-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VZh5ryC+pGjy2Xk0yNMNDPUM9Ii5ccWfjgFVhUbQRLtJzKcBS29Dem9U6wh3h0YQ HxYLPPJbeudMuWqWx9VWcg== 0000935069-05-003282.txt : 20051130 0000935069-05-003282.hdr.sgml : 20051130 20051130165044 ACCESSION NUMBER: 0000935069-05-003282 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051130 DATE AS OF CHANGE: 20051130 EFFECTIVENESS DATE: 20051130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER DISCOVERY FUND CENTRAL INDEX KEY: 0000777547 IRS NUMBER: 222725700 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04410 FILM NUMBER: 051235049 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY STREET 2: N/A CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 303-768-3200 MAIL ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY STREET 2: N/A CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER OTC FUND DATE OF NAME CHANGE: 19891210 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER EXPLORER FUND DATE OF NAME CHANGE: 19860710 N-CSR 1 ra500_18577ncsr.txt RA500_18577NCSR 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 - -------------------------------------------------------------------------------- TOP TEN COMMON STOCK INDUSTRIES - -------------------------------------------------------------------------------- Health Care Equipment & Supplies 11.3% - -------------------------------------------------------------------------------- Health Care Providers & Services 9.6 - -------------------------------------------------------------------------------- Hotels, Restaurants & Leisure 7.4 - -------------------------------------------------------------------------------- Semiconductors & Semiconductor Equipment 6.5 - -------------------------------------------------------------------------------- Internet Software & Services 6.1 - -------------------------------------------------------------------------------- Communications Equipment 5.5 - -------------------------------------------------------------------------------- Software 5.1 - -------------------------------------------------------------------------------- IT Services 4.5 - -------------------------------------------------------------------------------- Electronic Equipment & Instruments 3.5 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Scientific Games Corp., Cl. A 2.5% - -------------------------------------------------------------------------------- Psychiatric Solutions, Inc. 1.8 - -------------------------------------------------------------------------------- SBA Communications Corp. 1.7 - -------------------------------------------------------------------------------- FLIR Systems, Inc. 1.7 - -------------------------------------------------------------------------------- F5 Networks, Inc. 1.7 - -------------------------------------------------------------------------------- Digital River, Inc. 1.7 - -------------------------------------------------------------------------------- Microsemi Corp. 1.6 - -------------------------------------------------------------------------------- Kyphon, Inc. 1.6 - -------------------------------------------------------------------------------- Energy Conversion Devices, Inc. 1.6 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 8 | OPPENHEIMER DISCOVERY FUND FUND PERFORMANCE DISCUSSION - -------------------------------------------------------------------------------- HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 EX-99.CODE ETH 2 ra500_18577ethics.txt RA500_18577ETHICS EX-99.CODE ETH CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS OF THE OPPENHEIMER FUNDS AND OF OPPENHEIMERFUNDS, INC. This Code of Ethics for Principal Executive and Senior Financial Officers (referred to in this document as the "Code") has been adopted by each of the investment companies for which OppenheimerFunds, Inc. or one of its subsidiaries or affiliates (referred to collectively in this document as "OFI") acts as investment adviser (individually, a "Fund" and collectively, the "Funds"), and by OFI to effectuate compliance with Section 406 under the Sarbanes-Oxley Act of 2002 and the rules adopted to implement Section 406. This Code applies to each Fund's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions ("Covered Officers"). A listing of positions currently within the ambit of Covered Officers is attached as EXHIBIT A.(1) 1. PURPOSE OF THE CODE This Code sets forth standards and procedures that are reasonably designed to deter wrongdoing and promote: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely, and understandable disclosure in reports and documents that a Fund files with, or submits to, the U.S. Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable governmental laws, rules and regulations; o the prompt internal reporting of violations of this Code to the Code Administrator identified below; and - ---------- (1) The obligations imposed by this Code on Covered Officers are separate from and in addition to any obligations that may be imposed on such persons as Covered Persons under the Code of Ethics adopted by the Oppenheimer Funds dated May 15, 2002, under Rule 17j-1 of the Investment Company Act of 1940, as amended and any other code of conduct applicable to Covered Officers in whatever capacity they serve. This Code does not incorporate by reference any provisions of the Rule 17j-1 Code of Ethics and accordingly, any violations or waivers granted under the Rule 17j-1 Code of Ethics will not be considered a violation or waiver under this Code. o accountability for adherence to this Code. In general, the principles that govern honest and ethical conduct, including the avoidance of conflicts of interest between personal and professional relationships, reflect, at the minimum, the following: (1) the duty at all times in performing any responsibilities as a Fund financial officer, controller, accountant or principal executive officer to place the interests of the Funds ahead of personal interests; (2) the fundamental standard that Covered Officers should not take inappropriate advantage of their positions; (3) the duty to assure that a Fund's financial statements and reports to its shareholders are prepared honestly and accurately in accordance with applicable rules, regulations and accounting standards; and (4) the duty to conduct the Funds' business and affairs in an honest and ethical manner. Each Covered Officer should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. It is acknowledged that, as a result of the contractual relationship between each Fund and OFI, of which the Covered Officers are also officers or employees, and subject to OFI's fiduciary duties to each Fund, the Covered Officers will, in the normal course of their duties, be involved in establishing policies and implementing decisions that will have different effects on OFI and the Funds. It is further acknowledged that the participation of the Covered Officers in such activities is inherent in the contractual relationship between each Fund and OFI and is consistent with the expectations of the Board of Trustees/Directors of the performance by the Covered Officers of their duties as officers of the Funds. 2. PROHIBITIONS The specific provisions and reporting requirements of this Code are concerned primarily with promoting honest and ethical conduct and avoiding conflicts of interest in personal and professional relationships. No Covered Officer may use information concerning the business and affairs of a Fund, including the investment intentions of a Fund, or use his or her ability to influence such investment intentions, for personal gain to himself or herself, his or her family or friends or any other person or in a manner detrimental to the interests of a Fund or its shareholders. No Covered Officer may use his or her personal influence or personal relationships to influence the preparation and issuance of financial reports of a Fund whereby the Covered Officer would benefit personally to the detriment of the Fund and its shareholders. No Covered Officer shall intentionally for any reason take any action or fail to take any action in connection with his or her official acts on behalf of a Fund that causes the Fund to violate applicable laws, rules and regulations. No Covered Officer shall, in connection with carrying out his or her official duties and responsibilities on behalf of a Fund: (i) employ any device, scheme or artifice to defraud a Fund or its shareholders; (ii) intentionally cause a Fund to make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading in its official documents, regulatory filings, financial statements or communications to the public; (iii) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any Fund or its shareholders; (iv) engage in any manipulative practice with respect to any Fund; (v) use his or her personal influence or personal relationships to influence any business decision, investment decisions, or financial reporting by a Fund whereby the Covered Officer would benefit personally to the detriment of the Fund or its shareholders; (vi) intentionally cause a Fund to fail to comply with applicable laws, rules and regulations, including failure to comply with the requirement of full, fair, accurate, understandable and timely disclosure in reports and documents that a Fund files with, or submits to, the SEC and in other public communications made by the Fund; (vii) intentionally mislead or omit to provide material information to the Fund's independent auditors or to the Board of Trustees/Directors or the officers of the Fund or its investment adviser in connection with financial reporting matters; (viii) fail to notify the Code Administrator or the Chief Executive Officer of the Fund or its investment adviser promptly if he or she becomes aware of any existing or potential violations of this Code or applicable laws; (ix) retaliate against others for, or otherwise discourage the reporting of, actual or apparent violations of this Code; or (x) fails to acknowledge or certify compliance with this Code if requested to do so. 3. REPORTS OF CONFLICTS OF INTERESTS If a Covered Officer becomes aware of a conflict of interest under this Code or, to the Covered Officer's reasonable belief, the appearance of one, he or she must immediately report the matter to the Code's Administrator. If the Code Administrator is involved or believed to be involved in the conflict of interest or appearance of conflict of interest, the Covered Officer shall report the matter directly to the OFI's Chief Executive Officer. Upon receipt of a report of a conflict, the Code Administrator will take prompt steps to determine whether a conflict of interest exists. If the Code Administrator determines that an actual conflict of interest exists, the Code Administrator will take steps to resolve the conflict. If the Code Administrator determines that the appearance of a conflict exists, the Code Administrator will take appropriate steps to remedy such appearance. If the Code Administrator determines that no conflict or appearance of a conflict exists, the Code Administrator shall meet with the Covered Officer to advise him or her of such finding and of his or her reason for taking no action. In lieu of determining whether a conflict or appearance of conflict exists, the Code Administrator may in his or her discretion refer the matter to the Fund's Board of Trustees/Directors. 4. WAIVERS Any Covered Officer requesting a waiver of any of the provisions of this Code must submit a written request for such waiver to the Code Administrator, setting forth the basis of such request and all necessary facts upon which such request can be evaluated. The Code Administrator shall review such request and make a written determination thereon, which shall be binding. The Code Administrator may in reviewing such request, consult at his discretion with legal counsel to OFI or to the Fund. In determining whether to waive any of the provisions of this Code, the Code Administrator shall consider whether the proposed waiver: (i) is prohibited by this Code; (ii) is consistent with honest and ethical conduct; and (iii) will result in a conflict of interest between the Covered Officer's personal and professional obligations to a Fund. In lieu of determining whether to grant a waiver, the Code Administrator in his or her discretion may refer the matter to the appropriate Fund's Board of Trustees/Directors. 5. REPORTING REQUIREMENTS (a) Each Covered Officer shall, upon becoming subject to this Code, be provided with a copy of this Code and shall affirm in writing that he or she has received, read, understands and shall adhere to this Code. (b) At least annually, all Covered Officers shall be provided with a copy of this Code and shall certify that they have read and understand this Code and recognize that they are subject thereto. (c) At least annually, all Covered Officers shall certify that they have complied with the requirements of this Code and that they have disclosed or reported any violations of this Code to the Code Administrator or the Chief Executive Officer of the Fund or its investment adviser. (d) The Code Administrator shall submit a quarterly report to the Board of Trustees/Directors of each Fund containing (i) a description of any report of a conflict of interest or apparent conflict and the disposition thereof; (ii) a description of any request for a waiver from this Code and the disposition thereof; (iii) any violation of the Code that has been reported or found and the sanction imposed; (iv) interpretations issued under the Code by the Code Administrator; and (v) any other significant information arising under the Code including any proposed amendments. (e) Each Covered Officer shall notify the Code Administrator promptly if he or she knows of or has a reasonable belief that any violation of this Code has occurred or is likely to occur. Failure to do so is itself a violation of this Code. (f) Any changes to or waivers of this Code, including "implicit" waivers as defined in applicable SEC rules, will, to the extent required, be disclosed by the Code Administrator or his or her designee as provided by applicable SEC rules.(2) 6. ANNUAL RENEWAL At least annually, the Board of Trustees/Directors of each Fund shall review the Code and determine whether any amendments (including any amendments that may be recommended by OFI or the Fund's legal counsel) are necessary or desirable, and shall consider whether to renew and/or amend the Code. 7. SANCTIONS Any violation of this Code of Ethics shall be subject to the imposition of such sanctions by OFI as may be deemed appropriate under the circumstances to achieve the purposes of this Code and may include, without limitation, a letter of censure, suspension from employment or termination of employment, in the sole discretion of OFI. 8. ADMINISTRATION AND CONSTRUCTION (a) The administration of this Code of Ethics shall be the responsibility of OFI's General Counsel or his designee as the "Code Administrator" of this Code, acting under the terms of this Code and the oversight of the Trustees/Directors of the Funds. (b) The duties of such Code Administrator will include: (i) Continuous maintenance of a current list of the names of all Covered Officers; (ii) Furnishing all Covered Officers a copy of this Code and initially and periodically informing them of their duties and obligations thereunder; (iii) Maintaining or supervising the maintenance of all records required by this Code, including records of waivers granted hereunder; - ---------- (2) An "implicit waiver" is the failure to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to the General Counsel, the Code Administrator, an executive officer of the Fund or OFI. (iv) Issuing interpretations of this Code which appear to the Code Administrator to be consistent with the objectives of this Code and any applicable laws or regulations; (v) Conducting such inspections or investigations as shall reasonably be required to detect and report any violations of this Code, with his or her recommendations, to the Chief Executive Officer of OFI and to the Trustees/Directors of the affected Fund(s) or any committee appointed by them to deal with such information; and (vi) Periodically conducting educational training programs as needed to explain and reinforce the terms of this Code. (c) In carrying out the duties and responsibilities described under this Code, the Code Administrator may consult with legal counsel, who may include legal counsel to the applicable Funds, and such other persons as the Administrator shall deem necessary or desirable. The Code Administrator shall be protected from any liability hereunder or under any applicable law, rule or regulation, for decisions made in good faith based upon his or her reasonable judgment. 9. REQUIRED RECORDS The Administrator shall maintain and cause to be maintained in an easily accessible place, the following records for the period required by applicable SEC rules (currently six years following the end of the fiscal year of OFI in which the applicable event or report occurred): (a) A copy of any Code which has been in effect during the period; (b) A record of any violation of any such Code and of any action taken as a result of such violation, during the period; (c) A copy of each annual report pursuant to the Code made by a Covered Officer during the period; (d) A copy of each report made by the Code Administrator pursuant to this Code during the period; (e) A list of all Covered Officers who are or have been required to make reports pursuant to this Code during the period, plus those person(s) who are or were responsible for reviewing these reports; (f) A record of any request to waive any requirement of this Code, the decision thereon and the reasons supporting the decision; and (g) A record of any report of any conflict of interest or appearance of a conflict of interest received by the Code Administrator or discovered by the Code Administrator during the period, the decision thereon and the reasons supporting the decision. 10. AMENDMENTS AND MODIFICATIONS This Code may not be amended or modified except by an amendment in writing which is approved or ratified by OFI and by a majority vote of the Independent Trustees/Directors of each of the applicable Funds. 11. CONFIDENTIALITY. This Code is identified for the internal use of the Funds and OFI. Reports and records prepared or maintained under this Code are considered confidential and shall be maintained and protected accordingly to the extent permitted by applicable laws, rules and regulations. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Trustees/Directors of the affected Fund(s) and their counsel, the independent auditors of the affected Funds and/or OFI, and to OFI, except as such disclosure may be required pursuant to applicable judicial or regulatory process. Dated as of: June 25, 2003 Adopted by Board I of the Oppenheimer Funds June 13, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by Board II of the Oppenheimer/Centennial Funds June 24, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by Board III of the Oppenheimer Funds June 9, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by Board IV of the Oppenheimer Funds May 21, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Secretary Adopted by the Boards of Directors of OppenheimerFunds, Inc. and its subsidiaries and affiliates that act as investment adviser to the Oppenheimer or Centennial funds June 1, 2003 /S/ ROBERT G. ZACK - ------------------ Robert G. Zack, Senior Vice President and General Counsel Exhibit A Positions Covered by this Code of Ethics for Senior Officers EACH OPPENHEIMER OR CENTENNIAL FUND Principal Executive Officer Principal Financial Officer Treasurer Assistant Treasurer PERSONNEL OF OFI WHO BY VIRTUE OF THEIR JOBS PERFORM CRITICAL FINANCIAL AND ACCOUNTING FUNCTIONS FOR OFI ON BEHALF OF A FUND, INCLUDING: Treasurer Senior Vice President/Fund Accounting Vice President/Fund Accounting EX-99.CERT 3 ra500_18577ex302.txt RA500_18577EX302 Exhibit 99.CERT Section 302 Certifications CERTIFICATIONS I, John V. Murphy, certify that: 1. I have reviewed this report on Form N-CSR of Oppenheimer Discovery Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 16, 2005 /s/ John V. Murphy - ------------------ John V. Murphy Principal Executive Officer Exhibit 99.CERT Section 302 Certifications CERTIFICATIONS I, Brian W. Wixted, certify that: 1. I have reviewed this report on Form N-CSR of Oppenheimer Discovery Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of Trustees (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 16, 2005 /s/ Brian W. Wixted - ------------------- Brian W. Wixted Principal Financial Officer EX-99.906CERT 4 ra500_18577ex906.txt RA500_18577EX906 EX-99.906CERT Section 906 Certifications CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 John V. Murphy, Principal Executive Officer, and Brian W. Wixted, Principal Financial Officer, of Oppenheimer Discovery Fund (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended September 30, 2005 (the "Form N-CSR") fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Form N-CSR filed with the Commission. Principal Executive Officer Principal Financial Officer Oppenheimer Discovery Fund Oppenheimer Discovery Fund /s/ John V. Murphy /s/ Brian W. Wixted - ------------------ ------------------- John V. Murphy Brian W. Wixted Date: November 16, 2005 Date: November 16, 2005 -----END PRIVACY-ENHANCED MESSAGE-----