UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-1512
Oppenheimer Capital Income Fund
(Exact name of registrant as specified in charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
(Address of principal executive offices)
(Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
Two World Financial Center, New York, New York 10281-1008
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(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
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Date of fiscal year end: August 31
Date of reporting period: September 1, 2003 - February 29, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
STATEMENT OF INVESTMENTS FEBRUARY 29, 2004 / UNAUDITED
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MARKET VALUE
SHARES SEE NOTE 1
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COMMON STOCKS--37.9%
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CONSUMER DISCRETIONARY--4.7%
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AUTO COMPONENTS--0.2%
Autoliv, Inc. 116,500 $ 5,170,270
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LEISURE EQUIPMENT & PRODUCTS--0.0%
Mattel, Inc. 17,500 332,500
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MEDIA--0.4%
EchoStar Communications Corp., Cl. A 1,2 235,000 8,488,200
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Viacom, Inc., Cl. B 100,000 3,846,000
---------------
12,334,200
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SPECIALTY RETAIL--4.1%
CSK Auto Corp. 1,3 6,249,250 120,485,540
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CONSUMER STAPLES--5.1%
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FOOD PRODUCTS--0.2%
General Mills, Inc. 2 50,000 2,299,000
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Sara Lee Corp. 105,000 2,291,100
---------------
4,590,100
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TOBACCO--4.9%
Altria Group, Inc. 2 2,050,000 117,977,500
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Loews Corp./Carolina Group 1,000,000 28,430,000
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146,407,500
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ENERGY--1.7%
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OIL & GAS--1.7%
BP plc, ADR 2 475,000 23,370,000
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ChevronTexaco Corp. 2 100 8,835
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ConocoPhillips 3,000 206,610
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Enbridge Energy Management LLC 3 555,399 26,292,589
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49,878,034
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FINANCIALS--12.2%
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COMMERCIAL BANKS--4.0%
Charter One Financial, Inc. 750,000 27,165,000
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FleetBoston Financial Corp. 2 415,000 18,687,450
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U.S. Bancorp 1,250,000 35,662,500
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Washington Mutual, Inc. 2 840,000 37,749,600
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119,264,550
9 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
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MARKET VALUE
SHARES SEE NOTE 1
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DIVERSIFIED FINANCIAL SERVICES--2.2%
Citigroup, Inc. 2 1,330,000 $ 66,845,800
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INSURANCE--4.8%
ACE Ltd. 775,000 34,844,000
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Everest Re Group Ltd. 2 1,000,000 87,390,000
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Travelers Property Casualty Corp., Cl. A 500,000 9,080,000
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XL Capital Ltd., Cl. A 150,000 11,499,000
---------------
142,813,000
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REAL ESTATE--0.6%
Anthracite Capital, Inc. 1,000,000 12,440,000
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Heritage Property Investment Trust 132,500 3,943,200
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16,383,200
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THRIFTS & MORTGAGE FINANCE--0.6%
Radian Group, Inc. 427,500 18,681,750
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HEALTH CARE--1.2%
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BIOTECHNOLOGY--0.2%
Wyeth 2 175,000 6,912,500
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PHARMACEUTICALS--1.0%
Abbott Laboratories 100,000 4,280,000
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Merck & Co., Inc. 150,000 7,212,000
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Pfizer, Inc. 505,600 18,530,240
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30,022,240
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INDUSTRIALS--3.9%
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AEROSPACE & DEFENSE--1.8%
Lockheed Martin Corp. 2 250,000 11,570,000
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Raytheon Co. 2 1,200,000 36,480,000
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TRW Automotive Holdings Corp. 1 200,000 5,000,000
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53,050,000
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COMMERCIAL SERVICES & SUPPLIES--0.8%
Cendant Corp. 1 993,555 22,553,699
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INDUSTRIAL CONGLOMERATES--1.3%
Tyco International Ltd. 2 1,369,600 39,129,472
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INFORMATION TECHNOLOGY--0.2%
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IT SERVICES--0.2%
CSG Systems International, Inc. 1 265,000 3,710,000
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Unisys Corp. 1 230,000 3,249,900
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6,959,900
10 | OPPENHEIMER CAPITAL INCOME FUND
MARKET VALUE
SHARES SEE NOTE 1
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MATERIALS--0.4%
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CHEMICALS--0.3%
Du Pont (E.I.) de Nemours & Co. 2 50,000 $ 2,254,500
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Lyondell Chemical Co. 251,000 4,470,310
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Praxair, Inc. 82,500 2,996,400
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9,721,210
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CONTAINERS & PACKAGING--0.0%
Smurfit-Stone Container Corp. 1,2 55,000 1,020,800
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PAPER & FOREST PRODUCTS--0.1%
Sappi Ltd., Sponsored ADR 200,000 2,740,000
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TELECOMMUNICATION SERVICES--0.4%
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DIVERSIFIED TELECOMMUNICATION SERVICES--0.4%
CenturyTel, Inc. 110,000 3,142,700
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SBC Communications, Inc. 2 125,000 3,001,250
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Verizon Communications, Inc. 2 100,000 3,833,000
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9,976,950
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WIRELESS TELECOMMUNICATION SERVICES--0.0%
AT&T Corp. 2 45,000 901,350
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UTILITIES--8.1%
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ELECTRIC UTILITIES--0.0%
PG&E Corp. 1 50,000 1,408,500
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GAS UTILITIES--7.7%
Kinder Morgan Management LLC 2,792,500 120,412,600
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Kinder Morgan, Inc. 1,750,000 107,992,500
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228,405,100
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MULTI-UTILITIES & UNREGULATED POWER--0.4%
Equitable Resources, Inc. 250,000 10,772,500
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Total Common Stocks (Cost $744,013,425) 1,126,760,665
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PREFERRED STOCKS--8.4%
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AES Trust III, 6.75% Cv. 7,800 329,160
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Allied Waste Industries, Inc., 6.25% Cv.
Sr., Non-Vtg. 87,500 6,256,250
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CenterPoint Energy, Inc., 2% Cv. Zero-Premium
Exchangeable Sub. Nts. 1,000,000 33,475,000
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Citigroup Global Markets Holdings, Inc., 2% Cv.
(cv. into Regency Centers Corp. common stock) 262,500 10,206,525
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Constellation Brands, Inc., 5.75% Cv. 75,000 2,238,000
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Emmis Communications Corp., 6.25% Cum. Cv.,
Series A, Non-Vtg 400,000 19,568,400
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Equity Securities Trust I/Cablevision Systems
Corp., 6.50% Cv., Series CVC (exchangeable into
Cablevision NY Group, Cl. A common stock) 1,000,000 26,680,000
11 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
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MARKET VALUE
SHARES SEE NOTE 1
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PREFERRED STOCKS Continued
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McKesson Financing Trust, 5% Cum. Cv., Non-Vtg. 117,500 $ 5,830,938
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National Australia Bank Ltd., ExCaps (each ExCap
consists of $25 principal amount of 7.875%
Perpetual Capital Security and a purchase contract
entitling the holder to exchange ExCaps for
ordinary shares of the Bank) 4 336,700 13,501,670
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Prudential Financial, Inc./Prudential Financial
Capital Trust I, 6.75% Cum. Cv. Equity Security
Units (each unit has a stated amount of $50 and
consists of a contract to purchase Prudential
Financial, Inc. common stock and a redeemable
capital security of Prudential Financial Capital
Trust I), Non-Vtg. 4 262,500 18,516,750
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Sempra Energy, 8.50% Cv. Equity Units (each
equity unit consists of income equity units, each
has a stated value of $25 and consists of a
purchase contract to purchase Sempra Energy common
stock and $25 principal amount of Sempra Energy,
5.60% sr. nts., 5/17/07) 4 675,000 19,446,750
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Six Flags, Inc., 7.25% Cum. Cv. Preferred Income
Equity Redeemable Shares, Non-Vtg. 675,000 16,065,000
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Travelers Property Casualty Corp., 4.50% Cv. Jr.
Unsec. Sub. Nts. 1,175,000 30,056,500
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United Rentals Trust I, 6.50% Cv. Quarterly Income
Preferred Securities 550,000 23,993,750
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UnumProvident Corp., 8.25% Cv. 250,000 8,037,500
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Washington Mutual, Inc., 5.375% Cum. Cv. Units
(each unit consists of one preferred stock and one
warrant to purchase shares of Washington Mutual,
Inc.), Non-Vtg. 4 225,000 13,565,250
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Williams Cos., Inc. (The), 5.50% Cv. Jr. Unsec.
Sub. Debs. 40,000 2,560,000
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Total Preferred Stocks (Cost $221,418,585) 250,327,443
PRINCIPAL
AMOUNT
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MORTGAGE-BACKED OBLIGATIONS--9.0%
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CIT Equipment Collateral, Equipment
Receivable-Backed Nts., Series 2003-EF1,
Cl. A2, 1.49%, 12/20/05 $ 1,470,000 1,472,293
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Fannie Mae Whole Loan, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates,
Trust 2003-W6, Cl. 2A1, 2.232%, 9/25/42 5,071,928 5,075,365
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Federal Home Loan Mortgage Corp.:
5.50%, 1/1/34 1,648,318 1,689,156
5.50%, 3/15/34 6 8,382,000 8,581,073
7%, 9/1/33-11/1/33 7,323,421 7,790,884
8%, 4/1/16 1,469,267 1,581,926
9%, 8/1/22-5/1/25 412,269 460,045
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Federal Home Loan Mortgage Corp., Collateralized
Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 1669,
Cl. G, 6.50%, 2/15/23 1,631,090 1,663,889
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Federal Home Loan Mortgage Corp., Gtd. Real Estate
Mtg. Investment Conduit Multiclass Pass-Through
Certificates:
Series 2491, Cl. PE, 6%, 12/15/27 2,030,000 2,066,675
Series 2498, Cl. PC, 5.50%, 10/15/14 620,000 637,000
Series 2500, Cl. FD, 1.594%, 3/15/32 5 1,142,201 1,150,995
Series 2526, Cl. FE, 1.494%, 6/15/29 5 1,244,136 1,247,108
12 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
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MORTGAGE-BACKED OBLIGATIONS Continued
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Federal Home Loan Mortgage Corp., Gtd. Real
Estate Mtg. Investment Conduit Multiclass
Pass-Through Certificates: Continued
Series 2551, Cl. FD, 1.494%, 1/15/33 5 $ 1,069,318 $ 1,074,082
Series 2551, Cl. TA, 4.50%, 2/15/18 2,868,676 2,896,534
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Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security:
Series 176, Cl. IO, (4.769)%, 6/1/26 7 1,655,615 301,603
Series 177, Cl. B, (7.023)%, 7/1/26 7 2,864,352 438,729
Series 183, Cl. IO, (5.073)%, 4/1/27 7 2,749,957 404,764
Series 184, Cl. IO, (3.602)%, 12/1/26 7 2,636,630 429,744
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Federal Home Loan Mortgage Corp., Structured
Pass-Through Securities, Collateralized Mtg.
Obligations:
Series H006, Cl. A1, 1.724%, 4/15/08 524,388 522,676
Series T-42, Cl. A2, 5.50%, 2/25/42 493,026 498,016
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Federal National Mortgage Assn.:
5%, 3/15/34 6 24,314,000 24,359,589
5.50%, 7/1/33-12/1/34 14,532,731 14,883,582
5.50%, 3/13/34 6 18,120,000 18,539,025
6.50%, 3/1/34 6 52,676,000 55,408,568
7%, 7/1/32-11/1/33 7,451,567 7,954,698
7%, 3/1/34 6 83,192,000 88,365,544
8.50%, 7/1/32 401,480 434,302
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Federal National Mortgage Assn., Collateralized
Mtg. Obligations, Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 2002-73, Cl. PA, 5%, 1/25/17 1,860,356 1,874,887
Trust 2002-77, Cl. WF, 1.494%, 12/18/32 5 1,800,370 1,806,892
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 2,886,502 2,928,336
Trust 2003-81, Cl. PA, 5%, 2/25/12 1,080,960 1,105,791
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Federal National Mortgage Assn., Gtd. Real Estate
Mtg. Investment Conduit Pass-Through Certificates
Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-47, Cl. NS, 12.478%, 4/25/32 7 3,807,779 380,549
Trust 2002-51, Cl. S, 12.477%, 8/25/32 7 3,496,063 349,830
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Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, (4.789)%, 6/1/23 7 3,468,391 563,326
Trust 240, Cl. 2, (6.096)%, 9/1/23 7 5,671,940 948,862
Trust 252, Cl. 2, (7.696)%, 11/1/23 7 3,977,491 739,404
Trust 254, Cl. 2, (4.319)%, 1/1/24 7 1,961,380 372,170
Trust 273, Cl. 2, (3.778)%, 7/1/26 7 1,188,908 192,020
Trust 2002-52, Cl. SD, 14.526%, 9/25/32 7 4,875,950 453,555
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Government National Mortgage Assn.,
8.50%, 8/15/17-12/15/17 492,932 548,769
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Government National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security, Trust 2002-15, Cl.
SM, 21.261%, 2/16/32 7 3,361,733 332,917
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Prudential Mortgage Capital Co. II LLC, Commercial
Mtg. Pass-Through Certificates, Series PRU-HTG
2000-C1, Cl. A2, 7.306%, 10/6/15 2,380,000 2,786,746
13 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
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PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
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MORTGAGE-BACKED OBLIGATIONS Continued
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Washington Mutual Mortgage Securities Corp.,
Collateralized Mtg. Obligations Pass-Through
Certificates, Series 2003-AR7, Cl. A1,
1.507%, 8/25/33 5 $ 2,165,751 $ 2,167,817
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Total Mortgage-Backed Obligations
(Cost $266,555,729) 267,479,736
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ASSET-BACKED SECURITIES--4.0%
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Bank One Auto Securitization Trust, Automobile
Receivables, Series 2003-1, Cl. A2, 1.29%,
8/21/06 3,070,000 3,072,661
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BMW Vehicle Owner Trust, Automobile Loan
Certificates, Series 2003-A, Cl. A2, 1.45%,
11/25/05 8 3,155,033 3,159,875
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Capital Auto Receivables Asset Trust, Automobile
Mtg.-Backed Nts., Series 2002-4, Cl. A2B, 1.74%,
1/17/05 8 493,962 494,506
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Caterpillar Financial Asset Trust, Equipment Loan
Pass-Through Certificates, Series 2003-A, Cl. A2,
1.25%, 10/25/05 2,131,203 2,132,609
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Centex Home Equity Co. LLC, Home Equity Loan
Asset-Backed Certificates:
Series 2003-B, Cl. AF1, 1.64%, 2/25/18 8 854,297 854,484
Series 2003-C, Cl. AF1, 2.14%, 7/25/18 3,000,616 3,008,349
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 1,886,777 1,890,269
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Chase Funding Mortgage Loan Asset-Backed
Certificates, Home Equity Mtg. Obligations:
Series 2003-3, Cl. 1A1, 1.17%, 8/25/17 5 1,399,812 1,400,024
Series 2003-4, Cl. 1A1, 1.21%, 9/25/17 5 3,200,086 3,200,882
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Chase Manhattan Auto Owner Trust, Automobile Loan
Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.26%, 1/16/06 8 1,219,071 1,220,134
Series 2003-B, Cl. A2, 1.287%, 3/15/06 1,670,000 1,671,438
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Citibank Credit Card Issuance Trust, Credit Card
Receivable Nts., Series 2002-A3, Cl. A3, 4.40%,
5/15/07 2,230,000 2,308,876
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CitiFinancial Mortgage Securities, Inc., Home
Equity Collateralized Mtg. Obligations:
Series 2002-1, Cl. AF1, 2.474%, 9/25/32 996,467 998,221
Series 2003-2, Cl. AF1, 1.19%, 5/25/33 5,8 1,322,078 1,322,153
Series 2003-3, Cl. AF1, 1.21%, 8/25/33 5,8 2,205,774 2,205,903
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DaimlerChrysler Auto Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-B, Cl. A2, 2.20%, 4/6/05 236,102 236,343
Series 2003-A, Cl. A2, 1.52%, 12/8/05 5,200,000 5,210,917
Series 2003-B, Cl. A2, 1.61%, 7/8/06 5,730,000 5,747,122
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Ford Credit Auto Owner Trust, Automobile Loan
Pass-Through Certificates, Series 2002-D, Cl.
A2A, 2.10%, 3/15/05 1,055,732 1,057,790
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Harley-Davidson Motorcycle Trust, Motorcycle
Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/16/07 1,711,419 1,716,473
Series 2003-3, Cl. A1, 1.50%, 1/15/08 4,106,404 4,116,054
14 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
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ASSET-BACKED SECURITIES Continued
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Honda Auto Receivables Owner Trust, Automobile
Receivables Obligations:
Series 2002-4, Cl. A2, 1.66%, 6/15/05 $ 832,698 $ 833,884
Series 2003-2, Cl. A2, 1.34%, 12/21/05 3,548,610 3,552,653
Series 2003-3, Cl. A2, 1.52%, 4/21/06 5,780,000 5,793,047
Series 2003-4, Cl. A2, 1.58%, 7/17/06 4,830,000 4,843,439
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Household Automotive Trust, Automobile Loan
Certificates:
Series 2002-2, Cl. A2, 2.15%, 12/19/05 227,276 227,578
Series 2003-2, Cl. A2, 1.56%, 12/18/06 2,520,000 2,526,438
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M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 3,327,611 3,355,593
Series 2003-1, Cl. A2, 1.60%, 7/20/06 4,000,000 4,011,341
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MMCA Auto Lease Trust, Auto Retail Installment
Contracts,
Series 2002-A, Cl. A2, 1.264%, 5/16/05 5,9 380,650 380,913
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National City Auto Receivables Trust, Automobile
Receivables Obligations,
Series 2004-A, Cl. A2, 1.50%, 2/15/07 1,390,000 1,389,131
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Nissan Auto Lease Trust, Auto Lease Obligations,
Series 2003-A, Cl. A2, 1.69%, 12/15/05 3,230,000 3,238,267
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Nissan Auto Receivables Owner Trust, Automobile
Receivable Nts.:
Series 2003-B, Cl. A2, 1.20%, 11/15/05 5,180,000 5,183,454
Series 2004-A, Cl. A2, 1.40%, 7/17/06 2,560,000 2,560,000
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Salomon Smith Barney Auto Loan Trust, Asset-Backed
Auto Loan Obligations,
Series 2002-1, Cl. A2, 1.83%, 9/15/05 8 977,948 979,662
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Toyota Auto Receivables Owner Trust, Automobile
Mtg.-Backed Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 1,182,396 1,196,795
Series 2003-A, Cl. A2, 1.28%, 8/15/05 3,678,023 3,681,368
Series 2003-B, Cl. A2, 1.43%, 2/15/06 3,950,000 3,954,450
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USAA Auto Owner Trust, Automobile Loan
Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 1,855,567 1,868,367
Series 2003-1, Cl. A2, 1.22%, 4/17/06 2,998,566 3,000,902
Series 2004-1, Cl. A2, 1.43%, 9/15/06 6 6,130,000 6,128,084
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Volkswagen Auto Lease Trust, Automobile Lease
Asset-Backed Securities,
Series 2002-A, Cl. A2, 1.77%, 2/20/05 1,038,032 1,039,328
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Volkswagen Auto Loan Enhanced Trust, Automobile
Loan Receivables:
Series 2003-1, Cl. A2, 1.11%, 12/20/05 2,175,000 2,175,396
Series 2003-2, Cl. A2, 1.55%, 6/20/06 2,780,000 2,786,952
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Whole Auto Loan Trust, Automobile Loan
Receivables:
Series 2002-1, Cl. A2, 1.88%, 6/15/05 2,674,645 2,680,654
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 5,500,000 5,508,235
---------------
Total Asset-Backed Securities (Cost $119,747,544) 119,921,014
15 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--4.0%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.50%, 1/15/13 $ 2,740,000 $ 2,785,637
4.875%, 3/15/07-11/15/13 7,835,000 8,333,263
5.50%, 7/15/06 29,500,000 31,863,688
6.25%, 7/15/32 550,000 620,483
6.625%, 9/15/09 13,470,000 15,604,591
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Federal National Mortgage Assn. Unsec. Nts.:
4.25%, 7/15/07 13,900,000 14,668,211
7.25%, 5/15/30 2,315,000 2,924,989
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Tennessee Valley Authority Bonds:
5.375%, 11/13/08 908,000 995,105
7.125%, 5/1/30 989,000 1,243,443
Series C, 4.75%, 8/1/13 860,000 887,376
Series C, 6%, 3/15/13 825,000 930,110
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.25%, 8/15/13-11/15/13 6,369,000 6,527,238
5.375%, 2/15/31 6,481,000 6,985,812
6.125%, 11/15/27 4,639,000 5,412,409
STRIPS, 2.99%, 2/15/10 10 2,075,000 1,696,537
STRIPS, 3.66%, 2/15/13 10 643,000 444,317
STRIPS, 4.96%, 2/15/16 10 1,157,000 666,260
STRIPS, 5.52%, 11/15/26 10 627,000 189,916
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U.S. Treasury Nts.:
1.875%, 1/31/06 2,002,000 2,012,871
3%, 2/15/09 1,354,000 1,357,598
3.25%, 8/15/07 1,396,000 1,438,535
4%, 2/15/14 4,316,000 4,322,746
5.75%, 8/15/10 2,023,000 2,305,037
6.50%, 2/15/10 3,300,000 3,887,169
---------------
Total U.S. Government Obligations (Cost $116,021,127) 118,103,341
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.1%
- --------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12
(Cost $1,242,523) 1,205,000 1,382,738
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--7.6%
- --------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 990,000 1,090,420
- --------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., 2/15/11 9 5,000,000 4,875,000
7.875% Sr. Unsec. Nts., Series B, 1/1/09 227,000 237,056
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,800,000
8.875% Sr. Nts., Series B, 4/1/08 1,230,000 1,377,600
- --------------------------------------------------------------------------------
American Honda Finance Corp., 3.85% Nts., 11/6/08 725,000 740,064
- --------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec.
Nts., 5/1/07 12 2,040,000 2,319,001
- --------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30 1,810,000 2,366,271
- --------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,700,000
16 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts.,
5/1/08 $ 250,000 $ 288,852
- --------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
8.375% Sr. Nts., 4/15/12 800,000 892,000
8.625% Sr. Unsec. Nts., 5/15/11 1,285,000 1,432,775
- --------------------------------------------------------------------------------
Boeing Capital Corp., 7.375% Sr. Nts., 9/27/10 12 1,307,000 1,531,873
- --------------------------------------------------------------------------------
British Telecommunications plc, 7.875% Nts.,
12/15/05 1,940,000 2,135,251
- --------------------------------------------------------------------------------
Cardinal Health, Inc., 4.45% Nts., 6/30/05 1,360,000 1,407,350
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc.:
5.875% Nts., 6/1/08 1,710,000 1,765,180
8.125% Unsec. Nts., Series B, 7/15/05 475,000 508,598
- --------------------------------------------------------------------------------
Charter Communications Holdings LLC/Charter
Communications Holdings Capital Corp.:
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 11 3,250,000 2,356,250
0%/9.92% Sr. Unsec. Disc. Nts., 4/1/11 11 5,000,000 4,162,500
8.625% Sr. Unsec. Nts., 4/1/09 8,500,000 7,118,750
- --------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts.,
1/15/16 5,601,000 5,818,039
- --------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts.,
4/2/12 1,150,000 1,384,365
- --------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts.,
5/15/11 462,000 521,205
- --------------------------------------------------------------------------------
Coast Hotels & Casinos, Inc., 9.50% Sr. Unsec.
Sub. Nts., 4/1/09 300,000 317,250
- --------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts.,
Series B, 6/1/05 372,000 386,740
- --------------------------------------------------------------------------------
Continental Airlines, Inc., 8% Sr. Nts., 12/15/05 3,000,000 2,925,000
- --------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs.,
7/15/18 3,000,000 3,315,000
- --------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 1,460,000 1,625,444
- --------------------------------------------------------------------------------
D.R. Horton, Inc., 9.375% Sr. Unsec. Sub. Nts.,
3/15/11 1,185,000 1,353,863
- --------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp.,
4.75% Unsec. Nts., 1/15/08 2,115,000 2,192,862
- --------------------------------------------------------------------------------
Delphi Corp., 6.55% Nts., 6/15/06 1,275,000 1,375,688
- --------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50%
Unsub. Nts., 6/15/10 1,790,000 2,180,315
- --------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts.,
6/15/10 1,300,000 1,572,076
- --------------------------------------------------------------------------------
DTE Energy Co., 6.375% Sr. Nts., 4/15/33 1,615,000 1,625,325
- --------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub.
Nts., Series B, 3/15/09 9,000,000 9,427,500
- --------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 275,000 307,478
7.75% Unsec. Nts., 11/15/07 1,240,000 1,438,947
- --------------------------------------------------------------------------------
FirstEnergy Corp., 5.50% Sr. Unsub. Nts.,
Series A, 11/15/06 1,360,000 1,444,176
- --------------------------------------------------------------------------------
Ford Motor Co., 8.90% Unsec. Unsub. Debs.,
1/15/32 1,045,000 1,203,245
- --------------------------------------------------------------------------------
France Telecom SA:
9% Sr. Unsec. Nts., 3/1/11 845,000 1,020,926
9.75% Sr. Unsec. Nts., 3/1/31 5 755,000 1,001,840
- --------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 1,025,000 1,034,645
- --------------------------------------------------------------------------------
Gap, Inc. (The), 6.90% Nts., 9/15/07 1,255,000 1,393,050
- --------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Unsec.
Unsub. Nts., 8/28/12 3,480,000 3,743,474
17 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs.,
7/15/33 $ 1,411,000 $ 1,603,648
- --------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The),
2.375% Nts., 6/1/06 845,000 846,765
- --------------------------------------------------------------------------------
Health Net, Inc., 8.375% Sr. Unsec. Unsub. Nts.,
4/15/11 1,215,000 1,482,157
- --------------------------------------------------------------------------------
Hertz Corp. (The), 7.625% Sr. Nts., 6/1/12 4,235,000 4,561,345
- --------------------------------------------------------------------------------
Hutchison Whampoa International Ltd., 7.45% Sr.
Bonds, 11/24/33 9 1,200,000 1,264,793
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts.,
3/15/12 1,000,000 1,117,500
- --------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts.,
7/2/10 9 1,065,000 1,285,731
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub.
Nts., 4/1/12 1,600,000 1,764,000
- --------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts.,
9/1/12 1,450,000 1,627,287
- --------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr.
Sub. Nts., 2/15/09 4,990,000 5,093,942
- --------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 2,230,000 2,571,464
- --------------------------------------------------------------------------------
Level 3 Communications, Inc.:
10.50% Sr. Disc. Nts., 12/1/08 5,000,000 4,337,500
11% Sr. Unsec. Nts., 3/15/08 5,000,000 4,487,500
- --------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts., 9/25/06 1,420,000 1,436,797
- --------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs.,
3/15/29 32,500,000 26,731,250
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125% Nts., Series C,
1/15/09 1,690,000 1,735,133
- --------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec.
Nts., 10/1/12 2,300,000 2,470,354
- --------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 1,370,000 1,563,736
- --------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts.,
7/1/12 1,090,000 1,183,234
- --------------------------------------------------------------------------------
News America Holdings, Inc., 7.75% Sr. Unsec.
Debs., 12/1/45 920,000 1,114,914
- --------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375% Sr. Unsec.
Nts., 10/1/04 915,000 935,771
- --------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 440,000 450,442
7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 2,201,319
- --------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Unsec. Nts., Series B,
9/1/07 8 7,500,000 7,765,650
- --------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 1,000,000 1,172,756
- --------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 920,000 1,122,400
- --------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr.
Nts., Series B, 6/1/13 9 1,130,000 1,115,463
- --------------------------------------------------------------------------------
Progress Energy, Inc., 6.55% Sr. Unsec. Nts.,
3/1/04 2,855,000 2,855,000
- --------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C,
12/18/23 9 2,235,000 2,844,138
- --------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts.,
7/1/25 9 2,330,000 2,928,230
- --------------------------------------------------------------------------------
PSEG Energy Holdings, 7.75% Unsec. Nts., 4/16/07 1,390,000 1,464,713
- --------------------------------------------------------------------------------
Pulte Homes, Inc., 8.375% Sr. Nts., 8/15/04 545,000 556,298
- --------------------------------------------------------------------------------
Rite Aid Corp.:
6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 4,775,000
7.125% Sr. Unsub. Nts., 1/15/07 7,500,000 7,575,000
- --------------------------------------------------------------------------------
Rogers Wireless Communications, Inc., 9.625% Sr.
Sec. Nts., 5/1/11 429,000 525,525
18 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
Safeway, Inc.:
2.50% Nts., 11/1/05 $ 1,210,000 $ 1,215,705
3.80% Sr. Unsec. Nts., 8/15/05 100,000 102,298
4.80% Sr. Unsec. Nts., 7/16/07 1,430,000 1,502,680
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec.
Sub. Nts., 3/15/12 1,000,000 1,080,000
- --------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32 1,150,000 1,431,522
- --------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs.,
2/1/12 3,550,000 4,699,376
- --------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts.,
12/1/07 1,280,000 1,489,600
- --------------------------------------------------------------------------------
Telefonos de Mexico SA, 8.25% Sr. Unsec. Nts.,
1/26/06 1,200,000 1,327,500
- --------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 1,125,000
- --------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs., 1/15/13 1,130,000 1,451,626
- --------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr.
Nts., 5/1/12 501,000 677,982
- --------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 1,285,000 1,432,775
- --------------------------------------------------------------------------------
Tyco International Group SA:
5.875% Unsec. Unsub. Nts., 11/1/04 283,000 290,367
6.75% Sr. Unsub. Nts., 2/15/11 2,334,000 2,581,817
- --------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts.,
6/15/07 1,720,000 1,862,148
- --------------------------------------------------------------------------------
Walt Disney Co. (The), 6.75% Sr. Unsec. Nts.,
Series B, 3/30/06 1,255,000 1,363,861
- --------------------------------------------------------------------------------
Waste Management, Inc., 7% Sr. Nts., 7/15/28 1,050,000 1,166,834
- --------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts.,
3/15/05 2,135,000 2,220,368
- --------------------------------------------------------------------------------
Wyeth, 6.125% Nts., 3/15/04 12 1,465,000 1,467,375
---------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $199,722,036) 225,768,833
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--22.8%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--10.1%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.9%
Brinker International, Inc., 2.43% Cv. Sr. Unsec.
Debs., 10/10/21 10 5,000,000 3,606,250
- --------------------------------------------------------------------------------
Royal Carribean Cruises Ltd., 5.29% Cv. Sr.
Unsec. Unsub. Liquid Yield Option Nts.,
2/2/21 10 40,000,000 22,050,000
---------------
25,656,250
- --------------------------------------------------------------------------------
MEDIA--9.0%
Charter Communications, Inc., 5.75% Cv. Sr.
Unsec. Nts., 10/15/05 75,000,000 70,593,750
- --------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 6,500,000 7,450,625
3.25% Exchangeable Sr. Sec. Debs., 3/15/31
(exchangeable for Viacom, Inc. Cl. B common
stock) 9 7,500,000 7,190,625
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31
(exchangeable for Viacom, Inc. Cl. B common
stock or cash based on the value thereof) 100,000,000 95,875,000
3.50% Exchangeable Sr. Unsec. Debs., 1/15/31
(exchangeable for Motorola, Inc. common stock
or cash based on the value of that stock) 10,000,000 9,425,000
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Liberty Media Corp.: Continued
3.75% Exchangeable Sr. Unsec. Debs., 2/15/30
(exchangeable for Sprint Corp. PCS, Series 1
common stock or cash based on the value of that
stock) $ 6,000,000 $ 4,117,500
4% Exchangeable Sr. Unsec. Debs., 11/15/29
(exchangeable for Sprint Corp. PCS, Series 1
common stock or cash based on the value of that
stock) 46,500,000 34,119,375
- --------------------------------------------------------------------------------
Time Warner, Inc., 3.84% Cv. Nts., 12/6/19 10 62,500,000 39,765,625
---------------
268,537,500
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc., 5.75% Cv. Unsec. Nts., 3/15/09 4,000,000 5,615,000
- --------------------------------------------------------------------------------
CONSUMER STAPLES--0.2%
- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.2%
General Mills, Inc., 1.93% Cv. Sr. Unsec. Unsub.
Debs., 10/28/22 10 10,000,000 7,087,500
- --------------------------------------------------------------------------------
FINANCIALS--0.9%
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.9%
Providian Financial Corp., 6.18% Cv. Sr. Unsec.
Unsub. Nts., 2/15/21 10 55,000,000 27,087,500
- --------------------------------------------------------------------------------
HEALTH CARE--1.4%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--1.4%
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs.,
2/2/07 15,000,000 15,018,750
- --------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc., 4.50% Cv. Unsec.
Sub. Nts., 7/1/08 10,000,000 9,675,000
- --------------------------------------------------------------------------------
IDEC Pharmaceuticals Corp., 1.80% Cv. Sr. Unsec.
Unsub. Liquid Yield Option Nts., 4/29/32 10 10,000,000 6,475,000
- --------------------------------------------------------------------------------
Intermune, Inc., 5.75% Cv. Unsec. Sub. Nts.,
7/15/06 10,000,000 10,312,500
---------------
41,481,250
- --------------------------------------------------------------------------------
INDUSTRIALS--4.1%
- --------------------------------------------------------------------------------
AIRLINES--0.4%
Continental Airlines, Inc., 4.50% Cv. Sr. Unsec.
Unsub. Nts., 2/1/07 4,750,000 4,239,375
- --------------------------------------------------------------------------------
Delta Air Lines, Inc.:
8% Cv. Sr. Bonds, 6/3/23 9 5,000,000 4,168,750
8% Cv. Sr. Unsec. Nts., 6/3/23 2,500,000 2,084,375
---------------
10,492,500
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.2%
Shaw Group, Inc. (The), 2.87% Cv. Sr. Unsec.
Liquid Yield Option Nts., 5/1/21 8,10 10,000,000 6,750,000
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--3.5%
Tyco International Group SA:
2.75% Cv. Sr. Unsec. Unsub. Debs., Series A,
1/15/18 9 36,000,000 48,690,000
2.75% Cv. Sr. Unsec. Unsub. Debs., 1/15/18 10,750,000 14,539,375
3.125% Cv. Sr. Nts., Series B, 1/15/23 9 28,000,000 40,775,000
---------------
104,004,375
20 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--2.9%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.9%
Commscope, Inc., 4% Cv. Jr. Unsec. Sub. Nts.,
12/15/06 $ 12,500,000 $ 12,578,125
- --------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec.
Nts., 9/1/08 14,000,000 15,277,500
---------------
27,855,625
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.7%
Solectron Corp., 4.30% Cv. Sr. Unsec. Unsub.
Liquid Yield Option Nts., 11/20/20 8,10 35,000,000 20,562,500
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.3%
LSI Logic Corp., 4% Cv. Unsec. Sub. Nts.,
11/1/06 37,500,000 37,406,250
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.6%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.1%
Level 3 Communications, Inc., 6% Cv. Unsec. Sub.
Nts., 3/15/10 6,500,000 3,940,625
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.5%
Nextel Communications, Inc., 5.25% Cv. Sr. Nts.,
1/15/10 15,000,000 15,187,500
- --------------------------------------------------------------------------------
UTILITIES--2.6%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.9%
Calpine Corp., 4% Cv. Sr. Unsec. Nts.,
12/26/06 9 26,500,000 26,566,250
- --------------------------------------------------------------------------------
GAS UTILITIES--1.7%
El Paso Corp., 5.59% Cv. Debs., 2/28/21 10 105,000,000 49,087,500
---------------
Total Convertible Corporate Bonds and Notes
(Cost $577,589,513) 677,318,125
- --------------------------------------------------------------------------------
STRUCTURED NOTES--6.1%
- --------------------------------------------------------------------------------
Bank of America Corp., Linked Sr. Nts.,
Series RTY, 7%, 3/3/04 (redemption linked to
the Russell 2000 Index) 10,000,000 11,028,846
- --------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York
Branch), 6% Equity Linked Nts., 12/23/04
(redemption linked to Comcast Corp., Cl. A
Special common stock) 829,200 24,202,275
- --------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit
Linked Nts.,
Series 2003-1, 2.89%, 1/7/05 5,8 7,150,000 7,072,780
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Abbott Laboratories Cv. Medium Term
Linked Nts., 5.50%, 7/29/04 363,200 15,640,482
Clear Channel Communications, Inc., Cv. Medium
Term Linked Nts., 5.25%, 7/29/04 366,400 15,826,282
GlobalSantaFe Corp. Cv. Linked Nts., 4%, 4/5/04 682,460 20,189,214
MedImmune, Inc. Cv. Medium Term Linked Nts.,
4.875%, 2/4/05 475,000 11,219,975
- --------------------------------------------------------------------------------
JPMorgan Chase Bank, TRAC-X NA High Yield T1
Credit Default Swap Bonds, 7.375%, 3/25/09 9 13,600,000 13,719,000
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
2.50% Cv. Yield Enhanced Equity Linked Debt
Securities, 8/21/04 (linked to Liberty Media
Corp.) $ 1,001,002 $ 10,490,501
4% Cv. Yield Enhanced Equity Linked Debt
Securities, 8/21/04 (linked to AT&T Wireless
Services, Inc.) 1,254,706 13,776,672
6% Cv. Yield Enhanced Equity Linked Debt
Securities, 12/23/04 (linked to EchoStar
Communications Corp. Cl. A common stock) 326,297 10,901,579
- --------------------------------------------------------------------------------
Morgan Stanley:
5.50% Cv. Performance Equity Linked Redemption
Quarterly-pay Securities, 11/26/04 (linked to
Echostar Communications Corp.) 9 306,505 10,795,106
5.75% Cv. Performance Equity Linked Redemption
Quarterly-pay Securities, 11/15/04 (linked to
Echostar Communications Corp.) 9 263,395 9,724,543
- --------------------------------------------------------------------------------
UBS AG, High Grade Credit Linked Nts., 2.814%,
12/10/04 5,8 7,150,000 7,221,500
---------------
Total Structured Notes (Cost $167,381,628) 181,808,755
DATE STRIKE CONTRACTS
- --------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------
AT&T Wireless Services, Inc.
Call 1 (Cost $532,500) 1/24/05 $12.50 2,500 525,000
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--6.6%
- --------------------------------------------------------------------------------
Undivided interest of 67.79% in joint
repurchase agreement (Principal Amount/
Market Value $286,688,000) with PaineWebber,
Inc., 1.01%, dated 2/27/04, to be repurchased
at $194,370,358 on 3/1/04, collateralized by
Federal National Mortgage Assn., 4.50%, 10/1/33,
with a value of $293,111,217
(Cost $194,354,000) $194,354,000 194,354,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,608,578,610) 106.5% 3,163,749,650
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (6.5) (191,783,502)
-----------------------
NET ASSETS 100.0% $2,971,966,148
=======================
22 | OPPENHEIMER CAPITAL INCOME FUND
FOOTNOTES TO STATEMENT OF INVESTMENTS
1.Non-income producing security.
2.A sufficient amount of liquid assets has been designated to cover outstanding
written options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
CALLS SUBJECT TO CALL DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------
AT&T Corp. 450 3/22/04 $ 20.00 $ 22,049 $ 22,500
Altria Group, Inc. 250 3/22/04 55.00 39,248 68,750
BP plc, ADR 250 3/22/04 50.00 11,624 12,500
BP plc, ADR 500 4/19/04 55.00 16,999 --
ChevronTexaco Corp. 1 3/22/04 80.00 517 830
Citigroup, Inc. 300 3/22/04 50.00 23,699 28,500
Citigroup, Inc. 275 3/22/04 47.50 62,422 79,750
Du Pont (E.I.) de Nemours & Co. 500 3/22/04 45.00 63,497 37,500
EchoStar Communications Corp. 900 3/22/04 35.00 337,034 184,500
EchoStar Communications Corp. 1,250 3/22/04 40.00 57,022 25,000
EchoStar Communications Corp. 200 3/22/04 37.50 41,898 17,000
Everest Re Group Ltd. 500 3/22/04 95.00 15,179 --
FleetBoston Financial Corp. 2,000 3/22/04 45.00 117,994 100,000
General Mills, Inc. 500 3/22/04 45.00 41,998 60,000
Lockheed Martin Corp. 250 3/22/04 50.00 12,249 2,500
Raytheon Co. 250 3/22/04 30.00 57,997 23,750
Raytheon Co. 250 4/19/04 32.50 7,250 6,250
SBC Communications, Inc. 1,250 3/22/04 25.00 36,248 12,500
Smurfit-Stone Container Corp. 550 3/22/04 17.50 20,949 66,000
Tyco International Ltd. 11,996 4/19/04 25.00 3,605,025 4,438,520
Tyco International Ltd. 1,700 4/19/04 22.50 909,857 1,037,000
Verizon Communications, Inc. 1,000 3/22/04 40.00 22,999 20,000
Washington Mutual, Inc. 1,000 3/22/04 45.00 101,998 80,000
Washington Mutual, Inc. 500 3/22/04 47.50 33,248 10,000
Wyeth 450 4/19/04 40.00 223,639 67,500
--------------------------
5,882,639 6,400,850
--------------------------
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
PUTS SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------
CarMax, Inc. 2,750 3/22/04 $30.00 194,741 41,250
CarMax, Inc. 4,750 4/19/04 30.00 366,730 190,000
Citigroup, Inc. 1,000 3/22/04 50.00 181,991 80,000
Citigroup, Inc. 2,500 3/22/04 47.50 219,740 50,000
Comcast Corp., Cl. A Special,
Non-Vtg. 1,250 3/22/04 30.00 54,997 193,750
ConocoPhillips 1,245 3/22/04 65.00 158,107 6,225
FleetBoston Financial Corp. 2,000 3/22/04 42.50 147,993 10,000
FleetBoston Financial Corp. 1,000 4/19/04 45.00 121,994 125,000
FleetBoston Financial Corp. 3,000 4/19/04 42.50 440,980 90,000
Gap, Inc. (The) 1,000 3/22/04 20.00 81,496 20,000
Gap, Inc. (The) 2,000 3/22/04 17.50 55,997 10,000
General Mills, Inc. 1,000 3/22/04 45.00 106,995 30,000
Hewlett-Packard Co. 6,500 3/22/04 22.50 325,984 260,000
Kinder Morgan, Inc. 2,500 3/22/04 60.00 282,536 87,500
Kohl's Corp. 1,000 3/22/04 45.00 316,985 5,000
Lockheed Martin Corp. 1,000 3/22/04 45.00 48,998 75,000
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
PUTS SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 1,500 3/22/04 $50.00 $ 282,987 $ 555,000
Lyondell Chemical Co. 999 4/19/04 17.50 68,928 64,935
MedImmune, Inc. 2,000 3/22/04 20.00 132,994 10,000
MedImmune, Inc. 2,250 3/22/04 22.50 130,614 56,250
MedImmune, Inc. 1,750 6/21/04 22.50 430,981 166,250
Microsoft Corp. 2,500 3/22/04 27.50 242,488 275,000
Morgan Stanley 1,000 3/22/04 55.00 106,995 35,000
Pfizer, Inc. 1,000 3/22/04 32.50 38,998 5,000
Tenet Healthcare Corp. 1,000 4/19/04 10.00 18,999 20,000
U.S. Bancorp 1,000 3/22/04 27.50 68,997 20,000
Wyeth 3,250 3/22/04 40.00 455,479 390,000
XL Capital Ltd., Cl. A 3,000 3/22/04 75.00 506,623 195,000
- -------------------------------------------------------------------------------------------------------
5,591,347 3,066,160
---------------------------
$11,473,986 $9,467,010
===========================
3.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 February 29, 2004.
The aggregate fair value of securities of affiliated companies held by the Fund
as of February 29, 2004 amounts to $146,778,129. Transactions during the period
in which the issuer was an affiliate are as follows:
SHARES/ SHARES/
PRINCIPAL PRINCIPAL DIVIDEND/ REALIZED
AUG. 31, GROSS GROSS FEB. 29, UNREALIZED INTEREST GAIN
2003 ADDITIONS REDUCTIONS 2004 APPRECIATION INCOME (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
CSK Auto Corp. 6,270,000 42,750 63,500 6,249,250 $60,527,982 $ -- $ (645,509)
Enbridge Energy
Management LLC 534,518 20,881* -- 555,399 7,545,598 496,626 --
BONDS AND NOTES
CSK Auto, Inc.,
12% Sr. Unsec.
Nts., 6/15/06 $10,000,000 -- 10,000,000 $-- -- 800,000 1,354,633
----------------------------------------
$68,073,580 $1,296,626 $ 709,124
========================================
<FN>
*A portion of the transactions (10,641) was the result of a stock dividend.
</FN>
4.Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units, which
represent debt securities, principal amount disclosed represents total
underlying principal.
5.Represents the current interest rate for a variable or increasing rate
security.
6.When-issued security to be delivered and settled after February 29, 2004. See
Note 1 of Notes to Financial Statements.
24 | OPPENHEIMER CAPITAL INCOME FUND
7.Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $5,907,473 or 0.20% of the Fund's net assets
as of February 29, 2004.
8.Identifies issues considered to be illiquid. See Note 9 of Notes to Financial
Statements.
9.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 $176,323,542 or 5.93% of the Fund's net
assets as of February 29, 2004.
10.Zero coupon bond reflects effective yield on the date of purchase.
11.Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
12.Securities with an aggregate market value of $4,000,370 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 6 of Notes to Financial Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES UNAUDITED
- --------------------------------------------------------------------------------
FEBRUARY 29, 2004
- --------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,529,874,061) $3,016,971,521
Affiliated companies (cost $78,704,549) 146,778,129
-----------------
3,163,749,650
- --------------------------------------------------------------------------------------------------------------
Cash used for collateral on written puts 537,549
- --------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $57,491,331 sold on a when-issued basis) 84,972,473
Interest, dividends and principal paydowns 14,979,724
Shares of beneficial interest sold 2,884,865
Futures margins 167,028
Swap contracts 165,439
Other 83,834
-----------------
Total assets 3,267,540,562
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------------------
Bank overdraft 1,547,622
- --------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $11,473,986)--see accompanying statement 9,467,010
- --------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $252,280,097 purchased on a when-issued basis) 279,813,953
Shares of beneficial interest redeemed 2,943,460
Distribution and service plan fees 1,143,713
Transfer and shareholder servicing agent fees 296,973
Shareholder communications 282,412
Trustees' compensation 24,629
Other 54,642
-----------------
Total liabilities 295,574,414
- --------------------------------------------------------------------------------------------------------------
NET ASSETS $2,971,966,148
=================
- --------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 239,125
- --------------------------------------------------------------------------------------------------------------
Additional paid-in capital 2,408,964,117
- --------------------------------------------------------------------------------------------------------------
Accumulated net investment income 26,208,511
- --------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (22,016,071)
- --------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 558,570,466
--------------
NET ASSETS $2,971,966,148
==============
26 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on
net assets of $2,453,809,027 and 197,063,029 shares of
beneficial interest outstanding) $12.45
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $13.21
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $375,333,684 and 30,458,542
shares of beneficial interest outstanding) $12.32
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $129,091,431 and 10,495,150
shares of beneficial interest outstanding) $12.30
- --------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $13,732,006 and 1,108,639
shares of beneficial interest outstanding) $12.39
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS UNAUDITED
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------
Interest:
Unaffiliated companies $ 44,311,938
Affiliated companies 800,000
- ------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $38,667) 23,491,524
Affiliated companies 496,626
----------------
Total investment income 69,100,088
- ------------------------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------------------------
Management fees 7,304,586
- ------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 2,677,126
Class B 1,790,355
Class C 562,585
Class N 27,689
- ------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 1,335,738
Class B 369,186
Class C 95,753
Class N 12,981
- ------------------------------------------------------------------------------------------------
Shareholder communications:
Class A 94,860
Class B 21,925
Class C 5,081
Class N 493
- ------------------------------------------------------------------------------------------------
Trustees' compensation 28,826
- ------------------------------------------------------------------------------------------------
Custodian fees and expenses 27,962
- ------------------------------------------------------------------------------------------------
Other 92,733
----------------
Total expenses 14,447,879
Less reduction to custodian expenses (8,320)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class A (42,758)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class B (9,440)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class C (1,766)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class N (151)
----------------
Net expenses 14,385,444
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 54,714,644
28 | OPPENHEIMER CAPITAL INCOME FUND
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 89,027,126
Affiliated companies 709,124
Closing of futures contracts (1,706,231)
Closing and expiration of option contracts written 9,456,019
Foreign currency transactions (517)
------------
Net realized gain 97,485,521
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 206,903,868
Futures contracts 1,684,024
------------
Net change in unrealized appreciation 208,587,892
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $360,788,057
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31,
(UNAUDITED) 2003
- --------------------------------------------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 54,714,644 $ 120,703,591
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 97,485,521 (27,505,993)
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 208,587,892 327,739,226
--------------------------------------
Net increase in net assets resulting from operations 360,788,057 420,936,824
- --------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (60,740,907) (81,815,372)
Class B (8,041,819) (11,054,004)
Class C (2,546,595) (2,657,642)
Class N (271,229) (214,705)
- --------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A 84,325,847 (14,008,667)
Class B (5,177,552) (26,837,289)
Class C 23,679,579 10,405,145
Class N 3,570,426 3,937,349
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Total increase 395,585,807 298,691,639
- --------------------------------------------------------------------------------------------------------------------
Beginning of period 2,576,380,341 2,277,688,702
--------------------------------------
End of period (including accumulated net investment income
of $26,208,511 and $43,094,417, respectively) $2,971,966,148 $2,576,380,341
======================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, 2004
CLASS A (UNAUDITED) 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.22 $ 9.76 $ 12.72 $12.88
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .24 .54 .51 .42
Net realized and unrealized gain (loss) 1.31 1.35 (2.66) .41
--------------------------------------------------------------
Total from investment operations 1.55 1.89 (2.15) .83
- --------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.43) (.48) (.48)
Distributions from net realized gain -- -- (.33) (.51)
--------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.32) (.43) (.81) (.99)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.45 $11.22 $ 9.76 $12.72
==============================================================
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 14.00% 20.10% (17.75)% 6.84%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,453,809 $2,130,486 $1,873,458 $2,458,272
- --------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,300,893 $1,900,896 $2,224,911 $2,432,151
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:2
Net investment income 4.08% 5.41% 4.48% 3.21%
Total expenses 0.90% 3,4 0.93% 3 0.98% 3 0.91% 3
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 141% 148% 74%
YEAR
ENDED
AUGUST 31,
CLASS A 2000 1999
- -----------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $13.63 $13.75
- -----------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .49 .51
Net realized and unrealized gain (loss) .32 1.03
-----------------------------
Total from investment operations .81 1.54
- -----------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.49) (.49)
Distributions from net realized gain (1.07) (1.17)
-----------------------------
Total dividends and/or distributions
to shareholders (1.56) (1.66)
- -----------------------------------------------------------------------------------
Net asset value, end of period $12.88 $13.63
=============================
- -----------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 7.24% 11.03%
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,395,444 $2,926,923
- -----------------------------------------------------------------------------------
Average net assets (in thousands) $2,502,535 $3,156,294
- -----------------------------------------------------------------------------------
Ratios to average net assets:2
Net investment income 3.78% 3.51%
Total expenses 0.93% 3 0.89% 3
- -----------------------------------------------------------------------------------
Portfolio turnover rate 37% 40%
<FN>
1.Assumes an investment on the business day before the first day of the fiscal period,
with all dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total returns are
not annualized for periods of less than one full year. Returns do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the redemption
of Fund shares.
2.Annualized for periods of less than one full year.
3.Reduction to custodian expenses less than 0.01%.
4.Voluntary waiver of transfer agent fees less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS CONTINUED
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31,
CLASS B UNAUDITED) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.10 $ 9.67 $ 12.60 $12.76 $13.51 $13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 .45 .41 .32 .38 .39
Net realized and unrealized gain (loss) 1.29 1.33 (2.62) .41 .32 1.03
---------------------------------------------------------------------------------
Total from investment operations 1.48 1.78 (2.21) .73 .70 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.35) (.39) (.38) (.38) (.37)
Distributions from net realized gain -- -- (.33) (.51) (1.07) (1.17)
---------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.26) (.35) (.72) (.89) (1.45) (1.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.32 $11.10 $ 9.67 $12.60 $12.76 $13.51
=================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 13.54% 18.94% (18.31)% 6.05% 6.34% 10.22%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $375,334 $343,074 $327,368 $477,223 $472,222 $720,721
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $359,621 $312,457 $410,652 $469,690 $546,390 $749,020
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.24% 4.55% 3.67% 2.44% 3.01% 2.71%
Total expenses 1.76% 3,4 1.81% 3 1.76% 3 1.68% 3 1.70% 3 1.69% 3
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 141% 148% 74% 37% 40%
<FN>
1.Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less
than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares.
2.Annualized for periods of less than one full year.
3.Reduction to custodian expenses less than 0.01%.
4.Voluntary waiver of transfer agent fees less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER CAPITAL INCOME FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31,
CLASS C UNAUDITED) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.09 $ 9.66 $ 12.59 $12.76 $13.50 $13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .18 .45 .42 .32 .38 .39
Net realized and unrealized gain (loss) 1.30 1.34 (2.62) .40 .32 1.02
--------------------------------------------------------------------------------
Total from investment operations 1.48 1.79 (2.20) .72 .70 1.41
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.36) (.40) (.38) (.37) (.38)
Distributions from net realized gain -- -- (.33) (.51) (1.07) (1.16)
--------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.27) (.36) (.73) (.89) (1.44) (1.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.30 $11.09 $ 9.66 $12.59 $12.76 $13.50
===============================================================================-
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 13.52% 19.05% (18.30)% 6.00% 6.40% 10.15%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $129,091 $93,797 $72,792 $89,547 $73,346 $119,284
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $113,148 $75,459 $84,049 $80,390 $84,898 $119,594
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.26% 4.55% 3.74% 2.44% 3.01% 2.70%
Total expenses 1.72% 3,4 1.78% 3 1.76% 3 1.68% 3 1.70% 3 1.69% 3
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 141% 148% 74% 37% 40%
<FN>
1.Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less
than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares.
2.Annualized for periods of less than one full year.
3.Reduction to custodian expenses less than 0.01%.
4.Voluntary waiver of transfer agent fees less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS CONTINUED
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 29, 2004 AUGUST 31,
CLASS N (UNAUDITED) 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.16 $9.73 $12.69 $12.96
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20 .46 .50 .28
Net realized and unrealized gain (loss) 1.33 1.37 (2.66) (.30)
---------------------------------------------------
Total from investment operations 1.53 1.83 (2.16) (.02)
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.30) (.40) (.47) (.25)
Distributions from net realized gain -- -- (.33) --
---------------------------------------------------
Total dividends and/or distributions to shareholders (.30) (.40) (.80) (.25)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.39 $11.16 $ 9.73 $12.69
===================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 13.87% 19.45% (17.89)% (0.18)%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $13,732 $9,023 $4,071 $648
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $11,145 $5,968 $2,839 $214
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.68% 4.92% 4.74% 2.94%
Total expenses 1.28% 4,5 1.35% 4 1.25% 4 1.17% 4
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 141% 148% 74%
<FN>
1.For the period from March 1, 2001 (inception of offering) to August 31, 2001.
2.Assumes an investment on the business day before the first day of the fiscal period, with all dividends and
distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value
calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
3.Annualized for periods of less than one full year.
4.Reduction to custodian expenses less than 0.01%.
5.Voluntary waiver of transfer agent fees less than 0.01%.
</FN>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A shares
are sold at their offering price, which is normally net asset value plus a
front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights and voting privileges with respect to the Fund in
general and exclusive voting rights on matters that affect that class alone.
Earnings, net assets and net asset value per share may differ by minor amounts
due to each class having its own expenses directly attributable to that class.
Classes A, B, C and N have separate distribution and/or service plans. Class B
shares will automatically convert to Class A shares six years after the date of
purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. Securities traded on NASDAQ are valued based on the closing
price provided by NASDAQ prior to the time when the Fund's assets are valued.
In the absence of a sale, the security is valued at the last sale price on the
prior trading day, if it is within the spread of the closing bid and asked
prices, and if not, at the closing bid price. Securities may be valued
primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities (including restricted
securities) for which market quotations are not readily available are valued at
their fair value. Securities whose values have been materially affected by what
the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective foreign exchanges
will be fair valued. Fair value is determined in good faith using consistently
applied procedures under the supervision of the Board of Trustees. Short-term
"money market type" debt securities with remaining maturities of sixty days or
less are valued at amortized cost (which approximates market value).
- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values and
redemption prices are linked to the market value of specific securities. The
structured notes are leveraged, which increases the Fund's exposure to changes
in prices of the underlying securities and increases the volatility of each
note's market value relative to the change in the underlying security prices.
Fluctuations in value of these securities are recorded as unrealized gains and
losses in the accompanying financial statements. The
35 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Fund records a realized gain or loss when a structured note is sold or matures.
As of February 29, 2004, the market value of these securities comprised 6.1% of
the Fund's net assets, and resulted in unrealized gains of $14,427,127.
- --------------------------------------------------------------------------------
SECURITIES ON A WHEN ISSUED BASIS. Delivery and payment for securities that
have been purchased by the Fund on a when issued basis can take place a month
or more after the trade date. Normally the settlement date occurs within six
months after the trade date; however, the Fund may, from time to time, purchase
securities whose settlement date extends six months or more beyond trade date.
During this period, such securities do not earn interest, are subject to market
fluctuation and may increase or decrease in value prior to their delivery. The
Fund maintains segregated assets with a market value equal to or greater than
the amount of its purchase commitments. The purchase of securities on a when
issued basis may increase the volatility of the Fund's net asset value to the
extent the Fund executes such purchases while remaining substantially fully
invested. As of February 29, 2004, the Fund had entered into net when issued
commitments of $194,788,766.
In connection with its ability to purchase securities on a when issued
basis, the Fund may enter into forward roll transactions with respect to
mortgage-related securities. Forward roll transactions require the sale of
securities for delivery in the current month, and a simultaneous agreement with
the same counterparty to repurchase similar (same type, coupon and maturity)
but not identical securities on a specified future date. The Fund records the
incremental difference between the forward purchase and sale of each forward
roll as fee income or realized gain (loss) on investments.
Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities to what was sold to the counterparty
at redelivery; counterparty credit risk; and the potential pay down speed
variance between the mortgage-related pools.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint
trading accounts on a daily basis. Secured by U.S. government securities, these
balances are invested in one or more
36 | OPPENHEIMER CAPITAL INCOME FUND
repurchase agreements. Securities pledged as collateral for repurchase
agreements are held by a custodian bank until the agreements mature. Each
agreement requires that the market value of the collateral be sufficient to
cover payments of interest and principal. In the event of default by the other
party to the agreement, retention of the collateral may be subject to legal
proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
As of February 29, 2004, the Fund had available for federal income tax
purposes an estimated unused capital loss carryforward of $8,337,755 expiring
by 2011. This estimated capital loss carryforward represents carryforward as of
the end of the last fiscal year, increased for losses deferred under tax
accounting rules to the current fiscal year and is increased or decreased by
capital losses or gains realized in the first six months of the current fiscal
year. During the six months ended February 29, 2004 and the year ended August
31, 2003, the Fund used $97,485,521 and $0, respectively, of carryforward to
offset capital gains realized.
As of August 31, 2003, the Fund had available for federal income tax purposes
an unused capital loss carryforward as follows:
EXPIRING
----------------------------------
2011 $105,823,276
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. Under the plan, deferred amounts are treated as
though equal dollar amounts had been invested in shares of the Fund or are
invested in other Oppenheimer funds selected by the Trustee. Deferral of
trustees' fees under the plan will not affect the net assets of the Fund, and
will not materially affect the Fund's assets, liabilities or net investment
income per share. Amounts will be deferred until distributed in accordance to
the Plan.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are
declared and paid quarterly. Capital gain distributions, if any, are declared
and paid annually.
37 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
SIX MONTHS ENDED FEBRUARY 29, 2004 YEAR ENDED AUGUST 31, 2003
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------
CLASS A
Sold 13,765,489 $ 163,880,714 23,888,388 $ 242,116,329
Dividends and/or
distributions reinvested 4,803,487 55,987,384 7,646,622 75,313,569
Redeemed (11,415,934) (135,542,251) (33,503,854) (331,438,565)
--------------------------------------------------------------
Net increase (decrease) 7,153,042 $ 84,325,847 (1,968,844) $ (14,008,667)
==============================================================
- ------------------------------------------------------------------------------------------
CLASS B
Sold 4,173,803 $ 49,194,263 7,062,687 $ 71,550,088
Dividends and/or
distributions reinvested 655,336 7,581,255 1,076,863 10,485,911
Redeemed (5,273,158) (61,953,070) (11,099,686) (108,873,288)
--------------------------------------------------------------
Net decrease (444,019) $ (5,177,552) (2,960,136) $ (26,837,289)
==============================================================
- ------------------------------------------------------------------------------------------
CLASS C
Sold 2,582,601 $ 30,164,546 2,646,850 $ 27,258,931
Dividends and/or
distributions reinvested 200,920 2,322,674 249,803 2,435,681
Redeemed (749,774) (8,807,641) (1,972,656) (19,289,467)
--------------------------------------------------------------
Net increase 2,033,747 $ 23,679,579 923,997 $ 10,405,145
==============================================================
38 | OPPENHEIMER CAPITAL INCOME FUND
SIX MONTHS ENDED FEBRUARY 29, 2004 YEAR ENDED AUGUST 31, 2003
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------
CLASS N
Sold 338,813 $ 4,034,587 531,993 $ 5,367,224
Dividends and/or
distributions reinvested 22,941 266,744 21,477 213,022
Redeemed (61,500) (730,905) (163,690) (1,642,897)
--------------------------------------------------------------
Net increase 300,254 $ 3,570,426 389,780 $ 3,937,349
==============================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the six months ended February 29, 2004, were
$2,182,697,319 and $2,108,624,592, respectively.
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $100 million of average annual net assets of
the Fund, 0.70% of the next $100 million, 0.65% of the next $100 million, 0.60%
of the next $100 million, 0.55% of the next $100 million and 0.50% of average
annual net assets in excess of $500 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the Fund. The
Fund pays OFS a per account fee. For the six months ended February 29, 2004,
the Fund paid $1,790,113 to OFS for services to the Fund.
OFS has voluntarily agreed to limit transfer and shareholder servicing agent
fees for all classes, up to an annual rate of 0.35% of average net assets per
class. This undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12B-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class
A shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses the fees it receives
from the Fund to pay brokers, dealers and other financial institutions for
personal services and account maintenance services they provide for their
customers who hold Class A shares. Any unreimbursed expenses the Distributor
incurs with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years. Fees incurred by the Fund under the plan are detailed in the
Statement of Operations.
39 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The
Fund has adopted Distribution and Service Plans for Class B, Class C and Class
N shares to compensate the Distributor for its services in connection with the
distribution of these shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% per year on
Class B shares and on Class C shares and 0.25% per year on Class N shares. The
Distributor also receives a service fee of up to 0.25% per year under each
plan. If either the Class B, Class C or Class N plan is terminated by the Fund
or by the shareholders of a class, the Board of Trustees and its independent
trustees must determine whether the Distributor shall be entitled to payment
from the Fund of all or a portion of the service fee and/or asset-based sales
charge in respect to shares sold prior to the effective date of such
termination. The Distributor's aggregate uncompensated expenses under the plan
at February 29, 2004 for Class B, Class C and Class N shares was $10,073,758,
$2,811,560 and $235,809, respectively. Fees incurred by the Fund under the
plans are detailed in the Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption
proceeds prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
SIX MONTHS RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- -------------------------------------------------------------------------------------------------------
February 29, 2004 $502,603 $3,762 $279,745 $6,417 $1,514
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into
foreign currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation
or depreciation.
40 | OPPENHEIMER CAPITAL INCOME FUND
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of February 29, 2004, the Fund had no outstanding foreign currency
contracts.
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy
and sell futures contracts that relate to broadly based securities indices
"financial futures" or debt securities "interest rate futures" in order to gain
exposure to or protection from changes in market value of stock and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it
may be more efficient or cost effective than actually buying fixed income
securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open futures
contracts is noted in the Statement of Assets and Liabilities. Securities held
in collateralized accounts to cover initial margin requirements on open futures
contracts are noted in the Statement of Investments. The Statement of Assets
and Liabilities reflects a receivable and/or payable for the daily mark to
market for variation margin. Realized gains and losses are reported on the
Statement of Operations as closing and expiration of futures contracts. The net
change in unrealized appreciation and depreciation is reported on the Statement
of Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
41 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued
As of February 29, 2004, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS FEBRUARY 29, 2004 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 6/21/04 100,000 $ 11,243,750 $ 42,187
U.S. Treasury Nts., 10 yr. 3/22/04 100,000 36,804,625 1,282,179
U.S. Treasury Nts., 10 yr. 6/21/04 100,000 16,284,125 12,714
-------------
1,337,080
-------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 6/30/04 200,000 (90,746,719) (65,180)
U.S. Treasury Nts., 5 yr. 6/21/04 100,000 (12,364,688) (44,889)
-------------
(110,069)
-------------
$1,227,011
=============
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a
written put option, or the cost of the security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
42 | OPPENHEIMER CAPITAL INCOME FUND
Written option activity for the six months ended February 29, 2004 was as
follows:
CALL OPTIONS PUT OPTIONS
- ------------------------------------------------------------------------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ------------------------------------------------------------------------------------------
Options outstanding as of
August 31, 2003 35,837 $ 4,562,196 55,856 $ 10,030,182
Options written 179,229 25,285,383 194,913 22,964,095
Options closed or expired (146,330) (14,809,860) (178,944) (24,581,907)
Options exercised (41,664) (9,155,080) (16,081) (2,821,023)
------------------------------------------------------------
Options outstanding as of
February 29, 2004 27,072 $ 5,882,639 55,744 $ 5,591,347
============================================================
- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS
The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to interest
income, in the amount due to or owed by the Fund at termination or settlement.
Total return swaps are subject to risks (if the counterparty fails to meet its
obligations).
As of February 29, 2004, the Fund had entered into the following total return
swap agreements:
PAID BY RECEIVED BY
THE FUND AT THE FUND AT
SWAP NOTIONAL FEBRUARY 29, FEBRUARY 29, TERMINATION UNREALIZED
COUNTERPARTY AMOUNT 2004 2004 DATE APPRECIATION
- ----------------------------------------------------------------------------------------------
Value of
One-Month total return of
LIBOR less 50 Lehman Brothers
Deutsche Bank $19,613,774 basis points CMBS Index 6/30/04 $165,439
- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES
As of February 29, 2004, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 10% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of
February 29, 2004 was $59,609,147, which represents 2.01% of the Fund's net
assets.
43 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS UNAUDITED / CONTINUED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. BORROWING AND LENDING ARRANGEMENTS
The Fund entered into an "interfund borrowing and lending arrangement" with
other funds in the Oppenheimer funds complex, to allow funds to borrow for
liquidity purposes. The arrangement was initiated pursuant to exemptive relief
granted by the Securities and Exchange Commission (the SEC) to allow these
affiliated funds to lend money to, and borrow money from, each other, in an
attempt to reduce borrowing costs below those of bank loan facilities. The
SEC's order requires the Fund's Board of Trustees to adopt operating policies
and procedures to administer interfund borrowing and lending. Under the
arrangement the Fund may lend money to other Oppenheimer funds and may borrow
from other Oppenheimer funds at a rate set by the Fund's Board of Trustees,
based upon a recommendation by the Manager. The Fund's borrowings, if any, are
subject to asset coverage requirements under the Investment Company Act and the
provisions of the SEC order and other applicable regulations. If the Fund
borrows money, there is a risk that the loan could be called on one day's
notice, in which case the Fund might have to borrow from a bank at higher rates
if a loan were not available from another Oppenheimer fund. If the Fund lends
money to another fund, it will be subject to the risk that the other fund might
not repay the loan in a timely manner, or at all.
The Fund had no interfund borrowings or loans outstanding during the six
months ended or at February 29, 2004.
- --------------------------------------------------------------------------------
PORTFOLIO PROXY VOTING
POLICIES AND PROCEDURES UNAUDITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and
Procedures is available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.225.5677, (ii) on the Fund's website at
www.oppenheimerfunds.com, and (iii) on the SEC's website at www.sec.gov. In
addition, the Fund will be required to file new Form N-PX, with its complete
proxy voting record for the 12 months ended June 30th, no later than August
31st of each year. The first such filing is due no later than August 31, 2004,
for the twelve months ended June 30, 2004. Once filed, the Fund's Form N-PX
filing will be available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.225.5677, and (ii) on the SEC's website at www.sec.gov.
44 | OPPENHEIMER CAPITAL INCOME FUND
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the registrant has determined that
Edward L. Cameron, the Chairman of the Board's Audit Committee, and George C.
Bowen, a member of the Board's Audit Committee, possess the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit
committee financial experts," and has designated Messrs. Cameron and Bowen as
the Audit Committee's financial experts. Messrs. Cameron and Bowen are
"independent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable to semiannual reports.
ITEM 5. NOT APPLICABLE
ITEM 6. RESERVED
ITEM 7. NOT APPLICABLE
ITEM 8. NOT APPLICABLE
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board is responsible for approving nominees for election as trustees. To
assist in this task, the Board has designated the Audit Committee as the
nominating committee for the Board. It reviews and recommends nominees to the
Board. The Committee is comprised entirely of disinterested trustees as defined
in Section 2(a)(19) of the Investment Company Act of 1940.
The Audit Committee charter describes the responsibilities of the Committee in
nominating candidates for election as independent Trustees of the Registrant.
The Registrant's Board has adopted a written charter for the Committee. A
current copy of the Audit Committee charter is available to shareholders on the
OppenheimerFunds website at www.oppenheimerfunds.com.
Under the current policy, if the Board determines that a vacancy exists or is
likely to exist on the Board, the Audit Committee of the Board will consider
candidates for Board membership including recommended by Registrant
shareholders. The Audit Committee will consider nominees recommended by
independent Board members or recommended by any other Board members including
Board members affiliated with the Registrant's investment advisors. The
Committee may, upon Board approval, retain an executive search firm to assist in
screening potential candidates. Upon Board approval, the Audit Committee may
also use the services of legal, financial, or other external counsel that it
deems necessary or desirable in the screening process. Shareholders wishing to
submit a nominee for election to the Board may do so by mailing their submission
to the offices of OppenheimerFunds, Inc., 6803 South Tucson Way,
Centennial, CO 80112, to the attention of the Board of Trustees of the named
Registrant, c/o the Secretary of the Registrant.
The Committee's process for identifying and evaluating nominees for trustee
includes a number of factors. In screening candidates for board membership,
whether the candidate is suggested by Board members, shareholders or others, the
Committee considers the candidate's professional experience, soundness of
judgment, integrity, ability to make independent, analytical inquiries,
collegiality, willingness and ability to devote the time required to perform
Board activities adequately, ability to represent the interests of all
shareholders of the Registrant, and diversity relative to the board's
composition. Candidates are expected to provide a mix of attributes, experience,
perspective and skills necessary to effectively advance the interests of
shareholders.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(c)) as of February 29, 2004,
registrant's principal executive officer and principal financial
officer found registrant's disclosure controls and procedures to
provide reasonable assurances that information required to be
disclosed by registrant in the reports that it files under the
Securities Exchange Act of 1934 (a) is accumulated and
communicated to registrant's management, including its principal
executive officer and principal financial officer, to allow timely
decisions regarding required disclosure, and (b) is recorded,
processed, summarized and reported, within the time periods
specified in the rules and forms adopted by the U.S. Securities
and Exchange Commission.
(b) There have been no significant changes in registrant's internal
controls over financial reporting that occurred during the
registrant's last fiscal half-year that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 11. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)