the effects of income taxes on an individual's investment. Taxes may
reduce your actual investment returns on income or gains paid by the Fund or any
gains you may realize if you sell your shares.
CLASS A The inception date of the Fund was 12/1/70. Unless otherwise noted,
Class A returns include the current maximum initial sales charge of 5.75%. The
Fund's maximum sales charge for Class A shares was higher prior to 10/18/91, so
actual performance may have been higher.
CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the "life-of-class" return for Class B
uses Class A performance for the period after conversion. Class B shares are
subject to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
12 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 15
STATEMENT OF INVESTMENTS August 31, 2000
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--67.1%
------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--2.1%
------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5%
Dexter Corp. 91,500 $ 5,409,937
------------------------------------------------------------------------------------------------------------------------
Engelhard Corp. 485,000 9,093,750
------------
14,503,687
------------------------------------------------------------------------------------------------------------------------
PAPER--1.6%
International Paper Co. 380,560 12,130,350
------------------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.(1) 657,142 8,624,989
------------------------------------------------------------------------------------------------------------------------
Sonoco Products Co. 637,580 12,313,264
------------------------------------------------------------------------------------------------------------------------
Westvaco Corp. 287,450 7,868,944
------------------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co. 122,600 5,677,912
------------
46,615,459
------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.8%
------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
CommScope, Inc.(1) 175,000 4,364,062
------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.6%
Coflexip SA, Sponsored ADR 57,500 3,415,859
------------------------------------------------------------------------------------------------------------------------
Republic Services, Inc.(1) 900,000 13,162,500
------------
16,578,359
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.0%
Cooper Industries, Inc. 137,500 4,855,469
------------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc. 324,200 12,501,962
------------------------------------------------------------------------------------------------------------------------
Mettler-Toledo International, Inc.(1) 125,000 5,914,062
------------------------------------------------------------------------------------------------------------------------
Packaging Corp. of America(1) 425,000 4,967,187
------------------------------------------------------------------------------------------------------------------------
Pall Corp. 692,700 14,806,462
------------------------------------------------------------------------------------------------------------------------
Photronics, Inc.(1) 100,000 2,931,250
------------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. 575,000 32,775,000
------------------------------------------------------------------------------------------------------------------------
Veeco Instruments, Inc.(1) 92,500 8,290,312
------------
87,041,704
------------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--1.6%
------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: LONG DISTANCE--1.3%
AT&T Corp. 150,000 4,725,000
------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., Cl. A(1) 3,279 51,849
------------------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc.(1) 80,000 4,130,000
------------------------------------------------------------------------------------------------------------------------
Sprint Corp. (Fon Group) 375,000 12,562,500
------------------------------------------------------------------------------------------------------------------------
Verizon Communications 347,000 15,137,875
------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc.(1) 67,500 2,463,750
------------
39,070,974
------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--0.3%
SBC Communications, Inc. 245,000 10,228,750
</TABLE>
13 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 16
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS--3.1%
------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.7%
Dana Corp. 100,000 $ 2,468,750
------------------------------------------------------------------------------------------------------------------------
Ford Motor Co. 437,043 10,570,978
------------------------------------------------------------------------------------------------------------------------
Snap-On, Inc. 261,750 8,065,172
------------
21,104,900
------------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.6%
Dun & Bradstreet Corp. 188,200 6,210,600
------------------------------------------------------------------------------------------------------------------------
H&R Block, Inc. 312,500 11,210,937
------------
17,421,537
------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.3%
Harrah's Entertainment, Inc.(1) 200,000 5,675,000
------------------------------------------------------------------------------------------------------------------------
Host Marriott Corp. 160,000 1,710,000
------------
7,385,000
------------------------------------------------------------------------------------------------------------------------
MEDIA--0.5%
Deluxe Corp. 300,000 6,600,000
------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc. 110,000 9,405,000
------------
16,005,000
------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3%
Family Dollar Stores, Inc. 475,000 8,550,000
------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.7%
Abercrombie & Fitch Co., Cl. A(1) 150,000 3,478,125
------------------------------------------------------------------------------------------------------------------------
AutoNation, Inc.(1) 425,000 2,762,500
------------------------------------------------------------------------------------------------------------------------
Circuit City Stores-Circuit City Group 85,000 2,204,687
------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp.(1,2) 1,500,000 8,156,250
------------------------------------------------------------------------------------------------------------------------
Sherwin-Williams Co. 175,000 4,025,000
------------
20,626,562
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.7%
------------------------------------------------------------------------------------------------------------------------
BROADCASTING--3.1%
Charter Communications, Inc., Cl. A (1) 450,000 6,890,625
------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.(1) 888,900 64,334,137
------------------------------------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A Shares(1) 125,000 3,617,187
------------------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., Cl. A(1) 280,000 10,605,000
------------------------------------------------------------------------------------------------------------------------
RCN Corp.(1) 275,000 6,668,750
------------
92,115,699
------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.2%
Viacom, Inc., Cl. B(1) 105,000 7,067,812
------------------------------------------------------------------------------------------------------------------------
FOOD--1.8%
Heinz (H.J.) Co. 175,000 6,671,875
------------------------------------------------------------------------------------------------------------------------
Nabisco Group Holdings Corp. 1,675,000 47,004,687
------------
53,676,562
</TABLE>
14 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 17
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD & DRUG RETAILERS--0.7%
Albertson's, Inc. 75,000 $ 1,612,500
------------------------------------------------------------------------------------------------------------------------
Kroger Co.(1) 235,000 5,331,562
------------------------------------------------------------------------------------------------------------------------
SUPERVALU, Inc. 912,500 13,630,469
------------
20,574,531
------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.9%
Fort James Corp. 600,000 18,975,000
------------------------------------------------------------------------------------------------------------------------
Newell Rubbermaid, Inc. 300,000 7,781,250
------------
26,756,250
------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.0%
Philip Morris Cos., Inc. 1,580,000 46,807,500
------------------------------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc. 250,000 8,968,750
------------------------------------------------------------------------------------------------------------------------
UST, Inc. 200,000 4,325,000
------------
60,101,250
------------------------------------------------------------------------------------------------------------------------
ENERGY--7.0%
------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--1.8%
Coastal Corp. 100,000 6,887,500
------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc. 487,500 18,646,875
------------------------------------------------------------------------------------------------------------------------
ENSCO International, Inc. 60,000 2,392,500
------------------------------------------------------------------------------------------------------------------------
Global Marine, Inc.(1) 187,500 6,058,594
------------------------------------------------------------------------------------------------------------------------
Marine Drilling Cos., Inc.(1) 65,000 1,767,187
------------------------------------------------------------------------------------------------------------------------
Santa Fe International Corp. 290,000 11,400,625
------------------------------------------------------------------------------------------------------------------------
Tidewater, Inc. 125,000 5,046,875
-------------
52,200,156
------------------------------------------------------------------------------------------------------------------------
OIL: DOMESTIC--4.8%
Chevron Corp. 100,000 8,450,000
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. A 350,000 8,815,625
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. B 575,000 15,021,875
------------------------------------------------------------------------------------------------------------------------
EOG Resources, Inc. 200,000 7,650,000
------------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp. 75,000 4,739,062
------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 905,500 19,581,438
------------------------------------------------------------------------------------------------------------------------
Tosco Corp. 245,000 7,472,500
------------------------------------------------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp. 281,000 6,585,938
------------------------------------------------------------------------------------------------------------------------
Unocal Corp. 500,000 16,687,500
------------------------------------------------------------------------------------------------------------------------
USX-Marathon Group 1,079,800 29,627,013
------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp. 521,400 15,707,175
-------------
140,338,126
------------------------------------------------------------------------------------------------------------------------
OIL: INTERNATIONAL--0.4%
Royal Dutch Petroleum Co., NY Shares 200,000 12,237,500
</TABLE>
15 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 18
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL--28.6%
------------------------------------------------------------------------------------------------------------------------
BANKS--14.8%
AmSouth Bancorp 195,000 $ 3,558,750
------------------------------------------------------------------------------------------------------------------------
Bank of America Corp. 1,296,537 69,445,763
------------------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The)(3) 655,000 34,346,563
------------------------------------------------------------------------------------------------------------------------
Bank One Corp.(3) 895,000 31,548,750
------------------------------------------------------------------------------------------------------------------------
Bank United Corp., Cl. A 25,000 1,125,000
------------------------------------------------------------------------------------------------------------------------
Charter One Financial, Inc. 1,000,000 23,750,000
------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. 1,027,500 57,411,563
------------------------------------------------------------------------------------------------------------------------
Commercial Federal Corp. 357,500 6,457,344
------------------------------------------------------------------------------------------------------------------------
Compass Bancshares, Inc. 150,000 2,737,500
------------------------------------------------------------------------------------------------------------------------
First Union Corp. 1,720,000 49,772,500
------------------------------------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 1,220,000 52,078,750
------------------------------------------------------------------------------------------------------------------------
KeyCorp 260,000 5,248,750
------------------------------------------------------------------------------------------------------------------------
Mellon Financial Corp. 725,000 32,806,250
------------------------------------------------------------------------------------------------------------------------
National City Corp. 271,000 5,674,063
------------------------------------------------------------------------------------------------------------------------
PNC Financial Services Group 287,500 16,944,531
------------------------------------------------------------------------------------------------------------------------
Summit Bancorp 685,500 18,979,781
------------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 225,000 11,109,375
------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 200,000 4,350,000
------------------------------------------------------------------------------------------------------------------------
Union Planters Corp. 329,324 9,982,634
------------
437,327,867
------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--5.7%
Anthracite Capital, Inc. 470,600 3,529,500
------------------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A 210,000 5,906,250
------------------------------------------------------------------------------------------------------------------------
C.I.T. Group, Inc., Cl. A 317,500 5,556,250
------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp.(3) 82,500 4,975,781
------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.(3) 2,000,000 116,750,000
------------------------------------------------------------------------------------------------------------------------
Household International, Inc. 644,732 30,947,136
------------
167,664,917
------------------------------------------------------------------------------------------------------------------------
INSURANCE--3.9%
ACE Ltd. 65,000 2,283,125
------------------------------------------------------------------------------------------------------------------------
Aetna, Inc. 293,700 16,428,844
------------------------------------------------------------------------------------------------------------------------
Allstate Corp. 225,000 6,539,063
------------------------------------------------------------------------------------------------------------------------
American General Corp. 535,000 38,954,688
------------------------------------------------------------------------------------------------------------------------
Enhance Financial Services Group, Inc. 703,425 11,078,944
------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 375,000 15,093,750
------------------------------------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 375,000 17,859,375
------------------------------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 92,500 6,376,719
-------------
114,614,508
</TABLE>
16 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 19
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS--2.8%
Archstone Communities Trust 400,000 $ 9,850,000
------------------------------------------------------------------------------------------------------------------------
Avalonbay Communities, Inc. 300,000 13,406,250
------------------------------------------------------------------------------------------------------------------------
Developers Diversified Realty Corp. 100,000 1,450,000
------------------------------------------------------------------------------------------------------------------------
Equity Office Properties Trust 962,945 27,805,037
------------------------------------------------------------------------------------------------------------------------
Equity Residential Properties Trust 375,000 18,000,000
------------------------------------------------------------------------------------------------------------------------
Reckson Associates Realty Corp. 425,000 10,332,813
-------------
80,844,100
------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOANS--1.4%
Dime Bancorp, Inc. 100,000 1,837,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp. 460,000 12,017,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp.(4) 50,000 1,240,938
------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 785,000 27,475,000
-------------
42,570,938
------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--1.3%
------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.3%
Abbott Laboratories 50,000 2,187,500
------------------------------------------------------------------------------------------------------------------------
American Home Products Corp. 450,000 24,384,375
------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 137,500 7,287,500
------------------------------------------------------------------------------------------------------------------------
Pharmacia Corp. 90,000 5,270,625
-------------
39,130,000
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--4.1%
------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--0.1%
Compaq Computer Corp. 70,000 2,384,375
------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--0.2%
First Data Corp. 100,000 4,768,750
------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.9%
Computer Associates International, Inc. 100,000 3,175,000
------------------------------------------------------------------------------------------------------------------------
Microsoft Corp.(1,3) 270,900 18,912,206
------------------------------------------------------------------------------------------------------------------------
Unigraphics Solutions, Inc.(1) 215,000 4,420,938
-------------
26,508,144
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Antec Corp.(1) 100,000 3,606,250
------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--2.1%
Amkor Technology, Inc.(1) 200,000 6,825,000
------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc.(1) 64,900 5,601,681
------------------------------------------------------------------------------------------------------------------------
DuPont Photomasks, Inc.(1) 50,000 3,793,750
------------------------------------------------------------------------------------------------------------------------
Motorola, Inc.(3) 490,800 17,699,475
</TABLE>
17 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 20
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS Continued
National Semiconductor Corp.(1) 62,500 $ 2,781,250
--------------------------------------------------------------------------------------------------------------------------------
Waters Corp.(1,3) 300,000 23,868,750
----------------
60,569,906
--------------------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY--0.7%
Eastman Kodak Co. 350,000 21,787,500
--------------------------------------------------------------------------------------------------------------------------------
UTILITIES--6.8%
--------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.3%
Florida Progress Corp. 425,100 22,052,063
--------------------------------------------------------------------------------------------------------------------------------
PPL Corp. 150,000 5,025,000
--------------------------------------------------------------------------------------------------------------------------------
TXU Corp. 530,000 18,516,875
--------------------------------------------------------------------------------------------------------------------------------
Unicom Corp. 475,000 21,701,563
----------------
67,295,501
--------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--4.5%
Dynegy, Inc. 1,250,000 56,250,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp. 625,000 53,046,875
--------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 387,500 14,264,844
--------------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The) 170,000 7,830,625
--------------------------------------------------------------------------------------------------------------------------------
131,392,344
----------------
Total Common Stocks (Cost $1,386,027,383) 1,975,028,980
--------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--10.9%
ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities, Non-Vtg. 165,000 12,251,250
--------------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg. 100,000 11,462,500
--------------------------------------------------------------------------------------------------------------------------------
Alliant Energy Resources, Inc., 7.25% Cv.(5) 200,000 11,400,000
--------------------------------------------------------------------------------------------------------------------------------
Budget Group, Inc.:
6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg.(5) 30,000 626,250
6.25% Cv. Term Income Deferrable Equity Securities, Non-Vtg. 95,000 1,983,125
--------------------------------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum.
Exchangeable, Series A, Non-Vtg. 55,000 1,251,250
--------------------------------------------------------------------------------------------------------------------------------
Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity Securities(4) 25,000 531,250
--------------------------------------------------------------------------------------------------------------------------------
CMS Energy Trust III, $26.25 Cv. Premium Equity Participating Security Units(1) 200,000 5,012,500
--------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 6.625% Cv. Preferred Redeemable Increased Dividend
Equity Securities 710,300 27,213,369
--------------------------------------------------------------------------------------------------------------------------------
DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of
Maxtor Corp., Non-Vtg. 250,000 2,000,000
--------------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Structured Yield Product
Exchangeable for Stock 425,640 15,163,425
--------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg. 150,000 7,500,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp., 7% Cv. Exchangeable 125,000 4,296,875
--------------------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts., 12/1/06(4) 5,985,000 5,970,038
</TABLE>
18 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 21
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS Continued
--------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating
Security Units (each unit consists of a sr. deferrable nt., 8/16/04
and a purchase contract)(6) 110,000 $ 3,568,125
--------------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 6.75% Cv. 22,500 5,501,250
--------------------------------------------------------------------------------------------------------------------------------
Hanover Compressor Co., 7.25% Cv. Term Income Deferrable Equity Securities(5) 40,000 3,820,000
--------------------------------------------------------------------------------------------------------------------------------
Hercules Trust II, Units (each unit consists of $1,000 principal
amount of 6.50% cv. sr. preferred stock and one warrant to purchase
23.1492 shares of common stock)(6) 2,500 1,379,700
--------------------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc.:
6.75% Cum. Cv., Non-Vtg.(5) 37,500 698,437
6.75% Cum. Cv., Non-Vtg. 62,500 1,164,062
--------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.:
7% Cum. Cv., Non-Vtg.(5) 40,000 1,135,000
7% Cv.(5) 32,500 520,000
7% Cv. Jr., Series F, Non-Vtg. 45,000 720,000
7% Cv., Series E, Non-Vtg. 127,500 2,534,063
Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr.,
Series D, Non-Vtg. 35,000 993,125
--------------------------------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity Securities 1,700,000 13,175,000
--------------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 6.75% Cv., Series A 7,500 3,485,625
--------------------------------------------------------------------------------------------------------------------------------
MediaOne Group, Inc., 7% Cv. Premium Income Exchangeable
Securities for Vodafone Airtouch plc common stock 137,500 5,568,750
--------------------------------------------------------------------------------------------------------------------------------
MetLife Capital Trust I, 8% Cv. 175,000 13,912,500
--------------------------------------------------------------------------------------------------------------------------------
Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security 200,000 10,037,500
--------------------------------------------------------------------------------------------------------------------------------
National Australia Bank Ltd., ExCaps (each ExCap consists of $25
principal amount of 7.875% Perpetual Capital Security and a purchase
contract entitling the holder to exchange ExCaps for ordinary shares)(6) 500,000 13,312,500
--------------------------------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Quarterly Income Preferred
Securities, Non-Vtg. 250,000 9,625,000
--------------------------------------------------------------------------------------------------------------------------------
Nisource, Inc., 7.75% Premium Income Equity Securities, Non-Vtg. 200,000 9,325,000
--------------------------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred
Securities, Non-Vtg.(5) 175,000 2,625,000
--------------------------------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable
Increased Dividend Equity Securities, Non-Vtg. 56,500 2,768,500
--------------------------------------------------------------------------------------------------------------------------------
Qwest Trends Trust, 5.75% Cv.(5) 125,000 10,578,125
--------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts. 98,000 8,219,750
--------------------------------------------------------------------------------------------------------------------------------
Seagram Co. Ltd. (The), 7.50% Automatic Common
Exchangeable Securities 125,000 6,875,000
--------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 6% Cv., Series D 50,000 1,687,500
--------------------------------------------------------------------------------------------------------------------------------
Six Flags, Inc., Cum. Cv. Premium Income Equity Securities 499,000 16,155,125
--------------------------------------------------------------------------------------------------------------------------------
Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity
Redeemable Stock, Units (each unit consists of one preferred plus one
warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(6) 350,000 18,615,625
--------------------------------------------------------------------------------------------------------------------------------
St. George Bank, ADR 9% Cv. Structured Yield Product
Exchangeable for Common Stock of St. George Bank (5) 114,000 5,372,250
</TABLE>
19 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 22
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
SHARES MARKET VALUE
SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS Continued
TXU Corp., 9.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities, Non-Vtg. 150,000 $ 6,384,375
---------------------------------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income
Deferrable Equity Securities, Non-Vtg. 131,400 5,338,125
---------------------------------------------------------------------------------------------------------------------------------
United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities 225,000 7,031,250
---------------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security 285,800 7,466,525
---------------------------------------------------------------------------------------------------------------------------------
WBK Trust, 10% Cv. Structured Yield Product Exchangeable Stock 450,000 14,934,375
----------------
Total Preferred Stocks (Cost $336,350,314) 321,188,994
UNITS
---------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Golden State Bancorp, Inc. Wts., Exp. 1/1/01 (Cost $1,316,782) 390,650 512,728
PRINCIPAL
AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--9.0%
U.S. Treasury Bonds, STRIPS:
4.06%, 8/15/22(7) $170,000,000 47,633,320
6.58%, 2/15/15(7) 270,000,000 115,695,000
7.20%, 8/15/08(7) 133,000,000 83,300,960
---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 6.625%, 5/31/02 17,000,000 17,116,875
----------------
Total U.S. Government Obligations (Cost $240,914,511) 263,746,155
---------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--1.1%
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(5) 8,550,000 8,699,625
---------------------------------------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD] 1,900,000 1,151,448
---------------------------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%,
8/14/01 [AUD] 33,650,000 19,698,685
---------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR] 14,800,000 2,060,809
----------------
Total Foreign Government Obligations (Cost $37,851,248) 31,610,567
---------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.5%
Shoshone Partners Loan Trust Sr. Nts., 8.461%, 4/28/02 (representing
a basket of reference loans and a total return swap between Chase
Manhattan Bank and the Trust)(4,8) (Cost $17,251,201) 16,800,000 13,235,793
---------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--6.2%
AK Steel Corp., 9.125% Sr. Nts., 12/15/06 4,000,000 4,030,000
---------------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,995,000 4,526,719
---------------------------------------------------------------------------------------------------------------------------------
Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 2,745,000
---------------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(8) 5,000,000 7,196,210
---------------------------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,087,500
---------------------------------------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 5,000,000 3,725,000
---------------------------------------------------------------------------------------------------------------------------------
Canandaigua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 2,250,000 2,272,500
</TABLE>
20 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 23
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Charter Communications Holdings LLC/Charter Communications
Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09 $ 3,000,000 $ 2,752,500
---------------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06 2,400,000 2,358,000
---------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,152,316
---------------------------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,207,125
---------------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,742,786
---------------------------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 7,000,000 6,973,750
---------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts.,
Series B, 3/15/09 8,000,000 7,580,000
---------------------------------------------------------------------------------------------------------------------------------
Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 1,750,000 1,321,250
---------------------------------------------------------------------------------------------------------------------------------
Fairchild Semiconductor International, Inc., 10.375% Sr. Unsec.
Nts., 10/1/07 2,500,000 2,587,500
---------------------------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(4) 5,000,000 4,925,000
---------------------------------------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01 3,000,000 3,015,000
---------------------------------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 2,500,000 2,525,000
---------------------------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 9,737,500
---------------------------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc.:
8.625% Sr. Unsec. Nts., 3/15/05 4,710,000 4,757,100
9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 4,242,000
---------------------------------------------------------------------------------------------------------------------------------
ICN Pharmaceutical, Inc., 9.75% Sr. Nts., 11/15/08(5) 2,000,000 1,977,500
---------------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 4,812,500
---------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B,
6/1/08 3,000,000 2,490,000
---------------------------------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,015,000
---------------------------------------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,550,000
---------------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 9.125% Sr. Unsec. Nts., 5/1/08 2,500,000 2,253,125
---------------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09 4,500,000 4,106,250
---------------------------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc.:
10% Sr. Nts., 12/15/09 [EUR] 2,000,000 1,710,361
10% Sr. Nts., 12/15/09 4,000,000 3,970,000
---------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375% Sr. Unsec. Nts., 11/15/09 6,000,000 5,910,000
---------------------------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09 1,000,000 972,500
---------------------------------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07 7,500,000 7,162,500
---------------------------------------------------------------------------------------------------------------------------------
NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 7,650,000 7,841,250
---------------------------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 4,000,000 3,880,000
---------------------------------------------------------------------------------------------------------------------------------
PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05 1,700,000 1,479,000
---------------------------------------------------------------------------------------------------------------------------------
RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 4,000,000 4,620,000
---------------------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,022,500
10.875% Sr. Sub. Nts., 4/1/08 1,000,000 950,000
---------------------------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06 8,000,000 8,040,000
---------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.:
7.625% Sr. Unsec. Nts., Series B, 6/1/08 2,150,000 2,042,500
8.625% Sr. Sub. Nts., 1/15/07 2,000,000 1,980,000
</TABLE>
21 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 24
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09 $ 3,000,000 $ 2,595,000
---------------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust I, Asset-Backed Securities,
Series 1993-A, 10.50%, 12/1/11(4) 1,833,979 1,104,973
---------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09 8,596,720 9,327,441
---------------------------------------------------------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 1,000,000 934,271
----------------
Total Non-Convertible Corporate Bonds and Notes (Cost $186,852,531) 183,206,427
---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--3.9%
American Tower Corp.:
5% Cv. Nts., 2/15/10(5) 6,000,000 5,677,500
5% Cv. Nts., 2/15/10 1,500,000 1,419,375
---------------------------------------------------------------------------------------------------------------------------------
Amkor Technology, Inc., 5% Cv. Nts., 3/15/07(5) 22,500,000 19,940,625
---------------------------------------------------------------------------------------------------------------------------------
Cypress Semiconductor Corp., 4% Cv. Unsec. Nts., 2/1/05 4,000,000 5,110,000
---------------------------------------------------------------------------------------------------------------------------------
Inco Ltd.:
5.75% Cv. Debs., 7/1/04 9,700,000 8,730,000
7.75% Cv. Debs., 3/15/16 6,500,000 5,695,625
---------------------------------------------------------------------------------------------------------------------------------
Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07 10,000,000 9,100,000
---------------------------------------------------------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05 12,500,000 10,875,000
---------------------------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub.
Debs., 5.25%, 10/30/15(5,7) 19,500,000 9,871,875
---------------------------------------------------------------------------------------------------------------------------------
Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs.,
3.94%, 2/13/18(7) 25,000,000 9,843,750
---------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10(5) 7,500,000 7,509,375
---------------------------------------------------------------------------------------------------------------------------------
Photronics, Inc., 6% Cv. Sub. Nts., 6/1/04 10,000,000 11,575,000
---------------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02 12,500,000 5,656,250
---------------------------------------------------------------------------------------------------------------------------------
Valhi, Inc., Zero Coupon Cv. Sr. Sec. Liquid Yield Option Nts.,
7.14%, 10/20/07(7) 3,500,000 2,778,125
----------------
Total Convertible Corporate Bonds and Notes (Cost $112,809,971) 113,782,500
---------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS--0.6%
Bank of America NA, Lucent Technologies, Inc.
Market Indexed Linked Nts., 6%, 2/9/02 5,000,000 3,991,000
---------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch), Carnival Corp.
Equity Linked Nts., 7%, 7/17/02(4) 8,526,994 8,228,549
---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Medium-Term Stock-Linked Nts., Series B, 7%, 7/8/02
(Linked to the performance of the common stock of The Gap, Inc.) 7,500,000 5,475,000
----------------
Total Structured Instruments (Cost $20,999,794) 17,694,549
---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,340,373,735) 99.3% 2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.7 21,005,323
---------------------------------------
NET ASSETS 100.0% $ 2,941,012,016
=======================================
</TABLE>
22 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 25
FOOTNOTES TO STATEMENT OF INVESTMENTS
Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD Australian Dollar
EUR Euro
ZAR South African Rand
1. Non-income-producing security.
2. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended August 31, 2000.
The aggregate fair value of securities of affiliated companies held by the
Fund as of August 31, 2000, amounts to $8,156,250. Transactions during the
period in which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
SHARES SHARES
AUGUST 31, GROSS GROSS AUGUST 31,
1999 ADDITIONS REDUCTIONS 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CSK Auto Corp. 750,000 750,000 -- 1,500,000
</TABLE>
3. A sufficient amount of liquid assets has been designated to cover
outstanding written call and put options, as follows:
<TABLE>
<CAPTION>
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank One Corp. 100 10/23/00 $38 $ 6,675 $ 8,750
Bank One Corp. 500 11/20/00 35 103,184 121,875
Bank One Corp. 1,750 11/20/00 38 233,709 218,750
Bank One Corp. 1,150 11/20/00 40 101,909 64,688
Bank of New York Co., Inc. (The) 775 10/23/00 55 141,110 145,313
Bank of New York Co., Inc. (The) 150 1/22/01 50 90,797 105,000
Bank of New York Co., Inc. (The) 150 1/22/01 55 61,423 61,875
Bank of New York Co., Inc. (The) 1,225 1/22/01 60 238,351 222,031
Capital One Financial Corp. 250 9/18/00 60 97,997 75,000
Capital One Financial Corp. 350 10/23/00 65 97,074 102,813
Citigroup, Inc. 150 10/23/00 64 22,050 17,456
Motorola, Inc. 450 10/23/00 45 80,524 19,687
Waters Corp. 700 9/18/00 65 633,304 1,303,750
Waters Corp. 1,050 11/20/00 63 1,172,800 2,008,125
Waters Corp. 850 11/20/00 60 968,634 1,944,375
Waters Corp. 400 11/20/00 65 390,643 690,000
-------------------------------
4,440,184 7,109,488
-------------------------------
CONTRACTS
SUBJECT TO PUT
---------------------------------------------------------------------------------------------------------------------
Microsoft Corp. 291 10/23/00 85 475,623 436,500
--------------------------------
$4,915,807 $7,545,988
================================
</TABLE>
4. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $90,451,562 or 3.08% of the Fund's net
assets as of August 31, 2000.
6. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents total
underlying principal.
7. For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.
8. Represents the current interest rate for a variable or increasing rate
security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 26
STATEMENT OF ASSETS AND LIABILITIES August 31, 2000
<TABLE>
<S> <C>
=================================================================================================================================
ASSETS
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,307,685,551) $ 2,911,850,443
Affiliated companies (cost $32,688,184) 8,156,250
----------------
2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
Cash 5,120,154
---------------------------------------------------------------------------------------------------------------------------------
Cash used for collateral on Microsoft Corp. written puts 17,262,770
---------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 12,850,906
Shares of beneficial interest sold 638,012
Investments sold 559,568
Other 444,847
----------------
Total assets 2,956,882,950
=================================================================================================================================
LIABILITIES
Options written, at value (premiums received $4,915,807)--see accompanying statement 7,545,988
---------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 4,455,117
Distribution and service plan fees 1,153,372
Investments purchased 1,101,525
Transfer and shareholder servicing agent fees 714,567
Trustees' compensation 42,489
Other 857,876
----------------
Total liabilities 15,870,934
----------------
NET ASSETS $ 2,941,012,016
================
=================================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $ 2,239,086,938
Undistributed net investment income 23,286,164
---------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 101,639,755
---------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 576,999,159
----------------
NET ASSETS $ 2,941,012,016
================
=================================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $2,395,444,343
and 186,044,479 shares of beneficial interest outstanding) $12.88
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.67
---------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $472,221,589
and 37,002,203 shares of beneficial interest outstanding) $12.76
---------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $73,346,084
and 5,749,222 shares of beneficial interest outstanding) $12.76
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 27
STATEMENT OF OPERATIONS For the Year Ended August 31, 2000
<TABLE>
<S> <C>
=================================================================================================================================
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $38,064) $ 82,829,752
---------------------------------------------------------------------------------------------------------------------------------
Interest 64,767,791
----------------
Total income 147,597,543
=================================================================================================================================
EXPENSES
Management fees 16,447,234
---------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 5,799,373
Class B 5,476,726
Class C 851,214
---------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 3,647,076
---------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 197,040
---------------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 58,682
---------------------------------------------------------------------------------------------------------------------------------
Other 1,613,018
----------------
Total expenses 34,090,363
Less expenses paid indirectly (21,672)
----------------
Net expenses 34,068,691
=================================================================================================================================
NET INVESTMENT INCOME 113,528,852
---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (including premiums on options exercised) 171,656,212
Closing and expiration of option contracts written 3,196,541
Foreign currency transactions (1,226,472)
----------------
Net realized gain 173,626,281
---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on:
Investments (129,441,814)
Translation of assets and liabilities denominated in foreign currencies (837,481)
----------------
Net change (130,279,295)
----------------
Net realized and unrealized gain 43,346,986
=================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 156,875,838
================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 28
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 1999
=================================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 113,528,852 $ 134,128,244
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain 173,626,281 338,994,470
---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation (130,279,295) (68,883,491)
---------------------------------------------
Net increase in net assets resulting from operations 156,875,838 404,239,223
=================================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (98,446,434) (106,190,111)
Class B (17,009,478) (19,189,145)
Class C (2,657,808) (3,049,848)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (220,897,327) (245,592,889)
Class B (51,201,679) (57,343,807)
Class C (8,187,175) (8,928,939)
=================================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (348,332,169) 60,856,819
Class B (198,760,762) 96,317,221
Class C (37,298,949) 26,567,442
=================================================================================================================================
NET ASSETS
Total increase (decrease) (825,915,943) 147,685,966
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period 3,766,927,959 3,619,241,993
----------------------------------------------
End of period (including undistributed net investment
income of $23,286,164 and $27,856,168, respectively) $2,941,012,016 $ 3,766,927,959
==============================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 29
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS A 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.63 $13.75 $14.12 $11.36 $11.39 $10.25
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .49 .51 .50 .47 .09 .50
Net realized and unrealized gain (loss) .32 1.03 .41 3.17 (.12) 1.36
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .81 1.54 .91 3.64 (.03) 1.86
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.49) (.49) (.49) (.48) -- (.48)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.56) (1.66) (1.28) (.88) -- (.72)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.88 $13.63 $13.75 $14.12 $11.36 $11.39
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 7.24% 11.03% 6.17% 33.39% (0.26)% 18.61%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,395 $2,927 $2,889 $2,722 $2,110 $2,141
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,503 $3,156 $3,072 $2,446 $2,109 $2,054
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.78% 3.51% 3.47% 3.97% 3.28% 4.51%
Expenses 0.93% 0.89% 0.87%(4) 0.88%(4) 0.94%(4) 0.89%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 40% 18% 24% 14% 43%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 30
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.51 $13.63 $14.01 $11.29 $11.33 $10.21
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .37 .07 .41
Net realized and unrealized gain (loss) .32 1.03 .40 3.13 (.11) 1.35
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.42 .79 3.50 (.04) 1.76
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.38) (.37) (.38) (.38) -- (.40)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.45) (1.54) (1.17) (.78) -- (.64)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.51 $13.63 $14.01 $11.29 $11.33
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 6.34% 10.22% 5.32% 32.17% (0.35)% 17.58%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $472 $721 $635 $431 $260 $252
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $546 $749 $575 $344 $255 $208
Ratios to average net assets:(3)
Net investment income 3.01% 2.71% 2.68% 3.16% 2.48% 3.68%
Expenses 1.70% 1.69% 1.67%(4) 1.69%(4) 1.76%(4) 1.72%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 40% 18% 24% 14% 43%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 31
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS C 2000 1999 1998 1997 1996(1) 1996(2)
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.50 $13.63 $14.02 $11.30 $11.35 $10.76
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .40 .07 .28
Net realized and unrealized gain (loss) .32 1.02 .40 3.12 (.12) .88
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.41 .79 3.52 (.05) 1.16
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.37) (.38) (.39) (.40) -- (.33)
Distributions from net realized gain (1.07) (1.16) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.44) (1.54) (1.18) (.80) -- (.57)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.50 $13.63 $14.02 $11.30 $11.35
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 6.40% 10.15% 5.30% 32.31% (0.44)% 10.50%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $73 $119 $95 $48 $7 $6
Average net assets (in millions) $85 $120 $77 $25 $7 $3
Ratios to average net assets:(4)
Net investment income 3.01% 2.70% 2.68% 3.15% 2.55% 3.53%
Expenses 1.70% 1.69% 1.67%(5) 1.69%(5) 1.79%(5) 1.81%(5)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 40% 18% 24% 14% 43%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.
4. Annualized for periods of less than one full year.
5. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus a
front-end sales charge. Class B and Class C shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales
charge (CDSC). All classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own expenses directly
attributable to that class and exclusive voting rights with respect to matters
affecting that class. Classes A, B and C have separate distribution and/or
service plans. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.
-------------------------------------------------------------------------------
SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily
available are valued primarily using dealer-supplied valuations, a portfolio
pricing service authorized by the Board of Trustees, or at their fair value.
Fair value is determined in good faith under consistently applied procedures
under the supervision of the Board of Trustees. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
-------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes are leveraged, which increases the notes'
volatility relative to the principal of the security. Fluctuations in value of
these securities are recorded as unrealized gains and losses in the
accompanying financial statements. As of August 31, 2000, the market value of
these securities comprised 0.6% of the Fund's net assets and resulted in
unrealized losses at August 31, 2000, of $3,305,245. The Fund also hedges a
portion of the foreign currency exposure generated by these securities, as
discussed in Note 5.
-------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of foreign securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions.
30 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 33
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Fund's Statement of Operations.
-------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.
-------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily
to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
-------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
-------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
-------------------------------------------------------------------------------
CLASSIFICATION OF DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
its ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized
gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended August 31, 2000, amounts have been reclassified to reflect an
increase in paid-in capital of $21,166,020, an increase in undistributed net
investment income of $14,864, and a decrease in accumulated net realized gain
on investments of $21,180,884. This reclassification includes $21,183,778
distributed in connection with Fund share redemptions which increased paid-in
capital and reduced accumulated net realized gain. Net assets of the Fund were
unaffected by the reclassifications.
31 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 34
NOTE TO FINANCIALS STATEMENTS Continued
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Certain dividends from foreign
securities will be recorded as soon as the Fund is informed of the dividend if
such information is obtained subsequent to the ex-dividend date. Realized
gains and losses on investments and unrealized appreciation and depreciation
are determined on an identified cost basis, which is the same basis used for
federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
SHARES AMOUNT SHARES AMOUNT
--------------------------------------- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 19,575,634 $241,088,319 21,887,567 $314,043,113
Dividends and/or
distributions reinvested 25,370,714 299,536,203 23,478,035 330,924,974
Redeemed (73,658,611) (888,956,691) (40,770,834) (584,111,268)
---------------------------------------------------------
Net increase (decrease) (28,712,263) $(348,332,169) 4,594,768 $ 60,856,819
=========================================================
---------------------------------------------------------------------------------------------------------------------------------
CLASS B
Sold 5,302,692 $64,844,082 13,221,669 $188,310,904
Dividends and/or
distributions reinvested 5,572,573 65,132,048 5,207,911 72,839,456
Redeemed (27,234,627) (328,736,892) (11,626,909) (164,833,139)
---------------------------------------------------------
Net increase (decrease) (16,359,362) $(198,760,762) 6,802,671 $96,317,221
=========================================================
--------------------------------------------------------------------------------------------------------------------------------
CLASS C
Sold 1,053,764 $ 13,049,521 4,107,119 $ 58,508,668
Dividends and/or
distributions reinvested 882,449 10,315,715 831,248 11,618,577
Redeemed (5,023,386) (60,664,185) (3,071,848) (43,559,803)
---------------------------------------------------------
Net increase (decrease) (3,087,173) $(37,298,949) 1,866,519 $26,567,442
=========================================================
</TABLE>
32 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 35
================================================================================
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2000, were
$1,100,751,266 and $1,617,683,897, respectively.
As of August 31, 2000, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $2,343,658,869 was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 776,073,339
Gross unrealized depreciation (202,366,691)
--------------
Net unrealized appreciation $ 573,706,648
==============
</TABLE>
================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
0.75% of the first $100 million of average annual net assets, 0.70% of the next
$100 million, 0.65% of the next $100 million, 0.60% of the next $100 million,
0.55% of the next $100 million and 0.50% of average annual net assets in excess
of $500 million. The Fund's management fee for the year ended August 31, 2000,
was an annualized rate of 0.52%, before any waiver by the Manager if
applicable.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the Fund on
an "at-cost" basis. OFS also acts as the transfer and shareholder servicing
agent for the other Oppenheimer funds.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated:
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1) DISTRIBUTOR(1) DISTRIBUTOR(1)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
August 31, 2000 $2,190,051 $631,452 $300,262 $1,621,384 $96,086
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
August 31, 2000 $58,792 $1,429,980 $20,807
</TABLE>
33 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans, the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
--------------------------------------------------------------------------------
CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements
to the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares purchased. The Distributor makes payments to plan recipients
quarterly at an annual rate not to exceed 0.25% of the average annual net
assets consisting of Class A shares of the Fund. For the year ended August 31,
2000, payments under the Class A plan totaled $5,799,373 prior to Manager
waivers if applicable, all of which were paid by the Distributor to recipients,
and included $394,479 paid to an affiliate of the Manager. Any unreimbursed
expenses the Distributor incurs with respect to Class A shares in any fiscal
year cannot be recovered in subsequent years.
--------------------------------------------------------------------------------
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and asset-based sales charges from the
Fund under the plans. If any plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the plan was
terminated. The plans allow for the carry-forward of distribution expenses, to
be recovered from asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 2000,
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER PLAN OF CLASS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $5,476,726 $4,309,078 $12,531,453 2.65%
Class C Plan 851,214 250,604 1,555,535 2.12
</TABLE>
34 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 37
================================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into
foreign currency contracts for operational purposes and to seek to protect
against adverse exchange rate fluctuations. Risks to the Fund include the
potential inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided
by a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Realized gains and losses are reported with all
other foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of
Investments, where applicable.
================================================================================
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a
written put option, or the cost of the security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments, where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
35 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
6. OPTION ACTIVITY Continued
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
Written option activity for the year ended August 31, 2000, was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
--------------------------- ---------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding as of
August 31, 1999 -- $ -- 250 $ 286,740
Options written 33,500 21,786,707 22,799 12,146,748
Options closed or expired (22,800) (17,106,126) (20,049) (7,199,158)
Options exercised (700) (240,397) (2,709) (4,758,707)
---------------------------------------------------
Options outstanding as of
August 31, 2000 10,000 $ 4,440,184 291 $ 475,623
===================================================
</TABLE>
--------------------------------------------------------------------------------
7. ILLIQUID OR RESTRICTED SECURITIES
As of August 31, 2000, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933,
may have contractual restrictions on resale, and are valued under methods
approved by the Board of Trustees as reflecting fair value. A security may also
be considered illiquid if it lacks a readily available market or if its
valuation has not changed for a certain period of time. The Fund intends to
invest no more than 10% of its net assets (determined at the time of purchase
and reviewed periodically) in illiquid or restricted securities. Certain
restricted securities, eligible for resale to qualified institutional
investors, are not subject to that limitation. The aggregate value of illiquid
or restricted securities subject to this limitation as of August 31, 2000, was
$35,236,541, which represents 1.20% of the Fund's net assets, of which
$1,240,938 is considered restricted. Information concerning restricted
securities is as follows:
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT AUGUST 31, 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS & WARRANTS
Greenpoint Financial Corp. 3/12/99 $30.00 $24.82
</TABLE>
36 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 39
================================================================================
8. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.08% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
2000.
37 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CAPITAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Income Fund, including the statement of investments, as of
August 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, the two-month period ended August 31, 1996, and the one
year ended June 30, 1996. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of August 31, 2000, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Capital Income Fund as of August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended, the two-month period ended August
31, 1996, and the one year ended June 30, 1996, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 22, 2000
38 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 41
FEDERAL INCOME TAX INFORMATION Unaudited
================================================================================
In early 2001 shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 2000. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
Dividends and distributions of $1.1932, $1.1622 and $1.1609 per share were
paid to Class A, Class B and Class C shareholders, respectively, on December 9,
1999, of which $1.0419 was designated as a "capital gain distribution" for
federal income tax purposes. Whether received in stock or in cash, the capital
gain distribution should be treated by shareholders as a gain from the sale of
capital assets held for more than one year (long-term capital gains).
Dividends paid by the Fund during the fiscal year ended August 31, 2000,
which are not designated as capital gain distributions, should be multiplied by
65.83% to arrive at the net amount eligible for the corporate dividend-received
deduction.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because
of the complexity of the federal regulations which may affect your individual
tax return and the many variations in state and local tax regulations, we
recommend that you consult your tax advisor for specific guidance.
39 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 42
OPPENHEIMER CAPITAL INCOME FUND
================================================================================
OFFICERS AND TRUSTEES James C. Swain, Trustee and Chairman of the Board
Bridget A. Macaskill, Trustee and President
William L. Armstrong, Trustee
Robert G. Avis, Trustee
George C. Bowen, Trustee
Edward L. Cameron, Trustee
Jon S. Fossel, Trustee
Sam Freedman, Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
John P. Doney, Vice President
Michael S. Levine, Vice President
Andrew J. Donohue, Vice President and Secretary
Brian W. Wixted, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
================================================================================
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS Deloitte & Touche LLP
================================================================================
LEGAL COUNSEL Myer, Swanson, Adams & Wolf, P.C.
For more complete information about Oppenheimer
Capital Income Fund, please refer to the Prospectus.
To obtain a copy, call your financial advisor, call
OppenheimerFunds Distributor, Inc. at 1.800.525.7048
or visit the OppenheimerFunds Internet website at
WWW.OPPENHEIMERFUNDS.COM.
SHARES OF OPPENHEIMER FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY
BANK, ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY, AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
OPPENHEIMER FUNDS ARE DISTRIBUTED BY
OPPENHEIMERFUNDS DISTRIBUTOR, INC., TWO WORLD TRADE
CENTER, NEW YORK, NY 10048-0203.
(C)Copyright 2000 OppenheimerFunds, Inc. All rights
reserved.
40 OPPENHEIMER CAPITAL INCOME FUND
<PAGE> 43
<PAGE> 44
INFORMATION AND SERVICES
-------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you can benefit from special services
designed to make investing simple. Whether it's automatic investment plans,
timely market updates, or immediate account access, you can count on us whenever
you need assistance. So call us today, or visit our website--we're here to help.
-------------------------------------------------------------------------------
INTERNET
24-hr access to account information and transactions(1)
WWW.OPPENHEIMERFUNDS.COM
-------------------------------------------------------------------------------
GENERAL INFORMATION
Mon-Fri 8am-9pm ET, Sat 10am-4pm ET
1.800.525.7048
-------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
Mon-Fri 8am-9pm ET, Sat 10am-4pm ET
1.800.852.8457
-------------------------------------------------------------------------------
PHONELINK
24-hr automated information and automated transactions
1.800.533.3310
-------------------------------------------------------------------------------
TELECOMMUNICATIONS DEVICE FOR THE DEAF (TDD)
Mon-Fri 9am-6:30pm ET
1.800.843.4461
-------------------------------------------------------------------------------
OPPENHEIMERFUNDS MARKET HOTLINE
24 hours a day, timely and insightful messages on the
economy and issues that may affect your investments
1.800.835.3104
-------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. BOX 5270, DENVER, CO 80217-5270
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TICKER SYMBOLS Class A: OPPEX Class B: OPEBX Class C: OPECX
</TABLE>
1. At times this website may be inaccessible or its transaction feature may be
unavailable.
[OPPENHEIMER FUNDS LOGO]
[RA0300.001.0800 October 30, 2000
