<PAGE> 1
ANNUAL REPORT SEPTEMBER 30, 1998
OPPENHEIMER
DISCOVERY
FUND
[PHOTO]
[OPPENHEIMERFUNDS LOGO]
THE RIGHT WAY TO INVEST
<PAGE> 2
CONTENTS
3 President's Letter
4 An Interview
with Your Fund's
Managers
9 Fund Performance
13 Financial
Statements
34 Independent
Auditors' Report
35 Federal
Income Tax
Information
36 Officers and
Trustees
40 Information and
Services
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
- - WHILE IT WAS A DISAPPOINTING YEAR for small-cap stocks overall, the Fund's
holdings in non-cyclical companies with reasonably predictable
earnings--especially in the technology and services sectors--performed
relatively well.
- - LOOKING FORWARD, we believe small company stocks may be poised for a rebound.
Small companies are generally not dependent on foreign sales, and even though
their earnings have been growing faster than large companies, their stock prices
have lagged.
AVG ANNUAL TOTAL RETURNS
For the 1-Year Period
Ended 9/30/98
CLASS A
Without With
Sales Chg.(1) Sales Chg.(2)
- -------------------------------
- -20.78% -25.34%
- -------------------------------
CLASS B
Without With
Sales Chg.(1) Sales Chg.(2)
- -------------------------------
- -21.37% -25.21%
- -------------------------------
CLASS C
Without With
Sales Chg.(1) Sales Chg.(2)
- -------------------------------
- -21.34% -22.11%
- -------------------------------
CLASS Y
Without With
Sales Chg.(1) Sales Chg.(2)
- -------------------------------
- -20.47% -20.47%
- -------------------------------
Total returns include changes in share price and reinvestment of dividends and
capital gains distributions in a hypothetical investment for the periods shown.
IN REVIEWING PERFORMANCE AND RANKINGS, PLEASE REMEMBER THAT PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. BECAUSE OF ONGOING
MARKET VOLATILITY, THE FUND'S PERFORMANCE MAY BE SUBJECT TO SUBSTANTIAL
SHORT-TERM CHANGES. FOR UPDATES ON THE FUND'S PERFORMANCE, PLEASE CONTACT YOUR
FINANCIAL ADVISOR, CALL US AT 1-800-525-7048 OR VISIT OUR WEBSITE,
WWW.OPPENHEIMERFUNDS.COM.
1. Includes changes in net asset value per share without deducting any sales
charges. Such performance would have been lower if sales charges were taken into
account.
2. Class A return includes the current maximum initial sales charge of 5.75%.
Class B return includes the applicable contingent deferred sales charge of 5%.
Class C return includes the contingent deferred sales charge of 1%. Class Y
shares are not available for sale to individual investors. Class B and C shares
are subject to a 0.75% asset-based sales charge. An explanation of the different
performance calculations is in the Fund's prospectus.
2 Oppenheimer Discovery Fund
<PAGE> 3
[PHOTO]
BRIDGET A. MACASKILL
President
Oppenheimer
Discovery Fund
DEAR SHAREHOLDER,
- --------------------------------------------------------------------------------
The performance of the financial markets over the past several months could be
viewed as "A Tale of Two Markets." Until mid-July, the excitement surrounding
the stock market's continued ascent to new record highs overshadowed the
favorable economic environment that existed for bonds: low inflation and
declining interest rates. However, since late summer, amid heightened global
concern, stocks declined sharply. Yet, despite continued economic concerns
worldwide, the bond market appeared ready to benefit.
Why have the stock and bond markets responded differently? The financial
crises in Asia and Russia have weakened the earnings of some large U.S.
corporations and have contributed to a slowdown in U.S. economic growth.
Although this slowing economic growth has negatively impacted stocks, it created
a positive environment for bonds. That's because slowing economic growth
generally means fewer inflationary pressures and, as we've recently seen,
interest rates also tend to decline.
What should you do during this period of relative uncertainty? If you have
well-defined, long-term financial goals and an investment strategy designed to
achieve them, we encourage you to stay the course. However, if you feel your
financial plan is out-of-date or incomplete, now is the time to make
improvements. The best way to cope with short-term volatility is to adhere to a
long-term plan that contains proven strategies, such as diversification among
various financial markets, geographic regions, investment styles and individual
securities. A long-term plan will give you the focus and perspective you need to
put short-term volatility in its proper context.
As longstanding advocates of financial planning, we have been encouraged by
our shareholders' rational responses to the latest market events. Many of you
tell us that you have a long-term strategy in place, which includes diversifying
your investment portfolio among a number of different asset classes in
accordance with your tolerance for risk. At OppenheimerFunds, our portfolio
management teams include seasoned professionals who have encountered extreme
market volatility in the past, giving them the perspective required to address
risks and take advantage of opportunities in turbulent markets. In our view,
having a well-defined set of financial goals, a disciplined long-term strategy
and the help of experienced investment professionals are all fundamental parts
of The Right Way to Invest.
Sincerely,
/s/ BRIDGET A. MACASKILL
Bridget A. Macaskill
October 21, 1998
3 Oppenheimer Discovery Fund
<PAGE> 4
"WE SHIFTED THE FUND'S INVESTMENTS TOWARD 'NON-CYCLICAL' COMPANIES..."
AN INTERVIEW WITH YOUR FUND'S MANAGERS
- --------------------------------------------------------------------------------
HOW DID THE FUND PERFORM?
1998 has been a sharply negative year for small-cap stocks, and Oppenheimer
Discovery Fund shared in the overall decline. Over the fiscal year that ended
September 30, 1998, the Fund performed just below the Russell 2000 Index(1) and
ranked in the top half of all small-cap funds, as measured by Lipper Analytical
Services.(2)
WHY WERE SMALL-CAP STOCKS OUT OF FAVOR?
Market uncertainties abounded during the period, especially since the spring of
1998. Investors continued to fear the effects of the Asian crisis, and new
worries surfaced about Russia's financial woes, the potential spread of the
contagion to Latin America, and the potential for an economic slowdown in the
United States.
In this unstable stock market, the most prized stocks were those whose
earnings growth seemed most assured and least vulnerable. Investors sought
earnings predictability and trading liquidity, and they generally found it in
the blue chip stocks of big companies.
Large prevailed over small, and even in the small-cap arena, the market
rewarded earnings predictability more so than raw earnings growth. Over the
period, the top performers--large and small--weren't necessarily the fastest
growers. Instead, the winners were companies considered to be steady performers
with reasonably assured revenues.
1. The Russell 2000 Index is an unmanaged index of small capitalization stocks
and cannot be purchased directly by investors. For the one-year period ended
September 30, 1998, the Fund's Class A shares produced an average annual total
return, without sales charges, of -20.78%, as compared with -19.02% for the
Russell 2000.
2. Source: Lipper Analytical Services, Inc., 9/30/98. Based on comparisons in
changes in net asset value without considering sales charges, with dividends and
capital gains distributions of the Fund's Class A shares reinvested. The Fund's
Class A shares were ranked 283 out of 576 among small-cap funds for the one-year
period ended 9/30/98.
4 Oppenheimer Discovery Fund
<PAGE> 5
[PHOTO]
PORTFOLIO MANAGEMENT
TEAM (L TO R)
BONNIE SHERMAN
ALAN GILSTON (PORTFOLIO
MANAGER)
JAY TRACEY (PORTFOLIO
MANAGER)
SUSAN SWITZER
WHAT WAS YOUR INVESTMENT STRATEGY DURING ALL THIS UNCERTAINTY?
We're growth investors, so the Fund's performance tends to be more sensitive in
market downturns, while gaining ground in market upswings. Yet over this
difficult period, we managed to perform just as well as small-cap stock funds
overall. Over the course of the fiscal year, Oppenheimer Discovery Fund shifted
its investments toward "non-cyclical" companies--companies that have the
potential to grow steadily without relying on the strength of the overall
economy. This strategy proved to be relatively successful, as the market favored
companies with predictable growth.
We focused our non-cyclical holdings in the technology and services sectors,
which turned in the best performance among all the small-cap sectors. Affiliated
Computer Services, Inc., a provider of information processing services, is a
good example. Its revenues are less vulnerable because it maintains long-term
contracts with the firms it serves. In addition, the company provides a broad
array of services to a diversified client base, ranging from hospitals and
retailers to financial institutions. In our judgment, Affiliated is well
positioned to earn steady earnings in any economic climate, and because
investors prized predictability above all else over the period, the company's
stock performed relatively well.
5 Oppenheimer Discovery Fund
<PAGE> 6
"...AND THIS STRATEGY PROVED TO BE RELATIVELY SUCCESSFUL."
AN INTERVIEW WITH YOUR FUND'S MANAGERS
- --------------------------------------------------------------------------------
For similar reasons, the education-related stocks in the Fund's portfolio fared
better than most other small-cap stocks over the past year. One of our holdings
is a for-profit institution that provides vocational training for adults.
Revenues have been consistent. In a good or bad economy, we believe people will
still seek continuing education to advance their careers. What's more, the
company enjoys a strong competitive position. It has a superb reputation for
placing graduates in good jobs. When we combine these reasons, we see a company
whose revenues and earnings are relatively consistent over all market cycles.
WHAT OTHER INVESTMENTS PERFORMED RELATIVELY WELL?
Our holdings in companies with reasonably steady earnings cushioned the Fund's
performance over the past year. We also benefited from our investments in more
typical "growth" companies--those with rapidly growing earnings.
Engineering Animation Inc., a company that provides three-dimensional
modeling software, posted very good growth rates during the period, even
surpassing Wall Street's earnings estimates. Its software allows engineers--at
automobile companies, for example--to view what they're designing in three
dimensions. This greatly reduces the time it takes to design new products. For
manufacturing companies, any automation in the design process produces an
attractive return on investment, and that's why Engineering Animation has
increasingly won large contract awards. This growth has driven the stock price
up substantially.
6 Oppenheimer Discovery Fund
<PAGE> 7
AVG ANNUAL TOTAL RETURNS
For the Periods Ended 9/30/98(3)
CLASS A
1 year 5 year 10 year
- -----------------------------------
- -25.34% 4.19% 12.84%
- -----------------------------------
CLASS B
Since
1 year 5 year Inception
- ---------------------------------------
- -25.21% N/A 6.95%
- ---------------------------------------
CLASS C
Since
1 year 5 year Inception
- ---------------------------------------
- -22.11% N/A 2.95%
- ---------------------------------------
CLASS Y
Since
1 year 5 year Inception
- ---------------------------------------
- -20.47% N/A 9.42%
- ---------------------------------------
We remain confident about Engineering Animation's prospects. It has a top-notch
management team in place, which has successfully steered a company that was once
solely a supplier for the computer animation entertainment industry and taken it
into the much larger field of industrial commercial design.
WHAT IS YOUR OUTLOOK FOR THE SMALL-CAP MARKET?
As a group, small companies depend very little on foreign sales. So, no matter
how the current crises in Asia, Russia, and elsewhere evolve, they will probably
have a minimal direct impact on small companies' revenues and earnings.
Small-cap stocks have been out of favor for quite some time. In fact, they're
priced at a multi-year low relative to large stocks. Consider these facts. Many
small companies have been reporting higher earnings growth--and more positive
earnings surprises--than large companies. So far this year, large companies have
experienced little or no growth.
3. Total returns include changes in share price and reinvestment of dividends
and capital gains distributions in a hypothetical investment for the periods
shown. Class A returns include the current maximum initial sales charge of
5.75%. Class A shares were first publicly offered on 9/11/86. The Fund's maximum
sales charge for Class A shares was lower prior to 4/1/91, so actual performance
may have been higher. Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (since inception on 4/4/94). Class C returns
for the one-year result include the contingent deferred sales charge of 1%.
Class C shares have been available since 10/2/95. Class Y shares were first
publicly offered on 6/1/94 and are not available for sale to individual
shareholders. Class B and C shares are subject to an annual 0.75% asset-based
sales charge. An explanation of the different performance calculations is in the
Fund's prospectus.
7 Oppenheimer Discovery Fund
<PAGE> 8
[PIE CHART]
<TABLE>
<CAPTION>
SECTOR WEIGHTINGS(4)
<S> <C>
- - Technology 25.7%
- - Consumer
Non-Cyclicals 24.4
- - Industrial 22.3
- - Consumer
Cyclicals 17.0
- - Utilities 3.9
- - Energy 2.9
- - Financials 1.9
- - Basic Materials 1.9
</TABLE>
Markets move in cycles, and we do not believe the current bear market for
small-cap stocks will last indefinitely. As we await the eventual turnaround,
we will continue our disciplined strategy of investing in rapidly growing small
companies with strong fundamentals and healthy growth prospects--part of what
makes Oppenheimer Discovery Fund The Right Way to Invest.
<TABLE>
<CAPTION>
TOP 10 STOCK HOLDINGS(4)
- --------------------------------------------------------------------------------
<S> <C>
Serologicals Corp. 2.3%
- --------------------------------------------------------------------------------
Covance, Inc. 1.8
- --------------------------------------------------------------------------------
Cinar Films, Inc., Cl. B 1.8
- --------------------------------------------------------------------------------
Pittway Corp., Cl. A 1.7
- --------------------------------------------------------------------------------
Visio Corp. 1.5
- --------------------------------------------------------------------------------
Linens 'N Things, Inc. 1.5
- --------------------------------------------------------------------------------
U.S. Foodservice, Inc. 1.4
- --------------------------------------------------------------------------------
Metzler Group, Inc. 1.4
- --------------------------------------------------------------------------------
Network Appliance, Inc. 1.3
- --------------------------------------------------------------------------------
PSS World Medical, Inc. 1.3
- --------------------------------------------------------------------------------
</TABLE>
4. Portfolio is subject to change. Percentages are as of September 30, 1998, and
are based on total market value of common stock holdings.
8 Oppenheimer Discovery Fund
<PAGE> 9
FUND PERFORMANCE
- --------------------------------------------------------------------------------
HOW HAS THE FUND PERFORMED? Below is a discussion by the Manager of the Fund's
performance during its fiscal year ended September 30, 1998, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index and a sector index.
- MANAGEMENT'S DISCUSSION OF PERFORMANCE. Over the fiscal year that
ended September 30, 1998, Oppenheimer Discovery Fund posted negative returns, as
did its benchmark index. Amid uncertainties about the continuing Asian crisis,
Russia's financial woes, the potential spread of the contagion to Latin America
and a possible economic slowdown in the United States, investors sought relative
safety, shunning small-caps in favor of large-caps. In this turbulent
environment, the Fund's non-cyclical holdings in the technology and services
sectors fared the best. Remaining steadfast to its disciplined strategy, the
Fund intends to invest in a diversified array of rapidly growing companies with
solid fundamentals and superior growth prospects. The Fund's portfolio and our
management strategies are subject to change.
- COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that
follow show the performance of a hypothetical $10,000 investment in each class
of shares of the Fund held until September 30, 1998. In the case of Class A
shares, performance is measured for a ten-year period. In the case of Class B
shares, performance is measured from the inception of the class on April 4,
1994. In the case of Class C shares, performance is measured from the inception
of the class on October 2, 1995. In the case of Class Y shares, performance is
measured from the inception of the class on June 1, 1994. The graphs assume that
all dividends and capital gains distributions were reinvested in additional
shares. The Fund's performance reflects the deduction of the 5.75% maximum
initial sales charge on Class A shares, the 5% (1-year) and 2% (since inception)
applicable contingent deferred sales charge for Class B, and the 1% (1-year)
contingent deferred sales charge for Class C shares.
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 dividends but does
not consider the effect of capital gains or transaction costs, and none of the
data in the graphs that follow shows the effect of taxes. The Fund's performance
reflects the effects of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's performance, it
must be noted that the Fund's investments are not limited to the securities in
the indices shown.
9 Oppenheimer Discovery Fund
<PAGE> 10
FUND PERFORMANCE
- --------------------------------------------------------------------------------
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class A), S&P 500 Index and Russell 2000 Index
[The following table was originally a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer S&P 500 Russell 2000
<S> <C> <C>
9,425 1,000 1,000
13,216 13,295 12,151
10,528 12,067 8,854
15,991 15,819 12,849
17,794 17,565 13,996
25,706 19,843 18,641
23,673 20,573 19,129
30,308 26,686 23,606
38,721 32,108 26,706
42,265 45,088 35,569
33,482 49,172 28,805
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS A SHARES OF THE FUND AT 9/30/98(1)
1 YEAR -25.34% 5 YEAR 4.19% 10 YEAR 12.84%
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class B), S&P 500 Index and Russell 2000 Index
[The following table was originally a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer S&P 500 Russell 2000
<S> <C> <C>
1,000 1,000 1,000
1,000 10,532 10,276
1,2705 13,661 12,681
16,105 16,437 14,347
17,447 23,081 19,108
13,519 25,172 15,474
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS B SHARES OF THE FUND AT 9/30/98(2)
1 YEAR -25.21% LIFE 6.95%
The returns and the ending account values in the graphs show change in share
value and include reinvestment of all dividends and capital gains distributions.
The performance information for both indices in the graphs begins on 3/31/94 for
Class B, 9/29/95 for Class C and 5/31/94 for Class Y.
1. The inception date of the Fund's Class A shares was 9/11/86. The average
annual total returns are shown net of the applicable 5.75% maximum initial sales
charge.
2. Class B shares of the Fund were first publicly offered on 4/4/94. The average
annual total returns are shown net of the applicable 5% and 2% contingent
deferred sales charges, respectively, for the one-year period and the life of
the class. The ending account value in the graph is net of the applicable 2%
contingent deferred sales charge.
10 Oppenheimer Discovery Fund
<PAGE> 11
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class C), S&P 500 Index and Russell 2000 Index
[The following table was originally a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer S&P 500 Russell 2000
<S> <C> <C>
1,000 1,000 1,000
12,796 12,032 11,313
13,869 16,896 15,068
10,908 18,426 12,203
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS C SHARES OF THE FUND AT 9/30/98(3)
1 YEAR -22.11% LIFE 2.95%
CLASS Y SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class Y), S&P 500 Index and Russell 2000 Index
[The following table was originally a line graph in the printed material.]
<TABLE>
<CAPTION>
Oppenheimer S&P 500 Russell 2000
<S> <C> <C>
1,000 1,000 1,000
1,032 10,231 10,332
13,238 13,271 12,749
16,956 15,968 14,424
18,568 22,423 19,211
14,768 24,454 15,558
</TABLE>
AVERAGE ANNUAL TOTAL RETURN OF CLASS Y SHARES OF THE FUND AT 9/30/98(4)
1 YEAR -20.47% LIFE 9.42%
3. Class C shares of the Fund were first publicly offered on 10/2/95. The
average annual total returns are shown net of the applicable 1% contingent
deferred sales charge for the one-year period.
4. Class Y shares have an inception date of 6/1/94 and are not available for
sale to individual investors. Past performance is not predictive of future
performance. Graphs are not drawn to same scale.
11 Oppenheimer Discovery Fund
<PAGE> 12
FINANCIALS
- --------------------------------------------------------------------------------
12 Oppenheimer Discovery Fund
<PAGE> 13
STATEMENT OF INVESTMENTS September 30, 1998
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
=============================================================================================================================
<S> <C> <C>
COMMON STOCKS--89.5%
- -----------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--1.6%
- -----------------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.1%
- -----------------------------------------------------------------------------------------------------------------------------
AMCOL International Corp. 260,000 $ 2,957,500
- -----------------------------------------------------------------------------------------------------------------------------
International Specialty Products, Inc.(1) 400,000 4,900,000
- -----------------------------------------------------------------------------------------------------------------------------
Minerals Technologies, Inc. 150,000 6,609,375
--------------
14,466,875
- -----------------------------------------------------------------------------------------------------------------------------
PAPER--0.5%
Chesapeake Corp. 200,000 6,937,500
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--15.2%
- -----------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--1.2%
Champion Enterprises, Inc.(1) 210,000 4,882,500
- -----------------------------------------------------------------------------------------------------------------------------
Fairfield Communities, Inc.(1) 500,000 5,000,000
- -----------------------------------------------------------------------------------------------------------------------------
Wilmar Industries, Inc.(1) 247,500 5,259,375
--------------
15,141,875
- -----------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--4.3%
Action Performance Cos., Inc.(1) 170,000 4,590,000
- -----------------------------------------------------------------------------------------------------------------------------
Bally Total Fitness Holding Corp.(1) 400,000 6,950,000
- -----------------------------------------------------------------------------------------------------------------------------
Cinar Films, Inc., Cl. B(1) 1,150,000 20,628,125
- -----------------------------------------------------------------------------------------------------------------------------
Coach USA, Inc.(1) 360,000 8,887,500
- -----------------------------------------------------------------------------------------------------------------------------
Cracker Barrel Old Country Store, Inc. 100,000 2,275,000
- -----------------------------------------------------------------------------------------------------------------------------
Darden Restaurants, Inc. 380,000 6,080,000
- -----------------------------------------------------------------------------------------------------------------------------
Luby's Cafeterias, Inc. 235,000 3,789,375
- -----------------------------------------------------------------------------------------------------------------------------
Sodak Gaming, Inc.(1) 370,000 2,312,500
--------------
55,512,500
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA--2.8%
Emmis Communications Corp., Cl. A(1) 199,100 7,516,025
- -----------------------------------------------------------------------------------------------------------------------------
Heftel Broadcasting Corp., A Shares(1) 135,000 5,096,250
- -----------------------------------------------------------------------------------------------------------------------------
Hollinger International, Inc. 315,000 4,528,125
- -----------------------------------------------------------------------------------------------------------------------------
Penton Media, Inc. 675,000 9,196,875
- -----------------------------------------------------------------------------------------------------------------------------
Petersen Cos., Inc., Cl. A(1) 200,000 5,700,000
- -----------------------------------------------------------------------------------------------------------------------------
Scientific Games Holdings Corp.(1) 200,000 3,912,500
--------------
35,949,775
- -----------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3%
Russell Corp. 158,600 4,163,250
- -----------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--6.6%
Central Garden & Pet Co.(1) 345,000 6,382,500
- -----------------------------------------------------------------------------------------------------------------------------
CompUSA, Inc.(1) 175,000 3,029,687
- -----------------------------------------------------------------------------------------------------------------------------
Guitar Center, Inc.(1) 450,000 8,437,500
- -----------------------------------------------------------------------------------------------------------------------------
Heilig-Meyers Co. 480,000 3,450,000
</TABLE>
13 Oppenheimer Discovery Fund
<PAGE> 14
STATEMENTS OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL: SPECIALTY (CONTINUED)
Kroll-O'Gara Co. (The)(1) 400,000 $ 9,350,000
- -----------------------------------------------------------------------------------------------------------------------------
Linens 'N Things, Inc.(1) 610,000 16,775,000
- -----------------------------------------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., Cl. A(1) 725,000 14,500,000
- -----------------------------------------------------------------------------------------------------------------------------
O'Reilly Automotive, Inc.(1) 232,500 8,428,125
- -----------------------------------------------------------------------------------------------------------------------------
PetsMart, Inc.(1) 625,000 4,335,937
- -----------------------------------------------------------------------------------------------------------------------------
Renters Choice, Inc.(1) 365,000 9,672,500
--------------
84,361,249
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--21.9%
- -----------------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.2%
Celestial Seasonings, Inc.(1) 180,000 2,722,500
- -----------------------------------------------------------------------------------------------------------------------------
EDUCATION--2.6%
Education Management Corp.(1) 400,000 14,200,000
- -----------------------------------------------------------------------------------------------------------------------------
ITT Educational Services, Inc.(1) 300,000 9,600,000
- -----------------------------------------------------------------------------------------------------------------------------
Strayer Education, Inc. 387,900 10,133,887
--------------
33,933,887
- -----------------------------------------------------------------------------------------------------------------------------
FOOD--2.4% Richfood Holdings, Inc. 222,500 3,420,937
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Foodservice, Inc.(1) 400,000 16,650,000
- -----------------------------------------------------------------------------------------------------------------------------
United Natural Foods, Inc.(1) 200,000 5,100,000
- -----------------------------------------------------------------------------------------------------------------------------
Worthington Foods, Inc. 265,000 5,134,375
--------------
30,305,312
- -----------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--2.8%
Boron, LePore & Associates, Inc.(1) 265,000 10,036,875
- -----------------------------------------------------------------------------------------------------------------------------
Medimmune, Inc.(1) 75,000 4,856,250
- -----------------------------------------------------------------------------------------------------------------------------
PathoGenesis Corp.(1) 300,000 10,012,500
- -----------------------------------------------------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc.(1) 300,000 8,400,000
- -----------------------------------------------------------------------------------------------------------------------------
Roberts Pharmaceutical Corp.(1) 160,000 3,060,000
--------------
36,365,625
- -----------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--13.9%
AmeriSource Health Corp., Cl. A(1) 70,000 3,810,625
- -----------------------------------------------------------------------------------------------------------------------------
Covance, Inc.(1) 800,000 20,750,000
- -----------------------------------------------------------------------------------------------------------------------------
EndoSonics Corp.(1) 325,000 1,543,750
- -----------------------------------------------------------------------------------------------------------------------------
Haemonetics Corp.(1) 300,000 5,775,000
- -----------------------------------------------------------------------------------------------------------------------------
Hanger Orthopedic Group, Inc.(1) 400,000 7,450,000
- -----------------------------------------------------------------------------------------------------------------------------
Henry Schein, Inc.(1) 314,962 10,944,929
- -----------------------------------------------------------------------------------------------------------------------------
Invacare Corp. 295,000 6,932,500
- -----------------------------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc.(1) 100,000 3,875,000
- -----------------------------------------------------------------------------------------------------------------------------
Medical Manager Corp.(1) 200,000 4,575,000
- -----------------------------------------------------------------------------------------------------------------------------
OrthoLogic Corp.(1) 500,000 1,968,750
</TABLE>
14 Oppenheimer Discovery Fund
<PAGE> 15
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE/SUPPLIES & SERVICES (CONTINUED)
Parexel International Corp.(1) 250,000 $ 9,750,000
- -----------------------------------------------------------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(1) 160,917 7,221,150
- -----------------------------------------------------------------------------------------------------------------------------
PSS World Medical, Inc.(1) 800,000 14,800,000
- -----------------------------------------------------------------------------------------------------------------------------
Renal Care Group, Inc.(1) 450,000 11,531,250
- -----------------------------------------------------------------------------------------------------------------------------
Serologicals Corp.(1) 1,040,550 26,143,819
- -----------------------------------------------------------------------------------------------------------------------------
Superior Consultant Holdings Corp.(1) 300,000 13,050,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Renal Care Holdings, Inc.(1) 425,008 10,200,192
- -----------------------------------------------------------------------------------------------------------------------------
Ventana Medical Systems, Inc.(1) 500,000 9,000,000
- -----------------------------------------------------------------------------------------------------------------------------
VWR Scientific Products Corp.(1) 350,000 8,771,875
--------------
178,093,840
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY--2.6%
- -----------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--2.4%
Core Laboratories NV(1) 263,400 4,543,650
- -----------------------------------------------------------------------------------------------------------------------------
Cross Timbers Oil Co. 737,500 11,108,594
- -----------------------------------------------------------------------------------------------------------------------------
FX Energy, Inc.(1) 410,000 3,280,000
- -----------------------------------------------------------------------------------------------------------------------------
Stolt Comex Seaway SA(1) 726,200 6,989,675
- -----------------------------------------------------------------------------------------------------------------------------
Stolt Comex Seaway SA, ADR(1) 263,100 2,269,237
- -----------------------------------------------------------------------------------------------------------------------------
Western Gas Resources, Inc. 260,000 2,145,000
--------------
30,336,156
- -----------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED--0.2%
Barrett Resources Corp.(1) 150,000 3,028,125
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL--1.8%
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--1.0%
Investors Financial Services Corp. 250,000 12,250,000
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.8%
Annuity & Life RE Holdings Ltd.(1) 500,000 9,875,000
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--19.8%
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.6%
Granite Construction, Inc. 271,500 7,992,281
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--17.5%
Abacus Direct Corp.(1) 250,000 12,750,000
- -----------------------------------------------------------------------------------------------------------------------------
Acxiom Corp.(1) 300,000 7,443,750
- -----------------------------------------------------------------------------------------------------------------------------
Affiliated Computer Services, Inc., Cl. A(1) 411,700 12,556,850
- -----------------------------------------------------------------------------------------------------------------------------
American Disposal Services, Inc.(1) 250,000 9,734,375
- -----------------------------------------------------------------------------------------------------------------------------
American Management Systems, Inc.(1) 350,000 9,581,250
- -----------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corp.(1) 250,000 3,500,000
- -----------------------------------------------------------------------------------------------------------------------------
Calgon Carbon Corp. 300,000 2,231,250
- -----------------------------------------------------------------------------------------------------------------------------
Casella Waste Systems, Inc., Cl. A(1) 300,000 10,200,000
- -----------------------------------------------------------------------------------------------------------------------------
Central Parking Corp. 200,000 10,075,000
- -----------------------------------------------------------------------------------------------------------------------------
CIBER, Inc.(1) 491,614 9,924,458
</TABLE>
15 Oppenheimer Discovery Fund
<PAGE> 16
STATEMENTS OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL SERVICES (CONTINUED)
CORT Business Services Corp.(1) 200,000 $ 5,262,500
- -----------------------------------------------------------------------------------------------------------------------------
Cuno, Inc.(1) 175,000 2,931,250
- -----------------------------------------------------------------------------------------------------------------------------
Daisytek International Corp.(1) 570,000 12,825,000
- -----------------------------------------------------------------------------------------------------------------------------
Eagle USA Airfreight, Inc.(1) 390,000 5,460,000
- -----------------------------------------------------------------------------------------------------------------------------
Eastern Environmental Services, Inc.(1) 400,000 12,100,000
- -----------------------------------------------------------------------------------------------------------------------------
Getty Images, Inc.(1) 250,000 4,343,750
- -----------------------------------------------------------------------------------------------------------------------------
Group Maintenance America Corp.(1) 450,000 6,496,875
- -----------------------------------------------------------------------------------------------------------------------------
HA-LO Industries, Inc.(1) 255,000 7,458,750
- -----------------------------------------------------------------------------------------------------------------------------
IMCO Recycling, Inc. 340,000 4,823,750
- -----------------------------------------------------------------------------------------------------------------------------
Maximus, Inc.(1) 250,000 7,625,000
- -----------------------------------------------------------------------------------------------------------------------------
Metzler Group, Inc.(1) 457,650 15,674,512
- -----------------------------------------------------------------------------------------------------------------------------
National Equipment Services, Inc.(1) 600,000 3,675,000
- -----------------------------------------------------------------------------------------------------------------------------
NCO Group, Inc.(1) 125,000 3,476,563
- -----------------------------------------------------------------------------------------------------------------------------
Rental Service Corp.(1) 500,000 9,000,000
- -----------------------------------------------------------------------------------------------------------------------------
Service Experts, Inc.(1) 332,800 9,256,000
- -----------------------------------------------------------------------------------------------------------------------------
Stericycle, Inc.(1) 350,000 6,912,500
- -----------------------------------------------------------------------------------------------------------------------------
Tetra Tech, Inc.(1) 200,000 4,500,000
- -----------------------------------------------------------------------------------------------------------------------------
Transaction Systems Architects, Inc., Cl. A(1) 75,000 2,662,500
- -----------------------------------------------------------------------------------------------------------------------------
United Rentals, Inc.(1) 303,765 7,271,375
- -----------------------------------------------------------------------------------------------------------------------------
West TeleServices Corp.(1) 567,800 5,465,075
--------------
225,217,333
- -----------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--1.2%
Applied Power, Inc., Cl. A 300,000 8,193,750
- -----------------------------------------------------------------------------------------------------------------------------
CompX International, Inc.(1) 300,000 5,175,000
- -----------------------------------------------------------------------------------------------------------------------------
SLI, Inc.(1) 147,000 2,269,313
--------------
15,638,063
- -----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.5%
Avondale Industries, Inc.(1) 280,000 6,930,000
- -----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--23.1%
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--2.4%
Network Appliance, Inc.(1) 300,000 15,187,500
- -----------------------------------------------------------------------------------------------------------------------------
SCM Microsystems, Inc.(1) 150,000 6,581,250
- -----------------------------------------------------------------------------------------------------------------------------
Zebra Technologies Corp., Cl. A(1) 250,000 8,375,000
--------------
30,143,750
- -----------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES--15.6%
Aspen Technologies, Inc.(1) 467,900 12,516,325
- -----------------------------------------------------------------------------------------------------------------------------
Autodesk, Inc. 85,000 2,231,250
- -----------------------------------------------------------------------------------------------------------------------------
BEA Systems, Inc.(1) 200,000 4,325,000
- -----------------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partners, Inc.(1) 280,000 6,247,500
</TABLE>
16 Oppenheimer Discovery Fund
<PAGE> 17
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES (CONTINUED)
Cerner Corp.(1) 205,000 $ 5,496,563
- -----------------------------------------------------------------------------------------------------------------------------
Concord Communications, Inc.(1) 107,500 4,273,125
- -----------------------------------------------------------------------------------------------------------------------------
Documentum, Inc.(1) 300,000 11,887,500
- -----------------------------------------------------------------------------------------------------------------------------
eBay, Inc.(1) 100,000 4,506,250
- -----------------------------------------------------------------------------------------------------------------------------
Echelon Corp.(1) 600,000 1,200,000
- -----------------------------------------------------------------------------------------------------------------------------
Eclipsys Corp.(1) 481,000 11,002,875
- -----------------------------------------------------------------------------------------------------------------------------
Engineering Animation, Inc.(1) 240,000 11,460,000
- -----------------------------------------------------------------------------------------------------------------------------
Entrust Technologies, Inc.(1) 500,000 7,406,250
- -----------------------------------------------------------------------------------------------------------------------------
IMNET Systems, Inc.(1) 200,000 4,800,000
- -----------------------------------------------------------------------------------------------------------------------------
Inso Corp.(1) 190,000 3,633,750
- -----------------------------------------------------------------------------------------------------------------------------
Legato Systems, Inc.(1) 180,000 9,247,500
- -----------------------------------------------------------------------------------------------------------------------------
LodgeNet Entertainment Corp.(1) 525,000 3,707,813
- -----------------------------------------------------------------------------------------------------------------------------
Network Associates, Inc.(1) 120,640 4,282,738
- -----------------------------------------------------------------------------------------------------------------------------
New Era of Networks, Inc.(1) 300,000 12,225,000
- -----------------------------------------------------------------------------------------------------------------------------
ProBusiness Services, Inc.(1) 152,000 5,168,000
- -----------------------------------------------------------------------------------------------------------------------------
Progress Software Corp.(1) 210,000 5,433,750
- -----------------------------------------------------------------------------------------------------------------------------
Rational Software Corp.(1) 585,000 9,835,313
- -----------------------------------------------------------------------------------------------------------------------------
Sanchez Computer Associates, Inc.(1) 52,100 1,198,300
- -----------------------------------------------------------------------------------------------------------------------------
Saville Systems Ireland plc, Sponsored ADR(1) 450,000 6,525,000
- -----------------------------------------------------------------------------------------------------------------------------
Software AG Systems, Inc.(1) 400,000 6,800,000
- -----------------------------------------------------------------------------------------------------------------------------
Sykes Enterprises, Inc.(1) 300,000 5,100,000
- -----------------------------------------------------------------------------------------------------------------------------
USCS International, Inc.(1) 410,000 13,171,250
- -----------------------------------------------------------------------------------------------------------------------------
Veritas Software Corp.(1) 180,000 9,945,000
- -----------------------------------------------------------------------------------------------------------------------------
Visio Corp.(1) 700,000 16,843,750
--------------
200,469,802
- -----------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--2.5%
ATMI, Inc.(1) 430,000 5,966,250
- -----------------------------------------------------------------------------------------------------------------------------
Pittway Corp., Cl. A 800,000 19,100,000
- -----------------------------------------------------------------------------------------------------------------------------
Sanmina Corp.(1) 200,000 5,625,000
- -----------------------------------------------------------------------------------------------------------------------------
Trimble Navigation Ltd.(1) 150,000 1,509,375
--------------
32,200,625
- -----------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-TECHNOLOGY--2.6%
General Cable Corp. 485,000 8,972,500
- -----------------------------------------------------------------------------------------------------------------------------
Global Crossings Ltd.(1) 250,000 5,218,750
- -----------------------------------------------------------------------------------------------------------------------------
Harmonic Lightwaves, Inc.(1) 350,000 4,287,500
- -----------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.(1) 200,000 4,912,500
- -----------------------------------------------------------------------------------------------------------------------------
Paging Network, Inc.(1) 400,000 2,412,500
- -----------------------------------------------------------------------------------------------------------------------------
Vanguard Cellular Systems, Inc.(1) 381,000 7,239,000
--------------
33,042,750
</TABLE>
17 Oppenheimer Discovery Fund
<PAGE> 18
STATEMENTS OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--3.5%
- -----------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.3%
Cabot Oil & Gas Corp., Cl. A 260,000 $ 3,965,000
- -----------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--3.2%
ICG Communications, Inc.(1) 350,000 5,906,250
- -----------------------------------------------------------------------------------------------------------------------------
IDT Corp.(1) 150,000 3,450,000
- -----------------------------------------------------------------------------------------------------------------------------
IXC Communications, Inc.(1) 130,000 3,867,500
- -----------------------------------------------------------------------------------------------------------------------------
Metrocall, Inc.(1) 1,025,000 4,868,750
- -----------------------------------------------------------------------------------------------------------------------------
Pacific Gateway Exchange, Inc.(1) 150,000 5,550,000
- -----------------------------------------------------------------------------------------------------------------------------
RSL Communications Ltd., Cl. A(1) 300,000 8,137,500
- -----------------------------------------------------------------------------------------------------------------------------
Star Telecommunications, Inc.(1) 700,000 8,662,500
--------------
Total Common Stocks (Cost $1,023,613,506) 1,149,485,573
=============================================================================================================================
PREFERRED STOCKS--1.6%
- -----------------------------------------------------------------------------------------------------------------------------
AirNet Communications Corp., Series C(1)(2) 250,000 250,000
- -----------------------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., $2.50 Cv., Series D(1)(2) 1,200,000 11,136,000
- -----------------------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., Series E, Preferred Stock(1)(2) 800,000 7,824,000
- -----------------------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., Series F, Preferred Stock(1)(2) 200,000 1,918,000
--------------
Total Preferred Stocks (Cost $10,400,000) 21,128,000
<CAPTION>
UNITS
=============================================================================================================================
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -----------------------------------------------------------------------------------------------------------------------------
Iwerks Entertainment, Inc. Wts., Exp. 7/99 (Cost $0) 16,399 --
<CAPTION>
FACE
AMOUNT
=============================================================================================================================
<S> <C> <C>
SHORT-TERM NOTES--1.9%
- -----------------------------------------------------------------------------------------------------------------------------
General Electric Capital Services, 5.52%, 10/15/98(3) (Cost $24,946,333) $25,000,000 24,946,333
=============================================================================================================================
REPURCHASE AGREEMENTS--7.7%
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with J.P. Morgan Securities, Inc., 5.40%,
dated 9/30/98, to be repurchased at $98,514,775 on 10/1/98,
collateralized by U.S. Treasury Bonds, 6.25%-10.625%,
8/15/15-8/15/25, with a value of $93,600,416, and U.S. Treasury
Nts., 5.625%, 5/15/08, with a value of $7,826,869 (Cost $98,500,000) 98,500,000 98,500,000
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $1,157,459,839) 100.7% 1,294,059,906
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7) (9,296,219)
----------- --------------
NET ASSETS 100.0% $1,284,763,687
=========== ==============
</TABLE>
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 5 of
Notes to Financial Statements.
3. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
18 Oppenheimer Discovery Fund
<PAGE> 19
- --------------------------------------------------------------------------------
An affiliated company represents an 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,
1998. Transactions during the period in which the issuer was an affiliate are as
follows:
<TABLE>
<CAPTION>
SHARES SHARES
SEPTEMBER 30, GROSS GROSS SEPTEMBER 30,
1997 ADDITIONS REDUCTIONS 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CompX International, Inc.* -- 300,000 -- 300,000
- -----------------------------------------------------------------------------------------------------------------------------------
EP Medsystems, Inc. 400,000 -- 400,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
HumaScan, Inc. 584,500 -- 584,500 --
- -----------------------------------------------------------------------------------------------------------------------------------
IntelliQuest Information Group, Inc. 490,000 -- 490,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Norland Medical Systems, Inc. 480,000 -- 480,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
SPSS, Inc. 412,500 -- 412,500 --
- -----------------------------------------------------------------------------------------------------------------------------------
Silver Diner, Inc. 700,000 -- 700,000 --
</TABLE>
*Not an affiliate as of September 30, 1998.
See accompanying Notes to Financial Statements.
19 Oppenheimer Discovery Fund
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES September 30, 1998
<TABLE>
<CAPTION>
==============================================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $1,157,459,839)--see accompanying statement $1,294,059,906
- ------------------------------------------------------------------------------------------------------------------------------
Cash 212,584
- ------------------------------------------------------------------------------------------------------------------------------
Receivables:
Shares of beneficial interest sold 4,759,405
Investments sold 4,564,556
Interest and dividends 195,136
- ------------------------------------------------------------------------------------------------------------------------------
Other 16,645
--------------
Total assets 1,303,808,232
==============================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased 14,432,801
Shares of beneficial interest redeemed 2,640,392
Distribution and service plan fees 871,091
Transfer and shareholder servicing agent fees 483,639
Trustees' fees--Note 1 263,959
Other 352,663
--------------
Total liabilities 19,044,545
==============================================================================================================================
NET ASSETS $1,284,763,687
==============
==============================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $1,104,458,110
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (245,098)
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions 43,950,608
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 136,600,067
--------------
Net assets $1,284,763,687
==============
</TABLE>
20 Oppenheimer Discovery Fund
<PAGE> 21
<TABLE>
==============================================================================================================================
<S> <C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$945,971,761 and 23,578,507 shares of beneficial interest outstanding) $40.12
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $42.57
- ------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $265,687,119
and 6,886,432 shares of beneficial interest outstanding) $38.58
- ------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $33,440,655
and 854,197 shares of beneficial interest outstanding) $39.15
- ------------------------------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $39,664,152 and 976,315 shares of beneficial interest outstanding)
$40.63
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Discovery Fund
<PAGE> 22
STATEMENT OF OPERATIONS For the Year Ended September 30, 1998
<TABLE>
<CAPTION>
===============================================================================================================================
<S> <C>
INVESTMENT INCOME
Interest $ 9,023,101
- -------------------------------------------------------------------------------------------------------------------------------
Dividends 1,802,142
-----------
Total income 10,825,243
===============================================================================================================================
EXPENSES
Management fees--Note 4 10,540,204
- -------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 2,961,506
Class B 3,193,555
Class C 405,240
- -------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4:
Class A 2,820,479
Class B 725,138
Class C 84,651
Class Y 45,255
- -------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 594,477
- -------------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 120,208
- -------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 102,479
- -------------------------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 64,621
- -------------------------------------------------------------------------------------------------------------------------------
Insurance expenses 19,698
- -------------------------------------------------------------------------------------------------------------------------------
Other 28,208
-----------
Total expenses 21,705,719
===============================================================================================================================
NET INVESTMENT LOSS (10,880,476)
===============================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on investments:
Unaffiliated companies 61,312,615
Affiliated companies (13,768,705)
Foreign currency transactions 160,138
-----------
Net realized gain 47,704,048
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (378,987,387)
Translation of assets and liabilities denominated in foreign currencies (40,749)
------------
Net change (379,028,136)
------------
Net realized and unrealized loss (331,324,088)
================================================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(342,204,564)
=============
</TABLE>
See accompanying Notes to Financial Statements.
22 Oppenheimer Discovery Fund
<PAGE> 23
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1997
===============================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment loss $ (10,880,476) $ (4,321,612)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain 47,704,048 35,559,232
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(379,028,136) 125,204,282
-------------- -------------
Net increase (decrease) in net assets resulting from operations (342,204,564) 156,441,902
================================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized gain:
Class A (24,482,868) (80,609,827)
Class B (6,342,828) (15,203,908)
Class C (799,588) (1,451,890)
Class Y (833,135) (2,352,509)
================================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A (108,272,187) 135,425,471
Class B 20,865,114 112,330,605
Class C 1,524,509 20,931,283
Class Y 5,570,069 11,373,727
================================================================================================================================
NET ASSETS
Total increase (decrease) (454,975,478) 336,884,854
- -------------------------------------------------------------------------------------------------------------------------------
Beginning of period 1,739,739,165 1,402,854,311
-------------- --------------
End of period (including accumulated net investment
losses of $245,098 and $939,479, respectively) $1,284,763,687 $1,739,739,165
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
23 Oppenheimer Discovery Fund
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $51.72 $51.19 $43.65 $35.81 $39.90
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) (.26) (.08) (.13) -- (.11)
Net realized and
unrealized gain (loss) (10.37) 4.12 11.26 9.46 (2.98)
------ ------ ------ ------ ------
Total income (loss) from
investment operations (10.63) 4.04 11.13 9.46 (3.09)
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
from net realized gain (.97) (3.51) (3.59) (1.62) (1.00)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $40.12 $51.72 $51.19 $43.65 $35.81
====== ====== ====== ====== ======
=====================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) (20.78)% 9.16% 27.76% 28.03% (7.91)%
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $ 945,972 $1,330,172 $1,160,087 $798,065 $613,740
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,215,780 $1,119,302 $ 937,563 $650,903 $588,642
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.51)% (0.17)% (0.32)% 0.00% (0.34)%
Expenses 1.18% 1.22% 1.22% 1.33% 1.32%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 81.5% 68.7% 79.7% 105.9% 83.3%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to September 30,
1994.
2. For the period from October 2, 1995 (inception of offering) to September 30,
1996.
3. For the period from April 4, 1994 (inception of offering) to September 30,
1994.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), 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.
24 Oppenheimer Discovery Fund
<PAGE> 25
<TABLE>
<CAPTION>
CLASS B
- ----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994(3)
======================================================================
<S> <C> <C> <C> <C>
$50.15 $50.10 $43.11 $35.65 $35.65
- ----------------------------------------------------------------------
(.55) (.23) (.23) (.21) .03
(10.05) 3.79 10.81 9.29 (.03)
------ ------ ------ ------ ------
(10.60) 3.56 10.58 9.08 --
- ----------------------------------------------------------------------
(.97) (3.51) (3.59) (1.62) --
- ----------------------------------------------------------------------
$38.58 $50.15 $50.10 $43.11 $35.65
====== ====== ====== ====== ======
======================================================================
(21.37)% 8.33% 26.77% 27.04% 0.00%
======================================================================
$265,687 $322,736 $193,637 $75,062 $26,491
- ----------------------------------------------------------------------
$319,197 $233,172 $119,895 $43,301 $12,435
- ----------------------------------------------------------------------
(1.27)% (0.93)% (1.06)% (0.78)% (1.06)%(5)
1.94% 1.97% 1.99% 2.11% 2.36%(5)
- ----------------------------------------------------------------------
81.5% 68.7% 79.7% 105.9% 83.3%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
- -------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996(2)
===========================================
<S> <C> <C>
$50.86 $50.73 $43.20
- -------------------------------------------
(.55) (.26) (.21)
(10.19) 3.90 11.33
------ ------ ------
(10.74) 3.64 11.12
- -------------------------------------------
(.97) (3.51) (3.59)
- -------------------------------------------
$39.15 $50.86 $50.73
====== ====== ======
===========================================
(21.34)% 8.39% 27.96%
===========================================
$33,441 $41,720 $17,512
- -------------------------------------------
$40,501 $26,361 $ 7,109
- -------------------------------------------
(1.25)% (0.92)% (1.00)%(5)
1.92% 1.94% 2.03%(5)
- -------------------------------------------
81.5% 68.7% 79.7%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $1,186,464,464 and $1,184,674,648,
respectively.
25 Oppenheimer Discovery Fund
<PAGE> 26
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
CLASS Y
----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994(1)
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $52.17 $51.44 $43.74 $35.81 $34.89
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) (.09) .02 (.02) (.10) .11
Net realized and
unrealized gain (loss) (10.48) 4.22 11.31 9.65 .81
------ ------ ------ ------ ------
Total income (loss) from
investment operations (10.57) 4.24 11.29 9.55 .92
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
from net realized gain (.97) (3.51) (3.59) (1.62) --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $40.63 $52.17 $51.44 $43.74 $35.81
====== ====== ====== ====== ======
=====================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) (20.47)% 9.50% 28.09% 28.28% 3.20%
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $39,664 $45,112 $31,619 $9,394 $194
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $44,859 $34,811 $18,563 $3,190 $39
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.15)% 0.15% (0.04)% 0.03% (0.13)%(5)
Expenses 0.81% 0.89% 0.99% 1.26% 1.41%(5)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 81.5% 68.7% 79.7% 105.9% 83.3%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to September 30,
1994.
2. For the period from October 2, 1995 (inception of offering) to September 30,
1996.
3. For the period from April 4, 1994 (inception of offering) to September 30,
1994.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), 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.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended September 30, 1998 were $1,186,464,464 and $1,184,674,648,
respectively.
See accompanying Notes to Financial Statements.
26 Oppenheimer Discovery Fund
<PAGE> 27
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 a diversified, open-end management investment
company. The Fund's investment objective is capital appreciation. In seeking its
objective, the Fund emphasizes investments in securities of "growth-type"
companies with market capitalization of less than $1 billion, including common
stocks, preferred stocks, convertible securities, rights, warrants and options.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B, Class C and Class Y shares. Class A shares are sold
with a front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own
expenses directly attributable to that class and exclusive voting rights with
respect to matters affecting that class. Classes A, B and C 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 following is a summary of significant accounting
policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
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.
27 Oppenheimer Discovery Fund
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
September 30, 1998, a provision of $46,696 was made for the Fund's projected
benefit obligations, and payments of $11,314 were made to retired trustees,
resulting in an accumulated liability of $247,252 as of September 30, 1998.
The Board of Trustees has adopted a deferred compensation plan
for independent Trustees that enables Trustees to elect to defer receipt of all
or a portion of annual fees they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustee in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
28 Oppenheimer Discovery Fund
<PAGE> 29
================================================================================
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of the distributions
made during the year from net investment income or net realized gains may differ
from its ultimate characterization for federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the year ended September 30, 1998, amounts have been reclassified to
reflect a decrease in accumulated net investment loss of $11,574,857. Paid-in
capital was decreased by the same amount.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
29 Oppenheimer Discovery Fund
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
---------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 10,639,767 $ 517,992,202 11,525,612 $ 516,255,667
Distributions reinvested 526,371 23,986,669 1,804,573 78,737,385
Redeemed (13,305,219) (650,251,058) (10,273,804) (459,567,581)
------------ ------------- ------------ -------------
Net increase (decrease) (2,139,081) $(108,272,187) 3,056,381 $ 135,425,471
============ ============= ============ =============
- --------------------------------------------------------------------------------------------------------------------
Class B:
Sold 2,633,873 $ 124,120,591 4,023,759 $ 175,948,220
Distributions reinvested 140,314 6,185,059 348,742 14,842,538
Redeemed (2,323,577) (109,440,536) (1,801,954) (78,460,153)
------------ ------------- ------------ -------------
Net increase 450,610 $ 20,865,114 2,570,547 $ 112,330,605
============ ============= ============ =============
- --------------------------------------------------------------------------------------------------------------------
Class C:
Sold 1,067,332 $ 50,776,830 1,235,025 $ 54,325,325
Distributions reinvested 17,282 773,012 33,285 1,434,706
Redeemed (1,050,793) (50,025,333) (793,137) (34,828,748)
------------ ------------- ------------ -------------
Net increase 33,821 $ 1,524,509 475,173 $ 20,931,283
============ ============= ============ =============
- --------------------------------------------------------------------------------------------------------------------
Class Y:
Sold 520,524 $ 25,679,544 646,438 $ 29,225,305
Distributions reinvested 18,108 833,135 53,588 2,352,509
Redeemed (427,078) (20,942,610) (449,978) (20,204,087)
------------ ------------- ------------ -------------
Net increase 111,554 $ 5,570,069 250,048 $ 11,373,727
============ ============= ============ =============
====================================================================================================================
</TABLE>
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of September 30, 1998, net unrealized appreciation on investments of
$136,600,067 was composed of gross appreciation of $235,073,466, and gross
depreciation of $98,473,399.
30 Oppenheimer Discovery Fund
<PAGE> 31
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.75% 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. The Fund's management fee for the year ended September 30, 1998 was
0.65% of average net assets for Class A, Class B, Class C and Class Y shares.
For the year ended September 30, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $3,039,736, of which $1,011,310
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $2,695,452 and $142,404, respectively, of which $372,665
and $5,994, respectively, was paid to an affiliated broker/dealer. During the
year ended September 30, 1998, OFDI received contingent deferred sales charges
of $729,889 and $12,055, respectively, upon redemption of Class B and Class C
shares, as reimbursement for sales commissions advanced by OFDI at the time of
sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and for other Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to
these funds.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI
for a portion of its costs incurred in connection with the personal service and
maintenance of shareholder accounts that hold Class A shares. Reimbursement is
made quarterly at an annual rate that may not exceed 0.25% of the average annual
net assets of Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold Class
A shares. During the year ended September 30, 1998, OFDI paid $240,476 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
31 Oppenheimer Discovery Fund
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Fund has adopted a Distribution and Service Plan for Class B shares to
reimburse OFDI for its costs in distributing Class B shares and servicing
accounts. Under the Plan, the Fund pays OFDI an annual asset-based sales charge
of 0.75% per year on Class B shares for its services rendered in distributing
Class B shares. OFDI also receives a service fee of 0.25% per year to reimburse
dealers for providing personal services for accounts that hold Class B shares.
Each fee is computed on the average annual net assets of Class B shares,
determined as of the close of each regular business day. During the year ended
September 30, 1998, OFDI paid $50,781 to an affiliated broker/dealer as
reimbursement for Class B personal service and maintenance expenses and
retained $2,636,653 as reimbursement for Class B sales commissions and service
fee advances, as well as financing costs. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to OFDI for distributing shares before the Plan was
terminated. As of September 30, 1998, OFDI had incurred excess distribution and
servicing costs of $8,033,311 for Class B.
The Fund has adopted a Distribution and Service Plan for Class C shares
to compensate OFDI for its costs in distributing Class C shares and servicing
accounts. Under the Plan, the Fund pays OFDI an annual asset-based sales charge
of 0.75% per year on Class C shares for its services rendered in distributing
Class C shares. OFDI also receives a service fee of 0.25% per year to
compensate dealers for providing personal services for accounts that hold Class
C shares. Each fee is computed on the average annual net assets of Class C
shares, determined as of the close of each regular business day. During the
year ended September 30, 1998, OFDI paid $6,583 to an affiliated broker/dealer
as compensation for Class C personal service and maintenance expenses and
retained $229,172 as compensation for Class C sales commissions and service fee
advances, as well as financing costs. If the Plan is terminated by the Fund,
the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to OFDI for distributing shares before the Plan was
terminated. As of September 30, 1998, OFDI had incurred excess distribution and
servicing costs of $435,717 for Class C.
32 Oppenheimer Discovery Fund
<PAGE> 33
================================================================================
5. ILLIQUID AND RESTRICTED SECURITIES
As of September 30, 1998, investments in securities included issues that are
illiquid or restricted. Restricted securities are often 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 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 intends to invest no
more than 10% of its net assets (determined at the time of purchase and
reviewed periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation as of September 30, 1998 was $21,128,000, which
represents 1.64% of the Fund's net assets, of which $9,992,000 is considered
restricted. Information concerning restricted securities is as follows:
<TABLE>
<CAPTION>
VALUATION
ACQUISITION COST PER UNIT AS OF
SECURITY DATE PER UNIT SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
- ------
AirNet Communications Corp., Series C 7/6/95 $6.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., Series E,
Preferred Stock 4/24/96 5.50 9.78
- ------------------------------------------------------------------------------------------------------------------------------
Candescent Technologies Corp., Series F,
Preferred Stock 6/11/97 7.50 9.59
==============================================================================================================================
</TABLE>
6. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable after such loan is
executed. The Fund also pays a commitment fee equal to its pro rata share of
the average unutilized amount of the credit facility at a rate of 0.0575% per
annum.
The Fund had no borrowings outstanding during the year ended September
30, 1998.
33 Oppenheimer Discovery Fund
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Discovery Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Discovery Fund as of September 30, 1998, 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 generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 1998, by correspondence with the custodian and
brokers; and where confirmations were not received from brokers, we performed
other auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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, 1998, 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 generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
October 21, 1998
34 Oppenheimer Discovery Fund
<PAGE> 35
FEDERAL INCOME TAX INFORMATION (Unaudited)
================================================================================
In early 1999, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 1998.
Regulations of the U.S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
Distributions of $0.9674 per share were paid to Class A, Class
B, Class C and Class Y shareholders, on December 16, 1997, of which, for each
class of shares, $0.9674 was designated as a capital gain distribution in the
"20% Rate Group" for federal income tax purposes. Whether received in stock or
cash, the capital gain distribution should be treated by shareholders as a gain
from the sale of capital assets.
None of the dividends paid by the Fund during the fiscal year
ended September 30, 1998 are eligible for the corporate dividend-received
deduction.
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.
35 Oppenheimer Discovery Fund
<PAGE> 36
OPPENHEIMER DISCOVERY FUND
================================================================================
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Donald W. Spiro, Vice Chairman of the Board of Trustees
Bridget A. Macaskill, Trustee and President
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Alan Gilston, Vice President
Jay W. Tracey, III, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
================================================================================
INVESTMENT ADVISOR OppenheimerFunds, Inc.
================================================================================
DISTRIBUTOR OppenheimerFunds Distributor, Inc.
================================================================================
TRANSFER AND SHAREHOLDER OppenheimerFunds Services
SERVICING AGENT
================================================================================
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
================================================================================
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
================================================================================
LEGAL COUNSEL Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of
Oppenheimer Discovery Fund. This report must be
preceded or accompanied by a Prospectus of Oppenheimer
Discovery Fund. For material information concerning
the Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by any
bank, and are not insured by the FDIC or any other
agency, and involve investment risks, including
possible loss of the principal amount invested.
36 Oppenheimer Discovery Fund
<PAGE> 37
OPPENHEIMERFUNDS FAMILY
<TABLE>
===============================================================================================================
<S> <C> <C>
REAL ASSET FUNDS
- ---------------------------------------------------------------------------------------------------------------
Real Asset Fund Gold & Special Minerals Fund
===============================================================================================================
GLOBAL STOCK FUNDS
- ---------------------------------------------------------------------------------------------------------------
Developing Markets Fund International Growth Fund Quest Global Value Fund
International Small Global Fund Global Growth & Income Fund
Company Fund
===============================================================================================================
STOCK FUNDS
- ---------------------------------------------------------------------------------------------------------------
Enterprise Fund MidCap Fund Growth Fund
Discovery Fund Capital Appreciation Fund Disciplined Value Fund
Quest Small Cap Value Fund Quest Capital Value Fund Quest Value Fund
===============================================================================================================
STOCK & BOND FUNDS
- ---------------------------------------------------------------------------------------------------------------
Main Street Income & Total Return Fund Disciplined Allocation Fund
Growth Fund Quest Balanced Multiple Strategies Fund
Quest Opportunity Value Fund1 Convertible Securities Fund(2)
Value Fund Equity Income Fund
===============================================================================================================
TAXABLE BOND FUNDS
- ---------------------------------------------------------------------------------------------------------------
International Bond Fund Champion Income Fund U.S. Government Trust
World Bond Fund Strategic Income Fund Limited-Term Government Fund
High Yield Fund Bond Fund
===============================================================================================================
MUNICIPAL BOND FUNDS
- ---------------------------------------------------------------------------------------------------------------
California Municipal Fund(3) Pennsylvania Municipal Fund(3) Rochester Division:
Florida Municipal Fund(3) Municipal Bond Fund Rochester Fund Municipals
New Jersey Municipal Fund(3) Insured Municipal Fund Limited Term New York
New York Municipal Fund(3) Intermediate Municipal Fund Municipal Fund
===============================================================================================================
MONEY MARKET FUNDS(4)
- ---------------------------------------------------------------------------------------------------------------
Money Market Fund Cash Reserves
</TABLE>
1. On 5/18/98, the Fund's name was changed from "Quest Growth & Income Value
Fund."
2. On 4/28/98, the Fund's name was changed from "Bond Fund for Growth."
3. Available only to investors in certain states.
4. An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
these funds may seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in these funds. Oppenheimer
funds are distributed by OppenheimerFunds Distributor, Inc., Two World Trade
Center, New York, NY 10048-0203.
(C) Copyright 1998 OppenheimerFunds, Inc. All rights reserved.
37 Oppenheimer Discovery Fund
<PAGE> 38
[This page intentionally left blank]
<PAGE> 39
INTERNET
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transactions now available
WWW.OPPENHEIMERFUNDS.COM
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- --------------------------------------------------------------------------------
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing
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And when you need help, our Customer Service Representatives are
only a toll-free phone call away. They can provide information about your
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When you want to make a transaction, you can do it easily by calling
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enrolling in AccountLink, a convenient service that "links" your Oppenheimer
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Telephone Transactions number or website to make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
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So call us today, or visit us at our website at
www.oppenheimerfunds.com--we're here to help.
[OPPENHEIMERFUNDS LOGO]
RA0500.001.0998 November 27, 1998
