-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAtgePgP2ftRX3B0fQAj6eFqebMZqtJYZLL1GoxkSn/X63qwHbnYVsKbUvPDAftm KQ0k3+66/ZA8Omdzon6bTA== 0000935069-06-002908.txt : 20061027 0000935069-06-002908.hdr.sgml : 20061027 20061027153745 ACCESSION NUMBER: 0000935069-06-002908 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060831 FILED AS OF DATE: 20061027 DATE AS OF CHANGE: 20061027 EFFECTIVENESS DATE: 20061027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER CAPITAL INCOME FUND CENTRAL INDEX KEY: 0000045156 IRS NUMBER: 840578481 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01512 FILM NUMBER: 061168824 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 303-768-3200 MAIL ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND DATE OF NAME CHANGE: 19980710 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CENTENNIAL EQUITY INCOME FUND INC DATE OF NAME CHANGE: 19830428 0000045156 S000006964 OPPENHEIMER CAPITAL INCOME FUND C000018996 A C000018997 B C000018998 C C000018999 N N-CSR 1 ra300_35015ncsr.txt RA300_35015NCSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-1512 OPPENHEIMER CAPITAL INCOME FUND (Exact name of registrant as specified in charter) 6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924 (Address of principal executive offices) (Zip code) ROBERT G. ZACK, ESQ. OPPENHEIMERFUNDS, INC. TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008 (Name and address of agent for service) Registrant's telephone number, including area code: (303) 768-3200 Date of fiscal year end: AUGUST Date of reporting period: 08/31/2006 ITEM 1. REPORTS TO STOCKHOLDERS. TOP HOLDINGS AND ALLOCATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOP TEN COMMON STOCK INDUSTRIES - -------------------------------------------------------------------------------- Oil & Gas 14.5% - -------------------------------------------------------------------------------- Tobacco 7.9 - -------------------------------------------------------------------------------- Diversified Financial Services 6.7 - -------------------------------------------------------------------------------- Insurance 5.1 - -------------------------------------------------------------------------------- Diversified Telecommunication Services 2.2 - -------------------------------------------------------------------------------- Specialty Retail 2.0 - -------------------------------------------------------------------------------- Aerospace & Defense 1.6 - -------------------------------------------------------------------------------- Industrial Conglomerates 1.5 - -------------------------------------------------------------------------------- Thrifts & Mortgage Finance 1.4 - -------------------------------------------------------------------------------- Commercial Banks 1.3 Portfolio holdings and allocations are subject to change. Percentages are as of August 31, 2006, and are based on net assets. TOP TEN COMMON STOCK HOLDINGS - -------------------------------------------------------------------------------- Altria Group, Inc. 6.0% - -------------------------------------------------------------------------------- Kinder Morgan, Inc. 5.3 - -------------------------------------------------------------------------------- Kinder Morgan Management LLC 5.0 - -------------------------------------------------------------------------------- Citigroup, Inc. 3.9 - -------------------------------------------------------------------------------- Everest Re Group Ltd. 3.6 - -------------------------------------------------------------------------------- Bank of America Corp. 2.8 - -------------------------------------------------------------------------------- CSK Auto Corp. 2.1 - -------------------------------------------------------------------------------- Loews Corp./Carolina Group 2.0 - -------------------------------------------------------------------------------- Raytheon Co. 1.5 - -------------------------------------------------------------------------------- ACE Ltd. 1.5 Portfolio holdings and allocations are subject to change. Percentages are as of August 31, 2006, and are based on net assets. For more current Fund holdings, please visit www.oppenheimerfunds.com. - -------------------------------------------------------------------------------- 8 | OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- PORTFOLIO ALLOCATION [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Stocks 57.2% Bonds and Notes 32.6 Convertible Corporate Bonds and Notes 10.1 Cash Equivalents 0.1 Portfolio holdings and allocations are subject to change. Percentages are as of August 31, 2006, and are based on the total market value of investments. - -------------------------------------------------------------------------------- 9 | OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE DISCUSSION - -------------------------------------------------------------------------------- HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2006, 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 performance trailed our expectations, due primarily to lackluster results from some of our largest holdings. Much of this weakness came during the fourth quarter of 2005 and in March 2006. Since then, however, performance was much improved, and the Fund generally fared well on a relative basis during most of 2006. Overall, however, the Fund's underweighting in the strong-performing energy sector was a negative. Also, higher interest rates hurt some of our income-related positions, while an overweighting in insurance-related stocks detracted from performance. We followed a consistent portfolio management strategy during the period. We continued to favor fundamentally strong companies with good earnings outlooks, whose valuations we believed were lower than warranted and that, in our opinion, provided the potential for a favorable total return. Although we did not make significant changes to the portfolio, we did make some adjustments at its margins as market conditions opened up new investment opportunities. For example, we added to our weighting in the energy sector. In prior periods, much of our exposure to this part of the market was focused on infrastructure-related companies as opposed to names that were more sensitive to commodity prices. However, given the persistent strength in energy prices and continued favorable supply/demand fundamentals, we decided to increase our exposure to more commodity-sensitive names. Accordingly, we recently established new positions in both Chevron Corp. and Occidental Petroleum Corp., taking advantage of a temporary pullback in both companies' share price. Despite difficulties during the period due to three large hurricanes in 2005, we maintained our exposure to insurance and reinsurance stocks (reinsurers provide insurance to insurance companies). Insurance stocks were volatile in late 2005 and early 2006 due to the storms and their aftermath. However, we note that following the storms, the companies have improved both their pricing power and the terms and conditions of their contracts. We remain optimistic about the prospects for our insurance and reinsurance holdings and during the period took advantage of price weakness to add to our weighting in the group. As the period progressed, we sold some of our convertible bonds, reinvesting the proceeds in stocks with what we saw as attractive dividend yields and better future appreciation potential. At period end, approximately 57% of the portfolio was held in equities, compared to 10% in convertibles and 33% in fixed-income securities. 10 | OPPENHEIMER CAPITAL INCOME FUND On the fixed-income side of the portfolio, during the first half of the period, as the yield on the 10-year Treasury note rallied to around 4%, we shortened the Fund's duration--meaning its sensitivity to interest rates--because we believed that the risk/reward was no longer as favorable. As rates increased from those levels, we increased the duration back to a more neutral level. Significant positive contributions to performance came from tobacco holdings such as Altria Group, Inc. and Loews Corp./Carolina Group. Both companies benefited from a significant reduction in the litigation risk that had been weighing on the tobacco industry. Our positions in diversified financial companies such as Citigroup, Inc. and Bank of America Corp. also added to returns. Both stocks, which offered relatively inexpensive valuations and high dividend yields, outpaced the market's expectations in a rising-interest-rate environment. Also helping performance was our large stake in Kinder Morgan, Inc., an oil and natural gas transportation company whose management team proposed a leveraged buy-out at a premium price during the period. While this equity position contributed to results, we also owned a position in Kinder Morgan Management LLC, a master limited partnership income security that detracted as interest rates rose. Notable equity underperformers during the period included Boston Scientific Corp., Tyco International Ltd. and Cendant Corp. Medical device maker Boston Scientific Corp. was a significant disappointment, hurt by an expensive acquisition of rival Guidant Corp. The company also struggled with product recall concerns and a slowing market for its products. We reduced the size of our Boston Scientific weighting and are watching closely for any further negative developments, although we currently believe the stock may provide more upside than downside at this point. Conglomerate Tyco International Ltd. continued to lag expectations, issuing several disappointing earnings outlooks. Cendant Corp., a real estate and travel services company, was weighed down by its real estate brokerage business, which was under pressure as the housing market slowed down. 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, 2006. 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. 11 | OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE DISCUSSION - -------------------------------------------------------------------------------- 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. 12 | OPPENHEIMER CAPITAL INCOME FUND CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Capital Income Fund (Class A) S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Oppenheimer Capital Income Fund (Class A) S&P 500 Index --------------------- ------------- 08/31/1996 9,425 10,000 11/30/1996 10,789 11,673 02/28/1997 11,323 12,252 05/31/1997 11,660 13,211 08/31/1997 12,572 14,062 11/30/1997 13,375 15,001 02/28/1998 14,346 16,539 05/31/1998 14,833 17,261 08/31/1998 13,347 15,204 11/30/1998 15,055 18,553 02/28/1999 14,905 19,807 05/31/1999 15,463 20,892 08/31/1999 14,819 21,257 11/30/1999 14,349 22,429 02/29/2000 13,547 22,129 05/31/2000 15,188 23,079 08/31/2000 15,891 24,723 11/30/2000 15,371 21,482 02/28/2001 16,950 20,316 05/31/2001 17,880 20,645 08/31/2001 16,978 18,697 11/30/2001 16,249 18,858 02/28/2002 15,900 18,384 05/31/2002 16,173 17,788 08/31/2002 13,964 15,334 11/30/2002 14,229 15,745 02/28/2003 14,085 14,216 05/31/2003 16,228 16,353 08/31/2003 16,770 17,183 11/30/2003 17,894 18,120 02/29/2004 19,118 19,689 05/31/2004 18,550 19,350 08/31/2004 18,501 19,149 11/30/2004 19,861 20,447 02/28/2005 20,624 21,061 05/31/2005 20,254 20,942 08/31/2005 21,166 21,553 11/30/2005 21,033 22,173 02/28/2006 21,289 22,829 05/31/2006 21,530 22,750 08/31/2006 22,156 23,465 AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT 8/31/06 1-Year -1.34% 5-Year 4.23% 10-Year 8.28% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. BECAUSE CLASS B SHARES CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR FURTHER INFORMATION. 13 | OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE DISCUSSION - -------------------------------------------------------------------------------- CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Capital Income Fund (Class B) S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Oppenheimer Capital Income Fund (Class B) S&P 500 Index --------------------- ------------- 08/31/1996 10,000 10,000 11/30/1996 11,425 11,673 02/28/1997 11,958 12,252 05/31/1997 12,284 13,211 08/31/1997 13,217 14,062 11/30/1997 14,043 15,001 02/28/1998 15,036 16,539 05/31/1998 15,502 17,261 08/31/1998 13,920 15,204 11/30/1998 15,684 18,553 02/28/1999 15,492 19,807 05/31/1999 16,046 20,892 08/31/1999 15,342 21,257 11/30/1999 14,830 22,429 02/29/2000 13,970 22,129 05/31/2000 15,629 23,079 08/31/2000 16,313 24,723 11/30/2000 15,754 21,482 02/28/2001 17,336 20,316 05/31/2001 18,250 20,645 08/31/2001 17,300 18,697 11/30/2001 16,529 18,858 02/28/2002 16,154 18,384 05/31/2002 16,378 17,788 08/31/2002 14,141 15,334 11/30/2002 14,409 15,745 02/28/2003 14,263 14,216 05/31/2003 16,434 16,353 08/31/2003 16,983 17,183 11/30/2003 18,121 18,120 02/29/2004 19,360 19,689 05/31/2004 18,785 19,350 08/31/2004 18,736 19,149 11/30/2004 20,113 20,447 02/28/2005 20,885 21,061 05/31/2005 20,511 20,942 08/31/2005 21,434 21,553 11/30/2005 21,300 22,173 02/28/2006 21,558 22,829 05/31/2006 21,803 22,750 08/31/2006 22,437 23,465 AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT 8/31/06 1-Year -1.02% 5-Year 4.28% 10-Year 8.42% 14 | OPPENHEIMER CAPITAL INCOME FUND CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Capital Income Fund (Class C) S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Oppenheimer Capital Income Fund (Class C) S&P 500 Index --------------------- ------------- 08/31/1996 10,000 10,000 11/30/1996 11,425 11,673 02/28/1997 11,970 12,252 05/31/1997 12,294 13,211 08/31/1997 13,231 14,062 11/30/1997 14,051 15,001 02/28/1998 15,036 16,539 05/31/1998 15,515 17,261 08/31/1998 13,932 15,204 11/30/1998 15,689 18,553 02/28/1999 15,497 19,807 05/31/1999 16,052 20,892 08/31/1999 15,347 21,257 11/30/1999 14,835 22,429 02/29/2000 13,984 22,129 05/31/2000 15,643 23,079 08/31/2000 16,329 24,723 11/30/2000 15,758 21,482 02/28/2001 17,355 20,316 05/31/2001 18,259 20,645 08/31/2001 17,309 18,697 11/30/2001 16,539 18,858 02/28/2002 16,164 18,384 05/31/2002 16,390 17,788 08/31/2002 14,141 15,334 11/30/2002 14,367 15,745 02/28/2003 14,200 14,216 05/31/2003 16,312 16,353 08/31/2003 16,835 17,183 11/30/2003 17,912 18,120 02/29/2004 19,110 19,689 05/31/2004 18,505 19,350 08/31/2004 18,417 19,149 11/30/2004 19,733 20,447 02/28/2005 20,439 21,061 05/31/2005 20,032 20,942 08/31/2005 20,906 21,553 11/30/2005 20,733 22,173 02/28/2006 20,941 22,829 05/31/2006 21,127 22,750 08/31/2006 21,706 23,465 AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT 8/31/06 1-Year 2.85% 5-Year 4.63% 10-Year 8.06% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. BECAUSE CLASS B SHARES CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR FURTHER INFORMATION. 15 | OPPENHEIMER CAPITAL INCOME FUND FUND PERFORMANCE DISCUSSION - -------------------------------------------------------------------------------- CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Capital Income Fund (Class N) S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Oppenheimer 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 AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT 8/31/06 1-Year 3.34% 5-Year 5.10% Since Inception (3/1/01) 4.59% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. BECAUSE CLASS B SHARES CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR FURTHER INFORMATION. 16 | OPPENHEIMER CAPITAL INCOME FUND NOTES - -------------------------------------------------------------------------------- Total returns and the ending account values in the graphs include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. The Fund's total returns shown do not reflect the deduction of income taxes on an individual's investment. Taxes may reduce your actual investment returns on income or gains paid by the Fund or any gains you may realize if you sell your shares. INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND OTHER CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR FINANCIAL ADVISOR, CALLING US AT 1.800.525.7048 OR VISITING OUR WEBSITE AT WWW.OPPENHEIMERFUNDS.COM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. The Fund's investment strategy and focus can change over time. The mention of specific fund holdings does not constitute a recommendation by OppenheimerFunds, Inc. CLASS A shares of the Fund were first publicly offered on 12/1/70. Unless otherwise noted, Class A returns include the current maximum initial sales charge of 5.75%. CLASS B shares of the Fund were first publicly offered on 8/17/93. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to Class A shares 72 months after purchase, the 10-year return for Class B uses Class A performance for the period after conversion and the ending account value does not reflect the deduction of any sales charges. Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Fund were first publicly offered on 11/1/95. Unless otherwise noted, Class C returns include the contingent deferred sales charge of 1% for the 1-year period. Class C shares are subject to an annual 0.75% asset-based sales charge. CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares are offered only through retirement plans. Unless otherwise noted, Class N returns include the contingent deferred sales charge of 1% for the 1-year period. Class N shares are subject to an annual 0.25% asset-based sales charge. An explanation of the calculation of performance is in the Fund's Statement of Additional Information. 17 | OPPENHEIMER CAPITAL INCOME FUND FUND EXPENSES - -------------------------------------------------------------------------------- FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and service fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000.00 invested at the beginning of the period and held for the entire 6-month period ended August 31, 2006. ACTUAL EXPENSES. The "actual" lines of the table provide information about actual account values and actual expenses. You may use the information on this line for the class of shares you hold, together with the amount you invested, to estimate the expense that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00 = 8.60), then multiply the result by the number in the "actual" line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the table provide information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio for each class of shares, and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or contingent deferred sales charges (loads), or a $12.00 fee imposed annually on accounts valued at less than $500.00 (subject to exceptions described in the Statement 18 | OPPENHEIMER CAPITAL INCOME FUND of Additional Information). Therefore, the "hypothetical" lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- BEGINNING ENDING EXPENSES ACCOUNT ACCOUNT PAID DURING VALUE VALUE 6 MONTHS ENDED (3/1/06) (8/31/06) AUGUST 31, 2006 - -------------------------------------------------------------------------------- Class A Actual $1,000.00 $1,040.70 $4.64 - -------------------------------------------------------------------------------- Class A Hypothetical 1,000.00 1,020.67 4.59 - -------------------------------------------------------------------------------- Class B Actual 1,000.00 1,036.20 8.97 - -------------------------------------------------------------------------------- Class B Hypothetical 1,000.00 1,016.43 8.88 - -------------------------------------------------------------------------------- Class C Actual 1,000.00 1,036.50 8.81 - -------------------------------------------------------------------------------- Class C Hypothetical 1,000.00 1,016.59 8.73 - -------------------------------------------------------------------------------- Class N Actual 1,000.00 1,039.10 6.81 - -------------------------------------------------------------------------------- Class N Hypothetical 1,000.00 1,018.55 6.74 Hypothetical assumes 5% annual return before expenses. Expenses are equal to the Fund's annualized expense ratio for that class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Those annualized expense ratios based on the 6-month period ended August 31, 2006 are as follows: CLASS EXPENSE RATIOS - ---------------------------------- Class A 0.90% - ---------------------------------- Class B 1.74 - ---------------------------------- Class C 1.71 - ---------------------------------- Class N 1.32 - -------------------------------------------------------------------------------- 19 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS August 31, 2006 - -------------------------------------------------------------------------------- VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------- COMMON STOCKS--52.1% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY--4.0% - -------------------------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE--0.9% Wyndham Worldwide Corp. 1 909,040 $ 26,598,510 - -------------------------------------------------------------------------------- MEDIA--1.0% CBS Corp., Cl. B 110,000 3,140,500 - -------------------------------------------------------------------------------- Clear Channel Communications, Inc. 782,500 22,723,800 - -------------------------------------------------------------------------------- Viacom, Inc., Cl. B 1 112,450 4,081,935 ------------- 29,946,235 - -------------------------------------------------------------------------------- MULTILINE RETAIL--0.1% Target Corp. 56,000 2,709,840 - -------------------------------------------------------------------------------- SPECIALTY RETAIL--2.0% CSK Auto Corp. 1,2 5,502,500 63,113,675 - -------------------------------------------------------------------------------- CONSUMER STAPLES--9.2% - -------------------------------------------------------------------------------- FOOD & STAPLES RETAILING--0.8% Wal-Mart Stores, Inc. 550,000 24,596,000 - -------------------------------------------------------------------------------- FOOD PRODUCTS--0.5% B&G Foods, Inc. 875,000 14,988,750 - -------------------------------------------------------------------------------- TOBACCO--7.9% Altria Group, Inc. 3 2,175,000 181,677,750 - -------------------------------------------------------------------------------- Loews Corp./Carolina Group 3 1,069,900 61,262,474 ------------- 242,940,224 - -------------------------------------------------------------------------------- ENERGY--14.7% - -------------------------------------------------------------------------------- ENERGY EQUIPMENT & SERVICES--0.2% ENSCO International, Inc. 23,000 1,027,870 - -------------------------------------------------------------------------------- GlobalSantaFe Corp. 95,200 4,685,744 ------------- 5,713,614 - -------------------------------------------------------------------------------- OIL & GAS--14.5% BP plc, ADR 500,000 34,025,000 - -------------------------------------------------------------------------------- Chevron Corp. 84,000 5,409,600 - -------------------------------------------------------------------------------- Enbridge Energy Management LLC 2 747,702 35,104,599 - -------------------------------------------------------------------------------- Kinder Morgan Management LLC 3,650,001 154,066,522 - -------------------------------------------------------------------------------- Kinder Morgan, Inc. 3 1,550,750 161,836,270 - -------------------------------------------------------------------------------- Occidental Petroleum Corp. 215,000 10,962,850 - -------------------------------------------------------------------------------- Tortoise Energy Capital Corp. 598,733 14,130,099 - -------------------------------------------------------------------------------- Valero GP Holdings LLC 1 1,000,000 20,470,000 - -------------------------------------------------------------------------------- Williams Cos., Inc. (The) 304,700 7,504,761 ------------- 443,509,701 20 | OPPENHEIMER CAPITAL INCOME FUND VALUE SHARES SEE NOTE 1 - -------------------------------------------------------------------------------- FINANCIALS--15.9% - -------------------------------------------------------------------------------- COMMERCIAL BANKS--1.3% U.S. Bancorp 3 1,000,000 $ 32,070,000 - -------------------------------------------------------------------------------- Wachovia Corp. 166,500 9,095,895 ------------- 41,165,895 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES--6.7% Bank of America Corp. 1,650,000 84,925,500 - -------------------------------------------------------------------------------- Citigroup, Inc. 2,400,000 118,440,000 ------------- 203,365,500 - -------------------------------------------------------------------------------- INSURANCE--5.1% ACE Ltd. 825,000 44,434,500 - -------------------------------------------------------------------------------- Everest Re Group Ltd. 3 1,175,000 110,426,500 ------------- 154,861,000 - -------------------------------------------------------------------------------- REAL ESTATE--0.4% Anthracite Capital, Inc. 931,250 11,966,563 - -------------------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS--0.2% Crystal River Capital, Inc. 1 305,000 6,685,600 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT & DEVELOPMENT--0.8% Realogy Corp. 1 1,136,300 24,316,820 - -------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE--1.4% Washington Mutual, Inc. 3 1,000,000 41,890,000 - -------------------------------------------------------------------------------- HEALTH CARE--1.3% - -------------------------------------------------------------------------------- PHARMACEUTICALS--1.3% Pfizer, Inc. 3 1,400,000 38,584,000 - -------------------------------------------------------------------------------- INDUSTRIALS--3.4% - -------------------------------------------------------------------------------- AEROSPACE & DEFENSE--1.6% Raytheon Co. 3 1,000,000 47,210,000 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES--0.3% Cendant Corp. 4,545,200 8,772,236 - -------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES--1.5% General Electric Co. 1,175,000 40,020,500 - -------------------------------------------------------------------------------- Siemens AG, Sponsored ADR 76,500 6,506,325 ------------- 46,526,825 - -------------------------------------------------------------------------------- MATERIALS--0.3% - -------------------------------------------------------------------------------- CONTAINERS & PACKAGING--0.3% Packaging Corp. of America 415,000 9,603,100 21 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
VALUE SHARES SEE NOTE 1 - ----------------------------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES--2.5% - ----------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES--2.2% Citizens Communications Co. 1,250,000 $ 17,237,500 - ----------------------------------------------------------------------------------------------------- Consolidated Communications Holdings, Inc. 1,110,000 19,036,500 - ----------------------------------------------------------------------------------------------------- FairPoint Communications, Inc. 1,000,000 16,350,000 - ----------------------------------------------------------------------------------------------------- Windstream Corp. 1,075,000 14,190,000 -------------- 66,814,000 - ----------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--0.3% Sprint Nextel Corp. 500,000 8,460,000 - ----------------------------------------------------------------------------------------------------- UTILITIES--0.8% - ----------------------------------------------------------------------------------------------------- MULTI-UTILITIES & UNREGULATED POWER--0.8% Sempra Energy 500,000 24,860,000 -------------- Total Common Stocks (Cost $1,071,638,101) 1,589,198,088 - ----------------------------------------------------------------------------------------------------- PREFERRED STOCKS--7.6% - ----------------------------------------------------------------------------------------------------- AES Trust III, 6.75% Cv. 187,500 9,140,625 - ----------------------------------------------------------------------------------------------------- Citigroup Funding, Inc., 5.02% Cv., Series GNW 400,000 13,148,000 - ----------------------------------------------------------------------------------------------------- Emmis Communications Corp., 6.25% Cum. Cv., Series A, Non-Vtg. 475,000 19,475,000 - ----------------------------------------------------------------------------------------------------- General Motors Corp., 4.50% Cv. Sr. Debs., Series A 1,050,000 25,725,000 - ----------------------------------------------------------------------------------------------------- Hess Corp., 7% Cv., Non-Vtg. 47,500 5,481,975 - ----------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., 3.60% Cv. Yield Enhanced Equity Linked Debt Securities, Series TYC (linked to Tyco International Ltd. common stock) 1,968,811 51,090,645 - ----------------------------------------------------------------------------------------------------- Lucent Technologies Capital Trust I, 7.75% Cum. Cv., Non-Vtg. 12,250 12,372,500 - ----------------------------------------------------------------------------------------------------- NRG Energy, Inc., 5.75% Cv. 10,000 2,534,600 - ----------------------------------------------------------------------------------------------------- Platinum Underwriters Holdings Ltd., 6% Cv., Series A, Non-Vtg. 175,000 5,202,750 - ----------------------------------------------------------------------------------------------------- Travelers Property Casualty Corp., 4.50% Cv. Jr. Unsec. Sub. Nts. 1,875,000 45,037,500 - ----------------------------------------------------------------------------------------------------- United Rentals Trust I, 6.50% Cv. Quarterly Income Preferred Securities 575,000 25,300,000 - ----------------------------------------------------------------------------------------------------- XL Capital Ltd., 7% Cv. 675,000 16,726,500 --------------- Total Preferred Stocks (Cost $221,975,067) 231,235,095 PRINCIPAL AMOUNT - ----------------------------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS--12.7% - ----------------------------------------------------------------------------------------------------- Banc of America Commercial Mortgage, Inc., Commercial Mtg. Pass-Through Certificates, Series 2005-3, Cl. A2, 4.501%, 7/10/43 $2,670,000 2,604,381 - ----------------------------------------------------------------------------------------------------- Banc of America Funding Corp., CMO Pass-Through Certificates, Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 2,193,364 2,218,231 - ----------------------------------------------------------------------------------------------------- Banc of America Mortgage Securities, Inc., CMO Pass-Through Certificates, Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,702,886 1,712,465
22 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS Continued - ------------------------------------------------------------------------------------------------------- Citigroup Mortgage Loan Trust, Inc., CMO, Series 2006-WF1, Cl. A2B, 5.536%, 3/1/36 $ 660,000 $ 658,606 - ------------------------------------------------------------------------------------------------------- Countrywide Alternative Loan Trust, CMO: Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 4,260,682 4,293,970 Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 3,443,729 3,482,092 - ------------------------------------------------------------------------------------------------------- Deutsche Alt-A Securities, Inc. Mortgage Loan Trust, CMO, Series 2006-AB2, Cl. A7, 5.961%, 6/25/36 3,835,972 3,829,441 - ------------------------------------------------------------------------------------------------------- Deutsche Alt-B Securities, Inc. Mortgage Loan Trust, CMO, Series 2006-AB3, Cl. A7, 6.36%, 4/25/08 1,241,856 1,243,669 - ------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp.: 4.50%, 5/1/19 12,266,826 11,799,190 5%, 8/1/33 6,553,362 6,310,347 5%, 9/1/36 4 1,612,000 1,545,505 6%, 5/1/18 4,196,620 4,244,371 6.50%, 4/1/18-4/1/34 2,189,716 2,233,181 7%, 9/1/23-3/1/35 10,511,058 10,823,227 8%, 4/1/16 562,192 595,385 9%, 8/1/22-5/1/25 170,574 183,014 - ------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., CMO Gtd. Real Estate Mtg. Investment Conduit Multiclass Pass-Through Certificates: Series 2034, Cl. Z, 6.50%, 2/15/28 711,710 730,776 Series 2053, Cl. Z, 6.50%, 4/15/28 772,862 793,307 Series 2055, Cl. ZM, 6.50%, 5/15/28 942,045 962,179 Series 2075, Cl. D, 6.50%, 8/15/28 2,489,826 2,555,580 Series 2080, Cl. Z, 6.50%, 8/15/28 612,703 625,393 Series 2326, Cl. ZP, 6.50%, 6/15/31 767,083 787,892 Series 2387, Cl. PD, 6%, 4/15/30 482,469 483,263 Series 2500, Cl. FD, 5.83%, 3/15/32 5 342,419 345,887 Series 2526, Cl. FE, 5.73%, 6/15/29 5 460,966 461,191 Series 2551, Cl. FD, 5.73%, 1/15/33 5 361,563 365,650 - ------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., CMO Interest-Only Stripped Mtg.-Backed Security, Series 2005-87, Cl. SG, 12.157%, 10/25/35 6 9,014,995 484,963 - ------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security: Series 176, Cl. IO, 13.529%, 6/1/26 6 633,116 143,383 Series 183, Cl. IO, 10.491%, 4/1/27 6 986,108 223,672 Series 184, Cl. IO, 15.986%, 12/1/26 6 1,048,649 237,784 Series 192, Cl. IO, 15.182%, 2/1/28 6 318,638 69,427 Series 200, Cl. IO, 14.013%, 1/1/29 6 380,905 86,238 Series 2003-118, Cl. S, 10.072%, 12/25/33 6 5,279,311 598,050 Series 2130, Cl. SC, (1.575)%, 3/15/29 6 749,620 43,694 Series 2796, Cl. SD, 1.061%, 7/15/26 6 1,112,551 70,981 Series 2920, Cl. S, (2.806)%, 1/15/35 6 6,441,260 293,439 Series 3000, Cl. SE, (3.951)%, 7/15/25 6 6,721,550 222,213 - ------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Principal-Only Stripped Mtg.-Backed Security, Series 176, Cl. PO, 4.448%, 6/1/26 7 301,350 244,614
23 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ---------------------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS Continued - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn.: 5%, 6/1/18-11/1/33 $28,649,718 $27,700,002 5%, 3/1/18-9/1/36 4 35,844,541 34,756,783 5.50%, 1/1/33-4/1/34 36,454,752 35,910,668 5.50%, 9/1/21-9/1/36 4 38,229,000 37,700,024 6%, 8/1/32-1/1/33 7,383,661 7,419,365 6%, 9/1/21-9/1/36 4 27,244,000 27,504,436 6.50%, 12/1/29-11/1/31 12,923,016 13,193,684 6.50%, 4/1/16-9/1/36 4 16,550,483 16,831,042 7%, 11/1/17-7/1/35 10,001,122 10,306,572 7.50%, 1/1/33-3/1/33 14,184,741 14,730,192 8.50%, 7/1/32 59,628 64,262 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn. Grantor Trust, CMO, Trust 2002-T1, Cl. A2, 7%, 11/25/31 2,179,545 2,236,469 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn., CMO Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,950,842 2,005,179 Trust 2001-50, Cl. NE, 6%, 8/25/30 284,224 284,758 Trust 2001-51, Cl. OD, 6.50%, 10/25/31 2,645,563 2,700,025 Trust 2001-70, Cl. LR, 6%, 9/25/30 374,576 375,555 Trust 2001-72, Cl. NH, 6%, 4/25/30 165,250 165,102 Trust 2001-74, Cl. PD, 6%, 5/25/30 68,593 68,443 Trust 2002-9, Cl. PC, 6%, 3/25/17 8,010,280 8,115,386 Trust 2002-77, Cl. WF, 5.73%, 12/18/32 5 542,702 547,491 Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 1,903,000 1,860,236 Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,921,000 1,891,763 Trust 2004-101, Cl. BG, 5%, 1/25/20 2,550,000 2,481,334 Trust 2005-31, Cl. PB, 5.50%, 4/25/35 1,430,000 1,390,645 Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,560,000 1,498,184 Trust 2005-104, Cl. MC, 5.50%, 12/25/25 7,321,312 7,121,559 Trust 2006-50, Cl. KS, 4.677%, 6/25/36 5 3,202,317 2,951,356 Trust 2006-50, Cl. SK, 4.677%, 6/25/36 5 259,542 251,449 Trust 2006-57, Cl. PA, 5.50%, 8/25/27 6,415,418 6,423,060 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn., CMO Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Interest-Only Stripped Mtg.-Backed Security: Trust 2001-15, Cl. SA, 6.429%, 3/17/31 6 928,149 114,069 Trust 2002-47, Cl. NS, (0.223)%, 4/25/32 6 1,348,732 106,661 Trust 2002-51, Cl. S, (0.104)%, 8/25/32 6 1,238,321 99,543 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn., CMO Interest-Only Stripped Mtg.-Backed Security, Trust 340, Cl. 2, 8.345%, 9/1/33 6 2,047,200 507,095 - ---------------------------------------------------------------------------------------------- Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Trust 222, Cl. 2, 14.988%, 6/1/23 6 2,248,960 497,849 Trust 240, Cl. 2, 18.732%, 9/1/23 6 3,399,467 773,632 Trust 252, Cl. 2, 10.142%, 11/1/23 6 1,667,901 417,650 Trust 273, Cl. 2, 15.989%, 8/1/26 6 473,005 106,396
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 303, Cl. IO, 12.054%, 11/1/29 6 $ 605,841 $ 148,053 Trust 308, Cl. 2, 13.611%, 9/1/30 6 1,757,403 444,856 Trust 321, Cl. 2, 6.489%, 4/1/32 6 6,816,678 1,610,546 Trust 322, Cl. 2, 16.576%, 4/1/32 6 2,590,246 605,676 Trust 329, Cl. 2, 10.462%, 1/1/33 6 3,401,218 833,340 Trust 331, Cl. 9, 8.748%, 2/1/33 6 1,906,886 435,127 Trust 334, Cl. 17, 17.39%, 2/1/33 6 1,108,812 262,892 Trust 344, Cl. 2, 8.907%, 12/1/33 6 1,985,657 473,119 Trust 362, Cl. 12, 4.55%, 8/1/35 6 5,767,331 1,273,024 Trust 362, Cl. 13, 4.571%, 8/1/35 6 3,202,283 725,745 Trust 2001-65, Cl. S, 10.366%, 11/25/31 6 3,073,863 288,341 Trust 2001-81, Cl. S, 3.442%, 1/25/32 6 700,884 51,465 Trust 2002-9, Cl. MS, 0.572%, 3/25/32 6 844,819 67,764 Trust 2002-52, Cl. SD, (2.472)%, 9/25/32 6 1,469,802 113,739 Trust 2002-75, Cl. SA, 11.301%, 11/25/32 6 3,581,199 343,770 Trust 2002-77, Cl. SH, 3.651%, 12/18/32 6 868,335 85,415 Trust 2003-33, Cl. SP, 13.214%, 5/25/33 6 3,015,547 345,667 Trust 2003-46, Cl. IH, 8.403%, 6/25/33 6 6,325,955 1,372,172 Trust 2004-54, Cl. DS, (3.732)%, 11/25/30 6 1,393,018 71,696 Trust 2005-6, Cl. SE, (2.59)%, 2/25/35 6 4,413,273 206,466 Trust 2005-19, Cl. SA, (3.328)%, 3/25/35 6 16,432,857 770,507 Trust 2005-40, Cl. SA, (3.374)%, 5/25/35 6 3,817,675 179,946 Trust 2005-71, Cl. SA, 3.446%, 8/25/25 6 4,275,700 224,174 Trust 2006-33, Cl. SP, 13.778%, 5/25/36 6 8,556,070 648,357 - --------------------------------------------------------------------------------------------------- Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed Security: Trust 340, Cl. 1, 5.056%, 9/1/33 7 2,047,200 1,469,277 Trust 1993-184, Cl. M, 5.413%, 9/25/23 7 770,119 618,342 - --------------------------------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations: Series 2004-C3, Cl. A2, 4.433%, 7/10/39 1,720,000 1,687,944 Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,590,000 1,569,463 - --------------------------------------------------------------------------------------------------- GMAC Commercial Mortgage Securities, Inc., Commercial Mtg. Pass-Through Certificates, Series 1997-C1, Cl. A3, 6.869%, 7/15/29 656,535 661,958 - --------------------------------------------------------------------------------------------------- Government National Mortgage Assn., 8.50%, 8/15/17-12/15/17 221,801 236,788 - --------------------------------------------------------------------------------------------------- Government National Mortgage Assn., CMO Interest-Only Stripped Mtg.-Backed Security, Series 2002-41, Cl. GS, 4.706%, 6/16/32 6 789,520 119,686 - --------------------------------------------------------------------------------------------------- Government National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security: Series 2001-21, Cl. SB, (5.729)%, 1/16/27 6 1,511,219 92,305 Series 2002-15, Cl. SM, (8.599)%, 2/16/32 6 1,382,654 80,362 Series 2002-76, Cl. SY, (5.202)%, 12/16/26 6 3,361,624 228,284 Series 2004-11, Cl. SM, (8.329)%, 1/17/30 6 1,176,503 68,799 Series 2006-47, Cl. SA, 17.104%, 8/16/36 6 11,355,000 629,027
25 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------------------- MORTGAGE-BACKED OBLIGATIONS Continued - ------------------------------------------------------------------------------------------------------- Greenwich Capital Commercial Funding Corp., Commercial Mtg. Pass-Through Certificates: Series 2005-GG3, Cl. A2, 4.305%, 8/10/42 $ 1,990,000 $ 1,938,503 Series 2005-GG5, Cl. A2, 5.117%, 4/10/37 1,750,000 1,741,295 - ------------------------------------------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities Corp., Commercial Mtg. Pass-Through Certificates: Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 640,000 625,328 Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 2,280,000 2,240,014 - ------------------------------------------------------------------------------------------------------- LB-UBS Commercial Mortgage Trust, Commercial Mtg. Pass-Through Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/30 1,900,000 1,879,959 - ------------------------------------------------------------------------------------------------------- Lehman XS Trust, Mtg. Pass-Through Certificates, Series 2005-10, Cl. 2A3B, 5.55%, 1/25/36 1,489,863 1,477,611 - ------------------------------------------------------------------------------------------------------- Mastr Alternative Loan Trust, CMO Pass-Through Certificates: Series 2004-6, Cl. 10A1, 6%, 7/25/34 2,763,677 2,743,334 Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 1,598,205 1,586,146 - ------------------------------------------------------------------------------------------------------- Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 2,380,000 2,551,081 - ------------------------------------------------------------------------------------------------------- Residential Accredit Loans, Inc., CMO Asset-Backed Pass-Through Certificates: Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 1,366,504 1,357,939 Series 2006-QS5, Cl. 2 A2, 6%, 4/25/08 4,473,432 4,466,190 - ------------------------------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations, Series 2005-C17, Cl. A2, 4.782%, 3/15/42 3,590,000 3,538,217 - ------------------------------------------------------------------------------------------------------- WAMU Mortgage Pass-Through Certificates, Series 2005-AR5 Trust, CMO Mtg. Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.673%, 5/25/35 5 1,441,143 1,436,867 - ------------------------------------------------------------------------------------------------------- Wells Fargo Mortgage-Backed Securities 2004-DD Trust, CMO Mtg. Pass-Through Certificates, Series 2004-DD, Cl. 2A1, 4.511%, 1/25/35 5 341,327 340,014 ------------ Total Mortgage-Backed Obligations (Cost $388,925,731) 386,681,160 - ------------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES--1.9% - ------------------------------------------------------------------------------------------------------- Ace Securities Corp., Home Equity Loan Pass-Through Certificates, Series 2002-HE7, Cl. A2B, 5.504%, 11/25/35 5 1,310,000 1,311,429 - ------------------------------------------------------------------------------------------------------- Aesop Funding II LLC, Automobile Asset-Backed Certificates, Series 2005-1A, Cl. A2, 5.385%, 4/20/08 5 900,000 900,683 - ------------------------------------------------------------------------------------------------------- Argent Securities Trust 2004-W8, Asset-Backed Pass-Through Certificates, Series 2004-W8, Cl. A2, 5.804%, 5/25/34 5 4,500,000 4,522,361 - ------------------------------------------------------------------------------------------------------- Argent Securities Trust 2006-W5, Asset-Backed Pass-Through Certificates, Series 2006-W5, Cl. A2B, 5.424%, 5/26/36 5 1,810,000 1,811,115 - ------------------------------------------------------------------------------------------------------- Capital Auto Receivables Asset Trust, Automobile Asset-Backed Securities, Series 2004-2, Cl. A3, 3.58%, 1/15/09 2,990,000 2,942,908
26 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - --------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES Continued - --------------------------------------------------------------------------------------------------- Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates: Series 2005-C, Cl. AF1, 4.196%, 6/25/35 $ 334,323 $ 333,014 Series 2005-D, Cl. AF1, 5.04%, 10/25/35 1,218,938 1,213,325 Series 2005-D, Cl. AV2, 5.594%, 10/25/35 5 2,550,000 2,552,940 Series 2006-A, Cl. AV2, 5.424%, 5/16/36 5 2,270,000 2,271,398 - --------------------------------------------------------------------------------------------------- Citibank Credit Card Issuance Trust, Credit Card Receivable Nts., Series 2003-C4, Cl. C4, 5%, 6/10/15 430,000 415,457 - --------------------------------------------------------------------------------------------------- Consumer Credit Reference Index Securities Program, Credit Card Asset-Backed Certificates, Series 2002-B, Cl. FX, 10.421%, 3/22/07 8 2,890,000 2,940,735 - --------------------------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2002-4, Asset-Backed Certificates, Series 2002-4, Cl. A1, 5.694%, 2/25/33 5 44,821 44,868 - --------------------------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-16, Asset-Backed Certificates, Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36 5 920,000 917,902 - --------------------------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-17, Asset-Backed Certificates: Series 2005-17, Cl. 1AF1, 5.524%, 5/25/36 5 1,468,245 1,470,046 Series 2005-17, Cl. 1AF2, 5.363%, 5/25/36 5 620,000 618,349 - --------------------------------------------------------------------------------------------------- CWABS Asset-Backed Certificates Trust 2005-7, Asset-Backed Certificates, Series 2005-7, Cl. AF1B, 4.317%, 11/25/35 5 350,276 348,965 - --------------------------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2005-FF10, Mtg. Pass-Through Certificates, Series 2005-FF10, Cl. A3, 5.534%, 11/25/35 5 3,800,000 3,804,119 - --------------------------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF10, Mtg. Pass-Through Certificates, Series 2006-FF10, Cl. A3, 5.414%, 7/25/36 5 1,790,000 1,791,102 - --------------------------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF5, Mtg. Pass-Through Certificates, Series 2006-FF5, Cl.2A1, 5.374%, 5/15/36 5 1,236,307 1,237,160 - --------------------------------------------------------------------------------------------------- First Franklin Mortgage Loan Trust 2006-FF9, Mtg. Pass-Through Certificates, Series 2006-FF9, Cl. 2A2, 5.495%, 7/7/36 5 920,000 920,566 - --------------------------------------------------------------------------------------------------- Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates: Series 2005-A, Cl. A3, 3.48%, 11/17/08 1,799,955 1,785,417 Series 2005-B, Cl. A2, 3.78%, 9/15/07 25,968 25,964 - --------------------------------------------------------------------------------------------------- Household Home Equity Loan Trust, Home Equity Loan Pass-Through Certificates, Series 2005-3, Cl. A1, 5.585%, 1/20/35 5 1,415,345 1,417,533 - --------------------------------------------------------------------------------------------------- Lehman XS Trust, Mtg. Pass-Through Certificates: Series 2005-2, Cl. 2A1B, 5.18%, 8/25/35 5 1,938,626 1,931,861 Series 2005-4, Cl. 2A1B, 5.17%, 10/25/35 1,438,151 1,431,092 - --------------------------------------------------------------------------------------------------- MBNA Credit Card Master Note Trust, Credit Card Receivables, Series 2003-C7, Cl. C7, 6.68%, 3/15/16 5 4,080,000 4,338,874 - --------------------------------------------------------------------------------------------------- Morgan Stanley ABS Capital I, Mtg. Pass-Through Certificates, Series 2005-WMC6, Cl. A2B, 5.584%, 7/25/35 5 1,100,000 1,102,646
27 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - --------------------------------------------------------------------------------------------------- ASSET-BACKED SECURITIES Continued - --------------------------------------------------------------------------------------------------- Onyx Acceptance Owner Trust, Automobile Receivable Obligations, Series 2005-B, Cl. A2, 4.03%, 4/15/08 $ 392,250 $ 391,953 - --------------------------------------------------------------------------------------------------- Option One Mortgage Loan Trust, Asset-Backed Certificates, Series 2006-2, Cl. 2A2, 5.424%, 7/1/36 5 3,010,000 3,011,853 - --------------------------------------------------------------------------------------------------- Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through Certificates: Series 2004-5, Cl. A F2, 3.735%, 11/10/34 5 561,648 558,330 Series 2005-2, Cl. A F2, 4.415%, 4/25/35 5 1,040,000 1,029,372 - --------------------------------------------------------------------------------------------------- Popular ABS Mortgage Pass-Through Trust, Mtg. Pass-Through Certificates, Series 2005-1, Cl. AF2, 3.914%, 5/25/35 5 600,000 594,933 - --------------------------------------------------------------------------------------------------- RAMP Series 2004-RS7 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28 1,910,000 1,892,051 - --------------------------------------------------------------------------------------------------- RAMP Series 2006-RS4 Trust, Mtg. Asset-Backed Pass-Through Certificates, Series 2006-RS4, Cl. A1, 5.404%, 7/25/36 5 1,173,508 1,174,233 - --------------------------------------------------------------------------------------------------- Structured Asset Investment Loan Trust, Mtg. Pass-Through Certificates, Series 2006-2, Cl. A1, 5.384%, 4/25/36 5 1,356,042 1,356,967 - --------------------------------------------------------------------------------------------------- Structured Asset Securities Corp., Home Equity Asset-Backed Securities, Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 2,442,289 2,433,190 - --------------------------------------------------------------------------------------------------- Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust, Home Equity Asset-Backed Certificates, Series 2006-2, Cl. A2, 5.485%, 7/25/36 5 1,790,000 1,791,102 ------------ Total Asset-Backed Securities (Cost $58,739,253) 58,635,813 - --------------------------------------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--0.8% - --------------------------------------------------------------------------------------------------- Fannie Mae Unsec. Nts., 3.69%, 10/5/07 9 2,255,000 2,131,419 - --------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. Unsec. Nts.: 4.125%, 7/12/10 1,210,000 1,172,835 5.125%, 4/18/11 1,310,000 1,316,008 6.625%, 9/15/09 3 2,340,000 2,444,907 - --------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. Unsec. Nts.: 4.75%, 12/15/10 3,405,000 3,371,239 6%, 5/15/11 2,855,000 2,971,687 6.625%, 9/15/09 3,555,000 3,717,350 - --------------------------------------------------------------------------------------------------- Tennessee Valley Authority Bonds, Series A, 6.79%, 5/23/12 4,898,000 5,321,525 - --------------------------------------------------------------------------------------------------- U.S. Treasury Bonds: 4.50%, 2/15/36 1,269,000 1,194,744 8.875%, 8/15/17 285,000 382,524 - --------------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 4.875%, 8/15/16 301,000 304,504 5.125%, 5/15/16 958,000 985,505 ------------ Total U.S. Government Obligations (Cost $25,744,220) 25,314,247
28 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - --------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES--11.0% - --------------------------------------------------------------------------------------------- Ahold Finance USA, Inc., 6.25% Sr. Unsec. Unsub. Nts., 5/1/09 $ 2,775,000 $ 2,788,875 - --------------------------------------------------------------------------------------------- Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 2,425,000 2,252,165 - --------------------------------------------------------------------------------------------- Allied Waste North America, Inc.: 5.75% Sr. Sec. Nts., Series B, 2/15/11 5,000,000 4,775,000 8.50% Sr. Sub. Nts., 12/1/08 2,500,000 2,612,500 - --------------------------------------------------------------------------------------------- AT&T Wireless Services, Inc.: 7.50% Sr. Unsec. Nts., 5/1/07 10 770,000 779,838 8.125% Sr. Unsec. Nts., 5/1/12 10 2,115,000 2,370,701 - --------------------------------------------------------------------------------------------- BAE Systems Holdings, Inc., 4.75% Nts., 8/15/10 8 2,995,000 2,908,445 - --------------------------------------------------------------------------------------------- Bank Plus Corp., 12% Sr. Nts., 7/18/07 11 2,500,000 2,675,000 - --------------------------------------------------------------------------------------------- Barclays Bank plc, 6.278% Perpetual Bonds 12 4,410,000 4,125,643 - --------------------------------------------------------------------------------------------- Beazer Homes USA, Inc.: 6.875% Sr. Unsec. Nts., 7/15/15 1,515,000 1,355,925 8.375% Sr. Nts., 4/15/12 800,000 796,000 - --------------------------------------------------------------------------------------------- Caesars Entertainment, Inc., 7.50% Sr. Unsec. Nts., 9/1/09 3,310,000 3,464,494 - --------------------------------------------------------------------------------------------- CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 2,770,000 2,923,364 - --------------------------------------------------------------------------------------------- Centex Corp., 4.875% Sr. Unsec. Nts., 8/15/08 1,800,000 1,774,535 - --------------------------------------------------------------------------------------------- Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 1,440,000 1,506,845 - --------------------------------------------------------------------------------------------- Charter Communications Holdings I LLC, 11% Sr. Sec. Nts., 10/1/15 57,500,000 51,318,750 - --------------------------------------------------------------------------------------------- Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp.: 9.92% Sr. Unsec. Disc. Nts., 4/1/11 27,500,000 20,487,500 10% Sr. Unsec. Sub. Nts., 5/15/11 2,000,000 1,430,000 13.50% Sr. Unsec. Disc. Nts., 1/15/11 4,250,000 3,378,750 - --------------------------------------------------------------------------------------------- Chesapeake Energy Corp., 6.875% Sr. Unsec. Nts., 1/15/16 5,601,000 5,460,975 - --------------------------------------------------------------------------------------------- CIT Group, Inc., 5.40% Sr. Nts., 3/7/13 2,960,000 2,929,349 - --------------------------------------------------------------------------------------------- Citigroup, Inc., 6.125% Sub. Nts., 8/25/36 1,220,000 1,236,797 - --------------------------------------------------------------------------------------------- Clear Channel Communications, Inc., 6.25% Nts., 3/15/11 1,965,000 1,963,579 - --------------------------------------------------------------------------------------------- Comcast Corp., 6.45% Unsec. Nts., 3/15/37 3,540,000 3,482,868 - --------------------------------------------------------------------------------------------- Continental Airlines, Inc., 7.568% Pass-Through Certificates, Series D, 12/1/06 10,250,000 10,240,199 - --------------------------------------------------------------------------------------------- Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10 4,530,000 4,391,803 - --------------------------------------------------------------------------------------------- CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 3,041,250 - --------------------------------------------------------------------------------------------- D.R. Horton, Inc.: 5.375% Sr. Unsec. Nts., 6/15/12 1,790,000 1,702,797 6.125% Nts., 1/15/14 1,315,000 1,277,523 - --------------------------------------------------------------------------------------------- DaimlerChrysler North America Holding Corp., 7.30% Nts., 1/15/12 2,760,000 2,939,579 - --------------------------------------------------------------------------------------------- Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,820,000 2,138,444 - --------------------------------------------------------------------------------------------- Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 2,570,000 2,793,361 - --------------------------------------------------------------------------------------------- Eastman Kodak Co., 3.625% Nts., Series A, 5/15/08 360,000 343,911 - --------------------------------------------------------------------------------------------- EchoStar DBS Corp., 5.75% Sr. Unsec. Nts., 10/1/08 1,810,000 1,796,425
29 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued - ------------------------------------------------------------------------------------------- El Paso Corp.: 6.50% Sr. Unsec. Nts., 6/1/08 8 $ 578,000 $ 580,168 7.625% Sr. Unsec. Nts., 9/1/08 11 2,170,000 2,224,250 - ------------------------------------------------------------------------------------------- Enterprise Products Operating LP, 4.625% Sr. Unsec. Nts., Series B, 10/15/09 1,520,000 1,479,545 - ------------------------------------------------------------------------------------------- EOP Operating LP, 8.10% Unsec. Nts., 8/1/10 2,720,000 2,952,103 - ------------------------------------------------------------------------------------------- Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 1,945,000 1,988,385 - ------------------------------------------------------------------------------------------- FirstEnergy Corp., 7.375% Sr. Unsub. Nts., Series C, 11/15/31 2,660,000 3,017,294 - ------------------------------------------------------------------------------------------- Ford Motor Credit Co., 9.75% Sr. Unsec. Nts., 9/15/10 8 5,600,000 5,801,359 - ------------------------------------------------------------------------------------------- Gap, Inc. (The): 6.90% Nts., 9/15/07 2,130,000 2,152,037 9.393% Unsub. Nts., 12/15/08 5 359,000 387,880 - ------------------------------------------------------------------------------------------- General Motors Acceptance Corp., 8% Bonds, 11/1/31 2,355,000 2,386,637 - ------------------------------------------------------------------------------------------- Goldman Sachs Capital, Inc. (The), 6.345% Sub. Bonds, 2/15/34 4,505,000 4,461,657 - ------------------------------------------------------------------------------------------- HBOS plc, 6.413% Sub. Perpetual Bonds, Series A 8,12 4,300,000 4,104,079 - ------------------------------------------------------------------------------------------- HCA, Inc., 8.75% Sr. Nts., 9/1/10 2,985,000 3,014,850 - ------------------------------------------------------------------------------------------- Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11 2,135,000 2,305,100 - ------------------------------------------------------------------------------------------- HSBC Finance Capital Trust IX, 5.911% Nts., 11/30/35 5 2,900,000 2,880,376 - ------------------------------------------------------------------------------------------- Hyatt Equities LLC, 6.875% Nts., 6/15/07 8 2,855,000 2,874,899 - ------------------------------------------------------------------------------------------- Hyundai Motor Manufacturing Alabama LLC, 5.30% Sr. Unsec. Nts., 12/19/08 8 1,645,000 1,628,543 - ------------------------------------------------------------------------------------------- IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 5 1,410,000 1,462,875 - ------------------------------------------------------------------------------------------- Isle of Capri Casinos, Inc., 9% Sr. Sub. Nts., 3/15/12 1,000,000 1,051,250 - ------------------------------------------------------------------------------------------- iStar Financial, Inc., 5.15% Sr. Unsec. Nts., 3/1/12 3,125,000 3,036,384 - ------------------------------------------------------------------------------------------- JPMorgan Chase & Co., 5.15% Sub. Nts., 10/1/15 2,960,000 2,867,003 - ------------------------------------------------------------------------------------------- K. Hovnanian Enterprises, Inc.: 6.50% Sr. Nts., 1/15/14 2,525,000 2,291,438 8.875% Sr. Sub. Nts., 4/1/12 1,600,000 1,552,000 - ------------------------------------------------------------------------------------------- KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14 1,915,000 1,707,642 - ------------------------------------------------------------------------------------------- Kinder Morgan Energy Partners LP, 7.30% Sr. Unsec. Nts., 8/15/33 2,705,000 2,911,362 - ------------------------------------------------------------------------------------------- Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 2,435,000 2,390,756 - ------------------------------------------------------------------------------------------- Kroger Co. (The), 5.50% Unsec. Unsub. Nts., 2/1/13 2,970,000 2,909,780 - ------------------------------------------------------------------------------------------- Lennar Corp., 7.625% Sr. Unsec. Nts., 3/1/09 2,760,000 2,880,667 - ------------------------------------------------------------------------------------------- Liberty Media Corp.: 5.70% Sr. Unsec. Nts., 5/15/13 1,580,000 1,492,206 7.875% Sr. Nts., 7/15/09 845,000 887,477 - ------------------------------------------------------------------------------------------- Limited Brands, Inc., 6.125% Sr. Unsec. Nts., 12/1/12 2,965,000 2,980,643 - ------------------------------------------------------------------------------------------- Marsh & McLennan Cos., Inc.: 5.875% Sr. Unsec. Bonds, 8/1/33 1,930,000 1,746,970 7.125% Sr. Unsec. Nts., 6/15/09 1,660,000 1,723,274
30 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ----------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued - ----------------------------------------------------------------------------------------------------------------- May Department Stores Co., 7.90% Unsec. Debs., 10/15/07 $1,050,000 $1,070,672 - ---------------------------------------------------------------------------------------------------------------- MBIA, Inc., 5.70% Sr. Unsec. Unsub. Nts., 12/1/34 2,320,000 2,181,417 - ---------------------------------------------------------------------------------------------------------------- MeadWestvaco Corp., 6.85% Unsec. Unsub. Nts., 4/1/12 2,815,000 2,923,338 - ---------------------------------------------------------------------------------------------------------------- MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35 2,545,000 2,427,449 - ---------------------------------------------------------------------------------------------------------------- MGM Mirage, Inc., 6% Sr. Sec. Nts., 10/1/09 2,960,000 2,908,200 - ---------------------------------------------------------------------------------------------------------------- Mission Energy Holding Co., 13.50% Sr. Sec. Nts., 7/15/08 2,630,000 2,955,463 - ---------------------------------------------------------------------------------------------------------------- Morgan Stanley, 4.75% Sub. Nts., 4/1/14 3,080,000 2,915,168 - ---------------------------------------------------------------------------------------------------------------- National City Bank, 6.20% Sub. Nts., 12/15/11 213,000 221,591 - ---------------------------------------------------------------------------------------------------------------- Nationwide Financial Services, Inc.: 5.90% Nts., 7/1/12 1,600,000 1,627,498 6.25% Sr. Unsec. Nts., 11/15/11 40,000 41,393 - ---------------------------------------------------------------------------------------------------------------- NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 3,680,000 3,958,245 - ---------------------------------------------------------------------------------------------------------------- Pemex Project Funding Master Trust, 7.875% Unsec. Unsub. Nts., 2/1/09 4,125,000 4,320,938 - ---------------------------------------------------------------------------------------------------------------- Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 8 4,082,667 4,027,359 - ---------------------------------------------------------------------------------------------------------------- PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 8 916,261 859,998 - ---------------------------------------------------------------------------------------------------------------- Popular North America, Inc., 4.70% Nts., 6/30/09 3,665,000 3,587,438 - ---------------------------------------------------------------------------------------------------------------- Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 8 2,910,000 3,572,918 - ---------------------------------------------------------------------------------------------------------------- Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 2,970,000 3,693,834 - ---------------------------------------------------------------------------------------------------------------- PSEG Funding Trust I, 5.381% Nts., 11/16/07 1,735,000 1,731,029 - ---------------------------------------------------------------------------------------------------------------- Pulte Homes, Inc., 4.875% Nts., 7/15/09 2,975,000 2,912,888 - ---------------------------------------------------------------------------------------------------------------- Qwest Corp., 5.625% Unsec. Nts., 11/15/08 10 363,000 360,278 - ---------------------------------------------------------------------------------------------------------------- Reed Elsevier Capital, Inc., 4.625% Nts., 6/15/12 1,235,000 1,172,983 - ---------------------------------------------------------------------------------------------------------------- Reynolds American, Inc., 6.50% Sr. Sec. Nts., 6/1/07 8 1,848,000 1,861,612 - ---------------------------------------------------------------------------------------------------------------- Rite Aid Corp., 6.875% Sr. Unsec. Debs., 8/15/13 13,500,000 11,407,500 - ---------------------------------------------------------------------------------------------------------------- Royal Caribbean Cruises Ltd., 7% Sr. Unsec. Unsub. Nts., 10/15/07 800,000 811,457 - ---------------------------------------------------------------------------------------------------------------- Safeway, Inc., 6.50% Sr. Unsec. Nts., 3/1/11 2,850,000 2,932,314 - ---------------------------------------------------------------------------------------------------------------- Sinclair Broadcast Group, Inc., 8% Sr. Unsec. Sub. Nts., 3/15/12 1,000,000 1,017,500 - ---------------------------------------------------------------------------------------------------------------- Telefonos de Mexico SA de CV, 4.50% Nts., 11/19/08 1,575,000 1,546,396 - ---------------------------------------------------------------------------------------------------------------- Telus Corp., 8% Nts., 6/1/11 350,000 385,270 - ---------------------------------------------------------------------------------------------------------------- Time Warner Entertainment Co. LP, 8.375% Sr. Nts., 7/15/33 2,400,000 2,760,302 - ---------------------------------------------------------------------------------------------------------------- Tribune Co., 5.50% Nts., Series E, 10/6/08 1,615,000 1,601,738 - ---------------------------------------------------------------------------------------------------------------- TXU Energy Co., 6.125% Nts., 3/15/08 1,955,000 1,970,503 - ---------------------------------------------------------------------------------------------------------------- Tyson Foods, Inc., 7.25% Sr. Unsec. Nts., 10/1/06 3,405,000 3,406,941 - ---------------------------------------------------------------------------------------------------------------- United States Steel Corp., 10.75% Sr. Nts., 8/1/08 545,000 589,963 - ---------------------------------------------------------------------------------------------------------------- Univision Communications, Inc., 3.50% Sr. Unsec. Nts., 10/15/07 2,795,000 2,712,986 - ---------------------------------------------------------------------------------------------------------------- Verizon Global Funding Corp., 7.25% Sr. Unsec. Unsub. Nts., 12/1/10 1,400,000 1,495,217 - ---------------------------------------------------------------------------------------------------------------- Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 2,990,000 2,985,679 - ---------------------------------------------------------------------------------------------------------------- Westar Energy, Inc., 7.125% Sr. Unsec. Nts., 8/1/09 2,190,000 2,285,683
31 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - --------------------------------------------------------------------------------
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - ----------------------------------------------------------------------------------------------------------------- NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued - ----------------------------------------------------------------------------------------------------------------- Williams Cos., Inc., Credit Linked Certificate Trust (The), 6.75% Nts., 4/15/09 8 $ 2,885,000 $ 2,899,425 - ----------------------------------------------------------------------------------------------------------------- Xerox Corp., 9.75% Sr. Unsec. Nts., 1/15/09 2,750,000 2,983,750 - ----------------------------------------------------------------------------------------------------------------- Yum! Brands, Inc., 7.70% Sr. Nts., 7/1/12 1,890,000 2,071,338 ------------- Total Non-Convertible Corporate Bonds and Notes (Cost $344,988,751) 334,789,750 - ----------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BONDS AND NOTES-10.5% - ----------------------------------------------------------------------------------------------------------------- Charter Communications, Inc.: 5.875% Cv. Sr. Nts., 11/16/09 8 5,000,000 4,406,250 5.875% Cv. Sr. Nts., 11/16/09 16,000,000 14,100,000 - ----------------------------------------------------------------------------------------------------------------- CSK Auto, Inc., 4.625% Cv. Sr. Unsec. Nts., 12/15/25 5,8 11,000,000 11,893,750 - ----------------------------------------------------------------------------------------------------------------- Level 3 Communications, Inc., 6% Cv. Unsec. Sub. Nts., 3/15/10 2,500,000 2,146,875 - ----------------------------------------------------------------------------------------------------------------- Liberty Media Corp.: 0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 13 56,000,000 59,010,000 3.25% Exchangeable Sr. Unsec. Debs., 3/15/31 (exchangeable for Viacom, Inc. Cl. B common stock or cash based on the value thereof) 122,500,000 95,396,875 4% Exchangeable Sr. Unsec. Debs., 11/15/29 (exchangeable for Sprint Corp. PCS, Series 1 common stock or cash based on the value of that stock) 5,000,000 3,318,750 - ----------------------------------------------------------------------------------------------------------------- Lucent Technologies, Inc., 2.75% Cv. Sr. Unsec. Debs., Series A, 6/15/23 33,750,000 33,159,375 - ----------------------------------------------------------------------------------------------------------------- Nortel Networks Corp., 4.25% Cv. Sr. Unsec. Nts., 9/1/08 22,500,000 21,403,121 - ----------------------------------------------------------------------------------------------------------------- Pride International, Inc., 3.25% Cv. Sr. Nts., 5/1/33 20,500,000 23,908,125 - ----------------------------------------------------------------------------------------------------------------- Sirius Satellite Radio, Inc., 2.50% Cv. Sr. Nts., 2/15/09 17,500,000 19,950,000 - ----------------------------------------------------------------------------------------------------------------- XM Satellite Radio Holdings, Inc.: 1.75% Cv. Sr. Nts., 12/1/09 8 14,250,000 11,346,563 1.75% Cv. Sr. Nts., 12/1/09 26,750,000 21,299,688 ------------- Total Convertible Corporate Bonds and Notes (Cost $340,108,387) 321,339,372 - ----------------------------------------------------------------------------------------------------------------- STRUCTURED NOTES-7.6% - ----------------------------------------------------------------------------------------------------------------- Bank of America NA, Boston Scientific Corp. Cv. Linked Nts., 2.25%, 11/6/06 15,000,000 10,827,000 - ----------------------------------------------------------------------------------------------------------------- Citigroup Global Markets Holdings, Inc.: Pulte Homes, Inc. Cv. Equity Linked Nts., 7.55%, 3/14/07 259,673 8,187,074 Tyco International Ltd. Cv. Equity Linked Nts., 2.87%, 12/15/06 1,170,961 30,907,867 - ----------------------------------------------------------------------------------------------------------------- Credit Suisse First Boston, Inc. (New York), Cv. Equity Linked Nts., 1.60%, 12/29/06 (redemption linked to Comcast Corp., Cl. A common stock) 1,724,340 56,101,402 - ----------------------------------------------------------------------------------------------------------------- Goldman Sachs Group, Inc. (The): Boston Scientific Corp. Cv. Equity Linked Nts., 4.70%, 5/3/07 1,11 566,560 9,907,435 EchoStar Communications Corp. Cv. Linked Nts., 3.40%, 1/2/07 595,400 17,965,600 GlobalSantaFe Corp. Cv. Linked Nts., 7%, 6/30/08 431,460 21,350,367 - ----------------------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., Cv. Yield Enhanced Equity Linked Debt Securities, Series H, 7%, 12/20/06 (linked to CarMax, Inc.) 764,498 23,615,343
32 | OPPENHEIMER CAPITAL INCOME FUND
PRINCIPAL VALUE AMOUNT SEE NOTE 1 - -------------------------------------------------------------------------------------------------------------------- STRUCTURED NOTES Continued - -------------------------------------------------------------------------------------------------------------------- Morgan Stanley: Cv. Nts., 3.42%, 3/16/07 (linked to Tyco International Ltd.) 11 $ 1,171,000 $ 30,346,465 Cv. Performance Equity Linked Redemption Quarterly-pay Nts., 2.50% (linked to Microsoft Corp.) 1,000,000 23,975,000 ---------------- Total Structured Notes (Cost $218,542,461) 233,183,553 - -------------------------------------------------------------------------------------------------------------------- JOINT REPURCHASE AGREEMENTS--0.1% - -------------------------------------------------------------------------------------------------------------------- Undivided interest of 0.30% in joint repurchase agreement (Principal Amount/ Value $1,235,729,000, with a maturity value of $1,235,908,181) with UBS Warburg LLC, 5.22%, dated 8/31/06, to be repurchased at $3,670,532 on 9/1/06, collateralized by Federal National Mortgage Assn., 6%-7%, 3/1/36-8/1/36, with a value of $1,262,388,232 (Cost $3,670,000) 3,670,000 3,670,000 - -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $2,674,331,971) 104.3% 3,184,047,078 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (4.3) (131,118,258) ---------------------------------- NET ASSETS 100.0% $ 3,052,928,820 ==================================
FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Non-income producing security. 2. Represents ownership of at least 5% of the voting securities of the issuer, and is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended August 31, 2006. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES AUGUST 31, 2005 ADDITIONS REDUCTIONS AUGUST 31,2006 - ------------------------------------------------------------------------------------------------------------------------- CSK Auto Corp. 6,488,750 94,627 1,080,877 5,502,500 Enbridge Energy Management LLC 700,000 787,096* 739,394 747,702 VALUE DIVIDEND REALIZED SEE NOTE 1 INCOME GAIN (LOSS) - ------------------------------------------------------------------------------------------------------------------------- CSK Auto Corp. $63,113,675 $-- $(7,956,683) Enbridge Energy Management LLC 35,104,599 -- 102,570 --------------------------------------------------- $98,218,274 $-- $(7,854,113) ===================================================
* All or a portion of the transactions were a result of a stock dividend. 33 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF INVESTMENTS Continued - -------------------------------------------------------------------------------- 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 6 - --------------------------------------------------------------------------------------------------------------------- Altria Group, Inc. 6,750 12/18/06 $ 90.00 $ 415,112 $ 540,000 Everest Re Group Ltd. 3,500 9/18/06 100.00 162,745 -- Kinder Morgan, Inc. 9,500 11/20/06 105.00 829,491 712,500 Kraft Foods, Inc., Cl. A 15,000 10/6/06 30.25 1,602,338 5,541,450 Loews Corp./Carolina Group 2,000 9/18/06 65.00 63,246 -- Pfizer, Inc. 1,000 9/18/06 27.50 24,999 48,000 Raytheon Co. 7,000 11/20/06 50.00 625,314 420,000 Raytheon Co. 2,500 9/18/06 47.50 251,217 125,000 U.S. Bancorp 10,000 9/18/06 32.50 326,240 150,000 Washington Mutual, Inc. 10,000 10/23/06 45.00 2,043,471 350,000 ---------------------------- $6,344,173 $7,886,950 ============================
4. When-issued security or forward commitment to be delivered and settled after August 31, 2006. See Note 1 of accompanying Notes. 5. Represents the current interest rate for a variable or increasing rate security. 6. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities (for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated timing and amount of future cash flows. These securities amount to $17,897,059 or 0.59% of the Fund's net assets as of August 31, 2006. 7. Principal-Only Strips represent the right to receive the monthly principal payments on an underlying pool of mortgage loans. The value of these securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Interest rates disclosed represent current yields based upon the current cost basis and estimated timing of future cash flows. These securities amount to $2,332,233 or 0.08% of the Fund's net assets as of August 31, 2006. 8. 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 $61,706,103 or 2.02% of the Fund's net assets as of August 31, 2006. 9. Zero coupon bond reflects effective yield on the date of purchase. 10. All or a portion of the security is held in collateralized accounts to cover initial margin requirements on open futures sales contracts. The aggregate market value of such securities is $961,871. See Note 5 of accompanying Notes. 11. Illiquid security. The aggregate value of illiquid securities as of August 31, 2006 was $45,153,150, which represents 1.48% of the Fund's net assets. See Note 9 of accompanying Notes. 12. 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. 34 | OPPENHEIMER CAPITAL INCOME FUND 13. A sufficient amount of securities has been designated to cover outstanding written put options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE SUBJECT TO PUT DATES PRICE RECEIVED SEE NOTE 6 - -------------------------------------------------------------------------------------------------------------------------- BellSouth Corp. 2,712 10/23/06 $35.00 $ 541,762 $ 13,560 Boston Scientific Corp. 480 11/20/06 20.00 142,556 127,200 Boston Scientific Corp. 11 1/22/07 30.00 6,127 13,640 Capital One Financial Corp. 1,000 10/23/06 70.00 261,992 135,000 Capital One Financial Corp. 3,500 10/23/06 75.00 1,648,204 1,260,000 ENSCO International, Inc. 271 9/18/06 50.00 180,552 143,630 ENSCO International, Inc. 481 12/18/06 50.00 384,975 312,650 GlobalSantaFe Corp. 48 9/18/06 57.50 29,615 38,880 GlobalSantaFe Corp. 1,000 10/23/06 57.50 726,978 850,000 GlobalSantaFe Corp. 4,350 1/22/07 57.50 4,228,802 4,002,000 Phelps Dodge Corp. 3,000 10/23/06 75.00 1,886,492 270,000 Phelps Dodge Corp. 2,000 10/23/06 90.00 2,913,910 1,040,000 PMI Group, Inc. (The) 1,282 12/18/06 45.00 405,522 339,730 Take-Two Interactive Software, Inc. 3,000 9/18/06 15.00 410,987 900,000 Take-Two Interactive Software, Inc. 5,500 12/18/06 15.00 1,726,571 1,815,000 Transocean, Inc. 3,000 11/20/06 80.00 4,200,251 4,080,000 Tyco International Ltd. 7,033 10/23/06 27.50 1,491,875 1,090,115 -------------------------- $21,187,171 $16,431,405 ==========================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 35 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES August 31, 2006 - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------- ASSETS - ------------------------------------------------------------------------------------------------- Investments, at value--see accompanying statement of investments: Unaffiliated companies (cost $2,613,078,717) $ 3,085,828,804 Affiliated companies (cost $61,253,254) 98,218,274 ---------------- 3,184,047,078 - ------------------------------------------------------------------------------------------------- Cash 480,838 - ------------------------------------------------------------------------------------------------- Unrealized appreciation on swap contracts 112,535 - ------------------------------------------------------------------------------------------------- Receivables and other assets: Investments sold (including $18,326,400 sold on a when-issued basis or forward commitment) 21,592,539 Interest, dividends and principal paydowns 20,435,079 Shares of beneficial interest sold 1,283,013 Other 86,576 ---------------- Total assets 3,228,037,658 - ------------------------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------------------------- Options written, at value (premiums received $27,531,344) - --see accompanying statement of investments 24,318,355 - ------------------------------------------------------------------------------------------------- Unrealized depreciation on swap contracts 74,262 - ------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased (including $135,924,653 purchased on a when-issued basis or forward commitment) 146,041,730 Shares of beneficial interest redeemed 2,620,526 Distribution and service plan fees 1,222,149 Transfer and shareholder servicing agent fees 331,473 Shareholder communications 222,222 Trustees' compensation 43,019 Futures margins 38,790 Other 196,312 ---------------- Total liabilities 175,108,838 - ------------------------------------------------------------------------------------------------- NET ASSETS $ 3,052,928,820 ================ - ------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS - ------------------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 249,001 - ------------------------------------------------------------------------------------------------- Additional paid-in capital 2,548,267,834 - ------------------------------------------------------------------------------------------------- Accumulated net investment income 5,059,260 - ------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (13,212,123) - ------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 512,564,848 ---------------- NET ASSETS $ 3,052,928,820 ================
36 | OPPENHEIMER CAPITAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE - ------------------------------------------------------------------------------------------------------------- Class A Shares: Net asset value and redemption price per share (based on net assets of $2,594,507,457 and 211,207,431 shares of beneficial interest outstanding) $12.28 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.03 - ------------------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $258,811,805 and 21,319,655 shares of beneficial interest outstanding) $12.14 - ------------------------------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $163,958,585 and 13,550,923 shares of beneficial interest outstanding) $12.10 - ------------------------------------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $35,650,973 and 2,923,104 shares of beneficial interest outstanding) $12.20
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 37 | OPPENHEIMER CAPITAL INCOME FUND STATEMENT OF OPERATIONS For the Year Ended August 31, 2006 - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INVESTMENT INCOME - ------------------------------------------------------------------------------- Interest $ 68,620,165 - ------------------------------------------------------------------------------- Dividends (net of foreign withholding taxes of $10,263) 57,984,350 - ------------------------------------------------------------------------------- Fee income 91,851 - ------------------------------------------------------------------------------- Other income 61,987 -------------- Total investment income 126,758,353 - ------------------------------------------------------------------------------- EXPENSES - ------------------------------------------------------------------------------- Management fees 16,153,003 - ------------------------------------------------------------------------------- Distribution and service plan fees: Class A 6,153,469 Class B 2,736,971 Class C 1,653,565 Class N 162,774 - ------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 3,015,591 Class B 466,302 Class C 255,257 Class N 76,380 - ------------------------------------------------------------------------------- Shareholder communications: Class A 416,131 Class B 96,579 Class C 33,643 Class N 9,910 - ------------------------------------------------------------------------------- Custodian fees and expenses 178,388 - ------------------------------------------------------------------------------- Trustees' compensation 45,585 - ------------------------------------------------------------------------------- Administration service fees 1,500 - ------------------------------------------------------------------------------- Other 223,011 -------------- Total expenses 31,678,059 Less reduction to custodian expenses (1,156) -------------- Net expenses 31,676,903 - ------------------------------------------------------------------------------- NET INVESTMENT INCOME 95,081,450 38 | OPPENHEIMER CAPITAL INCOME FUND
- ----------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - ----------------------------------------------------------------------------------- Net realized gain (loss) on: Investments: Unaffiliated companies (including premiums on options exercised) $ 13,837,709 Affiliated companies (7,854,113) Closing and expiration of option contracts written 19,692,603 Closing and expiration of futures contracts 1,759,143 Foreign currency transactions 19,608 Swap contracts 57,121 -------------- Net realized gain 27,512,071 - ----------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on: Investments 7,981,990 Futures contracts 251,097 Option contracts 4,574,751 Swap contracts (143,164) -------------- Net change in unrealized appreciation 12,664,674 - ----------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 135,258,195 ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 39 | OPPENHEIMER CAPITAL INCOME FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2006 2005 - ---------------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------------- Net investment income $ 95,081,450 $ 90,086,029 - ---------------------------------------------------------------------------------------------------------- Net realized gain 27,512,071 151,145,430 - ---------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation 12,664,674 159,251,121 ----------------------------------- Net increase in net assets resulting from operations 135,258,195 400,482,580 - ---------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (77,812,436) (98,334,605) Class B (6,031,033) (9,374,778) Class C (3,701,400) (4,622,703) Class N (836,479) (783,486) - ---------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (112,727,835) (79,229,551) Class B (12,275,789) (9,824,424) Class C (7,342,478) (4,580,356) Class N (1,340,023) (642,942) - ---------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from beneficial interest transactions: Class A (3,331,341) 127,979,966 Class B (31,772,777) (37,260,401) Class C 1,811,081 24,380,138 Class N 6,928,899 11,328,890 - ---------------------------------------------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------------------------------------------- Total increase (decrease) (113,173,416) 319,518,328 - ---------------------------------------------------------------------------------------------------------- Beginning of period 3,166,102,236 2,846,583,908 ----------------------------------- End of period (including accumulated net investment income (loss) of $5,059,260 and $(5,155,034), respectively) $ 3,052,928,820 $ 3,166,102,236 ===================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 40 | OPPENHEIMER CAPITAL INCOME FUND FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002 - ---------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.63 $ 11.84 $ 11.22 $ 9.76 $ 12.72 - ---------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .39 1 .38 1 .46 .54 .51 Net realized and unrealized gain (loss) .16 1.28 .69 1.35 (2.66) -------------------------------------------------------------------------- Total from investment operations .55 1.66 1.15 1.89 (2.15) - ---------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.37) (.48) (.53) (.43) (.48) Distributions from net realized gain (.53) (.39) -- -- (.33) -------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.90) (.87) (.53) (.43) (.81) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.28 $ 12.63 $ 11.84 $ 11.22 $ 9.76 =========================================================================== - ----------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 2 4.68% 14.40% 10.32% 20.10% (17.75)% - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $2,594,507 $2,670,552 $2,379,956 $2,130,486 $1,873,458 - ----------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $2,608,268 $2,565,609 $2,356,948 $1,900,896 $2,224,911 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 3.21% 3.09% 3.85% 5.41% 4.48% Total expenses 0.91% 0.89% 4 0.89% 4,5 0.93% 4 0.98% 4 - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 66% 6 55% 6 52% 141% 148%
1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods of less than one full year. 4. Reduction to custodian expenses less than 0.01%. 5. Voluntary waiver of transfer agent fees less than 0.01%. 6. The portfolio turnover rate excludes purchase and sales of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - -------------------------------------------------------------------------------- Year Ended August 31, 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 B YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.49 $ 11.72 $ 11.10 $ 9.67 $ 12.60 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .28 1 .28 1 .36 .45 .41 Net realized and unrealized gain (loss) .16 1.26 .68 1.33 (2.62) ---------------------------------------------------------------------------- Total from investment operations .44 1.54 1.04 1.78 (2.21) - ------------------------------------------------------------------------------------------------------------------------------ Dividends and/or distributions to shareholders: Dividends from net investment income (.26) (.38) (.42) (.35) (.39) Distributions from net realized gain (.53) (.39) -- -- (.33) ---------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.79) (.77) (.42) (.35) (.72) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 12.14 $ 12.49 $ 11.72 $ 11.10 $ 9.67 ============================================================================ - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN, AT NET ASSET VALUE 2 3.84% 13.40% 9.46% 18.94% (18.31)% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $ 258,812 $ 299,093 $ 316,568 $ 343,074 $ 327,368 - ------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $ 273,916 $ 304,769 $ 349,853 $ 312,457 $ 410,652 - ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: 3 Net investment income 2.37% 2.25% 3.00% 4.55% 3.67% Total expenses 1.74% 1.73% 4 1.76% 4,5 1.81% 4 1.76% 4 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 66% 6 55% 6 52% 141% 148%
1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods of less than one full year. 4. Reduction to custodian expenses less than 0.01%. 5. Voluntary waiver of transfer agent fees less than 0.01%. 6. The portfolio turnover rate excludes purchase and sales of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - --------------------------------------------------------------------------- Year Ended August 31, 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 C YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.46 $ 11.69 $ 11.09 $ 9.66 $ 12.59 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .29 1 .28 1 .35 .45 .42 Net realized and unrealized gain (loss) .15 1.26 .69 1.34 (2.62) ---------------------------------------------------------------------------- Total from investment operations .44 1.54 1.04 1.79 (2.20) - ------------------------------------------------------------------------------------------------------------------------------ Dividends and/or distributions to shareholders: Dividends from net investment income (.27) (.38) (.44) (.36) (.40) Distributions from net realized gain (.53) (.39) -- -- (.33) ---------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.80) (.77) (.44) (.36) (.73) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 12.10 $ 12.46 $ 11.69 $ 11.09 $ 9.66 ============================================================================ - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN, AT NET ASSET VALUE 2 3.83% 13.52% 9.40% 19.05% (18.30)% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $ 163,959 $ 167,013 $ 133,368 $ 93,797 $ 72,792 - ------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $ 165,514 $ 150,410 $ 122,458 $ 75,459 $ 84,049 - ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: 3 Net investment income 2.40% 2.27% 3.01% 4.55% 3.74% Total expenses 1.71% 1.71% 4 1.72% 4,5 1.78% 4 1.76% 4 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 66% 6 55% 6 52% 141% 148%
1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods of less than one full year. 4. Reduction to custodian expenses less than 0.01%. 5. Voluntary waiver of transfer agent fees less than 0.01%. 6. The portfolio turnover rate excludes purchase and sales of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - ----------------------------------------------------------------------------- Year Ended August 31, 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 FINANCIAL HIGHLIGHTS Continued - --------------------------------------------------------------------------------
CLASS N YEAR ENDED AUGUST 31, 2006 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING DATA - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.55 $ 11.78 $ 11.16 $ 9.73 $ 12.69 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .34 1 .34 1 .39 .46 .50 Net realized and unrealized gain (loss) .16 1.26 .72 1.37 (2.66) ---------------------------------------------------------------------------- Total from investment operations .50 1.60 1.11 1.83 (2.16) - ------------------------------------------------------------------------------------------------------------------------------ Dividends and/or distributions to shareholders: Dividends from net investment income (.32) (.44) (.49) (.40) (.47) Distributions from net realized gain (.53) (.39) -- -- (.33) ---------------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.85) (.83) (.49) (.40) (.80) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 12.20 $ 12.55 $ 11.78 $ 11.16 $ 9.73 ============================================================================ - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN, AT NET ASSET VALUE 2 4.32% 13.95% 10.01% 19.45% (17.89)% - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $ 35,651 $ 29,444 $ 16,692 $ 9,023 $ 4,071 - ------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $ 32,598 $ 22,974 $ 13,301 $ 5,968 $ 2,839 - ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: 3 Net investment income 2.82% 2.73% 3.42% 4.92% 4.74% Total expenses 1.30% 1.24% 4 1.28% 4,5 1.35% 4 1.25% 4 - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 66% 6 55% 6 52% 141% 148%
1. Per share amounts calculated based on the average shares outstanding during the period. 2. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 3. Annualized for periods of less than one full year. 4. Reduction to custodian expenses less than 0.01%. 5. Voluntary waiver of transfer agent fees less than 0.01%. 6. The portfolio turnover rate excludes purchase and sales of To Be Announced (TBA) mortgage-related securities as follows: PURCHASE TRANSACTIONS SALE TRANSACTIONS - ------------------------------------------------------------------------- Year Ended August 31, 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. 44 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Capital Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund's investment objective is to seek as much current income as is compatible with prudent investment. The Fund has a secondary objective to conserve principal while providing an opportunity for capital appreciation. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B, Class C and Class N shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. All classes of shares have identical rights and voting privileges with respect to the Fund in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B, C and N have separate distribution and/or service plans. Class B shares will automatically convert to Class A shares six years after the date of purchase. The following is a summary of significant accounting policies consistently followed by the Fund. - -------------------------------------------------------------------------------- SECURITIES VALUATION. The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Securities 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 valued. Securities (including restricted securities) for which market quotations are not readily available 45 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued are valued at their fair value. Foreign and domestic securities whose values have been materially affected by what the Manager identifies as a significant event occurring before the Fund's assets are valued but after the close of their respective exchanges will be fair valued. Fair value is determined in good faith using consistently applied procedures under the supervision of the Board of Trustees. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). - -------------------------------------------------------------------------------- STRUCTURED NOTES. The Fund invests in structured notes whose market values, interest rates and/or redemption prices are linked to the performance of underlying foreign currencies, interest rate spreads, stock market indices, prices of individual securities, commodities or other financial instruments or the occurrence of other specific events. The structured notes are often leveraged, increasing the volatility of each note's market value relative to the change in the underlying linked financial element or event. Fluctuations in value of these securities are recorded as unrealized gains and losses in the accompanying Statement of Operations. The Fund records a realized gain or loss when a structured note is sold or matures. As of August 31, 2006, the market value of these securities comprised 7.6% of the Fund's net assets and resulted in unrealized cumulative gains of $14,641,092. - -------------------------------------------------------------------------------- SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis or forward commitment can take place up to ten days or more after the trade date. Normally the settlement date occurs within six months after the trade date; however, the Fund may, from time to time, purchase securities whose settlement date extends six months or more beyond trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The Fund maintains internally designated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a when-issued basis or forward commitment may increase the volatility of the Fund's net asset value to the extent the Fund executes such transactions while remaining substantially fully invested. The Fund may also sell securities that it purchased on a when-issued basis or forward commitment prior to settlement of the original purchase. As of August 31, 2006, the Fund had purchased $135,924,653 of securities issued on a when-issued basis or forward commitment and sold $18,326,400 of securities issued on a when-issued basis or forward commitment. In connection with its ability to purchase or sell securities on a when-issued basis, the Fund may enter into forward roll transactions with respect to mortgage-related securities. Forward roll transactions require the sale of securities for delivery in the current month, and a simultaneous agreement with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Fund records the incremental difference between the forward purchase and sale of each forward roll as realized gain (loss) on investments or as fee income in the case of such 46 | OPPENHEIMER CAPITAL INCOME FUND transactions that have an associated fee in lieu of a difference in the forward purchase and sale price. Risks of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Fund to receive inferior securities at redelivery as compared to the securities sold to the counterparty; counterparty credit risk; and the potential pay down speed variance between the mortgage-related pools. - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in U.S. dollars. The values of securities denominated in foreign currencies and amounts related to the purchase and sale of foreign securities and foreign investment income are translated into U.S. dollars as of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each day the Exchange is open for business. Foreign exchange rates may be valued primarily using dealer supplied valuations or a portfolio pricing service authorized by the Board of Trustees. Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, including investments in securities at fiscal period end, resulting from changes in exchange rates. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Fund's Statement of Operations. - -------------------------------------------------------------------------------- JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated funds advised by the Manager, may transfer uninvested cash balances into joint trading accounts on a daily basis. These balances are invested in one or more repurchase agreements. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. In the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings. - -------------------------------------------------------------------------------- ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than those attributable to a specific class), gains and losses are allocated on a daily basis to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 47 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued FEDERAL TAXES. The Fund intends to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its investment company taxable income, including any net realized gain on investments not offset by capital loss carryforwards, if any, to shareholders, therefore, no federal income or excise tax provision is required. 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 1,2,3,4 TAX PURPOSES - -------------------------------------------------------------------------------- $22,026,713 $-- $6,086,311 $488,518,969 1. As of August 31, 2006, the Fund had $37,847 of post-October losses available to offset future realized capital gains, if any. Such losses, if unutilized, will expire in 2015. 2. The Fund had $6,048,464 of straddle losses which were deferred. 3. During the fiscal year ended August 31, 2006, the Fund did not utilize any capital loss carryforward. 4. During the fiscal year ended August 31, 2005, the Fund did not utilize any capital loss carryforward. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or net realized gain was recorded by the Fund. Accordingly, the following amounts have been reclassified for August 31, 2006. Net assets of the Fund were unaffected by the reclassifications. INCREASE TO INCREASE TO ACCUMULATED ACCUMULATED NET INCREASE TO NET INVESTMENT REALIZED LOSS PAID-IN CAPITAL INCOME ON INVESTMENTS 5 ------------------------------------------------------------------ $648,789 $3,514,192 $4,162,981 5. $1,119,832 was distributed in connection with Fund share redemptions. 48 | OPPENHEIMER CAPITAL INCOME FUND The tax character of distributions paid during the years ended August 31, 2006 and August 31, 2005 was as follows: YEAR ENDED YEAR ENDED AUGUST 31, 2006 AUGUST 31, 2005 - ------------------------------------------------------------------------------- Distributions paid from: Ordinary income $162,410,486 $113,115,572 Long-term capital gain 59,656,987 94,277,273 ----------------------------------------- Total $222,067,473 $207,392,845 ========================================= 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, 2006 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 $ 2,698,274,740 Federal tax cost of other investments (141,337,674) ---------------- Total federal tax cost $ 2,556,937,066 ================ Gross unrealized appreciation $ 591,708,830 Gross unrealized depreciation (103,189,861) ---------------- Net unrealized appreciation $ 488,518,969 ================ - -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred compensation plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Fund. For purposes of determining the amount owed to the Trustee under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of the Fund or in other Oppenheimer funds selected by the Trustee. The Fund purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Fund asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Fund, and will not materially affect the Fund's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the Plan. - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. Income distributions, if any, are declared and paid quarterly. Capital gain distributions, if any, are declared and paid annually. 49 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued 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. 50 | OPPENHEIMER CAPITAL INCOME FUND - -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Fund has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED AUGUST 31, 2006 YEAR ENDED AUGUST 31, 2005 SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------- CLASS A Sold 18,616,904 $ 226,300,881 22,558,905 $ 277,939,203 Dividends and/or distributions reinvested 14,837,822 176,523,004 13,463,832 165,521,957 Redeemed (33,641,665) (406,155,226) (25,590,738) (315,481,194) --------------------------------------------------------------------- Net increase (decrease) (186,939) $ (3,331,341) 10,431,999 $ 127,979,966 ===================================================================== - ---------------------------------------------------------------------------------------------------- CLASS B Sold 3,241,843 $ 38,903,049 4,597,999 $ 56,062,655 Dividends and/or distributions reinvested 1,451,650 17,079,474 1,486,058 18,104,691 Redeemed (7,316,039) (87,755,300) (9,161,381) (111,427,747) --------------------------------------------------------------------- Net decrease (2,622,546) $ (31,772,777) (3,077,324) $ (37,260,401) ===================================================================== - ---------------------------------------------------------------------------------------------------- CLASS C Sold 2,830,185 $ 33,853,111 3,382,894 $ 41,213,863 Dividends and/or distributions reinvested 845,746 9,915,326 693,034 8,423,553 Redeemed (3,532,313) (41,957,356) (2,075,964) (25,257,278) --------------------------------------------------------------------- Net increase 143,618 $ 1,811,081 1,999,964 $ 24,380,138 ===================================================================== - ---------------------------------------------------------------------------------------------------- CLASS N Sold 1,158,822 $ 13,939,161 1,172,709 $ 14,333,266 Dividends and/or distributions reinvested 178,715 2,111,820 114,121 1,396,302 Redeemed (760,312) (9,122,082) (358,515) (4,400,678) --------------------------------------------------------------------- Net increase 577,225 $ 6,928,899 928,315 $ 11,328,890 =====================================================================
- -------------------------------------------------------------------------------- 3. PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended August 31, 2006, were as follows: PURCHASES SALES ---------------------------------------------------------------------- Investment securities $1,877,908,686 $1,894,044,219 U.S. government and government agency obligations 88,930,024 121,538,583 To Be Announced (TBA) mortgage-related securities 2,212,763,141 2,305,352,091 51 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the investment advisory agreement with the Fund which provides for a fee at an average annual rate as shown in the following table:
FEE SCHEDULE AUG. 1, 2005 TO DECEMBER 31, 2005 FEE SCHEDULE EFFECTIVE JAN. 1, 2006 - ---------------------------------------------------------------------------------------------------- Up to $100 million of net assets 0.75% Up to $100 million of net assets 0.75% Next $100 million of net assets 0.70 Next $100 million of net assets 0.70 Next $100 million of net assets 0.65 Next $100 million of net assets 0.65 Next $100 million of net assets 0.60 Next $100 million of net assets 0.60 Next $100 million of net assets 0.55 Next $100 million of net assets 0.55 Over $500 million of net assets 0.50 From $500 million to $5 billion of net assets 0.50 Over $5 billion of net assets 0.48
- -------------------------------------------------------------------------------- ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for preparing and filing the Fund's tax returns. - -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund. The Fund pays OFS a per account fee. For the year ended August 31, 2006, the Fund paid $3,794,415 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's aggregate uncompensated expenses under the plan 52 | OPPENHEIMER CAPITAL INCOME FUND at August 31, 2006 for Class B, Class C and Class N shares were $8,531,867, $3,783,065 and $579,278, 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, 2006 $790,133 $3,857 $502,444 $30,357 $11,456
- -------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. - -------------------------------------------------------------------------------- 5. FUTURES CONTRACTS A futures contract is a commitment to buy or sell a specific amount of a commodity or financial instrument at a negotiated price on a stipulated future date. Futures contracts are traded on a commodity exchange. The Fund may buy and sell futures contracts that relate to broadly based securities indices (financial futures) or debt securities (interest rate futures) in order to gain exposure to or protection from changes in market value of stocks and bonds or interest rates. The Fund may also buy or write put or call options on these futures contracts. The Fund generally sells futures contracts as a hedge against increases in interest rates and decreases in market value of portfolio securities. The Fund may also purchase futures contracts to gain exposure to market changes as it may be more efficient or cost effective than actually buying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin) in an amount equal to a certain percentage of the contract 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 53 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5. FUTURES CONTRACTS Continued 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, 2006, the Fund had outstanding futures contracts as follows:
UNREALIZED EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION CONTRACT DESCRIPTION DATES CONTRACTS AUGUST 31, 2006 (DEPRECIATION) - ---------------------------------------------------------------------------------------------------- CONTRACTS TO PURCHASE U.S. Long Bonds 12/19/06 451 $50,089,188 $ 325,521 U.S. Treasury Nts., 10 yr. 12/19/06 117 12,562,875 6,641 ---------- 332,162 ---------- CONTRACTS TO SELL Euro-Bundesobligation, 10 yr. 9/7/06 157 23,788,854 (463,813) U.S. Treasury Nts., 2 yr. 12/29/06 639 130,575,656 (199,441) U.S. Treasury Nts., 5 yr. 12/29/06 215 22,598,516 (70,429) ---------- (733,683) ---------- $(401,521) ==========
- -------------------------------------------------------------------------------- 6. OPTION ACTIVITY The Fund may buy and sell put and call options, or write put and covered call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Fund generally purchases put options or writes covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Fund receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call or put options are noted in the Statement of Investments where applicable. Contracts subject to call, expiration date, exercise price, premium received and market value are detailed in a note to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Realized gains and losses are reported in the Statement of Operations. 54 | OPPENHEIMER CAPITAL INCOME FUND The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security [or commodity] 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 [or commodity] 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, 2006 was as follows:
CALL OPTIONS PUT OPTIONS ---------------------------- ---------------------------- NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF CONTRACTS PREMIUMS CONTRACTS PREMIUMS - ------------------------------------------------------------------------------------------------------- Options outstanding as of August 31, 2005 30,563 $ 4,354,050 65,934 $ 15,086,303 Options written 265,819 20,248,754 372,878 82,034,765 Options closed or expired (216,045) (16,272,363) (336,797) (59,440,300) Options exercised (13,087) (1,986,268) (63,347) (16,493,597) -------------------------------------------------------------- Options outstanding as of August 31, 2006 67,250 $ 6,344,173 38,668 $ 21,187,171 ==============================================================
- -------------------------------------------------------------------------------- 7. TOTAL RETURN SWAP CONTRACTS The Fund may enter into a total return swap transaction to maintain a total return on a particular investment, or portion of its portfolio, or for other non-speculative purposes. Because the principal amount is not exchanged, it represents neither an asset nor a liability to either counterparty, and is referred to as notional. The unrealized gain (loss) related to the daily change in the valuation of the notional amount of the swap, as well as the amount due to (owed by) the Fund at termination or settlement, is combined and separately disclosed as an asset (liability). The Fund also records any periodic payments received from (paid to) the counterparty, including at termination, under such contracts as realized gain (loss). Total return swaps are subject to risks (if the counterparty fails to meet its obligations). 55 | OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7. TOTAL RETURN SWAP CONTRACTS Continued As of August 31, 2006, the Fund had entered into the following total return swap agreements:
SWAP NOTIONAL TERMINATION UNREALIZED COUNTERPARTY SWAP DESCRIPTION AMOUNT DATES DEPRECIATION - ----------------------------------------------------------------------------------------------------------------------------- Received or paid monthly. The Counterparty pays the Fund a Floating Payment which is the sum of the Notional Amount, the Lehman Brothers CMBS Index Spread and the Financial Spread on the initial Notional Amount for the Swap Interest Accrual Period. In addition, the Counterparty, pays the Fund the Total Return Amount if it is a positive value for a given Index Period. If it is a negative, the Fund pays the Counterparty the absolute value of the Deutsche Bank Total Return Amount for a given Index Period, AG on each Payment Date. $5,560,000 12/1/06 $5,644 - ----------------------------------------------------------------------------------------------------------------------------- Received or paid monthly. If the Carry Amount, plus the Spread Return Amount (Spread Change times Duration times Notional Amount), is positive, the Counterparty pays the Fund. The payment is based on the Carry Amount which is the Spread on the Lehman Brothers CMBS AAA 8.5+ Index as of the close of one Business Day prior to the Period End Day plus 15 basis points times the Notional Amount times the Lehman Brothers Day Count Basis. If it is negative, the Fund Special Financing, pays the Counterparty the absolute value of Inc. the Spread Return Amount. 6,170,000 12/1/06 6,263 -------- $11,907 ======== Abbreviation is as follows: CMBS Commercial Mortgage Backed Securities
- -------------------------------------------------------------------------------- 8. CREDIT DEFAULT SWAP CONTRACTS The Fund may enter into a credit default swap contract to seek to maintain a total return on a particular investment or portion of its portfolio, or for other non-speculative purposes. Credit default swap contracts are subject to credit risks (for example if the counterparty fails to meet its obligations). As a purchaser of a credit default swap contract, the Fund pays a periodic interest fee on the notional amount to the counterparty. This interest fee is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized loss upon payment. The Fund also records an increase or decrease to unrealized gain (loss) in an amount equal to the daily valuation. Upon occurrence of a specific credit event with respect to the underlying referenced debt obligation, the Fund is obligated to deliver that security to the counterparty in exchange for receipt of the notional amount from 56 | OPPENHEIMER CAPITAL INCOME FUND the counterparty. The difference between the value of the security delivered and the notional amount received is recorded as realized gain. Information regarding such credit default swaps as of August 31, 2006 is as follows:
NOTIONAL ANNUAL AMOUNT INTEREST REFERENCED RECEIVED BY RATE PAID UNREALIZED DEBT THE FUND UPON BY THE APPRECIATION COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION) - -------------------------------------------------------------------------------------------------------------- Deutsche Bank Weyerhaeuser Co. $2,910,000 0.580% $(13,637) - -------------------------------------------------------------------------------------------------------------- Morgan Stanley Capital Services, Inc.: Arrow Electronics, Inc. 2,910,000 0.790 (33,301) Arrow Electronics, Inc. 1,470,000 0.770 (14,971) Belo Corp. 1,675,000 0.650 5,260 Belo Corp. 925,000 0.670 2,054 Belo Corp. 1,870,000 0.675 3,721 Federated Department Stores, Inc. 2,910,000 0.445 (417) --------- $(51,291) =========
As a seller of a credit default swap contract, the Fund receives a periodic interest fee on the notional amount from the counterparty. This interest fee is accrued daily as a component of unrealized appreciation (depreciation) and is recorded as realized gain upon receipt. The Fund also records an increase or decrease to unrealized gain (loss) in an amount equal to the daily valuation. Upon occurrence of a specific credit event with respect to the underlying referenced debt obligation, the Fund receives that security from the counterparty in exchange for payment of the notional amount to the counterparty. The difference between the value of the security received and the notional amount paid is recorded as realized loss. Information regarding such credit default swaps as of August 31, 2006 is as follows:
ANNUAL NOTIONAL INTEREST AMOUNT RATE REFERENCED PAID BY RECEIVED UNREALIZED DEBT THE FUND UPON BY THE APPRECIATION COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------ Deutsche Bank: Abitibi-Consolidated Co. of Canada $2,385,000 1.52% $ 6,772 Allied Waste North America, Inc. 920,000 2.00 11,247 Allied Waste North America, Inc. 1,440,000 2.00 17,524 General Motors Acceptance Corp. 825,000 2.30 10,647 General Motors Corp. 920,000 6.40 (18) General Motors Corp. 560,000 6.40 (11)
57 OPPENHEIMER CAPITAL INCOME FUND NOTES TO FINANCIAL STATEMENTS Continued - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 8. CREDIT DEFAULT SWAP CONTRACTS Continued
ANNUAL NOTIONAL INTEREST AMOUNT RATE REFERENCED PAID BY RECEIVED UNREALIZED DEBT THE FUND UPON BY THE APPRECIATION COUNTERPARTY OBLIGATION CREDIT EVENT FUND (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------- Morgan Stanley Capital Services, Inc.: General Motors Acceptance Corp. $1,875,000 3.15% $ 50,424 Hyundai Motor Manufacturing Alabama LLC 1,280,000 0.40 2,293 J.C. Penney Corp., Inc. 2,910,000 0.61 2,593 -------- $101,471 ========
- -------------------------------------------------------------------------------- 9. ILLIQUID SECURITIES As of August 31, 2006, investments in securities included issues that are illiquid. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. The Fund will not invest more than 10% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid securities. Securities that are illiquid are marked with the applicable footnote on the Statement of Investments. - -------------------------------------------------------------------------------- 10. RECENT ACCOUNTING PRONOUNCEMENT 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, 2006, the Manager is evaluating the implications of FIN 48. Its impact in the Fund's financial statements has not yet been determined. - -------------------------------------------------------------------------------- 11. LITIGATION A consolidated amended complaint was filed as a putative class action against the Manager and the Transfer Agent and other defendants (including 51 of the Oppenheimer funds including the Fund) in the U.S. District Court for the Southern District of New York on January 10, 2005 and was amended on March 4, 2005. The complaint alleged, among other things, that the Manager charged excessive fees for distribution and other costs, and that by permitting and/or participating in those actions, the Directors/Trustees and the Officers 58 | OPPENHEIMER CAPITAL INCOME FUND of the funds breached their fiduciary duties to fund shareholders under the Investment Company Act of 1940 and at common law. The plaintiffs sought unspecified damages, an accounting of all fees paid, and an award of attorneys' fees and litigation expenses. In response to the defendants' motions to dismiss the suit, seven of the eight counts in the complaint, including the claims against certain of the Oppenheimer funds, as nominal defendants, and against certain present and former Directors, Trustees and Officers of the funds, and the Distributor, as defendants, were dismissed with prejudice, by court order dated March 10, 2006, and the remaining count against the Manager and the Transfer Agent was dismissed with prejudice by court order dated April 5, 2006. The plaintiffs filed an appeal of those dismissals on May 11, 2006. The Manager believes that the allegations contained in the complaint are without merit and that there are substantial grounds to sustain the district court's rulings. The Manager also believes that it is premature to render any opinion as to the likelihood of an outcome unfavorable to it, the funds, the Directors/Trustees or the Officers on the appeal of the decisions of the district court, and that no estimate can yet be made with any degree of certainty as to the amount or range of any potential loss. 59 | OPPENHEIMER CAPITAL INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL INCOME FUND: We have audited the accompanying statement of assets and liabilities of Oppenheimer Capital Income Fund, including the statement of investments, as of August 31, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Oppenheimer Capital Income Fund as of August 31, 2006, 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 16, 2006 60 | OPPENHEIMER CAPITAL INCOME FUND FEDERAL INCOME TAX INFORMATION Unaudited - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- In early 2007, if applicable, shareholders of record will receive information regarding all dividends and distributions paid to them by the Fund during calendar year 2006. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. Capital gain distributions of $0.2370 per share were paid to Class A, Class B, Class C, Class N and Class Y shareholders, respectively, on December 21, 2005. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of the capital assets held for more than one year (long-term capital gains). Dividends, if any, paid by the Fund during the fiscal year ended August 31, 2006 which are not designated as capital gain distributions should be multiplied by 34.44% 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, 2006 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. $42,946,412 of the Fund's fiscal year taxable income may be eligible for the lower individual income tax rates. In early 2007, 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, 2006, $58,371,590 or 66.05% of the ordinary distributions paid by the Fund qualifies as an interest related dividend and $16,339,436 or 22.07% 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. 61 | 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. 62 | OPPENHEIMER CAPITAL INCOME FUND TRUSTEES AND OFFICERS Unaudited - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- 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 of the Chairman of the Board following private mortgage banking companies: Cherry Creek Mortgage Company of Trustees (since 2003), (since 1991), Centennial State Mortgage Company (since 1994), and The El Trustee (since 1999) Paso Mortgage Company (since 1993); Chairman of the following private Age: 69 companies: Ambassador Media Corporation (since 1984) and Broadway Ventures (since 1984); Director of the following: Helmerich & Payne, Inc. (oil and gas drilling/production company) (since 1992), Campus Crusade for Christ (since 1991) and The Lynde and Harry Bradley Foundation, Inc. (non-profit organization) (since 2002); former Chairman of the following: Transland Financial Services, Inc. (private mortgage banking company) (1997-2003), Great Frontier Insurance (insurance agency) (1995-2000), Frontier Real Estate, Inc. (residential real estate brokerage) (1994-2000) and Frontier Title (title insurance agency) (1995-2000); former Director of the following: UNUMProvident (insurance company) (1991-2004), Storage Technology Corporation (computer equipment company) (1991-2003) and International Family Entertainment (television channel) (1992-1997); U.S. Senator (January 1979-January 1991). Oversees 38 portfolios in the OppenheimerFunds complex. ROBERT G. AVIS, Director and President of A.G. Edwards Capital, Inc. (General Partner of private Trustee (since 1993) equity funds) (until February 2001); Chairman, President and Chief Executive Age: 75 Officer of A.G. Edwards Capital, Inc. (until March 2000); Director of A.G. Edwards & Sons, Inc. (brokerage company) (until 2000) and A.G. Edwards Trust Company (investment adviser) (until 2000); Vice Chairman and Director of A.G. Edwards, Inc. (until March 1999); Vice Chairman of A.G. Edwards & Sons, Inc. (until March 1999); Chairman of A.G. Edwards Trust Company (until March 1999) and A.G.E. Asset Management (investment adviser) (until March 1999). Oversees 38 portfolios in the OppenheimerFunds complex. GEORGE C. BOWEN, Assistant Secretary and Director of Centennial Asset Management Corporation Trustee (since 1998) (December 1991-April 1999); President, Treasurer and Director of Centennial Age: 70 Capital Corporation (June 1989-April 1999); Chief Executive Officer and Director of MultiSource Services, Inc. (March 1996-April 1999); Mr. Bowen held several positions with the Manager and with subsidiary or affiliated companies of the Manager (September 1987-April 1999). Oversees 38 portfolios in the OppenheimerFunds complex. EDWARD L. CAMERON, Member of The Life Guard of Mount Vernon (George Washington historical Trustee (since 1999) site) (since June 2000); Director of Genetic ID, Inc. (biotech company) (March Age: 68 2001-May 2002); Partner at PricewaterhouseCoopers LLP (accounting firm) (July 1974-June 1999); Chairman of Price Waterhouse LLP Global Investment Management Industry Services Group (accounting firm) (July 1994-June 1998). Oversees 38 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: 64 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;
63 | OPPENHEIMER CAPITAL INCOME FUND TRUSTEES AND OFFICERS Unaudited / Continued - -------------------------------------------------------------------------------- JON S. FOSSEL, President, Chief Executive Officer and Director of the following: Oppenheimer Continued Acquisition Corp. ("OAC") (parent holding company of the Manager), Shareholders Services, Inc. and Shareholder Financial Services, Inc. (until October 1995). Oversees 38 portfolios in the OppenheimerFunds complex. SAM FREEDMAN, Director of Colorado UpLIFT (charitable organization) (since September 1984). Trustee (since 1996) Mr. Freedman held several positions with the Manager and with subsidiary or Age: 66 affiliated companies of the Manager (until October 1994). Oversees 38 portfolios in the OppenheimerFunds complex. BEVERLY L. HAMILTON, Trustee of Monterey Institute for International Studies (educational Trustee (since 2002) organization) (since February 2000); Board Member of Middlebury College (educational Age: 60 organization) (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 38 portfolios in the OppenheimerFunds complex. ROBERT J. MALONE, Director of Jones International University (educational organization) (since Trustee (since 2002) August 2005); Chairman, Chief Executive Officer and Director of Steele Street Age: 62 State Bank (commercial banking) (since August 2003); Director of Colorado UpLIFT (charitable organization) (since 1986); Trustee of the Gallagher Family Foundation (non-profit organization) (since 2000); Former Chairman of U.S. Bank-Colorado (subsidiary of U.S. Bancorp and formerly Colorado National Bank) (July 1996-April 1999); Director of Commercial Assets, Inc. (real estate investment trust) (1993-2000); Director of Jones Knowledge, Inc. (2001-July 2004); and Director of U.S. Exploration, Inc. (oil and gas exploration) (1997- February 2004). Oversees 38 portfolios in the OppenheimerFunds complex. F. WILLIAM MARSHALL, JR., Trustee of MassMutual Select Funds (formerly MassMutual Institutional Funds) Trustee (since 2000) (investment company) (since 1996) and MML Series Investment Fund Age: 64 (investment company) (since 1996); Trustee (since 1987) and Chairman (1994-2005) 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 40 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.
64 | OPPENHEIMER CAPITAL INCOME FUND JOHN V. MURPHY, Chairman, Chief Executive Officer and Director (since June 2001) and President Trustee, President and (since September 2000) of the Manager; President and director or trustee of Principal Executive Officer other Oppenheimer funds; President and Director of OAC and of Oppenheimer (since 2001) Partnership Holdings, Inc. (holding company subsidiary of the Manager) (since Age: 57 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 Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February 1997); Director of DLB Acquisition Corporation (holding company parent of Babson Capital Management LLC) (since June 1995); Member of the Investment Company Institute's Board of Governors (since October 3, 2003); Chief Operating Officer of the Manager (September 2000-June 2001); President and Trustee of MML Series Investment Fund and MassMutual Select Funds (open-end investment companies) (November 1999-November 2001); Director of C.M. Life Insurance Company (September 1999-August 2000); President, Chief Executive Officer and Director of MML Bay State Life Insurance Company (September 1999-August 2000); Director of Emerald Isle Bancorp and Hibernia Savings Bank (wholly-owned subsidiary of Emerald Isle Bancorp) (June 1989-June 1998). Oversees 91 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: 41 MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since Vice President and Chief March 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Compliance Officer Asset Management Corporation and Shareholder Services, Inc. (since June 1983); (since 2004) Vice President and Director of Internal Audit of the Manager (1997-February Age: 56 2004). An officer of 91 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 and Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management Officer (since 1999) Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Age: 47 Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. and OppenheimerFunds plc (since May 2000), OFI Institutional Asset Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program (since June 2003); Treasurer and Chief Financial Officer of OFI Trust Company (trust company subsidiary of the Manager) (since May 2000); Assistant Treasurer of the following:
65 | OPPENHEIMER CAPITAL INCOME FUND TRUSTEES AND OFFICERS Unaudited / Continued - -------------------------------------------------------------------------------- BRIAN W. WIXTED, OAC (since March 1999), Centennial Asset Management Corporation (March 1999- Continued 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 91 portfolios in the OppenheimerFunds complex. BRIAN S. PETERSEN, Assistant Vice President of the Manager (since August 2002); Manager/Financial Assistant Treasurer Product Accounting of the Manager (November 1998-July 2002). An officer of (since 2004) 91 portfolios in the OppenheimerFunds complex. Age: 36 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); (since 2005) Manager of Compliance of Berger Financial Group LLC (May 2001-March 2003); Age: 36 Director of Mutual Fund Operations at American Data Services, Inc. (September 2000-May 2001). An officer of 91 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 Age: 58 (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of 91 portfolios in the OppenheimerFunds complex. LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Assistant Secretary Vice President (April 2001-April 2004), Associate General Counsel (December (since 2004) 2000-April 2004), Corporate Vice President (May 1999-April 2001) and Assistant Age: 38 General Counsel (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 91 portfolios in the OppenheimerFunds complex.
66 | OPPENHEIMER CAPITAL INCOME FUND 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: 40 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 91 portfolios in the OppenheimerFunds complex. PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since Assistant Secretary September 2004); First Vice President (2000-September 2004), Director (2000- (since 2004) September 2004) and Vice President (1998-2000) of Merrill Lynch Investment Age: 42 Management. An officer of 91 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. 67 | 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 $40,500 in fiscal 2006 and $39,000 in fiscal 2005. (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 in fiscal 2006 and $5,000 in fiscal 2005 to the registrant's investment adviser or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. Such services include: seed money audit. (c) Tax Fees The principal accountant for the audit of the registrant's annual financial statements billed no such fees to the registrant during the last two fiscal years. The principal accountant for the audit of the registrant's annual financial statements billed no such fees 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 registrant's annual financial statements billed $9,719 in fiscal 2006 and no such fees in fiscal 2005 to the registrant. The principal accountant for the audit of the registrant's annual financial statements billed $2,625 in fiscal 2006 and no such fees in 2005 to the registrant's investment adviser or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. Such fees would include the cost to the principal accountant of attending audit committee meetings and consultations regarding the registrant's retirement plan with respect to its trustees. (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 $12,344 in fiscal 2006 and $5,000 in fiscal 2005 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 08/31/2006, the registrant's principal executive officer and principal financial officer found the registrant's disclosure controls and procedures to provide reasonable assurances that information required to be disclosed by the registrant in the reports that it files under the Securities Exchange Act of 1934 (a) is accumulated and communicated to registrant's management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure, and (b) is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the U.S. Securities and Exchange Commission. There have been no changes in the registrant's internal controls over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a) (1) 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: 10/16/2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /S/ John V. Murphy --------------------------- John V. Murphy Principal Executive Officer Date: 10/16/2006 By: /S/ Brian W. Wixted --------------------------- Brian W. Wixted Principal Financial Officer Date: 10/16/2006 EX-99.CERT 2 ra300_35015cert302.txt RA300_35015CERT302 Exhibit 99.CERT Section 302 Certifications CERTIFICATIONS I, John V. Murphy, certify that: 1. I have reviewed this report on Form N-CSR of Oppenheimer Capital Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 10/16/2006 /S/ John V. Murphy - --------------------------- John V. Murphy Principal Executive Officer Exhibit 99.CERT Section 302 Certifications CERTIFICATIONS I, Brian W. Wixted, certify that: 1. I have reviewed this report on Form N-CSR of Oppenheimer Capital Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 10/16/2006 /S/ Brian W. Wixted - --------------------------- Brian W. Wixted Principal Financial Officer EX-99.906CERT 3 ra300_35015cert906.txt RA300_35015CERT906 EX-99.906CERT Section 906 Certifications CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 John V. Murphy, Principal Executive Officer, and Brian W. Wixted, Principal Financial Officer, of Oppenheimer Capital Income Fund (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended 08/31/2006 (the "Form N-CSR") fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Form N-CSR filed with the Commission. Principal Executive Officer Principal Financial Officer Oppenheimer Capital Income Fund Oppenheimer Capital Income Fund /S/ John V. Murphy /S/ Brian W. Wixted - ---------------------------------- --------------------------------- John V. Murphy Brian W. Wixted Date: 10/16/2006 Date: 10/16/2006 EX-99.CODE ETH 4 ra300_35015ex99codeeth.txt RA300_35015EX99CODEETH EX-99.CODE ETH CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS OF THE OPPENHEIMER FUNDS AND OF OPPENHEIMERFUNDS, INC. This Code of Ethics for Principal Executive and Senior Financial Officers (referred to in this document as the "Code") has been adopted by each of the investment companies for which OppenheimerFunds, Inc. or one of its subsidiaries or affiliates (referred to collectively in this document as "OFI") acts as investment adviser (individually, a "Fund" and collectively, the "Funds"), and by OFI to effectuate compliance with Section 406 under the Sarbanes-Oxley Act of 2002 and the rules adopted to implement Section 406. This Code applies to OFI's and each Fund's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions ("Covered Officers"). A listing of positions currently within the ambit of Covered Officers is attached as EXHIBIT A. 1 1. PURPOSE OF THE CODE This Code sets forth standards and procedures that are reasonably designed to deter wrongdoing and promote: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the U.S. Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable governmental laws, rules and regulations; o the prompt internal reporting of violations of this Code to the Code Administrator identified below; and o accountability for adherence to this Code. In general, the principles that govern honest and ethical conduct, including the avoidance of conflicts of interest between personal and professional relationships, reflect, - ---------- 1 The obligations imposed by this Code on Covered Officers are separate from and in addition to any obligations that may be imposed on such persons as Covered Persons under the Code of Ethics adopted by OFI and the Funds under Rule 17j-1 of the Investment Company Act of 1940, as amended and any other code of conduct applicable to Covered Officers in whatever capacity they serve. This Code does not incorporate by reference any provisions of the Rule 17j-1 Code of Ethics and accordingly, any violations or waivers granted under the Rule 17j-1 Code of Ethics will not be considered a violation or waiver under this Code. at the minimum, the following: (1) the duty at all times in performing any responsibilities as a Fund financial officer, controller, accountant or principal executive officer to place the interests of the Funds ahead of personal interests; (2) the fundamental standard that Covered Officers should not take inappropriate advantage of their positions; (3) the duty to assure that a Fund's financial statements and reports to its shareholders are prepared honestly and accurately in accordance with applicable rules, regulations and accounting standards; and (4) the duty to conduct the Funds' business and affairs in an honest and ethical manner. Each Covered Officer should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. It is acknowledged that, as a result of the contractual relationship between each Fund and OFI, of which the Covered Officers are also officers or employees, and subject to OFI's fiduciary duties to each Fund, the Covered Officers will, in the normal course of their duties, be involved in establishing policies and implementing decisions that will have different effects on OFI and the Funds. It is further acknowledged that the participation of the Covered Officers in such activities is inherent in the contractual relationship between each Fund and OFI and is consistent with the expectations of the Board of Trustees/Directors of the performance by the Covered Officers of their duties as officers of the Funds. 1. PROHIBITIONS The specific provisions and reporting requirements of this Code are concerned primarily with promoting honest and ethical conduct and avoiding conflicts of interest in personal and professional relationships. No Covered Officer may use information concerning the business and affairs of a Fund, including the investment intentions of a Fund, or use his or her ability to influence such investment intentions, for personal gain to himself or herself, his or her family or friends or any other person or in a manner detrimental to the interests of a Fund or its shareholders. No Covered Officer may use his or her personal influence or personal relationships to influence the preparation and issuance of financial reports of a Fund whereby the Covered Officer would benefit personally to the detriment of the Fund and its shareholders. No Covered Officer shall intentionally for any reason take any action or fail to take any action in connection with his or her official acts on behalf of a Fund that causes the Fund to violate applicable laws, rules and regulations. No Covered Officer shall, in connection with carrying out his or her official duties and responsibilities on behalf of a Fund: (i) employ any device, scheme or artifice to defraud a Fund or its shareholders; (ii) intentionally cause a Fund to make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading in its official documents, regulatory filings, financial statements or communications to the public; (iii) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any Fund or its shareholders; (iv) engage in any manipulative practice with respect to any Fund; (v) use his or her personal influence or personal relationships to influence any business decision, investment decisions, or financial reporting by a Fund whereby the Covered Officer would benefit personally to the detriment of the Fund or its shareholders; (vi) intentionally cause a Fund to fail to comply with applicable laws, rules and regulations, including failure to comply with the requirement of full, fair, accurate, understandable and timely disclosure in reports and documents that a Fund files with, or submits to, the SEC and in other public communications made by the Fund; (vii) intentionally mislead or omit to provide material information to the Fund's independent auditors or to the Board of Trustees/Directors or the officers of the Fund or its investment adviser in connection with financial reporting matters; (viii) fail to notify the Code Administrator or the Chief Executive Officer of the Fund or its investment adviser promptly if he or she becomes aware of any existing or potential violations of this Code or applicable laws; (ix) retaliate against others for, or otherwise discourage the reporting of, actual or apparent violations of this Code; or (x) fails to acknowledge or certify compliance with this Code if requested to do so. 3. REPORTS OF CONFLICTS OF INTERESTS If a Covered Officer becomes aware of a conflict of interest under this Code or, to the Covered Officer's reasonable belief, the appearance of one, he or she must immediately report the matter to the Code's Administrator. If the Code Administrator is involved or believed to be involved in the conflict of interest or appearance of conflict of interest, the Covered Officer shall report the matter directly to the OFI's Chief Executive Officer. Upon receipt of a report of a conflict, the Code Administrator will take prompt steps to determine whether a conflict of interest exists. If the Code Administrator determines that an actual conflict of interest exists, the Code Administrator will take steps to resolve the conflict. If the Code Administrator determines that the appearance of a conflict exists, the Code Administrator will take appropriate steps to remedy such appearance. If the Code Administrator determines that no conflict or appearance of a conflict exists, the Code Administrator shall meet with the Covered Officer to advise him or her of such finding and of his or her reason for taking no action. In lieu of determining whether a conflict or appearance of conflict exists, the Code Administrator may in his or her discretion refer the matter to the Fund's Board of Trustees/Directors. 4. WAIVERS Any Covered Officer requesting a waiver of any of the provisions of this Code must submit a written request for such waiver to the Code Administrator, setting forth the basis of such request and all necessary facts upon which such request can be evaluated. The Code Administrator shall review such request and make a written determination thereon, which shall be binding. The Code Administrator may in reviewing such request, consult at his discretion with legal counsel to OFI or to the Fund. In determining whether to waive any of the provisions of this Code, the Code Administrator shall consider whether the proposed waiver: (i) is prohibited by this Code; (ii) is consistent with honest and ethical conduct; and (iii) will result in a conflict of interest between the Covered Officer's personal and professional obligations to a Fund. In lieu of determining whether to grant a waiver, the Code Administrator in his or her discretion may refer the matter to the appropriate Fund's Board of Trustees/Directors. 5. REPORTING REQUIREMENTS (a) Each Covered Officer shall, upon becoming subject to this Code, be provided with a copy of this Code and shall affirm in writing that he or she has received, read, understands and shall adhere to this Code. (b) At least annually, all Covered Officers shall be provided with a copy of this Code and shall certify that they have read and understand this Code and recognize that they are subject thereto. (c) At least annually, all Covered Officers shall certify that they have complied with the requirements of this Code and that they have disclosed or reported any violations of this Code to the Code Administrator or the Chief Executive Officer of the Fund or its investment adviser. (d) The Code Administrator shall submit a quarterly report to the Board of Trustees/Directors of each Fund containing (i) a description of any report of a conflict of interest or apparent conflict and the disposition thereof; (ii) a description of any request for a waiver from this Code and the disposition thereof; (iii) any violation of the Code that has been reported or found and the sanction imposed; (iv) interpretations issued under the Code by the Code Administrator; and (v) any other significant information arising under the Code including any proposed amendments. (e) Each Covered Officer shall notify the Code Administrator promptly if he or she knows of or has a reasonable belief that any violation of this Code has occurred or is likely to occur. Failure to do so is itself a violation of this Code. (f) Any changes to or waivers of this Code, including "implicit" waivers as defined in applicable SEC rules, will, to the extent required, be disclosed by the Code Administrator or his or her designee as provided by applicable SEC rules. 2 6. ANNUAL RENEWAL At least annually, the Board of Trustees/Directors of each Fund shall review the Code and determine whether any amendments (including any amendments that may be recommended by OFI or the Fund's legal counsel) are necessary or desirable, and shall consider whether to renew and/or amend the Code. 7. SANCTIONS Any violation of this Code of Ethics shall be subject to the imposition of such sanctions by OFI as may be deemed appropriate under the circumstances to achieve the purposes of this Code and may include, without limitation, a letter of censure, suspension from employment or termination of employment, in the sole discretion of OFI. 8. ADMINISTRATION AND CONSTRUCTION (a) The administration of this Code of Ethics shall be the responsibility of OFI's General Counsel or his designee as the "Code Administrator" of this Code, acting under the terms of this Code and the oversight of the Trustees/Directors of the Funds. (b) The duties of such Code Administrator will include: (i) Continuous maintenance of a current list of the names of all Covered Officers; (ii) Furnishing all Covered Officers a copy of this Code and initially and periodically informing them of their duties and obligations thereunder; (iii) Maintaining or supervising the maintenance of all records required by this Code, including records of waivers granted hereunder; - ---------- 2 An "implicit waiver" is the failure to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to the General Counsel, the Code Administrator, an executive officer of the Fund or OFI. (iv) Issuing interpretations of this Code which appear to the Code Administrator to be consistent with the objectives of this Code and any applicable laws or regulations; (v) Conducting such inspections or investigations as shall reasonably be required to detect and report any violations of this Code, with his or her recommendations, to the Chief Executive Officer of OFI and to the Trustees/Directors of the affected Fund(s) or any committee appointed by them to deal with such information; and (vi) Periodically conducting educational training programs as needed to explain and reinforce the terms of this Code. (c) In carrying out the duties and responsibilities described under this Code, the Code Administrator may consult with legal counsel, who may include legal counsel to the applicable Funds, and such other persons as the Administrator shall deem necessary or desirable. The Code Administrator shall be protected from any liability hereunder or under any applicable law, rule or regulation, for decisions made in good faith based upon his or her reasonable judgment. 9. REQUIRED RECORDS The Administrator shall maintain and cause to be maintained in an easily accessible place, the following records for the period required by applicable SEC rules (currently six years following the end of the fiscal year of OFI in which the applicable event or report occurred): (a) A copy of any Code which has been in effect during the period; (b) A record of any violation of any such Code and of any action taken as a result of such violation, during the period; (c) A copy of each annual report pursuant to the Code made by a Covered Officer during the period; (d) A copy of each report made by the Code Administrator pursuant to this Code during the period; (e) A list of all Covered Officers who are or have been required to make reports pursuant to this Code during the period, plus those person(s) who are or were responsible for reviewing these reports; (f) A record of any request to waive any requirement of this Code, the decision thereon and the reasons supporting the decision; and (g) A record of any report of any conflict of interest or appearance of a conflict of interest received by the Code Administrator or discovered by the Code Administrator during the period, the decision thereon and the reasons supporting the decision. 10. AMENDMENTS AND MODIFICATIONS Other than non-substantive or administrative changes, this Code may not be amended or modified unless approved or ratified by the Board of Trustees/Directors of each Fund. 11. CONFIDENTIALITY. This Code is identified for the internal use of the Funds and OFI. Reports and records prepared or maintained under this Code are considered confidential and shall be maintained and protected accordingly to the extent permitted by applicable laws, rules and regulations. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Trustees/Directors of the affected Fund(s) and their counsel, the independent auditors of the affected Funds and/or OFI, and to OFI, except as such disclosure may be required pursuant to applicable judicial or regulatory process. Dated as of: June 25, 2003, as revised July 31, 2006 Adopted by Board I of the Oppenheimer Funds June 13, 2003, revisions approved August 10, 2006 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by Board II of the Oppenheimer/Centennial Funds June 24, 2003, revisions approved August 30, 2006 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by Board III of the Oppenheimer Funds June 9, 2003, revisions approved July 31, 2006 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Robert G. Zack, Secretary Adopted by the Boards of Directors of OppenheimerFunds, Inc. and its subsidiaries and affiliates that act as investment adviser to the Oppenheimer or Centennial funds June 1, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Senior Vice President and General Counsel Exhibit A Positions Covered by this Code of Ethics for Senior Officers EACH OPPENHEIMER OR CENTENNIAL FUND Principal Executive Officer Principal Financial Officer Treasurer Assistant Treasurer PERSONNEL OF OFI WHO BY VIRTUE OF THEIR JOBS PERFORM CRITICAL FINANCIAL AND ACCOUNTING FUNCTIONS FOR OFI ON BEHALF OF A FUND, INCLUDING: Chief Financial Officer Treasurer Senior Vice President/Fund Accounting Vice President/Fund Accounting -----END PRIVACY-ENHANCED MESSAGE-----