Oppenheimer Q3 2012 Charts

CapitalMarkets
Market Charts
Q4 2012
as of 9/30/12
Not FDIC Insured
May Lose Value
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2012 OppenheimerFunds Distributor, Inc.
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Special Risks
Investments in securities of growth companies may be especially volatile. Value investing involves the risk that undervalued securities may not appreciate as anticipated. Small and mid-sized 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 and tend to have lower trading volumes than large-cap securities, creating potential for more erratic price movements. 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. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that ifdividends are declared, they will remain at their current levels or increase over time. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic factors. Investments in emerging and developing markets may be especiallyvolatile. Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a Funds share prices can fall. Below-investment-grade (high yield or junk) bonds are more at risk of default and are subject to liquidity risk. Asset-backed and mortgage-backed securities are also subject to prepayment risk. Senior loans are typically lower rated (more at risk of default) and may be illiquid investments (which may not have aready market). A portion of a municipal bond funds distributions may be taxable and may increase taxes for investors subject to the alternative minimum tax (AMT). Capital gains distributions are taxable as capital gains. Investing in the commodity markets involves potentially higher volatility and greater risk of loss of principal than traditional equity or debt securities. Commodity-linked investments are considered speculative and have substantial risks, including the risk of loss of a significant portion of their principal value. Investing in a limited number of sectors, such as gold, oil and real estate, can increase volatility and exposure to issues affecting that sector. Investments in securities of real estate and small-cap companies may be especially volatile. Because they do not have an active trading market, shares of Real Estate Investment Trusts (REITs) may be illiquid. The lack of an active trading market may make it difficult to value or sell shares of REITs promptly at an acceptable price. Diversification does not guarantee profit or protect against loss.
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Index Definitions
The Barclays Capital Global Emerging Markets Index represents global emerging market bonds. The Barclays Capital U.S. Aggregate Bond Index is an investment-grade domestic bond index. The Barclays Capital U.S. Credit/Corporate/Investment Grade Bond Index represents primarily investment-grade corporate bonds within the Barclays Capital U.S. Aggregate Bond Index. The Barclays Capital U.S. Government Bond Index is composed of all publicly issued, non-convertible, domestic debt of the U.S. Government or any agency thereof, quasi-federal corporation or corporate debt guaranteed. The Barclays Capital U.S. Aggregate Treasury Index represents public obligations of the U.S. Treasury with a remaining maturity of one year or more. The Citigroup Non-U.S. World Government Bond Index (USD Unhedged) is composed of foreign government bonds with maturities over one year. The Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. The Credit Suisse High Yield Bond Index is designed to mirror the investable universe of the $U.S.-denominated high yield debt market. The Credit Suisse Leveraged Loan Index tracks the performance of senior loans. The FTSE National Association of Real Estate Investment Trusts (NAREIT) Equity REITs Index is an index consisting of certain companies that own and operate income-producing real estate that have 75% or more of their respective gross invested assets in the equity or mortgage debt of commercialproperties. The JPMorgan U.S. Dollar Tradable Currency Index is based on tradeweighted exchange rate indices and tracks performance versus 16 major trading partners of the U.S. determined by 2000 trade data. The JPMorgan Domestic High Yield Index is an index composed of noninvestment-grade corporate bonds. The JPMorgan ELMI+ Index tracks total returns for local-currencydenominated money market instruments in the emerging markets. The JPMorgan EMBI Global Diversified Bond Index is a uniquely weighted version of the EMBI Global Index, which limits the weights of those countries with larger debt stocks by only including specified portions of these countries eligible current face amounts of debt outstanding. The JPMorgan GBI-EM Global Diversified Unhedged Index is a global local emerging markets index, consisting of regularly traded, liquid fixed rate, domestic currency government bonds. The Merrill Lynch AAA and BBB Municipal Indices measure the performance of U.S. tax-exempt bonds rated AAA and BBB, respectively. The Merrill Lynch Municipal Airport, Revenue and Tobacco Indices measure the performance of U.S. tax-exempt airport, revenue and tobacco bonds, respectively. The Merrill Lynch Municipal Master Index is a broad-based measure of the performance of the U.S. tax-exempt bond market.
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Index Definitions (continued)

The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI ex-U.S. Small Cap Index is designed to measure the performance of global small-capitalization stocks excluding the U.S. The MSCI EAFE (Europe, Australasia, Far East) Index is designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets (EM) Index is designed to measure global emerging market equity performance. The MSCI World Index is designed to measure global developed market equity performance. The MSCI Argentina, MSCI Australia, MSCI Brazil, MSCI Canada, MSCI China, MSCI European Union, MSCI France, MSCI Germany, MSCI India, MSCI Indonesia, MSCI Italy, MSCI Japan, MSCI Mexico, MSCI Netherlands, MSCI Russia, MSCI Saudi Arabia, MSCI South Africa, MSCI South Korea, MSCI Turkey, MSCI UK and MSCI USA represent equity market performance in those countries or regions. The MSCI World Index Ex-U.S. is designed to measure the equity market performance of developed markets and excludes the U.S. The NCREIF Property Index measures investment performance of a very large pool of individual commercial real estate properties. The Philadelphia Gold & Silver Index is an index of 16 precious metal-mining companies that trade on the Philadelphia Stock Exchange. The Russell 1000 Value Index, Russell 1000 Index and Russell 1000 Growth Index are indices that measure the performance of large-capitalization value stocks, large-capitalization stocks and large-capitalization growth stocks,respectively. The Russell 2000 Value Index, Russell 2000 Index and Russell 2000 Growth Index are indices that measure the performance of small-capitalization value stocks, small-capitalization stocks and small-capitalization growth stocks,respectively. The Russell Midcap Value Index, Russell Midcap Index and Russell Midcap Growth Index are indices that measure the performance of mid-capitalization value stocks, mid-capitalization stocks and mid-capitalization growth stocks,respectively. The U.S. Import Price Index measures data on changes in the prices of non-military goods and services traded between the U.S. and the rest of theworld. The S&P 500 Index is a broad-based measure of domestic stock market performance. The S&P GSCI is a composite index of commodity sector returns representing unleveraged, long-only investment in commodity futures across 24commodities. The U.S. 10-Year Treasury Yield is generally considered to be a barometer for long-term interest rates. The U.S. Dollar Index is a measure of the value of the U.S. dollar relative to a basket of foreign currencies that includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Each index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any Oppenheimer fund. Pastperformance does not guarantee future results.
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Executive Summary as of 8/31/12

Economic & Financial Market Overview . . . . . . . . . . . . . . . . . . 621
The U.S. continues to grow sluggishly, while much of the Eurozone faces prolonged recession. Emerging market growth has slowed (in many cases by design), but it generally still outpaces that of the developed world. Financial markets improved over the summer as fears over a Eurozone breakup began to subside, but valuations remain attractive across many asset classes.
Taxable Fixed Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3850

Treasury yields remained near record lows, while credit spreads to treasuries narrowed, as investors grew more comfortable with risk. High yield and emerging market debt have been the top performing sectors year to date, while higher quality domestic and international government bonds have lagged. Many investors, still wary following the financial crisis, appear to have excessive exposure to treasuries and other high quality bonds that pay little yield and risk losses when rates eventually rise.
Domestic Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2229

U.S. stocks rebounded after the extreme risk aversion of the second quarter created attractive opportunities for patient and discerning investors. Markets also cheered mildly better U.S. economic data and European Central Bank action to stem the worst of the Eurozone crisis. Corporate balance sheets and (to a lesser extent) earnings power remain robust, and while stocks valuations have risen, they remain below their historical averages.
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5156

Munis continued to perform well year-to-date, after a solid run in 2011. The yield gap (spread) between treasuries and most types of municipal bonds has narrowed, but opportunities remain with treasury yields near all-time lows. Lower rated and longer maturity bonds remain outperformers, as subsiding fears over falling tax revenues have helped support the asset class, along with a compelling history of very few defaults and solid demand for new issues.
International Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3037

Many developed international markets bounced back after a tough second quarter, as the president of the European Central Bank vowed to preserve the single currency. With investors willing to assume more risk, many emerging market (EM) stocks also posted decent gains. Valuations for both developed market and emerging market equities remain below historical averages. Despite the gain in international equities, plenty of opportunities remain to own shares in leading companies with global operations.
Alternative Asset Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5764

Commodities underperformed REITs, stocks and gold in the first eight months of the year, as lackluster global growth sapped demand for raw materials. REITs remained star performers, having significantly outpaced the other three categoriesand the inflation ratethus far in 2012. Among currencies, the euro staged a rebound as it became clear the European Central Bank was prepared to act forcefully to protect the single currency. Given the potential for continued volatility from an array of sources, alternative asset classes remain an important source of potential diversification for investors.
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7 8 9 10 11 12 13
Global Economic Forecast World GDP Growth Global Purchasing Managers Indices (PMIs) Key U.S. Economic Indicators What Is the Fiscal Cliff? Eurozone Sovereign Bond Spreads Remain Elevated Mutual Fund Flows Earnings Yield on Stocks Higher than Yield on U.S. Treasuries U.S. Equity Valuations European Stocks Appear to be Attractively Valued Favorable Secular Trends in Emerging Markets U.S. Equity Dividend Yields vs. Treasury Yields Many Fixed Income Yields Are Uncompetitive Credit Spreads Still Elevated Real Yields Abroad May Be More Attractive
Economic & Financial Market Overview
14 15 16 17 18 19 20 21
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Global Economic Forecast

Interest Rates Inflation U.S. Housing
Borrowing costs for corporations and households are extraordinarily low. More policy accommodations from the U.S. Fed and European Central Bank are in the offing. U.S. inflation is rolling over but expectations remain within the Feds perceived 2.0%2.5% comfort zone. Modest aggregate emerging market inflation is supportive of additional stimulus. Prices are rising as affordability remains near record levels. Inventories have been halved. The sector is now contributing to growth. U.S. economy continues to muddle along as Europe remains mired in a recession. Growth in select emerging economies appears poised to reaccelerate as stimulus takes hold, though rising inflation in key countries could be a headwind. Balance sheets are healthy but companies remain reluctant to deploy their record levels of cash. Earnings growth is slowing considerably. Many companies appear to be fully valued. Banks continue to ease lending standards but aggregate loan demand remains modest. Expanding credit for autos and homes supports recovery in those sectors. Spending has been resilient despite the still-weak employment environment. Waning consumer confidence suggests consumption may weaken in the coming months. Steps have been taken to prevent a collapse of the Eurozone and the dreaded Lehman moment. Tail risks will likely once again weigh on sentiment but most likely outcome is still more Europe, not less. Outcome of November election is still too close to call. A last-minute compromise to extend the most severe components of the fiscal cliff is still likely but the remaining fiscal drag will weigh heavily on an already weak economy.
SUNNY
Global Growth
U.S. Corporate Sector

CLOUDY
U.S. Credit U.S. Consumer Eurozone Crisis

STORMY
U.S. Politics
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World GDP Growth

Eurozone fears continue to overshadow relatively solid economic growth in other parts of the world. While the Eurozone continues to grapple with its sovereign debt crisis and austerity measures, the U.S. continues to grow at a modest pace, though the impending fiscal cliff puts growth at risk. Expansion has slowed in large emerging countries like Brazil, Russia, India and China, albeit to more sustainable levels, while many other emerging markets continue to grow at a robust pace. GDP Growth
Year-over-Year Change (6/30/12)
Canada 2.5%
United Kingdom 0.5% Germany 1.0%
Russia 4.0%
United States 2.3%
France 0.3% Greece 6.2% India 3.9% China 7.5%
Japan 3.6%
Mexico 4.1%
Thailand 4.2%
Vietnam 4.5% Indonesia 6.4%
Brazil 0.5%
Australia* 4.3% South Africa 2.7%
*Australia as of 3/31/12. Source of chart data: Haver Analytics, 6/30/12. GDP (Gross Domestic Product) is the total value of all final goods and services produced in a country inagiven year.
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Global Purchasing Managers Indices (PMIs) as of 8/31/12

PMIs, a measure of manufacturing activity, have fallen below 50the threshold between expansion and contractionin many of the worlds largest economies. Uncertainty surrounding the Eurozone crisis and the $600 billion fiscal cliff has led to a slowdown in activity in the U.S., while the Eurozone and the UK continue to feel the effects of the debt crisis and austerity. Chinas slowdown was largely manufactured by the government, but falling U.S. and Eurozone demand for exports is clearly weighing heavily on Chinas growth.
Global PMIs
65

60 Expansion
U.S. UK China Eurozone
55
Index Level
50
45
Contraction
40
35 30 2006 2007 2008 2009 2010 2011 2012
Source of chart data: Haver Analytics, 8/31/12. Past performance does not guarantee future results.
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Key U.S. Economic Indicators as of 7/31/12

Measures of U.S. employment, industrial production, retail sales and personal income growth all point to modest growth ahead, but the economy remains highly vulnerable. A major shockwhether related to the fiscal cliff, geopolitical events or something elsecould tip the economy into recession. Employees on Nonfarm Payrolls1 Month-over-Month Net Change Industrial Production2 Seasonally Adjusted Level
600 400 200 0 200 400 600 800 1,000 2007
105 100
Index Level
Thousands
95 90 85 80 2007 2008 2009 2010 2011 2012
2008
2009
2010
2011
2012
8% 6 4 2 0 2 4 6 8 10 12 2007
Real Retail Sales3 Year-over-Year % Change
8% 4 0 4 8
Personal Disposable Income4 Year-over-Year % Change
2008
2009
2010
2011
2012
2007
2008
2009
2010
2011
2012
1. Source of chart data: Haver Analytics and the Bureau of Labor Statistics as of 7/31/12. 2. Source of chart data: Haver Analytics and Federal Reserve Board as of 7/31/12. 3. Source of chart data: Federal Reserve Bank of St. Louis and Haver Analytics as of 7/31/12. 4. Source of chart data: Bureau of Economic Analysis and Haver Analytics as of 7/31/12.
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What Is the Fiscal Cliff?

Roughly $600 billion worth of tax increases and spending cuts are set to come into effect on January 1, 2013, unless Congress acts to prevent thema tall order considering how contentious these issues are. If Congress fails, the economy could go over a fiscal cliff, and fall back into recession. Even if Congress manages to avoid the worst of the cliff, significant fiscal drag from the remainder is still possible.
Potential Drag on GDP
Expiration of the Bush-era Tax Cuts

2012 Ordinary income Dividends Capital gains Payroll tax (employee) Estate and gift taxes Estate and gift tax exemption amounts 35.0% 15.0 15.0 4.2 35.0 $5.12M 2013 43.4%* 43.4 23.8 6.2 55.0 $1.0M
Expiration of the Alternative Minimum Tax Patch 2009 Stimulus Spending Rolling Over Sequestered Spending Tax Cuts Come into Effect
*Includes 3.8% tax surcharge from Patient Protection and Affordable Care Act. Source of chart data: Congressional Budget Office, 8/31/12.
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Eurozone Sovereign Bond Spreads Remain Elevated as of 8/31/12

Investors seeking safety amid the Eurozone crisis have been piling in to German bunds, driving yields down to record lows. The result is that spreads over bunds have been reaching highs not seen since the period before the introduction of the common currency. While 10-year government bond yields across much of Europe remain elevated, shorter term rates began to moderate from panic levels as the European Central Bank prepared to take decisive action to stem the crisis.
10-Year Government Bond Spreads Over German Bunds

8% 7 6 5 4 3 2 1 0 1 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Introduction of the Euro

Lehman Collapse
Spain Italy France
Source of chart data: FactSet, 8/31/12. Past performance does not guarantee future results.
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Mutual Fund Flows as of 7/31/12

Investors continue to pour money into fixed income funds amid persistently acute risk aversion. Within fixed income, safe-haven government securities are experiencing the highest inflows, indicating that investors are willing to accept tiny, or even negative, real yields in exchange for the perceived safety of these assets. Over time, this could prove to be a costly strategy, especially if interest rates rise.
Net Flows to Equity and Fixed Income Mutual Funds

60 50 40 30 20 10 Tech Boom
n n
Equity Funds Fixed Income Funds
Fear Trade
U.S. $ Billions
0 10 20 30 40 50 60 70 80 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source of chart data: Investment Company Institute, 7/31/12.
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Earnings Yield on Stocks Higher than Yield on U.S. Treasuries as of 8/31/12

Stocks earnings yield (the inverse of the price-to-earnings ratio) is substantially higher than the yield on the 10-year Treasury. The spread is especially high by historical standards, suggesting stocks should be a much more attractive prospect than treasuries in coming years.
MSCI World Index Earnings Yield Spread Over 10-Year U.S. Treasury Yield
8%
6 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source of chart data: FactSet, 8/31/12. The earnings yield is calculated as earnings divided by price. The earnings yield spread is the difference between the MSCI World Index earnings yield and the 10-year U.S. Treasury yield. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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U.S. Equity Valuations

Entering September, stocks appeared reasonably valued at roughly 13.45x trailing twelve-month earnings. Stocks may have further room for upside if 2013 earnings projections pan out, but companies have been finding it difficult to meet revenue targets amid so much uncertainty. Any relief from key sources of uncertainty, such as the fiscal cliff and the Eurozone crisis, could encourage investors to assign stocks a higher valuation, potentially driving prices higher.
S&P 500 Index Earnings Per Share (EPS) Recession Scenario* $88 Trailing 12-month Earnings $99 Wall Street Estimates 2013 $103
Price-to-Earnings (P/E) Multiple 11x 968 1,085 1,134 12x 1,056 1,183 1,237 13x 1,144 1,282 1,340 14x 1,232 1,380 1,443 15x 1,320 1,479 1,547 16x 1,408 1,578 1,650
*Assumes average 15% decline in EPS in post-WWII recessions excluding 2008.
Source of chart data: Bloomberg, 8/31/12. Table is for illustrative purposes only and is not intended to depict or predict the performance of the S&P 500 Index or any particular investment. Index definitions can be found on pages 34. Earnings per share is the portion of a companys profit allocated to each outstanding share of common stock. Price-to-earnings ratio is a valuation ratio of a companys current share price compared to its actual per-share earnings over the last 12 months. Pastperformance does not guarantee futureresults.
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European Stocks Appear to Be Attractively Valued as of 8/31/12

Amid the Eurozone crisis, European stocks are trading at a lower price-to-book ratio than they were at the market bottom in March 2009. Investors may be overlooking the fact that outstanding global companies are sometimes based in struggling countries like Spain and Italyand that the location of a companys customers is more important than the location of its headquarters. Price-to-Book Ratios 19828/31/12
5x 4 3 2 1 0 5x 4 3 2
France
Netherlands
1.1x
1982 1988 1994 2000 2006 2012
1 0 1982 1988 1994 2000 2006
1.3x
2012
4x 3 2
5x
Spain
4 3 2
Italy
1 0 1982 1988 1994 2000 2006
0.9x
2012
1 0 1982 1988 1994 2000 2006
0.7x
2012
Source of chart data: FactSet, 8/31/12. Price-to-Book Ratio calculated using respective MSCI country indices. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Favorable Secular Trends in Emerging Markets

Emerging markets continue to enjoy powerful, secular growth trends that look set to continuewith some bumps along the wayfor many years to come. Today, many EM countries show key similarities to the U.S. in 1982, when it was on the verge of a great secular expansion. While past performance is no guarantee of future results, the data look promising.
U.S. 19821 Today
Emerging Markets Today
Developed International Markets Today
9.0x
Price-to-Earnings (S&P 500 Index)
13.5x
(S&P 500 Index)
11.7x
(MSCI Emerging Markets Index)
14.0x
(MSCI EAFE Index)
GDP Growth Debt-to-GDP Population Over 54 as % of Working Age (2554) Population
1.4% 41% 55%
2.3% 69%2 60%3
6.2%2 36%2 33%3
2.3%4 108%2 80%3
1. As of 1/1/82. 2. As of 4/30/12 (latest data available). 3. As of 12/31/10 (latest data available). 4. IMF projections for 2012 as of 4/30/12 (latest data available).
Source of chart data: Bloomberg, World Bank, International Monetary Fund World Economic Outlook, UN Population Division, Haver Analytics, 8/31/12 (unless otherwise indicated). Price-toEarnings Ratio is a valuation ratio of a companys current share price compared to its actual per-share earnings over the last 12 months. Index definitions can be found on pages 34. Pastperformance does not guarantee future results.
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U.S. Equity Dividend Yields vs. Treasury Yields as of 8/31/12

The percentage of S&P 500 companies with a dividend yield above the 10-year U.S. Treasury rate is near historically high levels, as investors preference for the perceived safety of government bonds drives down bond yields.
60%
% S&P 500 Stocks with Dividend Yields Greater than 10-Year Treasury Yields (left axis) 10-Year Treasury Yield (right axis)
18% 16 14 12 10
45
30 8 6 15 4 2 0 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 0
Source of chart data: Bloomberg, Ned Davis Research, 8/31/12. Index definitions can be found on pages 34. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time. Past performance does not guarantee future results.
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Many Fixed Income Yields Are Uncompetitive

With yields on investment-grade bonds so low, real (net of inflation) yields are minimaland even negative on shorter maturity government bonds. Investors are having difficulty finding the income in fixed income, unless theyre willing to assume more credit risk.
8% 7
Yields
6.7 6.4
6 5 4 2.9
4.7
1.6
CPI = 1.4%
1.8
1 0 10-Year U.S. Treasury Barclays Capital Barclays Capital Merrill Lynch BBB U.S. Aggregate U.S. Credit/Corporate/ Municipal Bond Index Investment Grade Bond Index Bond Index Credit Suisse Leveraged Loan Index* JP Morgan Domestic High Yield Index
*Implied yield calculated by adding the index option-adjusted spread to the 3-month LIBOR rate. Source of chart data: Barclays Capital, FactSet, Credit Suisse and JPMorgan, 8/31/12. CPI as of 7/31/12. Index definitions can be found on pages34. Past performance does not guarantee futureresults.
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Credit Spreads Still Elevated as of 8/31/12

Spreadsin this case, the yield premium markets assign below-investment-grade bonds above Treasury yieldshave narrowed this year, but remain wide by historical standards, largely due to lingering fears over issuers creditworthiness. These fears are likely overdone, however, as corporate balance sheets and profitability remain in very good shape.
High Yield Bond and Senior Loan Spreads

Basis Points (bps) 2,000

Lehman Bankruptcy
Credit Suisse High Yield Bond Index Spread Over Treasuries 1/31/86 to 8/31/12 Credit Suisse Leveraged Loan Index Spread Over LIBOR 1/31/92 to 8/31/12
1,500
Drexel Burnham Collapses
Tech Bubble
1,000
Panic
500 Fully Valued
0 1986
1990
1994
1998
2002
2006
2010
Source of chart data: Credit Suisse Research, 8/31/12. Index definitions can be found on pages 34. Pastperformance does not guarantee future results.
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Real Yields Abroad May Be More Attractive

Local-currency bonds issued by many emerging markets tend to provide substantially higher real yields than their developed market counterparts, despite a general trend in the developing world toward stronger institutions, improved governance, rapid growth and policy flexibility.
Nominal 10-Year Sovereign Bond Rate Real Yield Consumer Price Index Year-over-Year Percent Change
1.55% 5.55% 1.02% 4.42% Mexico
0.14% 1.41% U.S.A.
4.70% 1.42% 3.28% Peru
9.60% 4.40% 5.20% Brazil 7.05% 2.15% 4.90%
6.26% 1.68% 4.58% Indonesia
3.09% 1.89% 1.20% Australia
South Africa
Source of chart data: Bloomberg, 8/31/12. CPI data is most recent available, as of 7/31/12 for all countries except Australia, which is as of 6/30/12. Nominal yields are that of each countrys on-the-run (most recently issued) 10-year government bond. Real yield is equal to the countrys 10-year sovereign bond rate minus the year-over-year change in the countrys consumer price index. Pastperformance does not guarantee future results.
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23 24 25
Equity Size and Style Returns S&P 500 Index and GICS Sector Returns Market Valuation High Pairwise Correlations: Risk-On/Risk-Off Pattern Continues Equity Dividend Yield vs. Treasury Yields The Power of Dividends Many U.S. Companies Provide International Exposure
Domestic Equities
26 27 28 29
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Equity Size and Style Returns as of 8/31/12

A summer rally propelled domestic stocks higher, as investors grew more willing to take on investment risk. As is typical in a risk-on environment, growth outperformed value, with large-cap growth leading the way. Over the past decade, however, small- and mid-cap stocks have outperformed large caps, albeit often with greater volatility. QTD
Value Large
3.23%
YTD
Growth
4.07%
1-Year
Growth Value Core Growth
Core
3.64%
Value
Core
Large 12.19% 13.37% 14.55%
Large 17.30% 17.33% 17.37%
Mid
3.49%
3.39%
3.28%
Mid 11.54% 11.63% 11.65%
Mid 14.80% 13.30% 11.72%
Small
2.03%
1.91%
1.78%
Small 10.43% 10.60% 10.75%
Small 14.08% 13.40% 12.72%
3-Year (Annualized)
Value Core Growth
5-Year (Annualized)
Value Large 0.85% Core
1.47%
10-Year (Annualized)
Value Large
6.57%
Growth
3.69%
Core
6.86%
Growth
7.02%
Large 12.08% 13.82% 15.59%
Mid 15.09% 15.57% 16.12%
Mid
1.78%
2.47%
2.92%
Mid
9.54%
9.88%
9.97%
Small 12.24% 13.89% 15.49%
Small
0.73%
1.90%
2.94%
Small
8.49%
9.00%
9.40%
Highest Return in Style Box
Lowest Return in Style Box
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, 8/31/12. Equity style boxes are based on targeted equity styles as determined by valuation measures. Large Value, Large Core and Large Growth are represented by Russell 1000 Value, Russell 1000 and Russell 1000 Growth Indices, respectively. Mid Value, Mid Core and Mid Growth are represented by Russell Midcap Value, Russell Midcap and Russell Midcap Growth Indices, respectively. Small Value, Small Core and Small Growth are represented by Russell 2000 Value, Russell 2000 and Russell 2000 Growth Indices, respectively. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Domestic Equities
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S&P 500 Index and GICS Sector Returns as of 8/31/12

Despite plenty of volatility, the S&P 500 Index has notched solid gains year to date. All sectors have risen, but telecom, technology, consumer discretionary and financial stocks have outperformed, despite concerns over consumer spending and the potential for greater financial regulation. Warm weather and cool growth prospects weighed on utilities and energythe best-performing sector over the last decade, on average. Sector leadership changes frequently, as the economic cycle progresses and investor sentiment shifts.
Total Return
Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials
2002 23.82%
2003 37.41% 11.57 25.63 31.03 15.06 32.20
2004 13.24% 8.16
2005
2006 18.64% 14.36 24.21 19.19
2007 13.21% 14.18
2008 33.49%
2009 41.30% 14.89 13.82 17.22 19.70 20.93
2010
2011 6.13% 13.99 4.72
YTD as of 8/31/12 17.60% 11.05 4.07 17.58 13.31 9.33 20.30 7.84
6.36%
3.58
27.66%
14.11 20.46 12.13
4.26
11.13 14.64 18.82 26.34
15.43
34.87
31.54
10.89
31.37
6.48 6.46 2.32 0.99 4.42 5.63 16.84 4.91
34.40 18.63
7.15 12.03 16.31 22.53 11.94 19.38 5.49
55.32
22.81 39.92 43.14 45.66 30.49 28.98 37.00
17.06
12.73 0.59 2.41 9.75 6.27
1.68
18.03 2.56 13.19 19.85 24.28 10.88
7.53
13.29 8.42 18.63
2.90
26.73 10.19 22.20 18.97 5.46 15.06
Information Technology 37.41 Materials Telecomm. Services Utilities S&P 500 Index 5.46 34.11 29.99 22.10
47.23
38.19
61.72
48.59
7.08
26.26 28.68
36.80
20.99 15.79
8.93
11.91 26.46
21.01 3.06
13.51
19.91
2.11
Highest Return for Period
Lowest Return for Period
Source of chart data: FactSet, 8/31/12. The Global Industry Classification Standard (GICS) methodology has been widely accepted as an industry analysis framework for investment research, portfolio management and asset allocation. The GICS structure consists of 10 sectors above. Index definitions can be found on pages 34. Pastperformance does not guarantee future results.
24
Domestic Equities
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Market Valuation 12/31/65 through 8/31/12

The price/earnings ratio for U.S. stocks has crept higher year to date, but it remains below its average since 1965. Investors are assigning a greater risk premium to stocks given the uncertain global macro environment, but valuations nonetheless appear reasonable.
50x 45 40 35 P/E Ratio (LTM) 30 25
S&P 500 Index Price-to-Earnings (P/E)
Average: 15.78x 20 15 10 5
13.45x
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source of chart data: FactSet, 8/31/12. Price/Earnings Ratio (last 12 months) is a valuation ratio of a companys current share price compared to its actual per-share earnings over the last 12months. Index definitions can be found on pages 34. Past performance does not guarantee future results.
25
Domestic Equities
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High Pairwise Correlations: Risk-On/Risk-Off Pattern Continues as of 8/31/12

Pairwise correlationsthe degree to which stocks are correlated with one anotherhave trended higher since the beginning of the financial crisis, illustrating the binary, risk-on/risk-off nature of todays markets. Pairwise correlations are well off their recent highs, but remain elevated by historical standards, making stock-picking ability increasingly important.
Median 3-Month (63-Day) Correlation of S&P 500 Stocks to the S&P 500 Index
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 1989 Average: 0.48
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source of chart data: Ned Davis Research, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee futureresults.
26
Domestic Equities
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Equity Dividend Yield vs. Treasury Yields 1/31/62 through 8/31/12

The S&P 500 Indexs dividend yield remains above that of the 10-year Treasury, as the 10-year yield flirts with record lows. Dividend-paying stocks appear more attractive than treasuries, as they offer investors not only a competitive and potentially growing income stream, but the opportunity for greater long-term capital appreciation, as well.
20%
S&P 500 Index Dividend Yield 2.12% U.S. 10-Year Treasury Yield 1.55%
15
10
08 2009 2010 2011 2012
0 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Source of chart data: FactSet, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time.
27
Domestic Equities
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The Power of Dividends 12/31/72 through 8/31/12

Stocks that pay and grow dividends have historically outperformed those that do not, with less risk. Dividend growers tend to have relatively strong balance sheets, which may help them outperform in a modest-growth environment. Additionally, domestic fixed income yields that are likely to stay low for an extended period make dividend-growers potentially attractive compared to bonds.
Risk and Return

12
Dividend Growers and Initiators (16.60, 9.51) All Dividend-paying Stocks (17.09, 8.70)
Dividend Payers with No Change (18.43, 7.03)
Average Annual Return (%)
4 Non-dividend-paying Stocks (25.64, 1.53) 0 Dividend Cutters or Eliminators (25.70, 0.26)
4 15
20 Annualized Standard Deviation
25
30
Source of chart data: Ned Davis Research, Inc. Further distribution prohibited without prior permission. Copyright 2012 Ned Davis Research, Inc. All rights reserved, 8/31/12. Based on equal-weighted geometric average of total return of dividend-paying and non-dividend-paying historical S&P 500 Index stocks, rebalanced annually. Uses actual annual dividends to identify dividend-paying stocks and changes on a calendar-year basis. The performance shown represents the risk-return characteristics of each of the five categories with annual standard deviation (measure of risk) measured on the x-axis and average annualized return measured on the y-axis. The performance shown is for illustrative purposes only and does not predict or depict the performance of any Oppenheimer fund. Past performance does not guarantee future results. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time.
28
Domestic Equities
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Many U.S. Companies Provide International Exposure

Among companies in the S&P 500 Index, approximately 46.3% of revenues come from overseas, highlighting the increasingly globalized nature of U.S. businesses. Indeed, the location of a companys headquarters is becoming less relevant than the location of its customers. Of course, owning international stocks remains crucial in order to gain exposure to the worlds leading companies.
S&P 500 Index Geographic Distribution of Sales

South America 2.6% Australia 0.2%
Africa North America 3.7% Ex-U.S. 4.4% Asia 7.2%
Europe 11.1% Foreign Not-Specified 17.1%
United States 53.7%
Source of chart data: Standard & Poors S&P 500 2011 Global Sales Report, 8/31/12. Index definitions can be found on pages 34.
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Domestic Equities
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31 32 33
Developed Markets Performance Emerging Markets Performance Country Risk and Return Valuation of Major World Markets International and Emerging Markets Share of Global Capitalization Correlation of Major Indices Dividend Yields Higher Abroad
International Equities
34 35 36 37
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Developed Markets Performance Select Developed Markets as of 8/31/12

Developed international markets are all positive year to date (barely, in Japans case) despite fears over global growth and the Eurozone crisis. Germany, the largest and among the healthiest of the Eurozone economies, has been the biggest gainer in dollar terms. Over the past decade, Australia has been a significant outperformer, but its focus on commodity exports may weigh as Chinese demand cools.
2002 Best
2003
2004
2005
2006
2007
2008
2009
2010
2011
YTD as of 8/31/12
Australia 0.28%
Germany 64.79%
Australia 31.95%
Japan 25.63%
Germany 36.79%
Germany 35.93%
Japan 29.11%
Australia 76.77%
Japan 15.59%
UK 2.52%
Germany 15.24%
Japan 10.11%
Australia 51.36%
UK 19.57%
Australia 17.54%
France 35.42%
Australia 29.79%
France 42.71%
UK 43.37%
Australia 14.73%
Australia 10.79%
Australia 11.48%
UK 15.23%
France 41.03%
France 19.22%
France 10.59%
Australia 32.51%
France 14.03%
Germany 45.50%
France 33.26%
Germany 9.32%
Japan 14.19%
France 9.21%
France 20.83%
Japan 36.15%
Germany 16.66%
Germany 10.52%
UK 30.66%
UK 8.39%
UK 48.32%
Germany 26.56%
UK 8.80%
France 16.00%
UK 8.12%
Worst
Germany 32.90%
UK 32.06%
Japan 15.95%
UK 7.38%
Japan 6.33%
Japan 4.14%
Australia 49.96%
Japan 6.39%
France 3.23%
Germany 17.45%
Japan 0.03%
MSCI EAFE 15.66% S&P 500 22.10%
MSCI EAFE 39.17% S&P 500 28.68%
MSCI EAFE 20.70% S&P 500 10.88%
MSCI EAFE 14.02% S&P 500 4.91%
MSCI EAFE 26.86% S&P 500 15.79%
MSCI EAFE 11.63% S&P 500 5.49%
MSCI EAFE 43.06% S&P 500 37.00%
MSCI EAFE 32.46% S&P 500 26.46%
MSCI EAFE 8.21% S&P 500 15.06%
MSCI EAFE 11.73% S&P 500 2.11%
MSCI EAFE 7.38% S&P 500 13.51%
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, 8/31/12. Country returns are based on each countrys respective MSCI Index. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Emerging Markets Performance Select Emerging Markets as of 8/31/12

Emerging market stocks have not been immune to developed-world turmoil but are generally in positive territory year to date. Developing market growth has slowed (intentionally in some cases), but policy flexibility and positive demographic trends help support long-term prospects. Valuations remain below their historical average and the secular story for emerging market growth generally remains intact.
2002 Best
2003
2004
2005
2006
2007
2008
2009
2010
2011
YTD as of 8/31/12
Russia 15.71%
Brazil 115.01%
Mexico 48.32%
Russia 73.77%
China 82.87%
Brazil 79.99%
Mexico 42.94%
Brazil 128.62%
Mexico 27.61%
Mexico 12.11%
Mexico 14.27%
India 8.37%
China 87.57%
Brazil 36.47%
Brazil 57.05%
Russia 55.93%
India 73.11%
China 50.83%
Russia 104.91%
India 20.95%
China 18.24%
India 9.36%
Mexico 13.31%
India 78.36%
India 19.11%
Mexico 49.11%
India 51.00%
China 66.24%
Brazil 56.06%
India 102.81%
Russia 19.40%
Russia 19.30%
Russia 5.80%
China 14.05%
Russia 75.94%
Russia 5.69%
India 37.57%
Brazil 45.80%
Russia 24.79%
India 64.63%
China 62.63%
Brazil 6.81%
Brazil 21.59%
China 2.32%
Worst
Brazil 30.65%
Mexico 32.81%
China 1.89%
China 19.77%
Mexico 41.44%
Mexico 12.15%
Russia 73.83%
Mexico 56.63%
China 4.83%
India 37.17%
Brazil 5.77%
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
MSCI EM
(Emerging Markets)
6.00% S&P 500 22.10%
56.28% S&P 500 28.68%
25.95% S&P 500 10.88%
34.54% S&P 500 4.91%
32.59% S&P 500 15.79%
39.78% S&P 500 5.49%
53.18% S&P 500 37.00%
79.02% S&P 500 26.46%
19.20% S&P 500 15.06%
18.17% S&P 500 2.11%
5.92% S&P 500 13.51%
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, 8/31/12. Country returns are based on each countrys respective MSCI Index. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Country Risk and Return 10 years as of 8/31/12

Returns of emerging market equities have significantly outpaced those in the developed world over the past 10 yearsalbeit with greater volatility. Competitive growth rates in the emerging world are likely to provide a tailwind not only for companies domiciled in the emerging world but for developed market companies with sales exposure to the developing world.
30
Brazil
25 Average Annual Return (%) India China EM Australia stra tra ra al li lia ia ia 10 U.S. EAFE 5 UK 0 15 Japan 20 25 30 35 40 France Germany Russia
20
Mexico
15
Annualized Standard Deviation
Source of chart data: FactSet, 8/31/12. Standard deviation is a statistical measure of performance fluctuations. Generally, the higher the standard deviation, the greater the expected volatility ofreturns. It is calculated using historical period returns around a mean and cannot be used to predict fund performance. Country returns are based on each countrys respective MSCI Index. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Valuation of Major World Markets 12/31/72 through 8/31/12

International equity valuations have risen year to date, but they remain comfortably below their long-term averages. Both developed and emerging markets stocks appear poised to outperform bonds over the coming years, given low interest rates in much of the developed world and the ongoing (though by no means hiccup-free) rise of emerging markets.
Price-to-Earnings (P/E) Ratio

80x
70 60 50 40 30 20 10 0 1972
S&P 500 Index (12/31/72 to 8/31/12) Current 13.5x Average 15.6x
MSCI EAFE Index (12/31/72 to 8/31/12) Current 14.0x Average 19.3x
P/E Ratio (LTM)
MSCI Emerging Markets Index (1/31/95 to 8/31/12) Current 11.7x Average 15.7x
2011
2012
1975
1980
1985
1990
1995
2000
2005
2010
Source of chart data: FactSet, 8/31/12.Price/Earnings Ratio (last 12 months) is a valuation ratio of a companys current share price compared to its actual per-share earnings over the last 12 months. Index definitions can be found on pages 34. Past performance does not guarantee future results.
34
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International and Emerging Markets Share of Global Capitalization as of 8/31/12

Though many U.S. investors still have only modest exposure to international equities, foreign marketsparticularly fast-growing emerging markets make up an increasing share of global market capitalization. In addition, a growing number of the worlds most profitable companies are headquartered outside of the U.S.
Share of World Market Capitalization1

International vs. U.S. August 1972 August 2012 Developed vs. Emerging Markets August 1972 August 2012
12.3% 32.5% 67.5% 45.8% 54.2%
100.0%
87.7%
International
U.S.
Developed Markets
Emerging Markets
1. Data based on MSCI World Index until the inception of MSCI All Country World Index on 12/31/87. Source of chart data: FactSet, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Correlation of Major Indices 10 years as of 8/31/12

Because they are imperfectly correlated with U.S. equities, adding exposure to international stocks in a diversified portfolio may enhance performance while lowering overall risk.
MSCI EAFE Index MSCI EAFE Index S&P 500 Index Russell 2000 Index MSCI World Index MSCI EM Index MSCI ACWI ex-U.S. Small Cap Index 1.00 0.90 0.83 0.98 0.91 0.96
S&P 500 Index 0.90 1.00 0.91 0.97 0.82 0.84
Russell 2000 Index 0.83 0.91 1.00 0.89 0.78 0.81
MSCI World Index 0.98 0.97 0.89 1.00 0.89 0.93
MSCI EM Index 0.91 0.82 0.78 0.89 1.00 0.93
MSCI ACWI Ex-U.S. Small Cap Index 0.96 0.84 0.81 0.93 0.93 1.00
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, 8/31/12. Correlation expresses the strength of relationship between distribution of returns of two sets of data. The correlation coefficient is always between +1 (perfect positive correlation) and 1 (perfect negative correlation). A perfect correlation occurs when the two series being compared behave in exactly the same manner. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Dividend Yields Higher Abroad as of 8/31/12

Though foreign stocks potential for providing income is sometimes overlooked, their dividend yields are generally higher than those of U.S. stocks. Additionally, in times of a weakening U.S. dollar, such dividend yields may prove even more competitive.
5%
Dividend Yields of G20 Countries

4.70 4.05
4.88
4 3.43 3 2.45 2.49 2.21 2 1.25 1 1.29 1.44 2.99 2.59 2.69 3.11 3.19 3.55 3.66
3.89
3.96 4.01
ia
ina
ico
sia
U. Ar S. ge nt ina
Ko re a
sia
an
da
ca
ce
ly Br az il
dia
ke y
UK
EU
ra b
an
Tu r
Fra n
Ja p
na
Ru s
ne
ex
Ch
In
Ita
fri
ut hA
di A
do
Ca
rm
So u
In
Sa u
So
Ge
Source of chart data: Bloomberg (Argentina data only), FactSet (all other countries), 8/31/12. Dividend yields calculated using each countrys respective MSCI Index. Index definitions can be found on pages 34. Past performance does not guarantee future results.
37
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Au
th
str
ali
39 40 41 4243
10-Year Treasury Yields Short-term Interest Rates Over Time U.S. Interest Rate Yield Curve Fixed Income Spreads Over Treasuries Sector Performance Yield and Duration of Various Fixed Income Sectors Senior Loans and High Yield Bonds Have Historically Outperformed in Rising Rate Environments Sector Correlations Risk/Return Profile of International Bonds Global Bond Indices Emerging Markets: High Yields and Comparatively Low Debt Levels
Taxable Fixed Income
44 45 46 47 48 49 50
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10-Year Treasury Yields as of 8/31/12

Demand for U.S. Treasuries continued to push yields to near record-low levels, as the European crisis and the impending U.S. fiscal cliff helped safe haven assets maintain their appeal. The Federal Reserve has made clear that it intends to keep interest rates low for an extended period, thereby anchoring the short end of the yield curve at close to zero. Investors continue to prefer the low or negative real yields of treasuries to the potential of higher real returns in other asset classes.
20%
1970s
Nasdaq Opens First Day ofTrading Dow Closes Above 1,000 U.S. Abandons the Gold Standard OPEC Oil Shock & Nixon Resigns Eurodollar Market Crisis European Monetary System Created
1980s
Iran/Iraq War Begins Mexican Debt Crisis Reagan Tax Reform Black Monday Berlin Wall Falls
1990s
Japanese Banks Are Largest in the World Collapse of the Soviet Union WTC Bombed First Internet Stock Trade Dow Tops 5,000 Real-time Stock Tickers First Introduced on Cable Asian Financial Crisis Russian Bond Default Dow Tops 10,000
2000s
Tech Bubble Bursts 9/11 Attacks Enron & WorldCom Collapse U.S. Invades Iraq Hurricane Katrina Senate Confirms Ben Bernanke Subprime Crisis Begins World Economic Collapse Bear Stearns Collapse Lehman Bankruptcy GM Bankruptcy
2010s
Quantitative Easing 2 European Sovereign Debt Crisis Arab Spring U.S. Debt Rating Downgrade
15
10
5
1.55%
0 1970 1975
High: 10.72% Oct. 1979 Low: 5.53% Mar. 1971
1980
1985
High: 15.84% Sept. 1981 Low: 6.95% Aug. 1986
1990
1995
High: 9.04% Apr. 1990 Low: 4.44% Sept. 1998
2000
2005
2010
High: 6.68% Jan. 2000 Low: 2.25% Dec. 2008
Source of chart data: FactSet, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Short-term Interest Rates Over Time as of 8/31/12

The Fed Funds Rate and LIBOR remain at historically low levels and are likely to remain so for some time, thanks to accommodative monetary policy. After rising sharply in the fourth quarter of 2011 amid the Eurozone debt crisis, U.S. interbank lending rates fell steadily in the first eight months of the year as market stresses eased.
11 10 9 8
Mexican Peso Crisis Junk Bond Collapse Asian Financial Crisis Subprime Crisis Starts
BBA LIBORUSD 3-Month U.S. Federal Funds Rate
Asian Tsunami
7 Rate (%) 6 5 4 3 2 1 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Savings & Loan Crisis 87 Stock Market Crash Big Bang London Stock Exchange Treasury Bond Yields 5% for First Time Since 1967 DOW Crosses 5,000 DOW Crosses 10,000 Bear Stearns Collapses GM Bankruptcy Enron Collapses
Lehman Bankruptcy
2008
2010
2012
Source of chart data: FactSet, 8/31/12. The Fed Funds Rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other financial institutions, usually overnight. The London InterBank Offered Rate (LIBOR) is the interest rate that banks charge each other for loans (usually in eurodollars). The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day. Past performance does not guarantee future results.
40
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U.S. Interest Rate Yield Curve as of 8/31/12

With the Fed still anchoring short-term interest rates effectively at zero and driving long-term rates down, the yield curve remains flatter than it was a year ago, and it is becoming flat from a historical perspective. The current curve indicates that while liquidity is ample, demand for safe haven assets across the maturity spectrum remains high amid continued macroeconomic concerns.
8/31/11 Fed Funds 2-Year 10-Year 30-Year 0.25% 0.20 2.23 3.60
8/31/12 0.25% 0.23 1.55 2.67
Basis Points (bps) change 0 bps 3 68 98
5% 4 3 2 1 0 1-Yr 2-Yr 3-Yr 5-Yr 7-Yr 10-Yr 30-Yr
8/31/11 8/31/12
Source of chart data: FactSet, 8/31/12; logarithmic trend line; data shown are on-the-run treasury yields. Past performance does not guarantee future results.
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Fixed Income Spreads Over Treasuries as of 8/31/12

Credit spreads to treasuries have narrowed steadily since the start of the year as investors grew more comfortable with credit risk in a low real-yield environment. With spreads in some higher quality categories no longer so wide, investors must become even more willing to assume credit risk to find yield opportunities. U.S. Corporate Investment-grade Debt
Option-adjusted Spread (bps) Option-adjusted Spread (bps)
U.S. Agency Debt

200 150 100 50 0 2003 2003 to 8/31/12 Average: 43 2008 High: 158 Current (as of 8/31/12): 36
800 600 400 200 0 2003

2003 to 8/31/12 Average: 174 2008 High: 607 Current (as of 8/31/12): 172
2004
2005
2006
2007
2008
2009
2010
2011
2012
2004
2005
2006
2007
2008
2009
2010
2011
2012
AAA Commercial Mortgage-backed Securities (CMBS)

Option-adjusted Spread (bps) Option-adjusted Spread (bps) 1,500 1,200 900 600 300 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 to 8/31/12 Average: 222 2008 High: 1,270 Current (as of 8/31/12): 134 200 150 100 50 0 50 2003
U.S. Agency Mortgage-backed Securities (MBS)

2004
2005
2006
2007
2008
2009
2010
2011
2012
Source of chart data: Barclays Capital Live, 8/31/12. Option-adjusted Spread (OAS) is the flat spread which has to be added to the treasury yield curve in a pricing model (that accounts for embedded options) to discount a security payment to match its market price. Past performance does not guarantee future results.
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Fixed Income Spreads Over Treasuries as of 8/31/12 (continued)

Credit spreads to treasuries have narrowed steadily since the start of the year as investors grew more comfortable with credit risk in a low real-yield environment. With spreads in some higher quality categories no longer so wide, investors must become even more willing to assume credit risk to find yield opportunities. Emerging Market Debt1
1,000 800 600 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
U.S. High Yield Bonds2

2,000 Option-adjusted Spread (bps) 2003 to 8/31/12 Average: 622 2008 High: 1,792 Current (as of 8/31/12): 607
Spread over Treasuries (bps)
1,500 1,000 500 0 2003 2004
2005
2006
2007
2008 2009
2010
2011
2012
Senior Loans3
2003 to 8/31/12 Average: 502 2008 High: 1,376 Current (as of 8/31/12): 596 Option-adjusted Spread (bps) 1,500 Discount Margin (bps)4 1,200 900 600 300 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,200 1,000 800 600 400 200 0 200 2003 2004 2005
Municipals1
2003 to 8/31/12 Average: 376 2009 High: 1,030 Current (as of 8/31/12): 420
2006
2007
2008
2009
2010
2011
2012
1. Source of chart data: FactSet, 8/31/12. 2. Source of chart data: JPMorgan Research, 8/31/12. 3. Source of chart data: Credit Suisse Research Online/Bond.hub, 8/31/12. 4. Loan spread is typically defined as the discount margin under the assumption of a three-year average life. Discount margin is the yield-to-refunding of the facility less the current 3-month LIBOR rate. Option-adjusted Spread (OAS) is the flat spread which has to be added to the treasury yield curve in a pricing model (that accounts for embedded options) to discount a security payment to match its market price. Past performance does not guarantee futureresults.
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Sector Performance as of 8/31/12

Credit-oriented fixed income sectors have outperformed year to date, with high yield bonds gaining the most, and U.S. and international government bonds lagging. Over the past decade, high yield and emerging market bonds have been the best performers, though both categories have been volatile. Despite paltry (or negative) real yields, investor appetite for the relative safety of government bonds remains strong amid lingering fears of financial market turmoil.
2002 Best
Intl Bonds 21.99% Treasuries 11.79% High Yield 26.80% Intl Bonds 18.52% Emerging Markets 16.92% Senior Loans 11.01% I.G. Corporates 8.24% U.S. Aggregate 4.10% Treasuries 2.24%
2003
2004
Emerging Markets 22.97% Intl Bonds 12.14% High Yield 11.10% Senior Loans 5.60% I.G. Corporates 5.39% U.S. Aggregate 4.34% Treasuries 3.54%
2005
Emerging Markets 6.27% Senior Loans 5.69% Treasuries 2.79% U.S. Aggregate 2.43% High Yield 2.42% I.G. Corporates 1.68% Intl Bonds 9.20%
2006
Emerging Markets 15.22% High Yield 11.56% Senior Loans 7.33% Intl Bonds 6.94% U.S. Aggregate 4.33% I.G. Corporates 4.30% Treasuries 3.08%
2007
Emerging Markets 18.11% Intl Bonds 11.45% Treasuries 9.01% U.S. Aggregate 6.97% I.G. Corporates 4.56% High Yield 2.58% Senior Loans 1.88%
2008
Treasuries 13.74% Intl Bonds 10.11% U.S. Aggregate 5.24% I.G. Corporates 4.94% Emerging Markets 5.22% High Yield 26.55% Senior Loans 28.75%
2009
High Yield 58.17% Senior Loans 44.87% Emerging Markets 21.98% I.G. Corporates 18.68% U.S. Aggregate 5.93% Intl Bonds 4.39% Treasuries 3.57%
2010
Emerging Markets 15.68% High Yield 14.74% Senior Loans 9.97% I.G. Corporates 9.00% U.S. Aggregate 6.54% Treasuries 5.87% Intl Bonds 5.21%
2011
Treasuries 9.81% I.G. Corporates 8.15% U.S. Aggregate 7.84% High Yield 6.97% Intl Bonds 5.17% Senior Loans 1.82% Emerging Markets 1.75%
YTD as of 8/31/12 High Yield 10.68% Emerging Markets 9.26% I.G. Corporates 7.91% Senior Loans 6.65% U.S. Aggregate 3.85% Treasuries 2.40% Intl Bonds 2.04%
Historical Total Returns (%)
U.S. Aggregate 10.25% I.G. Corporates 10.12% High Yield 3.20% Senior Loans 1.12% Emerging Markets N/A
Worst
Credit Suisse Leveraged Loan Index Barclays Capital U.S. Aggregate Bond Index JPMorgan Domestic High Yield Index JPMorgan EMBI Global Diversified Bond Index
Citigroup Non-U.S. World Government Bond Index (USD Unhedged) Barclays Capital U.S. Aggregate Treasury Index Barclays Capital U.S. Credit/Corporate/Investment Grade Bond Index
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, Bloomberg, JPMorgan, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Yield and Duration of Various Fixed Income Sectors as of 8/31/12

Senior loans, though high in the capital structure, tend to offer very competitive yields with relatively low interest rate risk, or duration. Additionally, their interest rates usually reset frequently along with prevailing policy rates, making them potentially attractive investments in rising rate environments.
10%
8
Senior Loans (0.25, 6.38) High Yield (3.66, 6.69)
6
Yield
Emerging Mkts (4.68, 5.86)
4
Intl Bonds (7.32, 1.57)
U.S. Aggregate (5.02, 1.75)
Treasuries (5.69, 0.80)
I.G. Corporates (7.19, 2.90)
4
Duration (years)
Credit Suisse Leveraged Loan Index Barclays Capital U.S. Aggregate Bond Index JPMorgan Domestic High Yield Index Barclays Capital U.S. Aggregate Treasury Index
Barclays Capital U.S. Credit/Corporate/Investment Grade Bond Index Citigroup Non-U.S. World Government Bond Index (USD Unhedged) JPMorgan EMBI Global Diversified Bond Index
Source of chart data: Barclays Capital Research, JPMorgan Research, Credit Suisse Research, 8/31/12. Index definitions can be found on pages 34. Duration is a weighted average term tomaturity of the securitys cash flows expressed in years. Duration helps measure a securitys and portfolios price sensitivity to changes in interest rates. Past performance does not guarantee future results.
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Senior Loans and High Yield Bonds Have Historically Outperformed in Rising Rate Environments
Comparatively low interest-rate sensitivity, or duration, has helped senior loans and high yield bonds outperform when interest rates have risen. Given that rising rates often accompany a generally strengthening economy, lower quality fixed income sectors have tended to benefit as default risk fears eased.
Returns During Periods of Rising Rates

60%
n n
58.17
50
Credit Suisse Leveraged Loan Index Barclays Capital U.S. Treasury Index JPMorgan Domestic High Yield Index
41.47
40
30
20 10.70 6.81 6.24 3.25 1.84 9/981/00 5/036/06 12/0812/09 6.57 2.74 0.93 9.37 3.57
10
0 3.70 10 9/9311/94* 2.70 12/958/96
*The JPMorgan Domestic High Yield Index does not begin until 1/31/95.
Source of chart data: Bloomberg, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Sector Correlations 10 years as of 8/31/12

By owning instruments with low correlations and varying exposures to interest rate risk, credit risk and currencies, a strategically diversified portfolio of fixed income holdings seeks to generate higher total returns for a given level of risk.
BarCap U.S. Aggregate Govt Bond Index Barclays Capital U.S. Aggregate Government Bond Index Barclays Capital U.S. Aggregate Credit/Corporate/I.G. Index Barclays Capital U.S. Aggregate Bond Index JPMorgan Domestic High Yield Index Credit Suisse Leveraged Loan Index Citigroup Non-U.S. WGBI (USD Unhedged) United States Dollar Index 1.00 0.55 0.90 0.21 0.37 0.53 0.18
BarCap U.S. Aggregate Credit/Corp./ I.G. Index 0.55 1.00 0.83 0.58 0.37 0.54 0.43
BarCap U.S. JPMorgan Credit Suisse Citigroup Aggregate Bond Domestic High Leveraged Loan Non-U.S. WGBI United States Index Yield Index Index (USD Unhedged) Dollar Index 0.90 0.83 1.00 0.19 0.02 0.61 0.34 0.21 0.58 0.19 1.00 0.87 0.21 0.44 0.37 0.37 0.02 0.87 1.00 0.04 0.24 0.53 0.54 0.61 0.21 0.04 1.00 0.84 0.18 0.43 0.34 0.44 0.24 0.84 1.00
Source of chart data: Bloomberg, 8/31/12. Correlation expresses the strength of the relationship between distribution of returns of two sets of data. The correlation coefficient is always between +1 (perfect positive correlation) and 1 (perfect negative correlation). A perfect correlation occurs when the two series being compared behave in exactly the same manner. Diversification does not guarantee profit or protect against loss. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Risk/Return Profile of International Bonds 10 years as of 8/31/12

A portfolio consisting of equal allocations of core fixed income, international bonds and high yield bonds may provide a higher yield and less risk than international bonds or high yield bonds alone.
12
10 Average Annual Return (%)
JPMorgan Domestic High Yield (9.95, 10.51)
Blended Fixed Income Portfolio (7.37, 7.71) Citigroup Non-U.S. WGBI (USD Unhedged) (8.56, 7.13)
6 Barclays Capital U.S. Aggregate Bond (3.60, 5.48) 4 2 4 6 Annualized Standard Deviation 8 10
Source of chart data: FactSet, Bloomberg, JPMorgan, 8/31/12. The performance shown represents the risk-return characteristics with annualized standard deviation (measure of risk) measured on the x-axis and average annualized return measured on the y-axis. Index definitions can be found on pages 34. Chart compares the average annual total return over the 10-year period ended 8/31/12 and annualized standard deviation over the same period for a blended fixed income portfolio composed of an equal weight in Barclays Capital U.S. Aggregate Bond Index, JPMorgan Domestic High Yield Index and Citigroup Non-U.S. WGBI (USD Unhedged) versus the individual indices themselves. Past performance does not guarantee futureresults.
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Global Bond Indices

Local-currency international bonds have posted solid gains year to date, with emerging market bonds outperforming their developed market (ex-U.S.) counterparts. Locally denominated international bonds have historically helped offset rising U.S. prices of imported goods, making them a potentially valuable tool for protecting purchasing powerespecially in a weakening dollar environment.
300 250
Index Level
JP Morgan EMBI Global Diversified Citigroup Non-USD WGBI (USD) Import Price Index
200 150 100 50
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2002 Citigroup Non-U.S. WGBI (USD Unhedged) JPMorgan EMBI Global Diversified Index JPMorgan GBI-EM Global Diversified Unhedged Index
2003
2004
2005
2006
2007
2008
2009 4.39% 29.82 21.98
2010 5.21% 12.24 15.68
2011 5.17% 7.35 1.75
YTD as of 8/31/12 2.04% 12.41 9.26
21.99% 18.52% 12.14% 9.20% 13.65 N/A 22.21 16.92 11.62 22.97 10.25 6.27
6.94% 11.45% 10.11% 9.86 15.22 6.16 18.11 12.03 5.22
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Emerging Markets: High Yields and Comparatively Low Debt Levels as of 8/31/12
Emerging market bonds generally continue to offer higher yields than most developed market debt, despite emerging markets often having more sustainable public debt levels. This mismatch is a legacy of decades past, when emerging market central banks were far less disciplined. Today, many of these central banks have established themselves as responsible and independent, while governments have increasingly resisted the temptation to run up unsustainable debt levels.
Public Debt as a Percentage of GDP (2011) vs. 10-Year Sovereign Yield (8/31/12)
15
Brazil 10 Yield (%) Turkey India South Africa Indonesia Mexico 5 Peru Italy Portugal
France Germany 0 UK U.S. Japan 150 Public Debt (% GDP) 200 250
50
100
Source of chart data: Bloomberg, 8/31/12 (10-Year Sovereign Yields). IMF World Economic Outlook, 12/31/11. (Debt as % of GDP. Note: Debt statistic used is Gross Debt, data is only available through 2011.) Past performance does not guarantee future results.
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52 53
Municipal Bond Yield Ratios Municipal Bond Sector Performance Municipal vs. Corporate Default Rates U.S. Municipal Bond Issuance Municipal Tax Collections
Municipal Bonds
54 55 56
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Municipal Bond Yield Ratios as of 8/31/12

The gap between treasury yields and those of most types of municipal bonds have continued to narrow since the beginning of the year, but with treasury yields near all-time lows, lower quality munis spreads to treasuries remain wider than their average historical level. Fears of mass municipal defaults largely subsided by the end of 2011, but concerns still remain, keeping the yield differential between lower and higher rated munis significant.
Municipal/Treasury Yield Ratio
250% 200
AAA Munis OAS

35 30 25 20 15 10 5 0 5 10
Yield Ratio
20022012 Avg.: 124 2008 High: 233 Current (as of 8/31/12): 214
Option-adjusted Spread (bps)
150 100 50
2002
2004
2006
2008
2010
2012
2002
2004
2006
2008
2010
2012
BBB Munis OAS

Option-adjusted Spread (bps) 500 400 300 200 100 0 2002 2004 2006 2008 2010 2012
100 2002 2004 250%
BBB/AAA Yield Ratio

Yield Ratio
200
150
2006
2008
2010
2012
Source of chart data: FactSet, Bloomberg, Merrill Lynch, 8/31/12. AAA and BBB are represented by Merrill Lynch Municipal indices which are derived from data points on the Merrill Lynch Municipal AAA Yield to Worst and Merrill Lynch Municipal BBB Yield to Worst, respectively. The yield ratio indicates the relationship between the Merrill Lynch Municipal Master Index and the U.S. 10-Year Treasury. The option-adjusted spread (OAS) is the flat spread which has been added to the treasury yield curve in a pricing model (that accounts for embedded options) to discount a security payment to match its market price. Performance is shown for illustrative purposes only and does not predict or depict the performance of any Oppenheimer fund. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Municipal Bonds
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Municipal Bond Sector Performance as of 8/31/12

Lower rated municipal bonds continued to outperform throughout the summer, continuing 2011s pattern. Munis notched their best performance since 2009 last year, as fears over waning tax revenues subsided and investors searched for competitive yields. Because relative performance varies widely from year to year, diversification remains important.
2002 Best
Munis AAA 712 Munis yrs 11.29% 11.46%
2003
BBB Baa Munis 7.63% 8.35%
2004
2005
Tobacco Baa Munis Munis 13.33% 8.33%
2006
2007
Munis AAA Munis 37 yrs 3.80% 5.28%
2008
Munis AAA Munis 37 yrs 5.92% 0.13%
2009
2010
2011
YTD as of 5/31/12 8/31/12 BBB Baa Munis 6.63% 9.00%
Munis BBB 712 Munis yrs Munis Airport 1222 Munis yrs 4.03% 3.67% 13.41% 13.57% Master Baa Munis Index 3.75% 2.25% Revenue Munis 37 Munis yrs 2.16% 3.35% Master AAA Munis Index 2.11% 2.25% Airport AAA Munis Munis 2.03% 1.34%
Historical Total Returns (%)
Munis Airport 1222 Munis yrs Munis Airport 1222 Munis yrs Munis Revenue 1222 Munis yrs Munis BBB1222 Munisyrs Munis Tobacco 1222 Munis yrs Munis Master 712 Index yrs Munis Master 712 Index yrs Munis Tobacco 1222 Munis yrs 11.12% 10.94% 6.57% 7.21% 5.54% 6.15% 8.88% 4.37% 5.33% 7.59% 3.29% 4.78% 3.95% 2.23% 17.47% 28.40% Revenue Master Index Munis 10.74% 10.78% Munis Master 37 Index yrs 10.74% 10.10% AAA BBB Munis 10.02% 9.66% Tobacco Baa Munis Munis 8.90% N/A Master AAA Munis Index 6.18% 6.40% Master Index 5.45% Airport Master Munis Index 3.94% 4.53% Revenue AAA Munis Munis 4.32% 3.13% Airport Master Munis Index 4.96% 5.50% Revenue AAA Munis Munis 5.17% 4.63% Revenue AAA Munis Munis 2.98% 3.84% Airport Master Munis Index 3.29% 2.36% Revenue AAA Munis Munis 5.73% 1.61% Airport Master Munis Index 11.95% 3.95% Airport Master Munis Index 14.45% 23.85% Munis Revenue 712 Munis yrs 16.32% 9.81% Master AAA Munis Index 14.45% 9.06%
Munis BBB 712 Munis yrs Munis Airport 1222 Munis yrs 12.48% 12.77% 5.16% 6.55% Revenue Baa Munis Munis 11.38% 11.84% Master Index 11.19% AAA Munis 9.12% 8.75% Revenue Master Index Munis 6.50% 4.17% Munis Master 712 Index yrs 6.00% 2.73% Tobacco AAA Munis Munis 2.60% 5.83% Munis AAA Munis 37 yrs 1.76% 3.83%
Munis Revenue 712 Munis yrs Munis Airport 712 Munis yrs 6.33% 5.63% 4.24% 4.86% Master AAA Munis Index 6.18% 5.37% Tobacco Munis 37 Munis yrs 4.22% N/A AAA Munis 4.72% 4.21% Tobacco Munis 37 Munis yrs 2.91% N/A
Munis Master 712 Index yrs Munis Master 712 Index yrs Munis Tobacco 1222 Munis yrs Munis Tobacco 1222 Munis yrs 3.94% 2.76% 4.96% 4.61% 0.22% 2.93% 17.60% 6.25% Munis AAA Munis 37 yrs 3.62% 1.27% Munis AAA Munis 37 yrs 4.71% 3.42% BBB Baa Munis 1.44% 2.73% BBB Baa Munis 22.38% 21.33%
Worst
Munis AAA Munis 37 yrs Munis Tobacco 1222 Munis yrs Tobacco Munis 37 Munis yrs 7.16% 9.02% 0.01% 1.80% 6.89% 7.37%
Merrill Lynch Municipal Master Index Merrill Lynch AAA Municipal Index Merrill Lynch BBB Municipal Index Merrill Lynch Municipals Revenue Index Merrill Lynch Municipals Airport Index Merrill Lynch Municipals Tobacco Index
Diversification does not guarantee profit or protect against loss. Source of chart data: FactSet, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Municipal Bonds
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Municipal vs. Corporate Default Rates

Historically, municipal bonds have had far lower default rates than corporate bonds, a fact many investors overlook amid concerns over municipalities creditworthiness.
Municipal Default Rates, Average Cumulative Issuer-weighted, Moodys Rated Baa* Only, 19702011 Time Horizon (in years from date of issuance)
Rating Baa Municipals Baa Corporates Year 1 0.01% 0.18% Year 2 0.04% 0.50% Year 3 0.07% 0.91% Year 4 0.11% 1.38% Year 5 0.14% 1.89% Year 6 0.19% 2.42% Year 7 0.24% 2.92% Year 8 0.28% 3.44% Year 9 0.33% 4.03% Year 10 0.37% 4.71%
*Moodys Baa is equivalent to Standard & Poors rating of BBB. Baa/BBB is a medium-quality, investment-grade bond rating assigned to a corporation based on the issuers ability to pay interest and repay principal upon maturity. Past performance does not guarantee future results.
Source of chart data: Moodys Investors Services. Data regarding default rates is from a study titled U.S. Municipal Bond Defaults and Recoveries, 1970-2011, dated March 2012. The above figures provide cumulative default rates for Moodys-rated Corporate and Municipal debt rated Baa. For example, obligations in the Baa Municipal category had a default rate of 0.01% within one year of the initial rating, 0.04% within two years, etc.
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Municipal Bonds
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U.S. Municipal Bond Issuance as of 8/31/12

Muni bond issuance is tracking slightly higher than last years levels, but much of total issuance has been for refunding outstanding bonds, which does not add any new supply to the market and can improve an issuers credit quality. What new supply was added was met with strong investor demand, helping to support muni bond prices. Annual U.S. Municipal Bond Issuance

$500 400 79.7 51.3 79.2 258.4 221.2 75.9 108.6 274.3 208.2 261.3 279.8 51.1 90.2 146.4 72.8 55.0 98.5
Combined Refunding New Money
25.4 95.3 262.7
56.2 42.4 88.4 228.9 130.9
61.9 86.5
USD Billions
300 200 100 0 2003
46.8 110.6
95.4
2004
2005
2006
2007
2008
2009
2010
2011
YTD as of 8/31/12
% of Total Issuance
2003 New Money Refunding 69% 25 2004 64% 25 2005 54% 32 2006 66% 20 2007 64% 18 2008 53% 28 2009 64% 21 2010 65% 23 2011 51% 31 YTD as of 8/31/12 38% 44
Source of chart data: The Bond Buyer, 8/31/12.
55
Municipal Bonds
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Municipal Tax Collections as of 3/31/12

Quarterly municipal tax collections continued to risealbeit at a decelerating pacecompared to the same year-ago period, a trend that has been in place since the end of 2009. The growth in tax collections and the flexibility to reduce spending indicates that state and local governments should continue to be able to meet their debt repayment obligations.
Quarterly State and Local Tax Collections

Year-over-Year Percent Change 30% 25 20 15 10 5 0 5 10 15 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source of chart data: U.S. Census Bureau, 3/31/12.
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Municipal Bonds
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58 Alternative Asset Class Returns 59 Alternatives May Help Protect Purchasing Power
Alternative Asset Classes
60 Correlation of Alternative Asset Classes 61 REITs Have Historically Provided Solid Yields 62 Ratio of Philadelphia Gold & Silver Index to Gold Price 63 Components of the S&P GSCI Index 64 Global Currencies
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Alternative Asset Class Returns as of 8/31/12

Commodities underperformed REITs, stocks and gold in the first eight months of the year, as lackluster global growth sapped demand for raw materials. Over time, however, commodities have served as an effective inflation hedge, having outperformed the CPI in seven out of the last 11 years. Gold has remained a steady store of value throughout the past decade, and remains a popular asset class when monetary easing appears imminent. REITs have been solid performers, too, having consistently outpaced U.S. stocks on an annual basis in each of those years except 2007 and 2008.
2002 Best
Commodities 32.07% Gold 24.72% Bonds 10.25% REITs 3.82% Stocks 22.10% REITs 37.13% Stocks 28.68% Commodities 20.72% Gold 19.59% Bonds 4.10% REITs 31.58% Commodities 17.28% Stocks 10.88% Gold 5.24% Bonds 4.34% Commodities 25.55% Gold 18.19% REITs 12.16% Stocks 4.91% Bonds 2.43% REITs 35.06% Gold 22.84% Stocks 15.79% Bonds 4.33% Commodities 15.09% Commodities 32.67% Gold 31.44% Bonds 6.97% Stocks 5.49% REITs 15.69% Gold 5.92% Bonds 5.24% Stocks 37.00% REITs 37.73% Commodities 46.49% REITs 27.99% Stocks 26.46% Gold 23.96% Commodities 13.48% Bonds 5.93% Gold 29.67% REITs 27.96% Stocks 15.06% Commodities 9.03% Bonds 6.54% Gold 10.23% REITs 8.29% Bonds 7.84% Stocks 2.11% Commodities 1.18% REITs 17.18% Stocks 13.51% Gold 7.71% Commodities 4.96% Bonds 3.85%
2003
2004
2005
2006
2007
2008
2009
2010
2011
YTD as of 8/31/12
Worst
CPI* 2.48%
CPI 2.04%
CPI 3.34%
CPI 3.44%
CPI 2.52%
CPI 4.15%
CPI 0.08%
CPI 2.70%
CPI 1.50%
CPI 2.97%
CPI 1.41%
Commodities: S&P Goldman Sachs Commodity Index Gold: Dollar spot price of one troy ounce REITs: FTSE NAREIT Equity REIT Index Stocks: S&P 500 Index Bonds: Barclays Capital U.S. Aggregate Bond Index
Diversification does not guarantee profit or protect against loss. *CPI is the year-over-year percent change as of 8/31/12 which represents latest available data. Source of chart data: FactSet, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Alternatives May Help Protect Purchasing Power as of 8/31/12

Adding alternative asset classes to a well-diversified portfolio may help protect against one of the most crucial risks to investors wealth: the loss of purchasing power. Alternative asset classes like real estate investment trusts, or REITs, commodities and gold have historically performed well in periods of contained and rising inflation and (unlike stocks) when inflation is high and rising.
1970June 2012 Annualized Returns

Contained and Rising CPI <4.5%* and More Than Prior Month NCREIF Property Index** S&P Goldman Sachs Commodity Index 10.20% 29.84% 15.67% 11.30% High and Rising CPI >4.5%* and More Than Prior Month 13.94% 31.36% 27.22% 10.23%
Gold
S&P 500 Index
**Average U.S. Inflation (19702010) = 4.5%. **Based on quarterly data.
Source of chart data: OppenheimerFunds Proprietary Research, 8/31/12. Returns are nominal and do not include the impact of inflation on a portfolio. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Correlation of Alternative Asset Classes 10 years as of 7/31/12

Alternative asset classes tend to be weakly or negatively correlated with stocks and bonds over time. For this reason, exposure to alternatives can be a potentially powerful way to diversify a portfolio.
S&P 500 Index S&P 500 Index Barclays Capital U.S. Aggregate Bond Index Consumer Price Index S&P GSCI GoldContinuous Contract FTSE NAREIT Equity REIT Index U.S. Dollar Index 1.00 0.02 0.05 0.36 0.07 0.74 0.48
BarCap U.S. Agg. Index 0.02 1.00 0.22 0.01 0.31 0.17 0.34
Consumer Price Index 0.05 0.22 1.00 0.38 0.06 0.09 0.15
S&P GSCI 0.36 0.01 0.38 1.00 0.33 0.25 0.48
Gold 0.07 0.31 0.06 0.33 1.00 0.14 0.49
FTSE NAREIT Equity REIT Index 0.74 0.17 0.09 0.25 0.14 1.00 0.44
U.S. Dollar Index 0.48 0.34 0.15 0.48 0.49 0.44 1.00
Diversification does not guarantee profit or protect against loss. Source of chart data: Bloomberg, 7/31/12. Correlation expresses the strength of relationship between distribution of returns of two sets of data. The correlation coefficient is always between +1 (perfect positive correlation) and 1 (perfect negative correlation). A perfect correlation occurs when the two series being compared behave in exactly the same manner. Gold is represented by the dollar spot price of one troy ounce. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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REITs Have Historically Provided Solid Yields as of 8/31/12

REITs have generally offered better yields than stocks, but in todays low interest rate environment, REITs offer particularly attractive yields compared not only to equities, but to investment-grade bonds, too.
12% 4.96 10
20-Year Average Annual Returns

Income Price
6.31
6.40
0.67 5.73
2.12
0 FTSE NAREIT Equity REIT Index S&P 500 Index Barclays Capital U.S. Aggregate Bond Index
Source of chart data: Factset, 8/31/12. Index definitions can be found on pages 34. Past performance does not guarantee future results.
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Ratio of Philadelphia Gold & Silver Index to Gold Price as of 8/31/12

Stocks of gold mining companies are trading at their greatest discount to gold prices in decades. Over time, whether such stocks have been over- or undervalued relative to gold prices, stock prices have eventually reverted to the mean, as valuations began to reflect the price of gold more accurately.
Ratio of Philadelphia Gold & Silver Index (XAU) to Gold Price : December 1983 to August 2012
0.40
0.35
0.30
Average = 0.23
XAU/Gold
0.25
0.20
0.15
0.10
0.05
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source of chart data: Bloomberg, 8/31/12. Gold is represented by the dollar spot price of one troy ounce. Index definitions can be found on pages 34. Pastperformance does not guarantee future results.
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Components of the S&P GSCI Index

The past decade has been a secular bull market for commodities, thanks to increasing global demand and accommodative central bank policies. Yearly price changes among commodities vary widely, however. Year to date, prices for oil and gas (the largest component of the GSCI Index) have been weak, for example, while a severe drought has pushed up prices for certain agricultural goods, such as corn. Diversified exposure to a broad range of commodities remains a potentially powerful tool for helping protect against a variety of inflationary pressures.
S&P GSCI Index: Weights of Commodity Groups
S&P GSCI Index: Returns of Key Underlying Commodities
Livestock 4% Industrial Metals 8%
Precious Metals 3%
Commodity Oil and Gas: WTI Crude Oil Agriculture: Corn
YTD Return as of 8/31/12 2.39% 23.70 0.20 3.77 7.71
Agriculture 17%
Oil and Gas 68%
Industrial Metals: Copper Livestock: Live Cattle Precious Metals: Gold
Source of chart data: Standard & Poors, FactSet, 8/31/12. Index definitions can be found on pages 34. Pastperformance does not guarantee future results.
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Global Currencies as of 8/31/12

A gradual decline in the dollars value vs. the currencies of Americas largest trading partners has helped make imports more expensive, eroding U.S. consumers purchasing power. Exposure to non-U.S. dollar currencies is the most direct way to help offset this effect.
120
JPMorgan U.S. Dollar Tradeable Currency Index
Index Level
100
80
60
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2002 U.S. Dollar Index Euro/USD GBP/USD JPY/USD BRL/USD 12.70% 17.86 10.62 10.44 34.73
2003 14.63% 20.20 11.20 10.73 22.70
2004 7.04% 7.76 7.25 4.59 8.62
2005 12.83% 13.22 10.58 13.18 13.72
2006 8.17% 11.79 14.00 0.94 9.39
2007 8.39% 10.87 1.71 6.66 19.94
2008 6.01% 4.92 27.77 23.24 23.67
2009 4.24% 3.22 12.32 2.63 33.78
2010 1.50% 6.50 3.05 14.78 5.01
2011 1.46% 3.24 0.74 5.41 11.00
YTD as of 8/31/12
1.28% 2.90 2.20 1.74 8.07
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This presentation has been filed as a complete presentation and is designed to be presented in its entirety in the order shown. The views contained in the preceding document represent the opinions of OppenheimerFunds, Inc. as of 9/30/12, are subject to change based on subsequent developments, are not intended as investment advice, and are not intended to predict or depict the performance of any Oppenheimer fund. Consult your financial advisor. 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. Risks to Consider: Investments in securities of growth, small-cap and mid-cap companies may be especially volatile. Value investing involves the risk that undervalued securities may not appreciate as anticipated. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time. Investing in foreign securities involves additional expenses and special risks, such as currency fluctuations, foreign taxes and political and economic factors. Investments in emerging and developing markets may be especially volatile. Fixed income investing involves credit risk and interest rate risk (when interest rates rise, bond prices generally fall). Below-investment-grade (high yield or junk) bonds are more at risk of default and are subject to liquidity risk. Asset-backed and mortgage-backed securities are also subject to prepayment risk. Senior loans are typically lower rated (more at risk of default) and may be illiquid investments (which may not have a ready market). A portion of a municipal bond funds distributions may be taxable and may increase taxes for investors subject to the alternative minimum tax (AMT). Capital gains distributions are taxable as capital gains. Investing in the commodity markets involves potentially higher volatility and greater risk of loss of principal than traditional equity or debt securities. Commodity-linked investments are considered speculative and have substantial risks, including the risk of loss of a significant portion of their principal value. Investing in a limited number of sectors, such as gold, oil and real estate, can increase volatility and exposure to issues affecting that sector. Investments in securities of real estate and small-cap companies may be especially volatile. Because they do not have an active trading market, shares of Real Estate Investment Trusts (REITs) may be illiquid. The lack of an active trading market may make it difficult to value or sell shares of REITs promptly at an acceptable price. Diversification does not guarantee profit or protect against loss.
Before investing in any of the Oppenheimer funds, investors should carefully consider a funds 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. Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008 2012 OppenheimerFunds Distributor, Inc. All rights reserved.
DS0000.350.0912 September 28, 2012
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Index Definitions (continued)

Executive Summary as of 8/31/12

Taxable Fixed Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3850

Domestic Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2229

Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5156

International Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3037

Alternative Asset Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5764

Economic & Financial Market Overview

Global Economic Forecast

U.S. Corporate Sector

U.S. Credit U.S. Consumer Eurozone Crisis

Economic & Financial Market Overview

World GDP Growth

United Kingdom 0.5% Germany 1.0%

United States 2.3%

France 0.3% Greece 6.2% India 3.9% China 7.5%

Vietnam 4.5% Indonesia 6.4%

Australia* 4.3% South Africa 2.7%

Economic & Financial Market Overview

Global Purchasing Managers Indices (PMIs) as of 8/31/12

U.S. UK China Eurozone

35 30 2006 2007 2008 2009 2010 2011 2012

Economic & Financial Market Overview

Key U.S. Economic Indicators as of 7/31/12

600 400 200 0 200 400 600 800 1,000 2007

95 90 85 80 2007 2008 2009 2010 2011 2012

Real Retail Sales3 Year-over-Year % Change

Personal Disposable Income4 Year-over-Year % Change

Economic & Financial Market Overview

What Is the Fiscal Cliff?

Potential Drag on GDP

Expiration of the Bush-era Tax Cuts

Economic & Financial Market Overview

Eurozone Sovereign Bond Spreads Remain Elevated as of 8/31/12

10-Year Government Bond Spreads Over German Bunds

Spain Italy France

Economic & Financial Market Overview

Mutual Fund Flows as of 7/31/12

Net Flows to Equity and Fixed Income Mutual Funds

Equity Funds Fixed Income Funds

Source of chart data: Investment Company Institute, 7/31/12.

Economic & Financial Market Overview

Earnings Yield on Stocks Higher than Yield on U.S. Treasuries as of 8/31/12

Economic & Financial Market Overview

U.S. Equity Valuations

*Assumes average 15% decline in EPS in post-WWII recessions excluding 2008.

Economic & Financial Market Overview

European Stocks Appear to Be Attractively Valued as of 8/31/12

1 0 1982 1988 1994 2000 2006

1 0 1982 1988 1994 2000 2006

1 0 1982 1988 1994 2000 2006

Economic & Financial Market Overview

Favorable Secular Trends in Emerging Markets

U.S. 19821 Today

Emerging Markets Today

Developed International Markets Today

GDP Growth Debt-to-GDP Population Over 54 as % of Working Age (2554) Population

1.4% 41% 55%

2.3% 69%2 60%3