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
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OPPENHEIMER CAPITAL INCOME FUND
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(Exact name of registrant as specified in charter)
6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924
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(Address of principal executive offices) (Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008
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(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
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Date of fiscal year end: AUGUST 31
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Date of reporting period: FEBRUARY 28, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Oil & Gas 15.0%
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Tobacco 8.1
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Diversified Financial Services 6.3
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Insurance 4.8
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Diversified Telecommunication Services 2.5
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Specialty Retail 2.5
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Industrial Conglomerates 1.8
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Aerospace & Defense 1.6
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Commercial Banks 1.5
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Thrifts & Mortgage Finance 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2007, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Altria Group, Inc. 5.6%
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Kinder Morgan Management LLC 5.4
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Kinder Morgan, Inc. 5.0
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Citigroup, Inc. 3.5
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Everest Re Group Ltd. 3.4
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Bank of America Corp. 2.8
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CSK Auto Corp. 2.5
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Loews Corp./Carolina Group 2.5
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Raytheon Co. 1.6
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General Electric Co. 1.5
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2007, 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 54.5%
Bonds and Notes 38.2
Convertible Corporate Bonds and Notes 7.2
Cash Equivalents 0.1
Portfolio holdings and allocations are subject to change. Percentages are as of
February 28, 2007, 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, 2007.
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 the
Statement of Additional Information). Therefore, the "hypo-
12 | OPPENHEIMER CAPITAL INCOME FUND
thetical" 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
(9/1/06) (2/28/07) FEBRUARY 28, 2007
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Class A Actual $ 1,000.00 $ 1,110.30 $ 4.67
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Class A Hypothetical 1,000.00 1,020.38 4.47
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Class B Actual 1,000.00 1,105.00 9.07
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Class B Hypothetical 1,000.00 1,016.22 8.69
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Class C Actual 1,000.00 1,105.60 8.91
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Class C Hypothetical 1,000.00 1,016.36 8.53
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Class N Actual 1,000.00 1,107.20 6.66
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Class N Hypothetical 1,000.00 1,018.50 6.38
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,
excluding indirect expenses from affiliated fund, based on the 6-month period
ended February 28, 2007 are as follows:
CLASS EXPENSE RATIOS
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Class A 0.89%
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Class B 1.73
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Class C 1.70
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Class N 1.27
The expense ratios reflect voluntary waivers or reimbursements of expenses by
the Fund's Manager that can be terminated at any time, without advance notice.
The "Financial Highlights" tables in the Fund's financial statements, included
in this report, also show the gross expense ratios, without such waivers or
reimbursements.
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13 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS February 28, 2007 / Unaudited
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VALUE
SHARES SEE NOTE 1
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COMMON STOCKS--48.7%
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CONSUMER DISCRETIONARY--2.5%
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MEDIA--0.0%
Regal Entertainment Group 32,500 $ 694,525
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SPECIALTY RETAIL--2.5%
CSK Auto Corp. 1,2 4,817,350 83,291,981
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CONSUMER STAPLES--8.7%
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FOOD PRODUCTS--0.6%
B&G Foods, Inc. 880,000 19,844,000
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TOBACCO--8.1%
Altria Group, Inc. 2,200,000 185,416,000
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Loews Corp./Carolina Group 3 1,150,000 82,834,500
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268,250,500
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ENERGY--15.0%
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OIL & GAS--15.0%
BP plc, ADR 500,000 30,820,000
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Chevron Corp. 96,500 6,620,865
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ConocoPhillips 87,500 5,724,250
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Duncan Energy Partners LP 1 150,000 3,600,000
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Enbridge Energy Management LLC 1 610,984 31,196,833
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Enbridge Energy Partners LP, Cl. A 161,750 8,542,018
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Kinder Morgan Management LLC 1 3,589,252 179,498,469
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Kinder Morgan, Inc. 3 1,575,000 166,572,000
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Tortoise Energy Capital Corp. 684,250 19,918,518
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Valero GP Holdings LLC 1,372,500 36,151,650
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Williams Cos., Inc. (The) 304,700 8,217,759
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496,862,362
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FINANCIALS--14.6%
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COMMERCIAL BANKS--1.5%
U.S. Bancorp 3 1,000,000 35,660,000
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Wachovia Corp. 242,500 13,427,225
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49,087,225
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DIVERSIFIED FINANCIAL SERVICES--6.3%
Bank of America Corp. 1,802,500 91,693,175
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Citigroup, Inc. 2,322,500 117,054,000
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208,747,175
14 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
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INSURANCE--4.8%
ACE Ltd. 750,000 $ 42,120,000
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Everest Re Group Ltd. 1,150,000 111,791,500
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Fidelity National Title Group, Inc., Cl. A 258,500 6,204,000
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160,115,500
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REAL ESTATE INVESTMENT TRUSTS--0.7%
Anthracite Capital, Inc. 872,500 10,914,975
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Crystal River Capital, Inc. 447,500 11,406,775
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22,321,750
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THRIFTS & MORTGAGE FINANCE--1.3%
Washington Mutual, Inc. 3 1,000,000 43,080,000
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HEALTH CARE--1.3%
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BIOTECHNOLOGY--0.0%
Vanda Pharmaceuticals, Inc. 1 8,500 204,510
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PHARMACEUTICALS--1.3%
Pfizer, Inc. 1,500,000 37,440,000
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Sanofi-Aventis SA, ADR 125,000 5,301,250
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42,741,250
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INDUSTRIALS--3.4%
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AEROSPACE & DEFENSE--1.6%
Raytheon Co. 3 999,400 53,517,870
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INDUSTRIAL CONGLOMERATES--1.8%
General Electric Co. 1,428,250 49,874,490
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Tyco International Ltd. 275,000 8,478,250
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58,352,740
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MARINE--0.0%
Seaspan Corp. 58,200 1,484,682
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MATERIALS--0.6%
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CONTAINERS & PACKAGING--0.3%
Packaging Corp. of America 3 425,000 10,412,500
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PAPER & FOREST PRODUCTS--0.3%
Bowater, Inc. 310,000 7,495,800
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TELECOMMUNICATION SERVICES--2.6%
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DIVERSIFIED TELECOMMUNICATION SERVICES--2.5%
Citizens Communications Co. 1,275,000 19,214,250
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Consolidated Communications Holdings, Inc. 1,125,000 22,927,500
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Embarq Corp. 3 65,000 3,597,750
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FairPoint Communications, Inc. 3 1,000,000 19,100,000
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
Windstream Corp. 1,325,000 $ 19,941,250
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84,780,750
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WIRELESS TELECOMMUNICATION SERVICES--0.1%
Cellcom Israel Ltd. 1 118,640 2,182,976
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Total Common Stocks (Cost $943,241,459) 1,613,468,096
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PREFERRED STOCKS--6.7%
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AES Trust III, 6.75% Cv. 230,000 11,178,000
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E*TRADE Financial Corp., 6.125% Cum. Cv.,
Non-Vtg. 750,000 22,455,000
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El Paso Corp., 4.99% Cv. 1,600 2,035,600
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Emmis Communications Corp., 6.25% Cum. Cv.,
Series A, Non-Vtg. 497,100 22,307,363
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Ford Motor Co. Capital Trust II, 6.50% Cum.
Cv., Non-Vtg. 170,000 6,269,600
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Lucent Technologies Capital Trust I, 7.75% Cum.
Cv., Non-Vtg. 37,925 39,285,559
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NRG Energy, Inc., 5.75% Cv. 23,500 7,182,305
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Platinum Underwriters Holdings Ltd., 6% Cv.,
Series A, Non-Vtg. 1,000,000 30,900,000
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Travelers Property Casualty Corp., 4.50%
Cv. Jr. Unsec. Sub. Nts. 1,550,000 39,773,000
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United Rentals Trust I, 6.50% Cv. Quarterly
Income Preferred Securities 378,569 18,644,523
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XL Capital Ltd., 7% Cv. 815,000 21,279,650
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Total Preferred Stocks (Cost $203,949,828) 221,310,600
PRINCIPAL
AMOUNT
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MORTGAGE-BACKED OBLIGATIONS--12.2%
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Banc of America Commercial Mortgage, Inc.,
Commercial Mtg. Pass-Through Certificates,
Series 2005-3, Cl. A2, 4.501%, 7/10/43 $ 2,670,000 2,622,592
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Banc of America Funding Corp., CMO
Pass-Through Certificates, Series 2004-2,
Cl. 2A1, 6.50%, 7/20/32 1,959,980 2,014,995
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Banc of America Mortgage Securities, Inc.,
CMO Pass-Through Certificates, Series 2004-8,
Cl. 5A1, 6.50%, 5/25/32 1,608,118 1,623,949
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Citigroup Mortgage Loan Trust 2006-WF1,
Asset-Backed Pass-Through Certificates, Series
2006-WF1, Cl. A2B, 5.536%, 3/1/36 660,000 658,581
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Countrywide Alternative Loan Trust, CMO:
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 3,782,038 3,831,087
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 3,164,249 3,255,453
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Deutsche Alt-A Securities Mortgage Loan
Trust, Mtg. Pass-Through Certificates:
Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 2,589,850 2,586,693
Series 2006-AB3, Cl. A7, 6.36%, 4/25/08 805,502 805,408
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Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 11,444,530 11,108,312
5%, 8/1/33 6,264,082 6,096,683
16 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
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MORTGAGE-BACKED OBLIGATIONS Continued
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Federal Home Loan Mortgage Corp.: Continued
5%, 3/1/36 4 $ 1,612,000 $ 1,564,648
6%, 5/1/18 3,766,694 3,830,743
6.50%, 4/1/18-4/1/34 1,960,533 2,011,901
7%, 9/1/23-3/1/35 9,403,346 9,722,007
8%, 4/1/16 470,248 495,721
9%, 8/1/22-5/1/25 140,862 150,958
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Federal Home Loan Mortgage Corp., CMO Gtd.
Real Estate Mtg. Investment Conduit Multiclass
Pass-Through Certificates:
Series 2006-11, Cl. PS, 5.06%, 3/25/36 5 1,138,018 1,143,086
Series 2034, Cl. Z, 6.50%, 2/15/28 630,999 650,850
Series 2043, Cl. ZP, 6.50%, 4/15/28 1,887,876 1,946,454
Series 2053, Cl. Z, 6.50%, 4/15/28 682,702 703,813
Series 2055, Cl. ZM, 6.50%, 5/15/28 865,915 885,451
Series 2075, Cl. D, 6.50%, 8/15/28 2,280,088 2,350,789
Series 2080, Cl. C, 6.50%, 8/15/28 1,169,855 1,203,645
Series 2080, Cl. Z, 6.50%, 8/15/28 555,499 572,205
Series 2279, Cl. PK, 6.50%, 1/15/31 1,284,652 1,331,566
Series 2326, Cl. ZP, 6.50%, 6/15/31 677,248 697,847
Series 2387, Cl. PD, 6%, 4/15/30 236,071 236,181
Series 2461, Cl. PZ, 6.50%, 6/15/32 2,033,946 2,113,584
Series 2500, Cl. FD, 5.82%, 3/15/32 5 303,498 306,126
Series 2526, Cl. FE, 5.72%, 6/15/29 5 423,012 426,421
Series 2551, Cl. FD, 5.72%, 1/15/33 5 327,811 331,239
Series 3025, Cl. SJ, 5.243%, 8/15/35 5 437,365 449,536
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Federal Home Loan Mortgage Corp.,
Interest-Only Stripped Mtg.-Backed Security:
Series 176, Cl. IO, 12.560%, 6/1/26 6 567,140 123,733
Series 183, Cl. IO, 9.366%, 4/1/27 6 879,733 192,977
Series 184, Cl. IO, 15.309%, 12/1/26 6 946,419 206,102
Series 192, Cl. IO, 13.894%, 2/1/28 6 291,892 70,105
Series 200, Cl. IO, 12.049%, 1/1/29 6 342,669 73,931
Series 2003-118, Cl. S, 9.368%, 12/25/33 6 4,923,445 564,606
Series 2005-87, Cl. SG, 9.057%, 10/25/35 6 8,225,727 489,446
Series 2130, Cl. SC, (2.657)%, 3/15/29 6 665,018 48,197
Series 224, Cl. IO, 8.337%, 3/1/33 6 1,942,920 423,812
Series 243, Cl. 6, 26.840%, 12/15/32 6 1,228,722 263,314
Series 2796, Cl. SD, 0.701%, 7/15/26 6 1,014,101 79,975
Series 2920, Cl. S, (3.822)%, 1/15/35 6 5,633,782 270,986
Series 3000, Cl. SE, (3.964)%, 7/15/25 6 6,156,434 233,369
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Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-Backed Security,
Series 176, Cl. PO, 4.615%, 6/1/26 7 269,947 220,402
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Federal National Mortgage Assn.:
4.50%, 5/1/18-8/1/20 34,099,425 33,112,006
5%, 12/1/17-11/1/33 49,503,252 48,655,413
5%, 3/1/22-3/1/37 4 18,339,000 17,966,869
5.50%, 1/1/33-1/1/34 14,732,611 14,653,553
5.50%, 3/1/22-3/1/37 4 25,990,000 25,907,885
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
5.50%, 4/1/34 8 $ 4,879,291 $ 4,859,294
6%, 8/1/32-11/1/33 27,758,040 28,063,377
6%, 3/1/22 4 22,638,000 22,991,719
6.50%, 5/1/17-11/1/31 17,211,532 17,689,246
7%, 11/1/17-7/1/35 8,811,174 9,114,306
7.50%, 1/1/33-3/1/33 12,647,894 13,221,684
8.50%, 7/1/32 48,332 52,059
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Federal National Mortgage Assn. Grantor Trust,
CMO, Trust 2002-T1, Cl. A2, 7%, 11/25/31 1,932,140 1,993,488
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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 1,761,291 1,825,130
Trust 1998-61, Cl. PL, 6%, 11/25/28 1,092,845 1,117,926
Trust 1999-54, Cl. LH, 6.50%, 11/25/29 1,470,000 1,529,514
Trust 2001-50, Cl. NE, 6%, 8/25/30 160,591 160,466
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 2,420,200 2,481,045
Trust 2001-70, Cl. LR, 6%, 9/25/30 282,445 283,045
Trust 2001-72, Cl. NH, 6%, 4/25/30 41,405 41,340
Trust 2001-74, Cl. PD, 6%, 5/25/30 29,759 29,696
Trust 2001-82, Cl. ZA, 6.50%, 1/25/32 997,851 1,031,731
Trust 2002-77, Cl. WF, 5.72%, 12/18/32 5 473,725 478,329
Trust 2002-9, Cl. PC, 6%, 3/25/17 7,210,550 7,359,000
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 1,903,000 1,888,214
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,921,000 1,919,001
Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,515,353
Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,560,000 1,522,080
Trust 2005-104, Cl. MC, 5.50%, 12/25/25 7,321,312 7,224,677
Trust 2005-31, Cl. PB, 5.50%, 4/25/35 1,430,000 1,426,522
Trust 2006-46, Cl. SW, 4.693%, 6/25/36 5 877,493 874,881
Trust 2006-50, Cl. KS, 4.693%, 6/25/36 5 2,995,658 2,943,023
Trust 2006-50, Cl. SA, 4.693%, 6/25/36 5 1,769,953 1,739,613
Trust 2006-50, Cl. SK, 4.693%, 6/25/36 5 236,873 232,719
Trust 2006-57, Cl. PA, 5.50%, 8/25/27 5,795,450 5,826,864
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Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Trust 2001-15, Cl. SA, 6.059%, 3/17/31 6 810,491 94,938
Trust 2001-65, Cl. S, 8.516%, 11/25/31 6 2,821,218 271,457
Trust 2001-81, Cl. S, 1.549%, 1/25/32 6 635,859 62,312
Trust 2002-47, Cl. NS, 0.436%, 4/25/32 6 1,224,380 107,872
Trust 2002-51, Cl. S, 0.571%, 8/25/32 6 1,124,149 100,313
Trust 2002-52, Cl. SD, (2.705)%, 9/25/32 6 1,282,992 107,731
Trust 2002-75, Cl. SA, 9.729%, 11/25/32 6 3,317,874 325,202
Trust 2002-77, Cl. SH, 1.967%, 12/18/32 6 793,129 75,620
Trust 2002-89, Cl. S, 11.566%, 1/25/33 6 3,241,029 292,658
Trust 2002-9, Cl. MS, 1.242%, 3/25/32 6 767,821 71,597
Trust 2003-33, Cl. SP, 11.392%, 5/25/33 6 2,796,258 340,097
Trust 2003-46, Cl. IH, 6.503%, 6/25/33 6 5,870,117 1,170,927
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 2004-54, Cl. DS, (6.347)%, 11/25/30 6 $ 1,241,283 $ 74,401
Trust 2005-105, Cl. S, 8.460%, 12/25/35 6 4,538,440 258,165
Trust 2005-19, Cl. SA, (3.359)%, 3/25/35 6 14,442,418 714,788
Trust 2005-40, Cl. SA, (3.612)%, 5/25/35 6 3,322,298 158,994
Trust 2005-6, Cl. SE, (2.325)%, 2/25/35 6 3,983,084 202,014
Trust 2005-71, Cl. SA, 3.125%, 8/25/25 6 3,882,548 217,292
Trust 2006-119, Cl. MS, 7.877%, 12/25/36 6 3,301,766 197,603
Trust 2006-33, Cl. SP, 13.158%, 5/25/36 6 7,996,501 669,384
Trust 222, Cl. 2, 12.187%, 6/1/23 6 2,030,443 447,864
Trust 240, Cl. 2, 16.459%, 9/1/23 6 3,116,378 693,404
Trust 252, Cl. 2, 10.268%, 11/1/23 6 1,520,248 359,798
Trust 273, Cl. 2, 12.153%, 8/1/26 6 421,274 91,183
Trust 303, Cl. IO, 10.788%, 11/1/29 6 542,443 127,598
Trust 308, Cl. 2, 11.147%, 9/1/30 6 1,523,654 352,740
Trust 321, Cl. 2, 6.591%, 4/1/32 6 6,188,187 1,398,248
Trust 322, Cl. 2, 14.461%, 4/1/32 6 2,399,785 528,447
Trust 329, Cl. 2, 9.462%, 1/1/33 6 3,173,908 705,492
Trust 331, Cl. 9, 8.416%, 2/1/33 6 1,706,334 369,091
Trust 334, Cl. 17, 23.662%, 2/1/33 6 1,002,073 230,034
Trust 340, Cl. 2, 7.10%, 9/1/33 6 1,940,234 454,165
Trust 342, Cl. 2, 8.914%, 9/1/33 6 2,729,422 607,257
Trust 344, Cl. 2, 4.581%, 12/1/33 6 1,253,240 278,648
Trust 346, Cl. 2, 12.532%, 12/1/33 6 3,567,990 787,644
Trust 362, Cl. 12, 5.516%, 8/1/35 6 5,284,746 1,097,522
Trust 362, Cl. 13, 5.539%, 8/1/35 6 2,934,240 595,675
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-Backed Security:
Trust 1993-184, Cl. M, 5.931%, 9/25/23 7 710,135 575,891
Trust 340, Cl. 1, 5.518%, 9/1/33 7 1,940,234 1,437,890
- --------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp.,
Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,695,658
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,579,229
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc.,
Commercial Mtg. Pass-Through Certificates,
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 453,593 454,473
- --------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%,
8/15/17-12/15/17 197,842 210,185
- --------------------------------------------------------------------------------
Government National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed Security:
Series 2001-21, Cl. SB, (4.008)%, 1/16/27 6 1,357,331 93,816
Series 2002-15, Cl. SM, (7.149)%, 2/16/32 6 1,243,305 85,224
Series 2002-41, Cl. GS, 4.421%, 6/16/32 6 709,973 91,417
Series 2002-76, Cl. SY, (3.603)%, 12/16/26 6 3,066,357 246,293
Series 2004-11, Cl. SM, (6.763)%, 1/17/30 6 1,074,775 80,648
Series 2006-47, Cl. SA, 15.158%, 8/16/36 6 10,110,972 585,800
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp.,
Commercial Mtg. Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 $ 1,990,000 $ 1,951,710
Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,750,000 1,752,712
Series 2007-GG9, Cl. A2, 5.381%, 7/10/12 4 2,440,000 2,452,144
- --------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities
Corp., Commercial Mtg. Pass-Through
Certificates:
Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 640,000 630,194
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 2,280,000 2,257,694
- --------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust, Commercial
Mtg. Pass-Through Certificates:
Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,900,000 1,891,552
Series 2007-C1, Cl. A2, 5.318%, 1/15/12 2,710,000 2,736,253
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO Pass-Through
Certificates:
Series 2004-6, Cl. 10A1, 6%, 7/25/34 2,403,192 2,410,651
Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 971,701 964,107
- --------------------------------------------------------------------------------
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 2,544,256
- --------------------------------------------------------------------------------
RALI Series 2003-QS1 Trust, Mtg. Asset-Backed
Pass-Through Certificates, Series 2003-QS1,
Cl. A2, 5.75%, 1/25/33 1,236,954 1,241,112
- --------------------------------------------------------------------------------
RALI Series 2006-QS5 Trust, Mtg. Asset-Backed
Pass-Through Certificates,
Series 2006-QS5, Cl. 2A2, 6%, 4/25/08 3,099,524 3,097,930
- --------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust
2005-C17, Commercial Mtg. Obligations, Series
2005-C17, Cl. A2, 4.782%, 3/15/42 3,590,000 3,558,121
- --------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust
2006-C29, Commercial Asset-Backed Securities,
Series 2006-C29, Cl. A2, 5.272%, 11/15/48 735,000 739,147
- --------------------------------------------------------------------------------
WAMU Mortgage Pass-Through Certificates,
Series 2005-AR5 Trust, Series 2005-AR5,
Cl. A1, 4.674%, 5/25/35 5 844,912 844,326
-----------------
Total Mortgage-Backed Obligations
(Cost $404,738,765) 404,567,155
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--0.7%
- --------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed
Certificates, Series 2005-1A, Cl. A2, 5.38%,
4/20/08 5 900,000 900,393
- --------------------------------------------------------------------------------
Argent Securities Trust 2004-W8, Asset-Backed
Pass-Through Certificates,
Series 2004-W8, Cl. A2, 5.80%, 5/25/34 5 3,685,524 3,700,115
- --------------------------------------------------------------------------------
Centex Home Equity Loan Trust 2005-D,
Asset-Backed Certificates,
Series 2005-D, Cl. AF1, 5.04%, 10/25/35 332,690 331,656
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit
Card Receivable Nts., Series 2003-C4, Cl.
C4, 5%, 6/10/15 430,000 421,783
- --------------------------------------------------------------------------------
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 2,892,201
20 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2002-4,
Asset-Backed Certificates,
Series 2002-4, Cl. A1, 6.06%, 2/25/33 5 $ 44,821 $ 44,869
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust
2005-16, Asset-Backed Certificates,
Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 5 920,000 918,145
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust
2005-17, Asset-Backed Certificates,
Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 5 620,000 618,558
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan
Pass-Through Certificates,
Series 2005-A, Cl. A3, 3.48%, 11/17/08 933,736 929,267
- --------------------------------------------------------------------------------
Household Home Equity Loan Trust, Home Equity
Loan Pass-Through Certificates,
Series 2005-3, Cl. A1, 5.58%, 1/20/35 5 1,152,847 1,154,607
- --------------------------------------------------------------------------------
Lehman XS Trust, Mtg. Pass-Through
Certificates:
Series 2005-10, Cl. 2A3B, 5.55%, 1/25/36 1,233,452 1,228,357
Series 2005-2, Cl. 2A1B, 5.18%, 8/25/35 5 1,303,355 1,300,788
Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 1,093,837 1,090,486
- --------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit
Card Receivables,
Series 2003-C7, Cl. C7, 6.67%, 3/15/16 5 4,080,000 4,305,468
- --------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust
2005-1, Mtg. Pass-Through Certificates,
Series 2005-1, Cl. AF2, 3.914%, 5/25/35 5,10 34,825 34,825
- --------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust
2005-2, Mtg. Pass-Through Certificates,
Series 2005-2, Cl. AF2, 4.415%, 4/25/35 5 1,040,000 1,033,122
- --------------------------------------------------------------------------------
RAMP Series 2004-RS7 Trust, Mtg. Asset-Backed
Pass-Through Certificates,
Series 2004-RS7, Cl. AI32, 4.45%, 7/25/28 1,122,711 1,116,176
- --------------------------------------------------------------------------------
Structured Asset Securities Corp., Mtg.
Pass-Through Certificates,
Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 1,849,892 1,848,778
-----------------
Total Asset-Backed Securities (Cost
$23,909,783) 23,869,594
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.1%
- --------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 11 2,255,000 2,185,929
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
4.125%, 7/12/10 1,210,000 1,186,209
5.25%, 7/18/11 1,310,000 1,333,347
6.625%, 9/15/09 8 2,340,000 2,440,182
- --------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4.75%, 12/15/10 3,405,000 3,402,599
5%, 10/15/11 1,300,000 1,310,729
6%, 5/15/11 1,455,000 1,521,268
7.25%, 1/15/10 3,420,000 3,643,736
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.50%, 2/15/36 9,444,000 9,162,163
8.875%, 8/15/17 285,000 384,617
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
3.875%, 2/15/13 2,989,000 2,893,609
4.625%, 12/31/11-2/15/17 4,311,000 4,334,916
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS Continued
- --------------------------------------------------------------------------------
U.S. Treasury Nts.: Continued
4.75%, 1/31/12 $ 4,216,000 $ 4,259,973
4.875%, 1/31/09 179,000 179,755
-------------
Total U.S. Government Obligations
(Cost $37,769,863) 38,239,032
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--10.9%
- --------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 2,425,000 2,559,651
- --------------------------------------------------------------------------------
Allied Waste North America, Inc.:
5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,906,250
8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,637,500
- --------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.50% Sr. Unsec.
Nts., 5/1/07 12 770,000 772,599
- --------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 10 2,500,000 2,590,625
- --------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bonds 13 4,830,000 4,876,127
- --------------------------------------------------------------------------------
Beazer Homes USA, Inc.:
6.875% Sr. Unsec. Nts., 7/15/15 1,515,000 1,461,975
8.375% Sr. Nts., 4/15/12 800,000 824,000
- --------------------------------------------------------------------------------
Belo Corp., 8% Sr. Unsec. Unsub. Nts., 11/1/08 2,050,000 2,131,365
- --------------------------------------------------------------------------------
British Sky Broadcasting Group plc, 8.20% Sr.
Unsec. Nts., 7/15/09 1,860,000 1,981,233
- --------------------------------------------------------------------------------
Caesars Entertainment, Inc., 7.50% Sr. Unsec.
Nts., 9/1/09 3,310,000 3,460,923
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series
B, 9/1/10 2,980,000 3,158,109
- --------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 2,400,000 2,491,169
- --------------------------------------------------------------------------------
Charter Communications Holdings I LLC:
11% Sr. Sec. Nts., 10/1/15 64,075,000 66,958,375
11% Sr. Sec. Nts., 10/1/15 9 29,072,000 30,307,560
13.50% Sr. Unsec. Unsub. Nts., 1/15/14 14,000,000 14,297,500
- --------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts.,
1/15/16 5,601,000 5,699,018
- --------------------------------------------------------------------------------
Clear Channel Communications, Inc., 6.25% Nts.,
3/15/11 1,965,000 1,961,571
- --------------------------------------------------------------------------------
Comcast Corp., 6.45% Unsec. Nts., 3/15/37 3,125,000 3,280,938
- --------------------------------------------------------------------------------
Cox Enterprises, Inc., 4.375% Nts., 5/1/08 9 3,195,000 3,146,458
- --------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs.,
7/15/18 3,000,000 3,052,500
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 1,790,000 1,769,077
6.125% Nts., 1/15/14 1,315,000 1,338,779
- --------------------------------------------------------------------------------
DaimlerChrysler North America Holding Corp.,
7.30% Nts., 1/15/12 2,760,000 2,988,062
- --------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,960,000 2,364,250
- --------------------------------------------------------------------------------
Dillard's, Inc., 6.625% Unsec. Nts., 11/15/08 10 820,000 828,200
- --------------------------------------------------------------------------------
Duke Energy Field Services Corp., 6.875% Sr.
Unsec. Nts., 2/1/11 2,195,000 2,315,459
- --------------------------------------------------------------------------------
Earthgrains Co. (The), 6.50% Nts., 4/15/09 990,000 1,009,701
- --------------------------------------------------------------------------------
Eastman Kodak Co., 3.625% Nts., Series A, 5/15/08 360,000 353,722
- --------------------------------------------------------------------------------
EchoStar DBS Corp., 5.75% Sr. Unsec. Nts., 10/1/08 2,590,000 2,596,475
22 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
El Paso Corp.:
6.50% Sr. Unsec. Nts., 6/1/08 $ 578,000 $ 584,503
7.625% Sr. Unsec. Nts., 9/1/08 2,170,000 2,250,429
- --------------------------------------------------------------------------------
Enbridge Energy Partners LP, 5.95% Sr. Unsec.
Nts., Series B, 6/1/33 780,000 748,368
- --------------------------------------------------------------------------------
Energy Transfer Partners LP, 5.65% Sr. Unsec.
Unsub. Nts., 8/1/12 575,000 584,839
- --------------------------------------------------------------------------------
Enterprise Products Operating LP, 7.50% Sr.
Unsec. Unsub. Nts., 2/1/11 2,780,000 2,994,694
- --------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr.
Unsec. Nts., 9/1/08 1,945,000 1,978,829
- --------------------------------------------------------------------------------
FirstEnergy Corp., 7.375% Sr. Unsub. Nts., Series
C, 11/15/31 1,145,000 1,338,723
- --------------------------------------------------------------------------------
Ford Motor Credit Co., 9.75% Sr. Unsec. Nts.,
9/15/10 9 5,600,000 6,004,544
- --------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 2,845,000 2,861,049
9.445% Unsub. Nts., 12/15/08 5 359,000 383,782
- --------------------------------------------------------------------------------
General Motors Acceptance Corp., 8% Bonds, 11/1/31 2,355,000 2,604,140
- --------------------------------------------------------------------------------
Goldman Sachs Capital, Inc. (The), 6.345% Sub.
Bonds, 2/15/34 1,525,000 1,562,811
- --------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Perpetual Bonds, Series
A 9,13 4,700,000 4,887,140
- --------------------------------------------------------------------------------
HCA, Inc., 8.75% Sr. Nts., 9/1/10 1,495,000 1,566,013
- --------------------------------------------------------------------------------
Heinz (H.J.) Co., 6.428% Bonds, 12/1/08 9 435,000 442,910
- --------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts.,
2/15/11 10 2,205,000 2,364,863
- --------------------------------------------------------------------------------
HSBC Finance Capital Trust IX, 5.911% Nts.,
11/30/35 5 4,500,000 4,599,252
- --------------------------------------------------------------------------------
Hyatt Equities LLC, 6.875% Nts., 6/15/07 9 2,855,000 2,862,303
- --------------------------------------------------------------------------------
Hyundai Motor Manufacturing Alabama LLC, 5.30%
Sr. Unsec. Nts., 12/19/08 9 1,645,000 1,644,750
- --------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts.,
11/14/08 5 1,410,000 1,462,875
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts.,
3/15/12 1,000,000 1,050,000
- --------------------------------------------------------------------------------
iStar Financial, Inc., 5.15% Sr. Unsec. Nts.,
3/1/12 3,135,000 3,087,022
- --------------------------------------------------------------------------------
J.C. Penney Co., Inc., 9% Nts., 8/1/12 800,000 930,114
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.:
6.50% Sr. Nts., 1/15/14 327,000 314,738
8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,648,000
- --------------------------------------------------------------------------------
Kaneb Pipe Line Operating Partnership LP:
5.875% Sr. Unsec. Nts., 6/1/13 2,500,000 2,541,415
7.75% Sr. Unsec. Nts., 2/15/12 280,000 307,128
- --------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14 2,775,000 2,634,283
- --------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.30% Sr.
Unsec. Nts., 8/15/33 2,705,000 3,026,419
- --------------------------------------------------------------------------------
Kroger Co. (The), 5.50% Unsec. Unsub. Nts., 2/1/13 2,970,000 2,982,340
- --------------------------------------------------------------------------------
Lennar Corp., 7.625% Sr. Unsec. Nts., 3/1/09 2,760,000 2,881,986
- --------------------------------------------------------------------------------
Level 3 Communications, Inc., 11.50% Sr. Unsec.
Unsub. Nts., 3/1/10 5,000,000 5,575,000
- --------------------------------------------------------------------------------
Level 3 Financing, Inc., 9.25% Sr. Nts.,
11/1/14 9 5,000,000 5,156,250
- --------------------------------------------------------------------------------
Liberty Media Corp., 7.875% Sr. Nts., 7/15/09 845,000 891,198
- --------------------------------------------------------------------------------
Liberty Media LLC, 7.75% Sr. Nts., 7/15/09 2,860,000 3,008,560
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
Limited Brands, Inc., 6.125% Sr. Unsec. Nts.,
12/1/12 $ 2,550,000 $ 2,612,483
- --------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.:
5.875% Sr. Unsec. Bonds, 8/1/33 1,930,000 1,852,501
7.125% Sr. Unsec. Nts., 6/15/09 1,660,000 1,724,471
- --------------------------------------------------------------------------------
May Department Stores Co., 7.90% Unsec. Debs.,
10/15/07 1,050,000 1,062,701
- --------------------------------------------------------------------------------
MBIA, Inc., 5.70% Sr. Unsec. Unsub. Nts., 12/1/34 1,685,000 1,658,856
- --------------------------------------------------------------------------------
MGM Mirage, Inc., 6% Sr. Sec. Nts., 10/1/09 3,140,000 3,151,775
- --------------------------------------------------------------------------------
Mission Energy Holding Co., 13.50% Sr. Sec. Nts.,
7/15/08 2,630,000 2,883,138
- --------------------------------------------------------------------------------
Monongahela Power Co., 7.36% Unsec. Nts., Series
A, 1/15/10 1,975,000 2,082,950
- --------------------------------------------------------------------------------
NCR Corp., 7.125% Sr. Unsec. Unsub. Nts., 6/15/09 295,000 303,906
- --------------------------------------------------------------------------------
ONEOK Partners LP, 7.10% Sr. Unsec. Nts., 3/15/11 430,000 458,070
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 7.875% Unsec.
Unsub. Nts., 2/1/09 2,940,000 3,069,360
- --------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr.
Nts., Cl. A1, 6/15/10 9 3,572,333 3,533,620
- --------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr.
Nts., Series B, 6/1/13 9 859,817 811,929
- --------------------------------------------------------------------------------
Popular North America, Inc., 4.70% Nts., 6/30/09 3,665,000 3,607,804
- --------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C,
12/18/23 9 3,835,000 4,875,662
- --------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts.,
7/1/25 3,210,000 4,100,990
- --------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts., 11/16/07 1,945,000 1,945,124
- --------------------------------------------------------------------------------
Pulte Homes, Inc., 4.875% Nts., 7/15/09 2,975,000 2,951,512
- --------------------------------------------------------------------------------
Qwest Corp., 5.625% Unsec. Nts., 11/15/08 10,12 363,000 364,361
- --------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 4.625% Nts., 6/15/12 1,235,000 1,194,599
- --------------------------------------------------------------------------------
Reynolds American, Inc., 6.50% Sr. Sec. Nts.,
6/1/07 1,938,000 1,942,262
- --------------------------------------------------------------------------------
Rite Aid Corp., 6.875% Sr. Unsec. Debs.,
8/15/13 3 13,500,000 12,183,750
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 7% Sr. Unsec.
Unsub. Nts., 10/15/07 800,000 812,086
- --------------------------------------------------------------------------------
Ryder System, Inc., 5.95% Nts., 5/2/11 780,000 794,705
- --------------------------------------------------------------------------------
Safeway, Inc., 6.50% Sr. Unsec. Nts., 3/1/11 3,060,000 3,189,885
- --------------------------------------------------------------------------------
Sara Lee Corp., 2.75% Unsec. Nts., 6/15/08 1,260,000 1,219,908
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec.
Sub. Nts., 3/15/12 1,000,000 1,035,000
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375%
Nts., 5/1/07 480,000 481,187
- --------------------------------------------------------------------------------
Telecom Italia Capital SpA, 4% Unsec. Unsub.
Nts., 1/15/10 3,330,000 3,215,861
- --------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 3,020,000 2,993,373
- --------------------------------------------------------------------------------
Telus Corp., 8% Nts., 6/1/11 2,715,000 2,984,420
- --------------------------------------------------------------------------------
TEPPCO Partners LP:
6.125% Nts., 2/1/13 1,395,000 1,427,391
7.625% Sr. Unsec. Nts., 2/15/12 995,000 1,077,142
- --------------------------------------------------------------------------------
Textron Financial Corp., 6% Jr. Unsec. Sub. Nts.,
2/15/67 5,9 2,395,000 2,425,840
- --------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 8.375% Sr.
Nts., 7/15/33 1,315,000 1,666,348
- --------------------------------------------------------------------------------
Tribune Co., 5.50% Nts., Series E, 10/6/08 2,255,000 2,253,751
24 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08 $ 1,955,000 $ 1,967,801
- --------------------------------------------------------------------------------
Univision Communications, Inc.:
3.50% Sr. Unsec. Nts., 10/15/07 1,880,000 1,854,150
3.875% Sr. Unsec. Nts., 10/15/08 875,000 849,844
- --------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts.,
6/15/07 2,990,000 2,988,723
- --------------------------------------------------------------------------------
Westar Energy, Inc., 7.125% Sr. Unsec. Nts.,
8/1/09 2,550,000 2,658,061
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The), Credit Linked
Certificate Trust, 6.75% Nts., 4/15/09 10 2,885,000 2,953,519
- --------------------------------------------------------------------------------
Xerox Corp., 9.75% Sr. Unsec. Nts., 1/15/09 4,505,000 4,868,062
- --------------------------------------------------------------------------------
Yum! Brands, Inc., 7.70% Sr. Nts., 7/1/12 1,890,000 2,081,986
-------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $347,107,394) 362,051,308
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--7.4%
- --------------------------------------------------------------------------------
Conseco, Inc., 3.50% Cv. Sr. Unsec. Bonds,
9/30/35 5 3,500,000 3,473,750
- --------------------------------------------------------------------------------
CSK Auto, Inc., 7.25% Cv. Sr. Unsec. Nts.,
12/15/25 5,9 11,000,000 14,973,750
- --------------------------------------------------------------------------------
Intel Corp., 2.95% Cv. Unsec. Sub. Debs., 12/15/35 5,350,000 4,794,938
- --------------------------------------------------------------------------------
Liberty Media Corp.:
0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 42,500,000 51,212,500
3.25% Exchangeable Sr. Unsec. Debs., 3/15/31
(exchangeable for Viacom, Inc. Cl. B common stock
or cash based on the value thereof) 145,125,000 123,719,063
- --------------------------------------------------------------------------------
Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts.,
9/1/08 10,000,000 9,812,500
- --------------------------------------------------------------------------------
Pride International, Inc., 3.25% Cv. Sr. Nts.,
5/1/33 21,750,000 26,888,429
- --------------------------------------------------------------------------------
Sirius Satellite Radio, Inc., 2.50% Cv. Sr. Nts.,
2/15/09 8,432,000 8,906,300
-------------
Total Convertible Corporate Bonds and Notes (Cost
$235,120,784) 243,781,230
- --------------------------------------------------------------------------------
STRUCTURED NOTES--13.8%
- --------------------------------------------------------------------------------
Allegro Investment Corp. SA:
Cv. Equity Linked Nts., Series COF, 3.81%,
1/18/08 (linked to Capital One Financial Corp.
common stock) 10 197,538 15,104,052
Cv. Equity Linked Nts., Series UTX, 4.84%, 1/2/08
(linked to United Technologies Corp. common stock) 238,800 15,566,345
- --------------------------------------------------------------------------------
Bank of America, Cv. Linked Nts., Series HES,
8.50%, 1/30/08 194,600 10,267,096
- --------------------------------------------------------------------------------
Bear Stearns Global Asset Holdings Ltd., Cv.
Linked Premium Equity Redemption Cumulative
Securities, 2.10%, 6/21/07 (redemption linked
to Wal-Mart Stores, Inc. common stock) 10 546,807 26,438,118
- --------------------------------------------------------------------------------
Calabash Re II Ltd. Nts., Series A1, 13.746%,
1/8/10 5,10 3,000,000 3,088,950
- --------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., Pulte
Homes, Inc. Cv. Equity Linked Nts., 7.55%, 3/14/07 259,673 7,856,069
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (New York):
Cv. Equity Linked Nts., 6%, 5/21/07 (linked to
Circuit City Stores, Inc.) 612,500 11,882,500
Cv. Equity Linked Nts., 8.22%, 1/23/08 (linked to
Corning, Inc.) 644,350 13,689,216
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Deutsche Bank AG, Cv. Mandatory Exchangeable Nts.,
Series S, 3.73%, 6/27/07 (linked to Sprint Nextel
Corp. common stock) $ 572,000 $ 10,919,480
- --------------------------------------------------------------------------------
Deutsche Bank AG/London, Cv. Equity Linked Nts.,
4.38%, 9/21/07 (linked to United Technologies
Corp. common stock) 242,000 15,703,380
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
Cv. Equity Linked Nts., 4%, 3/10/08 (linked to
Office Depot, Inc. common stock) 582,735 19,562,414
Cv. Equity Linked Nts., 4.70%, 5/3/07 (linked to
Boston Scientific Corp.) 10 566,560 9,267,222
Cv. Equity Linked Nts., 7.10%, 2/6/08 (linked to
Occidental Petroleum Corp. common stock) 219,100 10,053,842
Cv. Mandatory Exchangeable Linked Nts., 7.45%,
10/16/07 (linked to GlobalSantaFe Corp.) 10 431,007 23,772,622
Nortel Networks Corp. Cv. Linked Nts., 12.90%,
12/13/07 10 400,000 9,789,600
- --------------------------------------------------------------------------------
Lakeside Re Ltd. Catastrophe Linked Nts.,
11.865%, 12/31/09 5,10 3,000,000 3,069,600
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.:
Cv. Equity Linked Nts., 11.03%, 1/27/08 (linked
to Arch Coal, Inc.) 439,368 13,308,457
Cv. Medium-Term Linked Nts., Series TYC, 3.60%,
3/10/07 (linked to Tyco International Ltd.
common stock) 1,968,811 60,088,112
Cv. Yield Enhanced Equity Linked Debt Securities,
Series I, 4%, 1/12/08 (linked to Texas
Instruments, Inc.) 523,926 15,833,044
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.:
Cv. Linked Nts., 6%, 12/5/07 (linked to Corning,
Inc.) 10 714,300 14,839,583
Equity Linked Nts., 6.35%, 1/4/08 (linked to
Global SantaFe Corp.) 10 182,983 10,247,048
- --------------------------------------------------------------------------------
Morgan Stanley:
Cv. Linked Nts., 18.10%, 12/6/07 (linked to XM
Satellite Radio Holdings, Inc. common stock) 10 696,865 10,376,320
Cv. Linked Nts., 3.42%, 3/16/07 (linked to Tyco
International Ltd. common stock) 10 1,171,000 35,744,775
Cv. Linked Nts., 6.20%, 2/6/08 (linked to XM
Satellite Radio Holdings, Inc. common stock) 715,100 10,318,893
Cv. Mandatory Exchangeable Linked Nts., 4.50%,
7/6/07 (linked to Clear Channel Communications
common stock) 10 759,622 26,241,142
Cv. Performance Equity Linked Redemption
Quarterly-pay Nts., 15.50%, 1/22/08 (linked to XM
Satellite Radio Holdings, Inc. common stock) 10 639,800 9,664,179
Cv. Performance Equity Linked Redemption
Quarterly-pay Nts., 6.10%, 9/20/07 (linked to
Microsoft Corp.) 10 930,461 26,653,055
- --------------------------------------------------------------------------------
Successor Europe Windstorm Ltd. Catastrophe
Linked Nts., Series AIII, 11.10%, 12/6/08 5 3,000,000 3,100,050
- --------------------------------------------------------------------------------
Wachovia Bank NA, Cv. Linked Nts., Series XMSR,
13.20%, 12/1/07 (linked to XM Satellite Radio
Holdings, Inc. common stock) 10 1,016,777 14,931,370
-------------
Total Structured Notes (Cost $433,367,734) 457,376,534
26 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--0.1%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money Market Fund,
Cl. E, 5.25% 2,14 (Cost $4,154,016) 4,154,016 $ 4,154,016
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $2,633,359,626) 101.6% 3,368,817,565
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.6) (54,398,796)
--------------------------------
NET ASSETS 100.0% $ 3,314,418,769
================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Is or was an affiliate, as defined in the Investment Company Act of 1940, at
or during the period ended February 28, 2007 by virtue of the Fund owning at
least 5% of the voting securities of the issuer or as a result of the Fund and
the issuer having the same investment advisor. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES SHARES
AUGUST 31, GROSS GROSS FEBRUARY 28,
2006 ADDITIONS REDUCTIONS 2007
- ---------------------------------------------------------------------------------------------------------------
CSK Auto Corp. 5,502,500 -- 685,150 4,817,350
Enbridge Energy Management LLC a 747,702 24,735 b 161,453 610,984
Oppenheimer Institutional Money Market Fund,
Cl. E, 5.25% -- 213,448,786 209,294,770 4,154,016
VALUE DIVIDEND REALIZED
SEE NOTE 1 INCOME GAIN
- ---------------------------------------------------------------------------------------------------------------
CSK Auto Corp. $ 83,291,981 $ -- $ 2,304,129
Enbridge Energy Management LLC a -- -- 3,014,162
Oppenheimer Institutional Money Market Fund,
Cl. E, 5.25% 4,154,016 278,419 --
------------------------------------------------
$ 87,445,997 $ 278,419 $ 5,318,291
================================================
a. No longer an affiliate as of February 28, 2007. The value of the security
has therefore been excluded from this table.
b. All or portion of the transactions were the result of non-cash dividends.
3. 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
- -----------------------------------------------------------------------------------------------------------
Embarq Corp. 650 3/19/07 $ 55.00 $ 90,743 $ 78,000
FairPoint Communications, Inc. 2,375 3/19/07 22.00 37,624 --
Kinder Morgan, Inc. 9,500 5/21/07 105.00 2,014,032 2,232,500
Kraft Foods, Inc., Cl. A 15,000 3/16/07 30.53 7,800,000 2,190,000
Loews Corp./Carolina Group 8,000 6/18/07 75.00 917,096 1,160,000
Packaging Corp. of America 450 4/23/07 22.50 43,950 87,750
Raytheon Co. 9,994 5/21/07 52.50 3,447,931 2,448,530
U.S. Bancorp 1,250 3/19/07 35.00 67,498 112,500
U.S. Bancorp 8,750 6/18/07 35.00 1,956,189 1,312,500
Washington Mutual, Inc. 250 3/19/07 47.50 3,750 --
Washington Mutual, Inc. 2,450 4/23/07 47.50 85,642 61,250
Washington Mutual, Inc. 2,125 7/23/07 50.00 81,123 63,750
-----------------------------
$ 16,545,578 $ 9,746,780
=============================
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
4. When-issued security or forward commitment to be delivered and settled after
February 28, 2007. See Note 1 of accompanying Notes.
5. Represents the current interest rate for a variable or increasing rate
security.
6. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $18,861,926 or 0.57% of the Fund's net assets
as of February 28, 2007.
7. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $2,234,183 or 0.07% of the Fund's net assets as of
February 28, 2007.
8. 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
- -----------------------------------------------------------------------------------------------------------
Boston Scientific Corp. 350 1/21/08 $ 20.00 $ 145,946 $ 136,500
Capital One Financial Corp. 5,250 6/18/07 75.00 912,032 1,428,000
Circuit City Stores, Inc./Circuit
City Group 4,975 4/23/07 22.50 1,474,412 1,741,250
Corning, Inc. 5,000 5/21/07 20.00 589,074 500,000
Domino's Pizza, Inc. 1,703 3/19/07 25.00 82,812 8,515
Dynegy, Inc. 2,500 3/19/07 7.50 91,247 200,000
Everest Re Group Ltd. 2,000 3/19/07 95.00 442,986 130,000
General Electric Co. 1,000 4/23/07 35.00 54,498 81,000
GlobalSantaFe Corp. 5,000 4/23/07 57.50 1,252,364 1,400,000
Office Depot, Inc. 4,250 4/23/07 35.00 373,375 765,000
SLM Corp. 500 3/19/07 45.00 53,998 115,000
Tenet Healthcare Corp. 2,450 5/21/07 8.00 214,083 294,000
Williams Cos., Inc. (The) 203 5/21/07 25.00 28,318 11,165
-----------------------------
$ 5,715,145 $ 6,810,430
=============================
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 $83,964,917 or 2.53% of the Fund's net
assets as of February 28, 2007.
10. Illiquid security. The aggregate value of illiquid securities as of February
28, 2007 was $248,364,029, which represents 7.49% of the Fund's net assets. See
Note 9 of accompanying Notes.
11. Zero coupon bond reflects effective yield on the date of purchase.
12. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures contracts. The aggregate market
value of such securities is $883,012. See Note 5 of accompanying Notes.
13. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest. Rate reported represents
the current interest rate for this variable rate security.
14. Rate shown is the 7-day yield as of February 28, 2007.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES Unaudited
- --------------------------------------------------------------------------------
February 28, 2007
- ------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,597,742,027) $ 3,281,371,568
Affiliated companies (cost $35,617,599) 87,445,997
----------------
3,368,817,565
- ------------------------------------------------------------------------------------
Cash 689,749
- ------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 709,145
- ------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 39,292,161
Interest, dividends and principal paydowns 21,722,411
Shares of beneficial interest sold 2,051,744
Other 98,982
----------------
Total assets 3,433,381,757
- ------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------
Options written, at value (premiums received $22,260,723)--
see accompanying statement of investments 16,557,210
- ------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 574,746
- ------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $70,542,233 purchased on a
when-issued basis or forward commitment) 96,603,446
Shares of beneficial interest redeemed 3,122,399
Distribution and service plan fees 1,312,367
Transfer and shareholder servicing agent fees 299,922
Shareholder communications 279,252
Futures margins 150,892
Trustees' compensation 22,991
Other 39,763
----------------
Total liabilities 118,962,988
- ------------------------------------------------------------------------------------
NET ASSETS $ 3,314,418,769
================
- ------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 248,763
- ------------------------------------------------------------------------------------
Additional paid-in capital 2,545,602,275
- ------------------------------------------------------------------------------------
Accumulated net investment income 1,481,926
- ------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions 25,701,725
- ------------------------------------------------------------------------------------
Net unrealized appreciation on investments 741,384,080
----------------
NET ASSETS $ 3,314,418,769
================
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $2,820,334,411 and 211,276,177 shares of beneficial interest outstanding) $13.35
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $14.16
- --------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $269,181,545 and 20,404,269 shares
of beneficial interest outstanding) $13.19
- --------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $183,211,638 and 13,936,084 shares
of beneficial interest outstanding) $13.15
- --------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $41,691,175 and 3,146,019 shares
of beneficial interest outstanding) $13.25
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS Unaudited
- --------------------------------------------------------------------------------
For the Six Months Ended February 28, 2007
- --------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------
Interest $ 34,721,666
- --------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $7,005) 30,720,531
Affiliated companies 278,419
- --------------------------------------------------------------------------------------
Fee income 108,563
- --------------------------------------------------------------------------------------
Other income 58,028
---------------
Total investment income 65,887,207
- --------------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------------
Management fees 8,340,509
- --------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 3,171,329
Class B 1,318,420
Class C 867,033
Class N 95,116
- --------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 1,478,409
Class B 210,487
Class C 130,131
Class N 42,506
- --------------------------------------------------------------------------------------
Shareholder communications:
Class A 201,636
Class B 46,261
Class C 16,559
Class N 2,290
- --------------------------------------------------------------------------------------
Trustees' compensation 29,025
- --------------------------------------------------------------------------------------
Custodian fees and expenses 24,603
- --------------------------------------------------------------------------------------
Administration service fees 750
- --------------------------------------------------------------------------------------
Other 99,722
---------------
Total expenses 16,074,786
Less reduction to custodian expenses (2,298)
Less waivers and reimbursements of expenses (5,120)
---------------
Net expenses 16,067,368
- --------------------------------------------------------------------------------------
NET INVESTMENT INCOME 49,819,839
31 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 24,628,518
Affiliated companies 5,318,291
Closing and expiration of option contracts written 19,848,478
Closing and expiration of futures contracts 1,096,341
Foreign currency transactions 2,548
Swap contracts (7,019)
---------------
Net realized gain 50,887,157
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 225,742,832
Futures contracts 489,750
Option contracts written 2,490,524
Swap contracts 96,126
---------------
Net change in unrealized appreciation 228,819,232
- --------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 329,526,228
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2007 AUGUST 31,
(UNAUDITED) 2006
- ------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------
Net investment income $ 49,819,839 $ 95,081,450
- ------------------------------------------------------------------------------------------
Net realized gain 50,887,157 27,512,071
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation 228,819,232 12,664,674
-----------------------------------
Net increase in net assets resulting from operations 329,526,228 135,258,195
- ------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (46,985,354) (77,812,436)
Class B (3,498,924) (6,031,033)
Class C (2,325,899) (3,701,400)
Class N (586,996) (836,479)
-----------------------------------
(53,397,173) (88,381,348)
- ------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (10,162,702) (112,727,835)
Class B (1,003,869) (12,275,789)
Class C (663,028) (7,342,478)
Class N (143,710) (1,340,023)
-----------------------------------
(11,973,309) (133,686,125)
- ------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A 1,051,869 (3,331,341)
Class B (11,609,446) (31,772,777)
Class C 4,971,377 1,811,081
Class N 2,920,403 6,928,899
-----------------------------------
(2,665,797) (26,364,138)
- ------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------
Total increase (decrease) 261,489,949 (113,173,416)
- ------------------------------------------------------------------------------------------
Beginning of period 3,052,928,820 3,166,102,236
-----------------------------------
End of period (including accumulated net investment
income of $1,481,926 and $5,059,260, respectively) $ 3,314,418,769 $3,052,928,820
===================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2007 AUGUST 31,
CLASS A (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.28 $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .21 1 .39 1 .38 1 .46 .54 .51
Net realized and unrealized gain
(loss) 1.13 .16 1.28 .69 1.35 (2.66)
-----------------------------------------------------------------------------------------
Total from investment operations 1.34 .55 1.66 1.15 1.89 (2.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment
income (.22) (.37) (.48) (.53) (.43) (.48)
Distributions from net realized
gain (.05) (.53) (.39) -- -- (.33)
-----------------------------------------------------------------------------------------
Total dividends and/or
distributions to shareholders (.27) (.90) (.87) (.53) (.43) (.81)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.35 $ 12.28 $ 12.63 $ 11.84 $ 11.22 $ 9.76
=========================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.03% 4.68% 14.40% 10.32% 20.10% (17.75)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 2,820,334 $ 2,594,507 $2,670,552 $2,379,956 $2,130,486 $1,873,458
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,735,466 $ 2,608,268 $2,565,609 $2,356,948 $1,900,896 $2,224,911
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.24% 3.21% 3.09% 3.85% 5.41% 4.48%
Total expenses 0.89% 4,5 0.91% 0.89% 4 0.89% 4,6 0.93% 4 0.98% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 29% 7 66% 7 55% 7 52% 141% 148%
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. Expenses including indirect expenses from affiliated fund were as follows:
Six Months Ended February 28, 2007 0.89%
6. Voluntary waiver of transfer agent fees less than 0.01%.
7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Six Months Ended February 28, 2007 $ 588,846,888 $ 627,469,286
Year Ended August 31, 2006 2,212,763,141 2,305,352,091
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER CAPITAL INCOME FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28, 2007 AUGUST 31,
CLASS B (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.14 $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .15 1 .28 1 .28 1 .36 .45 .41
Net realized and unrealized gain (loss) 1.12 .16 1.26 .68 1.33 (2.62)
-----------------------------------------------------------------------------------------
Total from investment operations 1.27 .44 1.54 1.04 1.78 (2.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.17) (.26) (.38) (.42) (.35) (.39)
Distributions from net realized gain (.05) (.53) (.39) -- -- (.33)
-----------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.22) (.79) (.77) (.42) (.35) (.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.19 $ 12.14 $ 12.49 $ 11.72 $ 11.10 $ 9.67
=========================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.50% 3.84% 13.40% 9.46% 18.94% (18.31)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 269,182 $258,812 $299,093 $316,568 $343,074 $ 327,368
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 266,282 $273,916 $304,769 $349,853 $312,457 $ 410,652
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.41% 2.37% 2.25% 3.00% 4.55% 3.67%
Total expenses 1.73% 4,5 1.74% 1.73% 4 1.76% 4,6 1.81% 4 1.76% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 29% 7 66% 7 55% 7 52% 141% 148%
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. Expenses including indirect expenses from affiliated fund were as follows:
Six Months Ended February 28, 2007 1.73%
6. Voluntary waiver of transfer agent fees less than 0.01%.
7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Six Months Ended February 28, 2007 $ 588,846,888 $ 627,469,286
Year Ended August 31, 2006 2,212,763,141 2,305,352,091
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, 2007 AUGUST 31,
CLASS C (UNAUDITED) 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.10 $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .15 1 .29 1 .28 1 .35 .45 .42
Net realized and unrealized gain (loss) 1.12 .15 1.26 .69 1.34 (2.62)
-----------------------------------------------------------------------------------------
Total from investment operations 1.27 .44 1.54 1.04 1.79 (2.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.17) (.27) (.38) (.44) (.36) (.40)
Distributions from net realized gain (.05) (.53) (.39) -- -- (.33)
-----------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.22) (.80) (.77) (.44) (.36) (.73)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.15 $ 12.10 $ 12.46 $ 11.69 $ 11.09 $ 9.66
=========================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.56% 3.83% 13.52% 9.40% 19.05% (18.30)%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 183,212 $163,959 $167,013 $133,368 $93,797 $ 72,792
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 175,115 $165,514 $150,410 $122,458 $75,459 $ 84,049
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.44% 2.40% 2.27% 3.01% 4.55% 3.74%
Total expenses 1.70% 4,5 1.71% 1.71% 4 1.72% 4,6 1.78% 4 1.76% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 29% 7 66% 7 55% 7 52% 141% 148%
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. Expenses including indirect expenses from affiliated fund were as follows:
Six Months Ended February 28, 2007 1.70%
6. Voluntary waiver of transfer agent fees less than 0.01%.
7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Six Months Ended February 28, 2007 $ 588,846,888 $ 627,469,286
Year Ended August 31, 2006 2,212,763,141 2,305,352,091
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, 2007 AUGUST 31,
CLASS N (UNAUDITED) 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.20 $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .18 1 .34 1 .34 1 .39 .46 .50
Net realized and unrealized gain (loss) 1.12 .16 1.26 .72 1.37 (2.66)
--------------------------------------------------------------------------------------
Total from investment operations 1.30 .50 1.60 1.11 1.83 (2.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.20) (.32) (.44) (.49) (.40) (.47)
Distributions from net realized gain (.05) (.53) (.39) -- -- (.33)
--------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.25) (.85) (.83) (.49) (.40) (.80)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.25 $ 12.20 $ 12.55 $ 11.78 $11.16 $ 9.73
======================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.72% 4.32% 13.95% 10.01% 19.45% (17.89)%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 41,691 $35,651 $29,444 $16,692 $9,023 $ 4,071
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 38,442 $32,598 $22,974 $13,301 $5,968 $ 2,839
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.87% 2.82% 2.73% 3.42% 4.92% 4.74%
Total expenses 1.27% 4,5 1.30% 1.24% 4 1.28% 4,6 1.35% 4 1.25% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 29% 7 66% 7 55% 7 52% 141% 148%
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. Expenses including indirect expenses from affiliated fund were as follows:
Six Months Ended February 28, 2007 1.27%
6. Voluntary waiver of transfer agent fees less than 0.01%.
7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Six Months Ended February 28, 2007 $ 588,846,888 $ 627,469,286
Year Ended August 31, 2006 2,212,763,141 2,305,352,091
Year Ended August 31, 2005 3,541,353,653 3,677,756,448
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | 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(R) 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
38 | OPPENHEIMER CAPITAL INCOME FUND
valued. Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded. Securities (including restricted
securities) for which market quotations are not readily available are valued at
their fair value. Foreign and domestic securities whose values have been
materially affected by what the Manager identifies as a significant event
occurring before the Fund's assets are valued but after the close of their
respective exchanges will be fair valued. Fair value is determined in good faith
using consistently applied procedures under the supervision of the Board of
Trustees. Investments in open-end registered investment companies (including
affiliated funds) are valued at that fund's net asset value. 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.
- --------------------------------------------------------------------------------
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 take place generally at least 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, 2007, the Fund had purchased
$70,542,233 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
39 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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.
- --------------------------------------------------------------------------------
INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Fund is permitted
to invest daily available cash balances in an affiliated money market fund. The
Fund may invest the available cash in Class E shares of Oppenheimer
Institutional Money Market Fund ("IMMF") which seeks current income and
stability of principal. IMMF is a registered open-end management investment
company, regulated as a money market fund under the Investment Company Act of
1940, as amended. The Manager is also the investment advisor of IMMF. The Fund's
investment in IMMF is included in the Statement of Investments. As a
shareholder, the Fund is subject to its proportional share of IMMF's Class E
expenses, including its management fee. The Manager will waive fees and/or
reimburse Fund expenses in an amount equal to the indirect management fees
incurred through the Fund's investment in IMMF.
- --------------------------------------------------------------------------------
INVESTMENTS WITH OFF BALANCE SHEET RISK. The Fund enters into financial
instrument transactions (such as swaps, futures, options and other derivatives)
that may have off-balance sheet market risk. Off-balance sheet market risk
exists when the maximum potential
40 | OPPENHEIMER CAPITAL INCOME FUND
loss on a particular financial instrument is greater than the value of such
financial instrument, as reflected in the Fund's Statement of Assets and
Liabilities.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
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.
As of February 28, 2007, the Fund had available for federal income tax
purposes an estimated capital loss carryforward of zero. This estimated capital
loss carryforward represents carryforward as of the end of the last fiscal year,
increased for losses deferred under tax accounting rules to the current fiscal
year and is increased or decreased by capital losses or gains realized in the
first six months of the current fiscal year. As of February 28, 2007, it is
estimated that the Fund will utilize $6,086,311 of capital loss carryforward to
offset realized capital gains. During the fiscal year ended August 31, 2006, the
Fund did not utilized any capital loss carryforward to offset capital gains
realized in that fiscal year.
As of August 31, 2006, the Fund had available for federal income tax
purposes post-October losses of $37,847.
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a compensation
deferral 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 compensation deferral plan.
41 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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 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.
42 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
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, 2007 YEAR ENDED AUGUST 31, 2006
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
CLASS A
Sold 9,931,685 $ 129,209,501 18,616,904 $ 226,300,881
Dividends and/or
distributions reinvested 4,107,393 52,745,553 14,837,822 176,523,004
Redeemed (13,970,332) (180,903,185) (33,641,665) (406,155,226)
-----------------------------------------------------------------
Net increase (decrease) 68,746 $ 1,051,869 (186,939) $ (3,331,341)
=================================================================
- --------------------------------------------------------------------------------------------------
CLASS B
Sold 1,694,916 $ 21,741,622 3,241,843 $ 38,903,049
Dividends and/or
distributions reinvested 333,386 4,243,824 1,451,650 17,079,474
Redeemed (2,943,688) (37,594,892) (7,316,039) (87,755,300)
-----------------------------------------------------------------
Net decrease (915,386) $ (11,609,446) (2,622,546) $ (31,772,777)
=================================================================
- --------------------------------------------------------------------------------------------------
CLASS C
Sold 1,452,828 $ 18,650,192 2,830,185 $ 33,853,111
Dividends and/or
distributions reinvested 208,538 2,646,959 845,746 9,915,326
Redeemed (1,276,205) (16,325,774) (3,532,313) (41,957,356)
-----------------------------------------------------------------
Net increase 385,161 $ 4,971,377 143,618 $ 1,811,081
=================================================================
- --------------------------------------------------------------------------------------------------
CLASS N
Sold 664,168 $ 8,609,848 1,158,822 $ 13,939,161
Dividends and/or
distributions reinvested 54,904 701,033 178,715 2,111,820
Redeemed (496,157) (6,390,478) (760,312) (9,122,082)
-----------------------------------------------------------------
Net increase 222,915 $ 2,920,403 577,225 $ 6,928,899
=================================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the six months ended
February 28, 2007, were as follows:
PURCHASES SALES
- ----------------------------------------------------------------------------------------
Investment securities $ 859,419,636 $ 846,454,734
U.S. government and government agency obligations 77,789,593 65,523,291
To Be Announced (TBA) mortgage-related securities 588,846,888 627,469,286
43 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 average net assets as shown in the following table:
FEE SCHEDULE
----------------------------------------------------
Up to $100 million 0.75%
Next $100 million 0.70
Next $100 million 0.65
Next $100 million 0.60
Next $100 million 0.55
Next $4.5 billion 0.50
Over $5 billion 0.48
- --------------------------------------------------------------------------------
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 or the Transfer Agent), 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, 2007, the Fund paid $1,893,084 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 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 determines its
uncompensated expenses under the
44 | OPPENHEIMER CAPITAL INCOME FUND
plan at calendar quarter ends. The Distributor's aggregate uncompensated
expenses under the plan at December 31, 2006 for Class B, Class C and Class N
shares were $8,333,506, $3,924,674 and $599,798, 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 following table 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, 2007 $ 366,110 $ 2,817 $ 171,542 $ 5,867 $ 3,254
- --------------------------------------------------------------------------------
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.
The Manager will waive fees and/or reimburse Fund expenses in an amount
equal to the indirect management fees incurred through the Fund's investment in
IMMF. During the six months ended February 28, 2007, the Manager waived $5,120
for IMMF management fees.
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract 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
45 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS Continued
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 at 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, 2007, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS FEBRUARY 28, 2007 (DEPRECIATION)
- ----------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Treasury Nts., 30 yr. 6/20/07 609 $ 68,778,938 $ 773,131
---------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 6/29/07 508 104,116,188 (400,475)
U.S. Treasury Nts., 5 yr. 6/29/07 241 25,534,703 (194,600)
U.S. Treasury Nts., 10 yr. 6/29/07 85 9,230,469 (89,827)
---------------
(684,902)
---------------
$ 88,229
===============
- --------------------------------------------------------------------------------
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.
46 | OPPENHEIMER CAPITAL INCOME FUND
Securities designated to cover outstanding call or put options are noted
in the Statement of Investments where applicable. Contracts subject to call or
put, 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, 2007 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, 2006 67,250 $ 6,344,173 38,668 $ 21,187,171
Options written 185,848 31,834,798 133,729 27,242,216
Options closed or expired (186,273) (19,261,386) (134,617) (40,940,316)
Options exercised (6,031) (2,372,007) (2,599) (1,773,926)
----------------------------------------------------
Options outstanding as of
February 28, 2007 60,794 $ 16,545,578 35,181 $ 5,715,145
====================================================
- --------------------------------------------------------------------------------
7. TOTAL RETURN SWAP CONTRACTS
A total return swap is an agreement under which a set of future cash flows is
exchanged between two counterparties. One cash flow stream will typically be
based on a reference interest rate or index and the other on the total return of
a reference asset such as a security, a basket of securities, or an index. The
total return includes appreciation or depreciation on the reference asset, plus
any interest or dividend payments. Payments under the swap are based on an
agreed upon principal amount but since this principal amount is not exchanged,
it represents neither an asset nor a liability to either counter-party, and is
referred to as notional. Total return swaps are marked to market daily using
different sources, including quotations from counterparties, pricing services,
brokers or market makers. The unrealized appreciation (depreciation) related to
the change in the valuation of the notional amount of the swap is combined with
the amount due to (owed by) the Fund at termination or settlement and disclosed
separately on the Statement of Assets and Liabilities. The net change in this
amount is included on the Statement of Operations. The Fund also records any
periodic payments received from (paid to) the counterparty, including at
termination, under such contracts as realized gain (loss) on the Statement of
Operations. The primary risks associated with total return swaps are credit
risks (if the counterparty fails to meet its obligations) and market risk (if
47 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. TOTAL RETURN SWAP CONTRACTS Continued
there is no liquid market for the agreement or unfavorable changes occur in the
reference asset).
As of February 28, 2007, the Fund had no outstanding total return swap
agreements.
- --------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS
Credit default swaps are designed to transfer the credit exposure of fixed
income products between counterparties. The Fund may enter into credit default
swaps, both directly ("unfunded swaps") and indirectly in the form of a swap
embedded within a structured note ("funded swaps"), to protect against the risk
that a security will default. Unfunded and funded credit default swaps may be on
a single security, or a basket of securities. The Fund may take a short position
(purchaser of credit protection) or a long position (seller of credit
protection) in the credit default swap. Risks of credit default swaps include,
but are not limited to, the cost of paying for credit protection if there are no
credit events, pricing transparency when assessing the cost of a credit default
swap, counterparty risk, and the need to fund the delivery obligation (either
cash or defaulted bonds depending on whether the Fund is long or short the swap,
respectively).
The Fund would take a short position in a credit default swap (the
"unfunded swap") against a long portfolio position to decrease exposure to
specific high yield issuers. As a purchaser of credit protection under a swap
contract, the Fund pays a periodic interest fee on the notional amount to the
counterparty. This interest fee is accrued daily as a component of unrealized
appreciation (depreciation) and is recorded as realized loss upon payment. Upon
occurrence of a specific credit event with respect to the underlying referenced
debt obligation, the Fund is obligated to deliver that security to the
counter-party in exchange for receipt of the notional amount from the
counterparty. The difference between the value of the security delivered and the
notional amount received is recorded as realized gain and is included on the
Statement of Operations. Credit default swaps are marked to market daily using
different sources, including quotations from counterparties, pricing services,
brokers or market makers. The unrealized appreciation (depreciation) related to
the change in the valuation of the notional amount of the swap is combined with
the amount due to (owed by) the Fund at termination or settlement and disclosed
separately on the Statement of Assets and Liabilities. The net change in this
amount is included on the Statement of Operations.
48 | OPPENHEIMER CAPITAL INCOME FUND
Information regarding such credit default swaps as of February 28, 2007 is as
follows:
NOTIONAL ANNUAL
AMOUNT INTEREST
REFERENCE RECEIVED BY RATE PAID
DEBT THE FUND UPON BY THE TERMINATION UNREALIZED
COUNTERPARTY OBLIGATION CREDIT EVENT FUND DATES DEPRECIATION
- -------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
J.C. Penney Co. $ 925,000 0.580% 3/20/12 $ 7,542
Weyerhaeuser Co. 2,910,000 0.580 9/20/11 30,317
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley
Capital Services, Inc.:
Arrow Electronics, Inc. 2,910,000 0.790 9/20/11 47,793
Arrow Electronics, Inc. 1,470,000 0.770 9/20/11 22,886
Belo Corp. 1,675,000 0.650 6/20/11 20,691
Belo Corp. 925,000 0.670 6/20/11 12,181
Belo Corp. 1,870,000 0.675 6/20/11 25,006
Ford Motor Co. 1,455,000 5.300 12/20/08 83,644
Ford Motor Co. 3,060,000 5.400 12/20/08 181,684
General Motors Corp. 1,525,000 4.000 12/20/08 55,479
General Motors Corp. 1,480,000 3.950 12/20/08 52,446
Inco Ltd. 1,615,000 0.630 3/20/17 11,157
Inco Ltd. 1,605,000 0.700 3/20/17 10,632
International Paper Co. 3,055,000 0.409 12/20/11 7,580
-------------
$ 569,038
=============
The Fund would take a long position in the credit default swap note (the "funded
swap") to increase the exposure to specific high yield corporate issuers. As a
seller of credit protection under a swap contract, the Fund receives a periodic
interest fee on the notional amount from the counterparty. This interest fee is
accrued daily as a component of unrealized appreciation (depreciation) and is
recorded as realized gain upon receipt. Upon occurrence of a specific credit
event with respect to the underlying referenced debt obligation, the Fund
receives that security from the counterparty in exchange for payment of the
notional amount to the counterparty. The difference between the value of the
security received and the notional amount paid is recorded as realized loss and
is included on the Statement of Operations. Credit default swaps are marked to
market daily using different sources, including quotations from counterparties,
pricing services, brokers or market makers. The unrealized appreciation
(depreciation) related to the change in the valuation of the notional amount of
the swap is combined with the amount due to (owed by) the Fund at termination or
settlement and disclosed separately on the Statement of Assets and Liabilities.
The net change in this amount is included on the Statement of Operations.
49 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Unaudited / Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS Continued
Information regarding such credit default swaps as of February 28, 2007 is as
follows:
ANNUAL
NOTIONAL INTEREST
AMOUNT RATE
REFERENCE PAID BY RECEIVED UNREALIZED
DEBT THE FUND UPON BY THE TERMINATION APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT FUND DATES (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------
Credit Suisse First
Boston International:
Allied Waste
North America, Inc. $ 920,000 2.00% 9/20/09 $ 24,659
Allied Waste
North America, Inc. 1,440,000 2.00 9/20/09 38,596
Ford Motor Co. 3,525,000 0.50 6/20/07 (5,708)
Freescale
Semiconductor, Inc. 1,555,000 0.60 3/20/08 --
General Motors
Acceptance Corp. 825,000 2.30 6/20/07 7,288
- ---------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Abitibi-Consolidated
Co. of Canada 2,385,000 1.52 9/20/07 20,213
Bombardier, Inc. 735,000 0.90 9/20/07 2,931
Eastman Kodak Co. 2,055,000 1.00 12/20/08 17,345
- ---------------------------------------------------------------------------------------------------------------
Morgan Stanley
Capital Services, Inc.:
ArvinMeritor, Inc. 820,000 1.05 9/20/07 4,408
ArvinMeritor, Inc. 675,000 1.10 9/20/07 3,881
ArvinMeritor, Inc. 50,000 1.20 9/20/07 325
Bombardier, Inc. 820,000 1.00 9/20/07 5,027
Bombardier, Inc. 820,000 1.05 9/20/07 5,335
Ford Motor Co. 1,455,000 7.05 12/20/16 105,416
Ford Motor Co. 3,060,000 7.15 12/20/16 238,317
General Motors
Acceptance Corp. 1,875,000 3.15 6/20/07 25,808
General Motors Corp. 1,525,000 5.80 12/20/16 92,861
General Motors Corp. 1,480,000 5.75 12/20/16 85,818
Hyundai Motor
Manufacturing
Alabama LLC 1,280,000 0.40 6/20/07 1,549
J.C. Penney Co. 2,910,000 0.61 6/20/13 5,836
Vale Overseas Ltd. 1,615,000 1.10 3/20/17 7,288
Vale Overseas Ltd. 1,605,000 1.17 3/20/17 16,244
---------------
$ 703,437
===============
50 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES
As of February 28, 2007, 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.
- --------------------------------------------------------------------------------
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
February 28, 2007, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of February 28, 2007, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.
51 | 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.
52 | 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 and its affiliates, 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.
The Board was aware that there are alternatives to retaining the Manager.
NATURE, QUALITY AND EXTENT OF SERVICES. The Board considered information
about the nature and extent of the services provided to the Fund and information
regarding the Manager's key personnel who 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 who 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.
53 | OPPENHEIMER CAPITAL INCOME FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
- --------------------------------------------------------------------------------
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 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. 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 and Core Fixed Income investment teams
and analysts. Mr. Levine has been a portfolio manager of the Fund since June
1999. 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 investment 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 retail front-end load and no-load
mixed-asset target allocation moderate funds. The Board noted that the Fund's
three-year, five-year and ten-year performance were better than its peer group
median, although its one-year performance was below its peer group median.
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 mixed-asset target allocation moderate
funds and other funds with comparable asset levels and distribution features.
The Board noted that the Fund's contractual and actual management fees are
higher than its peer group median.
54 | OPPENHEIMER CAPITAL INCOME FUND
ECONOMIES OF SCALE. The Board reviewed whether the Manager may realize
economies of scale in managing and supporting the Fund and whether any economies
of scale would benefit the Fund's shareholders. The Board noted that the Fund
currently has management fee breakpoints, which are intended to share with
shareholders any economies of scale that may exist as the Fund grows.
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 quality 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 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 Agreement, including the management fee,
in light of all of the surrounding circumstances.
55 | 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, 2007, 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 10, 2007
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
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John V. Murphy
Principal Executive Officer
Date: April 10, 2007
By: /s/Brian W. Wixted
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Brian W. Wixted
Principal Financial Officer
Date: April 10, 2007