As Filed with the Securities and Exchange Commission
August 30, 1996
Registration No. 2-89526
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 25
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 27
----
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
- --------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
119 East Marcy Street, Suite 202, Santa Fe, NM 87501
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (505) 984-0200
--------------
H. Garrett Thornburg, Jr.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
---------------------------------------
(Name and Address of Agent for Service)
copy to:
Charles W. N. Thompson, Jr.
White, Koch, Kelly & McCarthy, P. A.
Post Office Box 787
Santa Fe, New Mexico 87504-0787
It is proposed that this filing will become effective
(check appropriate box):
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
_X_ On [date] pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ On (date) pursuant to paragraph (a)(2)
The Registrant has registered an indefinite number or amount of
securities in accordance with Rule 24 under the Securities Act of
1933, and filed a Rule 24f-2 Notice for its most recent fiscal year
on August 26, 1996.
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
(i) Thornburg Limited Term Municipal Fund National Portfolio
(ii) Thornburg Limited Term Municipal Fund California Portfolio
CONTENTS
Facing Sheet
Contents
Cross Reference Sheets (Thornburg Limited Term Municipal Fund
National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares])
(Thornburg Limited Term Municipal Fund
National Portfolio [Institutional Class
shares])
Prospectus (Thornburg Limited Term Municipal Fund
National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares])
(Thornburg Limited Term Municipal Fund
National Portfolio [Institutional Class
shares])
Statement of (Thornburg Limited Term Municipal Fund
Additional Information National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares])
(Thornburg Limited Term Municipal Fund
National Portfolio [Institutional Class
shares])
Part C
Signature Page
Exhibits
CROSS REFERENCE SHEET
(i) Thornburg Limited Term Municipal Fund National Portfolio
[Class A and Class C shares]
(ii) Thornburg Limited Term Municipal Fund California Portfolio
[Class A and Class C shares]
Form N-1A Item Number
Part A Prospectus Caption
- ------ ------------------
1 . . . . . . . . . . . . . . . . . . . . . Cover Page
2
(a) . . . . . . . . . . . . . . . EXPENSE INFORMATION
(b) . . . . . . . . . . . . . . . . . not applicable
3 . . . . . . . . . . . . . . . . FINANCIAL HIGHLIGHTS
4
(a)(i) . . . . . . Special Considerations Affecting
Single-State Funds;
Organization of the Funds
(a)(ii), (b) & (c).INVESTMENT OBJECTIVES AND POLICIES
5 . . . . . . . . . . . . . INFORMATION ABOUT THE FUNDS
(a) . . . . . Organization of the Funds; TMC and TSC
(b), (c), (d) . . . . . . . . . . . . . . TMC and TSC
(e) . . . . . . . . . . . . . . . . . . Outside Cover
(f) . . . . . . . . . . . . . . . . . . . TMC and TSC
(g) . . . . . . . . . . . . . . . . . .not applicable
5A. . . . . . MANAGEMENT DISCUSSION OF FUND PERFORMANCE
6
(a) . . . . . . . . . . . . Organization of the Funds
(b), (c), (d) . . . . . . . . . . . . not applicable
(e) . . . . . . . . . . . . . . . . . . . Cover Page
(f) . . . . . . . . SHAREHOLDER AND ACCOUNT POLICIES
(g) . . . . . . . . . . . . . . . . . . . . . . TAXES
(h) . . . . . . . . YOUR ACCOUNT - Buying Fund Shares
7
(a) . . . . . . . . . . . . . . . . . . Outside Cover
(b), (c), (d) . . . YOUR ACCOUNT - Buying Fund Shares
(e) . . SERVICE AND DISTRIBUTION PLANS - Service Plan
(f) . . . . . . . . . SERVICE AND DISTRIBUTION PLANS
8
(a), (b), (c) . . . . . . . . . . SELLING FUND SHARES
(d) . . . . . . . . . . . . . . . Transaction Details
9 . . . . . . . . . . . . . . . . . . . not applicable
Part B Statement of Additional Information
- ------ -----------------------------------
10 Cover Page . . . . . . . . . . . . . . . . . . . Cover Page
11 Table of Contents . . . . . . . . . . . . TABLE OF CONTENTS
12 General Information . . . . . . . . . INVESTMENT OBJECTIVES
and History AND POLICIES
13 Investment Objectives. . . . . . . . . INVESTMENT OBJECTIVES
and Policies AND POLICIES;
Investment Limitations
14 Management of the Registrant . . . . . . . . . . MANAGEMENT
15 Control Persons and. . . . . . . . . . . . Principal Holders
Principal Holders of Securities of Securities
16 Investment Advisor . . . . . . . . . INVESTMENT ADVISORY AND
and Other Services ADMINISTRATIVE SERVICES AGREEMENTS;
MANAGEMENT
Prospectus -
"Information About the Funds"
17 Brokerage Allocation . . . . . . . . PORTFOLIO TRANSACTIONS
18 Capital Stock and Other Securities . . . . . . Prospectus -
"Information About the Funds"
19 Purchase, Redemption and Pricing
of Securities Being Offered. . . . . . .REDEMPTION OF SHARES
HOW TO PURCHASE FUND SHARES
Prospectus -
"How to Purchase Fund Shares";
"How to Redeem Fund Shares"
20 Tax Status . . . . . . . . . . . . . DISTRIBUTIONS AND TAXES
Prospectus - "Distributions and Taxes"
21 Underwriters . . . . . . . . . . . . . . . . . Prospectus -
"How to Purchase Fund Shares"
22 Calculation of Performance Data . . . . . YIELD COMPUTATIONS
AND TOTAL RETURNS
YIELD COMPUTATION
23 Financial Statements . . . . . . . . . FINANCIAL STATEMENTS
CROSS REFERENCE SHEET
(i) Thornburg Limited Term Municipal Fund National Portfolio
[Institutional Class shares]
Form N-1A Item Number
Part A Prospectus Caption
1 . . . . . . . . . . . . . . . . . . . . . . . . . . .Cover Page
2 (a) . . . . . . . . . . . . . . . . . . . . EXPENSE INFORMATION
(b) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
3 . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
4 (a)(i). . . . . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(a)(ii), (b) & (c). . . . . .INVESTMENT OBJECTIVES AND POLICIES
5 . . . . . . . . . . . . . . . . . . ORGANIZATION OF THE FUNDS;
TMC and TSC
5 A . . . . . . . . . . . . . . . .. . . . . . . Not Applicable
6 (a) . . . . . . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
(e) . . . . . . . . . . . . . . . Cover Page; INVESTOR SERVICES
(f) . . . . . . . . . . . . . SHAREHOLDER AND ACCOUNT POLICIES
(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . TAXES
(h) . . . . . . . . . . . . . . . . . . . . . . . . Cover Page;
YOUR ACCOUNT - Buying Fund Shares
7 (a) . . . . . . . . . . . . . . . . . . ADDITIONAL INFORMATION
(b), (c), (d) . . . . . . . . . . . . . . . . . . YOUR ACCOUNT;
TRANSACTION DETAILS
8 (a), (b), (c) and (d) . . . . . . . . . . . SELLING FUND SHARES
9 . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Part B Statement of Additional Information
10 . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
11 . . . . . . . . . . . . . . . . . . . . . . TABLE OF CONTENTS
12 . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
13 . . . . . . . . . . . . . INVESTMENT OBJECTIVES AND POLICIES
14 . . . . . . . . . . . . . . . . . . . . . . . . . MANAGEMENT
15 . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
16 . . . . . .INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENTS
AND ADMINISTRATIVE SERVICES AGREEMENTS;
17. . . . . . . . . . . . . . . . . . . . PORTFOLIO TRANSACTIONS
18 . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus
19 . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAXES
21 . . . . . . . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
22 . . . . . . . . . . . . . . YIELD AND PERFORMANCE INFORMATION
23 . . . . . . . . . . . . . . . . . . . . FINANCIAL STATEMENTS
<PAGE>
PART A
THORNBURG
MUNICIPAL FUNDS
Thornburg Limited Term Municipal Fund National Portfolio
Thornburg Limited Term Municipal Fund California Portfolio
Thornburg Intermediate Municipal Fund
Thornburg Florida Intermediate Municipal Fund
Thornburg New Mexico Intermediate Municipal Fund
PROSPECTUS
November 1, 1996
TABLE OF CONTENTS
Expense Information
Financial Highlights
Management Discussion of Fund Performance
Investment Objectives and Policies
Your Account - Buying Fund Shares
Selling Fund Shares
Investor Services, Transaction Services,
Shareholder and Account Policies
Taxes
Service and Distribution Plans
Transaction Details
Exchange Restrictions
Performance
Organization of the Funds
TMC and TSC
Additional Information
<PAGE>
THORNBURG MUNICIPAL FUNDS
The Thornburg Municipal Funds are separate investment portfolios ("Funds")
offered through this combined prospectus by Thornburg Limited Term Municipal
Fund, Inc. and Thornburg Investment Trust:
LIMITED TERM MUNICIPAL FUNDS
(series of Thornburg Limited Term Municipal Fund, Inc.):
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
INTERMEDIATE TERM MUNICIPAL FUNDS (series of Thornburg Investment Trust):
Thornburg Intermediate Municipal Fund ("Intermediate National Fund")
Thornburg Alabama Intermediate Municipal Fund
("Intermediate Alabama Fund")*
Thornburg Arizona Intermediate Municipal Fund
("Intermediate Arizona Fund")*
Thornburg Florida Intermediate Municipal Fund
("Intermediate Florida Fund")
Thornburg New Mexico Intermediate Municipal Fund
("Intermediate New Mexico Fund")
Thornburg Pennsylvania Intermediate Municipal Fund
("Intermediate Pennsylvania Fund")*
Thornburg Tennessee Intermediate Municipal Fund
("Intermediate Tennessee Fund")*
Thornburg Texas Intermediate Municipal Fund
("Intermediate Texas Fund")*
Thornburg Utah Intermediate Municipal Fund
("Intermediate Utah Fund")*
* Funds marked with an asterisk are not currently active, and propose to
commence investment operations in the future.
All of the Funds are managed by Thornburg Management Company, Inc.
("TMC"). Each of the active Funds offers Class A shares through this
Prospectus, which are sold at net asset value plus an initial sales charge
imposed at the time of sale. Limited Term National Fund, Limited California
Fund and Intermediate National Fund also offer Class C shares through this
Prospectus, sold without an initial sales charge but subject to a sales
charge if redeemed within one year of purchase and an annual distribution
fee. One or more Funds may offer other classes of shares. See "Your
Account-Buying Fund Shares," beginning on page 16.
Each Fund has the objective of providing, through investment in a
professionally managed portfolio of Municipal Obligations, as high a level of
current income exempt from federal income tax as is consistent, in the view
of the Funds' investment adviser, with preservation of capital.
Each of the Funds having a state's name will invest primarily in Municipal
Obligations of the state having the same name, with the objective of having
interest dividends paid to its state's shareholders exempt from any
individual income taxes imposed by that state. Each of the Limited Term
Funds will maintain a portfolio having a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. Each of the
Intermediate Funds will maintain a portfolio having a dollar-weighted average
maturity of normally three to ten years, with the objective of reducing
fluctuations in net asset value relative to long-term municipal bond
portfolios. The Intermediate Funds will expect lower yields than those
received on long term bond portfolios, while seeking higher yields and
expecting higher share price volatility than the Limited Term Funds. During
temporary periods the portfolio maturity of the Intermediate Funds may be
reduced for defensive purposes. There is no limitation on the maturity of any
specific security a Fund may purchase, subject to the limitation on the
average maturity of each Fund. There can be no assurance that the Funds'
respective objectives will be achieved.
This Prospectus sets forth concisely the information a prospective
investor should know about the Funds before investing. It should be read and
retained for further reference. Additional information about the Limited Term
Funds is contained in a Statement of Additional Information - Thornburg
Limited Term Municipal Funds dated November 1, 1996, and additional
information about the Intermediate Funds is contained in a Statement of
Additional Information - Thornburg Intermediate Municipal Funds dated
November 1, 1996. Each of these Statements of Additional Information has been
filed with the Securities and Exchange Commission and may be obtained at no
charge by contacting Thornburg Securities Corporation, 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501, 800-847-0200. This Prospectus
incorporates by reference the entire Statements of Additional Information.
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.
FUND SHARES INVOLVE INVESTMENT RISKS (INCLUDING POSSIBLE LOSS OF PRINCIPAL),
AND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, AND ARE
NOT INSURED BY, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY.
<PAGE>
EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Limited Term Municipal Funds Thornburg Intermediate Municipal Funds
---------------------------- --------------------------------------
Class A Class C Class A Class C
<F1>
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases 2.50% none 3.50% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50 <F2> 0.50% <F3> 0.50 <F2> 0.60% <F3>
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Examples:
Assuming each Fund's expense percentage remains the same, an investor making a $1,000
investment will pay the following cumulative expenses, assuming a 5% annual return.
<CAPTION>
Class A Class C Class A Class C Class C
<F1>
------- ------- ------- ------- -------
<S> <C> <C> <S> <C> <C> <C>
Limited Term National Fund
- --------------------------
Management Fees .45% .45% After 1 year $ 35 $ 14 $ 19
12b-1 Fees (after fee waivers for Class C) <F4> .25% .63% After 3 years $ 56 $ 44 $ 44
Other Expenses .28% .30% After 5 years $ 77 $ 75 $ 75
----- ----- After 10 years $143 $168 $168
Total Fund Operating Expenses .98% 1.38%
Limited Term California Fund
- ----------------------------
Management Fees .50% .50% After 1 year $ 35 $ 14 $ 19
12b-1 Fees (after fee waivers for Class C) <F5> .25% .63% After 3 years $ 56 $ 45 $ 45
Other Expenses (after assumption of expenses for .25% .27% After 5 years $ 79 $ 77 $ 77
Class A and Class C) ----- ----- After 10 years $146 $170 $170
Total Fund Operating Expenses 1.00% 1.40%
<PAGE>
Class A Class C Class A Class C Class C
<F1>
------- ------- ------- ------- -------
<S> <C> <C> <S> <C> <C> <C>
Intermediate National Fund
- --------------------------
Management Fees .50% .50% After 1 year $ 45 $ 14 $ 20
12b-1 Fees (after fee waivers for Class C) <F6> .25% .60% After 3 years $ 66 $ 45 $ 45
Other Expenses (after assumption of expenses for .25% .30% After 5 years $ 89 $ 77 $ 77
Class A and Class C) ----- ----- After 10 years $154 $170 $170
Total Fund Operating Expenses 1.00% 1.40%
Intermediate New Mexico Fund
- ----------------------------
Management Fees .50% After 1 year $ 45
12b-1 Fees .25% After 3 years $ 66
Other Expenses (after assumption of expenses) <F7> .25% After 5 years $ 88
----- After 10 years $153
Total Fund Operating Expenses 1.00%
Intermediate Florida Fund
- -------------------------
Management Fees .50% After 1 year $ 45
12b-1 Fees .25% After 3 years $ 66
Other Expenses (after assumption of expenses) <F8> .25% After 5 years $ 88
----- After 10 years $153
Total Fund Operating Expenses 1.00%
<FN>
<F1> Assumes redemption at end of period
<F2> Imposed only on redemptions of purchases greater than $1 million
in the event of a redemption within 12 months of purchase.
<F3> Imposed only on redemptions within 12 months of purchase, for
Class C shares purchased on or after October 2, 1995.
<F4> Expenses reflect rounding. Expenses have been restated to reflect
current fees. Amounts shown for Class C shares of Limited Term
National Fund are based upon a partial waiver of the Class C 12b-1 fee.
Absent the waiver, the Class C 12b-1 fees would have been 1.00% and the
total Fund operating expenses would have been 1.78% for the Class C
shares.
<F5> Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the
Limited Term California Fund reflect an assumption of certain Fund
operating expenses. Absent the assumption of expenses, other
expenses would have been .30% and total Fund operating expenses would
have been 1.05%. Amounts shown for Class C of the Limited Term
California Fund reflect a partial waiver of 12b-1 fees and assumption of
certain Fund operating expenses. Absent the waiver of 12b-1 fees and
assumption of expenses, 12b-1 fees and other expenses would have 1.00%
and 1.29%, respectively, and total Fund operating expenses would have
been 2.79%.
<F6> Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
National Fund reflect an assumption of certain Fund operating expenses.
Absent the assumption of expenses, other expenses would have been .32%
and total Fund operating expenses would have been 1.07%. Amounts shown
for Class C of the Intermediate National Fund reflect a partial waiver
of Rule 12b-1 fees and assumption of certain Fund operating expenses.
Absent the waiver of 12b-1 fees and assumption of expenses, 12b-1 fees
and other expenses would have been 1.00% and .52%, respectively, and
the total Fund operating expenses would have been 2.02%.
<F7> Expenses reflect rounding. Amounts shown have been restated to reflect
current fees. Amounts shown for Class A of the Intermediate New Mexico
Fund reflect assumption of certain Fund operating expenses. Absent the
assumption of expenses, the operating expenses would have been .31%, and
total Fund operating expenses would have been 1.06%.
<F8> Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the
Intermediate Florida Fund reflect assumption of certain Fund operating
expenses. Absent the assumption of expenses, other expenses would have
been .63% and total Fund operating expenses would have been 1.38%.
</FN>
</TABLE>
EXPLANATION OF TABLES
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The expense figures
shown in the table opposite are presented to assist the investor in
understanding the various costs that an investor in a Fund will bear,
directly or indirectly. Long-term Class C shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by
regulations of the National Association of Securities Dealers, Inc. The
Funds' investment adviser may not waive its fee or assume Fund expenses in
the future.
FINANCIAL HIGHLIGHTS
The table on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated.
The information for the years ended June 30, 1989, 1990, 1991, 1992, 1993,
1994, 1995 and 1996 for the Limited Term National Fund and the Limited Term
California Fund, and the information for all of the years presented for the
Intermediate Funds, has been audited by McGladrey & Pullen, LLP, independent
auditors, whose reports thereon are incorporated by reference in the
registration statements for the respective Funds. The information should be
read in conjunction with the 1996 Annual Report for each Limited Term Fund
and the 1995 Annual Report for each Intermediate Fund. Information for the
Intermediate Funds for the period ended March 31, 1996 is unaudited.
<PAGE>
<TABLE>
Net
Ratio of Ratio of Ratio of Assets
Expenses Expenses Net at end
Net Distri- to to Investment of
Realized butions Average Average Income Period
Net Asset and Total from Distri- Net Net (Loss) ('000's
Value Unrealized from Net butions Net Asset Assets Assets to omitted)
Beginning Net Gain Investment Invest- from Value Total After Before Average Rate of
Fiscal Year of Investment (Loss) Operations ment Net End of Return Expense Expense Net Portfolio
or Period Period Income Investments Income Gains Period <F2> Reductions Reductions Assets Turnover
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
Municipal Fund
- --------------
Class A
Year ended:
June 30, 1987 12.68 .83 .02 .85 ( .83) $( .01) 12.69 6.87 (1.00) (1.10) 6.27 47.00 127,074
June 30, 1988 12.69 .84 .06 .90 ( .84) 12.75 7.37 (1.10) (1.20) 6.58 66.00 164,489
June 30, 1989 12.75 .85 .05 .90 ( .85) 12.80 7.29 (1.15) (1.15) 6.66 69.96 184,139
June 30, 1990 12.80 .86 (.06) .80 ( .86) 12.74 6.48 (1.11) (1.11) 6.73 67.51 217,325
June 30, 1991 12.74 .85 .09 .94 ( .85) 12.83 7.60 (1.07) (1.07) 6.58 32.36 312.882
June 30, 1992 12.83 .79 .26 1.05 ( .79) 13.09 8.40 (1.04) (1.04) 5.96 27.63 521,683
June 30, 1993 13.09 .68 .50 1.18 ( .68) 13.59 9.24 (1.01) (1.01) 5.03 19.30 895,500
June 30, 1994 13.59 .63 (.32) .31 ( .63) 13.27 2.25 (0.95) (0.95) 4.60 15.63 1,030,293
June 30, 1995 13.27 .64 .10 .74 ( .64) 13.37 5.76 (0.97) (0.97) 4.86 23.02 931,987
June 30, 1996 13.37 .63 (.02) .61 ( .63) 13.35 4.60 (0.97) (0.97) 4.66 20.60 917,831
Class B <F4>
9/1/94 <F1> $13.29 $ .46 $ .09 $ .55 $( .46) $13.38 4.14% (1.57)% (2.30)% 4.24% 23.02% $2,823
to 6/30/95 <F3> <F3> <F3>
7/1/95 to 13.38 .13 .05 .18 ( .13) 13.43 1.56 (1.59) (2.01) 4.17 20.60 - 0 -
9/28/95 <F3> <F3> <F3>
Class C
9/1/94 <F1> $13.29 $ .46 $ .11 $ .57 $( .46) $13.40 4.25% (1.60)% (1.84)% 4.21% 23.02% $6,469
to 6/30/95 <F3> <F3> <F3>
Year ended 13.40 .57 (.03) .54 ( .57) 13.37 4.05 (1.41) (1.63) 4.22 20.60 15,948
6/30/96
<PAGE>
Net
Ratio of Ratio of Ratio of Assets
Expenses Expenses Net at end
Net Distri- to to Investment of
Realized butions Average Average Income Period
Net Asset and Total from Distri- Net Net (Loss) ('000's
Value Unrealized from Net butions Net Asset Assets Assets to omitted)
Beginning Net Gain Investment Invest- from Value Total After Before Average Rate of
Fiscal Year of Investment (Loss) Operations ment Net End of Return Expense Expense Net Portfolio
or Period Period Income Investments Income Gains Period <F2> Reductions Reductions Assets Turnover
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
California Fund
- ---------------
Class A
2/20/87 <F1> $12.13 $ .26 $(.12) $ .14 $( .26) $12.01 1.10% (0.67)% (.81)% 5.73% 74.00% $ 6,041
to 6/30/87 <F3> <F3> <F3>
Year ended:
June 30, 1988 12.01 .78 .07 .85 ( .78) 12.08 7.10 (0.85) (1.73) 6.30 29.00 11,641
June 30, 1989 12.08 .77 .07 .84 ( .77) 12.15 7.17 (1.00) (1.38) 6.27 58.80 12,794
June 30, 1990 12.15 .76 (.04) .72 ( .76) 12.11 6.15 (1.00) (1.22) 6.16 49.05 26,517
June 30, 1991 12.11 .75 .13 .88 ( .75) 12.24 7.45 (1.00) (1.20) 6.08 39.66 33,487
June 30, 1992 12.24 .72 .24 .96 ( .72) 12.48 8.10 (1.00) (1.10) 5.80 30.56 53,130
June 30, 1993 12.48 .65 .37 1.02 ( .65) 12.85 8.36 (1.00) (1.06) 5.07 20.81 81,874
June 30, 1994 12.85 .58 (.28) .30 ( .58) 12.57 2.37 (1.00) (1.03) 4.51 15.26 111,723
June 30, 1995 12.57 .58 .04 .62 ( .58) 12.61 5.12 (1.00) (1.04) 4.69 18.54 98,841
June 30, 1996 12.61 .58 .03 .61 ( .58) 12.64 4.94 (1.00) (1.05) 4.59 22.68 94,379
Class B <F4>
9/1/94 <F1> $12.55 $ .43 $ .07 $ .50 $( .43) $12.62 3.99% (1.60)% (4.51)% 4.10% 18.54% $590
to 6/30/95 <F3> <F3> <F3>
7/1/95 to 12.62 .13 .06 .19 ( .13) 12.68 1.59 (1.63) (3.67) 4.15 22.68 - 0 -
9/28/95 <F3> <F3> <F3>
Class C
9/1/94 <F1> $12.55 $ .42 $ .07 $ .49 $( .42) $12.62 3.98% (1.63)% (3.21)% 4.07% 18.54% $790
to 6/30/95 <F3> <F3> <F3>
Year ended
6/30/96 12.62 .53 .03 .56 ( .53) 12.65 4.46 (1.43) (2.92) 4.16 22.68 2,444
<PAGE>
Net
Ratio of Ratio of Ratio of Assets
Expenses Expenses Net at end
Net Distri- to to Investment of
Realized butions Average Average Income Period
Net Asset and Total from Distri- Net Net (Loss) ('000's
Value Unrealized from Net butions Net Asset Assets Assets to omitted)
Beginning Net Gain Investment Invest- from Value Total After Before Average Rate of
Fiscal Year of Investment (Loss) Operations ment Net End of Return Expense Expense Net Portfolio
or Period Period Income Investments Income Gains Period <F2> Reductions Reductions Assets Turnover
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
National Fund
- -------------
Class A
7/23/91 <F1> $12.06 $ .16 $ .05 $ .21 $( .16) $12.11 1.77% (0.25)% (2.78)% 5.80% 3.40% $9,719
to 9/30/91 <F3> <F3> <F3>
Year ended:
Sept. 30, 1992 12.11 .78 .48 1.26 ( .78) 12.59 10.76 (0.48) (1.19) 6.15 46.15 81,428
Sept. 30, 1993 12.59 .71 .88 1.59 ( .71) 13.47 13.01 (0.70) (1.06) 5.37 14.29 182,319
Sept. 30, 1994 13.47 .67 (.72) (.05) ( .67) $( .02) 12.73 (.38) (0.95) (1.05) 5.23 27.37 207,718
Sept. 30, 1995 12.73 .68 .45 1.13 ( .68) 13.18 9.16 (1.00) (1.08) 5.31 32.20 227,881
10/01/95 to 13.18 .34 (.01) .33 ( .34) 13.17 2.49 (1.00) (1.07) 5.09 5.64 241,427
3/31/96 <F3> <F3> <F3>
Class B <F4>
9/1/94 <F1> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.99)% (1.70)% 1.70% 4.57% 27.37% $342
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 12.73 .59 .40 .99 ( .59) 13.13 8.30 (1.65) (2.86) 4.59 32.20 0
Class C
9/1/94 <F1> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.97)% (1.76)% 1.76% 4.51% 27.37% $ 139
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 12.73 .60 .47 1.07 ( .60) 13.20 8.60 (1.66) (2.35) 4.62 32.20 4,001
10/1/95 to 13.20 .31 (.01) .30 ( .31) 13.19 2.29 (1.40) (2.02) 4.69 5.64 5,662
3/31/96 <F3> <F3> <F3>
Net
Ratio of Ratio of Ratio of Assets
Expenses Expenses Net at end
Net Distri- to to Investment of
Realized butions Average Average Income Period
Net Asset and Total from Distri- Net Net (Loss) ('000's
Value Unrealized from Net butions Net Asset Assets Assets to omitted)
Beginning Net Gain Investment Invest- from Value Total After Before Average Rate of
Fiscal Year of Investment (Loss) Operations ment Net End of Return Expense Expense Net Portfolio
or Period Period Income Investments Income Gains Period <F2> Reductions Reductions Assets Turnover
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
New Mexico Fund
- ---------------
Class A
6/21/91 <F1> $12.06 $ .23 $ .15 $ .38 $( .23) $12.21 3.18% (0.25)% (1.32)% 6.57% 49.67% $20,511
to 9/30/91 <F3> <F3> <F3>
Year ended:
Sept. 30, 1992 12.21 .74 .43 1.17 ( .74) 12.64 9.98 (0.42) (1.12) 5.76 32.15 71,034
Sept. 30, 1993 12.64 .65 .72 1.37 ( .65) 13.36 10.96 (0.61) (1.01) 4.95 10.33 128,590
Sept. 30, 1994 13.36 .60 (.63) (.03) ( .60) $( .01) 12.72 (.26) (0.90) (1.04) 4.58 6.87 143,910
Sept. 30, 1995 12.72 .60 .40 1.00 ( .60) 13.12 8.10 (1.00) (1.06) 4.71 17.06 136,742
10/1/95 to 13.12 .31 (.05) .26 ( .31) 13.07 1.97 (1.00) (1.06) 4.68 4.84 132,521
3/31/96 <F3> <F3> <F3>
Class B <F4>
9/1/94 <F1> $12.87 $ .05 $(.15) $(.10) $( .05) $12.72 (0.80)% (1.71)% 1.71% 3.47% 6.87% $ 81
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 12.72 .52 .37 .89 ( .52) 13.09 7.42 (1.64) (4.71) 4.06 17.06 -0-
Class C
9/1/94 <F1> $12.87 $ .04 $(.16) $(.12) $( .04) $12.71 (0.90)% (1.74)% 1.74% 3.49% 6.87% $ 59
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 12.71 .52 .41 .93 ( .52) 13.12 7.48 (1.66) (15.86) 4.05 17.06 141
10/1/95 to 13.12 .19 .15 .34 ( .19) 13.27 2.57 (1.40) (13.03) 4.22 4.84 -0-
1/31/96 <F5> <F3> <F3> <F3>
<PAGE>
Net
Ratio of Ratio of Ratio of Assets
Expenses Expenses Net at end
Net Distri- to to Investment of
Realized butions Average Average Income Period
Net Asset and Total from Distri- Net Net (Loss) ('000's
Value Unrealized from Net butions Net Asset Assets Assets to omitted)
Beginning Net Gain Investment Invest- from Value Total After Before Average Rate of
Fiscal Year of Investment (Loss) Operations ment Net End of Return Expense Expense Net Portfolio
or Period Period Income Investments Income Gains Period <F2> Reductions Reductions Assets Turnover
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
Florida Fund
- ------------
Class A
2/1/94 <F1> $12.06 $ .40 $(.52) $(.12) $( .40) $11.54 (0.95)% (0.25)% (1.95)% 5.09% 19.94% $ 8,076
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 11.54 .63 .29 .92 ( .63) 11.83 8.22 (0.38) (1.44) 5.41 89.60 14,822
10/1/95 to 11.83 .29 .01 .30 ( .29) 11.83 2.55 (0.54) (1.38) 4.87 60.09 18,824
3/31/96 <F3> <F3> <F3>
Class B <F4>
9/1/94 <F1> $11.72 $ .05 $(.17) $(.12) $( .05) $11.55 (1.02)% (1.05)% (1.05)% 4.80% 19.94% $ 20
to 9/30/94 <F3> <F3> <F3>
Year ended:
Sept. 30, 1995 11.55 .55 .28 .83 ( .55) 11.83 7.55 (1.08) (5.35) 4.69 89.60 0
Class C
9/1/94 <F1> $11.72 $ .05 $(.18) $(.13) $( .05) $11.54 (1.10)% (1.10)% (1.10)% 4.89% 19.94% $109
to 9/30/94 <F3> <F3> <F3>
Year ended
Sept. 30, 1995 11.54 .55 .32 .87 ( .55) 11.86 7.74 (1.08) (19.08) 4.65 89.60 259
10/1/95 to 11.86 .27 .01 .28 ( .27) 11.87 2.35 (0.95) ( 5.99) 4.46 60.09 680
3/31/96 <F6> <F3> <F3> <F3>
<FN>
<F1> Commencement of operations.
<F2> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F3> Annualized
<F4> Class B shares are no longer offered by the Funds, and all outstanding
Class B shares were converted into Class A shares
on September 28, 1995.
<F5> Class C shares are no longer offered by the Intermediate New Mexico
Fund, and all outstanding Class C shares were converted into Class A
shares of the Fund on January 31, 1996.
<F6> Class C shares are no longer offered by the Intermediate Florida Fund,
and all outstanding C shares were converted into Class A shares of
the Fund on April 30, 1996.
</FN>
/TABLE
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The following graphs compare how $10,000 would have appreciated if invested
in shares of the named Fund, a broad based securities market index, and the
Consumer Price Index, a general measure of inflation. The table accompanying
each graph shows average annual total return for the Fund for the designated
period. Class A total return figures assume an investment of $10,000 at the
public offering price for purchases up to $10,000; Class C total return
figures assume an investment of $10,000.
Comparison of Fund performance to widely used indices is imperfect, because
the indices do not reflect the ladder ed maturity strategy each Fund uses.
Each index shown attempts to model the total return of a constant maturity
bond portfolio, including bonds from throughout the United States. Each index
also assumes no trading costs for buying and selling bonds, no custodial or
accounting costs, and coupons are immediately reinvested at no transactional
cost. Consequently, the reader should remain aware of the inherent
limitations in comparing a theoretical index to actual results of a Fund
portfolio.
Each Fund "ladders" or arrays the maturities of its bonds. The Limited Term
Municipal Funds maintain a weighted average maturity using this technique
which is normally no more than five years, while the Intermediate Municipal
Funds' weighted average maturity is normally no more than 10 years. Interest
rates during 1994 generally increased, allowing interest dividends to
increase somewhat as Fund cash flow was reinvested at higher rates, and
causing the value of the Funds' portfolios to decrease relative to their
expected values in a flat interest rate environment. In the first half of
1995, slowing economic growth has led to falling interest rates and
increasing bond prices.
Bond prices in the U.S. rose dramatically over 1995 and then fell through
the first six months of 1996. For example, as interest rates on the 6.25%
U.S. Treasury bond due in August 2023 decreased from 7.95% to 6.03%, between
January 2, 1995 and December 29, 1995, the market value of the bond
increased by approximately 27.2%. Since December 1995, the interest rate on
the bond has risen to 7.02% as of June 30, 1996, and the price has fallen by
11.8%. Similarly, market values of U.S. Treasury bonds due in 1999 and 2004
have fallen by 3.4% and 6.9%, respectively since January 1, 1996. Municipal
bond prices also decreased across the spectrum of maturities as market yields
on municipal bonds increased. The market produced total returns of 5.46% and
5.80% respectively, for the Lehman Brothers 5 year general obligation bond
index and the Merrill Lynch Municipal Bond (7-12) year Index for the 12
months ending June 30, 1996. The net asset values of Intermediate National
Fund and Intermediate Florida Fund increased by 0.46% and 0.51% respectively
over this same 12 month period, while the net asset value of the Intermediate
New Mexico Fund declined by 0.23%. The net asset value of Limited Term
National Fund decreased by 0.15%, and the net asset value of the Limited Term
California Fund increased by 0.24% over the one year period ending June 30,
1996. If interest rates continue to rise, the net asset values of all the
Funds should decrease. However, over time, dividend income would increase.
LIMITED TERM NATIONAL FUND
Index Comparison
Compares performance of the Limited Term National Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
October 1, 1984 to June 30, 1996. On June 30, 1996, the weighted average
securities ratings of the Index an d the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
4.95 years and 3.5 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.
<TABLE> <This appears as a graph in the prospectus.>
Limited Term National Fund A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
9/84 $ 9,746 $10,000 $10,000
12/84 9,928 10,448 10,151
3/85 10,232 10,852 10,283
6/85 10,677 11,400 10,355
9/85 10,747 11,355 10,417
12/85 11,226 11,741 10,564
3/86 11,739 12,628 10,522
6/86 11,842 12,636 10,553
9/86 12,177 13,103 10,616
12/86 12,471 13,447 10,702
3/87 12,741 13,755 10,852
6/87 12,656 13,629 10,983
9/87 12,683 13,347 11,104
12/87 12,988 13,857 11,204
3/88 13,402 14,289 11,294
6/88 13,589 14,350 11,430
9/88 13,838 14,514 11,545
12/88 14,013 14,601 11,649
3/89 14,168 14,559 11,789
6/89 14,580 15,244 11,955
9/89 14,783 15,421 12,027
12/89 15,105 15,881 12,172
3/90 15,239 15,959 12,404
6/90 15,524 16,316 12,529
9/90 15,715 16,488 12,781
12/90 16,085 17,034 12,948
3/91 16,400 17,402 13,026
6/91 16,704 17,706 13,117
9/91 17,073 18,336 13,222
12/91 17,470 18,952 13,355
3/92 17,628 18,904 13,435
6/92 18,107 19,519 13,543
9/92 18,509 20,010 13,624
12/92 18,822 20,328 13,747
3/93 19,341 20,808 13,858
6/93 19,780 21,298 13,941
9/93 20,264 21,761 14,011
12/93 20,481 22,028 14,123
3/94 20,050 21,332 14,208
6/94 20,225 21,619 14,293
9/94 30,324 21,784 14,408
12/94 20,178 21,713 14,466
3/95 20,896 22,592 14,582
6/95 21,390 23,168 14,713
9/95 21,755 23,801 14,772
12/95 22,190 24,251 14,251
3/96 22,232 24,327 15,010
6/96 22,374 24,433 15,131
</TABLE>
<TABLE> <This appears as a graph in the prospectus.>
Limited Term National Fund C Shares
<CAPTION>
FUND Lehman CPI
C Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,952 9,925 10,020
10/94 9,894 9,869 10,030
11/94 9,792 9,806 10,040
12/94 9,858 9,893 10,060
1/95 9,969 9,988 10,090
2/95 10,120 10,132 10,110
3/95 10,193 10,293 10,141
4/95 10,245 10,321 10,171
5/95 10,405 10,547 10,201
6/95 10,425 10,556 10,232
7/95 10,483 10,703 10,243
8/95 10,550 10,812 10,263
9/95 10,586 10,844 10,273
10/95 10,663 10,890 10,304
11/95 10,740 10,989 10,314
12/95 10,786 11,049 10,335
1/96 10,848 11,181 10,376
2/96 10,838 11,143 10,397
3/96 10,788 11,084 10,439
4/96 10,786 11,067 10,481
5/96 10,808 11,054 10,512
6/96 10,847 11,132 10,522
7/96 10,910 11,206 10,554
</TABLE>
Average Annual Total Return
A Shares
One Year (12 mos. ended 6/30/96): 2.01%
Five Years: 5.48%
Ten Years: ____%
From Inception (9/28/84): 7.09%
C Shares
One Year (12 mos. ended 6/30/96) 4.05%
From Inception (9/1/94): 4.54%
LIMITED TERM CALIFORNIA FUND
Index Comparison
Compares performance of the Limited Term California Fund, the Lehman
5-YearGeneral Obligation Bond Index and the Consumer Price Index for the
periodFebruary 28, 1987 to June 30, 1996. On June 30, 1996, the weighted
averagesecurities ratings of the Index and the Fund were AA and AA,
respectively,and the weighted average portfolio maturities of the Index and
the Fund were 4.95 years and 3.7 years, respectively. Class C shares became
available onSeptember 1, 1994. Past performance of the Index and the Fund may
not beindicative of future performance.
<TABLE> <This appears as a graph in the prospectus.>
California Fund A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
1/87 $ 9,750 $10,000 $10,000
3/87 9,786 10,034 10,080
6/87 9,857 9,942 10,202
9/87 9,924 9,737 10,314
12/87 10,100 10,108 10,407
3/88 10,375 10,424 10,491
6/88 10,557 10,469 10,617
9/88 10,733 10,588 10,724
12/88 10,885 10,651 10,820
3/89 10,994 10,620 10,951
6/89 11,313 11,121 11,105
9/89 11,469 11,249 11,172
12/89 11,704 11,585 11,306
3/90 11,814 11,642 11,522
6/90 12,009 11,902 11,638
9/90 12,140 12,028 11,872
12/90 12,496 12,426 12,027
3/91 12,707 12,694 12,099
6/91 12,904 12,916 12,184
9/91 13,121 13,376 12,282
12/91 13,436 13,825 13,405
3/92 13,566 17,790 12,480
6/92 13,950 14,239 12,580
9/92 14,261 14,597 12,655
12/92 14,448 14,829 12,770
3/93 14,813 15,179 12,872
6/93 15,116 15,537 12,949
9/93 15,437 15,874 13,014
12/93 15,634 16,069 13,119
3/94 15,308 15,562 13,197
6/94 15,474 15,771 13,277
9/94 15,495 15,891 13,383
12/94 15,300 15,839 13,437
3/95 15,877 16,481 13,545
6/95 16,266 16,901 13,667
9/95 16,549 17,363 13,722
12/95 16,871 17,691 13,804
3/96 16,927 17,746 13,943
6/96 17,670 17,824 14,054
</TABLE>
<TABLE> <This appears as a graph in the prospectus.>
Limited Term California Fund C Shares
<CAPTION>
FUND Lehman CPI
C Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,950 9,925 10,020
10/94 9,887 9,869 10,030
11/94 9,792 9,806 10,040
12/94 9,818 9,893 10,060
1/95 9,926 9,988 10,090
2/95 10,099 10,132 10,110
3/95 10,164 10,293 10,141
4/95 10,231 10,321 10,171
5/95 10,380 10,547 10,202
6/95 10,398 10,556 10,232
7/95 10,441 10,703 10,243
8/95 10,509 10,812 10,263
9/95 10,561 10,844 10,273
10/95 10,640 10,890 10,304
11/95 10,719 10,989 10,314
12/95 10,756 11,049 10,335
1/96 10,833 11,181 10,376
2/96 10,828 11,143 10,397
3/96 10,781 11,084 10,439
4/96 10,793 11,067 10,481
5/96 10,805 11,054 10,512
6/96 10,861 11,132 10,522
7/96 10,925 11,206 10,554
</TABLE>
Average Annual Total Return
A Shares
One Year (12 mos. ended 6/30/96): 2.34%
Five Years: 5.23%
From Inception (2/19/87): 5.87%
C Shares
One Year (12 mos. ended 6/30/96): 4.46%
From Inception (9/1/94): 4.62%
INTERMEDIATE NATIONAL FUND
Index Comparison
Compares performance of the Intermediate National Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, July 23, 1991
to March 31, 1996. On March 31, 1996, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.78
years and 7.7 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.
<TABLE> <This appears as a graph in the prospectus.>
Intermediate National Fund A Shares
<CAPTION>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
6/91 $ 9,648 $10,000 $10,000
7/91 9,675 10,136 10,030
9/91 9,819 10,428 10,080
11/91 9,943 10,498 10,151
1/92 10,113 10,695 10,192
3/92 10,207 10,593 10,243
5/92 10,429 10,732 10,284
7/92 10,904 11,259 10,345
9/92 10,876 11,220 10,387
11/92 10,976 11,369 10,460
1/93 11,223 11,611 10,501
3/93 11,496 11,834 10,565
5/93 11,662 12,016 10,617
7/93 11,872 12,111 10,639
9/93 12,291 12,456 10,681
11/93 12,238 12,449 10,745
1/94 12,598 12,797 10,767
3/94 12,039 12,114 10,832
5/94 12,197 12,200 10,864
7/94 12,305 12,473 10,929
9/94 12,244 12,306 10,984
11/94 11,965 12,050 11,006
1/95 12,385 12,408 11,061
3/95 12,742 12,860 11,117
5/95 13,090 13,348 11,183
7/95 13,162 13,418 11,228
9/95 13,365 13,573 11,262
11/95 13,653 13,965 11,307
1/96 13,830 14,269 11,375
3/96 13,699 14,059 11,443
5/96 13,734 14,021 11,523
7/96 13,926 14,259 11,570
</TABLE>
<TABLE> <This appears as a graph in the prospectus.>
Intermediate National Fund C Shares
<CAPTION>
FUND ML Muni CPI
C Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,903 9,848 10,020
10/94 9,791 9,786 10,030
11/94 9,689 9,643 10,040
12/94 9,813 9,785 10,060
1/95 10,009 9,930 10,090
2/95 10,199 10,215 10,110
3/95 10,286 10,291 10,141
4/95 10,313 10,317 10,171
5/95 10,555 10,682 10,202
6/95 10,530 10,671 10,232
7/95 10,593 10,738 10,242
8/95 10,698 10,895 10,263
9/95 10,754 10,862 10,273
10/95 10,861 10,965 10,304
11/95 10,977 11,176 10,314
12/95 11,052 11,247 10,335
1/96 11,112 11,420 10,376
2/96 11,081 11,392 10,397
3/96 11,000 11,251 10,439
4/96 10,977 11,234 10,481
5/96 11,012 11,221 10,512
6/96 11,082 11,290 10,522
7/96 11,168 11,411 10,554
</TABLE>
Average Annual Total Return
A Shares
One Year (12 mos. ended 3/31/96): 3.73%
From Inception (7/23/91): 6.93%
C Shares
One Year (12 mos. ended 3/31/96: 6.94%
From Inception (9/1/94): 6.21%
INTERMEDIATE NEW MEXICO FUND
Index Comparison
Compares performance of the Intermediate New Mexico Fund shares, the Merrill
Lynch Municipal Bond (7-12 year) Index and the Consumer Price Index, June 21,
1991 to March 31, 1996. On March 31, 1996, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.78
years and 6.6 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.
<TABLE> <This appears as a graph in the prospectus.>
New Mexico A Shares
<CAPTION>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
5/91 $ 9,650 $10,000 $10,000
7/91 9,764 10,064 10,050
9/91 9,957 10,375 10,100
11/91 10,075 10,444 10,171
1/92 10,311 10,640 10,212
3/92 10,329 10,539 10,263
5/92 10,541 10,677 10,304
7/92 10,985 11,201 10,366
9/92 10,950 11,162 10,408
11/92 11,034 11,311 10,480
1/93 11,282 11,551 10,522
3/93 11,490 11,773 10,586
5/93 11,628 11,955 10,639
7/93 11,782 12,049 10,660
9/93 12,150 12,392 10,703
11/93 12,113 12,385 10,767
1/94 12,416 12,731 10,788
3/94 11,936 12,052 10,853
5/94 12,040 12,138 10,886
7/94 12,143 12,410 10,951
9/94 12,119 12,243 11,006
11/94 11,877 11,988 11,028
1/95 12,272 12,345 11,083
3/95 12,593 12,794 11,139
5/95 12,888 13,280 11,206
7/95 12,958 13,349 11,251
9/95 13,100 13,504 11,284
11/95 13,343 13,893 11,330
1/96 13,466 14,197 11,398
3/96 13,358 13,987 11,466
5/96 13,384 13,950 11,547
7/96 13,560 14,186 11,593
</TABLE>
Average Annual Total Return
A Shares
One Year (12 mos. ended 3/31/96): 2.35%
From Inception (6/21/91): 6.23%
INTERMEDIATE FLORIDA FUND
Index Comparison
Compares performance of Intermediate Florida Fund shares, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to March 31, 1996. On March 31, 1996, the weighted average securities
ratings of the Index and the Fund were AA and AA+, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.78
years and 6.7 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.
<TABLE> <This appears as a graph in the prospectus.>
Florida A Shares
<CAPTION>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
1/94 $ 9,648 $10,000 $10,000
2/94 9,568 9,726 10,030
3/94 9,350 9,466 10,060
4/94 9,433 9,512 10,070
5/94 9,507 9,534 10,090
6/94 9,481 9,524 10,121
7/94 9,602 9,747 10,151
8/94 9,653 9,765 10,181
9/94 9,557 9,617 10,202
10/94 9,502 9,556 10,212
11/94 9,346 9,416 10,222
12/94 9,492 9,555 10,243
1/95 9,660 9,697 10,273
2/95 9,849 9,975 10,294
3/95 9,936 10,049 10,325
4/95 9,929 10,074 10,356
5/95 10,137 10,431 10,387
6/95 10,148 10,420 10,418
7/95 10,227 10,485 10,428
8/95 10,297 10,638 10,449
9/95 10,342 10,607 10,460
10/95 10,438 10,707 10,491
11/95 10,535 10,913 10,502
12/95 10,595 10,982 10,523
1/96 10,666 11,151 10,565
2/96 10,663 11,124 10,586
3/96 10,607 10,987 10,628
4/96 10,622 10,970 10,671
5/96 10,664 10,957 10,703
6/96 10,716 11,024 10,713
7/96 10,794 11,143 10,745
</TABLE>
Total Return
A Shares
One Year (12 mos. ended 3/31/96): 3.04%
From Inception (2/01/94): 2.76%
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of each Fund is to obtain as high a level of
current income exempt from federal income tax as is consistent, in the view
of TMC, with preservation of capital. Each single state Fund will invest
primarily in Municipal Obligations originating in its state with the object
of obtaining exemption of interest dividends from any income taxes imposed by
that state on individuals. The Intermediate Florida Fund and the Intermediate
Pennsylvania Fund have the additional objective of obtaining exemption from
ad valorem taxes imposed by those states on securities held by individuals.
The secondary objective of the Limited Term Funds is to minimize expected
fluctuations in net asset value relative to longer intermediate and long-term
bond portfolios. The secondary objective of the Intermediate Funds is to
reduce fluctuations in net asset value relative to long-term municipal bond
portfolios, while seeking higher yields than the Limited Term Municipal Funds
expect to receive. There is a risk in all investments, however, and there is
no assurance that the Funds' objectives will be achieved. Income otherwise
exempt from federal income tax may be subject to the federal alternative
minimum tax, and distributions from gains attributable to market discount are
characterized as ordinary income for federal income tax purposes. The primary
and secondary investment objectives of each Fund are fundamental policies of
that Fund, and may not be changed without a vote of the Fund's shareholders.
Each Fund will pursue its primary objective by investing in a portfolio of
investment grade or equivalent obligations which are issued by states and
state agencies, and local governments and agencies, and by United States
territories and possessions ("Municipal Obligations"). Each single state Fund
will invest primarily in Municipal Obligations originating in the state of
the same name. Municipal Obligations are discussed below under the caption
"Municipal Obligations," and investment grade ratings are discussed below
under the caption "Investment Ratings." Each of the Limited Term Funds will
seek to achieve its secondary objective of minimizing fluctuations in net
asset value by maintaining a portfolio of investments with a dollar-weighted
average maturity normally not exceeding five years. Each Intermediate Fund
will seek to achieve its secondary objective of obtaining lower share price
fluctuation than a long-term portfolio and obtaining higher yields than a
limited term portfolio by maintaining a dollar-weighted average portfolio
maturity normally between three and ten years. Any Intermediate Fund may
maintain a portfolio maturity shorter than three years as a defensive
strategy during abnormal market conditions. If your sole objective is
preservation of capital, then the Funds may not be suitable for you because
their net asset values will vary as market interest rates fluctuate.
Investors whose sole objective is preservation of capital may wish to
consider a high quality money market fund.
Except to the extent a Fund is invested in temporary investments for
defensive purposes, the objective of each Fund under normal conditions is to
invest 100% of its net assets in Municipal Obligations. As a fundamental
policy which may not be changed without a vote of the Fund's shareholders,
each Fund must normally invest at least 80% of its net assets in Municipal
Obligations. Under normal conditions each single state Fund will invest 100%,
and as a matter of fundamental policy, will invest at least 65% of its total
assets in Municipal Obligations which originate in the state having the same
name as the Fund. Any Fund may purchase obligations issued by or on behalf of
territories or possessions of the United States and their agencies and
instrumentalities.
The Funds have reserved the right to invest up to 20% of each Fund's net
assets in "temporary investments" in taxable securities (of comparable
quality to the above tax-exempt investments) that would produce interest not
exempt from federal income tax. Such temporary investments, which may include
repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk, may be
made due to market conditions, pending investment of idle funds or to afford
liquidity. Such investments are, like any investment, subject to market risks
and fluctuations in value. In addition, each Fund's temporary taxable
investments may exceed 20% of its net assets when made for defensive purposes
during periods of abnormal market conditions. The Funds do not expect to find
it necessary to make temporary investments in taxable investments.
MUNICIPAL OBLIGATIONS
Municipal Obligations are obligations bearing interest exempt from federal
income taxes, which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities. Municipal
Obligations include notes (including tax-exempt commercial paper), bonds,
municipal leases and participation interests in these obligations. Interest
on Municipal Obligations may be subject to the alternative minimum tax or
state income taxes. See "Federal Taxes."
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of outstanding
Municipal Obligations will vary with changes in prevailing interest rate
levels and as a result of changing evaluations of the ability of their
issuers to meet interest and principal payments. Variations in market value
of Municipal Obligations held in a Fund's portfolio arising from these or
other factors will cause changes in the net asset value of that Fund's
shares. See "How Fund Shares Are Priced." Municipal Obligations often grant
the issuer the option to pay off the obligation prior to its final maturity.
Prepayment of Municipal Obligations may reduce the expected yield on invested
funds, the net asset value of a Fund, or both if interest rates have declined
below the level prevailing when the obligation was purchased. If interest
rates have declined, reinvestment of the proceeds from the prepayment of
Municipal Obligations may result in a lower yield to a Fund. In addition, the
federal income tax treatment of gains from market discount as ordinary income
may increase the price volatility of Municipal Obligations.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the United States Bankruptcy Code. In addition, the
obligations of such issuers may become subject to the laws enacted in the
future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There
is also the possibility that, as a result of legislation or other conditions,
the power or ability of any issuer to pay, when due, the principal of and
interest on its Municipal Obligations may be materially affected.
VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS
The Funds may purchase variable rate Municipal Obligations. These variable
rate securities bear rates of interest that are adjusted periodically
according to formulas intended to reflect market rates of interest, and these
may include "inverse floaters," whose rates vary inversely with changes in
market rates of interest. The values of inverse floaters will tend to be more
volatile than fixed rate municipal securities having similar credit quality,
redemption provisions, and maturity. No Fund will invest more than 10% of
its total assets in securities whose rates vary inversely with changes in
market rates of interest. Each Fund also may purchase variable rate demand
instruments and also may purchase fixed rate municipal demand instruments
either in the public market or privately from banks, insurance companies and
other financial institutions. These instruments provide for periodic
adjustment of the interest rate paid to the holder. The "demand" feature
permits the holder to demand payment of principal and interest prior to the
final stated maturity, either from the issuer or by drawing on a bank letter
of credit, a guarantee or insurance issued with respect to the instrument.
MUNICIPAL LEASES
Each Fund may invest in Municipal Leases. These obligations are used by state
and local governments to acquire a wide variety of equipment and facilities.
Many such obligations include "non-appropriation" clauses which provide that
the governmental issuer has no obligation to make payments unless money is
appropriated for that purpose. If an issuer stopped making payment on a
Municipal Lease held by a Fund, the Lease would lose some or all of its
value. Often, a Fund will not hold the obligation directly, but will purchase
a "participation interest" in the obligation, which gives the Fund an
undivided interest in the underlying Municipal Lease. Some Municipal Leases
may be illiquid under certain circumstances, and TMC will evaluate the
liquidity of each Municipal Lease upon its acquisition by a Fund and
periodically while it is held.
SECURITIES RATINGS AND CREDIT QUALITY
Each Fund's assets will normally consist of (1) Municipal Obligations
(including Municipal Leases) or participation interests therein that are
rated at the time of purchase within the four highest grades by Moody's
Investors Service ("Moody's"), Fitch Investors Service ("Fitch"), or Standard
& Poor's Corporation ("S&P"), (2) Municipal Obligations (including Municipal
Leases) or participation interests therein that are not rated by a rating
agency, but are issued by obligors that either have other comparable debt
obligations that are rated within the four highest grades (Baa or BBB or
better) by Moody's or S&P or Fitch or, in the case of obligors whose
obligations are unrated, are deemed by the Adviser to be comparable with
issuers having such debt ratings, and (3) cash. Securities rated in the
described categories are described as "investment grade," and are regarded as
having a capacity to pay interest and repay principal that varies from
"extremely strong" to "adequate." According to S&P, for example, BBB bonds
normally exhibit adequate protection parameters, although adverse economic
conditions or other changes are more likely to lead to a weakened capacity
compared to higher rated categories, and AAA bonds exhibit extremely strong
capacity. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. Securities rated BBB by Fitch are considered to
have adequate capacity, although adverse changes in economic conditions and
circumstances are more likely to have an adverse impact than for higher rated
categories. Please see the Statement of Additional Information for Thornburg
Investment Trust - Intermediate Municipal Funds or the Statement of
Additional Information for Thornburg Limited Term Municipal Fund, Inc. for
detailed descriptions of these ratings. Investments in Municipal Obligations
may also include (i) variable rate demand instruments that are rated within
the two highest grades of either rating agency or, if unrated, are deemed by
TMC to be of high quality and minimal credit risk, (ii) tax-exempt
commercial paper that is rated within the two highest grades of a rating
agency, and (iii) municipal notes that are rated within the two highest
grades of a rating agency or, if unrated, are deemed by TMC to be of
comparable quality to such rated municipal notes. To the extent that unrated
Municipal Obligations may be less liquid, there may be somewhat greater risk
in purchasing unrated Municipal Obligations than in purchasing comparable,
rated Municipal Obligations. If a Fund experienced unexpected net
redemptions, it could be forced to sell such unrated Municipal Obligations at
disadvantageous prices without regard to the Obligations' investment merits,
depressing the Fund's net asset value and possibly reducing the Fund's
overall investment performance.
Credit ratings do not reflect the risk that market values of Municipal
Obligations will fluctuate with changes in interest rates, and credit rating
firms may fail to change credit ratings in a timely fashion to reflect events
subsequent to initial ratings. Accordingly, in addition to using credit
rating information, TMC subjects each issue under consideration for
investment to its own credit analysis in an effort to assess the issuer's
financial soundness. This analysis is performed on a continuing basis for all
issues held by the Funds, and TMC may determine to dispose of portfolio
securities upon a change in ratings or adverse events or market conditions
not reflected in ratings. TMC evaluates the credit quality of unrated
Municipal Obligations purchased by each Fund under the general supervision of
its Directors or Trustees, and determines the equivalency of unrated
obligations to rated obligations.
WHEN-ISSUED TRANSACTIONS
Each Fund may purchase Municipal Obligations on a "when-issued" or delayed
delivery basis, which means that the securities are not delivered until a
future date that may be as many as 45 days after the Fund has agreed to the
purchase. These transactions may involve an element of risk because the
value of the securities is subject to market fluctuation, no interest accrues
to the purchaser before delivery of the securities, and at the time of
delivery the market value may be less than cost. When the Fund agrees to
purchase Municipal Obligations on a "when-issued" basis, it will maintain
high grade liquid debt assets equal in value to the purchase price of the
"when-issued" securities in a segregated account with its custodian bank.
INVESTMENT RESTRICTIONS
Each of the Funds is subject to the restriction that it will not purchase
any investment or enter into any transactions if, as a result, more than 10%
of the Fund's net assets will be illiquid investments. Each of the Funds is
subject to other investment restrictions, which are described in that Fund's
Statement of Additional Information.
SPECIAL CONSIDERATIONS AFFECTING SINGLE-STATE FUNDS
Each of the single-state Intermediate Municipal Funds is a non-diversified
series of Thornburg Investment Trust, and each therefore may invest more than
five percent of its portfolio assets in the securities of a single issuer,
provided that it may not purchase any security (other than securities issued
or guaranteed as to principal or interest by the United States or its
instrumentalities) if, as a result, more than five percent of the Trust's
total assets would be invested in securities of a single issuer. All other
Funds are diversified series. Because each of the single state Funds will
purchase primarily Municipal Obligations originating from within its state,
an investment in a single state Fund may be riskier than an investment in
either the Limited Term National Fund or the Intermediate National Fund,
which purchase Municipal Obligations from throughout the United States.
Local economic factors could have varying effects on the obligations
owned by each single state Fund. In particular, economic developments in
California, though improving, could impair the ability of certain California
state and municipal issuers to pay their obligations in some situations.
Taxpayer initiatives, weakness in tax collections and reallocation of
certain revenues previously available to county and local governments could
reduce the revenues available to some California issuers. The State of New
Mexico anticipates a small budget surplus in the current year. Lower taxes
available in some New Mexico locales, and reductions in staffing at research
and military facilities at Los Alamos, White Sands and Albuquerque could
adversely affect the ability of nearby municipalities to meet their
obligations. Florida has experienced rapid economic growth. While the economy
has broadened, this growth has brought pressure for more infrastructure,
educational facilities, and other improvements. Although recent state budgets
have been balanced, over-dependence on the sensitive sales tax creates
vulnerability to recession and to slower growth in the tax base in the
future. Also, health care, educational and correctional program cost
increases could impose future financial and budgetary pressures on the state.
YOUR ACCOUNT
BUYING FUND SHARES IN GENERAL
Each Fund offers Class A shares, and Limited Term National Fund, Limited
California Fund and Intermediate National Fund offer Class C shares. Each of
a Fund's shares represents an equal undivided interest in the Fund's assets,
and each Fund has common investment objectives and a common investment
portfolio. Each class may have varying annual expenses and sales charge
structures, which may affect performance. Class A shares are sold subject to
a sales charge which is deducted at the time you purchase your shares. This
class also pays a service fee. Class C shares are sold at net asset value,
subject to payment of a sales charge if redeemed within one year of purchase.
They also pay both a service and a distribution fee. The various service or
service and distribution fees are Fund expenses which are deducted from each
class' annual income. If you do not specify a class of shares in your order,
your money will be invested in Class A shares of the Fund you purchase.
Financial advisors and others who sell shares of the Fund receive different
compensation for selling different classes of the Funds' shares. Shares of
the Funds may be purchased through investment dealers, brokers or agents
("financial advisors") who have agreements with the Funds' distributor,
Thornburg Securities Corporation (TSC), or through TSC in those states
where TSC is registered. Although shares of the National Funds generally are
available in most states, shares of the single state Funds are or will be
available only in their respective states and certain other states where
those Funds are qualified for sale. The Funds and TSC reserve the right to
refuse any order in whole or in part.
Each Fund also may issue one or more other classes of shares not offered
through this Prospectus. Different classes may have different sales charges
and other expenses which may affect performance. Investors may telephone the
Funds' distributor, TSC, at (800) 847-0200 to obtain more information
concerning the various classes of shares which may be available to them
through their sales representatives. Investors may also obtain information
respecting the different classes of shares through their sales representative
or other person which is offering or making available shares of the Funds.
NET ASSET VALUE
The net asset value (NAV) stated for each class of each Fund is the value of
a single share of that class. The NAV is computed at least once each day the
Fund conducts business, by adding the value of the class' investments, cash,
and other assets, subtracting its liabilities, and then dividing the result
by the number of shares outstanding. Shares are purchased at the next share
price calculated after your investment is received and accepted. Share price
is normally calculated at 4 p.m. Eastern time.
BUYING CLASS A SHARES
When you buy Class A shares the sales charge applicable to your investment is
deducted from the price you pay and the balance is invested at NAV. The sales
charge is shown in the table below.
Because the fees for Class A shares of each Fund are lower than the fees for
Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the initial
sales charge, however, means that you purchase fewer Class A shares than
Class C shares of each Fund for a given amount invested.
If you are in any of the special classes of investors who can buy Class A
shares at net asset value or at a reduced sales charge, you should consider
buying Class A shares. If you are planning a large purchase or purchases
under the Right of Accumulation or Letter of Intent you should consider if
your overall costs will be lower by buying Class A shares, particularly if
you plan to hold your shares for an extended period of time.
<PAGE>
<TABLE>
Class A Shares Dealer
Concession
Total Sales Charge or Agency
Commission
As Percentage As Percentage As
Percentage
of Offering Price of Net Asset Value of
Offering Price
<S> <C> <C> <C>
Limited Term Municipal Funds
- ----------------------------
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% .85%
$1,000,000 and up 0.00% 0.00% <F1>
Intermediate Municipal Funds
- ----------------------------
Less than $50,000.00 3.50% 3.63% 3.00%
$50,000 to 99,999.99 3.00% 3.09% 2.75%
$100,000 to 249,999.99 2.50% 2.56% 2.25%
$250,000 to 499,999.99 2.00% 2.04% 1.75%
$500,000 to 999,999.99 1.50% 1.52% 1.25%
$1,000,000 and up 0.00% 0.00% <F1>
<FN>
<F1> No sales charge will be payable at the time of purchase on investments
of $1 million of more made by a purchaser. A contingent deferred sales
charge will be imposed on these investments in the event of a share
redemption within 1 year following the share purchase at the rate of
1/2 of 1% of the value of the shares redeemed. In determining whether
such a sales charge is payable and the amount of any charge, it is
assumed that shares not subject to the charge are the first redeemed
followed by other shares held for the longest period of time. The
applicability of these charges will be unaffected by transfers of
registration. TSC or TMC intend to pay a commission of up to 1/2 of
1% to dealers who place orders of $1 million or more for a single
purchaser.
At certain times, for specific periods, TSC may reallow up to the full
sales charge to all dealers who sell Fund shares. These "full
reallowances" may be based upon the dealer reaching specified minimum
sales goals. TSC will reallow the full sales charge only after
notifying all dealers who sell Fund shares. During such periods,
dealers may be considered underwriters under securities laws. TMC or
TSC also may pay additional cash or non-cash compensation to dealer
firms which have selling agreements with TSC. Those firms may pay
additional compensation to financial advisors who sell Fund shares.
Non-cash compensation may include travel and lodging in connection
with seminars or other educational programs.
</FN>
</TABLE>
LETTERS OF INTENT. If you intend to invest, over the course of 13 or fewer
months, an amount of money that would qualify for a reduced sales charge if
it were made in one investment, you can qualify for the reduced sales charge
on the entire amount of your investment by signing a "Letter of Intent"
(LOI). Each investment you make during the 13 months will be charged the
reduced sales commission applicable to the amount stated in your LOI. You do
not have to reach the goal you set. If you don't, you will have to pay the
difference between the sales charge you would have paid and the sales charge
you did pay. You may pay this amount directly to TSC, or TSC will redeem a
sufficient number of your shares in the Fund to obtain the difference.
RIGHTS OF ACCUMULATION. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the table
on page 16, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.
WAIVERS. You may purchase Class A shares of each Fund with no sales charge if
you notify TSC or the Funds' transfer agent, NFDS, at the time you purchase
shares that you belong to one of the categories below. If you do not provide
such notification at the time of purchase, your purchase will not qualify for
the waiver of sales charge.
A SHAREHOLDER WHO REDEEMED CLASS A SHARES OF A THORNBURG FUND. For two years
after such a redemption you will pay no sales charge on amounts that you
reinvest in Class A shares of one of the Funds covered by this prospectus, up
to the amount you previously redeemed.
AN OFFICER, TRUSTEE, DIRECTOR, OR EMPLOYEE OF TMC (or any investment company
managed by TMC), TSC, any affiliated Thornburg Company, the Fund's Custody
Bank or Transfer Agent and members of their families.
EMPLOYEES OF BROKERAGE FIRMS who are members in good standing with the
National Association of Securities Dealers, Inc. (NASD); employees of
financial planning firms who p lace orders for the Fund through a member in
good standing with NASD; the families of both types of employees. Orders must
be placed through an NASD member firm who has signed an agreement with TSC to
sell Fund shares.
CUSTOMERS of bank trust departments, companies with trust powers and
investment advisors who charge a fee for service, including investment
dealers who utilize wrap fee arrangements.
INVESTORS PURCHASING $1 MILLION OR MORE. However, a contingent deferred sales
charge of 1/2 of 1% applies to shares redeemed within one year of purchase.
THOSE PERSONS WHO ARE DETERMINED BY THE DIRECTORS OR TRUSTEES OF THE FUND to
have acquired their shares under special circumstances not involving any
sales expenses to the Funds or Distributor.
PURCHASES PLACED THROUGH A BROKER THAT MAINTAINS ONE OR MORE OMNIBUS ACCOUNTS
WITH THE FUNd provided that such purchases are made by: (i) investment
advisers or financial planners who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other
fee for their services; (ii) clients of such investment advisers or financial
planners who place trades for their own accounts if the accounts are linked
to the master account of such investment adviser or financial planner on the
books and records of the broker or agent; and (iii) retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Sections 401(a), 403(b) or 457 of the Internal
Revenue Code and "rabbi trusts." Investors may be charged a fee if they
effect transactions in Fund shares through a broker or agent.
PROCEEDS FROM A LOAD FUND REDEMPTION. You may purchase shares of any Fund at
net asset value without a sales charge to the extent that the purchase
represents proceeds from a redemption (within the previous 60 days) of shares
of another mutual fund which has a sales charge. When making a direct
purchase at net asset value under this provision, the Fund must receive one
of the following with your direct purchase order: (i) the redemption check
representing the proceeds of the shares redeemed, endorsed to the order of
the Fund, or (ii) a copy of the confirmation from the other fund, showing the
redemption transaction. Standard back office procedures should be followed
for wire order purchases made through broker dealers. Purchases with
redemptions from money market funds are not eligible for this privilege. This
provision may be terminated anytime by TSC or the Fund
without notice.
BUYING CLASS C SHARES
You can buy Class C shares of Limited Term National Fund, Limited Term
California Fund or Intermediate National Fund at NAV but you will pay a
contingent deferred sales charge (CDSC) of 1/2 of 1% on shares of Limited
Term Funds and 6/10 of 1% on shares of the Intermediate National Fund if you
redeem your shares within one year of purchase. The CDSC applies only to
Class C shares purchased on or after October 2, 1995. The CDSC will be
imposed upon the lower of the purchase price or net asset value at redemption
of each share redeemed. The CDSC is not imposed upon shares you buy by
reinvesting dividends or capital gain distributions. Maximum purchase amount
for Class C shares is less than $1 million. Class C shares are charged higher
annual expenses than Class A shares.
If your investment horizon is relatively short and you do not qualify to
purchase Class A shares at a reduced sales charge, you should consider
purchasing Class C shares.
OPENING AN ACCOUNT
___________________________________________________________________________
Buying Shares To Open an Account To Add to an Account
- ---------------------------------------------------------------------------
In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Automatic Investment
Plans $ 100 $ 100
Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor
By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.
By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.
Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200.
If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared.
STREET NAME OWNERSHIP OF SHARES
Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Fund nor the Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a
shareholder elect s to hold Fund shares in street-name through a brokerage
firm account rather than directly in the shareholder's own name. Further,
neither the Fund nor the Transfer Agent will be responsible to the investor
for any loss to the investor due to the brokerage firm's failure, its loss of
property or funds, or its acts or omissions. Prospective investors are urged
to confer with their financial advisor to learn about the different options
available for owning mutual fund shares. You may receive share certificates
or hold shares in your name with the Transfer Agent upon request.
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (by selling them back to the Fund or by selling the
shares through you r financial advisor). Your shares will be purchased by the
Fund at the next share price (NAV) calculated after your order is received in
proper form and accepted. The amount of the CDSC, if any, will be deducted
and the remaining proceeds sent to you. No CDSC is imposed on the amount by
which the value of a share may have appreciated. Similarly, no CDSC is
imposed on shares obtained through reinvestment of dividends or capital
gains. Shares not subject to a CDSC will be redeemed first. Share price is
normally calculated at 4 p.m. Eastern time.
To sell shares in an account, you may use any of the methods described on the
following page.
If you are selling some but not all of your shares, leave at least $1,000
worth of shares in the account to keep it open.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and your Fund from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
* You wish to redeem more than $10,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address than the one on your
account (record address),
* The check is being made payable to someone other than the account owner,
or
* The redemption proceeds are being transferred to a Thornburg account with
a different registration.
You should be able to obtain a signature guarantee from a bank, broker
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.
TELEPHONE REDEMPTION. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares of any Fund by telephone simply by calling a Fund
Customer Service Representative before 2:30 p.m. Money can be wired directly
to the bank account designated by you on the application or sent to you in a
check. The Funds' Transfer Agent may charge a fee for a bank wire. This fee
will be deducted from the amount wired.
If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:
NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017
The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for,
and will not be liable for, the authenticity of withdrawal instructions
received by telephone or the delivery or transmittal of the redemption
proceeds if they follow instructions communicated by telephone that they
reasonably believe to be genuine. By electing telephone redemption you are
giving up a measure of security you otherwise may have by redeeming shares
only with written instructions, and you may bear the risk of any losses
resulting from telephone redemption. The Funds' Transfer Agent will attempt
to implement reasonable procedures to prevent unauthorized transactions and
the Funds or their Transfer Agent could be liable if these procedures are not
employed. These procedures will include recording of telephone transactions,
providing written confirmation of such transactions within 5 days, and
requesting certain information to better confirm the identity
of the caller at the time of the transaction.
____________________________________________________________________________
Redeeming Shares Account Type Special Requirements
- ----------------------------------------------------------------------------
Through Your Financial All account types Consult with your financial
Advisor advisor. Your financial
advisor may charge a fee.
By Mail Individual, Joint The letter of instruction
Tenant, Sole Pro- must be signed by all
prietorship, UGMA, persons required to sign
UTMA for transactions, exactly as
Send to: NFDS their names appear on the
c/o Thornburg Funds account, and must include:
P.O. Box 419017 * Your name,
Kansas City, MO * The Fund's name,
64141-6017 * Your Fund account number,
* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed
above,
* Signature guarantee, if
required.
Trust In addition to the above
requirements, the trustee
must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
Business or In addition to the above
Organization requirements, at least one
person authorized by
corporate resolution to act
on the account must sign the
letter which must be
signature guaranteed.
Include a corporate
resolution with corporate
seal.
Executor, Call 1-800-847-0200 for
Administrator, instructions.
Conservator, Guardian
By Telephone All account types You must sign up for the
1-800-847-0200 except Street-Name telephone redemption feature
before using it.
Minimum Wire $1,000
Minimum Check $50.00
By Systematic Withdrawal All account types You must sign up for this
Plan feature to use it.
Minimum Account Balance
$10,000
Minimum Check $50.00
<PAGE>
INVESTOR SERVICES
Thornburg Funds provides a variety of services to help you manage your
account.
Information Services
Thornburg Funds' telephone representatives are available Monday through
Friday from 9:30 am to 6:30 pm Eastern time. Whenever you call, you can speak
with someone equipped to provide the information or service you need.
Thornburg Funds' Audio Response system is available 24 hours a day, 365 days
a year. This computerized system gives you instant access to your account
information and up-to-date figures on all of the Thornburg Funds.
Statements and reports that Thornburg Funds send to you include the
following:
* Account statements after every transaction affecting your account
* Monthly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem shares)
TRANSACTION SERVICES
Automatic Investment Plan. One easy way to pursue your financial goals is to
invest money regularly. Thornburg Funds let you transfer as little as $100
from your bank account into your Fund account on a weekly, monthly or
quarterly basis, automatically. Because the Fund's Automatic Investment Plan
has a lower minimum than a regular purchase, it is an ideal way for beginning
investors to invest in a Fund.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be an excellent way to
invest for retirement, a home, educational expenses, and other long-term
financial goals. Call 1-800-847-0200 and speak to a Fund Customer Service
Representative for more information.
Exchange Privilege. You may exchange Class A shares of any other Thornburg
Fund for Class A shares of one of the Thornburg Municipal Funds.
If you are exchanging from one of the Funds covered by this prospectus into
another Thornburg Fund, you may (i) have to pay the difference between the
front end sales charge you paid on the Fund out of which you are exchanging
and the front end sales charge applicable to the Fund into which you are
exchanging; or (ii) you may qualify for a reduced sales charge or no sales
charge on that Fund. Please consult the exchange an d reinvestment privilege
information in the Prospectus of the other Thornburg Fund.
Note that exchanges out of a Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be suspended
or revoked, see page 25.
Systematic withdrawal plans let you set up periodic redemptions from your
account. Because of the sales charge on Class A shares of each Fund, you may
not want to set up a systematic withdrawal plan during a period when you are
buying Class A shares on a regular basis.
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
Dividends, Capital Gains, and Taxes
The Funds distribute substantially all of their net income and realized
capital gains, if any, to shareholders each year. Each Fund declares its net
investment income daily and distributes it monthly. Each Fund will distribute
net realized capital gains, if any, at least annually. Capital gain
distributions normally will be declared and payable in December.
Distribution Options
Each Fund earns interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions.
When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options, (which you can change at
any time).
Dividends
1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may also
instruct the Fund to invest your dividends in the shares of any other
Thornburg Fund.
2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end.
Capital Gain
1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
You may also instruct the Fund to re invest your capital gain
distributions in shares of any other Thornburg Fund.
2. Cash Option. You will be sent a check for any capital gain distributions.
Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges.
Turnover and Capital Gains
The Funds do not intend to engage in short-term trading for profits.
Nevertheless, when a Fund believes that a security will no longer contribute
towards its reaching its goal, it will normally sell that security.
When a Fund sells a security at a profit it realizes a capital gain. When it
sells a security at a loss it realizes a capital loss. A fund must, by law,
distribute capital gains, net of any losses, to its shareholders. Whether you
reinvest your capital gain distributions or take them in cash, the
distribution is taxable.
To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio manager,
the integrity and income generating aspects of the portfolio would be
unaffected by doing so.
TAXES
Federal Taxes
The Limited Term National Fund, Limited Term California Fund, Intermediate
National Fund, Intermediate New Mexico Fund and Intermediate Florida Fund
each have qualified under Subchapter M of the Internal Revenue Code (the
"Code ") for tax treatment as a regulated investment company, and each of
these Funds intends to continue its qualification so long as qualification is
in the best interests of the shareholders. The other Funds also intend to
qualify for this treatment under Subchapter M. This tax treatment relieves a
Fund from paying federal income tax on income which is currently distributed
to its shareholders. Each Fund also intends to satisfy conditions that will
enable it to designate distributions from the interest income generated by
its investments in Municipal Obligations, which are exempt from federal
income tax when received by the Fund, as Exempt Interest Dividends.
Shareholders receiving Exempt Interest Dividends will not be subject to
federal income tax on the amount of such dividends, except to the extent the
alternative minimum tax may be imposed.
The Funds' counsel, White, Koch, Kelly & McCarthy, Professional Association,
has not made and normally will not make any review of the proceedings
relating to the issuance of the Municipal Obligations or the basis for any
opinions issued in connection therewith. In the case of certain Municipal
Obligations, federal tax exemption is dependent upon the issuer (and other
users) complying with certain ongoing requirements. There can be no assurance
that the issuer (and other users) will comply with these requirements, in
which event the interest on such Municipal Obligations could be determined to
be taxable, in most cases retroactively from the date of issuance. Certain
matters under the Code, including certain exceptions to the foregoing, are
discussed more specifically below.
Each Fund will receive the opinion of its counsel or other assurances before
commencing investment operations that such distributions will constitute
Exempt Interest Dividends under the Code if certain conditions are satisfied.
Distributions by each Fund of net interest income received from certain
temporary investments (such as certificates of deposit, corporate commercial
paper and obligations of the United States government, its agencies and
instrumentalities) and net short-term capital gains realized by each Fund, if
any, will be taxable to shareholders as ordinary income whether received in
cash or additional shares. Distributions to shareholders will not qualify for
the dividends received deduction for corporations. Any net long-term capital
gains realized by a Fund, whether or not distributed, will be taxable to
shareholders as long-term capital gains regardless of the length of time
investors have held their shares, although gains attributable to market
discount on portfolio securities will be characterized as ordinary income.
Each year each Fund will, where applicable, mail to shareholders information
on the tax status of dividends and distributions, including the respective
percentages of tax-exempt and taxable income and an allocation of tax-exempt
income on a state-by-state basis. The exemption of interest income for
federal income tax purposes does not necessarily result in an exemption under
the income or other tax laws of any state or local taxing authorities. (See
"State Taxes," below). Shareholders are advised to consult their own tax
advisers for more detailed information concerning the federal, state and
local taxation of each Fund and the income tax consequences to its
shareholders.
The Code treats interest on certain Municipal Obligations which are private
activity bonds under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Funds may
purchase without limitation private activity bonds the interest on which is
subject to treatment under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations, although the
frequency and amounts of these purchases are presently uncertain. Some
portion of Exempt Interest Dividends may, as a result of these purchases, be
treated as a preference item for purposes of the alternative minimum tax on
individuals and corporations. Shareholders are advised to consult their own
tax advisers as to the extent and effect of this treatment.
State Taxes
Distributions of interest income from Municipal Obligations will not
necessarily be exempt from taxes under the income or other tax laws of any
state or local taxing authority. Distributions to individuals attributable to
interest on Municipal Obligations originating in Alabama, California,
Arizona, New Mexico, and Tennessee will not be subject to personal income
taxes imposed by the state of the same name as the Fund. For example, an
individual resident in New Mexico, who owns shares in the New Mexico Fun d,
will not be required by New Mexico to pay income taxes on interest dividends
attributable to obligations originating in that state. Capital gain
distributions are taxable by these states, irrespective of the origins of the
obligations from which the gains arise. Individual shareholders in
Pennsylvania will not be subject to Pennsylvania income tax on distributions
attributable to interest on obligations originating in Pennsylvania, or
distributions attributable to gains on dispositions of obligations of
Pennsylvania and its political subdivisions and obligations of the United
States and its territories and possessions. Additionally, individual
shareholders will be exempt from Pennsylvania personal property tax on their
Pennsylvania Fund shares to the extent the Fund's assets consist of
obligations described in the preceding sentence. Individual residents in
Pittsburgh will enjoy a similar exemption from personal property taxes
imposed by the City and School District of Pittsburgh.
Florida, Texas and Utah do not currently impose an income tax on individuals
or do not impose an income tax on distributions to individuals attributable
to Municipal Obligations, although capital gain distributions will be subject
to personal income tax in Utah. Florida imposes a personal property or
"intangibles" tax which is generally applicable to securities owned by
individual residents in Florida, but the intangibles tax will not apply to
Florida Fund shares if the Funds' assets as of the close of the preceding
taxable year consist only of obligations of Florida and its political
subdivisions and obligations of the United States, Puerto Rico, Guam or the
United States Virgin Islands.
With respect to distributions of interest income from the Limited Term
National Fund and the Intermediate National Fund, the laws of the several
states and local taxing authorities vary with respect to the taxation of such
distributions, and shareholders of these Funds are advised to consult their
own tax advisers in that regard. The Limited Term National Fund and the
Intermediate National Fund will advise shareholders approximately 60 days
after the end of each calendar year as to the percentage of income derived
from each state as to which it has any Municipal Obligations in order to
assist shareholders in the preparation of their state and local tax returns.
Prospective investors are urged to confer with their own tax advisers for
more detailed information concerning state tax consequences. In particular,
corporations should note that the preceding outline of state taxes pertains
principally to individuals, and tax treatment of corporations may be
different.
SERVICE AND DISTRIBUTION PLANS
Service Plan - Class A and Class C. Each class of each Fund has adopted
a Service Plan under which TMC makes payments to securities dealers and other
financial institutions and organizations to obtain various shareholder
related services. The Service Plans permit each of these Funds to reimburse
TMC for these payments at annual rates up to .25% of each class's net assets.
No assets of any class of any Fund will be used to reimburse expenses
attributable to any other class of the same, or any other Fund.
Class C Distribution Plan. Each Fund offering Class C shares has adopted
a Class C Distribution Plan applicable to its Class C shares, under which the
Fund will pay to TSC on a monthly basis an annual distribution fee of up to
.75% of the average daily net assets attributable to Class C shares of the
Fund. This distribution fee is an addition to the service fee described above
under "Service Plan - All Classes" and is charged to and reduces the income
allocated to Class C shares. TSC intends to use these amounts principally to
compensate dealers (including banks) who sell Class C shares. TSC also will
engage in other distribution related activities, including advertising and
other promotional activities. However, the distribution fee paid to TSC is
not computed with respect to TSC's actual expenses, and the fees received by
TSC may be more or less than its actual distribution expenses. TSC may, but
is not obligated to, waive any part or all of its compensation provided for
under the Class C Distribution Plan.
The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 16 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.
TRANSACTION DETAILS
The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued on the basis of
valuations obtained from independent pricing services.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
You may initiate many transactions by telephone. Note that a Fund will not be
responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
The Fund will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you want the ability to
redeem and exchange by telephone, fill in the appropriate section
of the application. If you have an existing account to which you wish to add
this feature, call the Fund for a telephone redemption
application. If you are unable to reach the Fund by phone (for
example, during periods of unusual market activity), consider placing your
order by mail or by using your financial advisor.
The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions "
on page 25. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.
When you place an order to buy shares, your order will be processed at the
next share price calculated after your order is received and accepted. If you
open or add to your account yourself rather than through your financial
advisor please note the following:
* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
* The Funds do not accept cash.
* If your check does not clear, your purchase will be cancelled and you
could be liable for any losses or fees the Fund or its Transfer Agent has
incurred.
When you buy shares of a Fund or sell them through your financial advisor,
you may be charged a fee for this service. Please read your financial
advisor's program materials for any additional procedures, service features
or fees that may apply.
Certain financial institutions that have entered sales agreements with TSC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received and accepted. (Except that a
CDSC will be deducted from Class C shares within one year of purchase and a
CDSC of 1/2 of 1% will be deducted from redemptions of Class A shares within
one year of purchase where no sales charge was imposed on the purchase
because it exceeded $1,000,000). Note the following:
* Consult your financial advisor for procedures governing redemption through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds have
elected to pay in cash all requests for redemption by any shareholder.
They may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset value
of a Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits its withdrawal. In the case of a redemption
in kind, securities delivered in payment for shares would be valued at the
same value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities.
EXCHANGE RESTRICTIONS
* The Fund you are exchanging into must be registered for sale in your
state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* If you exchange Class A shares into a Fund with a higher sales charge, you
may have to pay the percentage-point difference between that Fund's sales
charge and any sales charge you h ave previously paid in connection with
the shares you are exchanging. For example, if you had already paid a
sales charge of 2.5% on your shares and you exchange them into a Fund with
a 4.5% sales charge, you would pay an additional 2% sales charge.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt performance and shareholders, each Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges out of a Fund
in any calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for purposes of the four exchange limit.
* Each Fund reserves the right to refuse exchange purchases by any person or
group if, in TMC's judgement, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund.
Although a Fund will attempt to give prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time. The Funds
reserve the right to terminate or modify the exchange privilege in the
future.
PERFORMANCE
YIELD COMPUTATION AND TOTAL RETURN
The Funds may quote their yields and returns in reports, sales literature and
advertisements. Yield and return information are computed separately for
Class A and Class C shares. Yield and return for Class C shares of a Fund
ordinarily will be less than t hat of Class A shares of the same Fund because
of the additional distribution fees imposed upon Class C shares.
Additionally, yield and return could differ in minor respects among classes
of the same Fund because of allocation of certain expenses to one or more
specific classes to which the expenses relate. Any return quoted should not
be considered a representation of the return in the future since return
figures are based upon historical earnings. Actual performance will vary.
Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
f or that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtain ed using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the
30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3)The non-standardized calculation
may reflect the average offering price per share for the period or the
beginning offering price per share for the period, whereas the standardized
calculation will always reflect the maximum offering price per share on the
last day of the period; (4)The non-standardized calculation may reflect an
offering price per share other than the maximum offering price, provided
that any time any Fund's return is quoted in reports, sales literature or
advertisements using a public offering price which is less than the Fund's
maximum public offering price, the return computed by using the Fund's
maximum public offering price also will be quoted in the same piece; (5)The
non-standard return quotation may include the effective return obtained by
compounding the monthly dividends.
Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
includes the effect of paying the maximum sales charge (Class A shares) or
the deduction of the applicable CDSC (Class C shares) and assumes the
reinvestment of all dividends. The Funds also may furnish average annual
total return quotations for other periods, or based upon investments at
various sales charge levels or at net asset value. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Yields and returns described in this section may also be quoted on a
"taxable equivalent yield" basis by computing the taxable yield or return
which a hypothetical investor subject to a specified income tax rate must
realize to receive the same yield or return after taxes. When a taxable
equivalent yield is quoted, the following additional information will be
furnished: (1) a standardized current yield; (2) the length of and the last
day of the base period used in computing the quotation; and (3) a description
of the method by which the quotation is computed.
Yield and return information may be useful in reviewing the
performance of the Funds and for providing a basis for comparison with other
investment alternatives. Comparative information about the yield or
distribution rate of the shares of a Fund and a bout average rates of return
on certificates of deposit, bank money market deposit accounts, money market
mutual funds and other short-term investments may also be included in
advertisements and communications of the Fund. Any such comparison will
contain information about the differences between the Funds
and those investments.
From time to time, in advertisements and other types of literature, the
performance of the Funds may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Funds may
illustrate performance or the characteristics of their respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of a Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Funds' share price or net asset
value relative to changes in the value of other investments, and
(iv) the relationship over time of changes in the Funds' (or other
investments) net asset values or prices and the Funds' (or other
investments') investment returns. The Funds also may illustrate or refer to
their respective investment portfolios, investment techniques and strategies,
and general market or economic trends in advertising or communications to
shareholders or prospective shareholders, including reprints of interviews or
articles written by or about, and including comments by, Fund managers. These
illustrations, references and comments ordinarily will relate to
topics addressed in the Funds' Prospectus and Statements of Additional
Information.
ORGANIZATION OF THE FUNDS
Each of the Limited Term Municipal Funds are diversified series of Thornburg
Limited Term Municipal Fund, Inc., a Maryland corporation organized as a
diversified, open-end management investment company. The Limited Term
Municipal Funds are managed by their investment adviser, Thornburg Management
Company, Inc., under the supervision of the Board of Directors of Thornburg
Limited Term Municipal Fund, Inc. (the "Company" ). The Company currently
offers two series of stock, referred to in this Prospectus as Limited Term
National Fund and Limited Term California Fund, each in multiple classes, and
the Board of Directors is authorized to divide authorized but unissued shares
into additional series and classes.
Each of the Intermediate Municipal Funds are series of Thornburg Investment
Trust, a Massachusetts business trust (the "Trust") organized as a
diversified, open-end management investment company under a Declaration of
Trust (the "Declaration" ). Each of the single-state Intermediate Funds is a
non-diversified series of the Trust, and the Intermediate Municipal Funds are
managed by their investment adviser, Thornburg Management Company, Inc. under
the supervision of the Trust's Trustees. The Trust currently has 12
authorized Funds, nine of which are described in this Prospectus. The
Trustees are authorized to divide the Trust's shares into additional series
and classes.
No Fund is liable for the liabilities of any other Fund. However, because the
Company and the Trust share this Prospectus with respect to the Funds, there
is a possibility that one of these companies could be liable for any
misstatements, inaccuracies or incomplete disclosure in the Prospectus
respecting Funds offered by the other company. The Company and the Trust do
not concede, and specifically disclaim, any such liability.
Each Fund may hold special shareholder meetings and mail proxy materials.
These meetings may be called to elect or remove Directors or Trustees, change
fundamental investment policies, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Each Fund will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based
upon the number of shares you own. Shares do not have cumulative voting
rights or preemptive rights.
TMC and TSC
The Funds are managed by Thornburg Management Company, Inc. (TMC). TMC
performs investment management services for each Fund under the terms of an
Investment Advisory Agreement which specifies that TMC will select
investments for the Fund, monitor those investments and the markets
generally, and perform related services. TMC also performs administrative
services specific to each class of shares of each Fund under an
Administrative Services Agreement which requires that TMC will supervise,
administer and perform certain administrative services necessary for the
maintenance of each class's shareholders. TMC's services to the Limited Term
Municipal Funds are supervised by the Directors of Thornburg Limited Term
Municipal Fund, Inc., and TMC's services to the Intermediate Municipal Funds
are supervised by the Trustees of Thornburg Investment Trust.
For each of the Funds, TMC receives a management fee and an
administrative services fee, computed according to the following scales and
paid monthly as a percentage of each Fund's average daily net assets:
<PAGE>
<TABLE>
Limited Term Intermediate Term All Funds
Municipal Funds Municipal Funds Annual
Net Assets Annual Investment Annual Investment Administrative
Management Fee Management Fee Fee
- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 to $500 million .50% .50% .125%
$500 million to $1 billion .40% .45% .125%
$1 billion to $1.5 billion .30% .40% .125%
$1.5 billion to $2 billion .25% .35% .125%
Over $2 billion .225% .275% .125%
</TABLE>
<PAGE>
TMC was established in 1982. Today, the Thornburg Funds include Thornburg
Value Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Limited
Term Income Fund in addition to the Funds covered by this Prospectus. The
Thornburg Funds total over $1.6 billion in assets. Thornburg Management
Company Inc. is known as a provider of conservative investment products. For
more than a decade the Thornburg Funds have been committed to preserving and
increasing the real wealth of their shareholders. The key to growing real
wealth is increasing buying power after taxes, inflation, and investment
related expenses.
Brian J. McMahon, a Managing Director of TMC, has primary responsibility for
the day-to-day management of each of the Fund portfolios. He has held this
responsibility for each of the Limited Term National Fund and the Limited
Term California Fund since their respective inceptions in 1984 and 1987. He
has held the same responsibility for the Intermediate National Fund and the
Intermediate New Mexico Municipal Fund, which commenced operations in 1991,
and for the Intermediate Florida Fund, which commenced operations in February
1994. Mr. McMahon is assisted by other employees of TMC in managing the
Funds.
TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
for these expense reimbursements if expenses fall below the limit prior to
the end of the fiscal year. Fee waivers or expenses by the Fund will lower
its yield.
In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. Funds will not bear any costs of sales or promotion incurred
in connection with the distribution of their shares, except as provided for
under the service and distribution plans applicable to each Fund class, as
described above under "Service and Distribution Plans."
Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.
H. Garrett Thornburg, Jr. a Trustee and President of the Trust and a Director
and Chairman of the Fund, is the controlling stockholder of both TMC and TSC.
Thornburg Funds provides shareholders account inquiry service 24 hours a day,
365 days a year, through its Audio Response telephone service. To reach
Thornburg Funds for general information, please call 1-800-847-0200. If you
would prefer to speak with a Thornburg Funds representative, please call
during business hours and follow the simple instructions you will receive.
ADDITIONAL INFORMATION
Reports to Shareholders
Shareholders will receive annual reports of their Fund containing financial
statements audited by the Funds' independent auditors, and also will receive
unaudited semi-annual reports. In addition, each shareholder will receive an
account statement no less often than quarterly.
Custodian and Transfer Agent
The custodian of each Fund's assets is State Street Bank & Trust Co. National
Financial Data Services is the transfer agent for the Funds and
performs bookkeeping, data processing and administrative services incident to
the maintenance of shareholder accounts.
General Counsel
Legal matters in connection with the issuance of shares of the Funds are
passed upon by White, Koch, Kelly & McCarthy, Professional Association, Post
Office Box 787, Santa Fe, New Mexico 87504-0787.
Investment Adviser
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Distributor
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Auditor
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
Custodian
State Street Bank & Trust Co.
Boston, Massachusetts
Transfer Agent
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus and, if given or made, the information or representation must not
be relied upon as having been authorized by any Fund or Thornburg Securities
Corporation. This Prospectus constitutes an offer to sell securities of a
Fund only in those states where the Fund's shares have been registered or
otherwise qualified for sale. A Fund will not accept applications from
persons residing in states where the Fund's shares are not registered.
<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
<PAGE>
PART B
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information of Thornburg Limited Term
Municipal Fund, Inc. (the "Company") is not a prospectus but should be read
in conjunction with the Company's Prospectus dated November 1, 1996, (the
"Prospectus") which may be obtained, without charge, by writing to Thornburg
Securities Corporation (the "Distributor"), 119 East Marcy Street, Suite 202,
Santa Fe, New Mexico 87501. Prior to June 28, 1985, the Company's name was
"Tax-Free Municipal Lease Fund, Inc."
The date of this Statement of Additional Information is November 1,
1996.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . i
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 1
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Tax-Exempt Bonds . . . . . . . . . . . . . . . . . . . . . . . 8
Municipal Notes. . . . . . . . . . . . . . . . . . . . . . . . 9
Tax-Exempt Demand Bonds. . . . . . . . . . . . . . . . . . . . 9
Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . 9
Temporary Investments . . . . . . . . . . . . . . . . . . . . . . . 10
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12
PERFORMANCE COMPUTATION. . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Computations - In General . . . . . . . . . . . . . . . 14
Representative Performance Figures - Limited Term National Fund
(Classes A and C) . . . . . . . . . . . . . . . . . . . . 16
Standardized Method. . . . . . . . . . . . . . . . . . . . . . 16
Non-Standardized Method. . . . . . . . . . . . . . . . . . . . 16
Taxable Equivalent Yield . . . . . . . . . . . . . . . . . . . 16
Average Annual Total Return. . . . . . . . . . . . . . . . . . 17
Representative Performance Figures - Limited Term California Fund . 17
Standardized Method of Computing Yield . . . . . . . . . . . . 17
Non-standardized Method of Computing Yield . . . . . . . . . . 17
Taxable Equivalent Yield . . . . . . . . . . . . . . . . . . . 18
Average Annual Total Return. . . . . . . . . . . . . . . . . . 18
DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 19
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
State and Local Tax Aspects . . . . . . . . . . . . . . . . . . . . 22
Special Risks Affecting the California Portfolio. . . . . . . . . . 23
Accounts of Shareholders. . . . . . . . . . . . . . . . . . . . . . 25
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . . . . . 26
Investment Management Services. . . . . . . . . . . . . . . . . . . 26
Administrative Services Agreement . . . . . . . . . . . . . . . 28
SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . 28
Service Plan - All Classes. . . . . . . . . . . . . . . . . . . . . 28
Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . 29
General Matters Relating to Service and Distribution Plans. . . . . 30
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 31
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . 34
HOW TO PURCHASE FUND SHARES. . . . . . . . . . . . . . . . . . . . . . . 34
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 38
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Company currently offers two separate investment portfolios or
Funds: Thornburg Limited Term Municipal Fund National Portfolio ("Limited
Term National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund"). Each Fund currently offers two
classes of shares, Class A shares and Class C shares.
The investment objective of the Funds is to provide for their respective
shareholders as high a level of current interest income exempt from federal
income tax as is consistent, in the view of the Funds' management, with
preservation of capital. Additionally, the Limited Term California Fund
seeks to provide as high a level of current interest income exempt from
California state income tax as is consistent in the view of the Fund's
management with preservation of capital. Investors should recognize,
however, that income otherwise exempt from federal income tax may be subject
to the federal minimum tax and state income taxes. See "DISTRIBUTIONS AND
TAXES", below.
A secondary investment objective of the Funds is to minimize expected
fluctuations in net asset value per share relative to municipal bond
portfolios with longer average maturities by maintaining a portfolio with a
dollar-weighted average maturity that will normally not exceed five years.
There is a risk in all investments, however, and there can be no assurance
that the Funds' objectives will be achieved. The objective of preservation
of capital may preclude the Funds from obtaining the highest available
yields.
The Funds will seek to achieve their objective by investing in a
diversified portfolio of obligations issued by state and local governments
the interest on which is exempt from federal income tax ("Municipal
Obligations"). The Fund may invest its assets in Municipal Obligations (or
participation interest therein) that constitute leases or installment
purchase or conditional sale contracts by state or local governments or
authorities to obtain property or equipment ("Municipal Leases").
Municipal Obligations include debt obligations issued by states, cities
and local authorities to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports,
bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which Municipal
Obligations may be issued include the refunding of outstanding obligations,
the obtaining of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide privately-operated housing
facilities, sports 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. Municipal Obligations have also been issued
to finance single-family mortgage loans and to finance student loans. Such
obligations are included within the term Municipal Obligations if the
interest paid thereon is exempt from federal income tax. Municipal
Obligations also include obligations issued by or on behalf of territories or
possessions of the United States and their agencies and instrumentalities.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. 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 specific revenue source. Industrial development bonds
are in most cases revenue bonds and are generally not secured by the pledge
of the credit or taxing power of the issuer of such bonds. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications, depending on numerous
factors.
The Funds' assets will normally consist of (1) Municipal Obligations
(including municipal Leases) or participations therein that are rated at the
time of purchase within the four highest grades by Moody's or S&P and
(2) Municipal Obligations (including Municipal Leases) or participations
therein that are not rated by a rating agency, but are issued by obligors
that either have other comparable debt obligations that are rated within the
four highest grades (Baa or BBB or better) by Moody's Investors Service
("Moody's") Standard & Poor's Corporation ("S&P") or Fitch Investors Service
("Fitch") or, in the case of obligors whose obligations are unrated, are
deemed by the Funds' investment adviser, Thornburg Management Company, Inc.
("TMC"), to be comparable with issuers having such debt ratings, (3) cash and
receivables. Investments in Municipal Obligations may also include
(i) variable rate demand instruments that are rated within the two highest
grades of either rating agency or, if unrated, are deemed by TMC to be of
high quality and minimal credit risk; (ii) tax-exempt commercial paper that
is rated within the two highest grades of either rating agency;
(iii) municipal notes that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of comparable quality
to such rated municipal notes; and (iv) other municipal demand instruments
rated within the three highest grades of either rating agency or, if unrated,
are deemed by TMC to be of comparable quality to such rated municipal demand
instruments. Unrated Municipal Leases will be purchased only subject to
certain restrictions described in the Prospectus under the caption
"Investment Objectives and Policies -- Municipal Obligations". To the extent
that unrated Municipal Obligations may be less liquid, there may be somewhat
greater risk in purchasing unrated Municipal Obligations than in purchasing
comparable rated Municipal Obligations. Except to the extent that a Fund is
invested in temporary investments for defensive purposes, the Fund will,
under normal conditions, invest 100% of its net assets in Municipal
Obligations, and as a matter of fundamental policy normally will not invest
less than 80% in Municipal Obligations. Under normal conditions the Limited
Term California Fund will attempt to invest 100% and as a matter of
fundamental policy, will invest at least 65% of its net assets in Municipal
Obligations (and participation interests therein) issued by public entities
located in the State of California.
In some cases, investments by a Fund in Municipal Leases will take the
form of purchases of participation interests therein from banks and other
responsible parties. A participation interest gives the Fund a specified
undivided interest in the obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Lease.
The foregoing restrictions and other limitations discussed herein and
under "Investment Limitations" will apply only at the time of purchase of
securities and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of an acquisition of
securities.
The Fund has reserved the right to invest up to 20% of its net assets in
"temporary" investments in taxable securities, but it does not expect to find
it necessary to do so. See "Temporary Investments" and "Repurchase
Agreements" below.
Portfolio trading will be undertaken to accomplish the Funds' investment
objectives in relation to actual and anticipated movements in interest rates.
The Funds also may engage to a limited extent in short-term trading
consistent with their investment objectives. Securities may be sold in
anticipation of a market decline (a rise in interest rates) or purchased in
anticipation of a market rise (a decline in interest rates) and later sold,
but the Funds will not engage in trading solely to recognize a gain. In
addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what a Fund believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to
the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of
various types of Municipal Obligations or changes in the investment
objectives of investors. With respect to income tax consequences to the
Funds and their shareholders resulting from short-term trading by the Funds,
see "Distributions and Taxes".
Subject to the foregoing, each Fund will attempt to achieve its
investment objective by prudent selection of Municipal Obligations with a
view to holding them for investment. While there can be no assurance
thereof, each Fund anticipates that its annual portfolio turnover rate
generally will not exceed 70%. However, each Fund reserves the right to make
changes in its portfolio whenever it deems such action advisable, and the
rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. Therefore, depending upon market
conditions, each Fund's annual portfolio turnover rate may exceed 70% in
particular years.
Except as expressly set forth in this Statement of Additional
Information or in the Prospectus, the investment objective and the
permissible investments set forth herein under the caption "Investment
Objective and Policies" are not fundamental policies and may be changed by
the Board of Directors of the Company without approval by Fund shareholders.
Any fundamental policy may be changed only with the approval of a majority of
the outstanding shares of each Fund which would be affected by the change.
See "Investment Limitations".
Each Fund may invest a portion of its assets in Municipal Leases and
participation interests therein. Such obligations, which may take the form
of a lease or an installment purchase of conditional sale contract, are
issued by state and local governments and authorities to acquire a wide
variety of equipment and facilities, such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Interest payments on
qualifying Municipal Leases are exempt from federal income taxes.
Municipal Leases have special risks not normally associated with general
obligation or revenue bonds. The constitutions and statutes of all states
contain requirements that the state or a municipality must meet to incur
debt. These often include voter referenda, interest rate limits and public
sale requirements. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting their
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses which
provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic
basis.
Although Municipal Leases typically will be secured by the leased
property, the disposition of the property in the event of non-appropriation
or foreclosure might, in some cases, prove difficult. In addition, in
certain instances the tax-exempt status of the obligations will not be
subject to the legal opinion of a nationally recognized "bond counsel," as is
customarily required in larger issues of Municipal Obligations. However, in
all cases the Company will require that a Municipal Lease purchased by a Fund
be covered by a legal opinion (typically from the issuer's counsel) to the
effect that, as of the effective date of such Lease, the Lease is the valid
and binding obligation of the governmental issuer.
TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition by a Fund and periodically while it is held based upon factors
established by the Fund's board of directors, including (i) the frequency of
trades and quotes for the obligation, (ii) the number of dealers who will buy
or sell the obligation and the potential buyers of the obligation, (iii) the
willingness of dealers to make a market for the obligation, and (iv) the
nature and timing of marketplace trades. For purposes of the preceding
sentences, an unrated Municipal Lease with non-appropriation risk that is
backed by an irrevocable bank letter of credit or an insurance policy, issued
by a bank or insurer deemed by TMC to be of high quality and minimal credit
risk, will not be deemed to be "illiquid" solely because the underlying
Municipal Lease is unrated, if TMC determines that the Municipal Lease is
readily marketable because it is backed by such letter of credit or insurance
policy.
Each Fund will seek to reduce further the special risks associated with
investment in Municipal Leases by investing in Municipal Leases only where,
in TMC's opinion, certain factors established by the Fund's directors have
been satisfied, including (1) the nature of the leased equipment or property
is such that its ownership or use is deemed essential to a governmental
function of the governmental issuer, (2) the Municipal Lease has a shorter
term to maturity than the estimated useful life of the leased property and
the lease payments will commence amortization of principal at an early date,
(3) appropriate covenants will be obtained from the governmental issuer
prohibiting the substitution or purchase of similar equipment for a specified
period (usually 60 days or more) in the event payments are not appropriated,
(4) the underlying equipment has elements of portability or use that enhance
its marketability in the event foreclosure on the underlying equipment was
ever required, and (5) the governmental issuer's general credit is adequate.
The enforceability of the "non-substitution" provisions referred to in (3)
above has not been tested by the courts. Investments not meeting certain of
these criteria (such as the absence of a non-substitution clause) may be made
if the Municipal Lease is subject to an agreement with a responsible party
(such as the equipment vendor) providing warranties to the Fund that satisfy
such criteria.
Each Fund may purchase variable rate demand instruments and also may
purchase fixed rate municipal demand instruments either in the public market
or privately from banks, insurance companies and other financial
institutions. These instruments provide for periodic adjustment of the
interest rate paid to the holder. The "demand" feature permits the holder to
demand payment of principal and interest prior to the final stated maturity,
either from the issuer or by drawing on a bank letter of credit, a guarantee
or insurance issued with respect to the instrument. In some cases these
demand instruments may be in the form of units, each of which consists of
(i) a Municipal Obligation and (ii) a separate put option entitling the
holder to sell to the issuer of the option the Municipal Obligation in such
unit, or an equal aggregate principal amount of another Municipal Obligation
of the same issuer, issue and maturity as the Municipal Obligation, at a
fixed price on specified dates during the term of the put option. In those
cases, each unit taken as a whole will be considered a Municipal Obligation.
The demand option may or may not increase the liquidity of the underlying
Municipal Obligation at any point in time. The issuer of the demand option
may or may not guarantee payments of principal and interest on the underlying
Municipal Obligation. However, as long as the issuer of the option honors
its obligation, or is perceived to be able to do so, the option should
decrease the risk of downward price fluctuation of the underlying Municipal
Obligation at any point in time by establishing a fixed price for which the
Municipal Obligation can be sold before its final maturity. In order to
reduce further the risk associated with this type of investment, a Fund will
invest in a fixed rate municipal demand instrument only if the instrument or
the letter of credit, guarantee or insurance associated therewith is rated
within the three highest grades of a nationally recognized rating agency, or
if unrated, is deemed by TMC to be of comparable quality with issues having
these debt ratings. The credit quality of such investments will be reviewed
on a periodic basis by TMC under the supervision of the Fund's directors.
When a Fund holds an investment in a Municipal Obligation together with a put
option relating to it, the maturity of the Municipal Obligation for purposes
of calculating the Fund's dollar-weighted average portfolio maturity will be
deemed to be the shorter of (1) the final maturity of the Municipal
Obligation, or (2) the next date that the Fund may demand payment for the
Municipal Obligation from the issuer of the put option.
Each Fund may purchase participation interests in Municipal Leases
principally from banks or other responsible parties (such as equipment
vendors, insurance companies, broker-dealers and other financial
institutions) which have entered into a "remarketing agreement" with the Fund
providing that the other party will either remarket or repurchase the
Municipal Leases within seven days after demand by the Fund on certain
conditions described below within seven days after demand by the Fund. Such
agreements are referred to herein as "remarketing agreements" and the party
that agrees to remarket or repurchase a Municipal Lease is referred to herein
as a "remarketing party.") The agreement will provide for a remarketing
price equal to the current value of the Fund's participation interest in the
obligation as determined by the Fund's portfolio valuation service as of the
demand date (plus accrued interest). The Funds anticipate that, in most
cases, the agreement will also provide for the seller of the participation
interest or the remarketing party to service the Municipal Lease, often for
a servicing fee. The conditions to a Fund's right to require the remarketing
party to remarket the obligation are that the Fund must certify at the time
of remarketing that (1) payments under the Municipal Lease are current and
the Fund has no knowledge of any default thereunder by the governmental
issuer, (2) such remarketing is necessary in TMC's sole opinion to meet the
Fund's liquidity needs and (3) the governmental issuer has not notified the
Fund of termination of the Municipal Lease.
A Fund will enter into remarketing agreements only with banks or other
responsible parties (such as equipment vendors, insurance companies,
broker-dealers and other financial institutions) that in the opinion of TMC
are capable of meeting their obligations to the Fund. TMC will monitor on a
continuous basis the ability of remarketing parties to meet their obligations
to the Fund. Although each Fund expects to deal with a variety of
remarketing parties, it reserves the right to enter into such agreements
covering up to 25% of its net assets with any particular remarketing party
meeting TMC's normal credit criteria. In addition, up to 50% of its net
assets may be covered by a remarketing agreement with a remarketing party
that is deemed by TMC to be of high quality and minimal credit risk. The
Company received an interpretation from the staff of the Securities and
Exchange Commission on January 18, 1985, enabling the Funds to enter into
remarketing agreements with a broker-dealer, provided the broker-dealer has
sold a participation interest in the underlying Municipal lease and the Fund
reflects the investment on its balance sheet as a participation interest.
The "remarketing" feature of the remarketing agreement entitles the
remarketing party to attempt to resell a Fund's participation interest in the
Lease within seven days after demand; however, the remarketing party will be
obligated to repurchase the Lease for its own account within the seven-day
period if the Lease has not been resold. The remarketing agreement will
often be entered into with the party who has sold a participation interest in
the Municipal Lease to the Fund, but remarketing agreements may also be
entered into with a separate remarketing party of the same type and meeting
the same criteria as described above. A Fund will not invest in unrated
Municipal Leases with non-appropriation risk that are not subject to a
remarketing agreement if, as a result of such investment, more than 10% of
its net assets would be invested in (1) unrated Municipal Leases with
non-appropriation risk not covered by such agreements and (2) other
investments not considered readily marketable by the Fund (including unrated
Municipal Leases not currently subject to remarketing pursuant to any such
agreement then in effect).
The Funds will enter into remarketing agreements solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Remarketing agreements ordinarily will not be transferable
or assignable by a Fund, although the Fund will be entitled to sell the
underlying Municipal Obligation to another party at any time. If the Fund is
unable to exercise its rights under a remarketing agreement, it may be
required to hold the underlying Municipal Lease to maturity or treat the
Municipal Lease as an "illiquid" investment (see "Municipal Obligations",
below), unless it is able to place the investment with a new remarketing
party.
A Fund also may purchase and sell Municipal Obligations on a when-issued
or delayed delivery basis. When-issued and delayed delivery transactions
arise when securities are purchased or sold with payment and delivery beyond
the regular settlement date. (When-issued transactions normally settle
within 30-45 days.) On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment.
The commitment to purchase securities on a when-issued or delayed delivery
basis may involve an element of risk because the value of the securities is
subject to market fluctuation, no interest accrues to the purchaser prior to
settlement of the transaction, and at the time of delivery the market value
may be less than cost. At the time the Fund makes the commitment to purchase
a Municipal Obligation on a when-issued or delayed delivery basis, it will
record the transaction and reflect the value of the security in determining
its net asset value. The Fund also will maintain liquid assets at least
equal in value to commitments for when-issued or delayed delivery securities,
such assets to be segregated by State Street Bank & Trust Co., the Funds'
custodian, specifically for the settlement of such commitments. The value of
the segregated assets will be marked to the market daily so that the Fund
will at all times maintain assets in the segregated account equal in value to
the amount of these commitments. The Fund only will make commitments to
purchase Municipal Obligations on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund
reserves the right to sell these securities before the settlement date if it
is deemed advisable. If a when-issued security is sold before delivery any
gain or loss would not be tax-exempt.
No Fund will invest in illiquid securities if, as a result of such
investment, more than 10% of its net assets will be invested in illiquid
securities. For purposes of this limitation, "illiquid securities" shall be
deemed to include (1) Municipal Leases subject to non-appropriation risk
which are not rated at the time of purchase within the four highest grades by
Moody's or S&P and not subject to remarketing agreements (or not currently
subject to remarketing, pursuant to the conditions of any such agreement then
in effect, with a responsible remarketing party, deemed by TMC to be capable
of performing its obligations), (2) repurchase agreements maturing in more
than seven days, (3) securities which the Fund is restricted from selling to
the public without registration under the Securities Act of 1933, and
(4) other securities or participations not considered readily marketable by
the Fund, provided that for purposes of the foregoing an unrated Municipal
Lease which is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be "illiquid" solely because the
underlying Municipal Lease is readily marketable because it is backed by the
letter of credit or insurance policy.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. Similar proposals may be introduced in
the future. These proposals, if enacted, may have the effect of reducing the
availability of investments for the Fund. Moreover, the value of the Fund's
portfolio may be affected. The Fund may be compelled to reevaluate its
investment objective and policies and submit possible changes in the
structure of the Funds for the approval of their shareholders.
The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. See "Ratings". It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields, while Obligations of the same maturity and coupon
with different ratings may have the same yield. The market value of
outstanding Municipal Obligations will vary with changes in prevailing
interest rate levels and as a result of changing evaluations of the ability
of their issuers to meet interest and principal payments. Such variations in
market value of Municipal Obligations held in the Funds' portfolios arising
from these or other factors will cause changes in the net asset value of the
Funds' shares.
The ability of the Funds to achieve their investment objectives is
dependent upon the continuing ability of issuers of Municipal Obligations in
which the Funds invest to meet their payment obligations. In addition to
using public rating agencies, TMC will use its own credit analysis to assess
each issuer's financial soundness. Such analysis will include reliance upon
information from various sources including, if available, reports by the
rating agencies, research, analysis and appraisals of brokers, dealers and
commercial banks, and the views of the Funds' directors and others regarding
economic developments and the credit worthiness of particular issuers.
<PAGE>
Ratings
Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Tax-exempt bonds rated Aaa are judged to be of
the "best quality". The rating of Aa is assigned to tax-exempt bonds which
are of "high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than Aaa rated
tax-exempt bonds. The Aaa and Aa rated tax-exempt bonds comprise what are
generally known as "high grade bonds". Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations". Factors giving security to principal and
interest of A-rated tax-exempt bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax-exempt bonds rated Baa are considered as "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such tax-exempt bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well. The foregoing ratings are sometimes presented in parentheses preceded
with "Con." indicating the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by
(a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes the probable credit status upon
completion of construction or elimination of the basis of the condition.
The four highest ratings of S&P and Fitch for tax-exempt bonds are AAA,
AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating assigned
by S&P to a debt obligation and indicates an extremely strong capacity to pay
principal and interest. Tax-exempt bonds rated AA also qualify as
high-quality debt obligations. Capacity to pay principal and interest is
very strong, and in the majority of instances they differ from AAA issues
only in small degree. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions. The BBB rating,
which is the lowest "investment grade" security rating by S&P, indicates an
adequate capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in the A
category. The foregoing ratings are sometimes followed by a "p" indicating
that the rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.
Municipal Notes. The ratings of Moody's for municipal notes are MIG 1,
MIG 2, MIG 3 and MIG 4. Notes bearing the designation MIG 1 are judged to be
of the best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access to
the market for refinancing, or both. Notes bearing the designation MIG 2 are
judged to be of high quality, with margins of protection ample although not
so large as in the preceding group. Notes bearing the designation of MIG 3
are judged to be of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
Notes bearing the designation MIG 4 are judged to be of adequate quality,
carrying specific risk but having protection commonly regarded as required of
an investment security and not distinctly or predominantly speculative.
The S&P ratings for municipal notes are SP-1+, SP-1, SP-2 and SP-3.
Notes bearing an SP-1+ rating are judged to possess overwhelming safety
characteristics, with either a strong or very strong capacity to pay
principal and interest. Notes rated SP-1 are judged to have either a strong
or very strong capacity to pay principal and interest but lack the
overwhelming safety characteristics of notes rated SP-1+. Notes bearing an
SP-2 rating are judged to have a satisfactory capacity to pay principal and
interest, and notes rated SP-3 are judged to have a speculative capacity to
pay principal and interest.
Tax-Exempt Demand Bonds. The rating agencies may assign dual ratings to
all long term debt issues that have as part of their provisions a demand or
multiple redemption feature. The first rating addresses the likelihood of
repayment of principal and interest as due and the second rating addresses
only the demand feature. The long term debt rating symbols are used for
bonds to denote the long term maturity and the commercial paper rating
symbols are used to denote the put option (for example, "AAA/A-1+). For
newer "demand notes" maturing in 3 years or less, the respective note rating
symbols, combined with the commercial paper symbols, are used (for example.
"SP-1+/A-1+").
Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by
(i) leading market positions in well established industries, (ii) high rates
of return on funds employed, (iii) conservative capitalization structures
with moderate reliance on debt and ample asset protection, (iv) broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample adequate liquidity is
maintained. Issuers rated Prime-3 are judged to have an acceptable capacity
for repayment. The effect of industry characteristics and market composition
may be more pronounced. Variability of earnings and profitability may result
in changes in the level of debt-protection measurements and the requirement
for relatively high financial leverage. Adequate alternate liquidity is
maintained.
The ratings of S&P for commercial paper are A (which is further
delineated by Categories A-1+, A-1, A-2 and A-3), B, C and D. Commercial
paper rated A is judged to have the greatest capacity for timely payment.
Commercial paper rated A-1+ is judged to possess overwhelming safety
characteristics. Commercial paper rated A-1 is judged to possess an
overwhelming or very strong degree of safety. Commercial paper rated A-2 is
judged to have a strong capacity for payment although the relative degree of
safety is not as high as for paper rated A-1. Commercial paper rated A-3 is
judged to have a satisfactory capacity for timely payment but is deemed to be
somewhat more vulnerable to the adverse changes in circumstances than paper
carrying the higher ratings. Commercial paper rated B is judged to have an
adequate capacity for timely payment but such capacity may be damaged by
changing conditions or short-term adversities. Commercial paper rated C is
judged to have a doubtful capacity for payment and commercial paper rated D
is either in default or is expected to be in default upon maturity.
Temporary Investments
Each Fund has reserved the right to invest up to 20% of its net assets
in "temporary investments" in taxable securities that would produce interest
not exempt from federal income tax. See "Distributions and Tax Matters".
Such temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities;
(ii) prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in the opinion of
TMC represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of the Fund's net assets. See "Repurchase Agreements". In
addition, temporary taxable investments may exceed 20% of the Fund's net
assets when made for defensive purposes during periods of abnormal market
conditions. The Fund does not expect to find it necessary to make such
temporary investments.
Repurchase Agreements
Each Fund may enter into repurchase agreements with respect to taxable
securities constituting "temporary investments" in its portfolio. A
repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. The Fund will not enter into a
repurchase agreement if, as a result, more than 5% of the value of its net
assets would then be invested in repurchase agreements. The Fund will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to the Fund is limited to the ability of the seller to pay the agreed
upon repurchase price on the delivery date; however, although the value of
the underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
collateral declines there is a risk of loss of both principal and interest if
the seller defaults. In the event of a default, the collateral may be sold
but the Fund might incur a loss if the value of the collateral declines, and
might incur disposition costs or experience delays in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. TMC will monitor the value
of the collateral at the time the transaction is entered into and
continuously during the term of the repurchase agreement in an effort to
determine that the value always equals or exceeds the agreed upon repurchase
price. In the event the value of the collateral declined below the
repurchase price, TMC will demand additional collateral from the seller to
increase the value of the collateral to at least that of the repurchase
price.
<PAGE>
U.S. Government Obligations
The Funds' temporary investments in taxable securities may include
obligations of the U.S. government. These include bills, certificates of
indebtedness, notes and bonds issued or guaranteed as to principal or
interest by the United States or by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. government
established under the authority granted by the Congress, including, but not
limited to, the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, Farm Credit Banks and the Federal National Mortgage Association. Some
obligations of U.S. government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others only by the credit of the issuing agency, authority or other
instrumentality. In the latter case of securities not backed by the full
faith and credit of the United States, the investor must look principally to
the agency issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitments.
INVESTMENT LIMITATIONS
The Company has adopted the following fundamental investment policies
which may not be changed unless approved by a majority of the outstanding
shares of each Fund that would be affected by such change. Each Fund may
not:
(1) Invest in securities other than Municipal Obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus under the caption "Investment
Objective and Policies";
(2) Purchase any security if, as a result, more than 5% of its total
assets would be invested in securities of any one issuer, excluding
obligations of, or guaranteed by, the United States government, its agencies,
instrumentalities and authorities;
(3) Borrow money, except for temporary or emergency purposes and not
for investment purposes, and then only in an amount not exceeding 5% of the
value of the Fund's total assets at the time of borrowing;
(4) Pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by subparagraph (3) above;
(5) Issue senior securities as defined in the Investment Company Act
of 1940, except insofar as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement;
(b) purchasing any securities on a when-issued or delayed delivery basis; or
(c) borrowing money in accordance with the restrictions described above;
(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;
(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein;
(8) Purchase or sell commodities or commodity futures contracts or
oil, gas or other mineral exploration or development programs;
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations;
(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the clearance
of transactions;
(11) Write or purchase puts, calls, straddles, spreads or other
combinations thereof, except to the extent that securities subject to a
demand obligation or to a remarketing agreement may be purchased as set forth
in the Prospectus or this Statement of Additional Information under the
captions "Investment Objective and Policies -- Municipal Obligations" and --
"Municipal Leases";
(12) Invest more than 5% of its total assets in securities of
unseasoned issuers which, together with their predecessors, have been in
operation for less than three years excluding (i) obligations of, or
guaranteed by, the United States government, its agencies, instrumentalities
and authorities and (ii) obligations secured by the pledge of the faith,
credit and taxing power of any entity authorized to issue Municipal
Obligations;
(13) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;
(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by the Fund;
(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
(16) Purchase securities (other than securities of the United States
government, its agencies, instrumentalities and authorities) if, as a result,
more than 25% of the Fund's total assets would be invested in any one
industry; or
(17) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those officers and
directors of the Fund, or those officers and directors of TMC, who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities.
For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with a Fund as described in the Prospectus under
the caption "Investment Objective and Policies -- Municipal Obligations"
shall not be deemed an "issuer" of a security or a "guarantor" of a Municipal
Lease subject to such agreement.
Neither of the Funds will purchase securities if, as a result, more than
25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchases of (i) securities of
the United States government and its agencies, instrumentalities and
authorities, or (ii) tax exempt securities issued by different governments,
agencies, or political subdivisions, because these issuers are not considered
to be members of any one industry.
With respect to temporary investments, in addition to the foregoing
limitations, a Fund will not enter into a repurchase agreement if, as a
result thereof, more than 5% of its net assets would be subject to repurchase
agreements.
Although each of the Funds has the right to pledge, mortgage or
hypothecate its assets in order to comply with certain state statutes on
investment restrictions, a Fund will not, as a matter of operating policy
(which policy may be changed by the Board of Directors without shareholder
approval), pledge, mortgage or hypothecate its portfolio securities to the
extent that at any time the percentage of pledged securities will exceed 10%
of its total assets.
In the event a Fund acquires disposable assets as a result of the
exercise of a security interest relating to Municipal Obligations, the Fund
will dispose of such assets as promptly as possible.
Under the Investment Company Act of 1940 (the "Act"), a "vote of the
majority of the outstanding voting securities" of the Company or of a
particular Fund means the affirmative vote of the lessor of (1) more than 50%
of the outstanding shares of the Company or of such Fund or (2) 67% or more
of the shares of the Company or of such Fund present at a shareholders'
meeting if more than 50% of the outstanding shares of the Company or of such
Fund are represented at the meeting in person or by proxy.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise,
to the holder of the outstanding voting securities of a series investment
company such as the Company shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each Fund affected by such matter. Rule 18f-2 further provides
that a Fund shall be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are substantially identical or
that the matter does not affect any interest of that Fund. However, the Rule
exempts the selection of independent public accountants, the approval of
principal distribution contracts and the election of directors from the
separate voting requirements of the Rule.
PERFORMANCE COMPUTATION
Performance Computations - In General
The return or yield of any Fund class may, from time to time, be quoted
in reports, sales literature and advertisements published by the Funds, the
Distributor, or investment dealers offering the Funds. Any such quotation
must include a standardized calculation which computes yield for a 30-day or
one month period by dividing a Fund class's net investment income per share
during the period by the maximum offering price on the last day of the
period. The standardized calculation may include the effect of semiannual
compounding and will reflect amortization of premiums for those bonds which
have a market value in excess of par. New schedules based on market value
will be computed each month for amortizing premiums. Provided that any such
quotation also is accompanied by the standardized calculation referred to
above, any Fund also may quote as to any of its classes non-standardized
performance data for a specified period by dividing the net investment income
per share for that period by either the class's average public offering price
per share for that same period or the offering price per share on the first
or last day of the period, and multiplying the result by 365 divided by the
number of days in the specified period. For purposes of this
non-standardized calculation net investment income will include accrued
interest income plus or minus any amortized purchases discount or premium
less accrued expenses. The primary differences between the yield
calculations obtained using the standardized performance measure and any
non-standardized performance measure will be caused by the following factors:
(1) the non-standardized calculation may cover periods other than the 30-day
or one month period required by the standardized calculation; (2) the
non-standardized calculation may reflect amortization of premium based upon
historical cost rather than market value. Amortization of premium based upon
historical cost is required by the Internal Revenue Service for tax reporting
purposes; (3) the non-standardized calculation may reflect the average
offering price per share for the period of the beginning offering price per
share for the period, whereas the standardized calculation will always
reflect the maximum offering price per share on the last day of the period;
(4) the non-standardized calculation may reflect an offering price per share
other than the maximum offering price; provided that any time the Fund's
performance is quoted in reports, sales literature or advertisements using a
public offering price, the performance computed by using the Fund's maximum
public offering price also will be quoted in the same piece; (5) the
non-standardized performance quotation may include the effective return
obtained by compounding the monthly dividends.
Any performance computation also must include average annual total
return quotations for the 1, 5 and 10 year periods ended on the date of the
most recent balance sheet included in the registration statement, computed by
finding the average annual compounded rates of return over such periods which
would equate the initial amount invested at the maximum public offering price
to the ending redeemable value. To the extent that a portfolio has been in
operation less than 1, 5 and 10 years, the time period during which the
portfolio has been in operation will be substituted for any 1, 5 or 10 year
period for which a total return quotation is not obtainable.
Yield or total return quotations described in this section also may be
quoted on a "taxable equivalent yield" basis, provided that the following
information is furnished: (1) a standardized taxable equivalent yield based
on a 30-day or one month period ended on the date of the most recent balance
sheet included in the registration statement; (2) the length of and the last
day of the base period used in computing the quotation; and (3) a description
of the method by which the quotation is computed.
Any quoted yield or return should not be considered a representation of
the yield or return in the future because neither the yield nor the return
are fixed. Actual performance will depend not only on the type, quality and
maturities of the investments held by the portfolios and changes in interest
rates on those investments, but also on changes in a Fund's expenses during
the period. In addition, a change in the Fund's net asset value will affect
its yield and return.
REPRESENTATIVE PERFORMANCE FIGURES - LIMITED TERM NATIONAL FUND (CLASSES A
AND C)
THE FOLLOWING DATA FOR THE LIMITED TERM NATIONAL FUND REPRESENT PAST
PERFORMANCE, AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Standardized Method of Computing Yield. The Limited Term National
Fund's yields for the 30-day period ended on June 30, 1996, computed in
accordance with the standardized calculation described above, were 4.19% and
3.89% for Class A shares and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.
Non-Standardized Method of Computing Yield. The Limited Term National
Fund's non-standardized yields, computed in accordance with a
non-standardized method described above, were 4.62% and 4.35% for Class A
shares and Class C shares, respectively, for the 30-day period ended June 30,
1996 and 4.56% and 4.31% for Class A shares and Class C shares, respectively,
for the 7-day period ended June 30, 1996. This non-standardized method
differs from the standardized method of computing yield in that the non-
standardized yield is computed for the 7-day period rather than a 30-day or
one month period, the non-standardized yield reflects amortization of premium
based upon historical cost rather than market value, and the non-standardized
yield is computed by compounding dividends monthly rather than semiannually.
This method of computing performance does not take into account changes in
net asset value.
Taxable Equivalent Yield. The Limited Term National Fund's taxable
equivalent yield, computed in accordance with the methods described above
using a maximum federal tax rate of 39.6%, was as shown below for the
indicated periods ending on June 30, 1996.
Yield Taxable Equivalent Yield*
----- -------------------------
Standardized Method
-------------------
30 days ended 6/30/96
Class A 4.19% 6.93%
Class C 3.89% 6.44%
Non-Standardized Method
-----------------------
7 days ended 6/30/96
Class A 4.56% 7.55%
Class C 4.31% 7.13%
30 days ended 6/30/96
Class A 4.62% 7.65%
Class C 4.35% 7.20%
1 year ended 6/30/96
Class A 4.58% 7.58%
Class C 4.23% 7.00%
* A portion of income may be subject to state and local taxes. These
taxable equivalent yields do not take into account the effect, if
any, of state and local taxes.
The non-standardized method of computation differs from the standardized
method in that the non-standardized yields for the 7-day period and the one-
year period are computed on a basis of seven days or one year rather than the
standard 30-day or one month period, the non-standardized yields reflect
amortization of premium based upon historical cost rather than market value,
and the nonstandardized yields are computed by compounding dividends monthly
rather than semiannually. The standardized and non-standardized methods of
computing yield and taxable equivalent yield do not take into account changes
in net asset value.
Average Annual Total Return. The average annual total return for
Limited Term National Fund for Class A and Class C shares are set forth below
for the periods shown ending June 30, 1996. Shares denoted as Class A were
first offered on September 28, 1994, and Class C shares were first offered on
September 1, 1994. This computation assumes that an investor reinvested all
dividends, and further assumes the deduction of the maximum sales commission
of 2.50% imposed on Class A shares. Class C shares purchased on or after
October 2, 1995 are subject to a contingent deferred sales charge if redeemed
within one year of purchase.
Although the maximum Class A sales charge imposed at the commencement of
investment operations on September 28, 1984 was 4.75%, the charge was reduced
two times to 2.50% as of April 1, 1993. Consequently, the computation for
Class A shares assumes today's maximum sales charge of 2.50%. "Total
return," unlike the standardized yield and non-standardized yield figures
shown above, takes into account changes in net asset value over the periods
shown.
since
1 year 5 years 10 years inception
------ ------- -------- ---------
Class A 2.01% 5.48% 6.30% 7.09%
Class C 4.05% N/A N/A 4.54%
REPRESENTATIVE PERFORMANCE FIGURES - LIMITED TERM CALIFORNIA FUND (CLASSES A
AND C)
THE FOLLOWING DATA FOR THE LIMITED TERM CALIFORNIA FUND REPRESENT PAST
PERFORMANCE, AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Standardized Method of Computing Yield. The Limited Term California
Fund's yields for the 30-day period ended on June 30, 1996, computed in
accordance with the standardized calculation described above, were 4.25% and
3.95% for Class A shares and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.
Non-standardized Method of Computing Yield. The Limited Term California
Fund's non-standardized yields, computed in accordance with a
non-standardized method described above, were 4.63% and 4.35% for Class A
shares and Class C shares, respectively, for the 30-day period ended June 30,
1996 and 4.60% and 4.32% for Class A shares and Class C shares, respectively,
for the 7-day period ended June 30, 1996. The commencement of investment
operations for the California Portfolio was February 19, 1987. The non-
standardized method differs from the standardized method of computing yield
in that the non-standardized yield is computed for the 7-day period rather
than a 30-day or one month period, the non-standardized yield reflects
amortization of premium based upon historical cost rather than market value,
and the non-standardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.
Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield, computed in accordance with the methods described above
using a maximum federal tax rate of 39.6%, and a maximum California tax rate
of 9.3%, was as shown below for the indicated periods ending on June 30,
1996:
Yield Taxable Equivalent Yield*
Standardized Method
-------------------
30 days ended 6/30/96
Class A 4.25% 8.31%
Class C 3.95% 7.73%
Non-standardized Method
-----------------------
7 days ended 6/30/96
Class A 4.60% 9.00%
Class C 4.32% 8.45%
30 days ended 6/30/96
Class A 4.63% 9.06%
Class C 4.35% 8.51%
1 year ended 6/30/96
Class A 4.50% 8.80%
Class C 4.15% 8.12%
* These taxable equivalent yields take into account the effect of
California income taxes.
The non-standardized method of computation differs from the standardized
method in that the non-standardized yields for the 7-day period and the one-
year period are computed on a basis of seven days or one year rather than the
standard 30-day or one month period, the non-standardized yields reflect
amortization of premium based upon historical cost rather than market value,
and the non-standardized yields are computed by compounding dividends monthly
rather than semiannually. The standardized and non-standardized methods of
computing yield and taxable equivalent yield do not take into account changes
in net asset value.
Average Annual Total Return. The average annual total returns for
Limited Term California Fund for Class A and Class C shares are set forth
below for the periods shown ending June 30, 1996. Shares denoted as Class A
were first offered on February 19, 1987, and Class C shares were first
offered on September 1, 1994. This computation assumes that an investor
reinvested all dividends, and further assumes the deduction of the maximum
sales charge of 2.50% imposed upon purchases of Class A shares. Class C
shares purchased on or after October 2, 1995 are subject to a contingent
deferred sales charge if redeemed within one year of purchase. "Total
return" unlike the standardized yield and non-standardized yield figures
shown above, takes into account changes in net asset value over the periods
shown.
<PAGE>
since
1 year 5 years 10 years inception
------ ------- -------- ---------
Class A 2.34% 5.23% N/A 5.87%
Class C 4.46% N/A N/A 4.62%
DISTRIBUTIONS AND TAXES
Distributions
All of the net income of each Fund is declared daily as a dividend on
shares for which the Fund has received payment. Net income of a Fund
consists of all interest income accrued on portfolio assets less all expenses
of the Fund. Expenses of the Fund are accrued each day. Dividends are paid
monthly and are reinvested in additional shares of the Fund at the net asset
value per share at the close of business on the dividend payment date or, at
the shareholder's option, paid in cash. Net realized capital gains, if any,
will be distributed annually and reinvested in additional shares of the Fund
at the net asset value per share at the close of business on the distribution
date. See "Accounts of shareholders".
Tax Matters
The Funds qualified under Subchapter M of the Internal Revenue Code (the
"Code") for tax treatment as regulated investment companies for the fiscal
year ended June 30, 1995, and intend to continue this qualification so long
as this qualification is in the best interest of the shareholders. This tax
treatment relieves the Funds from paying federal income tax on income which
is currently distributed to their shareholders. The Funds also intend to
satisfy conditions (including requirements as to the proportion of its assets
invested in Municipal Obligations) which will enable each Fund to designate
distributions from the interest income generated by its investments in
Municipal Obligations, which are exempt from federal income tax when received
by the Fund, as Exempt Interest Dividends. Shareholders receiving Exempt
Interest Dividends will not be subject to federal income tax on the amount of
those dividends, except to the extent the alternative minimum tax may apply.
Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares is not deductible. Under rules issued by the
Department of the Treasury for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the
purchase of shares may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase of
shares. Investors with questions regarding this issue should consult with
their own tax advisers.
Shares of a Fund may not be an appropriate investment for persons who
are "substantial users" of facilities financed by industrial development
bonds (including any Municipal Lease that may be deemed to constitute an
industrial development bond) or persons related to such "substantial users".
Such persons should consult their own tax advisers before investing in
shares.
Distributions by each Fund of net interest income received from certain
temporary investments (such as certificates of deposit, commercial paper and
obligations of the United States government, its agencies, instrumentalities
and authorities), short-term capital gains realized by the Fund, if any, and
realized amounts attributable to market discount on bonds, will be taxable to
shareholders as ordinary income whether received in cash or additional
shares. Distributions to shareholders will not qualify for the dividends
received deduction for corporations.
Any net long-term capital gains realized by a Fund, whether or not
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If the Fund should have net undistributed
capital gain in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, (i) the Fund would incur a
regular corporate federal income tax upon its net interest income, other than
interest income from Municipal Obligations, for that year, and
(ii) distributions to its shareholders out of net interest income from
Municipal Obligations or other investments, or out of net capital gains,
would be taxable to shareholders as ordinary dividend income for federal
income tax purposes to the extent of the Fund's current or accumulated
earnings or profits. A Fund would fail to qualify under Subchapter M if,
among other requirements, in any year (i) 30% or more of its gross income
were derived from the sale or other disposition of securities held for less
than three months, (ii) less than 90% of the Fund's gross income were derived
from specified income sources such as dividends, interest and gains from the
disposition of stock or securities or (iii) the Fund failed to satisfy the
diversification of investments requirement of the Code and failed to timely
cure such failure. Furthermore, the Fund would be unable to make Exempt
Interest Dividends if, at the close of any quarter of its taxable year, more
than 50% of the value of the Fund's total assets consisted of assets other
than Municipal Obligations. Additionally, if in any year the Fund qualified
as a regulated investment company but failed to distribute all of its net
income, the Fund would be taxable on the undistributed portion of its net
income. Although each Fund intends to distribute all of its net income
currently, it could have undistributed net income if, for example, expenses
of the Fund were reduced or disallowed on audit.
If a Fund has both tax-exempt and taxable interest, it will use the
"actual earned method" for determining the designated percentage that is
taxable income and designate the use of such method within 45 days after the
end of the Fund's taxable year. Under this method the ratio of taxable
income earned during the period for which a distribution was made to total
income earned during the period determines the percentage of the distribution
designated taxable. The percentages of income, if any, designated as taxable
will under this method vary from distribution to distribution.
The Tax Reform Act of 1986 imposes a nondeductible excise tax on
regulated investment companies if they fail to satisfy certain minimum
distribution requirements. This excise tax should not have a material
adverse effect on the Funds' operation, because each Fund intends to
distribute all of its net income currently.
Although the Company currently intends to have two investment Funds
outstanding, each authorized to issue multiple classes of shares, the Fund's
Board of Directors is authorized to divide the Company's authorized shares
into additional Funds and classes. Each additional series of Fund stock
would relate to a separate investment Fund that would be different from the
other funds. Each Fund may be divided into multiple classes, each of which
would represent an interest in the same investment portfolio of that Fund,
and subject to the same investment objectives, policies and limitations in
common with the other classes of that Fund, but may differ from other classes
of the Fund with respect to sales charges, distribution fees, the possible
allocation of some expenses, and some voting rights. Separate Funds will be
treated under the Code as separate corporations except with respect to the
definitional requirements under Section 851(a) of the Code.
As is the case with other types of income, including other tax-exempt
interest income, Exempt Interest Dividends received by a shareholder will be
included in his or her "modified adjusted gross income" for the year if he or
she received Social Security benefits during the year. Under current law, if
a person's modified adjusted gross income exceeds $44,000 for the year
($34,000 for a single individual or head of household, zero for a married
individual not filing a joint income tax return and not living apart from his
or her spouse at all times during the year), a portion of that person's
Social Security benefits may be subject to federal income taxation.
For taxable years beginning after December 31, 1986, the Code treats
interest on certain Municipal Obligations which are private activity bonds
under the code issued after August 7, 1986 (in certain cases, after September
1, 1986) as a preference item for purposes of the alternative minimum tax on
individuals and corporations. Each Fund may purchase private activity bonds
which are subject to treatment under the Code as a preference item for
purposes of the alternative minimum tax on individuals and corporations,
although the frequency and amounts of those purchases are uncertain. Some
portion of Exempt Interest Dividends may, as a result of such purchases, be
treated as a preference item for purposes of the alternative minimum tax on
individuals and corporations. Shareholders are advised to consult their own
tax advisers as to the extent and effect of such treatment.
In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted current
earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such Dividends are not otherwise treated as a preference item for the reasons
discussed above. An environmental tax is imposed on the excess of a
corporation's modified alternative minimum taxable income (minimum taxable
base, discussed above, with certain modifications) over $2 million. Modified
alternative minimum taxable income includes Exempt Interest Dividends. The
environmental tax applies with respect to taxable years beginning after
December 31, 1986 and before January 1, 1996. Exempt Interest Dividends are
included in effectively connected earnings and profits for purposes of
computing the branch profits tax on certain foreign corporations doing
business in the United States.
With respect to property and casualty companies, the amount of certain
cost deductions otherwise allowed is reduced (in certain cases below zero) by
a specified percentage of, among other things, Exempt Interest Dividends
received on shares acquired after August 7, 1986, for taxable years beginning
after 1986. Commercial banks, thrift institutions and other financial
institutions may not deduct their cost of carrying shares acquired after
August 7, 1986, for taxable years ending after December 31, 1986.
Redemption or resale of shares will be a taxable transaction for federal
income tax purposes and the shareholder will recognize gain or loss in an
amount equal to the difference between the shareholder's basis in the shares
and the amount realized by the shareholder on the redemption or resale.
Assuming that the shareholder holds the shares as a capital asset, the gain
or loss will be a capital gain or loss and will be long term if the shares
were held for more than 6 months.
The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Funds and their shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations. The Code and Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Shareholders are advised to consult their
own tax advisers for more detailed information concerning the Federal
taxation of the Fund and the income tax consequences to its shareholders.
State and Local Tax Aspects
The exemption from federal income tax for distributions of interest
income from Municipal Obligations which are designated Exempt Interest
Dividends will not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority.
The exemption from the State of California personal income taxes for
distributions of interest income in the California Portfolio applies only to
shareholders who are residents of the State of California, and only to the
extent such income qualifies as "exempt-interest dividends" under Section
17145 of the California Revenue and Taxation Code and is not derived from
interest on obligations from any state other than from California or its
political subdivisions.
The laws of the several states and local taxing authorities vary with
respect to the taxation of such distributions, and shareholders of the Fund
are advised to consult their own tax advisers in that regard. Each Fund will
advise shareholders within 60 days of the end of each calendar year as to the
percentage of income derived from each state in which the Fund has any
Municipal Obligations in order to facilitate shareholders in the preparation
of their state and local tax returns.
Special Risks Affecting the California Portfolio
Due to the Limited Term California Fund's policy of concentrating its
investments in municipal securities exempt from California personal income
taxes, this Fund will invest primarily in California state, municipal, and
agency obligations. For this reason, an investment in the Limited Term
California Fund may be considered riskier than an investment in the Limited
Term National Fund, which buys Municipal Obligations from throughout the
United States. Prospective investors should consider the risks inherent in
the investment concentration of the Limited Term California Fund before
investing.
California's economy is the largest among the 50 states and one of the
largest in the world. The state's July 1, 1995 population of approximately
32.1 million represents 12.2 percent of the total United States population
and total personal income in the state, at an estimated $748 billion in 1995,
accounts for 12.6 percent of all personal income in the nation. Total
employment is about 14.2 million, the majority of which is in the service,
trade and manufacturing sectors.
Changes in California constitutional and other laws raise questions
about the ability of California state and municipal issuers to obtain
sufficient revenue to pay their bond obligations in all situations. In 1978,
California voters approved an amendment to the California Constitution known
as Proposition 13, which has had an affect on California issuers that rely in
whole or in part, directly or indirectly, on ad valorem real property taxes
as a source of revenue. Proposition 13 limits ad valorem taxes on real
property and restricts the ability of taxing entities to increase real
property taxes. In 1979, California voters approved another constitutional
amendment, Article XIIIB, which may have an adverse impact on California
state and municipal issuers. Article XIIIB prohibits government agencies and
the state from spending "appropriations subject to limitation" in excess of
the appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes", which consist of tax revenues,
certain state subventions and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service". No limit is imposed on appropriations of
funds which are not "proceeds of taxes", such as debt service on indebtedness
existing or authorized before January 1, 1979, or subsequently authorized by
the voters, appropriations required to comply with mandates of the courts or
the federal government, reasonable user charges or fees and certain other
non-tax funds. The amendment restricts the spending authority of state and
local government entities. If revenues exceed such appropriations limits,
such revenues must be returned either as revisions in the tax rate or fee
schedules.
California obtains roughly 44% of general fund revenues from personal
income taxes (individual and corporate) compared to an average of only 30%
for other states. Income taxes serve as a bellwether which is frequently a
leading indicator of economic weakness. Much of California's recent deficit
was caused by lower than projected income tax receipts. California's other
principal revenue source is sales taxes.
A recession began in mid-1990 due largely to job losses in the aerospace
and defense-related industries. The 1993 unemployment rate of 9.4% was 135%
of the national rate. The recession affected California's General Fund
revenues, and increased expenditures above initial budget appropriations due
to greater health and welfare costs. The state's budget problems in recent
years have also been caused by a structural imbalance in that the largest
General Fund Programs -- K-14 education, health, welfare and corrections --
were increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the school
age population continues to grow, and as the state's corrections program
responds to a "Three-Strikes" law enacted in 1994, which requires mandatory
life prison terms for certain third-time felony offenders.
As a result of these factors and others, from the late 1980's until
1992-'93, the state had a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the state
accumulated and sustained a budget deficit approaching $2.8 billion at its
peak at June 30, 1993. Starting in the 1990-'91 fiscal year and for each
fiscal year thereafter, each budget required multibillion dollar actions to
bring projected revenues and expenditures into balance. The Legislature and
Governor agreed on the following principal steps to produce Budget Acts in
the years 1991-'92 to 1994-'95, including:
- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and funding from the state to
local governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;
- transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools under
Proposition 98;
- reduction in growth of support for higher education programs, coupled
with increases in student fees;
- maintenance of the minimum Proposition 98 funding guarantee for K-14
schools, and the disbursement of additional funds to keep a constant level of
about $4,200 per K-12 pupil;
- revenue increases (particularly in the 1991-'92 fiscal year budget),
most of which were for a short duration;
- increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services
to illegal immigrants, although during this time frame most of the additional
aid requested by the administration was not received; and
- various one-time adjustments and accounting changes.
Despite these budget actions as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve as compared to projected
positive balances. By the 1993-'94 fiscal year, the accumulated deficit was
so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year.
When the economy failed to recover sufficiently in 1993-'94, a second two-
year plan was implemented in 1994-'95, again using cross-fiscal year revenue
anticipation warrants to partly finance the deficit into the 1995-'96 fiscal
year.
With strengthening revenues and reduced caseload growth based on an
improving economy, the state entered the 1995-'96 fiscal year budget
negotiations with the smallest nominal "budget gap" to be closed in many
years. Nonetheless, serious policy differences between the Governor and
Legislature prevented timely enactment of the budget. The 1995-'96 Budget
Act was signed by the Governor on August 3, 1995, 34 days after the start of
the fiscal year. The Budget Act projected General Fund revenues and
transfers of $44.1 billion, a 3.5 percent increase from the prior year.
Expenditures were budgeted at $43.4 billion, a 4% increase. The Department
of Finance projected that, after repaying the last f the carryover budget
deficit, there would be a positive balance of $28 million in the budget
reserve, the Special Fund for Economic Uncertainties, at June 30, 1996. The
Budget Act also projected Special Fund revenues of $12.7 billion and
appropriated Special Fund expenditures of $13.0 billion.
The Department of Finance's May revision to the 1996-'97 Governor's
budget, released on May 21, 1996 (the "May Revision"), updated the
projections for the 1995-'96 fiscal year, so that revenues and transfers were
estimated to be $46.1 billion, some $2 billion over the original fiscal year
estimate, which was attributed to the strong economic recovery. Expenditures
also increased, to an estimated $45.4 billion, as a result of the requirement
to expend revenues for schools under Proposition 98, and, among other things,
failure of the federal government to enact welfare reform and to budget new
aid for illegal immigrant costs, both of which the administration had counted
on to allow reductions in state costs. The Special Fund for Economic
Uncertainties was projected to have a small negative balance of about $70
million at June 30, 1996, all but eliminating the accumulated budget deficit
form the early resources (available cash, after payment of all obligations
due) would be about $4 billion, representing a significant improvement in the
state's cash position, and ending the need for deficit borrowing over the end
of the fiscal year. The state's improved cash position allowed it to repay
the $4.0 billion Revenue Anticipation Warrant issue on April 25, 1996, and to
issue only $2.0 billion of revenue anticipation notes during the fiscal year,
which matured on June 28, 1996.
Accounts of Shareholders
When an investor makes an initial investment in shares of a Fund, the
Transfer Agent will open an account on the books of the Fund, and investor
will receive a confirmation of the opening of the account. Thereafter,
whenever a transaction, other than the reinvestment of interest income, takes
place in the account - such as a purchase of additional shares or redemption
of shares or a withdrawal of shares represented by certificates - the
investor will receive a confirmation statement giving complete details of the
transaction. Shareholders will also receive at least quarterly statements
setting forth all distributions of interest income and other transactions in
the account during the period and the balance of full and fractional shares.
The final statement for the year will provide the information for income tax
purposes described in the Prospectus under the caption "Distributions and
Taxes".
The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of a Fund's shareholders in full and fractional shares of the
Fund at net asset value on the payment or distribution date, as the case may
be. Upon written notice to the Transfer Agent, a shareholder may elect to
receive monthly distributions of net interest income in cash. This election
will remain in effect until changed by written notice to the Transfer Agent,
which change may be made at any time in the sole discretion of the
shareholder.
The issuance and delivery of certificates for shares is unnecessary, and
shareholders are thereby relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account. Shares so held will be redeemed as described
in the Prospectus under the caption "How to Redeem Fund Shares".
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
Investment Management Services
Pursuant to the Investment Advisory Agreement, Thornburg Management
Company, Inc., 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501
("TMC"), will act as the investment adviser for, and will manage the
investment and reinvestment of the assets of, the Funds in accordance with
the Funds' investment objectives and policies, subject to the general
supervision and control of the Company's Board of Directors.
TMC is (i) investment adviser for Thornburg Investment Trust (a
registered investment company having 12 separate funds, ten of which have
investment objectives and policies for tax-exempt income similar to those of
the Fund) with assets aggregating approximately $___,___,___ on June 30,
1996, and (ii) sub-adviser for Daily Tax Free Income Fund, Inc. (a registered
investment company with investment objectives and policies for tax-exempt
income similar to those of the Fund), with assets aggregating approximately
$___,___,___ on June 30, 1996.
TMC will provide continuous professional investment supervision in
accordance with the Investment Advisory Agreement. In addition to managing
the Funds' investments, TMC will administer the Funds' business affairs,
provide office facilities and related services. Pursuant to the Investment
Advisory Agreement, the Fund will pay to TMC a monthly management fee
described in the Prospectus in consideration of the services and facilities
furnished by TMC. All fees and expenses are accrued daily and deducted
before payment of dividends to investors.
In addition to the fee of TMC under the Investment Advisory Agreement,
the Funds will pay all other costs and expenses of their operations. The
Funds will not bear any sales or promotion expenses incurred in connection
with the offering of their shares, except for payments made under the
distribution and service plans described below, which might be considered
sales or promotional expenses, but expenses of registering and qualifying the
Funds and the shares for distribution under federal and state securities laws
(including legal fees) will not be deemed to be sales or promotion expenses.
The management fee will be reduced, or TMC will assume certain Fund expenses,
in an amount necessary to prevent a Fund's total expenses (including TMC's
fee, but excluding interest, taxes, brokerage and, to the extent permitted by
applicable state securities laws, extraordinary expenses) in any fiscal year
from exceeding the limits prescribed by any state in which the Fund's shares
are qualified for sale. The Company believes that currently the most
restrictive expense ratio limitation imposed by any state is 2.5% of average
net assets up to and including $30,000,000, 2% of the next $70,000,000 of
average net assets, and 1.5% of the remaining average net assets of a Fund
for any fiscal year.
For the three most recent fiscal periods ended June 30, 1994, 1995 and
1996 with respect to each Fund, the amounts paid to TMC by each Fund were as
follows:
1994 1995 1996
---- ---- ----
Limited Term National $7,033,240 $6,805,432 $6,584,836
Limited Term California $768,812 $740,936 $748,077
TMC waived its rights to fees in the same periods, as follows:
1994 1995 1996
---- ---- ----
Limited Term National - $16,669 $29,691
Limited Term California $33,907 $45,876 $75,198
The foregoing fees do not reflect the fee reduction effected by the
restatement of the Investment Advisory Agreement, described below. TMC may
(but is not obligated to) waive its rights to any portion of its fee in the
future, and may use any portion of its fee for purposes of shareholder and
administrative services and distribution of Fund shares. The expense ratio
of each Fund will fluctuate in the future as Fund expenses increase or
decrease. During the fiscal year ended June 30, 1996, the Funds reimbursed
TMC in the amounts of $99,648 (National) and $10,961 (California) for certain
accounting expenses incurred by TMC on behalf of the Funds.
The Investment Advisory Agreement was originally approved on July 10,
1984, by the Company's Board of Directors, including a majority of the
directors who are not "interested persons" (as defined in the Act) of the
Fund or TMC. The Investment Advisory Agreement was approved by the
shareholders at their first annual meeting on October 16, 1985 and ratified
by the shareholders of the Limited Term California Fund on December 29, 1993.
The initial term of the Agreement extended until September 28, 1986, and
thereafter for successive 12-month periods, provided that such continuation
is specifically approved at least annually by the Board of Directors or by a
vote of a majority of the outstanding voting securities, and, in either case,
by a majority of the directors who are not "interested directors" within the
meaning of the Investment Company Act of 1940. The directors restated the
Investment Advisory Agreement to reduce the management fees provided for
thereunder, and to provide that TMC would no longer furnish certain
administrative services associated with shareholder maintenance under the
Investment Advisory Agreement. Instead, TMC will furnish those
administrative services under the terms of an Administrative Services
Agreement specific to each class of each of the Funds. See "Administrative
Services Agreement," below. The restatement of the Investment Advisory
Agreement was approved by the shareholders on April 16, 1996, and became
effective on July 1, 1996. The directors also determined on June 10, 1996 to
extend the term of the Agreement, as restated, for another 12 months. The
Agreement may be terminated by either party, at any time, without penalty,
upon 60 days' written notice, and will automatically terminate in the event
of its assignment. Termination will not affect the right of TMC to receive
payments on any unpaid balance of the compensation earned prior to
termination. The Investment Advisory Agreement provides that in the absence
of willful misfeasance, bad faith or gross negligence on the part of TMC, or
of reckless disregard of its obligations and duties thereunder, TMC shall not
be liable for any action or failure to act in accordance with its duties
thereunder.
Administrative Services Agreement
Effective July 1, 1996, TMC furnishes to each class of shares certain
administrative services necessary for the maintenance of the shareholders of
that class. These services are performed under the terms of an
Administrative Services Agreement, and TMC is paid a fee for the services
under the Agreement applicable to Class A and Class C shares of the Funds
which is described in the Prospectus applicable to Class A and Class C shares
of the Funds. These services were previously performed under the terms of
the Investment Advisory Agreement until its restatement, as described above.
The Administrative Services Agreement provides for successive 12-month
terms, provided that continuation is approved by the Board of Directors in
the same manner pertaining to the Investment Advisory Agreement. The
Agreement may be terminated by either party, at any time, without penalty on
60 days' written notice. The Agreement provides that in the absence of
willful misfeasance, bad faith or gross negligence of TMC, or of reckless
disregard of its obligations thereunder, TMC shall not be liable for any
action or failure to act in accordance with its duties thereunder.
H. Garrett Thornburg, Jr., Chairman, Treasurer and a Director of the
Company, is also Director and controlling stockholder of TMC.
SERVICE AND DISTRIBUTION PLANS
Service Plan - All Classes
The Funds have adopted a Plan and Agreement of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Service Plan")
which is applicable to Class A and Class C shares of each Fund. The Plan
permits payments to be made by each Fund in respect of its Class A and Class
C shares to TMC up to an amount on an annual basis not to exceed .25 of 1% of
the average daily net assets of Class A and Class C shares of the applicable
Fund, to reimburse TMC for particular expenditures incurred by it to obtain
certain services from securities dealers and other financial institutions and
organizations, including banks. No assets of any class or Fund will be used
to reimburse expenses attributable to any other class or Fund. Such services
likely will include answering shareholder questions and furnishing of
information to shareholders, preparing and transmitting to the transfer agent
computer processable tapes of customer transactions, obtaining proxies,
effecting redemptions, and other activities in connection with servicing
shareholder accounts. In addition, TMC may make payments under the Service
Plan, including incentive compensation, in connection with the distribution
of shares. Payments may be made by TMC to banks, savings and loan
associations and other depository institutions to the extent permissible
under applicable provisions of federal banking laws. TMC currently makes
payments described in the first sentence of this paragraph to the brokerage
firm of record with respect to each shareholder account in the following
manner: TMC intends to pay at an annual rate of (1) .10% based upon the
average daily net asset value of the account for all accounts opened less
than one year, and (2) .25% based upon the average daily net asset value of
the account, for all accounts opened more than one year.
The reimbursement to TMC under the Service Plan will be reduced by the
amount, if any, that the reimbursement would cause the total expenses of the
applicable Fund to exceed any expense limitation applicable to it as provided
in the Investment Advisory Agreement. The Service Plan permits accrued but
unpaid reimbursements to be carried over and reimbursed to TMC in later
years. That is, payments by a Fund in later years may be used to reimburse
TMC for expenses incurred in a prior year but not paid because the amount of
those expenses exceeded the Service Plan's annual percentage limitation. TMC
will not charge interest or carrying charges on any carry over amounts, and
a Fund is not obligated to pay TMC any carry over amounts if the Service Plan
is terminated or not renewed. All carryovers will be treated for accounting
purposes as current period expenses against income. Current distribution
expenses will be paid first, then carryovers would be paid. TMC has waived
repayment of any carryovers accumulated to June 30, 1996, but is under no
obligation to waive any carryovers in the future. The Funds' management
believes that it is unlikely that the Funds will be called upon to pay any
such carryovers of expenses described in the Service Plan; furthermore,
proposed Securities and Exchange Commission regulations may reduce or
prohibit such carryovers in the future.
For the fiscal year ended June 30, 1996, the Fund paid the following
amounts to TMC under the Service Plans:
Class A Class C
------- -------
Limited Term National $2,239,086 $45,177
Limited Term California $ 237,945 $ 5,387
All amounts paid to TMC under the Service Plans were paid by TMC to brokerage
firm or other securities dealer of record for providing shareholder services
as described above.
Class C Distribution Plan
Each Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, applicable only to the
Class C shares of that Fund ("Class C Distribution Plan"). The Class C
Distribution Plan provides for the Fund's payment to TSC on a monthly basis
of an annual distribution fee of .75% of the average daily net assets
attributable to the Fund's Class C shares.
The purpose of the Class C Distribution Plan is to compensate TSC for
its services in promoting the sale of Class C shares of the Fund. TSC
expects to pay compensation to dealers and others selling Class C shares from
amounts it receives under the Class C Distribution Plan. TSC also may incur
additional distribution-related expenses in connection with its promotion of
Class C shares sales, including payment of additional incentives to dealers,
advertising and other promotional activities and the hiring of other persons
to promote the sale of shares.
For the fiscal year ended June 30, 1996, the Funds paid the following
amounts to TSC under the Class C Distribution Plan:
Limited Term National (Class C only) $19,548
Limited Term California (Class C only) $ 2,920
General Matters Relating to Service and Distribution Plans
In reviewing the foregoing service and distribution plans, the Company's
Board of Directors received and considered all pertinent information and
determined that there was a reasonable likelihood that adoption of the Plans
would benefit each class and its shareholders. Specifically, the Directors
reviewed among other things (i) the nature and current extent of services to
be provided by TMC and TSC, (ii) the quality of past services provided by
TSC, (iii) the expenses of each Fund and class as compared with those of
similar mutual funds, (iv) the aggregate value of economic benefits received
by TMC and TSC from the Funds, (v) the possible disadvantages to shareholders
of the Funds of insufficient future increases in total shares of the Funds,
(vi) the expenses incurred in distributing shares of the Funds and dealer
feedback, (vii) the financial condition of TMC, and (viii) the merits of
possible alternative plans to reduce net redemptions and increase sales of
Fund shares.
Each Plan provides that if will continue in effect from year to year if
the continuance is specifically approved at least annually (i) either by a
vote of the "majority of the outstanding voting securities" (as that term is
defined in the 1940 Act) or the class or classes affected by the Plan or by
the Company's Board of Directors of the Fund and (ii) by a vote of the
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) and have no direct or indirect financial interest in the operation
of the Plan, cast in person at a meeting called for the purpose of voting on
the Plan.
Approval by the shareholders of a class will be required before the
reimbursement percentage paid under a Plan to TMC or TSC, as the case may be,
for any class may be materially increased. A Plan may not be amended unless
the amendment is approved by a majority of the Board of Directors and a
majority of the Directors who are not "interested persons" of the Fund or by
a majority of the shares of the relevant class or classes of the Fund. A
Plan may be terminated as to any class at any time without the payment of any
penalty by vote of a majority of the Directors who are not "interested
persons" of the Company or a majority vote of the shares of the affected
class or classes.
So long as a Plan is in effect, the Board of Directors will receive and
review, at least quarterly, a written report of the amounts expended pursuant
to each such Plan and the purposes for which such expenditures were made; the
selection and nomination of the Directors who are not "interested persons" of
the Company shall be committed to the discretion of the Directors who are not
"interested persons" of the Company; the Directors will at least annually
request and evaluate and TMC will furnish information reasonably necessary to
an informed determination of whether the Plan should be continued; and the
Plan's continuance will be approved as to any class only if the Directors
conclude, in the exercise of reasonable judgment and light of their duties,
that there is a reasonable likelihood that the Plan will benefit the class
and the shareholders of the class.
PORTFOLIO TRANSACTIONS
TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Participations in Municipal Leases will normally be purchased
from banks or other parties such as equipment vendors, insurance companies
and broker-dealers on a principal basis. Other portfolio securities will
normally be purchased directly from an underwriter or in the over-the-counter
market from the principal dealers in such securities, unless it appears that
a better price or execution may be obtained elsewhere. Purchases from
underwriters will include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers will include the spread between
the bid and asked price. Given the best price and execution obtainable, it
will be the practice of the Company to select dealers which, in addition,
furnish research information (primarily credit analyses of issuers) and
statistical and other services to TMC. It is not possible to place a dollar
value on information and statistical and other services received from
dealers. Since it is only supplementary to TMC's own research efforts, the
receipt of research information is not expected significantly to reduce TMC's
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, TMC may also give consideration to those
firms which have sold or are selling shares of the Funds. While TMC will be
primarily responsible for the placement of the Funds' business, the policies
and practices of TMC in this regard must be consistent with the foregoing and
will at all times be subject to review by the Board of Directors of the
Company. For the Funds' fiscal year ended June 30, 1996, the Funds did not
pay any brokerage commissions to TSC.
TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Funds. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Funds
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Funds and one or
more of such other clients simultaneously. In making such allocations the
main factors to be considered will be the respective investment objectives of
the Funds and such other clients, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment by
the Funds and such other clients, the size of investment commitments
generally held by the Funds and such other clients and opinions of the
persons responsible for recommending investments to the Funds and such other
clients. While this procedure could have a detrimental effect on the price
or amount of the securities available to the Funds from time to time, it is
the opinion of the Company's Board of Directors that the benefits available
from TMC's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions. The Company's Board of Directors will
review simultaneous transactions.
The Funds' portfolio turnover rates for the two fiscal years ending June
30, 1996 are as follows:
1995 1996
---- ----
Limited Term National Fund 23.02% 20.60%
Limited Term California Fund 18.54% 22.68%
MANAGEMENT
The management of the Company and its Funds, including general
supervision of the duties performed by TMC under the Investment Advisory
Agreement, is the responsibility of the Board of Directors. There are six
Directors of the Company, three of whom are "interested persons" (as the term
"interested" is defined in the Investment Company Act of 1940) and three of
whom are "disinterested" persons. The names of the Directors and officers
and their principal occupations and other affiliations during the past five
years are set forth below, with those Directors who are "interested persons"
of the Company indicated by an asterisk:
Name of Director / Position / Principal Occupation During Past 5 Years
- ----------------------------------------------------------------------
H. Garrett Thornburg, Jr.,* 50 / Director, Chairman and Treasurer /
President and Trustee of Thornburg Income Trust (mutual fund) since June,
1987; Chairman and Director Thornburg Mortgage Advisory Corporation since its
formation in 1989; Chairman and Director of Thornburg Mortgage Asset
Corporation (real estate investment trust) since its formation in 1993;
Executive Vice President of Daily Tax Free Income Fund, Inc. (mutual fund)
since its formation in 1982 and a Director from 1982 to June 1993; President
of TMC since its formation in 1982.
J. Burchenal Ault, 69 /Director / Consultant to and fundraiser for charities,
1990 to present; Trustee of Thornburg Investment Trust (Mutual Fund) since
June 1987; Director of Farrar, Strauss & Giroux (publishers) since 1968.
Eliot R. Cutler ,* 49 / Director / Partner, Cutler & Stanfield, Attorneys,
Washington, D.C. since 1988.
James E. Monaghan, Jr., 48 / Director / President, Monaghan & Associates,
Inc. and Strategies West, Inc. Denver, Colorado, (business consultants) since
1983.
A.G. Newmyer III, 47 / Director / President, from 1983 to December 1992, and
Senior Officer from January 1993, Newmyer Associates, Inc., Washington, D.C.,
(business consultants).
Richard M. Curry ,* 56 / Director / Senior Vice President McDonald & Co.,
Cleveland, Ohio (securities dealers) since May 1984.
Brian J. McMahon, 40 / President / President of the Company since January,
1987; Vice President of the Company from 1984 to 1987; Vice President of
Thornburg Investment Trust (mutual fund) since June 1987; Managing Director
of TMC since December 1985 and a Vice President since April 1984.
Steven J. Bohlin, 37 / Vice President / Assistant Vice President of the
Company from July, 1985 to October 1989; Vice President of Thornburg
Investment Trust (mutual fund) since June 1987 and Treasurer since 1989;
Associate of TMC since May 1984, and Managing Director and Vice President
since April 1991.
Dawn B. Shapland, 49 / Secretary / Secretary of the Company since its
formation; Secretary and Assistant Treasurer of Thornburg Investment Trust
(mutual fund) since June 1987; Managing Director of TMC since December 1985
and Vice President and Secretary of TMC since January 1984.
John Ariola, 27 / Assistant Vice President / Assistant Vice President of the
Company since July 1992; Assistant Vice President of Thornburg Investment
Trust (mutual fund) since June 1991; Accountant for the Company and
Thornburg Investment Trust since June 1992; Associate of TMC since 1991;
Staff Auditor, Inventory Auditors, Albuquerque, New Mexico from June 1987 to
June 1991; student, University of New Mexico, 1986 to 1990.
Susan Rossi, 35 / Assistant Vice President / Assistant Vice President of the
Company since July 1992; Assistant Vice President of Thornburg Investment
Trust (mutual fund) since June 1992; Associate of TMC since June 1990.
George Strickland, 33 / Assistant Vice President / Assistant Vice President
of the Company since July 1992; Assistant Vice President of Thornburg
Investment Trust (mutual fund) since June 1992; Associate of TMC since July
1991; Investor Representative, Calvert Group, Washington, D.C., 1989 to
1991.
Jonathan Ullrich, 27 / Assistant Vice President / Assistant Vice President of
the Company since July 1992; Assistant Vice President of Thornburg Investment
Trust (mutual fund) since 1992; Associate of TMC since September 1991;
student, Brown University, 1987 to 1991.
Christine E. Thompson, 30 / Assistant Vice President / Assistant Vice
President of the Company and of Thornburg Investment Trust (mutual fund)
since June 1993; Associate of TMC since June 1992; Office Manager, Town and
Country Janitorial Services, Inc., Greenland, New Hampshire, September 1991
to February 1992; Salesperson and later Department Manager, The Harvard
Cooperative society, Cambridge, Massachusetts, May, 1990 to September, 1991.
The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director and the
President of TSC, and Executive Vice President of Daily Tax-Free Income Fund,
Inc.
The officers and Directors affiliated with TMC will serve without any
compensation from the Company. The Company pays each Director who is not an
employee of TMC or an affiliated company a quarterly fee of $1,000 plus a
$500 fee for each meeting of the Board of Directors attended by the Director.
In addition, the Company pays a $1,000 annual stipend to each member of the
audit committee, and reimburses all Directors for travel and out-of-pocket
expenses incurred in connection with attending such meetings.
PRINCIPAL HOLDERS OF SECURITIES
As of July 31, 1996, Limited Term National Fund had 69,574,750 shares
outstanding, and Limited Term California Fund had 7,724,290 shares
outstanding.
No persons are known to have held of record or beneficially 5% or more
of any Fund's outstanding shares on July 31, 1996.
At July 31, 1996, the officers, Directors and related persons of the
Fund, as a group, owned less than one percent of the outstanding shares of
either Fund.
HOW TO PURCHASE FUND SHARES
Procedures with respect to the manner in which Fund shares may be
purchased and how the offering price is determined are set forth in the
Prospectus under the caption "How to Purchase Fund Shares".
The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of a Fund at variations to the Public
Scale. The Company may change or eliminate these variations at any time.
(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.
(2) Shareholders of a Fund who have redeemed all or any portion of
their investment in Class A shares of a Fund may purchase Class A shares with
no sales charge up to the maximum dollar amount of their shares redeemed
within 24 months of the redemption date, provided that the shareholder's
dealer or the shareholder must notify TSC or the Transfer Agent at the time
an order is placed that such a purchase would qualify for this variation to
the Public Scale. Similar notifications must be made in writing by the
dealer, the broker, or the shareholder when the order is placed by mail. The
sales charge will not be eliminated if notification is not furnished at the
time of the order or a review of TSC's or the Transfer Agent's records fails
to confirm the investor's represented previous holdings.
(3) Persons may purchase Class A shares of a Fund at no sales charge
if they redeem Class A shares of the Fund or any other series of Thornburg
Limited Term Municipal Fund, Inc., or of any series of Thornburg Investment
Trust, and reinvest some or all of the proceeds within 24 months. The
shareholder's dealer or the shareholder must notify TSC or the Transfer Agent
at the time an order is placed that the purchase qualifies for this variation
to the Public Scale.
The special classes of shareholders in subsections (2) and (3) above
were created as a convenience for those shareholders who invest in a Fund and
subsequently make a decision to redeem all or part of their investment for a
temporary period. In some cases, the existence of this special class of
shareholders will act as further inducement for certain individuals to make
an initial investment in a Fund, particularly if those investors feel that
they might have a temporary need to redeem all or part of their investment in
the coming years. Shareholders who have previously invested in a Fund are
more familiar than the general public with the Fund, its investment
objectives, and its results. The costs to TSC of its marketing to these
individuals and maintaining the records of their prior investment are minimal
compared to the costs of marketing the Fund to the public at large.
(4) Officers, trustees, directors and employees of the Company, TMC,
TSC and the Custodian and Transfer Agent, while in such capacities, and
members of their families, including trusts for the benefit of the foregoing,
may purchase shares of a Fund with no sales charge, provided that they notify
TSC or the Transfer Agent at the time an order is placed that a purchase will
qualify for this variation from the Public Scale. The sales charge will not
be eliminated if the notification is not furnished at the time of the order
or a review of Fund records fails to confirm that the investor's
representation is correct. The reduced sales charge to these persons is
based upon the Company's view that their familiarity with and loyalty to the
Funds will require less selling effort by the Fund, such as a solicitation
and detailed explanation of the conceptual structure of the Funds, and less
sales-related expenses, such as advertising expenses, computer time, paper
work, secretarial needs, postage and telephone costs, than are required for
the sale of shares to the general public. Inclusion of the families of these
persons is based upon the Company's view that the same economies exist for
sales of shares to family members.
(5) Employees of brokerage firms who are members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), employees of
financial planning firms who place orders for a Fund placed directly with the
Transfer Agent or TSC and through a broker/dealer who is a member in good
standing with the NASD, and employees of eligible non-NASD members which
accept orders for shares of the Fund on an agency basis and clear those
orders through a broker/dealer who is a member in good standing with NASD,
and their families, including trusts for the benefit of the foregoing, may
purchase shares of the Funds for themselves with no sales charge, provided
that (i) the order must be through a NASD member firm which has entered into
a Selected Dealer Agreement with TSC to distribute shares of the Fund, and
(ii) the shareholder's broker/dealer or the shareholder must notify TSC or
the Transfer Agent at the time an order is placed that the purchase would
qualify for this variation to the Public Scale. Similar notification must be
made in writing by the dealer, the broker, or the shareholder when such an
order is placed by mail. The reduced sales charge will not apply if the
notification is not furnished at the time of the order or a review of TSC's,
the dealer's the broker's or the Transfer Agent's records fails to confirm
that the investor's representation is correct.
Because they sell the Funds' shares, these individuals tend to be much
more aware of the Funds than the general public. Any additional costs to TSC
of marketing to these individuals are minimal.
(6) Bank trust departments, companies with trust powers and investment
advisers who receive compensation on a fee basis may purchase shares of a
Fund for their customers at no sales charge, provided that these persons
notify TSC or the Transfer Agent, at the time an order qualifying for this
reduced charge is placed, that such a purchase would qualify for this
variation to the Public Scale.
(7) Purchases of Class A shares of any Fund may be made at net asset
value provided that such purchases are placed through a broker that maintains
one or more omnibus accounts with the Funds and such purchases are made by
(i) investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; (ii) clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a)
through 403(b) or 457 of the Internal Revenue Code and "rabbi trusts."
Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.
These organizations may charge fees to clients for whose accounts they
purchase shares of a Fund in a fiduciary capacity. Where the reduced sales
charge applies, notification is required at the time the order is received,
and a review of TSC's or Transfer Agent's records must confirm that the
investor's representation is correct.
(8) No sales charge will be payable at the time of purchase on
investments of $1 million or more made by a purchaser. A contingent deferred
sales charge (CDSC) will be imposed on these investments in the event of a
share redemption within 1 year following the share purchase at the rate of
1/2 of 1% of the value of the shares redeemed. In determining whether a CDSC
is payable and the amount of any fee, it is assumed that shares not subject
to the charge are the first redeemed, followed by other shares held for the
longest period of time. The applicability of these charges will be
unaffected by transfers of registration. TSC or TMC intend to pay a
commission of up to 1/2 of 1% to dealers who place orders of $1 million or
more for a single purchaser.
(9) Certain employee benefit plans and insurance company separate
accounts used to fund annuity contracts may purchase shares of the Funds at
no sales charge. TSC or TMC intend to pay a commission of up to 1/2 of 1% to
dealers who place orders for these plans.
(10) Charitable organizations or foundations, including trusts
established for the benefit of charitable organizations or foundations, may
purchase shares of the Funds at no sales charge. TSC or TMC intend to pay a
commission of up to 1/2 of 1% to dealers who place orders for these
purchasers.
The investment decisions of the persons and organizations described in
the foregoing paragraphs tend to be made by informed fiduciaries or other
advisers. Typically, these persons are better able than the general public
to evaluate quickly the appropriateness of a Fund's investment objectives and
performance in light of their customers' goals. In certain cases, these
organizations may approach a Fund directly with no solicitation after reading
performance data in trade publications. Consequently costs of marketing to
these persons and organizations likely will be minimal.
(11) In any case where the Fund acquires substantially all of the
assets of a registered investment company in exchange for the Fund's shares,
no sales charge will be imposed. Such exchanges are preceded by the
distribution of materials to the shareholders at the acquired company, which
explain the transaction. The preparation and dissemination of these
materials and other information relating to such a transaction commonly are
paid for by TMC rather than the Fund or TSC.
(12) Such persons as are determined by the Directors to have acquired
shares under special circumstances, not involving any sales expense to the
Fund or to TSC, may purchase shares of the Fund with no sales charge. This
variation from the Public Scale contemplates circumstances where a relatively
large sale can be made at no distribution cost to a large investor or a
number of smaller investors who are similarly situated. In the contemplated
circumstances, there would be no cost of distribution, or any costs would be
paid by TMC.
(13) Shares of the Fund may be sold at a reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to or permits group solicitation of its
employees, members or participants. Information on these arrangements is
available from TSC.
(14) Investors may purchase shares of either Fund at net asset value
without a sales charge to the extent that the purchase represents proceeds
from a redemption (within the previous 60 days) of shares of another mutual
fund which has a sales charge. When making a direct purchase at net asset
value under this provision, the Fund must receive one of the following with
the direct purchase order: (i) the redemption check representing the
proceeds of the shares redeemed, endorsed to the order of the Fund, or (ii)
a copy of the confirmation from the other fund, showing the redemption
transaction. Standard back office procedures should be followed for wire
order purchases made through broker dealers. Purchases with redemptions from
money market funds are not eligible for this privilege. This provision may
be terminated anytime by TSC or the Funds without notice.
NET ASSET VALUE
Each Fund will calculate the net asset value at least once daily on days
when the New York Stock Exchange is open for trading, and more frequently if
deemed desirable by the Fund. Net asset value will not be calculated on New
Year's Day, Washington's Birthday (on the third Monday in February), Good
Friday, Memorial Day (on the last Monday in May), Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, on the preceding Friday if any of the
foregoing holidays falls on a Saturday, and on the following Monday if any of
the foregoing holidays falls on a Sunday. Under the Investment Company Act
of 1940, net asset value must be computed at least once daily on each day
(i) in which there is a sufficient degree of trading in a fund's portfolio
securities that the current net asset value of its shares might be materially
affected by changes in the value of such securities and (ii) on which an
order for purchase or redemption of its shares is received.
REDEMPTION OF SHARES
Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "How to Redeem Fund Shares".
A Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of the
Fund.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Fund, Thornburg Securities
Corporation ("TSC") acts as the principal underwriter of Fund shares. The
Funds do not bear selling expenses except (i) those involved in registering
its shares with the Securities and Exchange Commission and qualifying them or
the Fund with state regulatory authorities, and (ii) expenses paid under the
Service and Distribution Plans and which might be considered selling
expenses. Terms of continuation, termination and assignment under the
Distribution Agreement are identical to those described above with regard to
the Investment Advisory Agreement, except that termination other than upon
assignment requires six months' notice.
H. Garrett Thornburg, Jr. President, Treasurer and a Director of the
Company, is also Director and controlling stockholder of TSC.
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Funds for the fiscal year ending June 30,
1996. The financial statements of the Funds have been audited by McGladrey
& Pullen, LLP, for the periods indicated in their reports thereon.
Shareholders will receive semi-annual unaudited financial statements and
annual financial statements audited by the independent accountants.
FINANCIAL STATEMENTS
Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1996, Statements of Operations for the year ended
June 30, 1996 and Statements of Changes in Net Assets for the two years in
the period ended June 30, 1996, Notes to Financial Statements and Financial
Highlights, Schedules of Investments as of June 30, 1996 and Independent
Auditor's Report dated July 26, 1996, for Limited Term National Fund and
Limited Term California Fund are incorporated herein by reference from the
Funds' respective Annual Reports to Shareholders, June 30, 1996.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
Statements of Assets and Liabilities as of June 30, 1996; Schedules
of Investments as of June 30, 1996; Statements of Operations for the year
ended June 30, 1996; Statements of Changes in Net Assets for the years ended
June 30, 1995 and June 30, 1996; Notes to Financial Statements; Financial
Highlights; Reports of Independent Accountants dated July 26, 1996:
incorporated by reference from the Registrant's Annual Reports for the fiscal
year ended June 30, 1996.
(b) The following Exhibits are filed herewith:
(5) Form of Restated Investment Advisory Agreement
(9) Form of Administrative Services Agreement
(11.1) Consent of Counsel to Registrant
(11.2) Consent of Independent Auditor
(15) Amended Plan and Agreement Pursuant to Rule 12b-1 (Form of
Class A Service Plan)
(16.1) Schedule of Performance Computations for Thornburg Limited
Term Municipal Fund National Portfolio
(16.2) Schedule of Performance Computations for Thornburg Limited
Term Municipal Fund California Portfolio
(17) Financial Data Statements for Thornburg Limited Term
Municipal Fund National Portfolio and Thornburg Limited Term
Municipal Fund California Portfolio as of June 30, 1996
Item 25. Persons Controlled By or Under Common Control With Registrant
Not applicable.
Item 26. Number of Record Holders of Securities
At July 31, 1996, the registrant's series had the numbers of
record securities holders set forth opposite their respective names:
Thornburg Limited Term Municipal Fund
National Portfolio. . . . . . . . . . . . . . . .17,616
Thornburg Limited Term Municipal Fund
California Portfolio. . . . . . . . . . . . . . . 1,584
Item 27. Indemnification
Reference is made to Article EIGHTH and paragraphs (e) and (f) of
Article SEVENTH of the Registrant's Articles of Incorporation previously
filed as Exhibit 1, to Article X of the Registrant`s By-Laws previously filed
as Exhibit 2 and to section 2-418 of the Maryland General Corporation Law.
Reference is also made to Section 7 of the Distribution Agreement
previously filed as Exhibit 6(a).
The directors and officers (the "insureds") of both the Registrant
and the Adviser are insured under a joint directors and officers liability
policy. The policy covers amounts which the insureds become legally
obligated to pay by reason of any act, error, omission, misstatement,
misleading statement or neglect or breach of duty in the performance of their
duties as directors, trustees and officers. In addition, the policy covers
the Registrant and the Adviser to the extent that they have legally
indemnified the insureds for amounts incurred by the insureds as described in
the preceding sentence. The coverage excludes amounts that the insureds
become obligated to pay by reason of conduct which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of the
insured's duty.
The application of the foregoing provisions is limited by the
following undertaking set forth in the rules promulgated by the Securities
and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policies
expressed in such Act and that if a claim for indemnification
against such liabilities other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of the Investment Adviser
See "Management" in the Statement of Additional Information and
"Management of the Fund" in the Prospectus.
Item 29. Principal Underwriters
(a) The principal underwriter for the Registrant is Thornburg
Securities Corporation (the "Distributor"). The Distributor is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. The Distributor has
been formed for the purpose of distributing the shares of the Fund and other
registered investment companies sponsored by its affiliates, and does not
currently engage in the general securities business.
(b) The address of each of the directors and officers of the
Distributor is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501.
Positions and Offices Positions and Offices
Name with Distributor with Registrant
- ------------------------- --------------------- ---------------------
H. Garrett Thornburg, Jr. Director Chairman, Director
and Treasurer
Kenneth Ziesenheim President
Dawn B. Shapland Secretary Secretary
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of State Street Bank and Trust
Company, 470 Atlantic Avenue, Fifth Floor, Boston, Massachusetts 02210.
Item 31. Management Services
The Registrant and Thornburg Management Company, Inc. ("TMC")
have agreed that TMC will perform for the Registrant certain
telephone answering services previously performed by the
Registrant's transfer agent, National Financial Data Services,
Inc. ("NFDS"). These telephone services include answering
telephone calls placed to the Registrant or its transfer agent
by shareholders, securities dealers and others through the
Registrant's toll free number, and responding to those
telephone calls by answering questions, effecting certain
shareholder transactions described in the Registrant's current
prospectuses, and performing such other, similar functions as
the Registrant may reasonably prescribe from time to time.
The Registrant will pay one dollar for each telephone call,
which was the charge previously impose by the Registrant's
transfer agent for this service. The Registrant's transfer
agent will no longer charge for this service. The Registrant
understands that (i) the telephone answering service provided
by TMC will be superior to that previously provided by the
transfer agent because TMC will devote greater attention to
training the telephone personnel, and those personnel will
have immediate access to the Registrant's and TMC's
management, (ii) the per-call charge imposed upon the
Registrant for this service will be no greater than that
charged by the Registrant's transfer agent, and (iii) TMC will
not receive any profit from providing this service. It is not
believed that this arrangement constitutes a management-
related services agreement.
Item 32. Undertakings
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 25 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Santa Fe,
and State of New Mexico on the 30th day of August, 1996.
LIMITED TERM MUNICIPAL FUND, INC.
Registrant
By *
---------------------------------------
Brian J. McMahon, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 25 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
* *
- -------------------------------- ------------------------------------
Brian J. McMahon, President H. Garrett Thornburg, Jr., Chairman,
and Principal Executive Officer Director, Treasurer and Principal
Financial and Accounting Officer
*
- --------------------------------
J. Burchenal Ault, Director
*
- --------------------------------
Eliot R. Cutler, Director
*
- --------------------------------
James E. Monaghan, Jr., Director
*
- --------------------------------
A. G. Newmyer III, Director
*
- --------------------------------
Richard M. Curry, Director
* By: /s/
____________________________
Charles W. N. Thompson, Jr. August 30, 1996
As Attorney-In-Fact (Date)
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- --------------------------------
5 Form of Restated Investment Advisory Agreement
9 Form of Administrative Services Agreement
11.1 Consent of Counsel to Registrant
11.2 Consent of Independent Auditor
15 Amended Plan and Agreement of Distribution
Pursuant to Rule 12b-1 (Class A Service Plan)
16.1 Schedule of Performance Computations for Thornburg
Limited Term Municipal Fund National Portfolio
16.2 Schedule of Performance Computations for Thornburg
Limited Term Municipal Fund California Portfolio
17 Financial Data Statements for Thornburg Limited Term
Municipal Fund National Portfolio and Thornburg Limited
Term Municipal Fund California Portfolio as of
June 30, 1996
<PAGE>
EXHIBIT 5
RESTATED
INVESTMENT ADVISORY AGREEMENT
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
Thornburg Limited Term Municipal Fund National Portfolio
Thornburg Limited Term Municipal Fund California Portfolio
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Ladies and Gentlemen:
We hereby confirm our agreement with you as follows:
1. We are engaged in the business of investing and reinvesting our
assets in securities of the type, and in accordance with the limitations,
specified in our Articles of Incorporation, By-Laws and Registration
Statement filed with the Securities and Exchange Commission under the
Investment Company Act of 1940 (the "Act") and the Securities Act of 1933,
including the Prospectuses forming a part thereof (the "Registration
Statement"), and in such manner and to such extent as may from time to time
be authorized by our Board of Directors. We have furnished copies of the
documents listed above and will furnish you such amendments thereto as may be
made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of the assets of our respective series and to perform related
functions, and without limiting the generality of the foregoing, to provide
the investment management services specified below.
(b) You will make decisions with respect to all purchases and
sales of portfolio securities by the Company's respective series. To carry
out such decisions, you are hereby authorized, as our agent and attorney in
fact, for our account and at our risk and in our name, to place orders for
the investment and reinvestment of our assets. In all purchases, sales and
other transactions in our portfolio securities you are authorized to exercise
full discretion and act for us in the same manner and with the same force and
effect as our Company itself or its respective series might or could do with
respect to such purchases, sales, or other transactions, as well as with
respect to all other things necessary or incidental to the furtherance or
conduct of such purchases, sales or other transactions.
(c) You will report to our Board of Directors at each meeting
thereof all changes in our series' portfolios since your prior report, and
will also keep us apprised of important developments affecting our portfolios
and, on your own initiative, will furnish to us from time to time such
information as you may believe appropriate for this purpose, whether
concerning the individual entities whose securities are included in our
portfolios, the individual banks and other third parties from which
securities have been purchased for inclusion in our portfolios, the
activities in which the entities or the banks and other third parties engage,
federal income tax policies applicable to our investments, or the conditions
prevailing in the municipal market or the economy generally. You will also
furnish us with such statistical and analytical information with respect to
our portfolio securities as you may believe appropriate or as we reasonably
may request. In making such purchases and sales of our portfolio securities,
you will bear in mind the policies set from time to time by our Board of
Directors as well as the limitations imposed by our Articles of Incorporation
and by the provisions of the Internal Revenue Code relating to regulated
investment companies and the limitations contained in our Registration
Statement.
(d) It is understood that you will from time to time employ or
associate with yourself, entirely at your expense, such persons as you
believe to be particularly fitted to assist you in the execution of your
duties hereunder. While this Agreement is in effect, you or persons
affiliated with you, other than us ("your affiliates"), will provide persons
satisfactory to our Board of Directors to be elected or appointed officers or
employees of our corporation. These shall be a president, a secretary, a
treasurer, and such additional officers and employees as may reasonably be
necessary for the conduct of our business. You or your affiliates will also
provide persons, who may be our officers, but shall not be your officers or
officers of your affiliates, to render such clerical, accounting and other
office services to us as we may from time to time request of you. Such
personnel may be your employees or employees of your affiliates. We will pay
to you the cost of such personnel for rendering such services to us at such
rates as shall from time to time be agreed upon between us, provided that all
time devoted to the investment or reinvestment of the series' portfolio
securities shall be for your account. You or your affiliates will also
furnish us without charge such administrative and management supervision and
assistance and such office facilities as you may believe appropriate or as we
may reasonably request subject to the provisions of Section 3 hereof, and to
the requirements of any regulatory authority of which you may be subject.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses other than those expressly stated to be payable by you hereunder.
Expenses payable by us shall include, but not be limited to: (a) brokerage
and commission expenses, (b) federal, state or local taxes, including issue
and transfer taxes incurred by or levied on us, (c) commitment fees,
(d) interest charges on borrowings, (e) charges and expenses of our
custodian, (f) charges and expenses of persons performing issuance,
redemption, registrar, transfer and dividend disbursing functions for us,
(g) telecommunication expenses, (h) recurring and non-recurring legal and
accounting expenses (including disbursements), (i) insurance premiums,
(j) costs of organizing and maintaining our existence as a corporation, (k)
compensation and travel expenses, including directors' fees, of any of our
directors, officers or employees who are not your officers or officers of
your affiliates (provided that such officers who serve as our directors will
be reimbursed by us for travel and out-of-pocket expenses incurred in
attending board meetings), and costs of other personnel providing services to
us, (l) costs of shareholders' services and portfolio valuation services,
(m) costs of shareholders' reports, proxy solicitations, distribution of
prospectuses to existing stockholders, and corporate meetings, (n) costs of
personnel (other than your officers or officers of your affiliates) competent
to perform administrative, clerical and shareholder relations functions,
including travel expenses if necessarily related to shareholder relations
functions, (o) costs of any reports to government agencies, (p) fees and
expenses of registering our shares under the appropriate federal securities
laws and of qualifying our shares under applicable state securities laws,
including expenses attendant upon the initial registration and qualification
of our shares and attendant upon renewals of, or amendments to, those
registrations and qualifications, (q) expenses of printing our prospectuses,
(r) the cost of printing or engraving of stock certificates representing our
shares, (s) postage, (t) membership dues in any industry associations,
(u) payment of the investment advisory fee provided for herein, and (v) all
other charges and costs of our operation unless otherwise explicitly provided
herein. Our obligation for the foregoing expenses is limited by your
agreement to be responsible for any amount by which our operating expenses
(excluding taxes, brokerage, interest and, to the extent permitted by
applicable law, extraordinary expenses) accrued for any period during which
this Agreement is in effect exceed an amount equal to, in the case of
expenses accrued with respect to any of our fiscal years during which this
Agreement is in effect, the limits prescribed by any state in which the
Company's shares are qualified for sale.
4. We will expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we agree as
an inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause provided that
nothing herein shall be deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which you would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
5. In consideration of the foregoing we will pay you a fee at the
annual percentage rate of the daily average of the net assets of each series
to which this Agreement is applicable, as set forth below:
Net Assets of Series Rate
-------------------- ----
0 to $500 million .50%
$500 million to $1 billion .40%
$1 billion to $1.5 billion .30%
$1.5 billion to $2 billion .25%
More than $2 billion .225%
Your fee will be accrued by us daily and will be payable in arrears on the
last day of each calendar month for services performed hereunder during that
month, together with any sales, gross receipts, value added, or similar tax
imposed on the fee, but the taxes will be limited to 10% of the fee. Any
reimbursement of our expenses, to which we may become entitled pursuant to
paragraph 3 hereof, will be paid to us at the end of the month for which
those expenses are accrued, at the same time as we pay you your fee for that
month.
6. This Restated Agreement will become effective and supersede the
existing Investment Advisory Agreement on the date of its execution after
approval by the majority vote of holders of the outstanding voting securities
(as defined in the Act) of the respective series of this Company at a special
meeting, shall continue in effect for one year from the date of execution
hereof and thereafter for successive twelve-month periods, provided that such
continuation is specifically approved at least annually by our Board of
Directors or by a majority vote of the holders of our outstanding voting
securities (as defined in the Act) and, in either case, by a majority of
those of our directors who are neither a party to this Agreement nor, other
than by their service as directors of our corporation, interested persons, as
defined in the Act, of any such person who is party to this Agreement. Upon
the effectiveness of this Agreement, it shall supersede all previous
agreements between us covering the subject matter hereof. This Agreement may
be terminated at any time as to any series, without the payment of any
penalty, by vote of a majority of the outstanding voting securities of that
series, as defined in the Act, or by a vote of a majority of our entire Board
of Directors, on sixty days' written notice to you, or by you on sixty days'
written notice to us.
7. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by you. The terms "transfer," "assignment" and
"sale" as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the Securities and
Exchange Commission.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, firm, individual or association.
If the foregoing is in accordance with your understanding, you will
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
By:_______________________________________________
ACCEPTED: July 1, 1996
THORNBURG MANAGEMENT COMPANY, INC.
By:________________________________<PAGE>
EXHIBIT 9
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made as of the 1st day of July, 1996 by and between
THORNBURG LIMITED TERM MUNICIPAL FUND, INC., a Maryland corporation (the
"Company"), in respect of Class A and Class C shares of Thornburg Limited
Term Municipal Fund National Portfolio and Thornburg Limited Term Municipal
Fund California Portfolio, separate series of the Company (the "Funds"), and
THORNBURG MANAGEMENT COMPANY, INC., a Delaware corporation ("Thornburg").
Recitals
1. The Company engages in business as an open-end management investment
company and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
2. The Company seeks to obtain described administrative services from
Thornburg for the Class A and Class C shares of the Funds.
3. Thornburg seeks to be retained to perform services in accordance
with this Agreement.
4. This Agreement has been approved by a vote of the Directors of the
Company, including a majority of the Directors who are not interested persons
of the Company, as defined in the 1940 Act, and who have no direct or
indirect financial interest in the operation of this Agreement (sometimes the
"Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Agreement.
Agreement
NOW THEREFORE, the Company hereby enters into this Agreement with
Thornburg, and the parties provide and agree as follows:
1. Subject to the continuing supervision of the Directors, the Company
hereby retains and appoints Thornburg as its agent to perform certain
administrative services and engage in activities beyond those specifically
required by the investment advisory agreement between the Company and
Thornburg, and to provide related services. The activities and services to
be provided by Thornburg hereunder shall include supervision and direction of
shareholder communications, assistance and review in preparation of reports
and other communications to shareholders, administration of shareholder
assistance, supervision and review of bookkeeping, clerical, shareholder and
account administration and accounting functions, supervision or conduct of
related regulatory compliance and legal affairs, and review and
administration of functions delivered by outside service providers to or for
the shareholders of the class or classes served under this Agreement, and
such other related or similar administrative functions as the Company and
Thornburg may from time to time agree. Thornburg or its affiliates will also
provide persons who shall not be Thornburg's officers or officers of
Thornburg's affiliates, to render such shareholder-related and other related
office services to the Company as the Company may from time to time request
of Thornburg. These personnel may be employees of Thornburg or its
affiliates.
2. The Company will pay monthly for the services described in the
preceding Paragraph 1, a fee computed at an annual rate of .05 of 1% of the
average daily net assets attributable to each class of shares to which this
Agreement applies from time to time, together with any applicable gross
receipts tax, sales tax, value-added tax, compensating tax or similar
exaction imposed by any federal, state or local government, but the aggregate
of those taxes will not exceed 10% of the basic fee. In addition, the
Company will pay Thornburg for the cost of personnel provided in accordance
with the preceding Paragraph 1 to provide the described shareholder-related
and office services requested by the Company. Thornburg and the Company
agree and acknowledge that the Company will pay expenses payable by the
Company in accordance with Paragraph 3 of the investment advisory agreement
between the Company and Thornburg.
3. The Company and Thornburg shall provide to the Company's Directors,
at least quarterly, a written report of all amounts expended by the Company
pursuant to this Agreement. Each report will itemize the types of expenses
incurred for which payment is being made and the purposes and the amounts of
the expenses. Thornburg shall provide to the Directors upon request such
information as may reasonably be required for the Directors to review the
continuing appropriateness of this Agreement.
4. This Agreement will become effective as to the specified class of a
Fund upon execution after its approval by vote of at least a majority of the
outstanding shares of the class of the Fund and shall continue in effect for
a period of one year from the date of execution unless terminated as provided
below. Thereafter, the Agreement will continue in effect from year to year,
provided that continuance is approved at least annually by a vote of the
Directors, including a majority of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on the continuance.
This Agreement may be terminated as to a class of shares of a Fund at any
time, without penalty, by the vote of a majority of the Disinterested
Directors or by the vote of a majority of the outstanding shares of the
class. The Company may discontinue Thornburg's services as to a class under
this Agreement and name another service provider, or Thornburg may assign
this Agreement or delegate part or all of its obligations hereunder (to a
related or unrelated entity) upon a vote of the Directors including a
majority of the Disinterested Directors or a vote of the holders of a
majority of the class's outstanding shares, without any penalty. Thornburg
may terminate its services under this Agreement upon 60 days written notice
to the Company.
5. All material amendments to this Agreement must be approved by the
vote of the Directors, including a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting on the
amendment.
6. This Agreement applies to Class A and Class C shares of the Funds of
the Company specified in the preamble to this Agreement. The parties
acknowledge and agree that this Agreement may from time to time be made
applicable to one or more funds and one or more classes of shares of those
funds, but that the Agreement applies separately to each class of shares and
is severable in all respects. Consequently, the Agreement may be modified,
continued or terminated as to one class of shares of a Fund without affecting
any other class of shares of the Fund or any other fund.
7. The Company will preserve in an easily accessible place copies of
this Agreement and all reports made pursuant to this Agreement, together with
minutes of all Directors' meetings at which the adoption, amendment or
continuance of this Agreement were considered (describing the factors
considered and the basis for decision), for a period of not less than 6 years
from the date of this Agreement.
8. This Agreement will be construed in accordance with the laws of the
State of New Mexico and applicable provisions of the 1940 Act. To the extent
the applicable law of the State of New Mexico or any provisions herein
conflict with the applicable provisions of the 1940 Act, the latter will
control. If any provision of this Agreement is determined by a court or
governmental agency having jurisdiction to be invalid or unenforceable, the
balance of this Agreement shall remain in full force and effect.
9. The Company will not hold TMC liable for any act or failure to act
hereunder in the absence of TMC's willful misfeasance, bad faith or gross
negligence, or its reckless disregard of its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in Santa Fe, New Mexico.
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
By:________________________________________________
THORNBURG MANAGEMENT COMPANY, INC.
By:________________________________________________
<PAGE>
EXHIBIT 11.1
WHITE Attorneys and Counselors at Law
KOCH, KELLY William Booker Kelly Carolyn R. Glick
& John F. McCarthy, Jr. Margaret A. Foster
McCARTHY Benjamin Phillips Julie A. Wittenberger
A Professional Association David F. Cunningham
Albert V. Gonzales
Janet Clow
Kevin V. Reilly
Charles W. N. Thompson, Jr. Special Counsel
M. Karen Kilgore Paul L. Bloom
Sandra J. Brinck
Aaron J. Wolf
Mary J. Walta
August 29, 1996
Thornburg Limited Term Municipal Fund, Inc.
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Re: Thornburg Limited Term Municipal Fund, Inc.
Ladies and Gentlemen:
We hereby consent to the references made to this firm in the post-
effective amendment no. 25 to the registration statement of Thornburg Limited
Term Municipal Fund, Inc. and the prospectus which is a part of that
registration statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
/s/ White, Koch, Kelly & McCarthy, P. A.
WHITE, KOCH, KELLY & McCARTHY, P. A.
433 Paseo de Peralta P.O. Box 787 Santa Fe, New Mexico 87504-0787
(505) 982-4374 Fax Nos. (505) 982-0350; 984-8631
EXHIBIT 11.2
McGLADREY & PULLEN, LLP RSM
Certified Public Accountants and Consultants international
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference to our reports dated
October 27, 1995 on the financial statements of Thornburg Limited Term Income
Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Intermediate
Municipal Fund, Thornburg Florida Intermediate Municipal Fund and Thornburg
New Mexico Intermediate Municipal Fund, series of Thornburg Investment Trust,
and our report dated July 26, 1996 on the financial statements of the
National Portfolio and California Portfolio of Thornburg Limited Term
Municipal Fund, Inc. referred to therein in Post-Effective Amendment No. 27
to the Registration Statement of Thornburg Investment Trust on Form N-1A,
File No. 33-14905 and Post-Effective Amendment No. 25 to the Registration
Statement of Thornburg Limited Term Municipal Fund, Inc. on Form N-1A, File
No. 2-89526 as filed with the Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus under the
captions "Financial Highlights" and "Additional Information" and in the
Statements of Additional Information under the caption "Independent
Auditors."
McGLADREY & PULLEN, LLP
New York, New York
August 29, 1996
555 Fifth Avenue Worldwide
(entrance on 46th Street, east of Fifth Avenue) Services
New York, New York 10017-2416 Through
(212) 697-0606 FAX (212) 697-9182 RSM International
EXHIBIT 15
AMENDED PLAN AND AGREEMENT OF DISTRIBUTION
PURSUANT TO RULE 12b-1
(Class A Service Plan)
THIS AMENDED PLAN AND AGREEMENT is made as of the 1st day of July, 1996,
by and between Thornburg Limited Term Municipal Fund, Inc., a Maryland
corporation (the "Company"), in respect of Thornburg Limited Term Municipal
Fund National Portfolio and Thornburg Limited Term Municipal Fund California
Portfolio, series of the Company (collectively the "Funds"), and Thornburg
Management Company, Inc., a Delaware corporation ("Thornburg").
RECITALS
1. The Company engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940,
as amended (the "1940 Act").
2. The Company wishes to adopt a revised Plan and Agreement, on behalf
of each of the Funds (the "Plan and Agreement") to authorize the use of the
Fund's assets to finance certain activities as permitted under Rule 12b-1
adopted under the 1940 Act, and in this regard seeks to enter into an
agreement to retain Thornburg in accordance with the terms hereunder. This
Plan and Agreement supersedes that certain Plan and Agreement of Distribution
Pursuant to Rule 12b-1 dated October 23, 1987.
3. Thornburg seeks to be retained to perform services in accordance
with the Plan and Agreement.
4. This Plan and Agreement has been approved by a vote of the Directors
of the Company, including a majority of the Directors who are not interested
persons of the Company, as defined in the 1940 Act, and who have no direct or
indirect financial interest in the operation of this Plan and Agreement
(sometimes the "Disinterested Directors"), cast in person at a meeting called
for the purpose of voting on this Plan and Agreement.
AGREEMENT
NOW, THEREFORE, the Company hereby adopts this Plan in respect of each
of the Funds, and the Company and Thornburg hereby enter into this Agreement
pursuant to the Plan in accordance with the requirements of Rule 12b-1 under
the 1940 Act, and provide and agree as follows:
1. The Company is hereby authorized to utilize the assets of each of
the Funds to finance certain activities in connection with distribution of
the Fund's shares and providing shareholder services.
2. Subject to the supervision of the Directors, the Company hereby
retains and appoints Thornburg as its agent to obtain shareholder services
and to promote the distribution of each Fund's Class A shares by providing
services and engaging in activities beyond those specifically required by the
Distribution Agreement between the Company and Thornburg Securities
Corporation ("TSC") and to provide related services. The activities and
services to be provided by Thornburg hereunder shall include one or more of
the following: (a) the payment of compensation (including incentive
compensation) to securities dealers, financial institutions and other
organizations which render services to each Fund's Class A shareholders as
the Company may from time to time agree, and which render distribution,
shareholder account services, and administrative services in connection with
the distribution of shares of each such Fund all as the Company may from time
to time agree; (b) the printing and distribution of reports and prospectuses
for the use of potential investors in each such Fund; (c) preparing and
distributing sales literature; (d) providing advertising and engaging in
other promotional activities, including direct mail solicitation, and
television, radio, newspaper and other media advertisements; and (e) such
other services and activities as may from time to time be agreed upon by the
Company including, but not limited to, providing personal services to
shareholders, maintaining shareholder accounts, providing shareholder liaison
services and providing information to shareholders.
3. Thornburg hereby undertakes to use its best efforts to promote sales
of Class A shares of each Fund to investors and to promote shareholder
services by engaging in those activities specified in paragraph 2 above as
may be necessary and as it from time to time believes will best further sales
of such shares. In so doing, Thornburg may utilize the services of TSC.
4. The Company is hereby authorized to expend, out of the assets of
each Fund, on a monthly basis, and shall reimburse Thornburg monthly to such
extent, for its actual direct expenditures incurred in engaging in the
activities and providing the services specified in paragraph 2 above for
Class A shares of that Fund, an amount computed at an annual rate of up to
.25 of 1% of the Fund's average daily net assets attributable to Class A
shares, together with any applicable gross receipts tax, sales tax, value
added tax, compensating tax or similar exaction imposed by any federal, state
or local government, but the aggregate of those taxes will not exceed 10%.
5. To the extent that expenditures made by Thornburg out of its own
resources to finance any activity primarily intended to result in the sale of
shares of a Fund, pursuant to this Plan and Agreement or otherwise, may be
deemed to constitute the indirect use of the Fund's assets, such indirect use
of the Fund's assets is hereby authorized in addition to, and not in lieu of,
any other payments authorized under this Plan and Agreement.
6. The Treasurer of the Company shall provide and the Directors shall
review, at least quarterly, a written report of all amounts expended pursuant
to the Plan and Agreement. Each such report shall itemize the types of
expenses incurred for which payment is being made and the purposes and the
amounts of such expenses. Upon request, Thornburg shall provide to the
Directors such information as may reasonably be required for it to review the
continuing appropriateness of the Plan and Agreement.
7. This Plan and Agreement shall become effective as to a Fund upon
execution after approval by a vote of at least a majority of the outstanding
Class A shares of the Fund, and shall continue in effect for a period of one
year from the date of such approval unless terminated as provided below.
Thereafter, the Plan and Agreement shall continue in effect from year to
year, provided that continuance is approved at least annually by a vote of
the Directors, including a majority of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on such continuance.
The Plan may be terminated as to Class A shares of a Fund at any time,
without penalty, by the vote of a majority of the Disinterested Directors or
by the vote of a majority of the outstanding Class A shares of the Fund.
Thornburg, or the Company by vote of a majority of the Disinterested
Directors or of the holders of a majority of the Fund`s outstanding Class A
shares, may terminate the Agreement under this Plan, without penalty, upon 30
days' written notice to the other party.
8. So long as the Plan remains in effect, the selection and nomination
of persons to serve as Directors of the Company who are not "interested
persons" of the Company shall be committed to the discretion of the Directors
then in office who are not "interested persons" of the Company. However,
nothing contained herein shall prevent the participation of other persons in
the selection and nomination process, provided that a final decision on any
such selection or nomination is within the discretion of, and approved by, a
majority of the Directors then in office who are not "interested persons" of
the Company.
9. This Plan may not be amended to increase materially the amount to be
spent by the Company hereunder without approval of the Class A shareholders
of the affected Fund. All material amendments to the Plan and to the
Agreement must be approved by the vote of the Directors, including a majority
of the Disinterested Directors, cast in person at a meeting called for the
purpose of voting on such amendment.
10. To the extent that this Plan and Agreement constitutes a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act it shall
remain in effect as such, so as to authorize the use by the Company of the
Funds' assets in the amounts and for the purposes set forth herein,
notwithstanding the occurrence of an assignment, as defined by the 1940 Act
and the rules thereunder. To the extent it constitutes an agreement pursuant
to a plan, it shall terminate automatically in the event of an attempted
assignment. Upon a termination of the Agreement as to a Fund, the Company
may continue to make payments on behalf of the Fund pursuant to the Plan only
upon the approval of a new Agreement, which may or may not be with Thornburg,
or the adoption of other arrangements regarding the use of the amounts
authorized to be paid by the Company hereunder, by the Directors in
accordance with the procedures set forth in paragraph 7 above.
11. The Company shall preserve in an easily accessible place copies of
this Plan and Agreement and all reports made pursuant to this Plan and
Agreement, together with minutes of all Directors' meetings at which the
adoption, amendment or continuance of the Plan were considered (describing
the factors considered and the basis for decision), for a period of not less
than six years from the date of this Plan and Agreement.
12. This Plan and Agreement shall be construed in accordance with the
laws of the State of New Mexico and applicable provisions of the 1940 Act.
To the extent the applicable law of the State of New Mexico or any provisions
herein conflict with the applicable provisions of the 1940 Act, the latter
shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan and Agreement on the day and year first above written in Santa Fe, New
Mexico.
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
(Thornburg Limited Term Municipal Fund National
Portfolio and Thornburg Limited Term Municipal Fund
California Portfolio)
By:__________________________________________
THORNBURG MANAGEMENT COMPANY, INC.
By:__________________________________________
<PAGE>
EXHIBIT 16.1 - SCHEDULE OF PERFORMANCE COMPUTATION FORMULAS
LIMITED TERM MUNICIPAL NATIONAL PORTFOLIO - A SHARES
<TABLE>
Current seven days' annualized yield at 6/30/96 = 4.56%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.011955586
Divided by 7 days 7
Average daily dividend 0.01707941
Days in year 366
Annualized dividend 0.625106354
Offering price per share on 6/30/96 $13.69
-------
Current seven days' annualized yield 0.045647585 or 4.56%
Current thirty days' annualized yield at 6/30/96 = 4.62%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.011955586
Divided by 30 days 30
Average daily dividend 0.001730205
Days in year 366
Annualized dividend 0.633255018
Offering price per share on 6/30/96 $13.69
-------
Current thirty days' annualized yield 0.045242631 or 4.62%
Current one year effective yield = 4.58%
(assuming reinvestment of dividends) -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.626645561
Offering price per share on 6/30/96 13.69
-------
Current one year effective yield 0.045759984 or 4.58%
Standardized yield calculation - June 1996 = 4.19%
--------- -----
Yield = 2[({[{(a-b)/cd]=1}to the 6th power)-1]
<CAPTION>
<C> <C> <C>
Where: a = $4,000,710.50 net interest income attributable to outstanding share
b = $747,527.36 expenses accrued for the period net of reimbursements
c = 68,728,108.483 averaged daily number of shares of beneficial interest
outstanding during period
d = 13.69 maximum offering price per share of beneficial interest
Total Return for the year ended 6/30/96 = 2.01%
------- -----
p(1+T)to the nth power = erv
<CAPTION>
<C> <C>
p = $1,000
n = 1
erv = $1,020.10
T = 2.01% Total Return
Average annual return for the period from inception* 9/28/84 - 6/30/96
-----------------
p(1+A)to the nth power = erv 4293 days = 7.09%
<CAPTION>
<C> <C>
p = $1,000
n = 11.76 (Total days since inception/365 days)
erv = $2,238.19
A = 7.09% Average Annual Return
* Assumes 2.50% sales load at inception
</TABLE>
<PAGE>
SCHEDULE OF PERFORMANCE COMPUTATION FORMULAS
LIMITED TERM MUNICIPAL NATIONAL PORTFOLIO - C SHARES
<TABLE>
Current seven days' annualized yield at 6/30/96 = 4.31%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.011028099
Divided by 7 days 7
Average daily dividend 0.001575443
Days in year 366
Annualized dividend 0.576612033
Offering price per share on 6/30/96 $13.37
-------
Current seven days' annualized yield 0.043115758 or 4.31%
Current thirty days' annualized yield at 6/30/96 = 4.35%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.047693909
Divided by 30 days 30
Average daily dividend 0.001589797
Days in year 366
Annualized dividend 0.58186569
Offering price per share on 6/30/96 $13.37
-------
Current thirty days' annualized yield 0.043508596 or 4.35%
Current one year effective yield = 4.23%
(assuming reinvestment of dividends) -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.565856494
Offering price per share on 6/30/96 $13.37
-------
Current one year effective yield 0.04231152 or 4.23%
Standardized yield calculation - June 1996 = 3.89%
--------- -----
Yield = 2[({[{(a-b)/cd]=1}to the 6th power)-1]
<CAPTION>
<C> <C> <C>
Where: a = $ 68,754.84 net interest income attributable to outstanding share
b = $ 17,947.34 expenses accrued for the period net of reimbursements
c = 1,181,137.776 averaged daily number of shares of beneficial interest
outstanding during period
d = 13.37 maximum offering price per share of beneficial interest
Total Return for the year ended 6/30/96 = 4.05%
------- -----
p(1+T)to the nth power = erv
<CAPTION>
<C> <C>
p = $1,000
n = 1
erv = $1,040.50
T = 4.05% Total Return
Average annual return for the period from inception 8/31/94 - 6/30/96
-----------------
p(1+A)to the nth power = erv 669 days = 4.54%
<CAPTION>
<C> <C>
p = $1,000
n = 1.83 (Total days since inception/365 days)
erv = $1,084.78
A = 4.54% Average Annual Return
</TABLE>
<PAGE>
EXHIBIT 16.2 - SCHEDULE OF PERFORMANCE COMPUTATION FORMULAS
LIMITED TERM MUNICIPAL CALIFORNIA PORTFOLIO - A SHARES
<TABLE>
Current seven days' annualized yield at 6/30/96 = 4.60%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.011407001
Divided by 7 days 7
Average daily dividend 0.001629572
Days in year 366
Annualized dividend 0.596423195
Offering price per share on 6/30/96 $12.96
-------
Current seven days' annualized yield 0.046005793 or 4.60%
Current thirty days' annualized yield at 6/30/96 = 4.63%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.049168413
Divided by 30 days 30
Average daily dividend 0.001638947
Days in year 366
Annualized dividend 0.599854639
Offering price per share on 6/30/96 $12.96
-------
Current thirty days' annualized yield 0.046270481 or 4.63%
Current one year effective yield = 4.50%
(assuming reinvestment of dividends) -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.583293271
Offering price per share on 6/30/96 $12.96
-------
Current one year effective yield 0.044993001 or 4.50%
Standardized yield calculation - June 1996 = 4.25%
--------- -----
Yield = 2[({[{(a-b)/cd]=1}to the 6th power)-1]
<CAPTION>
<C> <C> <C>
Where: a = $420,413.65 net interest income attributable to outstanding share
b = $79,688.43 expenses accrued for the period net of reimbursements
c = 7,496,167.387 averaged daily number of shares of beneficial interest
outstanding during period
d = $12.96 maximum offering price per share of beneficial interest
Total Return for the year ended* 6/30/96 = 2.34%
------- -----
p(1+T)to the nth power = erv
<CAPTION>
<C> <C>
p = $1,000
n = 1
erv = $1,023.40
T = 2.34% Total Return
Average annual return for the period from inception* 2/20/87 - 6/30/96
-----------------
p(1+A)to the nth power = erv 3418 days = 5.87%
<CAPTION>
<C> <C>
p = $1,000
n = 9.36 (Total days since inception/365 days)
erv = $1,706.02
A = 5.87% Average Annual Return
* Assumes 2.50% sales load at inception
</TABLE>
SCHEDULE OF PERFORMANCE COMPUTATION FORMULAS
LIMITED TERM MUNICIPAL CALIFORNIA PORTFOLIO - C SHARES
<TABLE>
Current seven days' annualized yield at 6/30/96 = 4.32%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.010451547
Divided by 7 days 7
Average daily dividend 0.001493078
Days in year 366
Annualized dividend 0.5464666
Offering price per share on 6/30/96 $12.95
-------
Current seven days' annualized yield 0.043198804 or 4.32%
Current thirty days' annualized yield at 6/30/96 = 4.35%
------- -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.045075966
Divided by 30 days 30
Average daily dividend 0.001502532
Days in year 366
Annualized dividend 0.549926785
Offering price per share on 6/30/96 $12.65
-------
Current thirty days' annualized yield 0.043472336 or 4.35%
Current one year effective yield = 4.15%
(assuming reinvestment of dividends) -----
<CAPTION>
<S> <C>
Dividends per share declared for the period: 0.525325888
Offering price per share on 6/30/96 $12.65
-------
Current one year effective yield 0.041527607 or 4.15%
Standardized yield calculation - June 1996 = 3.95%
--------- -----
Yield = 2[({[{(a-b)/cd]=1}to the 6th power)-1]
<CAPTION>
<C> <C> <C>
Where: a = $10,483.81 net interest income attributable to outstanding share
b = $2,761.67 expenses accrued for the period net of reimbursements
c = 186,931.207 averaged daily number of shares of beneficial interest
outstanding during period
d = $12.65 maximum offering price per share of beneficial interest
Total Return for the year ended* 6/30/96 = 4.46%
------- -----
p(1+T)to the nth power = erv
<CAPTION>
<C> <C>
p = $1,000
n = 1
erv = $1,044.60
T = 4.46% Total Return
Average annual return for the period from inception 8/31/94 - 6/30/96
-----------------
p(1+A)to the nth power = erv 669 days = 4.62%
<CAPTION>
<C> <C>
p = $1,000
n = 1.83 (Total days since inception/365 days)
erv = $1,086.30
A = 4.62% Average Annual Return
EXHIBIT 17
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 1
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, NATIONAL PORTFOLIO (A)
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] JUN-30-1996
[INVESTMENTS-AT-COST] 903,161,256
[INVESTMENTS-AT-VALUE] 923,629,163
[RECEIVABLES] 16,720,282
[ASSETS-OTHER] 342,139
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 940,691,584
[PAYABLE-FOR-SECURITIES] 3,753,674
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3,159,153
[TOTAL-LIABILITIES] 6,912,827
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 919,090,740
[SHARES-COMMON-STOCK] 68,745,878
[SHARES-COMMON-PRIOR] 69,693,624
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,779,890)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 20,467,907
[NET-ASSETS] 933,778,757
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 52,705,242
[OTHER-INCOME] 0
[EXPENSES-NET] (9,145,426)
[NET-INVESTMENT-INCOME] 43,559,816
[REALIZED-GAINS-CURRENT] (69,749)
[APPREC-INCREASE-CURRENT] (1,545,063)
[NET-CHANGE-FROM-OPS] 41,945,004
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (43,028,755)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 10,705,592
[NUMBER-OF-SHARES-REDEEMED] (13,781,715)
[SHARES-REINVESTED] 2,128,377
[NET-CHANGE-IN-ASSETS] (14,155,534)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,710,141)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,584,836
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9,175,117
[AVERAGE-NET-ASSETS] 936,460,156
[PER-SHARE-NAV-BEGIN] 13.37
[PER-SHARE-NII] .63
[PER-SHARE-GAIN-APPREC] (.02)
[PER-SHARE-DIVIDEND] (.63)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.35
[EXPENSE-RATIO] .97
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 1
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, NATIONAL PORTFOLIO (B)
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] SEP-30-1995
[INVESTMENTS-AT-COST] 903,161,256
[INVESTMENTS-AT-VALUE] 923,629,163
[RECEIVABLES] 16,720,282
[ASSETS-OTHER] 342,139
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 940,691,584
[PAYABLE-FOR-SECURITIES] 3,753,674
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3,159,153
[TOTAL-LIABILITIES] 6,912,827
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 919,090,740
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 210,953
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,779,890)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 20,467,907
[NET-ASSETS] 933,778,757
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 52,705,242
[OTHER-INCOME] 0
[EXPENSES-NET] (9,145,426)
[NET-INVESTMENT-INCOME] 43,559,816
[REALIZED-GAINS-CURRENT] (69,749)
[APPREC-INCREASE-CURRENT] (1,545,063)
[NET-CHANGE-FROM-OPS] 41,945,004
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (32,246)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 46,556
[NUMBER-OF-SHARES-REDEEMED] (259,380)
[SHARES-REINVESTED] 1,871
[NET-CHANGE-IN-ASSETS] (2,822,700)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,710,141)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,584,836
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9,175,117
[AVERAGE-NET-ASSETS] 936,460,156
[PER-SHARE-NAV-BEGIN] 13.38
[PER-SHARE-NII] .13
[PER-SHARE-GAIN-APPREC] .05
[PER-SHARE-DIVIDEND] (.13)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.43
[EXPENSE-RATIO] 1.59
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 1
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, NATIONAL PORTFOLIO (C)
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] JUN-30-1996
[INVESTMENTS-AT-COST] 903,161,256
[INVESTMENTS-AT-VALUE] 923,629,163
[RECEIVABLES] 16,720,282
[ASSETS-OTHER] 342,139
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 940,691,584
[PAYABLE-FOR-SECURITIES] 3,753,674
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3,159,153
[TOTAL-LIABILITIES] 6,912,827
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 919,090,740
[SHARES-COMMON-STOCK] 1,192,469
[SHARES-COMMON-PRIOR] 482,824
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,779,890)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 20,467,907
[NET-ASSETS] 933,778,757
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 52,705,242
[OTHER-INCOME] 0
[EXPENSES-NET] (9,145,426)
[NET-INVESTMENT-INCOME] 43,559,816
[REALIZED-GAINS-CURRENT] (69,749)
[APPREC-INCREASE-CURRENT] (1,545,063)
[NET-CHANGE-FROM-OPS] 41,945,004
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (498,815)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,097,905
[NUMBER-OF-SHARES-REDEEMED] (420,008)
[SHARES-REINVESTED] 31,748
[NET-CHANGE-IN-ASSETS] 9,478,791
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (5,710,141)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,584,836
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 9,175,117
[AVERAGE-NET-ASSETS] 936,460,156
[PER-SHARE-NAV-BEGIN] 13.40
[PER-SHARE-NII] .57
[PER-SHARE-GAIN-APPREC] (.03)
[PER-SHARE-DIVIDEND] (.57)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.37
[EXPENSE-RATIO] 1.41
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 2
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, CALIFORNIA PORTFOLIO (A)
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] JUN-30-1996
[INVESTMENTS-AT-COST] 93,458,998
[INVESTMENTS-AT-VALUE] 94,887,493
[RECEIVABLES] 2,058,262
[ASSETS-OTHER] 171,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 97,117,452
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 294,451
[TOTAL-LIABILITIES] 294,451
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 96,311,516
[SHARES-COMMON-STOCK] 7,467,163
[SHARES-COMMON-PRIOR] 7,838,510
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (917,010)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,428,495
[NET-ASSETS] 96,823,001
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 5,579,968
[OTHER-INCOME] 0
[EXPENSES-NET] (1,005,042)
[NET-INVESTMENT-INCOME] 4,574,926
[REALIZED-GAINS-CURRENT] 13,209
[APPREC-INCREASE-CURRENT] 196,447
[NET-CHANGE-FROM-OPS] 4,784,582
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (4,504,908)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,028,241
[NUMBER-OF-SHARES-REDEEMED] (1,626,759)
[SHARES-REINVESTED] 227,171
[NET-CHANGE-IN-ASSETS] (4,461,070)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (930,219)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 748,077
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,080,240
[AVERAGE-NET-ASSETS] 99,765,721
[PER-SHARE-NAV-BEGIN] 12.61
[PER-SHARE-NII] .58
[PER-SHARE-GAIN-APPREC] .03
[PER-SHARE-DIVIDEND] (.58)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.64
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 2
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, CALIFORNIA PORTFOLIO (B)
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] SEP-30-1995
[INVESTMENTS-AT-COST] 93,458,998
[INVESTMENTS-AT-VALUE] 94,887,493
[RECEIVABLES] 2,058,262
[ASSETS-OTHER] 171,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 97,117,452
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 294,451
[TOTAL-LIABILITIES] 294,451
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 96,311,516
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 46,794
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (917,010)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,428,495
[NET-ASSETS] 96,823,001
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 5,579,968
[OTHER-INCOME] 0
[EXPENSES-NET] (1,005,042)
[NET-INVESTMENT-INCOME] 4,574,926
[REALIZED-GAINS-CURRENT] 13,209
[APPREC-INCREASE-CURRENT] 196,447
[NET-CHANGE-FROM-OPS] 4,784,582
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (6,799)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 17,477
[NUMBER-OF-SHARES-REDEEMED] (64,623)
[SHARES-REINVESTED] 352
[NET-CHANGE-IN-ASSETS] (590,330)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (930,219)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 748,077
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,080,240
[AVERAGE-NET-ASSETS] 99,765,721
[PER-SHARE-NAV-BEGIN] 12.62
[PER-SHARE-NII] .13
[PER-SHARE-GAIN-APPREC] .06
[PER-SHARE-DIVIDEND] (.13)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.68
[EXPENSE-RATIO] 1.63
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000740843
[NAME] LIMITED TERM MUNICIPAL FUND, INC.
[SERIES]
[NUMBER] 2
[NAME] THORNBURG LIMITED TERM MUNICIPAL FUND, CALIFORNIA PORTFOLIO (C)
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-END] JUN-30-1996
[INVESTMENTS-AT-COST] 93,458,998
[INVESTMENTS-AT-VALUE] 94,887,493
[RECEIVABLES] 2,058,262
[ASSETS-OTHER] 171,697
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 97,117,452
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 294,451
[TOTAL-LIABILITIES] 294,451
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 96,311,516
[SHARES-COMMON-STOCK] 193,164
[SHARES-COMMON-PRIOR] 62,567
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (917,010)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,428,495
[NET-ASSETS] 96,823,001
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 5,579,968
[OTHER-INCOME] 0
[EXPENSES-NET] (1,005,042)
[NET-INVESTMENT-INCOME] 4,574,926
[REALIZED-GAINS-CURRENT] 13,209
[APPREC-INCREASE-CURRENT] 196,447
[NET-CHANGE-FROM-OPS] 4,784,582
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (63,219)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 164,199
[NUMBER-OF-SHARES-REDEEMED] (37,612)
[SHARES-REINVESTED] 4,010
[NET-CHANGE-IN-ASSETS] 1,653,926
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (930,219)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 748,077
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,080,240
[AVERAGE-NET-ASSETS] 99,765,721
[PER-SHARE-NAV-BEGIN] 12.62
[PER-SHARE-NII] .53
[PER-SHARE-GAIN-APPREC] .03
[PER-SHARE-DIVIDEND] (.53)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.65
[EXPENSE-RATIO] 1.43
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<DOCUMENT/>
<PAGE>
