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: September 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Health Care Equipment & Supplies 11.3%
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Health Care Providers & Services 9.6
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Hotels, Restaurants & Leisure 7.4
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Semiconductors & Semiconductor Equipment 6.5
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Internet Software & Services 6.1
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Communications Equipment 5.5
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Software 5.1
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IT Services 4.5
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Electronic Equipment & Instruments 3.5
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Electrical Equipment 3.2
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2005, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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Scientific Games Corp., Cl. A 2.5%
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Psychiatric Solutions, Inc. 1.8
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SBA Communications Corp. 1.7
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FLIR Systems, Inc. 1.7
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F5 Networks, Inc. 1.7
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Digital River, Inc. 1.7
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Microsemi Corp. 1.6
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Kyphon, Inc. 1.6
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Energy Conversion Devices, Inc. 1.6
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Foxhollow Technologies, Inc. 1.5
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2005, and are based on net assets. For more current Fund holdings,
please visit www.oppenheimerfunds.com.
7 | OPPENHEIMER DISCOVERY FUND
TOP HOLDINGS AND ALLOCATIONS
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SECTOR ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Information Technology 32.8%
Semiconductors & Semiconductor Equipment 6.6
Internet Software & Services 6.1
Communications Equipment 5.6
Software 5.1
IT Services 4.5
Electronic Equipment & Instruments 3.6
Computers & Peripherals 1.3
Health Care 24.0
Consumer Discretionary 16.9
Industrials 13.6
Financials 7.0
Energy 2.5
Telecommunication Services 2.4
Consumer Staples 0.8
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2005, and are based on total market value of common stocks.
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8 | 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, 2005, FOLLOWED
BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE
BROAD-BASED MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. Despite positive performance from
many of the Fund's holdings, the reporting period proved difficult as the Fund
underperformed its primary benchmark, the Russell 2000 Index. An overall
challenging environment for small cap growth stocks combined with significant
underperformance of two large Fund holdings and an underweighting to the energy
sector, the best performing sector of the Index, resulted in the Fund's weak
performance.
The Fund's investment strategy focuses on small-cap growth companies that
exhibit leadership potential within their market sector. Specifically, we seek
to uncover little known companies with a competitive edge within their
marketplace. We target those we believe offer innovative products or services,
fast growing earnings, sustainable growth rates and accomplished management
teams. And because the small cap universe can be quite volatile, we seek to
diversify the Fund with investments among many high potential companies across
different industries.
During the reporting period our aggressive small cap growth investment
style was out of favor as investors flocked to larger, less aggressive growth
companies. We believe that this outperformance of value relative to growth will
shift. We believe given the relatively strong economy coupled with
consistently strong earnings from many growth companies that growth style
investing will soon start to outperform value. And, as history has generally
shown, periods of weak small-cap growth performance have often ended abruptly
and without warning. The greatest gains are often experienced during the early
days of the sector's rebound. That said we believe that the best long-term
approach for our investors is to remain consistent with our investment approach
to find small-cap growth companies that have demonstrated leadership abilities
within their market sector.
Because relatively few energy companies met our criteria for growth during
the period, the Fund had notably less exposure than its benchmark in this area.
In fact, the Fund's underweighted exposure to energy accounted for a significant
amount of weak performance versus its benchmark.
Our investment strategy succeeded in identifying high performing companies
across many market sectors. Within technology the largest contributors to
performance were Macromedia, Inc. and Itron, Inc. Macromedia, Inc.'s, a software
company, stock soared as the company successfully entered into the handset
market. We sold our position when Adobe Systems Incorporated acquired the
company. Itron, Inc., a global supplier
9 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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of wireless data acquisition and communication products, possessed the
technology for automatic meter readings for quite some time and only recently
started prospering as its customers, utility companies, are now financially
sound enough to invest in it.
Stocks within the consumer discretionary sector also performed well for
the Fund. Among the strong performers, Scientific Games Corporation, a company
that makes instant lottery tickets and machines, benefited from its expansion
into international markets. Coldwater Creek Inc., an upscale women's retailer,
successfully tapped into the underserved fashion market of older baby boomer
women. The company has posted strong earnings due to high sales and successful
store expansions. The industrial sector also helped performance. The best
performing stock in this sector was Energy Conversion Devices, Inc. The company
makes and owns the technology for metal hydride batteries used in hybrid cars.
As the popularity of hybrids has taken off the company has gained many new
contracts with major auto manufacturers, driving its stock price higher.
On the negative side, two holdings within the healthcare sector
contributed the most to the Fund's underperformance, Martek Biosciences Corp.
and Able Laboratories. We have sold our positions in both companies. Martek
Biosciences, manufactures and sells nutritional oils used in infant formula. The
stock had been a strong performer for the Fund. However, the company's recent
rollout plan into international markets proved unsuccessful as it faced
significant manufacturing problems and the stock price plummeted. Able
Laboratories, a generic drug manufacturer, faced serious issues with its
manufacturing capabilities. The company was forced to suspend product
manufacturing and shipping in order to bring its operations back up to FDA
standards. This news came unexpectedly to the investment community, as the
company had been a strong performer, sending the stock price into a precipitous
decline.
Disappointments in technology included InfoSpace, Inc. and Avid
Technology, Inc. InfoSpace, Inc., a company focused on mobile entertainment,
private-label search and online directories, faced strong competition within its
marketplace that negatively influenced its pricing ability. Avid Technology,
Inc.'s, a leader in digital editing and professional audio systems used by the
entertainment industry, stock price suffered due to the company's acquisition of
Pinnacle Systems. The acquisition was negatively received by the investment
community, which drove down the stock price.
10 | OPPENHEIMER DISCOVERY FUND
As of the end of the reporting period we continue to follow our
disciplined focus on small cap growth investing. As a result, we continue to
find companies that meet our growth investment criteria at historically low
valuations.
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, 2005. 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 CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund S&P Russell
(Class A) 500 Index 2000 Index
09/30/1995 9,425 10,000 10,000
12/31/1995 9,856 10,602 10,217
03/31/1996 10,494 11,170 10,738
06/30/1996 11,754 11,671 11,275
09/30/1996 12,041 12,032 11,313
12/31/1996 11,314 13,034 11,902
03/31/1997 9,843 13,384 11,287
06/30/1997 11,665 15,719 13,116
09/30/1997 13,144 16,896 15,068
12/31/1997 12,486 17,381 14,564
03/31/1998 13,880 19,804 16,029
06/30/1998 13,249 20,461 15,281
09/30/1998 10,412 18,431 12,203
12/31/1998 12,236 22,352 14,193
03/31/1999 10,907 23,465 13,423
06/30/1999 11,933 25,116 15,511
09/30/1999 11,619 23,552 14,530
12/31/1999 18,515 27,053 17,210
03/31/2000 21,292 27,673 18,429
06/30/2000 18,541 26,938 17,732
09/30/2000 18,840 26,677 17,928
12/31/2000 16,060 24,591 16,690
03/31/2001 12,982 21,677 15,604
06/30/2001 15,533 22,945 17,834
09/30/2001 11,867 19,578 14,126
12/31/2001 14,198 21,670 17,105
03/31/2002 14,105 21,730 17,786
06/30/2002 11,985 18,821 16,301
09/30/2002 10,130 15,571 12,812
12/31/2002 10,776 16,883 13,601
03/31/2003 10,288 16,351 12,990
06/30/2003 12,491 18,867 16,033
09/30/2003 13,922 19,366 17,489
12/31/2003 14,977 21,723 20,028
03/31/2004 15,526 22,090 21,282
06/30/2004 15,354 22,470 21,383
09/30/2004 13,958 22,050 20,772
12/31/2004 15,572 24,085 23,699
03/31/2005 14,704 23,568 22,434
06/30/2005 15,002 23,890 23,403
09/30/2005 15,773 24,751 24,500
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
9/30/05
1-Year 6.51% 5-Year -4.63% 10-Year 4.66%
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 CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund
(Class B) S&P 500 Index Russell 2000 Index
09/30/1995 10,000 10,000 10,000
12/31/1995 10,435 10,602 10,217
03/31/1996 11,090 11,170 10,738
06/30/1996 12,398 11,671 11,275
09/30/1996 12,677 12,032 11,313
12/31/1996 11,887 13,034 11,902
03/31/1997 10,325 13,384 11,287
06/30/1997 12,212 15,719 13,116
09/30/1997 13,732 16,896 15,068
12/31/1997 13,021 17,381 14,564
03/31/1998 14,448 19,804 16,029
06/30/1998 13,765 20,461 15,281
09/30/1998 10,798 18,431 12,203
12/31/1998 12,665 22,352 14,193
03/31/1999 11,266 23,465 13,423
06/30/1999 12,305 25,116 15,511
09/30/1999 11,957 23,552 14,530
12/31/1999 19,019 27,053 17,210
03/31/2000 21,833 27,673 18,429
06/30/2000 18,976 26,938 17,732
09/30/2000 19,245 26,677 17,928
12/31/2000 16,376 24,591 16,690
03/31/2001 13,212 21,677 15,604
06/30/2001 15,779 22,945 17,834
09/30/2001 12,037 19,578 14,126
12/31/2001 14,403 21,670 17,105
03/31/2002 14,308 21,730 17,786
06/30/2002 12,157 18,821 16,301
09/30/2002 10,276 15,571 12,812
12/31/2002 10,931 16,883 13,601
03/31/2003 10,436 16,351 12,990
06/30/2003 12,671 18,867 16,033
09/30/2003 14,122 19,366 17,489
12/31/2003 15,192 21,723 20,028
03/31/2004 15,749 22,090 21,282
06/30/2004 15,574 22,470 21,383
09/30/2004 14,159 22,050 20,772
12/31/2004 15,796 24,085 23,699
03/31/2005 14,916 23,568 22,434
06/30/2005 15,218 23,890 23,403
09/30/2005 16,000 24,751 24,500
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
9/30/05
1-Year 7.08% 5-Year -4.54% 10-Year 4.81%
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, SINCE-INCEPTION 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 CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund
(Class C) S&P 500 Index Russell 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
12/31/2004 15,553 24,085 23,699
03/31/2005 14,654 23,568 22,434
06/30/2005 14,920 23,890 23,403
09/30/2005 15,659 24,751 24,500
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
9/30/05
1-Year 11.09% 5-Year -4.23% Since Inception (10/2/95) 4.59%
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 CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund
(Class N) S&P 500 Index Russell 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
12/31/2004 10,977 10,407 14,445
03/31/2005 10,358 10,184 13,674
06/30/2005 10,560 10,323 14,264
09/30/2005 11,094 10,695 14,933
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
9/30/05
1-Year 11.67% 5-Year N/A Since Inception (3/1/01) 2.29%
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, SINCE-INCEPTION RETURN FOR CLASS B
SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. 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 CHART IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund
(Class Y) S&P 500 Index Russell 2000 Index
09/30/1995 10,000 10,000 10,000
12/31/1995 10,466 10,602 10,217
03/31/1996 11,150 11,170 10,738
06/30/1996 12,498 11,671 11,275
09/30/1996 12,809 12,032 11,313
12/31/1996 12,044 13,034 11,902
03/31/1997 10,487 13,384 11,287
06/30/1997 12,437 15,719 13,116
09/30/1997 14,026 16,896 15,068
12/31/1997 13,338 17,381 14,564
03/31/1998 14,842 19,804 16,029
06/30/1998 14,178 20,461 15,281
09/30/1998 11,155 18,431 12,203
12/31/1998 13,107 22,352 14,193
03/31/1999 11,689 23,465 13,423
06/30/1999 12,794 25,116 15,511
09/30/1999 12,473 23,552 14,530
12/31/1999 19,885 27,053 17,210
03/31/2000 22,881 27,673 18,429
06/30/2000 19,951 26,938 17,732
09/30/2000 20,290 26,677 17,928
12/31/2000 17,292 24,591 16,690
03/31/2001 13,988 21,677 15,604
06/30/2001 16,753 22,945 17,834
09/30/2001 12,808 19,578 14,126
12/31/2001 15,335 21,670 17,105
03/31/2002 15,248 21,730 17,786
06/30/2002 12,966 18,821 16,301
09/30/2002 10,967 15,571 12,812
12/31/2002 11,676 16,883 13,601
03/31/2003 11,156 16,351 12,990
06/30/2003 13,547 18,867 16,033
09/30/2003 15,112 19,366 17,489
12/31/2003 16,270 21,723 20,028
03/31/2004 16,881 22,090 21,282
06/30/2004 16,707 22,470 21,383
09/30/2004 15,203 22,050 20,772
12/31/2004 16,975 24,085 23,699
03/31/2005 16,040 23,568 22,434
06/30/2005 16,376 23,890 23,403
09/30/2005 17,228 24,751 24,500
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE FUND AT 9/30/05
1-Year 13.32% 5-Year -3.22% 10-Year 5.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, SINCE-INCEPTION RETURN FOR CLASS B
SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. 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 been 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 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
17 | OPPENHEIMER DISCOVERY FUND
NOTES
- --------------------------------------------------------------------------------
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.
18 | OPPENHEIMER DISCOVERY FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended September 30, 2005.
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
19 | OPPENHEIMER DISCOVERY FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
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
(4/1/05) (9/30/05) SEPTEMBER 30, 2005
- --------------------------------------------------------------------------------
Class A Actual $1,000.00 $1,072.70 $6.46
- --------------------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,018.85 6.29
- --------------------------------------------------------------------------------
Class B Actual 1,000.00 1,068.70 10.47
- --------------------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,014.99 10.20
- --------------------------------------------------------------------------------
Class C Actual 1,000.00 1,068.60 10.47
- --------------------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,014.99 10.20
- --------------------------------------------------------------------------------
Class N Actual 1,000.00 1,071.10 7.92
- --------------------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,017.45 7.72
- --------------------------------------------------------------------------------
Class Y Actual 1,000.00 1,074.10 5.11
- --------------------------------------------------------------------------------
Class Y Hypothetical 1,000.00 1,020.16 4.97
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 183/365
(to reflect the one-half year period). Those annualized expense ratios based on
the 6-month period ended September 30, 2005 are as follows:
CLASS EXPENSE RATIOS
- ---------------------------------
Class A 1.24%
- ---------------------------------
Class B 2.01
- ---------------------------------
Class C 2.01
- ---------------------------------
Class N 1.52
- ---------------------------------
Class Y 0.98
The expense ratios reflect voluntary waivers or reimbursements of expenses by
the Fund's Manager and 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 waivers or reimbursements.
- --------------------------------------------------------------------------------
20 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS September 30, 2005
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
COMMON STOCKS--98.9%
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--16.7%
- -----------------------------------------------------------------------------------------
AUTO COMPONENTS--0.9%
LKQ Corp. 1 270,000 $ 8,154,000
- -----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--7.4%
California Pizza
Kitchen, Inc. 1 200,000 5,848,000
- -----------------------------------------------------------------------------------------
Cheesecake Factory,
Inc. (The) 1 70,000 2,186,800
- -----------------------------------------------------------------------------------------
Choice Hotels
International, Inc. 130,000 8,403,200
- -----------------------------------------------------------------------------------------
Gaylord Entertainment
Co., Cl. A 1 155,200 7,395,280
- -----------------------------------------------------------------------------------------
Life Time Fitness, Inc. 1 120,000 3,976,800
- -----------------------------------------------------------------------------------------
Orient-Express
Hotel Ltd. 256,900 7,301,098
- -----------------------------------------------------------------------------------------
Penn National
Gaming, Inc. 1 206,100 6,411,771
- -----------------------------------------------------------------------------------------
Scientific Games
Corp., Cl. A 1 702,200 21,768,200
--------------
63,291,149
- -----------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.9%
Meritage Homes
Corp. 1 146,400 11,223,024
- -----------------------------------------------------------------------------------------
WCI Communities,
Inc. 1 180,000 5,106,600
--------------
16,329,624
- -----------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--1.1%
GSI Commerce, Inc. 1 467,500 9,303,250
- -----------------------------------------------------------------------------------------
MEDIA--2.0%
Central European
Media Enterprises
Ltd., Cl. A 1 196,600 10,382,446
- -----------------------------------------------------------------------------------------
Imax Corp. 1 650,000 6,779,500
--------------
17,161,946
- -----------------------------------------------------------------------------------------
SPECIALTY RETAIL--1.2%
Children's Place
Retail Stores, Inc. 1 103,800 3,699,432
- -----------------------------------------------------------------------------------------
Hibbett Sporting
Goods, Inc. 1 300,000 6,675,000
--------------
10,374,432
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--2.2%
Carter's, Inc. 1 100,000 $ 5,680,000
- -----------------------------------------------------------------------------------------
Quicksilver, Inc. 1 920,000 13,294,000
--------------
18,974,000
- -----------------------------------------------------------------------------------------
CONSUMER STAPLES--0.8%
- -----------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.8%
Chattem, Inc. 1 190,000 6,745,000
- -----------------------------------------------------------------------------------------
ENERGY--2.4%
- -----------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.6%
Dresser-Rand
Group, Inc. 1 58,600 1,443,318
- -----------------------------------------------------------------------------------------
Hanover
Compressor Co. 1 911 12,626
- -----------------------------------------------------------------------------------------
Patterson-UTI
Energy, Inc. 164,500 5,935,160
- -----------------------------------------------------------------------------------------
Todco, Cl. A 165,900 6,919,689
--------------
14,310,793
- -----------------------------------------------------------------------------------------
OIL & GAS--0.8%
Range Resources
Corp. 173,600 6,702,696
- -----------------------------------------------------------------------------------------
FINANCIALS--6.9%
- -----------------------------------------------------------------------------------------
CAPITAL MARKETS--2.0%
Harris & Harris
Group, Inc. 1 475,300 5,275,830
- -----------------------------------------------------------------------------------------
National Financial
Partners Corp. 207,000 9,343,980
- -----------------------------------------------------------------------------------------
Refco, Inc. 1 103,200 2,917,464
--------------
17,537,274
- -----------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.8%
East West Bancorp,
Inc. 160,300 5,456,612
- -----------------------------------------------------------------------------------------
First Niagara
Financial Group, Inc. 418,200 6,038,808
- -----------------------------------------------------------------------------------------
PrivateBancorp, Inc. 108,700 3,726,236
- -----------------------------------------------------------------------------------------
Vineyard National
Bancorp Co. 66,270 1,958,279
- -----------------------------------------------------------------------------------------
Westcorp 109,500 6,449,550
--------------
23,629,485
21 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
REAL ESTATE--2.1%
CB Richard Ellis
Group, Inc., Cl. A 1 220,000 $ 10,824,000
- -----------------------------------------------------------------------------------------
Newcastle
Investment Corp. 265,500 7,407,450
--------------
18,231,450
- -----------------------------------------------------------------------------------------
HEALTH CARE--23.8%
- -----------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.4%
Cubist
Pharmaceuticals, Inc. 1 285,800 6,156,132
- -----------------------------------------------------------------------------------------
VaxGen, Inc. 1 360,500 5,227,250
- -----------------------------------------------------------------------------------------
VaxGen, Inc. 1,2 75,470 930,168
--------------
12,313,550
- -----------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--11.3%
ArthroCare Corp. 1 217,200 8,735,784
- -----------------------------------------------------------------------------------------
Aspect Medical
Systems, Inc. 1 265,000 7,851,950
- -----------------------------------------------------------------------------------------
Cytyc Corp. 1 320,600 8,608,110
- -----------------------------------------------------------------------------------------
Foxhollow
Technologies, Inc. 1 280,000 13,330,800
- -----------------------------------------------------------------------------------------
Gen-Probe, Inc. 1 237,120 11,725,584
- -----------------------------------------------------------------------------------------
Hologic, Inc. 1 108,900 6,288,975
- -----------------------------------------------------------------------------------------
Intermagnetics
General Corp. 1 172,200 4,811,268
- -----------------------------------------------------------------------------------------
Kyphon, Inc. 1 310,000 13,621,400
- -----------------------------------------------------------------------------------------
Meridian Bioscience,
Inc. 185,100 3,831,570
- -----------------------------------------------------------------------------------------
Regeneration
Technologies, Inc. 1,2,3 666,900 4,878,107
- -----------------------------------------------------------------------------------------
Symmetry Medical,
Inc. 1 209,400 4,962,780
- -----------------------------------------------------------------------------------------
Ventana Medical
Systems, Inc. 1 210,000 7,994,700
--------------
96,641,028
- -----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--9.6%
Amedisys, Inc. 1 202,500 7,897,500
- -----------------------------------------------------------------------------------------
Centene Corp. 1 220,000 5,506,600
- -----------------------------------------------------------------------------------------
Chemed Corp. 206,050 8,930,207
- -----------------------------------------------------------------------------------------
Covance, Inc. 1 175,000 8,398,250
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
LifePoint Hospitals,
Inc. 1 200,000 $ 8,746,000
- -----------------------------------------------------------------------------------------
PRA International 1 225,000 6,819,750
- -----------------------------------------------------------------------------------------
Psychiatric Solutions,
Inc. 1 280,700 15,222,361
- -----------------------------------------------------------------------------------------
SFBC International,
Inc. 1 283,100 12,566,809
- -----------------------------------------------------------------------------------------
WellCare Health
Plans, Inc. 1 230,000 8,521,500
--------------
82,608,977
- -----------------------------------------------------------------------------------------
PHARMACEUTICALS--1.5%
First Horizon
Pharmaceutical Corp. 1 250,000 4,967,500
- -----------------------------------------------------------------------------------------
Nektar Therapeutics 1 460,700 7,808,865
--------------
12,776,365
- -----------------------------------------------------------------------------------------
INDUSTRIALS--13.4%
- -----------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.2%
Aviall, Inc. 1 200,000 6,756,000
- -----------------------------------------------------------------------------------------
BE Aerospace, Inc. 1 500,000 8,285,000
- -----------------------------------------------------------------------------------------
Ladish Co., Inc. 1 220,000 3,836,800
--------------
18,877,800
- -----------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--1.3%
Hub Group, Inc., Cl. A 1 300,000 11,013,000
- -----------------------------------------------------------------------------------------
AIRLINES--1.5%
SkyWest, Inc. 483,500 12,967,470
- -----------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.2%
Builders FirstSource,
Inc. 1 98,800 2,206,204
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.7%
Resources
Connection, Inc. 1 343,800 10,186,794
- -----------------------------------------------------------------------------------------
Tetra Tech, Inc. 1 263,800 4,437,116
--------------
14,623,910
- -----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--3.2%
Energy Conversion
Devices, Inc. 1 300,000 13,464,000
- -----------------------------------------------------------------------------------------
Energy Conversion
Devices, Inc. 1 250,000 10,640,188
22 | OPPENHEIMER DISCOVERY FUND
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
Evergreen Solar, Inc. 1 334,500 $ 3,120,885
--------------
27,225,073
- -----------------------------------------------------------------------------------------
MACHINERY--1.7%
Joy Global, Inc. 192,600 9,718,596
- -----------------------------------------------------------------------------------------
Middleby Corp. (The) 1 63,600 4,611,000
--------------
14,329,596
- -----------------------------------------------------------------------------------------
MARINE--1.6%
Genco Shipping &
Trading Ltd. 1 406,300 7,748,141
- -----------------------------------------------------------------------------------------
UTI Worldwide, Inc. 81,400 6,324,780
--------------
14,072,921
- -----------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--32.5%
- -----------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--5.5%
ADC
Telecommunications,
Inc. 1 400,000 9,144,000
- -----------------------------------------------------------------------------------------
Emulex Corp. 1 250,000 5,052,500
- -----------------------------------------------------------------------------------------
F5 Networks, Inc. 1 326,900 14,210,343
- -----------------------------------------------------------------------------------------
Orckit
Communications Ltd. 1 250,000 6,257,500
- -----------------------------------------------------------------------------------------
Redback Networks,
Inc. 1 550,100 5,456,992
- -----------------------------------------------------------------------------------------
Tekelec, Inc. 1 350,000 7,332,500
--------------
47,453,835
- -----------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.3%
M-Systems Flash Disk
Pioneers Ltd. 1 364,500 10,905,840
- -----------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.5%
Aeroflex, Inc. 1 399,400 3,738,384
- -----------------------------------------------------------------------------------------
Cogent, Inc. 1 237,100 5,631,125
- -----------------------------------------------------------------------------------------
FLIR Systems, Inc. 1 500,000 14,790,000
- -----------------------------------------------------------------------------------------
Itron, Inc. 1 134,500 6,141,270
--------------
30,300,779
- -----------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--6.1%
Aladdin Knowledge
Systems Ltd. 1 320,800 6,765,672
- -----------------------------------------------------------------------------------------
Digital River, Inc. 1 407,700 14,208,345
- -----------------------------------------------------------------------------------------
Digitas, Inc. 1 767,200 8,715,392
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES Continued
j2 Global
Communications, Inc. 1 226,400 $ 9,151,088
- -----------------------------------------------------------------------------------------
Openwave Systems,
Inc. 1 435,100 7,823,098
- -----------------------------------------------------------------------------------------
VeriSign, Inc. 1 270,100 5,772,037
--------------
52,435,632
- -----------------------------------------------------------------------------------------
IT SERVICES--4.5%
Aquantive, Inc. 1 495,700 9,978,441
- -----------------------------------------------------------------------------------------
Cognizant Technology
Solutions Corp. 1 85,200 3,969,468
- -----------------------------------------------------------------------------------------
Euronet Worldwide,
Inc. 1 195,000 5,770,050
- -----------------------------------------------------------------------------------------
Satyam Computer
Services Ltd., ADR 280,000 8,461,600
- -----------------------------------------------------------------------------------------
SRA International,
Inc., Cl. A 1 290,200 10,296,296
--------------
38,475,855
- -----------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--6.5%
Advanced Energy
Industries, Inc. 1 375,000 4,035,000
- -----------------------------------------------------------------------------------------
ATMI, Inc. 1 250,000 7,750,000
- -----------------------------------------------------------------------------------------
Diodes, Inc. 1 144,700 5,246,822
- -----------------------------------------------------------------------------------------
Entegris, Inc. 1 178,300 2,014,790
- -----------------------------------------------------------------------------------------
Exar Corp. 1 338,100 4,740,162
- -----------------------------------------------------------------------------------------
Microsemi Corp. 1 545,800 13,939,732
- -----------------------------------------------------------------------------------------
ON Semiconductor
Corp. 1 1,003,500 5,188,095
- -----------------------------------------------------------------------------------------
PortalPlayer, Inc. 1 270,000 7,406,100
- -----------------------------------------------------------------------------------------
Skyworks
Solutions, Inc. 1 862,100 6,051,942
--------------
56,372,643
- -----------------------------------------------------------------------------------------
SOFTWARE--5.1%
Activision, Inc. 1 200,000 4,090,000
- -----------------------------------------------------------------------------------------
Bottomline
Technologies, Inc. 1 193,300 2,916,897
- -----------------------------------------------------------------------------------------
Hyperion Solutions
Corp. 1 169,800 8,260,770
- -----------------------------------------------------------------------------------------
Mercury Interactive
Corp. 1 182,000 7,207,200
23 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
SOFTWARE Continued
MICROS Systems, Inc. 1 255,400 $ 11,173,750
- -----------------------------------------------------------------------------------------
Wind River
Systems, Inc. 1 770,400 9,961,272
--------------
43,609,889
- -----------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.4%
- -----------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.7%
NeuStar, Inc., Cl. A 1 180,000 5,758,200
- -----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.7%
SBA Communications
Corp. 1 969,500 14,978,775
--------------
Total Common Stocks
(Cost $717,440,224) 850,692,441
- -----------------------------------------------------------------------------------------
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) --
VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Discovery Laboratories,
Inc. Wts., Exp. 9/20/10 1,2
(Cost $0) 123,908 $ 337,332
PRINCIPAL
AMOUNT
- -----------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--1.8%
Undivided interest of 1.51% in joint repurchase
agreement (Principal Amount/Value $1,005,525,000,
with a maturity value of $1,005,822,468) with
UBS Warburg LLC, 3.55%, dated 9/30/05, to
be repurchased at $15,165,485 on 10/3/05,
collateralized by Federal National
Mortgage Assn., 5%, 7/1/35, with
a value of $1,028,234,236
(Cost $15,161,000) $ 15,161,000 15,161,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS,
AT VALUE
(COST $741,501,224) 100.7% 866,190,773
- -----------------------------------------------------------------------------------------
LIABILITIES
IN EXCESS OF
OTHER ASSETS (0.7) (5,928,177)
----------------------------------
NET ASSETS 100.0% $ 860,262,596
==================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of September 30, 2005 was $6,145,607, which represents
0.71% of the Fund's net assets, of which $1,267,500 is considered restricted.
See Note 6 of Notes to Financial Statements.
3. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended September 30,
2005. The aggregate fair value of securities of affiliated companies held by the
Fund as of September 30, 2005 amounts to $4,878,107. Transactions during the
period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES
SEPT. 30, 2004 ADDITIONS REDUCTIONS SEPT. 30, 2005
- -------------------------------------------------------------------------------------------------
Regeneration Technologies, Inc. -- 666,900 -- 666,900
VALUE DIVIDEND
SEE NOTE 1 INCOME
- -------------------------------------------------------------------------------------------------
Regeneration Technologies, Inc. $4,878,107 $--
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2005
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $735,799,229) $ 861,312,666
Affiliated companies (cost $5,701,995) 4,878,107
--------------
866,190,773
- ------------------------------------------------------------------------------------------------------
Cash 495,494
- ------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 33,073,045
Shares of beneficial interest sold 355,027
Interest and dividends 206,778
Other 31,874
--------------
Total assets 900,352,991
- ------------------------------------------------------------------------------------------------------
LIABILITIES
Payables and other liabilities:
Investments purchased 37,867,664
Shares of beneficial interest redeemed 1,016,360
Distribution and service plan fees 507,897
Transfer and shareholder servicing agent fees 242,958
Trustees' compensation 228,092
Shareholder communications 122,130
Other 105,294
--------------
Total liabilities 40,090,395
- ------------------------------------------------------------------------------------------------------
NET ASSETS $ 860,262,596
- ------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Par value of shares of beneficial interest $ 19,913
- ------------------------------------------------------------------------------------------------------
Additional paid-in capital 886,463,512
- ------------------------------------------------------------------------------------------------------
Accumulated net investment loss (220,149)
- ------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (150,690,229)
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 124,689,549
--------------
NET ASSETS $ 860,262,596
==============
25 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES Continued
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $663,205,552 and
15,082,512 shares of beneficial interest outstanding) $43.97
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $46.65
- ----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $104,447,497 and 2,662,659 shares
of beneficial interest outstanding) $39.23
- ----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $41,841,182 and 1,044,373 shares of
beneficial interest outstanding) $40.06
- ----------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $10,262,840 and 236,501 shares of
beneficial interest outstanding) $43.39
- ----------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$40,505,525 and 886,701 shares of beneficial interest outstanding) $45.68
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 3,711,497
- --------------------------------------------------------------------------------
Interest 929,744
- --------------------------------------------------------------------------------
Other income 75,245
-------------
Total investment income 4,716,486
- --------------------------------------------------------------------------------
EXPENSES
Management fees 6,210,816
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,651,286
Class B 1,142,886
Class C 433,985
Class N 50,450
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,204,188
Class B 444,109
Class C 188,640
Class N 43,183
Class Y 137,118
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 228,118
Class B 84,151
Class C 18,361
Class N 2,841
- --------------------------------------------------------------------------------
Custodian fees and expenses 102,062
- --------------------------------------------------------------------------------
Trustees' compensation 17,849
- --------------------------------------------------------------------------------
Other 62,010
-------------
Total expenses 13,022,053
Less reduction to custodian expenses (102,062)
Less waivers and reimbursements of expenses (392,694)
-------------
Net expenses 12,527,297
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS (7,810,811)
27 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments $ 84,756,302
Foreign currency transactions (354)
--------------
Net realized gain 84,755,948
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 32,274,867
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 109,220,004
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER DISCOVERY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2005 2004
- -------------------------------------------------------------------------------------------------
OPERATIONS
Net investment loss $ (7,810,811) $ (11,958,533)
- -------------------------------------------------------------------------------------------------
Net realized gain 84,755,948 149,359,240
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 32,274,867 (132,018,331)
----------------------------------
Net increase in net assets resulting from operations 109,220,004 5,382,376
- -------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (115,688,246) (82,148,237)
Class B (34,760,587) (36,314,792)
Class C (7,538,655) (3,717,413)
Class N (680,613) 5,620,874
Class Y (18,441,684) (3,641,050)
- -------------------------------------------------------------------------------------------------
NET ASSETS
Total decrease (67,889,781) (114,818,242)
- -------------------------------------------------------------------------------------------------
Beginning of period 928,152,377 1,042,970,619
----------------------------------
End of period (including accumulated net investment loss of
$220,149 and $232,189, respectively) $ 860,262,596 $ 928,152,377
==================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 38.91 $ 38.81 $ 28.24 $ 33.08 $ 66.77
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.31) 1 (.37) (.26) (.22) (.19)
Net realized and unrealized gain (loss) 5.37 .47 10.83 (4.62) (20.66)
-------------------------------------------------------------------
Total from investment operations 5.06 .10 10.57 (4.84) (20.85)
- ----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- (12.84)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.97 $ 38.91 $ 38.81 $ 28.24 $ 33.08
===================================================================
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 13.00% 0.26% 37.43% (14.63)% (37.01)%
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $663,206 $694,976 $772,420 $572,843 $754,082
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $681,607 $775,665 $639,170 $753,304 $988,717
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.74)% (1.00)% (0.83)% (0.74)% (0.31)%
Total expenses 1.31% 1.29% 1.41% 1.45% 1.25%
Expenses after payments and waivers and
reduction to custodian expenses 1.26% 1.28% 1.35% 1.42% 1.25%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 135% 172% 143% 155%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER DISCOVERY FUND
CLASS B YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 35.00 $ 35.21 $ 25.81 $ 30.46 $ 62.99
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.58) 1 (1.50) (1.09) (.91) (.29)
Net realized and unrealized gain (loss) 4.81 1.29 10.49 (3.74) (19.40)
-------------------------------------------------------------------
Total from investment operations 4.23 (.21) 9.40 (4.65) (19.69)
- ----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- (12.84)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 39.23 $ 35.00 $ 35.21 $ 25.81 $ 30.46
===================================================================
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 12.08% (0.60)% 36.42% (15.27)% (37.48)%
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $104,447 $125,947 $160,851 $154,657 $234,023
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $114,500 $151,725 $148,410 $223,215 $315,607
Ratios to average net assets: 3
Net investment loss (1.56)% (1.85)% (1.56)% (1.50)% (1.07)%
Total expenses 2.20% 2.20% 2.35% 2.21% 2.01%
Expenses after payments and waivers and
reduction to custodian expenses 2.11% 2.13% 2.10% 2.18% 2.01%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 135% 172% 143% 155%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 35.74 $ 35.93 $ 26.34 $ 31.10 $ 64.00
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.59) 1 (.82) (.44) (.59) (.24)
Net realized and unrealized gain (loss) 4.91 .63 10.03 (4.17) (19.82)
--------------------------------------------------------------
Total from investment operations 4.32 (.19) 9.59 (4.76) (20.06)
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- (12.84)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 40.06 $ 35.74 $ 35.93 $ 26.34 $ 31.10
==============================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 12.09% (0.53)% 36.41% (15.31)% (37.47)%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $41,841 $44,415 $48,263 $34,673 $44,404
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $43,506 $49,464 $38,930 $45,655 $56,301
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.54)% (1.80)% (1.58)% (1.50)% (1.07)%
Total expenses 2.22% 2.19% 2.38% 2.21% 2.01%
Expenses after payments and waivers and
reduction to custodian expenses 2.09% 2.09% 2.12% 2.18% 2.01%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 135% 172% 143% 155%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER DISCOVERY FUND
CLASS N YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001 1
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 38.51 $ 38.53 $ 28.11 $ 33.01 $ 39.11
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.42) 2 (.42) (.35) (.30) (.13)
Net realized and unrealized gain (loss) 5.30 .40 10.77 (4.60) (5.97)
---------------------------------------------------------------
Total from investment operations 4.88 (.02) 10.42 (4.90) (6.10)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.39 $ 38.51 $ 38.53 $ 28.11 $ 33.01
===============================================================
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 12.67% (0.05)% 37.07% (14.84)% (15.60)%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $10,263 $ 9,719 $ 4,363 $ 2,236 $ 147
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $10,133 $ 7,381 $ 3,088 $ 1,786 $ 105
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment loss (1.03)% (1.26)% (1.13)% (0.97)% (0.93)%
Total expenses 1.68% 1.72% 2.12% 1.68% 1.55%
Expenses after payments and waivers and
reduction to custodian expenses 1.56% 1.58% 1.65% 1.65% 1.55%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 135% 172% 143% 155%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. 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.
4. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS Y YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 40.31 $ 40.07 $ 29.08 $ 33.96 $ 68.06
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.19) 1 (.21) (.26) (.06) (.17)
Net realized and unrealized gain (loss) 5.56 .45 11.25 (4.82) (21.09)
--------------------------------------------------------------
Total from investment operations 5.37 .24 10.99 (4.88) (21.26)
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- (12.84)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 45.68 $ 40.31 $ 40.07 $ 29.08 $ 33.96
==============================================================
- -----------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 13.32% 0.60% 37.79% (14.37)% (36.88)%
- -----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $40,506 $53,096 $57,074 $38,444 $50,125
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,955 $61,766 $43,531 $50,275 $64,264
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.44)% (0.67)% (0.57)% (0.43)% (0.13)%
Total expenses 1.01% 0.95% 1.16% 1.26% 1.14%
Expenses after payments and waivers and
reduction to custodian expenses 0.96% 0.95% 1.10% 1.11% 1.06%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 135% 172% 143% 155%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | 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 may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities listed or traded on National
Stock Exchanges or other domestic exchanges are valued based on the last sale
price of the security traded on that exchange prior to the time when the Fund's
assets are valued. Securities traded on NASDAQ are valued based on the closing
price provided by NASDAQ prior to the time when the Fund's assets are valued. In
the absence of a sale, the security is valued at the last sale price on the
prior trading day, if it is within the spread of the closing "bid" and "asked"
prices, and if not, at the closing bid price. Securities traded on foreign
exchanges are valued based on the last sale price on the principal exchange on
which the security is traded, in the country that is identified by the portfolio
pricing service, prior to the time when the Fund's assets are valued. In the
absence of a sale, the security is valued at the official closing price on the
principal exchange. Corporate, government and municipal debt instruments having
a remaining maturity in excess of sixty days and
35 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
all mortgage-backed securities will be valued at the mean between the "bid" and
"asked" prices. Futures contracts traded on a commodities or futures exchange
will be valued at the final settlement price or official closing price on the
principal exchange as reported by such principal exchange at its trading session
ending at, or most recently prior to, the time when the Fund's assets are
valued. Securities (including restricted securities) for which market quotations
are not readily available are valued at their fair value. Foreign and domestic
securities whose values have been materially affected by what the Manager
identifies as a significant event occurring before the Fund's assets are valued
but after the close of their respective exchanges will be fair valued. Fair
value is determined in good faith using consistently applied procedures under
the supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income are translated into U.S. dollars as of the close of The New
York Stock Exchange (the Exchange), normally 4:00 P.M. Eastern time, on each day
the Exchange is open for business. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
36 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
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
--------------------------------------------------------------------------
$-- $-- $149,643,503 $123,642,824
1. As of September 30, 2005, the Fund had $149,643,503 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, 2005,
details of the capital loss carryforwards were as follows:
EXPIRING
----------------------------------
2010 $ 40,911,807
2011 108,731,696
-------------
Total $ 149,643,503
=============
2. During the fiscal year ended September 30, 2005, the Fund utilized
$84,188,783 of capital loss carryforward to offset capital gains realized in
that fiscal year.
3. 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.
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, 2005. Net assets of
the Fund were unaffected by the reclassifications.
37 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
REDUCTION TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
REDUCTION TO NET INVESTMENT REALIZED LOSS
PAID-IN CAPITAL LOSS ON INVESTMENTS
-----------------------------------------------------------
$8,313,091 $7,822,851 $490,240
No distributions were paid during the years ended September 30, 2005 and
September 30, 2004.
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, 2005 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 $ 742,547,949
--------------
Gross unrealized appreciation $ 148,636,850
Gross unrealized depreciation (24,994,026)
--------------
Net unrealized appreciation $ 123,642,824
==============
- --------------------------------------------------------------------------------
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, 2005, the Fund's projected benefit obligations were decreased by
$7,903 and payments of $15,105 were made to retired trustees, resulting in an
accumulated liability of $192,381 as of September 30, 2005.
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.
38 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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, 2005 YEAR ENDED SEPTEMBER 30, 2004
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------
CLASS A
Sold 1,710,631 $ 70,927,391 3,492,410 $ 146,291,015
Redeemed (4,488,123) (186,615,637) 1 (5,532,857) (228,439,252)
--------------------------------------------------------------------
Net decrease (2,777,492) $(115,688,246) (2,040,447) $ (82,148,237)
====================================================================
- -------------------------------------------------------------------------------------
CLASS B
Sold 410,947 $ 15,323,145 710,554 $ 26,834,728
Redeemed (1,346,830) (50,083,732) 1 (1,680,893) (63,149,520)
--------------------------------------------------------------------
Net decrease (935,883) $ (34,760,587) (970,339) $ (36,314,792)
====================================================================
39 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST Continued
YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
CLASS C
Sold 183,928 $ 6,990,221 305,902 $ 11,770,243
Redeemed (382,350) (14,528,876) 1 (406,203) (15,487,656)
----------------------------------------------------------------
Net decrease (198,422) $ (7,538,655) (100,301) $ (3,717,413)
================================================================
- ---------------------------------------------------------------------------------------------
CLASS N
Sold 117,491 $ 4,818,431 189,761 $ 7,714,906
Redeemed (133,360) (5,499,044) 1 (50,634) (2,094,032)
----------------------------------------------------------------
Net increase (decrease) (15,869) $ (680,613) 139,127 $ 5,620,874
================================================================
- ---------------------------------------------------------------------------------------------
CLASS Y
Sold 211,578 $ 9,080,032 765,415 $ 33,587,932
Redeemed (642,146) (27,521,716) 1 (872,384) (37,228,982)
----------------------------------------------------------------
Net decrease (430,568) $(18,441,684) (106,969) $ (3,641,050)
================================================================
1. Net of redemption fees of $6,692, $1,124, $427, $99 and $451 for Class A,
Class B, Class C, Class N and Class Y, respectively.
- --------------------------------------------------------------------------------
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, 2005, were as
follows:
PURCHASES SALES
-------------------------------------------------------------
Investment securities $1,378,674,778 $1,493,168,344
- --------------------------------------------------------------------------------
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 account fee. For the year ended September 30, 2005, the Fund paid
$2,964,536 to OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum 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.
40 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12B-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
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% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Trustees and its independent trustees must determine whether the
Distributor shall be entitled to payment from the Fund of all or a portion of
the service fee and/or asset-based sales charge in respect to shares sold prior
to the effective date of such termination. The Distributor's aggregate
uncompensated expenses under the plan at September 30, 2005 for Class B, Class C
and Class N shares were $4,370,589, $1,271,023 and $123,747, 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.
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, 2005 $194,803 $5,372 $283,400 $10,485 $16,215
41 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
WAIVERS AND REIMBURSEMENTS OF EXPENSES. Effective January 1, 2005, the Manager
has voluntarily agreed to reduce its advisory fee rate for any quarter during
the calendar year ending December 31, 2005, by 0.05% of the Fund's average daily
net assets if the Fund's trailing one-year total return performance, measured at
the end of the prior calendar quarter, was in the fourth or fifth quintile of
the Fund's Lipper peer group. However, if the Fund's total return performance at
the end of a subsequent calendar quarter has improved to the third or higher
quintile of the Fund's Lipper peer group, the advisory fee reduction will be
terminated for the remainder of the calendar year. During the year ended
September 30, 2005, the Manager waived $327,814 of its fees. The advisory fee
reduction is a voluntary undertaking and may be terminated by the Manager at any
time.
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, 2005, OFS waived $28,329, $29,660 and $6,891
for Class B, Class C and Class N shares, respectively. This undertaking may be
amended or withdrawn at any time.
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of September 30, 2005, the Fund had no outstanding foreign currency
contracts.
- --------------------------------------------------------------------------------
6. ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 2005, 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
42 | OPPENHEIMER DISCOVERY FUND
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. Securities that are illiquid or restricted are
marked with the applicable footnote on the Statement of Investments. Information
concerning restricted securities is as follows:
VALUATION AS OF UNREALIZED
ACQUISITION SEPTEMBER 30, APPRECIATION
SECURITY DATES COST 2005 (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------
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 6/18/03 -- 337,332 337,332
VaxGen, Inc. 11/19/04 999,978 930,168 (69,810)
-----------------------------------------------
$ 9,899,978 $ 1,267,500 $(8,632,478)
===============================================
- --------------------------------------------------------------------------------
7. LITIGATION
A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor, as well as 51 of the
Oppenheimer funds (as "Nominal Defendants") including the Fund, 30 present and
former Directors or Trustees and 8 present and former officers of the funds.
This complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges 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 assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.
The defendants believe that the allegations contained in the Complaints
are without merit and that they have meritorious defenses against the claims
asserted. The defendants intend to defend these lawsuits vigorously and to
contest any claimed liability. The defendants believe that it is premature to
render any opinion as to the likelihood of an outcome unfavorable to them and
that no estimate can yet be made with any degree of certainty as to the amount
or range of any potential loss.
43 | OPPENHEIMER DISCOVERY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year 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, 2005, 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, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 16, 2005
44 | OPPENHEIMER DISCOVERY FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2006, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2005. 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.
45 | OPPENHEIMER DISCOVERY FUND
REPORT OF SHAREHOLDER MEETING Unaudited
- --------------------------------------------------------------------------------
On August 17, 2005, a shareholder meeting of the Oppenheimer Discovery Fund was
held at which the eleven Trustees identified below were elected (Proposal No. 1)
and the sub-proposals in (Proposal No. 2) were approved as described in the
Fund's proxy statement for that meeting. The following is a report of the votes
cast:
- --------------------------------------------------------------------------------
PROPOSAL NO. 1
NOMINEE FOR WITHHELD TOTAL
- --------------------------------------------------------------------------------
TRUSTEES
Matthew P. Fink 11,831,674.364 329,628.912 12,161,303.276
Robert G. Galli 11,823,282.959 338,020.317 12,161,303.276
Phillip A. Griffiths 11,832,917.009 328,386.267 12,161,303.276
Mary F. Miller 11,833,313.849 327,989.427 12,161,303.276
Joel W. Motley 11,838,800.494 322,502.782 12,161,303.276
John V. Murphy 11,840,322.095 320,981.181 12,161,303.276
Kenneth A. Randall 11,809,965.601 351,337.675 12,161,303.276
Russell S. Reynolds, Jr. 11,788,259.914 373,043.362 12,161,303.276
Joseph M. Wikler 11,843,419.776 317,883.500 12,161,303.276
Peter I. Wold 11,825,858.503 335,444.773 12,161,303.276
Clayton K. Yeutter 11,814,645.968 346,657.308 12,161,303.276
- --------------------------------------------------------------------------------
PROPOSAL NO. 2 Proposal to change the policy on
BROKER
FOR AGAINST ABSTAIN NON-VOTE TOTAL
- ------------------------------------------------------------------------------------------------
2B: Concentration of Investments
9,371,701.125 473,211.281 538,298.870 1,778,092.000 12,161,303.276
2C: Diversification of Investments
9,404,575.359 487,381.934 491,253.983 1,778,092.000 12,161,303.276
2H: Lending
9,142,421.196 718,512.003 522,278.077 1,778,092.000 12,161,303.276
2K: Real Estate and Commodities
9,335,753.635 563,816.017 483,641.624 1,778,092.000 12,161,303.276
2L: Senior Securities
9,360,985.297 459,526.283 562,699.696 1,778,092.000 12,161,303.276
2O: Investment Percentage Restrictions
9,266,238.533 547,233.326 569,739.417 1,778,092.000 12,161,303.276
46 | OPPENHEIMER DISCOVERY FUND
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
UPDATES TO STATEMENTS OF INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund is required to
file Form N-PX, with its complete proxy voting record for the 12 months ended
June 30th, no later than August 31st of each year. The Fund's voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing on the SEC's website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
47 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS
FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS TWO WORLD FINANCIAL CENTER, NEW
TRUSTEES YORK, NY 10281-1008. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR
HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
CLAYTON K. YEUTTER, Director of American Commercial Lines (barge company) (since January 2005);
Chairman of the Board Attorney at Hogan & Hartson (law firm) (since June 1993); Director of Danielson
of Trustees (since 2003); Holding Corp. (waste-to-energy company) (since 2002); Director of Weyer-haeuser
Trustee (since 1993) Corp. (1999-April 2004); Director of Caterpillar, Inc. (1993-December 2002);
Age: 74 Director of ConAgra Foods (1993-2001); Director of Texas Instruments (1993-2001);
Director of FMC Corporation (1993-2001). Oversees 38 portfolios in the
OppenheimerFunds complex.
MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research foundation)
Trustee (since 2005) (since 2005); Director of ICI Education Foundation (education foundation) (since
Age: 64 October 1991); President of the Investment Company Institute (trade association)
(1991-2004); Director of ICI Mutual Insurance Company (insurance company)
(1991-2004). Oversees 38 portfolios in the OppenheimerFunds complex.
ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 48 portfolios in the
Trustee (since 1993) OppenheimerFunds complex.
Age: 72
PHILLIP A. GRIFFITHS, Director of GSI Lumonics Inc. (precision medical equipment supplier) (since 2001);
Trustee (since 1999) Trustee of Woodward Academy (since 1983); Senior Advisor of The Andrew W. Mellon
Age: 67 Foundation (since 2001); Member of the National Academy of Sciences (since 1979);
Member of the American Philosophical Society (since 1996); Council on Foreign
Relations (since 2002); Director of the Institute for Advanced Study (1991-2004);
Director of Bankers Trust New York Corporation (1994-1999). Oversees 38 portfolios
in the OppenheimerFunds complex.
MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998);
Trustee (since 2004) and Senior Vice President and General Auditor of American Express Company
Age: 63 (financial services company) (July 1998-February 2003). Oversees 38 portfolios in
the OppenheimerFunds complex.
JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser)
Trustee (since 2002) (since 2002); Managing Director of Carmona Motley, Inc. (privately-held financial
Age: 53 adviser) (since January 2002); Managing Director of Carmona Motley Hoffman Inc.
(privately-held financial adviser) (January 1998-December 2001). Oversees 38
portfolios in the OppenheimerFunds complex.
KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company) (since
Trustee (since 1985) February 1972); Former Director of Prime Retail, Inc. (real estate investment
Age: 78 trust), Dominion Energy Inc. (electric power and oil & gas producer), Lumbermens
Mutual Casualty Company, American Motorists Insurance Company and American
Manufacturers Mutual Insurance Company; Former President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research). Oversees 38 portfolios in the OppenheimerFunds complex.
48 | OPPENHEIMER DISCOVERY FUND
RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting
Trustee (since 1989) and executive recruiting) (since 1993); Life Trustee of International House
Age: 73 (non-profit educational organization); Former Trustee of The Historical Society of
the Town of Greenwich. Oversees 38 portfolios in the OppenheimerFunds complex.
JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and
Trustee (since 2005) Cathco (since 1996); Director of Lakes Environmental Association (since 1996);
Age: 64 Member of the Investment Committee of the Associated Jewish Charities of Baltimore
(since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001).
Oversees 39 portfolios in the OppenheimerFunds complex.
PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production
Trustee (since 2005) company) (since 1994); Vice President, Secretary and Treasurer of Wold Trona
Age: 57 Company, Inc. (soda ash processing and production) (since 1996); Vice President of
Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of
Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of
the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and
Director of PacifiCorp. (electric utility) (1995-1999). Oversees 39 portfolios in
the OppenheimerFunds complex.
BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1996);
Trustee (since 2005) Director of Special Value Opportunities Fund, LLC (registered investment company)
Age: 62 (since September 2004); Director of Zurich Financial Investment Advisory Board
(affiliate of the Manager's parent company) (since October 2004); Board of
Governing Trustees of The Jackson Laboratory (non-profit) (since August 1990);
Trustee of the Institute for Advanced Study (non-profit educational institute)
(since May 1992); Special Limited Partner of Odyssey Investment Partners, LLC
(private equity investment) (January 1999-September 2004); Trustee of Research
Foundation of AIMR (2000-2002) (investment research, non-profit); Governor, Jerome
Levy Economics Institute of Bard College (August 1990-September 2001) (economics
research); Director of Ray & Berendtson, Inc. (May 2000-April 2002) (executive
search firm). Oversees 48 portfolios in the OppenheimerFunds complex.
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
AND OFFICER FLOOR, NEW YORK, NY 10281-1008. MR. MURPHY SERVES AS A TRUSTEE FOR AN INDEFINITE
TERM AND AS AN OFFICER FOR AN ANNUAL TERM, OR UNTIL HIS RESIGNATION, RETIREMENT,
DEATH OR REMOVAL. MR. MURPHY IS AN INTERESTED TRUSTEE DUE TO HIS POSITIONS WITH
OPPENHEIMERFUNDS, INC. AND ITS AFFILIATES.
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director (since June 2001) and President
President and (since September 2000) of the Manager; President and Director or Trustee of other
Principal Executive Officer Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC")
(since 2001) (the Manager's parent holding company) and of Oppenheimer Partnership Holdings,
and Trustee Inc. (holding company subsidiary of the Manager) (since July 2001); Director of
(since 2001) OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (since November
Age: 56 2001); Chairman and Director of Shareholder Services, Inc. and of Shareholder
Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July
2001); President and Director of OppenheimerFunds Legacy Program (charitable trust
program established by the Manager) (since July 2001); Director of the following
investment advisory subsidiaries of the Manager: OFI Institutional Asset
Management, Inc., Centennial Asset Management Corporation, Trinity Investment
Management Corporation and Tremont Capital Management, Inc. (since November 2001),
HarbourView Asset
49 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
JOHN V. MURPHY, Management Corporation and OFI Private Investments, Inc. (since July 2001);
Continued President (since November 1, 2001) and Director (since July 2001) of Oppenheimer
Real Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life
Insurance Company (OAC's parent company) (since February 1997); Director of DLB
Acquisition Corporation (holding company parent of Babson Capital Management LLC)
(since June 1995); Member of the Investment Company Institute's Board of Governors
(since October 3, 2003); Chief Operating Officer of the Manager (September
2000-June 2001); President and Trustee of MML Series Investment Fund and
MassMutual Select Funds (open-end investment companies) (November 1999-November
2001); Director of C.M. Life Insurance Company (September 1999-August 2000);
President, Chief Executive Officer and Director of MML Bay State Life Insurance
Company (September 1999-August 2000); Director of Emerald Isle Bancorp and
Hibernia Savings Bank (wholly-owned subsidiary of Emerald Isle Bancorp) (June
1989-June 1998). Oversees 77 portfolios as a Director or Trustee and 10 additional
portfolios as officer in the OppenheimerFunds complex.
- ------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MS. GRANGER AND
OF THE FUND 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 ANNUAL TERM OR UNTIL HIS OR HER
RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
LAURA GRANGER, Vice President of the Manager since October 2000. Formerly a portfolio manager at
Vice President Fortis Advisors (July 1998-October 2000). An officer of 3 portfolios in the
(since 2003) OppenheimerFunds complex.
Age: 43
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March
Vice President and 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset
Chief Compliance Officer Management Corporation and Shareholder Services, Inc. (since June 1983). Former
(since 2004) Vice President and Director of Internal Audit of the Manager (1997-February 2004).
Age: 55 An officer of 87 portfolios in the OppenheimerFunds complex.
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer
Treasurer and Principal of the following: HarbourView Asset Management Corporation, Shareholder Financial
Financial and Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management
Officer (since 1999) Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI
Age: 46 Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd.
(since May 2000), OppenheimerFunds plc (since May 2000), OFI Institutional Asset
Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program
(charitable trust program established by the Manager) (since June 2003); Treasurer
and Chief Financial Officer of OFI Trust Company (trust company subsidiary of the
Manager) (since May 2000); Assistant Treasurer of the following: OAC (since March
1999), Centennial Asset Management Corporation (March 1999-October 2003) and
OppenheimerFunds Legacy Program (April 2000-June 2003); Principal and Chief
Operating Officer of Bankers Trust Company-Mutual Fund Services Division (March
1995-March 1999). An officer of 87 portfolios in the OppenheimerFunds complex.
50 | OPPENHEIMER DISCOVERY FUND
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March
Secretary (since 2001) 2002) of the Manager; General Counsel and Director of the Distributor (since
Age: 57 December 2001); General Counsel of Centennial Asset Management Corporation (since
December 2001); Senior Vice President and General Counsel of HarbourView Asset
Management Corporation (since December 2001); Secretary and General Counsel of OAC
(since November 2001); Assistant Secretary (since September 1997) and Director
(since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds
plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since
December 2002); Director of Oppenheimer Real Asset Management, Inc. (since
November 2001); Senior Vice President, General Counsel and Director of Shareholder
Financial Services, Inc. and Shareholder Services, Inc. (since December 2001);
Senior Vice President, General Counsel and Director of OFI Private Investments,
Inc. and OFI Trust Company (since November 2001); Vice President of
OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and
General Counsel of OFI Institutional Asset Management, Inc. (since November 2001);
Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice
President (May 1985-December 2003), Acting General Counsel (November 2001-February
2002) and Associate General Counsel (May 1981-October 2001) of the Manager;
Assistant Secretary of the following: Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November
2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An
officer of 87 portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
51 | 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 the registrant does
not have an audit committee financial expert serving on its Audit Committee. In
this regard, no member of the Audit Committee was identified as having all of
the technical attributes identified in Instruction 2(b) to Item 3 of Form N-CSR
to qualify as an "audit committee financial expert," whether
through the type of specialized education or experience described in that
Instruction. The Board has concluded that while the members of the Audit
Committee collectively have the necessary attributes and experience required to
serve effectively as an Audit Committee, no single member possesses all of the
required technical attributes through the particular methods of education or
experience set forth in the Instructions to be designated as an audit committee
financial expert.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The principal accountant for the audit of the registrant's annual financial
statements billed $31,000 in fiscal 2005 and $33,000 in fiscal 2004.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed $156,805 in fiscal 2005 and $44,500 in fiscal 2004 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services: internal control reviews.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual financial
statements billed to the registrant no such fees in fiscal 2005 and $11,825 in
fiscal 2004.
The principal accountant for the audit of the registrant's annual financial
statements billed $5,000 in fiscal 2005 and $6,000 in fiscal 2004 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services: Computations of capital gain tax liability, preparation of tax
returns, preparation of Form 5500 and tax consultations on pass through of
foreign withholding taxes and mortgage dollar roll transactions.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
(e) (1) During its regularly scheduled periodic meetings, the registrant's
audit committee will pre-approve all audit, audit-related, tax and other
services to be provided by the principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its Chairman
for any subsequent new engagements that arise between regularly scheduled
meeting dates provided that any fees such pre-approved are presented to
the audit committee at its next regularly scheduled meeting.
Under applicable laws, pre-approval of non-audit services maybe waived
provided that: 1) the aggregate amount of all such services provided
constitutes no more than five percent of the total amount of fees paid by
the registrant to it principal accountant during the fiscal year in which
services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such
services are promptly brought to the attention of the audit committee of
the registrant and approved prior to the completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $161,805 in fiscal 2005 and $62,325 in fiscal
2004 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 trustees 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 accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
THE FUND'S GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Governance Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by
executive search firms which the Committee may engage from time to time
and may also consider shareholder recommendations. The Committee may
consider the advice and recommendation of the Funds' investment manager
and its affiliates in making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met
by a trustee nominee. In evaluating trustee nominees, the Committee
considers, among other things, an individual's background, skills, and
experience; whether the individual is an "interested person" as defined in
the Investment Company Act of 1940; and whether the individual would be
deemed an "audit committee financial expert" within the meaning of
applicable SEC rules. The Committee also considers whether the
individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and will contribute
to the Board. There are no differences in the manner in which the
Committee
evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates
to present to the Board and, in such cases where required, to
shareholders. Recommendations for trustee nominees should, at a minimum,
be accompanied by the following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person"
as defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in
a proxy statement concerning the person if he or she was nominated;
and
o the name and address of the person submitting the recommendation
and, if that person is a shareholder, the period for which that
person held Fund shares.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under
the Investment Company Act of 1940. In addition, certain other
relationships with Massachusetts Mutual Life Insurance Company or its
subsidiaries, with registered broker-dealers, or with the Funds' outside
legal counsel may cause a person to be deemed an "interested person."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving
as a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR
270.30a-3(c)) as of September 30, 2005, the registrant's principal executive
officer and principal financial officer found the registrant's disclosure
controls and procedures to provide reasonable assurances that information
required to be disclosed by the registrant in the reports that it files under
the
Securities Exchange Act of 1934 (a) is accumulated and communicated to
registrant's management, including its principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure, and
(b) is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms adopted by the U.S. Securities and Exchange
Commission.
There have been no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a) (1) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Discovery Fund
By: /s/ John V. Murphy
------------------
John V. Murphy
Principal Executive Officer
Date: November 16, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ John V. Murphy
------------------
John V. Murphy
Principal Executive Officer
Date: November 16, 2005
By: /s/ Brian W. Wixted
-------------------
Brian W. Wixted
Principal Financial Officer
Date: November 16, 2005