UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4410
Oppenheimer Discovery Fund
(Exact name of registrant as specified in charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
(Address of principal executive offices)
(Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
498 Seventh Avenue, New York, New York 10018
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
--------------
Date of fiscal year end: September 30
Date of reporting period: October 1, 2002 - September 30, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
FUND PERFORMANCE DISCUSSION
How has the Fund performed? Below is a discussion by OppenheimerFunds, Inc., of
the Fund's performance during its fiscal year ended September 30, 2003, followed
by a graphical comparison of the Fund's performance to an appropriate
broad-based market index.
Management's Discussion of Fund Performance. Over the 12-month period ended
September 30, 2003, the Fund delivered strong, positive returns of 37.43% for
Class A shares, without sales charge and 29.53% with the sales charge deducted.
The Fund's performance was driven primarily by the sharp upturn in small-cap
growth stock prices that began in March 2003 and continued throughout the
remainder of the period. The Fund's benchmark, the Russell 2000 Index, produced
returns of 36.50% for the period ending September 30, 2003.
Laura Granger, a member of OppenheimerFunds' equity department's growth
investment team and portfolio manager of Oppenheimer Emerging Growth Fund and
Oppenheimer Emerging Technologies Fund, assumed management of the Fund in late
February 2003.
The Fund's new management team generally maintained prior management's
growth-oriented, small-cap strategy. However, the team's stock selection
approach places primary emphasis on the careful analysis of each company's
underlying fundamentals and competitive position. The team looks at various
growth measures as well as valuations like P/E and P/E to growth-rate, return on
equity and relative strength, another measure. They conduct hands-on research,
work with industry specialists and perform their own checks of each prospect's
customer base and competition. The portfolio team works diligently to identify
the best companies with the best growth rates, trading at the best valuations.
To try to moderate the risks associated with small company stocks, the team also
diversifies investments among a variety of high-potential companies in different
industries, constructing a portfolio with sector weightings similar to that of
the Fund's benchmark.
The portfolio team gradually restructured the Fund's portfolio in March and
April 2003 to reflect our stock selection approach. As markets rose during the
second half of the period, their selections proved particularly successful in
the areas of health care, consumer cyclicals and technology. Top performers
among health care stocks included Gen-Probe, Inc., a developer of DNA-based
diagnostic testing technology; Angiotech Pharmaceuticals, Inc., a producer of
advanced biomedical devices; eResearch Technology, Inc., the leading provider of
digitized clinical research data; and Pharmaceutical Resources, Inc., a generic
drug maker. In the consumer cyclical area, the Fund's best holdings included
comic book publisher and entertainment licensing company Marvel Enterprises,
Inc.; retailer Urban Outfitters, Inc., which expanded its target customer base
beyond young adults through its "Anthropologie" brand store chain; and Select
Comfort Corp., manufacturer and aggressive marketer of customizable air
mattresses. Finally, in technology, returns
5 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
benefited from investments in companies meeting the growing demand for increased
security software and hardware, such as anti-virus program developer Symantec
Corp. and tape storage solutions company Advanced Digital Information Corp.
Of course, not all of the Fund's holdings in the three areas cited above
enhanced returns. Notably weak performers included Accredo Health, Inc.,
PETsMART, Inc., WebEx Communications, Inc. and Cirrus Logic, Inc. However,
gainers more than compensated for disappointments, enabling the Fund to
outperform its benchmark in these industry areas.
On the other hand, the Fund underperformed its benchmark in
telecommunications and financials due to the Fund being underweight in these two
sectors. In telecommunications, speculation drove prices sharply higher for many
stocks that we believed exhibited weak underlying fundamentals, while in the
financial area, certain stocks benefited from interest rate swings rather than
the kinds of growth we look for. The Fund's portfolio holdings, allocations and
strategies are subject to change.
Comparing the Fund's Performance to the Market. The graphs that follow show the
performance of a hypothetical $10,000 investment in Class A, Class B, Class C,
Class N and Class Y shares of the Fund held until September 30, 2003. 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, and in the case of Class Y
shares, from the inception of the Class on June 1, 1994. In the case of Class N
shares, performance is measured from inception of the Class on March 1, 2001.
The Fund's performance reflects the deduction of the maximum initial sales
charge on Class A shares, the applicable contingent deferred sales charge on
Class B, Class C and Class N shares, and reinvestments of all dividends and
capital gains distributions.
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.
6 | OPPENHEIMER DISCOVERY FUND
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Discovery Fund (Class A)
S&P 500 Index
Russell 2000 Index
[LINE CHART]
Value of Investment
In Fund Russell
Date Reinvested Monthly S&P 500 Index 2000 Index
09/30/1993 $ 9,425 $10,000 $10,000
12/31/1993 9,564 10,232 10,259
03/31/1994 8,811 9,844 9,986
06/30/1994 7,940 9,885 9,595
09/30/1994 8,680 10,368 10,262
12/31/1994 8,495 10,366 10,072
03/31/1995 9,002 11,374 10,537
06/30/1995 9,633 12,459 11,525
09/30/1995 11,112 13,448 12,663
12/31/1995 11,620 14,257 12,937
03/31/1996 12,372 15,022 13,598
06/30/1996 13,858 15,695 14,278
09/30/1996 14,197 16,181 14,326
12/31/1996 13,339 17,528 15,071
03/31/1997 11,605 17,999 14,292
06/30/1997 13,753 21,138 16,609
09/30/1997 15,497 22,722 19,081
12/31/1997 14,721 23,374 18,442
03/31/1998 16,364 26,632 20,297
06/30/1998 15,621 27,516 19,350
09/30/1998 12,276 24,785 15,452
12/31/1998 14,427 30,059 17,972
03/31/1999 12,859 31,556 16,997
06/30/1999 14,069 33,776 19,641
09/30/1999 13,698 31,672 18,399
12/31/1999 21,830 36,381 21,793
03/31/2000 25,103 37,214 23,336
06/30/2000 21,860 36,226 22,454
09/30/2000 22,212 35,874 22,703
12/31/2000 18,935 33,069 21,134
03/31/2001 15,306 29,151 19,759
06/30/2001 18,313 30,856 22,583
09/30/2001 13,991 26,329 17,888
12/31/2001 16,740 29,142 21,660
03/31/2002 16,630 29,222 22,522
06/30/2002 14,130 25,310 20,641
09/30/2002 11,944 20,940 16,224
12/31/2002 12,705 22,704 17,223
03/31/2003 12,130 21,989 16,449
06/30/2003 14,727 25,372 20,303
09/30/2003 16,414 26,043 22,146
Average Annual Total Returns of Class A Shares of the Fund at 9/30/03*
1-Year 29.53% 5-Year 4.73% 10-Year 5.08%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Discovery Fund (Class B)
S&P 500 Index
Russell 2000 Index
[LINE CHART]
Value of Investment
In Fund Russell
Date Reinvested Monthly S&P 500 Index 2000 Index
04/04/1994 $10,000 $10,000 $10,000
06/30/1994 9,167 10,042 9,609
09/30/1994 10,000 10,532 10,276
12/31/1994 9,772 10,530 10,086
03/31/1995 10,335 11,554 10,552
06/30/1995 11,036 12,656 11,541
09/30/1995 12,704 13,661 12,681
12/31/1995 13,257 14,482 12,956
03/31/1996 14,090 15,259 13,617
06/30/1996 15,751 15,943 14,298
09/30/1996 16,105 16,436 14,346
12/31/1996 15,101 17,805 15,093
03/31/1997 13,118 18,284 14,312
06/30/1997 15,515 21,473 16,633
09/30/1997 17,446 23,081 19,108
12/31/1997 16,542 23,743 18,468
03/31/1998 18,355 27,053 20,326
06/30/1998 17,488 27,951 19,378
09/30/1998 13,719 25,177 15,474
12/31/1998 16,090 30,534 17,998
03/31/1999 14,313 32,054 17,022
06/30/1999 15,633 34,310 19,669
09/30/1999 15,190 32,173 18,425
12/31/1999 24,162 36,956 21,824
03/31/2000 27,737 37,802 23,370
06/30/2000 24,151 36,798 22,486
09/30/2000 24,541 36,442 22,735
12/31/2000 20,920 33,592 21,164
03/31/2001 16,911 29,612 19,788
06/30/2001 20,233 31,344 22,615
09/30/2001 15,458 26,745 17,913
12/31/2001 18,495 29,603 21,691
03/31/2002 18,374 29,685 22,555
06/30/2002 15,612 25,710 20,671
09/30/2002 13,196 21,271 16,247
12/31/2002 14,037 23,063 17,248
03/31/2003 13,402 22,337 16,473
06/30/2003 16,271 25,773 20,332
09/30/2003 18,135 26,455 22,177
Average Annual Total Returns of Class B Shares of the Fund at 9/30/03*
1-Year 31.42% 5-Year 4.89% Since Inception 6.47%
*See Notes on page 10 for further details.
The performance information for the indices in the graphs begins on 9/30/93 for
Class A, 3/31/94 for Class B, 9/30/95 for Class C, 2/28/01 for Class N and
5/31/94 for Class Y.
Past performance cannot guarantee future results. Graphs are not drawn to same
scale.
7 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Discovery Fund (Class C)
S&P 500 Index
Russell 2000 Index
[LINE CHART]
Value of Investment
In Fund Russell
Date Reinvested Monthly S&P 500 Index 2000 Index
10/02/1995 $10,000 $10,000 $10,000
12/31/1995 10,536 10,602 10,217
03/31/1996 11,194 11,170 10,738
06/30/1996 12,516 11,671 11,275
09/30/1996 12,796 12,032 11,313
12/31/1996 11,998 13,034 11,902
03/31/1997 10,422 13,384 11,287
06/30/1997 12,328 15,719 13,116
09/30/1997 13,869 16,896 15,068
12/31/1997 13,152 17,381 14,564
03/31/1998 14,595 19,804 16,029
06/30/1998 13,904 20,461 15,281
09/30/1998 10,909 18,431 12,203
12/31/1998 12,792 22,352 14,193
03/31/1999 11,383 23,465 13,423
06/30/1999 12,431 25,116 15,511
09/30/1999 12,079 23,552 14,530
12/31/1999 19,210 27,053 17,210
03/31/2000 22,053 27,673 18,429
06/30/2000 19,170 26,938 17,732
09/30/2000 19,440 26,677 17,928
12/31/2000 16,542 24,591 16,690
03/31/2001 13,345 21,677 15,604
06/30/2001 15,940 22,945 17,834
09/30/2001 12,156 19,578 14,126
12/31/2001 14,513 21,670 17,105
03/31/2002 14,388 21,730 17,786
06/30/2002 12,203 18,821 16,301
09/30/2002 10,296 15,571 12,812
12/31/2002 10,929 16,883 13,601
03/31/2003 10,421 16,351 12,990
06/30/2003 12,625 18,867 16,033
09/30/2003 14,044 19,366 17,489
Average Annual Total Returns of Class C Shares of the Fund at 9/30/03*
1-Year 35.41% 5-Year 5.18% Since Inception 4.34%
Class N Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Discovery Fund (Class N)
S&P 500 Index
Russell 2000 Index
[LINE CHART]
Value of Investment
In Fund Russell
Date Reinvested Monthly S&P 500 Index 2000 Index
03/01/2001 $10,000 $10,000 $10,000
03/31/2001 9,248 9,367 9,511
06/30/2001 11,059 9,915 10,870
09/30/2001 8,440 8,460 8,610
12/31/2001 10,092 9,364 10,426
03/31/2002 10,018 9,390 10,841
06/30/2002 8,507 8,132 9,935
09/30/2002 7,187 6,728 7,809
12/31/2002 7,635 7,295 8,290
03/31/2003 7,290 7,065 7,918
06/30/2003 8,842 8,153 9,772
09/30/2003 9,852 8,368 10,659
Average Annual Total Returns of Class N Shares of the Fund at 9/30/03*
1-Year 36.07% Since Inception -0.58%
*See Notes on page 10 for further details.
8 | OPPENHEIMER DISCOVERY FUND
Class Y Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Discovery Fund (Class Y)
S&P 500 Index
Russell 2000 Index
[LINE CHART]
Value of Investment
In Fund Russell
Date Reinvested Monthly S&P 500 Index 2000 Index
06/01/1994 $10,000 $10,000 $10,000
06/30/1994 9,438 9,755 9,660
09/30/1994 10,320 10,231 10,332
12/31/1994 10,115 10,230 10,141
03/31/1995 10,726 11,224 10,609
06/30/1995 11,483 12,294 11,603
09/30/1995 13,238 13,271 12,749
12/31/1995 13,855 14,069 13,026
03/31/1996 14,761 14,824 13,690
06/30/1996 16,545 15,489 14,375
09/30/1996 16,957 15,967 14,424
12/31/1996 15,944 17,297 15,174
03/31/1997 13,883 17,762 14,389
06/30/1997 16,464 20,860 16,722
09/30/1997 18,568 22,422 19,211
12/31/1997 17,657 23,066 18,567
03/31/1998 19,649 26,281 20,435
06/30/1998 18,769 27,154 19,482
09/30/1998 14,767 24,459 15,558
12/31/1998 17,351 29,663 18,095
03/31/1999 15,475 31,140 17,113
06/30/1999 16,937 33,331 19,775
09/30/1999 16,513 31,255 18,524
12/31/1999 26,324 35,902 21,941
03/31/2000 30,291 36,724 23,495
06/30/2000 26,411 35,748 22,607
09/30/2000 26,861 35,402 22,857
12/31/2000 22,892 32,634 21,278
03/31/2001 18,518 28,767 19,894
06/30/2001 22,178 30,450 22,736
09/30/2001 16,955 25,982 18,010
12/31/2001 20,300 28,758 21,807
03/31/2002 20,186 28,838 22,676
06/30/2002 17,165 24,976 20,782
09/30/2002 14,519 20,664 16,335
12/31/2002 15,457 22,405 17,340
03/31/2003 14,768 21,699 16,562
06/30/2003 17,934 25,038 20,441
09/30/2003 20,006 25,700 22,297
Average Annual Total Returns of Class Y Shares of the Fund at 9/30/03*
1-Year 37.79% 5-Year 6.26% Since Inception 7.71%
The performance information for the indices in the graphs begins on 9/30/93 for
Class A, 3/31/94 for Class B, 9/30/95 for Class C, 2/28/01 for Class N and
5/31/94 for Class Y.
Past performance cannot guarantee future results. Graphs are not drawn to same
scale.
9 | OPPENHEIMER DISCOVERY FUND
NOTES
In reviewing performance and rankings, please remember that past performance
cannot 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
fluctuations, and current performance may be more or less than the results
shown. For updates on the Fund's performance, visit our website at
www.oppenheimerfunds.com.
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares. For more complete information
about the Fund, including charges, expenses and risks, please refer to the
prospectus. To obtain a copy, call your financial advisor, call OppenheimerFunds
Distributor, Inc. at 1.800.CALL OPP (1.800.225.5677) or visit the
OppenheimerFunds website at www.oppenheimerfunds.com. Read the prospectus
carefully before you invest or send money.
Class A shares of the Fund were first publicly offered on 9/11/86. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%. The Fund's maximum sales charge for Class A shares was lower
prior to 4/4/91, so actual performance may have been higher.
Class B shares of the Fund were first publicly offered on 4/4/94. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the "since inception" return for Class
B uses Class A performance for the period after conversion. Class B shares are
subject to an annual 0.75% asset-based sales charge.
Class C shares of the Fund were first publicly offered on 10/2/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the one-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
Class N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the one-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
Class Y shares of the Fund were first publicly offered on 6/1/94. Class Y shares
are offered only to certain institutional investors under special agreement with
the Distributor.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
10 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS September 30, 2003
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Common Stocks--98.7%
- -------------------------------------------------------------------------------
Consumer Discretionary--16.0%
- -------------------------------------------------------------------------------
Hotels, Restaurants & Leisure--2.4%
Alliance Gaming
Corp. 1 258,700 $ 5,246,436
- -------------------------------------------------------------------------------
Ruby Tuesday, Inc. 235,200 5,670,672
- -------------------------------------------------------------------------------
Scientific Games
Corp., Cl. A 1 588,500 6,714,785
- -------------------------------------------------------------------------------
Station Casinos, Inc. 238,900 7,310,340
--------------
24,942,233
- -------------------------------------------------------------------------------
Household Durables--2.1%
KB Home 159,900 9,539,634
- -------------------------------------------------------------------------------
Lennar Corp. 122,300 9,513,717
- -------------------------------------------------------------------------------
M/I Schottenstein
Homes, Inc. 65,600 2,602,352
--------------
21,655,703
- -------------------------------------------------------------------------------
Leisure Equipment & Products--2.1%
Leapfrog Enterprises,
Inc. 1 236,900 9,002,200
- -------------------------------------------------------------------------------
Marvel Enterprises,
Inc. 1 568,300 12,644,675
--------------
21,646,875
- -------------------------------------------------------------------------------
Media--1.9%
Entercom
Communications
Corp. 1 169,300 7,588,026
- -------------------------------------------------------------------------------
Getty Images, Inc. 1 185,995 6,539,584
- -------------------------------------------------------------------------------
Pixar, Inc. 1 84,900 5,650,944
--------------
19,778,554
- -------------------------------------------------------------------------------
Multiline Retail--0.8%
Fred's, Inc. 251,500 8,289,440
- -------------------------------------------------------------------------------
Specialty Retail--5.5%
bebe stores, inc. 1 163,500 4,430,850
- -------------------------------------------------------------------------------
CSK Auto Corp. 1 414,000 6,383,880
- -------------------------------------------------------------------------------
Finish Line, Inc.
(The), Cl. A 1 235,200 6,185,760
- -------------------------------------------------------------------------------
Hot Topic, Inc. 1 362,700 8,175,258
- -------------------------------------------------------------------------------
Pacific Sunwear
of California, Inc. 1 493,900 10,203,974
- -------------------------------------------------------------------------------
Select Comfort Corp. 1 416,200 11,029,300
- -------------------------------------------------------------------------------
Urban Outfitters, Inc. 1 447,700 11,667,062
--------------
58,076,084
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods--1.2%
K-Swiss, Inc., Cl. A 169,300 $ 6,093,107
- -------------------------------------------------------------------------------
Quicksilver, Inc. 1 426,800 6,807,460
--------------
12,900,567
- -------------------------------------------------------------------------------
Consumer Staples--1.9%
- -------------------------------------------------------------------------------
Food & Staples Retailing--1.9%
Central European
Distribution Corp. 1 258,700 7,075,445
- -------------------------------------------------------------------------------
Performance Food
Group Co. 1 169,300 6,892,203
- -------------------------------------------------------------------------------
United Natural
Foods, Inc. 1 188,200 6,246,358
--------------
20,214,006
- -------------------------------------------------------------------------------
Financials--7.0%
- -------------------------------------------------------------------------------
Capital Markets--0.8%
National Financial
Partners Corp. 1 311,600 8,413,200
- -------------------------------------------------------------------------------
Commercial Banks--1.6%
Brookline Bancorp,
Inc. 296,500 4,364,480
- -------------------------------------------------------------------------------
Independence
Community Bank
Corp. 94,100 3,286,913
- -------------------------------------------------------------------------------
New York Community
- -------------------------------------------------------------------------------
Bancorp, Inc. 188,200 5,930,182
- -------------------------------------------------------------------------------
UCBH Holdings, Inc. 105,400 3,186,242
--------------
16,767,817
- -------------------------------------------------------------------------------
Diversified Financial Services--3.0%
Ameritrade Holding
Corp. 1 423,700 4,766,625
- -------------------------------------------------------------------------------
CapitalSource, Inc. 1 303,600 5,313,000
- -------------------------------------------------------------------------------
Chicago Mercantile
Exchange (The) 147,900 10,176,999
- -------------------------------------------------------------------------------
Legg Mason, Inc. 75,300 5,436,660
- -------------------------------------------------------------------------------
Raymond James
Financial, Inc. 150,500 5,470,675
--------------
31,163,959
- -------------------------------------------------------------------------------
Insurance--0.4%
Direct General Corp. 1 59,500 1,491,665
- -------------------------------------------------------------------------------
Odyssey Re Holdings
Corp. 103,800 2,136,204
--------------
3,627,869
11 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Real Estate--1.2%
American Financial
Realty Trust 343,800 $ 4,847,580
- -------------------------------------------------------------------------------
Corrections Corp. of
America 1 156,200 3,853,454
- -------------------------------------------------------------------------------
Newcastle Investment
Corp. 166,300 3,823,237
--------------
12,524,271
- -------------------------------------------------------------------------------
Health Care--22.0%
- -------------------------------------------------------------------------------
Biotechnology--6.4%
Celgene Corp. 1 141,100 6,113,863
- -------------------------------------------------------------------------------
Digene Corp. 1 120,000 4,903,200
- -------------------------------------------------------------------------------
Gen-Probe, Inc. 1 389,300 21,088,381
- -------------------------------------------------------------------------------
Invitrogen Corp. 1 188,200 10,913,718
- -------------------------------------------------------------------------------
Martek Biosciences
Corp. 1 301,800 15,895,806
- -------------------------------------------------------------------------------
Medicines Co. (The) 1 286,200 7,441,200
--------------
66,356,168
- -------------------------------------------------------------------------------
Health Care Equipment & Supplies--3.1%
Advanced
Neuromodulation
Systems, Inc. 1 229,500 9,157,050
- -------------------------------------------------------------------------------
Alaris Medical
Systems, Inc. 1 192,000 3,187,200
- -------------------------------------------------------------------------------
Inamed Corp. 1 145,900 10,716,355
- -------------------------------------------------------------------------------
VISX, Inc. 1 200,000 3,810,000
- -------------------------------------------------------------------------------
Vital Images, Inc. 1 300,000 5,014,259
--------------
31,884,864
- -------------------------------------------------------------------------------
Health Care Providers & Services--3.0%
eResearch
Technology, Inc. 1 489,200 17,038,836
- -------------------------------------------------------------------------------
Omnicare, Inc. 124,500 4,489,470
- -------------------------------------------------------------------------------
Select Medical Corp. 1 98,500 2,836,800
- -------------------------------------------------------------------------------
United Surgical
Partners International,
Inc. 1 252,600 7,148,580
--------------
31,513,686
- -------------------------------------------------------------------------------
Pharmaceuticals--9.5%
Able Laboratories,
Inc. 1 315,300 5,899,263
- -------------------------------------------------------------------------------
Angiotech
Pharmaceuticals, Inc. 1 467,000 20,384,550
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Pharmaceuticals Continued
Columbia
Laboratories, Inc. 1 596,400 $ 7,204,512
- -------------------------------------------------------------------------------
Discovery
Laboratories, Inc. 1 619,540 3,470,415
- -------------------------------------------------------------------------------
DOV Pharmaceutical,
Inc. 1,2 421,000 7,556,950
- -------------------------------------------------------------------------------
Eon Labs, Inc. 1 118,800 4,555,980
- -------------------------------------------------------------------------------
MGI Pharma, Inc. 1 282,200 11,079,172
- -------------------------------------------------------------------------------
Penwest
Pharmaceuticals Co. 1 302,000 5,964,112
- -------------------------------------------------------------------------------
Pharmaceutical
Resources, Inc. 1 281,100 19,176,642
- -------------------------------------------------------------------------------
Pozen, Inc. 1 188,200 3,346,196
- -------------------------------------------------------------------------------
Taro Pharmaceutical
Industries Ltd. 1 189,900 10,702,764
--------------
99,340,556
- -------------------------------------------------------------------------------
Industrials--15.5%
- -------------------------------------------------------------------------------
Aerospace & Defense--0.9%
Aeroflex, Inc. 1 575,800 5,095,830
- -------------------------------------------------------------------------------
Cubic Corp. 185,900 4,669,808
--------------
9,765,638
- -------------------------------------------------------------------------------
Airlines--2.5%
AirTran Holdings, Inc. 1 487,100 8,158,925
- -------------------------------------------------------------------------------
Frontier Airlines, Inc. 1 643,000 10,583,780
- -------------------------------------------------------------------------------
JetBlue Airways Corp. 1 124,550 7,593,814
--------------
26,336,519
- -------------------------------------------------------------------------------
Commercial Services & Supplies--7.5%
Career Education
Corp. 1 298,600 13,526,580
- -------------------------------------------------------------------------------
Corinthian
Colleges, Inc. 1 257,400 14,712,984
- -------------------------------------------------------------------------------
Corporate Executive
Board Co. 1 112,900 5,300,655
- -------------------------------------------------------------------------------
Exult, Inc. 1 395,300 3,178,212
- -------------------------------------------------------------------------------
Gevity HR, Inc. 219,700 3,225,196
- -------------------------------------------------------------------------------
Monster Worldwide,
Inc. 1 613,600 15,450,448
- -------------------------------------------------------------------------------
Navigant Consulting,
Inc. 1 376,300 4,632,253
- -------------------------------------------------------------------------------
Stericycle, Inc. 1 235,200 11,094,384
- -------------------------------------------------------------------------------
Sylvan Learning
Systems, Inc. 1 252,500 6,888,200
--------------
78,008,912
12 | OPPENHEIMER DISCOVERY FUND
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Construction & Engineering--0.9%
Jacobs Engineering
Group, Inc. 1 207,000 $ 9,335,700
- -------------------------------------------------------------------------------
Machinery--1.1%
Ceradyne, Inc. 1 198,200 5,127,434
- -------------------------------------------------------------------------------
Pall Corp. 266,400 5,978,016
--------------
11,105,450
- -------------------------------------------------------------------------------
Road & Rail--2.6%
Hunt (J.B.) Transport
Services, Inc. 1 336,400 8,753,128
- -------------------------------------------------------------------------------
Landstar System, Inc. 1 84,700 5,168,394
- -------------------------------------------------------------------------------
Pacer International,
Inc. 1 332,200 6,620,746
- -------------------------------------------------------------------------------
Yellow Corp. 1 207,000 6,185,160
--------------
26,727,428
- -------------------------------------------------------------------------------
Information Technology--35.1%
- -------------------------------------------------------------------------------
Communications Equipment--5.7%
ADTRAN, Inc. 150,700 9,219,826
- -------------------------------------------------------------------------------
Emulex Corp. 1 476,300 12,131,361
- -------------------------------------------------------------------------------
F5 Networks, Inc. 1 322,500 6,204,900
- -------------------------------------------------------------------------------
McDATA Corp., Cl. B 1 788,495 9,296,356
- -------------------------------------------------------------------------------
REMEC, Inc. 1 669,600 6,829,920
- -------------------------------------------------------------------------------
UTStarcom, Inc. 1 512,400 16,299,444
--------------
59,981,807
- -------------------------------------------------------------------------------
Computers & Peripherals--5.6%
Advanced Digital
Information Corp. 1 627,000 8,790,540
- -------------------------------------------------------------------------------
Dot Hill Systems
Corp. 1 320,100 4,404,576
- -------------------------------------------------------------------------------
Lexar Media, Inc. 1 320,800 5,466,432
- -------------------------------------------------------------------------------
Maxtor Corp. 1 571,200 6,951,504
- -------------------------------------------------------------------------------
Network Appliance,
Inc. 1 360,000 7,390,800
- -------------------------------------------------------------------------------
Overland
Storage, Inc. 1,2 205,000 3,023,750
- -------------------------------------------------------------------------------
SanDisk Corp. 1 267,800 17,069,572
- -------------------------------------------------------------------------------
Western Digital Corp. 1 400,000 5,156,000
--------------
58,253,174
- -------------------------------------------------------------------------------
Electronic Equipment & Instruments--1.7%
Cognex Corp. 153,700 4,040,773
- -------------------------------------------------------------------------------
Innovex, Inc. 1 336,100 3,344,195
- -------------------------------------------------------------------------------
Sigmatel, Inc. 1 30,300 624,483
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Electronic Equipment & Instruments Continued
Vishay
Intertechnology, Inc. 1 555,400 $ 9,730,608
--------------
17,740,059
- -------------------------------------------------------------------------------
Internet Software & Services--5.2%
Digital River, Inc. 1 258,200 7,061,770
- -------------------------------------------------------------------------------
Digitas, Inc. 1 721,600 5,238,816
- -------------------------------------------------------------------------------
eCollege.com, Inc. 1 200,000 4,028,000
- -------------------------------------------------------------------------------
MicroStrategy,
Inc., Cl. A 1 263,400 12,119,034
- -------------------------------------------------------------------------------
Netease.com, Inc.,
Sponsored ADR 1 161,100 8,992,602
- -------------------------------------------------------------------------------
United Online, Inc. 1 230,500 8,002,960
- -------------------------------------------------------------------------------
VeriSign, Inc. 1 644,400 8,680,068
--------------
54,123,250
- -------------------------------------------------------------------------------
IT Services--1.6%
Alliance Data
Systems Corp. 1 188,200 4,968,480
- -------------------------------------------------------------------------------
Cognizant Technology
Solutions Corp. 1 329,300 12,009,571
--------------
16,978,051
- -------------------------------------------------------------------------------
Office Electronics--1.1%
Zebra Technologies
Corp., Cl. A 1 220,400 11,366,028
- -------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment--7.4%
Actel Corp. 1 244,700 5,865,459
- -------------------------------------------------------------------------------
AMIS Holdings, Inc. 1 181,200 3,344,952
- -------------------------------------------------------------------------------
Amkor Technology,
Inc. 1 282,200 4,010,062
- -------------------------------------------------------------------------------
Integrated Circuit
Systems, Inc. 1 335,300 10,072,412
- -------------------------------------------------------------------------------
Intersil Corp., Cl. A 1 348,800 8,301,440
- -------------------------------------------------------------------------------
Marvell Technology
Group Ltd. 1 272,800 10,298,200
- -------------------------------------------------------------------------------
MEMC Electronic
Materials, Inc. 1 470,300 5,130,973
- -------------------------------------------------------------------------------
Microsemi Corp. 1 337,500 5,143,500
- -------------------------------------------------------------------------------
ON Semiconductor
Corp. 1 1,129,000 4,628,900
- -------------------------------------------------------------------------------
Silicon Laboratories,
Inc. 1 156,100 7,016,695
- -------------------------------------------------------------------------------
Skyworks Solutions,
Inc. 1 966,600 8,796,060
13 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
- -------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment
Continued
Vitesse Semiconductor
Corp. 1 705,600 $ 4,515,840
--------------
77,124,493
- -------------------------------------------------------------------------------
Software--6.8%
Activision, Inc. 1 449,300 5,369,135
- -------------------------------------------------------------------------------
Amdocs Ltd. 1 244,800 4,602,240
- -------------------------------------------------------------------------------
Fair Isaac Corp. 161,000 9,492,560
- -------------------------------------------------------------------------------
FileNet Corp. 1 376,300 7,552,341
- -------------------------------------------------------------------------------
Macromedia, Inc. 1 329,300 8,146,882
- -------------------------------------------------------------------------------
Macrovision Corp. 1 402,900 7,441,563
- -------------------------------------------------------------------------------
Magma Design
Automation, Inc. 1 329,300 6,460,866
- -------------------------------------------------------------------------------
Mercury Interactive
Corp. 1 196,500 8,923,065
- -------------------------------------------------------------------------------
Symantec Corp. 1 79,400 5,003,788
- -------------------------------------------------------------------------------
Take-Two Interactive
Software, Inc. 1 220,100 7,520,817
--------------
70,513,257
- -------------------------------------------------------------------------------
Materials--0.6%
- -------------------------------------------------------------------------------
Chemicals--0.6%
Airgas, Inc. 212,400 3,780,720
- -------------------------------------------------------------------------------
MacDermid, Inc. 86,400 2,285,280
--------------
6,066,000
- -------------------------------------------------------------------------------
Utilities--0.6%
- -------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power--0.6%
Questar Corp. 216,700 6,676,527
--------------
Total Common Stocks
(Cost $796,256,971) 1,029,198,145
- -------------------------------------------------------------------------------
Preferred Stocks--0.0%
Candescent Technologies Corp.:
$2.50 Cv., Series D,
Vtg. 1,2 1,200,000 --
Sr. Exchangeable,
Series E, Vtg. 1,2 800,000 --
Sr. Exchangeable,
Series F, Vtg. 1,2 200,000 --
--------------
Total Preferred Stocks
(Cost $8,900,000) --
Market Value
Units See Note 1
- -------------------------------------------------------------------------------
Rights, Warrants and Certificates--0.0%
Discovery Laboratories,
Inc. Wts.,
Exp. 9/20/10 1,2 123,908 $ 370,205
- -------------------------------------------------------------------------------
Penwest
Pharmaceuticals Co.
Wts., Exp. 11/5/03 1 302,000 21,634
--------------
Total Rights, Warrants
and Certificates (Cost $0) 391,839
Principal
Amount
- -------------------------------------------------------------------------------
Joint Repurchase Agreements--2.9%
Undivided interest of 17.01% in joint repurchase agreement (Principal
Amount/Market Value $174,199,000, with a maturity value of $174,203,500) with
Banc One Capital Markets, Inc., 0.93%, dated 9/30/03, to be repurchased at
$29,623,765 on 10/1/03, collateralized by U.S. Treasury Bills, 2/5/04--3/4/04,
with a value of $177,781,778
(Cost $29,623,000) $29,623,000 29,623,000
- -------------------------------------------------------------------------------
Total Investments,
at Value
(Cost $834,779,971) 101.6% 1,059,212,984
- -------------------------------------------------------------------------------
Liabilities
in Excess of
Other Assets (1.6) (16,242,365)
-----------------------------
Net Assets 100.0% $1,042,970,619
=============================
14 | OPPENHEIMER DISCOVERY FUND
Footnotes to Statement of Investments
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted. See Note 8 of
Notes to Financial Statements. Affiliated company. Represents ownership of at
least 5% of the voting securities of the issuer, and is or was an affiliate, as
defined in the Investment Company Act of 1940, at or during the period ended
September 30, 2003. There were no affiliate securities held by the Fund as of
September 30, 2003. Transactions during the period in which the issuer was an
affiliate are as follows:
Shares Shares
September 30, Gross Gross September 30, Dividend Realized
2002 Additions Reductions 2003 Income Gain
- ------------------------------------------------------------------------------------------------------------------
Stocks and/or Warrants
1-800-FLOWERS.com, Inc. 1,858,850 13,200 1,872,050 -- $ -- $7,057,788
XM Satellite Radio
Holdings, Inc., 8.25% Cum.
Cv., Series B 150,000 -- 150,000 -- 527,229 2,617,243
---------------------
$527,229 $9,675,031
=====================
See accompanying Notes to Financial Statements.
15 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2003
- ---------------------------------------------------------------------------------------------------------------
Assets
Investments, at value (cost $834,779,971)--see accompanying statement $ 1,059,212,984
- ---------------------------------------------------------------------------------------------------------------
Cash 514,470
- ---------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 23,131,654
Shares of beneficial interest sold 281,025
Interest and dividends 158,242
Other 1,445
-----------------
Total assets 1,083,299,820
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Payables and other liabilities:
Investments purchased 34,608,863
Shares of beneficial interest redeemed 4,039,383
Distribution and service plan fees 596,741
Shareholder reports 499,699
Transfer and shareholder servicing agent fees 360,693
Trustees' compensation 220,366
Other 3,456
-----------------
Total liabilities 40,329,201
- ---------------------------------------------------------------------------------------------------------------
Net Assets $1,042,970,619
=================
- ---------------------------------------------------------------------------------------------------------------
Composition of Net Assets
Par value of shares of beneficial interest $ 27,350
- ---------------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,201,788,035
- ---------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (210,299)
- ---------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (383,067,480)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 224,433,013
- ---------------------------------------------------------------------------------------------------------------
Net Assets $1,042,970,619
=================
16 | OPPENHEIMER DISCOVERY FUND
- -------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of $772,419,734
and 19,900,451 shares of beneficial interest outstanding) $38.81
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $41.18
- -------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $160,850,886 and 4,568,881 shares
of beneficial interest outstanding) $35.21
- -------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $48,263,262 and 1,343,096 shares of
beneficial interest outstanding) $35.93
- -------------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $4,363,009 and 113,243 shares of
beneficial interest outstanding) $38.53
- -------------------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$57,073,728 and 1,424,238 shares of beneficial interest outstanding) $40.07
See accompanying Notes to Financial Statements.
17 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2003
- -----------------------------------------------------------------------------------------------------------------
Investment Income
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $16,545) $ 2,844,434
Affiliated companies 527,229
- -----------------------------------------------------------------------------------------------------------------
Interest 1,248,772
--------------
Total investment income 4,620,435
- -----------------------------------------------------------------------------------------------------------------
Expenses
Management fees 6,068,842
- -----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,550,744
Class B 1,483,925
Class C 388,925
Class N 15,412
- -----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,316,911
Class B 807,116
Class C 221,328
Class N 25,092
Class Y 152,443
- -----------------------------------------------------------------------------------------------------------------
Shareholder reports 802,227
- -----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 43,551
- -----------------------------------------------------------------------------------------------------------------
Trustees' compensation 39,446
- -----------------------------------------------------------------------------------------------------------------
Other 81,370
--------------
Total expenses 13,997,332
Less reduction to custodian expenses (5,876)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class A (351,624)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class B (367,829)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class C (101,626)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class N (14,588)
Less voluntary waiver of transfer and shareholder servicing agent fees--Class Y (24,855)
--------------
Net expenses 13,130,934
- -----------------------------------------------------------------------------------------------------------------
Net Investment Loss (8,510,499)
- -----------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments:
Unaffiliated companies (including premiums on options exercised) 35,425,270
Affiliated companies 9,675,031
Closing of futures contracts 542,663
Closing and expiration of option contracts written (6,010,152)
Foreign currency transactions 35,973
--------------
Net realized gain 39,668,785
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 247,132,042
- -----------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $278,290,328
==============
See accompanying Notes to Financial Statements.
18 | OPPENHEIMER DISCOVERY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30, 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Operations
Net investment loss $ (8,510,499) $ (9,796,757)
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 39,668,785 (186,618,130)
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 247,132,042 62,195,263
---------------------------------------
Net increase (decrease) in net assets resulting from operations 278,290,328 (134,219,624)
- -----------------------------------------------------------------------------------------------------------------
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (6,160,217) (86,001,282)
Class B (39,188,474) (53,404,418)
Class C 1,553,417 (3,275,635)
Class N 1,104,042 2,694,654
Class Y 4,517,889 (5,721,956)
- -----------------------------------------------------------------------------------------------------------------
Net Assets
Total increase (decrease) 240,116,985 (279,928,261)
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 802,853,634 1,082,781,895
---------------------------------------
End of period [including accumulated net investment loss
of $210,299 and $214,527, respectively] $1,042,970,619 $802,853,634
=======================================
See accompanying Notes to Financial Statements.
19 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS
Class A Year Ended September 30 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $ 28.24 $ 33.08 $ 66.77 $ 43.26 $ 40.12
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.26) (.22) (.19) (.32) (.28)
Net realized and unrealized gain (loss) 10.83 (4.62) (20.66) 26.72 4.84
----------------------------------------------------------
Total from investment operations 10.57 (4.84) (20.85) 26.40 4.56
- -----------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- (12.84) (2.89) (1.42)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $38.81 $28.24 $33.08 $66.77 $43.26
==========================================================
- -----------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 1 37.43% (14.63)% (37.01)% 62.15% 11.59%
- -----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $772,420 $572,843 $754,082 $1,286,298 $750,394
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $639,170 $753,304 $988,717 $1,176,289 $875,057
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (0.83)% (0.74)% (0.31)% (0.47)% (0.69)%
Total expenses 1.41% 1.45% 1.25% 1.15% 1.31%
Expenses after expense reimbursement
or fee waiver and reduction to
custodian expenses 1.35% 1.42% N/A 3 N/A 3 N/A 3
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 143% 155% 224% 73%
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
See accompanying Notes to Financial Statements.
20 | OPPENHEIMER DISCOVERY FUND
Class B Year Ended September 30 2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $ 25.81 $ 30.46 $ 62.99 $ 41.22 $ 38.58
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (1.09) (.91) (.29) (.47) (.85)
Net realized and unrealized gain (loss) 10.49 (3.74) (19.40) 25.13 4.91
---------------------------------------------------------------
Total from investment operations 9.40 (4.65) (19.69) 24.66 4.06
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- (12.84) (2.89) (1.42)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.21 $25.81 $30.46 $62.99 $41.22
===============================================================
- --------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 1 36.42% (15.27)% (37.48)% 60.95% 10.73%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $160,851 $154,657 $234,023 $423,689 $224,710
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $148,410 $223,215 $315,607 $371,643 $257,146
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (1.56)% (1.50)% (1.07)% (1.22)% (1.45)%
Total expenses 2.35% 2.21% 2.01% 1.90% 2.07%
Expenses after expense reimbursement
or fee waiver and reduction to
custodian expenses 2.10% 2.18% N/A 3 N/A 3 N/A 3
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 143% 155% 224% 73%
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
See accompanying Notes to Financial Statements.
21 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
Class C Year Ended September 30 2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $ 26.34 $ 31.10 $ 64.00 $ 41.85 $ 39.15
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.44) (.59) (.24) (.24) (.85)
Net realized and unrealized gain (loss) 10.03 (4.17) (19.82) 25.28 4.97
---------------------------------------------------------------
Total from investment operations 9.59 (4.76) (20.06) 25.04 4.12
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- (12.84) (2.89) (1.42)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.93 $26.34 $31.10 $64.00 $41.85
===============================================================
- --------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 1 36.41% (15.31)% (37.47)% 60.95% 10.73%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $48,263 $34,673 $44,404 $70,140 $27,413
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $38,930 $45,655 $56,301 $55,205 $31,971
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (1.58)% (1.50)% (1.07)% (1.20)% (1.45)%
Total expenses 2.38% 2.21% 2.01% 1.90% 2.07%
Expenses after expense reimbursement
or fee waiver and reduction to
custodian expenses 2.12% 2.18% N/A 3 N/A 3 N/A 3
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 143% 155% 224% 73%
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
See accompanying Notes to Financial Statements.
22 | OPPENHEIMER DISCOVERY FUND
Class N Year Ended September 30 2003 2002 2001 1
- -------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $ 28.11 $ 33.01 $ 39.11
- -------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.35) (.30) (.13)
Net realized and unrealized gain (loss) 10.77 (4.60) (5.97)
-------------------------------------
Total from investment operations 10.42 (4.90) (6.10)
- -------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $38.53 $28.11 $33.01
=====================================
- -------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 2 37.07% (14.84)% (15.60)%
- -------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $4,363 $2,236 $147
- -------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $3,088 $1,786 $105
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.13)% (0.97)% (0.93)%
Total expenses 2.12% 1.68% 1.55%
Expenses after expense reimbursement
or fee waiver and reduction to
custodian expenses 1.65% 1.65% N/A 4
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 143% 155%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
2. Assumes an investment on the business day before the first day of the fiscal
period (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. Returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
See accompanying Notes to Financial Statements.
23 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
Class Y Year Ended September 30 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data
Net asset value, beginning of period $ 29.08 $ 33.96 $ 68.06 $ 43.92 $ 40.63
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.26) (.06) (.17) (.30) (.17)
Net realized and unrealized gain (loss) 11.25 (4.82) (21.09) 27.33 4.88
----------------------------------------------------------
Total from investment operations 10.99 (4.88) (21.26) 27.03 4.71
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- (12.84) (2.89) (1.42)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $40.07 $29.08 $33.96 $68.06 $43.92
==========================================================
- ----------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 1 37.79% (14.37)% (36.88)% 62.68% 11.82%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $57,074 $38,444 $50,125 $87,131 $39,189
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $43,531 $50,275 $64,264 $76,635 $40,649
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment loss (0.57)% (0.43)% (0.13)% (0.11)% (0.48)%
Total expenses 1.16% 1.26% 1.14% 0.80% 1.11%
Expenses after expense reimbursement
or fee waiver and reduction to
custodian expenses 1.10% 1.11% 1.06% N/A 3 N/A 3
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 172% 143% 155% 224% 73%
1. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
See accompanying Notes to Financial Statements.
24 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Oppenheimer Discovery Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek capital appreciation. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class N and Class Y shares. Class
A shares are sold at their offering price, which is normally net asset value
plus a front-end sales charge. Class B, Class C and Class N shares are sold
without a front-end sales charge but may be subject to a contingent deferred
sales charge (CDSC). Class N shares are sold only through retirement plans.
Retirement plans that offer Class N shares may impose charges on those
accounts. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC. All classes of shares have identical
rights and voting privileges. Earnings, net assets and net asset value per
share may differ by minor amounts due to each class having its own expenses
directly attributable to that class. Classes A, B, C and N have separate
distribution and/or service plans. No such plan has been adopted for Class Y
shares. Class B shares will automatically convert to Class A shares six years
after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. Securities traded on NASDAQ are valued based on the closing
price provided by NASDAQ prior to the time when the Fund's assets are valued.
In the absence of a sale, the security is valued at the last sale price on the
prior trading day, if it is within the spread of the closing bid and asked
prices, and if not, at the closing bid price. Securities (including restricted
securities) for which quotations are not readily available are valued primarily
using dealer-supplied valuations, a portfolio pricing service authorized by the
Board of Trustees, or at their fair value. Fair value is determined in good
faith using consistently applied procedures under the supervision of the Board
of Trustees. Short-term "money market type" debt securities with remaining
maturities of sixty days or less are valued at amortized cost (which
approximates market value).
- --------------------------------------------------------------------------------
Foreign Currency Translation. The Fund's accounting records are maintained in
U.S. dollars. 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.
25 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
1. Significant Accounting Policies Continued
Joint Repurchase Agreements. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint
trading accounts on a daily basis. Secured by U.S. government securities, these
balances are invested in one or more repurchase agreements. Securities pledged
as collateral for repurchase agreements are held by a custodian bank until the
agreements mature. Each agreement requires that the market value of the
collateral be sufficient to cover payments of interest and principal. In the
event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years
and unrealized appreciation or depreciation of securities and other investments
for federal income tax purposes.
Net Unrealized
Appreciation
Based on Cost of
Securities and
Undistributed Undistributed Accumulated Other Investments
Net Investment Long-Term Loss for Federal
Income Gain Carryforward 1,2,3 Income Tax Purposes
--------------------------------------------------------------------------------------
$-- $-- $382,065,712 $223,431,247
1. As of September 30, 2003, the Fund had $379,416,335 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of September 30, 2003,
details of the capital loss carryforwards were as follows:
Expiring
------------------------------------
2009 $ 12,201,695
2010 258,482,944
2011 108,731,696
------------
Total $379,416,335
============
2. During the fiscal years ended September 30, 2003 and September 30, 2002, the
Fund did not utilize any capital loss carryforwards.
3. The Fund had $2,649,377 of straddle losses which were deferred.
26 | OPPENHEIMER DISCOVERY FUND
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly,
the following amounts have been reclassified for September 30, 2003. Net assets
of the Fund were unaffected by the reclassifications.
From To Net
Ordinary Capital Tax Return Investment
Loss Loss of Capital Loss
-----------------------------------------------------------------
$8,514,727 $3,058 $-- $8,511,669
No distributions were paid during the years ended September 30, 2003 and
September 30, 2002.
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments
for federal income tax purposes as of September 30, 2003 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.
Federal tax cost of securities
and other investments $835,781,737
============
Gross unrealized appreciation $246,993,968
Gross unrealized depreciation (23,562,721)
-----------
Net unrealized appreciation $223,431,247
============
- --------------------------------------------------------------------------------
Trustees' Compensation. The Fund has adopted an unfunded retirement plan for
the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
September 30, 2003, the Fund's projected benefit obligations were increased by
$10,388 and payments of $14,616 were made to retired trustees, resulting in an
accumulated liability of $212,455 as of September 30, 2003.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or
a portion of the annual compensation they are entitled to receive from the
Fund. Under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or are invested in other
selected Oppenheimer 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 investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded
27 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
1. Significant Accounting Policies Continued
on the ex-dividend date. Income and capital gain distributions, if any, are
declared and paid annually.
- --------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
- --------------------------------------------------------------------------------
Expense Offset Arrangement. The reduction of custodian fees represents earnings
on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
Security Transactions. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
Other. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
Year Ended September 30, 2003 Year Ended September 30, 2002
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Class A
Sold 10,030,343 $ 315,000,736 6,967,008 $ 237,348,768
Redeemed (10,414,246) (321,160,953) (9,476,166) (323,350,050)
---------------------------------------------------------------------------
Net decrease (383,903) $ (6,160,217) (2,509,158) $ (86,001,282)
===========================================================================
- -----------------------------------------------------------------------------------------------------------
Class B
Sold 970,285 $ 29,163,211 1,021,721 $ 33,164,124
Redeemed (2,394,220) (68,351,685) (2,711,117) (86,568,542)
---------------------------------------------------------------------------
Net decrease (1,423,935) $ (39,188,474) (1,689,396) $ (53,404,418)
===========================================================================
- -----------------------------------------------------------------------------------------------------------
Class C
Sold 553,181 $ 17,200,866 459,414 $ 15,342,665
Redeemed (526,300) (15,647,449) (571,171) (18,618,300)
---------------------------------------------------------------------------
Net increase (decrease) 26,881 $ 1,553,417 (111,757) $ (3,275,635)
===========================================================================
- -----------------------------------------------------------------------------------------------------------
Class N
Sold 60,881 $ 2,008,924 97,632 $ 3,470,272
Redeemed (27,175) (904,882) (22,533) (775,618)
---------------------------------------------------------------------------
Net increase 33,706 $ 1,104,042 75,099 $ 2,694,654
===========================================================================
28 | OPPENHEIMER DISCOVERY FUND
Year Ended September 30, 2003 Year Ended September 30, 2002
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Class Y
Sold 613,815 $ 21,921,802 521,664 $ 19,281,459
Redeemed (511,507) (17,403,913) (675,553) (25,003,415)
---------------------------------------------------------------------------
Net increase (decrease) 102,308 $ 4,517,889 (153,889) $ (5,721,956)
===========================================================================
- --------------------------------------------------------------------------------
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended September 30, 2003, were
$1,466,619,522 and $1,402,395,964, respectively.
- --------------------------------------------------------------------------------
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% of the next $700 million, and 0.58% of average annual
net assets in excess of $1.5 billion.
- --------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the Fund. The
Fund pays OFS a per account fee. For the year ended September 30, 2003, the
Fund paid $2,915,472 to OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $5,000 for
assets of less than $10 million and $10,000 for assets of $10 million or more.
The Class Y shares are subject to the minimum fees in the event that the per
account fee does not equal or exceed the applicable minimum fees. OFS may
voluntarily waive the minimum fees.
OFS has voluntarily agreed to limit transfer and shareholder servicing agent
fees up to an annual rate of 0.35% of average annual net assets for all
classes. This undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
Distribution and Service Plan (12b-1) Fees. Under its General Distributor's
Agreement with the Manager, OppenheimerFunds Distributor, Inc. (the
Distributor) acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
Aggregate Class A Concessions Concessions Concessions Concessions
Front-End Front-End on Class A on Class B on Class C on Class N
Sales Charges Sales Charges Shares Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor 1 Distributor 1 Distributor 1 Distributor 1
- -------------------------------------------------------------------------------------------------------------------------
September 30, 2003 $814,991 $197,431 $116,451 $565,338 $65,421 $29,246
1. The Distributor advances concession payments to dealers for certain sales of
Class A shares and for sales of Class B, Class C and Class N shares from its
own resources at the time of sale.
29 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
4. Fees and Other Transactions with Affiliates Continued
Class A Class B Class C Class N
Contingent Contingent Contingent Contingent
Deferred Deferred Deferred Deferred
Sales Charges Sales Charges Sales Charges Sales Charges
Retained by Retained by Retained by Retained by
Year Ended Distributor Distributor Distributor Distributor
- -------------------------------------------------------------------------------------------------------
September 30, 2003 $14,682 $484,569 $7,751 $7,446
- --------------------------------------------------------------------------------
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class
A shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. For the year ended September 30, 2003, expense
under the Class A Plan totaled $1,550,744, all of which were paid by the
Distributor to recipients, which included $13,143 retained by the Distributor
and $85,227 which was paid to an affiliate of the Manager. Any unreimbursed
expenses the Distributor incurs with respect to Class A shares in any fiscal
year cannot be recovered in subsequent years.
- --------------------------------------------------------------------------------
Distribution and Service Plans for Class B, Class C and Class N Shares. The
Fund has adopted Distribution and Service Plans for Class B, Class C and Class
N shares. Under the plans, the Fund pays the Distributor an annual asset-based
sales charge of 0.75% per year on Class B shares and on Class C shares and the
Fund pays the Distributor an annual asset-based sales charge of 0.25% per year
on Class N shares. The Distributor also receives a service fee of 0.25% per
year under each plan.
Distribution fees paid to the Distributor for the year ended September 30,
2003, were as follows:
Distributor's
Distributor's Aggregate
Aggregate Uncompensated
Uncompensated Expenses as %
Total Expenses Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
- -------------------------------------------------------------------------------------------------
Class B Plan $1,483,925 $958,543 $5,191,018 3.23%
Class C Plan 388,925 77,679 1,075,074 2.23
Class N Plan 15,412 11,262 39,312 0.90
- --------------------------------------------------------------------------------
5. Foreign Currency Contracts
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into
foreign currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and
30 | OPPENHEIMER DISCOVERY FUND
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities as a receivable or payable and in the Statement of
Operations with the change in unrealized appreciation or depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gain or loss. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of September 30, 2003, the Fund had no outstanding foreign currency
contracts.
- --------------------------------------------------------------------------------
6. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy
and sell futures contracts that relate to broadly based securities indices
"financial futures" or debt securities "interest rate futures" in order to gain
exposure to or protection from changes in market value of stock and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.
The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it
may be more efficient or cost effective than actually buying fixed income
securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open futures
contracts is noted in the Statement of Assets and Liabilities. Securities held
in collateralized accounts to cover initial margin requirements on open futures
contracts are noted in the Statement of Investments. The Statement of Assets
and Liabilities reflects a receivable and/or payable for the daily mark to
market for variation margin. Realized gains and losses are reported on the
Statement of Operations as closing and expiration of futures contracts. The net
change in unrealized appreciation and depreciation is reported on the Statement
of Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of September 30, 2003, the Fund had no outstanding futures contracts.
31 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
7. Option Activity
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to
hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a
written put option, or the cost of the security for a purchased put or call
option is adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Fund pays a premium whether or not the
option is exercised. The Fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
Written option activity for the year ended September 30, 2003 was as follows:
Call Options
---------------------------------
Number of Amount of
Contracts Premiums
- --------------------------------------------------------------------
Options outstanding as of
September 30, 2002 -- $ --
Options written 68,616 1,070,992
Options closed or expired (35,483) (545,939)
Options exercised (33,133) (525,053)
---------------------------------
Options outstanding as of
September 30, 2003 -- $ --
=================================
32 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
8. Illiquid or Restricted Securities
As of September 30, 2003, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private
placement transactions, are not registered under the Securities Act of 1933,
may have contractual restrictions on resale, and are valued under methods
approved by the Board of Trustees as reflecting fair value. A security may also
be considered illiquid if it lacks a readily available market or if its
valuation has not changed for a certain period of time. The Fund 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 limitation. The aggregate value of illiquid
or restricted securities subject to this limitation as of September 30, 2003
was $10,950,905, which represents 1.05% of the Fund's net assets, all of which
are considered restricted. Information concerning restricted securities is as
follows:
Unrealized
Acquisition Valuation as of Appreciation
Security Dates Cost Sept. 30, 2003 (Depreciation)
- ---------------------------------------------------------------------------------------------------------------
Stocks and/or Warrants
Candescent Technologies Corp.,
$2.50 Cv., Series D, Vtg. 3/31/95 $3,000,000 $ -- $(3,000,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series E, Vtg. 4/24/96 4,400,000 -- (4,400,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series F, Vtg. 6/11/97 1,500,000 -- (1,500,000)
Discovery Laboratories, Inc. Wts.,
Exp. 9/20/10 6/24/03 -- 370,205 370,205
DOV Pharmaceutical, Inc. 8/30/01 2,598,765 7,556,950 4,958,185
Overland Storage, Inc. 5/12/03 3,154,950 3,023,750 (131,200)
- --------------------------------------------------------------------------------
9. Borrowing and Lending Arrangements
The Fund entered into an "interfund borrowing and lending arrangement" with
other funds in the Oppenheimer funds complex, to allow funds to borrow for
liquidity purposes. The arrangement was initiated pursuant to exemptive relief
granted by the Securities and Exchange Commission to allow these affiliated
funds to lend money to, and borrow money from, each other, in an attempt to
reduce borrowing costs below those of bank loan facilities. Under the
arrangement the Fund may lend money to other Oppenheimer funds and may borrow
from other Oppenheimer funds at a rate set by the Fund's Board of Trustees,
based upon a recommendation by the Manager. The Fund's borrowings, if any, are
subject to asset coverage requirements under the Investment Company Act and the
provisions of the SEC order and other applicable regulations. If the Fund
borrows money, there is a risk that the loan could be called on one day's
notice, in which case the Fund might have to borrow from a bank at higher rates
if a loan were not available from another Oppenheimer fund. If the Fund lends
money to another fund, it will be subject to the risk that the other fund might
not repay the loan in a timely manner, or at all.
The Fund had no interfund borrowings or loans outstanding during the year
ended or at September 30, 2003.
33 | OPPENHEIMER DISCOVERY FUND
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of Oppenheimer Discovery Fund:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Discovery Fund, including the statement of investments, as of
September 30, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2003, by
correspondence with the custodian and broker or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Discovery Fund as of September 30, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Denver, Colorado
October 21, 2003
34 | OPPENHEIMER DISCOVERY FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
In early 2004, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2003. Regulations of the U.S. Treasury Department require the
Fund to report this information to the Internal Revenue Service.
A portion, if any, of the dividends paid by the Fund during the fiscal year
ended September 30, 2003 which are not designated as capital gain distributions
are eligible for lower individual income tax rates to the extent that the Fund
has received qualified dividend income as stipulated by recent tax legislation.
$3,388,208 of the Fund's fiscal year taxable income may be eligible for the
lower individual income tax rates. In early 2004, shareholders of record will
receive information regarding the percentage of distributions that are eligible
for lower individual income tax rates.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because
of the complexity of the federal regulations which may affect your individual
tax return and the many variations in state and local tax regulations, we
recommend that you consult your tax advisor for specific guidance.
PORTFOLIO PROXY VOTING
POLICIES AND PROCEDURES Unaudited
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and
Procedures is available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.225.5677, (ii) on the Fund's website at
www.oppenheimerfunds.com, and (iii) on the SEC's website at www.sec.gov. In
addition, the Fund will be required to file new Form N-PX, with its complete
proxy voting record for the 12 months ended June 30th, no later than August
31st of each year. The first such filing is due no later than August 31, 2004,
for the twelve months ended June 30, 2004. Once filed, the Fund's Form N-PX
filing will be available (i) without charge, upon request, by calling the Fund
toll-free at 1.800.225.5677, and (ii) on the SEC's website at www.sec.gov.
35 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
Name, Position(s) Held Principal Occupation(s) During Past 5 Years;
with Fund, Length of Other Trusteeships/Directorships Held by
Service, Age Trustee; Number of Portfolios in Fund Complex
Currently Overseen by Trustee
INDEPENDENT TRUSTEES The address of each Trustee in the chart below
is 6803 S. Tucson Way, Centennial, CO
80112-3924. Each trustee oversees 25 portfolios
in the OppenheimerFunds complex except for Mr.
Galli who also serves as trustee of 10 other
Oppenheimer funds that are not Board I funds.
Each Trustee serves for an indefinite term,
until his or her resignation, retirement, death
or removal.
Clayton K. Yeutter, Of Counsel (since 1993), Hogan & Hartson (a law
Chairman of the Board of firm). Other directorships: Weyerhaeuser Corp.
Trustees (since 2003), (since 1999) and Danielson Holding Corp. (since
Trustee (since 1991) 2002); formerly a director of Caterpillar, Inc.
Age: 72 (1993-December 2002).
Robert G. Galli, A trustee or director of other Oppenheimer
Trustee (since 1996) funds. Formerly Trustee (May 2000-2002) of
Age: 70 Research Foundation of AIMR (investment
research, non-profit) and Vice Chairman (October
1995-December 1997) of Oppenheimer Funds Inc.
Phillip A. Griffiths, A director (since 1991) of the Institute for
Trustee, (since 1999) Advanced Study, Princeton, N.J., a director
Age: 64 (since 2001) of GSI Lumonics, a trustee (since
1983) of Woodward Academy, a Senior Advisor
(since 2001) of The Andrew W. Mellon Foundation.
A member of: the National Academy of Sciences
(since 1979), American Academy of Arts and
Sciences (since 1995), American Philosophical
Society (since 1996) and Council on Foreign
Relations (since 2002). Formerly a director of
Bankers Trust New York Corporation (1994-1999).
Joel W. Motley, Director (since 2002) Columbia Equity Financial
Trustee (since 2002) Corp. (privately-held financial adviser);
Age: 51 Managing Director (since 2002) Carmona Motley,
Inc. (privately-held financial adviser);
Formerly he held the following positions:
Managing Director (January 1998-December 2001),
Carmona Motley Hoffman Inc. (privately-held
financial adviser); Managing Director (January
1992-December 1997), Carmona Motley & Co.
(privately-held financial adviser).
Kenneth A. Randall, A director of Dominion Resources, Inc. (electric
Trustee (since 1980) utility holding company) and Prime Retail, Inc.
Age: 76 (real estate investment trust); formerly a
director of Dominion Energy, Inc. (electric
power and oil & gas producer), President and
Chief Executive Officer of The Conference Board,
Inc. (international economic and business
research) and a director of Lumbermens Mutual
Casualty Company, American Motorists Insurance
Company and American Manufacturers Mutual
Insurance Company.
Edward V. Regan, President, Baruch College, CUNY; a director of
Trustee (since 1993) RBAsset (real estate manager); a director of
Age: 73 OffitBank; formerly Trustee, Financial
Accounting Foundation (FASB and GASB), Senior
Fellow of Jerome Levy Economics Institute, Bard
College, Chairman of Municipal Assistance
Corporation for the City of New York, New York
State Comptroller and Trustee of New York State
and Local Retirement Fund.
Russell S. Reynolds, Jr., Chairman (since 1993) of The Directorship Search
Trustee (since 1989) Group, Inc. (corporate governance consulting and
Age: 71 executive recruiting); a life trustee of
International House (non-profit educational
organization), and a trustee (since 1996) of the
Greenwich Historical Society.
36 | OPPENHEIMER DISCOVERY FUND
Donald W. Spiro, Chairman Emeritus (since January 1991) of the
Vice Chairman of the Manager. Formerly a director (January
Board of Trustees, 1969-August 1999) of the Manager.
Trustee (since 1985)
Age: 77
- --------------------------------------------------------------------------------
INTERESTED TRUSTEE AND OFFICER The address of Mr. Murphy in the chart below is
Two World Financial Center, New York, NY 10080.
Mr. Murphy serves for an indefinite term, until
his resignation, death or removal.
John V. Murphy, Chairman, Chief Executive Officer and director
President and Trustee (since June 2001) and President (since September
(since 2001) 2000) of the Manager; President and a director
Age: 54 or trustee of other Oppenheimer funds; President
and a director (since July 2001) of Oppenheimer
Acquisition Corp. (the Manager's parent holding
company) and of Oppenheimer Partnership
Holdings, Inc. (a holding company subsidiary of
the Manager); a director (since November 2001)
of OppenheimerFunds Distributor, Inc. (a
subsidiary of the Manager); Chairman and a
director (since July 2001) of Shareholder
Services, Inc. and of Shareholder Financial
Services, Inc. (transfer agent subsidiaries of
the Manager); President and a director (since
July 2001) of OppenheimerFunds Legacy Program (a
charitable trust program established by the
Manager); a director of the investment advisory
subsidiaries of the Manager: OFI Institutional
Asset Management, Inc. and Centennial Asset
Management Corporation (since November 2001),
HarbourView Asset Management Corporation and OFI
Private Investments, Inc. (since July 2001);
President (since November 1, 2001) and a
director (since July 2001) of Oppenheimer Real
Asset Management, Inc.; a director (since
November 2001) of Trinity Investment Management
Corp. and Tremont Advisers, Inc. (investment
advisory affiliates of the Manager); Executive
Vice President (since February 1997) of
Massachusetts Mutual Life Insurance Company (the
Manager's parent company); a director (since
June 1995) of DLB Acquisition Corporation (a
holding company that owns the shares of David L.
Babson & Company, Inc.); formerly, Chief
Operating Officer (September 2000-June 2001) of
the Manager; President and trustee (November
1999-November 2001) of MML Series Investment
Fund and MassMutual Institutional Funds
(open-end investment companies); a director
(September 1999-August 2000) of C.M. Life
Insurance Company; President, Chief Executive
Officer and director (September 1999-August
2000) of MML Bay State Life Insurance Company; a
director (June 1989-June 1998) of Emerald Isle
Bancorp and Hibernia Savings Bank (a
wholly-owned subsidiary of Emerald Isle
Bancorp). Oversees 83 portfolios in the
OppenheimerFunds complex.
- --------------------------------------------------------------------------------
OFFICERS The address of the Officers in the chart below
is as follows: for Ms. Granger and Mr. Zack Two
World Financial Center, New York, NY 10080, for
Mr. Wixted, 6803 S. Tucson Way, Centennial, CO
80112-3924. Each Officer oversees 83 portfolios,
except for Ms. Granger, in the OppenheimerFunds
complex. Each Officer serves for an annual term
or until his or her earlier resignation, death
or removal.
Laura Granger, Vice President of the Manager (since October
Vice President and 2000); an officer of 3 portfolios in the
Portfolio Manager OppenheimerFunds complex; formerly a portfolio
(since 2000) manager at Fortis Advisors (July 1998-October
Age: 42 2000) prior to which she was portfolio manager
at General Motors Investment Management (July
1993-July 1998).
37 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited / Continued
Brian W. Wixted, Senior Vice President and Treasurer (since March
Treasurer (since 1999) 1999) of the Manager; Treasurer (since March
Age: 43 1999) of HarbourView Asset Management
Corporation, Shareholder Services, Inc.,
Oppenheimer Real Asset Management Corporation,
Shareholder Financial Services, Inc.,
Oppenheimer Partnership Holdings, Inc., OFI
Private Investments, Inc. (since March 2000),
OppenheimerFunds International Ltd. and
OppenheimerFunds plc (since May 2000) and OFI
Institutional Asset Management, Inc. (since
November 2000) (offshore fund management
subsidiaries of the Manager); Treasurer and
Chief Financial Officer (since May 2000) of
Oppenheimer Trust Company (a trust company
subsidiary of the Manager); Assistant Treasurer
(since March 1999) of Oppenheimer Acquisition
Corp. and OppenheimerFunds Legacy Program (since
April 2000); formerly Principal and Chief
Operating Officer (March 1995-March 1999),
Bankers Trust Company-Mutual Fund Services
Division.
Robert G. Zack, Senior Vice President (since May 1985) and
Secretary (since 2001) General Counsel (since February 2002) of the
Age: 55 Manager; General Counsel and a director (since
November 2001) of OppenheimerFunds Distributor,
Inc.; Senior Vice President and General Counsel
(since November 2001) of HarbourView Asset
Management Corporation; Vice President and a
director (since November 2000) of Oppenheimer
Partnership Holdings, Inc.; Senior Vice
President, General Counsel and a director (since
November 2001) of Shareholder Services, Inc.,
Shareholder Financial Services, Inc., OFI
Private Investments, Inc., Oppenheimer Trust
Company and OFI Institutional Asset Management,
Inc.; General Counsel (since November 2001) of
Centennial Asset Management Corporation; a
director (since November 2001) of Oppenheimer
Real Asset Management, Inc.; Assistant Secretary
and a director (since November 2001) of
OppenheimerFunds International Ltd.; Vice
President (since November 2001) of
OppenheimerFunds Legacy Program; Secretary
(since November 2001) of Oppenheimer Acquisition
Corp.; formerly Acting General Counsel (November
2001-February 2002) and Associate General
Counsel (May 1981-October 2001) of the Manager;
Assistant Secretary of Shareholder Services,
Inc. (May 1985-November 2001), Shareholder
Financial Services, Inc. (November 1989-November
2001); OppenheimerFunds International Ltd. and
OppenheimerFunds plc (October 1997-November
2001).
The Fund's Statement of Additional Information contains additional information
about the Fund's Trustees and is available without charge upon request.
38 | OPPENHEIMER DISCOVERY FUND
ITEM 2. CODE OF ETHICS
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Fund has determined that Edward V. Regan,
the Chairman of the Board's Audit Committee, possesses the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit
committee financial expert," and has designated Mr. Regan as the Audit
Committee's financial expert. Mr. Regan is an "independent" Trustee pursuant to
paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES - NOT REQUIRED
ITEM 5. NOT APPLICABLE
ITEM 6. RESERVED
ITEM 7. NOT APPLICABLE
ITEM 8. RESERVED
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of September 30, 2003,
registrant's principal executive officer and principal financial
officer found registrant's disclosure controls and procedures to be
appropriately designed to ensure that information required to be
disclosed by registrant in the reports that it files under the
Securities Exchange Act of 1934 (a) is accumulated and communicated to
registrant's management, including its principal executive officer and
principal financial officer, to allow timely decisions regarding
required disclosure, and (b) is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms
adopted by the U.S. Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal
controls or in other factors that could significantly affect
registrant's internal controls subsequent to the date of the most
recent evaluation as indicated, including no significant deficiencies
or material weaknesses that required corrective action.
ITEM 10. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)