<PAGE> 1
ANNUAL REPORT AUGUST 31, 1998
OPPENHEIMER
INTERNATIONAL SMALL COMPANY FUND
[PHOTO]
[LOGO]
OPPENHEIMERFUNDS(R)
THE RIGHT WAY TO INVEST
<PAGE> 2
CONTENTS
3 President's Letter
4 An Interview
with Your Fund's Manager
9 Fund Performance
13 Financial Statements
29 Independent Auditors' Report
30 Federal Income
Tax Information
31 Officers and Trustees
32 Information and Services
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
- - WE WERE VERY PLEASED WITH THE FUND'S PERFORMANCE during the period, despite
the volatility that affected many world markets.
- - COMMUNICATIONS, TECHNOLOGY, AND FINANCIAL SERVICES COMPANIES IN EUROPE, the
best-performing region over the period, were the main drivers of the Fund's
strong results.
- - WITH NO END TO THE ASIAN CRISIS IN SIGHT, we've continued to limit investments
in Japan and the rest of Asia.
CUMULATIVE TOTAL RETURNS
For the Period 11/17/97
to 8/31/98
CLASS A
Without With
Sales Chg.(1) Sales Chg.(2)
15.20% 8.58%
CLASS B
Without With
Sales Chg.(1) Sales Chg.(2)
14.50% 9.50%
CLASS C
Without With
Sales Chg.(1) Sales Chg.(2)
14.50% 13.50%
Cumulative total returns include changes in share price and reinvestment of
dividends and capital gains distributions in a hypothetical investment for the
period shown, and are not annualized. IN REVIEWING PERFORMANCE AND RANKINGS,
PLEASE REMEMBER THAT PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
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 THE ORIGINAL COST. BECAUSE OF ONGOING MARKET VOLATILITY, THE FUND'S
PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL SHORT-TERM CHANGES. FOR UPDATES ON THE
FUND'S PERFORMANCE, PLEASE CONTACT YOUR FINANCIAL ADVISOR, CALL US AT
1-800-525-7048 OR VISIT OUR WEBSITE, WWW.OPPENHEIMERFUNDS.COM. IT IS IMPORTANT
TO NOTE THAT OPPENHEIMER INTERNATIONAL SMALL COMPANY FUND HAS A LIMITED
OPERATING HISTORY, WAS FIRST OFFERED 11/17/97 AND MAY INVEST WITHOUT LIMIT IN
SMALL COMPANY STOCKS WHICH ARE SUBJECT TO GREATER VOLATILITY, AND IN FOREIGN
SECURITIES WHICH ARE SUBJECT TO CURRENCY EXCHANGE AND POLITICAL UNCERTAINTIES.
1. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken into
account.
2. Class A return includes the current maximum initial sales charge of
5.75%. Class B return includes the applicable contingent deferred sales charge
of 5%. Class C return includes the contingent deferred sales charge of 1%. Class
B and C shares are subject to a 0.75% annual asset-based sales charge. An
explanation of the different performance calculations is in the Fund's
prospectus.
2 Oppenheimer International Small Company Fund
<PAGE> 3
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
International
Small Company Fund
DEAR SHAREHOLDER,
- --------------------------------------------------------------------------------
The performance of the financial markets over the past several months could be
viewed as "A Tale of Two Markets." Until mid-July, the excitement surrounding
the stock market's continued ascent to new record highs overshadowed the
favorable economic environment that existed for bonds: low inflation and
declining interest rates. However, since that time, stocks have declined sharply
amid heightened volatility. Yet, the bond market remains poised to benefit from
the same positive economic conditions that existed earlier in the year.
Why have stocks faltered lately? The financial crises in Asia and Russia
have negatively affected the earnings of some large U.S. corporations and have
contributed to a slowdown in U.S. economic growth. Although slower economic
growth has been negative for stocks, it should not adversely impact bonds.
That's because slower economic growth generally means fewer inflationary
pressures and less likelihood that interest rates will rise.
What should you do during this period of relative uncertainty? If you
have well-defined long-term financial goals and an investment strategy designed
to achieve them, we encourage you to stay the course. However, if you feel your
financial plan is out-of-date or incomplete, now is the time to make
improvements. The best way to cope with short-term volatility is to adhere to a
long-term plan that contains proven strategies, such as diversification among
various financial markets, geographic regions, investment styles and individual
securities. A long-term plan will give you the focus and perspective you need to
put short-term volatility in its proper context.
As longstanding advocates of financial planning, we have been encouraged
by our shareholders' rational responses to the latest market events. Many of you
tell us that you have a long-term strategy in place, which includes diversifying
your investment portfolio among a number of different asset classes in
accordance with your tolerance for risk. At OppenheimerFunds, our portfolio
management teams include seasoned professionals who have encountered extreme
market volatility in the past, giving them the perspective required to address
risks and take advantage of opportunities in turbulent markets. In our view,
having a well-defined set of financial goals, a disciplined long-term strategy
and the help of experienced investment professionals are all fundamental parts
of The Right Way to Invest.
Sincerely,
/s/ BRIDGET A. MACASKILL
Bridget A. Macaskill
September 22, 1998
3 Oppenheimer International Small Company Fund
<PAGE> 4
"...WE CONTINUED TO FAVOR COMPANIES WITH A DEMONSTRATED HISTORY OF STRONG
EARNINGS GROWTH."
AN INTERVIEW WITH YOUR FUND'S MANAGER
- --------------------------------------------------------------------------------
HOW HAS OPPENHEIMER INTERNATIONAL SMALL COMPANY FUND PERFORMED OVER THE
PAST YEAR?
Since its inception on November 17, 1997 to August 31, 1998, the Fund has
performed very well. Despite volatility in the world's financial markets, our
disciplined stock-picking strategy enabled the Fund to enjoy the benefits of
investing in strong businesses at reasonable prices.
IN WHICH REGIONS DID YOU DISCOVER THE BEST INVESTMENT OPPORTUNITIES?
We continued to look for good small companies--those with total stock market
values under $1 billion--based outside the United States and with a history of
strong profitability and value-added management in industries with good secular
trends. These are often characterized by above average revenue and earnings
growth, among other positive features. This led to substantial investment in
Europe, the best-performing region over the period.
WHY WAS EUROPE SUCH A STRONG PERFORMER?
On January 1, 1999, European Monetary Union (EMU) should see nine European
countries begin to adopt a single currency (the Euro) and interest rate. This
will increase the comparability of company performance, forcing many companies
to restructure. The strict limits on government borrowing have made these
economies more attractive and emphasized the greater need for personal saving
for retirement, particularly in stocks.
France and Germany (the "Euro Core") may experience continued cyclical
growth. Spain, Italy and Portugal (the "Euro Rim") may find themselves with
considerably lower interest rates after EMU. The situation in both Benelux and
Scandinavia remains mixed but overall positive while the U.K. is at the end of a
prolonged expansion
4 Oppenheimer International Small Company Fund
<PAGE> 5
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
Bill Wilby
Nicholas Horsley
(Portfolio Manager)
George Evans
and will remain outside EMU for the moment. There are opportunities in all these
areas.
Continental Europe is seeing societal changes similar to those
experienced in the U.S. and the U.K. over the last 15 years. European investors
are emphasizing equity over bonds and taking more control of their retirement
planning. More companies are focusing on stockholder value and acknowledge
stockholder rights. Opportunities may be unique to Europe or they may be similar
to the U.S., but at cheaper valuations or better growth.
WHAT TYPES OF EUROPEAN COMPANIES DID YOU FAVOR OVER THE PERIOD?
My valuation screens led towards investments in companies in the media,
entertainment, business productivity and financial services sectors.(1)
The Fund is invested in the largest commercial TV station in Germany,
the largest commercial radio network in western Europe and some of the major
advertising, billboard and free newspaper businesses. These are beneficiaries of
economic growth, EMU and the Millennium.
Taking advantage of the increase in stock investing, the Fund has a
substantial stake in financial services. Just as Americans were attracted by
saving in 401(k)s, IRAs and mutual funds in the 1980s and '90s, similar
incentives appear to be influencing Europeans to move more of their large
savings from cash and bonds into stocks. Additionally, we expect EMU to
accelerate consolidation of the banking system.
1. The Fund's portfolio is subject to change.
5 Oppenheimer International Small Company Fund
<PAGE> 6
CUMULATIVE TOTAL RETURNS(2)
For the Period Ended 9/30/98
Since Inception
<TABLE>
- -----------------
<S> <C>
CLASS A 4.24%
- -----------------
CLASS B 4.90
- -----------------
CLASS C 8.80
- -----------------
</TABLE>
AN INTERVIEW WITH YOUR FUND'S MANAGER
- --------------------------------------------------------------------------------
The Fund holds attractive technology investments. While scientists in European
universities have long produced cutting-edge research, successful
commercialization has often trailed the U.S., but the growth of risk capital has
recharged every branch from pharmaceuticals to biotechnology to
telecommunications.
WHICH COMPANIES CONTRIBUTED THE MOST TO THE FUND'S PERFORMANCE?
The largest cellular communications operator in Germany was one of the Fund's
strongest performers over the period. It may become the largest cellular
operator in central Europe, where cellular usage is growing faster than in the
United States.
Raisio Group plc, a Finnish company, was another solid performer for the
Fund. It has developed Benecol, a revolutionary food product from wood fiber
that can reduce one's cholesterol by 30 to 35 percent. Johnson & Johnson has
signed a worldwide marketing agreement with Raisio, and the product should be
introduced in the U.S. in early 1999. This appears to be a life-changing product
with superior opportunities.
WHICH COMPANIES DID NOT PERFORM QUITE AS WELL AS YOU HAD EXPECTED?
We believe that Pininfarina SpA, an Italian engineering design house, has
suffered unnecessarily due to the decline in the Italian market. With blue-chip
clients such as Ferrari, Maserati and Mitsubishi, Pininfarina is currently
benefiting from the automotive industry's trend toward outsourcing, as well as
the rising consumer demand for premium cars. Given its reputation as one of the
world's best automotive designers, Pininfarina is well positioned to take
advantage of both of these trends.
6 Oppenheimer International Small Company Fund
<PAGE> 7
We were disappointed by the performance of a Japanese publisher of game software
for such products as the Sony Play Station. It enjoyed strong cash flows and
healthy earnings, but the Japanese stock market depression has caused its stock
to sell at some 60% discount to similar businesses in the U.S. and Europe. With
the rapid consolidation of the electronic publishing industry, this company may
be worth considerably more to a foreign competitor.
WHAT IS YOUR OUTLOOK FOR FOREIGN MARKETS IN THE NEAR FUTURE?
We remain optimistic about Europe. Stable or falling interest rates plus fiscal
prudence lead to stronger economies; EMU will create more globally competitive
companies; and increased individual retirement saving will support the stock
markets.
We continue to be wary of Asia. The problem was always declining
corporate profitability of which currency devaluations and bad loans were merely
the results. Japanese banks would benefit from consolidation and need to reduce
their capital in order to be more profitable; increased credit costs would then
force industrial restructuring. The Asian centralized economic models have
contributed to the economic woes and the absence of political leadership,
particularly in Japan, seems to indicate a protracted outcome. While some good
companies have appeared at good prices in Asia, until corporate profitability is
restored there, we expect to find most opportunities elsewhere.
2. Cumulative total returns include changes in share price and reinvestment of
dividends and capital gains distributions in a hypothetical investment for the
periods shown, and are not annualized. Class A returns include the current
maximum initial sales charge of 5.75%. Class A, B and C shares were first
publicly offered on 11/17/97. Class B returns include the applicable contingent
deferred sales charge of 5%. Class C returns include the contingent deferred
sales charge of 1%. An explanation of the different performance calculations is
in the Fund's prospectus. Class B and C shares are subject to an annual 0.75%
asset-based sales charge.
7 Oppenheimer International Small Company Fund
<PAGE> 8
REGIONAL ALLOCATION(3)
<TABLE>
<S> <C>
Europe 75.1%
United States 8.0
Latin America 5.1
Asia 4.1
Japan 4.0
Emerging Europe 3.7
</TABLE>
We will continue to seek foreign companies with a history of strong
profitability and value-added management in industries with good growth trends;
to seek above average profit creation at a below average valuation. It is this
commitment to disciplined investing that makes the Oppenheimer International
Small Company Fund part of The Right Way to Invest.
<TABLE>
<CAPTION>
10 LARGEST COUNTRY HOLDINGS(3)
- -----------------------------------------------------
<S> <C>
France 21.2%
- -----------------------------------------------------
Germany 19.7
- -----------------------------------------------------
Italy 14.2
- -----------------------------------------------------
Spain 8.0
- -----------------------------------------------------
United States 7.4
- -----------------------------------------------------
Brazil 4.6
- -----------------------------------------------------
Japan 4.0
- -----------------------------------------------------
Great Britain 3.8
- -----------------------------------------------------
Portugal 3.7
- -----------------------------------------------------
Finland 3.5
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP TEN STOCK HOLDINGS(3)
- -----------------------------------------------------
<S> <C>
Computer 2000 AG 4.1%
- -----------------------------------------------------
Cegid 3.9
- -----------------------------------------------------
Lusomundo SGPS SA 3.7
- -----------------------------------------------------
Prosieben Media AG, Preferred 3.4
- -----------------------------------------------------
Raisio Group plc 3.4
- -----------------------------------------------------
Credito Fondiario e Industriale 3.4
- -----------------------------------------------------
Leon de Bruxelles SA 3.3
- -----------------------------------------------------
NRJ SA 3.2
- -----------------------------------------------------
Radiotronica SA 3.2
- -----------------------------------------------------
Banca Popolare Commercio e Industria 3.0
- -----------------------------------------------------
</TABLE>
3. Portfolio is subject to change. Percentages are as of August 31, 1998 and
are based on total market value of investments.
8 Oppenheimer International Small Company Fund
<PAGE> 9
FUND PERFORMANCE
- --------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED? Below is a discussion by the Manager of the Fund's
performance during the period from the inception of the Fund to August 31, 1998,
followed by a graphical comparison of the Fund's performance to an appropriate
broad-based market index and to a sector index.
- MANAGEMENT'S DISCUSSION OF PERFORMANCE. During the period from the
inception of the Fund to August 31, 1998, Oppenheimer International Small
Company Fund performed strongly due to its substantial holdings in Europe, the
best-performing region worldwide. In particular, the Fund benefited from its
European investments in the financial services industry, reflecting public
demand for retirement investing and expected industry consolidation; the media
and communications industry, which benefited from the strengthened economies,
plus the prospects of European Monetary Union and the Millennium; and the
technology industry, which has been commercialized by the availability of risk
capital. Since the Fund seeks to invest in reliable companies with a history of
strong earnings, it invested only a very small portion of its assets in Japan
and in the rest of Asia, and here only where the man-agement teams are well
known and the valuations are compelling. The prospects for the year ahead may
produce little change in the geographic balance of the portfolio.
- COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow
show the performance of a hypothetical $10,000 investment in Class A, Class B
and Class C shares of the Fund from the inception date of November 17, 1997
until August 31, 1998. The Fund's performance reflects the deduction of the
5.75% maximum initial sales charge on Class A shares, the applicable contingent
deferred sales charge for Class B and Class C shares, and reinvestment of all
dividends and capital gains distributions.
The Fund's performance is compared to the performances of the HSBC James
Capel World excluding U.S. Smaller Companies Index (WexUS) and the Morgan
Stanley Capital (MSCI) EAFE Index. The performance of small international
companies is represented by WexUS, an index comprised of 1,200 securities with a
market capitalization range of $53-$1,033 million. The Index is comprised of
stocks in Europe, UK, Southeast Asia, Japan, Australia, and New Zealand. The
performance of large international companies is represented by MSCI EAFE Index
which is comprised of common stocks issued in Europe, Australia and the Far
East. Index performance reflects the reinvestment of dividends but does not
consider the effect of capital gains or transaction costs, and none of the data
in the graphs shows the effect of taxes. The Fund's performance reflects the
effects of Fund 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 securities in the indices.
9 Oppenheimer International Small Company Fund
<PAGE> 10
FUND PERFORMANCE
- --------------------------------------------------------------------------------
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer International Small Company Fund (Class A), HSBC James Capel World
excluding U.S. Smaller Companies Index and Morgan Stanley Capital EAFE Index
[The following chart was represented as a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer International HSBC James Capel World Morgan Stanley
Small Company Fund excluding U.S. Smaller Capital EAFE Index
Class A Companies Index
<S> <C> <C> <C>
11/17/97 9425 10000 10000
08/31/98 10858 9432 10370
</TABLE>
CUMULATIVE TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 8/31/98(1)
Life 8.58%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer International Small Company Fund (Class B), HSBC James Capel World
excluding U.S. Smaller Companies Index and Morgan Stanley Capital EAFE Index
[The following chart was represented as a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer International HSBC James Capel World Morgan Stanley
Small Company Fund excluding U.S. Smaller Capital EAFE Index
Class B Companies Index
<S> <C> <C> <C>
11/17/97 10000 10000 10000
08/31/98 10950 9432 10370
</TABLE>
CUMULATIVE TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 8/31/98(2)
Life 9.50%
10 Oppenheimer International Small Company Fund
<PAGE> 11
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer International Small Company Fund (Class C), HSBC James Capel World
excluding U.S. Smaller Companies Index and Morgan Stanley Capital EAFE Index
[The following chart was represented as a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer International HSBC James Capel World Morgan Stanley
Small Company Fund excluding U.S. Smaller Capital EAFE Index
Class B Companies Index
<S> <C> <C> <C>
11/17/97 10000 10000 10000
08/31/98 11350 9432 10370
</TABLE>
CUMULATIVE TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 8/31/98(3)
Life 13.50%
The returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions,
and are not annualized. The performance information in the graphs for both
indices begins on 11/30/97.
1. The inception date of the Fund's Class A shares was 11/17/97. The average
annual total return is shown net of the applicable 5.75% maximum initial sales
charge.
2. Class B shares of the Fund were first publicly offered on 11/17/97. The
average annual total return is shown net of the applicable 5% contingent
deferred sales charge for the life of the class. The ending account value in the
graph is net of the applicable 5% contingent deferred sales charge.
3. Class C shares of the Fund were first publicly offered on 11/17/97. The
average annual total return and the ending account value are shown net of the
applicable 1% contingent deferred sales charge for the life of the class.
Past performance is not predictive of future performance.
11 Oppenheimer International Small Company Fund
<PAGE> 12
FINANCIALS
- --------------------------------------------------------------------------------
12 Oppenheimer International Small Company Fund
<PAGE> 13
STATEMENT OF INVESTMENTS August 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
=================================================================================================================
<S> <C> <C>
COMMON STOCKS--84.4%
- -----------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--29.1%
- -----------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--4.6%
Courts (Singapore) Ltd. 845,000 $ 118,944
- -----------------------------------------------------------------------------------------------------------------
IRSA Inversiones y Representaciones SA, Sponsored GDR(1) 2,500 59,375
- -----------------------------------------------------------------------------------------------------------------
Pininfarina SpA 20,000 328,198
- -----------------------------------------------------------------------------------------------------------------
Rosenbauer International AG 1,600 87,035
----------
593,552
- -----------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--4.5%
Leon de Bruxelles SA 5,000 381,557
- -----------------------------------------------------------------------------------------------------------------
TAB Ltd.(2) 136,000 196,119
----------
577,676
- -----------------------------------------------------------------------------------------------------------------
MEDIA--17.4%
Dauphin O.T.A. 3,060 238,690
- -----------------------------------------------------------------------------------------------------------------
Lusomundo SGPS SA 30,800 429,696
- -----------------------------------------------------------------------------------------------------------------
Monrif SpA(2) 305,000 245,001
- -----------------------------------------------------------------------------------------------------------------
NRJ SA 2,100 376,650
- -----------------------------------------------------------------------------------------------------------------
Prosieben Media AG, Preferred 7,575 396,896
- -----------------------------------------------------------------------------------------------------------------
Publicis SA 1,805 273,040
- -----------------------------------------------------------------------------------------------------------------
SPIR Communication SA 4,150 280,950
----------
2,240,923
- -----------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--1.0%
Jacob Holm & Sons AS, Cl. B(2) 8,000 119,702
- -----------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--1.6%
AIGLE, A Shares 2,305 202,419
</TABLE>
13 Oppenheimer International Small Company Fund
<PAGE> 14
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--7.2%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD--4.8%
Makro Atacadista SA 30,800 $217,205
- ----------------------------------------------------------------------------------------------------------------
Raisio Group plc 30,000 396,885
--------
614,090
- ----------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.1%
Haw Par Healthcare Ltd. 158,000 67,611
- ----------------------------------------------------------------------------------------------------------------
Torii Pharmaceutical Co. Ltd. 5,000 78,263
--------
145,874
- ----------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--1.2%
TRANSGENE SA, Sponsored ADR(2) 10,500 158,813
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL--19.0%
- ----------------------------------------------------------------------------------------------------------------
BANKS--6.9%
Banca Popolare Commercio e Industria 18,000 352,698
- ----------------------------------------------------------------------------------------------------------------
Banco Bradesco SA, Preference 23,005,116 135,261
- ----------------------------------------------------------------------------------------------------------------
Credito Fondiario e Industriale(2) 148,200 391,152
- ----------------------------------------------------------------------------------------------------------------
IFCT Finance & Securities Public Company Ltd. plc(2) 140,000 1,336
- ----------------------------------------------------------------------------------------------------------------
Industrial Finance Corp. of Thailand (The) 9,000 1,095
--------
881,542
- ----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--6.4%
Kempen & Co. NV 2,000 122,105
- ----------------------------------------------------------------------------------------------------------------
Metrovacesa SA(2) 7,600 187,761
- ----------------------------------------------------------------------------------------------------------------
Metrovacesa SA (New)(2) 380 9,388
- ----------------------------------------------------------------------------------------------------------------
Ruam Pattana Fund II(2) 625,000 37,291
- ----------------------------------------------------------------------------------------------------------------
Shohkoh Fund & Co. 1,000 228,416
- ----------------------------------------------------------------------------------------------------------------
Unibail (Union du Credit-Bail Immobilier) 2,000 241,624
--------
826,585
- ----------------------------------------------------------------------------------------------------------------
INSURANCE--5.7%
Allianz Subalpina 29,200 326,706
- ----------------------------------------------------------------------------------------------------------------
Lambert Fenchurch Group plc 44,000 81,414
- ----------------------------------------------------------------------------------------------------------------
Mapfre Vida Seguros 5,400 218,142
- ----------------------------------------------------------------------------------------------------------------
Ockham Holdings plc 57,000 105,946
--------
732,208
</TABLE>
14 Oppenheimer International Small Company Fund
<PAGE> 15
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------
INDUSTRIAL--9.8%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL SERVICES--5.9%
A. Friedrich Flender AG(2) 1,654 $ 276,681
- ----------------------------------------------------------------------------------------------------------------
BDAG Balcke-Duerr AG(2) 2,025 349,076
- ----------------------------------------------------------------------------------------------------------------
Deutsche Babcock AG(2) 2,470 137,260
-----------
763,017
- ----------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.9%
Deutz AG(2) 18,000 203,118
- ----------------------------------------------------------------------------------------------------------------
Semperit AG Holding 2,280 293,984
-----------
497,102
- ----------------------------------------------------------------------------------------------------------------
TECHNOLOGY--17.9%
- ----------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--5.6%
Computer 2000 AG(2) 1,135 480,771
- ----------------------------------------------------------------------------------------------------------------
Eidos plc(2) 8,000 81,716
- ----------------------------------------------------------------------------------------------------------------
Imagineer Co. Ltd. 36,900 157,071
-----------
719,558
- ----------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES--7.0%
Autonomy Corp. plc(2) 42,900 171,600
- ----------------------------------------------------------------------------------------------------------------
Cegid 2,480 455,716
- ----------------------------------------------------------------------------------------------------------------
SER Systeme AG 1,110 276,947
-----------
904,263
- ----------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: TECHNOLOGY--5.3%
MobilCom AG 614 166,077
- ----------------------------------------------------------------------------------------------------------------
Radiotronica SA(2) 5,800 374,493
- ----------------------------------------------------------------------------------------------------------------
Radiotronica SA (New)(2) 2,150 138,821
-----------
679,391
- ----------------------------------------------------------------------------------------------------------------
UTILITIES--1.4%
- ----------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--1.4%
Telecomunicacoes de Sao Paulo SA, Preference 1,260,888 183,196
-----------
Total Common Stocks (Cost $11,757,868) 10,839,911
</TABLE>
15 Oppenheimer International Small Company Fund
<PAGE> 16
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
UNITS SEE NOTE 1
===============================================================================================================
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.4%
Banco Bradesco SA Rts., Exp. 9/98 756,334 $ 257
- ---------------------------------------------------------------------------------------------------------------
Biocompatibles International plc Wts., Exp. 4/99 21,625 3,078
- ---------------------------------------------------------------------------------------------------------------
Milano Assicurazioni Wts., Exp. 6/02 9,880 --
- ---------------------------------------------------------------------------------------------------------------
Novogen Ltd. Wts., Exp. 12/98 46,570 51,966
- ---------------------------------------------------------------------------------------------------------------
PT Pan Indonesia Bank Wts., Exp. 6/00 76,500 273
----------
Total Rights, Warrants and Certificates (Cost $90,125) 55,574
<CAPTION>
FACE
AMOUNT
===============================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENTS--5.5%
- ---------------------------------------------------------------------------------------------------------------
Repurchase agreement with Salomon Smith Barney Holdings, Inc., 5.75%, dated
8/31/98, to be repurchased at $700,112 on 9/1/98, collateralized by U.S.
Treasury Nts., 5.375%-8%, 10/31/98-2/15/05,
with a value of $718,559 (Cost $700,000) $700,000 700,000
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $12,547,993) 90.3% 11,595,485
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 9.7 1,249,167
---------- -----------
NET ASSETS 100.0% $12,844,652
========== ===========
</TABLE>
1. A sufficient amount of securities has been designated to cover outstanding
forward foreign currency exchange contracts. See Note 5 of Notes to Financial
Statements.
2. Non-income producing security.
16 Oppenheimer International Small Company Fund
<PAGE> 17
- --------------------------------------------------------------------------------
Distribution of investments by country of issue, as a percentage of total
investments at value, is as follows:
<TABLE>
<CAPTION>
COUNTRY MARKET VALUE PERCENT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
France $ 2,450,646 21.2%
- ----------------------------------------------------------------------------------------------------------------
Germany 2,286,826 19.7
- ----------------------------------------------------------------------------------------------------------------
Italy 1,643,756 14.2
- ----------------------------------------------------------------------------------------------------------------
Spain 928,604 8.0
- ----------------------------------------------------------------------------------------------------------------
United States 858,813 7.4
- ----------------------------------------------------------------------------------------------------------------
Brazil 535,919 4.6
- ----------------------------------------------------------------------------------------------------------------
Japan 463,750 4.0
- ----------------------------------------------------------------------------------------------------------------
Great Britain 443,753 3.8
- ----------------------------------------------------------------------------------------------------------------
Portugal 429,696 3.7
- ----------------------------------------------------------------------------------------------------------------
Finland 396,885 3.5
- ----------------------------------------------------------------------------------------------------------------
Austria 381,019 3.3
- ----------------------------------------------------------------------------------------------------------------
Australia 248,086 2.1
- ----------------------------------------------------------------------------------------------------------------
Singapore 186,554 1.6
- ----------------------------------------------------------------------------------------------------------------
The Netherlands 122,105 1.1
- ----------------------------------------------------------------------------------------------------------------
Denmark 119,702 1.0
- ----------------------------------------------------------------------------------------------------------------
Argentina 59,375 0.5
- ----------------------------------------------------------------------------------------------------------------
Thailand 39,723 0.3
- ----------------------------------------------------------------------------------------------------------------
Indonesia 273 0.0
----------- -----
Total $11,595,485 100.0%
=========== =====
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer International Small Company Fund
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES August 31, 1998
<TABLE>
<S> <C>
================================================================================================================
ASSETS
Investments, at value (cost $12,547,993)--see accompanying statement $11,595,485
- ----------------------------------------------------------------------------------------------------------------
Cash 127,428
- ----------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 1,514,962
Shares of beneficial interest sold 31,427
Interest and dividends 12,385
- ----------------------------------------------------------------------------------------------------------------
Other 32,189
-----------
Total assets 13,313,876
================================================================================================================
LIABILITIES
Unrealized depreciation on forward foreign currency
exchange contracts--Note 5 13,503
- ----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 389,185
Shares of beneficial interest redeemed 26,719
Shareholder reports 9,426
Transfer and shareholder servicing agent fees 6,948
Distribution and service plan fees 5,248
Trustees' fees--Note 1 3,122
Other 15,073
-----------
Total liabilities 469,224
================================================================================================================
NET ASSETS $12,844,652
===========
================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $12,945,562
- ----------------------------------------------------------------------------------------------------------------
Accumulated net investment income 20,345
- ----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions 838,299
- -----------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies (959,554)
-----------
Net assets $12,844,652
===========
</TABLE>
18 Oppenheimer International Small Company Fund
<PAGE> 19
<TABLE>
================================================================================================================
<S> <C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$9,604,500 and 833,366 shares of beneficial interest outstanding) $11.52
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $12.22
- ----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $2,631,468
and 229,742 shares of beneficial interest outstanding) $11.45
- ----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $608,684
and 53,155 shares of beneficial interest outstanding) $11.45
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer International Small Company Fund
<PAGE> 20
STATEMENT OF OPERATIONS For the period ended August 31, 1998(1)
<TABLE>
================================================================================================================
<S> <C>
INVESTMENT INCOME
Interest $ 38,847
- ----------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $3,054) 101,808
-----------
Total income 140,655
================================================================================================================
EXPENSES
Management fees--Note 4 50,980
- ----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 7,771
Class B 9,289
Class C 3,564
- ----------------------------------------------------------------------------------------------------------------
Shareholder reports 13,331
- ----------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 10,530
- ----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 9,141
- ----------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 7,562
- ----------------------------------------------------------------------------------------------------------------
Registration and filing fees 3,839
- ----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 3,511
- ----------------------------------------------------------------------------------------------------------------
Other 4,857
-----------
Total expenses 124,375
Less expenses paid indirectly--Note 4 (2,758)
-----------
Net expenses 121,617
================================================================================================================
NET INVESTMENT INCOME 19,038
================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 949,999
Foreign currency transactions (111,700)
-----------
Net realized gain 838,299
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (1,041,391)
Translation of assets and liabilities denominated in foreign currencies 81,837
-----------
Net change (959,554)
-----------
Net realized and unrealized loss (121,255)
=================================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (102,217)
===========
</TABLE>
1. For the period from November 17, 1997 (commencement of operations) to August
31, 1998.
See accompanying Notes to Financial Statements.
20 Oppenheimer International Small Company Fund
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1998(1)
================================================================================================================
<S> <C>
OPERATIONS
Net investment income $ 19,038
- ----------------------------------------------------------------------------------------------------------------
Net realized gain 838,299
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (959,554)
-----------
Net decrease in net assets resulting from operations (102,217)
================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A 9,607,137
Class B 2,782,183
Class C 557,549
================================================================================================================
NET ASSETS
Total increase 12,844,652
- ----------------------------------------------------------------------------------------------------------------
Beginning of period --
-----------
End of period (including accumulated net investment income of
$19,038 for the period ended August 31, 1998) $12,844,652
===========
</TABLE>
1. For the period from November 17, 1997 (commencement of operations) to August
31, 1998.
See accompanying Notes to Financial Statements.
21 Oppenheimer International Small Company Fund
<PAGE> 22
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1998(1) 1998(1) 1998(1)
================================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.00 $10.00 $10.00
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .03 (.01) (.04)
Net realized and unrealized gain 1.49 1.46 1.49
------ ------ -----
Total income from investment operations 1.52 1.45 1.45
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.52 $11.45 $11.45
====== ====== ======
================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 15.20% 14.50% 14.50%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $9,605 $2,631 $609
- ----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $6,482 $1,187 $454
Ratios to average net assets:(3)
Net investment income (loss) 0.44% (0.38)% (0.66)%
Expenses(4) 1.77% 2.67% 2.58%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 239.1% 239.1% 239.1%
</TABLE>
1. For the period from November 17, 1997 (commencement of operations) to August
31, 1998.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or commencement of operations), 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.
3. Annualized.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1998, were $28,868,672 and $17,893,245, respectively.
See accompanying Notes to Financial Statements.
22 Oppenheimer International Small Company Fund
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer International Small Company Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to seek
long-term capital appreciation. The Fund primarily invests in common stocks of
companies domiciled or with primary operations outside the United States with
market capitalization of $1 billion or less ("small cap" companies). The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge. Class B and Class C shares may be subject to a contingent deferred
sales charge. All classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution and/or
service plan, expenses directly attributable to that class and exclusive voting
rights with respect to matters affecting that class. 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.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Forward foreign currency exchange contracts are valued
based on the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or
dealer.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
23 Oppenheimer International Small Company Fund
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The effect of changes in foreign currency exchange rates on investments is
separately identified from 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.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the period ended
August 31, 1998, a provision of $2,858 was made for the Fund's projected benefit
obligations, resulting in an accumulated liability of $2,858 at August 31, 1998.
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 annual fees they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustee in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
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
income per share.
24 Oppenheimer International Small Company Fund
<PAGE> 25
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of the distributions
made during the year from net investment income or net realized gains may differ
from its ultimate characterization for federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the period ended August 31, 1998, amounts have been reclassified to
reflect an increase in accumulated net investment income of $1,307. Paid-in
capital was decreased by the same amount.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity with
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.
25 Oppenheimer International Small Company Fund
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest for each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
PERIOD ENDED AUGUST 31, 1998(1)
------------------------------
SHARES AMOUNT
==============================================================================
<S> <C> <C>
Class A:
Sold 1,018,740 $11,907,503
Redeemed (185,374) (2,300,366)
--------- -----------
Net increase 833,366 $ 9,607,137
========= ===========
- ------------------------------------------------------------------------------
Class B:
Sold 308,085 $ 3,685,253
Redeemed (78,343) (903,070)
--------- -----------
Net increase 229,742 $ 2,782,183
========= ===========
==============================================================================
Class C:
Sold 93,920 $ 1,083,570
Redeemed (40,765) (526,021)
--------- -----------
Net increase 53,155 $ 557,549
========= ===========
</TABLE>
1. For the period from November 17, 1997 (commencement of operations) to August
31, 1998.
================================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At August 31, 1998, net unrealized depreciation on investments of $952,508 was
composed of gross appreciation of $517,738, and gross depreciation of
$1,470,246.
26 Oppenheimer International Small Company Fund
<PAGE> 27
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.80% of the first
$250 million of average annual net assets, 0.77% of the next $250 million, 0.75%
of the next $500 million, 0.69% of the next $1 billion, and 0.67% of average
annual net assets in excess of $2 billion.
For the period ended August 31, 1998, commissions (sales
charges paid by investors) on sales of Class A shares totaled $51,665, of which
$15,161 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated broker/dealer.
Sales charges advanced to broker/dealers by OFDI on sales of the Fund's Class B
and Class C shares totaled $60,209 and $5,453, respectively, of which $13,212
was paid to an affiliated broker/dealer for Class B shares.
OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
Expenses paid indirectly represent a reduction of custodian
fees for earnings on cash balances maintained by the Fund.
The Fund has adopted a Service Plan for Class A shares to
reimburse OFDI for a portion of its costs incurred in connection with the
personal service and maintenance of shareholder accounts that hold Class A
shares. Reimbursement is made quarterly at an annual rate that may not exceed
0.25% of the average annual net assets of Class A shares of the Fund. OFDI uses
the service fee to reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
The Fund has adopted Distribution and Service Plans for
Class B and Class C shares to compensate OFDI for its costs in distributing
Class B and Class C shares and servicing accounts. Under the Plans, the Fund
pays OFDI an annual asset-based sales charge of 0.75% per year on Class B and
Class C shares for its services rendered in distributing Class B and Class C
shares. OFDI also receives a service fee of 0.25% per year to compensate dealers
for providing personal service for accounts that hold Class B and C shares. Each
fee is computed on the average annual net assets of Class B or Class C shares,
determined as of the close of each regular business day. During the period ended
August 31, 1998, OFDI retained $8,345 and $1,629, respectively, as compensation
for Class B and Class C sales commissions and service fee advances, as well as
financing costs. If either Plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to OFDI
for distributing shares before the Plan was terminated. As of August 31, 1998,
OFDI had incurred excess distribution and servicing costs of $59,031 and $9,068,
respectively, for Class B and Class C.
27 Oppenheimer International Small Company Fund
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
5. FORWARD CONTRACTS
A forward foreign currency exchange contract (forward contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign
currency risks. They may also be used to tactically shift portfolio currency
risk. The Fund generally enters into forward contracts as a hedge upon the
purchase or sale of a security denominated in a foreign currency. In addition,
the Fund may enter into such contracts as a hedge against changes in foreign
currency exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of
the forward currency contract rates in the London foreign exchange markets on a
daily basis as provided by a reliable bank or dealer. The Fund will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure
on outstanding forward contracts are noted in the Statement of Investments where
applicable. Unrealized appreciation or depreciation on forward contracts is
reported in the Statement of Assets and Liabilities. Realized gains and losses
are reported with all other foreign currency gains and losses in the Fund's
Statement of Operations.
Risks include the potential inability of the counterparty to
meet the terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At August 31, 1998, outstanding forward contracts were as follows:
<TABLE>
<CAPTION>
EXPIRATION CONTRACT VALUATION AS OF UNREALIZED
DATE AMOUNT (000S) AUGUST 31, 1998 DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------
CONTRACTS TO SELL
- -----------------
<S> <C> <C> <C> <C>
Japanese Yen 11/4/98 73,142 JPY $523,503 $13,503
=================================================================================================================
</TABLE>
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the period
ended August 31, 1998.
28 Oppenheimer International Small Company Fund
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer International Small Company Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer International Small Company Fund as of August 31,
1998, and the related statement of operations and statement of changes in net
assets and the financial highlights for the period from November 17, 1997,
(commencement of operations) to August 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1998, by correspondence with
the custodian and brokers; and where confirmations were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 International Small Company Fund as of August
31, 1998, the results of its operations, changes in net assets and the financial
highlights for the period from November 17, 1997, (commencement of operations)
to August 31, 1998, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
September 22, 1998
29 Oppenheimer International Small Company Fund
<PAGE> 30
FEDERAL INCOME TAX INFORMATION (Unaudited)
================================================================================
In early 1999, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1998. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
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.
30 Oppenheimer International Small Company Fund
<PAGE> 31
OPPENHEIMER INTERNATIONAL SMALL COMPANY FUND
================================================================================
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of
Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Nicholas Horsley, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
================================================================================
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
================================================================================
LEGAL COUNSEL Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of
Oppenheimer International Small Company Fund.
This report must be preceded or accompanied by
a Prospectus of Oppenheimer International
Small Company Fund. For material information
concerning the Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits
or obligations of any bank, are not guaranteed
by any bank, and are not insured by the FDIC
or any other agency, and involve investment
risks, including possible loss of the
principal amount invested.
31 Oppenheimer International Small Company Fund
<PAGE> 32
INTERNET
24-hr access to account
information. Online
transactions now available
WWW.OPPENHEIMERFUNDS.COM
GENERAL INFORMATION
Mon-Fri 8:30am-9pm ET
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INFORMATION AND SERVICES
- --------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
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And when you need help, our Customer Service Representatives are only a
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handle administrative requests. You can reach them at our General Information
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When you want to make a transaction, you can do it easily by calling our
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enrolling in AccountLink, a convenient service that "links" your Oppenheimer
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Telephone Transactions number or website to make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer funds' transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today, or visit us at our website at
www.oppenheimerfunds.com--we're here to help.
[LOGO]
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DISTRIBUTOR, INC.
RA0815.001.0898 October 30, 1998
