Oppenheimer Rochester Intermediate Term Municipal Fund one of our three national muni funds, has been designed for risk-averse investors who nonetheless seek higher yields than are currently available from FDIC-insured investment products like savings accounts or certificates of deposit (CDs).
Muni bond funds have different risk characteristics than FDIC-insured products but often appeal to investors whose objectives include relatively low levels of share-price volatility and competitive levels of tax-free income.
This fund holds more than 250 individual securities and seeks to deliver competitive levels of tax-free income. The net investment income generated by the fund’s holdings is exempt from federal income taxes and from the 3.8% tax on unearned income that some investors pay under the Patient Protection and Affordable Care Act (Obamacare).
Like Oppenheimer Rochester Short Term Municipal Fund, this fund maintains an average effective maturity (AEM) closer to the short end of the yield curve. The AEM target for this fund is 3 to 7 years.
The investment team also uses other risk management techniques that we believe help make this fund attractive to many fixed income investors. For example, the fund’s holdings are primarily investment grade, and the purchase of below-investment-grade issues (those rated BB or lower) is restricted at the time of purchase to 10% of fund assets.1
Many investors seem to appreciate that funds with a preponderance of short-term investment-grade bonds tend to be less volatile than funds holding mostly longer-term and/or below-investment-grade bonds.2 Additionally, this fund has never included inverse floating-rate securities (aka “inverse floaters”), as they can exhibit higher levels of price volatility than other bond structures. Our intent is to maintain this practice.
All 13 of the Oppenheimer Rochester funds are managed based on an investment approach we call the Rochester Way.
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1OppenheimerFunds, Inc. determines the credit allocation of its funds’ assets using ratings by nationally recognized statistical rating organizations (NRSROs), such as S&P Global Ratings (S&P). For any security rated by an NRSRO other than S&P, OppenheimerFunds, Inc. converts that security’s rating to the equivalent S&P rating. If two or more NRSROs have assigned a rating to a security, the highest rating is used.
2Longer-term and below-investment-grade bonds generally offer more favorable coupons, and funds that primarily invest in these types of securities generally produce higher levels of tax-free income.
Fixed income investing entails credit and interest rate risks. Interest rate risk is the risk that rising interest rates, or an expectation of rising interest rates in the near future, will cause the values of a Fund’s investments to decline. Risks associated with rising interest rates are heightened given that rates in the U.S. are at, or near, historic lows. When interest rates rise, bond prices fall and a fund’s share price can fall. Municipal bonds are subject to default on income and principal payments. Further, a portion of some funds’ distributions may be taxable and may increase alternative minimum tax (AMT) for investors subject to that tax; distributions from net realized capital gains are taxable as capital gains.
The funds invest in below-investment-grade debt securities, which may entail greater credit risks, as described in each fund’s prospectus. These securities (sometimes called “junk bonds”) may be subject to greater price fluctuations and risks of loss of income and principal than investment-grade municipal securities. The funds may invest substantially in municipal securities within a single state or related to similar type projects, which can increase volatility and exposure to regional issues. This Fund may invest in Puerto Rico and other U.S. territories, commonwealths and possessions, and could be exposed to their local political and economic conditions.