For many investors, high yield municipal bonds hold special allure. After all, it is easy to appreciate the high levels of tax-free income these securities promise and then imagine the wealth of opportunities this income could create.

It can also be easy — unfortunately — to let appealingly high tax-free distributions obscure the fundamentals of investing. The truth is, issuers offer high yields to attract investors who might otherwise avoid securities with a higher propensity for default.

This truth can steer fixed-income investors in different directions. Some become leery and turn to higher-rated municipal bonds or the funds that buy them. They invest in less speculative portfolios, which are surprisingly more susceptible to interest rate fluctuations. Others remain intrigued by high yield and choose to buy lower-credit bonds on their own, without regard to how hard it can be to evaluate, monitor and sell these issues.

For the investor who understands the truth about high yield investing and still dreams of high levels of tax-free income, the best approach we believe is to invest in one of the following high yield funds:

These four funds are designed to deliver highly competitive, yield-driven total returns for investors throughout the United States, and all generate income exempt from federal personal income taxes. In addition, the net investment income provided by Oppenheimer Rochester California Municipal Fund and Oppenheimer Rochester Fund Municipals is exempt from state and, where applicable, local taxes in the named state. However, a portion of some distributions may be taxable or increase AMT exposure for some investors; distributions from capital gains are taxable as capital gains.

Oppenheimer Rochester Short Duration High Yield Municipal Fund seeks an average effective maturity (AEM) of 5 years or less, while the other three high yield funds do not have AEM targets.

These funds offer us the broadest investment discretion. As such, they may be suitable for investors with a higher risk tolerance and a willingness to experience higher volatility.

The purchase of below-investment-grade issues, which is restricted to a specific percentage of fund assets at the time of purchase, is 25% for the funds for California and New York investors and 35% for Oppenheimer Rochester Short Duration High Yield Municipal Fund. Oppenheimer Rochester High Yield Municipal Fund intends to hold no more than 70% of assets in below-investment-grade securities.

All four funds have large and diverse portfolios. This diversity can reduce the overall risk of owning speculative, high yield securities and can help generate competitive levels of tax-free, yield-driven total return for shareholders. Additionally, our in-house team of municipal experts conducts extensive research and seeks to capture market inefficiencies that can create yield-enhancing opportunities.

An advisor can help an investor review fund prospectuses, gain a deeper understanding of how different funds will be managed, and tailor his or her portfolio to meet individual needs for tax-free income. The seasoned Oppenheimer Municipal Fund Management Team is known for its yield-driven approach to creating shareholder value. We employ a security-specific, value-oriented and research-intensive approach that helps us identify many attractive but overlooked bonds. We call this investment approach the Rochester Way.

  1. ^Before June 1, 2017, this Fund was known as Oppenheimer Rochester Limited Term Municipal Fund, and the purchase of below-investment-grade securities was restricted to 5% of its assets at time of purchase. On June 1, 2017, the Fund changed its investment strategy from a limited term investment-grade municipal bond strategy to a short term high yield municipal bond strategy. Past performance, therefore, is not indicative of future results.