PROSPECTUS
ROCHESTER
[LOGO] FUND
MUNICIPALS
350 Linden Oaks
Rochester, New York 14625-2807
(716) 383-1300
- ------------------------------------------------------------------------------
Rochester Fund Municipals (the "Fund") is a non-diversified, open-end
management investment company having an investment objective of providing as
high a level of interest income exempt from Federal, New York State and New York
City personal income taxes as is consistent with prudent investing, while
seeking preservation of shareholders' capital. The Fund will seek to achieve
this investment objective through investing primarily in New York State
municipal and public authority debt obligations. Except for temporary defensive
purposes, at least 80% of the Fund's net assets will be invested in municipal
securities. There can be no assurance that the Fund will achieve its objective.
The Prospectus sets forth concisely information about the Fund that
prospective investors ought to know before investing. Investors should read this
Prospectus carefully before investing and should retain it for future reference.
A Statement of Additional Information (the "SAI") for the Fund dated May 1,
1995, which is incorporated by reference in its entirety in this Prospectus, has
been filed with the Securities and Exchange Commission and is available without
charge upon request to Rochester Fund Distributors, Inc., 350 Linden Oaks,
Rochester, New York, 14625-2807, (716) 383-1300. The SAI contains information
about the Fund and its management not included in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION NOR ARE SHARES OF THE FUND FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
The date of this Prospectus is May 1, 1995, as supplemented on July 17, 1995
Table of Contents
Page
----
Shareholder Expense Information .................................... 2
Financial Highlights ............................................... 3
About the Fund ..................................................... 4
Risk Factors ....................................................... 8
Dividends and Other Distributions .................................. 10
How to Purchase Shares ............................................. 11
Distribution Plan .................................................. 13
Shareholder Services ............................................... 13
How to Redeem Shares ............................................... 14
Performance ........................................................ 15
Tax Matters ........................................................ 15
Management, Services and Distribution .............................. 17
Appendix A ......................................................... 18
Account Application ................................................ 21
<PAGE>
SHAREHOLDER EXPENSE INFORMATION
The information contained in the following tables is intended to assist an
investor in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. For a further description of the
various costs and expenses listed below, see How to Purchase Shares, How to
Redeem Shares, Exchange Privilege, and Management, Services and Distribution.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) ................................. 4.00%
Annual Fund Operating Expenses
As a Percentage of Average Net Assets
Management Fees(1) .................................................. 0.48%
12b-1 Fees(2) ....................................................... 0.15%
Other Expenses ...................................................... 0.26%
----
Total Fund Operating Expenses(3) .................................... 0.89%
====
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(1) The Fund's Management Fees have been restated to reflect the amendment of
the Fund's Investment Advisory Agreement on May 1, 1995 to increase such
fees as a percentage of average net assets payable to the Fund's investment
adviser.
(2) The Fund's 12b-1 Fees have been restated to reflect the amendment of the
Fund's 12b-1 Distribution Plan on May 1, 1995 to eliminate the asset based
sales charge. Although the Board of Trustees has authorized payment of a
service fee of only 0.15% per annum of average daily net assets, the Fund's
Distribution Plan, as amended, permits payment of a service fee up to 0.25%
per annum.
(3) Actual Total Operating Expenses during the fiscal year ended December 31,
1994 were 0.84% (including interest expense) and 0.73% (excluding interest
expense). For the fiscal year ending December 31, 1994, the Fund's interest
expense was substantially offset by the incremental interest income
generated on bonds purchased with borrowed funds.
Examples
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return and redemption at the end of each period:
Cumulative Expenses
1 year 3 years 5 years 10 years
------ ------- ------- --------
$49 $67 $87 $145
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
(For a Share Outstanding Throughout the Period)
The following table contains financial information for a share of Rochester
Fund Municipals for the ten one year periods ended December 31, 1994. The
information set forth in this table has been derived from financial statements
which have been examined by Price Waterhouse LLP, independent accountants, whose
report thereon was unqualified. The information should be read in conjunction
with the financial statements and notes thereto which appear in the SAI and may
be obtained from Rochester Fund Distributors, Inc., without charge, upon
request.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987* 1986* 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $19.00 $17.65 $17.01 $16.24 $16.29 $16.14 $15.31 $16.06 $16.14 $15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income ............ 1.13 1.17 1.20 1.20 1.20 1.20 1.20 1.13 .88 .87
Net realized and unrealized
gain (loss) on investments ..... (2.68) 1.35 .64 .81 (.05) .15 .83 (.57) .16 .20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ....................... (1.55) 2.52 1.84 2.01 1.15 1.35 2.03 .56 1.04 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income .............. (1.13) (1.17) (1.20) (1.20) (1.20) (1.20) (1.20) (1.20) (1.12) (.72)
Dividends from undistributed
net investment income--prior
year ........................... (0.01) -- -- -- -- -- -- -- -- --
Distributions from capital
gains .......................... -- -- -- (.04) -- -- -- (.11) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .............. (1.14) (1.17) (1.20) (1.24) (1.20) (1.20) (1.20) (1.31) (1.12) (.72)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ..... $16.31 $19.00 $17.65 $17.01 $16.24 $16.29 $16.14 $15.31 $16.06 $16.14
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (excludes sales load) . (8.35%) 14.60% 11.19% 12.79% 7.28% 8.67% 13.72% 3.69% 6.89% 7.87%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) .................. $1,791,299 $1,794,096 $997,030 $497,440 $260,553 $98,095 $39,277 $16,567 $7,096 $5,077
Ratio of total expenses
to average net assets .......... 0.84% 0.75% 0.84% 0.87% 0.88% 1.11% 1.13% 1.2% 0.8% 1.1%
Ratio of total expenses
(excluding interest) to
average net assets<F1> ......... 0.73% 0.64% 0.70% 0.74% 0.72% 0.91% 1.10% 1.2% 0.8% 1.1%
Ratio to net investment income
to average net assets .......... 6.43% 6.21% 6.79% 7.12% 7.21% 7.19% 7.40% 7.3% 5.5% 5.4%
Portfolio turnover rate .......... 34.39% 18.27% 29.99% 48.54% 51.63% 34.76% 61.50% 72.8% 110.0% 30.3%
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<FN>
Per share information has been determined on the basis of a weighted daily
average number of shares outstanding during the period.
* Includes a voluntary reimbursement of expenses by Fielding Management
Company, Inc. which amounted to $.04 per share in 1986 and $.01 per share
in 1987. Without reimbursement, the ratio of total expenses to average net
assets would have been 1.1% in 1986 and 1.2% in 1987. Fielding Management
Company, Inc. was the Fund's investment adviser from inception through
April 30, 1994.
<F1> During the periods shown above, the Fund's interest expense was
substantially offset by the incremental interest income generated on bonds
purchased with borrowed funds.
</FN>
</TABLE>
3
<PAGE>
Information On Bank Loans
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bank loans outstanding at end of year (000) ........... $15,083 $30,886 $22,644 $18,292 $ 3,067 $1,139 $ 430
Monthly average amount of bank loans outstanding
during the year (000) ............................... $28,131 $27,137 $17,060 $ 5,317 $ 2,587 $ 990 $ 20
Monthly average number of shares of the Fund
outstanding during the year (000) ................... 105,753 77,472 41,429 22,445 10,327 3,980 1,554
Average amount of bank loans per share outstanding
during the year ..................................... $ .27 $ .35 $ .41 $ .24 $ .25 $ .25 $ .01
</TABLE>
ABOUT THE FUND
Investment Objective
The Fund, which is organized as a business trust under the laws of the
Commonwealth of Massachusetts, conducted operations as a closed-end investment
company from December, 1982 until May 15, 1986, at which time it commenced
operations as an open-end investment company.
The Fund's investment objective is to provide as high a level of interest
income exempt from Federal, New York State and New York City personal income
taxes as is consistent with prudent investing while seeking preservation of
shareholders' capital. The investment objective of the Fund cannot be changed
without shareholder approval. The Fund will seek to achieve its objective by
investing primarily in New York State municipal and public authority debt
obligations exempt from such taxes. In addition, the Fund may also invest its
assets in obligations of municipal issuers located in U.S. territories. See Tax
Matters. Investments will be made without regard to maturity. The lack of
maturity restrictions, however, may result in greater fluctuation of bond prices
in the Fund's portfolio and greater fluctuation in the Fund's net asset value
because the prices of long term bonds are more affected by changes in interest
rates than prices of short term bonds.
As a fundamental policy, at least 80% of the Fund's net assets will be
invested in tax-exempt securities except when the Fund's investment adviser
determines that market conditions could cause serious erosion of portfolio
value, in which case assets may be temporarily invested in short-term taxable
obligations as a defensive measure to preserve net asset value. Such temporary
investments will be limited substantially to obligations issued or guaranteed by
the United States government, its agencies, instrumentalities or authorities;
highly-rated corporate debt securities; prime commercial paper; or certificates
of deposit of domestic banks with assets of at least $1 billion.
Credit Quality
At least 80% of the Fund's net assets which are invested in tax-exempt
obligations will be invested in securities which have received investment grade
ratings from a nationally recognized statistical rating organization ("NRSRO"),
or in securities which are not rated, provided that, in the opinion of Rochester
Capital Advisors, L.P. (the "Adviser"), such securities are of equivalent
quality to securities so rated. Such securities may have speculative
characteristics. A description of rating categories is contained in Appendix A
to the SAI. The remaining 20% of the Fund's assets which are invested in
tax-exempt obligations may be invested in lower rated securities or in
securities which are unrated. Investments in these securities present different
risks than investments in higher rated securities, including an increased
sensitivity to adverse economic changes or individual developments and a higher
rate of default. The Adviser will attempt to reduce the risks inherent in
investments in lower rated securities through active portfolio management,
diversification, credit analysis and attention to current developments and
trends in the economy and financial markets. Such securities are regarded as
speculative securities. See Risk Factors and the SAI for a discussion of the
risks associated with investments in high yield, high risk securities.
Municipal Obligations
Municipal securities include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
municipal securities or bonds may be
4
<PAGE>
issued include the refunding of outstanding obligations, obtaining funds for
general operating expenses and the obtaining of funds to loan to other public
institutions and facilities. In addition, certain types of private activity
bonds are issued by or on behalf of public authorities to obtain funds to
provide housing facilities, sports facilities, manufacturing facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste disposal.
The interest on bonds issued to finance essential state and local
government operations is fully tax-exempt. However, the interest on certain
private activity bonds (including those for housing and student loans) issued
after August 15, 1986, while still tax-exempt for regular tax purposes,
constitutes a preference item for taxpayers in determining their alternative
minimum tax under the Internal Revenue Code of 1986, as amended (the "Code").
See Tax Matters--Taxation of Shareholders. The Code also imposes certain
limitations and restrictions on the use of tax-exempt bond financing for
non-government business activities, such as non-essential private activity
bonds. The Fund intends to purchase private activity bonds only to the extent
that the interest paid by such bonds is exempt from Federal, New York State and
New York City taxes for regular tax purposes pursuant to the Code.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. There are variations in the security of
municipal bonds, both within a particular classification and between
classifications. General obligation bonds are secured by the issuer's pledge of
its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or specific revenue source. One type of revenue bond common to
New York State (the "State") is a "moral obligation" bond. A moral obligation
bond is a bond which is issued by revenue authorities under circumstances where
the State provides a moral pledge of payment in the event that an authority is
unable to make timely debt service. Unlike a general obligation pledge, however,
the moral pledge does not constitute the State's official pledge of its full
faith and credit. Accordingly, the Adviser would consider precedents established
in the State with respect to the honoring of such moral pledges in its credit
analyses of moral obligation bonds. Private activity bonds, which are municipal
bonds, are in most cases revenue bonds and do not generally constitute the
pledge of the credit of the issuer of such bonds.
The values of outstanding municipal bonds will vary as a result of changing
evaluations of the ability of their issuers to meet the interest and principal
payments. Such values will also change in response to changes in the interest
rates payable on new issues of municipal bonds. Should such interest rates rise,
the values of outstanding bonds, including those held in the Fund's portfolio,
will decline and (if purchased at principal amount) would sell at a discount. If
such interest rates fall, the values of outstanding bonds will increase and (if
purchased at principal amount) would sell at a premium. Changes in the value of
municipal bonds held in the Fund's portfolio arising from these or other factors
will cause changes in the net asset value per share of the Fund. As an
operational policy, however, the Fund will not invest more than 5% of its assets
in securities where the principal and interest are the responsibility of an
industrial user with less than three years' operational history.
In determining the issuer of a tax-exempt security, each state and each
political subdivision, agency and instrumentality of each state and each
multistate agency of which such state is a member is a separate issuer. Where
securities are backed only by assets and revenues of a particular
instrumentality, facility or subdivision, such entity is considered the issuer.
The percentage limitations referred to herein and elsewhere in this Prospectus
are determined as of the time an investment or purchase is made.
Investments in Illiquid Securities
The Fund may purchase securities, in private placements or in other
transactions, the disposition of which would be subject to legal restrictions,
or in securities for which there is no regular trading market (collectively,
"Illiquid Securities"). No more than an aggregate of 15% of the value of the
Fund's net assets at the time of acquisition may be invested in Illiquid
Securities. The Fund's policy with respect to investments in illiquid securities
is a non-fundamental
5
<PAGE>
policy and, as such, may be changed by action of the Fund's Board of Trustees.
Such investments may include lease obligations or installment purchase
contract obligations (hereinafter collectively called "municipal leases") of
municipal authorities or entities. Subject to the percentage limitation on
investments in Illiquid Securities, the Fund may invest only a maximum of 5% of
assets which are invested in tax-exempt obligations in unrated or illiquid
tax-exempt municipal leases. Investments in tax-exempt municipal leases will be
subject to the 15% limitation on investments in Illiquid Securities unless, in
the judgment of the Adviser, a particular municipal lease is liquid and unless
the lease has received an investment grade rating from an NRSRO. The Board of
Trustees has adopted guidelines to be utilized by the Adviser in making
determinations concerning the liquidity and valuation of municipal lease
obligations. See the SAI for a description of the guidelines which will be
utilized by the Adviser in making such determinations. Under circumstances where
the Fund proposes to purchase unrated municipal lease obligations, the Fund's
Board of Trustees will be responsible for determining the credit quality of such
obligations and will be responsible for assessing on an ongoing basis the
likelihood that the lease will not be cancelled.
Although municipal leases do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a municipal
lease may be backed by the municipality's covenant to budget for, appropriate
and make the payments due under the municipal lease. Most municipal leases,
however, contain "non-appropriation" clauses which provide that the municipality
has no obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" municipal leases are generally secured by the leased
property, disposition of the property in the event of default might prove
difficult.
Investment in tax-exempt lease obligations presents certain special risks
which are not associated with investments in other tax-exempt obligations such
as general obligation bonds or revenue bonds. A discussion of such risks and the
manner in which the Fund will seek to minimize such risks is contained in the
SAI.
Investments in Illiquid Securities may also include, but are not limited
to, securities which have not been registered under the Securities Act of 1933,
as amended, (the "1933 Act"). Rule 144A under the 1933 Act permits certain
resales of such unregistered securities, provided that such securities have been
determined to be eligible for resale to certain qualified institutional buyers
("Rule 144A Securities"). Rule 144A Securities which are determined to be liquid
by the Fund's Adviser pursuant to certain guidelines which have been adopted by
the Board of Trustees will be excluded from the 15% limitation on investments in
Illiquid Securities.
Borrowing for Investment Purposes
The Fund may borrow money, but only from banks, in amounts up to 5% of its
total assets to purchase additional portfolio securities. Borrowing for
investment purposes increases both investment opportunity and investment risk.
Such borrowings in no way affect the Federal or New York State tax status of the
Fund or its dividends. If the investment income on securities purchased with
borrowed money exceeds the interest paid on the borrowing, the net asset value
of the Fund's shares will rise faster than would otherwise be the case. On the
other hand, if the investment income fails to cover the Fund's costs, including
the interest on borrowings or if there are losses, the net asset value of the
Fund's shares will decrease faster than would otherwise be the case.
The Investment Company Act of 1940, as amended (the "Act"), requires the
Fund to maintain asset coverage of at least 300% for all such borrowings, and
should such asset coverage at any time fall below 300%, the Fund would be
required to reduce its borrowings within three days to the extent necessary to
meet the requirements of the Act. The Fund might be required to sell securities
at a time when it would be disadvantageous to do so in order to reduce its
borrowing. The Fund may also borrow for temporary and emergency purposes. See
Investment Restrictions in the SAI.
In addition, because interest on money borrowed is an expense that the Fund
would not otherwise incur, the Fund may have less net investment income during
periods when its borrowings are substantial. The interest paid by the Fund on
borrowings may be more or less than the yield on the
6
<PAGE>
securities purchased with borrowed funds, depending on prevailing market
conditions.
Description of Additional Investment Policies and Permitted Securities
Except as otherwise noted, the investment policies described below are
non-fundamental investment policies and, as such, may be changed by action of
the Fund's Board of Trustees.
Portfolio Diversification. As a fundamental policy, as to 75% of the value
of the Fund's gross assets, no more than 5% of the value thereof will be
invested in the securities of any one issurer. This limitation does not apply to
investments issued or guaranteed by the U.S. Government, its agencies, or its
instrumentalities or authorities. As part of that policy, the Fund may invest
more than 25% of its assets in industrial development bonds but no more than 5%
of the assets will be invested in such bonds for which the underlying credit is
one business or one charitable entity. As to the balance of 25% of the Fund's
gross assets not covered by this policy, the Fund would not invest more than 10%
thereof in the securities of any one issuer. In no case, however, will the Fund
invest more than 5% of its assets in the securities of any one issuer where such
securities are rated B or below. The Fund is not a diversified fund for purposes
of the Act.
Investing in Other Investment Companies. The Fund also may invest on a
short term basis up to 5% of its net assets in other investment companies which
have a similar objective of obtaining income exempt from Federal, New York
State, and New York City income taxes. Such investing involves similar expenses
by the Fund and by other investment companies involved, and the Fund intends to
make such investments only on a short-term basis and only when the Adviser
reasonably anticipates that the net after-tax return to the Fund's shareholders
will be improved, as compared to the return available from other short-term
investments. See Statement of Additional Information.
Inverse Floaters. The Fund may also invest in municipal obligations on
which the interest rates typically decline as market rates increase and increase
as market rates decline (commonly referred to as "inverse floaters"). Changes in
the market interest rate or in the floating rate security inversely affect the
residual interest rate paid on the inverse floater, with the result that the
inverse floater's price will be considerably more volatile than that of a
fixed-rate bond. For example, a municipal issuer may decide to issue two
variable rate instruments instead of a single long-term, fixed-rate bond. Such
securities have the effect of providing a degree of investment leverage, since
the interest rate on one instrument reflects short-term interest rates, while
the interest rate on the other instrument (the inverse floater) reflects the
approximate rate the issuer would have paid on a fixed-rate bond, multiplied by
two, minus the interest rate paid on the short-term instrument. The two portions
may be recombined to form a fixed-rate municipal bond. To seek to limit the
volatility of the securities, the Adviser may acquire both portions in an effort
to reduce risk and preserve capital. The market for inverse floaters is
relatively new. The Adviser believes that indexed and inverse floating
obligations represent a flexible portfolio management instrument for the Fund
which allows the Adviser to vary the degree of investment leverage efficiently
under different market conditions. Certain investments in such obligations may
be illiquid and, as such, are subject to the Fund's limitation on investments in
Illiquid Securities. The Fund may not invest in such illiquid obligations if
such investments, together with other Illiquid Securities, would exceed 15% of
the Fund's net assets.
Put Options. The Fund, for liquidity purposes only, may purchase from banks
municipal securities together with the right to resell ("put") the securities to
the seller. A separate put option may not be marketable or otherwise assignable,
and the sale of the security to a third-party or a lapse of time during which
the put is unexercised may terminate the right to exercise the put. The Fund
does not expect to assign any value to any separate put option which may be
acquired to facilitate portfolio liquidity inasmuch as the value, if any, of the
put will be reflected in the value assigned to the associated security.
Variable Rate Demand Notes. The Fund may purchase variable rate demand
notes ("VRDNs") which are tax-exempt obligations that contain a floating or
variable interest rate adjustment formula and an unconditional right of demand
to receive payment of the unpaid principal balance plus accrued interest upon a
short notice period. The Fund may also invest in VRDNs in the form of
participation
7
<PAGE>
interests in variable rate tax-exempt obligations held by a financial
institution, typically a commercial bank.
When-Issued and Delayed Delivery Transactions. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
These transactions are subject to market fluctuation and the value at delivery
may be more or less than the purchase price. Since the Fund relies on the buyer
or seller, as the case may be, to consummate the transaction, failure by the
other party to complete the transaction may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous. When
the Fund is the buyer in such a transaction, however, it will maintain, in a
segregated account with its custodian, cash or high grade marketable securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. In addition, the Fund would mark the "when issued" security to
market each day for purposes of portfolio valuation. To the extent the Fund
engages in "when issued" and "delayed delivery" transactions, it will do so for
the purpose of acquiring securities for the Fund's portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage. As a fundamental policy, securities purchased on a "when issued" and
"delayed delivery" basis may not constitute more than 10% of the Fund's net
assets.
Zero Coupon Securities. The Fund may invest without limitation as to amount
in zero coupon securities. Zero coupon securities are debt obligations that do
not entitle the holder to any periodic payment of interest prior to maturity or
a specified date when the securities begin paying current interest. They are
issued and traded at a discount from their face amount or par value, which
discount varies depending on the time remaining until cash payments begin,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. Original issue discount earned on zero coupon securities
is included in the Fund's income. The market prices of zero coupon securities
generally are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than do other types of debt securities having similar
maturities and credit quality.
In addition, the Fund is subject to certain investment restrictions, some
of which may be changed only with the approval of shareholders. See the SAI for
a list of these additional restrictions and for additional information
concerning the characteristics of municipal securities.
Portfolio Transactions
The Board of Trustees of the Fund monitors the composition of, and
purchases in, the Fund's portfolio to insure consistency with the stated
investment objective and policies of the Fund. Among the responsibilities of the
Adviser under the Investment Advisory Agreement is the selection of
broker-dealers through whom transactions in the Fund's portfolio securities will
be effected. The primary aim in allocation by the Adviser of portfolio
transactions to brokers is the attainment of the best execution of all such
transactions. If more than one broker is able to provide the best execution,
securities may be purchased from or sold to brokers who have furnished research
to the Adviser. Although such research may be used by the Adviser in servicing
accounts other than the Fund, the receipt of such research will be taken into
account in the selection of brokers only to the extent that such research is
primarily intended to benefit the Fund. The Fund and the Adviser also may take
into account the sale of Fund shares in selecting broker-dealers to execute
transactions. For further information see Portfolio Transactions in the SAI.
A change in securities held by the Fund is known as "portfolio turnover."
See Financial Highlights for the Fund's portfolio turnover rate for the past ten
fiscal years. Municipal bonds may be purchased or sold without regard to the
length of time they have been held, to attempt to take advantage of short-term
differentials in yields with the objective of seeking income while conserving
capital. While short-term trading increases portfolio turnover, the Fund incurs
little or no brokerage costs with respect to such transactions since most
purchases made by the Fund are principal transactions at net prices.
RISK FACTORS
In addition to those risks discussed in About the Fund, investing in the
Fund includes the following risks.
Concentration in New York Issuers
Because the Fund will ordinarily invest 80% or more of its assets in the
obligations of New York State, its municipalities, agencies and
instrumentalities (collectively,
8
<PAGE>
"New York Issuers") which are exempt from Federal, New York State and New York
City personal income taxes, it is more susceptible to factors affecting the
State and other New York Issuers than is a comparable municipal bond fund whose
investments are not concentrated in the obligations of issuers located in a
single state. See Appendix A to this Prospectus and the SAI for additional
information relating to the risks associated with concentration of investments
in New York municipal securities.
Credit Quality
At least 80% of the Fund's net assets which are invested in tax-exempt
obligations will be invested in securities which have received investment grade
ratings from an NRSRO or in unrated securities, which in the opinion of the
Adviser, are of comparable quality. Tax-exempt obligations which are in the
lowest categories of investment grade ratings (e.g. those rated BBB by Standard
and Poor's Ratings Group ["S&P"] or Baa by Moody's Investors Services, Inc.
["Moody's"]) have speculative characteristics and a weakened capacity to repay
principal and pay interest. The Fund may invest up to 20% of its net assets in
high-yield, lower-rated tax exempt securities or in such lower rated securities.
Investments in these securities present different risks than investments in
higher-rated securities, including an increased sensitivity to adverse economic
changes or individual developments and a higher rate of default. Certain risks
are associated with applying credit ratings as a method for evaluating high
yield securities. Credit ratings evaluate the safety of scheduled payments, not
market value risk of high yield securities. Since credit rating agencies may
fail to timely change the credit ratings to reflect subsequent events, the
Adviser must monitor the issuers of high yield securities in its portfolio to
determine if the issuers will have sufficient cash flow and profits to meet
required payments, and to attempt to assure the liquidity of the securities so
the Fund can meet redemption requests. The Fund may retain a portfolio security
whose rating has been changed.
The dollar weighted average of credit ratings of all bonds rated by NRSROs
held by the Fund during the year ended December 31, 1994, computed on a monthly
basis, as a percentage of the Fund's total portfolio, separated into each rating
category established by S&P, Fitch Investor Services, Inc. ("Fitch") and Duff &
Phelps ("D&P") (AAA,AA,A,BBB,BB,B or lower), Moody's (Aaa,Aa,A,Baa,Ba,B or
lower), were, respectively, 23%, 11%, 19%, 24%, 2% and 1%. Unrated bonds
comprised 20% of the Fund's total investments. Unrated bonds, which are backed
by a letter of credit or guaranteed by financial institutions or agencies, may
be deemed by the Adviser or by the Investment Policy Committee ("IPC") of the
Board of Trustees to be comparable in quality to securities as to which quality
ratings have been ascribed by S&P, Moody's, Fitch or D&P based upon quality or
upon an existing rating of the issuer of the letter of credit, institution, or
agency. Unrated bonds also may be deemed to be comparable in quality to
investment grade securities by the IPC under circumstances where such unrated
bonds have credit characteristics which are comparable to those of similar rated
issuers. Based upon the weighted average of credit ratings of those bonds which
were rated by an NRSRO and unrated securities of comparable quality as
determined by either the Adviser or the IPC, as the case may be, which were held
by the Fund during the year ended December 31, 1994 computed on a monthly basis,
the percentages of the Fund's assets which were invested either in bonds rated
by an NRSRO or in bonds which, although unrated by an NRSRO, are considered by
the Adviser or the IPC to be of comparable quality to rated securities, as
separated into each rating category established by S&P, Moody's, Fitch or D&P as
described above, were respectively 23%, 14%, 22%, 27%, 2% and 1%. Bonds which
were neither rated by an NRSRO nor considered by the Adviser or the IPC to be
comparable to rated securities constituted 11% of the Fund's total assets.
Management of Credit Risk
Because 20% of the Fund's assets which are invested in tax-exempt
obligations may be invested in securities which are rated below the lowest
investment grade categories rated by an NRSRO, or in securities which are
unrated, the Fund is dependent on the Adviser's judgment, analysis and
experience in evaluating the quality of such obligations. In evaluating the
credit quality of a particular issue, whether rated or unrated, the Adviser will
normally take into consideration, among other things, the financial resources of
the issuer (or, as appropriate, of the underlying source of the funds for debt
service), its sensitivity to economic conditions and trends, any operating
history of and the community support for the facility financed by the issue, the
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ability of the issuer's management and regulatory matters. The Adviser will
attempt to reduce the risks inherent in investments in such obligations through
active portfolio management, diversification, credit analysis and attention to
current developments and trends in the economy and the financial markets.
Default
The Fund will also take such action as it considers appropriate in the
event of anticipated financial difficulties, default or bankruptcy of either the
issuer of any such obligation or of the underlying source of funds for debt
service. Such action may include retaining the services of various persons and
firms to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Fund as a result of any such
event. The Fund will incur additional expenditures in taking protective action
with respect to portfolio obligations in default and assets securing such
obligations, and, as a result, the Fund's net asset value could be adversely
affected. Any income derived from the Fund's ownership or operation of assets
acquired as a result of such actions would not be tax-exempt.
DIVIDENDS AND OTHER DISTRIBUTIONS
There are two types of distributions which the Fund may make to its
shareholders, income dividends and capital gain distributions.
Income Dividends. The Fund receives income in the form of interest paid by
its investments. This income, less the expenses incurred in the Fund's
operations, is referred to as net investment income. Income dividends are
declared and recorded each day based on estimated net investment income. Such
dividends are paid monthly. Investors earn such dividends beginning on the day
payment for shares is received to the day prior to the settlement date of
redemption. For federal tax purposes, all distributions declared in the fourth
quarter of any calendar year are deemed paid in that calendar year even if they
are distributed in January of the following year. Any net gain the Fund may
realize from transactions in securities held less than the period required for
long term capital gain recognition (taking into account any carryover of capital
losses from previous years), while technically a distribution from capital
gains, is taxed as an income dividend under the Code. See Tax Matters.
Capital Gain Distributions. If, during any fiscal year, the Fund realizes a
net gain on transactions in securities held more than the period required for
long term capital gain recognition, it has a net long term capital gain. After
deduction of the amount of any net short term loss, the balance may be used to
offset any carryover of capital losses from previous years, or, if there is no
loss carryover, will be paid out to shareholders as a capital gain distribution.
Capital gain distributions, if any, will be paid to shareholders of record prior
to the end of each calendar year.
Because the value of Fund shares is based directly on the amount of net
assets, rather than on the principle of supply and demand, any distribution of
income or capital gains will result in a decrease in the value of Fund shares
equal to the amount of the distribution.
All dividends and capital gain distributions are paid in additional full
and fractional shares at net asset value for each shareholder's account unless
otherwise requested on the Account Application or by notifying the Fund in
writing or by telephone. Notice will be effective for the current dividend or
distribution only if it is received by the Fund at least five business days
before the record date. Notice received thereafter will be effective commencing
with the next dividend or distribution. Income dividends and capital gain
distributions will be credited to a shareholder's account in additional shares
valued at the closing net asset value (without a sales load).
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional shares of the Fund at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's dividends in additional shares of the Fund.
Stock certificates will not be issued in connection with distributions
which are paid in additional shares unless a written request is received and
certain other procedures are followed. Call Shareholder Services at (716)
383-1966 for more information. Shareholders will be advised of the nature of a
distribution, the number of shares issued and the price following distribution.
In certain circumstances, dividends received from the Fund may cause a
portion of Social Security benefits to be subject to federal income tax. See Tax
Matters in the SAI.
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HOW TO PURCHASE SHARES
Shares of the Fund are continuously offered through securities dealers and
financial institutions who execute a sales agreement with Rochester Fund
Distributors, Inc. (the "Distributor"), 350 Linden Oaks, Rochester, NY
14625-2807, the principal underwriter of the Fund. The minimum initial
investment is $2,000 and subsequent investments must be $100 or more. Such
minimum investment requirements may under certain circumstances be modified at
the discretion of the Distributor.
There Are Several Ways You Can Invest
Through the Distributor. Complete an Account Application and return it with
a check payable to the Distributor, who will act as your agent in purchasing
shares.
Through Your Investment Dealer. Many major investment dealers and financial
institutions have sales agreement with the Distributor and will be glad to
accept your order. If you do not have an account with a dealer, the Distributor
can refer you to one.
Through the Automatic Bank Draft Plan. The Automatic Bank Draft Plan is
available as a convenience to all shareholders of the Fund. Under this plan, you
may elect to make investments ($100 minimum) automatically by arranging to have
pre-authorized checks drawn on your bank account by the Rochester Fund Services,
Inc. (the "Agent"). This plan is only available if your bank agrees to
participate. There is no charge for this service and it may be terminated at any
time upon written notice to the Agent. See Shareholder Services.
Automatic Investment Plan. Investments of $100 or more may be made through
a shareholder's checking account by Automated Clearing House ("ACH") funds. For
information on how to establish a plan, contact Shareholders Services at (716)
383-1966.
Certificates
To facilitate redemptions and transfers, most shareholders elect not to
receive stock certificates; however, the Fund will issue them if requested to do
so in writing or by telephone and if you have owned the shares for at least 30
days. If you lose a stock certificate, you may incur an expense to replace it.
Call Shareholder Services for more information.
Purchase Price of Shares
Shares of the Fund are offered at the public offering price, which is the
net asset value per share, next computed after receipt by the Distributor of an
order from a qualified securities dealer, by mail, or from the investor directly
in good order, plus the applicable sales load. The sales load is a variable
percentage of the offering price depending upon the amount of the sale. The net
asset value of shares is determined once daily as of the close of the New York
Stock Exchange (the "Exchange") on each day that the Exchange is open.
For the purpose of the computation of the applicable public offering price,
orders for shares placed by the mailing of an Account Application with a check
payable to the Fund are considered "processed" upon receipt by the Distributor.
Purchase of shares through authorized dealers must be received by such dealers
prior to 4:00 p.m., New York time (the "Closing") in order to receive such
trading day's public offering price. Orders received by the Distributor
subsequent to the Closing are confirmed at the public offering price determined
as of the Closing on the next trading day. If a dealer who has a sales agreement
with the Distributor receives an order prior to the Closing and fails to
transmit such order to the Distributor prior to its close of business on that
day (5:00 p.m. New York time), any resulting loss will be borne by the dealer.
The net asset value per share of the Fund, the price at which shares are
redeemed, is computed by dividing the value of the Fund's total assets, less its
liabilities, by the total number of shares outstanding. The net asset value of
the Fund fluctuates based on the market value of the Fund's investments.
Procedures describing the method of valuation of the individual securities are
discussed in the SAI.
The Distributor may provide additional promotional incentives or
compensation to dealers that sell shares of the Fund in addition to sales loads.
In some instances, these incentives may be made available only to certain
dealers who have sold specified amounts of shares. Dealers may not use sales of
the Fund's shares to qualify for such incentives to the extent that such sales
may be prohibited by the laws of
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any state or self-regulatory agency such as the National Association of
Securities Dealers, Inc.
The following table shows the sales load at various investment levels for
the purchase of shares of the Fund.
Sales Load
as % of: Reallowance
------------------ to Dealers
Public Net as % of:
Offering Amount Offering
Amount of Purchase Price Invested Price
------------------ -------- -------- -----------
Less than $100,000 ......................... 4.00% 4.17% 3.50%
$100,000 to less than $250,000 ............. 3.35% 3.47% 3.00%
$250,000 to less than $500,000 ............. 2.75% 2.83% 2.50%
$500,000 to less than $1,000,000 ........... 2.25% 2.30% 2.00%
$1,000,000 to less than $4,000,000 ......... 1.25% 1.27% 1.00%
Over $4,000,000 ............................ 0.75% 0.76% 0.60%
The Distributor also may make a payment out of its own resources to dealers
in an amount not to exceed .25% of purchases of $1,000,000 or more.
Information with regard to any of the following special purchase plans or
methods may be obtained from the Distributor.
Reduced Sales Loads
Shares of the Fund may be purchased under a variety of plans which provide
for reduced sales loads. To obtain a reduction of the sales load you or your
dealer must notify the Distributor at the time of the sale which qualifies for
the reduction.
Right of Accumulation. The total value (at the public offering price) of
shares of the Fund, and shares of Eligible Funds (as described in Exchange
Privilege) registered to you, your spouse or your children under 21, may be
combined with the amount of your current purchase in determining the sales load
to be paid.
Letter of Intent. Reduced sales loads will apply to purchases made within a
period of thirteen months by any person pursuant to a non-binding Letter of
Intent. A shareholder may include the combined value (at the applicable public
offering price) of shares of the Fund, and shares of Eligible Funds (as
described in Exchange Privilege) held by the shareholder of record as of the
date of the Letter of Intent as an "accumulation credit" toward the completion
of the intention expressed in the Letter of Intent. A shareholder's holdings in
the Fund and any Eligible Funds acquired more than 90 days before the Letter of
Intent is filed will be counted towards completion of the Letter of Intent, but
will not be entitled to a retroactive downward adjustment of sales charge.
Group Purchases. An individual who is a member of a qualified group may
also purchase shares of the Fund at the reduced sales load applicable to the
group taken as a whole. The sales load is based upon the aggregate amount of
shares previously purchased and still owned by the group, plus the securities
currently being purchased. A "qualified group" is one with more than 10 members
and which (i) has been in existence for more than six months, (ii) has a purpose
other than acquiring shares of the Fund at a discount and (iii) has satisfied
uniform criteria which enables the Distributor to realize economies of scale in
its costs of distributing shares.
Other Discounts
Shares of the Fund may also be purchased at net asset value, without a
sales load, by trust companies and bank trust departments for funds held in a
fiduciary, agency, custodial or similar capacity. Such purchases are subject to
minimum investment requirements, which may be established by the Distributor.
Currently, those criteria require that the amount invested or to be invested
during the subsequent 13 month period in the Fund or other fund in The Rochester
Funds group must total at least $100,000. If an investment by a trust company or
bank trust department at net asset value is made through a dealer who has
executed a dealer agreement with respect to The Rochester Funds, the Distributor
may make a payment, out of its own resources, to such dealer in an amount not to
exceed .25% of the amount invested.
The Fund may also sell shares at net asset value to the Fund's Trustees
(and their families), employees of the Adviser and affiliates of the Adviser
(and their families), private advisory clients of the Adviser, registered
representatives and other employees (and their families) of broker-dealers
having sales agreements with the Distributor and in connection with the
acquisition by the Fund of assets of an investment company.
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DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Act, the Fund has adopted a Distribution
Plan (the "Distribution Plan"), which permits the Fund to pay the Distributor a
service fee in connection with the distribution of shares of the Fund in an
amount of up to 0.25% per annum of the Fund's average daily net assets (the
"Service Fee"). The Service Fee is paid to the Distributor as reimbursement for
payments which the Distributor makes to compensate broker-dealers and financial
institutions for personal services performed and/or expenses incurred in
connection with the maintenance of shareholder accounts. Although the terms of
the Distribution Plan permit aggregate payments by the Fund thereunder of up to
0.25% per annum of the Fund's average daily net assets, the Board of Trustees of
the Fund has approved aggregate payments thereunder of only 0.15% per annum of
its average daily net assets.
SHAREHOLDER SERVICES
Account Information
Shareholders with inquiries on accounts not held by their dealer may call
the Fund or the Agent, at (716) 383-1966 (9:00 a.m. - 5:00 p.m. New York time)
or write to the address provided on the back of this Prospectus.
Exchange Privilege
The Rochester Funds group currently consists of two investment companies in
addition to the Fund: Limited Term New York Municipal Fund (LTNYX) and The Bond
Fund For Growth (RCVGX) each of which has a distinct investment objective and
policies. As described below, a shareholder may exchange shares of the Fund for
Class A shares of another of The Rochester Funds which are eligible for sale in
the shareholder's state of residence (collectively the "Eligible Funds").
Shareholders wishing to make an exchange into an Eligible Fund should obtain and
review a prospectus of the appropriate Eligible Fund before making the exchange.
Shares of an Eligible Fund which have been held for at least 15 days may be
exchanged for Class A shares of another Eligible Fund on the basis of the
relative net asset values of each Fund's shares, at the time of the exchange
(without sales charge) except that exchanges of Class A shares held in LTNYX for
less than six months for shares of the Fund will be charged an incremental sales
load of 2% with a 1.75% dealer reallowance.
Shareholders may effect exchanges of noncertificated shares by telephone.
The privilege is available to all shareholders unless requested otherwise by the
shareholder on the Account Application Telephone Exchange Authorization Forms
are available from the Distributor upon request. In order to effect an exchange
by telephone, shareholders may call the Agent weekdays (except holidays) between
9:00 a.m. and 5:00 p.m. (New York time). All exchanges will be made on the basis
of the relative net asset value of the two funds next determined after the
request is received in good order. Exchange requests received after the close of
regular trading on the Exchange, generally 4:00 p.m. (New York time) will be
processed at the net asset value determined as of the close of business on the
following business day. A sales load differential may apply. Telephone exchanges
are available only in nonretirement accounts registered in the same name.
Shareholders are limited to one telephone exchange within any 30-day period for
each account authorized to make such exchanges.
The Fund, the Agent and their affiliates will not be liable for any loss,
damage, cost or expense arising out of any instruction (or any interpretation of
such instruction) received by telephone which they reasonably believe to be
authentic. In acting upon telephone instructions, the Agent utilizes procedures
which are reasonably designed to ensure that such instructions are genuine. For
a description of such procedures, see the SAI. Your telephone call will be
recorded and a written confirmation of the exchange will be mailed to you. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone exchanges. The Fund reserves the
right, in its sole discretion, upon 60 days' notice, to materially modify or
discontinue the telephone exchange privilege. During times of drastic economic
or market conditions, telephone exchanges may be difficult to implement. If you
experience difficulty in making a telephone exchange, you may transmit your
request to the address on the back of this Prospectus and it will be implemented
at the
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next determined net asset value (subject to any applicable sales charge)
following receipt in good order by the Agent.
See Tax Matters for an explanation of the tax consequences of exercising
the exchange privilege.
Reinvestment Privilege
If you redeem shares of the Fund and then decide to reinvest in the Fund,
you may, within 90 calendar days of the date of redemption, use all or any part
of the proceeds of the redemption to reinvest, free of sales load, in shares of
the Fund. Your investment will be reinvested at the net asset value per share
next determined after your request is accepted. You must inform the Agent that
this purchase represents a reinvestment. You may use this reinvestment privilege
only once in a calendar year.
Exercise of the reinvestment privilege does not alter the federal income
tax status of any capital gain realized on a sale of Fund shares, but to the
extent that any shares are sold at a loss and the proceeds are reinvested in
shares of the same Fund, some or all of the loss may not be allowed as a
deduction depending upon the percentage of proceeds reinvested. See Tax Matters.
HOW TO REDEEM SHARES
By Mail. A shareholder may redeem shares at any time and receive the value
of the Fund's shares by forwarding a written request signed by all registered
owners to the Agent. The shareholder will then receive from the Fund the value
of the shares based upon the net asset value per share next computed after a
written request in good order is received by the Agent. Redemption requests
received after the time at which the net asset value is calculated each day (at
the close of the Exchange) will be processed at the net asset value determined
as of the close of business on the following business day. Any certificates
representing Fund shares being redeemed must be submitted with the written
redemption request.
For the shareholder's protection, and to be considered in good order,
signature(s) must be guaranteed if the redemption request involves any of the
following:
(1) the proceeds of the redemption are over $100,000;
(2) the proceeds (in any amount) are to be paid to someone other than
the registered owner(s) of the account; or
(3) the proceeds (in any amount) are to be sent to any address other
than the shareholder's address of record, preauthorized bank account or
brokerage firm account.
Eligible signature guarantors are determined in accordance with standards
and procedures adopted by the Agent from time to time. A notarized signature is
not acceptable.
Payment for the redeemed shares will be sent to the shareholder within 5
business days after receipt of the request in good order, except that the Fund
may delay the mailing of the redemption check or a portion thereof until the
Fund's depository bank has made fully available for withdrawal the proceeds from
the check used to purchase Fund shares, which may take up to 15 days.
Through Your Investment Dealer. For the convenience of its shareholders,
the Fund has authorized the Distributor to act as its agent to accept orders
from dealers' authorized order rooms for the redemption of Fund shares. The Fund
may revoke or suspend this authorization at any time. The redemption price is
the net asset value next determined following the time at which the shares are
offered for redemption to the dealer. Payment of the redemption proceeds is made
to the dealer who placed the order within seven days after receipt of the order
provided that within this time, delivery of certificates for shares in good
order is received, or for open accounts, upon the receipt of a written request
for redemption as described above, and, if required, any supporting documents.
If a shareholder is unable to execute a transaction by telephone to his dealer,
or a dealer is unable to execute a transaction by telephone to the Distributor
(for example, during times of unusual market activity), the shareholder or
dealer should consider placing the order by mail.
Systematic Withdrawal Plan. A Systematic Withdrawal Plan ("SWP") is
available to shareholders which provides for monthly payments by ACH funds or
check. For information on how to establish a SWP, contact Shareholder Services
at (716) 383-1966.
Required Redemption. The Fund may, in order to reduce its expenses, require
any shareholder with shares having a net asset value in the aggregate of less
than $1,500 to redeem such shares. Such required redemption would
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<PAGE>
relate only to a shareholder whose holdings had fallen to below $1,500 by reason
of redemption. Notice of any required redemption (which would be made only in
cash at net asset value without payment of any redemption fee or charge) would
be given to any such shareholder at least 30 days prior to any such required
redemption, during which time the shareholder would have the opportunity to
bring the account to a value of $1,500. The provisions relating to the
reinvestment privilege would not be applicable to any such redeemed shares.
Required redemptions are not applicable where a shareholder is making continuous
regular investments in the Fund through an Automatic Bank Draft Plan or
automatic investment plan.
PERFORMANCE
Advertisements and other sales literature for the Fund may refer to its
"yield," "tax equivalent yield" and its "average annual total return." When the
Fund advertises its yield or tax equivalent yield it will also advertise its
average annual total return for the most recent one-year period, the most recent
five-year period and for the life of the Fund. Such calculations are determined
in accordance with the rules and regulations established by the Securities and
Exchange Commission and are applicable to all investment companies and are not
indicative of the dividends or other distributions which were or will be paid to
the Fund's shareholders. Dividends or other distributions paid to shareholders
are reflected in the current distribution rate or taxable equivalent
distribution rate which may be quoted to shareholders.
The advertised yield of the Fund will be based upon a 30-day period stated
in the advertisement. Yield is calculated by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period. The result is then "annualized" using a formula that
provides for semiannual compounding of income.
Tax equivalent yield is calculated by applying the stated federal and state
income tax rate only to that portion of the yield which is exempt from taxation.
The tax-exempt portion of the yield is divided by the number one minus the
stated income tax rate (e.g., 100-38% = 62%). The result is then added to that
portion of the yield, if any, that is not tax-exempt.
The average annual total return of Shares of the Fund is computed by
finding the average annual compounded rate of return of a class over a period
that would equate the initial amount invested in that class to the ending
redeemable value. The calculation assumes that the maximum sales load charge is
deducted from an initial $1,000 investment in Class A Shares, and that the CDSC
is deducted in the case of Class B Shares. The calculation also assumes that
dividends and capital gains distributions are reinvested at net asset value. The
calculation includes all recurring fees that are charged to all shareholder
accounts.
For additional information regarding the calculation of yield and total
return, see Calculation of Performance Data in the SAI. Further information
about the Fund's performance is set forth in the Fund's Annual Report to
Shareholders, which may be obtained upon request without charge.
TAX MATTERS
Taxation of the Fund
During the taxable year ended December 31, 1994, the Fund qualified for
treatment as a regulated investment company under Subchapter M of the Code. The
Fund generally intends to continue to so qualify for future taxable years. The
Fund intends to avoid incurring liability for federal income tax and a 4% excise
tax on its investment company taxable income (consisting generally of taxable
net investment income and net short-term capital gains) and net capital gains by
distributing all of that income and gain and by meeting other applicable
requirements of the Code.
Taxation of Shareholders
By meeting certain requirements of the Code, including the requirement that
at the close of each quarter of its taxable year at least 50% of the value of
its total assets consists of obligations the interest on which is excludable
from gross income under section 103(a) of the Code, the Fund intends to continue
to qualify to pay "exempt" interest dividends to its shareholders. Exempt
interest dividends designated as such by the Fund may be excluded from a
shareholder's gross income for federal income tax purposes. To the extent that
dividends are derived from earnings on interest attributable to obligations of
New York and its political subdivisions, Puerto Rico, or other U.S. possessions,
they will also be excluded from a New York shareholder's gross
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<PAGE>
income for New York State and New York City personal income tax purposes.
Although exempt-interest dividends will not be subject to federal income
tax for Fund shareholders, a portion of such dividends which is derived from
interest on certain "private activity" bonds, will give rise to a tax preference
item which could subject a shareholder to, or increase a shareholder's liability
under, the Federal alternative minimum tax, depending on the shareholder's
individual tax situation.
To the extent dividends are derived from options trading, temporary taxable
investments, an excess of net short-term capital gain over net long-term capital
loss or accretion of market discount those dividends are taxable as ordinary
income for federal income tax purposes whether a shareholder has elected to
receive dividends in cash or additional Fund shares. Such dividends will not
qualify for the dividends-received deduction for corporations. Interest on
indebtedness incurred or continued to purchase or carry shares of the Fund is
not deductible to the extent the Fund's distributions consist of exempt-interest
dividends. Distributions, if any, of net capital gain, when designated as such,
will be treated as long-term capital gains by each shareholder regardless of the
length of time the shareholder has owned Fund shares and whether the shareholder
received them in cash or additional Fund shares.
Information as to the tax status of Fund distributions will be provided
annually including information as to which portions are taxable or tax exempt.
In addition, information will be provided annually identifying the portion of
exempt-interest dividends that constitutes a tax preference item for
shareholders in determining their liability for alternative minimum tax.
Shareholders who have not been in the Fund for a full fiscal year may get
distributions of income and/or capital gains which are not equivalent to the
actual amount applicable to the period for which they have held shares.
For individuals and certain other noncorporate shareholders, including
those who fail to certify their taxpayer identification number, taxable
dividends, capital gain distributions and proceeds of redemptions will be
subject to 31% withholding. Withholding at that rate from taxable dividends and
capital gain distributions also is required for such shareholders who otherwise
are subject to backup withholding. If the withholding requirements are
applicable to a shareholder, any such dividend, distribution or redemption
proceeds would be reduced by the amount required to be withheld. Backup
withholding from redemption orders requested for shareholders by broker-dealers
is the responsibility of those broker-dealers.
Up to 85% of a social security recipient's benefits may be included in
federal gross income for benefit recipients whose adjusted gross income
(including income from tax-exempt sources such as the Fund) plus 50% of their
benefits exceeds certain base amounts. Income from the Fund is still tax-exempt
to the extent described above; it is only included in the calculation of whether
or not a recipient's Social Security benefits are to be included in Federal
gross income.
A redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid). An exchange of Fund shares for Class A
shares of any Eligible Fund generally will have similar tax consequences.
However, special rules apply when a shareholder (1) disposes of Fund shares
through an exchange or redemption within 90 days after purchase thereof and (2)
subsequently acquires shares of an Eligible Fund or reacquires Fund shares
without paying a sales load due to the exchange privilege or 90-day reinvestment
privilege. (See Shareholder Services--Exchange Privileges and --Reinvestment
Privilege.) In these cases, any gain on the disposition of the Fund shares would
be increased, or loss decreased, by the amount of the sales load paid when those
shares were acquired, and that amount will increase the basis of the
subsequently acquired shares. In addition, if a shareholder purchases Fund
shares (whether pursuant to the reinvestment privilege or otherwise) within 30
days before or after redeeming other Fund shares at a loss, all or a portion of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders--see the SAI
for a further discussion--and is not intended to be a substitute for careful tax
planning. There may be other federal, state or local tax considerations
applicable to a particular investor; for example, the Fund's
16
<PAGE>
distributions may be wholly or partly taxable under state and/or local laws
other than New York State and New York City. Prospective investors therefore are
urged to consult their own tax advisers.
MANAGEMENT, SERVICES AND DISTRIBUTION
Rochester Fund Municipals
The Fund offers an unlimited number of shares of beneficial interest, each
of which is entitled to one vote. Fractional shares have the same rights as full
shares to the extent of their proportionate interest. Each share has equal
voting rights. The Fund acts as its own transfer agent and dividend paying
agent.
The Fund has a Board of Trustees which has the primary responsibility for
the overall management of the Fund. The Trustees elect the officers of the Fund
who are responsible for administering its day-to-day operations. Under the
Fund's Declaration of Trust, no annual or regular meeting of shareholders is
required, but special meetings will be called for certain purposes such as
electing trustees, changing fundamental policies or approving a management
contract. The Declaration of Trust of the Fund provides that the Trustees shall
call and give notice of a meeting of shareholders for the purpose of voting upon
removal of any trustee when requested in writing by shareholders holding not
less than 10% of the shares of the Fund.
Rochester Capital Advisors, L.P.
The Adviser. The Adviser, located at 350 Linden Oaks, Rochester, New York
14625-2807, serves as Adviser to the Fund pursuant to an Investment Advisory
Agreement dated May 1, 1995 (the "Investment Advisory Agreement"). The Adviser
provides the Fund with investment supervision and management, administrative
services and office space. The Adviser is entitled to receive, pursuant to the
Investment Advisory Agreement, an annual fee, payable monthly, equal to the
following percentages based on its average daily net assets: 0.54% up to $100
million, 0.52% on $100 million to $250 million, 0.47% on $250 million to $2
billion, 0.46% on $2 billion to $5 billion and 0.45% in excess of $5 billion.
The Adviser, an investment adviser registered under the Investment Advisers
Act of 1940, was organized as a limited partnership under the laws of the State
of New York in 1993. The Adviser is managed by Rochester Capital Advisors, Inc.,
a New York corporation, which serves as the general partner of the Adviser (the
"General Partner") and which owns a 1% limited partnership interest in the
Adviser. Ronald H. Fielding, a Trustee and President of the Fund, is the
President of the General Partner. Michael S. Rosen, a Trustee and Vice President
of the Fund, is the Vice President of the General Partner. Messrs. Fielding and
Rosen, who own in the aggregate all of the outstanding voting securities of the
General Partner, also own in the aggregate all of the outstanding voting
securities of Fielding Management Company, Inc. ("Fielding Management"), which
served as investment adviser to the Fund from the Fund's inception through April
30, 1994.
Mr. Fielding, the Portfolio Manager of the Fund, has been primarily
responsible for management of the Fund's portfolio since the Fund's inception.
In addition to his employment by the Adviser since 1993, Mr. Fielding has been
employed by Fielding Management since 1982. Messrs. Rosen and Anthony A. Tanner,
Vice President-Research of the General Partner, also have responsibility for the
day-to-day management of the Fund's portfolio. In addition to their employment
by the Adviser since 1993, Messrs. Rosen and Tanner have been employed by
Fielding Management since 1983 and 1991, respectively. Prior to joining Fielding
Management, Mr. Tanner was a student and Research Assistant at the William E.
Simon Graduate School of Business Administration (1989-1991) and a municipal
trader for an investment banking firm.
Rochester Fund Services, Inc.
The Agent, an affiliate of the Adviser, has been retained by the Fund to
provide certain administrative services necessary to the conduct of its affairs
including the daily determination of its net asset value per share and
dividends, and the maintenance of its Fund and general accounting records. For
providing such services, the Agent receives a monthly maintenance fee from the
Fund.
Rochester Fund Distributors, Inc.
The Distributor, also an affiliate of the Adviser, is the Fund's principal
underwriter and distributor. Under the terms of its underwriting agreement with
the Fund, the Distributor markets and distributes the Fund's shares and is
responsible for preparing advertising and sales literature, and printing and
mailing prospectuses to prospective investors.
17
<PAGE>
APPENDIX A
Special Factors Affecting an Investment in the Fund
The following information as to certain risk factors is provided to
investors in view of the Fund's policy of concentrating its investments in
securities issued by public entities in New York State ("State") and New York
City ("City") and, to a lesser extent, in U.S. territories and possessions. This
information, which does not purport to be a complete description of such risks
and is based on information obtained from official statements relating to
securities offerings of issuers located in New York, from independent municipal
credit reports and other sources believed to be reliable has not been
independently verified by the Fund. This section should be read in the context
of the Fund's other investment policies (see About the Fund--Investment
Objective).
Risk Factors for New York Issuers
New York State. A substantial principal amount of bonds issued by various
State agencies and authorities are either guaranteed by the State or supported
by the State through lease-purchase arrangements, other contractual obligations
or moral obligation provisions, which impose no immediate financial obligations
on the State and require appropriations by the legislature before any payments
can be made. Failure of the State to appropriate necessary amounts or to take
other action to permit the authorities and agencies to meet their obligations
could result in default. If a default were to occur, it would be likely to have
a significant adverse impact on the market price of obligations of the state and
its authorities and agencies. While debt service is normally paid out of
revenues generated by projects of the authorities and agencies, the State has
had to appropriate large amounts of funds in recent years to enable State
agencies to meet their financial obligations and, in some cases, prevent
default. Additional assistance is expected to be required in current and future
fiscal years since certain localities and authorities continue to experience
financial difficulties.
Certain State agencies, authorities and subdivisions, such as the New York
State Urban Development Corporation ("UDC"), the New York State Medical Care
Facilities Finance Agency and the Housing Finance Agency ("HFA") are dependent
upon continued financial support from the State in order to meet their bond
obligations.
To the extent State agencies and local governments require State assistance
to meet their financial obligations, the ability of the State to meet its own
obligations as they become due or to obtain additional financing could be
adversely affected. This financial situation could result not only in defaults
of State and agency obligations but also impairment of the marketability of
securities issued by the State, its agencies and local governments.
Constitutional challenges to State laws or appropriations could limit the
amount of taxes which political subdivisions may impose on real property or the
amount these entities may borrow. In 1979, the State's highest court declared
unconstitutional a State law allowing localities and school districts to impose
a special increase in real estate property taxes in order to raise funds for
pensions and other uses. However, in 1994, the State's highest court rejected a
taxpayer challenge to the constitutionality of certain debt incurred by State
agencies without voter approval. Final adverse decisions in such cases could
require extraordinary appropriations or expenditure reductions, or both, and
could have a material adverse effect upon the financial condition of the State
and various of its agencies and subdivisions.
The newly elected Governor of the State is attempting to close a $5 million
budget shortfall for the current fiscal year (ending March 31, 1996) through
dramatic reductions in certain spending categories. It is not known what
spending cuts the State Legislature will approve. The State's recurring history
of late budgets continues this year and reflects conflicting political
priorities within the State. Nonetheless, it would appear that significant
reductions in expenditures will be made. It is uncertain what impact these
reductions will have on the State's economy.
The State's economy, which was adversely affected by the recession in the
early 1990s, has begun to improve. Job growth in 1993 and the first half of 1994
outperformed estimates, but remains below the rest of the country. Future
growth, if any, is likely to be modest because of corporate downsizing of major
employers in the State and cutbacks in defense spending. Income and population
growth in the State remain among the slowest in the nation, although per capita
income remains high. Slow growth in the economy has also increased the disparity
in income, which could lead to increased service demands.
18
<PAGE>
New York City. In 1975, the City suffered several financial crises which
impaired the borrowing ability of both the City and the State. In that year, the
City lost its access to public credit markets and it was not able to sell
short-term notes to the public until 1979 nor long-term notes to the public
until 1981. To help the City out of its financial difficulties, the State
legislature created the Municipal Assistance Corporation ("MAC") in 1975. MAC
has the authority to issue bonds and notes and pay or lend the proceeds to the
City. MAC also has the authority to exchange its obligations for City
obligations. MAC bonds are payable out of certain State sales and use taxes
imposed by the City, State stock transfer taxes and per capita State aid to the
City. The State is not, however, obligated to continue these taxes, nor to
continue appropriating revenues from these taxes, nor to continue the
appropriation of per capita State aid to pay MAC obligations. MAC does not have
taxing powers, and its bonds are not obligations enforceable against either the
City or the State.
In addition, since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 its financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City was
required to submit annually to the Control Board a financial plan for the next
four fiscal years, covering the City and certain agencies showing balanced
budgets determined in accordance with generally accepted accounting principles.
Although the Control Board's powers of prior approval were suspended effective
June 30, 1986, because the City had satisfied certain statutory conditions, the
City continues to submit four-year plans to the Control Board for its review. In
the event the City cannot obtain a balanced budget, there are concerns as to
whether any deficit in the City budget can be financed by MAC bonds, federal
guarantees, federal and State aid and increased revenues. Neither the State nor
the federal government is obligated to provide financial assistance of any kind
to the City in the event of future financial difficulties. The City is also a
defendant in numerous legal actions which relate to material matters.
Currently, the City projects significant budget deficits through fiscal
1998. Credit rating agencies have praised cost-cutting steps proposed in the
mayor's fiscal 1995 budget, but have criticized certain ongoing city practices,
including asset sales and debt rescheduling, because such practices may not be
sustainable. In addition, projected cost savings or revenue forecasts may not be
realized. The State's economic health is dependent to a significant extent on
the fortunes of the City, the largest city in the United States.
Conclusion. Both the State and the City face potential economic problems
which could seriously affect their ability to meet financial obligations. The
economic problems of the City adversely affect the State in numerous ways. In
addition, for decades the State economy has grown more slowly than that of the
nation as a whole, resulting in a decline in the position of the State as one of
the country's wealthiest states. The causes of this decline are varied and
complex and some causes reflect international and national trends beyond the
State's and City's control. Some analysts believe that this long term decline is
the result of State and local taxation, which is among the highest in the
nation, and which may cause corporations to locate outside the State. The
current high level of taxes may limit the ability of the State and City to
impose higher taxes in the event of future difficulties.
Risk Factors Affecting United States Territories
Other securities that provide state tax-free income include general
obligations of U.S. territories and possessions such as Guam, the Virgin
Islands, Puerto Rico, and their political subdivisions and public corporations.
The economies of United States territories are closely linked to the U.S.
economy, and will depend on many variables, some of which include the strength
of the U.S. dollar, interest rates, the price stability of oil imports, and the
continued existence of favorable tax incentives. Recent legislation reduced
these incentives, but it is impossible to predict what impact the changes will
have.
19
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20
<PAGE>
Account Application
The Rochester Funds
- -------------------------------------------------------------------------------
Mail completed The person or persons (the "Investor") who are executing
application to: this Account Application authorize Rochester Fund Services,
Rochester Fund Inc. to open or revise an account to purchase common shares
Services Inc. of the Fund indicated below (collectively "The Rochester
350 Linden Oaks Funds") in accordance with these instructions and all other
Rochester, NY applicable provisions in this Account Application, and all
14625 provisions in the current Prospectus of the indicated Fund,
(716) 383-1966 which Prospectus the investor acknowledges having received
from its Dealer prior to, or simultaneously with, the
execution of this Account Application.
- -------------------------------------------------------------------------------
Account Type/ [ ] Individual_____________________________________________
Name First Name Middle Initial Last Name
(Please Print
or Type) Joint [ ] JTTEN:
[ ] Owner [ ] Ten Com:_____________________________________
First Name Middle Initial Last Name
Uniform Gift/
[ ] Transfer to Minor______________________________________
Custodian
[ ]UTMA [ ]UGMA First Name Middle Initial Last Name
as Custodian for________________________________________
Name of Minor(s) State in which
gift is made
[ ] Trust, ________________________________________________
Corporation, Name of Trust or Name of Trustee(s)
Partnership Organization or Officer
Other Entity as it Appears on
Trust Agreement
______________________________________________
For the Benefit of Date of Trust
YOU MUST _____________________ ______________ __________ __________
COMPLETE Address City State Zip
THIS SECTION
FOR ALL __________________________________________Telephone numbers
ACCOUNT TYPES Day Phone Evening Phone will be used for
(include area code) (include area code) non-soliciting
purposes only
- -------------------------------------------------------------------------------
Fund and Fund Name Share Class Amount
Privilege [ ] Rochester Fund
Selections Municipals
(minimum $2,000)
Please indicate RMUNX Class A
your Mutual Fund only available $__________
Investment Choice(s)
and circle the
appropriate Share [ ] Limited Term NY
Class (if Municipal Fund
applicable). (minimum $5,000)
(Please notice the LTNYX Class A $__________
minimum required
investment for the LTNBX Class B $__________
fund you choose.
Subsequent [ ] The Bond Fund
purchases must For Growth
be in amount of (minimum $2,000)
$100 or more for RCVGX Class A $__________
each fund.)
RCVEX Class B $__________
RCVYX (Institutional
Investors only) Class Y
(minimum $50,000) $__________
TOTAL: $
==========
Please enclose a check for this amount payable
to Rochester Fund Distributors, Inc.
21
<PAGE>
Dividend and [ ] Reinvest dividends Please complete the following
Capital Gain in shares and pay if dividend distributions are
capital gains in cash to be mailed to another
(Distributions will address or will be payable to
be reinvested in [ ] Pay dividends in another payee:
additional shares, cash and reinvest
unless specified capital gains in _____________________________
otherwise.) shares Name
[ ] Pay all dividends _____________________________
and capital gains Address
in cash
_____________________________
City/State/Zip
[ ] I do not want Telephone ----------------------------
Exchange Privileges. Signature Guarantee required
Telephone Exchange is for above transaction
automatic (where
applicable) unless A signature guarantee may be
otherwise specified obtained at any commercial
here. bank or from your broker
dealer.
- --------------------------------------------------------------------------------
Signature and I (we) am of legal age to make this purchase. Under the
Taxpayer penalties of perjury, I certify that the tax identifying or
Certification social security number contained herein is true, correct and
complete and I am not subject to backup withholding under
section 3406(a)(1)(C) of the Internal Revenue Code. I (we)
hereby agree that, upon acceptance by Rochester Fund
Distributors, Inc. ("RFD"), this Account Application will be
a contract governed by the laws of the State of New York. In
addition, I (we) hereby agree that any controversy arising
out of or in relation to my (our) account or this contact
shall be settled by arbitration before the National
Association of Securities Dealers, Inc. or any other
self-regulatory organization of which RFD is a member.
___________________________ _______________________________
Owner's Signature Date Owner's Social State in which
Security/Tax ID signed
(Minor's SS# if
UGMA/UTMA)
___________________________ For Tax Purposes: (check
Joint Owner's Date appropriate box:)
Signature (if any) [ ] I am a citizen [ ] Other__
of US
{ } I am a resident [ ] Other__
of US
(Non-resident Aliens must
provide the W-8 form)
- -------------------------------------------------------------------------------
Registered
Representative ____________________________________________________________
Identification First Name Middle Initial Last Name Representative Number
(Broker/Dealer
Use Only) ____________________________________________________________
Registered Representative Signature Office Phone Number
(required)
____________________________________________________________
Firm Name Branch Number
______________________________________
Dealer Authorized Signature (required)
____________________________________________________________
Address City State Zip
Please make your check payable to Rochester Fund
Distributors, Inc. and mail to: 350 Linden Oaks, Rochester,
NY 14625. A shareholder package containing fund privileges
will be forwarded upon processing of your application.
The broker-dealer ("Dealer") signing the Application hereby agrees to all
applicable provisions of this Application. The Dealer will act as principal in
all purchases by the investor of Fund shares indicated herein and authorizes and
appoints RFD to execute such purchases and to confirm such purchases to the
Investor. RFD will remit monthly to the Dealer the amount of any commissions
due, except that no commissions will be paid to the Dealer on any transactions
for which the Dealer's net sales commissions are less than $5.00. The Dealer
also represents that it may lawfully sell shares of the indicated Fund in the
state designated as the Investor's record address, and that it has a currently
effective Dealer Agreement with Rochester Fund Distributors, Inc. authorizing
the Dealer to sell common shares of The Rochester Funds.
The Dealer signature guarantees the signature and legal capacity of the
Investor. If the Investor does not sign this Application, the Dealer warrants
that this application is completed in accordance with the Investor's
instructions and information and agrees to indemnify The Rochester Funds and
Rochester Fund Distributors, Inc. from any loss or liability from acting or
relying upon such instructions and information.
22
<PAGE>
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<PAGE>
----------------------
Investment Adviser
Rochester Capital Advisors, L.P.
Distributor
Rochester Fund Distributors, Inc.
Shareholder Services Agent
Rochester Fund Services, Inc.
350 Linden Oaks
Rochester, NY 14625-2807
(716) 383-1300
----------------------
Custodian
Investors Bank & Trust Company
Boston, MA
Independent Accountants
Price Waterhouse LLP
Rochester, NY
Legal Counsel
Kirkpatrick & Lockhart
Washington, D.C.
----------------------
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Registration Statement filed with the Securities and
Exchange Commission.
----------------------
Your Investment Dealer is:
Item # ROC 504139
ROCHESTER
[LOGO] FUND
MUNICIPALS
350 Linden Oaks
Rochester, NY 14625-2807
(716) 383-1300
PROSPECTUS May 1, 1995,
as supplemented on
July 17, 1995
