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: August 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Oil & Gas 11.8%
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Tobacco 6.1
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Diversified Financial Services 5.8
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Insurance 4.9
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Specialty Retail 3.6
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Commercial Banks 2.3
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Diversified Telecommunication Services 1.9
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Media 1.8
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Aerospace & Defense 1.7
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Pharmaceuticals 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2005, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Kinder Morgan Management LLC 5.2%
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Altria Group, Inc. 4.9
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Kinder Morgan, Inc. 3.9
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CSK Auto Corp. 3.4
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Citigroup, Inc. 3.3
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Everest Re Group Ltd. 3.3
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MBNA Corp. 2.0
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Raytheon Co. 1.4
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Washington Mutual, Inc. 1.4
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BP plc, ADR 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2005, and are based on net assets. For more current Fund holdings,
please visit www.oppenheimerfunds.com.
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8 | OPPENHEIMER CAPITAL INCOME FUND
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PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Stocks 51.4%
Bonds and Notes 32.1
Convertible Corporate Bonds and Notes 16.5
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2005, and are based on total market value of investments.
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9 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2005, FOLLOWED BY
A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED
MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. The Fund performed well on both an
absolute and relative basis. We attribute much of this strong performance to
positive security selection, with many of our individual holdings generating
favorable results during the past 12 months. See page 2 for detailed performance
information.
We follow a consistent management strategy regardless of changing market
conditions. During the period, we continued to search for fundamentally strong
stocks with favorable earnings outlooks and lower-than-deserved valuations. We
looked to sell companies when we believed they had become fairly valued.
While following this broad management approach, we also made changes at
the margins of the portfolio to take advantage of recent market trends. One of
these changes involved reducing the duration--or sensitivity to changes in
interest rates--of our fixed-income holdings. We were struck by the unexpected
decline in long-term rates, given the Fed's short-term rate hikes during the
period. We came to believe that long-term rates had more room to go up than
down. Accordingly, we believed it was in our shareholders' best interest to make
the Fund less sensitive to interest-rate fluctuations.
In a related move, we also took advantage of market conditions to lock in
gains from some of our bond holdings. We redeployed the assets in areas of the
market we thought offered better future appreciation potential. One of these was
the convertible securities market, which had fallen in spring 2005 after General
Motors saw its credit rating downgraded to "junk" status. This substantial
downgrade of the nation's largest automaker had a ripple effect on convertible
prices, sending them sharply lower. We took advantage of market conditions to
buy some short-maturity convertible bonds. These offered better yields than our
fixed-income holdings and provided the added benefit of equity participation. We
also took advantage of a declining stock market to increase our allocation to
equity securities. Some of these additional assets were invested in energy
stocks, which we believed could continue to benefit from sustained high oil
prices. At period end, approximately 48% of the portfolio was held in equities,
18% was in convertible securities and 34% was in fixed-income holdings.
High oil prices helped drive the performance of some of the Fund's energy
holdings during the period, with Kinder Morgan and BP plc, ADR making particular
contributions. Kinder Morgan, Inc., which processes, stores and transports oil,
natural gas and other sources of energy, was further rewarded for its dividend
growth, while BP plc, ADR gained from investors' optimism about the company's
sizeable Russian investments. Tobacco and
10 | OPPENHEIMER CAPITAL INCOME FUND
food giant Altria Group, Inc. also contributed significantly to results. Altria
benefited as its cigarette-related legal risks appeared to decline. Investors
also believed the company was closer to spinning off its Kraft Foods division
and its international tobacco business--two moves expected to unlock shareholder
value. Of final note, CSK Auto Corp., an auto parts and accessories retailer,
performed well. CSK improved its balance sheet and was helped by a favorable
business environment for its products.
On the negative side, diversified financial services company Citigroup,
Inc. was one of the Fund's disappointments. The company's shares continued to be
weighed down by the financial impact of legal settlements, and by negative
effects stemming from a flat-yield curve. However, we still believe Citigroup is
attractively valued, and we even took advantage of the recent underperformance
to add to our holdings in the stock. Conglomerate Tyco International Ltd. also
underperformed after the company issued a weaker-than-expected earnings report.
A third source of underperformance was the Fund's convertible bond holdings in
Viacom, one of the world's largest media companies. Viacom was weighed down by
overall weakness in the convertible bond market as well as continued-sluggish
advertising spending.
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, 2005. 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 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.
11 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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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 Capital
Income Fund (Class A) S&P 500 Index
--------------------- -------------
06/30/1995 9,425 10,000
09/30/1995 10,143 10,794
12/31/1995 10,494 11,443
03/31/1996 10,974 12,058
06/30/1996 11,179 12,598
08/31/1996 1 11,150 12,296
11/30/1996 12,764 14,353
02/28/1997 13,395 15,065
05/31/1997 13,794 16,245
08/31/1997 14,873 17,291
11/30/1997 15,823 18,445
02/28/1998 16,971 20,336
05/31/1998 17,547 21,225
08/31/1998 15,790 18,696
11/30/1998 17,810 22,813
02/28/1999 17,633 24,354
05/31/1999 18,292 25,689
08/31/1999 17,531 26,138
11/30/1999 16,975 27,579
02/29/2000 16,026 27,210
05/31/2000 17,967 28,378
08/31/2000 18,799 30,400
11/30/2000 18,184 26,414
02/28/2001 20,052 24,980
05/31/2001 21,152 25,385
08/31/2001 20,085 22,990
11/30/2001 19,222 23,188
02/28/2002 18,810 22,606
05/31/2002 19,132 21,873
08/31/2002 16,519 18,855
11/30/2002 16,833 19,360
02/28/2003 16,662 17,480
05/31/2003 19,198 20,108
08/31/2003 19,839 21,128
11/30/2003 21,168 22,280
02/29/2004 22,616 24,210
05/31/2004 21,944 23,792
08/31/2004 21,887 23,546
11/30/2004 23,496 25,142
02/28/2005 24,398 25,897
05/31/2005 23,961 25,750
08/31/2005 25,039 26,502
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
8/31/05
1-Year 7.83% 5-Year 4.65% 10 Year 9.11%
1. The Fund changed its fiscal year end from June 30 to August 31.
12 | OPPENHEIMER CAPITAL INCOME FUND
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 Capital
Income Fund (Class B) S&P 500 Index
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06/30/1995 10,000 10,000
09/30/1995 10,734 10,794
12/31/1995 11,086 11,443
03/31/1996 11,564 12,058
06/30/1996 11,758 12,598
08/31/1996 1 11,716 12,296
11/30/1996 13,385 14,353
02/28/1997 14,010 15,065
05/31/1997 14,392 16,245
08/31/1997 15,485 17,291
11/30/1997 16,453 18,445
02/28/1998 17,616 20,336
05/31/1998 18,162 21,225
08/31/1998 16,309 18,696
11/30/1998 18,376 22,813
02/28/1999 18,151 24,354
05/31/1999 18,800 25,689
08/31/1999 17,974 26,138
11/30/1999 17,376 27,579
02/29/2000 16,368 27,210
05/31/2000 18,312 28,378
08/31/2000 19,113 30,400
11/30/2000 18,458 26,414
02/28/2001 20,311 24,980
05/31/2001 21,382 25,385
08/31/2001 20,318 22,990
11/30/2001 19,445 23,188
02/28/2002 19,028 22,606
05/31/2002 19,354 21,873
08/31/2002 16,711 18,855
11/30/2002 17,028 19,360
02/28/2003 16,855 17,480
05/31/2003 19,420 20,108
08/31/2003 20,069 21,128
11/30/2003 21,414 22,280
02/29/2004 22,879 24,210
05/31/2004 22,199 23,792
08/31/2004 22,141 23,546
11/30/2004 23,768 25,142
02/28/2005 24,681 25,897
05/31/2005 24,239 25,750
08/31/2005 25,330 26,502
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
8/31/05
1-Year 8.40% 5-Year 4.72% 10-Year 9.23%
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.
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 16 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
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class C)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Capital
Income Fund (Class C) S&P 500 Index
--------------------- -------------
11/01/1995 10,000 10,000
12/31/1995 10,420 10,640
03/31/1996 10,864 11,211
06/30/1996 11,050 11,713
08/31/1996 1 11,001 11,432
11/30/1996 12,569 13,345
02/28/1997 13,169 14,007
05/31/1997 13,525 15,104
08/31/1997 14,555 16,077
11/30/1997 15,458 17,149
02/28/1998 16,541 18,907
05/31/1998 17,068 19,734
08/31/1998 15,327 17,382
11/30/1998 17,260 21,211
02/28/1999 17,049 22,643
05/31/1999 17,659 23,884
08/31/1999 16,883 24,301
11/30/1999 16,320 25,642
02/29/2000 15,384 25,299
05/31/2000 17,209 26,385
08/31/2000 17,964 28,264
11/30/2000 17,335 24,559
02/28/2001 19,093 23,226
05/31/2001 20,086 23,602
08/31/2001 19,042 21,375
11/30/2001 18,194 21,559
02/28/2002 17,782 21,018
05/31/2002 18,030 20,336
08/31/2002 15,557 17,530
11/30/2002 15,805 18,000
02/28/2003 15,622 16,253
05/31/2003 17,945 18,696
08/31/2003 18,520 19,644
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
11/30/2004 21,708 23,376
02/28/2005 22,485 24,078
05/31/2005 22,038 23,942
08/31/2005 22,999 24,640
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
8/31/05
1-Year 12.52% 5-Year 5.07% Since Inception (11/1/95) 8.84%
1. The Fund changed its fiscal year end from June 30 to August 31.
14 | OPPENHEIMER CAPITAL INCOME FUND
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 Capital
Income Fund (Class N) S&P 500 Index
--------------------- -------------
03/01/2001 10,000 10,000
05/31/2001 10,520 10,162
08/31/2001 9,982 9,203
11/30/2001 9,550 9,283
02/28/2002 9,335 9,049
05/31/2002 9,485 8,756
08/31/2002 8,196 7,548
11/30/2002 8,331 7,750
02/28/2003 8,241 6,998
05/31/2003 9,488 8,050
08/31/2003 9,790 8,458
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
11/30/2004 11,546 10,065
02/28/2005 11,972 10,367
05/31/2005 11,758 10,308
08/31/2005 12,272 10,609
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
8/31/05
1-Year 12.95% 5-Year N/A Since Inception (3/1/01) 4.65%
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.
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 16 FOR FURTHER INFORMATION.
15 | OPPENHEIMER CAPITAL INCOME FUND
NOTES
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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.
16 | OPPENHEIMER CAPITAL INCOME FUND
FUND EXPENSES
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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, 2005.
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 in
17 | OPPENHEIMER CAPITAL INCOME FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
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.
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BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(3/1/05) (8/31/05) AUGUST 31, 2005
- --------------------------------------------------------------------------------
Class A Actual $ 1,000.00 $ 1,026.30 $ 4.56
- --------------------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,020.72 4.54
- --------------------------------------------------------------------------------
Class B Actual 1,000.00 1,021.70 8.85
- --------------------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,016.48 8.83
- --------------------------------------------------------------------------------
Class C Actual 1,000.00 1,022.80 8.76
- --------------------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,016.59 8.73
- --------------------------------------------------------------------------------
Class N Actual 1,000.00 1,025.00 6.30
- --------------------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,019.00 6.28
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 184/365
(to reflect the one-half year period). Those annualized expense ratios based on
the 6-month period ended August 31, 2005 are as follows:
CLASS EXPENSE RATIOS
- ---------------------------------
Class A 0.89%
- ---------------------------------
Class B 1.73
- ---------------------------------
Class C 1.71
- ---------------------------------
Class N 1.23
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18 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS August 31, 2005
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
COMMON STOCKS--47.4%
- ------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--5.4%
- ------------------------------------------------------------------------------------------------------
MEDIA--1.8%
Cablevision Systems New York Group, Cl. A 1,2 800,000 $ 24,960,000
- ------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 650,000 21,645,000
- ------------------------------------------------------------------------------------------------------
News Corp., Inc., Cl. A 375,000 6,078,750
- ------------------------------------------------------------------------------------------------------
Regal Entertainment Group 135,000 2,639,250
--------------
55,323,000
- ------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--3.6%
CarMax, Inc. 1,2 36,300 1,156,518
- ------------------------------------------------------------------------------------------------------
CSK Auto Corp. 1,3 6,488,750 108,686,563
- ------------------------------------------------------------------------------------------------------
Gap, Inc. (The) 2 292,500 5,560,425
--------------
115,403,506
- ------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.0%
- ------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.5%
Wal-Mart Stores, Inc. 388,100 17,448,976
- ------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.4%
B&G Foods, Inc. 862,500 11,169,375
- ------------------------------------------------------------------------------------------------------
TOBACCO--6.1%
Altria Group, Inc. 2,175,000 153,772,500
- ------------------------------------------------------------------------------------------------------
Loews Corp./Carolina Group 2 1,000,000 38,610,000
--------------
192,382,500
- ------------------------------------------------------------------------------------------------------
ENERGY--12.2%
- ------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.4%
GlobalSantaFe Corp. 2 275,000 12,892,000
- ------------------------------------------------------------------------------------------------------
OIL & GAS--11.8%
BP plc, ADR 595,500 40,720,290
- ------------------------------------------------------------------------------------------------------
Enbridge Energy Management LLC 3 700,000 37,828,000
- ------------------------------------------------------------------------------------------------------
Kinder Morgan Management LLC 3,487,500 165,935,250
- ------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 2 1,300,000 124,111,000
- ------------------------------------------------------------------------------------------------------
Tortoise Energy Capital Corp. 166,500 4,182,480
- ------------------------------------------------------------------------------------------------------
Williams Partners LP 1 40,000 1,039,200
--------------
373,816,220
- ------------------------------------------------------------------------------------------------------
FINANCIALS--14.0%
- ------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.3%
U.S. Bancorp 1,000,000 29,220,000
- ------------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 2 1,045,800 43,484,364
--------------
72,704,364
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.8%
Citigroup, Inc. 2,412,800 $ 105,608,256
- ------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 355,000 12,030,950
- ------------------------------------------------------------------------------------------------------
MBNA Corp. 2,575,000 64,890,000
--------------
182,529,206
- ------------------------------------------------------------------------------------------------------
INSURANCE--4.9%
ACE Ltd. 775,000 34,417,750
- ------------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 2 1,137,500 105,321,125
- ------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A 500,000 16,085,000
--------------
155,823,875
- ------------------------------------------------------------------------------------------------------
REAL ESTATE--0.4%
Anthracite Capital, Inc. 1,000,000 11,810,000
- ------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.6%
PMI Group, Inc. (The) 500,000 20,230,000
- ------------------------------------------------------------------------------------------------------
HEALTH CARE--1.4%
- ------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--0.1%
Wyeth 87,500 4,006,625
- ------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.3%
Abbott Laboratories 233,800 10,551,394
- ------------------------------------------------------------------------------------------------------
Pfizer, Inc. 1,040,000 26,488,800
- ------------------------------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR 80,000 3,420,800
--------------
40,460,994
- ------------------------------------------------------------------------------------------------------
INDUSTRIALS--3.8%
- ------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.7%
Honeywell International, Inc. 2 107,500 4,115,100
- ------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 57,500 3,578,800
- ------------------------------------------------------------------------------------------------------
Raytheon Co. 1,165,000 45,691,300
--------------
53,385,200
- ------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Masco Corp. 2 100,000 3,068,000
- ------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.0%
Cendant Corp. 1,550,000 31,527,000
- ------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.0%
General Electric Co. 457,500 15,376,575
- ------------------------------------------------------------------------------------------------------
Tyco International Ltd. 625,000 17,393,750
--------------
32,770,325
20 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.4%
- ------------------------------------------------------------------------------------------------------
IT SERVICES--0.1%
First Data Corp. 100,000 $ 4,155,000
- ------------------------------------------------------------------------------------------------------
SOFTWARE--0.3%
Microsoft Corp. 332,500 9,110,500
- ------------------------------------------------------------------------------------------------------
MATERIALS--0.2%
- ------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.2%
Packaging Corp. of America 275,000 5,764,000
- ------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.0%
Bowater, Inc. 50,000 1,551,500
- ------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.2%
- ------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.9%
Citizens Communications Co. 850,000 11,594,000
- ------------------------------------------------------------------------------------------------------
Consolidated Communications Holdings, Inc. 1 1,000,000 13,800,000
- ------------------------------------------------------------------------------------------------------
FairPoint Communications, Inc. 950,000 15,266,500
- ------------------------------------------------------------------------------------------------------
PanAmSat Holding Corp. 352,800 8,474,256
- ------------------------------------------------------------------------------------------------------
SBC Communications, Inc. 2 25,000 602,000
- ------------------------------------------------------------------------------------------------------
Sprint Nextel Corp. 2 316,874 8,216,543
- ------------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 100,000 3,271,000
--------------
61,224,299
- ------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.3%
AT&T Corp. 305,000 6,002,400
- ------------------------------------------------------------------------------------------------------
New Skies Satellites Holdings Ltd. 98,800 2,215,096
--------------
8,217,496
- ------------------------------------------------------------------------------------------------------
UTILITIES--0.8%
- ------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.8%
Enterprise GP Holdings LP 1 50,000 1,595,000
- ------------------------------------------------------------------------------------------------------
Sempra Energy 2 497,500 22,297,950
--------------
23,892,950
--------------
Total Common Stocks (Cost $1,002,088,587) 1,500,666,911
- ------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--7.3%
- ------------------------------------------------------------------------------------------------------
AES Trust III, 6.75% Cv. 127,500 6,139,125
- ------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., Cv. 1,000,000 34,635,000
- ------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (New York), 2.32% Cv. Equity Linked Nts.
(redemption linked to Comcast Corp., Cl. A common stock) 1,330,200 40,411,476
- ------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 400,000 18,500,000
- ------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.375% Cv., Non-Vtg. 150 14,350,182
- ------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., 5.50% Cv. 7,375 7,214,594
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------
PREFERRED STOCKS Continued
- ---------------------------------------------------------------------------------------------------------
Lucent Technologies Capital Trust I, 7.75% Cum. Cv., Non-Vtg. 15,000 $ 15,045,000
- ---------------------------------------------------------------------------------------------------------
NRG Energy, Inc., 4% Cv., Non-Vtg. 3,200 3,677,200
- ---------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 1,875,000 46,031,250
- ---------------------------------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly Income Preferred Securities,
Non-Vtg. 575,000 23,287,500
- ---------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The), 5.50% Cv. Jr. Unsec. Sub. Debs. 50,000 5,262,500
- ---------------------------------------------------------------------------------------------------------
Xerox Corp., 6.25% Cv. 27,500 3,217,500
- ---------------------------------------------------------------------------------------------------------
XL Capital Ltd., 6.50% Cv. 600,000 13,776,000
--------------
Total Preferred Stocks (Cost $231,600,491) 231,547,327
PRINCIPAL
AMOUNT
- ---------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--14.1%
- ---------------------------------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-6, Cl. A3, 4.512%, 12/10/42 $ 2,310,000 2,304,463
Series 2005-2, Cl. A4, 4.783%, 7/10/43 3,240,000 3,280,990
Series 2005-3, Cl. A2, 4.501%, 7/10/43 2,670,000 2,666,949
- ---------------------------------------------------------------------------------------------------------
Bank of America Mortgage Securities, Inc., Collateralized Mtg.
Obligations Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 3,028,778 3,074,418
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 2,343,660 2,398,590
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 870,238 869,871
- ---------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl. A2, 4.945%, 2/11/41 1,230,000 1,254,946
- ---------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations:
Series 2004-J9, Cl. 1A1, 3.821%, 10/25/34 4 1,249,612 1,250,737
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 4,823,573 4,920,044
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 4,809,043 4,949,229
- ---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 9,568,823 9,502,627
6%, 9/1/34-10/1/34 5 13,473,447 13,799,359
6.50%, 4/1/18-4/1/34 2,915,715 3,021,387
7%, 9/1/23-3/1/35 12,718,726 13,315,165
7%, 10/1/32 5 2,474,865 2,590,339
8%, 4/1/16 790,108 844,175
9%, 8/1/22-5/1/25 225,802 245,978
- ---------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 199,692 199,819
Series 2034, Cl. Z, 6.50%, 2/15/28 886,874 924,376
Series 2053, Cl. Z, 6.50%, 4/15/28 1,031,451 1,071,286
Series 2055, Cl. ZM, 6.50%, 5/15/28 1,232,761 1,277,975
Series 2075, Cl. D, 6.50%, 8/15/28 3,212,382 3,333,735
Series 2080, Cl. Z, 6.50%, 8/15/28 795,510 822,995
22 | OPPENHEIMER CAPITAL INCOME FUND
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: Continued
Series 2387, Cl. PD, 6%, 4/15/30 $ 1,284,445 $ 1,295,628
Series 2498, Cl. PC, 5.50%, 10/15/14 85,994 86,122
Series 2500, Cl. FD, 4.071%, 3/15/32 4 498,275 500,433
Series 2526, Cl. FE, 3.971%, 6/15/29 4 618,062 621,214
Series 2551, Cl. FD, 3.971%, 1/15/33 4 481,392 485,027
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 11.055%, 6/1/26 6 841,107 156,724
Series 183, Cl. IO, 8.86%, 4/1/27 6 1,349,931 246,413
Series 184, Cl. IO, 14.03%, 12/1/26 6 1,404,365 251,554
Series 192, Cl. IO, 13.423%, 2/1/28 6 421,052 75,548
Series 200, Cl. IO, 12.235%, 1/1/29 6 502,340 90,276
Series 2130, Cl. SC, 10.762%, 3/15/29 6 987,090 83,955
Series 2796, Cl. SD, 17.034%, 7/15/26 6 1,481,135 127,396
Series 2920, Cl. S, 20.781%, 1/15/35 6 8,848,055 524,123
Series 3000, Cl. SE, 41.914%, 7/15/25 6 8,457,832 445,471
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 4.981%, 6/1/26 7 400,350 348,254
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 9/1/20 8 9,017,000 8,943,737
5%, 6/1/18-7/1/18 8,266,825 8,334,561
5%, 9/1/35 8 42,910,000 42,628,425
5.50%, 3/1/33-4/1/34 22,946,760 23,230,520
5.50%, 9/1/20-9/1/35 8 53,178,000 53,809,250
6%, 7/1/17-11/1/32 18,522,240 19,119,839
6%, 9/1/35 8 38,449,000 39,350,168
6.50%, 10/1/30-10/1/34 12,179,336 12,631,500
6.50%, 9/1/35 8 54,636,000 56,462,919
7%, 11/1/17 3,745,807 3,924,677
7.50%, 8/1/29-3/1/30 3,135,210 3,330,096
8.50%, 7/1/32 99,792 108,718
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust, Commercial Mtg.
Obligations, Trust 2002-T1, Cl. A2, 7%, 11/25/31 2,927,400 3,077,994
- -----------------------------------------------------------------------------------------------------
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 2,496,985 2,599,919
Trust 1998-63, Cl. PG, 6%, 3/25/27 229,599 229,446
Trust 2001-50, Cl. NE, 6%, 8/25/30 720,289 725,525
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 3,306,162 3,436,923
Trust 2001-70, Cl. LR, 6%, 9/25/30 710,029 719,306
Trust 2001-72, Cl. NH, 6%, 4/25/30 499,696 502,957
Trust 2001-74, Cl. PD, 6%, 5/25/30 204,023 205,265
Trust 2002-77, Cl. WF, 3.988%, 12/18/32 4 753,387 758,159
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 345,972 345,383
Trust 2003-10, Cl. HP, 5%, 2/25/18 3,950,000 4,001,210
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
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:
Continued
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 $ 1,903,000 $ 1,966,628
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,921,000 2,012,051
Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,592,252
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-47, Cl. NS, 8.607%, 4/25/32 6 1,814,923 185,784
Trust 2002-51, Cl. S, 8.819%, 8/25/32 6 1,666,347 170,540
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed
Security:
Trust 222, Cl. 2, 9.07%, 6/1/23 6 2,878,562 525,595
Trust 240, Cl. 2, 12.32%, 9/1/23 6 4,319,874 783,759
Trust 252, Cl. 2, 1.338%, 11/1/23 6 2,187,267 422,101
Trust 254, Cl. 2, 5.051%, 1/1/24 6 1,086,635 207,664
Trust 273, Cl. 2, 11.252%, 7/1/26 6 620,722 117,151
Trust 303, Cl. IO, 5.761%, 11/1/29 6 834,500 159,996
Trust 308, Cl. 2, 9.715%, 9/1/30 6 2,530,279 447,307
Trust 321, Cl. 2, 1.85%, 3/1/32 6 9,172,870 1,770,625
Trust 322, Cl. 2, 12.703%, 4/1/32 6 3,262,159 579,826
Trust 329, Cl. 2, 8.80%, 1/1/33 6 4,078,270 767,966
Trust 331, Cl. 9, (12.105)%, 2/1/33 6 2,586,662 470,405
Trust 333, Cl. 2, 9.70%, 3/1/33 6 7,695,449 1,465,849
Trust 334, Cl. 17, (3.947)%, 2/1/33 6 1,503,648 260,356
Trust 350, Cl. 2, 10.43%, 2/1/34 6 8,429,209 1,588,556
Trust 2001-65, Cl. S, 26.517%, 11/25/31 6 3,926,211 362,788
Trust 2001-81, Cl. S, 11.645%, 1/25/32 6 946,506 90,353
Trust 2002-9, Cl. MS, 9.893%, 3/25/32 6 1,147,310 121,560
Trust 2002-52, Cl. SD, 3.257%, 9/25/32 6 2,040,400 224,674
Trust 2002-75, Cl. SA, 26.625%, 11/25/32 6 4,510,167 415,665
Trust 2002-77, Cl. SH, 16.018%, 12/18/32 6 1,176,873 121,660
Trust 2004-54, Cl. DS, 11.821%, 11/25/30 6 1,931,205 141,997
Trust 2005-6, Cl. SE, 17.701%, 2/25/35 6 6,144,443 368,630
Trust 2005-19, Cl. SA, 15.92%, 3/25/35 6 23,385,164 1,473,137
Trust 2005-40, Cl. SA, 18.60%, 5/25/35 6 5,612,138 338,558
Trust 2005-71, Cl. SA, 31.268%, 8/25/25 6 5,404,404 306,408
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 6.755%, 9/25/23 7 958,691 832,554
- -----------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America
Commercial Mtg. Trust, Pass-Through Certificates, Series 1998-C2,
Cl. A2, 6.56%, 11/18/35 1,683,927 1,763,186
- -----------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,722,471
Series 2005-CA, Cl. A3, 4.578%, 6/10/48 1,000,000 1,001,824
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,613,120
24 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 $ 1,164,202 $ 1,209,007
Series 2004-C3, Cl. A4, 4.547%, 12/10/41 1,480,000 1,477,829
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 288,531 313,675
- --------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 3.034%, 1/16/27 6 1,997,544 177,170
Series 2002-15, Cl. SM, (0.729)%, 2/16/32 6 1,860,681 158,757
Series 2002-76, Cl. SY, 4.996%, 12/16/26 6 4,396,785 405,446
Series 2004-11, Cl. SM, (1.224)%, 1/17/30 6 1,664,540 135,414
- --------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-G G3, Cl. A2, 4.305%, 8/10/42 1,990,000 1,978,599
- --------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1, 3.659%, 10/10/28 1,656,306 1,629,530
Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 1,080,000 1,087,280
- --------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations, Series
2004-12, Cl. 3A1, 4.491%, 12/25/34 4,9 1,638,359 1,633,301
- --------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2005-LDP2, Cl. A2, 4.575%,
7/15/42 640,000 642,092
- --------------------------------------------------------------------------------------------------------
LB-UBS Securities Commercial Mortgage Trust, Commercial Mtg.
Pass-Through Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,900,000 1,927,906
- --------------------------------------------------------------------------------------------------------
Lehman XS Trust, Mortgage-Backed Obligations, Series 2005-2, Cl. 2A1B,
3.63%, 8/25/35 4,9 3,715,166 3,744,165
- --------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1, 6%, 7/25/34 3,626,237 3,701,384
- --------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. A1, 6.50%, 8/25/32 5,396,614 5,491,058
- --------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 1,950,000 2,057,441
- --------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 2,380,000 2,683,544
- --------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 1,972,856 1,986,135
- --------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C17, Cl. A2, 4.782%, 3/15/42 3,590,000 3,632,465
Series 2005-C20, Cl. A5, 5.087%, 7/15/42 1,910,000 1,958,495
- --------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.686%, 5/25/35 4 3,513,485 3,519,349
- --------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, Collateralized Mtg.
Obligations:
Series 2004-DD, Cl. 2 A1, 4.533%, 1/25/35 4 2,885,788 2,880,826
Series 2004-N, Cl. A10, 3.803%, 8/25/34 9 1,257,650 1,258,275
Series 2004-W, Cl. A2, 4.60%, 11/25/34 4 633,742 632,122
---------------
Total Mortgage-Backed Obligations (Cost $445,575,072) 445,448,349
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--2.4%
- -----------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 3.669%, 4/20/08 4,9 $ 900,000 $ 899,316
- -----------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates:
Series 2004-A, Cl. A2, 1.88%, 10/25/06 233,449 233,245
Series 2005-A, Cl. A2, 3.66%, 12/26/07 3,590,000 3,585,248
- -----------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.,
Series 2004-2, Cl. A3, 3.58%, 1/15/09 2,990,000 2,955,847
- -----------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed
Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 9 716,972 712,990
Series 2005-B, Cl. AF1, 4.02%, 3/26/35 9 851,154 848,224
Series 2005-C, Cl. AF1, 4.196%, 6/25/35 9 2,062,274 2,062,079
- -----------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home
Equity Mtg. Obligations:
Series 2003-5, Cl. 1A2, 2.451%, 11/25/18 264,721 263,898
Series 2004-1, Cl. 1A2, 2.427%, 6/25/19 1,426,752 1,421,531
- -----------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 399,759 400,146
Series 2005-A, Cl. A2, 3.72%, 12/15/07 2,580,000 2,574,467
- -----------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06 9 2,245,858 2,236,808
- -----------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.:
Series 2001-A6, Cl. A6, 5.65%, 6/16/08 2,780,000 2,813,674
Series 2003-C4, Cl. C4, 5%, 6/10/15 430,000 436,574
- -----------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc., Home Equity
Asset-Backed Certificates:
Series 2002-4, Cl. A1, 4.011%, 2/25/33 4 112,896 114,414
Series 2005-7, Cl. AF1B, 4.317%, 11/25/35 2,193,710 2,190,122
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.49%, 10/6/08 736,160 736,952
Series 2004-B, Cl. A2, 2.48%, 2/8/07 9 1,113,540 1,111,643
Series 2004-C, Cl. A2, 2.62%, 6/8/07 2,899,253 2,889,098
Series 2005-A, Cl. A2, 3.17%, 9/8/07 9 3,485,055 3,475,945
Series 2005-B, Cl. A2, 3.75%, 12/8/07 3,010,000 3,006,829
- -----------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Mtg. Pass-Through Certificates,
Series 2004-3, Cl. AF2, 3.80%, 7/25/34 2,710,000 2,699,005
- -----------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2004-A, Cl. A2, 2.13%, 10/15/06 1,611,861 1,608,239
Series 2005-A, Cl. A3, 3.48%, 11/17/08 2,200,000 2,184,291
Series 2005-B, Cl. A2, 3.77%, 9/15/07 3,110,000 3,108,118
- -----------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08 540,500 539,406
- -----------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable
Obligations, Series 2005-1, Cl. A2, 3.21%, 5/21/07 9 1,470,000 1,466,265
26 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -----------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 4.921%, 3/15/16 4 $ 4,080,000 $ 4,336,276
- -----------------------------------------------------------------------------------------------------
National City Auto Receivables Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2, 1.50%, 2/15/07 111,715 111,665
- -----------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series
2004-A, Cl. A2, 2.55%, 1/15/07 1,247,425 1,244,097
- -----------------------------------------------------------------------------------------------------
Nissan Auto Receivables Owner Trust, Automobile Receivable Nts.,
Series 2004-A, Cl. A2, 1.40%, 7/17/06 169,926 169,844
- -----------------------------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, Automobile Receivable Obligations,
Series 2005-B, Cl. A2, 4.03%, 4/15/08 1,990,000 1,989,951
- -----------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity
Pass-Through Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34 9 800,000 792,234
Series 2005-1, Cl. A F2, 3.914%, 5/25/35 600,000 594,567
Series 2005-2, Cl. A F2, 4.415%, 4/25/35 9 1,040,000 1,038,039
- -----------------------------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc., Home Equity Asset-Backed
Pass-Through Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28 1,910,000 1,909,606
- -----------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 4,714,296 4,738,980
- -----------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2004-2, Cl. A2, 2.41%, 2/15/07 1,180,442 1,177,874
Series 2004-3, Cl. A2, 2.79%, 6/15/07 1,653,861 1,649,454
- -----------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed
Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07 1,886,511 1,880,796
Series 2005-A, Cl. A2, 3.52%, 4/20/07 2,580,000 2,574,238
- -----------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts., Series
2004-B, Cl. A2, 2.40%, 5/21/07 1,089,579 1,086,223
- -----------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 2,325,306 2,306,911
- -----------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 1,804,174 1,796,262
---------------
Total Asset-Backed Securities (Cost $76,159,290) 75,971,391
- -----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.9%
- -----------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 10 2,255,000 2,071,959
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
3.625%, 9/15/06 1,890,000 1,883,861
4.125%, 7/12/10 2,560,000 2,558,182
6.25%, 7/15/32 550,000 687,510
6.625%, 9/15/09 2,340,000 2,557,218
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS Continued
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
3.75%, 5/17/07 $ 6,800,000 $ 6,770,549
4.25%, 7/15/07-8/15/10 9,570,000 9,621,399
6.625%, 9/15/09 3,555,000 3,886,443
7.25%, 5/15/30 1,625,000 2,249,088
- -----------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
4.65%, 6/15/35 2,335,000 2,344,611
5.375%, 11/13/08 238,000 247,330
Series A, 6.79%, 5/23/12 22,112,000 25,390,082
---------------
Total U.S. Government Obligations (Cost $59,936,006) 60,268,232
- -----------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.1%
- -----------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $2,980,588) 2,770,000 3,157,800
- -----------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.5%
- -----------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 14 3,060,000 3,104,394
- -----------------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 1,310,000 1,567,546
- -----------------------------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,693,750
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,656,250
8.875% Sr. Nts., Series B, 4/1/08 1,420,000 1,505,200
- -----------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 11 625,000 623,881
- -----------------------------------------------------------------------------------------------------
AOL Time Warner, Inc., 7.70% Debs., 5/1/32 1,755,000 2,169,928
- -----------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.:
7.50% Sr. Unsec. Nts., 5/1/07 14 770,000 810,620
8.125% Sr. Unsec. Nts., 5/1/12 2,165,000 2,582,598
- -----------------------------------------------------------------------------------------------------
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13 40,000 40,787
- -----------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 9 2,500,000 2,687,500
- -----------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 250,000 268,529
- -----------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bond 13 2,460,000 2,524,526
- -----------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
6.875% Sr. Nts., 7/15/15 11 1,515,000 1,492,275
8.375% Sr. Nts., 4/15/12 800,000 856,000
- -----------------------------------------------------------------------------------------------------
Boeing Capital Corp., 5.75% Sr. Nts., 2/15/07 261,000 266,843
- -----------------------------------------------------------------------------------------------------
British Telecommunications plc, 8.875% Bonds, 12/15/30 1,335,000 1,897,835
- -----------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC, 8.50% Sr. Unsec. Nts., 5/1/08 22,750,000 15,981,875
- -----------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09 433,000 430,847
- -----------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 1,640,000 1,814,834
- -----------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 2,810,000 3,067,435
28 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- -----------------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/
Charter Communications Holdings Capital Corp.:
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 12 $ 4,250,000 $ 3,378,750
8.625% Sr. Unsec. Nts., 4/1/09 42,500,000 35,381,250
9.92% Sr. Unsec. Disc. Nts., 4/1/11 50,000,000 37,750,000
- -----------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,832,041
- -----------------------------------------------------------------------------------------------------
CIGNA Corp.:
7% Sr. Unsec. Nts., 1/15/11 1,030,000 1,144,719
7.40% Unsec. Nts., 5/15/07 2,083,000 2,184,121
- -----------------------------------------------------------------------------------------------------
CIT Group, Inc.:
4.75% Sr. Nts., 8/15/08 395,000 399,655
7.75% Sr. Unsec. Unsub. Nts., 4/2/12 1,260,000 1,474,001
- -----------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32 1,205,000 1,427,020
- -----------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06 1,585,000 1,601,196
- -----------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7% Unsec. Nts., 4/1/12 2,395,000 2,691,353
- -----------------------------------------------------------------------------------------------------
Countrywide Financial Corp., 4.50% Nts., Series A, 6/15/10 1,585,000 1,579,356
- -----------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10 3,160,000 3,135,248
- -----------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (USA), 5.50% Nts., 8/15/13 3,105,000 3,260,890
- -----------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,925,000
- -----------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 1,765,000 1,856,581
- -----------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 1,315,000 1,352,335
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler NA Holdings Corp.:
7.20% Unsec. Nts., 9/1/09 1,670,000 1,805,975
8% Nts., 6/15/10 1,018,000 1,143,204
- -----------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,980,000 2,447,438
- -----------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts.,
6/15/10 1,790,000 2,060,474
- -----------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 2,165,000 2,484,703
- -----------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 1,430,000 1,453,392
- -----------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 275,000 285,482
8.10% Unsec. Nts., 8/1/10 2,160,000 2,462,396
- -----------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 1,980,000 2,099,990
- -----------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 3,155,000 3,077,062
- -----------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06 1,230,000 1,247,327
7.375% Sr. Unsub. Nts., Series C, 11/15/31 1,267,000 1,556,936
- -----------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
6.25% Unsec. Nts., 12/8/05 636,000 637,826
6.50% Unsec. Nts., 1/25/07 1,990,000 2,008,296
7.375% Nts., 10/28/09 615,000 612,948
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- -----------------------------------------------------------------------------------------------------
France Telecom SA:
8% Sr. Unsec. Nts., 3/1/11 4 $ 1,435,000 $ 1,655,961
8.75% Sr. Unsec. Nts., 3/1/31 4 460,000 645,078
- -----------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 1,025,000 1,009,502
- -----------------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 2,130,000 2,227,158
9.55% Unsub. Nts., 12/15/08 4 359,000 411,366
- -----------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 2,270,000 2,246,460
- -----------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.125% Unsec. Unsub. Nts., 2/1/07 6,160,000 6,155,220
- -----------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70% Sr. Unsec. Nts., 9/1/12 2,845,000 3,001,449
- -----------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06 1,139,000 1,164,882
- -----------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 3,155,000 3,030,018
- -----------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11 1,419,000 1,639,294
- -----------------------------------------------------------------------------------------------------
HSBC Finance Corp., 4.75% Sr. Unsec. Nts., 7/15/13 3,260,000 3,263,416
- -----------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 4 1,410,000 1,519,275
- -----------------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,075,000
- -----------------------------------------------------------------------------------------------------
iStar Financial, Inc., 4.875% Sr. Unsec. Nts., Series B, 1/15/09 2,610,000 2,608,027
- -----------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc. (Holding Co.), 7.40% Nts., 4/1/37 2,720,000 3,036,698
- -----------------------------------------------------------------------------------------------------
John Hancock Global Funding II, 7.90% Nts., 7/2/10 11 1,137,000 1,311,651
- -----------------------------------------------------------------------------------------------------
JPMorgan Capital XV, 5.875% Nts., 3/15/35 2,105,000 2,146,967
- -----------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.:
6.50% Sr. Nts., 1/15/14 1,515,000 1,514,044
8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,724,000
- -----------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 1,670,000 1,831,060
- -----------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 3,720,000 3,780,126
- -----------------------------------------------------------------------------------------------------
Kroger Co. (The), 6.80% Sr. Unsec. Nts., 4/1/11 2,165,000 2,365,215
- -----------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B, 5/15/09 2,560,000 2,670,093
- -----------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 1,990,000 2,109,949
- -----------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 325,000 342,429
- -----------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 1,505,000 1,560,842
- -----------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13 1,580,000 1,470,059
- -----------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 1,490,000 1,554,425
- -----------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 27,500,000 24,268,750
- -----------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr. Unsec. Bonds, 8/1/33 1,860,000 1,760,114
- -----------------------------------------------------------------------------------------------------
May Department Stores Co.:
3.95% Nts., 7/15/07 1,090,000 1,080,954
7.90% Unsec. Debs., 10/15/07 1,175,000 1,248,784
- -----------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F, 3/15/12 2,455,000 2,850,913
- -----------------------------------------------------------------------------------------------------
Mellon Bank NA, 4.75% Unsec. Sub. Nts., 12/15/14 2,560,000 2,590,587
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C, 2/3/14 3,095,000 3,140,487
30 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- -----------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35 $ 1,555,000 $ 1,621,552
- -----------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 2,580,000 2,737,842
- -----------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 1,450,000 1,606,239
- -----------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 233,173
- -----------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 1,410,000 1,507,633
- -----------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 440,000 435,437
7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 2,078,948
- -----------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 2,080,000 2,339,006
- -----------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 5.75% Unsec. Unsub. Nts.,
Series 12, 12/15/15 11 2,510,000 2,519,413
- -----------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1,
6/15/10 9 4,650,000 4,575,600
- -----------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B,
6/1/13 11 1,025,475 984,687
- -----------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts.,
2/1/10 11 1,465,000 1,659,568
- -----------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 11 2,740,000 3,593,844
- -----------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 2,740,000 3,677,272
- -----------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 1,390,000 1,435,175
- -----------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06 1,272,000 1,292,543
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 13,500,000 11,745,000
- -----------------------------------------------------------------------------------------------------
Safeway, Inc., 7.50% Sr. Unsec. Nts., 9/15/09 2,030,000 2,228,709
- -----------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts., 3/1/10 1,347,000 1,522,848
- -----------------------------------------------------------------------------------------------------
Simon Property Group LP:
5.45% Unsec. Nts., 3/15/13 1,345,000 1,388,476
5.625% Unsec. Unsub. Nts., 8/15/14 945,000 986,312
- -----------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,036,250
- -----------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32 1,845,000 2,582,555
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts., 5/1/07 2,225,000 2,316,781
- -----------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 1,655,000 1,639,090
7.75% Unsec. Sub. Nts., 5/1/10 149,000 169,548
- -----------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 2,755,000 3,466,234
- -----------------------------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec. Sub. Nts., 7/15/11 1,000,000 1,087,500
- -----------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12 651,000 831,379
- -----------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts., 3/15/08 2,240,000 2,199,071
- -----------------------------------------------------------------------------------------------------
TXU Corp., 6.55% Sr. Unsec. Nts., Series R, 11/15/34 1,995,000 1,961,829
- -----------------------------------------------------------------------------------------------------
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 2,380,000 2,401,384
6.75% Sr. Unsub. Nts., 2/15/11 870,000 959,167
31 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- -----------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 $ 430,000 $ 422,200
3.50% Sr. Unsec. Nts., 10/15/07 2,245,000 2,192,766
- -----------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 3,080,000 3,126,721
- -----------------------------------------------------------------------------------------------------
Wachovia Corp., 5.50% Sr. Sub. Nts., 8/1/35 1,600,000 1,651,320
- -----------------------------------------------------------------------------------------------------
Waste Management, Inc.:
6.875% Sr. Unsec. Nts., 5/15/09 1,300,000 1,401,578
7% Sr. Nts., 7/15/28 920,000 1,074,936
- -----------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 3,145,000 3,222,115
---------------
Total Non-Convertible Corporate Bonds and Notes (Cost $353,309,977) 363,722,372
- -----------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--17.5%
- -----------------------------------------------------------------------------------------------------
Advanced Micro Devices, Inc., 4.75% Cv. Sr. Unsec. Debs., 2/1/22 4 3,250,000 3,453,125
- -----------------------------------------------------------------------------------------------------
Agere Systems, Inc., 6.50% Cv. Unsec. Unsub. Nts., 12/15/09
(cv. into Agere Systems, Inc., Cl. A common stock) 20,000,000 20,250,000
- -----------------------------------------------------------------------------------------------------
Allied Waste Industries, Inc., 4.25% Cv. Sr. Unsec. Sub. Debs.,
4/15/34 14,500,000 12,687,500
- -----------------------------------------------------------------------------------------------------
Calpine Corp.:
4.75% Cv. Sr. Unsec. Nts., 11/15/23 11 14,750,000 9,790,313
4.75% Cv. Sr. Unsec. Nts., 11/15/23 2,500,000 1,659,375
- -----------------------------------------------------------------------------------------------------
Charter Communications, Inc., 5.875% Cv. Sr. Nts., 11/16/09 11 5,000,000 4,068,750
- -----------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 4.50% Cv. Sr. Unsec. Unsub. Nts.,
2/1/07 10,000,000 8,650,000
- -----------------------------------------------------------------------------------------------------
CSG Systems International, Inc., 2.50% Cv. Sr. Nts., 6/15/24 7,500,000 7,415,625
- -----------------------------------------------------------------------------------------------------
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs., 2/2/07 16,000,000 15,860,000
- -----------------------------------------------------------------------------------------------------
Delta Air Lines, Inc.:
2.875% Cv. Sr. Bonds, 2/18/24 11 7,250,000 1,223,438
8% Cv. Sr. Unsec. Bonds, 6/3/23 5,000,000 806,250
- -----------------------------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc., 4.50% Cv. Unsec. Sub. Nts., 7/1/08 22,500,000 20,559,375
- -----------------------------------------------------------------------------------------------------
JDS Uniphase Corp., 2.18% Cv. Sr. Nts., 11/15/10 10 17,750,000 14,355,313
- -----------------------------------------------------------------------------------------------------
Level 3 Communications, Inc.:
5.25% Cv. Sr. Nts., 12/15/11 10,000,000 6,712,500
6% Cv. Unsec. Sub. Nts., 3/15/10 14,250,000 7,516,875
- -----------------------------------------------------------------------------------------------------
Liberty Media Corp., 0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 27,500,000 30,490,625
- -----------------------------------------------------------------------------------------------------
Liberty Media Corp., 3.25% Exchangeable Sr. Unsec. Debs., 3/15/31
(exchangeable for Viacom, Inc., Cl. B common stock or cash based
on the value thereof) 137,500,000 108,968,750
- -----------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 2.75% Cv. Sr. Unsec. Debs., Series A,
6/15/23 17,000,000 18,997,500
- -----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10 15,000,000 15,168,750
- -----------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 18,000,000 17,190,000
32 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- -------------------------------------------------------------------------------------------------------
Novell, Inc.:
0.50% Cv. Sr. Unsec. Debs., 7/15/24 11 $ 11,000,000 $ 9,460,000
0.50% Cv. Sr. Unsec. Debs., 7/15/24 14,500,000 12,470,000
- -------------------------------------------------------------------------------------------------------
Pride International, Inc., 3.25% Cv. Sr. Nts., 5/1/33 18,000,000 21,217,500
- -------------------------------------------------------------------------------------------------------
Providian Financial Corp., 4.89% Cv. Sr. Unsec. Unsub. Nts.,
2/15/21 9,10 62,500,000 33,984,375
- -------------------------------------------------------------------------------------------------------
Six Flags, Inc., 4.50% Cv. Nts., 5/15/15 17,250,000 22,036,875
- -------------------------------------------------------------------------------------------------------
Solectron Corp., 0.50% Cv. Sr. Unsec. Nts., Series B, 2/15/34 15,500,000 11,915,625
- -------------------------------------------------------------------------------------------------------
Tyco International Group SA, 2.75% Cv. Sr. Unsec. Unsub. Debs.,
Series A, 1/15/18 85,000,000 104,868,750
- -------------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., 1.75% Cv. Sr. Nts., 12/1/09 750,000 707,813
- -------------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc., 1.75% Cv. Sr. Nts., 12/1/09 11 14,250,000 13,448,438
----------------
Total Convertible Corporate Bonds and Notes (Cost $561,797,969) 555,933,440
- -------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--4.3%
- -------------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc.:
Echostar Communications Corp. Cv. Equity-Linked Nts., 2.87%, 5/1/06 381,113 11,497,455
Liberty Media Corp. Cv. Equity-Linked Nts., 4%, 11/25/05 956,938 9,483,543
- -------------------------------------------------------------------------------------------------------
Core Investment Grade Bond Trust I, Pass-Through Certificates,
Series 2002-1, 4.659%, 11/30/07 4 1,272,092 1,277,555
- -------------------------------------------------------------------------------------------------------
Dow Jones CDX High Yield Index Pass-Through Certificates, Series
4-T1, 8.25%, 6/29/10 11,15 13,464,000 13,691,205
- -------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Boston Scientific Corp. Cv. Medium Term Linked Nts., 1.20%,
9/7/06 8 568,180 15,182,906
EchoStar Communications Corp. Cv. Linked Nts., 4%, 12/30/05 595,780 18,119,457
GlobalSantaFe Corp. Cv. Linked Nts., 4.50%, 9/29/05 496,860 18,822,547
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Cv. Yield Enhanced Equity Linked Debt Securities, 12%, 12/29/05
(linked to CarMax, Inc.) 764,498 23,431,864
Cv. Yield Enhanced Equity Linked Debt Securities, Series G, 5%,
12/14/05 (linked to EchoStar Communications Corp. Cl. A common stock) 310,753 9,307,052
- -------------------------------------------------------------------------------------------------------
Morgan Stanley, Cv. Performance Equity Linked Redemption
Quarterly-pay Securities, 5%, 12/30/05 (linked to Dollar Tree
Stores, Inc.) 9 605,830 14,270,325
----------------
Total Structured Notes (Cost $136,618,634) 135,083,909
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,870,066,614) 106.5% 3,371,799,731
- -------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (6.5) (205,697,495)
--------------------------------
NET ASSETS 100.0% $ 3,166,102,236
================================
33 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------
Cablevision Systems New York Group, Cl. A 3,750 1/23/06 $ 30.00 $ 744,282 $ 1,012,500
Cablevision Systems New York Group, Cl. A 4,250 9/19/05 25.00 1,185,955 2,635,000
CarMax, Inc. 363 9/19/05 30.00 71,508 65,340
Everest Re Group Ltd. 750 9/19/05 100.00 86,246 --
Gap, Inc. (The) 2,750 9/19/05 22.50 170,123 13,750
GlobalSantaFe Corp. 500 1/23/06 45.00 223,491 230,000
GlobalSantaFe Corp. 1,000 1/23/06 42.50 606,975 650,000
GlobalSantaFe Corp. 875 9/19/05 50.00 48,534 26,250
Honeywell International, Inc. 1,075 9/19/05 40.00 56,213 10,750
Kinder Morgan, Inc. 500 9/19/05 95.00 82,247 77,500
Kinder Morgan, Inc. 750 9/19/05 100.00 80,747 18,750
Loews Corp./Carolina Group 1,250 9/19/05 40.00 74,272 18,750
Masco Corp. 1,000 9/19/05 35.00 36,498 --
SBC Communications, Inc. 250 10/24/05 25.00 7,250 2,500
Sempra Energy 250 10/24/05 45.00 26,959 27,500
Sprint Nextel Corp. 1,250 9/19/05 35.00 91,246 6,250
Washington Mutual, Inc. 4,800 10/24/05 45.00 239,592 24,000
Washington Mutual, Inc. 4,200 10/24/05 42.50 494,165 294,000
Washington Mutual, Inc. 1,000 10/24/05 47.50 27,747 --
-------------------------
$ 4,354,050 $ 5,112,840
=========================
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, 2005.
The aggregate fair value of securities of affiliated companies held by the Fund
as of August 31, 2005 amounts to $146,514,563. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES SHARES
AUGUST 31, GROSS GROSS AUGUST 31,
2004 ADDITIONS REDUCTIONS 2005
- --------------------------------------------------------------------------------
CSK Auto Corp. 6,500,000 4,375 15,625 6,488,750
Enbridge Energy Management LLC 650,000 56,747* 6,747 700,000
VALUE DIVIDEND REALIZED
SEE NOTE 1 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------
CSK Auto Corp. $ 108,686,563 $ -- $ (146,352)
Enbridge Energy Management LLC 37,828,000 -- 59,946
---------------------------------------
$ 146,514,563 $ -- $ (86,406)
=======================================
*A portion of the transactions (24,247) was the result of a stock dividend.
4. Represents the current interest rate for a variable or increasing rate
security.
34 | OPPENHEIMER CAPITAL INCOME FUND
5. 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
- -------------------------------------------------------------------------------------------------
Abbott Laboratories 2,500 11/21/05 $ 47.50 $ 698,220 $ 737,500
Boston Scientific Corp. 3,105 1/23/06 32.50 1,231,058 1,738,800
Boston Scientific Corp. 3,797 2/20/06 32.50 1,887,030 2,164,290
Boston Scientific Corp. 1,350 11/21/05 30.00 400,933 432,000
CarMax, Inc. 2,175 1/23/06 30.00 1,070,881 369,750
Cendant Corp. 18,441 1/23/06 22.50 4,071,250 4,149,225
Citigroup, Inc. 522 1/23/06 47.50 196,786 214,020
ENSCO International, Inc. 2,500 12/19/05 35.00 293,687 250,000
Exxon Mobil Corp. 3,850 9/19/05 60.00 780,917 365,750
General Electric Co. 11,500 12/19/05 35.00 1,527,935 2,645,000
Kroger Co. (The) 2,500 10/24/05 17.50 498,733 25,000
Morgan Stanley 500 10/24/05 55.00 145,994 250,000
PMI Group, Inc. (The) 1,250 12/19/05 40.00 442,896 256,250
Pfizer, Inc. 2,250 12/19/05 27.50 443,231 652,500
Tyco International Ltd. 7,500 10/24/05 27.50 883,963 562,500
Wal-Mart Stores, Inc. 1,225 9/19/05 50.00 326,749 624,750
Wal-Mart Stores, Inc. 969 9/19/05 47.50 186,040 251,940
---------------------------
$ 15,086,303 $ 15,689,275
===========================
6. 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 $16,767,157 or 0.53% of the Fund's net assets
as of August 31, 2005.
7. 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 $1,180,808 or 0.04% of the Fund's net assets as of
August 31, 2005.
8. When-issued security or forward commitment to be delivered and settled after
August 31, 2005. See Note 1 of Notes to Financial Statements.
9. Illiquid security. The aggregate value of illiquid securities as of August
31, 2005 was $76,797,084, which represents 2.43% of the Fund's net assets. See
Note 8 of Notes to Financial Statements.
10. Zero coupon bond reflects effective yield on the date of purchase.
11. 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 $63,867,463 or 2.02% of the Fund's net
assets as of August 31, 2005.
12. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
13. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.
14. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. The aggregate
market value of such securities is $2,332,382. See Note 5 of Notes to Financial
Statements.
15. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES August 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------
Investments, at value--see accompanying
statement of investments:
Unaffiliated companies (cost $2,785,123,649) $ 3,225,285,168
Affiliated companies (cost $84,942,965) 146,514,563
-----------------
3,371,799,731
- --------------------------------------------------------------------------------------
Cash 3,917,603
- --------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 181,437
- --------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $16,655,798 sold on a
when-issued basis or forward commitment) 32,567,363
Interest, dividends and principal paydowns 19,873,743
Shares of beneficial interest sold 2,402,357
Other 70,093
-----------------
Total assets 3,430,812,327
- --------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------
Options written, at value (premiums received $19,440,353)--
see accompanying statement of investments 20,802,115
- --------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $231,478,696 purchased on
a when-issued basis or forward commitment) 238,479,157
Shares of beneficial interest redeemed 3,119,074
Distribution and service plan fees 1,273,051
Futures margins 384,956
Transfer and shareholder servicing agent fees 312,358
Shareholder communications 199,287
Trustees' compensation 47,085
Other 93,008
-----------------
Total liabilities 264,710,091
- --------------------------------------------------------------------------------------
NET ASSETS $ 3,166,102,236
=================
- --------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 251,090
- --------------------------------------------------------------------------------------
Additional paid-in capital 2,573,981,094
- --------------------------------------------------------------------------------------
Accumulated net investment loss (5,155,034)
- --------------------------------------------------------------------------------------
Accumulated net realized gain on investments 97,124,912
- --------------------------------------------------------------------------------------
Net unrealized appreciation on investments 499,900,174
-----------------
NET ASSETS $ 3,166,102,236
=================
36 | 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
$2,670,552,171 and 211,394,370 shares of beneficial interest outstanding) $12.63
Maximum offering price per share (net asset value plus sales charge of 5.75%
of offering price) $13.40
- --------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$299,092,921 and 23,942,201 shares of beneficial interest outstanding) $12.49
- --------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$167,013,108 and 13,407,305 shares of beneficial interest outstanding) $12.46
- --------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$29,444,036 and 2,345,879 shares of beneficial interest outstanding) $12.55
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended August 31, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $ 75,159,595
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $21,300) 45,924,785
----------------
Total investment income 121,084,380
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 15,950,286
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 6,033,808
Class B 3,041,646
Class C 1,500,411
Class N 114,518
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,699,735
Class B 506,976
Class C 232,273
Class N 42,314
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 356,422
Class B 92,014
Class C 28,102
Class N 4,191
- --------------------------------------------------------------------------------
Custodian fees and expenses 143,977
- --------------------------------------------------------------------------------
Trustees' compensation 51,055
- --------------------------------------------------------------------------------
Other 228,024
----------------
Total expenses 31,025,752
Less reduction to custodian expenses (27,401)
----------------
Net expenses 30,998,351
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 90,086,029
38 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies $ 103,664,191
Affiliated companies (86,406)
Closing and expiration of option contracts written 39,779,305
Closing of futures contracts 7,546,704
Swap contracts 241,636
--------------
Net realized gain 151,145,430
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 165,109,308
Futures contracts (776,582)
Option contracts (4,855,016)
Swap contracts (226,589)
--------------
Net change in unrealized appreciation 159,251,121
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 400,482,580
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2005 2004
- --------------------------------------------------------------------------------
OPERATIONS
- --------------------------------------------------------------------------------
Net investment income $ 90,086,029 $ 105,321,259
- --------------------------------------------------------------------------------
Net realized gain 151,145,430 183,533,222
- --------------------------------------------------------------------------------
Net change in unrealized appreciation 159,251,121 (26,459,650)
---------------- ---------------
Net increase in net assets resulting from
operations 400,482,580 262,394,831
- --------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dividends from net investment income:
Class A (98,334,605) (102,927,701)
Class B (9,374,778) (12,688,798)
Class C (4,622,703) (4,369,847)
Class N (783,486) (513,100)
- --------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (79,229,551) --
Class B (9,824,424) --
Class C (4,580,356) --
Class N (642,942) --
- --------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 127,979,966 132,826,225
Class B (37,260,401) (46,403,963)
Class C 24,380,138 34,609,632
Class N 11,328,890 7,276,288
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Total increase 319,518,328 270,203,567
- --------------------------------------------------------------------------------
Beginning of period 2,846,583,908 2,576,380,341
-------------------------------
End of period (including accumulated net
investment income (loss) of $(5,155,034)
and $28,994,342, respectively) $3,166,102,236 $2,846,583,908
================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 11.22 $ 9.76 $ 12.72 $ 12.88
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 1 .46 .54 .51 .42
Net realized and unrealized gain (loss) 1.28 .69 1.35 (2.66) .41
----------------------------------------------------------------------------------
Total from investment operations 1.66 1.15 1.89 (2.15) .83
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.48) (.53) (.43) (.48) (.48)
Distributions from net realized gain (.39) -- -- (.33) (.51)
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.87) (.53) (.43) (.81) (.99)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72
==================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 14.40% 10.32% 20.10% (17.75)% 6.84%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,670,552 $ 2,379,956 $ 2,130,486 $ 1,873,458 $ 2,458,272
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,565,609 $ 2,356,948 $ 1,900,896 $ 2,224,911 $ 2,432,151
Ratios to average net assets: 3
Net investment income 3.09% 3.85% 5.41% 4.48% 3.21%
Total expenses 0.89% 4 0.89% 4,5 0.93% 4 0.98% 4 0.91% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55% 6 52% 141% 148% 74%
1. Per share amounts calculated based on the average shares outstanding during
the period.
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%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- ----------------------------------------------------------------------------
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.72 $ 11.10 $ 9.67 $ 12.60 $ 12.76
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .28 1 .36 .45 .41 .32
Net realized and unrealized gain (loss) 1.26 .68 1.33 (2.62) .41
----------------------------------------------------------------------------------
Total from investment operations 1.54 1.04 1.78 (2.21) .73
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.38) (.42) (.35) (.39) (.38)
Distributions from net realized gain (.39) -- -- (.33) (.51)
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.77) (.42) (.35) (.72) (.89)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60
==================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 13.40% 9.46% 18.94% (18.31)% 6.05%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 299,093 $ 316,568 $ 343,074 $ 327,368 $ 477,223
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 304,769 $ 349,853 $ 312,457 $ 410,652 $ 469,690
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.25% 3.00% 4.55% 3.67% 2.44%
Total expenses 1.73% 4 1.76% 4,5 1.81% 4 1.76% 4 1.68% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55% 6 52% 141% 148% 74%
1. Per share amounts calculated based on the average shares outstanding during
the period.
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%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42 | OPPENHEIMER CAPITAL INCOME FUND
CLASS C YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.69 $ 11.09 $ 9.66 $ 12.59 $ 12.76
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .28 1 .35 .45 .42 .32
Net realized and unrealized gain (loss) 1.26 .69 1.34 (2.62) .40
----------------------------------------------------------------------------------
Total from investment operations 1.54 1.04 1.79 (2.20) .72
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.38) (.44) (.36) (.40) (.38)
Distributions from net realized gain (.39) -- -- (.33) (.51)
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.77) (.44) (.36) (.73) (.89)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59
==================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 13.52% 9.40% 19.05% (18.30)% 6.00%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 167,013 $ 133,368 $ 93,797 $ 72,792 $ 89,547
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 150,410 $ 122,458 $ 75,459 $ 84,049 $ 80,390
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.27% 3.01% 4.55% 3.74% 2.44%
Total expenses 1.71% 4 1.72% 4,5 1.78% 4 1.76% 4 1.68% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55% 6 52% 141% 148% 74%
1. Per share amounts calculated based on the average shares outstanding during
the period.
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%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001 1
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.78 $ 11.16 $ 9.73 $ 12.69 $ 12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 2 .39 .46 .50 .28
Net realized and unrealized gain (loss) 1.26 .72 1.37 (2.66) (.30)
----------------------------------------------------------------------------------
Total from investment operations 1.60 1.11 1.83 (2.16) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.44) (.49) (.40) (.47) (.25)
Distributions from net realized gain (.39) -- -- (.33) --
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.83) (.49) (.40) (.80) (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69
==================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 13.95% 10.01% 19.45% (17.89)% (0.18)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 29,444 $ 16,692 $ 9,023 $ 4,071 $ 648
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 22,974 $ 13,301 $ 5,968 $ 2,839 $ 214
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.73% 3.42% 4.92% 4.74% 2.94%
Total expenses 1.24% 5 1.28% 5,6 1.35% 5 1.25% 5 1.17% 5
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 55% 7 52% 141% 148% 74%
1. For the period from March 1, 2001 (inception of offering) to August 31, 2001.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. 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.
4. Annualized for periods of less than one full year.
5. Reduction to custodian expenses less than 0.01%.
6. Voluntary waiver of transfer agent fees less than 0.01%.
7. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended August 31, 2005 $3,541,353,653 $3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
44 | 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 has a secondary objective to
conserve principal while providing an opportunity for capital appreciation. 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 exchanges are valued
based on the last sale price of the security traded on that exchange prior to
the time when the Fund's assets are valued. Securities traded on NASDAQ are
valued based on the closing price provided by NASDAQ prior to the time when the
Fund's assets are valued. In the absence of a sale, the security is valued at
the last sale price on the prior trading day, if it is within the spread of the
closing "bid" and "asked" prices, and if not, at the closing bid price.
Securities traded on foreign exchanges are valued based on the last sale price
on the principal exchange on which the security is traded, in the country that
is identified by the portfolio pricing service, prior to the time when the
Fund's assets are valued. In the absence of a sale, the security is valued at
the official closing price on the principal exchange. Corporate, government and
municipal debt instruments having a remaining maturity in excess of sixty days
and all mortgage-backed securities will be valued at the mean between the "bid"
and "asked" prices. Futures contracts traded on a commodities or futures
exchange will be valued at the final settlement price or official closing price
on the principal exchange as reported by such principal exchange at its trading
session ending at, or most recently prior to, the time when the Fund's assets
are valued. Securities may be valued primarily using dealer-supplied valuations
or a portfolio pricing service
45 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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).
- --------------------------------------------------------------------------------
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 Statement of Operations. The Fund records a realized gain or loss
when a structured note is sold or matures. As of August 31, 2005, the market
value of these securities comprised 4.3% of the Fund's net assets and resulted
in unrealized cumulative losses of $1,534,725.
- --------------------------------------------------------------------------------
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, 2005, the Fund had purchased
$231,478,696 of securities issued on a when-issued basis or forward commitment
and sold $16,655,798 of securities issued 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
46 | OPPENHEIMER CAPITAL INCOME FUND
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.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income 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. 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.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be
47 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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
----------------------------------------------------------------------------
$88,705,619 $52,426,355 $20,532,274 $475,081,026
1. The Fund had $20,532,274 of straddle losses which were deferred.
2. During the fiscal year ended August 31, 2005, the Fund did not utilize any
capital loss carryforward.
3. 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.
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, 2005. Net assets of the
Fund were unaffected by the reclassifications.
REDUCTION TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL LOSS ON INVESTMENTS 4
-----------------------------------------------------
$9,963,417 $6,006,296 $15,531,621
4. $9,492,374, including $3,943,235 of long-term capital gain, was distributed
in connection with Fund share redemptions.
The tax character of distributions paid during the years ended August 31, 2005
and August 31, 2004 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2005 AUGUST 31, 2004
--------------------------------------------------------------
Distributions paid from:
Ordinary income $ 113,115,572 $ 120,499,446
Long-term capital gain 94,277,273 --
--------------- ----------------
Total $ 207,392,845 $ 120,499,446
=============== ================
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, 2005 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable,
48 | OPPENHEIMER CAPITAL INCOME FUND
is attributable to the tax deferral of losses or tax realization of financial
statement unrealized gain or loss.
Federal tax cost of securities $ 2,895,362,638
Federal tax cost of other investments (182,248,658)
----------------
Total federal tax cost $ 2,713,113,980
================
Gross unrealized appreciation $ 561,612,290
Gross unrealized depreciation (86,531,264)
----------------
Net unrealized appreciation $ 475,081,026
================
During the year ending August 31, 2005, the Fund recorded a decrease to cost of
investments, resulting in an increase to net unrealized appreciation on
investments, and a decrease to accumulated net investment income in the amount
of $17,126,129 to adjust for the recharacterization of certain stock dividends
received in prior years.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to
49 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Custodian Expenses line item, if applicable, represents earnings on cash
balances maintained by the Fund during the period. Such interest expense and
other custodian fees may be paid with these earnings.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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, 2005 YEAR ENDED AUGUST 31, 2004
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------
CLASS A
Sold 22,558,905 $ 277,939,203 27,395,516 $ 328,897,834
Dividends and/or
distributions reinvested 13,463,832 165,521,957 8,032,385 94,957,085
Redeemed (25,590,738) (315,481,194) (24,375,517) (291,028,694)
-------------------------------------------------------------
Net increase 10,431,999 $ 127,979,966 11,052,384 $ 132,826,225
=============================================================
- -----------------------------------------------------------------------------------------
CLASS B
Sold 4,597,999 $ 56,062,655 6,888,752 $ 81,662,144
Dividends and/or
distributions reinvested 1,486,058 18,104,691 1,020,466 11,950,178
Redeemed (9,161,381) (111,427,747) (11,792,254) (140,016,285)
-------------------------------------------------------------
Net decrease (3,077,324) $ (37,260,401) (3,883,036) $ (46,403,963)
=============================================================
- -----------------------------------------------------------------------------------------
CLASS C
Sold 3,382,894 $ 41,213,863 4,346,905 $ 51,194,830
Dividends and/or
distributions reinvested 693,034 8,423,553 339,300 3,974,837
Redeemed (2,075,964) (25,257,278) (1,740,267) (20,560,035)
-------------------------------------------------------------
Net increase 1,999,964 $ 24,380,138 2,945,938 $ 34,609,632
=============================================================
- -----------------------------------------------------------------------------------------
CLASS N
Sold 1,172,709 $ 14,333,266 715,430 $ 8,550,182
Dividends and/or
distributions reinvested 114,121 1,396,302 42,495 501,477
Redeemed (358,515) (4,400,678) (148,746) (1,775,371)
-------------------------------------------------------------
Net increase 928,315 $ 11,328,890 609,179 $ 7,276,288
=============================================================
50 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2005, were as
follows:
PURCHASES SALES
-----------------------------------------------------------------
Investment securities $ 1,708,998,426 $ 1,380,430,062
U.S. government and
government agency obligations 132,364,200 191,863,518
To Be Announced (TBA)
mortgage-related securities 3,541,353,653 3,677,756,448
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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, 2005, the Fund paid
$3,468,577 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
51 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
on Class N shares. The Distributor also receives a service fee of 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, 2005 for Class B, Class C and Class N shares were $9,100,782,
$3,267,865 and $444,117, respectively. Fees incurred by the Fund under the plans
are detailed in the Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- ----------------------------------------------------------------------------------------------------
August 31, 2005 $979,563 $33,107 $496,570 $17,566 $13,003
- --------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees for all classes to 0.35% of
average annual net assets per class. This undertaking may be amended or
withdrawn at any time.
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of 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
52 | OPPENHEIMER CAPITAL INCOME FUND
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 in 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, 2005, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2005 (DEPRECIATION)
- --------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 12/20/05 572 $ 67,513,875 $ 627,702
--------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 12/30/05 597 123,634,969 (428,999)
U.S. Treasury Nts., 5 yr. 12/20/05 803 87,025,125 (717,401)
U.S. Treasury Nts., 10 yr. 12/20/05 177 19,837,828 (133,920)
--------------
(1,280,320)
--------------
$ (652,618)
==============
- --------------------------------------------------------------------------------
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
53 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. OPTION ACTIVITY Continued
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, 2005 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, 2004 30,425 $ 5,660,279 76,716 $ 20,807,385
Options written 262,081 35,188,521 488,013 71,078,542
Options closed or expired (214,005) (27,071,843) (476,792) (70,636,129)
Options exercised (47,938) (9,422,907) (22,003) (6,163,495)
----------------------------------------------------
Options outstanding as of
August 31, 2005 30,563 $ 4,354,050 65,934 $ 15,086,303
====================================================
- --------------------------------------------------------------------------------
7. 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).
As of August 31, 2005, 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, 2005 AUGUST 31, 2005 DATE APPRECIATION
- -------------------------------------------------------------------------------------------
One-Month
LIBOR
UBS AG $12,530,000 Minus 0.25% 1.510% 12/1/05 $181,437
Index abbreviations are as follows:
LIBOR London-Interbank Offered Rate
54 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
8. ILLIQUID SECURITIES
As of August 31, 2005, 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. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.
- --------------------------------------------------------------------------------
9. LITIGATION
A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor, as well as 51 of the
Oppenheimer funds (as "Nominal Defendants") including the Fund, 30 present and
former Directors or Trustees and 8 present and former officers of the funds.
This complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges 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 assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.
The defendants believe that the allegations contained in the Complaints
are without merit and that they have meritorious defenses against the claims
asserted. The defendants intend to defend these lawsuits vigorously and to
contest any claimed liability. The defendants believe that it is premature to
render any opinion as to the likelihood of an outcome unfavorable to them and
that no estimate can yet be made with any degree of certainty as to the amount
or range of any potential loss.
55 | 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,
2005, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit includes consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 17, 2005
56 | OPPENHEIMER CAPITAL INCOME FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2006, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2005. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends and distributions of $0.5869, $0.5573, $0.5598 and $0.5760 per
share were paid to Class A, Class B, Class C and Class N shareholders,
respectively, on December 22, 2004, of which $0.3945 was designated as a
"capital gain distribution" for federal income tax purposes. Whether received in
stock or in cash, the capital gain distribution should be treated by
shareholders as a gain from the sale of the capital assets held for more than
one year (long-term capital gains).
Dividends, if any, paid by the Fund during the fiscal year ended August
31, 2005 which are not designated as capital gain distributions should be
multiplied by 18.80% 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, 2005 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. $35,589,230 of the Fund's fiscal year taxable income may be
eligible for the lower individual income tax rates. In early 2006, 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.
57 | 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 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 voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing 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.
58 | OPPENHEIMER CAPITAL INCOME FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each year, the Board of Trustees (the "Board"), including a majority of the
independent Trustees, is required to determine whether to renew the Fund's
advisory agreement. The Investment Company Act of 1940, as amended, requires
that the Board request and evaluate, and that the Manager provide, such
information as may be reasonably necessary to evaluate the terms of the advisory
agreement. The Board employs an independent consultant to prepare a report that
provides information, including comparative information, that the Board requests
for this purpose. In addition, the Board receives information throughout the
year regarding Fund services, fees, expenses and performance.
NATURE AND EXTENT OF SERVICES. In considering the renewal of the Fund's
advisory agreement for the current year, the Board evaluated the nature and
extent of the services provided by the Manager and its affiliates. The Manager
provides the Fund with office space, facilities and equipment; administrative,
accounting, clerical, legal and compliance personnel; securities trading
services; oversight of third party service providers and the services of the
portfolio manager and the Manager's investment team, who provide research,
analysis and other advisory services in regard to the Fund's investments.
QUALITY OF SERVICES. The Board also considered the quality of the services
provided and the quality of the Manager's resources that were available to the
Fund. The Board noted that the Manager has had over forty years of experience as
an investment adviser and that its assets under management rank it among the top
mutual fund managers in the United States. The Board evaluated the Manager's
administrative, accounting, legal and compliance services and information the
Board received regarding the experience and professional qualifications of the
Manager's personnel and the size and functions of its staff. The Board members
also considered their experiences as directors or trustees of the Fund and other
funds advised by the Manager. The Board received and reviewed information
regarding the quality of services provided by affiliates of the Manager, which
it also reviews at other times during the year in connection with the renewal of
the Fund's service agreements. The Board was aware that there are alternatives
to retaining the Manager.
PORTFOLIO MANAGEMENT SERVICES AND PERFORMANCE. In its evaluation of the
quality of the portfolio management services to be provided, the Board
considered the experience of Michael S. Levine and the Manager's Value
investment team and analysts. Mr. Levine has had over 14 years of experience
managing equity and fixed income investments and has been primarily responsible
for the day-to-day management of the Fund's portfolio since June 1999. Mr. Levin
has been a Vice President of the Fund since June 1999 and a Vice President of
the Manager since June 1998. He is a portfolio manager of other Oppenheimer
funds.
59 | OPPENHEIMER CAPITAL INCOME FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
- --------------------------------------------------------------------------------
The Board also reviewed information, prepared by the Manager and by the
independent consultant, comparing the Fund's historical performance to relevant
market indices and to the performance of other income funds advised by other
investment advisers. The Board also receives and reviews comparative performance
information regarding the Fund and other funds at each Board meeting. The Board
noted that the Fund's one-year, three-year, five-year and ten-year performance
were all better than its peer group average.
MANAGEMENT FEES AND EXPENSES. The Board also reviewed information,
including comparative information, regarding the fees paid to the Manager and
its affiliates and the other expenses borne by the Fund. The independent
consultant provided comparative data in regard to the fees and expenses of the
Fund and other income funds with comparable asset levels and distribution
features. The Board noted that the Fund's contractual management fee is slightly
higher than its peer group average. However, its actual management fee and total
expenses are lower than its peer group average. In addition, the Board evaluated
the comparability of the fees charged and the services provided to the Fund to
the fees charged and services provided to other types of entities advised by the
Manager.
PROFITABILITY OF THE MANAGER AND AFFILIATES. The Board also reviewed
information regarding the cost of services provided by the Manager and its
affiliates and the Manager's profitability. The Board considered that the
Manager must be able to pay and retain experienced professional personnel at
competitive rates to provide services to the Fund and that maintaining the
financial viability of the Manager is important in order for the Manager to
continue to provide significant services to the Fund and its shareholders. In
addition the Board considered information that was provided regarding the direct
and indirect benefits the Manager receives as a result of its relationship with
the Fund, including compensation paid to the Manager's affiliates and research
provided to the Manager in connection with permissible brokerage arrangements
(soft dollar arrangements).
ECONOMIES OF SCALE. The Board reviewed the extent to which the Manager may
realize economies of scale in managing and supporting the Fund and the current
level of Fund assets in relation to the Fund's breakpoint schedule for its
management fees. The Board considered that the fund has recently experienced
significant asset growth and that, based on current asset levels, the Fund has
passed its last management fee breakpoint.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced
counsel, both to the Fund and to the independent Trustees. Fund counsel and the
independent Trustees' counsel are
60 | OPPENHEIMER CAPITAL INCOME FUND
both independent of the Manager within the meaning and intent of the Securities
and Exchange Commission Rules.
Based on its review of the information it received and its evaluations and
considerations described above, the Board, including a majority of the
independent Trustees, concluded that the nature, extent and quality of the
services provided to the Fund by the Manager are a benefit to the Fund and in
the best interest of the Fund's shareholders and that the amount and structure
of the compensation received by the Manager and its affiliates from the Fund are
reasonable in relation to the services provided. Accordingly, the Board elected
to continue the advisory agreement for another year. In arriving at this
decision, the Board did not single out any factor or factors as being more
important than others, but considered all of the factors together. The Board
judged the terms and conditions of the advisory agreement, including the
management fee, in light of all of the surrounding circumstances.
61 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited
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- ----------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS
FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL,
TRUSTEES CO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER
RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
WILLIAM L. ARMSTRONG, Chairman of the following private mortgage banking companies: Cherry Creek
Chairman (since 2003) Mortgage Company (since 1991), Centennial State Mortgage Company (since
and Trustee (since 1999) 1994), and The El Paso Mortgage Company (since 1993); Chairman of the following
Age: 68 private companies: Ambassador Media Corporation (since 1984) and
Broadway Ventures (since 1984); Director of the following: Helmerich & Payne,
Inc. (oil and gas drilling/production company) (since 1992), Campus Crusade
for Christ (since 1991) and The Lynde and Harry Bradley Foundation, Inc. (non-
profit organization) (since 2002); former Chairman of the following: Transland
Financial Services, Inc. (private mortgage banking company) (1997-2003), Great
Frontier Insurance (insurance agency) (1995-2000), Frontier Real Estate, Inc.
(residential real estate brokerage) (1994-2000) and Frontier Title (title insurance
agency) (1995-2000); former Director of the following: UNUMProvident
(insurance company) (1991-2004), Storage Technology Corporation (computer
equipment company) (1991-2003) and International Family Entertainment (television
channel) (1992-1997); U.S. Senator (January 1979-January 1991). Oversees
38 portfolios in the OppenheimerFunds complex.
ROBERT G. AVIS, Director and President of A.G. Edwards Capital, Inc. (General Partner of private
Trustee (since 1993) equity funds) (until February 2001); Chairman, President and Chief Executive
Age: 74 Officer of A.G. Edwards Capital, Inc. (until March 2000); Director of A.G. Edwards
& Sons, Inc. (brokerage company) (until 2000) and A.G. Edwards Trust Company
(investment adviser) (until 2000); Vice Chairman and Director of A.G. Edwards,
Inc. (until March 1999); Vice Chairman of A.G. Edwards & Sons, Inc. (until March
1999); Chairman of A.G. Edwards Trust Company (until March 1999) and A.G.E.
Asset Management (investment adviser) (until March 1999). Oversees 38 portfolios
in the OppenheimerFunds complex.
GEORGE C. BOWEN, Assistant Secretary and Director of Centennial Asset Management Corporation
Trustee (since 1998) (December 1991-April 1999); President, Treasurer and Director of Centennial
Age: 69 Capital Corporation (June 1989-April 1999); Chief Executive Officer and Director
of MultiSource Services, Inc. (March 1996-April 1999); Mr. Bowen held several
positions with the Manager and with subsidiary or affiliated companies of
the Manager (September 1987-April 1999). Oversees 38 portfolios in the
OppenheimerFunds complex.
EDWARD L. CAMERON, Member of The Life Guard of Mount Vernon (George Washington historical site)
Trustee (since 1999) (since June 2000); Director of Genetic ID, Inc. (biotech company) (March
Age: 67 2001-May 2002); Partner at PricewaterhouseCoopers LLP (accounting firm)
(July 1974-June 1999); Chairman of Price Waterhouse LLP Global Investment
Management Industry Services Group (July 1994-June 1998). Oversees 38 portfolios
in the OppenheimerFunds complex.
JON S. FOSSEL, Director of UNUMProvident (insurance company) (since June 2002); Director
Trustee (since 1990) of Northwestern Energy Corp. (public utility corporation) (since November
Age: 63 2004); Director of P.R. Pharmaceuticals (October 1999-October 2003); Director
of Rocky Mountain Elk Foundation (non-profit organization) (February 1998-
February 2003); Chairman and Director (until October 1996) and President and
Chief Executive Officer (until October 1995) of the Manager; President, Chief
Executive Officer and Director of the following: Oppenheimer Acquisition Corp.
62 | OPPENHEIMER CAPITAL INCOME FUND
JON S. FOSSEL, ("OAC") (parent holding company of the Manager), Shareholders Services, Inc.
Continued and Shareholder Financial Services, Inc. (until October 1995). Oversees 38 portfolios
in the OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado Uplift (charitable organization) (since September 1984).
Trustee (since 1996) Mr. Freedman held several positions with the Manager and with subsidiary or
Age: 64 affiliated companies of the Manager (until October 1994). Oversees 38 portfolios
in the OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee of Monterey Institute for International Studies (educational organization)
Trustee (since 2002) (since February 2000); Director of The California Endowment (philanthropic
Age: 58 organization) (since April 2002); Director of Community Hospital of Monterey
Peninsula (since February 2002); Director of American Funds' Emerging Markets
Growth Fund, Inc. (mutual fund) (since October 1991); President of ARCO
Investment Management Company (February 1991-April 2000); Member of
the investment committees of The Rockefeller Foundation and The University
of Michigan; Advisor at Credit Suisse First Boston's Sprout venture capital unit
(venture capital fund) (1994-January 2005); Trustee of MassMutual Institutional
Funds (investment company) (1996-June 2004); Trustee of MML Series Investment
Fund (investment company) (April 1989-June 2004); Member of the
investment committee of Hartford Hospital (2000-2003); and Advisor to
Unilever (Holland) pension fund (2000-2003). Oversees 38 portfolios in the
OppenheimerFunds complex.
ROBERT J. MALONE, Director of Jones International University (educational organization) (since
Trustee (since 2002) August 2005); Chairman, Chief Executive Officer and Director of Steele Street
Age: 61 State Bank (commercial banking) (since August 2003); Director of Colorado
UpLIFT (charitable organization) (since 1986); Trustee of the Gallagher Family
Foundation (non-profit organization) (since 2000); Former Chairman of U.S.
Bank-Colorado (subsidiary of U.S. Bancorp and formerly Colorado National
Bank) (July 1996-April 1999); Director of Commercial Assets, Inc. (real estate
investment trust) (1993-2000); Director of Jones Knowledge, Inc. (2001-July
2004); and Director of U.S. Exploration, Inc. (oil and gas exploration) (1997-
February 2004). Oversees 38 portfolios in the OppenheimerFunds complex.
F. WILLIAM MARSHALL, JR., Trustee of MassMutual Select Funds (formerly MassMutual Institutional Funds)
Trustee (since 2000) (investment company) (since 1996) and MML Series Investment Fund (investment
Age: 63 company) (since 1996), the Springfield Library and Museum Association
(museums) (since 1995) and the Community Music School of Springfield (music
school) (since 1996); Chairman and Trustee (since 2003) and Chairman of the
Investment Committee (since 1994) of the Worcester Polytech Institute (private
university); President and Treasurer of the SIS Funds (private charitable fund)
(since January 1999); Chairman of SIS & Family Bank, F.S.B. (formerly SIS Bank)
(commercial bank) (January 1999-July 1999); Member of the Investment
Committee of the Community Foundation of Western Massachusetts (1998-2003);
and Executive Vice President of Peoples Heritage Financial Group, Inc.
(commercial bank) (January 1999-July 1999). Oversees 40 portfolios in the
OppenheimerFunds complex.
63 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
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- ---------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
AND OFFICER FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY SERVES AS A TRUSTEE FOR AN INDEFINITE
TERM AND AS AN OFFICER FOR AN ANNUAL TERM, OR UNTIL HIS RESIGNATION, RETIREMENT,
DEATH OR REMOVAL. MR. MURPHY IS AN INTERESTED TRUSTEE DUE TO HIS POSITIONS WITH
OPPENHEIMERFUNDS, INC. AND ITS AFFILIATES.
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director (since June 2001) and President
President and (since September 2000) of the Manager; President and Director or Trustee of
Principal Executive Officer other Oppenheimer funds; President and Director of OAC and of Oppenheimer
(since 2001) Partnership Holdings, Inc. (holding company subsidiary of the Manager) (since
and Trustee July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the
(since 2001) Manager) (since November 2001); Chairman and Director of Shareholder Services,
Age: 56 Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries
of the Manager) (since July 2001); President and Director of OppenheimerFunds
Legacy Program (charitable trust program established by the Manager) (since
July 2001); 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 2001) and Director (since July 2001) of Oppenheimer Real
Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life
Insurance Company (OAC's parent company) (since February 1997); Director
of DLB Acquisition Corporation (holding company parent of Babson Capital
Management LLC) (since June 1995); Member of the Investment Company
Institute's Board of Governors (since October 3, 2003); Chief Operating Officer
of the Manager (September 2000-June 2001); President and Trustee of MML
Series Investment Fund and MassMutual Select Funds (open-end investment
companies) (November 1999-November 2001); Director of C.M. Life Insurance
Company (September 1999-August 2000); President, Chief Executive Officer and
Director of MML Bay State Life Insurance Company (September 1999-August
2000); Director of Emerald Isle Bancorp and Hibernia Savings Bank (wholly-
owned subsidiary of Emerald Isle Bancorp) (June 1989-June 1998). Oversees
77 portfolios as a Trustee or Director and 10 additional portfolios as an
officer in the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS. LEVINE
OF THE FUND 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 RESIGNATION,
RETIREMENT, DEATH OR REMOVAL.
MIKE LEVINE, Vice President of the Manager since June 1998. An officer of 1 portfolio in the
Vice President OppenheimerFunds complex.
(since 1999)
Age: 39
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since
Vice President and March 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial
Chief Compliance Officer Asset Management Corporation and Shareholder Services, Inc. (since June 1983);
(since 2004) Vice President and Director of Internal Audit of the Manager (1997-February
Age: 55 2004). An officer of 87 portfolios in the OppenheimerFunds complex.
64 | OPPENHEIMER CAPITAL INCOME FUND
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999);
Treasurer and Treasurer of the following: HarbourView Asset Management Corporation,
Principal Financial and Shareholder Financial Services, Inc., Shareholder Services, Inc., Oppenheimer
Accounting Officer Real Asset Management Corporation, and Oppenheimer Partnership Holdings,
(since 1999) Inc. (since March 1999), OFI Private Investments, Inc. (since March 2000),
Age: 46 OppenheimerFunds International Ltd. and OppenheimerFunds plc (since May
2000), OFI Institutional Asset Management, Inc. (since November 2000), and
OppenheimerFunds Legacy Program (since June 2003); Treasurer and Chief
Financial Officer of OFI Trust Company (trust company subsidiary of the
Manager) (since May 2000); Assistant Treasurer of the following: OAC (since
March 1999), Centennial Asset Management Corporation (March 1999-October
2003) and OppenheimerFunds Legacy Program (April 2000-June 2003); Principal
and Chief Operating Officer of Bankers Trust Company-Mutual Fund Services
Division (March 1995-March 1999). An officer of 87 portfolios in the
OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since
Vice President and Secretary March 2002) of the Manager; General Counsel and Director of the Distributor
(since 2001) (since December 2001); General Counsel of Centennial Asset Management
Age: 57 Corporation (since December 2001); Senior Vice President and General Counsel
of HarbourView Asset Management Corporation (since December 2001);
Secretary and General Counsel of OAC (since November 2001); Assistant
Secretary (since September 1997) and Director (since November 2001) of
OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice
President and Director of Oppenheimer Partnership Holdings, Inc. (since
December 2002); Director of Oppenheimer Real Asset Management, Inc.
(since November 2001); Senior Vice President, General Counsel and Director
of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since
December 2001); Senior Vice President, General Counsel and Director of OFI
Private Investments, Inc. and OFI Trust Company (since November 2001); Vice
President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice
President and General Counsel of OFI Institutional Asset Management, Inc.
(since November 2001); Director of OppenheimerFunds (Asia) Limited (since
December 2003); 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 the following: Shareholder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November 1989-November 2001), and
OppenheimerFunds International Ltd. (September 1997-November 2001).
An officer of 87 portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
65 | 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 $39,000 in fiscal 2005 and $36,000 in fiscal 2004.
(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 $5,000 in fiscal 2005 and no such fees in fiscal 2004 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 services: Seed money audit.
(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 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.
(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 during the last two fiscal years 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.
(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.
Under applicable laws, pre-approval of non-audit services maybe 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 $5,000 in fiscal 2005 and no such fees in
fiscal 2004 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 accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
THE FUND'S GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Governance Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by
executive search firms which the Committee may engage from time to time
and may also consider shareholder recommendations. The Committee may
consider the advice and recommendation of the Funds' investment manager
and its affiliates in making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met
by a trustee nominee. In evaluating trustee nominees, the Committee
considers, among other things, an individual's background, skills, and
experience; whether the individual is an "interested person" as defined in
the Investment Company Act of 1940; and whether the individual would be
deemed an "audit committee financial expert" within the meaning of
applicable SEC rules. The Committee also considers whether the
individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and will contribute
to the Board. There are no differences in the manner in which the
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates
to present to the Board and, in such cases where required, to
shareholders. Recommendations for trustee nominees should, at a minimum,
be accompanied by the following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person"
as defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in
a proxy statement concerning the person if he or she was nominated;
and
o the name and address of the person submitting the recommendation
and, if that person is a shareholder, the period for which that
person held Fund shares.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under
the Investment Company Act of 1940. In addition, certain other
relationships with Massachusetts Mutual Life Insurance Company or its
subsidiaries, with registered broker-dealers, or with the Funds' outside
legal counsel may cause a person to be deemed an "interested person."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving
as a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the 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, 2005, the registrant's principal executive
officer and principal financial officer found the registrant's disclosure
controls and procedures to provide reasonable assurances that information
required to be disclosed by the registrant in the reports that it files under
the Securities Exchange Act of 1934 (a) is accumulated and communicated to
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.
There have been no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Capital Income Fund
By: /s/ John V. Murphy
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John V. Murphy
Principal Executive Officer
Date: October 17, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ John V. Murphy
------------------
John V. Murphy
Principal Executive Officer
Date: October 17, 2005
By: /s/ Brian W. Wixted
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Brian W. Wixted
Principal Financial Officer
Date: October 17, 2005