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: 08/31/2007
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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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Tobacco 7.5%
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Oil, Gas & Consumable Fuels 7.4
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Diversified Financial Services 5.3
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Insurance 4.3
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Diversified Telecommunication Services 3.2
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Food Products 2.2
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Aerospace & Defense 2.1
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Specialty Retail 2.0
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Industrial Conglomerates 1.9
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Pharmaceuticals 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Kinder Morgan Management LLC 4.9%
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Altria Group, Inc. 4.7
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Everest Re Group Ltd. 3.2
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Bank of America Corp. 2.8
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Loews Corp./Carolina Group 2.7
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Citigroup, Inc. 2.5
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General Electric Co. 2.0
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CSK Auto Corp. 1.9
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Raytheon Co. 1.9
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Kraft Foods, Inc., Cl. A 1.5
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on net assets.
For up-to-date Top 10 Fund holdings, please visit www.oppenheimerfunds.com.
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8 | OPPENHEIMER CAPITAL INCOME FUND
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PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Stocks 48.8%
Bonds and Notes 41.9
Convertible Corporate Bonds and Notes 9.3
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on the total market value of investments.
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9 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2007, FOLLOWED BY
A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED
MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. The Fund's results during the
reporting period were solid overall, despite a sharp market correction during
its final two months. Strong stock selection from some of our largest holdings
contributed very favorably to returns for most of the period. However, when the
market corrected beginning in July, the Fund--like most others with significant
equity exposure--declined as well, with our overweighting in financials
particularly hampering performance.
We continued to manage the equity portion of the portfolio consistently.
As we do in all types of market environments, we emphasized fundamentally strong
companies with favorable earnings expectations and good total return prospects,
and whose valuations we believed were lower than deserved.
Overall, we made relatively few changes to the portfolio. We did continue
efforts to improve the Fund's yield, as many of our shareholders have a growing
need for income. Accordingly, we continued to invest in companies offering
relatively high dividend yields--including banks and rural telephone companies.
Another way we looked to add income was to decrease the Fund's equity weighting
while increasing our exposure to fixed-income and convertible securities, both
of which provided the portfolio with higher yields.
Continuing an existing emphasis, we added to our position in reinsurance
stocks--a part of the market we have liked for some time. Reinsurers, which
provide insurance to insurance companies, have been enjoying much better pricing
power and profitability in the past several years, which have seen fewer costly
natural disasters. During the year, we added a new position in Platinum
Underwriters Holdings Ltd., a reinsurance stock that we believed was
attractively valued and offered good appreciation potential. Our biggest
reinsurance stock remained Everest Re Group Ltd., which was one of our best
overall contributors to performance during the period.
Also performing well for the Fund was energy pipeline company Kinder
Morgan Energy Partners LP. Our common stock holdings in Kinder Morgan, Inc. rose
after the firm agreed to be taken private in a management buyout, while our
master limited partnership investments in Kinder Morgan Management LLC benefited
from a favorable backdrop for the energy industry. Further adding to returns
were tobacco manufacturers Altria Group, Inc. and Loews Corp./Carolina Group,
both of which gained ground as investors perceived a more favorable litigation
environment for tobacco companies. Altria was further helped
10 | OPPENHEIMER CAPITAL INCOME FUND
when it finally spun off its Kraft Foods division in a long-anticipated move,
and by expectations for a separation of its international and domestic tobacco
businesses--a transaction that we believe could unlock shareholder value.
Conglomerate General Electric Co. and defense contractor Raytheon Co. also
contributed positively to performance.
On the negative side, our position in discount brokerage company E*Trade
Financial Corp. lagged toward the tail end of the period. Nervous investors
worried about the credit quality of the loans made by E*Trade's bank subsidiary.
Another detractor was office products retailer Office Depot, Inc. in which we
initiated a position during the period's second half. Unfortunately, the stock
was a poor performer, in part because of broad fundamental challenges facing the
office products retailing industry. In health care, our holdings in
pharmaceutical company Pfizer, Inc. did poorly after the company experienced
significant difficulties with its once-promising cholesterol drug, TORCETRAPIB.
Of final note, we owned small positions in three mortgage real estate investment
trusts (REITs) that were indirectly hurt by the sub-prime mortgage crisis.
Although these REITs had minimal exposure to sub-prime residential mortgages,
these holdings fell as nervous investors exited their real estate positions.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow
show the performance of a hypothetical $10,000 investment in each class of
shares of the Fund held until August 31, 2007. In the case of Class A, Class B
and Class C shares, performance is measured over a ten-fiscal-year period. In
the case of Class N shares, performance is measured from inception of the class
on March 1, 2001. The Fund's performance reflects the deduction of the maximum
initial sales charge on Class A shares, the applicable contingent deferred sales
charge on Class B, Class C and Class N shares, and reinvestments of all
dividends and capital gains distributions. Past performance cannot guarantee
future results.
The Fund's performance is compared to the performance of the S&P 500
Index. The S&P 500 Index is a broad based index of U.S. equity securities widely
regarded as a general measure of the performance of the U.S. equity securities
market. Index performance reflects the reinvestment of income but does not
consider the effect of transaction costs, and none of the data in the graphs
shows the effect of taxes. The Fund's performance reflects the effects of the
Fund's business and operating expenses. While index comparisons may be useful to
provide a benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the investments in the index.
11 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class A)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GHAPH IN THE PRINTED MATERIAL.]
Oppenheimer Capital
Income Fund
(Class A) S&P 500 Index
08/31/1997 $ 9,425 $10,000
11/30/1997 $10,027 $10,667
02/28/1998 $10,755 $11,761
05/31/1998 $11,120 $12,275
08/31/1998 $10,006 $10,812
11/30/1998 $11,286 $13,193
02/28/1999 $11,174 $14,085
05/31/1999 $11,592 $14,856
08/31/1999 $11,110 $15,116
11/30/1999 $10,757 $15,950
02/29/2000 $10,156 $15,736
05/31/2000 $11,386 $16,412
08/31/2000 $11,913 $17,581
11/30/2000 $11,523 $15,276
02/28/2001 $12,707 $14,447
05/31/2001 $13,405 $14,681
08/31/2001 $12,728 $13,295
11/30/2001 $12,182 $13,410
02/28/2002 $11,920 $13,073
05/31/2002 $12,124 $12,649
08/31/2002 $10,469 $10,904
11/30/2002 $10,667 $11,197
02/28/2003 $10,559 $10,109
05/31/2003 $12,166 $11,629
08/31/2003 $12,572 $12,219
11/30/2003 $13,415 $12,885
02/29/2004 $14,332 $14,001
05/31/2004 $13,907 $13,760
08/31/2004 $13,870 $13,617
11/30/2004 $14,890 $14,540
02/28/2005 $15,461 $14,977
05/31/2005 $15,184 $14,892
08/31/2005 $15,868 $15,327
11/30/2005 $15,768 $15,767
02/28/2006 $15,960 $16,234
05/31/2006 $16,141 $16,178
08/31/2006 $16,610 $16,687
11/30/2006 $17,846 $18,009
02/28/2007 $18,442 $18,176
05/31/2007 $19,357 $19,862
08/31/2007 $18,353 $19,211
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 4.14% 5-Year 10.57% 10-Year 6.26%
12 | OPPENHEIMER CAPITAL INCOME FUND
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class B)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GHAPH IN THE PRINTED MATERIAL.]
Oppenheimer Capital
Income Fund
(Class B) S&P 500 Index
08/31/1997 $10,000 $10,000
11/30/1997 $10,625 $10,667
02/28/1998 $11,376 $11,761
05/31/1998 $11,729 $12,275
08/31/1998 $10,532 $10,812
11/30/1998 $11,867 $13,193
02/28/1999 $11,721 $14,085
05/31/1999 $12,140 $14,856
08/31/1999 $11,607 $15,116
11/30/1999 $11,221 $15,950
02/29/2000 $10,570 $15,736
05/31/2000 $11,825 $16,412
08/31/2000 $12,343 $17,581
11/30/2000 $11,919 $15,276
02/28/2001 $13,116 $14,447
05/31/2001 $13,808 $14,681
08/31/2001 $13,089 $13,295
11/30/2001 $12,506 $13,410
02/28/2002 $12,222 $13,073
05/31/2002 $12,391 $12,649
08/31/2002 $10,692 $10,904
11/30/2002 $10,861 $11,197
02/28/2003 $10,733 $10,109
05/31/2003 $12,336 $11,629
08/31/2003 $12,726 $12,219
11/30/2003 $13,579 $12,885
02/29/2004 $14,508 $14,001
05/31/2004 $14,077 $13,760
08/31/2004 $14,040 $13,617
11/30/2004 $15,072 $14,540
02/28/2005 $15,650 $14,977
05/31/2005 $15,370 $14,892
08/31/2005 $16,062 $15,327
11/30/2005 $15,961 $15,767
02/28/2006 $16,155 $16,234
05/31/2006 $16,338 $16,178
08/31/2006 $16,813 $16,687
11/30/2006 $18,065 $18,009
02/28/2007 $18,667 $18,176
05/31/2007 $19,593 $19,862
08/31/2007 $18,578 $19,211
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 4.54% 5-Year 10.66% 10-Year 6.39%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES
CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 16 FOR FURTHER
INFORMATION.
13 | OPPENHEIMER CAPITAL INCOME FUND
FUND PERFORMANCE DISCUSSION
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class C)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Capital
Income Fund
(Class C) S&P 500 Index
08/31/1997 $10,000 $10,000
11/30/1997 $10,620 $10,667
02/28/1998 $11,365 $11,761
05/31/1998 $11,726 $12,275
08/31/1998 $10,530 $10,812
11/30/1998 $11,858 $13,193
02/28/1999 $11,713 $14,085
05/31/1999 $12,132 $14,856
08/31/1999 $11,599 $15,116
11/30/1999 $11,213 $15,950
02/29/2000 $10,570 $15,736
05/31/2000 $11,824 $16,412
08/31/2000 $12,342 $17,581
11/30/2000 $11,910 $15,276
02/28/2001 $13,118 $14,447
05/31/2001 $13,800 $14,681
08/31/2001 $13,083 $13,295
11/30/2001 $12,501 $13,410
02/28/2002 $12,217 $13,073
05/31/2002 $12,388 $12,649
08/31/2002 $10,689 $10,904
11/30/2002 $10,859 $11,197
02/28/2003 $10,733 $10,109
05/31/2003 $12,329 $11,629
08/31/2003 $12,724 $12,219
11/30/2003 $13,539 $12,885
02/29/2004 $14,444 $14,001
05/31/2004 $13,987 $13,760
08/31/2004 $13,920 $13,617
11/30/2004 $14,915 $14,540
02/28/2005 $15,449 $14,977
05/31/2005 $15,141 $14,892
08/31/2005 $15,801 $15,327
11/30/2005 $15,670 $15,767
02/28/2006 $15,828 $16,234
05/31/2006 $15,968 $16,178
08/31/2006 $16,406 $16,687
11/30/2006 $17,583 $18,009
02/28/2007 $18,139 $18,176
05/31/2007 $19,006 $19,862
08/31/2007 $17,970 $19,211
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 8.53% 5-Year 10.95% 10-Year 6.04%
14 | OPPENHEIMER CAPITAL INCOME FUND
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Income Fund (Class N)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Capital
Income Fund
(Class N) S&P 500 Index
03/01/2001 $10,000 $10,000
05/31/2001 $10,520 $10,162
08/31/2001 $ 9,982 $ 9,203
11/30/2001 $ 9,550 $ 9,283
02/28/2002 $ 9,335 $ 9,049
05/31/2002 $ 9,485 $ 8,756
08/31/2002 $ 8,196 $ 7,548
11/30/2002 $ 8,331 $ 7,750
02/28/2003 $ 8,241 $ 6,998
05/31/2003 $ 9,488 $ 8,050
08/31/2003 $ 9,790 $ 8,458
11/30/2003 $10,441 $ 8,919
02/29/2004 $11,148 $ 9,692
05/31/2004 $10,798 $ 9,524
08/31/2004 $10,770 $ 9,426
11/30/2004 $11,546 $10,065
02/28/2005 $11,972 $10,367
05/31/2005 $11,758 $10,308
08/31/2005 $12,272 $10,609
11/30/2005 $12,185 $10,914
02/28/2006 $12,321 $11,237
05/31/2006 $12,441 $11,198
08/31/2006 $12,802 $11,550
11/30/2006 $13,738 $12,466
02/28/2007 $14,174 $12,582
05/31/2007 $14,873 $13,749
08/31/2007 $14,083 $13,298
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 9.01% 5-Year 11.43% Since Inception (3/1/01) 5.41%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES
CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 16 FOR FURTHER
INFORMATION.
15 | OPPENHEIMER CAPITAL INCOME FUND
NOTES
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Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND OTHER
CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR
FINANCIAL ADVISOR, CALLING US AT 1.800.525.7048 OR VISITING OUR WEBSITE AT
WWW.OPPENHEIMERFUNDS.COM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%.
CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the 10-year return for Class B uses
Class A performance for the period after conversion and the ending account value
does not reflect the deduction of any sales charges. Class B shares are subject
to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
16 | OPPENHEIMER CAPITAL INCOME FUND
FUND EXPENSES
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FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended August 31, 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
17 | OPPENHEIMER CAPITAL INCOME FUND
FUND EXPENSES Continued
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the Statement of Additional Information). Therefore, the "hypothetical" lines of
the table are useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
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BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(3/1/07) (8/31/07) AUGUST 31, 2007
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Class A Actual $ 1,000.00 $ 995.20 $ 4.38
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Class A Hypothetical 1,000.00 1,020.82 4.44
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Class B Actual 1,000.00 991.20 8.57
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Class B Hypothetical 1,000.00 1,016.64 8.68
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Class C Actual 1,000.00 990.70 8.47
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Class C Hypothetical 1,000.00 1,016.74 8.58
- --------------------------------------------------------------------------------
Class N Actual 1,000.00 993.50 6.25
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Class N Hypothetical 1,000.00 1,018.95 6.33
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Fund's annualized expense ratio for that class,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period). Those annualized expense ratios,
excluding indirect expenses from affiliated fund, based on the 6-month period
ended August 31, 2007 are as follows:
CLASS EXPENSE RATIOS
- -----------------------------
Class A 0.87%
- -----------------------------
Class B 1.70
- -----------------------------
Class C 1.68
- -----------------------------
Class N 1.24
The expense ratios reflect reduction to custodian expenses and voluntary waivers
or reimbursements 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 and reduction to custodian
expenses, if applicable.
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18 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS August 31, 2007
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VALUE
SHARES SEE NOTE 1
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COMMON STOCKS--42.3%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--2.3%
- --------------------------------------------------------------------------------
MEDIA--0.3%
Cinemark Holdings, Inc. 521,900 $ 9,383,762
- --------------------------------------------------------------------------------
Regal Entertainment Group 57,250 1,290,415
---------------
10,674,177
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--2.0%
CSK Auto Corp. 1,2 4,715,000 62,332,300
- --------------------------------------------------------------------------------
CONSUMER STAPLES--9.7%
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FOOD PRODUCTS--2.2%
B&G Foods, Inc. 1,000,000 20,770,000
- --------------------------------------------------------------------------------
B&G Foods, Inc., Cl. A 148,750 1,902,513
- --------------------------------------------------------------------------------
Kraft Foods, Inc., Cl. A 3 1,522,452 48,809,811
---------------
71,482,324
- --------------------------------------------------------------------------------
TOBACCO--7.5%
Altria Group, Inc. 3 2,200,000 152,702,000
- --------------------------------------------------------------------------------
Loews Corp./Carolina Group 3 1,150,000 87,538,000
---------------
240,240,000
- --------------------------------------------------------------------------------
ENERGY--7.4%
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--7.4%
Arlington Tankers Ltd. 16,500 408,540
- --------------------------------------------------------------------------------
BP plc, ADR 625,000 42,100,000
- --------------------------------------------------------------------------------
Capital Product Partners LP 202,500 5,866,425
- --------------------------------------------------------------------------------
Chevron Corp. 3 120,000 10,531,200
- --------------------------------------------------------------------------------
ConocoPhillips 162,500 13,307,125
- --------------------------------------------------------------------------------
Enbridge Energy Management LLC 1 3
- --------------------------------------------------------------------------------
Kinder Morgan Management LLC 1 3,275,000 157,658,477
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 12,500 708,625
- --------------------------------------------------------------------------------
Tortoise Energy Capital Corp. 302,250 9,067,500
- --------------------------------------------------------------------------------
Tsakos Energy Navigation Ltd. 6,000 408,420
---------------
240,056,315
- --------------------------------------------------------------------------------
FINANCIALS--13.1%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.2%
UBS AG 150,000 7,836,000
19 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.0%
U.S. Bancorp 1,000,000 $ 32,350,000
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.3%
Bank of America Corp. 1,750,000 88,690,000
- --------------------------------------------------------------------------------
Citigroup, Inc. 1,750,000 82,040,000
---------------
170,730,000
- --------------------------------------------------------------------------------
INSURANCE--4.3%
ACE Ltd. 550,000 31,768,000
- --------------------------------------------------------------------------------
Everest Re Group Ltd. 1,000,000 101,880,000
- --------------------------------------------------------------------------------
Fidelity National Title Group, Inc., Cl. A 3 258,500 4,702,115
---------------
138,350,115
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--1.2%
Anthracite Capital, Inc. 1,196,850 10,843,461
- --------------------------------------------------------------------------------
Care Investment Trust, Inc. 1,2 1,175,000 13,489,000
- --------------------------------------------------------------------------------
Crystal River Capital, Inc. 850,000 13,566,000
---------------
37,898,461
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.1%
Washington Mutual, Inc. 1,000,000 36,720,000
- --------------------------------------------------------------------------------
HEALTH CARE--1.3%
- --------------------------------------------------------------------------------
PHARMACEUTICALS--1.3%
Johnson & Johnson 75,000 4,634,250
- --------------------------------------------------------------------------------
Novartis AG, ADR 97,500 5,133,375
- --------------------------------------------------------------------------------
Pfizer, Inc. 1,250,000 31,050,000
---------------
40,817,625
- --------------------------------------------------------------------------------
INDUSTRIALS--4.1%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.1%
Boeing Co. 60,000 5,802,000
- --------------------------------------------------------------------------------
Raytheon Co. 3 1,000,000 61,340,000
---------------
67,142,000
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.9%
General Electric Co. 1,630,000 63,358,100
- --------------------------------------------------------------------------------
MARINE--0.1%
Omega Navigation Enterprises, Inc., Cl. A 5,000 98,800
- --------------------------------------------------------------------------------
Seaspan Corp. 61,250 1,966,738
---------------
2,065,538
20 | OPPENHEIMER CAPITAL INCOME FUND
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.5%
- --------------------------------------------------------------------------------
SOFTWARE--0.5%
Microsoft Corp. 525,000 $ 15,083,250
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.2%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--3.2%
AT&T, Inc. 3 167,500 6,678,225
- --------------------------------------------------------------------------------
Citizens Communications Co. 850,000 12,333,500
- --------------------------------------------------------------------------------
Consolidated Communications Holdings, Inc. 1,272,500 23,643,050
- --------------------------------------------------------------------------------
FairPoint Communications, Inc. 1,365,000 22,836,450
- --------------------------------------------------------------------------------
NTELOS Holdings Corp. 575,000 15,398,500
- --------------------------------------------------------------------------------
Windstream Corp. 1,700,000 24,276,000
---------------
105,165,725
- --------------------------------------------------------------------------------
UTILITIES--0.7%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.7%
Cleco Corp. 652,500 15,033,600
- --------------------------------------------------------------------------------
FirstEnergy Corp. 110,000 6,758,400
---------------
21,792,000
---------------
Total Common Stocks (Cost $831,841,675) 1,364,093,930
- --------------------------------------------------------------------------------
PREFERRED STOCKS--6.7%
- --------------------------------------------------------------------------------
AES Trust III, 6.75% Cv. 242,400 11,598,840
- --------------------------------------------------------------------------------
E*TRADE Financial Corp., 6.125% Cum. Cv. 2 1,177,500 24,774,600
- --------------------------------------------------------------------------------
El Paso Corp., 4.99% Cv. 5,500 7,506,813
- --------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv.,
Series A, Non-Vtg. 650,000 27,436,500
- --------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., 6.75%
Cv., Non-Vtg. 43,500 5,768,970
- --------------------------------------------------------------------------------
Lucent Technologies Capital Trust I, 7.75% Cum.
Cv., Non-Vtg. 39,000 38,220,000
- --------------------------------------------------------------------------------
NRG Energy, Inc., 5.75% Cv. 19,500 6,575,400
- --------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd., 6% Cv.,
Series A 2 1,005,000 32,662,500
- --------------------------------------------------------------------------------
Schering-Plough, 6% Cv. 1 40,000 10,624,000
- --------------------------------------------------------------------------------
Six Flags, Inc., 7.25% Cum. Cv. Preferred Income
Equity Redeemable Shares, Non-Vtg. 525,000 10,237,500
- --------------------------------------------------------------------------------
United Rentals Trust I, 6.50% Cv. Quarterly
Income Preferred Securities, Non-Vtg. 4 378,569 18,218,633
- --------------------------------------------------------------------------------
XL Capital Ltd., 7% Cv. 805,000 21,614,250
---------------
Total Preferred Stocks (Cost $215,971,543) 215,238,006
21 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--15.5%
- --------------------------------------------------------------------------------
Banc of America Commercial Mortgage, Inc.,
Commercial Mtg. Pass-Through Certificates,
Series 2005-3, Cl. A2, 4.501%, 7/10/43 $ 2,670,000 $ 2,611,219
- --------------------------------------------------------------------------------
Banc of America Funding Corp., CMO Pass-Through
Certificates, Series 2004-2, Cl. 2A1, 6.50%,
7/20/32 1,772,240 1,790,963
- --------------------------------------------------------------------------------
Banc of America Mortgage Securities, Inc., CMO
Pass-Through Certificates:
Series 2003-E, Cl. 2A2, 4.35%, 6/25/33 5 3,808,331 3,829,024
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,412,485 1,419,548
Series 2005-F, Cl. 2A3, 4.718%, 7/25/35 5 4,220,917 4,151,911
- --------------------------------------------------------------------------------
Bear Stearns Adjustable Rate Mortgage Trust,
CMO, Series 2006-4, Cl. 2A1, 5.81%, 10/25/36 5 873,120 872,814
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc.,
Asset-Backed Pass-Through Certificates, Series
2006-WF1, Cl. A2 B, 5.536%, 3/1/36 660,000 657,142
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Mtg.
Pass-Through Certificates, Series 2006-AR5, Cl.
1A3A, 5.903%, 7/25/36 5 1,769,290 1,783,177
- --------------------------------------------------------------------------------
Citigroup/Deutsche Bank Commercial Mortgage
Trust, Commercial Mtg. Obligations, Series
2007-CD4, Cl. A2B, 5.205%, 12/11/49 4 3,140,000 3,100,586
- --------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, CMO:
Series 2004-28CB, Cl. 2A4, 5.75%, 1/25/35 3,452,000 3,231,495
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 3,164,010 3,189,719
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 2,775,630 2,807,726
Series 2008-85CB, Cl. 2A3, 5.50%, 2/25/36 2,580,000 2,507,791
- --------------------------------------------------------------------------------
Countrywide Home Loans, CMO:
Series 2003-46, Cl. 1A2, 4.122%, 1/19/34 5 3,147,325 3,141,741
Series 2005-HYB1, Cl. 5A1, 4.999%, 3/25/35 5 3,983,179 3,883,599
- --------------------------------------------------------------------------------
Deutsche Alt-A Securities Mortgage Loan Trust,
Mtg. Pass-Through Certificates:
Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 1,561,861 1,561,177
Series 2006-AB3, Cl. A7, 6.36%, 4/25/08 468,397 468,723
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 7,255,568 6,978,542
4.50%, 5/1/19 6 3,364,921 3,233,746
5%, 8/1/33-12/1/34 6,484,312 6,188,838
6%, 5/1/18-3/1/33 4,285,758 4,331,381
6.50%, 4/1/18-4/1/34 1,728,917 1,768,202
7%, 9/1/23-3/1/35 6,749,994 6,968,001
7%, 10/1/32 6 1,392,990 1,436,897
8%, 4/1/16 411,396 433,894
9%, 8/1/22-5/1/25 124,327 133,415
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO Gtd.
Multiclass Mtg.
Participation Certificates, Series 3094, Cl.
HS, 3.809%, 6/15/34 5 697,626 705,950
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO Gtd.
Real Estate Mtg. Investment Conduit Multiclass
Pass-Through Certificates:
Series 2006-11, Cl. PS, 4.382%, 3/25/36 5 1,074,903 1,112,281
Series 2034, Cl. Z, 6.50%, 2/15/28 580,950 597,470
Series 2043, Cl. ZP, 6.50%, 4/15/28 1,750,335 1,797,185
22 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., CMO Gtd.
Real Estate Mtg. Investment Conduit Multiclass
Pass-Through Certificates: Continued
Series 2053, Cl. Z, 6.50%, 4/15/28 $ 617,552 $ 636,752
Series 2055, Cl. ZM, 6.50%, 5/15/28 780,310 798,257
Series 2075, Cl. D, 6.50%, 8/15/28 6 2,114,805 2,180,584
Series 2080, Cl. C, 6.50%, 8/15/28 1,069,256 1,099,423
Series 2080, Cl. Z, 6.50%, 8/15/28 507,730 523,395
Series 2279, Cl. PK, 6.50%, 1/15/31 1,148,159 1,186,859
Series 2326, Cl. ZP, 6.50%, 6/15/31 608,987 629,129
Series 2387, Cl. PD, 6%, 4/15/30 51,121 51,002
Series 2461, Cl. PZ, 6.50%, 6/15/32 2,100,951 2,153,534
Series 2500, Cl. FD, 6.111%, 3/15/32 5 271,384 273,463
Series 2526, Cl. FE, 6.011%, 6/15/29 5 387,888 389,624
Series 2538, Cl. F, 5.92%, 12/15/32 5 4,873,638 4,942,641
Series 2551, Cl. FD, 6.011%, 1/15/33 5 298,542 298,832
Series 2676, Cl. KY, 5%, 9/15/23 2,768,000 2,565,703
Series 3025, Cl. SJ, 4.175%, 8/15/35 5 409,685 414,269
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security:
Series 176, Cl. IO, 14.215%, 6/1/26 7 505,666 122,972
Series 183, Cl. IO, 11.907%, 4/1/27 7 805,456 209,684
Series 184, Cl. IO, 17.539%, 12/1/26 7 856,766 209,243
Series 192, Cl. IO, 14.625%, 2/1/28 7 262,700 67,322
Series 200, Cl. IO, 13.682%, 1/1/29 7 316,323 79,130
Series 2003-118, Cl. S, 8.266%, 12/25/33 7 4,616,809 599,715
Series 2005-87, Cl. SE, (2.338)%, 10/25/35 7 8,455,620 327,659
Series 2005-87, Cl. SG, 6.579%, 10/25/35 7 7,528,428 444,811
Series 2130, Cl. SC, (7.779)%, 3/15/29 7 600,745 42,936
Series 216, Cl. IO, 13.524%, 12/1/31 7 585,677 148,503
Series 224, Cl. IO, 10.569%, 3/1/33 7 1,806,307 461,658
Series 243, Cl. 6, 8.781%, 12/15/32 7 1,126,960 268,652
Series 2796, Cl. SD, (0.348)%, 7/15/26 7 918,973 69,405
Series 2802, Cl. AS, (2.162)%, 4/15/33 7 1,796,227 99,207
Series 2920, Cl. S, 0.83%, 1/15/35 7 5,049,260 251,545
Series 3000, Cl. SE, (2.107)%, 7/15/25 7 5,611,063 219,347
Series 3110, Cl. SL, 6.09%, 2/15/26 7 955,359 40,833
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only
Stripped Mtg.-Backed Security:
Series 176, Cl. PO, 4.30%, 6/1/26 8 240,686 189,513
Series 192, Cl. PO, 5.874%, 2/1/28 8 262,700 202,156
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 5/1/18-8/1/20 31,535,258 30,341,596
5%, 12/1/17-9/1/35 70,521,433 68,291,360
5.50%, 8/1/22-4/1/34 70,005,492 68,637,157
5.50%, 9/1/37 9 9,632,000 9,407,757
6%, 5/1/21-11/1/33 40,305,525 40,549,464
6%, 9/1/21 9 1,965,000 1,986,185
6.50%, 5/1/17-11/1/31 15,642,786 16,018,505
7%, 11/1/17-7/1/35 7,779,884 8,062,095
7.50%, 1/1/33-3/1/33 11,382,190 11,931,267
8.50%, 7/1/32 33,827 36,379
23 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust,
CMO, Trust 2002-T1, Cl. A2, 7%, 11/25/31 $ 1,760,696 $ 1,817,883
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., CMO Gtd.
Real Estate Mtg. Investment Conduit Pass-Through
Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,597,488 1,652,736
Trust 1998-61, Cl. PL, 6%, 11/25/28 996,855 1,010,554
Trust 1999-54, Cl. LH, 6.50%, 11/25/29 1,361,740 1,408,834
Trust 2001-50, Cl. NE, 6%, 8/25/30 66,560 66,040
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 2,198,423 2,240,373
Trust 2001-70, Cl. LR, 6%, 9/25/30 197,234 197,645
Trust 2001-82, Cl. ZA, 6.50%, 1/25/32 899,924 917,968
Trust 2002-9, Cl. PC, 6%, 3/25/17 6,442,997 6,545,877
Trust 2003-130, Cl. CS, 3.09%, 12/25/33 5 934,143 849,145
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 1,903,000 1,829,973
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 3,485,000 3,390,820
Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,486,956
Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,560,000 1,509,765
Trust 2005-104, Cl. MC, 5.50%, 12/25/25 7,321,312 7,058,340
Trust 2005-31, Cl. PB, 5.50%, 4/25/35 1,430,000 1,371,720
Trust 2005-59, Cl. NQ, 3.113%, 5/25/35 5 1,151,659 1,052,376
Trust 2006-46, Cl. SW, 4.015%, 6/25/36 5 830,032 839,558
Trust 2006-50, Cl. KS, 4.015%, 6/25/36 5 2,797,823 2,759,276
Trust 2006-50, Cl. SA, 4.015%, 6/25/36 5 1,646,663 1,636,476
Trust 2006-50, Cl. SK, 4.015%, 6/25/36 5 220,543 219,956
Trust 2006-57, Cl. PA, 5.50%, 8/25/27 5,111,748 5,124,030
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Trust 2001-15, Cl. SA, 7.789%, 3/17/31 7 788,626 94,300
Trust 2001-65, Cl. S, 6.861%, 11/25/31 7 2,567,898 263,072
Trust 2001-81, Cl. S, 1.045%, 1/25/32 7 569,257 57,472
Trust 2002-47, Cl. NS, 0.578%, 4/25/32 7 1,110,283 95,889
Trust 2002-51, Cl. S, 0.499%, 8/25/32 7 1,019,392 84,797
Trust 2002-52, Cl. SD, (1.948)%, 9/25/32 7 1,130,829 95,727
Trust 2002-75, Cl. SA, 8.427%, 11/25/32 7 3,060,901 258,112
Trust 2002-77, Cl. SH, 1.868%, 12/18/32 7 724,319 65,226
Trust 2002-89, Cl. S, 11.607%, 1/25/33 7 2,915,372 284,313
Trust 2002-9, Cl. MS, 1.285%, 3/25/32 7 699,903 64,951
Trust 2003-33, Cl. SP, 10.288%, 5/25/33 7 2,591,887 316,718
Trust 2003-46, Cl. IH, 6.865%, 6/25/33 7 5,427,566 1,090,087
Trust 2004-54, Cl. DS, (5.98)%, 11/25/30 7 1,123,149 65,302
Trust 2005-105, Cl. S, 6.169%, 12/25/35 7 4,168,740 241,292
Trust 2005-19, Cl. SA, (4.158)%, 3/25/35 7 12,910,257 666,773
Trust 2005-40, Cl. SA, (4.578)%, 5/25/35 7 2,961,945 145,868
Trust 2005-6, Cl. SE, (2.895)%, 2/25/35 7 3,600,777 164,215
Trust 2005-71, Cl. SA, (2.325)%, 8/25/25 7 3,545,342 213,985
Trust 2006-119, Cl. MS, 1.895%, 12/25/36 7 3,023,258 171,493
Trust 2006-33, Cl. SP, 10.328%, 5/25/36 7 7,509,662 685,147
Trust 222, Cl. 2, 16.954%, 6/1/23 7 1,841,608 429,243
24 | 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 240, Cl. 2, 21.898%, 9/1/23 7 $ 2,864,387 $ 760,611
Trust 252, Cl. 2, 15.025%, 11/1/23 7 1,376,268 369,090
Trust 273, Cl. 2, 16.817%, 8/1/26 7 384,214 92,694
Trust 303, Cl. IO, 14.736%, 11/1/29 7 489,036 130,248
Trust 308, Cl. 2, 14.525%, 9/1/30 7 1,334,647 348,530
Trust 321, Cl. 2, 9.131%, 4/1/32 7 5,611,525 1,398,061
Trust 322, Cl. 2, 16.409%, 4/1/32 7 2,213,920 570,564
Trust 331, Cl. 9, 9.354%, 2/1/33 7 1,533,311 352,068
Trust 334, Cl. 17, 23.259%, 2/1/33 7 899,830 215,441
Trust 339, Cl. 7, 6.896%, 7/1/33 7 5,564,427 1,233,855
Trust 342, Cl. 2, 13.363%, 9/1/33 7 968,816 251,442
Trust 344, Cl. 2, 11.311%, 12/1/33 7 8,534,554 2,216,697
Trust 345, Cl. 9, 9.04%, 1/1/34 7 2,533,362 572,219
Trust 362, Cl. 12, 7.085%, 8/1/35 7 4,881,226 1,073,579
Trust 362, Cl. 13, 7.066%, 8/1/35 7 2,708,320 595,582
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only
Stripped Mtg.-Backed Security, Trust 1993-184,
Cl. M, 5.026%, 9/25/23 8 657,055 556,969
- --------------------------------------------------------------------------------
First Horizon Alternative Mortgage Securities
Trust, Mtg. Pass-Through Certificates, Series
2007-FA2, Cl. 1A1, 5.50%, 4/25/37 1,672,727 1,660,463
- --------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial
Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,691,630
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,569,780
- --------------------------------------------------------------------------------
GMAC Mortgage Corp. Loan Trust, Mtg.
Pass-Through Certificates:
Series 2004-J4, Cl. A7, 5.50%, 9/25/34 2,390,000 2,251,494
Series 2005-AR4, Cl. 2A1, 5.29%, 7/19/35 5 4,772,050 4,746,529
- --------------------------------------------------------------------------------
Government National Mortgage Assn., 8.50%,
8/15/17-12/15/17 173,902 185,531
- --------------------------------------------------------------------------------
Government National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed Security:
Series 2001-21, Cl. SB, (8.857)%, 1/16/27 7 1,215,605 90,884
Series 2002-15, Cl. SM, (10.559)%, 2/16/32 7 1,164,241 85,349
Series 2002-41, Cl. GS, 3.755%, 6/16/32 7 637,950 86,525
Series 2002-76, Cl. SY, (7.317)%, 12/16/26 7 2,811,233 154,017
Series 2004-11, Cl. SM, (6.242)%, 1/17/30 7 966,504 68,937
Series 2006-47, Cl. SA, 14.941%, 8/16/36 7 9,123,563 513,120
- --------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp.,
Commercial Mtg. Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 1,990,000 1,946,047
Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,750,000 1,739,452
Series 2007-GG9, Cl. A2, 5.381%, 3/10/39 4,9 6,700,000 6,659,354
- --------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Mtg. Pass-Through
Certificates, Series 2005-AR7, CL. 3A1, 5.158%,
11/25/35 5 6,998,019 6,933,885
- --------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities
Corp., Commercial Mtg. Pass-Through
Certificates:
Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 640,000 627,012
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 2,280,000 2,244,654
25 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities
Corp., Commercial Mtg. Pass-Through Certificates:
Continued
Series 2006-CB14, Cl. A4, 5.481%, 12/12/44 $ 3,390,000 $ 3,355,158
Series 2007-LD12, Cl. A2, 5.827%, 2/15/51 9 1,530,000 1,545,178
Series 2007-LDPX, Cl. A2S, 5.305%, 1/15/49 1,260,000 1,246,175
- --------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust, Commercial
Mtg. Pass-Through Certificates:
Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,900,000 1,879,843
Series 2007-C1, Cl. A2, 5.318%, 1/15/12 2,710,000 2,690,477
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO Pass-Through
Certificates:
Series 2004-6, Cl. 10A1, 6%, 7/25/34 2,113,628 2,102,397
Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 309,974 308,660
- --------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC,
Commercial Mtg. Pass-Through Certificates,
Series PRU-HTG 2000-C1, Cl. A2, 7.306%,
10/6/15 4 2,380,000 2,545,484
- --------------------------------------------------------------------------------
RALI Series 2003-QS1 Trust, Mtg. Asset-Backed
Pass-Through Certificates, Series 2003-QS1, Cl.
A2, 5.75%, 1/25/33 1,027,585 1,026,609
- --------------------------------------------------------------------------------
RALI Series 2006-QS5 Trust, Mtg. Asset-Backed
Pass-Through Certificates, Series 2006-QS5,
Cl. 2A2, 6%, 4/25/08 1,932,635 1,931,129
- --------------------------------------------------------------------------------
RALI Series 2007-QS6 Trust, Mtg. Asset-Backed
Pass-Through Certificates, Series 2007-QS6, Cl.
A114, 5.75%, 4/25/37 2,338,140 2,329,519
- --------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust
2005-C17, Commercial Mtg. Pass-Through
Certificates, Series 2005-C17, Cl. A2, 4.782%,
3/15/42 3,590,000 3,543,035
- --------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust
2006-C29, Commercial Mtg. Pass-Through
Certificates, Series 2006-C29, Cl. A2, 5.272%,
11/15/48 2,145,000 2,126,162
- --------------------------------------------------------------------------------
WAMU, Mtg. Pass-Through Certificates:
Series 2003, Cl. 2A, 4.048%, 9/25/33 5 2,226,205 2,228,061
Series 2006-AR12, Cl. 2A1, 5.75%, 10/25/36 5 6,298,083 6,220,279
Series 2007-HY6, Cl. 2A1, 5.704%, 6/25/37 5 3,974,254 3,909,905
- --------------------------------------------------------------------------------
Washington Mutual Mortgage Loan Trust, Mtg.
Pass-Through Certificates, 2007-A, Cl. 1A8, 6%,
2/25/37 6,172,759 6,207,443
- --------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities:
Series 2004-AA Trust, Mtg. Pass-Through
Certificates, Cl. 2A, 4.995%, 9/25/33 5 1,388,430 1,364,206
Series 2004-S Trust, Mtg. Pass-Through
Certificates, Cl. A1, 3.539%, 9/25/34 5 1,154,695 1,124,785
Series 2006-AR2 Trust, Mtg. Pass-Through
Certificates, Cl. 2A6, 5.089%, 3/25/36 5 1,148,640 1,134,115
Series 2006-AR6 Trust, Mtg. Pass-Through
Certificates, Cl. 3A1, 5.094%, 3/25/36 5 1,307,060 1,294,495
---------------
Total Mortgage-Backed Obligations
(Cost $500,312,018) 499,799,391
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--0.8%
- --------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed
Certificates, Series 2005-1A, Cl. A2, 5.598%,
4/20/08 5,10 900,000 899,858
- --------------------------------------------------------------------------------
Argent Securities Trust 2004-W8, Asset-Backed
Pass-Through Certificates, Series 2004-W8, Cl.
A2, 5.985%, 5/25/34 5 2,123,397 2,054,562
26 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Capital One Prime Auto Receivables Trust,
Automobile Asset-Backed
Certificates, Series 2005-1, Cl. A4, 5.34%,
4/15/11 5 $ 7,400,000 $ 7,399,451
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card
Receivable Nts., Series 2003-C4, Cl. C4, 5%,
6/10/15 430,000 408,441
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2002-4,
Asset-Backed Certificates, Series 2002-4, Cl.
A1, 6.245%, 2/25/33 5 44,821 39,141
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-11,
Asset-Backed Certificates, Series 2005-11, Cl.
AF2, 4.657%, 2/25/36 960,000 948,426
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-16,
Asset-Backed Certificates, Series 2005-16, Cl.
2AF2, 5.382%, 5/25/36 5 920,000 903,123
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates Trust 2005-17,
Asset-Backed Certificates, Series 2005-17, Cl.
1AF2, 5.363%, 5/25/36 5 620,000 610,849
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan
Pass-Through Certificates, Series 2005-A, Cl.
A3, 3.48%, 11/17/08 196,859 196,478
- --------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile
Receivable Obligations, Series 2005-2, C. A4,
4.15%, 10/15/10 1,370,000 1,355,366
- --------------------------------------------------------------------------------
Household Home Equity Loan Trust, Home Equity
Loan Pass-Through Certificates, Series 2005-3,
Cl. A1, 5.58%, 1/20/35 5 979,340 951,634
- --------------------------------------------------------------------------------
Lehman XS Trust, Mtg. Pass-Through Certificates:
Series 2005-10, Cl. 2A3B, 5.55%, 1/25/36 1,039,322 1,035,264
Series 2005-2, Cl. 2A1B, 5.18%, 8/25/35 5 893,559 893,060
Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 749,726 743,747
- --------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card
Receivables, Series 2003-C7, Cl. C7, 6.961%,
3/15/16 5 4,080,000 4,124,224
- --------------------------------------------------------------------------------
Option One Mortgage Loan Trust, Asset-Backed
Certificates, Series 2006-2, Cl. 2A2, 5.605%,
7/1/36 5 1,930,000 1,892,477
- --------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust 2005-2,
Mtg. Pass-Through Certificates, Series 2005-2,
Cl. AF2, 4.415%, 4/25/35 5 257,696 256,429
- --------------------------------------------------------------------------------
RAMP Series 2004-RS7 Trust, Mtg. Asset-Backed
Pass-Through Certificates, Series 2004-RS7, Cl.
AI32, 4.45%, 7/25/28 329,534 327,530
- --------------------------------------------------------------------------------
Structured Asset Investment Loan Trust, Mtg.
Pass-Through Certificates, Series 2006-BNC3, Cl.
A2, 5.36%, 9/25/36 5 1,600,336 1,584,036
- --------------------------------------------------------------------------------
Structured Asset Securities Corp., Mtg.
Pass-Through Certificates, Series 2005-4XS, Cl.
3A1, 5.18%, 3/26/35 710,702 711,411
---------------
Total Asset-Backed Securities (Cost $27,670,082) 27,335,507
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 4.75%, 8/15/17
(Cost $659,829) 653,000 663,918
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--12.7%
- --------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 2,665,000 2,689,443
- --------------------------------------------------------------------------------
Allied Waste North America, Inc., 5.75% Sr. Sec.
Nts., Series B, 2/15/11 5,000,000 4,887,500
- --------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bonds 11 6,950,000 6,073,675
27 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
Beazer Homes USA, Inc., 8.375% Sr. Nts., 4/15/12 $ 800,000 $ 636,000
- --------------------------------------------------------------------------------
Belo Corp., 8% Sr. Unsec. Unsub. Nts., 11/1/08 4,695,000 4,808,671
- --------------------------------------------------------------------------------
Buckeye Partners LP, 4.625% Sr. Nts., 7/15/13 3,620,000 3,400,545
- --------------------------------------------------------------------------------
Caesars Entertainment, Inc., 7.50% Sr. Unsec.
Nts., 9/1/09 4 3,310,000 3,394,319
- --------------------------------------------------------------------------------
Capmark Financial Group, Inc., 5.875% Nts.,
5/10/12 10 1,790,000 1,586,878
- --------------------------------------------------------------------------------
CCH I Holdings LLC, 9.92% Sr. Unsec. Nts.,
4/1/14 20,000,000 16,900,000
- --------------------------------------------------------------------------------
CDX High Yield Index, 7.625% Pass-Through
Certificates, Series 8-T1, 6/29/12 72,500,000 68,331,250
- --------------------------------------------------------------------------------
Centex Corp., 5.80% Sr. Unsec. Nts., 9/15/09 2,180,000 2,147,559
- --------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts.,
11/1/08 2,400,000 2,448,000
- --------------------------------------------------------------------------------
Charter Communications Holdings I LLC:
11% Sr. Sec. Nts., 10/1/15 64,075,000 63,113,875
11% Sr. Sec. Nts., 10/1/15 10 29,072,000 28,417,880
13.50% Sr. Unsec. Unsub. Nts., 1/15/14 14,000,000 13,300,000
- --------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts.,
1/15/16 5,601,000 5,502,983
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.:
7.50% Sr. Unsec. Nts., 11/1/14 5,000,000 4,125,000
8.875% Sr. Unsec. Unsub. Nts., 12/1/15 10,000,000 8,650,000
- --------------------------------------------------------------------------------
CIT Group Funding Co. of Canada, 4.65% Sr.
Unsec. Nts., 7/1/10 2,035,000 1,873,218
- --------------------------------------------------------------------------------
Clear Channel Communications, Inc., 6.25% Nts.,
3/15/11 1,965,000 1,777,225
- --------------------------------------------------------------------------------
Cox Enterprises, Inc., 4.375% Nts., 5/1/08 10 3,255,000 3,226,216
- --------------------------------------------------------------------------------
CSC Holdings, Inc.:
7.25% Sr. Unsec. Nts., 7/15/08 2,590,000 2,596,475
7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,767,500
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 1,790,000 1,603,985
6.125% Nts., 1/15/14 1,315,000 1,175,999
8% Sr. Nts., 2/1/09 1,415,000 1,406,124
- --------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,811,000 2,127,925
- --------------------------------------------------------------------------------
Dillard's, Inc., 6.625% Unsec. Nts., 11/15/08 4 820,000 807,700
- --------------------------------------------------------------------------------
Eastman Kodak Co., 3.625% Nts., Series A,
5/15/08 4 360,000 347,400
- --------------------------------------------------------------------------------
EchoStar DBS Corp., 5.75% Sr. Unsec. Nts.,
10/1/08 3,890,000 3,875,413
- --------------------------------------------------------------------------------
El Paso Corp., 6.50% Sr. Unsec. Nts., 6/1/08 578,000 579,812
- --------------------------------------------------------------------------------
Ford Motor Credit Co., 9.75% Sr. Unsec. Nts.,
9/15/10 6,100,000 6,044,923
- --------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 3,065,000 3,069,591
9.80% Unsub. Nts., 12/15/08 5 359,000 378,329
- --------------------------------------------------------------------------------
General Motors Acceptance Corp., 8% Bonds,
11/1/31 2,445,000 2,201,982
- --------------------------------------------------------------------------------
Goldman Sachs Capital, Inc. (The), 6.345% Sub.
Bonds, 2/15/34 5,525,000 4,972,666
- --------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Perpetual Bonds,
Series A 10,11 6,800,000 5,893,376
- --------------------------------------------------------------------------------
HSBC Finance Capital Trust IX, 5.911% Nts.,
11/30/35 5 4,900,000 4,652,428
- --------------------------------------------------------------------------------
Hyundai Motor Manufacturing Alabama LLC, 5.30%
Sr. Unsec. Nts., 12/19/08 10 1,645,000 1,638,287
28 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts.,
11/14/08 4,5 $ 1,410,000 $ 1,434,675
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875% Sr. Sub.
Nts., 4/1/12 1,600,000 1,288,000
- --------------------------------------------------------------------------------
Kaneb Pipe Line Operating Partnership LP, 5.875%
Sr. Unsec. Nts., 6/1/13 2,500,000 2,513,910
- --------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.30% Sr.
Unsec. Nts., 8/15/33 3,840,000 3,974,358
- --------------------------------------------------------------------------------
Lennar Corp., 7.625% Sr. Unsec. Nts., 3/1/09 2,870,000 2,951,904
- --------------------------------------------------------------------------------
Level 3 Financing, Inc., 9.25% Sr. Unsec. Unsub.
Nts., 11/1/14 10,000,000 9,675,000
- --------------------------------------------------------------------------------
Liberty Media Corp., 7.875% Sr. Nts., 7/15/09 845,000 878,368
- --------------------------------------------------------------------------------
Liberty Media LLC, 7.75% Sr. Nts., 7/15/09 2,950,000 3,043,400
- --------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 7.125% Sr. Unsec.
Nts., 6/15/09 2,095,000 2,162,511
- --------------------------------------------------------------------------------
MBIA, Inc., 5.70% Sr. Unsec. Unsub. Nts.,
12/1/34 12 1,685,000 1,376,751
- --------------------------------------------------------------------------------
MetLife, Inc., 6.40% Jr. Unsec. Sub. Bonds,
12/15/36 5,120,000 4,671,811
- --------------------------------------------------------------------------------
MGM Mirage, Inc., 6% Sr. Sec. Nts., 10/1/09 4,020,000 4,004,925
- --------------------------------------------------------------------------------
Monongahela Power Co., 7.36% Unsec. Nts.,
Series A, 1/15/10 3,155,000 3,328,620
- --------------------------------------------------------------------------------
NCR Corp., 7.125% Sr. Unsec. Unsub. Nts.,
6/15/09 2,630,000 2,713,852
- --------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375% Sr. Nts.,
Series D, 8/1/15 3,270,000 3,294,568
- --------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr.
Nts., Series B, 6/1/13 10 802,074 766,023
- --------------------------------------------------------------------------------
Popular North America, Inc., 4.70% Nts., 6/30/09 3,665,000 3,639,279
- --------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C,
12/18/23 10 3,835,000 4,741,187
- --------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts.,
7/1/25 10 3,380,000 4,153,736
- --------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts., 11/16/07 1,945,000 1,943,662
- --------------------------------------------------------------------------------
Pulte Homes, Inc., 4.875% Nts., 7/15/09 1,390,000 1,307,378
- --------------------------------------------------------------------------------
Qwest Corp.:
5.625% Unsec. Nts., 11/15/08 4,12 363,000 363,908
7.875% Sr. Unsec. Nts., 9/1/11 3,140,000 3,300,925
- --------------------------------------------------------------------------------
Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 15,000,000 12,375,000
- --------------------------------------------------------------------------------
Rogers Wireless, Inc., 9.625% Sr. Sec. Nts.,
5/1/11 2,945,000 3,322,599
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 7% Sr. Unsec.
Unsub. Nts., 10/15/07 4 800,000 804,000
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8% Sr. Unsec.
Sub. Nts., 3/15/12 442,000 448,630
- --------------------------------------------------------------------------------
SLM Corp., 4% Nts., 1/15/09 2,770,000 2,648,608
- --------------------------------------------------------------------------------
Spansion LLC, 11.25% Sr. Nts., 1/15/16 10 2,500,000 2,381,250
- --------------------------------------------------------------------------------
Standard Pacific Corp., 5.125% Sr. Unsec.
Unsub. Nts., 4/1/09 1,450,000 1,268,750
- --------------------------------------------------------------------------------
Tenet Healthcare Corp., 9.875% Sr. Nts., 7/1/14 6,000,000 5,340,000
- --------------------------------------------------------------------------------
TEPPCO Partners LP, 6.125% Nts., 2/1/13 1,395,000 1,404,910
- --------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 8.375% Sr.
Nts., 7/15/33 760,000 884,588
- --------------------------------------------------------------------------------
Tribune Co., 5.50% Nts., Series E, 10/6/08 4 2,255,000 2,130,975
- --------------------------------------------------------------------------------
TXU Energy Co. LLC:
5.86% Sr. Nts., 9/16/08 5,10 2,940,000 2,942,326
6.125% Nts., 3/15/08 1,955,000 1,957,739
29 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES
Continued
- --------------------------------------------------------------------------------
Univision Communications, Inc.:
3.50% Sr. Unsec. Nts., 10/15/07 $ 1,880,000 $ 1,875,300
3.875% Sr. Unsec. Nts., 10/15/08 4 875,000 846,563
- --------------------------------------------------------------------------------
Valero Logistics Operations LP, 6.05% Nts.,
3/15/13 675,000 677,459
- --------------------------------------------------------------------------------
Westar Energy, Inc., 7.125% Sr. Unsec. Nts.,
8/1/09 3,030,000 3,090,630
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The), Credit Linked
Certificate Trust, 6.75% Nts., 4/15/09 4 3,650,000 3,704,750
---------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $419,703,970) 409,062,980
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--9.3%
- --------------------------------------------------------------------------------
Advanced Micro Devices, Inc., 6% Cv. Sr. Nts.,
5/1/15 10 3,250,000 2,803,125
- --------------------------------------------------------------------------------
Anthracite Capital, Inc., 11.75% Cv. Sr. Unsec.
Nts., 9/1/27 4 5,500,000 5,488,450
- --------------------------------------------------------------------------------
Conseco, Inc., 3.50% Cv. Sr. Unsec. Bonds,
9/30/35 5 12,000,000 10,590,000
- --------------------------------------------------------------------------------
CSK Auto, Inc., 7.25% Cv. Sr. Unsec. Nts.,
12/15/25 5,10 11,000,000 12,595,000
- --------------------------------------------------------------------------------
Human Genome Sciences, Inc., 2.25% Cv. Unsec.
Sub. Nts., 8/15/12 11,000,000 9,006,250
- --------------------------------------------------------------------------------
Incyte Genomics, Inc., 3.50% Cv. Sr. Unsec.
Nts., 2/15/11 10,250,000 9,058,438
- --------------------------------------------------------------------------------
Intel Corp., 2.95% Cv. Unsec. Sub. Debs.,
12/15/35 8,000,000 8,220,000
- --------------------------------------------------------------------------------
KKR Financial Holdings LLC, 7% Cv. Sr. Unsec.
Nts., 7/15/12 10 17,500,000 15,028,125
- --------------------------------------------------------------------------------
Liberty Media Corp., 0.75% Cv. Sr. Unsec. Unsub.
Debs., 3/30/23 47,500,000 53,971,875
- --------------------------------------------------------------------------------
Liberty Media Corp., 3.25% Exchangeable Sr.
Unsec. Debs., 3/15/31 (exchangeable for Viacom,
Inc. Cl. B common stock or cash based on the
value thereof) 147,500,000 123,162,500
- --------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Exchangeable Sr.
Unsec. Debs., 1/15/31 (exchangeable for
Motorola, Inc. common stock or cash based on
the value of that stock) 4,250,000 3,387,271
- --------------------------------------------------------------------------------
Pantry, Inc. (The), 3% Cv. Sr. Sub. Nts.,
11/15/12 16,000,000 15,080,000
- --------------------------------------------------------------------------------
Pride International, Inc., 3.25% Cv. Sr. Nts.,
5/1/33 21,250,000 30,042,188
- --------------------------------------------------------------------------------
Six Flags, Inc., 4.50% Cv. Nts., 5/15/15 2,500,000 2,156,250
---------------
Total Convertible Corporate Bonds and Notes
(Cost $304,792,652) 300,589,472
SHARES/
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED SECURITIES--13.0%
- --------------------------------------------------------------------------------
Allegro Investment Corp. SA Cv. Equity Linked
Nts.:
5.05%, Exp. 3/17/08 4 617,700 15,625,648
Series UTX, 4.84%, Exp. 1/2/08 (linked to United
Technologies Corp. common stock) 4 238,800 16,639,488
- --------------------------------------------------------------------------------
Bank of America Cv. Linked Nts.:
Series HES, 8.50%, Exp. 1/30/08 194,600 11,006,576
Series VNDA, 10.60%, Exp. 5/5/08 696,200 10,742,366
30 | OPPENHEIMER CAPITAL INCOME FUND
SHARES/
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED SECURITIES Continued
- --------------------------------------------------------------------------------
Bear Stearns Global Asset Holdings Ltd. Cv.
Equity Linked Nts., Series 6693, 4.35%, Exp.
6/30/08 (linked to Wal-Mart Stores, Inc.) 4 507,924 $ 22,577,222
- --------------------------------------------------------------------------------
Blue Wings Ltd. Catastrophe Linked Bonds,
Series A, 8.51%, 1/10/12 4,5 3,000,000 2,991,300
- --------------------------------------------------------------------------------
Calabash Re II Ltd. Catastrophe Linked Nts.,
Series A1, 13.76%, 1/8/10 4,5 3,000,000 3,064,800
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc. (New York) Cv.
Equity Linked Nts.:
5.69%, Exp. 4/21/08 (linked to Williams Cos.,
Inc. (The)) 354,000 10,379,280
8.22%, Exp. 1/23/08 (linked to Corning, Inc.) 644,350 14,214,361
- --------------------------------------------------------------------------------
Deutsche Bank AG 3M Co. Exchangeable Total
Return Linked Nts., 4.64%, Exp. 3/19/08 4 218,000 18,220,440
- --------------------------------------------------------------------------------
Deutsche Bank AG Basket of Cv. Linked Nts.,
23.40%, Exp. 11/27/07 (linked to Staples, Inc.,
Office Depot, Inc. and OfficeMax, Inc. common
stock) 4 25,000,000 18,297,500
- --------------------------------------------------------------------------------
Deutsche Bank AG-London Cv. Equity Linked Nts.,
4.38%, Exp. 9/21/07 (linked to United
Technologies Corp. common stock) 4 242,000 17,185,630
- --------------------------------------------------------------------------------
Fremantle Ltd. Catastrophe Linked Nts., 7.36%,
6/28/10 4,5 1,000,000 997,500
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) Cv. Equity
Linked Nts.:
4%, Exp. 3/10/08 (linked to Office Depot, Inc.
common stock) 4 582,735 14,535,159
7.10%, Exp. 2/6/08 (linked to Occidental
Petroleum Corp. common stock) 4 219,100 11,348,504
8%, Exp. 3/10/08 (linked to XM Satellite Radio
Holdings, Inc.) 4 700,281 8,698,190
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) Cv. Mandatory
Exchangeable Nts.:
7.45%, Exp. 10/16/07 (linked to GlobalSantaFe
Corp.) 4 431,007 26,500,896
8.70%, Exp. 5/27/08 (linked to Applied
Materials, Inc.) 4 789,500 15,425,251
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) Mandatory
Exchangeable Nts., 12.90%, Exp. 12/13/07 (linked
to Nortel Networks Corp. common stock) 4 400,000 7,398,800
- --------------------------------------------------------------------------------
Lakeside Re Ltd. Catastrophe Linked Nts.,
11.86%, 12/31/09 5,10 3,000,000 3,086,700
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. Cv. Equity Linked
Nts., 4.42%, Exp. 12/9/07 (linked to Tyco
International Ltd.) 1,492,880 44,293,750
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. Yield Enhanced
Equity Linked Debt Securities:
11.03%, Exp. 1/27/08 (linked to Arch Coal, Inc.) 439,368 12,895,451
Series I, 4%, Exp. 1/12/08 (linked to Texas
Instruments, Inc. common stock) 523,926 17,415,284
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Cv. Linked Nts., 6%,
Exp. 12/5/07 (linked to Corning, Inc.) 4 714,300 16,553,903
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Redemption Linked
Nts., 6.35%, Exp. 1/4/08 (linked to
GlobalSantaFe Corp. common stock) 4 182,983 11,764,892
- --------------------------------------------------------------------------------
Morgan Stanley Cv. Equity Linked Nts.:
18.10%, Exp. 12/6/07 (linked to XM Satellite
Radio Holdings, Inc. common stock) 4 696,865 9,867,608
6.20%, Exp. 2/6/08 (linked to XM Satellite Radio
Holdings, Inc. common stock) 4 715,100 9,314,178
- --------------------------------------------------------------------------------
Morgan Stanley Performance Equity Linked
Redemption Quarterly-pay Nts., 15.50%, Exp.
1/22/08 (linked to XM Satellite Radio Holdings,
Inc. common stock) 4 639,800 8,247,022
31 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
SHARES/
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED SECURITIES Continued
- --------------------------------------------------------------------------------
Morgan Stanley Performance Equity Linked
Redemption Quarterly-pay Securities, 8.67%, Exp.
3/7/08 (exchangeable for Vanda Pharmaceutical,
Inc. common stock) 4 598,100 $ 9,273,541
- --------------------------------------------------------------------------------
Morgan Stanley Redemption Linked Nts., Exp.
1/17/08 (linked to the performance of Johnson &
Johnson, Lehman Brothers Holdings, Inc., and AES
Corp.) 4 15,000 11,958,750
- --------------------------------------------------------------------------------
Successor Euro Wind Ltd. Catastrophe Linked
Nts., Series AIII, 11.11%, 12/6/08 4,5 3,000,000 3,046,650
- --------------------------------------------------------------------------------
Wachovia Bank NA, Cv. Linked Nts., Series XMSR,
13.20%, Exp. 12/1/07 (linked to XM Satellite
Radio Holdings, Inc. common stock) 4 1,016,777 14,738,183
---------------
Total Structured Securities (Cost $428,687,658) 418,304,823
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $2,729,639,427) 100.3% 3,235,088,027
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3) (10,323,205)
----------------------------
NET ASSETS 100.0% $3,224,764,822
============================
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 August 31, 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 GROSS GROSS SHARES
AUGUST 31, 2006 ADDITIONS REDUCTIONS AUGUST 31, 2007
- ----------------------------------------------------------------------------------------------------------------------------
Care Investment Trust, Inc. -- 1,180,000 5,000 1,175,000
CSK Auto Corp. 5,502,500 1,250 788,750 4,715,000
Enbridge Energy Management LLC 747,702 30,984 a 778,686 --
E*TRADE Financial Corp., 6.125% Cum. Cv. -- 1,177,500 -- 1,177,500
Oppenheimer Institutional Money Market Fund, Cl. E -- 940,014,631 940,014,631 --
Platinum Underwriters Holdings Ltd., 6% Cv., Series A -- 830,000 -- 830,000
VALUE DIVIDEND REALIZED
SEE NOTE 1 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Care Investment Trust, Inc. $ 13,489,000 $ -- $ (19,000)
CSK Auto Corp. 62,332,300 -- 3,498,652
Enbridge Energy Management LLC -- -- 20,010,336
E*TRADE Financial Corp., 6.125% Cum. Cv. 24,774,600 1,207,766 --
Oppenheimer Institutional Money Market Fund, Cl. E -- 1,145,637 --
Platinum Underwriters Holdings Ltd., 6% Cv., Series A 32,662,500 1,464,516 --
-----------------------------------------------
$133,258,400 $ 3,817,919 $ 23,489,988
===============================================
a. All or a portion is the result of a corporate action.
32 | OPPENHEIMER CAPITAL INCOME FUND
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
- --------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 250 9/24/07 75.00 $ 7,500 $ 1,250
Altria Group, Inc. 2,250 9/24/07 80.00 63,499 --
AT&T, Inc. 300 10/22/07 42.50 24,602 12,900
Chevron Corp. 275 9/24/07 80.00 180,672 239,525
Chevron Corp. 90 9/24/07 85.00 26,275 35,100
Chevron Corp. 600 10/22/07 80.00 445,193 534,000
Chevron Corp. 235 10/22/07 85.00 91,533 122,200
Fidelity National Title Group, Inc., Cl. A 2,585 12/24/07 30.00 100,813 --
Kraft Foods, Inc., Cl. A 224 9/24/07 32.50 41,887 10,080
Kraft Foods, Inc., Cl. A 15,000 12/14/07 31.52 7,050,000 3,195,000
Loews Corp./Carolina Group 5,025 9/24/07 80.00 1,384,819 150,750
Loews Corp./Carolina Group 4,000 12/24/07 80.00 860,627 980,000
Raytheon Co. 6,560 9/24/07 52.50 2,460,946 5,772,800
Raytheon Co. 3,340 9/24/07 55.00 793,635 2,304,600
Raytheon Co. 100 9/24/07 57.50 11,700 44,000
-----------------------------
$ 13,543,701 $ 13,402,205
=============================
4. Illiquid security. The aggregate value of illiquid securities as of August
31, 2007 was $344,117,852, which represents 10.67% of the Fund's net assets. See
Note 10 of accompanying Notes.
5. Represents the current interest rate for a variable or increasing rate
security.
6. A sufficient amount of liquid assets 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
- --------------------------------------------------------------------------------------------------------------------
American International Group, Inc. 1,500 1/21/08 $ 70.00 $ 550,492 $ 810,000
Baker Hughes, Inc. 1,250 10/22/07 80.00 558,779 237,500
BJ Services Co. 1,400 10/22/07 27.50 443,793 385,000
Capital One Financial Corp. 1,500 12/24/07 75.00 1,155,987 1,650,000
Occidental Petroleum Corp. 2,250 11/19/07 60.00 1,804,472 1,102,500
Office Depot, Inc. 301 1/21/08 35.00 158,625 310,030
OfficeMax, Inc. 950 11/19/07 40.00 523,898 494,000
OfficeMax, Inc. 1,165 1/21/08 42.50 818,552 897,050
-----------------------------
$ 6,014,598 $ 5,886,080
=============================
7. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $20,396,117 or 0.63% of the Fund's net assets
as of August 31, 2007.
8. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $948,638 or 0.03% of the Fund's net assets as of
August 31, 2007.
33 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS Continued
9. When-issued security or forward commitment to be delivered and settled after
August 31, 2007. See Note 1 of accompanying Notes.
10. 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 $90,159,967 or 2.80% of the Fund's net
assets as of August 31, 2007.
11. 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.
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 $518,807. See Note 5 of accompanying Notes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,617,076,549) $ 3,101,829,627
Affiliated companies (cost $112,562,878) 133,258,400
-----------------
3,235,088,027
- --------------------------------------------------------------------------------------------------------
Cash 15,093,630
- --------------------------------------------------------------------------------------------------------
Swaps, at value (net premiums paid $234,298) 4,326,544
- --------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 22,946,672
Investments sold (including $18,219,978 sold on a when-issued basis or
forward commitment) 18,457,514
Shares of beneficial interest sold 1,313,196
Futures margins 192,580
Other 171,508
-----------------
Total assets 3,297,589,671
- --------------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $19,558,299)--
see accompanying statement of investments 19,288,285
- --------------------------------------------------------------------------------------------------------
Swaps, at value (net premiums paid $215,578) 5,873,628
- --------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $35,284,480 purchased on
a when-issued basis or forward commitment) 41,251,903
Shares of beneficial interest redeemed 3,657,210
Distribution and service plan fees 1,338,888
Transfer and shareholder servicing agent fees 324,160
Shareholder communications 286,355
Trustees' compensation 28,301
Other 776,119
-----------------
Total liabilities 72,824,849
- --------------------------------------------------------------------------------------------------------
NET ASSETS $ 3,224,764,822
=================
- --------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 246,618
- --------------------------------------------------------------------------------------------------------
Additional paid-in capital 2,536,099,310
- --------------------------------------------------------------------------------------------------------
Accumulated net investment income 27,623,954
- --------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 156,760,282
- --------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies 504,034,658
-----------------
NET ASSETS $ 3,224,764,822
=================
35 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$2,754,565,709 and 210,249,770 shares of beneficial interest outstanding) $ 13.10
Maximum offering price per share (net asset value plus sales charge of 5.75%
of offering price) $ 13.90
- --------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$240,849,375 and 18,609,922 shares of beneficial interest outstanding) $ 12.94
- --------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of
$184,782,112 and 14,330,271 shares of beneficial interest outstanding) $ 12.89
- --------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $44,567,626
and 3,427,826 shares of beneficial interest outstanding) $ 13.00
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS For the Year Ended August 31, 2007
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
Interest $ 84,480,885
- --------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $41,012) 57,262,750
Affiliated companies 3,817,919
- --------------------------------------------------------------------------------------------------------
Fee income 110,976
- --------------------------------------------------------------------------------------------------------
Other income 58,028
---------------
Total investment income 145,730,558
- --------------------------------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------------------------------
Management fees 17,232,574
- --------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 6,459,524
Class B 2,621,424
Class C 1,824,103
Class N 209,127
- --------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,921,847
Class B 394,254
Class C 258,013
Class N 86,857
- --------------------------------------------------------------------------------------------------------
Shareholder communications:
Class A 369,353
Class B 80,531
Class C 30,256
Class N 5,479
- --------------------------------------------------------------------------------------------------------
Custodian fees and expenses 88,654
- --------------------------------------------------------------------------------------------------------
Trustees' compensation 60,121
- --------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- --------------------------------------------------------------------------------------------------------
Other 208,864
---------------
Total expenses 32,852,481
Less reduction to custodian expenses (2,430)
Less waivers and reimbursements of expenses (21,661)
---------------
Net expenses 32,828,390
- --------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 112,902,168
37 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENT OF OPERATIONS Continued
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) $ 158,710,871
Affiliated companies 23,489,988
Closing and expiration of option contracts written 27,560,629
Closing and expiration of futures contracts (712,604)
Foreign currency transactions 2,548
Swap contracts 214,931
Net increase from payment by affiliate 13,514
---------------
Net realized gain 209,279,877
- --------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (4,266,507)
Futures contracts 714,525
Option contracts written (2,942,975)
Swap contracts (2,035,233)
---------------
Net change in unrealized appreciation (8,530,190)
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 313,651,855
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38 | OPPENHEIMER CAPITAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2007 2006
- -------------------------------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $ 112,902,168 $ 95,081,450
- -------------------------------------------------------------------------------------------------------
Net realized gain 209,279,877 27,512,071
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (8,530,190) 12,664,674
------------------------------------
Net increase in net assets resulting from operations 313,651,855 135,258,195
- -------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (87,959,430) (77,812,436)
Class B (6,228,396) (6,031,033)
Class C (4,351,749) (3,701,400)
Class N (1,156,756) (836,479)
------------------------------------
(99,696,331) (88,381,348)
- -------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (10,162,632) (112,727,835)
Class B (1,003,861) (12,275,789)
Class C (663,061) (7,342,478)
Class N (143,710) (1,340,023)
------------------------------------
(11,973,264) (133,686,125)
- -------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (11,635,942) (3,331,341)
Class B (35,557,029) (31,772,777)
Class C 10,405,264 1,811,081
Class N 6,641,449 6,928,899
------------------------------------
(30,146,258) (26,364,138)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) 171,836,002 (113,173,416)
- -------------------------------------------------------------------------------------------------------
Beginning of period 3,052,928,820 3,166,102,236
------------------------------------
End of period (including accumulated net investment income of
$27,623,954 and $5,059,260, respectively) $ 3,224,764,822 $ 3,052,928,820
====================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.28 $ 12.63 $ 11.84 $ 11.22 $ 9.76
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 1 .39 1 .38 1 .46 .54
Net realized and unrealized gain .82 .16 1.28 .69 1.35
-------------------------------------------------------------------------------
Total from investment operations 1.29 .55 1.66 1.15 1.89
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.42) (.37) (.48) (.53) (.43)
Distributions from net realized gain (.05) (.53) (.39) -- --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.47) (.90) (.87) (.53) (.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.10 $ 12.28 $ 12.63 $ 11.84 $ 11.22
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.50% 4.68% 14.40% 10.32% 20.10%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,754,566 $2,594,507 $2,670,552 $2,379,956 $2,130,486
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,809,861 $2,608,268 $2,565,609 $2,356,948 $1,900,896
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.54% 3.21% 3.09% 3.85% 5.41%
Total expenses 0.88% 4,5,6 0.91% 0.89% 4 0.89% 4,7 0.93% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 8 66% 8 55% 8 52% 141%
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 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 less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 0.88%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Year Ended August 31, 2007 $ 1,266,252,411 $ 1,359,901,233
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.
40 | OPPENHEIMER CAPITAL INCOME FUND
CLASS B YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.14 $ 12.49 $ 11.72 $ 11.10 $ 9.67
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 1 .28 1 .28 1 .36 .45
Net realized and unrealized gain .81 .16 1.26 .68 1.33
-------------------------------------------------------------------------------
Total from investment operations 1.16 .44 1.54 1.04 1.78
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.31) (.26) (.38) (.42) (.35)
Distributions from net realized gain (.05) (.53) (.39) -- --
-------------------------------------------------------------------------------
Total dividends and/or
distributions to shareholders (.36) (.79) (.77) (.42) (.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.94 $ 12.14 $ 12.49 $ 11.72 $ 11.10
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.54% 3.84% 13.40% 9.46% 18.94%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 240,849 $ 258,812 $ 299,093 $ 316,568 $ 343,074
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 262,574 $ 273,916 $ 304,769 $ 349,853 $ 312,457
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.70% 2.37% 2.25% 3.00% 4.55%
Total expenses 1.71% 4,5,6 1.74% 1.73% 4 1.76% 4,7 1.81% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 8 66% 8 55% 8 52% 141%
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 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 less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.71%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Year Ended August 31, 2007 $ 1,266,252,411 $ 1,359,901,233
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.
41 | OPPENHEIMER CAPITAL INCOME FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.10 $ 12.46 $ 11.69 $ 11.09 $ 9.66
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 1 .29 1 .28 1 .35 .45
Net realized and unrealized gain .79 .15 1.26 .69 1.34
-------------------------------------------------------------------------------
Total from investment operations 1.15 .44 1.54 1.04 1.79
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.31) (.27) (.38) (.44) (.36)
Distributions from net realized gain (.05) (.53) (.39) -- --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.36) (.80) (.77) (.44) (.36)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.89 $ 12.10 $ 12.46 $ 11.69 $ 11.09
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.53% 3.83% 13.52% 9.40% 19.05%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 184,782 $ 163,959 $ 167,013 $ 133,368 $ 93,797
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 182,640 $ 165,514 $ 150,410 $ 122,458 $ 75,459
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.74% 2.40% 2.27% 3.01% 4.55%
Total expenses 1.69% 4,5,6 1.71% 1.71% 4 1.72% 4,7 1.78% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 8 66% 8 55% 8 52% 141%
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 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 less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.69%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Year Ended August 31, 2007 $ 1,266,252,411 $ 1,359,901,233
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.
42 | OPPENHEIMER CAPITAL INCOME FUND
CLASS N YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.20 $ 12.55 $ 11.78 $ 11.16 $ 9.73
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .42 1 .34 1 .34 1 .39 .46
Net realized and unrealized gain .80 .16 1.26 .72 1.37
-------------------------------------------------------------------------------
Total from investment operations 1.22 .50 1.60 1.11 1.83
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.37) (.32) (.44) (.49) (.40)
Distributions from net realized gain (.05) (.53) (.39) -- --
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.42) (.85) (.83) (.49) (.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.00 $ 12.20 $ 12.55 $ 11.78 $ 11.16
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.01% 4.32% 13.95% 10.01% 19.45%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 44,568 $ 35,651 $ 29,444 $ 16,692 $ 9,023
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 41,919 $ 32,598 $ 22,974 $ 13,301 $ 5,968
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 3.19% 2.82% 2.73% 3.42% 4.92%
Total expenses 1.25% 4,5,6 1.30% 1.24% 4 1.28% 4,7 1.35% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 66% 8 66% 8 55% 8 52% 141%
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 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 less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.25%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- -------------------------------------------------------------------------------
Year Ended August 31, 2007 $ 1,266,252,411 $ 1,359,901,233
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.
43 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund has a secondary objective to
conserve principal while providing an opportunity for capital appreciation. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights and voting privileges with respect to the Fund in
general and exclusive voting rights on matters that affect that class alone.
Earnings, net assets and net asset value per share may differ due to each class
having its own expenses, such as transfer and shareholder servicing agent fees
and shareholder communications, directly attributable to that class. Class A, B,
C and N have separate distribution and/or service plans. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities 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
44 | 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 SECURITIES. The Fund invests in structured securities 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 securities are often
leveraged, increasing the volatility of each securities' 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 security is sold, matures or expires.
- --------------------------------------------------------------------------------
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 August 31, 2007, the Fund had purchased $35,284,480
of securities issued on a when-issued basis or forward commitment and sold
$18,219,978 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
45 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Fund records the incremental difference between the forward purchase and sale
of each forward roll as realized gain (loss) on investments or as fee income in
the case of such transactions that have an associated fee in lieu of a
difference in the forward purchase and sale price.
Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.
- --------------------------------------------------------------------------------
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, if applicable.
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.
46 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
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 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.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------
$ 91,276,706 $ 128,283,727 $ 24,036,359 $ 492,927,831
1. The Fund had $24,036,359 of straddle losses which were deferred.
2. During the fiscal year ended August 31, 2007, the Fund did not utilize any
capital loss carryforward.
3. During the fiscal year ended August 31, 2006, the Fund did not utilize any
capital loss carryforward.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund.
47 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
Accordingly, the following amounts have been reclassified for August 31, 2007.
Net assets of the Fund were unaffected by the reclassifications.
INCREASE TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL INCOME ON INVESTMENTS 4
-----------------------------------------------------
$ 17,975,351 $ 9,358,857 $ 27,334,208
4. $17,975,351, including $12,382,797 of long-term capital gain, was distributed
in connection with Fund share redemptions.
The tax character of distributions paid during the years ended August 31, 2007
and August 31, 2006 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2007 AUGUST 31, 2006
--------------------------------------------------------------
Distributions paid from:
Ordinary income $ 111,668,600 $ 162,410,486
Long-term capital gain 995 59,656,987
---------------------------------
Total $ 111,669,595 $ 222,067,473
=================================
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of August 31, 2007 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.
Federal tax cost of securities $ 2,740,869,118
Federal tax cost of other investments (145,855,993)
----------------
Total federal tax cost $ 2,595,013,125
================
Gross unrealized appreciation $ 606,737,899
Gross unrealized depreciation (113,810,068)
----------------
Net unrealized appreciation $ 492,927,831
================
- --------------------------------------------------------------------------------
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
48 | OPPENHEIMER CAPITAL INCOME FUND
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.
- --------------------------------------------------------------------------------
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.
49 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED AUGUST 31, 2007 YEAR ENDED AUGUST 31, 2006
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
CLASS A
Sold 24,786,266 $ 331,214,040 18,616,904 $ 226,300,881
Dividends and/or
distributions reinvested 6,895,270 90,699,242 14,837,822 176,523,004
Redeemed (32,639,197) (433,549,224) (33,641,665) (406,155,226)
---------------------------------------------------------------
Net decrease (957,661) $ (11,635,942) (186,939) $ (3,331,341)
===============================================================
- -----------------------------------------------------------------------------------------------------
CLASS B
Sold 3,288,092 $ 43,051,303 3,241,843 $ 38,903,049
Dividends and/or
distributions reinvested 524,751 6,819,291 1,451,650 17,079,474
Redeemed (6,522,576) (85,427,623) (7,316,039) (87,755,300)
---------------------------------------------------------------
Net decrease (2,709,733) $ (35,557,029) (2,622,546) $ (31,772,777)
===============================================================
- -----------------------------------------------------------------------------------------------------
CLASS C
Sold 3,136,488 $ 41,107,707 2,830,185 $ 33,853,111
Dividends and/or
distributions reinvested 341,526 4,431,983 845,746 9,915,326
Redeemed (2,698,666) (35,134,426) (3,532,313) (41,957,356)
---------------------------------------------------------------
Net increase 779,348 $ 10,405,264 143,618 $ 1,811,081
===============================================================
- -----------------------------------------------------------------------------------------------------
CLASS N
Sold 1,516,523 $ 20,001,127 1,158,822 $ 13,939,161
Dividends and/or
distributions reinvested 94,066 1,230,137 178,715 2,111,820
Redeemed (1,105,867) (14,589,815) (760,312) (9,122,082)
---------------------------------------------------------------
Net increase 504,722 $ 6,641,449 577,225 $ 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 investments in IMMF, for the year ended August
31, 2007, were as follows:
PURCHASES SALES
----------------------------------------------------------------------
Investment securities $ 1,893,829,485 $ 1,946,525,513
U.S. government and government
agency obligations 198,754,621 224,336,243
To Be Announced (TBA)
mortgage-related securities 1,266,252,411 1,359,901,233
50 | OPPENHEIMER CAPITAL INCOME FUND
- --------------------------------------------------------------------------------
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), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended August 31, 2007, the Fund paid
$3,668,284 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
51 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
plan at calendar quarter ends. The Distributor's aggregate uncompensated
expenses under the plan at June 30, 2007 for Class B, Class C and Class N shares
were $8,174,311, $4,236,395 and $696,262, 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
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- --------------------------------------------------------------------------------------------------------
August 31, 2007 $ 878,046 $ 23,334 $ 324,267 $ 14,969 $ 5,037
- --------------------------------------------------------------------------------
PAYMENTS, 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 year ended August 31, 2007, the Manager waived $21,661 for IMMF
management fees.
The Distributor paid the Fund $13,514 in restitution as part of a
settlement with respect to an investigation of certain agreements between the
Distributor and various financial intermediaries that had selling agreements
with the Distributor. The payment increased the Fund's total returns by less
than 0.01%.
- --------------------------------------------------------------------------------
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.
52 | OPPENHEIMER CAPITAL INCOME FUND
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations 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 August 31, 2007, the Fund had outstanding futures contracts as follows:
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2007 (DEPRECIATION)
- ---------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 12/19/07 664 $ 74,077,500 $ 457,967
U.S. Treasury Nts., 5 yr. 12/31/07 12 1,280,438 5,592
------------
463,559
------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 12/31/07 709 146,164,781 (38,816)
U.S. Treasury Nts., 10 yr. 12/19/07 509 55,504,859 (111,739)
------------
(150,555)
------------
$ 313,004
============
- --------------------------------------------------------------------------------
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.
53 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. OPTION ACTIVITY Continued
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Securities designated to cover outstanding call 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 year ended August 31, 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 379,450 73,577,295 240,581 50,716,365
Options closed or expired (385,324) (61,344,421) (253,510) (60,131,176)
Options exercised (20,542) (5,033,346) (15,423) (5,757,762)
--------------------------------------------------------
Options outstanding as of
August 31, 2007 40,834 $ 13,543,701 10,316 $ 6,014,598
========================================================
- --------------------------------------------------------------------------------
7. CREDIT DEFAULT SWAP CONTRACTS
A credit default swap is a bilateral contract that enables an investor to buy or
sell protection against a defined-issuer credit event. The Fund may enter into
credit default swaps to hedge an existing position or to obtain exposure to a
security or market by purchasing or selling credit protection. The Fund may
enter into credit default swaps on a single security, or a basket of securities.
In a credit default swap contract, the purchaser of the contract will pay
a periodic interest fee, similar to an insurance premium, on the notional amount
of the swap contract to the counterparty (the seller of the contract). If there
is a credit event (for example, bankruptcy or a failure to timely pay interest
or principal), the purchaser will exercise the contract and will receive a
payment from the seller of the contract equal to the notional value of the
credit default swap contract less the value of the underlying security.
54 | OPPENHEIMER CAPITAL INCOME FUND
The periodic interest fees are accrued daily as a component of unrealized
appreciation (depreciation) and are recorded as realized gain (loss) upon
payment. In the event that the credit default swap is exercised due to a credit
event, the difference between the value of the underlying security and the
notional amount is recorded as realized gain (loss) and is included on the
Statement of Operations.
Credit default swaps are marked to market daily using primarily quotations
from counterparties and brokers. The value of the contracts is separately
disclosed on the Statement of Assets and Liabilities. The unrealized
appreciation (depreciation) related to the change in the valuation of the
notional amount of the swap is combined with the accrued interest due to (owed
by) the Fund at termination or settlement. The net change in this amount during
the period is included on the Statement of Operations.
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, adverse
pricing when purchasing bonds to satisfy its delivery obligation, and the need
to fund the delivery obligation (either cash or defaulted securities depending
on whether the Fund is the purchaser or seller of the credit default swap
contract, respectively).
Information regarding such credit default swaps as of August 31, 2007 is as
follows:
BUY/SELL NOTIONAL PREMIUM
CREDIT AMOUNT PAY/RECEIVE TERMINATION PAID/
COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATES (RECEIVED) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Bank plc:
Beazer Homes USA, Inc. Sell $ 825 2.1000% 6/20/08 $ -- $ (45,155)
Capmark Financial
Group, Inc. Sell 1,570 1.0000 6/20/12 -- (172,149)
Countrywide Home
Loans, Inc. Sell 1,980 0.7500 9/20/08 -- (96,412)
Lear Corp. Sell 2,715 1.0000 6/20/08 -- (3,084)
Lehman Brothers
Holdings, Inc. Sell 3,335 0.4900 9/20/10 -- (68,751)
Toys "R" Us, Inc. Sell 1,695 1.4500 9/20/08 -- (27,907)
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse
International:
ArvinMeritor, Inc. Sell 2,660 1.5500 9/20/08 -- (18,175)
Belo Corp. Buy 5,050 0.9000 6/20/13 -- (10,936)
CDX.NA.HY.8 Sell 1,400 2.7500 6/20/12 (111,990) (65,796)
CDX.NA.HY.8 Sell 2,960 2.7500 6/20/12 23,906 (139,112)
CDX.NA.HY.8 Buy 2,960 2.7500 6/20/14 42,694 220,522
CDX.NA.HY.8 Sell 7,790 2.7500 6/20/12 43,873 (366,108)
CDX.NA.HY.8-V1 Buy 7,790 2.7500 6/20/14 141,140 580,358
Freescale
Semiconductor, Inc. Sell 1,555 0.6000 3/20/08 -- (13,847)
Freescale
Semiconductor, Inc. Sell 1,665 0.7500 3/20/08 -- (12,964)
Goodyear Tire &
Rubber Co. (The) Sell 2,520 1.5500 9/20/08 -- 17,315
55 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. CREDIT DEFAULT SWAP CONTRACTS Continued
BUY/SELL NOTIONAL PREMIUM
CREDIT AMOUNT PAY/RECEIVE TERMINATION PAID/
COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATES (RECEIVED) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse
International:
Continued
Intelsat Ltd. Sell $ 1,705 3.4500% 9/20/08 $ -- $ (8,679)
Quebecor World, Inc. Sell 1,685 2.6000 9/20/08 -- (33,224)
Rite Aid Corp. Sell 2,660 0.8750 6/20/08 -- (30,615)
Saks, Inc. Sell 2,680 2.0000 9/20/08 -- 18,809
Univision
Communications, Inc. Sell 760 0.7500 3/20/08 -- (7,578)
- ------------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Abitibi-Consolidated,Inc. Sell 2,385 1.5200 9/20/07 -- 2,509
ABX.HE.AA.06-2 Sell 710 0.1700 5/25/46 (85,193) (131,375)
Allied Waste North
America, Inc. Sell 920 2.0000 9/20/09 -- 3,733
Allied Waste North
America, Inc. Sell 1,440 2.0000 9/20/09 -- 5,842
Bear Stearns
Cos., Inc. (The) Sell 6,195 2.3500 9/20/08 -- 63,020
Bombardier, Inc. Sell 735 0.9000 9/20/07 -- 1,562
CDX.NA.HY.8 Buy 4,690 2.7500 6/20/14 62,143 376,461
CDX.NA.HY.8 Sell 4,690 2.7500 6/20/12 43,383 (225,124)
CDX.NA.HY.8 Sell 7,835 2.7500 6/20/12 49,622 (376,086)
CDX.NA.HY.8 Buy 7,835 2.7500 6/20/14 131,563 628,907
CDX.NA.HY.8 Sell 7,790 2.7500 6/20/12 54,800 (373,926)
CDX.NA.HY.8 Buy 7,790 2.7500 6/20/14 120,475 625,294
CDX.NA.HY.8 Sell 1,255 2.7500 6/20/12 (86,386) (60,241)
CDX.NA.HY.8 Sell 1,405 2.7500 6/20/12 (121,942) (67,441)
CDX.NA.HY.8 Sell 1,405 2.7500 6/20/12 (85,061) (67,441)
CDX.NA.HY.8 Sell 685 2.7500 6/20/12 (55,119) (32,881)
CDX.NA.HY.8 Sell 7,785 2.7500 6/20/12 37,195 (373,686)
CDX.NA.HY.8 Buy 7,785 2.7500 6/20/14 152,564 624,893
Centex Corp. Sell 310 1.5500 9/20/09 -- (3,535)
Countrywide
Home Loans, Inc. Sell 1,190 3.2500 9/20/08 -- (17,574)
Dillard's, Inc. Sell 720 0.7500 9/20/08 -- (6,781)
Eastman Kodak Co. Sell 2,055 1.0000 12/20/08 -- 13,700
Georgia-Pacific Corp. Sell 2,535 1.7500 9/20/08 -- 14,188
Intelsat Ltd. Sell 690 2.8500 9/20/08 -- (3,505)
Levi Strauss & Co. Sell 1,155 0.9000 9/20/08 -- (5,039)
Levi Strauss & Co. Sell 1,545 1.0000 9/20/08 -- (4,839)
MBIA, Inc. Sell 1,680 0.5200 9/20/08 -- (23,977)
MBIA, Inc. Sell 1,665 0.6000 9/20/08 -- (22,253)
Owens-Illinois, Inc. Sell 1,410 1.2500 9/20/08 -- 3,106
Tenet Healthcare Corp. Sell 2,695 1.6000 3/20/09 -- (125,153)
56 | OPPENHEIMER CAPITAL INCOME FUND
BUY/SELL NOTIONAL PREMIUM
CREDIT AMOUNT PAY/RECEIVE TERMINATION PAID/
COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATES (RECEIVED) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs
Capital Markets LP:
ABX.HE.AA.06-2 Sell $ 250 0.1700% 5/25/46 $ (20,598) $ (38,745)
Capmark Financial
Group, Inc. Sell 1,710 0.9500 6/20/12 -- (161,004)
Dole Food Co., Inc. Sell 2,540 3.8800 9/20/08 -- 20,345
First Data Corp. Sell 1,690 1.1500 9/20/08 -- (31,690)
K. Hovanian Enterprises,
Inc. Sell 905 6.7500 9/20/08 -- (20,743)
Quebecor World, Inc. Sell 765 3.0000 9/20/08 -- 3,922
Standard Pacific Corp. Sell 1,215 6.6250 9/20/08 -- (38,443)
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs
International:
Amkor Technology, Inc. Sell 240 2.6500 9/20/08 -- 2,475
CIT Group, Inc. Sell 1,835 1.2500 9/20/08 -- (42,469)
Pulte Homes, Inc. Sell 2,315 2.7500 9/20/09 -- 121
Sara Lee Corp. Buy 2,055 0.4190 9/20/12 -- (7,834)
Smurfit-Stone Container
Enterprises, Inc. Sell 2,515 1.4500 9/20/08 -- 5,530
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Special Financing, Inc.
ABX.HE.AA.06-2 Sell 350 0.1700 5/25/46 (85,730) (64,691)
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley
& Co. International plc:
ArvinMeritor, Inc. Sell 675 1.1000 9/20/07 -- 1,151
ArvinMeritor, Inc. Sell 50 1.2000 9/20/07 -- 98
ArvinMeritor, Inc. Sell 820 1.0500 9/20/07 -- 1,293
Beazer Homes USA, Inc. Sell 1,825 2.1500 6/20/08 -- (281,117)
Countrywide
Home Loans, Inc. Sell 1,275 0.7500 9/20/08 -- (40,217)
Countrywide
Home Loans, Inc. Sell 4,905 0.4200 6/20/09 -- (268,735)
El Paso Corp. Sell 3,205 0.5200 3/20/10 -- (34,052)
First Data Corp. Sell 995 1.3500 9/20/08 -- (20,689)
Ford Motor Co. Buy 3,060 5.4000 12/20/08 -- (14,677)
Ford Motor Co. Sell 3,060 7.1500 12/20/16 -- (6,045)
Ford Motor Co. Buy 1,455 5.3000 12/20/08 -- (4,930)
Ford Motor Co. Sell 1,455 7.0500 12/20/16 -- (9,929)
General Motors Corp. Sell 1,525 5.8000 12/20/16 -- (112,794)
General Motors Corp. Buy 1,525 4.0000 12/20/08 -- 28,221
General Motors Corp. Sell 1,480 5.7500 12/20/16 -- (113,037)
General Motors Corp. Buy 1,480 3.9500 12/20/08 -- 28,425
Harrah's Operating Co.,
Inc. Sell 1,430 2.2000 9/20/08 -- 708
Inco Ltd. Buy 1,615 0.6300 3/20/17 -- (13,709)
Inco Ltd. Buy 1,605 0.7000 3/20/17 -- (22,225)
K. Hovanian
Enterprises, Inc. Sell 815 1.8500 6/20/08 -- (43,062)
57 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. CREDIT DEFAULT SWAP CONTRACTS Continued
BUY/SELL NOTIONAL PREMIUM
CREDIT AMOUNT PAY/RECEIVE TERMINATION PAID/
COUNTERPARTY REFERENCE ENTITY PROTECTION (000S) FIXED RATE DATES (RECEIVED) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley
& Co. International plc:
Continued
K. Hovanian
Enterprises, Inc. Sell $ 815 1.8500% 6/20/08 $ -- $ (43,062)
Kroger Co. (The) Buy 2,970 0.4775 6/20/12 -- (17,807)
Residential Capital LLC Sell 3,845 6.1200 9/20/08 -- (483,770)
Sara Lee Corp. Buy 2,645 0.4180 9/20/12 -- (12,312)
Toys "R" US, Inc. Sell 1,000 2.5500 9/20/08 -- (11,210)
Tribune Co. Sell 1,595 1.0000 6/20/08 -- (69,594)
Vale Overseas Ltd. Sell 1,615 1.1000 3/20/17 -- (3,330)
Vale Overseas Ltd. Sell 1,605 1.1700 3/20/17 -- 5,178
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley
Capital Services, Inc.:
ABX.HE.AA.06-2 Sell 250 0.1700 5/25/46 (19,973) (46,208)
ABX.HE.AA.06-2 Sell 480 0.1700 5/25/46 (47,998) (88,718)
Bombardier, Inc. Sell 820 1.0000 9/20/07 -- 1,969
Bombardier, Inc. Sell 820 1.0500 9/20/07 -- 2,074
CDX.NA.HY.8 Sell 7,735 2.7500 6/20/12 62,793 (366,163)
CDX.NA.HY.8 Buy 7,735 2.7500 6/20/14 111,244 586,917
CDX.NA.HY.8 Sell 1,330 2.7500 6/20/12 (86,967) (62,960)
CDX.NA.HY.8 Buy 7,975 2.7500 6/20/14 105,669 605,128
CDX.NA.HY.8 Sell 7,975 2.7500 6/20/12 73,769 (377,524)
--------------------------
$ 449,876 $ (1,521,070)
==========================
- --------------------------------------------------------------------------------
8. INTEREST RATE SWAP CONTRACTS
An interest rate swap is an agreement under which a set of future cash flows is
exchanged between two counterparties. Interest rate swaps involve the exchange
of rights to receive or commitments to pay interest. One cash flow stream will
typically be a floating rate payment based upon a specified index while the
other is typically a fixed rate. 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 counterparty, and is
referred to as notional. Interest rate swaps are marked to market daily using
primarily quotations from counterparties, and brokers. The value of the
contracts is separately disclosed on the Statement of Assets and Liabilities.
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. The net change in this amount
during the period 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.
58 | OPPENHEIMER CAPITAL INCOME FUND
Swap agreements entail both interest rate risk and credit risk. There is a
risk, based on movements of interest rates in the future, the payments made by
the Fund under a swap agreement will be greater than the payments it received.
Credit risk arises from the possibility that the counterparty will default. If
the counterparty defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received. The Manager
will monitor the creditworthiness of counterparties to the Fund's interest rate
swap transactions on an ongoing basis.
As of August 31, 2007, the Fund had entered into the following interest rate
swap agreements:
SWAP NOTIONAL PAID BY RECEIVED BY TERMINATION
COUNTERPARTY AMOUNT THE FUND THE FUND DATES VALUE
- ----------------------------------------------------------------------------------------------------
Three-Month
Credit Suisse International $ 6,910,000 USD BBA LIBOR 5.428% 8/7/17 $ 118,910
- ----------------------------------------------------------------------------------------------------
Three-Month
Deutsche Bank AG 5,830,000 USD BBA LIBOR 5.445 8/8/17 95,408
-----------
$ 214,318
===========
Index abbreviation is as follows:
BBA LIBOR British Bankers' Association London-Interbank Offered Rate
- --------------------------------------------------------------------------------
9. 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 counterparty, and is
referred to as notional. Total return swaps are marked to market daily using
primarily quotations from counterparties and brokers. The value of the contracts
is separately disclosed on the Statement of Assets and Liabilities. 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. The net change in this amount during the
period 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
there is no liquid market for the agreement or unfavorable changes occur in the
reference asset).
As of August 31, 2007, the Fund had entered into the following total return swap
agreements:
59 | OPPENHEIMER CAPITAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. TOTAL RETURN SWAP CONTRACTS Continued
SWAP NOTIONAL PAID BY RECEIVED BY TERMINATION
COUNTERPARTY AMOUNT THE FUND THE FUND DATES VALUE
- ----------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS Index:
absolute value of the AAA 8.5+ plus
$ 8,900,000 Lehman CMBS Index 27.5 basis points 11/1/07 $ (52,068)
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS Index:
absolute value of the AAA 8.5+ minus
6,840,000 Lehman CMBS Index 45 basis points 2/1/08 (24,676)
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS Index:
absolute value of the AAA 8.5+ plus
19,800,000 Lehman CMBS Index 60 basis points 2/1/08 (41,899)
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS Index:
absolute value of the AAA 8.5+ plus
1,830,000 Lehman CMBS Index 25 basis points 2/1/08 (10,744)
- ----------------------------------------------------------------------------------------------------------
If positive, the
If negative, the absolute value of
absolute value of the Lehman Brothers
Lehman Brothers U.S. U.S. CMBS Index:
Goldman Sachs CMBS Index: Aggregate AAA plus
Capital Markets LP 6,430,000 Aggregate AAA 15 basis points 9/1/07 (40,328)
- ----------------------------------------------------------------------------------------------------------
Lehman Brothers
Special Financing,
Inc.:
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS AAA
absolute value of the 8.5+ Index plus
7,260,000 Lehman CMBS Index 32.5 basis points 11/1/07 (53,162)
If positive, the
Total Return of the
If negative, the Lehman Brothers
absolute value of the U.S. CMBS AAA
8,450,000 Lehman CMBS Index 8.5+ Index 2/1/08 39,903
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS AAA
absolute value of the 8.5+ Index plus
7,201,000 Lehman CMBS Index 60 basis points 2/1/08 (26,039)
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS AAA
absolute value of the 8.5+ Index minus
4,560,000 Lehman CMBS Index 25 basis points 3/1/08 --
60 | OPPENHEIMER CAPITAL INCOME FUND
SWAP NOTIONAL PAID BY RECEIVED BY TERMINATION
COUNTERPARTY AMOUNT THE FUND THE FUND DATES VALUE
- ----------------------------------------------------------------------------------------------------------
If positive, the
Total Return of the
Lehman Brothers
If negative, the U.S. CMBS AAA
absolute value of the 8.5+ Index plus
UBS AG $ 9,001,000 Lehman CMBS Index 60 basis points 2/1/08 $ (31,319)
----------
$(240,332)
==========
Abbreviation is as follows:
CMBS Commercial Mortgage Backed Securities
- --------------------------------------------------------------------------------
10. ILLIQUID SECURITIES
As of August 31, 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.
- --------------------------------------------------------------------------------
11. 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
August 31, 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, ("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 August 31, 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.
61 | OPPENHEIMER CAPITAL INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Income Fund (the "Fund"), including the statement of
investments, as of August 31, 2007, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2007, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of August 31, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 9, 2007
62 | OPPENHEIMER CAPITAL INCOME FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2008, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2007. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends, if any, paid by the Fund during the fiscal year ended August
31, 2007 which are not designated as capital gain distributions should be
multiplied by 22.92% to arrive at the amount eligible for the corporate
dividend-received deduction.
A portion, if any, of the dividends paid by the Fund during the fiscal
year ended August 31, 2007 which are not designated as capital gain
distributions are eligible for lower individual income tax rates to the extent
that the Fund has received qualified dividend income as stipulated by recent tax
legislation. $46,728,195 of the Fund's fiscal year taxable income may be
eligible for the lower individual income tax rates. In early 2008, shareholders
of record will receive information regarding the percentage of distributions
that are eligible for lower individual income tax rates.
Recent tax legislation allows a regulated investment company to designate
distributions not designated as capital gain distributions, as either interest
related dividends or short-term capital gain dividends, both of which are exempt
from the U.S. withholding tax applicable to non U.S. taxpayers. For the fiscal
year ended August 31, 2007, $76,132,312 or 76.36% of the ordinary distributions
paid by the Fund qualifies as an interest related dividend and $63,587,626 or
100% of the short-term capital gain distribution paid by the Fund qualifies as a
short-term capital gain dividend.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
63 | 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.
64 | 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.
65 | 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 investment team 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
one-year, three-year, five-year and ten-year performance were better than 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
considered 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 retail front-end load mixed-asset target
allocation moderate funds and other funds with comparable asset levels and
distribution features. The Board noted that the Fund's contractual management
fees are lower than its peer group median although its actual management fees
are higher than its peer group median.
66 | OPPENHEIMER CAPITAL INCOME FUND
ECONOMIES OF SCALE. The Board reviewed whether the Manager may realize
economies of scale in managing and supporting the Fund. The Board noted that the
Fund currently has management fee breakpoints, which are intended to share with
shareholders economies of scale that may exist as the Fund grows with
shareholders.
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 and research provided to the Manager in connection with permissible
brokerage arrangements (soft dollar arrangements). The Board also considered
that the Manager must be able to pay and retain experienced professional
personnel at competitive rates to provide quality services to the Fund and that
maintaining the financial viability of the Manager is important in order for the
Manager to continue to provide significant services to the Fund and its
shareholders.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced counsel
to the Fund and to the independent Trustees. Fund counsel and the independent
Trustees' counsel are both independent of the Manager within the meaning and
intent of the Securities and Exchange Commission Rules.
Based on its review of the information it received and its evaluations
described above, the Board, including a majority of the independent Trustees,
decided to continue the Agreement for another year. In arriving at this
decision, the Board considered all of the above information. The Board
considered the terms and conditions of the Agreement, including the management
fee, in light of all of the surrounding circumstances.
67 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
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NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS
FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL,
TRUSTEES COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR
HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
WILLIAM L. ARMSTRONG, President, Colorado Christian University (since 2006); Chairman, Cherry Creek
Chairman of the Board Mortgage Company (since 1991), Chairman, Centennial State Mortgage Company (since
of Trustees (since 2003), 1994), Chairman, The El Paso Mortgage Company (since 1993); Chairman, Ambassador
Trustee (since 1999) Media Corporation (since 1984); Chairman, Broadway Ventures (since 1984); Director
Age: 70 of Helmerich & Payne, Inc. (oil and gas drilling/production company) (since 1992),
Campus Crusade for Christ (non-profit) (since 1991); Former Director, The Lynde and
Harry Bradley Foundation, Inc. (non-profit organization) (2002-2006); former
Chairman of: Transland Financial Services, Inc. (private mortgage banking company)
(1997-2003), Great Frontier Insurance (1995-2000), Frontier Real Estate, Inc.
(residential real estate brokerage) (1994-2000) and Frontier Title (title insurance
agency) (1995-2000); former Director of the following: UNUMProvident (insurance
company) (1991-2004), Storage Technology Corporation (computer equipment company)
(1991-2003) and International Family Entertainment (television channel) (1992-1997);
U.S. Senator (January 1979-January 1991). Oversees 37 portfolios in the
OppenheimerFunds complex.
GEORGE C. BOWEN, Assistant Secretary and Director of the Manager (December 1991-April 1999);
Trustee (since 1998) President, Treasurer and Director of Centennial Capital Corporation (June 1989-
Age: 71 April 1999); Chief Executive Officer and Director of MultiSource Services, Inc.
(March 1996-April 1999); Mr. Bowen held several positions with OppenheimerFunds,
Inc. and with subsidiary or affiliated companies of OppenheimerFunds, Inc.
(September 1987-April 1999). Oversees 37 portfolios in the OppenheimerFunds
complex.
EDWARD L. CAMERON, Member of The Life Guard of Mount Vernon (George Washington historical site) (June
Trustee (since 1999) 2000-May 2006); Partner of PricewaterhouseCoopers LLP (accounting firm) (July
Age: 69 1974-June 1999); Chairman of Price Waterhouse LLP Global Investment Management
Industry Services Group (accounting firm) (July 1994-June 1998). Oversees 37
portfolios in the OppenheimerFunds complex.
JON S. FOSSEL, Director of UNUMProvident (insurance company) (since June 2002); Director of
Trustee (since 1990) Northwestern Energy Corp. (public utility corporation) (since November 2004);
Age: 65 Director of P.R. Pharmaceuticals (October 1999-October 2003); Director of Rocky
Mountain Elk Foundation (non-profit organization) (February 1998-February 2003 and
since February 2005); Chairman and Director (until October 1996) and President and
Chief Executive Officer (until October 1995) of the Manager; President, Chief
Executive Officer and Director of the following: Oppenheimer Acquisition Corp.
("OAC") (parent holding company of the Manager), Shareholders Services, Inc. and
Shareholder Financial Services, Inc. (until October 1995). Oversees 37 portfolios
in the OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado UpLIFT (charitable organization) (since September 1984). Mr.
Trustee (since 1996) Freedman held several positions with the Manager and with subsidiary or affiliated
Age: 67 companies of the Manager (until October 1994). Oversees 37 portfolios in the
OppenheimerFunds complex.
68 | OPPENHEIMER CAPITAL INCOME FUND
BEVERLY L. HAMILTON, Trustee of Monterey Institute for International Studies (educational organization)
Trustee (since 2002) (since February 2000); Board Member of Middlebury College (educational organization)
Age: 61 (since December 2005); Director of The California Endowment (philanthropic
organization) (since April 2002); Director (February 2002-2005) and Chairman of
Trustees (since 2006) of the Community Hospital of Monterey Peninsula; Director
(October 1991-2005) and Vice Chairman (since 2006) of American Funds' Emerging
Markets Growth Fund, Inc. (mutual fund); President of ARCO Investment Management
Company (February 1991-April 2000); Member of the investment committees of The
Rockefeller Foundation (since 2001) and The University of Michigan (since 2000);
Advisor at Credit Suisse First Boston's Sprout venture capital unit (venture capital
fund) (1994-January 2005); Trustee of MassMutual Institutional Funds (investment
company) (1996-June 2004); Trustee of MML Series Investment Fund (investment
company) (April 1989-June 2004); Member of the investment committee of Hartford
Hospital (2000-2003); and Advisor to Unilever (Holland) pension fund (2000-2003).
Oversees 37 portfolios in the OppenheimerFunds complex.
ROBERT J. MALONE, Director of Jones Knowledge, Inc. (since 2006); Director of Jones International
Trustee (since 2002) University (educational organization) (since August 2005); Chairman, Chief
Age: 63 Executive Officer and Director of Steele Street State Bank (commercial banking)
(since August 2003); Director of Colorado UpLift (charitable organization) (since
1986); Trustee of the Gallagher Family Foundation (non-profit organization) (since
2000); Former Chairman of U.S. Bank-Colorado (subsidiary of U.S. Bancorp and
formerly Colorado National Bank) (July 1996-April 1999); Director of Commercial
Assets, Inc. (real estate investment trust) (1993-2000); Director of Jones
Knowledge, Inc. (2001-July 2004); and Director of U.S. Exploration, Inc. (oil and
gas exploration) (1997-February 2004). Oversees 37 portfolios in the
OppenheimerFunds complex.
F. WILLIAM MARSHALL, JR., Trustee of MassMutual Select Funds (formerly MassMutual Institutional Funds)
Trustee (since 2000) (investment company) (since 1996) and MML Series Investment Fund (investment
Age: 65 company) (since 1996); Trustee of Worcester Polytech Institute (since 1985);
Chairman (since 1994) of the Investment Committee of the Worcester Polytech
Institute (private university); President and Treasurer of the SIS Funds (private
charitable fund) (since January 1999); Chairman of SIS & Family Bank, F.S.B.
(formerly SIS Bank) (commercial bank) (January 1999-July 1999); and Executive Vice
President of Peoples Heritage Financial Group, Inc. (commercial bank) (January
1999-July 1999). Oversees 39 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE AND THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
OFFICER FLOOR, NEW YORK, NEW YORK 10281-1008. MR. MURPHY SERVES AS A TRUSTEE FOR AN
INDEFINITE TERM, OR UNTIL HIS RESIGNATION, RETIREMENT, DEATH OR REMOVAL AND AS AN
OFFICER FOR AN INDEFINITE TERM, OR UNTIL HIS RESIGNATION, RETIREMENT, DEATH OR
REMOVAL. MR. MURPHY IS AN INTERESTED TRUSTEE DUE TO HIS POSITIONS WITH
OPPENHEIMERFUNDS, INC. AND ITS AFFILIATES.
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director of the Manager (since June 2001);
Trustee, President and President of the Manager (September 2000-March 2007); President and director or
Principal Executive Officer trustee of other Oppenheimer funds; President and Director of Oppenheimer
(since 2001) Acquisition Corp. ("OAC") (the Manager's parent holding company) and of
Age: 58 Oppenheimer Partnership Holdings, Inc. (holding company subsidiary of the Manager)
(since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of
the Manager) (since November 2001); Chairman and Director of Shareholder Services,
Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of
the Manager) (since July 2001); President and
69 | OPPENHEIMER CAPITAL INCOME FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
JOHN V. MURPHY, Director of OppenheimerFunds Legacy Program (charitable trust program established
Continued by the Manager) (since July 2001); Director of the following investment advisory
subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial
Asset Management Corporation, Trinity Investment Management Corporation and Tremont
Capital Management, Inc. (since November 2001), HarbourView Asset Management
Corporation and OFI Private Investments, Inc. (since July 2001); President (since
November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset
Management, Inc.; Executive Vice President of Massachusetts Mutual Life Insurance
Company (OAC's parent company) (since February 1997); Director of DLB Acquisition
Corporation (holding company parent of Babson Capital Management LLC) (since June
1995); Member of the Investment Company Institute's Board of Governors (since
October 3, 2003); Chief Operating Officer of the Manager (September 2000-June
2001). Oversees 102 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS OF THE THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS.
FUND LEVINE, ZACK, GILLESPIE AND MS. BLOOMBERG, TWO WORLD FINANCIAL CENTER, 225 LIBERTY
STREET, NEW YORK, NEW YORK 10281-1008, FOR MESSRS. VANDEHEY, WIXTED, PETERSEN,
SZILAGYI AND MS. IVES, 6803 S. TUCSON WAY, CENTENNIAL, COLORADO 80112-3924. EACH
OFFICER SERVES FOR AN INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT,
DEATH OR REMOVAL.
MICHAEL S. LEVINE, Vice President of the Manager (since June 1998). An officer of 1 portfolio in the
Vice President (since 1999) OppenheimerFunds complex.
Age: 42
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March
Vice President and Chief 2004); Chief Compliance Officer of the Manager, OppenheimerFunds Distributor, Inc.,
Compliance Officer Centennial Asset Management and Shareholder Services, Inc. (since March 2004); Vice
(since 2004) President of OppenheimerFunds Distributor, Inc., Centennial Asset Management
Age: 57 Corporation and Shareholder Services, Inc. (since June 1983). Former Vice President
and Director of Internal Audit of the Manager (1997-February 2004). An officer of
102 portfolios in the OppenheimerFunds complex.
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of
Treasurer and Principal the following: HarbourView Asset Management Corporation, Shareholder Financial
Financial & Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management, Inc.
Officer (since 1999) and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Private
Age: 48 Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. (since
May 2000), OppenheimerFunds plc (since May 2000), OFI Institutional Asset
Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program
(charitable trust program established by the Manager) (since June 2003); Treasurer
and Chief Financial Officer of OFI Trust Company (trust company subsidiary of the
Manager) (since May 2000); Assistant Treasurer of the following: OAC (since March
1999), Centennial Asset Management Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003); Principal and Chief
Operating Officer of Bankers Trust Company-Mutual Fund Services Division (March
1995-March 1999). An officer of 102 portfolios in the OppenheimerFunds complex.
BRIAN S. PETERSEN, Vice President of the Manager (since February 2007); Assistant Vice President of
Assistant Treasurer the Manager (August 2002-February 2007); Manager/Financial Product Accounting of
(since 2004) the Manager (November 1998-July 2002). An officer of 102 portfolios in the
Age: 37 OppenheimerFunds complex.
70 | OPPENHEIMER CAPITAL INCOME FUND
BRIAN C. SZILAGYI, Assistant Vice President of the Manager (since July 2004); Director of Financial
Assistant Treasurer Reporting and Compliance of First Data Corporation (April 2003-July 2004); Manager
(since 2005) of Compliance of Berger Financial Group LLC (May 2001-March 2003); Director of
Age: 37 Mutual Fund Operations at American Data Services, Inc. (September 2000-May 2001).
An officer of 102 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March
Vice President and Secretary 2002) of the Manager; General Counsel and Director of the Distributor (since
(since 2001) December 2001); General Counsel of Centennial Asset Management Corporation (since
Age: 59 December 2001); Senior Vice President and General Counsel of HarbourView Asset
Management Corporation (since December 2001); Secretary and General Counsel of OAC
(since November 2001); Assistant Secretary (since September 1997) and Director
(since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds
plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since
December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November
2001); Senior Vice President, General Counsel and Director of Shareholder Financial
Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice
President, General Counsel and Director of OFI Private Investments, Inc. and OFI
Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy
Program (since June 2003); Senior Vice President and General Counsel of OFI
Institutional Asset Management, Inc. (since November 2001); Director of
OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May
1985-December 2003), Acting General Counsel (November 2001-February 2002) and
Associate General Counsel (May 1981-October 2001) of the Manager; Assistant
Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November 1989-November 2001), and
OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of
102 portfolios in the OppenheimerFunds complex.
LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice
Assistant Secretary President (April 2001-April 2004), Associate General Counsel (December 2000-April
(since 2004) 2004), Corporate Vice President (May 1999-April 2001) and Assistant General Counsel
Age: 39 (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber
Incorporated). An officer of 102 portfolios in the OppenheimerFunds complex.
PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September
Assistant Secretary 2004); First Vice President (2001-September 2004); Director (2000-September 2004)
(since 2004) and Vice President (1998-2000) of Merrill Lynch Investment Management. An officer
Age: 43 of 102 portfolios in the OppenheimerFunds complex.
KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since
Assistant Secretary October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary
(since 2001) (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset
Age: 42 Management Corporation (since October 2003); Vice President and Assistant Secretary
of Shareholder Services, Inc. (since 1999); Assistant Secretary of OppenheimerFunds
Legacy Program and Shareholder Financial Services, Inc. (since December 2001);
Assistant Counsel of the Manager (August 1994-October 2003). An officer of 102
portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
71 | OPPENHEIMER CAPITAL INCOME FUND
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Edward L. Cameron,
the Chairman of the Board's Audit Committee, and George C. Bowen, a member of
the Board's Audit Committee, are audit committee financial experts and that
Messrs. Cameron and Bowen are "independent" for purposes of this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The principal accountant for the audit of the registrant's annual financial
statements billed $38,500 in fiscal 2007 and $40,500 in fiscal 2006.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years to the registrant's investment adviser or any entity controlling,
controlled by, or under common control with the adviser that provides ongoing
services to the registrant.
(d) All Other Fees
The principal accountant for the audit of the trustee's annual financial
statements billed no such fees in fiscal 2007 and $9,719 in fiscal 2006.
The principal accountant for the audit of the registrant's annual financial
statements billed $32,732 in fiscal 2007 and $2,625 in fiscal 2006 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such fees include the cost of evaluating the amendment regarding the trustee's
retirement plan, compliance review of CCO project and professional services for
22c-2 program.
(e) (1) During its regularly scheduled periodic meetings, the registrant's
audit committee will pre-approve all audit, audit-related, tax and other
services to be provided by the principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its Chairman
for any subsequent new engagements that arise between regularly scheduled
meeting dates provided that any fees such pre-approved are presented to the
audit committee at its next regularly scheduled meeting.
Under applicable laws, pre-approval of non-audit services maybe waived
provided that: 1) the aggregate amount of all such services provided
constitutes no more than five percent of the total amount of fees paid by
the registrant to it principal accountant during the fiscal year in which
services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such
services are promptly brought to the attention of the audit committee of
the registrant and approved prior to the completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual financial
statements billed $32,732 in fiscal 2007 and $12,344 in fiscal 2006 to the
registrant and the registrant's investment adviser or any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant related to non-audit fees.
Those billings did not include any prohibited non-audit services as defined
by the Securities Exchange Act of 1934.
(h) No such services were rendered.
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 08/31/2007, 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) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Capital Income Fund
By: /s/ John V. Murphy
---------------------------
John V. Murphy
Principal Executive Officer
Date: 10/09/2007
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
---------------------------
John V. Murphy
Principal Executive Officer
Date: 10/09/2007
By: /s/ Brian W. Wixted
---------------------------
Brian W. Wixted
Principal Financial Officer
Date: 10/09/2007