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 811-4410
Oppenheimer Discovery 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: September 30
Date of reporting period: October 1, 2003 - September 30, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Semiconductors & Semiconductor Equipment 8.4%
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Software 8.4
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Internet Software & Services 5.6
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Biotechnology 5.5
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Communications Equipment 5.4
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Pharmaceuticals 5.4
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Health Care Providers & Services 4.8
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Hotels, Restaurants & Leisure 4.5
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Health Care Equipment & Supplies 3.3
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Commercial Banks 3.3
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2004 and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Martek Biosciences Corp. 2.1%
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Westcorp 1.9
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MGI Pharma, Inc. 1.6
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Zebra Technologies Corp., Cl. A 1.6
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Activision, Inc. 1.6
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FLIR Systems, Inc. 1.6
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Autodesk, Inc. 1.5
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Macromedia, Inc. 1.4
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Shuffle Master, Inc. 1.3
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VCA Antech, Inc. 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2004 and are based on net assets. For more current Fund holdings,
please visit www.oppenheimerfunds.com.
8 | OPPENHEIMER DISCOVERY FUND
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SECTOR ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Information Technology 41.4%
Semiconductors & Semiconductor Equipment 9.1
Software 9.2
Internet Software & Services 6.2
Communications Equipment 5.9
IT Services 3.5
Electronic Equipment & Instruments 3.2
Computers & Peripherals 2.5
Office Electronics 1.8
Health Care 20.7
Financials 11.1
Industrials 10.9
Consumer Discretionary 10.0
Materials 3.2
Energy 2.7
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2004, and are based on common stocks.
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9 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED SEPTEMBER 30, 2004, FOLLOWED
BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO APPROPRIATE BROAD-BASED
MARKET INDICES.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. Over the 12-month period ended
September 30, 2004, the Fund's performance trailed that of its benchmark.
Despite relatively strong gains from several consumer cyclical holdings,
disappointing results among individual stock selections in the education, health
care and technology sectors undermined returns.
The Fund's investment strategy focuses on small-cap growth companies that
exhibit leadership potential within their market sector. In particular, we seek
to uncover little-known companies with a competitive advantage in their
marketplace. We target those we believe offer innovative products or services,
rapidly accelerating earnings, sustainable growth rates and proven management
teams. To try to moderate the risks associated with small company stocks, we
also diversify investments among a variety of high-potential companies in
different industries.
Our aggressive style of investing in small-cap growth stocks generally
positions the Fund to benefit in strong markets, while often underperforming in
weak ones. Such proved the case during the second half of the reporting period,
when small-cap growth stocks lost significantly more ground then their large-cap
and value-oriented counterparts. This trend was most apparent in the technology
sector, an area in which the Fund generally finds a relatively large number of
attractive investments. For example, many semiconductor holdings, such as a
supplier of single-chip image sensors declined sharply in response to short-term
earnings weakness despite solid, longer-term fundamentals. Some other technology
holdings, such as a wireless hardware maker also suffered from competitive
concerns. However, the Fund cushioned these losses with positions in several
strong technology stocks, such as FLIR Systems, Inc., a provider of defense and
home security products; and Zebra Technologies Corp., Cl. A, a developer of
leading-edge inventory control equipment.
Other areas that undermined the Fund's relative performance included
education and health care. In the education area, several of the Fund's best
performers in 2003 were among its greatest disappointments in 2004 when the
group came under pressure amid rumors and investigations regarding corporate
governance issues. Although most of the questions regarding such stocks were
resolved, holdings such as Corinthian Colleges, Inc., failed to fully recover
before the end of the period, thereby undermining the Fund's performance. In
health care, risk-averse investor sentiment drove stock prices sharply lower for
biotechnology holdings, such as photo therapeutics and generic drug holdings,
10 | OPPENHEIMER DISCOVERY FUND
despite strong fundamentals. The behavior of Martek Biosciences Corp., one of
the Fund's largest holdings, illustrates the sector's recent volatility. Despite
strong demand for the company's nutritional additives and increasing production
capacity, the stock declined substantially between May and August 2004.
On the other hand, the Fund delivered relatively strong performance in the
consumer cyclical area, where several specialty retail holdings posted gains.
For example, Urban Outfitters, Inc., rose as a result of sales growth among its
Anthropologie stores; a casual apparel retailer benefited from a favorable shift
in fashion trends; and a footwear marketer capitalized on the popularity of its
product lines.
As of the end of the period, we continue to maintain our disciplined focus
on small-cap growth investing. As a result, we believe the Fund is well
positioned to take advantage of historically low relative valuations in the
sector.
The Fund's portfolio holdings, allocations and strategies are subject to
change.
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 September 30, 2004. In the case of Class A, Class B and Class Y
shares, performance is measured over a ten fiscal year period; in the case of
Class C shares, from the inception of the class on October 2, 1995. In the case
of Class N shares, performance is measured from inception of the Class on March
1, 2001. The Fund's performance reflects the deduction of the maximum initial
sales charge on Class A shares, the applicable contingent deferred sales charge
on Class B, Class C, and Class N shares, and reinvestments of all dividends and
capital gains distributions. Past performance cannot guarantee future results.
The Fund's performance is compared to the performance of the Standard &
Poor's (S&P) 500 Index and the Russell 2000 Index. The S&P 500 Index is a
broad-based index of equity securities widely regarded as a general measure of
the performance of the U.S. equity securities market. The Russell 2000 Index is
a capitalization-weighted index of 2,000 U.S. issuers whose common stocks are
traded on the New York and American Stock Exchanges and NASDAQ, and is widely
recognized as a measure of the performance of mid-capitalization stocks. 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 either index.
11 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class A)
S&P 500 Index
Russell 2000 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
Date (Class A) S&P 500 Index 2000 Index
09/30/1994 9,425 10,000 10,000
12/31/1994 9,225 9,998 9,815
03/31/1995 9,775 10,971 10,268
06/30/1995 10,460 12,017 11,231
09/30/1995 12,066 12,971 12,340
12/31/1995 12,618 13,751 12,608
03/31/1996 13,434 14,489 13,251
06/30/1996 15,048 15,138 13,914
09/30/1996 15,416 15,607 13,961
12/31/1996 14,485 16,906 14,687
03/31/1997 12,601 17,360 13,928
06/30/1997 14,934 20,388 16,185
09/30/1997 16,827 21,915 18,594
12/31/1997 15,985 22,545 17,972
03/31/1998 17,769 25,687 19,779
06/30/1998 16,962 26,540 18,857
09/30/1998 13,330 23,906 15,058
12/31/1998 15,666 28,992 17,514
03/31/1999 13,964 30,436 16,564
06/30/1999 15,277 32,577 19,140
09/30/1999 14,875 30,548 17,930
12/31/1999 23,704 35,090 21,237
03/31/2000 27,258 35,894 22,741
06/30/2000 23,736 34,940 21,882
09/30/2000 24,119 34,602 22,124
12/31/2000 20,561 31,896 20,595
03/31/2001 16,621 28,117 19,256
06/30/2001 19,886 29,762 22,007
09/30/2001 15,192 25,395 17,432
12/31/2001 18,177 28,108 21,107
03/31/2002 18,058 28,186 21,948
06/30/2002 15,344 24,412 20,115
09/30/2002 12,969 20,197 15,810
12/31/2002 13,796 21,898 16,784
03/31/2003 13,171 21,209 16,030
06/30/2003 15,991 24,472 19,785
09/30/2003 17,824 25,120 21,581
12/31/2003 19,174 28,176 24,715
03/31/2004 19,877 28,653 26,262
06/30/2004 19,656 29,146 26,386
09/30/2004 17,870 28,601 25,633
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
9/30/04
1-Year -5.51% 5-Year 2.52% 10-Year 5.98%
12 | OPPENHEIMER DISCOVERY FUND
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class B)
S&P 500 Index
Russell 2000 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
Date (Class B) S&P 500 Index 2000 Index
09/30/1994 10,000 10,000 10,000
12/31/1994 9,772 9,998 9,815
03/31/1995 10,335 10,971 10,268
06/30/1995 11,036 12,017 11,231
09/30/1995 12,704 12,971 12,340
12/31/1995 13,257 13,751 12,608
03/31/1996 14,090 14,489 13,251
06/30/1996 15,751 15,138 13,914
09/30/1996 16,105 15,607 13,961
12/31/1996 15,101 16,906 14,687
03/31/1997 13,118 17,360 13,928
06/30/1997 15,515 20,388 16,185
09/30/1997 17,446 21,915 18,594
12/31/1997 16,542 22,545 17,972
03/31/1998 18,355 25,687 19,779
06/30/1998 17,488 26,540 18,857
09/30/1998 13,719 23,906 15,058
12/31/1998 16,090 28,992 17,514
03/31/1999 14,313 30,436 16,564
06/30/1999 15,633 32,577 19,140
09/30/1999 15,190 30,548 17,930
12/31/1999 24,162 35,090 21,237
03/31/2000 27,737 35,894 22,741
06/30/2000 24,108 34,940 21,882
09/30/2000 24,465 34,602 22,124
12/31/2000 20,856 31,896 20,595
03/31/2001 16,859 28,117 19,256
06/30/2001 20,171 29,762 22,007
09/30/2001 15,410 25,395 17,432
12/31/2001 18,438 28,108 21,107
03/31/2002 18,317 28,186 21,948
06/30/2002 15,564 24,412 20,115
09/30/2002 13,155 20,197 15,810
12/31/2002 13,994 21,898 16,784
03/31/2003 13,360 21,209 16,030
06/30/2003 16,221 24,472 19,785
09/30/2003 18,079 25,120 21,581
12/31/2003 19,449 28,176 24,715
03/31/2004 20,162 28,653 26,262
06/30/2004 19,938 29,146 26,386
09/30/2004 18,125 28,601 25,633
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND
AT 9/30/04
1-Year -5.57% 5-Year 2.64% 10-Year 6.13%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURN FOR CLASS B SHARES USES
CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR FURTHER
INFORMATION.
13 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class C)
S&P 500 Index
Russell 2000 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
Date (Class C) S&P 500 Index 2000 Index
10/02/1995 10,000 10,000 10,000
12/31/1995 10,536 10,602 10,217
03/31/1996 11,194 11,170 10,738
06/30/1996 12,516 11,671 11,275
09/30/1996 12,796 12,032 11,313
12/31/1996 11,998 13,034 11,902
03/31/1997 10,422 13,384 11,287
06/30/1997 12,328 15,719 13,116
09/30/1997 13,869 16,896 15,068
12/31/1997 13,152 17,381 14,564
03/31/1998 14,595 19,804 16,029
06/30/1998 13,904 20,461 15,281
09/30/1998 10,909 18,431 12,203
12/31/1998 12,792 22,352 14,193
03/31/1999 11,383 23,465 13,423
06/30/1999 12,431 25,116 15,511
09/30/1999 12,079 23,552 14,530
12/31/1999 19,210 27,053 17,210
03/31/2000 22,053 27,673 18,429
06/30/2000 19,170 26,938 17,732
09/30/2000 19,440 26,677 17,928
12/31/2000 16,542 24,591 16,690
03/31/2001 13,345 21,677 15,604
06/30/2001 15,940 22,945 17,834
09/30/2001 12,156 19,578 14,126
12/31/2001 14,513 21,670 17,105
03/31/2002 14,388 21,730 17,786
06/30/2002 12,203 18,821 16,301
09/30/2002 10,296 15,571 12,812
12/31/2002 10,929 16,883 13,601
03/31/2003 10,421 16,351 12,990
06/30/2003 12,625 18,867 16,033
09/30/2003 14,044 19,366 17,489
12/31/2003 15,080 21,723 20,028
03/31/2004 15,600 22,090 21,282
06/30/2004 15,393 22,470 21,383
09/30/2004 13,970 22,050 20,772
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND
AT 9/30/04
1-Year -1.52% 5-Year 2.95% Since Inception (10/2/95) 3.79%
14 | OPPENHEIMER DISCOVERY FUND
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class N)
S&P 500 Index
Russell 2000 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
Date (Class N) S&P 500 Index 2000 Index
03/01/2001 10,000 10,000 10,000
03/31/2001 9,248 9,367 9,511
06/30/2001 11,059 9,915 10,870
09/30/2001 8,440 8,460 8,610
12/31/2001 10,092 9,364 10,426
03/31/2002 10,018 9,390 10,841
06/30/2002 8,507 8,132 9,935
09/30/2002 7,187 6,728 7,809
12/31/2002 7,635 7,295 8,290
03/31/2003 7,290 7,065 7,918
06/30/2003 8,842 8,153 9,772
09/30/2003 9,852 8,368 10,659
12/31/2003 10,588 9,387 12,207
03/31/2004 10,969 9,545 12,972
06/30/2004 10,839 9,710 13,033
09/30/2004 9,847 9,528 12,661
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND
AT 9/30/04
1-Year -1.05% 5-Year N/A Since Inception (3/1/01) -0.43%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER
INFORMATION.
15 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS Y SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class Y)
S&P 500 Index
Russell 2000 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
Date (Class Y) S&P 500 Index 2000 Index
09/30/1994 10,000 10,000 10,000
12/31/1994 9,801 9,998 9,815
03/31/1995 10,394 10,971 10,268
06/30/1995 11,127 12,017 11,231
09/30/1995 12,828 12,971 12,340
12/31/1995 13,425 13,751 12,608
03/31/1996 14,304 14,489 13,251
06/30/1996 16,032 15,138 13,914
09/30/1996 16,431 15,607 13,961
12/31/1996 15,450 16,906 14,687
03/31/1997 13,453 17,360 13,928
06/30/1997 15,954 20,388 16,185
09/30/1997 17,992 21,915 18,594
12/31/1997 17,110 22,545 17,972
03/31/1998 19,040 25,687 19,779
06/30/1998 18,188 26,540 18,857
09/30/1998 14,310 23,906 15,058
12/31/1998 16,813 28,992 17,514
03/31/1999 14,995 30,436 16,564
06/30/1999 16,412 32,577 19,140
09/30/1999 16,001 30,548 17,930
12/31/1999 25,509 35,090 21,237
03/31/2000 29,352 35,894 22,741
06/30/2000 25,593 34,940 21,882
09/30/2000 26,029 34,602 22,124
12/31/2000 22,182 31,896 20,595
03/31/2001 17,944 28,117 19,256
06/30/2001 21,490 29,762 22,007
09/30/2001 16,430 25,395 17,432
12/31/2001 19,671 28,108 21,107
03/31/2002 19,560 28,186 21,948
06/30/2002 16,633 24,412 20,115
09/30/2002 14,069 20,197 15,810
12/31/2002 14,978 21,898 16,784
03/31/2003 14,311 21,209 16,030
06/30/2003 17,378 24,472 19,785
09/30/2003 19,386 25,120 21,581
12/31/2003 20,871 28,176 24,715
03/31/2004 21,655 28,653 26,262
06/30/2004 21,432 29,146 26,386
09/30/2004 19,502 28,601 25,633
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES AT 9/30/04
1-Year 0.60% 5-Year 4.04% 10-Year 6.91%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER
INFORMATION.
16 | OPPENHEIMER DISCOVERY FUND
NOTES
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Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
Investors should consider the Fund's investment objectives, risks, and other
charges and expenses carefully before investing. The Fund's prospectus contains
this and other information about the Fund, and may be obtained by asking your
financial advisor, calling us at 1.800.525.7048 or visiting our website at
www.oppenheimerfunds.com. Read the prospectus carefully before investing.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
CLASS A shares of the Fund were first publicly offered on 9/11/86. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%. The Fund's maximum sales charge for Class A shares was lower
prior to 4/4/91, so actual performance may have bee higher.
CLASS B shares of the Fund were first publicly offered on 4/4/94. 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. 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 10/2/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the one-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.
CLASS Y shares of the Fund were first publicly offered on 6/1/94. Class Y shares
are offered only to certain institutional investors under special agreement with
the Distributor.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
17 | OPPENHEIMER DISCOVERY FUND
FUND EXPENSES
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FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended September 30, 2004.
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), redemption fees, or a $12.00 fee
imposed annually on accounts valued at less than $500.00 (subject to
18 | OPPENHEIMER DISCOVERY FUND
exceptions described in the Statement of Additional Information). Therefore, the
"hypothetical" lines of the table are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs would
have been higher.
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6-MONTHS ENDED
(4/1/04) (9/30/04) SEPTEMBER 30, 2004
- -------------------------------------------------------------------
Class A Actual $ 1,000.00 $ 899.00 $ 6.10
- -------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,018.60 6.48
- -------------------------------------------------------------------
Class B Actual 1,000.00 895.10 10.20
- -------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,014.30 10.83
- -------------------------------------------------------------------
Class C Actual 1,000.00 895.50 9.91
- -------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,014.60 10.53
- -------------------------------------------------------------------
Class N Actual 1,000.00 897.70 7.48
- -------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,017.15 7.95
- -------------------------------------------------------------------
Class Y Actual 1,000.00 900.30 4.57
- -------------------------------------------------------------------
Class Y Hypothetical 1,000.00 1,020.20 4.86
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 183/366
(to reflect the one-half year period). Those annualized expense ratios based on
the 6-month period ended September 30, 2004 are as follows:
CLASS EXPENSE RATIOS
- ------------------------
Class A 1.28%
- ------------------------
Class B 2.14
- ------------------------
Class C 2.08
- ------------------------
Class N 1.57
- ------------------------
Class Y 0.96
The expense ratios reflect voluntary reimbursements of expenses by the Fund's
Transfer Agent that can be terminated at any time, without advance notice. The
"Financial Highlights" tables in the Fund's financial statements, included in
this report, also show the gross expense ratios, without such reimbursements.
19 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS September 30, 2004
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--91.4%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--9.2%
- --------------------------------------------------------------------------------
DISTRIBUTORS--0.1%
Design Within
Reach, Inc. 1 51,000 $ 876,690
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--4.5%
P.F. Chang's China
Bistro, Inc. 1 155,000 7,515,950
- --------------------------------------------------------------------------------
Penn National
Gaming, Inc. 1 74,100 2,993,640
- --------------------------------------------------------------------------------
Ruby Tuesday, Inc. 288,300 8,034,921
- --------------------------------------------------------------------------------
Scientific Games
Corp., Cl. A 1 572,200 10,929,020
- --------------------------------------------------------------------------------
Shuffle Master, Inc. 1 332,100 12,440,466
-------------
41,913,997
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.7%
Coldwater Creek, Inc. 1 289,500 6,041,865
- --------------------------------------------------------------------------------
MEDIA--0.9%
Navarre Corp. 1 300,000 4,347,000
- --------------------------------------------------------------------------------
TiVo, Inc. 1 611,100 4,045,482
-------------
8,392,482
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--2.0%
American Eagle
Outfitters, Inc. 1 238,400 8,785,040
- --------------------------------------------------------------------------------
Urban Outfitters, Inc. 1 276,500 9,511,600
-------------
18,296,640
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.0%
Deckers Outdoor
Corp. 1 282,700 9,611,800
- --------------------------------------------------------------------------------
ENERGY--2.5%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.3%
FMC Technologies,
Inc. 1 150,000 5,010,000
- --------------------------------------------------------------------------------
Lone Star
Technologies, Inc. 1 174,600 6,599,880
-------------
11,609,880
- --------------------------------------------------------------------------------
OIL & GAS--1.2%
Frontline Ltd. 100,000 4,719,000
- --------------------------------------------------------------------------------
General Maritime
Corp. 1 190,000 6,617,700
-------------
11,336,700
- --------------------------------------------------------------------------------
FINANCIALS--10.1%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.7%
National Financial
Partners Corp. 172,400 6,168,472
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--3.3%
BankAtlantic
Bancorp, Inc. 200,000 3,664,000
- --------------------------------------------------------------------------------
East West Bancorp, Inc. 153,200 5,145,988
- --------------------------------------------------------------------------------
First Niagara Financial
Group, Inc. 338,200 4,525,116
- --------------------------------------------------------------------------------
Westcorp 409,500 17,411,940
-------------
30,747,044
- --------------------------------------------------------------------------------
CONSUMER FINANCE--1.0%
First Marblehead
Corp. (The) 1 210,000 9,744,000
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.0%
CapitalSource, Inc. 1 373,900 8,352,926
- --------------------------------------------------------------------------------
Collegiate Funding
Services, Inc. 1 200,000 2,512,000
- --------------------------------------------------------------------------------
Investors Financial
Services Corp. 164,100 7,405,833
-------------
18,270,759
- --------------------------------------------------------------------------------
REAL ESTATE--1.9%
Newcastle
Investment Corp. 265,500 8,150,850
- --------------------------------------------------------------------------------
Redwood Trust, Inc. 157,500 9,831,150
-------------
17,982,000
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.2%
Commercial Capital
Bancorp, Inc. 500,433 11,354,832
- --------------------------------------------------------------------------------
HEALTH CARE--19.0%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--5.5%
Digene Corp. 1 97,600 2,533,696
- --------------------------------------------------------------------------------
Gen-Probe, Inc. 1 261,600 10,429,992
20 | OPPENHEIMER DISCOVERY FUND
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
BIOTECHNOLOGY Continued
Martek Biosciences
Corp. 1 392,900 $ 19,110,656
- --------------------------------------------------------------------------------
Pharmacyclics, Inc. 1 687,200 7,085,032
- --------------------------------------------------------------------------------
Pharmion Corp. 1 126,900 6,560,222
- --------------------------------------------------------------------------------
VaxGen, Inc. 1 360,500 4,812,675
-------------
50,532,273
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--3.3%
Advanced Medical
Optics, Inc. 1 175,000 6,924,750
- --------------------------------------------------------------------------------
Animas Corp. 1 312,800 5,036,080
- --------------------------------------------------------------------------------
Given Imaging Ltd. 1 196,300 7,547,735
- --------------------------------------------------------------------------------
Inamed Corp. 1 239,600 11,421,732
-------------
30,930,297
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--4.8%
Amedisys, Inc. 1 117,600 3,522,120
- --------------------------------------------------------------------------------
eResearch
Technology, Inc. 1 392,200 5,228,026
- --------------------------------------------------------------------------------
Omnicell, Inc. 1 395,000 5,221,900
- --------------------------------------------------------------------------------
Psychiatric
Solutions, Inc. 1 200,000 5,070,000
- --------------------------------------------------------------------------------
United Surgical
Partners
International, Inc. 1 245,200 8,422,620
- --------------------------------------------------------------------------------
VCA Antech, Inc. 1 596,900 12,314,047
- --------------------------------------------------------------------------------
Ventiv Health, Inc. 1 300,000 5,085,000
-------------
44,863,713
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.4%
Able Laboratories, Inc. 1 211,000 4,042,760
- --------------------------------------------------------------------------------
DOV
Pharmaceutical, Inc. 1 501,600 8,597,424
- --------------------------------------------------------------------------------
Eon Labs, Inc. 1 319,700 6,937,490
- --------------------------------------------------------------------------------
Medicis Pharmaceutical
Corp., Cl. A 225,000 8,784,000
- --------------------------------------------------------------------------------
MGI Pharma, Inc. 1 573,600 15,309,384
- --------------------------------------------------------------------------------
Salix Pharmaceuticals
Ltd. 1 279,100 6,006,232
-------------
49,677,290
- --------------------------------------------------------------------------------
INDUSTRIALS--9.9%
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.9%
EGL, Inc. 1 290,000 8,775,400
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--2.6%
51job, Inc., ADR 1 36,200 751,150
- --------------------------------------------------------------------------------
Bright Horizons
Family Solutions, Inc. 1 5,000 271,450
- --------------------------------------------------------------------------------
Corinthian Colleges,
Inc. 1 345,500 4,657,340
- --------------------------------------------------------------------------------
Corporate Executive
Board Co. 109,600 6,711,904
- --------------------------------------------------------------------------------
Gevity HR, Inc. 191,800 2,949,884
- --------------------------------------------------------------------------------
Strayer Education, Inc. 75,000 8,625,750
-------------
23,967,478
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.9%
Intermagnetics
General Corp. 1 344,200 7,968,230
- --------------------------------------------------------------------------------
MACHINERY--1.9%
Ceradyne, Inc. 1 217,050 9,530,666
- --------------------------------------------------------------------------------
Nordson Corp. 235,500 8,084,715
-------------
17,615,381
- --------------------------------------------------------------------------------
MARINE--0.0%
Ship Finance
International Ltd. 15,000 301,500
- --------------------------------------------------------------------------------
ROAD & RAIL--2.7%
Landstar System, Inc. 1 164,400 9,646,992
- --------------------------------------------------------------------------------
Old Dominion
Freight Line, Inc. 1 288,400 8,308,804
- --------------------------------------------------------------------------------
Yellow Roadway
Corp. 1 156,300 7,328,907
-------------
25,284,703
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.9%
MSC Industrial
Direct Co., Inc., Cl. A 246,100 8,387,088
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--37.8%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--5.4%
ADTRAN, Inc. 334,600 7,588,728
- --------------------------------------------------------------------------------
Airspan Networks, Inc. 1 525,000 2,850,750
- --------------------------------------------------------------------------------
Andrew Corp. 1 681,600 8,342,784
- --------------------------------------------------------------------------------
Ditech
Communications Corp. 1 385,300 8,626,867
21 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT Continued
F5 Networks, Inc. 1 276,900 $ 8,434,374
- --------------------------------------------------------------------------------
Polycom, Inc. 1 285,200 5,652,664
- --------------------------------------------------------------------------------
Sierra Wireless, Inc. 1 465,800 8,291,240
-------------
49,787,407
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.3%
Advanced Digital
Information Corp. 1 309,000 2,688,300
- --------------------------------------------------------------------------------
Avid Technology, Inc. 1 250,000 11,717,500
- --------------------------------------------------------------------------------
Novatel Wireless, Inc. 1 278,800 6,551,800
-------------
20,957,600
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.0%
Aeroflex, Inc. 1 940,000 9,935,800
- --------------------------------------------------------------------------------
Cogent, Inc. 1 35,100 639,522
- --------------------------------------------------------------------------------
FLIR Systems, Inc. 1 250,000 14,625,000
- --------------------------------------------------------------------------------
Staktek Holdings, Inc. 1 58,800 229,320
- --------------------------------------------------------------------------------
TTM Technologies,
Inc. 1 225,000 2,000,250
-------------
27,429,892
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--5.6%
Aladdin Knowledge
Systems Ltd. 1 260,800 5,842,181
- --------------------------------------------------------------------------------
Ask Jeeves, Inc. 1 238,800 7,811,148
- --------------------------------------------------------------------------------
Digitas, Inc. 1 512,600 3,962,398
- --------------------------------------------------------------------------------
eCollege.com, Inc. 1 722,900 6,975,985
- --------------------------------------------------------------------------------
Ivillage, Inc. 1 500,000 3,000,000
- --------------------------------------------------------------------------------
National Information
Consortium, Inc. 1 467,200 2,504,192
- --------------------------------------------------------------------------------
Netease.com, Inc., ADR 1 156,400 5,932,252
- --------------------------------------------------------------------------------
SINA Corp. 1 167,000 4,256,830
- --------------------------------------------------------------------------------
SupportSoft, Inc. 1 712,900 6,943,646
- --------------------------------------------------------------------------------
VeriSign, Inc. 1 264,100 5,250,308
-------------
52,478,940
- --------------------------------------------------------------------------------
IT SERVICES--3.1%
Aquantive, Inc. 1 500,000 4,825,000
- --------------------------------------------------------------------------------
Cognizant Technology
Solutions Corp. 1 305,200 9,311,652
- --------------------------------------------------------------------------------
Global Payments, Inc. 130,000 6,961,500
- --------------------------------------------------------------------------------
NAVTEQ Corp. 1 229,600 8,182,944
-------------
29,281,096
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS--1.6%
Zebra Technologies
Corp., Cl. A 1 248,100 15,136,581
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--8.4%
AMIS Holdings, Inc. 1 313,000 4,231,760
- --------------------------------------------------------------------------------
Atheros
Communications, Inc. 1 28,600 291,720
- --------------------------------------------------------------------------------
ATI Technologies, Inc. 1 407,900 6,253,107
- --------------------------------------------------------------------------------
ATMI, Inc. 1 500,000 10,240,000
- --------------------------------------------------------------------------------
Exar Corp. 1 438,100 6,203,496
- --------------------------------------------------------------------------------
LTX Corp. 1 527,800 2,855,398
- --------------------------------------------------------------------------------
Marvell Technology
Group Ltd. 1 426,100 11,133,993
- --------------------------------------------------------------------------------
Microsemi Corp. 1 433,800 6,116,580
- --------------------------------------------------------------------------------
ON Semiconductor
Corp. 1 1,345,600 4,211,728
- --------------------------------------------------------------------------------
Silicon Laboratories,
Inc. 1 159,000 5,261,310
- --------------------------------------------------------------------------------
Silicon Storage
Technology, Inc. 1 656,100 4,179,357
- --------------------------------------------------------------------------------
Skyworks Solutions,
Inc. 1 1,219,100 11,581,450
- --------------------------------------------------------------------------------
Zoran Corp. 1 336,300 5,286,636
-------------
77,846,535
- --------------------------------------------------------------------------------
SOFTWARE--8.4%
Activision, Inc. 1 1,080,250 14,983,068
- --------------------------------------------------------------------------------
Altiris, Inc. 1 203,100 6,428,115
- --------------------------------------------------------------------------------
Autodesk, Inc. 280,000 13,616,400
- --------------------------------------------------------------------------------
CallWave, Inc. 1 42,000 401,100
- --------------------------------------------------------------------------------
InterVoice-Brite, Inc. 1 256,600 2,763,582
- --------------------------------------------------------------------------------
Macromedia, Inc. 1 633,300 12,716,664
- --------------------------------------------------------------------------------
Macrovision Corp. 1 435,000 10,474,800
- --------------------------------------------------------------------------------
Magma Design
Automation, Inc. 1 546,300 8,238,204
- --------------------------------------------------------------------------------
Mercury Interactive
Corp. 1 100,000 3,488,000
- --------------------------------------------------------------------------------
Verint Systems, Inc. 1 127,400 4,693,416
-------------
77,803,349
22 | OPPENHEIMER DISCOVERY FUND
VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------
MATERIALS--2.9%
- ------------------------------------------------------------------------------
CHEMICALS--1.2%
Headwaters, Inc. 1 300,000 $ 9,258,000
- ------------------------------------------------------------------------------
Olin Corp. 79,400 1,588,000
--------------
10,846,000
- ------------------------------------------------------------------------------
METALS & MINING--1.7%
Allegheny
Technologies, Inc. 175,000 3,193,750
- ------------------------------------------------------------------------------
GrafTech
International Ltd. 1 470,200 6,559,290
- ------------------------------------------------------------------------------
Oregon Steel
Mills, Inc. 1 386,900 6,434,147
--------------
16,187,187
- ------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.0%
- ------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.0%
JAMDAT Mobile, Inc. 1 9,900 228,392
--------------
Total Common Stocks
(Cost $747,835,516) 848,633,493
- ------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- ------------------------------------------------------------------------------
Candescent Technologies Corp.:
$2.50 Cv., Series D,
Vtg. 1,2 1,200,000 --
Sr. Exchangeable,
Series E, Vtg. 1,2 800,000 --
Sr. Exchangeable,
Series F, Vtg. 1,2 200,000 --
--------------
Total Preferred Stocks
(Cost $8,900,000) --
UNITS
- ------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ------------------------------------------------------------------------------
Discovery Laboratories,
Inc. Wts., Exp. 9/20/10 1,2
(Cost $0) 123,908 516,705
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--9.9%
- ------------------------------------------------------------------------------
Undivided interest of 77.33% in joint
repurchase agreement (Principal Amount/
Value $38,794,000, with a maturity value
of $38,795,832) with Cantor Fitzgerald
& Co./Cantor Fitzgerald Securities,
1.70%, dated 9/30/04, to be repurchased
at $30,001,417 on 10/1/04, collateralized
by U.S. Treasury Bills, 1/20/05, with a
value of $39,586,075 $ 30,000,000 $ 30,000,000
- ------------------------------------------------------------------------------
Undivided interest of 8.43% in joint
repurchase agreement (Principal Amount/
Value $729,739,000, with a maturity
value of $729,775,487) with UBS Warburg
LLC, 1.80%, dated 9/30/04, to be repurchased
at $61,513,076 on 10/1/04, collateralized
by Federal National Mortgage Assn.,
5%, 3/1/34, with a value
of $745,857,878 61,510,000 61,510,000
--------------
Total Joint Repurchase
Agreements
(Cost $91,510,000) 91,510,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS,
AT VALUE
(COST $848,245,516) 101.3% 940,660,198
- ------------------------------------------------------------------------------
LIABILITIES
IN EXCESS OF
OTHER ASSETS (1.3) (12,507,821)
-----------------------------
NET ASSETS 100.0% $ 928,152,377
=============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Illiquid or restricted security. See Note 5 of Notes to Financial Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2004
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value (cost $848,245,516)--see accompanying statement of investments $ 940,660,198
- -------------------------------------------------------------------------------------------------------
Cash 1,044,583
- -------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 32,299,972
Interest and dividends 360,696
Other 20,911
----------------
Total assets 974,386,360
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 43,317,349
Shares of beneficial interest redeemed 1,499,011
Distribution and service plan fees 535,852
Transfer and shareholder servicing agent fees 255,136
Shareholder communications 251,411
Trustees' compensation 241,526
Other 133,698
----------------
Total liabilities 46,233,983
- -------------------------------------------------------------------------------------------------------
NET ASSETS $ 928,152,377
================
- -------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 24,271
- -------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,071,882,030
- -------------------------------------------------------------------------------------------------------
Accumulated net investment loss (232,189)
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (235,936,417)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 92,414,682
----------------
NET ASSETS $ 928,152,377
================
24 | OPPENHEIMER DISCOVERY FUND
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $694,975,570
and 17,860,004 shares of beneficial interest outstanding) $ 38.91
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 41.28
- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $125,946,558 and 3,598,542 shares
of beneficial interest outstanding) $ 35.00
- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $44,415,075 and 1,242,795 shares
of beneficial interest outstanding) $ 35.74
- ---------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $9,719,261 and 252,370 shares
of beneficial interest outstanding) $ 38.51
- ---------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $53,095,913 and 1,317,269 shares of beneficial interest outstanding) $ 40.31
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------
Dividends $ 2,633,812
- ----------------------------------------------------------------------
Interest 329,872
---------------
Total investment income 2,963,684
- ----------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------
Management fees 7,122,964
- ----------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,882,050
Class B 1,517,987
Class C 494,564
Class N 36,642
- ----------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,457,243
Class B 626,612
Class C 217,005
Class N 35,938
Class Y 157,957
- ----------------------------------------------------------------------
Shareholder communications:
Class A 120,204
Class B 112,652
Class C 14,596
Class N 1,239
- ----------------------------------------------------------------------
Custodian fees and expenses 195,713
- ----------------------------------------------------------------------
Trustees' compensation 48,988
- ----------------------------------------------------------------------
Other 120,863
---------------
Total expenses 15,163,217
Less reduction to custodian expenses (4,183)
Less payments and waivers of expenses (236,817)
---------------
Net expenses 14,922,217
- ----------------------------------------------------------------------
NET INVESTMENT LOSS (11,958,533)
26 | OPPENHEIMER DISCOVERY FUND
- ----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------
Net realized gain on:
Investments $ 149,343,872
Net increase from payment by affiliate 15,368
---------------
Net realized gain 149,359,240
- ----------------------------------------------------------------------
Net change in unrealized appreciation on investments (132,018,331)
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,382,376
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER DISCOVERY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004 2003
- ---------------------------------------------------------------------------------------------
OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment loss $ (11,958,533) $ (8,510,499)
- ---------------------------------------------------------------------------------------------
Net realized gain 149,359,240 39,668,785
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (132,018,331) 247,132,042
----------------------------------
Net increase in net assets resulting from operations 5,382,376 278,290,328
- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A (82,148,237) (6,160,217)
Class B (36,314,792) (39,188,474)
Class C (3,717,413) 1,553,417
Class N 5,620,874 1,104,042
Class Y (3,641,050) 4,517,889
- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Total increase (decrease) (114,818,242) 240,116,985
- ---------------------------------------------------------------------------------------------
Beginning of period 1,042,970,619 802,853,634
----------------------------------
End of period (including accumulated net investment loss
of $232,189 and $210,299, respectively) $ 928,152,377 $ 1,042,970,619
==================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 38.81 $ 28.24 $ 33.08 $ 66.77 $ 43.26
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.37) (.26) (.22) (.19) (.32)
Net realized and unrealized gain (loss) .47 10.83 (4.62) (20.66) 26.72
-------------------------------------------------------------
Total from investment operations .10 10.57 (4.84) (20.85) 26.40
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- (12.84) (2.89)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 38.91 $ 38.81 $ 28.24 $ 33.08 $ 66.77
=============================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 0.26% 37.43% (14.63)% (37.01)% 62.15%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 694,976 $ 772,420 $ 572,843 $ 754,082 $ 1,286,298
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 775,665 $ 639,170 $ 753,304 $ 988,717 $ 1,176,289
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (1.00)% (0.83)% (0.74)% (0.31)% (0.47)%
Total expenses 1.29% 1.41% 1.45% 1.25% 1.15%
Expenses after payments and waivers
and reduction to custodian expenses 1.28% 1.35% 1.42% N/A 3 N/A 3
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 135% 172% 143% 155% 224%
1. 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.21 $ 25.81 $ 30.46 $ 62.99 $ 41.22
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (1.50) (1.09) (.91) (.29) (.47)
Net realized and unrealized gain (loss) 1.29 10.49 (3.74) (19.40) 25.13
-------------------------------------------------------------
Total from investment operations (.21) 9.40 (4.65) (19.69) 24.66
- ---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- (12.84) (2.89)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 35.00 $ 35.21 $ 25.81 $ 30.46 $ 62.99
=============================================================
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 (0.60)% 36.42% (15.27)% (37.48)% 60.95%
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 125,947 $ 160,851 $ 154,657 $ 234,023 $ 423,689
- ---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 151,725 $ 148,410 $ 223,215 $ 315,607 $ 371,643
- ---------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (1.85)% (1.56)% (1.50)% (1.07)% (1.22)%
Total expenses 2.20% 2.35% 2.21% 2.01% 1.90%
Expenses after payments and waivers
and reduction to custodian expenses 2.13% 2.10% 2.18% N/A 3 N/A 3
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 135% 172% 143% 155% 224%
1. 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER DISCOVERY FUND
CLASS C YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.93 $ 26.34 $ 31.10 $ 64.00 $ 41.85
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.82) (.44) (.59) (.24) (.24)
Net realized and unrealized gain (loss) .63 10.03 (4.17) (19.82) 25.28
------------------------------------------------------
Total from investment operations (.19) 9.59 (4.76) (20.06) 25.04
- --------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- (12.84) (2.89)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 35.74 $ 35.93 $ 26.34 $ 31.10 $ 64.00
======================================================
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 (0.53)% 36.41% (15.31)% (37.47)% 60.95%
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 44,415 $ 48,263 $ 34,673 $ 44,404 $ 70,140
- --------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 49,464 $ 38,930 $ 45,655 $ 56,301 $ 55,205
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (1.80)% (1.58)% (1.50)% (1.07)% (1.20)%
Total expenses 2.19% 2.38% 2.21% 2.01% 1.90%
Expenses after payments and waivers
and reduction to custodian expenses 2.09% 2.12% 2.18% N/A 3 N/A 3
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 135% 172% 143% 155% 224%
1. 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 1
- -------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 38.53 $ 28.11 $ 33.01 $ 39.11
- -------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.42) (.35) (.30) (.13)
Net realized and unrealized gain (loss) .40 10.77 (4.60) (5.97)
-----------------------------------------
Total from investment operations (.02) 10.42 (4.90) (6.10)
- -------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- --
- -------------------------------------------------------------------------------------------
Net asset value, end of period $ 38.51 $ 38.53 $ 28.11 $ 33.01
=========================================
- -------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (0.05)% 37.07% (14.84)% (15.60)%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 9,719 $ 4,363 $ 2,236 $ 147
- -------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 7,381 $ 3,088 $ 1,786 $ 105
- -------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.26)% (1.13)% (0.97)% (0.93)%
Total expenses 1.72% 2.12% 1.68% 1.55%
Expenses after payments and waivers and
reduction to custodian expenses 1.58% 1.65% 1.65% N/A 4
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 135% 172% 143% 155%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
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%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER DISCOVERY FUND
CLASS Y YEAR ENDED SEPTEMBER 30, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 40.07 $ 29.08 $ 33.96 $ 68.06 $ 43.92
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.21) (.26) (.06) (.17) (.30)
Net realized and unrealized gain (loss) .45 11.25 (4.82) (21.09) 27.33
-------------------------------------------------------
Total from investment operations .24 10.99 (4.88) (21.26) 27.03
- ---------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- (12.84) (2.89)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 40.31 $ 40.07 $ 29.08 $ 33.96 $ 68.06
=======================================================
- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 0.60% 37.79% (14.37)% (36.88)% 62.68%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 53,096 $ 57,074 $ 38,444 $ 50,125 $ 87,131
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 61,766 $ 43,531 $ 50,275 $ 64,264 $ 76,635
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (0.67)% (0.57)% (0.43)% (0.13)% (0.11)%
Total expenses 0.95% 1.16% 1.26% 1.14% 0.80%
Expenses after payments and waivers
and reduction to custodian expenses N/A 3 1.10% 1.11% 1.06% N/A 3
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 135% 172% 143% 155% 224%
1. 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.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Discovery 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 capital appreciation. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class N and Class Y 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. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
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. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The Fund assesses a 2% fee on the proceeds of
fund shares that are redeemed (either by selling or exchanging to another
Oppenheimer fund) within 30 days of their purchase. The fee, which is retained
by the Fund, is accounted for as an addition to paid-in capital.
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 listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
34 | OPPENHEIMER DISCOVERY FUND
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).
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------
$ -- $ -- $ 233,832,285 $ 90,310,551
1. As of September 30, 2004, the Fund had $233,832,285 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of September 30, 2004,
details of the capital loss carryforwards were as follows:
35 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
EXPIRING
------------------------
2010 $ 125,100,589
2011 108,731,696
-------------
Total $ 233,832,285
=============
2. During the fiscal year ended September 30, 2004, the Fund utilized
$145,584,050 of capital loss carryforward to offset capital gains realized in
that fiscal year.
3. During the fiscal year ended September 30, 2003, 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 September 30, 2004. Net assets of
the Fund were unaffected by the reclassifications.
INCREASE TO
REDUCTION TO ACCUMULATED NET
REDUCTION TO ACCUMULATED NET REALIZED LOSS
PAID-IN CAPITAL INVESTMENT LOSS ON INVESTMENTS
---------------------------------------------------
$ 9,708,466 $ 11,936,643 $ 2,228,177
No distributions were paid during the years ended September 30, 2004 and
September 30, 2003.
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 September 30, 2004 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 $ 850,349,647
==============
Gross unrealized appreciation $ 164,867,970
Gross unrealized depreciation (74,557,419)
--------------
Net unrealized appreciation $ 90,310,551
==============
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded 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 year ended
September 30, 2004, the Fund's projected benefit obligations were increased by
$19,050 and payments of $16,116 were made to retired trustees, resulting in an
accumulated liability of $215,389 as of September 30, 2004.
36 | OPPENHEIMER DISCOVERY FUND
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 and capital gain distributions, if
any, are declared and paid annually.
- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
37 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
CLASS A
Sold 3,492,410 $ 146,291,015 10,030,343 $ 315,000,736
Redeemed (5,532,857) (228,439,252) (10,414,246) (321,160,953)
------------------------------------------------------------
Net decrease (2,040,447) $ (82,148,237) (383,903) $ (6,160,217)
============================================================
- ----------------------------------------------------------------------------------------
CLASS B
Sold 710,554 $ 26,834,728 970,285 $ 29,163,211
Redeemed (1,680,893) (63,149,520) (2,394,220) (68,351,685)
------------------------------------------------------------
Net decrease (970,339) $ (36,314,792) (1,423,935) $ (39,188,474)
============================================================
- ----------------------------------------------------------------------------------------
CLASS C
Sold 305,902 $ 11,770,243 553,181 $ 17,200,866
Redeemed (406,203) (15,487,656) (526,300) (15,647,449)
------------------------------------------------------------
Net increase (decrease) (100,301) $ (3,717,413) 26,881 $ 1,553,417
============================================================
- ----------------------------------------------------------------------------------------
CLASS N
Sold 189,761 $ 7,714,906 60,881 $ 2,008,924
Redeemed (50,634) (2,094,032) (27,175) (904,882)
------------------------------------------------------------
Net increase 139,127 $ 5,620,874 33,706 $ 1,104,042
============================================================
- ----------------------------------------------------------------------------------------
CLASS Y
Sold 765,415 $ 33,587,932 613,815 $ 21,921,802
Redeemed (872,384) (37,228,982) (511,507) (17,403,913)
------------------------------------------------------------
Net increase (decrease) (106,969) $ (3,641,050) 102,308 $ 4,517,889
============================================================
- --------------------------------------------------------------------------------
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 September 30, 2004, were
$1,382,738,730 and $1,579,919,751, respectively.
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% of the next $700 million, and 0.58% of average annual
net assets in excess of $1.5 billion.
- --------------------------------------------------------------------------------
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
38 | OPPENHEIMER DISCOVERY FUND
account fee. For the year ended September 30, 2004, the Fund paid $3,363,495 to
OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $10,000 for
assets of $10 million or more. The Class Y shares are subject to the minimum
fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.
- --------------------------------------------------------------------------------
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
quarterly 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 quarterly 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
years. 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% per year on
Class B and Class C shares and 0.25% per year on Class N shares. The Distributor
also receives a service fee of up to 0.25% per year under each plan. If either
the Class B, Class C or Class N plan is terminated by the Fund or by the
shareholders of a class, the Board of Trustees and its independent trustees must
determine whether the Distributor shall be entitled to payment from the Fund of
all or a portion of the service fee and/or asset-based sales charge in respect
to shares sold prior to the effective date of such termination. The
Distributor's aggregate uncompensated expenses under the plan at September 30,
2004 for Class B, Class C and Class N shares were $4,658,256, $1,178,183 and
$113,192, respectively. Fees incurred by the Fund under the plans are detailed
in the Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.
39 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
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
- -------------------------------------------------------------------------------------------------
September 30, 2004 $ 284,911 $ 7,297 $ 298,921 $ 11,964 $ 3,243
- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $15,368, an amount equivalent to certain of such
commissions incurred in prior years.
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.
During the year ended September 30, 2004, OFS waived $58,858, $118,521, $48,971
and $10,467 for Class A, Class B, Class C and Class N shares, respectively. This
undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
5. ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also 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 or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
The aggregate value of illiquid or restricted securities subject to this
limitation as of September 30, 2004 was $516,705, which represents 0.06% of the
Fund's net assets, all of which is considered restricted. Information concerning
restricted securities is as follows:
VALUATION AS OF UNREALIZED
ACQUISITION SEPTEMBER 30, APPRECIATION
SECURITY DATES COST 2004 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
STOCKS AND/OR WARRANTS
Candescent Technologies Corp.,
$2.50 Cv., Series D, Vtg. 3/31/95 $ 3,000,000 $ -- $ (3,000,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series E, Vtg. 4/24/96 4,400,000 -- (4,400,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series F, Vtg. 6/11/97 1,500,000 -- (1,500,000)
Discovery Laboratories, Inc. Wts.,
Exp. 9/20/10 6/24/03 -- 516,705 516,705
40 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
6. LITIGATION
Six complaints have been filed as putative derivative and class actions against
the Manager, OFS and the Distributor (collectively, "OppenheimerFunds"), as well
as 51 of the Oppenheimer funds (collectively, the "Funds") including this Fund,
and nine Directors/ Trustees of certain of the Funds (collectively, the
"Directors/Trustees"). The complaints allege that the Manager charged excessive
fees for distribution and other costs, improperly used assets of the Funds in
the form of directed brokerage commissions and 12b-1 fees to pay brokers to
promote sales of the Funds, and failed to properly disclose the use of Fund
assets to make those payments in violation of the Investment Company Act of 1940
and the Investment Advisers Act of 1940. The complaints further allege that by
permitting and/or participating in those actions, the Directors/Trustees
breached their fiduciary duties to Fund shareholders under the Investment
Company Act of 1940 and at common law. By order dated October 27, 2004, these
six actions, and future related actions, were consolidated by the U.S. District
Court for the Southern District of New York into a single consolidated
proceeding in contemplation of the filing of a superceding consolidated and
amended complaint.
OppenheimerFunds believes that it is premature to render any opinion as to
the likelihood of an outcome unfavorable to them, the Funds or the
Directors/Trustees and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss. However,
OppenheimerFunds, the Funds and the Directors/Trustees believe that the
allegations contained in the complaints are without merit and intend to defend
these lawsuits vigorously.
41 | OPPENHEIMER DISCOVERY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER DISCOVERY FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Discovery Fund, including the statement of investments, as of
September 30, 2004, 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.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2004, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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
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 Discovery Fund as of September 30, 2004, 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 U.S. generally
accepted accounting principles.
KPMG LLP
Denver, Colorado
October 21, 2004
42 | OPPENHEIMER DISCOVERY FUND
FEDERAL INCOME TAX INFORMATION Unaudited
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In early 2005, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2004. 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.
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES; UPDATES TO STATEMENTS OF
INVESTMENTS Unaudited
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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 new 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 Form N-PX
filing is available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.525.7048, and (ii) 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 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.
43 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited
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NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD
FUND, LENGTH OF SERVICE, AGE BY TRUSTEE; NUMBER OF PORTFOLIOS IN FUND COMPLEX CURRENTLY OVERSEEN BY TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY,
TRUSTEES CENTENNIAL, CO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, UNTIL
HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
CLAYTON K. YEUTTER, Of Counsel (since June 1993) Hogan & Hartson (a law firm); a director (since
Chairman of the Board of 2002) of Danielson Holding Corp. Formerly a director of Weyerhaeuser Corp.
Trustees (since 2003); (1999-April 2004), Caterpillar, Inc. (1993-December 2002), ConAgra Foods
Trustee (since 1993) (1993-2001), Texas Instruments (1993-2001) and FMC Corporation (1993-2001).
Age: 73 Oversees 25 portfolios in the OppenheimerFunds complex.
ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 35 portfolios in
Trustee (since 1993) the OppenheimerFunds complex.
Age: 71
PHILLIP A. GRIFFITHS, A director (since 1991) of the Institute for Advanced Study, Princeton, N.J.,
Trustee (since 1999) a director (since 2001) of GSI Lumonics, a trustee (since 1983) of Woodward
Age: 66 Academy, a Senior Advisor (since 2001) of The Andrew W. Mellon Foundation. A
member of: the National Academy of Sciences (since 1979), American Academy of
Arts and Sciences (since 1995), American Philosophical Society (since 1996)
and Council on Foreign Relations (since 2002). Formerly a director of Bankers
Trust New York Corporation (1994-1999). Oversees 25 portfolios in the
OppenheimerFunds complex.
MARY F. MILLER, Formerly a Senior Vice President and General Auditor, American Express Company
Trustee (since 2004) (July 1998-February 2003). Member of Trustees of the American Symphony
Age: 61 Orchestra (October 1998 to present). Oversees 14 portfolios in the
OppenheimerFunds complex.
JOEL W. MOTLEY, Director (since January 2002) Columbia Equity Financial Corp. (privately-held
Trustee (since 2002) financial adviser); Managing Director (since January 2002) Carmona Motley,
Age: 52 Inc. (privately-held financial adviser). Formerly a Managing Director of
Carmona Motley Hoffman Inc. (privately-held financial adviser) (January
1998-December 2001). Oversees 25 portfolios in the OppenheimerFunds complex.
KENNETH A. RANDALL, A director (since February 1972) of Dominion Resources, Inc. (electric utility
Trustee (since 1985) holding company); formerly a director of Prime Retail, Inc. (real estate
Age: 77 investment trust) and Dominion Energy, Inc. (electric power and oil & gas
producer), President and Chief Executive Officer of The Conference Board, Inc.
(international economic and business research) and a director of Lumbermens
Mutual Casualty Company, American Motorists Insurance Company and American
Manufacturers Mutual Insurance Company. Oversees 25 portfolios in the
OppenheimerFunds complex.
EDWARD V. REGAN, President, Baruch College, CUNY; a director of RBAsset (real estate manager);
Trustee (since 1993) a director of OffitBank; formerly Trustee, Financial Accounting Foundation
Age: 74 (FASB and GASB), Senior Fellow of Jerome Levy Economics Institute, Bard
College, Chairman of Municipal Assistance Corporation for the City of New
York, New York State Comptroller and Trustee of New York State and Local
Retirement Fund. Oversees 25 investment companies in the OppenheimerFunds
complex.
44 | OPPENHEIMER DISCOVERY FUND
RUSSELL S. REYNOLDS, JR., Chairman (since 1993) of The Directorship Search Group, Inc. (corporate
Trustee (since 1989) governance consulting and executive recruiting); a Life Trustee of
Age: 72 International House (non-profit educational organization); a former trustee of
The Historical Society of the Town of Greenwich. Oversees 25 portfolios in the
OppenheimerFunds complex.
DONALD W. SPIRO, * Chairman Emeritus (since January 1991) of the Manager. Formerly a director
Vice Chairman of the (January 1969-August 1999) of the Manager. Oversees 25 portfolios in the
Board of Trustees, Trustee OppenheimerFunds complex.
(since 1985) Age: 78
* Mr. Spiro is expected to retire as Trustee of the Board I Funds effective
October 31, 2004.
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INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS TWO WORLD FINANCIAL CENTER,
AND OFFICER 225 LIBERTY STREET, 11TH FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY SERVES
FOR AN INDEFINITE TERM, UNTIL HIS RESIGNATION, DEATH OR REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director (since June 2001) and President
President and Trustee (since September 2000) of the Manager; President and a director or trustee of
(since 2001) other Oppenheimer funds; President and a director (since July 2001) of
Age: 55 Oppenheimer Acquisition Corp. (the Manager's parent holding company) and of
Oppenheimer Partnership Holdings, Inc. (a holding company subsidiary of the
Manager); a director (since November 2001) of OppenheimerFunds Distributor,
Inc. (a subsidiary of the Manager); Chairman and a director (since July 2001)
of Shareholder Services, Inc. and of Shareholder Financial Services, Inc.
(transfer agent subsidiaries of the Manager); President and a director (since
July 2001) of OppenheimerFunds Legacy Program (a charitable trust program
established by the Manager); a director of the following investment advisory
subsidiaries of the Manager: OFI Institutional Asset Management, Inc.,
Centennial Asset Management Corporation, Trinity Investment Management
Corporation and Tremont Capital Management, Inc. (since November 2001),
HarbourView Asset Management Corporation and OFI Private Investments, Inc.
(since July 2001); President (since November 1, 2001) and a director (since
July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice
President (since February 1997) of Massachusetts Mutual Life Insurance Company
(the Manager's parent company); a director (since June 1995) of DLB
Acquisition Corporation (a holding company that owns the shares of Babson
Capital Management LLC); a member of the Investment Company Institute's Board
of Governors (elected to serve from October 3, 2003 through September 30,
2006). Formerly, Chief Operating Officer (September 2000-June 2001) of the
Manager; President and trustee (November 1999-November 2001) of MML Series
Investment Fund and MassMutual Institutional Funds (open-end investment
companies); a director (September 1999-August 2000) of C.M. Life Insurance
Company; President, Chief Executive Officer and director (September
1999-August 2000) of MML Bay State Life Insurance Company; a director (June
1989-June 1998) of Emerald Isle Bancorp and Hibernia Savings Bank (a
wholly-owned subsidiary of Emerald Isle Bancorp). Oversees 74 portfolios as
Trustee/Director and 10 portfolios as Officer in the OppenheimerFunds complex.
45 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited / Continued
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OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS AS FOLLOWS: FOR MS. GRANGER
AND MR. ZACK, TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH FLOOR, NEW
YORK, NY 10281-1008, AND FOR MR. WIXTED AND MR. VANDEHEY, 6803 S. TUCSON WAY,
CENTENNIAL, CO 80112-3924. EACH OFFICER SERVES FOR AN INDEFINITE TERM OR UNTIL
HIS OR HER EARLIER RESIGNATION, DEATH OR REMOVAL.
LAURA GRANGER, Vice President of the Manager since October 2000; an officer of 3 portfolios
Vice President and Portfolio in the OppenheimerFunds complex. Formerly a portfolio manager at Fortis
Manager (since 2003) Advisors (July 1998-October 2000).
Age: 43
BRIAN W. WIXTED, Senior Vice President and Treasurer (since March 1999) of the Manager;
Treasurer (since 1999) Treasurer of HarbourView Asset Management Corporation, Shareholder Financial
Age: 45 Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management
Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), of
OFI Private Investments, Inc. (since March 2000), of OppenheimerFunds
International Ltd. and OppenheimerFunds plc (since May 2000), of OFI
Institutional Asset Management, Inc. (since November 2000), and of
OppenheimerFunds Legacy Program (a Colorado non-profit corporation) (since
June 2003); Treasurer and Chief Financial Officer (since May 2000) of OFI
Trust Company (a trust company subsidiary of the Manager); Assistant Treasurer
(since March 1999) of Oppenheimer Acquisition Corp. Formerly Assistant
Treasurer of Centennial Asset Management Corporation (March 1999-October 2003)
and OppenheimerFunds Legacy Program (April 2000-June 2003); Principal and
Chief Operating Officer (March 1995-March 1999) at Bankers Trust
Company-Mutual Fund Services Division. An officer of 84 portfolios in the
OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since
Secretary (since 2001) February 2002) of the Manager; General Counsel and a director (since November
Age: 56 2001) of the Distributor; General Counsel (since November 2001) of Centennial
Asset Management Corporation; Senior Vice President and General Counsel (since
November 2001) of HarbourView Asset Management Corporation; Secretary and
General Counsel (since November 2001) of Oppenheimer Acquisition Corp.;
Assistant Secretary and a director (since October 1997) of OppenheimerFunds
International Ltd. and OppenheimerFunds plc; Vice President and a director
(since November 2001) of Oppenheimer Partnership Holdings, Inc.; a director
(since November 2001) of Oppenheimer Real Asset Management, Inc.; Senior Vice
President, General Counsel and a director (since November 2001) of Shareholder
Financial Services, Inc., Shareholder Services, Inc., OFI Private Investments,
Inc. and OFI Trust Company; Vice President (since November 2001) of
OppenheimerFunds Legacy Program; Senior Vice President and General Counsel
(since November 2001) of OFI Institutional Asset Management, Inc.; a director
(since June 2003) of OppenheimerFunds (Asia) Limited. Formerly 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 Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services, Inc. (November
1989-November 2001); and OppenheimerFunds International Ltd. (October
1997-November 2001). An officer of 84 portfolios in the OppenheimerFunds
complex.
46 | OPPENHEIMER DISCOVERY FUND
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer (since March 2004) of the
Vice President and Manager; Vice President (since June 1983) of OppenheimerFunds Distributor,
Chief Compliance Officer Inc., Centennial Asset Management Corporation and Shareholder Services, Inc.
(since 2004) Formerly (until February 2004) Vice President and Director of Internal Audit
Age: 54 of OppenheimerFunds, Inc. An officer of 84 portfolios in the Oppenheimer funds
complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST, BY
CALLING 1.800.525.7048.
47 | OPPENHEIMER DISCOVERY 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 V.
Regan, the Chairman of the Board's Audit Committee, possesses the technical
attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as
an "audit committee financial expert," and has designated Mr. Regan as the Audit
Committee's financial expert. Mr. Regan is an "independent" Trustee pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
The principal accountant for the audit of the registrant's annual
financial statements billed $33,000 in fiscal 2004 and $28,000 in
fiscal 2003.
(b) Audit-Related 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 $44,500 in fiscal 2004 and no such fees
in fiscal 2003 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, among others: due diligence related to
mergers and acquisitions, accounting consultations and audits in
connection with acquisitions, internal control reviews and
consultation concerning financial accounting and reporting
standards.
(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 $6,000 in fiscal 2004 and $5,000 in
fiscal 2003 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, among others: tax compliance, tax planning
and tax advice. Tax compliance generally involves preparation of
original and amended tax returns,
claims for a refund and tax payment-planning services. Tax planning
and tax advice includes assistance with tax audits and appeals, tax
advice related to mergers and acquisitions and requests for rulings
or technical advice from taxing authorities.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees in fiscal 2004 and $208 in
fiscal 2003.
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.
Such fees would include consultations regarding the registrant's
retirement plan with respect to its directors.
(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.
Pre-approval of non-audit services is 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 $50,500 in fiscal 2004 and $5,208 in
fiscal 2003 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) The registrant's audit committee of the board of directors has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser, and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is
compatible with maintaining the principal account's independence. No
such services were rendered.
ITEM 5. NOT APPLICABLE
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable
ITEM 7. NOT APPLICABLE
ITEM 8. NOT APPLICABLE
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a meeting of the Board of Trustees of the registrant held on February
18, 2004, the Board adopted (1) a policy that, should the Board determine that a
vacancy exists or is likely to exist on the Board, the Governance Committee of
the Board, which is comprised entirely of independent trustees, shall consider
any candidates for Board membership recommended by the registrant's security
holders and (2) a policy that security holders wishing to submit a nominee for
election to the Board may do so by mailing their submission to the offices of
OppenheimerFunds, Inc., Two World Financial Center, 225 Liberty Street - 11th
Floor, New York, NY 10281-1008, to the attention of the Chair of the Governance
Committee. Prior to February 18, 2004, the Board did not have a formalized
policy with respect to consideration of security holder nominees or a procedure
by which security holders may make their submissions. In addition to security
holder nominees, the Governance Committee may also consider nominees recommended
by independent Board members or recommended by any other Board members and is
authorized under its Charter, upon Board approval, to retain an executive search
firm to assist in screening potential candidates. Upon Board approval, the
Governance Committee may also obtain legal, financial, or other external counsel
that may be necessary or desirable in the screening process.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of September 30, 2004,
registrant's principal executive officer and principal financial
officer found registrant's disclosure controls and procedures to
provide reasonable assurances that information required to be
disclosed by 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.
(b) There have been no significant changes in registrant's internal
controls over financial reporting that occurred during the
registrant's last fiscal half-year that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)(NOT
APPLICABLE TO SEMIANNUAL REPORTS)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)