Dear Shareholder:

We welcome in 2018, having witnessed the eighth consecutive year of an extraordinarily persistent bull market.

It has been a very conducive environment for assets associated with higher risk/reward potential—or what we call “risk assets”—despite episodic volatility. This environment has benefited the many investors who stuck to a consistent, long-term investment plan, as we have always advocated.

We expect this trend to continue, though we are mindful of the more mature stage the financial markets have entered in the current cycle. Stocks are more expensive. Central banks are expected to tighten policy by hiking interest rates. These are developments that should prompt investment managers like us to pause, make empirical observations on where the markets are headed, and offer solutions to our diverse clients.

Our Outlook for 2018

Our chief investment officer, Krishna Memani, explains that while we are getting closer to the end of the market cycle, we’re not there yet. He points out that this cycle—just like any other—will end when stock valuations reach preposterous levels, when the U.S. Federal Reserve tightens monetary policy aggressively with steep interest-rate hikes, and/or when the U.S. economy begins to sputter.

We do not see any of these indicators beginning to surface and believe that the backdrop for risk assets remains sound. The world’s major economies are expanding in unison.  Global growth no longer requires emergency monetary policy support.  Inflation remains low. And we believe that growth in the emerging markets is likely to be even stronger and more widespread than it is in the developed world.

Global equities—especially in the emerging-market and international categories—remain our asset class of choice. In our view, market corrections or bouts of turbulence in the coming year could actually represent buying opportunities.

An Eventful Year for Us in 2017

As the financial markets evolve, we continually evaluate, refine and fortify our offerings to help investors diversify their portfolios, gain access to additional opportunities for returns, and pursue their financial objectives. In specific areas where we have not met our clients’ performance expectations, we strive to do better.

This past year is worth noting for a number of accomplishments:

  • We broadened our lineup of “smart beta” products to include 11 new ETFs: two Multi-Factor and six Single-Factor funds that provide access to key drivers of equity returns, as well as three revenue-weighted ETFs in the emerging, global and international market segments. Toward building out our Beta Solutions management team, we also hired a Chief Operating Officer, Head of Product, and Head of Investment Marketing and ETF Specialists.
  • We’ve expanded our offerings to include customized, tax-efficient strategies for investing in quality municipal bonds through our acquisition of SNW Asset Management.
  • We launched a new SteelPath Master Limited Partnership (MLP) and Energy Infrastructure Fund focused on midstream energy infrastructure equities in North America.
  • We partnered with The Carlyle Group to form a joint venture that will focus on providing global private credit opportunities for high-net-worth investors and advisors.
  • We officially opened our Europe, Middle East and Africa (EMEA) headquarters in London to bring our investment expertise to clients outside of the United States.
  • We appointed a Head of Sustainable Investing, responsible for further integrating sustainable investing practices across all aspects of the firm’s business activities to better serve our clients. We also became official signatories of the United Nations-supported Principles for Responsible Investment.

We were pleased that 21 of our funds earned the 2017 Lipper Fund Awards for delivering consistently strong risk-adjusted performance relative to their peers. These awards highlight our strengths in the Emerging Markets, International Small/Mid-Cap, Municipal Bond and Senior Loans asset classes.

Additionally, we have continued to deliver valuable insights to our investors, as well as the advisors and consultants that serve them. For example, we published a study earlier this year that identifies the investment behaviors and attitudes of wealthy Millennials, and issued a research paper, in partnership with Greenwich Associates, on how institutional investors view opportunities in emerging markets.

We remain committed to being responsible corporate citizens, and to our philanthropic initiatives. We continued our ongoing initiative of reaching 10,000 Kids by 2020 through nonprofit partnerships and active employee volunteerism. Our staff has supported numerous charitable organizations, with matched donations by our firm, and performed hands-on volunteer work for communities in the United States and internationally.

Lastly, our firm—and I personally—look forward to serving you in the year to come. On behalf of OppenheimerFunds, thank you for your continued confidence in us.

Sincerely,

Art Steinmetz