Focus The Fund typically invests in international fixed income securities in both developed and emerging market countries. Ticker Symbol OIBAX (Class A Shares) OIBYX (Class Y Shares) OIBIX (Class I Shares) Category World Bond Funds Portfolio Managers Art Steinmetz (Since 4/04) Sara Zervos (Since 4/09) Hemant Baijal (Since 1/13) Average Industry Experience 27 years Client Portfolio Manager Robert Kinsey Class A, Y and I Shares Average Annual Total Returns as of 3/31/14 (Class A shares without sales charge) (Class A shares with sales charge) (Class Y shares)* (Class I shares)* 1Q14 1-Year 3-Year 5-Year 10-Year or Since Inception 1.12% -2.96% 2.02% 6.45% 6.15% -3.68-7.57 0.38 5.42 5.64 1.19-2.53 2.30 6.76 7.10 1.24-2.52 2.44 Citigroup WGBI NonUSD Index 1 3.22 2.43 1.37 4.15 4.27 Morningstar World Bond Category Average 2 2.36 0.71 3.23 7.00 4.64 Morningstar Percentile Rank and Ranking: World Bond Category 3 (Class A shares based on total return) 91st #332/362 74th #200/270 Returns for periods less than one year are cumulative and not annualized. Annual Expense Ratios: Class A shares: Gross: 1.00% Class Y shares: Gross: 0.75% Class I shares: Gross: 0.56% *Class Y shares inception date is 9/27/04. Class I shares inception date is 1/27/12. 46th #105/225 5th #7/131 The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor s shares, when redeemed, may be worth more or less than the original cost. Current performance and expense ratios may be lower or higher than the data quoted. For performance data current to the most recent month-end, visit oppenheimerfunds.com or call 1.800.CALL OPP (225.5677). Fund returns include changes in net asset value with dividends and capital gains reinvested. Class A shares include the 4.75% maximum sales charge where indicated. Class Y and I shares are not subject to a sales charge. Returns do not consider capital gains or income taxes on an individual s investment. Not FDIC Insured May Lose Value Not Bank Guaranteed
MARKET REVIEW The global economy started 2014 with continued slow and steady growth throughout the developed world. U.S. growth remained reasonably strong, which was attributable to good employment gains and robust manufacturing activity despite a near-term slowdown in the housing recovery. The Eurozone also grew at a slightly faster pace than 2013, but has continued to struggle with very low inflation and weak bank lending. The Federal Reserve (Fed) continued its program of tapering asset purchases by $10 billion per month for the first three months of the year, bringing their current monthly purchases to $55 billion in March. Interest rates in the U.S. have fallen slightly since the beginning of the year. The U.S. dollar has remained relatively stable throughout the quarter, and U.S. equities were largely flat after a very strong 2013. Emerging markets (EM) posted a modest recovery in the first quarter of 2014 after a poor 2013. Countries like India, Turkey, South Africa and Brazil appeared to take some of the necessary steps to deal with higher inflation by raising benchmark interest rates, while currency depreciation helped restore competitiveness. However, in our view, many of these countries still need longer-term structural reforms. Export growth has also remained slow to the U.S. and EU, restraining growth. China has continued its transition from an investment-led growth model to a consumption-led one, which has caused it to see several months of slower growth as well. PERFORMANCE REVIEW: ATTRIBUTION & PORTFOLIO CHARACTERISTICS Developed markets (DM) and European credit were positive contributors on an absolute and relative basis EM local currency exposure detracted given a wholesale selloff in January; our underweights in Indonesia, Turkey and South Africa led us to miss some of the subsequent rally in February and March Australia, Brazil and India interest rate exposures were additive. Japanese yen underweight and Fund level short duration position detracted The first quarter began with heightened volatility across multiple asset classes in January; and EM debt was no exception. The moves were largely the result of broader risk aversion trades potentially spurred by disappointing U.S. economic data, as evidenced by the fact that U.S. high grade bonds and U.S. Treasuries delivered the strongest returns in the month. As the craze surrounding Fed speculation died down, both DM and EM bonds largely delivered positive performance in February and March. While there was more divergence towards the end of the quarter, higher yielding names outperformed high grade as investors once again sought opportunities for carry, or additional yield. Some of the best performing markets in February and March (Argentina, Ukraine, Turkey) were among those hardest hit late last quarter and in January. We also began to see growing geopolitical tension (Russia and Ukraine) and political noise (Thailand, Turkey, Venezuela). As we ve stated previously, we expect political noise stemming from upcoming elections in many EM countries could continue to cause uncertainty in 2014. Against this backdrop, DM generally outperformed EM, but the overall top performer was EM hard currency sovereign debt. In both EM local currency sovereign and EM corporate debt, higher yielding names generally outperformed high grade. For the quarter, Class A shares (without sales charge) underperformed its benchmark, returning 1.12% versus the Citi WGBI s 3.22%. Breaking down performance further, our 56% overweight in DM and our allocation in European credit contributed positively to performance on an absolute and relative basis. Our EM hard currency and EM corporate exposures both contributed positively on an absolute basis. However, EM local currency had negative absolute returns, largely due to January s wholesale volatility. Additionally, the Fund s underweight exposure in Indonesia, Turkey and South Africa kept us from capturing the full extent of the subsequent February and March rally. Despite the negative effect these underweights had this quarter, we continue to believe that volatility may persist in these areas as adjustments continue. Therefore, we maintain our underweight in emerging market currencies and will continue to invest tactically as we see appropriate opportunities. We believe that the main levers of performance in the international debt markets are currency, interest rates, and credit. In keeping with that theme, we will now discuss performance in those terms. From a currency perspective, some of our highest conviction bets were our underweight in Japanese yen and Canadian dollar, and our overweight in the Indian rupee and Korean won. Over the quarter, our Japanese yen and Korean won exposures detracted from performance, while our Canadian dollar and Indian rupee contributed positively. Of particular note is our highest conviction currency bet, underweighting the Japanese yen. Our long-term view is that Abenomics (a term used to generally describe easing policies instituted by Japan s central bank and Prime Minister Shinzo Abe) will continue to stay the course to spur inflation and growth in the Japanese economy, which we believe is likely to result in a weaker yen. Given this, we look to maintain our large underweight position. However, we may take small tactical bets in the currency as opportunities present themselves in the short term. For example, we are carrying a smaller yen underweight than we have had for much of the past year. This is because a sales tax increase went into effect on April 2, 2014 that has the potential to temporarily cause some yen strength as the economy in Japan temporarily slows. Another notable currency bet within the Fund was our near zero exposure to the Russian ruble, which suffered considerably given the rising geopolitical tension surrounding the nation s disputed incursion into Ukraine. 2
In terms of interest rates, our fund level short duration position (approximately 2.15 years short vs. the Reference Index 4 as of March 31) detracted from performance as interest rates in the U.S. fell modestly during the quarter. As mentioned earlier in this commentary, our underweight to EM local currency debt, specifically our underweight to a number of higher yielding names, detracted from performance as those areas rebounded strongly towards the end of the quarter. Within individual countries, our local currency debt exposures within Australia, India and Brazil were additive to performance while our exposure in Indonesia and South Africa detracted. It is worth mentioning that we continued a plan that was initiated late last year to lower exposure to Russian debt given our view that longterm fundamentals were deteriorating in the sovereign and corporates. As of March 31, our total exposure to Russian debt was 1.74%. With regards to credit, our increased exposure to European credit (approximately 9% as of March 31) boosted performance while our exposures within EM corporate debt detracted. The primary driver of our weak corporate debt performance was our holdings in Russian corporate debt. Unrelated to the moves in Russian debt, during the quarter, we adjusted our allocations to EM corporate debt from 12.5% to 8.5%. This move is based on our view that we continue to find opportunities with the potential for similar upside in other credit markets, and we believe the sensitivity to U.S. yield curve changes would contribute to more volatility in EM corporates than other asset classes due to their lower liquidity. We maintain our very positive outlook on global credit, so the assets from this allocation change were largely redeployed into DM credit. Within DM credit, we continue to maintain an overweight to financials in Europe, where we believe that low interest rates and deleveraging may provide a tail wind. We have also maintained an overweight to European periphery debt, particularly Portugal, which has contributed positively to performance thus far. MARKET OUTLOOK & PORTFOLIO POSITIONING Our foreign currency exposure remains low; currently near 44% of the Fund Our holdings of European securitized assets and corporate bonds has now reached 9% We believe that the long-term case for EM debt remains intact, though we remain concentrated in what we view as the best stories Our outlook for international debt centers around four key themes. The first of which is that EM countries have become highly differentiated. The introduction of Taper Talk last May sent reverberations through global markets and sent interest rates in many EM countries higher. The abrupt change in market sentiment did lay bare some fundamental challenges to countries with high current account deficits challenges that a prolonged period of easy money in the U.S. may have masked to some degree. However, not all EM countries are experiencing fragilities. We believe that most are at a low point cyclically in their economic cycle, but very few face structural problems. As the U.S. interest rate cycle plays out, one of the most important things we will examine is whether or not EM policymakers are taking necessary steps to stay ahead of it. Those that do their homework and take action to keep their economies looking attractive either by price (high real yields) or good looks (a strong structural story) may show resilience to future volatility, while those that do not make proper adjustments may continue to suffer. Therefore, we will maintain our current lower allocations to EM debt and continue to concentrate our exposure, in both U.S. dollar (external) debt and local currency debt, in what we view as the best stories. It is worth noting that we believe that another large driver of global growth and liquidity conditions, the European Union (EU), remains a few years behind the U.S. cycle. While growth in the monetary union finally emerged from recession in the second quarter of last year - with even some periphery countries returning to positive growth more recently, we continue to believe that further easing on the part of the European Central Bank (ECB) may be on the horizon. We believe that recent disappointing U.S. economic data will prove to be largely the work of cold weather-induced distortions that will likely be sorted out over time. Our view is that data will turn more positive as early as the second quarter of 2014, which may cause the interest rates in the U.S. to rise. We also believe that this dynamic may maintain a strong U.S. dollar. As a result, we maintain our Fund level short duration position (approximately 2.15 years vs. the Reference Index as of March 31), and will maintain our lower than average foreign currency exposure (44% as of March 31) with core positions in the euro, Indian rupee and Korean won. Our third driving theme is our very positive view of credit. We continue to see evidence of solid balance sheets globally, and many European corporates continue to deleverage. However, as mentioned earlier in this commentary, U.S. dollar denominated debt may be more prone to future volatility should U.S. interest rates rise. In such an environment, we have concentrated our EM corporate exposure where we see the most attractive opportunities, and plan to maintain our allocation to DM credit, and particularly to high yield European credit, where the deleveraging theme is likely to continue to be a boon. Finally, in this environment, we believe it will be alpha rather than beta that will drive EM debt performance, and active management will be more important than ever. Moreover, we believe that active investment decisions in currency, interest rates and credit are more likely to produce positive performance (alpha) during periods that investors differentiate among markets rather than the beta associated with broad risk aversion moves. In particular, with rising DM bond yields presenting a head-wind, we believe country and currency selection (alpha) will be critical. 3
SPECIAL RISKS Fixed income investing entails credit and interest rate risks. Interest rate risk is the risk that rising interest rates or an expectation of rising interest rates in the near future, will cause the values of the Fund's investments to decline. Risks associated with rising interest rates are heightened given that rates in the U.S. are at or near historic lows. When interest rates rise, bond prices generally fall, and the Fund s share prices can fall. Below-investment-grade ( high yield or junk ) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, Eurozone investments may be subject to volatility and liquidity issues. Derivative instruments whose values depend on the performance of an underlying security, asset, interest rate, index or currency, entail potentially higher volatility and risk of loss compared to traditional stock or bond investments. Currency derivative investments may be particularly volatile and involve significant risks. Small and midsized company stock is typically more volatile than that of larger, more established businesses, as these stocks tend to be more sensitive to changes in earnings expectations. It may take a substantial period of time to realize a gain on an investment in a small or mid-sized company, if any gain is realized at all. The Fund is classified as a non-diversified fund and may invest a greater portion of its assets in the securities of a single issuer. * PORTFOLIO CHARACTERISTICS DEFINITIONS Alpha: An investment s return in excess of the return expected for the level of risk taken. For example, during a period in which the Barclays U.S. Aggregate Bond Index rises 10%, a portfolio assuming 20% more risk than the market would need to gain 12% to match the Barclays U.S. Aggregate Bond Index return on a risk-adjusted basis. This number is annualized based on three years of data. Average Effective Duration: The average option-adjusted duration of securities weighted by market value. This number is based on three years of data. Beta: A measure of the risk of a security or portfolio in relation to an independent variable (i.e., the general market or other specified benchmark). The independent variable has a beta of 1.00 by definition. Any security or portfolio with a beta greater than 1.00 is considered more volatile, while a beta of less than 1.00 would be less volatile. Also known as the measure of systematic risk of a security. This number is based on three years of data. Fiscal Year-End Turnover: A measure of the strategy's trading activity, which is computed by taking the lesser of purchases or sales during the strategy s latest fiscal year, divided by the total net asset value (NAV). Information Ratio (IR): A measure of the consistency of a portfolio s performance relative to a benchmark. It is calculated by subtracting the benchmark return from the portfolio return, and dividing the result (the excess return) by the standard deviation (volatility) of this excess return. A positive information ratio indicates outperformance versus the benchmark, and the higher the information ratio, the more consistent the outperformance. This number is based on three years of data. 4
Top Five Currencies 5 1st Quarter 2014 (as of 3/31/14) Euro 13.4% Korean Won 5.2 British Pound 4.3 Polish Zloty 2.8 Indian Rupee 2.1 Top Five Geographic Regions 6 1st Quarter 2014 (as of 3/31/14) Europe 41.9% Americas 20.0 Asia Pacific 19.7 Middle East 3.6 Africa 3.5 Portfolio Characteristics* 1st Quarter 2014 (as of 3/31/14) Fund Number of Issues 831 Number of Issuers 310 Standardized Yield** 2.52% Average Effective Duration 4.38 Beta*** 0.93 Alpha*** -0.33 Information Ratio*** -0.19 Turnover 105% ** Standardized yield (based on net investment income for the 30-day period ended 3/31/14) is annualized and divided by offering price on month-end. *** Measured versus the Fund's benchmark. Current and Historical Strategy Positioning 7 The portfolio managers regularly adjust the Fund s allocations to reflect what they believe are the best current investment opportunities. The charts below show allocations for the past three years, as of the date specified. March 31, 2014 March 31, 2013 March 31, 2012 8.0 10.6 10.6 21.0 21.6 38.9 21.6 38.9 55.9 15.0 28.8 28.8 Developed Markets Emerging Markets (denominated in USD) Emerging Markets (denominated in local currency) Cash/Other 5
DISCLOSURES Past performance does not guarantee future results. 1. The Citigroup Non-U.S. World Government Bond Index (Citigroup WGBI Non-U.S.) is an index of fixed-rate government bonds with a maturity of one year or longer and amounts outstanding of at least U.S. $25 million. The index is unmanaged, includes the reinvestment of dividends and cannot be purchased directly by investors. Performance is shown for illustrative purposes only and does not predict or depict the performance of the Fund. 2. Source: Morningstar, Inc., 3/31/14. The Morningstar World Bond Funds Category Average is the average of all funds within the investment category as defined by Morningstar. Returns are adjusted for the reinvestment of capital gains distributions and income dividends, without considering sales charges. Performance is shown for illustrative purposes only and does not predict or depict the performance of the Fund. 3. Source: 2014 Morningstar, Inc., 3/31/14. Morningstar ranking is for Class A shares and ranking may include more than one share class of funds in the category, including other share classes of this Fund. Ranking is based on total return as of 3/31/14, without considering sales charges. Different share classes may have different expenses and performance characteristics. Fund rankings are subject to change monthly. The Fund s total-return percentile rank is relative to all funds that are in the World Bond category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top performing fund in a category will always receive a rank of 1. 4. The Reference Index is a customized weighted index comprised of 50% of the Citigroup Non-U.S. World Government Bond Index, 30% of the J.P. Morgan Government Bond Index Emerging Markets Global Diversified and 20% of the J.P. Morgan Emerging Markets Bond Index Global Diversified. The J.P. Morgan Government Bond Index - Emerging Markets Global Diversified is a comprehensive, global local Emerging Markets Index, and consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The J.P. Morgan Emerging Markets Bond Index Global Diversified is a composite index representing an unleveraged investment in emerging market bonds that is broadly based across the spectrum of emerging market bonds and includes reinvestment of income (to represent real assets). The index is unmanaged, includes the reinvestment of dividends and cannot be purchased directly by investors. 5. The Fund is not managed to be invested in the same percentages as those indices comprising the Reference Index and the Fund's holdings may differ significantly from those percentages. The table for the top currency positioning is based on the net foreign exchange exposure of each currency after converting all currencies to a common currency, in this case the U.S. dollar. 6. The table for the top current regions considers the country s geographic location and is based on assets of the Fund. 7. Based on the net assets of the Fund and is not a geographic breakdown. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the close of business on March 31, 2014, and are subject to change based on subsequent developments. The Fund s portfolio and strategies are subject to change. Total returns do not show the effects of income taxes on an individual s investment. Taxes may reduce an investor s actual investment returns on income or gains paid by the Fund or any gains realized if the investor sells his/her shares. Before investing in any of the Oppenheimer funds, investors should carefully consider a fund s investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com, or calling 1.800.CALL OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing. Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. 225 Liberty Street, New York, NY 10281-1008 2014 OppenheimerFunds Distributor, Inc. All rights reserved. CO0880.001.0314 April 15, 2014 6