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: FEBRUARY 28, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Oil & Gas 12.6%
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Tobacco 6.6
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Insurance 4.9
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Commercial Banks 4.7
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Diversified Financial Services 3.6
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Specialty Retail 2.9
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Diversified Telecommunication Services 2.2
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Commercial Services & Supplies 2.0
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Aerospace & Defense 1.4
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Industrial Conglomerates 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2006, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Altria Group, Inc. 5.0%
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Kinder Morgan Management LLC 5.0
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Kinder Morgan, Inc. 4.5
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Citigroup, Inc. 3.6
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Everest Re Group Ltd. 3.5
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CSK Auto Corp. 2.9
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Bank of America Corp. 2.3
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Cendant Corp. 2.0
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Loews Corp./Carolina Group 1.5
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Raytheon Co. 1.4
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2006, and are based on net assets.
For up-to-date Top 10 Fund holdings, please visit www.oppenheimerfunds.com.
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9 | OPPENHEIMER CAPITAL INCOME FUND
TOP HOLDINGS AND ALLOCATIONS
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PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Stocks 51.7%
Bonds and Notes 32.0
Convertible Corporate Bonds and Notes 15.4
Cash Equivalents 0.9
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2006, and are based on the total market value of investments.
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10 | OPPENHEIMER CAPITAL INCOME FUND
NOTES
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Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
Cumulative total returns are not annualized. 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.
11 | 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 February 28, 2006.
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
12 | OPPENHEIMER CAPITAL INCOME FUND
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
(9/1/05) (2/28/06) FEBRUARY 28, 2006
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Class A Actual $ 1,000.00 $ 1,005.80 $ 4.54
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Class A Hypothetical 1,000.00 1,020.28 4.57
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Class B Actual 1,000.00 1,002.20 8.73
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Class B Hypothetical 1,000.00 1,016.12 8.79
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Class C Actual 1,000.00 1,001.70 8.52
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Class C Hypothetical 1,000.00 1,016.31 8.58
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Class N Actual 1,000.00 1,004.00 6.38
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Class N Hypothetical 1,000.00 1,018.45 6.43
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 181/365
(to reflect the one-half year period). Those annualized expense ratios based on
the 6-month period ended February 28, 2006 are as follows:
CLASS EXPENSE RATIOS
- ----------------------------
Class A 0.91%
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Class B 1.75
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Class C 1.71
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Class N 1.28
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13 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS February 28, 2006 / Unaudited
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VALUE
SHARES SEE NOTE 1
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COMMON STOCKS--48.2%
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CONSUMER DISCRETIONARY--3.9%
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MEDIA--1.0%
Cablevision Systems Corp., New York Group, Cl. A 1,2 275,000 $ 7,218,750
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Clear Channel Communications, Inc. 700,000 19,810,000
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Regal Entertainment Group 152,500 2,900,550
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29,929,300
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SPECIALTY RETAIL--2.9%
CSK Auto Corp. 1,3 5,625,000 89,493,750
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CONSUMER STAPLES--7.8%
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BEVERAGES--0.0%
Diageo plc 70,000 1,075,620
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FOOD & STAPLES RETAILING--0.8%
Wal-Mart Stores, Inc. 525,000 23,814,000
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FOOD PRODUCTS--0.4%
B&G Foods, Inc. 875,000 13,116,250
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TOBACCO--6.6%
Altria Group, Inc. 2,175,000 156,382,500
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Loews Corp./Carolina Group 1,000,000 47,490,000
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203,872,500
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ENERGY--12.6%
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OIL & GAS--12.6%
BP plc, ADR 500,000 33,210,000
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Chevron Corp. 50,000 2,824,000
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Enbridge Energy Management LLC 3 728,936 33,603,936
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Kinder Morgan Management LLC 3,575,001 156,334,772
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Kinder Morgan, Inc. 2 1,500,000 139,170,000
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Occidental Petroleum Corp. 100,000 9,154,000
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Tortoise Energy Capital Corp. 422,500 9,675,250
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Williams Cos., Inc. (The) 2 300,000 6,471,000
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390,442,958
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FINANCIALS--14.2%
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COMMERCIAL BANKS--4.7%
Bank of America Corp. 1,575,000 72,213,750
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U.S. Bancorp 2 1,000,000 30,910,000
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Washington Mutual, Inc. 1,000,000 42,700,000
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145,823,750
14 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
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DIVERSIFIED FINANCIAL SERVICES--3.6%
Citigroup, Inc. 2,420,000 $ 112,215,400
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INSURANCE--4.9%
ACE Ltd. 2 750,000 41,797,500
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Everest Re Group Ltd. 1,100,000 108,944,000
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150,741,500
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REAL ESTATE--0.3%
Anthracite Capital, Inc. 1,000,000 10,720,000
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THRIFTS & MORTGAGE FINANCE--0.7%
PMI Group, Inc. (The) 500,000 21,650,000
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HEALTH CARE--1.0%
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HEALTH CARE EQUIPMENT & SUPPLIES--0.0%
Boston Scientific Corp. 1 700 17,094
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PHARMACEUTICALS--1.0%
Abbott Laboratories 2 75,000 3,313,500
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Pfizer, Inc. 1,000,000 26,190,000
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29,503,500
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INDUSTRIALS--4.8%
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AEROSPACE & DEFENSE--1.4%
Raytheon Co. 1,000,000 43,400,000
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BUILDING PRODUCTS--0.1%
Masco Corp. 100,000 3,119,000
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COMMERCIAL SERVICES & SUPPLIES--2.0%
Cendant Corp. 4 3,727,700 61,954,374
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INDUSTRIAL CONGLOMERATES--1.3%
General Electric Co. 725,000 23,830,750
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Tyco International Ltd. 625,000 16,118,750
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39,949,500
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INFORMATION TECHNOLOGY--0.5%
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SOFTWARE--0.5%
Microsoft Corp. 600,000 16,140,000
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MATERIALS--0.3%
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CONTAINERS & PACKAGING--0.3%
Packaging Corp. of America 387,600 8,841,156
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TELECOMMUNICATION SERVICES--2.3%
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DIVERSIFIED TELECOMMUNICATION SERVICES--2.2%
AT&T, Inc. 2 325,000 8,966,750
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Citizens Communications Co. 1,225,000 16,353,750
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Consolidated Communications Holdings, Inc. 1,097,500 15,628,400
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FairPoint Communications, Inc. 1,000,000 14,070,000
15 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
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VALUE
SHARES SEE NOTE 1
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DIVERSIFIED TELECOMMUNICATION SERVICES Continued
PanAmSat Holding Corp. 374,900 $ 9,413,739
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Valor Communications Group, Inc. 425,000 5,248,750
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69,681,389
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WIRELESS TELECOMMUNICATION SERVICES--0.1%
New Skies Satellites Holdings Ltd. 112,500 2,480,625
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UTILITIES--0.8%
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ELECTRIC UTILITIES--0.0%
TXU Corp. 25,000 1,309,750
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GAS UTILITIES--0.8%
Sempra Energy 500,000 23,920,000
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Total Common Stocks (Cost $1,007,925,885) 1,493,211,416
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PREFERRED STOCKS--6.1%
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AES Trust III, 6.75% Cv. 182,500 8,458,875
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Amerada Hess Corp. 7% Cv., Non-Vtg. 33,250 3,862,985
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Citigroup Funding, Inc., Cv., Series GNW 400,000 12,796,000
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Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 400,000 16,400,000
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Federal National Mortgage Assn., 5.375% Cv., Non-Vtg. 150 14,598,638
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General Motors Corp., 4.50% Cv. Sr. Debs., Series A 1,000,000 22,680,000
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Lucent Technologies Capital Trust I, 7.75% Cum. Cv., Non-Vtg. 21,000 19,795,125
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NRG Energy, Inc., 5.75% Cv. 10,000 2,332,500
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Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 1,875,000 46,256,250
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United Rentals Trust I, 6.50% Cv. Quarterly Income Preferred Securities,
Non-Vtg. 575,000 26,881,250
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XL Capital Ltd., 7% Cv. 525,000 13,455,750
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Total Preferred Stocks (Cost $180,192,779) 187,517,373
PRINCIPAL
AMOUNT
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MORTGAGE-BACKED OBLIGATIONS--14.3%
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Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-6, Cl. A3, 4.512%, 12/10/42 $ 2,310,000 2,225,786
Series 2005-2, Cl. A4, 4.783%, 7/10/43 5 3,240,000 3,162,632
Series 2005-3, Cl. A2, 4.501%, 7/10/43 2,670,000 2,592,660
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Banc of America Funding Corp., CMO Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 2,522,719 2,515,171
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Banc of America Mortgage Securities, Inc., CMO Pass-Through Certificates,
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,872,476 1,899,393
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Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl. A2, 4.945%, 2/11/41 1,230,000 1,208,822
16 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
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MORTGAGE-BACKED OBLIGATIONS Continued
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Citigroup/Deutsche Bank Commercial Mortgage Trust, Commercial Mtg.
Obligations, Series 2005-CD1, Cl. A4, 5.225%, 7/15/44 5 $ 3,030,000 $ 3,034,196
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Countrywide Alternative Loan Trust, CMO:
Series 2004-J9, Cl. 1A1, 4.761%, 10/25/34 5 405,347 405,648
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 4,667,742 4,745,054
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 3,995,331 4,045,833
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Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 8,942,345 8,676,343
5%, 3/1/36 6 8,432,000 8,171,131
6%, 5/1/18-10/1/34 11,395,275 11,546,267
6.50%, 4/1/18-4/1/34 2,457,842 2,521,332
7%, 9/1/23-3/1/35 12,270,724 12,694,922
8%, 4/1/16 669,603 712,391
9%, 8/1/22-5/1/25 194,881 211,464
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Federal Home Loan Mortgage Corp., CMO Gtd. Real Estate Mtg. Investment Conduit
Multiclass Pass-Through Certificates:
Series 2034, Cl. Z, 6.50%, 2/15/28 795,908 817,336
Series 2053, Cl. Z, 6.50%, 4/15/28 871,428 892,713
Series 2055, Cl. ZM, 6.50%, 5/15/28 1,069,645 1,092,224
Series 2075, Cl. D, 6.50%, 8/15/28 2,742,658 2,809,155
Series 2080, Cl. Z, 6.50%, 8/15/28 683,209 696,391
Series 2326, Cl. ZP, 6.50%, 6/15/31 867,637 888,915
Series 2387, Cl. PD, 6%, 4/15/30 712,956 716,969
Series 2500, Cl. FD, 5.07%, 3/15/32 5 398,273 401,528
Series 2526, Cl. FE, 4.97%, 6/15/29 5 519,260 522,357
Series 2551, Cl. FD, 4.97%, 1/15/33 5 404,565 409,043
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Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security:
Series 176, Cl. IO, 12.917%, 6/1/26 7 709,233 150,873
Series 183, Cl. IO, 9.861%, 4/1/27 7 1,103,856 240,036
Series 184, Cl. IO, 15.76%, 12/1/26 7 1,184,115 242,294
Series 192, Cl. IO, 14.182%, 2/1/28 7 357,869 70,074
Series 200, Cl. IO, 12.936%, 1/1/29 7 422,300 91,985
Series 2003-118, Cl. S, 17.326%, 12/25/33 7 5,711,674 675,954
Series 2130, Cl. SC, 5.275%, 3/15/29 7 852,985 56,034
Series 2796, Cl. SD, 9.038%, 7/15/26 7 1,259,544 86,230
Series 2920, Cl. S, 6.36%, 1/15/35 7 7,380,506 355,008
Series 3000, Cl. SE, 13.883%, 7/15/25 7 7,391,822 268,936
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Federal Home Loan Mortgage Corp., Principal-Only Stripped Mtg.-Backed Security,
Series 176, Cl. PO, 4.577%, 6/1/26 8 337,580 283,151
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Federal National Mortgage Assn.:
5%, 6/1/18-7/1/18 7,465,967 7,383,044
5%, 3/1/36 6 41,490,000 40,310,107
5.50%, 1/1/33-4/1/34 40,181,205 39,914,558
5.50%, 3/1/21-3/1/36 6 65,408,000 64,908,704
6%, 9/1/19-1/1/33 18,775,008 19,082,186
6%, 3/1/21-3/1/36 6 6,392,000 6,478,926
17 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
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PRINCIPAL VALUE
AMOUNT SEE NOTE 1
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MORTGAGE-BACKED OBLIGATIONS Continued
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Federal National Mortgage Assn.: Continued
6.50%, 10/1/30-11/1/31 $ 4,616,034 $ 4,750,364
6.50%, 4/1/35 6 31,525,000 32,254,016
7%, 11/1/17-1/1/36 16,955,836 17,577,425
7%, 10/1/28 6 3,793,000 3,956,573
7.50%, 1/1/33-3/1/33 16,596,723 17,410,282
8.50%, 7/1/32 75,241 81,483
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Federal National Mortgage Assn. Grantor Trust, CMO, Trust 2002-T1,
Cl. A2, 7%, 11/25/31 2,484,128 2,558,318
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Federal National Mortgage Assn., CMO Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 2,170,055 2,225,845
Trust 1998-63, Cl. PG, 6%, 3/25/27 14,651 14,617
Trust 2001-50, Cl. NE, 6%, 8/25/30 433,919 435,717
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 2,924,469 3,001,921
Trust 2001-70, Cl. LR, 6%, 9/25/30 490,188 493,214
Trust 2001-72, Cl. NH, 6%, 4/25/30 276,142 277,209
Trust 2001-74, Cl. PD, 6%, 5/25/30 111,836 111,875
Trust 2002-9, Cl. PC, 6%, 3/25/17 9,060,390 9,228,867
Trust 2002-77, Cl. WF, 4.97%, 12/18/32 5 617,497 622,911
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 1,903,000 1,899,769
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,921,000 1,927,101
Trust 2004-38, Cl. FT, 5.011%, 10/25/33 5 7,592,181 7,610,532
Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,496,697
Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,560,000 1,527,020
Trust 2005-104, Cl. MC, 5.50%, 12/25/25 7,321,312 7,233,524
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Federal National Mortgage Assn., CMO Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-47, Cl. NS, 4.672%, 4/25/32 7 1,517,979 130,612
Trust 2002-51, Cl. S, 4.826%, 8/25/32 7 1,393,713 117,856
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Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 222, Cl. 2, 12.844%, 6/1/23 7 2,501,672 576,744
Trust 240, Cl. 2, 16.383%, 9/1/23 7 3,772,932 831,296
Trust 252, Cl. 2, 8.512%, 11/1/23 7 1,881,694 434,211
Trust 273, Cl. 2, 14.532%, 8/1/26 7 534,006 115,195
Trust 303, Cl. IO, 11.634%, 11/1/29 7 697,053 158,113
Trust 308, Cl. 2, 13.537%, 9/1/30 7 2,019,419 409,291
Trust 321, Cl. 2, 5.607%, 4/1/32 7 7,672,078 1,748,691
Trust 322, Cl. 2, 13.796%, 4/1/32 7 2,852,313 614,531
Trust 329, Cl. 2, 10.515%, 1/1/33 7 3,665,417 824,690
Trust 331, Cl. 9, (5.101)%, 2/1/33 7 2,147,299 451,050
Trust 333, Cl. 2, 11.138%, 4/1/33 7 15,555,963 3,487,439
Trust 334, Cl. 17, 3.547%, 2/1/33 7 1,258,249 271,316
Trust 338, Cl. 2, 9.402%, 7/1/33 7 6,085,404 1,360,751
Trust 346, Cl. 2, 10.181%, 12/1/33 7 7,121,938 1,568,279
18 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed
Security: Continued
Trust 350, Cl. 2, 11.248%, 3/1/34 7 $ 7,489,162 $ 1,649,074
Trust 2001-65, Cl. S, 15.728%, 11/25/31 7 3,374,079 293,668
Trust 2001-81, Cl. S, 6.509%, 1/25/32 7 785,974 66,698
Trust 2002-9, Cl. MS, 5.524%, 3/25/32 7 951,225 85,014
Trust 2002-52, Cl. SD, 0.874%, 9/25/32 7 1,672,369 154,679
Trust 2002-75, Cl. SA, 16.717%, 11/25/32 7 3,943,526 359,187
Trust 2002-77, Cl. SH, 9.144%, 12/18/32 7 977,911 79,952
Trust 2004-54, Cl. DS, 2.82%, 11/25/30 7 1,590,087 83,778
Trust 2005-6, Cl. SE, 6.426%, 2/25/35 7 4,990,916 238,775
Trust 2005-19, Cl. SA, 5.483%, 3/25/35 7 18,999,017 1,003,792
Trust 2005-40, Cl. SA, 6.162%, 5/25/35 7 4,457,078 233,526
Trust 2005-71, Cl. SA, 14.156%, 8/25/25 7 4,704,397 256,425
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Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 5.898%, 9/25/23 8 844,182 708,264
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First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997-CHL1, Cl. D, 7.70%, 4/29/39 5,9 1,587,529 1,593,482
- ------------------------------------------------------------------------------------------------------------------------------------
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 1,515,754 1,550,964
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,682,433
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,569,946
Series 2005-CA, Cl. A3, 4.578%, 6/10/48 1,000,000 967,815
- ------------------------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 916,566 933,756
Series 2004-C3, Cl. A4, 4.547%, 12/10/41 1,480,000 1,428,345
- ------------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 251,585 270,678
- ------------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 0.969%, 1/16/27 7 1,699,644 105,733
Series 2002-15, Cl. SM, (2.172)%, 2/16/32 7 1,575,154 95,129
Series 2002-76, Cl. SY, 0.828%, 12/16/26 7 3,769,968 238,002
Series 2004-11, Cl. SM, (2.521)%, 1/17/30 7 1,366,190 78,851
- ------------------------------------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 1,990,000 1,930,232
Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,750,000 1,743,828
- ------------------------------------------------------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%, 10/10/28 1,647,191 1,591,373
Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 1,080,000 1,060,620
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates:
Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 640,000 623,772
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 2,280,000 2,237,387
19 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- ------------------------------------------------------------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust, Commercial Mtg. Pass-Through
Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/30 $ 1,900,000 $ 1,876,294
- ------------------------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO Pass-Through Certificates:
Series 2004-6, Cl. 10A1, 6%, 7/25/34 3,114,305 3,118,724
Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 2,470,000 2,452,479
- ------------------------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Mtg. Pass-Through Certificates,
Series 2004-2, Cl. A1, 6.50%, 8/25/32 4,448,756 4,486,293
- ------------------------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 1,950,000 2,004,519
- ------------------------------------------------------------------------------------------------------------------------------------
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 2,580,239
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 1,572,473 1,571,131
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C17, Cl. A2, 4.782%, 3/15/42 3,590,000 3,530,800
Series 2005-C20, Cl. A5, 5.087%, 7/15/42 5 1,910,000 1,885,805
- ------------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., CMO Pass-Through
Certificates, Series 2005-AR5, Cl. A1, 4.678%, 5/25/35 5 2,505,563 2,501,864
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, CMO,
Series 2004-DD, Cl. 2A1, 4.521%, 1/25/35 5 1,679,996 (1,672,244)
------------------
Total Mortgage-Backed Obligations (Cost $447,226,360) 443,604,691
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Ace Securities Corp., Home Equity Loan Pass-Through Certificates,
Series 2002-HE7, Cl. A2B, 4.761%, 11/25/35 5 1,310,000 1,310,768
- ------------------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 4.63%, 4/20/08 5 900,000 900,645
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.,
Series 2004-2, Cl. A3, 3.58%, 1/15/09 2,990,000 2,932,069
- ------------------------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 105,268 105,004
Series 2005-B, Cl. AF1, 4.02%, 3/26/35 412,927 410,909
Series 2005-C, Cl. AF1, 4.196%, 6/25/35 1,230,586 1,223,249
Series 2005-D, Cl. AF1, 5.04%, 10/25/35 2,444,345 2,434,420
Series 2005-D, Cl. AV2, 4.851%, 10/25/35 5 2,550,000 2,551,495
- ------------------------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06 486,300 485,698
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.,
Series 2003-C4, Cl. C4, 5%, 6/10/15 430,000 418,382
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Credit Reference Index Securities Program, Credit Card
Asset-Backed Certificates, Series 2002-B, Cl. FX, 10.421%, 3/22/07 9 2,890,000 2,965,565
20 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc., Home Equity Asset-Backed
Certificates:
Series 2002-4, Cl. A1, 4.951%, 2/25/33 5 $ 44,821 $ 44,918
Series 2005-7, Cl. AF1B, 4.317%, 11/25/35 5 1,538,827 1,527,898
Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 5 920,000 917,145
Series 2005-17, Cl. 1AF1, 4.781%, 5/25/36 5 1,879,098 1,880,150
Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 5 620,000 617,577
- ------------------------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Asset-Backed Security,
Series 2004-3, Cl. AF2, 3.80%, 7/25/34 5 1,783,243 1,777,638
- ------------------------------------------------------------------------------------------------------------------------------------
First Franklin Mortgage Loan Asset-Backed Certificates, Home Equity
Receivables, Series 2005-FF10, Cl. A3, 4.791%, 11/25/35 5 3,800,000 3,802,227
- ------------------------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2005-A, Cl. A3, 3.48%, 11/17/08 2,200,000 2,174,900
Series 2005-B, Cl. A2, 3.78%, 9/15/07 1,488,773 1,486,612
- ------------------------------------------------------------------------------------------------------------------------------------
Household Home Equity Loan Trust, Home Equity Loan Pass-Through
Certificates, Series 2005-3, Cl. A1, 4.83%, 1/20/35 5 1,764,866 1,766,143
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman XS Trust, Home Equity Mtg. Pass-Through Certificates:
Series 2005-2, Cl. 2A1B, 3.63%, 8/25/35 5 2,635,122 2,632,645
Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 1,885,589 1,883,744
Series 2005-10, Cl. 2-A3B, 5.55%, 12/25/06 1,716,093 1,705,780
- ------------------------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 5.92%, 3/15/16 5 4,080,000 4,348,536
- ------------------------------------------------------------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, Automobile Receivable Obligations,
Series 2005-B, Cl. A2, 4.03%, 4/15/08 1,716,588 1,713,043
- ------------------------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through
Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34 5 800,000 790,942
Series 2005-1, Cl. A F2, 3.914%, 5/25/35 5 600,000 591,839
Series 2005-2, Cl. A F2, 4.415%, 4/25/35 5 1,040,000 1,028,992
- ------------------------------------------------------------------------------------------------------------------------------------
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 1,899,232
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., CMO Pass-Through Certificates,
Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 3,518,107 3,510,539
- ------------------------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities,
Series 2004-A, Cl. A2, 2.47%, 1/22/07 27,284 27,273
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Home Equity Asset-Backed Certificates,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 5 931,946 926,613
- ------------------------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 629,630 628,287
------------------
Total Asset-Backed Securities (Cost $53,620,299) 53,420,877
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 10 $ 2,255,000 $ 2,085,401
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.125%, 7/12/10 2,560,000 2,482,281
6.625%, 9/15/09 2,340,000 2,467,832
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.75%, 12/15/10 3,405,000 3,381,635
6%, 5/15/11 2,855,000 2,991,232
6.625%, 9/15/09 3,555,000 3,750,383
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
5.375%, 11/13/08 238,000 240,582
Series A, 6.79%, 5/23/12 16,112,000 17,630,943
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2/15/31 540,000 601,278
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.25%, 11/30/07-1/15/11 2,370,000 2,342,769
4.375%, 1/31/08 855,000 850,325
4.50%, 11/15/15 110,000 109,244
------------------
Total U.S. Government Obligations (Cost $39,976,606) 38,933,905
- ------------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--10.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 11 3,060,000 3,060,000
- ------------------------------------------------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 2,495,000 2,394,496
- ------------------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,812,500
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,646,875
8.875% Sr. Nts., Series B, 4/1/08 1,420,000 1,501,650
- ------------------------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 5.375% Nts., 9/15/35 1,585,000 1,523,802
- ------------------------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc.:
7.50% Sr. Unsec. Nts., 5/1/07 11 770,000 790,860
8.125% Sr. Unsec. Nts., 5/1/12 2,115,000 2,426,303
- ------------------------------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 12 2,500,000 2,687,500
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Bonds 5,13 2,460,000 2,496,949
- ------------------------------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
6.875% Sr. Unsec. Nts., 7/15/15 1,515,000 1,465,763
8.375% Sr. Nts., 4/15/12 800,000 836,000
- ------------------------------------------------------------------------------------------------------------------------------------
Belo Corp., 8% Sr. Unsec. Unsub. Nts., 11/1/08 2,140,000 2,249,431
- ------------------------------------------------------------------------------------------------------------------------------------
British Sky Broadcasting Group plc, 8.20% Sr. Unsec. Nts., 7/15/09 1,440,000 1,560,347
- ------------------------------------------------------------------------------------------------------------------------------------
British Telecommunications plc, 8.875% Bonds, 12/15/30 1,335,000 1,768,919
- ------------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 2,770,000 2,950,975
- ------------------------------------------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 2,810,000 2,973,059
- ------------------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings I LLC, 11% Sr. Sec. Nts., 10/1/15 9 57,500,000 48,659,375
22 | 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.:
9.92% Sr. Unsec. Disc. Nts., 4/1/11 $ 24,629,000 $ 12,683,935
0%/13.50% Sr. Sub. Disc. Nts., 1/15/11 14 4,250,000 2,571,250
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,769,030
- ------------------------------------------------------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 2,615,000 2,926,287
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32 1,205,000 1,362,031
- ------------------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7.60% Unsec. Nts., 4/1/32 2,455,000 2,983,552
- ------------------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.568% Pass-Through Certificates, Series D, 12/1/06 10,250,000 10,111,816
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Financial Corp., 4.50% Nts., Series A, 6/15/10 3,125,000 3,018,869
- ------------------------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10 3,160,000 3,046,629
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse (USA), Inc., 5.25% Nts., 3/2/11 3,015,000 3,016,890
- ------------------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,936,250
- ------------------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 1,790,000 1,727,277
6.125% Nts., 1/15/14 1,315,000 1,309,193
- ------------------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp., 8% Nts., 6/15/10 2,680,000 2,911,528
- ------------------------------------------------------------------------------------------------------------------------------------
Dana Corp., 6.50% Unsec. Nts., 3/1/09 1,625,000 1,056,250
- ------------------------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,980,000 2,372,731
- ------------------------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 2,730,000 2,999,173
- ------------------------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 1,430,000 1,434,762
- ------------------------------------------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 275,000 279,721
8.10% Unsec. Nts., 8/1/10 2,160,000 2,362,679
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 1,945,000 2,002,010
- ------------------------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06 1,230,000 1,232,493
7.375% Sr. Unsub. Nts., Series C, 11/15/31 1,530,000 1,789,773
- ------------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
5.80% Sr. Unsec. Nts., 1/12/09 1,840,000 1,654,302
6.625% Nts., 6/16/08 4,675,000 4,354,650
- ------------------------------------------------------------------------------------------------------------------------------------
France Telecom SA, 8.50% Sr. Unsec. Nts., 3/1/31 5 460,000 605,592
- ------------------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 2,130,000 2,163,822
9.55% Unsub. Nts., 12/15/08 5 359,000 394,228
- ------------------------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 2,270,000 2,219,293
- ------------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
6.15% Nts., 4/5/07 4,760,000 4,612,373
8% Bonds, 11/1/31 2,200,000 2,014,276
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Capital, Inc. (The), 6.345% Sub. Bonds, 2/15/34 2,285,000 2,389,637
- ------------------------------------------------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 5.625% Sr. Unsec. Bonds, 6/1/15 1,565,000 1,531,786
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ------------------------------------------------------------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Bonds, Series A 5,9,13 $ 3,000,000 $ 3,020,076
- ------------------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06 1,445,000 1,458,534
- ------------------------------------------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11 1,775,000 1,944,660
- ------------------------------------------------------------------------------------------------------------------------------------
HSBC Finance Capital Trust IX, 5.911% Nts., 11/30/35 5 1,500,000 1,510,770
- ------------------------------------------------------------------------------------------------------------------------------------
HSBC Finance Corp., 4.75% Sr. Unsec. Nts., 7/15/13 1,585,000 1,519,384
- ------------------------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 5,12 1,410,000 1,510,463
- ------------------------------------------------------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,067,500
- ------------------------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc.:
5.125% Sr. Unsec. Nts., Series B, 4/1/11 960,000 939,762
5.15% Sr. Unsec. Nts., 3/1/12 2,065,000 2,015,665
- ------------------------------------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc. (Holding Co.), 7.40% Nts., 4/1/37 2,150,000 2,482,349
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co., 5.15% Sub. Nts., 10/1/15 3,050,000 2,991,001
- ------------------------------------------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.:
6.50% Sr. Nts., 1/15/14 1,515,000 1,451,091
8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,684,000
- ------------------------------------------------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14 1,915,000 1,786,710
- ------------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 1,670,000 1,759,243
- ------------------------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 6.80% Sr. Unsec. Nts., 4/1/11 3,480,000 3,650,148
- ------------------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B, 5/15/09 2,560,000 2,260,721
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13 1,580,000 1,487,749
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 1,490,000 1,495,108
- ------------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45% Unsec. Debs., 3/15/29 21,500,000 18,248,125
- ------------------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr. Unsec. Bonds, 8/1/33 2,010,000 1,922,993
- ------------------------------------------------------------------------------------------------------------------------------------
May Department Stores Co., 7.90% Unsec. Debs., 10/15/07 1,050,000 1,085,384
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C, 2/3/14 3,095,000 3,032,388
- ------------------------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35 1,555,000 1,558,429
- ------------------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 2,580,000 2,650,986
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 2,770,000 2,945,081
- ------------------------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 223,003
- ------------------------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12 1,410,000 1,453,637
6.25% Sr. Unsec. Nts., 11/15/11 40,000 41,637
- ------------------------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 440,000 434,229
7.875% Sr. Unsec. Nts., 11/15/10 1,820,000 1,997,730
- ------------------------------------------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 9.375% Sr. Unsec. Sub. Nts., 2/15/07 254,000 263,843
- ------------------------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust:
5.75% Unsec. Unsub. Nts., Series 12, 12/15/15 2,455,000 2,454,386
5.75% Nts., 12/15/15 9 2,075,000 2,074,481
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 9 4,593,000 4,531,987
24 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ------------------------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 9 $ 971,461 $ 914,043
- ------------------------------------------------------------------------------------------------------------------------------------
Popular North America, Inc., 5.20% Nts., 12/12/07 3,090,000 3,075,239
- ------------------------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts., 2/1/10 9 1,465,000 1,599,836
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 9 2,910,000 3,644,912
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 2,890,000 3,721,944
- ------------------------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06 1,272,000 1,274,589
- ------------------------------------------------------------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts., 11/16/07 1,735,000 1,731,841
- ------------------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 13,500,000 11,407,500
- ------------------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 6.50% Sr. Unsec. Nts., 3/1/11 2,830,000 2,924,103
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Communications, Inc., 5.30% Nts., 11/15/10 2,290,000 2,285,480
- ------------------------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts., 3/1/10 2,740,000 2,990,502
- ------------------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP, 5.375% Nts., 6/1/11 9 2,305,000 2,296,232
- ------------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,026,250
- ------------------------------------------------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64% Bonds 5,9,13 125,000 129,157
- ------------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32 1,845,000 2,430,741
- ------------------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts., 5/1/07 1,200,000 1,230,000
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 2,755,000 3,289,112
- ------------------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 8.375% Sr. Nts., 7/15/33 2,560,000 3,082,399
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts., 3/15/08 2,240,000 2,184,923
- ------------------------------------------------------------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08 1,955,000 1,978,568
- ------------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA:
6.125% Unsec. Unsub. Nts., 11/1/08 2,590,000 2,635,063
6.125% Unsec. Unsub. Nts., 1/15/09 351,000 357,258
- ------------------------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc., 3.50% Sr. Unsec. Nts., 10/15/07 2,500,000 2,421,218
- ------------------------------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp.:
5.85% Nts., 9/15/35 1,535,000 1,454,251
7.25% Sr. Unsec. Unsub. Nts., 12/1/10 1,400,000 1,509,032
- ------------------------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 2,990,000 2,991,166
- ------------------------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 3,145,000 3,157,413
------------------
Total Non-Convertible Corporate Bonds and Notes (Cost $338,884,254) 329,344,917
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--16.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Agere Systems, Inc., 6.50% Cv. Unsec. Unsub. Nts., 12/15/09 (cv. into Agere
Systems, Inc., Cl. A common stock) 18,000,000 17,842,500
- ------------------------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc.:
5.875% Cv. Sr. Nts., 11/16/09 9 5,000,000 3,606,250
5.875% Cv. Sr. Nts., 11/16/09 3,000,000 2,163,750
- ------------------------------------------------------------------------------------------------------------------------------------
CMS Energy Corp., 2.875% Cv. Sr. Nts., 12/1/24 3,000,000 3,423,750
- ------------------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp., 3.375% Cv. Sr. Nts., 8/15/25 9 29,500,000 28,246,250
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- ------------------------------------------------------------------------------------------------------------------------------------
CSK Auto, Inc.:
3.375% Cv. Sr. Nts., 8/15/25 5 $ 500,000 $ 478,750
4.625% Cv. Sr. Unsec. Nts., 12/15/25 5,12 6,000,000 6,423,780
- ------------------------------------------------------------------------------------------------------------------------------------
Curagen Corp., 6% Cv. Jr. Unsec. Sub. Debs., 2/2/07 12 16,000,000 15,820,000
- ------------------------------------------------------------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc., 4.50% Cv. Unsec. Sub. Nts., 7/1/08 22,500,000 20,896,875
- ------------------------------------------------------------------------------------------------------------------------------------
Intel Corp., 2.95% Cv. Unsec. Sub. Debs., 12/15/35 9 500,000 444,375
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 56,000,000 60,200,000
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for Viacom, Inc.
Cl. B common stock or cash based on the value thereof) 142,500,000 108,478,125
4% Exchangeable Sr. Unsec. Debs., 11/15/29 (exchangeable for Sprint Corp.
PCS, Series 1 common stock or cash based on the value of that stock) 70,000,000 42,175,000
- ------------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 2.75% Cv. Sr. Unsec. Debs., Series A, 6/15/23 21,000,000 21,551,250
- ------------------------------------------------------------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 15,000,000 14,231,250
- ------------------------------------------------------------------------------------------------------------------------------------
Pride International, Inc., 3.25% Cv. Sr. Nts., 5/1/33 20,000,000 26,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 5% Cv. Sr. Sub. Bonds, 8/15/10 3,100,000 3,820,750
- ------------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA, 2.75% Cv. Sr. Unsec. Unsub. Debs.,
Series A, 1/15/18 85,000,000 96,687,500
- ------------------------------------------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc.:
1.75% Cv. Sr. Nts., 12/1/09 9 14,250,000 11,898,750
1.75% Cv. Sr. Nts., 12/1/09 20,750,000 17,326,250
------------------
Total Convertible Corporate Bonds and Notes (Cost $527,940,355) 502,215,155
- ------------------------------------------------------------------------------------------------------------------------------------
STRUCTURED NOTES--5.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of America NA, Boston Scientific Corp. Cv. Linked Nts., 2.25%, 11/6/06 15,000,000 15,129,000
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., Echostar Communications Corp.
Cv. Equity-Linked Nts., 2.87%, 5/1/06 381,113 11,259,412
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (New York), 1.60% Cv. Equity Linked Nts.,
12/29/06 (redemption linked to Comcast Corp., Cl. A common stock) 1 1,686,340 44,932,529
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Boston Scientific Corp. Cv. Medium Term Linked Nts., 1.20%, 9/7/06 568,180 13,899,956
Cisco Systems, Inc. Cv. Linked Nts., 4%, 12/30/05 694,213 13,650,310
EchoStar Communications Corp. Cv. Linked Nts., 3.40%, 1/2/07 1 595,400 17,079,644
GlobalSantaFe Corp. Cv. Linked Nts., 7%, 6/30/08 431,460 22,062,707
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., Cv. Yield Enhanced Equity Linked Debt
Securities, Series H, 7%, 12/20/06, (linked to CarMax, Inc.) 764,498 22,185,717
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Cv. Performance Equity Linked Redemption Quarterly-pay
Nts., 2.55%, 12/29/06 (linked to Dollar Tree Stores, Inc.) 1,12 605,830 15,921,212
------------------
Total Structured Notes (Cost $168,599,403) 176,120,487
26 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 2.03% in joint repurchase agreement (Principal
Amount/Value $1,413,415,000, with a maturity value of $1,413,592,855) with
UBS Warburg LLC, 4.53%, dated 2/28/06, to be repurchased at $28,762,619
on 3/1/06, collateralized by Federal National Mortgage Assn., 5%, 6/1/35,
with a value of $1,445,671,427 (Cost $28,759,000) $ 28,759,000 $ 28,759,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,793,124,941) 105.0% 3,253,127,821
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (5.0) (155,576,784)
-------------------------------------
NET ASSETS 100.0% $ 3,097,551,037
=====================================
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
- -----------------------------------------------------------------------------------------------
Abbott Laboratories 750 3/20/06 $ 42.50 $ 91,496 $ 142,500
ACE Ltd. 2,750 5/22/06 60.00 469,305 206,250
AT&T, Inc. 3,250 3/20/06 27.50 100,486 130,000
Cablevision Systems Corp.,
New York Group, Cl. A 1,000 3/20/06 27.50 19,049 10,000
Kinder Morgan, Inc. 875 5/22/06 115.00 61,523 --
U.S. Bancorp 5,000 3/20/06 32.50 147,239 --
U.S. Bancorp 5,000 6/19/06 32.50 144,014 225,000
Williams Cos., Inc. (The) 875 5/22/06 30.00 42,561 --
Williams Cos., Inc. (The) 500 5/22/06 27.50 46,128 2,500
------------------------
$1,121,801 $ 716,250
========================
3. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended February 28, 2006.
The aggregate fair value of securities of affiliated companies held by the Fund
as of February 28, 2006 amounts to $123,097,686.
Transactions during the period in which the issuer was an affiliate are as
follows:
SHARES SHARES
AUGUST 31, GROSS GROSS FEBRUARY 28,
2005 ADDITIONS REDUCTIONS 2006
- ----------------------------------------------------------------------------------------
CSK Auto Corp. 6,488,750 11,250 875,000 5,625,000
Enbridge Energy Management LLC 700,000 29,686* 750 728,936
VALUE DIVIDEND REALIZED
SEE NOTE 1 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------
CSK Auto Corp. $ 89,493,750 $-- $ (7,873,318)
Enbridge Energy Management LLC 33,603,936 -- 24,123
------------------------------------------
$123,097,686 $-- $ (7,849,195)
==========================================
*A portion of the transactions (26,548) was the result of stock dividends.
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
4. 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 650 5/22/06 $ 42.50 $ 77,672 $ 61,750
Abbott Laboratories 250 5/22/06 45.00 66,747 48,750
Abbott Laboratories 913 5/22/06 47.50 490,260 328,680
Altria Group, Inc. 350 6/19/06 70.00 145,944 133,000
Boston Scientific Corp. 1,775 1/22/07 30.00 916,790 1,029,500
Cablevision Systems Corp.,
New York Group, Cl. A 1,000 3/20/06 25.00 83,996 5,000
CarMax, Inc. 1,700 3/20/06 30.00 232,015 42,500
Cendant Corp. 8,900 5/22/06 17.50 1,514,042 1,112,500
Chevron Corp. 500 3/20/06 60.00 228,490 180,000
Citigroup, Inc. 500 6/19/06 47.50 130,994 97,500
Comcast Corp.,
Cl. A Special, Non-Vtg. 12,375 4/24/06 27.50 1,577,564 1,485,000
ENSCO International, Inc. 3,000 6/19/06 45.00 1,280,946 1,110,000
Exxon Mobil Corp. 3,750 7/24/06 60.00 1,301,195 1,125,000
JPMorgan Chase & Co. 4,250 9/18/06 42.50 1,499,087 1,041,250
Kinder Morgan, Inc. 1,000 5/22/06 95.00 676,972 470,000
Sanofi-Aventis SA, ADR 200 3/20/06 45.00 31,399 50,000
Sprint Nextel Corp. 3,750 5/22/06 22.50 277,488 187,500
Take-Two Interactive
Software, Inc. 11,375 9/18/06 17.50 3,777,953 3,526,250
Transocean, Inc. 1,000 5/22/06 70.00 367,799 300,000
Transocean, Inc. 1,000 5/22/06 75.00 628,264 640,000
Tyco International Ltd. 4,178 7/24/06 27.50 1,178,146 981,830
Wal-Mart Stores, Inc. 750 6/19/06 47.50 177,743 221,250
Williams Cos., Inc. (The) 3,500 5/22/06 22.50 261,099 752,500
-------------------------
$16,922,605 $14,929,760
=========================
5. Represents the current interest rate for a variable or increasing rate
security.
6. When-issued security or forward commitment to be delivered and settled after
February 28, 2006. See Note 1 of Notes to Financial Statements.
7. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $20,359,772 or 0.66% of the Fund's net assets
as of February 28, 2006.
8. 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 $991,415 or 0.03% of the Fund's net assets as of
February 28, 2006.
9. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $115,624,771 or 3.73% of the Fund's net
assets as of February 28, 2006.
10. Zero coupon bond reflects effective yield on the date of purchase.
28 | OPPENHEIMER CAPITAL INCOME FUND
11. 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 $2,290,860. See Note 5 of Notes to Financial
Statements.
12. Illiquid security. The aggregate value of illiquid securities as of February
28, 2006 was $42,362,955, which represents 1.37% of the Fund's net assets. See
Note 8 of Notes to Financial Statements.
13. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.
14. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES Unaudited
- --------------------------------------------------------------------------------
February 28, 2006
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investments, at value--see accompanying statement of
investments:
Unaffiliated companies (cost $2,729,025,707) $ 3,130,030,167
Affiliated companies (cost $64,099,234) 123,097,654
-----------------
3,253,127,821
- --------------------------------------------------------------------------------
Cash 1,738,741
- --------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 4,937
- --------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $60,144,328 sold on a
when-issued basis or forward commitment) 69,341,614
Interest, dividends and principal paydowns 19,733,487
Shares of beneficial interest sold 1,114,510
Other 114,139
-----------------
Total assets 3,345,175,249
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Options written, at value (premiums received $18,044,406)--
see accompanying statement of investments 15,646,010
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $215,537,917 purchased on
a when-issued basis or forward commitment) 224,557,727
Shares of beneficial interest redeemed 5,470,852
Distribution and service plan fees 1,201,569
Transfer and shareholder servicing agent fees 318,674
Shareholder communications 220,783
Trustees' compensation 44,130
Futures margins 28,696
Other 135,771
-----------------
Total liabilities 247,624,212
- --------------------------------------------------------------------------------
NET ASSETS $ 3,097,551,037
=================
- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 259,668
- --------------------------------------------------------------------------------
Additional paid-in capital 2,675,197,056
- --------------------------------------------------------------------------------
Accumulated net investment loss (6,864,572)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (33,776,143)
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies 462,735,028
-----------------
NET ASSETS $ 3,097,551,037
=================
30 | 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 $2,620,673,211 and 219,273,085 shares of
beneficial interest outstanding) $ 11.95
Maximum offering price per share (net asset value plus
sales charge of 5.75% of offering price) $ 12.68
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $276,926,493 and
23,438,387 shares of beneficial interest outstanding) $ 11.82
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $167,339,369 and
14,208,698 shares of beneficial interest outstanding) $ 11.78
- --------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $32,611,964 and 2,747,501
shares of beneficial interest outstanding) $ 11.87
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS Unaudited
- --------------------------------------------------------------------------------
For the Six Months Ended February 28, 2006
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $ 34,630,943
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $10,263) 31,469,361
- --------------------------------------------------------------------------------
Other income 61,987
--------------
Total investment income 66,162,291
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 8,132,432
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 3,091,393
Class B 1,415,305
Class C 834,566
Class N 77,348
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 1,542,263
Class B 247,459
Class C 126,708
Class N 35,325
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 190,633
Class B 47,182
Class C 15,112
Class N 2,322
- --------------------------------------------------------------------------------
Custodian fees and expenses 120,535
- --------------------------------------------------------------------------------
Trustees' compensation 19,460
- --------------------------------------------------------------------------------
Administration service fees 750
- --------------------------------------------------------------------------------
Other 94,355
--------------
Total expenses 15,993,148
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 50,169,143
32 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options
exercised) $ 1,102,599
Affiliated companies (7,849,195)
Closing and expiration of option contracts written 7,827,351
Closing and expiration of futures contracts 1,833,366
Foreign currency transactions 212
Swap contracts (130,362)
--------------
Net realized gain 2,783,971
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (41,719,690)
Translation of assets and liabilities denominated in foreign
currencies (10,547)
Futures contracts 981,433
Option contracts 3,760,158
Swap contracts (176,500)
--------------
Net change in unrealized appreciation (37,165,146)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,787,968
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31,
(UNAUDITED) 2005
- ---------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $ 50,169,143 $ 90,086,029
- ---------------------------------------------------------------------------------------------
Net realized gain 2,783,971 151,145,430
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (37,165,146) 159,251,121
------------------------------------
Net increase in net assets resulting from
operations 15,787,968 400,482,580
- ---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (45,444,448) (98,334,605)
Class B (3,722,746) (9,374,778)
Class C (2,236,818) (4,622,703)
Class N (474,669) (783,486)
- ---------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (112,727,097) (79,229,551)
Class B (12,275,677) (9,824,424)
Class C (7,342,229) (4,580,356)
Class N (1,340,023) (642,942)
- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 93,381,118 127,979,966
Class B (6,595,977) (37,260,401)
Class C 9,578,478 24,380,138
Class N 4,860,921 11,328,890
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Total increase (decrease) (68,551,199) 319,518,328
- ---------------------------------------------------------------------------------------------
Beginning of period 3,166,102,236 2,846,583,908
------------------------------------
End of period (including accumulated net investment
loss of $6,864,572 and $5,155,034, respectively) $ 3,097,551,037 $ 3,166,102,236
====================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31,
CLASS A (UNAUDITED) 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72 $ 12.88
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .20 1 .38 1 .46 .54 .51 .42
Net realized and
unrealized gain (loss) (.14) 1.28 .69 1.35 (2.66) .41
------------------------------------------------------------------------------------------------------
Total from investment
operations .06 1.66 1.15 1.89 (2.15) .83
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or
distributions to
shareholders:
Dividends from net
investment income (.21) (.48) (.53) (.43) (.48) (.48)
Distributions from net
realized gain (.53) (.39) -- -- (.33) (.51)
------------------------------------------------------------------------------------------------------
Total dividends and/or
distributions to
shareholders (.74) (.87) (.53) (.43) (.81) (.99)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.95 $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET
VALUE 2 0.58% 14.40% 10.32% 20.10% (17.75)% 6.84%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 2,620,673 $ 2,670,552 $ 2,379,956 $ 2,130,486 $ 1,873,458 $ 2,458,272
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $ 2,644,231 $ 2,565,609 $ 2,356,948 $ 1,900,896 $ 2,224,911 $ 2,432,151
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets: 3
Net investment income 3.35% 3.09% 3.85% 5.41% 4.48% 3.21%
Total expenses 0.91% 0.89% 4 0.89% 4,5 0.93% 4 0.98% 4 0.91% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 38% 6 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
- ------------------------------------------------------------------------------
Six Months Ended February 28, 2006 $1,381,476,843 $1,428,924,989
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31,
CLASS B (UNAUDITED) 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60 $ 12.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 1 .28 1 .36 .45 .41 .32
Net realized and
unrealized gain (loss) (.13) 1.26 .68 1.33 (2.62) .41
------------------------------------------------------------------------------------------------------
Total from investment
operations .02 1.54 1.04 1.78 (2.21) .73
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or
distributions to
shareholders:
Dividends from net
investment income (.16) (.38) (.42) (.35) (.39) (.38)
Distributions from net
realized gain (.53) (.39) -- -- (.33) (.51)
------------------------------------------------------------------------------------------------------
Total dividends and/or
distributions to
shareholders (.69) (.77) (.42) (.35) (.72) (.89)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.82 $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET
VALUE 2 0.22% 13.40% 9.46% 18.94% (18.31)% 6.05%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 276,927 $ 299,093 $ 316,568 $ 343,074 $ 327,368 $ 477,223
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $ 285,628 $ 304,769 $ 349,853 $ 312,457 $ 410,652 $ 469,690
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets: 3
Net investment income 2.55% 2.25% 3.00% 4.55% 3.67% 2.44%
Total expenses 1.75% 1.73% 4 1.76% 4,5 1.81% 4 1.76% 4 1.68% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 38% 6 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
- -----------------------------------------------------------------------------
Six Months Ended February 28, 2006 $1,381,476,843 $1,428,924,989
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER CAPITAL INCOME FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31,
CLASS C (UNAUDITED) 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59 $ 12.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 1 .28 1 .35 .45 .42 .32
Net realized and
unrealized gain (loss) (.14) 1.26 .69 1.34 (2.62) .40
------------------------------------------------------------------------------------------------------
Total from investment
operations .01 1.54 1.04 1.79 (2.20) .72
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or
distributions to
shareholders:
Dividends from net
investment income (.16) (.38) (.44) (.36) (.40) (.38)
Distributions from net
realized gain (.53) (.39) -- -- (.33) (.51)
------------------------------------------------------------------------------------------------------
Total dividends and/or
distributions to
shareholders (.69) (.77) (.44) (.36) (.73) (.89)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.78 $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET
VALUE 2 0.17% 13.52% 9.40% 19.05% (18.30)% 6.00%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 167,339 $ 167,013 $ 133,368 $ 93,797 $ 72,792 $ 89,547
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $ 168,467 $ 150,410 $ 122,458 $ 75,459 $ 84,049 $ 80,390
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets: 3
Net investment income 2.55% 2.27% 3.01% 4.55% 3.74% 2.44%
Total expenses 1.71% 1.71% 4 1.72% 4,5 1.78% 4 1.76% 4 1.68% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 38% 6 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
- ------------------------------------------------------------------------------
Six Months Ended February 28, 2006 $1,381,476,843 $1,428,924,989
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31,
CLASS N (UNAUDITED) 2005 2004 2003 2002 2001 1
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69 $ 12.96
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .18 2 .34 2 .39 .46 .50 .28
Net realized and
unrealized gain (loss) (.14) 1.26 .72 1.37 (2.66) (.30)
------------------------------------------------------------------------------------------------------
Total from investment
operations .04 1.60 1.11 1.83 (2.16) (.02)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or
distributions to
shareholders:
Dividends from net
investment income (.19) (.44) (.49) (.40) (.47) (.25)
Distributions from net
realized gain (.53) (.39) -- -- (.33) --
------------------------------------------------------------------------------------------------------
Total dividends and/or
distributions to
shareholders (.72) (.83) (.49) (.40) (.80) (.25)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.87 $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET
VALUE 3 0.40% 13.95% 10.01% 19.45% (17.89)% (0.18)%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 32,612 $ 29,444 $ 16,692 $ 9,023 $ 4,071 $ 648
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in
thousands) $ 31,239 $ 22,974 $ 13,301 $ 5,968 $ 2,839 $ 214
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets: 4
Net investment income 2.91% 2.73% 3.42% 4.92% 4.74% 2.94%
Total expenses 1.28% 1.24% 5 1.28% 5,6 1.35% 5 1.25% 5 1.17% 5
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 38% 7 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
- ------------------------------------------------------------------------------
Six Months Ended February 28, 2006 $1,381,476,843 $1,428,924,989
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund 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 may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. 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, as 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
39 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
(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 February 28, 2006, the market
value of these securities comprised 5.7% of the Fund's net assets and resulted
in unrealized cumulative gains of $7,521,084.
- --------------------------------------------------------------------------------
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 February 28, 2006, the Fund had purchased
$215,537,917 of securities issued on a when-issued basis or forward commitment
and sold $60,144,328 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
40 | 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.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
41 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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.
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.
- --------------------------------------------------------------------------------
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, to the extent they are not
offset by positive cash balances maintained by the Fund, at a rate equal to the
Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item,
if
42 | OPPENHEIMER CAPITAL INCOME FUND
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.
- --------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
- --------------------------------------------------------------------------------
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:
SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, 2005
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------
CLASS A
Sold 11,019,481 $ 135,189,723 22,558,905 $ 277,939,203
Dividends and/or
distributions reinvested 12,315,048 146,685,902 13,463,832 165,521,957
Redeemed (15,455,814) (188,494,507) (25,590,738) (315,481,194)
-----------------------------------------------------------
Net increase 7,878,715 $ 93,381,118 10,431,999 $ 127,979,966
===========================================================
- --------------------------------------------------------------------------------------------
CLASS B
Sold 1,911,754 $ 23,154,467 4,597,999 $ 56,062,655
Dividends and/or
distributions reinvested 1,267,028 14,918,415 1,486,058 18,104,691
Redeemed (3,682,596) (44,668,859) (9,161,381) (111,427,747)
-----------------------------------------------------------
Net decrease (503,814) $ (6,595,977) (3,077,324) $ (37,260,401)
===========================================================
- --------------------------------------------------------------------------------------------
CLASS C
Sold 1,656,951 $ 20,002,686 3,382,894 $ 41,213,863
Dividends and/or
distributions reinvested 734,648 8,619,446 693,034 8,423,553
Redeemed (1,590,206) (19,043,654) (2,075,964) (25,257,278)
-----------------------------------------------------------
Net increase 801,393 $ 9,578,478 1,999,964 $ 24,380,138
===========================================================
43 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST Continued
SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, 2005
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------
CLASS N
Sold 581,197 $ 7,074,664 1,172,709 $ 14,333,266
Dividends and/or
distributions reinvested 149,022 1,763,076 114,121 1,396,302
Redeemed (328,597) (3,976,819) (358,515) (4,400,678)
-----------------------------------------------------
Net increase 401,622 $ 4,860,921 928,315 $ 11,328,890
=====================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the six months ended February 28, 2006, were as
follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
Investment securities $ 1,106,205,495 $ 1,112,125,044
U.S. government and government agency
obligations 35,656,347 53,138,995
To Be Announced (TBA) mortgage-related
securities 1,381,476,843 1,428,924,989
- --------------------------------------------------------------------------------
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, 0.50% of the next $4.5
billion and, effective January 1, 2006, 0.48% of average annual net assets in
excess of $5 billion.
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICE FEES. 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 six months ended February 28, 2006, the Fund paid
$1,945,439 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
periodically 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 periodically for
providing personal services and maintenance of accounts of their customers
44 | OPPENHEIMER CAPITAL INCOME FUND
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
periods. 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% on Class B and
Class C shares and 0.25% 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 February 28, 2006 for Class B, Class C
and Class N shares were $9,450,715, $3,751,031 and $471,108, 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
SIX MONTHS ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- ----------------------------------------------------------------------------------------------
February 28, 2006 $469,662 $955 $232,475 $7,186 $4,454
- --------------------------------------------------------------------------------
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
45 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS Continued
stocks and bonds or interest rates. The Fund may also buy or write put or call
options on these futures contracts.
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported 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 February 28, 2006, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS FEBRUARY 28, 2006 (DEPRECIATION)
- ----------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 3/22/06 33 $ 3,732,094 $ 53,503
U.S. Long Bonds 6/21/06 581 65,707,469 164,956
----------
218,459
----------
CONTRACTS TO SELL
Euro-Bundesobligation, 10 yr. 3/8/06 169 24,254,238 48,592
U.S. Treasury Nts., 2 yr. 6/30/06 432 88,290,000 (48,672)
U.S. Treasury Nts., 5 yr. 6/30/06 497 52,278,188 (40,226)
U.S. Treasury Nts., 10 yr. 3/22/06 92 9,936,000 153,137
U.S. Treasury Nts., 10 yr. 6/21/06 261 28,163,531 (2,475)
----------
110,356
----------
$ 328,815
==========
46 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. 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 six months ended February 28, 2006 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, 2005 30,563 $ 4,354,050 65,934 $ 15,086,303
Options written 86,152 6,659,827 241,978 39,588,191
Options closed or expired (86,258) (8,267,586) (202,587) (27,594,050)
Options exercised (10,457) (1,624,490) (38,659) (10,157,839)
----------------------------------------------------
Options outstanding as of
February 28, 2006 20,000 $ 1,121,801 66,666 $ 16,922,605
====================================================
47 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 unrealized gain (loss) related to the daily change
in the valuation of the notional amount of the swap, as well as the amount due
to (owed by) the Fund at termination or settlement, is combined and separately
disclosed as an asset (liability). The Fund also records any periodic payments
received from (paid to) the counterparty, including at termination, under such
contracts as realized gain (loss). Total return swaps are subject to risks (if
the counterparty fails to meet its obligations).
As of February 28, 2006, the Fund had entered into the following total return
swap agreements:
SWAP NOTATIONAL TERMINATION UNREALIZED
COUNTERPARTY SWAP DESCRIPTION AMOUNT DATE APPRECIATION
- -----------------------------------------------------------------------------------
Received or paid monthly.
If the sum of the Lehman
Brothers CMBS Index Payer
Payment Amount and the
Floating Rate Payer Payment
Amount is positive, the
Counterparty will pay such
amount to the Fund. If the
sums are negative, then the
Goldman Sachs Fund shall pay the absolute
Group, value of such amount to the
Inc. (The) Counterparty. $12,530,000 6/1/06 $4,937
Abbreviations are as follows:
CMBS Commercial Mortgage Backed
Securities
- --------------------------------------------------------------------------------
8. ILLIQUID SECURITIES
As of February 28, 2006, 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 complaint was filed as a putative class action against the Manager and the
Transfer Agent (and other defendants) in the U.S. District Court for the
Southern District of New York on January 10, 2005 and was amended on March 4,
2005. The complaint alleged, among other things, that the Manager charged
excessive fees for distribution and other costs, and that by permitting and/or
participating in those actions, the Directors/Trustees and the Officers of the
funds breached their fiduciary duties to fund shareholders under the Investment
Company Act of 1940 and at common law. The plaintiffs sought unspecified
damages, an
48 | OPPENHEIMER CAPITAL INCOME FUND
accounting of all fees paid, and an award of attorneys' fees and litigation
expenses. Seven of the eight counts in the complaint, including the claims
against certain of the Oppenheimer funds, as nominal defendants, and against
certain present and former Directors, Trustees and Officers of the funds, and
the Distributor, as defendants, were dismissed with prejudice, by court order
dated March 10, 2006, in response to motions to dismiss the suit that had been
filed by the defendants. The remaining count against the Manager and the
Transfer Agent was dismissed with prejudice by court order dated April 5, 2006.
The time in which plaintiffs may file an appeal to those decisions has not yet
lapsed.
49 | 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.
50 | 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
investment advisory agreement (the "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 Agreement. The Board employs an independent consultant to prepare a
report that provides information, including comparative information, that the
Board requests for that purpose. In addition, the Board receives information
throughout the year regarding Fund services, fees, expenses and performance.
The Manager and the independent consultant provided information to the
Board on the following factors: (i) the nature, quality and extent of the
Manager's services, (ii) the investment performance of the Fund and the Manager,
(iii) the fees and expenses of the Fund, including comparative expense
information, (iv) the profitability of the Manager, including an analysis of the
cost of providing services, (v) whether economies of scale are realized as the
Fund grows and whether fee levels reflect these economies of scale for Fund
investors and (vi) other benefits to the Manager from its relationship with the
Fund. Outlined below is a summary of the principal information considered by the
Board as well as the Board's conclusions.
NATURE, QUALITY, AND EXTENT OF SERVICES. The Board considered information
on the nature and extent of the services provided to the Fund and information
regarding the Manager's key personnel that provide such services. The Manager's
duties include providing the Fund with 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; securities trading services;
oversight of third party service providers; monitoring compliance with
applicable Fund policies and procedures and adherence to the Fund's investment
restrictions. The Manager is responsible for providing certain administrative
services to the Fund as well. Those services include providing and supervising
all administrative and clerical personnel that are necessary in order to provide
effective corporate administration for the Fund; compiling and maintaining
records with respect to the Fund's operations; preparing and filing reports
required by the Securities and Exchange Commission; preparing periodic reports
regarding the operations of the Fund for its shareholders; preparing proxy
materials for shareholder meetings; and preparing the registration statements
required by Federal and state securities laws for the sale of the Fund's shares.
The Manager also provides the Fund with office space, facilities and equipment.
The Board also considered the quality of the services provided and the
quality of the Manager's resources that are available to the Fund. The Board
took account of the fact
51 | OPPENHEIMER CAPITAL INCOME FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
- --------------------------------------------------------------------------------
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 has
received regarding the experience and professional qualifications of the
Manager's key personnel and the size and functions of its staff providing
investment management services to the Fund. The Board also considered compliance
reports from the Fund's Chief Compliance Officer. In its evaluation of the
quality of the portfolio management services provided, the Board considered the
experience of Michael Levine and the Manager's Value investment team and
analysts. Mr. Levine has had over 18 years of experience managing fixed income
investments. The Board members also considered the totality of their experiences
with the Manager, as directors or trustees of the Fund and other funds advised
by the Manager. In light of the foregoing, the Board concluded that the Fund
benefits from the services provided under the Agreement as a result of the
Manager's experience, reputation, personnel, operations, and resources.
INVESTMENT PERFORMANCE OF THE MANAGER AND THE FUND. During the year, the
Manager provided information on the performance of the Fund and the Manager at
each Board meeting, including comparative performance information. 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 (including both funds
advised by the Manager and funds advised by other investment advisers). The
Board noted that the Fund's one-year, three-year, five-year and ten-year
performance all ranked in the first quintile of its performance universe.
COSTS OF SERVICES AND PROFITS REALIZED BY THE MANAGER. The Board
considered information regarding the Manager's costs in serving as the Fund's
investment adviser, including the costs associated with the personnel and
systems necessary to manage the Fund, and information regarding the Manager's
profitability from its relationship with the Fund. The Board reviewed the fees
paid to the Manager and the other expenses borne by the Fund. The Board also
evaluated the comparability of the fees charged and the services provided to the
Fund to the fees and services for other clients or accounts advised by the
Manager. The independent consultant provided comparative data in regard to the
fees and expenses of the Fund, other income funds and other funds with
comparable asset levels and distribution features. The Board noted that the
Fund's contractual and actual management fees and its total expenses are all
lower than its peer group median and average.
52 | OPPENHEIMER CAPITAL INCOME FUND
ECONOMIES OF SCALE. The Board reviewed whether the Fund's advisory fee
shares with shareholders economies of scale that the Manager may realize in
managing and supporting the Fund. The Board noted the Fund's breakpoints, which
are intended to share with shareholders economies of scale that may exist as the
Fund grows. Based on the Board's evaluation, the Manager agreed to a revised
breakpoint schedule that, effective January 1, 2006, reduced the management fee
on average annual net assets over $5 billion to 0.48%.
OTHER BENEFITS TO THE MANAGER. In addition to considering the profits
realized by the Manager, 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. The Board also 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.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced counsel
to the Fund and to the independent Trustees. Fund counsel and the independent
Trustees' counsel are 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
described above, the Board, including a majority of the independent Trustees,
decided 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.
53 | OPPENHEIMER CAPITAL INCOME FUND
ITEM 2. CODE OF ETHICS.
Not applicable to semiannual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semiannual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to semiannual reports.
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 February 28, 2006, 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) Not applicable to semiannual reports.
(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
---------------------------
John V. Murphy
Principal Executive Officer
Date: April 19, 2006
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: April 19, 2006
By: /s/ Brian W. Wixted
---------------------------
Brian W. Wixted
Principal Financial Officer
Date: April 19, 2006