Q:  What is the history and objective of the fund? A : The Oppenheimer Global Opportunities Fund was launched on October 22, 1990. Frank joined OppenheimerFunds as the fund manager 5 years later, in October 1995 when the fund had around $100M under management. Today, the net assets are $2.78B. The fund is designed as a “go anywhere fund” free of asset class, geographic, or market capital restrictions. It is benchmarked against the MSCI AC World Index. The objective of the Global Opportunities Fund is to generate returns far in excess of the benchmark and its peer group through strong outperformance in up markets and risk management in the down markets. The portfolio is barbelled between offensive stocks—those that we believe could more than double or those that are significantly exposed to the economic cycle—and defensive stocks—high quality, dividend paying stocks with strong cash flows. Q:  How would you define your investment philosophy? A : We are fundamentally growth investors who believe that innovative technology offers the biggest opportunity to generate long-term returns. We use a thematic approach to help us identify areas of interest. Our investment philosophy is based on the premise that growth stocks offer the biggest opportunity for building wealth. We seek to invest in companies with strong intellectual property and are willing to make contrarian investments if the long-term potential upside overwhelms near-term headwinds. Q:  What do you consider an investment opportunity? A : Companies with strong sales growth and high margins are generally attractive to us. Strong revenue growth indicates pent-up demand for the company’s product. In an ideal situation the company can leverage this demand to generate a high profit margin. Often a high margin is the litmus test for product uniqueness. It is the right kind of uniqueness that can make investors a lot of money. Q:  What is your investment strategy? A : Our goal is to generate gains that are well in excess of the Index return in up markets and mitigate risk when the markets fall. When this goal is achieved, the result is superior long-term performance. The Fund focuses on intellectual property investing and a significant portion of our assets are invested in companies that we believe have ‘game changing technology’. We believe these companies could have opportunities to grow sales exponentially by meeting an unmet market need. To counter-balance the “high-octane” intellectual property portion of the Fund, we invest a portion of our assets defensively. These “defensive stocks” are high quality, cash generative; dividend paying companies which we hope will offer the fund some downside protection in an unstable economic environment. Q:  Do you follow a thematic approach in your investment process? A : We use a thematic approach to help us organize our thoughts and target big long-term areas for growth. Like all the Global funds at Oppenheimer we use a MANTRA approach: Mass Affluence, New Technology, Restructuring and Aging as an investment guide. Within these themes we develop sub-themes of particular interest to us. Robotics, LED, and Electric Cars are some sub-themes we’ve identified as future growth areas. Q:  How do you get new investment ideas? A : We use a variety of different methods and sources to identify new investments. We look at charts to identify stocks with strong upward momentum and then investigate the reasons for the rise. We keep watch lists of interesting companies. We read research on a variety of topics seeking inspiration. We travel extensively to meet with management teams and attend investment conferences. As a part of OppenheimerFunds, we have access to industry experts, economists and management teams that all improve our ability to make decisions based on a high level of understanding. Q:  What is a growth stock in your view? A : A growth stock is a stock whose share price is expected to rise because of positive earnings momentum, typically driven by a ramping in revenues. A growth stock is a company that has a high profit margin and is able to increase its market share or in an industry where sales are growing. Also, it helps if the company is not in capital intensive industry and enjoys some barriers to entry either through patent, business monopoly or through brand equity. Ultimately, a growth stock boils down to growing profits. Nektar Therapeutics, which is the largest position in the Fund, is a good example of the type of growth stocks we find exciting. NKTR is a biotech company which we think can revolutionize the treatment of cancer patients and the lives of chronic pain sufferers via its patented small molecule pegylation technology. Pegylation increases the half-life and relative permeability of drugs. In the case of a chemotherapy drug, pegylation allows the doctor to give a smaller dose to the patient with at least equivalent cancer killing performance of a normal dose. Thus, by reducing the dosage more healthy cells are spared. It is also developing non-addictive opiod-based pain killers with a cleaner side effect profile. A company like this, if successful, will generate tremendous upward sales momentum, which will result in a substantial return for its shareholders. Another example is Cree, a long-time investment for the fund. The company makes light emitting diodes (LEDs) which we believe will eventually replace incandescent and fluorescent general lighting. LEDs are less energy intensive than either of the currently used types, which makes them very interesting for anyone desiring to either reduce their carbon footprint or limit their exposure to energy price hikes. Sotheby’s is a non-technology related example of a growth stock. It is the only public competitor in the duopolistic auction business for extreme luxury goods. The market dynamics of the duopoly help to insulate margins, while the company’s sales benefit from emerging wealth in Asia and the Middle East. Q:  What is your buy and sell discipline? A : There are several components to a forecasted total return calculation and we consider them all. These components include: earnings growth prospects, expected P/E multiple expansion or compression, anticipated exchange rate movement where applicable, and dividend payout. When the expected total return is significantly higher than the current share price, we buy. We sell if our price target has been met, if new information invalidates our buy thesis, if macro economic headwinds overwhelm company prospects, or if another investment becomes significantly more attractive on a relative total return basis. Q:  How do you build your portfolio? A : The portfolio is a collection of stocks that we like – businesses we want to own regardless of geography. We use bottoms up analysis to find stock we think could triple or more. Our largest positions represent our best ideas. We then barbell our “high octane” stocks with some defensive investments to stabilize the fund. We typically have around 70 names in the portfolio, which is barbelled between offensive stocks; those that we believe could more than double or those that are significantly exposed to the economic cycle, and defensive stocks, namely, quality, dividend-paying stocks with strong cash flows. The fund’s current split between offensive and defensive holdings is approximately 80/20. Q:  What do you see as the primary sources of risk and how do you mitigate it? A : The goal of the Global Opportunities Fund is to generate high excess returns in up markets and control for risk in the down markets. Consequently, we believe the best measures of our risk are upside and downside capture. Upside capture is the cumulative performance of the fund in all up months divided by the cumulative return of the benchmark in these months. The downside capture is the opposite. Over the last 3 years, the upside capture is 1.48 and the downside capture is 1.03. This demonstrates that in up markets the fund performed better than the index and performed almost equal to the index in down markets. We will try to maintain this very attractive payoff distribution for investors over the long term. The fund’s 3-year beta relative to the MSCI World is 1.13. Its current predictive beta is 0.99. Predictive beta is calculated as the summation of all the individual stock betas to the benchmark weighted according to percentage of assets. The fund’s 3-year information ratio, which measures alpha (fund return minus benchmark return) over the fund’s tracking error, is 0.46. There is risk inherent in the business of trying to generate very high returns, but we believe if we are successful in our goal of substantially beating the benchmark in the up markets and performing with the benchmark in the down, we will generate long-term outperformance for our shareholders.