Muni Market Update

Municipal bond market performance has been relatively flat during 2015, with intermittent periods of volatility during the year. We believe that much of the volatility throughout 2015 can be attributed to the effect of headlines, rather than to actual credit events. Despite many headlines moving the market over the past five years, the Oppenheimer Rochester municipal bond funds have offered attractive yields and total returns across the board.

Rising Interest Rates

Even if the Federal Reserve Board (Fed) continues to raise short-term interest rates, the effect on long-term interest rates remains speculative. Whether interest rates increase, decrease or remain stable, we will continue to manage the funds in an effort to generate long-term total return driven primarily by income while maintaining each fund’s overall credit and maturity standards.

Tobacco Bonds

In 2015, tobacco bonds represented the top-performing municipal bond sector for the second year in a row. While many of our competitors have liquidated tobacco bond positions only to buy back in, we have maintained our positions, which have benefitted shareholders who share our longer term perspective on municipal bond investments.

Puerto Rico

Volatility in Puerto Rico bonds has related back to market fears of payment defaults, largely due to statements from the Puerto Rican government indicating that it would not be possible to make debt service payments due in January. 95% of bonds payments due in January were, in fact, made as agreed; PFC bonds and PRIFA bonds failed to make payments as scheduled. These defaults were the result of an emergency measure, which Governor Padilla said he authorized, to “claw back” revenue from these authorities and use it to ensure that other debt was paid in full. For the Oppenheimer Rochester funds, $99 million of $107 million owed in debt service payments were received as anticipated on January 1.

Our belief remains that neither restructuring nor bankruptcy protection would benefit the economy of Puerto Rico or its citizens nearly as much as negotiating with bondholders to arrive at a mutually agreeable resolution to debt. We believe that these agreements would help Puerto Rico’s economy in the short term, while benefiting bondholders with more solid credits over the long term.

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