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
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
--------------
Date of fiscal year end: August 31
---------
Date of reporting period: September 1, 2003 - August 31, 2004
-----------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
- --------------------------------------------------------------------------------
TOP TEN COMMON STOCK INDUSTRIES
- --------------------------------------------------------
Oil & Gas 10.0%
- --------------------------------------------------------
Tobacco 4.6
- --------------------------------------------------------
Commercial Banks 4.4
- --------------------------------------------------------
Insurance 4.2
- --------------------------------------------------------
Diversified Financial Services 3.3
- --------------------------------------------------------
Specialty Retail 3.2
- --------------------------------------------------------
Aerospace & Defense 2.0
- --------------------------------------------------------
Pharmaceuticals 1.9
- --------------------------------------------------------
Industrial Conglomerates 1.7
- --------------------------------------------------------
Commercial Services & Supplies 0.8
Portfolio's holdings and allocations are subject to change. Percentages are as
of August 31, 2004, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
- --------------------------------------------------------
Kinder Morgan Management LLC 4.3%
- --------------------------------------------------------
Kinder Morgan, Inc. 3.7
- --------------------------------------------------------
Altria Group, Inc. 3.7
- --------------------------------------------------------
Citigroup, Inc. 2.9
- --------------------------------------------------------
CSK Auto Corp. 2.7
- --------------------------------------------------------
Everest Re Group Ltd. 2.5
- --------------------------------------------------------
Bank of America Corp. 1.6
- --------------------------------------------------------
Washington Mutual, Inc. 1.5
- --------------------------------------------------------
Raytheon Co. 1.4
- --------------------------------------------------------
U.S. Bancorp 1.3
Portfolio's holdings and allocations are subject to change. Percentages are as
of August 31, 2004, and are based on net assets. For more current Fund holdings,
please visit www.oppenheimerfunds.com.
8 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Stocks 36.6%
Bonds and Notes 31.5
Convertible Corporate Bonds and Notes 15.5
Convertible Preferred Stock and Structured Notes 11.3
Cash Equivalents 5.1
Portfolio's holdings and allocations are subject to change. Percentages are as
of August 31, 2004, and are based on total investments.
- --------------------------------------------------------------------------------
9 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2004, FOLLOWED BY
A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED
MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. On both an absolute and relative
basis, the Fund enjoyed strong results during its fiscal year, even after a
challenging environment for the stock market in the summer of 2004. The Fund's
outperformance can be attributed to successful stock selection, and especially
to our decisions to stick to our management approach during a difficult
environment in early 2003 and remain confident in many of our holdings. Also,
the Fund was helped by a significant weighting in convertible securities, which
benefited from a rising stock market as well as from contracting credit spreads
during most of the period.
As of August 31, 2004, the Fund's asset allocation stood at approximately
36.6% of the portfolio in stocks, 31.5% in bonds and notes and 15.5% in
convertible corporate bonds and notes, 11.3% in convertible preferred stock and
structured notes, and 5.1% in cash equivalents. This represents a modest
increase in the Fund's equity weighting, representing our increasing conviction
that the 2004 market downturn helped create attractively valued investment
opportunities.
As the period progressed, we looked to reduce our weighting in convertible
bonds. Many of the Fund's holdings in this area enjoyed very strong performance,
especially its lower-quality, higher-yielding securities. As they appreciated,
however, we believed that these bonds offered insufficient reward potential to
compensate for their risk. Accordingly, we sold some of our convertibles to lock
in gains, believing that equity securities generally offered the better relative
values.
In managing the portfolio's stock component, we made no broad strategic
changes but implemented subtle shifts based on market conditions. As always, our
overall approach was to seek to take advantage of opportunities presented by the
market, while selling securities when we identified excessive risks. During the
period, we modestly reduced our exposure to financial stocks, which we often
have favored because of their generally attractive dividend yields. However,
with the market's rally in 2003 and early 2004, some of the Fund's holdings had
reached our target prices, allowing us to sell some of our stake for a gain.
With the proceeds of these and other sales, we looked to rotate into
underperforming areas that we believed offered our shareholders an attractive
risk/reward balance. For example, we bought shares of two of the largest U.S.
defense contractors. We believed that such companies, trading at favorable
valuations, were well positioned to benefit in an increasingly dangerous world.
10 | OPPENHEIMER CAPITAL INCOME FUND
Insurance stocks, especially property and casualty stocks, represented a
second area of overweighting for the portfolio. This focus helped performance
during most of the period, although these investments eventually fell on
concerns about slowing revenues. By contrast, we remained underweighted in
technology, as we were unable to identify many attractively valued stocks in
this area--although we believed an increasing number of opportunities had
surfaced following the market correction.
The Fund's fixed-income portfolio continued to be conservatively
positioned with a small amount of high-yield securities to provide added income.
A strong contributor to the Fund's performance during the past 12 months
was conglomerate Tyco International. Tyco continued to recover from its 2002
decline, stemming from questions about the company's management practices and
accounting methods. Throughout the period, investors became increasingly
confident in the company's new management team. We remained attracted to the
stock's strong collection of businesses and steadily improving balance sheet.
A second strong performer was food and tobacco giant Altria, formerly
known as Philip Morris. Altria's shares rose after the company's tobacco-related
litigation risk appeared to diminish--it increased again late in the period--as
investors looked forward to a spin-off of its Kraft Foods subsidiary and
possible spin-off of its international tobacco business. We maintained a large
weighting in Altria because we anticipated an improving legal environment and
due to its high dividend yield.
One of the nation's largest banking chains, Bank of America also added to
returns. We repurchased shares of the company after it announced a pending
acquisition of rival FleetBoston, an announcement that sent Bank of America's
stock tumbling. However, we saw the opportunity to purchase a strong franchise
with a good dividend yield at an attractive price. Such a decision helped
performance as the stock rose off its lows.
On the negative side, the Fund was hampered by an investment in one of the
world's largest media companies. The company, which owns a number of radio and
television stations, was hurt as investors grew concerned about continued
weakness in radio advertising spending. CSK Auto was another disappointment.
Shares of this auto parts retailer fell on disappointing sales precipitated by
cool weather in its primary markets, the western half of the United States. We
believed this condition was temporary, however, and continued to like the
company's improving profit margins, debt-reduction efforts and reasonable
valuation.
11 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
The cable industry was another area of weakness for the Fund, as investors
grew increasingly concerned about the competitive threat posed by satellite
providers in the video business and by local telephone companies in the Internet
business. Against this backdrop, our position in two leading cable companies
detracted from results. Nevertheless, we remained optimistic about these
investments, believing that their ability to bundle video, Internet and voice
services may provide them with an edge over their rivals. We also believe that
the companies are beginning to generate free cash flow, which can be returned to
shareholders either through debt retirement or share buybacks.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each class of shares of the
Fund held until August 31, 2004. In the case of Class A and Class B shares,
performance is measured over a ten-fiscal-year period. In the case of Class C
shares, performance is measured from inception of the class on November 1, 1995.
In the case of Class N shares, performance is measured from inception of the
class on March 1, 2001. The Fund's performance reflects the deduction of the
maximum initial sales charge on Class A shares, the applicable contingent
deferred sales charge on Class B, Class C, and Class N shares, and reinvestments
of all dividends and capital gains distributions. Past performance cannot
guarantee future results.
The Fund's performance is compared to the performance of the Standard &
Poor's (S&P) 500 Index. The S&P 500 Index is a broad based index of U.S. equity
securities widely regarded as a general measure of the performance of the U.S.
equity securities market. Index performance reflects the reinvestment of income
but does not consider the effect of transaction costs, and none of the data in
the graphs shows the effect of taxes. The Fund's performance reflects the
effects of the Fund's business and operating expenses. While index comparisons
may be useful to provide a benchmark for the Fund's performance, it must be
noted that the Fund's investments are not limited to the investments in the
index.
12 | OPPENHEIMER CAPITAL INCOME FUND
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class A)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer S&P 500 Index
Capital Income Fund
(Class A Shares)
06/30/1994 $ 9,425 $10,000
09/30/1994 9,825 10,488
12/31/1994 9,488 10,486
03/31/1995 10,165 11,506
06/30/1995 10,901 12,603
09/30/1995 11,732 13,604
12/31/1995 12,137 14,422
03/31/1996 12,693 15,196
06/30/1996 12,930 15,877
08/31/1996 1 12,896 15,497
11/30/1996 14,763 18,089
02/28/1997 15,493 18,986
05/31/1997 15,954 20,473
08/31/1997 17,202 21,792
11/30/1997 18,301 23,246
02/28/1998 19,629 25,629
05/31/1998 20,295 26,749
08/31/1998 18,263 23,562
11/30/1998 20,599 28,751
02/28/1999 20,394 30,693
05/31/1999 21,157 32,375
08/31/1999 20,277 32,941
11/30/1999 19,633 34,758
02/29/2000 18,536 34,293
05/31/2000 20,781 35,764
08/31/2000 21,744 38,312
11/30/2000 21,032 33,289
02/28/2001 23,192 31,482
05/31/2001 24,465 31,992
08/31/2001 23,231 28,973
11/30/2001 22,233 29,224
02/28/2002 21,756 28,489
05/31/2002 22,129 27,566
08/31/2002 19,107 23,762
11/30/2002 19,469 24,400
02/28/2003 19,272 22,030
05/31/2003 22,204 25,342
08/31/2003 22,946 26,627
11/30/2003 24,484 28,079
02/29/2004 26,159 30,511
05/31/2004 25,381 29,985
08/31/2004 25,315 29,675
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
8/31/04
1 YEAR 5 YEAR 10 YEAR
- ------ ------ -------
3.98% 3.31% 9.07%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER
INFORMATION.
1. The Fund changed its fiscal year end from June 30 to August 31.
13 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class B)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer S&P 500 Index
Capital Income Fund
(Class B Shares)
06/30/1994 $10,000 $10,000
09/30/1994 10,406 10,488
12/31/1994 10,028 10,486
03/31/1995 10,727 11,506
06/30/1995 11,487 12,603
09/30/1995 12,330 13,604
12/31/1995 12,734 14,422
03/31/1996 13,283 15,196
06/30/1996 13,506 15,877
08/31/1996 1 13,458 15,497
11/30/1996 15,375 18,089
02/28/1997 16,093 18,986
05/31/1997 16,531 20,473
08/31/1997 17,787 21,792
11/30/1997 18,899 23,246
02/28/1998 20,235 25,629
05/31/1998 20,862 26,749
08/31/1998 18,733 23,562
11/30/1998 21,108 28,751
02/28/1999 20,849 30,693
05/31/1999 21,595 32,375
08/31/1999 20,646 32,941
11/30/1999 19,959 34,758
02/29/2000 18,801 34,293
05/31/2000 21,034 35,764
08/31/2000 22,010 38,312
11/30/2000 21,290 33,289
02/28/2001 23,477 31,482
05/31/2001 24,765 31,992
08/31/2001 23,516 28,973
11/30/2001 22,506 29,224
02/28/2002 22,023 28,489
05/31/2002 22,400 27,566
08/31/2002 19,341 23,762
11/30/2002 19,708 24,400
02/28/2003 19,508 22,030
05/31/2003 22,477 25,342
08/31/2003 23,228 26,627
11/30/2003 24,784 28,079
02/29/2004 26,479 30,511
05/31/2004 25,693 29,985
08/31/2004 25,625 29,675
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
8/31/04
1 YEAR 5 YEAR 10 YEAR
- ------ ------ -------
4.46% 3.40% 9.20%
1. The Fund changed its fiscal year end from June 30 to August 31.
14 | OPPENHEIMER CAPITAL INCOME FUND
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class C)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer S&P 500 Index
Capital Income Fund
(Class C Shares)
11/01/1995 $10,000 $10,000
12/31/1995 10,420 10,640
03/31/1996 10,864 11,211
06/30/1996 11,050 11,713
08/31/1996 1 11,001 11,432
11/30/1996 12,569 13,345
02/28/1997 13,169 14,007
05/31/1997 13,525 15,104
08/31/1997 14,555 16,077
11/30/1997 15,458 17,149
02/28/1998 16,541 18,907
05/31/1998 17,068 19,734
08/31/1998 15,327 17,382
11/30/1998 17,260 21,211
02/28/1999 17,049 22,643
05/31/1999 17,659 23,884
08/31/1999 16,883 24,301
11/30/1999 16,320 25,642
02/29/2000 15,384 25,299
05/31/2000 17,209 26,385
08/31/2000 17,964 28,264
11/30/2000 17,335 24,559
02/28/2001 19,093 23,226
05/31/2001 20,086 23,602
08/31/2001 19,042 21,375
11/30/2001 18,194 21,559
02/28/2002 17,782 21,018
05/31/2002 18,030 20,336
08/31/2002 15,557 17,530
11/30/2002 15,805 18,000
02/28/2003 15,622 16,253
05/31/2003 17,945 18,696
08/31/2003 18,520 19,644
11/30/2003 19,705 20,715
02/29/2004 21,023 22,509
05/31/2004 20,358 22,121
08/31/2004 20,260 21,892
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
8/31/04
1 YEAR 5 YEAR SINCE INCEPTION
- ------ ------ ---------------
8.40% 3.71% 8.32%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES
CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR FURTHER
INFORMATION.
1. The Fund changed its fiscal year end from June 30 to August 31.
15 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class N)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer S&P 500 Index
Capital Income Fund
(Class N Shares)
03/01/2001 $10,000 $10,000
05/31/2001 10,520 10,162
08/31/2001 9,982 9,203
11/30/2001 9,550 9,283
02/28/2002 9,335 9,049
05/31/2002 9,485 8,756
08/31/2002 8,196 7,548
11/30/2002 8,331 7,750
02/28/2003 8,241 6,998
05/31/2003 9,488 8,050
08/31/2003 9,790 8,458
11/30/2003 10,441 8,919
02/29/2004 11,148 9,692
05/31/2004 10,798 9,524
08/31/2004 10,770 9,426
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
8/31/04
1 YEAR SINCE INCEPTION
- ------ ---------------
9.01% 2.14%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER
INFORMATION.
16 | OPPENHEIMER CAPITAL INCOME FUND
NOTES
- --------------------------------------------------------------------------------
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
Investors should consider the Fund's investment objectives, risks, and other
charges and expenses carefully before investing. The Fund's prospectus contains
this and other information about the Fund, and may be obtained by asking your
financial advisor, calling us at 1.800.525.7048 or visiting our website at
www.oppenheimerfunds.com. Read the prospectus carefully before investing.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%.
CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the 10-year return for Class B uses
Class A performance for the period after conversion and the ending account value
does not reflect the deduction of any sales charges. Class B shares are subject
to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
17 | OPPENHEIMER CAPITAL INCOME FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments;
contingent deferred sales charges on redemptions; and redemption fees, if any
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended August 31, 2004.
ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line for the class of shares you hold, together with the amount you invested, to
estimate the expense that you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.60), then multiply the result by the number in the "actual" line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio for each class of shares, and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical example for
the class of shares you hold with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front-end
or contingent deferred sales charges (loads), or a $12.00 fee imposed annually
on accounts valued at less than $500.00 (subject to exceptions described
18 | OPPENHEIMER CAPITAL INCOME FUND
in the Statement of Additional Information). Therefore, the "hypothetical" lines
of the table are useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(3/1/04) (8/31/04) AUGUST 31, 2004
- ----------------------------------------------------------------
Class A Actual $ 1,000.00 $ 967.70 $ 4.41
- ----------------------------------------------------------------
Class A Hypothetical 1,000.00 1,020.66 4.53
- ----------------------------------------------------------------
Class B Actual 1,000.00 964.10 8.78
- ----------------------------------------------------------------
Class B Hypothetical 1,000.00 1,016.24 9.01
- ----------------------------------------------------------------
Class C Actual 1,000.00 963.70 8.48
- ----------------------------------------------------------------
Class C Hypothetical 1,000.00 1,016.54 8.70
- ----------------------------------------------------------------
Class N Actual 1,000.00 966.10 6.30
- ----------------------------------------------------------------
Class N Hypothetical 1,000.00 1,018.75 6.46
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Fund's annualized expense ratio for that class,
multiplied by the average account value over the period, multiplied by 184/366
(to reflect the one-half year period). Those expense ratios for the 6-month
period ended August 31, 2004 are as follows:
CLASS EXPENSE RATIOS
- ----------------------------------------------------------------
Class A 0.89%
- ----------------------------------------------------------------
Class B 1.77
- ----------------------------------------------------------------
Class C 1.71
- ----------------------------------------------------------------
Class N 1.27
- --------------------------------------------------------------------------------
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS August 31, 2004
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS--40.8%
- ---------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--4.2%
- ---------------------------------------------------------------------------------------------------
AUTO COMPONENTS--0.2%
TRW Automotive Holdings Corp. 1 302,500 $ 5,889,675
- ---------------------------------------------------------------------------------------------------
MEDIA--0.5%
Cablevision Systems New York Group, Cl. A 1 5,000 92,600
- ---------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 366,400 12,278,064
- ---------------------------------------------------------------------------------------------------
EchoStar Communications Corp., Cl. A 1,2 25,000 766,250
---------------
13,136,914
- ---------------------------------------------------------------------------------------------------
MULTILINE RETAIL--0.3%
Dollar Tree Stores, Inc. 1 415,000 9,756,650
- ---------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--3.2%
CarMax, Inc. 1 690,400 13,518,032
- ---------------------------------------------------------------------------------------------------
CSK Auto Corp. 1,3 6,500,000 76,310,000
---------------
89,828,032
- ---------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.6%
- ---------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.0%
Kroger Co. (The) 1 100 1,653
- ---------------------------------------------------------------------------------------------------
TOBACCO--4.6%
Altria Group, Inc. 2 2,120,000 103,774,000
- ---------------------------------------------------------------------------------------------------
Loews Corp./Carolina Group 1,046,750 25,833,790
---------------
129,607,790
- ---------------------------------------------------------------------------------------------------
ENERGY--10.6%
- ---------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.6%
GlobalSantaFe Corp. 645,000 17,982,600
- ---------------------------------------------------------------------------------------------------
OIL & GAS--10.0%
BP plc, ADR 500,000 26,850,000
- ---------------------------------------------------------------------------------------------------
Enbridge Energy Management LLC 3 650,000 28,099,500
- ---------------------------------------------------------------------------------------------------
Kinder Morgan Management LLC 3,175,000 123,412,250
- ---------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 1,750,000 105,875,000
---------------
284,236,750
- ---------------------------------------------------------------------------------------------------
FINANCIALS--13.1%
- ---------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--4.4%
Bank of America Corp. 2 1,000,000 44,980,000
- ---------------------------------------------------------------------------------------------------
U.S. Bancorp 1,250,000 36,875,000
- ---------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 2 1,120,800 43,520,664
---------------
125,375,664
20 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.3%
Citigroup, Inc. 1,760,900 $ 82,022,722
- ---------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 171,600 6,791,928
- ---------------------------------------------------------------------------------------------------
Morgan Stanley 100,000 5,073,000
---------------
93,887,650
- ---------------------------------------------------------------------------------------------------
INSURANCE--4.2%
ACE Ltd. 775,000 29,876,250
- ---------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 1,000,000 70,160,000
- ---------------------------------------------------------------------------------------------------
Prudential Financial, Inc. 25,000 1,154,500
- ---------------------------------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 225,000 7,805,250
- ---------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 150,000 10,530,000
---------------
119,526,000
- ---------------------------------------------------------------------------------------------------
REAL ESTATE--0.5%
Anthracite Capital, Inc. 1,000,000 11,550,000
- ---------------------------------------------------------------------------------------------------
Origen Financial, Inc. 225,000 1,696,500
---------------
13,246,500
- ---------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.7%
Freddie Mac 2 28,000 1,879,360
- ---------------------------------------------------------------------------------------------------
PMI Group, Inc. (The) 175,000 7,267,750
- ---------------------------------------------------------------------------------------------------
Radian Group, Inc. 250,000 11,075,000
---------------
20,222,110
- ---------------------------------------------------------------------------------------------------
HEALTH CARE--2.4%
- ---------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
Wyeth 225,000 8,228,250
- ---------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Boston Scientific Corp. 1 150,000 5,359,500
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.9%
Abbott Laboratories 463,200 19,310,808
- ---------------------------------------------------------------------------------------------------
Merck & Co., Inc. 210,000 9,443,700
- ---------------------------------------------------------------------------------------------------
Pfizer, Inc. 625,000 20,418,750
- ---------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1 175,000 4,819,500
---------------
53,992,758
- ---------------------------------------------------------------------------------------------------
INDUSTRIALS--4.5%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.0%
Lockheed Martin Corp. 337,500 18,150,750
- ---------------------------------------------------------------------------------------------------
Raytheon Co. 1,160,000 40,286,800
---------------
58,437,550
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.8%
Cendant Corp. 1,005,000 $ 21,738,150
- ---------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.7%
General Electric Co. 345,000 11,312,550
- ---------------------------------------------------------------------------------------------------
Tyco International Ltd. 2 1,162,000 36,393,840
---------------
47,706,390
- ---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.5%
- ---------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Hewlett-Packard Co. 50,000 894,500
- ---------------------------------------------------------------------------------------------------
IT SERVICES--0.2%
Unisys Corp. 1 500,000 5,020,000
- ---------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.1%
National Semiconductor Corp. 1 107,500 1,432,975
- ---------------------------------------------------------------------------------------------------
SOFTWARE--0.2%
Compuware Corp. 1 10,000 45,300
- ---------------------------------------------------------------------------------------------------
Microsoft Corp. 225,000 6,142,500
---------------
6,187,800
- ---------------------------------------------------------------------------------------------------
MATERIALS--0.2%
- ---------------------------------------------------------------------------------------------------
CHEMICALS--0.2%
Lyondell Chemical Co. 2 350,000 6,891,500
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.2%
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.2%
SBC Communications, Inc. 125,000 3,223,750
- ---------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 2 100,000 3,925,000
---------------
7,148,750
- ---------------------------------------------------------------------------------------------------
UTILITIES--0.5%
- ---------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.5%
Equitable Resources, Inc. 2 287,500 15,073,625
---------------
Total Common Stocks (Cost $906,547,184) 1,160,809,736
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCKS--8.4%
- ---------------------------------------------------------------------------------------------------
AES Trust III, 6.75% Cv. 100,000 4,370,000
- ---------------------------------------------------------------------------------------------------
Allied Waste Industries, Inc., 6.25% Cv. Sr., Non-Vtg. 75,000 4,342,500
- ---------------------------------------------------------------------------------------------------
Aquila, Inc., 6.75% Cv. 1 350,000 10,325,000
- ---------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 2% Cv. Zero-Premium
Exchangeable Sub. Nts., 9/15/29 (exchangeable for
cash based on value of Time Warner, Inc. common stock) 1,000,000 32,337,000
- ---------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., 2% Cv.
(cv. into Regency Centers Corp. common stock) 225,000 9,187,425
22 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCKS Continued
- ---------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., Series A,
Non-Vtg. 400,000 $ 17,500,000
- ---------------------------------------------------------------------------------------------------
Equity Securities Trust I/Cablevision Systems Corp.,
6.50% Cv., Series CVC (exchangeable into Cablevision NY
Group, Cl. A common stock) 1,000,000 19,020,000
- ---------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., 5.50%. Cv. 5 10,000 9,775,000
- ---------------------------------------------------------------------------------------------------
Genworth Financial, Inc., 6% Cv. 300,000 8,550,000
- ---------------------------------------------------------------------------------------------------
McKesson Financing Trust, 5% Cum. Cv., Non-Vtg. 117,500 5,904,375
- ---------------------------------------------------------------------------------------------------
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 1), Non-Vtg. 4 262,500 18,004,875
- ---------------------------------------------------------------------------------------------------
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 20,823,750
- ---------------------------------------------------------------------------------------------------
Six Flags, Inc., 7.25% Cum. Cv. Preferred Income Equity
Redeemable Shares, Non-Vtg. 675,000 13,871,250
- ---------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec.
Sub. Nts. 1,250,000 27,750,000
- ---------------------------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly Income
Preferred Securities 575,000 22,640,625
- ---------------------------------------------------------------------------------------------------
UnumProvident Corp., 8.25% Cv. 275,000 9,185,000
- ---------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The), 5.50% Cv. Jr. Unsec. Sub.
Debs. 47,500 3,342,813
- ---------------------------------------------------------------------------------------------------
XL Capital Ltd., 6.50% Cv. 144,000 3,424,320
---------------
Total Preferred Stocks (Cost $234,636,977) 240,353,933
PRINCIPAL
AMOUNT
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--15.6%
- ---------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg.
Obligations Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 $ 5,180,000 5,349,969
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 2,964,315 2,971,496
Series 2004-G, Cl. 2A1, 2.469%, 8/25/34 3,204,992 3,205,493
- ---------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2003-EF1, Cl. A2, 1.49%, 12/20/05 1,010,096 1,009,948
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 9/1/34 6 31,795,000 31,536,666
5.50%, 1/1/34 1,605,976 1,634,449
7%, 11/1/32-11/1/33 7,865,839 8,384,685
7%, 9/1/34 6 30,913,000 32,845,063
8%, 4/1/16 1,134,153 1,219,092
9%, 8/1/22-5/1/25 330,979 371,360
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 $ 875,827 $ 884,707
Series 2055, Cl. ZM, 6.50%, 5/15/28 1,805,075 1,897,968
Series 2075, Cl. D, 6.50%, 8/15/28 4,666,352 4,914,704
Series 2080, Cl. Z, 6.50%, 8/15/28 1,179,550 1,227,891
Series 2102, Cl. VA, 6%, 10/15/09 209,822 209,761
Series 2387, Cl. PD, 6%, 4/15/30 2,738,506 2,819,015
Series 2466, Cl. PD, 6.50%, 4/15/30 1,526,531 1,547,832
Series 2491, Cl. PE, 6%, 12/15/27 79,079 79,055
Series 2498, Cl. PC, 5.50%, 10/15/14 399,353 405,775
Series 2500, Cl. FD, 2.10%, 3/15/32 7 797,807 801,693
Series 2526, Cl. FE, 2%, 6/15/29 7 911,703 917,249
Series 2551, Cl. FD, 2%, 1/15/33 7 748,460 751,625
Series 2551, Cl. TA, 4.50%, 2/15/18 1,521,859 1,523,964
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 1.326%, 6/1/26 8 1,254,081 239,693
Series 183, Cl. IO, 0.313%, 4/1/27 8 2,066,608 378,141
Series 184, Cl. IO, 3.054%, 12/1/26 8 2,031,178 386,187
Series 192, Cl. IO, 7.027%, 2/1/28 8 626,402 115,296
Series 200, Cl. IO, 6.143%, 1/1/29 8 756,111 139,974
Series 2130, Cl. SC, 22.176%, 3/15/29 8 1,462,913 165,221
Series 2796, Cl. SD, 30.994%, 7/15/26 8 2,136,956 235,430
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. PO, 6.662%, 6/1/26 9 596,916 523,465
Series 217, Cl. PO, 7.896%, 1/1/32 9 790,486 685,862
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Structured Pass-Through
Securities, Collateralized Mtg. Obligations, Series T-42,Cl. A2,
5.50%, 2/25/42 3,106 3,107
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 9/1/19 6 14,853,000 14,843,717
5%, 9/1/34 6 7,194,000 7,137,800
5.50%, 7/1/33-4/1/34 22,630,754 23,062,844
5.50%, 9/1/19-9/1/34 6 88,322,000 90,502,761
6%, 10/1/34 6 12,191,000 12,583,404
6.50%, 10/1/30 726,473 766,481
6.50%, 9/30/34 6 37,445,000 39,317,250
7%, 7/1/32-7/1/34 16,345,628 17,413,170
7%, 7/1/34-10/1/34 6 81,123,782 86,141,172
8.50%, 7/1/32 198,267 215,194
24 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd.
Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 $ 3,505,695 $ 3,721,226
Trust 1998-63, Cl. PG, 6%, 3/25/27 777,117 783,656
Trust 2001-50, Cl. NE, 6%, 8/25/30 1,614,289 1,635,211
Trust 2001-70, Cl. LR, 6%, 9/25/30 1,355,422 1,396,200
Trust 2001-72, Cl. NH, 6%, 4/25/30 1,162,434 1,192,843
Trust 2001-74, Cl. PD, 6%, 5/25/30 495,427 506,880
Trust 2002-50, Cl. PD, 6%, 9/25/27 1,500,000 1,514,303
Trust 2002-77, Cl. WF, 2%, 12/18/32 7 1,238,789 1,242,697
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 2,234,089 2,246,729
Trust 2003-81, Cl. PA, 5%, 2/25/12 789,633 797,578
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates, Interest-Only Stripped
Mtg.-Backed Security:
Trust 2002-47, Cl. NS, 24.788%, 4/25/32 8 2,843,613 317,459
Trust 2002-51, Cl. S, 15.812%, 8/25/32 8 2,610,827 291,471
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Trust 222, Cl. 2, (2.418)%, 6/1/23 8 4,041,418 807,832
Trust 240, Cl. 2, 0.535%, 9/1/23 8 6,029,581 1,240,876
Trust 252, Cl. 2, (0.233)%, 11/1/23 8 3,136,102 680,121
Trust 254, Cl. 2, 2.433%, 1/1/24 8 1,521,696 324,994
Trust 273, Cl. 2, 1.012%, 7/1/26 8 895,307 186,786
Trust 308, Cl. 2, 8.114%, 9/1/30 8 4,183,727 796,733
Trust 321, Cl. 2, (5.909)%, 3/1/32 8 8,544,068 1,689,136
Trust 2001-81, Cl. S, 27.645%, 1/25/32 8 1,515,695 160,788
Trust 2002-9, Cl. MS, 26.164%, 3/25/32 8 1,786,432 202,586
Trust 2002-52, Cl. SD, 17.754%, 9/25/32 8 3,355,017 334,930
Trust 2004-54, Cl. DS, 28.86%, 11/25/30 8 3,176,743 303,378
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped
Mtg.-Backed Security, Trust 1993-184, Cl. M, 9.626%, 9/25/23 9 1,324,218 1,140,859
- ---------------------------------------------------------------------------------------------------
First Union/Lehman Brothers/Bank of America, Commercial Mtg.
Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%,
11/18/35 1,730,000 1,894,540
- ---------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg.
Obligations, Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,752,676
- ---------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 1,460,954 1,582,308
- ---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 396,598 437,515
- ---------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 24.981%, 1/16/27 8 2,814,771 283,073
Series 2002-15, Cl. SM, 19.37%, 2/16/32 8 2,627,967 253,353
Series 2002-76, Cl. SY, 17.107%, 12/16/26 8 6,341,267 647,488
Series 2004-11, Cl. SM, 22.781%, 1/17/30 8 2,571,118 253,583
- ---------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through
Certificates, Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 1,080,000 1,111,582
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- ---------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 $ 1,950,000 $ 2,148,099
- ---------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg.
Pass-Through Certificates, Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15 5 2,380,000 2,766,979
- ---------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Obligations,
Series 2004-B, Cl. A2, 2.40%, 1/20/06 6 1,940,000 1,940,188
- ---------------------------------------------------------------------------------------------------
Wells Fargo Mortgage Backed Securities Trust, Collateralized
Mtg. Obligations, Series 2004-N, Cl. A10, 3.803%, 8/25/34 10 5,342,315 5,362,349
---------------
Total Mortgage-Backed Obligations (Cost $441,907,112) 445,314,634
- ---------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--3.4%
- ---------------------------------------------------------------------------------------------------
Bank One Auto Securitization Trust, Automobile Receivable
Certificates, Series 2003-1, Cl. A2, 1.29%, 8/21/06 1,999,760 1,996,255
- ---------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates:
Series 2003-A, Cl. A2, 1.45%, 11/25/05 96,022 96,065
Series 2004-A, Cl. A2, 1.88%, 10/25/06 3,730,000 3,725,271
- ---------------------------------------------------------------------------------------------------
Caterpillar Financial Asset Trust, Equipment Loan Pass-Through
Certificates, Series 2003-A, Cl. A2, 1.25%, 10/25/05 182,583 182,632
- ---------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed
Certificates:
Series 2003-B, Cl. AF1, 1.64%, 2/25/18 140,325 140,215
Series 2003-C, Cl. AF1, 2.14%, 7/25/18 1,409,246 1,408,010
Series 2004-A, Cl. AF1, 2.03%, 6/25/19 1,318,917 1,316,684
- ---------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home
Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%, 4/25/23 948,827 952,245
Series 2003-1, Cl. 1A3, 3.14%, 7/25/23 2,060,000 2,064,413
Series 2003-3, Cl. 1A1, 1.695%, 8/25/17 7 424,612 424,833
Series 2003-4, Cl. 1A1, 1.735%, 9/25/17 7 1,558,348 1,559,292
Series 2004-1, Cl. 2A1, 1.725%, 9/25/21 7 4,724,001 4,726,585
- ---------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 850,000 862,134
Series 2003-A, Cl. A2, 1.26%, 1/16/06 419,125 419,114
Series 2003-B, Cl. A2, 1.28%, 3/15/06 870,527 870,011
- ---------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable
Nts., Series 2002-A3, Cl. A3, 4.40%, 5/15/07 2,230,000 2,266,448
- ---------------------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities, Inc., Home Equity
Collateralized Mtg. Obligations:
Series 2003-2, Cl. AF1, 1.715%, 5/25/33 7 558,930 559,249
Series 2003-3, Cl. AF1, 1.735%, 8/25/33 7 1,121,839 1,122,552
- ---------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through
Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05 2,977,216 2,977,328
Series 2003-B, Cl. A2, 1.61%, 7/10/06 5,730,000 5,726,736
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2,700,000 2,700,000
26 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- ---------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through
Certificates, Series 2004-A, Cl. A2, 2.13%, 10/15/06 $ 5,000,000 $ 5,000,278
- ---------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.:
Series 2002-2, Cl. A1, 1.91%, 4/15/07 496,634 496,987
Series 2003-3, Cl. A1, 1.50%, 1/15/08 2,687,268 2,682,228
- ---------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable
Obligations:
Series 2003-2, Cl. A2, 1.34%, 12/21/05 1,271,427 1,271,364
Series 2003-3, Cl. A2, 1.52%, 4/21/06 3,981,303 3,978,553
Series 2003-4, Cl. A2, 1.58%, 7/17/06 4,275,272 4,271,309
- ---------------------------------------------------------------------------------------------------
Household Automotive Trust, Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%, 12/18/06 2,090,625 2,088,584
- ---------------------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07 1,903,169 1,908,237
Series 2003-1, Cl. A2, 1.60%, 7/20/06 3,766,214 3,764,119
- ---------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable
Obligations,
Series 2004-A, Cl. A2, 1.50%, 2/15/07 2,210,000 2,204,353
- ---------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations,
Series 2003-A, Cl. A2, 1.69%, 12/15/05 2,118,139 2,119,164
- ---------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06 850,000 858,851
Series 2003-B, Cl. A2, 1.20%, 11/15/05 1,272,569 1,272,896
Series 2004-A, Cl. A2, 1.40%, 7/17/06 2,560,000 2,552,024
- ---------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed
Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06 538,123 540,842
Series 2003-A, Cl. A2, 1.28%, 8/15/05 103,820 103,864
Series 2003-B, Cl. A2, 1.43%, 2/15/06 2,442,128 2,439,890
- ---------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06 939,634 941,690
Series 2003-1, Cl. A2, 1.22%, 4/17/06 893,281 893,223
Series 2004-1, Cl. A2, 1.43%, 9/15/06 6,130,000 6,113,042
Series 2004-2, Cl. A2, 2.38%, 2/15/07 2,730,000 2,735,336
- ---------------------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced Trust, Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2, 1.11%, 12/20/05 885,993 885,441
Series 2003-2, Cl. A2, 1.55%, 6/20/06 2,427,924 2,425,991
- ---------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Home Equity Loan Pass-Through
Certificates, Series 2004-2, Cl. AI1B, 3.35%, 9/26/34 6 4,340,000 4,340,000
- ---------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2003-1, Cl. A2A, 1.40%, 4/15/06 3,698,524 3,695,157
---------------
Total Asset-Backed Securities (Cost $95,774,152) 95,679,495
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--4.2%
- ---------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
2.75%, 8/15/06 $ 6,000,000 $ 6,023,574
4.50%, 1/15/13 2,740,000 2,757,931
4.875%, 3/15/07-11/15/13 7,835,000 8,178,630
5.50%, 7/15/06 23,560,000 24,844,208
5.75%, 1/15/12 2,300,000 2,517,079
6.25%, 7/15/32 550,000 614,783
6.625%, 9/15/09 13,470,000 15,249,266
- ---------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.25%, 8/15/08 1,800,000 1,792,152
4.25%, 7/15/07 13,900,000 14,395,549
6%, 5/15/11 4,820,000 5,337,099
7.25%, 5/15/30 2,315,000 2,896,787
- ---------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%, 11/13/08 908,000 973,759
7.125%, 5/1/30 989,000 1,214,947
Series C, 4.75%, 8/1/13 860,000 871,760
Series C, 6%, 3/15/13 825,000 911,196
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%, 2/15/31 11 6,400,000 6,816,006
5.50%, 8/15/28 2,775,000 2,962,204
6.125%, 11/15/27 11 4,639,000 5,350,437
STRIPS, 2.99%, 2/15/10 12 2,075,000 1,707,974
STRIPS, 3.37%, 2/15/11 11,12 4,403,000 3,448,742
STRIPS, 3.84%, 2/15/13 11,12 5,158,000 3,620,488
STRIPS, 4.96%, 2/15/16 12 1,157,000 682,581
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.25%, 11/15/13-8/15/14 3,080,000 3,117,960
6.50%, 2/15/10 11 3,300,000 3,798,739
---------------
Total U.S. Government Obligations (Cost $119,264,103) 120,083,851
- ---------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.0%
- ---------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $1,240,122) 1,205,000 1,365,265
- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.8%
- ---------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 15 3,060,000 3,266,042
- ---------------------------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,825,000
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,756,250
8.875% Sr. Nts., Series B, 4/1/08 1,230,000 1,356,075
- ---------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 5 625,000 638,093
- ---------------------------------------------------------------------------------------------------
Allstate Life Global Funding II, 3.50% Nts., 7/30/07 850,000 857,392
- ---------------------------------------------------------------------------------------------------
American Express Centurion Bank, 4.375% Nts., 7/30/09 1,140,000 1,167,452
- ---------------------------------------------------------------------------------------------------
American Honda Finance Corp., 3.85% Nts., 11/6/08 5 725,000 730,184
28 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec. Nts., 5/1/07 15 $ 2,170,000 $ 2,403,095
- ---------------------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30 1,810,000 2,332,900
- ---------------------------------------------------------------------------------------------------
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13 40,000 40,460
- ---------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,687,500
- ---------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 250,000 282,498
- ---------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
8.375% Sr. Nts., 4/15/12 800,000 874,000
8.625% Sr. Unsec. Nts., 5/15/11 1,285,000 1,400,650
- ---------------------------------------------------------------------------------------------------
Boeing Capital Corp., 5.65% Sr. Unsec. Nts., 5/15/06 234,000 245,533
- ---------------------------------------------------------------------------------------------------
British Telecommunications plc:
7.875% Nts., 12/15/05 1,940,000 2,068,989
8.125% Nts., 12/15/10 1,420,000 1,712,840
- ---------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC, 8.50% Sr. Unsec. Nts., 5/1/08 5,000,000 3,212,500
- ---------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09 433,000 439,663
- ---------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08 1,710,000 1,796,550
8.125% Unsec. Nts., Series B, 7/15/05 475,000 497,402
- ---------------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/
Charter Communications Holdings Capital Corp.:
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 13 4,250,000 3,123,750
8.625% Sr. Unsec. Nts., 4/1/09 40,000,000 32,000,000
9.92% Sr. Unsec. Disc. Nts., 4/1/11 50,000,000 39,750,000
- ---------------------------------------------------------------------------------------------------
Chesapeake Energy Corp.:
6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,699,018
7.50% Sr. Nts., 6/15/14 1,660,000 1,780,350
- ---------------------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts., 5/15/07 3,613,000 3,974,950
- ---------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,150,000 1,358,980
- ---------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 462,000 501,270
- ---------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc., 4.625% Sr. Unsec. Nts.,
1/15/08 3,240,000 3,304,894
- ---------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06 1,585,000 1,676,266
- ---------------------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub. Nts., Series B, 6/1/05 372,000 378,619
- ---------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 8% Sr. Nts., 12/15/05 3,000,000 2,760,000
- ---------------------------------------------------------------------------------------------------
Cox Communications, Inc., 6.40% Sr. Unsec. Nts., 8/1/08 2,185,000 2,295,812
- ---------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 3,030,000
- ---------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 1,460,000 1,586,068
- ---------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 9.375% Sr. Unsec. Sub. Nts., 3/15/11 1,185,000 1,336,088
- ---------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 4.75% Unsec. Nts.,
1/15/08 2,295,000 2,368,936
- ---------------------------------------------------------------------------------------------------
Delphi Automotive Systems Corp., 6.50% Nts., 5/1/09 1,235,000 1,318,206
- ---------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts.,
6/15/10 1,790,000 2,149,727
- ---------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 1,300,000 1,542,505
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 $ 1,430,000 $ 1,510,152
- ---------------------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts., 8/15/14 1,630,000 1,652,892
- ---------------------------------------------------------------------------------------------------
Edison International, Inc., 6.875% Unsec. Nts., 9/15/04 10 788,000 789,773
- ---------------------------------------------------------------------------------------------------
EOP Operating LP, 6.763% Sr. Unsec. Nts., 6/15/07 275,000 298,239
- ---------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 2,150,000 2,363,519
- ---------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 3,360,000 3,317,469
- ---------------------------------------------------------------------------------------------------
FirstEnergy Corp., 5.50% Sr. Unsub. Nts., Series A, 11/15/06 3,135,000 3,279,627
- ---------------------------------------------------------------------------------------------------
Food Lion, Inc., 7.55% Nts., 4/15/07 2,010,000 2,188,918
- ---------------------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec. Unsub. Debs., 3/1/30 1,140,000 1,307,737
- ---------------------------------------------------------------------------------------------------
Ford Motor Co., 8.90% Unsec. Unsub. Debs., 1/15/32 1,045,000 1,179,884
- ---------------------------------------------------------------------------------------------------
France Telecom SA:
8.75% Sr. Unsec. Nts., 3/1/11 1,005,000 1,200,167
9.50% Sr. Unsec. Nts., 3/1/31 7 755,000 996,765
- ---------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 1,025,000 1,029,758
- ---------------------------------------------------------------------------------------------------
Gap, Inc. (The), 6.90% Nts., 9/15/07 10 1,255,000 1,364,813
- ---------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 2,505,000 2,538,915
- ---------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875% Unsec. Unsub. Nts.,
8/28/12 3,730,000 3,873,941
- ---------------------------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr. Unsec. Debs., 7/15/33 715,000 762,238
- ---------------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The), 2.375% Nts.,
6/1/06 845,000 837,709
- ---------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 3,820,000 3,947,156
- ---------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 7.95% Sr. Nts., 4/15/07 1,165,000 1,290,238
- ---------------------------------------------------------------------------------------------------
Hutchison Whampoa International Ltd., 7.45% Sr. Bonds, 11/24/33 5 1,200,000 1,255,228
- ---------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 7 1,410,000 1,572,150
- ---------------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,110,000
- ---------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B, 1/15/09 1,390,000 1,395,681
8.75% Sr. Unsec. Nts., 8/15/08 1,020,000 1,171,735
- ---------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., 7.60% Nts., 4/1/07 3,010,000 3,295,950
- ---------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10 5 1,137,000 1,346,081
- ---------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,792,000
- ---------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 1,450,000 1,581,416
- ---------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 4,606,000 4,698,120
- ---------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 3,720,000 3,913,176
- ---------------------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts., 8/15/07 2,230,000 2,503,543
- ---------------------------------------------------------------------------------------------------
Lear Corp.:
7.96% Sr. Unsec. Nts., Series B, 5/15/05 1,805,000 1,870,449
8.11% Sr. Unsec. Nts., Series B, 5/15/09 1,064,000 1,235,978
30 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 $ 1,990,000 $ 2,207,222
- ---------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 325,000 357,315
- ---------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 1,505,000 1,585,829
- ---------------------------------------------------------------------------------------------------
Level 3 Communications, Inc.:
10.50% Sr. Disc. Nts., 12/1/08 7,000,000 5,162,500
11% Sr. Unsec. Nts., 3/15/08 5,000,000 3,850,000
- ---------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts., 9/25/06 1,420,000 1,421,098
- ---------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 1,600,000 1,617,789
- ---------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 32,500,000 25,675,000
- ---------------------------------------------------------------------------------------------------
May Department Stores Co. (The), 3.95% Nts., 7/15/07 5 215,000 217,608
- ---------------------------------------------------------------------------------------------------
MBNA America Bank NA, 5.375% Nts., 1/15/08 2,475,000 2,603,220
- ---------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875% Unsec. Unsub. Nts., 11/1/06 416,000 449,053
- ---------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125% Nts., Series C, 1/15/09 3,210,000 3,249,717
- ---------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 2,300,000 2,416,548
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 1,370,000 1,532,267
- ---------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 234,224
- ---------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 1,090,000 1,173,660
- ---------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375% Sr. Unsec. Nts., 10/1/04 915,000 917,572
- ---------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 440,000 440,061
7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 2,138,169
- ---------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 2,080,000 2,394,540
- ---------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 920,000 1,124,700
- ---------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B,
6/1/13 5 1,130,000 1,111,508
- ---------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 5 2,235,000 2,832,051
- ---------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 5 2,330,000 2,939,628
- ---------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 1,390,000 1,483,825
- ---------------------------------------------------------------------------------------------------
Rite Aid Corp.:
6.875% Sr. Unsec. Debs., 8/15/13 5,000,000 4,625,000
7.125% Sr. Unsub. Nts., 1/15/07 7,500,000 7,687,500
- ---------------------------------------------------------------------------------------------------
Safeway, Inc.:
2.50% Nts., 11/1/05 1,210,000 1,208,268
3.80% Sr. Unsec. Nts., 8/15/05 100,000 101,143
4.80% Sr. Unsec. Nts., 7/16/07 1,430,000 1,477,891
- ---------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,037,500
- ---------------------------------------------------------------------------------------------------
Spieker Properties LP, 6.75% Unsec. Unsub. Nts., 1/15/08 2,230,000 2,461,916
- ---------------------------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts., 1/30/06 1,790,000 1,897,905
8.75% Nts., 3/15/32 1,150,000 1,460,310
31 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 $ 1,655,000 $ 1,682,549
7.75% Unsec. Sub. Nts., 5/1/10 149,000 175,333
- ---------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 2,995,000 3,850,489
- ---------------------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr. Unsec. Nts., 12/1/07 1,280,000 1,484,800
- ---------------------------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 1,345,000 1,356,022
- ---------------------------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 1,125,000
- ---------------------------------------------------------------------------------------------------
Texas Utilities Co., 6.375% Sr. Unsec. Nts., Series C, 1/1/08 1,317,000 1,421,451
- ---------------------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125% Debs., 1/15/13 1,130,000 1,417,974
- ---------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12 651,000 852,847
- ---------------------------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 1,285,000 1,419,925
- ---------------------------------------------------------------------------------------------------
Tyco International Group SA:
5.875% Unsec. Unsub. Nts., 11/1/04 283,000 284,735
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 2,380,000 2,501,635
6.75% Sr. Unsub. Nts., 2/15/11 870,000 973,517
- ---------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 430,000 426,618
3.50% Sr. Unsec. Nts., 10/15/07 2,245,000 2,235,369
- ---------------------------------------------------------------------------------------------------
Volkswagen Credit, Inc., 1.88% Nts., 7/21/05 5,7 3,245,000 3,244,818
- ---------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 3,080,000 3,248,642
- ---------------------------------------------------------------------------------------------------
Walt Disney Co. (The), 5.375% Sr. Unsec. Nts., 6/1/07 1,265,000 1,329,542
- ---------------------------------------------------------------------------------------------------
Waste Management, Inc., 7% Sr. Nts., 7/15/28 1,050,000 1,151,736
- ---------------------------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec. Unsub. Nts., 3/15/05 631,000 641,744
- ---------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 3,145,000 3,420,480
---------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$321,159,862) 337,335,687
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--17.3%
- ---------------------------------------------------------------------------------------------------
Allied Waste Industries, Inc., 4.25% Cv. Sr. Unsec. Sub. Debs.,
4/15/34 1,000,000 926,250
- ---------------------------------------------------------------------------------------------------
Brinker International, Inc., 2.43% Cv. Sr. Unsec. Debs.,
10/10/21 12 5,000,000 3,231,250
- ---------------------------------------------------------------------------------------------------
Calpine Corp., 4.75% Cv. Sr. Unsec. Nts., 11/15/23 5 12,500,000 9,515,625
- ---------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 4.50% Cv. Sr. Unsec. Unsub. Nts.,
2/1/07 4,750,000 3,336,875
- ---------------------------------------------------------------------------------------------------
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs., 2/2/07 15,000,000 14,512,500
- ---------------------------------------------------------------------------------------------------
Delta Air Lines, Inc., 2.875% Cv. Sr. Bonds, 2/18/24 5 7,500,000 2,896,875
- ---------------------------------------------------------------------------------------------------
El Paso Corp., 5.48% Cv. Debs., 2/28/21 12 117,500,000 58,309,375
- ---------------------------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc., 4.50% Cv. Unsec. Sub. Nts., 7/1/08 20,750,000 19,349,375
- ---------------------------------------------------------------------------------------------------
Gap, Inc. (The), 5.75% Cv. Unsec. Nts., 3/15/09 4,000,000 4,980,000
- ---------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 6% Cv. Unsec. Sub. Nts., 3/15/10 7,500,000 3,843,750
32 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ---------------------------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 $ 7,500,000 $ 8,278,125
3.25% Exchangeable Sr. Sec. Debs., 3/15/31 (exchangeable for
Viacom, Inc., Cl. B common stock) 5 7,500,000 6,665,625
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for
Viacom, Inc., Cl. B common stock or cash based on the value
thereof) 118,500,000 105,316,875
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 3,997,500
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 33,189,375
- ---------------------------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Sub. Nts., 5/15/10 10,750,000 9,903,438
- ---------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10 15,000,000 15,018,744
- ---------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 15,000,000 14,531,250
- ---------------------------------------------------------------------------------------------------
Pride International, Inc., 2.50% Cv. Sr. Unsec. Nts., 3/1/07 8,000,000 9,650,000
- ---------------------------------------------------------------------------------------------------
Providian Financial Corp., 6.09% Cv. Sr. Unsec. Unsub. Nts.,
2/15/21 12 57,500,000 29,540,625
- ---------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 5.60% Cv. Sr. Unsec. Unsub. Liquid
Yield Option Nts., 2/2/21 12 20,000,000 10,525,000
- ---------------------------------------------------------------------------------------------------
Time Warner, Inc., 4.16% Cv. Nts., 12/6/19 12 25,000,000 16,000,000
- ---------------------------------------------------------------------------------------------------
Tyco International Group SA:
2.75% Cv. Sr. Unsec. Unsub. Debs., Series A, 1/15/18 5 36,000,000 51,930,000
2.75% Cv. Sr. Unsec. Unsub. Debs., Series A, 1/15/18 38,750,000 55,896,875
---------------
Total Convertible Corporate Bonds and Notes (Cost $449,776,752) 491,345,307
- ---------------------------------------------------------------------------------------------------
STRUCTURED NOTES--4.2%
- ---------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., EchoStar Communications
Corp. Cv. Equity Linked Nts., 6%, 4/29/05 287,026 9,109,287
- ---------------------------------------------------------------------------------------------------
Core Investment Grade Bond Trust I, Pass-Through Certificates,
Series 2002-1, 4.727%, 11/30/07 1,400,000 1,461,201
- ---------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch) Equity Linked
Nts., 6%, 12/23/04 (redemption linked to Comcast Corp., Cl. A
Special common stock) 1,060,200 29,950,650
- ---------------------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp. Sec. Credit Linked Nts., Series
2003-1, 3.318%, 1/7/05 10,7 7,150,000 7,118,540
- ---------------------------------------------------------------------------------------------------
Dow Jones CDX High Yield Index, Pass-Through Certificates, Series
3-1, 7.75%, 12/29/09 5,14 13,600,000 13,668,000
- ---------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), MedImmune, Inc. Cv. Medium Term
Linked Nts., 4.875%, 2/4/05 475,000 11,115,000
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Cv. Yield Enhanced Equity Linked Debt Securities, 2.50%, 11/7/04
(linked to Liberty Media Corp.) 1,001,002 10,720,731
Cv. Yield Enhanced Equity Linked Debt Securities, 6%, 12/23/04
(linked to EchoStar Communications Corp., Cl. A common stock) 326,297 10,085,840
33 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- ---------------------------------------------------------------------------------------------------
Morgan Stanley:
Cv. Performance Equity Linked Redemption Quarterly-pay
Securities, 5.50%, 11/26/04 (linked to Echostar Communications
Corp.) 5 $ 306,505 $ 9,541,501
Cv. Performance Equity Linked Redemption Quarterly-pay
Securities, 5.75%, 11/15/04 (linked to Echostar Communications
Corp.) 5 263,395 8,262,701
- ---------------------------------------------------------------------------------------------------
Morgan Stanley, AT&T Wireless Services, Inc. Equity Linked Nts.,
1/21/05 10 550,000 1,265,000
- ---------------------------------------------------------------------------------------------------
UBS AG, High Grade Credit Linked Nts., 3.11%, 12/10/04 10 7,150,000 7,194,330
---------------
Total Structured Notes (Cost $122,102,355) 119,492,781
DATE STRIKE CONTRACTS
- ---------------------------------------------------------------------------------------------------
OPTIONS PURCHASED--0.1%
- ---------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc. Call 1
(Cost $1,401,890) 1/24/05 $ 12.50 6,500 1,527,500
PRINCIPAL
AMOUNT
- ----------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--5.7%
- ----------------------------------------------------------------------------------------------------
Undivided interest of 23.22% in joint repurchase agreement
(Principal Amount/Value $695,366,000, with a maturity value of
$695,396,133) with UBS Warburg LLC, 1.56%, dated 8/31/04, to be
repurchased at $161,486,997 on 9/1/04, collateralized by Federal
National Mortgage Assn., 5%, 3/1/34, with a value of $710,873,503
(Cost $161,480,000) $ 161,480,000 161,480,000
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,855,290,509) 111.5% 3,174,788,189
- ----------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (11.5) (328,204,281)
--------------------------------
NET ASSETS 100.0% $ 2,846,583,908
================================
34 | 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 call options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO CALL DATES PRICE RECEIVED SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------
Altria Group, Inc. 10,500 1/24/05 $ 70.00 $ 740,540 $ --
Bank of America Corp. 900 9/20/04 42.50 104,398 220,500
EchoStar Communications Corp., Cl.A 250 9/20/04 35.00 5,625 --
Equitable Resources, Inc. 2,000 9/20/04 50.00 331,586 460,000
Freddie Mac 280 9/20/04 65.00 70,558 58,800
Lyondell Chemical Co. 3,500 12/20/04 17.50 708,488 980,000
Tyco International Ltd. 750 10/18/04 27.50 335,234 300,000
Tyco International Ltd. 10,870 10/18/04 30.00 3,306,477 2,010,950
Verizon Communications, Inc. 1,000 9/20/04 40.00 46,499 20,000
Washington Mutual, Inc. 375 9/20/04 40.00 10,874 7,500
-------------------------
$ 5,660,279 $ 4,057,750
=========================
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 August 31, 2004.
The aggregate fair value of securities of affiliated companies held by the Fund
as of August 31, 2004 amounts to $104,409,500. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES/ SHARES/
PRINCIPAL GROSS GROSS PRINCIPAL
AUG. 31, 2003 ADDITIONS REDUCTIONS AUG. 31, 2004
- ---------------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
CSK Auto Corp. 6,270,000 294,250 64,250 6,500,000
Enbridge Energy Management LLC 534,518 115,482* -- 650,000
BONDS AND NOTES
CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06** $ 10,000,000 $ -- $ 10,000,000 $ --
DIVIDEND/
UNREALIZED INTEREST REALIZED
APPRECIATION INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
CSK Auto Corp. $ 12,235,873 $ -- $ (651,359)
Enbridge Energy Management LLC 5,355,348 1,533,800 --
-----------------------------------------
17,591,221 1,533,800 (651,359)
-----------------------------------------
BONDS AND NOTES
CSK Auto, Inc., 12% Sr. Unsec. Nts., 6/15/06** -- 800,000 1,354,634
-----------------------------------------
$ 17,591,221 $ 2,333,800 $ 703,275
=========================================
* A portion of the transactions (10,641) was the result of a stock dividend.
** No longer an affiliate as August 31, 2004.
35 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
4. Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units, which
represent debt securities, principal amount disclosed represents total
underlying principal.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $129,337,505 or 4.54% of the Fund's net
assets as of August 31, 2004.
6. When-issued security or forward commitment to be delivered and settled after
August 31, 2004. See Note 1 of Notes to Financial Statements.
7. Represents the current interest rate for a variable or increasing rate
security.
8. 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 $10,434,529 or 0.37% of the Fund's net assets
as of August 31, 2004.
9. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $2,350,186 or 0.08% of the Fund's net assets as of
August 31, 2004.
10. Illiquid security. See Note 9 of Notes to Financial Statements.
36 | OPPENHEIMER CAPITAL INCOME FUND
11. A sufficient amount of securities has been designated to cover outstanding
written put options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
AT&T Corp. 300 10/18/04 $ 15.00 $ 32,099 $ 25,500
AT&T Wireless Services, Inc. 3,500 1/24/05 12.50 223,989 52,500
Altria Group, Inc. 1,250 9/20/04 47.50 227,495 50,000
Altria Group, Inc. 1,250 9/20/04 55.00 939,956 837,500
Amerada Hess Corp. 2,000 11/22/04 75.00 662,184 380,000
Amgen, Inc. 2,000 1/24/05 47.50 308,985 100,000
BP plc, ADR 2,000 1/24/05 55.00 793,981 620,000
Cablevision Systems New York Group, Cl. A 2,450 9/20/04 22.50 534,032 931,000
CarMax, Inc. 2,121 1/24/05 30.00 1,571,813 2,184,630
CarMax, Inc. 850 10/18/04 30.00 677,434 858,500
Cendant Corp. 250 9/20/04 22.50 21,624 21,250
Citigroup, Inc. 1,750 12/20/04 47.50 825,981 402,500
Citigroup, Inc. 1,116 9/20/04 50.00 643,902 357,120
Clear Channel Communications, Inc. 2,500 10/18/04 40.00 904,957 1,600,000
Comcast Corp., Cl. A Special, Non-Vtg. 1,250 10/18/04 30.00 371,232 293,750
Comcast Corp., Cl. A Special, Non-Vtg. 8,750 10/18/04 27.50 1,109,740 568,750
ConocoPhillips 1,000 11/22/04 75.00 376,991 320,000
ConocoPhillips 1,000 9/20/04 75.00 237,144 220,000
Exxon Mobil Corp. 2,000 9/20/04 45.00 110,996 40,000
GlobalSantaFe Corp. 500 10/18/04 27.50 173,492 52,500
Hewlett-Packard Co. 300 11/22/04 20.00 62,849 76,500
Hewlett-Packard Co. 7,280 11/22/04 22.50 2,157,122 3,348,800
International Business Machines Corp. 3,000 10/18/04 90.00 1,366,936 1,770,000
Kinder Morgan, Inc. 4,000 9/20/04 60.00 648,535 120,000
Kroger Co. (The) 2,499 1/24/05 17.50 480,296 349,860
Microsoft Corp. 2,250 9/20/04 27.50 214,870 135,000
NTL, Inc. 1,000 12/20/04 60.00 1,166,973 790,000
Pfizer, Inc. 500 12/20/04 32.50 123,497 65,000
Pfizer, Inc. 1,000 12/20/04 35.00 346,992 300,000
Prudential Financial, Inc. 1,000 9/20/04 45.00 286,986 30,000
SBC Communications, Inc. 3,500 9/20/04 25.00 134,622 35,000
SouthTrust Corp. 1,000 9/20/04 40.00 149,193 5,000
Tyco International Ltd. 2,050 9/20/04 30.00 209,095 41,000
UnitedGlobalCom, Inc., Cl. 5,000 2/21/05 7.50 784,981 550,000
Washington Mutual, Inc. 500 9/20/04 40.00 103,498 65,000
Wyeth 4,000 10/18/04 40.00 1,822,913 1,320,000
---------------------------
$ 20,807,385 $ 18,916,660
===========================
12. Zero coupon bond reflects effective yield on the date of purchase.
13. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
14. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.
15. All or a portion of the Security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $2,493,795. See Note 6 of Notes to Financial Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES August 31, 2004
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,768,472,230) $ 3,070,378,689
Affiliated companies (cost $86,818,279) 104,409,500
---------------
3,174,788,189
- ------------------------------------------------------------------------------------------------
Cash 681,433
- ------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 408,026
- ------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $53,875,813 sold on a when-issued basis
or forward commitment) 56,424,433
Interest, dividends and principal paydowns 16,348,641
Futures margins 115,910
Other 74,799
---------------
Total assets 3,248,841,431
- ------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------
Options written, at value (premiums received $26,467,664)
- --see accompanying statement of investments 22,974,410
- ------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $372,415,248 purchased on a when-issued basis
or forward commitment) 373,459,855
Shares of beneficial interest redeemed 4,005,054
Distribution and service plan fees 1,146,914
Transfer and shareholder servicing agent fees 299,637
Shareholder communications 272,458
Trustees' compensation 30,582
Other 68,613
---------------
Total liabilities 402,257,523
- ------------------------------------------------------------------------------------------------
NET ASSETS $ 2,846,583,908
===============
- ------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 240,807
- ------------------------------------------------------------------------------------------------
Additional paid-in capital 2,437,599,367
- ------------------------------------------------------------------------------------------------
Accumulated net investment income 28,994,342
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 56,226,468
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 323,522,924
---------------
NET ASSETS $ 2,846,583,908
===============
38 | 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 $2,379,955,580
and 200,962,371 shares of beneficial interest outstanding) $ 11.84
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 12.56
- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $316,568,243 and 27,019,525 shares
of beneficial interest outstanding) $ 11.72
- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $133,368,241 and 11,407,341 shares
of beneficial interest outstanding) $ 11.69
- ---------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $16,691,844 and 1,417,564 shares
of beneficial interest outstanding) $ 11.78
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended August 31, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest:
Unaffiliated companies $ 82,260,031
Affiliated companies 800,000
- --------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $59,967) 50,185,572
Affiliated companies 1,533,800
---------------
Total investment income 134,779,403
- --------------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------------
Management fees 14,972,144
- --------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 5,533,158
Class B 3,500,192
Class C 1,223,748
Class N 66,400
- --------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,653,385
Class B 671,653
Class C 197,309
Class N 29,265
- --------------------------------------------------------------------------------------
Shareholder communications:
Class A 239,762
Class B 120,971
Class C 22,507
Class N 2,458
- --------------------------------------------------------------------------------------
Trustees' compensation 55,325
- --------------------------------------------------------------------------------------
Custodian fees and expenses 52,702
- --------------------------------------------------------------------------------------
Other 187,379
---------------
Total expenses 29,528,358
Less reduction to custodian expenses (16,073)
Less payments and waivers of expenses (54,141)
---------------
Net expenses 29,458,144
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 105,321,259
40 | OPPENHEIMER CAPITAL INCOME FUND
- ------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 173,853,028
Affiliated companies 703,275
Closing of futures contracts 716,782
Closing and expiration of option contracts written 7,554,802
Foreign currency transactions (517)
Swap contracts 507,498
Net increase from payments by affiliates 198,354
--------------
Net realized gain 183,533,222
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (26,243,435)
Futures contracts 580,977
Option contracts (1,135,146)
Swap contracts 337,954
--------------
Net change in unrealized appreciation (26,459,650)
- ------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 262,394,831
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2004 2003
- -----------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $ 105,321,259 $ 120,703,591
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) 183,533,222 (27,505,993)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (26,459,650) 327,739,226
----------------------------------
Net increase in net assets resulting from operations 262,394,831 420,936,824
- -----------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (102,927,701) (81,815,372)
Class B (12,688,798) (11,054,004)
Class C (4,369,847) (2,657,642)
Class N (513,100) (214,705)
- -----------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A 132,826,225 (14,008,667)
Class B (46,403,963) (26,837,289)
Class C 34,609,632 10,405,145
Class N 7,276,288 3,937,349
- -----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
Total increase 270,203,567 298,691,639
- -----------------------------------------------------------------------------------------------
Beginning of period 2,576,380,341 2,277,688,702
----------------------------------
End of period (including accumulated net investment income
of $28,994,342 and $43,094,417, respectively) $ 2,846,583,908 $ 2,576,380,341
==================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.22 $ 9.76 $ 12.72 $ 12.88 $ 13.63
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .46 .54 .51 .42 .49
Net realized and unrealized gain (loss) .69 1.35 (2.66) .41 .32
-----------------------------------------------------------------------------------
Total from investment operations 1.15 1.89 (2.15) .83 .81
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.53) (.43) (.48) (.48) (.49)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
-----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.43) (.81) (.99) (1.56)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.84 $ 11.22 $ 9.76 $ 12.72 $ 12.88
===================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 10.32% 20.10% (17.75)% 6.84% 7.24%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,379,956 $ 2,130,486 $ 1,873,458 $ 2,458,272 $ 2,395,444
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,356,948 $ 1,900,896 $ 2,224,911 $ 2,432,151 $ 2,502,535
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.85% 5.41% 4.48% 3.21% 3.78%
Total expenses 0.89% 3,4 0.93% 3 0.98% 3 0.91% 3 0.93% 3
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%
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%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.10 $ 9.67 $ 12.60 $ 12.76 $ 13.51
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 .45 .41 .32 .38
Net realized and unrealized gain (loss) .68 1.33 (2.62) .41 .32
-------------------------------------------------------------------------
Total from investment operations 1.04 1.78 (2.21) .73 .70
- ---------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.42) (.35) (.39) (.38) (.38)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
-------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.42) (.35) (.72) (.89) (1.45)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.72 $ 11.10 $ 9.67 $ 12.60 $ 12.76
=========================================================================
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.46% 18.94% (18.31)% 6.05% 6.34%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 316,568 $ 343,074 $ 327,368 $ 477,223 $ 472,222
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 349,853 $ 312,457 $ 410,652 $ 469,690 $ 546,390
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 3.00% 4.55% 3.67% 2.44% 3.01%
Total expenses 1.76% 3,4 1.81% 3 1.76% 3 1.68% 3 1.70% 3
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%
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%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44 | OPPENHEIMER CAPITAL INCOME FUND
CLASS C YEAR ENDED AUGUST 31, 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.09 $ 9.66 $ 12.59 $ 12.76 $ 13.50
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 .45 .42 .32 .38
Net realized and unrealized gain (loss) .69 1.34 (2.62) .40 .32
---------------------------------------------------------------------
Total from investment operations 1.04 1.79 (2.20) .72 .70
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.44) (.36) (.40) (.38) (.37)
Distributions from net realized gain -- -- (.33) (.51) (1.07)
---------------------------------------------------------------------
Total dividends and/or distributions to
shareholders (.44) (.36) (.73) (.89) (1.44)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.69 $ 11.09 $ 9.66 $ 12.59 $ 12.76
=====================================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 9.40% 19.05% (18.30)% 6.00% 6.40%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 133,368 $ 93,797 $ 72,792 $ 89,547 $ 73,346
Average net assets (in thousands) $ 122,458 $ 75,459 $ 84,049 $ 80,390 $ 84,898
Ratios to average net assets: 2
Net investment income 3.01% 4.55% 3.74% 2.44% 3.01%
Total expenses 1.72% 3,4 1.78% 3 1.76% 3 1.68% 3 1.70% 3
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74% 37%
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%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
45 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED AUGUST 31, 2004 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 .39 .46 .50 .28
Net realized and unrealized gain (loss) .72 1.37 (2.66) (.30)
---------------------------------------------------
Total from investment operations 1.11 1.83 (2.16) (.02)
- -----------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.49) (.40) (.47) (.25)
Distributions from net realized gain -- -- (.33) --
---------------------------------------------------
Total dividends and/or distributions to
shareholders (.49) (.40) (.80) (.25)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.78 $ 11.16 $ 9.73 $ 12.69
===================================================
- -----------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.01% 19.45% (17.89)% (0.18)%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 16,692 $ 9,023 $ 4,071 $ 648
- -----------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 13,301 $ 5,968 $ 2,839 $ 214
- -----------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.42% 4.92% 4.74% 2.94%
Total expenses 1.28% 4,5 1.35% 4 1.25% 4 1.17% 4
- -----------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 141% 148% 74%
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%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
46 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights and voting privileges 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 due to each class
having its own expenses, such as transfer and shareholder servicing agent fees
and shareholder communications, directly attributable to that class. Class 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. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. 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.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. 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.
Foreign and domestic 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 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).
47 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of August 31, 2004, the market value of
these securities comprised 4.2% of the Fund's net assets and resulted in
unrealized cumulative losses of $2,609,574.
- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days 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
internally designated 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 or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of August 31, 2004, the Fund had purchased
$372,415,248 of securities on a when-issued basis or forward commitment and sold
$53,875,813 of securities on a when-issued basis or forward commitment.
In connection with its ability to purchase or sell 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 realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.
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 at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.
48 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
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 as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. 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. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
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. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
49 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATE MENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES Continued
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------
$ 31,712,533 $ 79,779,788 $ 16,535,375 $ 319,628,158
1. The Fund had $16,535,375 of straddle losses which were deferred.
2. During the fiscal year ended August 31, 2004, the Fund utilized $105,823,276
of capital loss carryforward to offset capital gains realized in that fiscal
year.
3. During the fiscal year ended August 31, 2003, the Fund did not utilize any
capital loss carryforward.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for August 31, 2004. Net assets of the
Fund were unaffected by the reclassifications.
INCREASE TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL INCOME ON INVESTMENTS 4
----------------------------------------------------
$ 6,727,050 $ 1,078,112 $ 7,805,162
4. $6,727,050, all of which was long-term capital gain, was distributed in
connection with Fund share redemptions.
The tax character of distributions paid during the years ended August 31, 2004
and August 31, 2003 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2004 AUGUST 31, 2003
------------------------------------------------------------
Distributions paid from:
Ordinary income $ 120,499,446 $ 95,741,723
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of August 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.
50 | OPPENHEIMER CAPITAL INCOME FUND
Federal tax cost of securities $ 2,859,026,277
Federal tax cost of other
investments (135,911,646)
---------------
Total federal tax cost $ 2,723,114,631
===============
Gross unrealized appreciation $ 386,155,135
Gross unrealized depreciation (66,526,977)
---------------
Net unrealized appreciation $ 319,628,158
===============
- --------------------------------------------------------------------------------
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. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. 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.
- --------------------------------------------------------------------------------
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 U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
51 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED AUGUST 31, 2004 YEAR ENDED AUGUST 31, 2003
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------
CLASS A
Sold 27,395,516 $ 328,897,834 23,888,388 $ 242,116,329
Dividends and/or
distributions reinvested 8,032,385 94,957,085 7,646,622 75,313,569
Redeemed (24,375,517) (291,028,694) (33,503,854) (331,438,565)
------------------------------------------------------------
Net increase (decrease) 11,052,384 $ 132,826,225 (1,968,844) $ (14,008,667)
============================================================
- ---------------------------------------------------------------------------------------
CLASS B
Sold 6,888,752 $ 81,662,144 7,062,687 $ 71,550,088
Dividends and/or
distributions reinvested 1,020,466 11,950,178 1,076,863 10,485,911
Redeemed (11,792,254) (140,016,285) (11,099,686) (108,873,288)
------------------------------------------------------------
Net decrease (3,883,036) $ (46,403,963) (2,960,136) $ (26,837,289)
============================================================
- ---------------------------------------------------------------------------------------
CLASS C
Sold 4,346,905 $ 51,194,830 2,646,850 $ 27,258,931
Dividends and/or
distributions reinvested 339,300 3,974,837 249,803 2,435,681
Redeemed (1,740,267) (20,560,035) (1,972,656) (19,289,467)
------------------------------------------------------------
Net increase 2,945,938 $ 34,609,632 923,997 $ 10,405,145
============================================================
- ---------------------------------------------------------------------------------------
CLASS N
Sold 715,430 $ 8,550,182 531,993 $ 5,367,224
Dividends and/or
distributions reinvested 42,495 501,477 21,477 213,022
Redeemed (148,746) (1,775,371) (163,690) (1,642,897)
------------------------------------------------------------
Net increase 609,179 $ 7,276,288 389,780 $ 3,937,349
============================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
August 31, 2004, were $1,308,934,877 and $1,167,044,227, respectively. There
were purchases of $141,001,606 and sales of $131,756,897 of U.S. government and
government agency obligations for the year ended August 31, 2004.
- --------------------------------------------------------------------------------
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.
52 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended August 31, 2004, the Fund paid
$3,525,379 to OFS for services to the Fund.
- --------------------------------------------------------------------------------
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 all of those fees to
pay dealers, brokers, banks and other financial institutions quarterly for
providing personal services and maintenance of accounts of their customers that
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.
- --------------------------------------------------------------------------------
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 those 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 and 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 August 31, 2004
for Class B, Class C and Class N shares were $9,978,540, $2,981,560 and
$303,546, 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.
53 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
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
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- -----------------------------------------------------------------------------------------------
August 31, 2004 $ 1,038,146 $ 29,534 $ 530,263 $ 17,067 $ 3,969
- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $198,354, an amount equivalent to certain of such
commissions incurred in prior years.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average daily net assets per fiscal year
for all classes. During the year ended August 31, 2004, OFS waived $42,774,
$9,447, $1,768 and $152 for Class A, Class B, Class C and Class N shares,
respectively. This undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized 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 August 31, 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
54 | OPPENHEIMER CAPITAL INCOME FUND
of stocks 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 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 in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported on the Statement of Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of August 31, 2004, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2004 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 12/20/04 348 $ 38,736,750 $ 634,727
U.S. Treasury Nts., 10 yr. 12/20/04 475 53,348,438 466,984
------------
1,101,711
------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 9/30/04-12/30/04 658 139,587,953 (779,983)
U.S. Treasury Nts., 5 yr. 12/20/04 560 61,976,250 (197,764)
------------
(977,747)
------------
$ 123,964
============
- --------------------------------------------------------------------------------
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.
55 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. OPTION ACTIVITY Continued
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended August 31, 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 278,243 41,256,427 426,576 72,187,862
Options closed or expired (236,790) (30,023,716) (380,526) (54,229,655)
Options exercised (46,865) (10,134,628) (25,190) (7,181,004)
-----------------------------------------------------
Options outstanding as of
August 31, 2004 30,425 $ 5,660,279 76,716 $ 20,807,385
=====================================================
- --------------------------------------------------------------------------------
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 unrealized
gain (loss), 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).
56 | OPPENHEIMER CAPITAL INCOME FUND
As of August 31, 2004, the Fund had entered into the following total return swap
agreements:
PAID BY RECEIVED BY
SWAP NOTIONAL THE FUND AT THE FUND AT TERMINATION UNREALIZED
COUNTERPARTY AMOUNT AUGUST 31, 2004 AUGUST 31, 2004 DATES APPRECIATION
- -------------------------------------------------------------------------------------------------------
Value of
One-Month total return of
LIBOR less 50 Lehman Brothers
Deutsche Bank AG $ 9,700,000 basis points CMBS Index 12/31/04 $ 204,092
Value of
One-Month total return of
Morgan Stanley LIBOR less 55 Lehman Investment
Capital Services, Inc. 9,700,000 basis points Grade Index 9/30/04 203,934
---------
$ 408,026
=========
Index abbreviations are as follows:
CMBS Commercial Mortgage Backed Securities Markets
LIBOR London-Interbank Offered Rate
- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES
As of August 31, 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 will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. The aggregate value
of illiquid securities subject to this limitation as of August 31, 2004 was
$23,094,805, which represents 0.81% of the Fund's net assets.
- --------------------------------------------------------------------------------
10. LITIGATION
Six complaints have been filed as putative derivative and class actions against
the Manager, OFS and the Distributor (collectively, "OppenheimerFunds"), as well
as 51 of the Oppenheimer funds (collectively, the "Funds") including this Fund,
and nine directors/ trustees of certain of the Funds other than this Fund
(collectively, the "Directors/Trustees"). The complaints allege that the Manager
charged excessive fees for distribution and other costs, improperly used assets
of the Funds in the form of directed brokerage commissions and 12b-1 fees to pay
brokers to promote sales of the Funds, and failed to properly disclose the use
of Fund assets to make those payments in violation of the Investment Company Act
of 1940 and the Investment Advisers Act of 1940. The complaints further allege
that by permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law.
OppenheimerFunds believes that it is premature to render any opinion as to
the likelihood of an outcome unfavorable to them, the Funds or the
Directors/Trustees and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss. However,
OppenheimerFunds, the Funds and the Directors/Trustees believe that the
allegations contained in the complaints are without merit and intend to defend
these lawsuits vigorously.
57 | OPPENHEIMER CAPITAL INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Income Fund, including the statement of investments, as of
August 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the periods indicated. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 2004, by correspondence with
the custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Capital Income Fund as of August 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 14, 2004
58 | OPPENHEIMER CAPITAL INCOME FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2005, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2004. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends, if any, paid by the Fund during the fiscal year ended August
31, 2004 which are not designated as capital gain distributions should be
multiplied by 26.15% to arrive at the amount eligible for the corporate
dividend-received deduction.
A portion, if any, of the dividends paid by the Fund during the fiscal
year ended August 31, 2004 which are not designated as capital gain
distributions are eligible for lower individual income tax rates to the extent
that the Fund has received qualified dividend income as stipulated by recent tax
legislation. $34,139,698 of the Fund's fiscal year taxable income may be
eligible for the lower individual income tax rates. In early 2005, shareholders
of record will receive information regarding the percentage of distributions
that are eligible for lower individual income tax rates.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
59 | OPPENHEIMER CAPITAL INCOME FUND
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES; UPDATES TO STATEMENTS OF
INVESTMENTS 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
1.800.525.7048, (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 is 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 Fund's Form N-PX
filing is available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.525.7048, and (ii) on the SEC's website at www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
60 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS;
FUND, LENGTH OF SERVICE, AGE OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD BY TRUSTEE;
NUMBER OF PORTFOLIOS IN FUND COMPLEX CURRENTLY
OVERSEEN BY TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS
TRUSTEES 6803 S. TUCSON WAY, CENTENNIAL, CO 80112-3924.
EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, UNTIL
HIS OR HER RESIGNATION, RETIREMENT, DEATH OR
REMOVAL.
WILLIAM L. ARMSTRONG, Chairman of the following private mortgage
Chairman of the Board banking companies: Cherry Creek Mortgage Company
of Trustees (since 2003) (since 1991), Centennial State Mortgage Company
and Trustee (since 1999) (since 1994), The El Paso Mortgage Company (since
Age: 67 1993), Transland Financial Services, Inc. (since
1997); Chairman of the following private
companies: Great Frontier Insurance (insurance
agency) (since 1995), Ambassador Media
Corporation and Broadway Ventures (since 1984); a
director of the following public companies:
Helmerich & Payne, Inc. (oil and gas
drilling/production company) (since 1992) and
UNUMProvident (insurance company) (since 1991).
Mr. Armstrong is also a Director/Trustee of
Campus Crusade for Christ and the Bradley
Foundation. Formerly a director of the following:
Storage Technology Corporation (a publicly-held
computer equipment company) (1991-February 2003),
and International Family Entertainment
(television channel) (1992-1997), Frontier Real
Estate, Inc. (residential real estate brokerage)
(1994-1999), and Frontier Title (title insurance
agency) (1995-June 1999); a U.S. Senator (January
1979-January 1991). Oversees 38 portfolios in the
OppenheimerFunds complex.
ROBERT G. AVIS, Formerly, Director and President of A.G. Edwards
Trustee (since 1993) Capital, Inc. (General Partner of private equity
Age: 73 funds) (until February 2001); Chairman, President
and Chief Executive Officer of A.G. Edwards
Capital, Inc. (until March 2000); Vice Chairman
and Director of A.G. Edwards, Inc. and Vice
Chairman of A.G. Edwards & Sons, Inc. (its
brokerage company subsidiary) (until March 1999);
Chairman of A.G. Edwards Trust Company and A.G.E.
Asset Management (investment advisor) (until
March 1999); and a Director (until March 2000) of
A.G. Edwards & Sons and A.G. Edwards Trust
Company. Oversees 38 portfolios in the
OppenheimerFunds complex.
GEORGE C. BOWEN, Formerly Assistant Secretary and a director
Trustee (since 1998) (December 1991-April 1999) of Centennial Asset
Age: 67 Management Corporation; President, Treasurer and
a director (June 1989-April 1999) of Centennial
Capital Corporation; Chief Executive Officer and
a director of MultiSource Services, Inc. (March
1996-April 1999). Until April 1999 Mr. Bowen held
several positions in subsidiary or affiliated
companies of the Manager. Oversees 38 portfolios
in the OppenheimerFunds complex.
EDWARD L. CAMERON, A member of The Life Guard of Mount Vernon,
Trustee (since 1999) George Washington's home (since June 2000).
Age: 66 Formerly Director (March 2001-May 2002) of
Genetic ID, Inc. and its subsidiaries (a
privately held biotech company); a partner (July
1974-June 1999) with PricewaterhouseCoopers LLP
(an accounting firm); and Chairman (July
1994-June 1998) of Price Waterhouse LLP Global
Investment Management Industry Services Group.
Oversees 38 portfolios in the OppenheimerFunds
complex.
JON S. FOSSEL, Director (since February 1998) of Rocky Mountain
Trustee (since 1990) Elk Foundation (a not-for-profit foundation); a
Age: 62 director (since 1997) of Putnam Lovell Finance
(finance company); a director (since June 2002)
of UNUMProvident (an insurance company).
Formerly a director (October 1999-October 2003)
of P.R. Pharmaceuticals (a privately held
company); Chairman and a director (until October
1996) and President and Chief Executive Officer
(until October 1995) of the Manager; President,
Chief Executive Officer and a director (until
October 1995) of
61 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
JON S. FOSSEL, Oppenheimer Acquisition Corp., Shareholders
Continued Services Inc. and Shareholder Financial Services,
Inc. Oversees 38 portfolios in the
OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado Uplift (a non-profit
Trustee (since 1996) charity) (since September 1984). Formerly (until
Age: 63 October 1994) Mr. Freedman held several positions
in subsidiary or affiliated companies of the
Manager. Oversees 38 portfolios in the
OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee of Monterey International Studies (an
Trustee (since 2002) educational organization) (since February 2000);
Age: 57 a director of The California Endowment (a
philanthropic organization) (since April 2002)
and of Community Hospital of Monterey Peninsula
(educational organization) (since February 2002);
a director of America Funds Emerging Markets
Growth Fund (since October 1991) (an investment
company); an advisor to Credit Suisse First
Boston's Sprout venture capital unit. Mrs.
Hamilton also is a member of the investment
committees of the Rockefeller Foundation and of
the University of Michigan. Formerly, Trustee of
MassMutual Institutional Funds (open-end
investment company) (1996-May 2004); a director
of MML Series Investment Fund (April 1989-May
2004) and MML Services (April 1987-May 2004)
(investment companies); member of the investment
committee (2000-2003) of Hartford Hospital; an
advisor (2000-2003) to Unilever (Holland)'s
pension fund; and President (February 1991-April
2000) of ARCO Investment Management Company.
Oversees 37 portfolios in the OppenheimerFunds
complex.
ROBERT J. MALONE, Chairman, Chief Executive Officer and Director of
Trustee (since 2002) Steele Street State Bank (a commercial banking
Age: 59 entity) (since August 2003); director of Colorado
UpLIFT (a non-profit organization) (since 1986);
trustee (since 2000) of the Gallagher Family
Foundation (non-profit organization). Formerly,
Chairman of U.S. Bank-Colorado (a subsidiary of
U.S. Bancorp and formerly Colorado National
Bank,) (July 1996-April 1, 1999), a director of:
Commercial Assets, Inc. (a REIT) (1993-2000),
Jones Knowledge, Inc. (a privately held company)
(2001-July 2004) and U.S. Exploration, Inc. (oil
and gas exploration) (1997-February 2004).
Oversees 37 portfolios in the OppenheimerFunds
complex.
F. WILLIAM MARSHALL, JR., Trustee of MassMutual Institutional Funds (since
Trustee (since 2000) 1996) and MML Series Investment Fund (since 1987)
Age: 62 (both open-end investment companies) and the
Springfield Library and Museum Association (since
1995) (museums) and the Community Music School of
Springfield (music school) (since 1996); Trustee
(since 1987), Chairman of the Board (since 2003)
and Chairman of the investment committee (since
1994) for the Worcester Polytech Institute
(private university); and President and Treasurer
(since January 1999) of the SIS Fund (a private
not for profit charitable fund). Formerly, member
of the investment committee of the Community
Foundation of Western Massachusetts (1998-2003);
Chairman (January 1999-July 1999) of SIS & Family
Bank, F.S.B. (formerly SIS Bank) (commercial
bank); and Executive Vice President (January
1999-July 1999) of Peoples Heritage Financial
Group, Inc. (commercial bank). Oversees 38
portfolios in the OppenheimerFunds complex.
62 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS
AND OFFICER TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET,
11TH FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY
SERVES FOR AN INDEFINITE TERM, UNTIL HIS
RESIGNATION, DEATH OR REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director
President and Trustee (since (since June 2001) and President (since September
2001) 2000) of the Manager; President and a director or
Age: 55 trustee of other Oppenheimer funds; President and
a director (since July 2001) of Oppenheimer
Acquisition Corp. (the Manager's parent holding
company) and of Oppenheimer Partnership Holdings,
Inc. (a holding company subsidiary of the
Manager); a director (since November 2001) of
OppenheimerFunds Distributor, Inc. (a subsidiary
of the Manager); Chairman and a director (since
July 2001) of Shareholder Services, Inc. and of
Shareholder Financial Services, Inc. (transfer
agent subsidiaries of the Manager); President and
a director (since July 2001) of OppenheimerFunds
Legacy Program (a charitable trust program
established by the Manager); a director of the
following investment advisory subsidiaries of the
Manager: OFI Institutional Asset Management,
Inc., Centennial Asset Management Corporation,
Trinity Investment Management Corporation and
Tremont Capital Management, Inc. (since November
2001), HarbourView Asset Management Corporation
and OFI Private Investments, Inc. (since July
2001); President (since November 1, 2001) and a
director (since July 2001) of Oppenheimer Real
Asset Management, Inc.; Executive Vice President
(since February 1997) of Massachusetts Mutual
Life Insurance Company (the Manager's parent
company); a director (since June 1995) of DLB
Acquisition Corporation (a holding company that
owns the shares of Babson Capital Management
LLC); a member of the Investment Company
Institute's Board of Governors (elected to serve
from October 3, 2003 through September 30, 2006).
Formerly, Chief Operating Officer (September
2000-June 2001) of the Manager; President and
trustee (November 1999-November 2001) of MML
Series Investment Fund and MassMutual
Institutional Funds (open-end investment
companies); a director (September 1999-August
2000) of C.M. Life Insurance Company; President,
Chief Executive Officer and director (September
1999-August 2000) of MML Bay State Life Insurance
Company; a director (June 1989-June 1998) of
Emerald Isle Bancorp and Hibernia Savings Bank (a
wholly-owned subsidiary of Emerald Isle Bancorp).
Oversees 73 portfolios as Trustee/Director and 10
portfolios as Officer in the OppenheimerFunds
complex.
- --------------------------------------------------------------------------------
OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS
AS FOLLOWS: FOR MESSRS. LEVINE AND ZACK, TWO
WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
FLOOR, NEW YORK, NY 10281-1008, FOR MESSRS.
VANDEHEY AND WIXTED 6803 S. TUCSON WAY,
CENTENNIAL, CO 80112-3924. EACH OFFICER SERVES
FOR AN ANNUAL TERM OR UNTIL HIS OR HER EARLIER
RESIGNATION, DEATH OR REMOVAL.
MIKE LEVINE, Vice President of the Manager since June 1998; an
Vice President and officer of 1 portfolio in the OppenheimerFunds
Portfolio Manager complex. Formerly Assistant Vice President and
(since 1999) Portfolio Manager of the Manager (April 1996 -
Age: 38 June 1998).
BRIAN W. WIXTED, Senior Vice President and Treasurer (since March
Treasurer (since 1999) 1999) of the Manager; Treasurer of HarbourView
Age: 44 Asset Management Corporation, Shareholder
Financial Services, Inc., Shareholder Services,
Inc., Oppenheimer Real Asset Management
Corporation, and Oppenheimer Partnership
Holdings, Inc. (since March 1999), of OFI Private
Investments, Inc. (since March 2000), of
OppenheimerFunds International Ltd. and
OppenheimerFunds plc (since May 2000), of OFI
Institutional Asset Management, Inc. (since
November 2000), and of OppenheimerFunds
63 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
BRIAN W. WIXTED, Legacy Program (a Colorado non-profit
Continued corporation) (since June 2003); Treasurer and
Chief Financial Officer (since May 2000) of OFI
Trust Company (a trust company subsidiary of the
Manager); Assistant Treasurer (since March 1999)
of Oppenheimer Acquisition Corp. Formerly
Assistant Treasurer of Centennial Asset
Management Corporation (March 1999-October 2003)
and OppenheimerFunds Legacy Program (April
2000-June 2003); Principal and Chief Operating
Officer (March 1995-March 1999) at Bankers Trust
Company-Mutual Fund Services Division. An officer
of 83 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and
Vice President and Secretary General Counsel (since February 2002) of the
(since 2001) Manager; General Counsel and a director (since
Age: 56 November 2001) of the Distributor; General
Counsel (since November 2001) of Centennial Asset
Management Corporation; Senior Vice President and
General Counsel (since November 2001) of
HarbourView Asset Management Corporation;
Secretary and General Counsel (since November
2001) of Oppenheimer Acquisition Corp.; Assistant
Secretary and a director (since October 1997) of
OppenheimerFunds International Ltd. and
OppenheimerFunds plc; Vice President and a
director (since November 2001) of Oppenheimer
Partnership Holdings, Inc.; a director (since
November 2001) of Oppenheimer Real Asset
Management, Inc.; Senior Vice President, General
Counsel and a director (since November 2001) of
Shareholder Financial Services, Inc., Shareholder
Services, Inc., OFI Private Investments, Inc. and
OFI Trust Company; Vice President (since November
2001) of OppenheimerFunds Legacy Program; Senior
Vice President and General Counsel (since
November 2001) of OFI Institutional Asset
Management, Inc.; a director (since June 2003) of
OppenheimerFunds (Asia) Limited. Formerly Senior
Vice President (May 1985-December 2003), Acting
General Counsel (November 2001-February 2002) and
Associate General Counsel (May 1981-October 2001)
of the Manager; Assistant Secretary of
Shareholder Services, Inc. (May 1985-November
2001), Shareholder Financial Services, Inc.
(November 1989-November 2001); and
OppenheimerFunds International Ltd. (October
1997-November 2001). An officer of 83 portfolios
in the OppenheimerFunds complex.
MARK S. VANDEHEY, Senior Vice President and Chief Compliance
Vice President and Officer (since March 2004) of the Manager; Vice
Chief Compliance Officer President (since June 1983) of OppenheimerFunds
(since 2004) Distributor, Inc., Centennial Asset Management
Age: 53 Corporation and Shareholder Services, Inc.
Formerly (until February 2004) Vice President and
Director of Internal Audit of OppenheimerFunds,
Inc. An officer of 83 portfolios in the
Oppenheimer funds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY
CALLING 1.800.525.7048.
64 | 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
(a) Audit Fees
The principal accountant for the audit of the registrant's annual
financial statements billed $36,000 in fiscal 2004 and $33,000 in
fiscal 2003.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees in fiscal 2004 and
$40,259 in fiscal 2003 to the registrant's investment adviser or
any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant.
Such fees would include, among others: due diligence related to
mergers and acquisitions, accounting consultations and audits in
connection with acquisitions, internal control reviews and
consultation concerning financial accounting and reporting
standards.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees in fiscal 2004 and
$10,448 in fiscal 2003 to the registrant's investment adviser or
any entity controlling, controlled by, or under common control
with the adviser that provides ongoing services to the registrant.
Such fees would include, among others: tax compliance, tax
planning and tax advice. Tax compliance generally involves
preparation of original and amended tax returns, claims for a
refund and tax payment-planning services. Tax planning and tax
advice
includes assistance with tax audits and appeals, tax advice
related to mergers and acquisitions and requests for rulings or
technical advice from taxing authorities.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees in fiscal 2004 and $3,500
in fiscal 2003 to the registrant's investment adviser or any
entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant.
Such fees would include services provided to the registrant's
Board of Trustees with respect to the annual renewal of the
registrant's investment advisory agreement.
(e) (1) During its regularly scheduled periodic meetings, the
registrant's audit committee will pre-approve all audit,
audit-related, tax and other services to be provided by the
principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its
Chairman for any subsequent new engagements that arise between
regularly scheduled meeting dates provided that any fees such
pre-approved are presented to the audit committee at its next
regularly scheduled meeting.
Pre-approval of non-audit services is waived provided that: 1) the
aggregate amount of all such services provided constitutes no more
than five percent of the total amount of fees paid by the
registrant to it principal accountant during the fiscal year in
which services are provided 2) such services were not recognized
by the registrant at the time of engagement as non-audit services
and 3) such services are promptly brought to the attention of the
audit committee of the registrant and approved prior to the
completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed no such fees in fiscal 2004 and
$54,207 in fiscal 2003 to the registrant and the registrant's
investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing
services to the registrant related to non-audit fees. Those
billings did not include any prohibited non-audit services as
defined by the Securities Exchange Act of 1934.
(h) The registrant's audit committee of the board of trustees has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser, and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is
compatible with maintaining the principal account's independence.
No such services were rendered.
ITEM 5. NOT APPLICABLE
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable
ITEM 7. NOT APPLICABLE
ITEM 8. NOT APPLICABLE
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The members of the Governance Committee are Robert Malone (Chairman),
William Armstrong, Beverly Hamilton and F. William Marshall, Jr. Each member of
the Committee is independent, meaning each person is not "interested person" as
defined in the Act. The Governance Committee was established in August 2004. The
Governance Committee is expected to consider general governance matters,
including a formal process for shareholders to send communications to the Board
and the qualifications of candidates for board positions including consideration
of any candidate recommended by shareholders.
The Governance Committee has not yet adopted a charter, but anticipates that it
will do so by the end of this calendar year. The Committee has temporarily
adopted the process previously adopted by the Audit Committee regarding
shareholder submission of nominees for board positions. That policy is as
follows. To date, the Committee has been able to identify from its own resources
an ample number of qualified candidates. Nonetheless, shareholders may submit
names of individuals, accompanied by complete and properly supported resumes,
for the Governance Committee's consideration by mailing such information to the
Committee in care of the Fund. The Committee may consider such persons at such
time as it meets to consider possible nominees. The Committee, however, reserves
sole discretion to determine the candidates to present to the Board and/or
shareholders when it meets for the purpose of considering potential nominees.
This Committee also will select and nominate, to the full Board, nominees for
election as Trustees, and select and nominate Independent Trustees for election.
The Committee may, but need not, consider the advice and recommendation of the
Manager and its affiliates in selecting nominees. The full Board elects new
trustees except for those instances when a shareholder vote is required.
Shareholders who desire to communicate with the Board should address
correspondence to the Board or an individual Board member and may submit their
correspondence electronically at www.oppenheimerfunds.com
http://www.oppenheimerfunds.com/ under the caption "contact us" or by mail to
the Fund at the address above. The Governance Committee will consider if a
different process should be recommended to the Board.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-3(c) under the Investment
Company Act of 1940 (17 CFR 270.30a-3(c)) as of August 31, 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)(NOT
APPLICABLE TO SEMIANNUAL REPORTS)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)