<PAGE> <LOGO> IVY MACKENZIE
<letterhead information
down side of page>
MACKENZIE SERIES TRUST
(Mackenzie Limited Term Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
August 1, 1997
Dear Shareholder:
A special meeting of shareholders of Mackenzie Limited Term Municipal Fund
("Mackenzie Fund"), a series of Mackenzie Series Trust ("Mackenzie Trust"),
has been called for September 4, 1997, at which the shareholders of Mackenzie
Fund will be asked to consider a proposal for combining the assets of
Mackenzie Fund with the assets of Thornburg Limited Term Municipal Fund
National Portfolio ("Thornburg Fund"), which has investment objectives and
policies similar to those of Mackenzie Fund. The proposal was reviewed and
unanimously endorsed by the Trustees of Mackenzie Trust, on behalf of
Mackenzie Fund, as being in the best interests of Mackenzie Fund and its
shareholders.
As a result of the proposed transaction, your Fund would be combined with
Thornburg Fund, and you would become a shareholder of Thornburg Fund. As a
Mackenzie Fund shareholder, you will receive Class A shares of Thornburg Fund
regardless of the class(es) of Mackenzie Fund shares you now own, and the net
asset value of shares you receive will be equal to the net asset value of
your Mackenzie Fund shares. No sales charge will be imposed on the
transaction, and the closing of the transaction will be conditioned upon
receiving an opinion of counsel that the reorganization will qualify as a
tax-free reorganization for federal income tax purposes. WE STRONGLY URGE
YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction and the reasons for it
are contained in the enclosed materials. Please exercise your right to vote
by completing, dating and signing the enclosed proxy card. A self-addressed,
postage-paid envelope has been enclosed for your convenience. IT IS VERY
IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO
LATER THAN September 3, 1997.
NOTE: You may receive more than one proxy package if you hold shares of
Mackenzie Fund in more than one account. You must return separate proxy
cards for separate holdings. We have provided postage-paid return envelopes
for each.
Sincerely,
/s/Michael Landry
President and Trustee
Mackenzie Series Trust
<PAGE> <LOGO> IVY MACKENZIE
<letterhead information
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MACKENZIE SERIES TRUST
(Mackenzie California Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
August 1, 1997
Dear Shareholder:
A special meeting of shareholders of Mackenzie California Municipal Fund
("Mackenzie Fund"), a series of Mackenzie Series Trust ("Mackenzie Trust"),
has been called for September 4, 1997, at which the shareholders of Mackenzie
Fund will be asked to consider a proposal for combining the assets of
Mackenzie Fund with the assets of Thornburg Limited Term Municipal Fund
California Portfolio ("Thornburg Fund"), which has investment objectives and
policies generally similar to those of Mackenzie Fund. The proposal was
reviewed and unanimously endorsed by the Trustees of Mackenzie Trust, on
behalf of Mackenzie Fund, as being in the best interests of Mackenzie Fund
and its shareholders.
As a result of the proposed transaction, your Fund would be combined with
Thornburg Fund, and you would become a shareholder of Thornburg Fund. As a
Mackenzie Fund shareholder, you will receive Class A shares of Thornburg
Fund, regardless of the class(es) of Mackenzie Fund shares you now own, and
the net asset value of shares you receive will be equal to the net asset
value of your Mackenzie Fund shares. No sales charge will be imposed on the
transaction, and the closing of the transaction will be conditioned upon
receiving an opinion of counsel that the reorganization will qualify as a
tax-free reorganization for federal income tax purposes. WE STRONGLY URGE
YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction and the reasons for it
are contained in the enclosed materials. Please exercise your right to vote
by completing, dating and signing the enclosed proxy card. A self-addressed,
postage-paid envelope has been enclosed for your convenience. IT IS VERY
IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO
LATER THAN September 3, 1997.
NOTE: You may receive more than one proxy package if you hold shares of
Mackenzie Fund in more than one account. You must return separate proxy
cards for separate holdings. We have provided postage-paid return envelopes
for each.
Sincerely,
/s/ Michael Landry
President and Trustee
Mackenzie Series Trust
<PAGE> <LOGO> IVY MACKENZIE
Ivy Mackenzie Q & A REGARDING THE MACKENZIE/THORNBURG TRANSACTION:
Distributors, Inc. ----------------------------------------------------
Via Mizner
Financial Plaza WHY IS A MACKENZIE GROUP SHAREHOLDER MEETING BEING HELD?
Suite 300
700 S. Federal Hwy. Shareholders are being asked to vote on a reorganization
Boca Raton, FL 33432 of certain Mackenzie Funds into certain Thornburg Funds
that pursue similar investment objectives.
561.393.8900
800.456.5111
FAX 561.368.5244
HOW WILL THIS REORGANIZATION AFFECT CURRENT MACKENZIE SHAREHOLDERS?
Assuming shareholders of the affected Mackenzie Funds approve the
reorganizations, the assets of these Funds will be combined with those of the
appropriate Thornburg Fund. These shareholders will receive Class A shares
of a Thornburg Fund regardless of the class(es) of Mackenzie Fund shares
owned. The Thornburg Fund shares will be equal in dollar value at the time
of their issuance, to the shares of the Mackenzie Fund held. Mackenzie Fund
shareholders will become shareholders of the following Thornburg Funds:
Mackenzie Fund Thornburg Fund
-------------- --------------
Limited Term Municipal Fund Limited Term Municipal Fund -
National Portfolio
National Municipal Fund Intermediate Municipal Fund
California Municipal Fund Limited Term Municipal Fund -
California Portfolio
New York Municipal Fund New York Intermediate Municipal
Fund (a new fund)
WHY IS THE REORGANIZATION BEING RECOMMENDED?
Mackenzie Investment Management, Inc. ("MIMI") is opting to cease their
management of municipal bond funds. Thornburg Management Company, Inc.
("TMC") has been managing municipal bond funds since 1984 and has funds with
similar characteristics and investment objectives as those currently managed
by Mackenzie.
Morningstar currently rates the Class A shares of each of Thornburg's
Limited Term National and Intermediate Municipal 5 stars overall.
Morningstar also rates the Class A of Thornburg's Limited Term
California
4 stars overall. The table below shows historical Morningstar ratings
for the Class A shares of each Fund as of June 30, 1997.
<TABLE>
3 year 5 year 10 year
-------- -------- -------
<S> <C> <C> <C> <C>
Number of Funds in Category 1315 640 297 Fund Category
Morningstar Ratings (star ratings) --------------
Thornburg Limited Term Municipal - National 4 5 5 Muni Short
Thornburg Intermediate Municipal Fund 5 5 - Muni Natl Long
Thornburg Limited Term Municipal - California 4 4 4 Muni Short
</TABLE>
SOURCE: MORNINGSTAR Advanced for Principia, 6/30/97. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
6/30/97. The ratings are subject to change every month. Past performance
does not guarantee future results. Morningstar ratings are calculated from
the Funds' 3, 5, and 10 year average annual returns in excess of 90 day
Treasury bill returns with the appropriate sales charge adjustments and a
risk factor that reflects fund performance below 90 day T-bill returns. 10%
of the funds in an investment category receive 5 stars; 22.5% receive 4
stars. The overall rating is a weighted average of the 3, 5 and 10 year
ratings.
BOCA RATON
Mackenzie Investment
Management, Inc.
Ivy Mackenzie
Services Corp.
Ivy Management, Inc.
TORONTO
Mackenzie Financial
Corporation
(Parent Company)
PRAGUE
Ivy Lobkowicz
Mackenzie
SHANGHAI
Ivy Mackenzie
<PAGE>
Average annual total returns for each fund, which reflect deduction of the
current maximum initial sales charge of 2.5% for Thornburg Limited Term funds
and 3.5% for Thornburg Intermediate Municipal funds, for the 1, 5 and 10 year
periods ended 6/30/97 are as follows: Thornburg Limited Term Municipal -
National, 2.84%, 4.90%, 6.15%; Thornburg Intermediate Municipal Fund, 3.15%,
6.13%, 6.78% (since 7/22/91 inception); and Thornburg Limited Term Municipal
- - California, 2.87%, 4.70%, 5.94%.
WILL SHAREHOLDERS HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER FEES IN
CONNECTION WITH THE TRANSACTION?
No. The costs will be borne by both MIMI and TMC.
WHO ADVISES THORNBURG FUNDS AND PROVIDES OTHER SERVICES?
Thornburg Management Company, Inc. provides advisory services to the
Thornburg Funds under an arrangement that is similar to that currently in
effect between the Mackenzie municipal bond funds and MIMI. State Street
Bank & Trust Company is the custodian for the Thornburg Funds.
HOW DO ADVISORY FEES AND OTHER OPERATING FEES CURRENTLY PAID DIFFER FROM
THOSE CHARGES BY TMC?
With one exception, fees charged by TMC are currently lower than those being
charged by MIMI. That exception, Thornburg Limited Term Municipal Fund
National Portfolio, is similar, but slightly higher.
WHAT ACTION WILL EXISTING MACKENZIE SHAREHOLDERS NEED TO TAKE TO OPEN A
THORNBURG FUND ACCOUNT? WHAT HAPPENS TO EXISTING MACKENZIE FUNDS AT THE TIME
THE REORGANIZATION IS APPROVED?
At the time the reorganization is completed, a shareholder's interest in a
Mackenzie Fund will automatically be transferred to the respective Thornburg
Fund and a written confirmation will be sent to each shareholder.
Certificates will not be issued, but will be available on request.
WILL SHAREHOLDERS HAVE TO PAY ANY FEDERAL INCOME TAXES AS A RESULT OF THIS
REORGANIZATION?
The reorganization is intended to qualify as a tax free "reorganization"
within the meaning of the Internal Revenue Code. If the reorganization so
qualifies, in general, a shareholder of a Mackenzie Fund will recognize no
gain or loss upon the receipt of the shares of a Thornburg Fund in connection
with the reorganization. Additionally, the Mackenzie Fund would not
recognize any gain or loss as a result of the transaction.
WHAT IF A SHAREHOLDER REDEEMS SHARES OF A MACKENZIE FUND BEFORE THE
REORGANIZATION TAKES PLACE?
A shareholder may choose to redeem or exchange his or her shares of a
Mackenzie Fund before the reorganization takes place. If so, the redemption
or exchange will be treated as a normal redemption or exchange of shares and
generally will be a taxable transaction
WILL THE HISTORIES OF EACH ACCOUNT, INCLUDING COST-BASIS REPORTS, BE
TRANSFERRED TO THORNBURG OR WILL MACKENZIE CONTINUE TO MAINTAIN THIS
INFORMATION?
Mackenzie will continue to maintain the history for all account activity
before the reorganization. Thornburg's records will be limited to activity
after the conversion; however, important information regarding the cost basis
of Mackenzie shares will be transferred to Thornburg.
WHERE SHOULD SHAREHOLDERS AND FINANCIAL ADVISORS CALL FOR INFORMATION?
Shareholders, financial advisors and any other interested parties who want to
learn more about Thornburg Funds should call 800-847-0200 or visit
Thornburg's website at www.thornburg.com.
<PAGE>
<PAGE> <cover>
MACKENZIE SERIES TRUST
(MACKENZIE LIMITED TERM MUNICIPAL FUND)
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 4, 1997
To the Shareholders of
Mackenzie Limited Term Municipal Fund
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Mackenzie Limited Term Municipal Fund ("Mackenzie Fund"), a series
of Mackenzie Series Trust ("Mackenzie Trust"), a Massachusetts business trust,
will be held at the offices of Mackenzie Fund, Via Mizner Financial Plaza, 700
South Federal Highway, Boca Raton, Florida 33432, on September 4, 1997, at 10:00
a.m. Eastern time, for the following purposes:
1. To consider and act upon an Agreement and Plan of Reorganization (the
"Agreement") providing for the transfer of all of the assets of Mackenzie Fund
to Thornburg Limited Term Municipal Fund National Portfolio ("Thornburg Fund"),
a separate series of Thornburg Limited Term Municipal Fund, Inc., in exchange
solely for Class A voting shares of Thornburg Fund and the distribution of those
Class A shares to the shareholders of Mackenzie Fund and the subsequent
liquidation of Mackenzie Fund; and
2. To transact any other business as may properly come before the
meeting.
The Trustees of Mackenzie Trust have fixed the close of business on July
18, 1997 as the record date for determining shareholders entitled to notice of
and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET OUT ON THE INSIDE COVER.
By Order of the Trustees,
C. William Ferris
Secretary
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE>
<PAGE> <Inside Cover>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and may help avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: sign your name exactly as it appears in the
registration on the proxy card.
2. JOINT ACCOUNTS: either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration on the proxy
card.
3. ALL OTHER ACCOUNTS: the capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.
<PAGE>
<PAGE>
PROSPECTUS AND PROXY STATEMENT
RELATING TO THE ACQUISITION OF THE ASSETS OF
MACKENZIE LIMITED TERM MUNICIPAL FUND
a separate series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida
33432
(800) 456-5111
BY AND IN EXCHANGE FOR SHARES OF
THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO
separate series of
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200
This prospectus/proxy statement relates to the proposed transfer of
substantially all of the assets of Mackenzie Limited Term Municipal Fund
("Mackenzie Fund") to Thornburg Limited Term Municipal Fund National Portfolio
("Thornburg Fund"), a separate series of Thornburg Limited Term Municipal Fund,
Inc. ("Thornburg LTMF") in exchange solely for Class A voting shares of
Thornburg Fund. Mackenzie Fund and Thornburg Fund each seek as high a level of
interest income exempt from federal income taxes as is consistent, in the view
of their respective investment advisers, with the preservation of shareholders'
capital. As a result of the proposed transaction, each shareholder of Mackenzie
Fund will receive a number of shares of Thornburg Fund equal in value at the
date of the exchange to the value of that shareholder's shares of Mackenzie Fund
on that date. The terms and conditions of these transactions are more fully
described in this prospectus/proxy statement and in the Agreement and Plan of
Reorganization between Thornburg LTMF and Mackenzie Trust attached hereto as
Exhibit A.
This prospectus/proxy statement, which should be retained for future
reference, sets forth concisely the information about Thornburg Fund that a
prospective investor should know before investing. A statement of additional
information dated November 1, 1996, as revised May 6, 1997 (the "Statement of
Additional Information") containing additional information about Thornburg Fund
has been filed with the Securities and Exchange Commission and is incorporated
by reference into this prospectus/proxy statement. A copy of the Statement of
Additional Information may be obtained without charge by writing to Thornburg
Fund at its address noted above or by calling 1-800-847-0200. Copies of
Mackenzie Fund's current prospectus may be obtained without charge by writing
to Mackenzie Trust at its address noted above or by calling 1-800-546-5111.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS AND PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THORNBURG LTMF OR MACKENZIE TRUST.
INVESTMENTS IN THORNBURG FUND ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK
OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THORNBURG FUND ARE NOT
BANK 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 GOVERNMENTAL AGENCY.
The date of this prospectus/proxy statement is July 28, 1997.
<PAGE>
<PAGE>
TABLE OF CONTENTS
5. Summary of the Proposed Reorganization
6. Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund
6. Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund
10. Principal Risk Factors
10. Fees and Expenses of Mackenzie Fund and Thornburg Fund
13. Performance Information
13. Purchase, Redemption and Exchange Procedures of Mackenzie Fund and Thornburg
Fund
15. Dividend Policies of Mackenzie Fund and Thornburg Fund
15. Comparative Information About Shareholder Rights
16. Additional Information About Shareholder Accounts
16. Information About the Reorganization
18. Capitalization
19. Additional Information About Thornburg Fund and Mackenzie Fund
20. Voting Information
22. Exhibit A: Agreement and Plan of Reorganization
Enclosed: Exhibit B: Thornburg Municipal Funds Prospectus
For detailed information about Thornburg Fund, see Thornburg Municipal Funds
Prospectus dated February 1, 1997, included with this prospectus/proxy
statement.
<PAGE>
<PAGE> 5
SUMMARY OF THE PROPOSED REORGANIZATION
--------------------------------------
The Trustees of Mackenzie Series Trust ("Mackenzie Trust"), including the
Trustees who are not "interested persons" of Mackenzie Trust (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, have reviewed and
unanimously approved an agreement and plan of reorganization (the "Agreement")
between Mackenzie Trust, on behalf of Mackenzie Limited Term Municipal Fund
("Mackenzie Fund"), and Thornburg Limited Term Municipal Fund, Inc. ("Thornburg
LTMF"), on behalf of Thornburg Limited Term Municipal Fund National Portfolio
("Thornburg Fund"), providing for the acquisition of substantially all of the
assets of Mackenzie Fund, a separate series of Mackenzie Trust, by Thornburg
Fund, a separate series of Thornburg LTMF in exchange solely for Class A voting
shares of Thornburg Fund. The aggregate net asset value of the Class A shares
of Thornburg Fund issued in the exchange will equal the aggregate net asset
value of the shares outstanding for Mackenzie Fund. In connection with the
transaction, Class A shares of Thornburg Fund will then be distributed to
shareholders of Mackenzie Fund on a pro rata basis, and Mackenzie Fund will be
terminated. These transactions are referred to as the "reorganization."
As a result of the reorganization, each shareholder of Mackenzie Fund will
become a shareholder of Thornburg Fund, receiving Class A shares of Thornburg
Fund having an aggregate net asset value equal to the net asset value of that
shareholder's shares in Mackenzie Fund. No sales charge will be imposed on the
transaction. As a condition to the closing, Thornburg Fund and Mackenzie Fund
will obtain an opinion of Dechert Price & Rhoads to the effect that, based upon
certain facts, assumptions and representations, the reorganization will qualify
as a tax-free reorganization for federal income tax purposes. See "Information
About the Reorganization." Persons receiving Thornburg Fund shares in the
reorganization will remain free to redeem their shares after the reorganization.
Mackenzie Fund and Thornburg Fund have substantially similar investment
objectives and policies. The risks of investing in Thornburg Fund are
substantially the same as the risks of investing in Mackenzie Fund. See
"Principal Risk Factors" below. Each Fund has substantially similar
distribution, purchase and redemption procedures.
For the reasons set forth below, the Trustees of Mackenzie Trust, including
all of the Independent Trustees, have unanimously concluded that the
reorganization is in the best interests of the shareholders of Mackenzie Fund.
The Trustees of Mackenzie Trust therefore have submitted the Agreement for
approval by the shareholders of Mackenzie Fund at a special meeting of
shareholders to be held on September 4, 1997 (the "Meeting"). Approval of the
reorganization with respect to Mackenzie Fund requires a vote of a majority of
the outstanding Class A shares of Mackenzie Fund and a majority of the
outstanding Class B shares of Mackenzie Fund.
At or about the same time that substantially all of the assets of Mackenzie
Fund are acquired by Thornburg Fund, Thornburg Limited Term Municipal Fund
California Portfolio will acquire substantially all of the assets of Mackenzie
California Municipal Fund, Thornburg Intermediate Municipal Fund will acquire
substantially all of the assets of Mackenzie National Municipal Fund, and
Thornburg New York Intermediate Municipal Fund will acquire substantially all
of the assets of Mackenzie New York Municipal Fund. Each of these transactions
has been approved by the Board of Trustees of the respective Mackenzie fund.
The acquisitions of substantially all of the assets of Mackenzie Fund, Mackenzie
California Municipal Fund, Mackenzie National Municipal Fund and Mackenzie New
York Municipal Fund are referred to collectively herein as the "Related
Acquisitions." Completion of the reorganization is contingent upon proper
shareholder approval being received for each of the Related Acquisitions, the
satisfaction of all other conditions to closing the Related Acquisitions and the
acquisition of certain assets of Mackenzie Investment Management, Inc. by
Thornburg Management Company, Inc. pursuant to an asset purchase agreement.
There can be no assurance such shareholder approval can be obtained for each
Related Acquisition or that the conditions of the other Related Acquisitions
will be satisfied. If shareholders of Mackenzie Fund approve the reorganization
and the other Related Acquisitions are not approved, the Board of Trustees of
Mackenzie Fund will consider the alternatives available to it with respect to
Mackenzie Fund, including completion of the reorganization respecting Mackenzie
Fund. See "Voting Information."
<PAGE> 6
The Trustees of Mackenzie Trust have approved the reorganization because
they believe it would benefit Mackenzie Fund through Thornburg Fund's larger
size and expected greater concentration on managing mutual funds which invest
in fixed income securities. In that connection, the Trustees considered the
fact that Thornburg Fund's investment adviser has many years of experience in
managing portfolios of municipal obligations. As discussed below, Thornburg
Fund's investment adviser, Thornburg Management Company, Inc., manages a family
of mutual fund portfolios with assets of approximately $1.6 billion as of March
31, 1997. As members of this family of funds, shareholders of Mackenzie Fund
would enjoy all the same services and privileges as other shareholders of
Thornburg Fund, including the opportunity to exchange into funds with a variety
of investment objectives and policies.
The Mackenzie Trustees also took into account a variety of other factors
discussed below in greater detail. See "Information About the Reorganization."
THE TRUSTEES OF MACKENZIE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.
INVESTMENT ADVISERS AND DISTRIBUTORS OF MACKENZIE FUND AND THORNBURG FUND
-------------------------------------------------------------------------
The investment adviser to Mackenzie Fund is Mackenzie Investment Management
Inc. ("MIMI"), whose address is Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432. MIMI, a Delaware corporation,
has approximately 10% of its outstanding common stock listed for trading on the
Toronto Stock Exchange. MIMI is a subsidiary of Mackenzie Financial
Corporation, 150 Bloor Street West, Toronto, Ontario, Canada, a public
corporation organized under the laws of Ontario and whose shares are listed for
trading on The Toronto Stock Exchange. In addition to providing investment
management services to Mackenzie Fund, MIMI provides certain business management
services, including coordinating services furnished to Mackenzie Fund by service
providers, providing office space, providing administrative and clerical
services, supervising the maintenance of books and records, and certain other
services. Fees charged by MIMI for these services are described below under
"Fees and Expenses of Mackenzie Fund and Thornburg Fund." The distributor of
Mackenzie Fund shares is Ivy Mackenzie Distributors, Inc., Via Mizner Financial
Plaza, 700 South Federal Highway, Suite 300, Boca Raton, Florida 33432.
The investment adviser to Thornburg Fund is Thornburg Management Company,
Inc. ("TMC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. The
controlling shareholder of TMC is H. Garrett Thornburg, Jr. TMC is also
investment adviser to Thornburg Investment Trust, an investment company
currently offering six active investment portfolios, three of which seek current
income from investment in municipal obligations, two of which seek current
income from investments in government and other fixed income securities, and one
of which seeks capital appreciation through investment in stocks and other
securities. TMC also furnishes to each mutual fund under its management
supervision, administration and performance of certain administrative services
necessary for maintenance of shareholder services. Fees charged by TMC for
these services are described below under "Fees and Expenses of Mackenzie Fund
and Thornburg Fund." The distributor of Thornburg Fund shares is Thornburg
Securities Corporation, 119 East Marcy Street, Santa Fe, New Mexico 87501.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES
AND RESTRICTIONS OF MACKENZIE FUND AND THORNBURG FUND
-----------------------------------------------------
Investment Objectives of the Funds
- ----------------------------------
Mackenzie Fund.
-------------- Mackenzie Fund seeks as high a level of interest income
exempt from federal personal income taxes as is consistent, in MIMI's view, with
the preservation of shareholders' capital. Mackenzie Fund seeks to achieve this
objective by investing primarily in debt securities, the
<PAGE> 7
interest on which is exempt from federal personal income taxes. Mackenzie Fund
expects to maintain a dollar-weighted average portfolio maturity of three to six
years and only will purchase obligations with remaining maturities of ten years
or less.
Thornburg Fund.
-------------- Thornburg Fund's primary investment objective is to obtain
as high a level of current income exempt from federal personal income taxes as
is consistent, in TMC's view, with preservation of shareholders' capital.
Thornburg Fund's secondary objective is minimizing expected fluctuations in net
asset value relative to longer intermediate and long-term bond portfolios.
Thornburg Fund pursues its primary objective by investing in a portfolio of
municipal securities, the interest on which is exempt from federal income taxes.
Thornburg Fund seeks 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. Thornburg
Fund believes its policy on limiting its average portfolio maturity will cause
the Fund to experience less change in its net asset value in response to
interest rate changes than a longer term portfolio might experience.
Securities in Which the Funds Invest
- ------------------------------------
Mackenzie Fund.
-------------- As a fundamental policy, at least 80% of Mackenzie Fund's
assets are invested during normal market conditions in tax-exempt municipal
securities, exclusive of obligations the interest on which constitutes an item
of tax preference for purposes of the federal alternative minimum tax. The tax-
exempt securities in which Mackenzie Fund may invest include debt obligations
issued by or on behalf of the 50 states, the District of Columbia and their
political subdivisions, agencies, authorities and instrumentalities and the
governments of Puerto Rico and Guam, except that the Fund will not invest more
than 5% of its net assets in obligations of each of Puerto Rico and Guam.
Mackenzie Fund may invest more than 20% of its total assets in taxable
investments for temporary defensive purposes. Taxable investments may include
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, commercial paper, corporate obligations, certificates of
deposit or bankers' acceptances or other short-term obligations of domestic
banks or thrifts, or repurchase agreements with banks or broker dealers.
Mackenzie Fund may purchase a variety of municipal securities including both
general obligation bonds and revenue bonds, and the Fund is permitted to buy
variable interest securities and repurchase agreements. The Fund may purchase
securities on a when-issued basis. Some securities owned by the Fund may pay
interest which is subject to the federal alternative minimum tax. Mackenzie
Fund may invest without limit in securities depending for repayment upon
revenues from similar projects. Mackenzie Fund may purchase or write options
and enter into futures contracts, but has no current intention to do so.
Thornburg Fund.
-------------- Except to the extent Thornburg Fund is invested in
temporary investments for defensive purposes, it will under normal conditions
invest 100% of its assets in municipal debt securities, and as a fundamental
policy which may not be changed without a shareholder vote, will normally invest
at least 80% of its net assets in municipal securities. Thornburg Fund may
invest up to 20% of its assets in temporary investments in taxable investments
because of market conditions, pending investment of idle funds or to afford
liquidity. Temporary investments in taxable securities could exceed 20% of its
net assets when made for defensive purposes during periods of abnormal market
conditions, but Thornburg Fund does not expect to find it necessary to make
temporary investments in taxable securities. Any temporary investments would
be in taxable securities of comparable quality to the tax-exempt securities that
Thornburg Fund may purchase. Thornburg Fund may purchase a variety of municipal
securities including both general obligation bonds and revenue bonds, and
municipal leases, and the Fund is permitted to buy variable interest securities
and repurchase agreements. The Fund may purchase securities on a when-issued
basis. The Fund is permitted to purchase securities which pay interest subject
to the federal alternative minimum tax, but does not currently have any such
securities in its portfolio. Thornburg Fund may invest without limit in
securities depending for repayment upon revenues from similar projects; however,
the Fund has maintained a diversified portfolio in the past and expects to
continue to do so in the future.
<PAGE> 8
Securities Ratings
- ------------------
Mackenzie Fund.
-------------- Mackenzie Fund may purchase (i) municipal securities that
are backed by the full faith and credit of the U.S. Government, (ii) notes rated
MIG-1, MIG-2 or MIG-3 by Moody's Investors Service, Inc. ("Moody's") or AAA, AA,
A, SP-1 or SP-2 by Standard & Poor's Corporation ("Standard & Poor's"), (iii)
municipal bonds rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by
Standard & Poor's, (iv) other types of municipal securities, provided that such
obligations are rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard
& Poor's, or (v) unrated municipal securities issued by an entity having other
securities outstanding which meet any of the minimum ratings above, or are of
equivalent quality as determined by MIMI. Corporate obligations Mackenzie Fund
may purchase as temporary investments will be rated Aaa or Aa by Moody's or AAA
or AA by Standard & Poor's.
Thornburg Fund.
-------------- Thornburg Fund invests in municipal securities which are
rated at the time of purchase within the four highest grades by Moody's, Fitch
Investors Service, or Standard & Poor's, or which are not rated but are issued
by obligors who have comparable debt securities outstanding or who are deemed
by TMC to be comparable with issuers having such debt ratings. Any temporary
taxable investments by Thornburg Fund are securities of comparable quality to
the municipal securities Thornburg Fund may purchase.
Investment Restrictions of the Funds
- ------------------------------------
Mackenzie Fund and Thornburg Fund are each subject to fundamental and non-
fundamental investment restrictions. Fundamental restrictions may be changed
only upon a vote of the shareholders, while non-fundamental restrictions may be
changed by the trustees or directors of a mutual fund. The investment
restrictions of the Funds are compared below.
Fundamental Investment Restrictions
-----------------------------------
Neither Mackenzie Fund nor Thornburg Fund may purchase securities of any
one issuer (except U.S. Government securities) if, as a result, more than 5% of
the Fund's total assets would be invested in that issuer or the Fund would own
more than 10% of the outstanding voting securities of that issuer, except that
up to 25% of the value of Mackenzie Fund's total assets may be invested without
regard to these restrictions.
Neither Mackenzie Fund nor Thornburg Fund may invest in real estate, real
estate mortgage loans, commodities, commodity futures contracts or oil, gas or
other mineral exploration or development programs, except that either Fund may
invest in municipal securities that are secured by real estate. In addition,
Mackenzie Fund may invest in securities of issuers that invest in or deal in
real estate, and also may invest in futures contracts as described in Mackenzie
Fund's prospectus.
Mackenzie Fund and Thornburg Fund are each subject to restrictions on
borrowing money and pledging assets. Mackenzie Fund may borrow amounts up to
10% of its total assets (taken at the lower of cost or market value), and then
only from banks as a temporary measure for extraordinary or emergency purposes.
Mackenzie Fund may pledge its assets only to secure permitted borrowings (and
then not in excess of 20% of its total assets) or for escrow, collateral or
margin arrangements in connection with the Fund's use of options, short sales,
futures contracts and options on futures contracts. Thornburg Fund may borrow
amounts not exceeding 5% of its total assets, but only for temporary or
emergency purposes. Thornburg Fund is not permitted to pledge assets, except
to secure these permitted borrowings.
Neither Mackenzie Fund nor Thornburg Fund may make loans. However,
Mackenzie Fund may lend portfolio securities and enter into repurchase
agreements, and this restriction does not prohibit Mackenzie Fund from
purchasing publicly issued debt instruments as described in its prospectus.
Similarly, Thornburg Fund is not prohibited by this restriction from purchasing
the debt obligations described in its prospectus, and it also may invest in
repurchase agreements.
<PAGE> 9
Neither Mackenzie Fund nor Thornburg Fund may purchase securities on
margin, except such short-term credits as are necessary for the clearance of
transactions, and except that Mackenzie Fund does not consider initial or
variation margin in connection with futures contracts or related options to be
a margin purchase of securities.
Mackenzie Fund may engage in transactions in certain types of financial
futures and related options and options on individual securities and bond
indices, although it has not done so in the last year and has no current
intention to do so. Thornburg Fund has a fundamental investment restriction
prohibiting it from writing or purchasing puts, calls, straddles or spreads,
except to the extent it may purchase securities pursuant to demand or
remarketing agreements with dealers as described in its prospectus. Neither
Fund is permitted to make short sales of securities.
Neither Mackenzie Fund nor Thornburg Fund will act as an underwriter of
securities, and neither Fund will issue senior securities, except insofar as it
may be deemed to have done so in connection with any repurchase agreement,
purchasing any securities on a when-issued or delayed delivery basis, or
permitted borrowing.
Both Funds are subject to the restriction that neither Fund will purchase
securities if, as a result, more than 25% of the Fund's total assets would be
invested in any one industry. This limitation does not apply to U.S. Government
securities, or in the case of Thornburg Fund, tax exempt securities issued by
state governments or their agencies and political subdivisions.
Mackenzie Fund also has adopted fundamental investment restrictions against
investing in securities for the purpose of exercising control over or management
of the issuer, and against participation in a joint or a joint and several basis
in any trading account. Thornburg Fund does not currently have comparable
restrictions.
Thornburg Fund has adopted fundamental restrictions against investing more
than 5% of its total assets in unseasoned issuers or in securities it is
restricted from selling to the public without registration, and against
purchasing securities of other investment companies unless the purchase is made
in connection with a merger, consolidation or acquisition of assets. Mackenzie
Fund is similarly restricted from investing more than 5% of its assets in
unseasoned issuers less than three years old, but this is a non-fundamental
restriction which may be changed by its Board of Trustees. Mackenzie Fund is
not specifically prohibited from purchasing unregistered securities, but must
count them as illiquid under its non-fundamental liquidity policy described
below. Thornburg Fund has adopted the further restriction that it will not
purchase or retain securities of any issuer if, to its knowledge, officers or
directors of the Fund or TMC who individually own more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's outstanding
securities. Mackenzie Fund has a similar, but non-fundamental, policy.
Non-fundamental Policies
------------------------
In addition to the policies described above, Mackenzie Fund and Thornburg
Fund have adopted other, non-fundamental policies which may be changed by the
Board of Directors or Board of Trustees of a Fund without a shareholder vote.
Mackenzie Fund and Thornburg Fund each have adopted the policy that it will
not invest more than 10% of its net assets in illiquid securities. Illiquid
securities may include securities subject to resale restrictions or other
factors reducing liquidity, securities for which market quotations are not
readily available, repurchase agreements maturing in more than seven days, and,
in the case of Mackenzie Fund (which is permitted to purchase and sell options),
certain over-the-counter options and securities used to cover options Mackenzie
Fund has written.
Mackenzie Fund has adopted the non-fundamental investment restrictions that
it will not purchase or sell real estate limited partnership interests or
interests in oil, gas and mineral leases (other than securities of companies
that invest in or sponsor such programs). Thornburg Fund also has adopted the
non-fundamental restrictions that it will invest no more than 5% of its assets
in repurchase agreements, and will invest no more than 10% of its total assets
in securities, known as inverse floaters, the interest rates on which vary
inversely with market rates of interest. Mackenzie Fund does not have
comparable restrictions.
<PAGE> 10
PRINCIPAL RISK FACTORS
----------------------
Because of similarities in investment objectives and policies, the risks
of investing in Thornburg Fund are substantially similar to the risks of
investing in Mackenzie Fund.
The net asset value of mutual funds investing in municipal securities will
vary as market interest rates fluctuate, although municipal bond portfolios
which maintain lower average portfolio maturities tend to experience smaller
fluctuations in net asset value (and may have lower yields) relative to
municipal bond portfolios with longer average portfolio maturities. Issuers of
municipal securities may prepay those securities in periods of low interest
rates, reducing the expected returns on securities held by a mutual fund as the
fund reinvests in securities having lower interest rates. Portfolio securities
held by either Mackenzie Fund or Thornburg Fund also may be subject to
bankruptcy or other laws protecting debtors or legislative action or voter
referenda which may adversely affect the ability of issuers to pay principal and
interest when due, or reductions in value because of inability of the issuer to
pay the obligation or because of downgrading by rating agencies.
Investment techniques which may be utilized by either Mackenzie Fund or
Thornburg Fund may have associated risks. Purchasing securities on a when-
issued or firm commitment basis could result in a loss if the value of the
securities to be purchased declines before the settlement date. Investing in
repurchase agreements could result in a loss or a delay in obtaining repayment
if the other party defaults or becomes insolvent. Borrowing by either Fund
could exaggerate the effects on the Fund's net asset value of any increase or
decrease in the value of the Fund's portfolio securities. Variable rate
securities with interest rates which change inversely with market rates of
interest may experience more volatile changes in value during periods when
interest rates are changing.
For a further discussion of the investment objectives, risks, policies and
restrictions applicable to Thornburg Fund, please see the accompanying
prospectus for Thornburg Fund.
FEES AND EXPENSES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------
Mackenzie Fund
- --------------
Mackenzie Fund is contractually obligated to pay MIMI an investment
management fee at an annual rate of .55% of average net assets, and an
administrative services fee at an annual rate of .10%, together with the Fund's
other expenses and costs of operation. Mackenzie Fund also has adopted plans
and agreements pursuant to Rule 12b-1 under the Investment Company Act of 1940
applicable to its Class A and Class B shares, under which Class A shareholders
pay a distribution fee at an annual rate of .25% of average daily net assets and
Class B shareholders pay a service and distribution fee of .75% of average daily
net assets.
Mackenzie Fund's total operating expense ratios for Class A shares and
Class B shares, respectively, were .89% and 1.39% for the year ended June 30,
1996, after taking into account voluntary waivers of fees and reimbursements of
expenses by MIMI. Absent these fee waivers and reimbursements, Class A and
Class B expense ratios would have been 1.32% and 1.82%, respectively. MIMI is
not obligated to continue its waivers of fees or reimbursements of expenses in
the future.
Thornburg Fund
- --------------
Thornburg Fund is contractually obligated to pay TMC an investment advisory
fee which varies based upon the Fund's assets. The fee is computed on average
daily net assets at an annual rate of .50% of the first $500 million of net
assets, .40% of net assets of $500 million to $1 billion, .30% of net assets of
$1 billion to $1.5 billion, .25% of net assets of $1.5 billion to $2 billion,
and .225% on net assets over $2 billion. The current annual investment
management fee rate is .45%. The Fund pays an administrative services fee with
respect to its Class A shares at an annual rate of .125%, together with the
Fund's other expenses and costs of operation. Thornburg Fund also has adopted
a service plan pursuant to Rule 12b-1 under the Investment Company Act of 1940,
applicable to its Class A shares, under which Class A shareholders pay a service
fee at an annual rate of up to .25% of average daily net assets.
<PAGE> 11
The Fund's total operating expense ratio for Class A shares was .98% for
the year ended June 30, 1996. No fee waivers or expense reimbursements were in
effect for Class A shares of Thornburg Fund during the period.
The total operating expenses for Mackenzie Fund are slightly lower than
those of Thornburg Fund because of MIMI's waivers of fees and reimbursements of
expenses. There can be no assurance that those waivers and reimbursements will
continue for Mackenzie Fund if the reorganization is not completed.
The tables below set forth (i) shareholder transaction expenses on
purchases or sales of shares of each of the Funds, (ii) the fees and expenses
paid by Mackenzie Fund for the year ended June 30, 1996, (iii) fees and expenses
paid by Thornburg Fund for the year ended June 30, 1996,and (iv) where
applicable, pro forma figures for the combined funds. Because Mackenzie Fund
Class B shareholders will receive Thornburg Fund Class A shares in the
reorganization, Thornburg Fund Class A figures apply both to Class A and Class B
shareholders upon completion of the reorganization. No sales charges will be
imposed on Mackenzie Fund shares relinquished by Mackenzie Fund shareholders in
the reorganization, or on Thornburg Fund shares distributed to Mackenzie Fund
shareholders in the reorganization.
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<CAPTION>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
------- ------- --------------
- --------------
<S> <C> <C> <C>
Maximum Sales Charge on
Purchase (as a percentage
of offering price) 3.00% none 2.50% <FN2>
Maximum Deferred Sales
Charge on Redemptions
(as a percentage of
redemption proceeds or
original purchase price,
whichever is lower) none 3.00% <FN1> none <FN3>
<FN>
<FN1> The maximum Mackenzie Fund Class B contingent deferred sales charge
is imposed on redemptions within one year of purchase, declines to
2.5% in the second year, 2% the third year, 1.5% the fourth year,
and 1.0% the fifth year. This sales charge will not be imposed on
shares exchanged for Thornburg Fund shares in the reorganization.
<FN2> The sales charge imposed on purchases of Class A shares will not
apply to shares issued to Mackenzie Fund shareholders.
<FN3> Thornburg Fund imposes a contingent deferred sales charge on
redemptions of purchases greater than $1 million in the event of a
redemption within 12 months of purchase. This charge will not apply
to shares issued in the reorganization.
</FN>
</TABLE>
<PAGE> 12
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION> Thornburg Fund
Mackenzie Fund Thornburg Fund Class A
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees .12% <FN1> .12% <FN1> .45% .45%
Rule 12b-1 Fees .25% .75% .25% .25%
Other Expenses .52% .52% .28% .28%
---- ---- ---- ----
Total Fund Operating
Expenses .89% <FN1> 1.39% <FN1> .98% .98%
<FN>
<FN1> MIMI currently limits Mackenzie Fund's total operating expenses
(excluding taxes, Rule 12b-1 fees, and certain other expenses).
Without expense reimbursements, management fees would have been .55% for
Class A and Class B shares and total fund operating expenses would
have been 1.32% and 1.82%, respectively, for Class A and Class B
shares. MIMI is under no obligation to waive fees or reimburse
expenses in the future. Class B shareholders may pay more than the
economic equivalent of the maximum front end sales charge permitted
by the National Association of Securities Dealers, Inc.
</FN>
EXAMPLES You would pay the following expenses on a $1,000 investment, assuming
the maximum sales charge is deducted, each Fund's expense ratio remains the
same, a 5% annual return, and redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Thornburg Fund Class A
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
One Year $39 $44 $35 $35
Three Years $58 $64 $56 $56
Five Years $78 $86 $78 $78
Ten Years $136 $153 $143 $143
You would pay the following expenses on the same $1,000 investment, assuming no
redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Thornburg Fund Class A
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
One Year $39 $14 $35 $35
Three Years $58 $44 $56 $56
Five Years $78 $76 $78 $78
Ten Years $136 $153 $143 $143
</TABLE>
The set of examples which assumes redemption at the end of each time period also
assumes deduction of the maximum sales charge on purchase of Class A shares and
deduction of the applicable Class B contingent deferred sales charge upon
redemption at the end of each time period. The set of examples which assumes
no redemption also assumes deduction of the maximum sales charge on purchase of
Class A shares, but does not reflect any contingent deferred sales charge on
Class B shares because no redemption is deemed to occur.
The expense figures in the tables above are presented to assist the investor in
understanding the costs that an investor will bear, directly or indirectly. THE
INFORMATION IN THE TABLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSE, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN. MIMI, Mackenzie Fund's investment adviser, may not waive fees or
reimburse expenses of Mackenzie Fund in the future.
<PAGE> 13
PERFORMANCE INFORMATION
-----------------------
The following table presents comparative performance information for
Mackenzie Fund and Thornburg Fund. Performance figures for Class A shares
assume that the maximum sales charge was paid on purchase, and figures for
Class B shares assume that the shares were redeemed at the end of the period
shown and the applicable contingent deferred sales charge was paid. Sales
charges do not, however, apply to Mackenzie Fund shares exchanged by Mackenzie
Fund shareholders in the reorganization or to Thornburg Fund shares distributed
to Mackenzie Fund shareholders in the reorganization.
<TABLE>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
--------------- --------------- ----------------
Before After Before After Before After
Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Average annual total
return after deduction
of maximum sales charge
for following periods
ending on June 30, 1997
One Year 2.07% 2.47% (.39)% .02% 2.84% 2.84%
Five Years 3.96% 4.28% NA NA 4.90% 4.90%
Ten Years NA NA NA NA 6.09% 6.15%
Since Inception* 4.32% 4.64% 3.84% 4.25% 6.84% 6.96%
* April 22, 1985 and April 1, 1994 for Class A and Class B shares,
respectively, of Mackenzie Fund; and September 28, 1984 for Class A shares
of Thornburg Fund.
From time to time MIMI has waived fees or reimbursed fund expenses incurred by
Mackenzie Fund and TMC similarly has waived fees or reimbursed fund expenses for
Thornburg Fund. Average annual total return figures in each column under the
caption "Before Expense Reimb." are the Fund's performance figures assuming no
waiver or reimbursement occurred; figures in each column under the caption
"After Expense Reimb." are the performance figures after taking into account any
waivers or reimbursements.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE.
PURCHASE, REDEMPTION AND EXCHANGE
PROCEDURES FOR MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------
Mackenzie Fund - Purchasing Shares
- ----------------------------------
Class A shares of Mackenzie Fund are sold at net asset value plus a sales
charge imposed at the rates shown in the table below.
<PAGE>
</TABLE>
<TABLE>
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>
Less than $25,000.00 3.00% 3.09% 2.50%
$25,000 to 249,999.99 2.50% 2.56% 2.00%
$250,000 to 499,999.99 2.00% 2.04% 1.65%
$500,000 and up 0.00% * 0.00% 0.00%
* No sales charge is imposed on investments of $500,000 or more in
Class A shares by a purchaser. A contingent deferred sales charge
of .75% is imposed on redemptions of any portion of such a purchase
within 24 months of purchase.
<PAGE> 14
Class A shares also are sold to specified classes of investors at reduced or
no sales charges (but subject in some cases to a contingent deferred sales
charge) as described in the Mackenzie Fund prospectus.
Class B shares are sold at net asset value, but are subject to a
contingent deferred sales charge at the rates shown below if redeemed within
five years of purchase. The sales charge is not applicable to Mackenzie Fund
shares exchanged for Thornburg Fund shares in the reorganization.
Sales Charge as a
Year Since Percentage of Dollar
Purchase Amount Subject to Charge
---------- ------------------------
First 3.0%
Second 2.5%
Third 2.0%
Fourth 1.5%
Fifth 1.0%
Sixth and thereafter 0%
The charge is imposed on the lesser of the current market value or the
original cost of the shares. In determining any sales charge applicable to
a redemption, it is assumed shares held for more than five years are redeemed
first, then shares acquired through reinvestment of dividends are redeemed
next, and then shares held for the longest period are redeemed.
Thornburg Fund - Purchasing Shares
- ----------------------------------
Class A shares of Thornburg Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below:
</TABLE>
<TABLE>
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>
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% *
* No sales charge is 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 any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
This charge is not applicable to shares received in exchange for
Mackenzie Fund shares in the reorganization.
Class A shares also are sold to specified classes of investors at reduced or
no sales charges, as described in the accompanying Thornburg Fund prospectus.
Thornburg Fund also offers other classes of shares. Class C shares are
described in the accompanying Thornburg Fund prospectus, but will not be
issued in the reorganization.
<PAGE> 15
Mackenzie Fund and Thornburg Fund - Exchange Privileges
- -------------------------------------------------------
If elected by a shareholder, Class A shares and Class B shares of
Mackenzie Fund may be exchanged for Class A or Class B shares, respectively,
of other funds offered by Mackenzie Trust or by the Ivy Funds, subject to
certain conditions described in the Mackenzie Fund prospectus. Similarly,
Class A shares of Thornburg Fund may be exchanged for Class A shares of other
Thornburg mutual funds managed by TMC. The Thornburg Fund exchange privilege
is subject to conditions stated in the accompanying prospectus, including the
requirement that if you exchange into a fund with a higher sales charge, you
must pay the difference between that fund's sales charge and the sales charge
on the shares you are exchanging. This charge is not applicable to Thornburg
Fund shares received in the reorganization, and it is not necessary to elect
the exchange privilege with Thornburg Fund. Each of the Funds permits
exchanges by telephone if the telephone exchange privilege has been elected
by the shareholder. Mackenzie Fund shareholders who previously elected the
telephone exchange privilege will be deemed to have elected the similar
Thornburg Fund exchange privilege if the reorganization is completed.
Mackenzie Fund and Thornburg Fund - Redemptions
- -----------------------------------------------
Shares of Mackenzie Fund and Thornburg Fund properly presented for
redemption may be redeemed at the next determined net asset value per share,
subject to a contingent deferred sales charge ("CDSC") in specified
circumstances. Class B shares of Mackenzie Fund held less than six years,
and certain Mackenzie Fund Class A shares purchased at reduced sales charges
may be subject to a contingent deferred sales charge described in the
Mackenzie Fund prospectus. Thornburg Fund imposes a CDSC of 1/2 of 1% on
redemptions of part or all of any purchase over $1 million in the event of a
redemption within 12 months of purchase. Neither Mackenzie Fund shares
exchanged in the reorganization, nor Class A shares issued by Thornburg Fund
in the reorganization, will be subject to any CDSC. Mackenzie Fund offers a
check writing privilege which permits shareholders to redeem shares by
writing checks against their Mackenzie Fund accounts. Thornburg Fund
currently does not offer such a privilege. Mackenzie Fund shareholders who
previously elected the telephone redemption privilege will be deemed to have
elected the Thornburg Fund telephone redemption privilege if the
reorganization is completed.
DIVIDEND POLICIES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------
Mackenzie Fund declares and pays monthly dividends on any net investment
income. Net investment income generally is the income from interest on the
Fund's investments. At the end of each fiscal year Mackenzie Fund intends to
distribute any undistributed net investment income, together with any net
realized short-term and long-term capital gains. The Fund may make an
additional distribution of any net capital gains at the end of each calendar
year. Distributions are reinvested in Fund shares unless the shareholder
elects to receive them in cash.
Thornburg Fund distributes substantially all of its net investment
income and realized capital gains to its shareholders. The Fund declares
dividends from net investment income daily and distributes those dividends
monthly. Any net realized capital gains are distributed at least annually,
usually in December. Distributions are reinvested in Fund shares unless the
shareholder elects to receive them in cash.
COMPARATIVE INFORMATION ABOUT SHAREHOLDER RIGHTS
------------------------------------------------
Mackenzie Fund is a diversified series of Mackenzie Trust, a
Massachusetts business trust organized in 1985. Mackenzie Trust is governed
by its declaration of trust, as amended, its bylaws, and applicable
Massachusetts and federal law. The conduct of Mackenzie Fund's business is
supervised by Mackenzie Trust's Board of Trustees. Thornburg Fund is a
diversified series of Thornburg LTMF, a Maryland corporation organized in
1984. As a Maryland corporation, Thornburg LTMF is governed by applicable
Maryland corporate law, its articles of incorporation, as amended, and its
bylaws. The business of Thornburg LTMF is supervised by its Board of
Directors.
<PAGE> 16
Mackenzie Trust is authorized to create an unlimited number of series,
and with respect to each series, to issue an unlimited number of full and
fractional shares of one or more classes and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the series. Thornburg LTMF is
currently authorized to issue one billion shares of $.001 par value common
stock, and may increase the authorized number of shares under applicable
Maryland law at any time. The Board of Directors of Thornburg LTMF is
authorized to divide and redivide the authorized shares of Thornburg LTMF
into any number of series and to divide or combine the shares of these series
into a greater or lesser number of classes without thereby changing the
proportionate beneficial interests in the series. All of the shares of
Mackenzie Trust and of Thornburg LTMF, respectively, have equal voting rights
with each other, except that only shares of the respective series or separate
classes within a series are entitled to vote on matters concerning only that
series or class.
Neither Mackenzie Trust nor Thornburg LTMF hold annual shareholder
meetings. There normally will not be any meetings of shareholders of
Mackenzie Trust, Thornburg LTMF or either of the Funds to elect Trustees or
Directors unless fewer than a majority of the Trustees or Directors, as the
case may be, then holding office have been elected by shareholders. However,
the Trustees of Mackenzie Trust or the Directors of Thornburg LTMF may call
special meetings from time to time to seek shareholder approval of certain
matters, and meetings of shareholders of any Fund or class of shares of
either Mackenzie Trust or Thornburg LTMF will be called upon written requests
of shareholders holding in the aggregate not less than 10% of the outstanding
shares of the affected Fund or class having voting rights.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable for the obligations of such a trust. The declaration of trust for
Mackenzie Trust contains provisions intended to limit any such liability and
to provide indemnification out of Mackenzie Fund property for any shareholder
charged or held personally liable for obligations or liabilities of Mackenzie
Fund solely by reason of being or having been a shareholder of Mackenzie Fund
and not because of the shareholder's acts or omissions or for some other
reason. Consequently, the risk to a shareholder of Mackenzie Fund incurring
financial loss on account of shareholder liability is limited to
circumstances in which Mackenzie Fund itself would be unable to meet its
obligations. There is no comparable possibility under Maryland law, under
which Thornburg LTMF is organized.
ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS
-------------------------------------------------
If the reorganization is approved, Thornburg Fund will establish an
account for each Mackenzie Fund shareholder. No further purchases of
Mackenzie Fund shares may be made after the date on which the shareholders of
Mackenzie Fund approve the reorganization, and the share transfer books of
Mackenzie Fund will be permanently closed as of the date of Closing. Only
redemption requests and transfer instructions received in proper form by the
close of business on the day before the date of Closing will be fulfilled by
Mackenzie Fund. Redemption requests or transfer instructions received by
Mackenzie Fund after that date will be treated by Mackenzie Fund as requests
for the redemption or instructions for transfer of the shares of Thornburg
Fund credited to the accounts of Mackenzie Fund shareholders. Accordingly,
those redemption requests or transfer instructions after the close of
business on the day before Closing will be forwarded to Thornburg Fund. For
a complete description of redemption procedures for Thornburg Fund, see the
sections of the accompanying Thornburg Municipal Funds prospectus under the
captions "Selling Fund Shares," "Investor Services and Transaction Services,"
and "Shareholder and Account Policies."
INFORMATION ABOUT THE REORGANIZATION
------------------------------------
Agreement and Plan of Reorganization
- ------------------------------------
The following summary of the proposed Agreement and Plan of
Reorganization (the "Agreement") is qualified in its entirety by reference to
the Agreement attached to this prospectus/proxy statement as Exhibit A.
<PAGE> 17
The Agreement provides that Thornburg Fund will acquire substantially
all of the assets of Mackenzie Fund in exchange solely for Class A voting
shares of Thornburg Fund on the earliest practicable date (the "Closing
Date") following shareholder approval of the reorganization. The number of
full and fractional shares of Thornburg Fund to be issued to shareholders of
Mackenzie Fund will be determined on the basis of the relative net asset
values per share and aggregate net assets of Thornburg Fund and Mackenzie
Fund computed immediately after the closing of business on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on the last business day before
the Closing Date (the "Valuation Date"). The net asset value per share for
both Thornburg Fund and Mackenzie Fund will be determined by dividing each
Fund's respective assets, less its respective liabilities, by the total
number of its respective outstanding shares. Portfolio securities of both
Thornburg Fund and Mackenzie Fund will be valued in accordance with the
valuation practices of Thornburg Fund as described in the prospectus of
Thornburg Fund, which is incorporated by reference herein. Valuation
procedures of Thornburg Fund are substantially the same as the valuation
procedures of Mackenzie Fund.
Immediately after the transfer of Mackenzie Fund's assets to Thornburg
Fund on the Closing Date, Mackenzie Fund will distribute pro rata to its
shareholders of record as of the close of business on the Valuation Date the
full and fractional shares of Thornburg Fund received by Mackenzie Fund and
will, as soon as reasonably practicable thereafter, be dissolved. The
distribution will be accomplished by the establishment of accounts on the
share records of Thornburg Fund in the name of each Mackenzie Fund
shareholder, each representing the respective pro rata number of full and
fractional shares of Thornburg Fund due each of those shareholders.
Following the reorganization, shareholders will own Class A shares of
Thornburg Fund. Certificates for Thornburg Fund's shares will be issued to
shareholders only upon written request.
The consummation of the reorganization is subject to the conditions set
forth in the Agreement. The reorganization is also subject to approval by
Mackenzie Fund's Class A and Class B shareholders. Approval requires the
affirmative vote of the holders of a majority of each of the Class A and
Class B shares of Mackenzie Fund. Further, completion of the reorganization
is subject to shareholder approval of the "Related Acquisitions," which are
proposed transactions in which Thornburg Limited Term Municipal Fund
California Portfolio will acquire substantially all of the assets of
Mackenzie California Municipal Fund, Thornburg Intermediate Municipal Fund
will acquire substantially all of the assets of Mackenzie National Municipal
Fund and Thornburg New York Intermediate Municipal Fund will acquire
substantially all of the assets of Mackenzie New York Municipal Fund. If
shareholders of Mackenzie Fund approve the reorganization and one or more of
the Related Acquisitions are not approved, the Trustees of Mackenzie Fund
will consider the available alternatives. The Agreement may be terminated
and the reorganization abandoned prior to the Closing Date, before or after
approval by shareholders of Mackenzie Fund, by resolution of the Board of
Trustees of Mackenzie Fund or the Board of Directors of Thornburg LTMF, under
circumstances specified in the Agreement.
The investment advisers of the respective Funds have agreed to pay all
expenses of the Funds related to the reorganization, so that shareholders of
Mackenzie Fund will not be required to bear any such expenses. Mackenzie
Fund will, however, pay the costs of its dissolution and deregistration with
the Securities and Exchange Commission following the reorganization. MIMI
and TMC have also entered into an agreement, contingent upon completion of
the reorganization and each Related Acquisition, in which TMC will pay to
MIMI approximately $2,102,000 in two installments in connection with the
reorganization and Related Acquisitions, subject to adjustment for
redemptions of shares issued in the transactions, and MIMI has agreed to sell
certain assets to TMC and has agreed not to serve as the investment adviser
or subadviser to another mutual fund comparable to Mackenzie Fund for a
period of one year, except under certain limited circumstances. MIMI and TMC
have each agreed to pay Roberto de Guardiola Company, L.L.C. one-half of the
firm's fee for assisting in the consummation of the transactions contemplated
by the asset purchase agreement. Under the asset purchase agreement, TMC has
also agreed to comply, until the third anniversary of the Closing Date, with
Section 15(f) of the Investment Company Act of 1940 (the "1940 Act"), which
compliance includes, without limitation, the following requirements for the
minimum time periods specified in Section 15(f) of the 1940 Act: (i) at
least 75% of the members of the Board of Directors of Thornburg LTMF shall
not be "interested persons" (as that term is defined in the 1940 Act) of MIMI
or TMC, or any "interested person" thereof; (ii) no "unfair burden" (as that
term is defined in Section 15(f)(2)(B) of the 1940 Act) shall be imposed; and
(iii) all vacancies on the Board of Directors of Thornburg LTMF (other than
vacancies created by the death, disqualification or resignation of any
trustee or director interested in TMC or MIMI) shall be filled by a person
who is not an interested person of TMC or MIMI who has been selected and
proposed for election by a majority of the directors who are not such
interested persons.
<PAGE> 18
The Trustees of Mackenzie Fund have determined that participation in the
reorganization is in the best interests of Mackenzie Fund shareholders.
Shareholder approval of the Agreement will require the affirmative vote of
the holders of a majority of each of the Class A and Class B shares of
Mackenzie Fund. If the reorganization is not so approved, the Board of
Trustees of Mackenzie Trust will consider other possible courses of action,
including continuation of the present operations of Mackenzie Fund.
Full and fractional shares of stock of Thornburg Fund will be issued to
shareholders of Mackenzie Fund in accordance with the procedures under the
Agreement as described above. Each share will be fully paid and
non-assessable by Thornburg Fund when issued, will be transferable without
restrictions, and will have no preemptive or conversion rights. See
"Comparative Information on Shareholder Rights," above, for additional
information with respect to the shares of Thornburg Fund.
Considerations of Mackenzie Fund Trustees
- -----------------------------------------
As discussed above, the Board of Trustees of Mackenzie Trust has
approved the reorganization for various reasons. The Trustees considered the
size of Thornburg Fund, and, in particular, its history and performance
rankings, and the experience of its investment adviser in managing mutual
funds which invest in fixed income securities. The Trustees also considered
that Thornburg Fund has considerable size and economies of scale, and is one
of a group of mutual funds with superior performance rankings, which are
actively marketed through the efforts of Thornburg Fund's investment adviser
and distributor. The Trustees believe that these factors will permit
Thornburg Fund, when combined with Mackenzie Fund, to continue to attract
investors and enhance shareholder returns.
In determining whether to recommend approval of the reorganization to
shareholders of Mackenzie Fund, the Board of Trustees also considered, among
other factors: MIMI's intention to concentrate its marketing efforts on the
sale of mutual funds which specialize in the expanding international and
emerging growth area; the terms and conditions of the reorganization; the
sufficient financial, operational and personnel resources and capabilities of
Thornburg LTMF's service providers; the comparable expense ratios and the
similarity of the fees and expenses of Mackenzie Fund and Thornburg Fund; the
similarity of the investment objectives, policies and restrictions of
Mackenzie Fund to those of Thornburg Fund; the operating policies of
Mackenzie Fund, including its method of valuing portfolio securities; that
shareholders of Mackenzie Fund will not bear the costs of the reorganization;
and the absence of adverse tax consequences of the reorganization. In
reaching a decision to recommend that the shareholders of Mackenzie Fund vote
to approve the reorganization, the Board of Trustees of Mackenzie Trust
concluded that participation of Mackenzie Fund in the reorganization is in
the best interests of its shareholders.
Federal Income Tax Consequences
- -------------------------------
The reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, with no taxable gain or loss recognized by
Mackenzie Fund or its shareholders as a consequence of the reorganization.
As a condition to the closing of the reorganization, Mackenzie Fund and
Thornburg Fund will receive an opinion from Dechert Price & Rhoads to that
effect based on certain assumptions and representations made by Mackenzie
Fund and Thornburg Fund.
Shareholders of Mackenzie Fund should consult their tax advisers
regarding the effect, if any, of the proposed reorganization in light of
their individual circumstances. In particular, shareholders of Mackenzie
Fund should also consult their tax advisers as to the state, local and other
tax consequences, if any, of the reorganization.
<PAGE> 19
CAPITALIZATION
--------------
The following table sets forth the capitalization of Mackenzie Fund and
Thornburg Fund as of December 31, 1996 and the pro forma capitalization of
the combined fund as if the reorganization had occurred on that date. These
numbers will be different at the time of Closing.
</TABLE>
<TABLE>
Mackenzie Fund Thornburg Fund Pro Forma
-------------- -------------- ---------
<S> <C> <C> <C>
NET ASSETS
- --------------
Class A shares $61,944,558 $871,261,659 $934,954,515
Class B shares 1,748,298 - -
Class C shares - 18,697,338 18,697,338
Class I shares - 9,485,352 9,485,352
--------------- --------------- ------------
TOTAL $63,692,856 $899,444,349 $963,137,205
=============== =============== ============
NET ASSET VALUE PER SHARE
- -------------------------
Class A shares $10.19 $13.45 $13.45
Class B shares 10.19
Class C shares 13.47 13.47
Class I shares - 13.45 13.45
SHARES OUTSTANDING
- ------------------
Class A shares 6,077,355 64,779,952 69,515,480
Class B shares 171,514 - -
Class C shares - 1,387,857 1,387,857
Class I shares - 705,101 705,101
--------------- --------------- ------------
TOTAL 6,248,869 66,872,910 71,608,438
=============== =============== ============
SHARES AUTHORIZED
- -----------------
Class A shares unlimited 300,000,000 300,000,000
Class B shares unlimited -0- -0-Class
C shares N/A 150,000,000 150,000,000
Class I shares N/A 250,000,000 250,000,000
</TABLE>
ADDITIONAL INFORMATION ABOUT THORNBURG FUND AND MACKENZIE FUND
--------------------------------------------------------------
Information concerning the operation and management of Thornburg Fund is
incorporated herein by reference from the Thornburg Municipal Funds
prospectus dated February 1, 1997, a copy of which is included herewith and
is incorporated by reference herein. Additional information concerning
Thornburg Fund is included in the Statement of Additional Information of
Thornburg Limited Term Municipal Fund, Inc. ("SAI") dated November 1, 1996,
as revised May 6, 1997, which has been filed with the Securities and Exchange
Commission and is incorporated by reference in its prospectus included
herewith. Additional information is also included in the SAI dated July 28,
1997 related to this transaction which has been filed with the SEC and is
incorporated by reference herein. A copy of each SAI is available upon
request and without charge by calling (800) 847-0200.
<PAGE> 20
Information about Mackenzie Fund is included in its current prospectus
dated October 25, 1996, copies of which are available upon request and
without charge by calling MIMI at (800) 456-5111. Additional information is
included in Mackenzie Fund's SAI dated October 25, 1996. That SAI has been
filed with the SEC and, along with Mackenzie Fund's prospectus, is
incorporated by reference herein. A copy of that prospectus and SAI is
available upon request and without charge by calling MIMI at (800) 456-5111.
Reports and other information filed by Mackenzie Trust and Thornburg
LTMF, including charter documents, can be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, NW, Washington, D.C. 20549 and the Northeast Regional
Office of the Securities and Exchange Commission, 7 World Trade Center, Suite
1300, New York, New York 10048 and the Pacific Regional Office of the
Securities and Exchange Commission, 5670 Wilshire Blvd., 11th Floor, Los
Angeles, California 90036. Copies of these materials also may be obtained
from the public reference branch, Officer of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20459 at
prescribed rates.
VOTING INFORMATION
------------------
Proxies for the meeting are being solicited from the shareholders of
Mackenzie Fund by the Trustees of Mackenzie Trust. A proxy may be revoked at
any time at or before the meeting by oral or written notice to the secretary
of Mackenzie Trust, Via Mizner Financial Plaza, 700 South Federal Highway,
Suite 300, Boca Raton, Florida 33432, (800) 456-5111. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of specifications, for approval of the reorganization.
Additional solicitations may be made by telephone, telegraph, facsimile
or personal contact by officers or employees of MIMI and its affiliates or by
a professional proxy solicitation firm or firms. Expenses of proxy
solicitation will be borne by TMC. TMC has engaged the proxy solicitation
firm of Shareholder Communications Corporation to assist in soliciting
proxies for the meeting at an estimated cost of $4,620.
Class A shares and Class B shares of Mackenzie Fund of record at the
close of business on July 18, 1997 (the "Record Date") will be entitled to
vote at the meeting or any adjournment thereof. The holders of a majority of
the Class A and Class B shares of Mackenzie Fund outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum of the Class A shareholders and Class B shareholders,
respectively, for the meeting. Shareholders are entitled to one vote for
each share held, and each fractional share will be entitled to a
proportionate fractional vote. Approval of the reorganization requires the
affirmative vote of a majority of each of Mackenzie Fund's Class A and Class
B shares of beneficial interest outstanding and entitled to vote at the
meeting. As of July 18, 1997, there were issued and outstanding
5,013,027.553 Class A shares and 156,273.031 Class B shares of beneficial
interest of Mackenzie Fund. No persons were known as of that date to own
more than 5% of that Fund's outstanding shares.
As of July 18, 1997, there were 62,202,801.997 outstanding Class A
shares of Thornburg Fund. As of that date, no persons were known to own more
than 5% of Thornburg Fund's outstanding shares, and as of the same date, the
Directors and officers of Thornburg LTMF as a group owned less than 1% of
Thornburg Fund's outstanding shares.
In the event that a quorum is not present at the meeting, or a quorum is
present at the meeting but sufficient votes to approve the reorganization are
not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares represented at the meeting in person or by proxy. If a quorum is not
present, the persons named as proxies will vote those proxies which they are
entitled to vote for the reorganization in favor of such an adjournment and
will vote those proxies required to be voted against the reorganization
against any such adjournment.
<PAGE> 21
"Broker non-votes" are shares held in a broker's street name for which
the broker indicates that instructions have not been received from the
beneficial owners or other persons entitled to vote, and the broker does not
have discretionary voting authority. Abstentions and broker non-votes will
be counted as shares present for purposes of determining whether a quorum is
present but will not be voted for or against any adjournment or a proposal.
Accordingly, abstentions and broker non-votes effectively will be a vote
against adjournment and against the proposal because the required vote is a
percentage of the shares outstanding.
THE BOARD OF TRUSTEES, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION.
Submission of Shareholder Proposals
- -----------------------------------
Mackenzie Fund does not hold regular shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
secretary of Mackenzie Trust at Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432.
Other Matters to Come Before the Meeting
- ----------------------------------------
The Trustees of the Mackenzie Trust know of no other business to be
brought before the meeting. However, if any other matters properly come
before the meeting, proxies will be voted in accordance with the judgment of
the Trustees.
<PAGE>
<PAGE> 22
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 13th day of June, 1997, by and between THORNBURG LIMITED TERM
MUNICIPAL FUND, INC., a Maryland corporation ("Thornburg LTMF"), in respect
of Thornburg Limited Term Municipal Fund National Portfolio ("Thornburg
Fund"), a separate series of Thornburg LTMF, and MACKENZIE SERIES TRUST, a
Massachusetts business trust ("Mackenzie Trust"), in respect of Mackenzie
Limited Term Municipal Fund ("Mackenzie Fund"), a separate series of
Mackenzie Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of substantially all of the
Assets (hereinafter defined) of Mackenzie Fund to Thornburg Fund in exchange
solely for shares of Thornburg Fund Class A voting common stock, $.0001 par
value per share (the "Thornburg Fund Shares") and (ii) the distribution on
the Closing Date (hereinafter defined) of the Thornburg Fund Shares to the
shareholders of Mackenzie Fund in complete liquidation of Mackenzie Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement. All actions required to be taken by Thornburg LTMF pursuant
to this Agreement, and all representations, warranties and covenants of
Thornburg LTMF hereunder, are taken and made on behalf of Thornburg Fund.
All actions required to be taken by Mackenzie Trust pursuant to this
Agreement, and all representations, warranties and covenants of Mackenzie
Trust hereunder, are taken and made on behalf of Mackenzie Fund.
THEREFORE, in consideration of the premises and of the covenants and
agreements hereafter described, the parties hereto covenant and agree as
follows.
1. Procedure for Reorganization.
----------------------------
(a) Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, Mackenzie
Trust agrees to transfer the Assets of Mackenzie Fund as set forth in
paragraph (b) to Thornburg Fund, and Thornburg LTMF agrees to deliver to
Mackenzie Fund in exchange therefor the number of Thornburg Fund Shares,
determined by dividing the value of the Assets computed in the manner and as
of the time and date set forth in paragraph 2(a), by the net asset value of
one Thornburg Fund Share computed in the manner and as of the time and date
set forth in paragraph 2(b). These transactions shall take place at the
closing provided for in paragraph 3(a) (the "Closing").
(b) The Assets to be acquired by Thornburg Fund shall consist of
all cash, portfolio securities and due bills for dividends, interest, or
other receivables or rights to receive any of the foregoing, receivables for
shares sold, and any claims or rights with respect to portfolio securities,
whether or not arising from contract, which are owned by Mackenzie Fund on
the closing date provided in paragraph 3(a) (the "Closing Date"). Mackenzie
Fund will retain cash and cash equivalents in an amount reasonably estimated
by it to be sufficient to discharge: (i) obligations incurred in the
ordinary course of its business and which could not reasonably be paid before
Closing and are not otherwise borne by any other person; and (ii) costs
resulting from the dissolution and deregistration of Mackenzie Fund or
Mackenzie Trust not to exceed $15,000 in the aggregate for all series of
Mackenzie Trust. The Assets will not include any rights in and to the
"Mackenzie" name or any variant thereof. Mackenzie Fund has provided
Thornburg Fund with a list of the current securities holdings of Mackenzie
Fund as of the date of execution of this Agreement. Mackenzie Trust and
Mackenzie Fund reserve the right to sell any of these securities in the
ordinary course of business but will not, without prior notification to
Thornburg LTMF, acquire any additional securities for Mackenzie Fund other
than securities of the type in which Thornburg Fund is permitted to invest.
(c) On the Closing Date, Mackenzie Trust will cause Mackenzie Fund
to be liquidated and to distribute pro rata to Mackenzie Fund's shareholders
of record (the "Mackenzie Fund Shareholders"), determined on and as of the
close of business on the Valuation Date specified in paragraph 2(a), the
Thornburg Fund Shares received by Mackenzie Trust pursuant to paragraph (a).
The liquidation and distribution will be accomplished by the transfer of the
Thornburg Fund Shares then credited to the account of Mackenzie Fund on the
books of Thornburg Fund, to open accounts on the share records of Thornburg
Fund in the names of the Mackenzie Fund Shareholders and representing the
respective pro rata number of Thornburg Fund Shares due the Mackenzie Fund
Shareholders.
(d) As of the Closing Date, any physically-issued share
certificates held by former Mackenzie Fund Shareholders and relating to
Mackenzie Fund shares exchanged for Thornburg Fund Shares in accordance with
the preceding paragraph (c) will represent only the right to receive the
appropriate number of Thornburg Fund Shares. As of the Closing Date, persons
holding those certificates will be requested to surrender their certificates.
No redemption or repurchase of any Thornburg Fund Shares credited to former
Mackenzie Fund Shareholders in place of Mackenzie Fund shares represented by
unsurrendered certificates will be permitted until those certificates have
been surrendered for cancellation. Any Mackenzie Fund Shareholder who wishes
to receive a certificate from Thornburg Fund representing his or her
Thornburg Fund Shares must submit a written request therefor, in form
reasonably required by Thornburg Fund, together with any Mackenzie Fund
certificates for those shares.
(e) Any transfer taxes payable upon issuance of Thornburg Fund
Shares in a name other than that of the registered holder of the Thornburg
Fund Shares on the books of Mackenzie Fund as of the Closing Date shall, as
a condition of such issuance and transfer, be paid by the person to whom the
Thornburg Fund Shares are to be issued and transferred.
(f) Mackenzie Fund shall be dissolved as soon as reasonably
practicable following the Closing Date in accordance with the provisions of
the Declaration of Trust of Mackenzie Trust. Mackenzie Trust will deregister
with the Securities and Exchange Commission (the "Commission") in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act").
(g) Thornburg LTMF will not assume any liability of Mackenzie
Trust, or acquire any Asset subject to any liability, in connection with the
transactions contemplated by this Agreement, except that Thornburg Fund will
assume the obligation to pay for any portfolio securities purchased by
Mackenzie Fund before the Closing Date in the ordinary course of its business
and the purchase of which was disclosed to Thornburg Fund by Mackenzie Fund
when the commitment to purchase arose.
2. Valuation.
---------
(a) The value of Mackenzie Fund Assets to be acquired by Thornburg
Fund hereunder shall be the value of those assets computed as of the close of
business on the New York Stock Exchange and after the declaration of any
dividends on the business day next preceding the Closing Date (the time and
date being hereinafter called the "Valuation Date"). The value of the
portion of Mackenzie Fund Assets consisting of portfolio securities will be
computed by Kenny Information Systems, subject to adjustment by the amount,
if any, agreed to by Thornburg Fund and Mackenzie Fund. In determining the
value of the Assets, each portfolio security and other portfolio asset shall
be priced by Kenny Information Systems in accordance with the policies and
procedures of Thornburg Fund (subject to the third sentence hereafter) as set
forth in the then current prospectus and statement of additional information
applicable to Class A shares of Thornburg Fund, subject to adjustments agreed
to by Mackenzie Fund and Thornburg Fund. At Mackenzie Fund's option and
expense, Thornburg Fund will cause Kenny Information Systems to perform a
trial valuation of all or a portion of Mackenzie Fund's portfolio securities
five to seven days before the Closing Date, and will furnish the trial
valuations to Mackenzie Fund upon its receipt of the information from Kenny
Information Systems. All computations shall be made by Kenny Information
Systems. In the event of a dispute with respect to the valuation of any
portfolio security or other portfolio asset of Mackenzie Fund, Thornburg Fund
and Mackenzie Fund shall, by mutual consent, select an independent third
party to resolve the matter, and the determination of the independent party
will bind the Funds.
(b) The net asset value of each Thornburg Fund Share shall be the
net asset value per share computed as of the close of business on the New
York Stock Exchange and after the declaration of any dividends on the
Valuation Date, using the valuation procedures set forth in Thornburg Fund's
then current prospectus and statement of additional information.
(c) The number of Thornburg Fund Shares to be issued (including
fractional shares, if any) in exchange for Mackenzie Fund Assets shall be
determined by dividing the value of those assets determined in accordance
with paragraph 2(a) by the net asset value of a Thornburg Fund Share
determined in accordance with paragraph 2(b).
3. Closing and Closing Date.
------------------------
(a) The Closing Date shall be as soon as practicable after
approval of the transactions contemplated in this Agreement by the Mackenzie
Fund Shareholders has been obtained; however, in no event will the Closing
Date be later than October 31, 1997. The Closing will be held at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501, in the offices of
Thornburg Management Company, Inc., or at such other place as the parties may
agree. The time of Closing will be 8:00 a.m. New York time on the Closing
Date. All acts taking place at the Closing will be deemed to occur
simultaneously as of the time of the Closing on the Closing Date.
(b) Mackenzie Fund's portfolio securities shall be available for
inspection by Thornburg Fund, its custodian bank or such other agents of
Thornburg LTMF as Thornburg LTMF shall reasonably designate, at the offices
of Mackenzie Fund's custodian, Brown Brothers Harriman & Co., Boston,
Massachusetts, no later than five business days preceding the Valuation Date,
and Mackenzie Fund will immediately notify Thornburg Fund's investment
adviser of any portfolio security thereafter acquired or sold by Mackenzie
Fund. Mackenzie Fund portfolio securities and cash shall be delivered by
Mackenzie Trust to State Street Bank & Trust Company, Boston, MA 02205-9087,
as custodian for Thornburg Fund for the account of Thornburg Fund on the
Closing Date, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The cash delivered shall be in the form of currency or certified or official
bank checks, or completed federal funds wire, payable to the order of "State
Street Bank & Trust Co., Custodian for Thornburg Limited Term Municipal Fund
National Portfolio." Mackenzie Fund will cause its custodian to deliver at
Closing a certificate of an authorized officer of the Custodian stating that
Mackenzie Fund's Assets have been delivered in proper form to Thornburg
Fund's custodian on or before the Closing Date.
(c) In the event that on the Valuation Date (i) the New York Stock
Exchange is closed to trading, or (ii) trading or the reporting of trading in
securities generally is disrupted so that accurate appraisal of the value of
the net assets of Thornburg Fund or Mackenzie Fund is impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading is fully resumed and reporting is restored.
(d) Mackenzie Trust shall deliver to Thornburg LTMF shareholder
and shareholder account information as of the close of business on the
Valuation Date as reasonably requested by Thornburg LTMF. Thornburg Fund
shall issue and deliver a confirmation to Mackenzie Fund at the Closing
stating the number of Thornburg Fund Shares to be credited on the Closing
Date to Mackenzie Fund, and stating the number of Thornburg Fund Shares
credited to Mackenzie Fund's account on the books of Thornburg Fund.
Thornburg LTMF shall issue and deliver to each former Mackenzie Fund
Shareholder, after the Closing, a confirmation stating the number of
Thornburg Fund Shares credited to the shareholder's account. At the Closing,
each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.
4. Representations and Warranties.
------------------------------
(a) Mackenzie Trust represents and warrants to Thornburg LTMF as
follows:
(i) Mackenzie Fund is a series of Mackenzie Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;
(ii) Mackenzie Trust is a duly registered open-end
management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect;
(iii) The current prospectus and statement of additional
information of Mackenzie Fund, each dated October 25, 1996, conform in
all material respects to the applicable requirements of the Securities
Act of 1933 (the "1933 Act") and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iv) To the knowledge of Mackenzie Trust, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Mackenzie Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, or the rules and regulations under
those Acts, all of which shall have been received prior to the Closing
Date, except for such consents, approvals, authorizations or orders as
may be required subsequent to the Closing Date;
(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Mackenzie Trust's
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Mackenzie
Fund or Mackenzie Trust is a party or by which it is bound;
(vi) Mackenzie Fund has valued, and will continue to value
its portfolio securities and other assets in accordance with
applicable legal requirements;
(vii) All material contracts or other commitments (other than
this Agreement) to which Mackenzie Fund is a party will be terminated
without liability to Mackenzie Fund or Thornburg Fund on or before the
Closing Date;
(viii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Mackenzie Fund or any of its properties or assets. Mackenzie Trust
knows of no facts which might form the basis for the institution of
such proceedings, and neither Mackenzie Trust nor Mackenzie Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;
(ix) The statement of assets and liabilities, the statement
of operations, and the statement of changes in net assets of Mackenzie
Fund at June 30, 1996 have been audited by Coopers & Lybrand,
certified public accountants, and those statements, together with the
statements of assets and liabilities, the statements of operations,
and the statements of changes in net assets at December 31, 1996, and,
when issued, at June 30, 1997, fairly reflect, or in the case of the
June 30, 1997 statements will fairly reflect, in all material respects
the assets, financial condition, results of operations, and changes in
net assets of Mackenzie Fund as of and for the periods ended on those
dates and have, or in the case of the June 30, 1997 statements, shall
have been prepared in accordance with generally accepted accounting
principles consistently applied; and there are no known liabilities of
Mackenzie Fund other than liabilities disclosed or provided for in the
foregoing statements;
(x) Since December 31, 1996, there has been no material
adverse change in Mackenzie Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business;
and Mackenzie Fund has not incurred any indebtedness maturing more than one
year from the date such indebtedness was incurred except as disclosed in
Exhibit A. For the purposes of this subparagraph (x), a decline in net asset
value per share of Mackenzie Fund Shares is not a material adverse change;
(xi) At the Closing Date, all material federal and other tax
returns and reports of Mackenzie Fund required by law then to be filed
(including any extensions) shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best of Mackenzie
Trust's knowledge no such return of or relating to Mackenzie Fund is
currently under audit, and no assessment has been asserted with
respect to Mackenzie Fund;
(xii) Mackenzie Fund has met the requirements of Subchapter M
of the Code and has elected to be treated as a regulated investment
company for each taxable year of its operations since its inception,
and will so qualify for the taxable year ending on the Closing Date;
(xiii) Mackenzie Trust is authorized to issue an unlimited
number of shares of beneficial interest, no par value per share, at
the date hereof. All issued and outstanding shares of Mackenzie Fund
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state
securities laws. All issued and outstanding Mackenzie Fund shares
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by Mackenzie Trust, except
to the extent that shareholders of Mackenzie Trust may be held
personally liable for the obligations of Mackenzie Trust. All of the
issued and outstanding Mackenzie Fund Shares will, at the time of
Closing, be held by shareholder accounts in the amounts set forth in
the list of shareholder's accounts submitted to Thornburg LTMF
pursuant to paragraph 3(d). Mackenzie Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any
Mackenzie Fund Shares, except that Class B shares may convert to Class
A shares in accordance with the applicable Mackenzie Fund prospectus;
(xiv) At the Closing Date, Mackenzie Fund will have good and
marketable title to the Assets to be transferred to Thornburg Fund
pursuant to paragraph 1(b), subject to no lien, encumbrance or
competing interest in any person, and full right, power, and authority
to sell, assign, transfer and deliver the Assets hereunder, and upon
delivery and payment for those Assets, Thornburg Fund will acquire
good and marketable title thereto, subject to no restriction on the
full transfer thereof, including such restrictions as might arise
under the 1933 Act other than as disclosed in writing to Thornburg
Fund;
(xv) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Mackenzie Trust's trustees, and
this Agreement constitutes a valid and binding obligation of Mackenzie
Trust, enforceable in accordance with its terms, subject to the
approval of the Mackenzie Fund Shareholders, and further subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;
(xvi) The information furnished by Mackenzie Trust for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto;
(xvii) The registration statement filed by Thornburg Fund on
Form N-14 relating to the Thornburg Fund Shares that will be
registered with the Commission pursuant to this Agreement, which shall
include the proxy statement of Mackenzie Trust in respect of Mackenzie
Fund and prospectus of Thornburg Fund with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or to the documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), and (ii) the proxy
materials of Mackenzie Trust in respect of Mackenzie Fund included in
the N-14 Registration Statement and filed with the Commission pursuant
to Section 14 of the 1934 Act with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or the documents appended thereto (the "Reorganization Proxy
Materials"), from their effective dates with the Commission, through
the time of the meeting of shareholders of Mackenzie Fund contemplated
therein (the "Shareholders Meeting") and at the Closing Date: (a)
shall comply in all material respects with the provisions of the 1933
Act, 1934 Act and the 1940 Act, the rules and regulations thereunder,
and applicable state securities laws, and (b) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, that the representations and
warranties in this subparagraph shall only apply to statements in or
omissions from the N-14 Registration Statement or Reorganization Proxy
Materials made by, or in reliance upon and in conformity with
information furnished by or on behalf of Mackenzie Trust.
(b) Thornburg LTMF represents and warrants to Mackenzie Trust as
follows:
(i) Thornburg Fund is a series of Thornburg LTMF, which is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland;
(ii) Thornburg LTMF is a duly registered open-end management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect;
(iii) The current prospectus and statement of additional
information for Class A shares of Thornburg Fund, each dated February
1, 1997, conform in all material respects to the applicable
requirements of the 1933 Act and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iv) To the knowledge of Thornburg LTMF, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Thornburg Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, or the rules and
regulations under those Acts, all of which shall have been received
prior to the Closing Date, except for such consents, approvals,
authorizations or orders as may be required subsequent to the Closing
Date;
(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Thornburg LTMF's
Articles of Incorporation or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Thornburg
Fund or Thornburg LTMF is a party or by which it is bound;
(vi) Thornburg Fund has valued, and will continue to value,
its portfolio securities and other assets in accordance with
applicable legal requirements;
(vii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Thornburg Fund or any of its properties or assets. Thornburg LTMF
knows of no facts which might form the basis for the institution of
such proceedings, and neither Thornburg LTMF nor Thornburg Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;
(viii) The statement of assets and liabilities, the statement
of operations and the statement of changes in net assets of Thornburg
Fund at June 30, 1996 have been audited by McGladrey & Pullen, LLP,
certified public accountants, and those statements together with the
statement of assets and liabilities, the statement of operations and
the statement of changes in net assets at December 31, 1996, and, when
issued, at June 30, 1997, fairly and accurately reflect, or in the
case of the June 30, 1997 statements will fairly and accurately
reflect the assets and financial condition of Thornburg Fund as of and
for the periods ended on those dates, and have, or in the case of the
June 30, 1997 statements, shall have been prepared in accordance with
generally accepted accounting principles consistently applied and
there are no known liabilities of Thornburg Fund other than
liabilities disclosed or provided for in the foregoing statements;
(ix) Since December 31, 1996, there has not been any
material adverse change in Thornburg Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, and Thornburg has not incurred any
indebtedness maturing more than one year from the date such
indebtedness was incurred. For the purposes of this subparagraph
(ix), a decline in net value per share of Thornburg Fund Shares is not
a material adverse change;
(x) At the Closing Date, all federal and other tax returns
and reports of Thornburg Fund required by law then to be filed shall
have been filed, and all federal and other taxes shall have been paid
for as due or provision shall have been made for the payment thereof
and, to the best of Thornburg LTMF's knowledge, no such return of or
relating to Thornburg Fund is currently under audit, and no assessment
has been asserted with respect to Thornburg Fund;
(xi) Thornburg Fund has met the requirements of Subchapter M
of the Code, and has elected to be treated as a regulated investment
company for each taxable fiscal year of its operation since its
inception and will so qualify for the taxable year including the
Closing Date;
(xii) Thornburg LTMF is authorized to issue 300,000,000
shares of Thornburg Fund Class A voting common stock having a par
value of $.0001 per share, at the date hereof. All issued and
outstanding shares of Thornburg Fund have been offered and sold in
every state and the District of Columbia in compliance in all material
respects with applicable registration requirements of the 1933 Act and
state securities laws. All issued and outstanding Thornburg Fund
Shares are at the date hereof, and at the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable.
Thornburg Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any Thornburg Fund Shares,
nor is there outstanding any security convertible into Thornburg Fund
Shares (except as the directors of Thornburg LTMF may convert shares
of other classes of shares to Class A shares in accordance with
Thornburg LTMF's Articles of Incorporation, as amended);
(xiii) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Thornburg LTMF's directors, and
this Agreement constitutes a valid and binding obligation of Thornburg
LTMF enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;
(xiv) Thornburg Fund Class A Shares to be issued and
delivered to Mackenzie Fund pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Thornburg Fund Shares,
and will be fully paid and non-assessable by Thornburg LTMF, except to
the extent that shareholders of Thornburg LTMF may be held personally
liable for obligations of Thornburg LTMF;
(xv) The N-14 Registration Statement and the Reorganization
Proxy Materials, from their effective dates with the Commission,
through the time of the Shareholders Meeting and at the Closing Date:
(a) shall comply in all material respects with the provisions of the
1933 Act, 1934 Act and the 1940 Act, the rules and regulations
thereunder, and applicable state securities laws, and (b) shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, that the
representations and warranties in this subparagraph shall only apply
to statements in or omissions from the N-14 Registration Statement or
the Reorganization Proxy Materials made in reliance upon and in
conformity with information furnished by or on behalf of Thornburg
LTMF;
(xvi) At the Closing Date, Thornburg Fund will have good and
marketable title to its assets, subject to no lien, encumbrance or
competing interest in any person, and full right, power and authority
to sell, assign, transfer and deliver those assets other than as
disclosed in writing to Mackenzie Fund; and
(xvii) The information furnished by Thornburg LTMF for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto.
5. Covenants of the Parties.
------------------------
(a) Thornburg Fund and Mackenzie Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that the ordinary course of business will include
customary dividends and distributions and any other distribution that may be
advisable.
(b) Mackenzie Trust will call a meeting of the shareholders of
Mackenzie Fund to be held as promptly as practicable to consider and act upon
this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated herein.
(c) Mackenzie Trust covenants that the Thornburg Fund Shares to be
issued hereunder will not be sold or distributed other than in accordance
with the terms of this Agreement.
(d) Mackenzie Trust will furnish to Thornburg LTMF all information
reasonably requested and that is within its control for the preparation of
the N-14 Registration Statement, the preparation and distribution of the
Reorganization Proxy Materials, and for effectuating the transactions
contemplated herein. Mackenzie Trust will furnish, or cause its transfer
agent to furnish, to Thornburg LTMF all information reasonably requested
respecting the beneficial ownership of Mackenzie Fund shares, shareholders
and shareholder accounts for the mailing of the Reorganization Proxy
Materials and for the establishment of Thornburg Fund accounts for Mackenzie
Fund Shareholders in accordance with paragraph 1(c). Mackenzie Trust will
furnish, or cause its custodian or other agents to furnish, all portfolio
asset information reasonably requested by Thornburg LTMF in connection with,
and to facilitate, the transactions contemplated by this Agreement.
(e) Subject to the provisions of this Agreement, Thornburg LTMF
and Mackenzie Trust will each take, or cause to be taken, all actions, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
(f) Mackenzie Trust shall furnish to Thornburg LTMF within 30 days
after the Closing Date a detailed trial balance of Mackenzie Fund's assets
and liabilities and computations showing amortization of premium on portfolio
securities. Mackenzie Trust shall furnish to Thornburg LTMF when available
the final federal income tax return for Mackenzie Fund.
(g) Mackenzie Trust will, as promptly as practicable after the
Closing, wind up the business of Mackenzie Fund, deregister Mackenzie Fund
under applicable federal securities laws, file final reports with the state
securities regulators requiring any such reports, prepare and distribute
final account statements and tax statements to persons who were formerly
Mackenzie Fund shareholders, and file any necessary federal and state tax
returns.
(h) Thornburg LTMF will prepare and file the N-14 Registration
Statement, will file the Reorganization Proxy Materials with applicable
regulatory authorities, and will use all reasonable efforts to obtain
clearance or effectiveness of the N-14 Registration Statement and the
Reorganization Proxy Materials, all in accordance with the 1933 Act, the 1934
Act, and the 1940 Act, and applicable regulations and rulings thereunder, and
in accordance with any applicable state statutes and regulations.
(i) Thornburg LTMF agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1934 Act, the
1940 Act and such of the state securities laws as are necessary or
appropriate in order to continue its operations after the Closing Date.
6. Conditions Precedent to Obligations of Mackenzie Trust.
------------------------------------------------------
The obligations of Mackenzie Trust to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Thornburg LTMF of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
(a) All representations and warranties of Thornburg LTMF contained
in this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date;
(b) Thornburg LTMF shall have delivered to Mackenzie Trust a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Mackenzie Trust and dated as of the Closing Date, certifying that the
representations and warranties of Thornburg LTMF made in this Agreement are
true and correct at and as of the Closing Date;
(c) Mackenzie Trust shall have received on the Closing Date a
favorable opinion of White, Koch, Kelly & McCarthy, P.A., counsel to
Thornburg LTMF, dated as of the Closing Date, in form and substance
satisfactory to Mackenzie Trust's counsel, covering the following points:
(i) Thornburg LTMF is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
(ii) This Agreement has been duly authorized, executed and
delivered by Thornburg LTMF and, assuming due authorization, execution
and delivery of the Agreement by Mackenzie Trust, is a valid and
binding obligation of Thornburg LTMF enforceable against Thornburg
LTMF in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general equitable principles;
(iii) The Thornburg Fund Shares to be issued to Mackenzie
Fund Shareholders as provided by this Agreement are duly authorized
and upon such delivery will be validly issued and outstanding and will
be fully paid and non-assessable by Thornburg LTMF, except to the
extent that shareholders of Thornburg LTMF may be held personally
liable for the obligations of Thornburg LTMF;
(iv) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Thornburg LTMF's Agreement and Articles of Incorporation or
By-Laws, or any provision of any agreement (known to such counsel) to
which Thornburg LTMF is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty, under any agreement,
judgment, or decree to which Thornburg LTMF is a party or by which it
is bound;
(v) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by Thornburg LTMF of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and such as may be required under state securities laws;
(vi) In the ordinary course of counsel's representation of
Thornburg LTMF or Thornburg Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings insofar as they relate to Thornburg LTMF or Thornburg
Fund, required to be described in the N-14 Registration Statement
which are not described as required;
(vii) Thornburg LTMF is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and
(viii) In the ordinary course of counsel's representation of
Thornburg LTMF or Thornburg Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Thornburg LTMF or Thornburg Fund or any of
its properties or assets and neither Thornburg LTMF nor Thornburg Fund
is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.
7. Conditions Precedent to Obligations of Thornburg LTMF.
-----------------------------------------------------
The obligations of Thornburg LTMF to complete the transactions provided
for herein shall be subject, at its election, to the performance by Mackenzie
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
(a) All representations and warranties of Mackenzie Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;
(b) Mackenzie Trust shall have delivered to Thornburg LTMF the
following information prepared as of the Closing Date: (i) net asset value
pricing sheet of Mackenzie Fund, with a portfolio listing of each portfolio
security including the principal amount, identification of issue, cost, tax
lot cost, market price per unit and market value; (ii) trial balance of
Mackenzie Fund's general ledger; (iii) supporting schedules with the details
for accounts receivable and accounts payable; (iv) certification from
Mackenzie Fund's custodian that it has delivered to Thornburg Fund's
custodian the Assets acquired by Thornburg Fund; and (v) confirmation from
Mackenzie Fund's transfer agent of the aggregate number of Mackenzie Fund
Shares outstanding and a reconciliation of that number to the number of
shares shown in the pricing sheet referred to in (i) above.
(c) Mackenzie Trust shall have delivered to Thornburg LTMF a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Thornburg LTMF and dated as of the Closing Date, certifying that the
representations and warranties of Mackenzie Trust made in this Agreement are
true and correct at and as of the Closing Date;
(d) Thornburg LTMF shall have received on the Closing Date a
favorable opinion of Dechert Price & Rhoads, counsel to Mackenzie Trust,
dated as of the Closing Date, in form and substance satisfactory to Thornburg
LTMF's counsel, covering the following points:
(i) Mackenzie Trust is a business trust duly formed and
validly existing under the laws of the Commonwealth of Massachusetts
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
(ii) This Agreement has been duly authorized, executed and
delivered by Mackenzie Trust and, assuming due authorization,
execution and delivery of the Agreement by Thornburg LTMF, is a valid
and binding obligation of Mackenzie Trust enforceable against
Mackenzie Trust in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles;
(iii) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Mackenzie Trust's Declaration of Trust or By-Laws, or any
provision of any agreement (known to such counsel) to which Mackenzie
Trust is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which Mackenzie Trust is a party or by which it is bound;
(iv) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority, other
than the filings required to be made after the Closing under
applicable laws, is required for the consummation by Mackenzie Trust
of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act;
(v) This Agreement was duly approved by the Mackenzie Fund
Shareholders in accordance with applicable law;
(vi) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings, insofar as they relate to Mackenzie Trust or Mackenzie
Fund, required to be described in the N-14 Registration Statement
which are not described as required;
(vii) Mackenzie Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and
(viii) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Mackenzie Trust or Mackenzie Fund or any
of its properties or assets and neither Mackenzie Trust nor Mackenzie
Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.
(e) The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of Mackenzie Fund in accordance with applicable law and evidence of
the approval shall have been delivered to Thornburg LTMF;
(f) The parties shall have received a favorable opinion of Dechert
Price & Rhoads, satisfactory to Mackenzie Trust and Thornburg LTMF,
substantially to the effect that, based upon certain facts, assumptions and
representations, the transactions contemplated by this Agreement constitute
a tax-free reorganization described in Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended, for federal income tax purposes. The
delivery of such opinion is conditioned upon receipt by Dechert Price &
Rhoads of representations it shall request of Thornburg LTMF and Mackenzie
Trust.
8. Further Conditions Precedent to Obligations
of Thornburg LTMF and Mackenzie Trust.
-------------------------------------------
Each party's obligations hereunder are, at its election, subject to the
further conditions that:
(a) On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
(b) On or before the Closing Date, all consents of other parties
and all other consents, orders and permits of federal, state and local
regulatory authorities (including those of the Commission and of state
securities authorities, including "no-action" positions of such federal or
state authorities) deemed necessary by Thornburg LTMF or Mackenzie Trust to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the business assets or properties of Thornburg LTMF or
Mackenzie Trust;
(c) On or before the Closing Date, the N-14 Registration Statement
shall have become effective under the 1933 Act and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the 1933
Act.
9. Responsibility for Fees and Expenses.
------------------------------------
(a) Thornburg LTMF and Mackenzie Trust each represents and
warrants to the other that it has not engaged any broker or finder entitled
to receive any payments in connection with the transactions provided for
herein.
(b) Neither Thornburg Fund nor Mackenzie Fund shall ultimately
bear any expenses incurred in connection with the entering into and carrying
out of the provisions of this Agreement, whether or not the transactions
contemplated are consummated. Specifically, the investment advisers to each
respective Fund have agreed pursuant to an agreement dated June 13, 1997, to
assume and share between themselves all such expenses including the expenses
of preparing and filing the N-14 Registration Statement, the costs of
distributing the prospectus and proxy materials, proxy solicitation costs,
and other special costs incurred by either Fund; provided, however, that any
expenses so borne by either investment adviser shall be solely and directly
related to the reorganization contemplated by this Agreement, within the
meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.
10. Massachusetts Business Trust.
----------------------------
Mackenzie Trust is organized as a Massachusetts business trust, and
references in this Agreement to Mackenzie Trust mean and refer to the
trustees of Mackenzie Trust from time to time serving under its Declaration
of Trust on file with the Secretary of State of the Commonwealth of
Massachusetts, as the same may be amended from time to time, pursuant to
which Mackenzie Trust conducts its business. It is expressly agreed that the
obligations of Mackenzie Trust hereunder shall not be binding upon any of
Mackenzie Trust's trustees, shareholders, nominees, officers, agents, or
employees of Mackenzie Trust, or Mackenzie Fund personally, but bind only the
property of Mackenzie Fund, as provided in Mackenzie Trust's Declaration of
Trust. Moreover, no series of Mackenzie Trust other than Mackenzie Fund
shall be responsible for the obligations of Mackenzie Trust hereunder, and
all persons shall look only to the respective assets of Mackenzie Fund to
satisfy the obligation of Mackenzie Trust hereunder. The execution and
delivery of this Agreement have been authorized by Mackenzie Trust's Board of
Trustees, on behalf of Mackenzie Fund, and this Agreement has been signed by
authorized officers of Mackenzie Fund acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
respective property of Mackenzie Fund, as provided in Mackenzie Trust's
Declaration of Trust.
11. Indemnification
---------------
(a) Thornburg Fund agrees to indemnify and hold harmless Mackenzie
Fund and each of Mackenzie Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Mackenzie Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Thornburg Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
(b) Mackenzie Fund agrees to indemnify and hold harmless Thornburg
Fund and each of Thornburg Fund's directors and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Thornburg Fund or any of its
directors or officers may become subject insofar as any such loss, claim or
damage liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Mackenzie Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
12. Entire Agreement; Survival of Warranties.
----------------------------------------
(a) Thornburg LTMF and Mackenzie Trust agree that neither party
has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
(b) The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
13. Termination.
-----------
(a) This Agreement may be terminated by the mutual agreement of
Thornburg LTMF and Mackenzie Trust. In addition, either Thornburg LTMF or
Mackenzie Trust may at its option terminate this Agreement at or before the
Closing Date because:
(i) of a material breach by the other of any
representation, warranty or agreement contained herein to be performed
at or before the Closing Date; or
(ii) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
(b) In the event of any such termination, there shall be no
liability for damages on the part of either Thornburg LTMF or Mackenzie
Trust, or their respective directors or trustees or officers, to the other
party or its directors or trustees or officers, but each shall bear, except
as otherwise provided in paragraph 9(b), the expenses incurred by them
incidental to the preparation and carrying out of this Agreement.
14. Amendments.
----------
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of
Mackenzie Trust and Thornburg LTMF; provided, however, that following the
shareholders' meeting called by Mackenzie Fund pursuant to this Agreement, no
such amendment may have the effect of changing the provisions for determining
the number of Thornburg Fund Shares to be issued to the Mackenzie Fund
Shareholders under this Agreement to the detriment of those Shareholders
without their further approval.
15. Notices.
-------
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy or certified mail addressed to Thornburg LTMF,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, Attention:
Brian J. McMahon and Mackenzie Trust, Via Mizner Financial Plaza, Suite 300,
700 South Federal Highway, Boca Raton, Florida 33432, Attention: C. William
Ferris.
16. Headings; Counterparts; Governing Law; Assignment.
-------------------------------------------------
(a) The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
(c) This Agreement shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Massachusetts,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or the Advisers Act (as the same Acts shall have been or will be
amended) or rules, orders or regulations of such governmental bodies or
authorities having authority with respect to such Acts.
(d) This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective administrators, executors, legal representatives, heirs,
successors and permitted assigns, any rights or remedies under or by reason
of this Agreement.
(e) In the event of any litigation respecting this Agreement or
its subject matter, the prevailing party will be entitled to reimbursement
from the losing party for the prevailing party's cost of suit, including
reasonable attorneys' fees.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its appropriate officer and attested to by its Secretary or
Assistant Secretary.
Attest: THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
on behalf of THORNBURG LIMITED TERM MUNICIPAL
FUND NATIONAL PORTFOLIO
/s/ Dawn B. Fischer /s/ Brian J. McMahon
_________________________ By:__________________________________________
Secretary President
Attest: MACKENZIE SERIES TRUST on behalf of MACKENZIE
LIMITED TERM MUNICIPAL FUND
/s/ Deborah P. Mason /s/ C. William Ferris
_________________________ By:__________________________________________
Assistant Secretary Secretary/Treasurer
EXHIBIT A to Agreement and Plan of Reorganization dated June 13, 1997
between Thornburg Investment Trust (on behalf of Thornburg Limited Term
Municipal Fund National Portfolio) and Mackenzie Series Trust (on behalf of
Mackenzie National Municipal Fund)
Subparagraph 4(a)(x): None.
<PAGE>
<PAGE> <Cover>
MACKENZIE SERIES TRUST
(MACKENZIE CALIFORNIA MUNICIPAL FUND)
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 4, 1997
To the Shareholders of Mackenzie California Municipal Fund
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Mackenzie California Municipal Fund ("Mackenzie Fund"), a series
of Mackenzie Series Trust ("Mackenzie Trust"), a Massachusetts business trust,
will be held at the offices of Mackenzie Fund, Via Mizner Financial Plaza, 700
South Federal Highway, Boca Raton, Florida 33432, on September 4, 1997, at 10:00
a.m. Eastern time, for the following purposes:
1. To consider and act upon an Agreement and Plan of Reorganization (the
"Agreement") providing for the transfer of substantially all of the assets of
Mackenzie Fund to Thornburg Limited Term Municipal Fund California Portfolio
("Thornburg Fund"), a separate series of Thornburg Limited Term Municipal Fund,
Inc., in exchange solely for Class A voting shares of Thornburg Fund and the
distribution of those Class A shares to the shareholders of Mackenzie Fund and
the subsequent liquidation of Mackenzie Fund; and
2. To transact any other business as may properly come before the
meeting.
The Trustees of Mackenzie Trust have fixed the close of business on July
18, 1997 as the record date for determining shareholders entitled to notice of
and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET OUT ON THE INSIDE COVER.
By Order of the Trustees,
C. William Ferris
Secretary
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE>
<PAGE> <Inside Cover>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and may help avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: sign your name exactly as it appears in the
registration on the proxy card.
2. JOINT ACCOUNTS: either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration on the proxy
card.
3. ALL OTHER ACCOUNTS: the capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.
<PAGE>
<PAGE>
PROSPECTUS AND PROXY STATEMENT
RELATING TO THE ACQUISITION OF THE ASSETS OF
MACKENZIE CALIFORNIA MUNICIPAL FUND
a separate series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432
(800) 456-5111
BY AND IN EXCHANGE FOR SHARES OF
THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO
a separate series of
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200
This prospectus/proxy statement relates to the proposed transfer of
substantially all of the assets of Mackenzie California Municipal Fund
("Mackenzie Fund") to Thornburg Limited Term Municipal Fund California Portfolio
("Thornburg Fund"), in exchange solely for Class A voting shares of Thornburg
Fund. Mackenzie Fund and Thornburg Fund each seek as high a level of interest
income exempt from federal and California state personal income taxes as is
consistent, in the views of their respective investment advisers, with
preservation of shareholders' capital. As a result of the proposed transaction,
each shareholder of Mackenzie Fund will receive a number of shares of Thornburg
Fund equal in value at the date of the exchange to the value of that
shareholder's shares of Mackenzie Fund on that date. The terms and conditions
of these transactions are more fully described in this prospectus/proxy
statement and in the Agreement and Plan of Reorganization attached hereto as
Exhibit A.
This prospectus/proxy statement, which should be retained for future
reference, sets forth concisely the information about Thornburg Fund that a
prospective investor should know before investing. A statement of additional
information dated November 1, 1996, as revised May 6, 1997 (the "Statement of
Additional Information") containing additional information about Thornburg has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this prospectus/proxy statement. A copy of the Statement of
Additional Information may be obtained without charge by writing to Thornburg
at its address noted above or by calling 1-800-847-0200. Copies of Mackenzie
Fund's current prospectus may be obtained without charge by writing to Mackenzie
Trust at its address noted above or by calling 1-800-456-5111.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS AND PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THORNBURG LTMF OR MACKENZIE TRUST.
INVESTMENTS IN THORNBURG FUND ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK
OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THORNBURG FUND ARE NOT
BANK 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 GOVERNMENTAL AGENCY.
The date of this prospectus/proxy statement is July 28, 1997.
<PAGE>
<PAGE>
TABLE OF CONTENTS
5. Summary of the Proposed Reorganization
6. Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund
6. Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund
10. Principal Risk Factors
10. Fees and Expenses of Mackenzie Fund and Thornburg Fund
13. Performance Information
13. Purchase, Redemption and Exchange Procedures of Mackenzie Fund and
Thornburg Fund
15. Dividend Policies of Mackenzie Fund and Thornburg Fund
15. Comparative Information About Shareholder Rights
16. Additional Information About Shareholder Accounts
16. Information About the Reorganization
19. Capitalization
19. Additional Information About Thornburg Fund and Mackenzie Fund
20. Voting Information
22. Exhibit A: Agreement and Plan of Reorganization
enclosed: Exhibit B: Thornburg Municipal Funds Prospectus
For detailed information about Thornburg Fund, see the Thornburg Municipal Funds
Prospectus dated February 1, 1997, included with this prospectus/proxy
statement.
<PAGE>
<PAGE> 5
SUMMARY OF THE PROPOSED REORGANIZATION
--------------------------------------
The Trustees of Mackenzie Series Trust ("Mackenzie Trust"), including the
Trustees who are not "interested persons" of Mackenzie Trust (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, have reviewed and
unanimously approved an agreement and plan of reorganization (the "Agreement")
between Mackenzie Trust, on behalf of Mackenzie California Municipal Fund
("Mackenzie Fund"), and Thornburg Limited Term Municipal Fund, Inc. ("Thornburg
LTMF"), on behalf of Thornburg Limited Term Municipal Fund California Portfolio
("Thornburg Fund"), providing for the acquisition of substantially all of the
assets of Mackenzie Fund, a separate series of Mackenzie Trust, by Thornburg
Fund, a separate series of Thornburg LTMF, in exchange solely for Class A voting
shares of Thornburg Fund. The aggregate net asset value of the Class A shares
of Thornburg Fund issued in the exchange will equal the aggregate net asset
value of the shares outstanding for Mackenzie Fund. In connection with the
transaction, Class A shares of Thornburg Fund will then be distributed to
shareholders of Mackenzie Fund on a pro rata basis, and Mackenzie Fund will be
terminated. These transactions are referred to as the "reorganization."
As a result of the reorganization, each shareholder of Mackenzie Fund will
become a shareholder of Thornburg Fund, receiving Class A shares of Thornburg
Fund having an aggregate net asset value equal to the net asset value of that
shareholder's shares in Mackenzie Fund. No sales charge will be imposed on the
transaction. As a condition to the closing, Thornburg Fund and Mackenzie Fund
will obtain an opinion of Dechert Price & Rhoads to the effect that, based upon
certain facts, assumptions and representations, the reorganization will qualify
as a tax-free reorganization for federal income tax purposes. See "Information
About the Reorganization." Persons receiving Thornburg Fund shares in the
reorganization will remain free to redeem their shares after the reorganization.
Mackenzie Fund and Thornburg Fund have similar investment objectives and
policies, differing principally in that Thornburg Fund seeks to minimize
fluctuations in its net asset value (and accepting possibly lower yields and a
reduced possibility of capital appreciation in periods of falling interest
rates) by normally limiting its average portfolio maturity to five years or
less. The risks of investing in Thornburg Fund are substantially the same as
the risks of investing in Mackenzie Fund, except that the net asset value of
Mackenzie Fund may rise and fall to a greater degree with changes in market
interest rates, and Thornburg Fund may not participate to the same extent in
bond price increases if market interest rates decline. See "Principal Risk
Factors" below. Each Fund has substantially similar distribution, purchase and
redemption procedures.
For the reasons set forth below, the Trustees of Mackenzie Trust, including
all of the Independent Trustees, have unanimously concluded that the
reorganization is in the best interests of the shareholders of Mackenzie Fund.
The Trustees of Mackenzie Trust therefore have submitted the reorganization for
approval by the shareholders of Mackenzie Fund at a special meeting of
shareholders to be held on September 4, 1997 (the "Meeting"). Approval of the
reorganization with respect to Mackenzie Fund requires a vote of a majority of
the outstanding Class A shares of Mackenzie Fund and a majority of the
outstanding Class B shares of Mackenzie Fund.
At or about the same time that substantially all of the assets of Mackenzie
Fund are acquired by Thornburg Fund, Thornburg Limited Term Municipal Fund
National Portfolio will acquire substantially all of the assets of Mackenzie
Limited Term Municipal Fund, Thornburg Intermediate Municipal Fund will acquire
substantially all of the assets of Mackenzie National Municipal Fund, and
Thornburg New York Intermediate Municipal Fund will acquire substantially all
of the assets of Mackenzie New York Municipal Fund. Each of these transactions
has been approved by the Board of Trustees of the respective Mackenzie fund.
The acquisitions of substantially all of the assets of Mackenzie Fund, Mackenzie
California Municipal Fund, Mackenzie National Municipal Fund and Mackenzie New
York Municipal Fund are referred to collectively herein as the "Related
Acquisition." Completion of the reorganization is contingent upon proper
shareholder approval being received for each of the Related Acquisitions, the
satisfaction of all other conditions to closing the Related Acquisitions and the
acquisition of certain assets of Mackenzie Investment Management, Inc. by
Thornburg Management Company, Inc. pursuant to an asset purchase agreement.
There can be no assurance such shareholder approval can be obtained for each
Related Acquisition or that the conditions of the other Related Acquisitions
will be satisfied. If shareholders of Mackenzie Fund approve the reorganization
and the other Related Acquisitions are not approved, the Board of Trustees of
Mackenzie Fund will consider the alternatives available to it with respect to
Mackenzie Fund, including completion of the reorganization respecting Mackenzie
Fund. See "Voting Information."
<PAGE> 6
The Trustees of Mackenzie Trust have approved the reorganization because
they believe it would benefit Mackenzie Fund through Thornburg's larger size and
greater concentration on managing mutual funds that invest in fixed income
securities. In this connection, the Trustees considered the fact that Thornburg
has many years of experience in managing portfolios of municipal obligations.
As discussed below, Thornburg Fund's investment adviser, Thornburg Management
Company, Inc., manages a family of mutual fund portfolios with assets of
approximately $1.6 billion as of March 31, 1997. As members of this family of
funds, shareholders of Mackenzie Fund would enjoy all the same services and
privileges as other shareholders of Thornburg Fund, including the opportunity
to exchange into funds with a variety of investment objectives and policies.
The Mackenzie Trustees also took into account a variety of other factors
discussed below in greater detail. See "Information About the Reorganization."
THE TRUSTEES OF MACKENZIE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.
INVESTMENT ADVISERS AND DISTRIBUTORS OF MACKENZIE FUND AND THORNBURG FUND
-------------------------------------------------------------------------
The investment adviser of Mackenzie Fund is Mackenzie Investment
Management, Inc. ("MIMI"), whose address is Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, Florida 33432. MIMI, a Delaware
corporation, has approximately 10% of its outstanding common stock listed for
trading on the Toronto Stock Exchange. MIMI is a subsidiary of Mackenzie
Financial Corporation, 150 Bloor Street West, Toronto, Ontario, Canada, a public
corporation organized under the laws of Ontario and whose shares are listed for
trading on The Toronto Stock Exchange. In addition to providing investment
management services to Mackenzie Fund, MIMI provides certain business management
services, including coordinating services furnished to Mackenzie Fund by service
providers, providing office space, providing administrative and clerical
services, supervising the maintenance of books and records, and certain other
services. Fees charged by MIMI for these services are described below under
"Fees and Expenses of Mackenzie Fund and Thornburg Fund." The distributor of
Mackenzie Fund shares is Ivy Mackenzie Distributors, Inc., Via Mizner Financial
Plaza, 700 South Federal Highway, Suite 300, Boca Raton, Florida 33432.
The investment adviser of Thornburg Fund is Thornburg Management Company,
Inc. ("TMC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. The
controlling shareholder of TMC is H. Garrett Thornburg, Jr. TMC is also
investment adviser to Thornburg Investment Trust, an investment company
currently offering six active investment portfolios, three of which seek current
income from investment in municipal obligations, two of which seek current
income from investments in government and other fixed income securities, and one
of which seeks capital appreciation through investment in stocks and other
securities. TMC also furnishes to each mutual fund under its management
supervision, administration and performance of certain administrative services
necessary for maintenance of shareholder services. Fees charged by TMC for
these services are described below under "Fees and Expenses for Mackenzie Fund
and Thornburg Fund." The distributor of Thornburg Fund shares is Thornburg
Securities Corporation, 119 East Marcy Street, Santa Fe, New Mexico 87501.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES
AND RESTRICTIONS OF MACKENZIE FUND AND THORNBURG FUND
-----------------------------------------------------
Investment Objectives of the Funds
- ----------------------------------
Mackenzie Fund.
-------------- Mackenzie Fund seeks as high a level of interest income
exempt from federal and California personal income taxes as is consistent, in
MIMI's view, with the preservation of shareholders' capital. Mackenzie Fund
seeks to achieve this objective by investing primarily in debt securities, the
interest on which is exempt from federal and California personal income taxes.
Mackenzie Fund's dollar-weighted average
<PAGE> 7
portfolio maturity was 15.8 years on June 30, 1997, and averaged 16.7 years over
the 12 months ending on the same date. Mackenzie Fund has no stated policy
respecting the dollar weighted average portfolio maturity or duration of its
portfolio.
Thornburg Fund.
-------------- Thornburg Fund's primary investment objective is to obtain
as high a level of current income exempt from federal and California personal
income taxes as is consistent, in TMC's view, with preservation of capital.
Thornburg Fund's secondary objective is minimizing expected fluctuations in net
asset value relative to longer intermediate and long-term bond portfolios.
Thornburg Fund pursues its primary objective by investing in a portfolio of
municipal securities, the interest on which is exempt from federal and
California personal income taxes. Thornburg Fund seeks 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. Thornburg Fund differs in this respect from Mackenzie
Fund, because Mackenzie Fund does not have a stated policy respecting the
average maturity or duration of its portfolio. Thornburg Fund believes its
policy on limiting its average portfolio maturity will cause the Fund to
experience less change in its net asset value in response to interest rate
changes than a longer term portfolio such as Mackenzie Fund might experience.
Thornburg Fund's policy might also result in lower dividend yields, however, and
Thornburg Fund is less likely to enjoy the same degree of appreciation in its
assets in periods of falling interest rates.
Securities in Which the Funds Invest
- ------------------------------------
Mackenzie Fund.
-------------- As a fundamental policy, at least 80% of Mackenzie Fund's
assets are invested during normal market conditions in municipal securities,
with 65% of those securities originating in California. Mackenzie Fund may
invest more than 20% of its total assets in taxable investments for temporary
defensive purposes. Taxable investments may include obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
commercial paper, corporate obligations, certificates of deposit or bankers'
acceptances or other short-term obligations of domestic banks or thrifts, or
repurchase agreements with banks or broker dealers. Mackenzie Fund may purchase
a variety of municipal securities including both general obligation bonds and
revenue bonds, and the Fund is permitted to buy variable interest securities and
repurchase agreements. The Fund may purchase securities on a when-issued basis.
Some securities owned by the Fund may pay interest which is subject to the
federal alternative minimum tax. Mackenzie Fund may invest without limit in
securities depending for repayment upon revenues from similar projects.
Mackenzie Fund may purchase or write options and enter into futures contracts,
but has no current intention to do so.
Thornburg Fund.
-------------- Except to the extent Thornburg Fund is invested in
temporary investments for defensive purposes, it will under normal conditions
invest 100% of its assets in municipal securities, and as a fundamental policy
which may not be changed without a shareholder vote, will normally invest at
least 80% of its net assets in municipal securities. Under normal conditions,
Thornburg Fund will invest 100%, and as a matter of fundamental policy, will
invest at least 65% of its total assets in municipal securities originating in
California. Thornburg Fund may invest up to 20% of its assets in temporary
investments in taxable securities because of market conditions pending
investment of idle funds or to afford liquidity. Temporary investments in
taxable securities could exceed 20% of its net assets when made for defensive
purposes during periods of abnormal market conditions, but Thornburg Fund does
not expect to find it necessary to make temporary investments in taxable
securities. Any temporary investments would be in taxable securities of
comparable quality to tax-exempt securities Thornburg Fund may purchase.
Thornburg Fund may purchase a variety of municipal securities including both
general obligation bonds and revenue bonds, and municipal leases, and the Fund
is permitted to buy variable interest securities and repurchase agreements. The
Fund may purchase securities on a when-issued basis. Some securities owned by
the Fund may pay interest which is subject to the federal alternative minimum
tax. Thornburg Fund may invest without limit in securities depending for
repayment upon revenues from similar projects; however, the Fund has maintained
a diversified portfolio in the past and expects to continue to do so in the
future.
<PAGE> 8
Securities Ratings
- ------------------
Mackenzie Fund.
-------------- Mackenzie Fund will purchase municipal securities rated
within the four highest rating categories of Moody's Investors Services, Inc.
or Standard & Poor's Corporation, or unrated municipal securities which are (i)
guaranteed as to principal and interest by the U.S. Government, (ii) securities
having a maturity of less than one year issued by issuers having other
outstanding securities having one of the four highest ratings, or (iii)
comparable in quality, in the opinion of MIMI, to securities within the four
highest ratings categories of the rating services named above. Corporate
obligations that Mackenzie Fund may purchase as temporary investments will be
rated Aaa or Aa by Moody's or AAA or AA by Standard & Poor's.
Thornburg Fund.
-------------- Thornburg Fund will invest in municipal securities which
are rated at the time of purchase within the four highest grades by Moody's,
Fitch Investors Service, or Standard & Poor's, or which are not rated but are
issued by obligors who have comparable debt securities outstanding or who are
deemed by TMC to be comparable with issuers having such debt ratings. Any
temporary taxable investments by Thornburg Fund will be securities of comparable
quality to the municipal securities Thornburg Fund may purchase.
Investment Restrictions of the Funds
- ------------------------------------
Mackenzie Fund and Thornburg Fund are each subject to fundamental and non-
fundamental investment restrictions. Fundamental restrictions may be changed
only upon a vote of the shareholders, while non-fundamental restrictions may be
changed by the trustees or directors of a mutual fund without a shareholder
vote. The investment restrictions of the Funds are compared below.
Fundamental Investment Restrictions
-----------------------------------
Neither Mackenzie Fund nor Thornburg Fund may purchase securities of any
one issuer (except U.S. Government securities) if, as a result, more than 5% of
the Fund's total assets would be invested in that issuer or the Fund would own
more than 10% of the outstanding voting securities of that issuer, except that
up to 25% of the value of Mackenzie Fund's total assets may be invested without
regard to these restrictions.
Neither Mackenzie Fund nor Thornburg Fund may invest in real estate, real
estate mortgage loans, commodities, commodity futures contracts or oil, gas or
other mineral exploration or development programs, except that either Fund may
invest in municipal securities that are secured by real estate. In addition,
Mackenzie Fund may invest in securities of issuers that invest in or deal in
real estate, and also may invest in futures contracts as described in Mackenzie
Fund's prospectus.
Mackenzie Fund and Thornburg Fund are each subject to restrictions on
borrowing money and pledging assets. Mackenzie Fund may borrow amounts up to
10% of its total assets (taken at the lower of cost or market value), and then
only from banks as a temporary measure for extraordinary or emergency purposes.
Mackenzie Fund may pledge its assets only to secure permitted borrowings (and
then not in excess of 20% of its total assets) or for escrow, collateral or
margin arrangements in connection with the Fund's use of options, short sales,
futures contracts and options on futures contracts. Thornburg Fund may borrow
amounts not exceeding 5% of its total assets, but only for temporary or
emergency purposes. Thornburg Fund is not permitted to pledge assets, except
to secure these permitted borrowings.
Neither Mackenzie Fund nor Thornburg Fund may make loans. However,
Mackenzie Fund may lend portfolio securities and enter into repurchase
agreements, and this restriction does not prohibit Mackenzie Fund from
purchasing publicly issued debt instruments as described in its prospectus.
Similarly, Thornburg Fund is not prohibited by this restriction from purchasing
the debt obligations described in its prospectus, and it also may invest in
repurchase agreements.
Neither Mackenzie Fund nor Thornburg Fund may purchase securities on
margin, except such short-term credits as are necessary for the clearance of
transactions, and except that Mackenzie Fund does not consider initial or
variation margin in connection with futures contracts or related options to be
a margin purchase of securities.
<PAGE> 9
Mackenzie Fund may engage in transactions in certain types of financial
futures and related options and options on individual securities and bond
indices, although it has not done so in the last year and has no current
intention to do so. Thornburg Fund has a fundamental investment restriction
prohibiting it from writing or purchasing puts, calls, straddles or spreads,
except to the extent it may purchase securities pursuant to demand or
remarketing agreements with dealers as described in its prospectus. Neither
Fund is permitted to make short sales of securities.
Neither Mackenzie Fund nor Thornburg Fund will act as an underwriter of
securities, and neither Fund will issue senior securities, except insofar as it
may be deemed to have done so in connection with any repurchase agreement or
permitted borrowing.
Both Funds are subject to the restriction that neither Fund will purchase
securities if, as a result, more than 25% of the Fund's total assets would be
invested in any one industry. This limitation does not apply to U.S. Government
securities, or in the case of Thornburg Fund, tax exempt securities issued by
state governments or their agencies and political subdivisions.
Mackenzie Fund also has adopted fundamental investment restrictions against
investing in securities for the purpose of exercising control over or management
of the issuer, and against participation on a joint or a joint and several basis
in any trading account. Thornburg Fund does not currently have comparable
restrictions.
Thornburg Fund has adopted fundamental restrictions against investing more
than 5% of its total assets in unseasoned issuers or in securities it is
restricted from selling to the public without registration, and against
purchasing securities of other investment companies unless the purchase is made
in connection with a merger, consolidation or acquisition of assets. Mackenzie
Fund is similarly restricted from investing more than 5% of its assets in
unseasoned issuers less than three years old, but this is a non-fundamental
restriction which may be changed by its Board of Trustees. Mackenzie Fund is
not specifically prohibited from purchasing unregistered securities, but must
count them as illiquid under its non-fundamental liquidity policy described
below. Thornburg Fund has adopted the further restriction that it will not
purchase or retain securities of any issuer if, to its knowledge, officers or
directors of the Fund or TMC who individually own more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's outstanding
securities. Mackenzie Fund has a similar, but non-fundamental, policy.
Non-fundamental Policies
------------------------
In addition to the policies described above, Mackenzie Fund and Thornburg
Fund have adopted other, non-fundamental policies which may be changed by the
Board of Directors or Board of Trustees of a Fund without a shareholder vote.
Mackenzie Fund and Thornburg Fund each have adopted the policy that it will
not invest more than 10% of its net assets in illiquid securities. Illiquid
securities may include securities subject to resale restrictions or other
factors reducing liquidity, securities for which market quotations are not
readily available, repurchase agreements maturing in more than seven days, and,
in the case of Mackenzie Fund (which is permitted to purchase and sell options),
certain over-the-counter options and securities used to cover options Mackenzie
Fund has written.
Mackenzie Fund has adopted the non-fundamental investment restrictions that
it will not purchase or sell real estate limited partnership interests or
interests in oil, gas and mineral leases (other than securities of companies
that invest in or sponsor such programs). Thornburg Fund also has adopted the
non-fundamental restrictions that it will invest no more than 5% of its assets
in repurchase agreements, and will invest no more than 10% of its total assets
in securities, known as inverse floaters, the interest rates on which vary
inversely with market rates of interest. Mackenzie Fund does not have
comparable restrictions.
<PAGE> 10
PRINCIPAL RISK FACTORS
----------------------
The net asset value of mutual funds investing in municipal obligations will
vary as market interest rates fluctuate, although municipal bond portfolios
which maintain lower average portfolio maturities tend to experience smaller
fluctuations in net asset value (and may have lower yields) relative to
municipal bond portfolios with longer average portfolio maturities. Issuers of
municipal securities may prepay those securities in periods of low interest
rates, reducing the expected returns on securities held by either Mackenzie Fund
or Thornburg Fund as the Fund reinvests in securities having lower interest
rates. Portfolio securities held by either Mackenzie Fund or Thornburg Fund
also may be subject to bankruptcy or other laws protecting debtors or
legislative action or voter referenda which may adversely affect the ability of
issuers to pay principal and interest when due, or reductions in value because
of the inability of the issuer to pay the obligation or because of downgrading
by rating agencies.
Because Mackenzie Fund and Thornburg Fund purchase municipal securities
originating primarily in the state of California, an investment in either Fund
may be riskier than an investment in a mutual fund which purchases municipal
securities from throughout the United States.
Investment techniques which may be utilized by either Mackenzie Fund or
Thornburg Fund may have associated risks. Purchasing securities on a when-
issued or firm commitment basis could result in a loss if the value of the
securities to be purchased declines before the settlement date. Investing in
repurchase agreements could result in a loss or a delay in obtaining repayment
if the other party defaults or becomes insolvent. Borrowing by either Fund
could exaggerate the effects on the Fund's net asset value of any increase or
decrease in the value of the Fund's portfolio securities. Variable rate
securities with interest rates which change inversely with market rates of
interest may experience more volatile changes in value during periods when
interest rates are changing.
The principal difference in risk between Mackenzie Fund and Thornburg Fund,
as noted above, is that Thornburg Fund may have less risk of changes in its net
asset value due to changes in market interest rates. Thornburg Fund may not,
however, enjoy as high a dividend yield, and also may not experience as much
appreciation in its portfolio securities if market interest rates decline.
For a further discussion of the investment objectives, risks, policies and
restrictions applicable to Thornburg Fund, please see the accompanying Thornburg
Municipal Funds Prospectus.
FEES AND EXPENSES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------
Mackenzie Fund
- --------------
Mackenzie Fund is contractually obligated to pay MIMI an investment
management fee at an annual rate of .55% of average net assets, and an
administrative services fee at an annual rate of .10%, together with the Fund's
other expenses and costs of operation. Mackenzie Fund also has adopted plans
and agreements pursuant to Rule 12b-1 under the Investment Company Act of 1940
applicable to its Class A and Class B shares, under which Class A shareholders
pay a distribution fee at an annual rate of .25% of average net assets and
Class B shareholders pay a service and distribution fee of 1.00% of average net
assets.
The Fund's total operating expense ratios for Class A shares and Class B
shares, respectively, were 1.10% and 1.85% for the year ended June 30, 1996,
after taking into account voluntary waivers of fees and reimbursements of
expenses by MIMI. Absent these fee waivers and reimbursements, Class A and
Class B expense ratios would have been 1.29% and 2.04%, respectively. MIMI is
not obligated to continue its waivers of fees and reimbursements of expenses in
the future.
<PAGE> 11
Thornburg Fund
- --------------
Thornburg Fund is contractually obligated to pay TMC an investment
management fee which varies based upon the Fund's assets. The fee is computed
on average daily net assets at an annual rate of .50% of the first $500 million
of net assets, .40% of net assets of $500 million to $1 billion, .30% of net
assets of $1 billion to $1.5 billion, .25% of net assets of $1.5 billion to $2
billion, and .225% on net assets over $2 billion. The current annual investment
management fee rate is .50%. The Fund pays an administrative services fee with
respect to its Class A shares at an annual rate of .125%, together with the
Fund's other expenses and costs of operation. Thornburg Fund also has adopted
a service plan pursuant to Rule 12b-1 under the Investment Company Act of 1940,
applicable to its Class A shares, under which Class A shareholders pay a service
fee at an annual rate of up to .25% of average daily net assets.
The Fund's total operating expense ratio for Class A shares was 1.00% for
the year ended June 30, 1996, after taking into account the assumption of
certain Fund operating expenses by Thornburg Fund's investment adviser, TMC.
Absent this assumption of expenses, the expense ratio for Class A shares of
Thornburg Fund would have been 1.05%. TMC is not obligated to continue any
assumption of Fund expenses in the future.
The tables below set forth (i) shareholder transaction expenses on
purchases or redemptions of shares of each of the Funds, (ii) fees and expenses
paid by Mackenzie Fund for the year ended June 30, 1996, (iii) fees and expenses
paid by Thornburg Fund for the year ended June 30, 1996, and (iv) where
applicable, pro forma figures for the combined funds. Because Mackenzie Fund
Class B shareholders will receive Thornburg Fund Class A shares in the
reorganization, Thornburg Fund Class A figures apply both to Class A and Class B
shareholders upon completion of the reorganization. No sales charges will be
imposed on Mackenzie Fund shares relinquished by Mackenzie Fund shareholders in
the reorganization, or on Thornburg Fund shares distributed to Mackenzie Fund
shareholders in the reorganization.
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<CAPTION>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
------- ------- --------------
- --------------
<S> <C> <C> <C>
Maximum Sales Charge on
Purchase (as a percentage
of offering price) 4.75% none 2.50% <FN2>
Maximum Deferred Sales
Charge on Redemptions
(as a percentage of
redemption proceeds or
original purchase price,
whichever is lower) none 5.00% <FN1> none <FN3>
<FN>
<FN1> The maximum Mackenzie Fund Class B sales charge is imposed on
redemptions within one year of purchase, declines to 4.0% in the
second year, 3.0% the third and fourth years, 2.0% the fifth year,
and 1.0% the sixth year. This sales charge will not be imposed on
shares exchanged for Thornburg Fund shares in the reorganization.
<FN2> The sales charge imposed on purchases of Class A shares will not
apply to shares issued to Mackenzie Fund shareholders in the
reorganization.
<FN3> Thornburg Fund imposes a contingent deferred sales charge of 0.50%
on redemptions of purchases greater than $1 million in the event of
a redemption of any portion of the purchase within 12 months of
purchase. This charge will not apply to shares issued in the
reorganization.
</FN>
</TABLE>
<PAGE> 12
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION>
Thornburg Fund
Mackenzie Fund Thornburg Fund Class a
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees .36% <FN1> .36% <FN1> .50% .50%
Rule 12b-1 Fees .25% 1.00% .25% .25%
Other Expenses .49% .49% .25% <FN2> .25% <FN2>
----- ----- ----- -----
Total Fund Operating
Expenses 1.10% <FN1> 1.85% <FN1> 1.00% <FN2> 1.00% <FN2>
<FN>
<FN1> MIMI currently limits Mackenzie Fund's total operating expenses
(excluding taxes, Rule 12b-1 fees, and certain other expenses).
Without expense reimbursements, total fund operating expenses would
have been 1.29% and 2.04%, respectively, for Class A and Class B
shares. MIMI is under no obligation to waive fees or reimburse
expenses in the future. Class B shareholders may pay more than the
economic equivalent of the maximum front end sales charge permitted
by the National Association of Securities Dealers, Inc.
<FN2> Amounts shown for Thornburg Fund reflect an assumption of certain
operating expenses by TMC. Absent TMC's assumption of expenses, the
other expenses shown for Thornburg Fund would have been .30% and total
fund operating expenses would have been 1.05%. TMC is under no
obligation to assume expenses in the future.
</FN>
EXAMPLES You would pay the following expenses on a $1,000 investment, assuming
the maximum sales charge is deducted, each Fund's expense ratio remains the
same, a 5% annual return, and redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Thornburg Fund Class A
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
One Year $58 $69 $35 $35
Three Years $81 $88 $56 $56
Five Years $105 $120 $79 $79
Ten Years $175 $197 $146 $146
You would pay the following expenses on the same $1,000 investment, assuming no
redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Thornburg Fund Class A
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
One Year $58 $19 $35 $35
Three Years $81 $58 $56 $56
Five Years $105 $100 $79 $79
Ten Years $175 $197 $146 $146
</TABLE>
The set of examples which assumes redemption at the end of each time period also
assumes deduction of the maximum sales charge on purchase of Class A shares and
deduction of the applicable Class B contingent deferred sales charge upon
redemption at the end of each time period. The set of examples which assumes
no redemption also assumes deduction of the maximum sales charge on purchase of
Class A shares, but does not reflect any contingent deferred sales charge on
Class B shares because no redemption is deemed to occur.
The expense figures in the tables above are presented to assist the investor in
understanding the costs that an investor will bear, directly or indirectly. THE
INFORMATION IN THE TABLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSE, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN. MIMI, Mackenzie Fund's investment adviser, may not waive fees or
reimburse expenses of Mackenzie Fund in the future.
<PAGE> 13
PERFORMANCE INFORMATION
-----------------------
The following table presents comparative performance information for
Mackenzie Fund and Thornburg Fund. Performance figures for Class A shares
assume that the maximum sales charge was paid on purchase, and figures for
Class B shares assume that the shares were redeemed at the end of the period
shown and the applicable contingent deferred sales charge was paid.
<TABLE>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
--------------- --------------- ----------------
Before After Before After Before After
Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Average annual total
return for following
periods ending on
June 30, 1997
One Year 2.49% 2.79% 1.89% 2.21% 2.84% 2.87%
Five Years 4.95% 5.11% NA NA 4.66% 4.70%
Ten Years NA NA NA NA 5.75% 5.94%
Since Inception* 5.95% 6.79% 5.23% 5.44% 5.65% 5.84%
* April 15, 1988 and April 1, 1994 for Class A and Class B shares, respectively,
of Mackenzie Fund; and February 20, 1987 for Class A shares of Thornburg Fund
From time to time MIMI has waived fees or reimbursed fund expenses incurred by
Mackenzie Fund and TMC similarly has waived fees or reimbursed fund expenses for
Thornburg Fund. Average annual total return figures in each column under the
caption "Before Expense Reimb." are the Fund's performance figures assuming no
waiver or reimbursement occurred; figures in each column under the caption
"After Expense Reimb." are the performance figures after taking into account any
waivers or reimbursements. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
PERFORMANCE.
PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES
FOR MACKENZIE FUND AND THORNBURG FUND
--------------------------------------------
Mackenzie Fund - Purchasing Shares
- ----------------------------------
Class A shares of Mackenzie Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below.
</TABLE>
<TABLE>
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>
Less than $25,000.00 4.75% 4.99% 4.00%
$25,000 to 249,999.99 3.75% 3.90% 3.00%
$250,000 to 499,999.99 2.50% 2.56% 2.00%
$500,000 and up 0.00% * 0.00% 0.00%
* No sales charge is imposed on investments of $500,000 or more in
Class A shares by a purchaser. A contingent deferred sales charge
of 1.00% is imposed on redemptions of any portion of such a
purchase within 24 months of purchase.
<PAGE> 14
Class A shares also are sold to specified classes of investors at reduced or
no sales charges (but subject in some cases to a contingent deferred sales
charge) as described in the Mackenzie Fund prospectus.
Class B shares are sold at net asset value, but are subject to a
contingent deferred sales charge at the rates shown below if redeemed within
six years of purchase. The sales charge is not applicable to Mackenzie Fund
shares exchanged for Thornburg Fund shares in the reorganization.
Sales Charge as a
Year Since Percentage of Dollar
Purchase Amount Subject to Charge
---------- ------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter .0%
The charge is imposed on the lesser of the current market value or the
original cost of the shares. In determining any sales charge applicable to
a redemption, it is assumed shares held for more than five years are
redeemed first, then shares acquired through reinvestment of dividends are
redeemed next, and then shares held for the longest period are redeemed.
Thornburg Fund - Purchasing Shares
- ----------------------------------
Class A shares of Thornburg Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below:
</TABLE>
<TABLE>
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>
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% *
* No sales charge is payable at the time of purchase on investments of
$1 million or more made by a purchaser. A contingent deferred sales
charge will be imposed on any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
This charge is not applicable to shares received in exchange for
Mackenzie Fund shares in the reorganization.
Class A shares also are sold to specified classes of investors at reduced or
no sales charges, as described in the accompanying Thornburg Municipal Funds
prospectus.
Thornburg Fund also offers other classes of shares. Class C shares are
described in the accompanying Thornburg Municipal Funds prospectus, but will
not be issued in the reorganization.
<PAGE> 15
Mackenzie Fund and Thornburg Fund - Exchange Privileges
- -------------------------------------------------------
If elected by a shareholder, Class A shares and Class B shares of
Mackenzie Fund may be exchanged for Class A or Class B shares, respectively,
of other funds offered by Mackenzie Trust or by Ivy Funds, subject to certain
conditions described in the Mackenzie Fund prospectus. Similarly, Class A
shares of Thornburg Fund may be exchanged for Class A shares of other
Thornburg mutual funds managed by TMC. The Thornburg Fund exchange privilege
is subject to the conditions stated in the accompanying prospectus, including
the requirement that if you exchange into a Fund with a higher sales charge,
you must pay the percentage point difference between that fund's sales charge
and the sales charge on the shares you are exchanging. This charge is not
applicable to Thornburg Fund shares received in the reorganization, and it is
not necessary to elect the exchange privilege with Thornburg Fund. Each of
the Funds permits exchanges by telephone if the telephone exchange privilege
has been elected by the shareholder. Mackenzie Fund shareholders who
previously elected the telephone exchange privilege will be deemed to have
elected the similar Thornburg Fund exchange privilege if the reorganization
is completed.
Mackenzie Fund and Thornburg Fund - Redemptions
- -----------------------------------------------
Shares of Mackenzie Fund and Thornburg Fund properly presented for
redemption may be redeemed at the next determined net asset value per share,
subject to a contingent deferred sales charge "CDSC" in specified
circumstances. Class B shares of Mackenzie Fund held less than seven years,
and certain Mackenzie Fund Class A shares purchased at reduced sales charges
may be subject to a contingent deferred sales charge described in the
Mackenzie Fund prospectus. Thornburg Fund imposes a CDSC of 1/2 of 1% on
redemptions of part or all of any purchase over $1 million in the event of a
redemption within 12 months of purchase. Neither Mackenzie Fund shares
relinquished in the reorganization nor Class A shares issued by Thornburg
Fund in the reorganization will be subject to any CDSC. Mackenzie Fund
shareholders who previously elected the telephone redemption privilege will
be deemed to have elected the Thornburg Fund telephone redemption privilege
if the reorganization is completed.
DIVIDEND POLICIES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------
Mackenzie Fund declares and pays monthly dividends on any net investment
income. Net investment income generally is the income from interest on the
Fund's investments. At the end of each fiscal year Mackenzie Fund intends to
distribute any undistributed net investment income, together with any net
realized short-term and long-term capital gains. The Fund may make an
additional distribution of any net capital gains at the end of each calendar
year. Distributions are reinvested in Fund shares unless the shareholder
elects to receive them in cash.
Thornburg Fund distributes substantially all of its net investment
income and realized capital gains to its shareholders. The Fund declares
dividends from net investment income daily and distributes those dividends
monthly. Any net realized capital gains are distributed at least annually,
usually in December. Distributions are reinvested in Fund shares unless the
shareholder elects to receive them in cash.
COMPARATIVE INFORMATION ABOUT SHAREHOLDER RIGHTS
------------------------------------------------
Mackenzie Fund is a diversified series of Mackenzie Trust, a
Massachusetts business trust organized in 1985. Mackenzie Trust is governed
by its declaration of trust, as amended, its bylaws, and applicable
Massachusetts and federal law. The conduct of Mackenzie Fund's business is
supervised by Mackenzie Trust's Board of Trustees. Thornburg Fund is a
diversified series of Thornburg LTMF, a Maryland corporation organized in
1984. As a Maryland corporation, Thornburg LTMF is governed by applicable
Maryland corporate law, its articles of incorporation, as amended, and its
bylaws. The business of Thornburg LTMF is supervised by its Board of
Directors.
<PAGE> 16
Mackenzie Trust is authorized to create an unlimited number of series,
and with respect to each series, to issue an unlimited number of full and
fractional shares of one or more classes and to divide or combine the shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the series. Thornburg LTMF is
currently authorized to issue one billion shares of $.001 par value per share
common stock, and may increase the authorized number of shares under
applicable Maryland law at any time. The Board of Directors of Thornburg
LTMF is authorized to divide and redivide the authorized shares of Thornburg
LTMF into any number of series and to divide or combine the shares of these
series into a greater or lesser number of classes without thereby changing
the proportionate beneficial interests in the series. All of the shares of
Mackenzie Trust and of Thornburg LTMF, respectively, have equal voting rights
with each other, except that only shares of the respective series or separate
classes within a series are entitled to vote on matters concerning only that
series or class.
Neither Mackenzie Trust nor Thornburg LTMF hold annual shareholder
meetings. There normally will not be any meetings of shareholders of
Mackenzie Trust, Thornburg LTMF or either of the Funds to elect Trustees or
Directors unless fewer than a majority of the trustees or directors, as the
case may be, then holding office have been elected by shareholders. However,
the Trustees of Mackenzie Trust or the Directors of Thornburg LTMF may call
special meetings from time to time to seek shareholder approval of certain
matters, and meetings of shareholders of any series or class of either
Mackenzie Trust or Thornburg LTMF will be called upon written requests of
shareholders holding in the aggregate not less than 10% of the outstanding
shares of the affected Fund or class having voting rights.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable for the obligations of such a trust. The declaration of trust for
Mackenzie Trust contains provisions intended to limit any such liability and
to provide indemnification out of Mackenzie Fund property for any shareholder
charged or held personally liable for obligations or liabilities of Mackenzie
Fund solely by reason of being or having been a shareholder of Mackenzie Fund
and not because of the shareholder's acts or omissions or for some other
reason. Consequently, the risk to a shareholder of Mackenzie Fund incurring
financial loss on account of shareholder liability is limited to
circumstances in which Mackenzie Fund itself would be unable to meet its
obligations. There is no comparable exposure under Maryland law, under which
Thornburg LTMF is organized.
ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS
-------------------------------------------------
If the reorganization is approved, Thornburg Fund will establish an
account for each Mackenzie Fund shareholder. No further purchases of
Mackenzie Fund shares may be made after the date on which the shareholders of
Mackenzie Fund approve the reorganization, and the share transfer books of
Mackenzie Fund will be permanently closed as of the date of Closing. Only
redemption requests and transfer instructions received in proper form by the
close of business on the last business day before the date of Closing will be
fulfilled by Mackenzie Fund. Redemption requests or transfer instructions
received by Mackenzie Fund after that date will be treated by Mackenzie Fund
as requests for the redemption or instructions for transfer of the shares of
Thornburg Fund credited to the accounts of Mackenzie Fund shareholders.
Accordingly, those redemption requests or transfer instructions after the
close of business on the day before Closing will be forwarded to Thornburg
Fund. For a complete description of redemption procedures for Thornburg
Fund, see the sections of the accompanying Thornburg Municipal Funds
prospectus under the captions "Selling Fund Shares," "Investor Services and
Transaction Services," and "Shareholder and Account Policies."
INFORMATION ABOUT THE REORGANIZATION
------------------------------------
Agreement and Plan of Reorganization
- ------------------------------------
The following summary of the proposed Agreement and Plan of
Reorganization ("Agreement") is qualified in its entirety by reference to the
Agreement attached to this prospectus and proxy statement as Exhibit A.
<PAGE> 17
The Agreement provides that Thornburg Fund will acquire substantially
all of the assets of Mackenzie Fund in exchange solely for Class A voting
shares of Thornburg Fund on the earliest practicable date (the "Closing
Date), or later as provided in the Agreement. The number of full and
fractional shares of Thornburg Fund to be issued to shareholders of Mackenzie
Fund will be determined on the basis of the relative net asset values per
share and aggregate net assets of Thornburg Fund and Mackenzie Fund computed
immediately after the closing of business on the New York Stock Exchange
(currently four o'clock p.m., Eastern time) on the last business day before
the Closing Date (the "Valuation Date"). The net asset value per share for
both Thornburg Fund and Mackenzie Fund will be determined by dividing each
Fund's respective assets, less its respective liabilities, by the total
number of its respective outstanding shares. Portfolio securities of both
Thornburg Fund and Mackenzie Fund will be valued in accordance with the
valuation practices of Thornburg Fund as described in the prospectus of
Thornburg Fund, which is incorporated by reference herein. Valuation
procedures of Thornburg Fund are substantially the same as the valuation
procedures of Mackenzie Fund.
Immediately after the transfer of Mackenzie Fund's assets to Thornburg
Fund on the Closing Date, Mackenzie Fund will distribute pro rata to its
shareholders of record as of the close of business on the Valuation Date the
full and fractional shares of Thornburg Fund received by Mackenzie Fund, and
as soon as reasonably practicable thereafter, Mackenzie Fund will be
dissolved. The distribution will be accomplished by the establishment of
accounts on the share records of Thornburg Fund in the name of each Mackenzie
Fund shareholder, each representing the respective pro rata number of full
and fractional shares of Thornburg Fund due each of those shareholders.
Following the reorganization, shareholders will own Class A shares of
Thornburg Fund. Certificates for Thornburg Fund's shares will be issued to
shareholders only upon written request.
The consummation of the reorganization is subject to the conditions set
forth in the Agreement. The reorganization is also subject to approval by
Mackenzie Fund's Class A and Class B shareholders. Further, completion of
the reorganization is subject to shareholder approval of the "Related
Acquisitions," which are proposed transactions in which Thornburg Limited
Term Municipal Fund California Portfolio will acquire substantially all of
the assets of Mackenzie California Municipal Fund, Thornburg Intermediate
Municipal Fund will acquire substantially all of the assets of Mackenzie
National Municipal Fund and Thornburg New York Intermediate Municipal Fund
will acquire substantially all of the assets of Mackenzie New York Municipal
Fund. If shareholders of Mackenzie Fund approve the reorganization and one
or more of the Related Acquisitions are not approved, the Trustees of
Mackenzie Fund will consider the available alternatives. The Agreement may
be terminated and the reorganization abandoned prior to the Closing Date,
before or after approval by shareholders of Mackenzie Fund, by resolution of
the Board of Trustees of Mackenzie Fund or the Directors of Thornburg LTMF,
under circumstances specified in the Agreement.
The investment advisers of the respective Funds have agreed to pay all
expenses of the Funds related to the reorganization, so that shareholders of
Mackenzie Fund will not be required to bear any such expenses. Mackenzie
Fund will, however, pay the costs of its dissolution and deregistration with
the Securities and Exchange Commission following the reorganization. MIMI
and TMC have also entered into an agreement, contingent upon completion of
the reorganization and each Related Acquisition, in which TMC will pay to
MIMI approximately $2,102,000 in two installments in connection with the
reorganization and the Related Acquisitions, subject to adjustment for
redemptions of shares issued in the transaction, and MIMI has agreed to sell
certain assets to TMC and has agreed not to serve as the investment adviser
or subadviser to another mutual fund comparable to Mackenzie Fund for a
period of one year except under certain limited circumstances. MIMI and TMC
have each agreed to pay Roberto de Guardiola Company, L.L.C. one-half of the
firm's fee for assisting in the consummation of the transactions contemplated
by the asset purchase agreement. Under the asset purchase agreement, TMC has
also agreed to comply, until the third anniversary of the Closing Date, with
Section 15(f) of the Investment Company Act of 1940 (the "1940 Act"), which
compliance includes, without limitation, the following requirements for the
minimum time periods specified in Section 15(f) of the 1940 Act: (i) at
least 75% of the members of the Board of Directors of Thornburg LTMF shall
not be "interested persons" (as that term is defined in the 1940 Act) of MIMI
or TMC, or any "interested person" (as that term is defined in the 1940 Act)
thereof; (ii) no "unfair burden" (as that term is defined in Section
15(f)(2)(B) of the 1940 Act) shall be imposed; and (iii) all vacancies on the
Board of Directors of Thornburg LTMF (other than vacancies created by the
death, disqualification or resignation of any trustee or director interested
in TMC
<PAGE> 18
or MIMI) shall be filled by a person who is not an interested person of TMC
or MIMI who has been selected and proposed for election by a majority of the
directors who are not such interested persons.
The Trustees of Mackenzie Fund have determined that participation in the
reorganization is in the best interests of Mackenzie Fund shareholders.
Approval of the Agreement will require the affirmative vote of the holders of
a majority of each of the Class A and Class B shares of Mackenzie Fund. If
the reorganization is not so approved, the Board of Trustees of Mackenzie
Trust will consider other possible courses of action, including continuation
of the present operations of Mackenzie Fund.
Full and fractional shares of stock of Thornburg Fund will be issued to
shareholders of Mackenzie Fund in accordance with the procedures under the
Agreement as described above. Each share will be fully paid and
non-assessable by Thornburg Fund when issued, will be transferable without
restrictions, and will have no preemptive or conversion rights. See
"Comparative Information on Shareholder Rights," above, for additional
information with respect to the shares of Thornburg Fund.
Considerations of Mackenzie Fund Trustees
- -----------------------------------------
As discussed above, the Board of Trustees of Mackenzie Trust has
approved the reorganization for various reasons. The Trustees considered the
size of Thornburg Fund, and, in particular, its history and performance
rankings, and the experience of its investment adviser in managing mutual
funds which invest in fixed income securities. The Trustees also considered
that Thornburg Fund is larger and has some economies of scale, and is one of
a group of mutual funds with superior performance rankings, which are
actively marketed through the efforts of Thornburg Fund's investment adviser
and distributor. The Trustees believe that these factors will permit
Thornburg Fund, when combined with Mackenzie Fund, to continue to attract
investors and enhance shareholder returns.
In determining whether to recommend approval of the reorganization to
shareholders of Mackenzie Fund, the Board of Trustees of Mackenzie Trust also
considered, among other factors: MIMI's intention to concentrate its
marketing efforts on the sale of mutual funds which specialize in the
expanding international and emerging growth area; the terms and conditions of
the reorganization and that the reorganization would not result in dilution
of shareholder interests; the sufficient financial, operational and personnel
resources and capabilities of Thornburg LTMF's service providers; the
comparable expense ratios and the similarity of the fees and expenses of
Mackenzie Fund and Thornburg Fund; the general similarity of the investment
objectives, policies and restrictions of Mackenzie Fund to those of Thornburg
Fund; the operating policies of Mackenzie Fund, including its method of
valuing portfolio securities; that shareholders of Mackenzie Fund will not
bear the costs of the reorganization; and the absence of adverse tax
consequences of the reorganization. In reaching a decision to recommend that
the shareholders of Mackenzie Fund vote to approve the reorganization, the
Board of Trustees of Mackenzie Trust concluded that participation of
Mackenzie Fund in the reorganization is in the best interests of its
shareholders.
Federal Income Tax Consequences
- -------------------------------
The reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, with no taxable gain or loss recognized by
Mackenzie Fund or its shareholders as a consequence of the reorganization.
As a condition to the closing of the reorganization, Mackenzie Fund and
Thornburg Fund will receive an opinion from Dechert Price & Rhoads to that
effect based on certain assumptions and representations made by Mackenzie
Fund and Thornburg Fund.
Shareholders of Mackenzie Fund should consult their tax advisers
regarding the effect, if any, of the proposed reorganization in light of
their individual circumstances. In particular, shareholders of Mackenzie
Fund should also consult their tax advisers as to the state, local and other
tax consequences, if any, of the reorganization.
<PAGE> 19
CAPITALIZATION
--------------
The following table sets forth the capitalization of Mackenzie Fund and
Thornburg Fund as of December 31, 1996 and the pro forma capitalization of
the combined Fund as if the reorganization had occurred on that date. These
numbers will differ at the time of Closing.
</TABLE>
<TABLE>
Mackenzie Fund Thornburg Fund Pro Forma
-------------- -------------- ------------
<S> <C> <C> <C>
NET ASSETS
- --------------
Class A shares $31,013,307 $93,658,232 $125,902,685
Class B shares 1,231,146 - -
Class C shares - 3,873,733 3,873,733
Class I shares - -
--------------- --------------- ------------
TOTAL $32,244,453 $97,531,965 $129,776,418
=============== =============== ============
NET ASSET VALUE PER SHARE
- -------------------------
Class A shares $10.19 $12.74 $12.74
Class B shares 10.19 - -
Class C shares - 12.75 12.75
Class I shares - - -
SHARES OUTSTANDING
- ------------------
Class A shares 3,044,330 7,349,721 9,880,683
Class B shares 120,835 - -
Class C shares - 303,727 303,727
Class I shares - - -
--------------- --------------- ------------
TOTAL 3,165,165 7,653,448 10,184,410
=============== =============== ============
SHARES AUTHORIZED
- -----------------
Class A shares unlimited 100,000,000 100,000,000
Class B shares unlimited N/A N/A
Class C shares N/A 75,000,000 75,000,000
Class I shares N/A 125,000,000 125,000,000
</TABLE>
ADDITIONAL INFORMATION ABOUT THORNBURG FUND AND MACKENZIE FUND
--------------------------------------------------------------
Information concerning the operation and management of Thornburg Fund is
incorporated herein by reference from the Thornburg Municipal Funds
prospectus dated February 1, 1997, a copy of which is included herewith and
is incorporated by reference herein. Additional information concerning
Thornburg Fund is included in the Statement of Additional Information of
Thornburg Limited Term Municipal Fund, Inc. ("SAI") dated November 1, 1996,
as revised May 6, 1997, which has been filed with the Securities and Exchange
Commission and is incorporated by reference in its prospectus included
herewith. Additional information is also included in the SAI dated July 28,
1997 related to this transaction which has been filed with the SEC and is
incorporated by reference herein. A copy of each SAI is available upon
request and without charge by calling (800) 847-0200.
<PAGE> 20
Information about Mackenzie Fund is included in its current prospectus
dated October 25, 1996, copies of which are available upon request and
without charge by calling MIMI at (800) 456-5111. Additional information is
included in Mackenzie Fund's SAI dated October 25, 1996. That SAI has been
filed with the SEC and, along with Mackenzie Fund's prospectus, is
incorporated by reference herein. A copy of that prospectus and SAI is
available upon request and without charge by calling MIMI at (800) 456-5111.
Reports and other information filed by Mackenzie Trust and Thornburg
LTMF, including charter documents, can be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, NW, Washington, D.C. 20549 and the Northeast Regional
Office of the Securities and Exchange Commission, 7 World Trade Center, Suite
1300, New York, New York 10048 and the Pacific Regional Office of the
Securities and Exchange Commission, 5670 Wilshire Blvd., 11th Floor, Los
Angeles, California 90036. Copies of these materials also may be obtained
from the public reference branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20459 at
prescribed rates.
VOTING INFORMATION
------------------
Proxies for the meeting are being solicited from the shareholders of
Mackenzie Fund by the Trustees of Mackenzie Trust. A proxy may be revoked at
any time at or before the meeting by oral or written notice to the secretary
of Mackenzie Trust, Via Mizner Financial Plaza, 700 South Federal Highway,
Suite 300, Boca Raton, Florida 33432, (800) 456-5111. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of specifications, for approval of the reorganization.
Additional solicitations may be made by telephone, telegraph, facsimile
or personal contact by officers or employees of MIMI and its affiliates or by
a professional proxy solicitation firm or firms. Expenses of proxy
solicitation will be borne by TMC. TMC has engaged the proxy solicitation
firm of Shareholder Communications Corporation to assist in soliciting
proxies for the meeting at an estimated cost of $1,350.
Class A shares and Class B shares of Mackenzie Fund of record at the
close of business on July 18, 1997 (the "Record Date") will be entitled to
vote at the meeting or any adjournment thereof. The holders of a majority of
the Class A and Class B shares of Mackenzie Fund outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum of the Class A shareholders and Class B shareholders,
respectively, for the meeting. Shareholders are entitled to one vote for
each share held, and each fractional share will be entitled to a
proportionate fractional vote. Approval of the reorganization requires the
affirmative vote of a majority of each of Mackenzie Fund's Class and Class B
shares of beneficial interest outstanding and entitled to vote at the
meeting. As of July 18, 1997, there were issued and outstanding
2,817,398.951 Class A shares and 108,564.074 Class B shares of beneficial
interest of Mackenzie Fund. As of that date, no persons were known to own
more than 5% of Mackenzie Fund's outstanding shares.
As of July 18, 1997, there were 7,359,632.915 outstanding Class A shares
of Thornburg Fund. As of that date, no persons were known to own more than
5% of that Fund's outstanding shares, and as of the same date, the Directors
and officers of Thornburg LTMF as a group owned less than 1% of Thornburg
Fund's outstanding shares.
In the event that a quorum is not present at the meeting, or a quorum is
present at the meeting but sufficient votes to approve the reorganization are
not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares represented at the meeting in person or by proxy. If a quorum is not
present, the persons named as proxies will vote those proxies which they are
entitled to vote for the reorganization in favor of such an adjournment and
will vote those proxies required to be voted against the reorganization
against any such adjournment.
<PAGE> 21
"Broker non-votes" are shares held in a broker's street name for which
the broker indicates that instructions have not been received from the
beneficial owners or other persons entitled to vote, and the broker does not
have discretionary voting authority. Abstentions and broker non-votes will
be counted as shares present for purposes of determining whether a quorum is
present but will not be voted for or against any adjournment or any proposal.
Accordingly, abstentions and broker non-votes effectively will be a vote
against adjournment and against the proposal because the required vote is a
percentage of the shares outstanding.
THE BOARD OF TRUSTEES, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION.
Submission of Shareholder Proposals
- -----------------------------------
Mackenzie Fund does not hold regular shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
secretary of Mackenzie Trust at Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432.
Other Matters to Come Before the Meeting
- ----------------------------------------
The Trustees of Mackenzie Trust know of no other business to be brought
before the meeting. However, if any other matters properly come before the
meeting, proxies will be voted in accordance with the judgment of the
Trustees.<PAGE>
<PAGE> 22
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 13th day of June, 1997, by and between THORNBURG LIMITED TERM
MUNICIPAL FUND, INC., a Maryland corporation ("Thornburg LTMF"), in respect
of Thornburg Limited Term Municipal Fund California Portfolio ("Thornburg
Fund"), a separate series of Thornburg LTMF, and MACKENZIE SERIES TRUST, a
Massachusetts business trust ("Mackenzie Trust"), in respect of Mackenzie
California Municipal Fund ("Mackenzie Fund"), a separate series of Mackenzie
Trust.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of substantially all of the
Assets (hereinafter defined) of Mackenzie Fund to Thornburg Fund in exchange
solely for shares of Thornburg Fund Class A voting common stock, $.0001 par
value per share (the "Thornburg Fund Shares") and (ii) the distribution on
the Closing Date (hereinafter defined) of the Thornburg Fund Shares to the
shareholders of Mackenzie Fund in complete liquidation of Mackenzie Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement. All actions required to be taken by Thornburg LTMF pursuant
to this Agreement, and all representations, warranties and covenants of
Thornburg LTMF hereunder, are taken and made on behalf of Thornburg Fund.
All actions required to be taken by Mackenzie Trust pursuant to this
Agreement, and all representations, warranties and covenants of Mackenzie
Trust hereunder, are taken and made on behalf of Mackenzie Fund.
THEREFORE, in consideration of the premises and of the covenants and
agreements hereafter described, the parties hereto covenant and agree as
follows.
1. Procedure for Reorganization.
----------------------------
(a) Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, Mackenzie
Trust agrees to transfer the Assets of Mackenzie Fund as set forth in
paragraph (b) to Thornburg Fund, and Thornburg LTMF agrees to deliver to
Mackenzie Fund in exchange therefor the number of Thornburg Fund Shares,
determined by dividing the value of the Assets computed in the manner and as
of the time and date set forth in paragraph 2(a), by the net asset value of
one Thornburg Fund Share computed in the manner and as of the time and date
set forth in paragraph 2(b). These transactions shall take place at the
closing provided for in paragraph 3(a) (the "Closing").
(b) The Assets to be acquired by Thornburg Fund shall consist of
all cash, portfolio securities and due bills for dividends, interest, or
other receivables or rights to receive any of the foregoing, receivables for
shares sold, and any claims or rights with respect to portfolio securities,
whether or not arising from contract, which are owned by Mackenzie Fund on
the closing date provided in paragraph 3(a) (the "Closing Date"). Mackenzie
Fund will retain cash and cash equivalents in an amount reasonably estimated
by it to be sufficient to discharge: (i) obligations incurred in the
ordinary course of its business and which could not reasonably be paid before
Closing and are not otherwise borne by any other person; and (ii) costs
resulting from the dissolution and deregistration of Mackenzie Fund or
Mackenzie Trust not to exceed $15,000 in the aggregate for all series of
Mackenzie Trust. The Assets will not include any rights in and to the
"Mackenzie" name or any variant thereof. Mackenzie Fund has provided
Thornburg Fund with a list of the current securities holdings of Mackenzie
Fund as of the date of execution of this Agreement. Mackenzie Trust and
Mackenzie Fund reserve the right to sell any of these securities in the
ordinary course of business but will not, without prior notification to
Thornburg LTMF, acquire any additional securities for Mackenzie Fund other
than securities of the type in which Thornburg Fund is permitted to invest.
(c) On the Closing Date, Mackenzie Trust will cause Mackenzie Fund
to be liquidated and to distribute pro rata to Mackenzie Fund's shareholders
of record (the "Mackenzie Fund Shareholders"), determined on and as of the
close of business on the Valuation Date specified
<PAGE> 23
in paragraph 2(a), the Thornburg Fund Shares received by Mackenzie Trust
pursuant to paragraph (a). The liquidation and distribution will be
accomplished by the transfer of the Thornburg Fund Shares then credited to
the account of Mackenzie Fund on the books of Thornburg Fund, to open
accounts on the share records of Thornburg Fund in the names of the Mackenzie
Fund Shareholders and representing the respective pro rata number of
Thornburg Fund Shares due the Mackenzie Fund Shareholders.
(d) As of the Closing Date, any physically-issued share
certificates held by former Mackenzie Fund Shareholders and relating to
Mackenzie Fund shares exchanged for Thornburg Fund Shares in accordance with
the preceding paragraph (c) will represent only the right to receive the
appropriate number of Thornburg Fund Shares. As of the Closing Date, persons
holding those certificates will be requested to surrender their certificates.
No redemption or repurchase of any Thornburg Fund Shares credited to former
Mackenzie Fund Shareholders in place of Mackenzie Fund shares represented by
unsurrendered certificates will be permitted until those certificates have
been surrendered for cancellation. Any Mackenzie Fund Shareholder who wishes
to receive a certificate from Thornburg Fund representing his or her
Thornburg Fund Shares must submit a written request therefor, in form
reasonably required by Thornburg Fund, together with any Mackenzie Fund
certificates for those shares.
(e) Any transfer taxes payable upon issuance of Thornburg Fund
Shares in a name other than that of the registered holder of the Thornburg
Fund Shares on the books of Mackenzie Fund as of the Closing Date shall, as
a condition of such issuance and transfer, be paid by the person to whom the
Thornburg Fund Shares are to be issued and transferred.
(f) Mackenzie Fund shall be dissolved as soon as reasonably
practicable following the Closing Date in accordance with the provisions of
the Declaration of Trust of Mackenzie Trust. Mackenzie Trust will deregister
with the Securities and Exchange Commission (the "Commission") in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act").
(g) Thornburg LTMF will not assume any liability of Mackenzie
Trust, or acquire any Asset subject to any liability, in connection with the
transactions contemplated by this Agreement, except that Thornburg Fund will
assume the obligation to pay for any portfolio securities purchased by
Mackenzie Fund before the Closing Date in the ordinary course of its business
and the purchase of which was disclosed to Thornburg Fund by Mackenzie Fund
when the commitment to purchase arose.
2. Valuation.
---------
(a) The value of Mackenzie Fund Assets to be acquired by Thornburg
Fund hereunder shall be the value of those assets computed as of the close of
business on the New York Stock Exchange and after the declaration of any
dividends on the business day next preceding the Closing Date (the time and
date being hereinafter called the "Valuation Date"). The value of the
portion of Mackenzie Fund Assets consisting of portfolio securities will be
computed by Kenny Information Systems, subject to adjustment by the amount,
if any, agreed to by Thornburg Fund and Mackenzie Fund. In determining the
value of the Assets, each portfolio security and other portfolio asset shall
be priced by Kenny Information Systems in accordance with the policies and
procedures of Thornburg Fund (subject to the third sentence hereafter) as set
forth in the then current prospectus and statement of additional information
applicable to Class A shares of Thornburg Fund, subject to adjustments agreed
to by Mackenzie Fund and Thornburg Fund. At Mackenzie Fund's option and
expense, Thornburg Fund will cause Kenny Information Systems to perform a
trial valuation of all or a portion of Mackenzie Fund's portfolio securities
five to seven days before the Closing Date, and will furnish the trial
valuations to Mackenzie Fund upon its receipt of the information from Kenny
Information Systems. All computations shall be made by Kenny Information
Systems. In the event of a dispute with respect to the valuation of any
portfolio security or other portfolio asset of Mackenzie Fund, Thornburg Fund
and Mackenzie Fund shall, by mutual consent, select an independent third
party to resolve the matter, and the determination of the independent party
will bind the Funds.
(b) The net asset value of each Thornburg Fund Share shall be the
net asset value per share computed as of the close of business on the New
York Stock Exchange and after the declaration of any dividends on the
Valuation Date, using the valuation procedures set forth in Thornburg Fund's
then current prospectus and statement of additional information.
<PAGE> 24
(c) The number of Thornburg Fund Shares to be issued (including
fractional shares, if any) in exchange for Mackenzie Fund Assets shall be
determined by dividing the value of those assets determined in accordance
with paragraph 2(a) by the net asset value of a Thornburg Fund Share
determined in accordance with paragraph 2(b).
3. Closing and Closing Date.
------------------------
(a) The Closing Date shall be as soon as practicable after
approval of the transactions contemplated in this Agreement by the Mackenzie
Fund Shareholders has been obtained; however, in no event will the Closing
Date be later than October 31, 1997. The Closing will be held at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501, in the offices of
Thornburg Management Company, Inc., or at such other place as the parties may
agree. The time of Closing will be 8:00 a.m. New York time on the Closing
Date. All acts taking place at the Closing will be deemed to occur
simultaneously as of the time of the Closing on the Closing Date.
(b) Mackenzie Fund's portfolio securities shall be available for
inspection by Thornburg Fund, its custodian bank or such other agents of
Thornburg LTMF as Thornburg LTMF shall reasonably designate, at the offices
of Mackenzie Fund's custodian, Brown Brothers Harriman & Co., Boston,
Massachusetts, no later than five business days preceding the Valuation Date,
and Mackenzie Fund will immediately notify Thornburg Fund's investment
adviser of any portfolio security thereafter acquired or sold by Mackenzie
Fund. Mackenzie Fund portfolio securities and cash shall be delivered by
Mackenzie Trust to State Street Bank & Trust Company, Boston, MA 02205-9087,
as custodian for Thornburg Fund for the account of Thornburg Fund on the
Closing Date, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The cash delivered shall be in the form of currency or certified or official
bank checks, or completed federal funds wire, payable to the order of "State
Street Bank & Trust Co., Custodian for Thornburg Limited Term Municipal Fund
California Portfolio." Mackenzie Fund will cause its custodian to deliver at
Closing a certificate of an authorized officer of the Custodian stating that
Mackenzie Fund's Assets have been delivered in proper form to Thornburg
Fund's custodian on or before the Closing Date.
(c) In the event that on the Valuation Date (i) the New York Stock
Exchange is closed to trading, or (ii) trading or the reporting of trading in
securities generally is disrupted so that accurate appraisal of the value of
the net assets of Thornburg Fund or Mackenzie Fund is impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading is fully resumed and reporting is restored.
(d) Mackenzie Trust shall deliver to Thornburg LTMF shareholder
and shareholder account information as of the close of business on the
Valuation Date as reasonably requested by Thornburg LTMF. Thornburg Fund
shall issue and deliver a confirmation to Mackenzie Fund at the Closing
stating the number of Thornburg Fund Shares to be credited on the Closing
Date to Mackenzie Fund, and stating the number of Thornburg Fund Shares
credited to Mackenzie Fund's account on the books of Thornburg Fund.
Thornburg LTMF shall issue and deliver to each former Mackenzie Fund
Shareholder, after the Closing, a confirmation stating the number of
Thornburg Fund Shares credited to the shareholder's account. At the Closing,
each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.
4. Representations and Warranties.
------------------------------
(a) Mackenzie Trust represents and warrants to Thornburg LTMF as
follows:
(i) Mackenzie Fund is a series of Mackenzie Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;
(ii) Mackenzie Trust is a duly registered open-end
management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect;
<PAGE> 25
(iii) The current prospectus and statement of additional
information of Mackenzie Fund, each dated October 25, 1996, conform in
all material respects to the applicable requirements of the Securities
Act of 1933 (the "1933 Act") and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iv) To the knowledge of Mackenzie Trust, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Mackenzie Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, or the rules and regulations under
those Acts, all of which shall have been received prior to the Closing
Date, except for such consents, approvals, authorizations or orders as
may be required subsequent to the Closing Date;
(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Mackenzie Trust's
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Mackenzie
Fund or Mackenzie Trust is a party or by which it is bound;
(vi) Mackenzie Fund has valued, and will continue to value
its portfolio securities and other assets in accordance with
applicable legal requirements;
(vii) All material contracts or other commitments (other than
this Agreement) to which Mackenzie Fund is a party will be terminated
without liability to Mackenzie Fund or Thornburg Fund on or before the
Closing Date;
(viii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Mackenzie Fund or any of its properties or assets. Mackenzie Trust
knows of no facts which might form the basis for the institution of
such proceedings, and neither Mackenzie Trust nor Mackenzie Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;
(ix) The statement of assets and liabilities, the statement
of operations, and the statement of changes in net assets of Mackenzie
Fund at June 30, 1996 have been audited by Coopers & Lybrand,
certified public accountants, and those statements, together with the
statements of assets and liabilities, the statements of operations,
and the statements of changes in net assets at December 31, 1996, and,
when issued, at June 30, 1997, fairly reflect, or in the case of the
June 30, 1997 statements will fairly reflect, in all material respects
the assets, financial condition, results of operations, and changes in
net assets of Mackenzie Fund as of and for the periods ended on those
dates and have, or in the case of the June 30, 1997 statements, shall
have been prepared in accordance with generally accepted accounting
principles consistently applied; and there are no known liabilities of
Mackenzie Fund other than liabilities disclosed or provided for in the
foregoing statements;
(x) Since December 31, 1996, there has been no material
adverse change in Mackenzie Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business; and Mackenzie Fund has not incurred any
indebtedness maturing more than one year from the date such
indebtedness was incurred except as disclosed in Exhibit A. For the
purposes of this subparagraph (x), a decline in net asset value per
share of Mackenzie Fund Shares is not a material adverse change;
(xi) At the Closing Date, all material federal and other tax
returns and reports of Mackenzie Fund required by law then to be filed
(including any extensions) shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best of Mackenzie
Trust's knowledge no such return of or relating to Mackenzie Fund is
currently under audit, and no assessment has been asserted with
respect to Mackenzie Fund;
<PAGE> 26
(xii) Mackenzie Fund has met the requirements of Subchapter M
of the Code and has elected to be treated as a regulated investment
company for each taxable year of its operations since its inception,
and will so qualify for the taxable year ending on the Closing Date;
(xiii) Mackenzie Trust is authorized to issue an unlimited
number of shares of beneficial interest, no par value per share, at
the date hereof. All issued and outstanding shares of Mackenzie Fund
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state
securities laws. All issued and outstanding Mackenzie Fund shares
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by Mackenzie Trust, except
to the extent that shareholders of Mackenzie Trust may be held
personally liable for the obligations of Mackenzie Trust. All of the
issued and outstanding Mackenzie Fund Shares will, at the time of
Closing, be held by shareholder accounts in the amounts set forth in
the list of shareholder's accounts submitted to Thornburg LTMF
pursuant to paragraph 3(d). Mackenzie Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any
Mackenzie Fund Shares, except that Class B shares may convert to Class
A shares in accordance with the applicable Mackenzie Fund prospectus;
(xiv) At the Closing Date, Mackenzie Fund will have good and
marketable title to the Assets to be transferred to Thornburg Fund
pursuant to paragraph 1(b), subject to no lien, encumbrance or
competing interest in any person, and full right, power, and authority
to sell, assign, transfer and deliver the Assets hereunder, and upon
delivery and payment for those Assets, Thornburg Fund will acquire
good and marketable title thereto, subject to no restriction on the
full transfer thereof, including such restrictions as might arise
under the 1933 Act other than as disclosed in writing to Thornburg
Fund;
(xv) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Mackenzie Trust's trustees, and
this Agreement constitutes a valid and binding obligation of Mackenzie
Trust, enforceable in accordance with its terms, subject to the
approval of the Mackenzie Fund Shareholders, and further subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;
(xvi) The information furnished by Mackenzie Trust for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto;
(xvii) The registration statement filed by Thornburg Fund on
Form N-14 relating to the Thornburg Fund Shares that will be
registered with the Commission pursuant to this Agreement, which shall
include the proxy statement of Mackenzie Trust in respect of Mackenzie
Fund and prospectus of Thornburg Fund with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or to the documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), and (ii) the proxy
materials of Mackenzie Trust in respect of Mackenzie Fund included in
the N-14 Registration Statement and filed with the Commission pursuant
to Section 14 of the 1934 Act with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or the documents appended thereto (the "Reorganization Proxy
Materials"), from their effective dates with the Commission, through
the time of the meeting of shareholders of Mackenzie Fund contemplated
therein (the "Shareholders Meeting") and at the Closing Date: (a)
shall comply in all material respects with the provisions of the 1933
Act, 1934 Act and the 1940 Act, the rules and regulations thereunder,
and applicable state securities laws, and (b) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, that the representations and
warranties in this subparagraph shall only apply to statements in or
omissions from the N-14 Registration Statement or Reorganization Proxy
Materials made by, or in reliance upon and in conformity with
information furnished by or on behalf of Mackenzie Trust.
<PAGE> 27
(b) Thornburg LTMF represents and warrants to Mackenzie Trust as
follows:
(i) Thornburg Fund is a series of Thornburg LTMF, which is
a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland;
(ii) Thornburg LTMF is a duly registered open-end management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect;
(iii) The current prospectus and statement of additional
information for Class A shares of Thornburg Fund, each dated
February 1, 1997, conform in all material respects to the applicable
requirements of the 1933 Act and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iv) To the knowledge of Thornburg LTMF, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Thornburg Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, or the rules and
regulations under those Acts, all of which shall have been received
prior to the Closing Date, except for such consents, approvals,
authorizations or orders as may be required subsequent to the Closing
Date;
(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Thornburg LTMF's
Articles of Incorporation or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Thornburg
Fund or Thornburg LTMF is a party or by which it is bound;
(vi) Thornburg Fund has valued, and will continue to value,
its portfolio securities and other assets in accordance with
applicable legal requirements;
(vii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Thornburg Fund or any of its properties or assets. Thornburg LTMF
knows of no facts which might form the basis for the institution of
such proceedings, and neither Thornburg LTMF nor Thornburg Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;
(viii) The statement of assets and liabilities, the statement
of operations and the statement of changes in net assets of Thornburg
Fund at June 30, 1996 have been audited by McGladrey & Pullen, LLP,
certified public accountants, and those statements together with the
statement of assets and liabilities, the statement of operations and
the statement of changes in net assets at December 31, 1996, and, when
issued, at June 30, 1997, fairly and accurately reflect, or in the
case of the June 30, 1997 statements will fairly and accurately
reflect the assets and financial condition of Thornburg Fund as of and
for the periods ended on those dates, and have, or in the case of the
June 30, 1997 statements, shall have been prepared in accordance with
generally accepted accounting principles consistently applied and
there are no known liabilities of Thornburg Fund other than
liabilities disclosed or provided for in the foregoing statements;
(ix) Since December 31, 1996, there has not been any
material adverse change in Thornburg Fund's financial condition,
assets, liabilities or business other than changes occurring in the
ordinary course of business, and Thornburg has not incurred any
indebtedness maturing more than one year from the date such
indebtedness was incurred. For the purposes of this subparagraph
(ix), a decline in net value per share of Thornburg Fund Shares is not
a material adverse change;
(x) At the Closing Date, all federal and other tax returns
and reports of Thornburg Fund required by law then to be filed shall
have been filed, and all federal and other taxes shall have been paid
for as due or provision shall have been made for the payment thereof
<PAGE> 28
and, to the best of Thornburg LTMF's knowledge, no such return of or
relating to Thornburg Fund is currently under audit, and no assessment
has been asserted with respect to Thornburg Fund;
(xi) Thornburg Fund has met the requirements of Subchapter M
of the Code, and has elected to be treated as a regulated investment
company for each taxable fiscal year of its operation since its
inception and will so qualify for the taxable year including the
Closing Date;
(xii) Thornburg LTMF is authorized to issue 100,000,000
shares of Thornburg Fund Class A voting common stock having a par
value of $.0001 per share, at the date hereof. All issued and
outstanding shares of Thornburg Fund have been offered and sold in
every state and the District of Columbia in compliance in all material
respects with applicable registration requirements of the 1933 Act and
state securities laws. All issued and outstanding Thornburg Fund
Shares are at the date hereof, and at the Closing Date will be, duly
and validly issued and outstanding, fully paid and non-assessable.
Thornburg Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any Thornburg Fund Shares,
nor is there outstanding any security convertible into Thornburg Fund
Shares (except as the directors of Thornburg LTMF may convert shares
of other classes of shares to Class A shares in accordance with
Thornburg LTMF's Articles of Incorporation, as amended);
(xiii) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Thornburg LTMF's directors, and
this Agreement constitutes a valid and binding obligation of Thornburg
LTMF enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;
(xiv) Thornburg Fund Class A Shares to be issued and
delivered to Mackenzie Fund pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Thornburg Fund Shares,
and will be fully paid and non-assessable by Thornburg LTMF, except to
the extent that shareholders of Thornburg LTMF may be held personally
liable for obligations of Thornburg LTMF;
(xv) The N-14 Registration Statement and the Reorganization
Proxy Materials, from their effective dates with the Commission,
through the time of the Shareholders Meeting and at the Closing Date:
(a) shall comply in all material respects with the provisions of the
1933 Act, 1934 Act and the 1940 Act, the rules and regulations
thereunder, and applicable state securities laws, and (b) shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, that the
representations and warranties in this subparagraph shall only apply
to statements in or omissions from the N-14 Registration Statement or
the Reorganization Proxy Materials made in reliance upon and in
conformity with information furnished by or on behalf of Thornburg
LTMF;
(xvi) At the Closing Date, Thornburg Fund will have good and
marketable title to its assets, subject to no lien, encumbrance or
competing interest in any person, and full right, power and authority
to sell, assign, transfer and deliver those assets other than as
disclosed in writing to Mackenzie Fund; and
(xvii) The information furnished by Thornburg LTMF for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto.
<PAGE> 29
5. Covenants of the Parties.
------------------------
(a) Thornburg Fund and Mackenzie Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that the ordinary course of business will include
customary dividends and distributions and any other distribution that may be
advisable.
(b) Mackenzie Trust will call a meeting of the shareholders of
Mackenzie Fund to be held as promptly as practicable to consider and act upon
this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated herein.
(c) Mackenzie Trust covenants that the Thornburg Fund Shares to be
issued hereunder will not be sold or distributed other than in accordance
with the terms of this Agreement.
(d) Mackenzie Trust will furnish to Thornburg LTMF all information
reasonably requested and that is within its control for the preparation of
the N-14 Registration Statement, the preparation and distribution of the
Reorganization Proxy Materials, and for effectuating the transactions
contemplated herein. Mackenzie Trust will furnish, or cause its transfer
agent to furnish, to Thornburg LTMF all information reasonably requested
respecting the beneficial ownership of Mackenzie Fund shares, shareholders
and shareholder accounts for the mailing of the Reorganization Proxy
Materials and for the establishment of Thornburg Fund accounts for Mackenzie
Fund Shareholders in accordance with paragraph 1(c). Mackenzie Trust will
furnish, or cause its custodian or other agents to furnish, all portfolio
asset information reasonably requested by Thornburg LTMF in connection with,
and to facilitate, the transactions contemplated by this Agreement.
(e) Subject to the provisions of this Agreement, Thornburg LTMF
and Mackenzie Trust will each take, or cause to be taken, all actions, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
(f) Mackenzie Trust shall furnish to Thornburg LTMF within 30 days
after the Closing Date a detailed trial balance of Mackenzie Fund's assets
and liabilities and computations showing amortization of premium on portfolio
securities. Mackenzie Trust shall furnish to Thornburg LTMF when available
the final federal income tax return for Mackenzie Fund.
(g) Mackenzie Trust will, as promptly as practicable after the
Closing, wind up the business of Mackenzie Fund, deregister Mackenzie Fund
under applicable federal securities laws, file final reports with the state
securities regulators requiring any such reports, prepare and distribute
final account statements and tax statements to persons who were formerly
Mackenzie Fund shareholders, and file any necessary federal and state tax
returns.
(h) Thornburg LTMF will prepare and file the N-14 Registration
Statement, will file the Reorganization Proxy Materials with applicable
regulatory authorities, and will use all reasonable efforts to obtain
clearance or effectiveness of the N-14 Registration Statement and the
Reorganization Proxy Materials, all in accordance with the 1933 Act, the 1934
Act, and the 1940 Act, and applicable regulations and rulings thereunder, and
in accordance with any applicable state statutes and regulations.
(i) Thornburg LTMF agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1934 Act, the
1940 Act and such of the state securities laws as are necessary or
appropriate in order to continue its operations after the Closing Date.
<PAGE> 30
6. Conditions Precedent to Obligations of Mackenzie Trust.
------------------------------------------------------
The obligations of Mackenzie Trust to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Thornburg LTMF of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
(a) All representations and warranties of Thornburg LTMF contained
in this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date;
(b) Thornburg LTMF shall have delivered to Mackenzie Trust a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Mackenzie Trust and dated as of the Closing Date, certifying that the
representations and warranties of Thornburg LTMF made in this Agreement are
true and correct at and as of the Closing Date;
(c) Mackenzie Trust shall have received on the Closing Date a
favorable opinion of White, Koch, Kelly & McCarthy, P.A., counsel to
Thornburg LTMF, dated as of the Closing Date, in form and substance
satisfactory to Mackenzie Trust's counsel, covering the following points:
(i) Thornburg LTMF is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
(ii) This Agreement has been duly authorized, executed and
delivered by Thornburg LTMF and, assuming due authorization, execution
and delivery of the Agreement by Mackenzie Trust, is a valid and
binding obligation of Thornburg LTMF enforceable against Thornburg
LTMF in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general equitable principles;
(iii) The Thornburg Fund Shares to be issued to Mackenzie
Fund Shareholders as provided by this Agreement are duly authorized
and upon such delivery will be validly issued and outstanding and will
be fully paid and non-assessable by Thornburg LTMF, except to the
extent that shareholders of Thornburg LTMF may be held personally
liable for the obligations of Thornburg LTMF;
(iv) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Thornburg LTMF's Agreement and Articles of Incorporation or
By-Laws, or any provision of any agreement (known to such counsel) to
which Thornburg LTMF is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty, under any agreement,
judgment, or decree to which Thornburg LTMF is a party or by which it
is bound;
(v) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by Thornburg LTMF of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act and the 1940 Act, and such as may be required under
state securities laws;
(vi) In the ordinary course of counsel's representation of
Thornburg LTMF or Thornburg Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings insofar as they relate to Thornburg LTMF or Thornburg
Fund, required to be described in the N-14 Registration Statement
which are not described as required;
(vii) Thornburg LTMF is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and
<PAGE> 31
(viii) In the ordinary course of counsel's representation of
Thornburg LTMF or Thornburg Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Thornburg LTMF or Thornburg Fund or any of
its properties or assets and neither Thornburg LTMF nor Thornburg Fund
is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.
7. Conditions Precedent to Obligations of Thornburg LTMF.
-----------------------------------------------------
The obligations of Thornburg LTMF to complete the transactions provided
for herein shall be subject, at its election, to the performance by Mackenzie
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
(a) All representations and warranties of Mackenzie Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;
(b) Mackenzie Trust shall have delivered to Thornburg LTMF the
following information prepared as of the Closing Date: (i) net asset value
pricing sheet of Mackenzie Fund, with a portfolio listing of each portfolio
security including the principal amount, identification of issue, cost, tax
lot cost, market price per unit and market value; (ii) trial balance of
Mackenzie Fund's general ledger; (iii) supporting schedules with the details
for accounts receivable and accounts payable; (iv) certification from
Mackenzie Fund's custodian that it has delivered to Thornburg Fund's
custodian the Assets acquired by Thornburg Fund; and (v) confirmation from
Mackenzie Fund's transfer agent of the aggregate number of Mackenzie Fund
Shares outstanding and a reconciliation of that number to the number of
shares shown in the pricing sheet referred to in (i) above.
(c) Mackenzie Trust shall have delivered to Thornburg LTMF a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Thornburg LTMF and dated as of the Closing Date, certifying that the
representations and warranties of Mackenzie Trust made in this Agreement are
true and correct at and as of the Closing Date;
(d) Thornburg LTMF shall have received on the Closing Date a
favorable opinion of Dechert Price & Rhoads, counsel to Mackenzie Trust,
dated as of the Closing Date, in form and substance satisfactory to Thornburg
LTMF's counsel, covering the following points:
(i) Mackenzie Trust is a business trust duly formed and
validly existing under the laws of the Commonwealth of Massachusetts
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
(ii) This Agreement has been duly authorized, executed and
delivered by Mackenzie Trust and, assuming due authorization,
execution and delivery of the Agreement by Thornburg LTMF, is a valid
and binding obligation of Mackenzie Trust enforceable against
Mackenzie Trust in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles;
(iii) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Mackenzie Trust's Declaration of Trust or By-Laws, or any
provision of any agreement (known to such counsel) to which Mackenzie
Trust is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which Mackenzie Trust is a party or by which it is bound;
(iv) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority, other
than the filings required to be made after the Closing under
applicable laws, is required for the consummation by Mackenzie Trust
of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act;
<PAGE> 32
(v) This Agreement was duly approved by the Mackenzie Fund
Shareholders in accordance with applicable law;
(vi) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings, insofar as they relate to Mackenzie Trust or Mackenzie
Fund, required to be described in the N-14 Registration Statement
which are not described as required;
(vii) Mackenzie Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and
(viii) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Mackenzie Trust or Mackenzie Fund or any
of its properties or assets and neither Mackenzie Trust nor Mackenzie
Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.
(e) The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of Mackenzie Fund in accordance with applicable law and evidence of
the approval shall have been delivered to Thornburg LTMF;
(f) The parties shall have received a favorable opinion of Dechert
Price & Rhoads, satisfactory to Mackenzie Trust and Thornburg LTMF,
substantially to the effect that, based upon certain facts, assumptions and
representations, the transactions contemplated by this Agreement constitute
a tax-free reorganization described in Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended, for federal income tax purposes. The
delivery of such opinion is conditioned upon receipt by Dechert Price &
Rhoads of representations it shall request of Thornburg LTMF and Mackenzie
Trust.
8. Further Conditions Precedent to Obligations
of Thornburg LTMF and Mackenzie Trust.
-------------------------------------------
Each party's obligations hereunder are, at its election, subject to the
further conditions that:
(a) On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
(b) On or before the Closing Date, all consents of other parties
and all other consents, orders and permits of federal, state and local
regulatory authorities (including those of the Commission and of state
securities authorities, including "no-action" positions of such federal or
state authorities) deemed necessary by Thornburg LTMF or Mackenzie Trust to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the business assets or properties of Thornburg LTMF or
Mackenzie Trust;
(c) On or before the Closing Date, the N-14 Registration Statement
shall have become effective under the 1933 Act and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the 1933
Act.
<PAGE> 33
9. Responsibility for Fees and Expenses.
------------------------------------
(a) Thornburg LTMF and Mackenzie Trust each represents and
warrants to the other that it has not engaged any broker or finder entitled
to receive any payments in connection with the transactions provided for
herein.
(b) Neither Thornburg Fund nor Mackenzie Fund shall ultimately
bear any expenses incurred in connection with the entering into and carrying
out of the provisions of this Agreement, whether or not the transactions
contemplated are consummated. Specifically, the investment advisers to each
respective Fund have agreed pursuant to an agreement dated June 13, 1997, to
assume and share between themselves all such expenses including the expenses
of preparing and filing the N-14 Registration Statement, the costs of
distributing the prospectus and proxy materials, proxy solicitation costs,
and other special costs incurred by either Fund; provided, however, that any
expenses so borne by either investment adviser shall be solely and directly
related to the reorganization contemplated by this Agreement, within the
meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.
10. Massachusetts Business Trust.
----------------------------
Mackenzie Trust is organized as a Massachusetts business trust, and
references in this Agreement to Mackenzie Trust mean and refer to the
trustees of Mackenzie Trust from time to time serving under its Declaration
of Trust on file with the Secretary of State of the Commonwealth of
Massachusetts, as the same may be amended from time to time, pursuant to
which Mackenzie Trust conducts its business. It is expressly agreed that the
obligations of Mackenzie Trust hereunder shall not be binding upon any of
Mackenzie Trust's trustees, shareholders, nominees, officers, agents, or
employees of Mackenzie Trust, or Mackenzie Fund personally, but bind only the
property of Mackenzie Fund, as provided in Mackenzie Trust's Declaration of
Trust. Moreover, no series of Mackenzie Trust other than Mackenzie Fund
shall be responsible for the obligations of Mackenzie Trust hereunder, and
all persons shall look only to the respective assets of Mackenzie Fund to
satisfy the obligation of Mackenzie Trust hereunder. The execution and
delivery of this Agreement have been authorized by Mackenzie Trust's Board of
Trustees, on behalf of Mackenzie Fund, and this Agreement has been signed by
authorized officers of Mackenzie Fund acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
respective property of Mackenzie Fund, as provided in Mackenzie Trust's
Declaration of Trust.
11. Indemnification
---------------
(a) Thornburg Fund agrees to indemnify and hold harmless Mackenzie
Fund and each of Mackenzie Fund's trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Mackenzie Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim
damage liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Thornburg Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
(b) Mackenzie Fund agrees to indemnify and hold harmless Thornburg
Fund and each of Thornburg Fund's directors and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Thornburg Fund or any of its
directors or officers may become subject insofar as any such loss, claim or
damage liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Mackenzie Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
12. Entire Agreement; Survival of Warranties.
----------------------------------------
(a) Thornburg LTMF and Mackenzie Trust agree that neither party
has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.
<PAGE> 34
(b) The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
13. Termination.
-----------
(a) This Agreement may be terminated by the mutual agreement of
Thornburg LTMF and Mackenzie Trust. In addition, either Thornburg LTMF or
Mackenzie Trust may at its option terminate this Agreement at or before the
Closing Date because:
(i) of a material breach by the other of any
representation, warranty or agreement contained herein to be performed
at or before the Closing Date; or
(ii) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
(b) In the event of any such termination, there shall be no
liability for damages on the part of either Thornburg LTMF or Mackenzie
Trust, or their respective directors or trustees or officers, to the other
party or its directors or trustees or officers, but each shall bear, except
as otherwise provided in paragraph 9(b), the expenses incurred by them
incidental to the preparation and carrying out of this Agreement.
14. Amendments.
----------
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of
Mackenzie Trust and Thornburg LTMF; provided, however, that following the
shareholders' meeting called by Mackenzie Fund pursuant to this Agreement, no
such amendment may have the effect of changing the provisions for determining
the number of Thornburg Fund Shares to be issued to the Mackenzie Fund
Shareholders under this Agreement to the detriment of those Shareholders
without their further approval.
15. Notices.
-------
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy or certified mail addressed to Thornburg LTMF,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, Attention:
Brian J. McMahon and Mackenzie Trust, Via Mizner Financial Plaza, Suite 300,
700 South Federal Highway, Boca Raton, Florida 33432, Attention: C. William
Ferris.
16. Headings; Counterparts; Governing Law; Assignment.
-------------------------------------------------
(a) The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
(c) This Agreement shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Massachusetts,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or the Advisers Act (as the same Acts shall have been or will be
amended) or rules, orders or regulations of such governmental bodies or
authorities having authority with respect to such Acts.
<PAGE> 35
(d) This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective administrators, executors, legal representatives, heirs,
successors and permitted assigns, any rights or remedies under or by reason
of this Agreement.
(e) In the event of any litigation respecting this Agreement or
its subject matter, the prevailing party will be entitled to reimbursement
from the losing party for the prevailing party's cost of suit, including
reasonable attorneys' fees.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its appropriate officer and attested to by its Secretary or
Assistant Secretary.
Attest: THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
on behalf of THORNBURG LIMITED TERM MUNICIPAL
FUND CALIFORNIA PORTFOLIO
/s/ Dawn B. Fischer /s/ Brian J. McMahon
_________________________ By:__________________________________________
Secretary President
Attest: MACKENZIE SERIES TRUST on behalf of MACKENZIE
CALIFORNIA MUNICIPAL FUND
/s/ Deborah P. Mason /s/ C. William Ferris
_________________________ By:__________________________________________
Assistant Secretary Secretary/Treasurer
EXHIBIT A to Agreement and Plan of Reorganization dated June 13, 1997
between Thornburg Investment Trust (on behalf of Thornburg Limited Term
Municipal Fund California Portfolio) and Mackenzie Series Trust (on behalf of
Mackenzie California Municipal Fund)
Subparagraph 4(a)(x): None.
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Relating to the Acquisition of the Assets of
MACKENZIE LIMITED TERM MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
This Statement of Additional Information, relating specifically to the
proposed acquisition of substantially all of the assets of Mackenzie Limited
Term Municipal Fund, a series of Mackenzie Series Trust, by Thornburg Limited
Term Municipal Fund National Portfolio ("Thornburg Fund"), a series of
Thornburg Limited Term Municipal Fund, Inc., in exchange solely for Class A
voting shares of Thornburg Fund, consists of this cover page and the
following documents, each of which is attached hereto and incorporated by
reference herein:
1. Thornburg Limited Term Municipal Fund, Inc. Statement of Additional
Information dated November 1, 1996, as revised May 6, 1997;
2. Mackenzie Series Trust Statement of Additional Information dated
October 25, 1996;
3. Thornburg Limited Term Municipal Fund National Portfolio Annual
Report, June 30, 1996;
4. Thornburg Limited Term Municipal Fund National Portfolio Semiannual
Report, March 31, 1997;
5. Mackenzie Limited Term Municipal Fund Annual Report, June 30, 1996;
and
6. Mackenzie Limited Term Municipal Fund Semiannual Report,
December 31, 1996.
The financial statements of Mackenzie Limited Term Municipal Fund
contained in its Annual Report to shareholders for the fiscal year ended June
30, 1996 have been audited by Coopers & Lybrand, L.L.P., the Fund's
independent auditors. The financial statements of Thornburg Limited Term
Municipal Fund National Portfolio contained in its Annual Report to
shareholders for the fiscal year ended June 30, 1996 have been audited by
McGladrey & Pullen, LLP, that Fund's independent auditors.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated July 28, 1997 relating to the above
referenced acquisition may be obtained from Thornburg Limited Term Municipal
Fund, Inc. at the number and address shown above. This Statement of
Additional Information relates to, and should be read with, the
Prospectus/Proxy Statement.
The date of this Statement of Additional Information is July 28, 1997.
<PAGE>
<PAGE>
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.;" and the Company operated under the
name "Limited Term Municipal Fund, Inc." from June 28, 1985 to November 1,
1992.
The date of this Statement of Additional Information is November 1,
1996, as revised May 6, 1997.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . i
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . 1
Ratings . . . . . . . . . . . . . . . . . . . 8
Temporary Investments. . . . . . . . . . . . . 10
Repurchase Agreements. . . . . . . . . . . . . 10
U.S. Government Obligations. . . . . . . . . . 11
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . 11
PERFORMANCE COMPUTATION . . . . . . . . . . . . . . 14
Performance Computations - In General. . . . . 14
Representative Performance Figures -
Limited Term National Fund
(Classes A and C). . . . . . . . . . 15
Representative Performance Figures -
Limited Term California Fund
(Classes A and C). . . . . . . . . . 17
DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . 19
Distributions. . . . . . . . . . . . . . . . . 19
Tax Matters . . . . . . . . . . . . . . . . . 19
State and Local Tax Aspects. . . . . . . . . . 22
Special Risks Affecting the
California Portfolio. . . . . . . . . . . . . 22
Accounts of Shareholders . . . . . . . . . . . 25
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
AGREEMENTS . . . . . . . . . . . . . . . . . . . . 26
Investment Management Services . . . . . . . . 26
Administrative Services Agreement. . . . . . . 27
SERVICE AND DISTRIBUTION PLANS. . . . . . . . . . . 28
Service Plan - Class A and C . . . . . . . . . 28
Class C Distribution Plan. . . . . . . . . . . 29
General Matters Relating to Service and
Distribution Plans . . . . . . . . . . . . 29
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . 30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . 31
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . 35
HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . 35
NET ASSET VALUE . . . . . . . . . . . . . . . . . . 38
REDEMPTION OF SHARES. . . . . . . . . . . . . . . . 38
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . 38
INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . 39
<PAGE> 1
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.
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.
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 7-day 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, 1984, 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 7-day 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.
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, 1996, 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
Company'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 an individual
shareholder will be added to his or her "modified adjusted gross income" in
determining what portion, if any, of the individual's Social Security
benefits will be subject to federal income taxation. Shareholders are
advised to consult their own advisors as to the effect of this treatment.
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 12 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. In
particular, prospective investors who are not individuals are advised that
the preceding discussion relates primarily to tax consequences affecting
individuals, and the tax consequences of an investment by a person which is
not an individual may be very different.
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 Limited Term California Fund 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 of 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.
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 $578,333,000 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
$618,600,000 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.
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 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. 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. Carryovers not waived are contingent and would not be reflected as
liabilities on a Fund balance sheet. Any carryover paid in a future period
would be treated for accounting purposes as a current expense for that
period, reducing income for the period. 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 $1,154,408 $28,391
Limited Term California $ 122,572 $ 3,628
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 share 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) $35,489
Limited Term California (Class C only) $ 4,534
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 Investment 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 and a Trustee since
June, 1996; 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;
Managing Director and Vice President of TMC 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.
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 from 1991 to
1996 and a Managing Director since 1996; 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. Ms. Shapland is the Secretary of TSC.
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. The Company
paid fees to the Directors during the year ended June 30, 1996 as follows:
<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Name of Compensation Accrued as Benefits from Company and
Person, from Part of Upon Fund Complex
Position Company Fund Expenses Retirement Paid to Directors
- -------- ------------ ------------- ------------- -----------------
<C> <C> <C> <C> <C>
H. Garrett - 0 - - 0 - - 0 - - 0 -
Thornburg,
Jr.
J. Burchenal $7,000 - 0 - - 0 - $13,000
Ault
Eliot R. $6,000 - 0 - - 0 - $6,000
Cutler
James E. $6,500 - 0 - - 0 - $6,500
Monaghan, Jr.
A. G. $7,000 - 0 - - 0 - $7,000
Newmyer, III
Richard M. $6,000 - 0 - - 0 - $6,000
Curry
</TABLE>
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 "Your Account - Buying 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 of
the Fund 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
an 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 advisors who charge fees for service, including investment dealers
who utilize wrap fees or similar arrangements, 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) 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.
(10) 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 "Selling 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 in a
continuous offering of those shares. The Funds do not bear selling expenses
except (i) those involved in registering shares with the Securities and
Exchange Commission and qualifying them or the issuing 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.
The following table shows the commissions and other compensation
received by TSC from each of the Funds for the most recent fiscal year ending
June 30, 1996, except for compensation or amounts paid under Rule 12b-1
plans, which are described above under the caption "Service and Distribution
Plans."
<TABLE>
Fiscal Year Ended
June 30, 1996
- -----------------
<CAPTION> Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Commissions Paid to TSC Repurchases Commissions Compensation
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Limited Term $904,416 $124,901 $7,505 - 0 - *
National Fund
Limited Term 132,164 16,639 1,115 - 0 - *
California Fund
* See "Service and Distribution Plans."
</TABLE>
Limited Term National Fund paid aggregate underwriting commissions with
respect to sales of its shares in the fiscal years ending June 30, 1994 and
June 30, 1995 of $1,751,023 and $1,199,224, respectively; and TSC received
net underwriting commissions with respect to sales of Limited Term National
Fund shares in fiscal years ending June 30, 1994 and June 30, 1995 of
$657,126 and $171,476, respectively. Limited Term California Fund paid
aggregate underwriting commissions with respect to sales of its shares in the
fiscal years ending June 30, 1994 and June 30, 1995 of $266,021 and $168,930,
respectively; and TSC received net underwriting commissions with respect to
sales of Limited Term California Fund shares in fiscal years ending June 30,
1994 and June 30, 1995 of $75,217 and $24,622, respectively.
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>
MACKENZIE LIMITED TERM MUNICIPAL FUND
MACKENZIE NATIONAL MUNICIPAL FUND
MACKENZIE CALIFORNIA MUNICIPAL FUND
MACKENZIE NEW YORK MUNICIPAL FUND
series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
October 25, 1996
Mackenzie Series Trust (the "Trust") is a diversified open-end
management investment company that consists of four fully managed portfolios,
which are offered hereby. This Statement of Additional Information ("SAI")
describes the four portfolios listed above (each, a "Fund," and collectively,
the "Funds").
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated October 25, 1996 (the "Prospectus"), which may
be obtained without charge from the Trust at the Distributor's address and
telephone number listed below.
INVESTMENT MANAGER
Mackenzie Investment Management Inc. ("MIMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . 4
DEBT SECURITIES, IN GENERAL . . . . . . . . . . . . . . . . . 4
MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . 4
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO CALIFORNIA MUNICIPAL SECURITIES . . . . . . . . 7
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO NEW YORK MUNICIPAL SECURITIES . . . . . . . . . 17
U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . 26
INVESTMENT-GRADE DEBT SECURITIES . . . . . . . . . . . . 27
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS . . . . 27
COMMERCIAL PAPER . . . . . . . . . . . . . . . . . . . . 28
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . 28
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . 28
RESTRICTED AND ILLIQUID SECURITIES. . . . . . . . . . . . . . 29
TEMPORARY INVESTMENTS . . . . . . . . . . . . . . . . . . 29
MACKENZIE NATIONAL MUNICIPAL FUND,
MACKENZIE CALIFORNIA MUNICIPAL FUND AND
MACKENZIE NEW YORK MUNICIPAL FUND ONLY. . . . . . . . . . . . 30
OTHER INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . 31
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . 31
ADDITIONAL RESTRICTIONS . . . . . . . . . . . . . . . . . . . 33
ADDITIONAL RIGHTS AND PRIVILEGES . . . . . . . . . . . . . . 34
AUTOMATIC INVESTMENT METHOD. . . . . . . . . . . . . . . 35
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . 35
INITIAL SALES CHARGE SHARES. . . . . . . . . . . . . 35
CONTINGENT DEFERRED SALES CHARGE SHARES . . . . . . 35
LETTER OF INTENT . . . . . . . . . . . . . . . . . . . . 38
REINVESTMENT PRIVILEGE . . . . . . . . . . . . . . . . . 39
RIGHTS OF ACCUMULATION . . . . . . . . . . . . . . . . . 40
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . 40
BROKERAGE ALLOCATION . . . . . . . . . . . . . . . . . . . . 41
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . 43
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER . . . . 46
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . 47
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . 48
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES . . 48
DISTRIBUTION SERVICES . . . . . . . . . . . . . . . . . 50
RULE 18F-3 PLAN . . . . . . . . . . . . . . . . . . 52
RULE 12b-1 DISTRIBUTION PLANS . . . . . . . . . . . 53
RULE 12B-1 PAYMENTS BY THE FUNDS FOR DISTRIBUTION-
RELATED SERVICES . . . . . . . . . . . . . . . 54
DISTRIBUTION-RELATED EXPENSES BORNE BY IMDI . . . . 55
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . 56
FUND ACCOUNTING . . . . . . . . . . . . . . . . . . . . 56
TRANSFER AND DIVIDEND PAYING AGENT . . . . . . . . . . . 57
ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . 57
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 57
CAPITALIZATION AND VOTING RIGHTS . . . . . . . . . . . . . . 58
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . 59
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . 60
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . 61
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 61
CONVERSION OF CLASS B SHARES . . . . . . . . . . . . . . . . 63
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . 64
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . 64
DISCOUNT . . . . . . . . . . . . . . . . . . . . . . . . 65
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 66
DISPOSITION OF SHARES . . . . . . . . . . . . . . . . . 67
BACKUP WITHHOLDING . . . . . . . . . . . . . . . . . . . 68
OTHER TAXATION . . . . . . . . . . . . . . . . . . . . . 68
SPECIAL INFORMATION RELATING TO MACKENZIE CALIFORNIA
MUNICIPAL FUND . . . . . . . . . . . . . . . . . . 69
SPECIAL INFORMATION RELATING TO MACKENZIE NEW YORK
MUNICIPAL FUND . . . . . . . . . . . . . . . . . . 70
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 70
YIELD . . . . . . . . . . . . . . . . . . . . . . . 70
TAX-EQUIVALENT YIELD . . . . . . . . . . . . . . . 71
AVERAGE ANNUAL TOTAL RETURN . . . . . . . . . . . . 72
CUMULATIVE TOTAL RETURN . . . . . . . . . . . . . . 78
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 83
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P")
AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND, COMMERCIAL PAPER AND MUNICIPAL
OBLIGATIONS RATINGS . . . . . . . . . . . . . . . . . . 84
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME . . . . . . . 91
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Mackenzie Series Trust (the "Trust") is a diversified open-end
management investment company organized as a Massachusetts business trust on
April 22, 1985 under the name Industrial Series Trust. The Funds' investment
objectives and general investment policies are described in the Prospectus.
Additional information concerning the characteristics of the Funds'
investments is set forth below.
DEBT SECURITIES, IN GENERAL
Investment in debt securities involves both interest rate and credit
risk. Generally, the value of debt instruments rises and falls inversely with
fluctuations in interest rates. As interest rates decline, the value of debt
securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market
value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields
due to the increased risk that the issuer will be unable to meet its
obligations on interest or principal payments at the time called
for by the debt instrument.
MUNICIPAL SECURITIES
To achieve its investment objectives as described in the Fund's
Prospectus, each Fund may invest in "investment grade" municipal securities,
i.e., securities within the four highest rating categories for Moody's
Investors Service, Inc. ("Moody's) or Standard & Poor's Corporation ("S&P").
A description of the ratings is contained in Appendix A to this SAI. Baa
securities are considered "medium grade" obligations by Moody's, and BBB is
the lowest classification which is still considered an "investment grade"
rating by S&P. Baa securities are described by Moody's as obligations on
which "[i]nterest 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." According to
Moody's, "[s]uch bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well." The ratings of Moody's and
S&P represent their respective opinions of the qualities of the securities
they undertake to rate and such ratings are general and are not absolute
standards of quality.
Each Fund may invest in both "general obligation bonds" and "revenue
bonds." General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not
from the general taxing power. Municipal bonds are issued for various public
purposes, including construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets,
and water and sewer works. Other public purposes for which municipal bonds
may be issued include the refunding of outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to loan to other
public institutions and facilities, including certain types of industrial
facilities for water supply, gas, electricity or sewage or solid waste
disposal.
Industrial development bonds which pay tax-exempt interest are, in most
cases, revenue bonds and do not generally carry the pledge of the full faith
and credit of the issuer of such bonds. The payment of the principal and
interest on such industrial development bonds depends solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment. A Fund will not invest more than 5% of its
assets in securities where the principal and interest are the responsibility
of an industrial user with less than three years' operational history. In
addition, a Fund will not invest in industrial development bonds for the use
of privately-owned electric utilities.
There are, depending on numerous factors, variations in the risks
involved in holding municipal securities, both within a particular rating
classification and between classifications. The market values of outstanding
municipal bonds will vary as a result of the rating of the issue and changing
evaluations of the ability of the issuer to meet interest and principal
payments. Such market values will also change in response to changes in the
interest rates payable on new issues of municipal bonds. Should such
interest rates rise, the values of outstanding bonds, including those held in
a Fund's portfolio, would decline; should such interest rates decline, the
values of outstanding bonds would increase.
As a result of litigation or other factors, the power or ability of
issuers of municipal bonds to pay principal and/or interest might be
adversely affected. Municipal securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may
be enacted by Congress, state legislatures extending the time for payment of
principal or interest or both, or imposing other constraints upon enforcement
of such obligations or upon the power of municipalities to levy taxes.
A Fund may invest without percentage limitations in issues of municipal
securities which have similar characteristics, such as the location of their
issuers in the same geographic region or the derivation of interest payments
from revenues or similar projects (for example, electric utility systems,
hospitals, or housing finance agencies). Consequently, a Fund's portfolio of
municipal securities may be more susceptible to the risks of adverse
economic, political, or regulatory developments than would be the case with
a portfolio of securities required to be more diversified as to geographic
region and/or source of revenue.
For the purpose of certain requirements under the Investment Company Act
of 1940, as amended (the "1940 Act"), and revenues of a political subdivision
are separate from those of the government which created the subdivision and
the security is backed only by the assets and revenues of the subdivision,
the subdivision would be deemed to be the sole issuer. Similarly, in the
case of an industrial development bond or private activity bond, if that bond
is backed only by the assets and revenues of the nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however,
in either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.
Interest on certain types of industrial development bonds (or private
activity bonds) (generally small issues, and obligations to finance certain
exempt facilities which may be leased to or used by persons other than the
issuer) will not be exempt from Federal income tax when received by
"substantial users" or persons related to "substantial users" as defined in
the Internal Revenue Code of 1986, as amended (the "Code"). The term
"substantial user" generally includes any "non-exempt person" who regularly
uses in his or her trade or business a part of a facility financed from the
proceeds of industrial development bonds. The Funds may invest periodically
in industrial development bonds and private activity bonds and, therefore,
may not be an appropriate investment for entities which are substantial users
of facilities financed by such bonds or "related persons" of substantial
users. Generally, an individual will not be a related person of a
substantial user under the Code unless the person or his or her immediate
family (spouse, brothers, sisters and lineal descendants) owns directly or
indirectly in the aggregate more than 50% in value of the equity of the
substantial user.
Legislative developments may affect the value of the securities in a
Fund's portfolio, and therefore the value of the Fund's shares, as well as
the tax-exempt status of dividends. The Board of Trustees of the Trust will
monitor the progress of any such proposals to determine what, if any,
defensive action may be taken. If any legislation which would have a
material adverse effect on the ability of a Fund to pursue its objective were
adopted, the investment objective and policies of that Fund would be
reconsidered by the shareholders of that Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL
SECURITIES: The following information as to certain California state (as
used in this subsection, the "State") risk factors is given to investors in
light of Mackenzie California Municipal Fund's policy of concentrating its
investments in California municipal issuers. Certain California
constitutional amendments, legislative measures, and voter initiatives, as
discussed below, could adversely affect the market values and marketability
of, or result in default of, existing obligations, including obligations that
may be held by the Fund. Obligations of the State or local governments may
also be affected by budgetary pressures affecting the State and economic
conditions in the State. The following information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from sources believed by the Trust to be reliable, including
official statements relating to securities offerings of California issuers
and periodic publications by national ratings organizations. Such
information, however, has not been independently verified by the Trust.
Certain California municipal securities held by the Fund may be
obligations of issuers that rely in whole or in part on State revenues for
payment of these obligations. Property tax revenues and a portion of the
state's General Fund surplus are distributed to counties, cities and their
various taxing entities and the State assumes certain obligations theretofore
paid out of local funds. Whether and to what extent a portion of the State's
General Fund will be distributed in the future to counties, cities and their
various entities, is unclear.
Some of the California municipal securities held by the Fund may be
obligations of issuers who rely in whole or in part on ad valorem real
property taxes as a source of revenue. On June 6, 1978, "Proposition 13"
added Article XIIIA to the California Constitution. Briefly, Article XIIIA
limits ad valorem taxes on real property and generally restricts the ability
of taxing entities to increase real property tax revenues.
Legislation enacted by the California Legislature to implement Article
XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the
voters prior to July 1, 1978, and any bonded indebtedness for the acquisition
or improvement of real property approved on or after July 1, 1978 must be
approved by two-thirds of the voters voting on the proposition. In addition,
each county will levy the maximum tax permitted by Article XIIIA of $4.00 per
$100 assessed valuation. The apportionment of property taxes in fiscal years
after 1978-79 was revised pursuant to Statutes of 1979, Chapter 282, which
provided relief funds from state moneys beginning in fiscal year 1979-80 and
is designed to provide a permanent system for sharing state taxes and budget
funds with local agencies. Under Chapter 282, cities and counties receive
more of the remaining property tax revenues collected under Proposition 13,
instead of direct state aid. School districts receive a correspondingly
reduced amount of property taxes, but receive compensation directly from the
state and are given additional relief.
On November 6, 1979, California voters approved Proposition 4, which
added Article XIIIB to the California Constitution. Article XIIIB may have
an adverse impact on California state and municipal issuers because it
subjects State and local governments to an annual "appropriations limit,"
which prohibits them from spending certain moneys (called "appropriations
subject to limitation") in excess of the imposed appropriations limit. The
State's appropriations limit in each year is based on the limit for the prior
year, adjusted annually for changes in State per capita personal income and
changes in population, and adjusted, where applicable, for any transfer of
financial responsibility of providing services to or from another unit of
government. As originally enacted, the appropriations limit was based on
certain 1978-79 expenditures and adjusted annually to reflect changes in
cost-of-living and population. Starting in the 1991-92 fiscal year, the
appropriations limit was recalculated by taking the actual 1986-87 fiscal
year limit, and applying the annual adjustments as if Proposition 111
(discussed below) had been in effect. This recalculation resulted in an
increase of $1 billion to the State's appropriations limit in the 1990-91
fiscal year.
On November 4, 1986, California voters approved an initiative statute
known as "Proposition 62." This statute (i) requires that any tax for
general governmental purposes imposed by local governments be approved by
resolution or ordinance adopted by a two-thirds vote of the governmental
entity's legislative body and by a majority vote of the electorate of the
governmental entity; (ii) requires that any special tax (defined as taxes
levied for other than general governmental purposes) imposed by a local
governmental entity be approved by a two-thirds vote of the voters within
that jurisdiction; (iii) restricts the use of revenues from a special tax to
the purposes or for the service for which the special tax was imposed; (iv)
prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA of the California
Constitution; (v) prohibits the imposition of transaction taxes and sales
taxes on the sale of real property by local governments; (vi) requires that
any tax imposed by a local government on or after August 1, 1985 be ratified
by a majority of the electorate within two years of the adoption of the
initiative or be terminated by November 15, 1988; (vii) requires that, in the
event a local government fails to comply with the provisions of this measure,
a reduction in the amount of tax revenue allocated to such local government
occur in an amount equal to the revenues received by such entity attributable
to the tax levied in violation of the initiative; and (viii) permits these
provisions to be amended exclusively by the voters of the State. In
September 1988 the California Court of Appeals held that it was
unconstitutional to require that local tax measures be submitted to the
electorate, as described in (vi) above.
On November 8, 1988, voters approved "Proposition 98," which has
significantly altered the operation and effect of the Article XIIIB spending
limit, the first changes since its adoption in 1979. This combined
initiative, constitutional amendment and statute, called the "Classroom
Instructional Improvement and Accountability Act" (the "Act"), changes State
funding of public education below the university level and the operation of
the State's Appropriations Limit. Specifically, Proposition 98 requires that
(a) the California Legislature establish a prudent State reserve fund in an
amount as it shall deem reasonable and necessary, and (b) revenues in excess
of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund
and be expended solely for purposes of instructional improvement and
accountability. No such transfer or allocation of funds will be required if
certain designated State officials determine that annual student expenditures
and class size meet certain criteria as set forth in Proposition 98. Any
funds allocated to the State School Fund shall cause the appropriation limits
established in Article XIIIB to be annually increased for any such allocation
made in the prior year.
The Act also amends Article XVI to require that the State provide a
minimum level of funding for public schools and community colleges.
Commencing with the 1988-89 fiscal year, State moneys to support school
districts and community college districts shall equal or exceed the lesser
of: (a) an amount equaling the percentage of State general revenue bonds for
school districts and community college districts in fiscal year 1986-87, or
(b) an amount equal to the prior year's State general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes,
after adjustment under Article XIIIB. The Act permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.
"Proposition 111" was approved by the voters and took effect
on July 1, 1990. Among a number of important provisions, Proposition 111
recalculates spending limits for the State and local governments, allows
greater annual increases in the limits, allows the averaging of two years'
tax revenues before requiring action regarding excess tax revenues, reduces
the amount of the funding guarantee in recession years for school districts
and community college districts (but with a floor of 40.9 percent of State
General Fund tax revenues), removes the provision of Proposition 98 which
included excess moneys transferred to school districts and community college
districts in the base calculation for the next year, limits the amount of
State tax revenue over the limit which would be transferred to school
districts and community college districts, and exempts increased gasoline
taxes and truck weight fees from the State appropriations limit.
Additionally, Proposition 111 exempts from the State appropriations limit
funding for capital outlays.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit; in the
mid-to-late 1980's, however, many entities were at or approaching their
limit. Many local entities have successfully sought voter approval for
4-year waivers of the limit and, under Proposition 111, may elect among
different measures of population in setting the limit. During fiscal year
1986-87, State receipts from proceeds of taxes exceeded its appropriations
limit by $1.138 billion, which was returned to taxpayers. Since that time,
appropriations subject to limitation were under the State limit. State
appropriations are estimated to be approximately $6.5 billion under the limit
for the 1995-96 fiscal year.
Article XIIIB, like Article XIIIA, may require further interpretation by
both the California Legislature and the courts to determine its applicability
to specific situations involving the State and local taxing authorities.
Depending upon such interpretation, Article XIIIB may limit significantly a
governmental entity's ability to budget sufficient funds to meet debt service
on bonds and other obligations.
Certain California municipal securities held by the Fund may
be obligations that are secured in whole or in part by a mortgage
or deed of trust on real property. Upon the default of a mortgage or deed of
trust with respect to California real property, the creditor's nonjudicial
foreclosure rights under the power of sale contained in the mortgage or deed
of trust are subject to the constraints imposed by California law upon
transfers of title to real property by private power of sale. During the
three-month period beginning with the filing of a formal notice of default,
the debtor is entitled to reinstate the home mortgage by making any
overdue payments. Under standard loan servicing procedures, the filing of
the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days
after expiration of the three-month reinstatement period. Therefore, the
effective minimum period for foreclosing on a mortgage could be in excess of
seven months after the initial default. Such time delays in collections
could disrupt the flow of revenues available to an issuer for the payment of
debt service on the outstanding obligations if such defaults occur with
respect to a substantial number of home mortgages or deeds of trust securing
an issuer's obligations.
Certain California municipal securities held by the Fund may be
obligations that finance the acquisition of single family home mortgages for
low- and moderate-income mortgagors. These obligations may be payable solely
from revenues derived from the home mortgages and are subject to the
California statutory limitations on the transfer of title during foreclosure
proceedings as described above. Under California anti-deficiency
legislation, there is no personal recourse against a mortgagor of a single
family residence purchased with the loan secured by the mortgage.
Under California law, mortgage loans secured by single family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on
such mortgage loans may be imposed only with respect to voluntary prepayments
made during the first five years of the mortgage loan's term, and cannot in
any event exceed six months' advance interest on the amount prepaid in excess
of 20% of the original principal amount of the mortgage loan. This
limitation could affect the flow of revenues available to an issuer for debt
service on the outstanding debt obligations which financed such home
mortgages.
In December 1991, Standard and Poor's Corporation ("S&P") downgraded its
rating of the State's general obligation bonds to "AA" from "AAA". As the
State's economy worsened and its budget deficit swelled, rating agency
officials closely monitored the State's budget progress. In February 1992,
Moody's Investors Service Inc. ("Moody's") downgraded its rating of the
State's general obligation bonds to "Aa1" from "Aaa". In April 1992, S&P
placed the State's general obligation bonds on its CreditWatch, indicating
the possibility of further downgrades should the State's budget and
recessionary problems persist. In July 1992, Moody's and S&P downgraded
their ratings of the State's general obligation bonds to "Aa" from "Aa1", and
to "A+" from "AA", respectively. On July 15, 1993, Moody's confirmed its
"Aa" rating of the State's general obligation bonds. However, on July 15,
1994, Moody's, S & P and Fitch Investors Service downgraded their ratings of
the State's general obligation bonds from "Aa" to "A1", "A+" to "A", and "AA"
to "A", respectively.
From mid-1990 until late 1993, California suffered a prolonged recession
coupled with deteriorating fiscal and budget conditions. During this period,
the state also contended with natural disasters including fires, a prolonged
drought and a major earthquake in the Los Angeles area (January 1994), a
rapidly growing population, and increasing social service requirements.
Since the start of 1994, however, the State's economy has been on a steady
recovery. Employment has grown by over 500,000 in 1994 and 1995, and the
pre-recession level of total employment is expected to be matched by early
1996. The strongest growth has been in export-related industries, business
services, electronics, entertainment and tourism, all of which have offset
the recession-related losses which were heaviest in aerospace and
defense-related industries (which accounted for two-thirds of the job
losses), finance and insurance. Residential housing construction, with new
permits for under 100,000 annual new units issued in 1994 and 1995, is weaker
than in previous recoveries, but has been growing slowly since 1993.
In 1994 and 1995, the State registered two consecutive years of job
growth and declining unemployment rates. During 1994 and throughout most of
1995, California posted non-farm employment gains of 1.3% and 2.3%. This
period has also seen personal income growth exceeding 3% annually, increasing
retail sales, and increased international trade, particularly manufactured
goods. Over the next two years, non-farm employment is projected to annually
expand at rates above 2%. These trends are expected to continue and allow
the State's recovery to gain momentum over the next two years. Over the next
two years, growth in employment and personal income is forecast to outpace
the growth of the national economy. Any setbacks to this recovery or future
breakdowns in fiscal discipline could lead to additional budgetary pressures
on State and local governments.
The prolonged recession seriously impacted California tax revenues and
produced the need for additional expenditures on health and welfare services.
Since the late 1980's, the State's Administrations have recognized that its
budget problems stem in part from a structural imbalance. The largest
General Fund programs -- K-12 schools and community colleges, health and
welfare, and corrections -- have been increasing faster than the revenue
base, driven by the State's rapid population growth. These structural
concerns may be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a
result of a "Three Strikes" law enacted in 1994.
The principal sources of the State's General Fund revenues are the
California personal income tax, 43% of total revenues, sales and use tax,
34%, and bank and corporation taxes, 13%. The State maintains a Special Fund
for Economic Uncertainties (the "Special Fund") derived from General Fund
revenues as a reserve to meet the cash requirements of the General Fund but
which is required to be replenished as soon as sufficient revenues are
available. Because of the recession, the Special Fund has had a negative
balance since 1991; the Administration projects a positive balance of about
$92 million in the Special Fund by June 30, 1996.
The accumulated budget deficits over the past several years, together
with expenditures for school funding, which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined
to significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings past
the end of a fiscal year. Such borrowings are expected to continue in future
fiscal years.
Administration reports during the course of the 1993-1994 Fiscal Year
indicated that while economic recovery appeared to have started in the second
half of the fiscal year, recessionary conditions continued longer than had
been anticipated when the 1993-1994 Budget Act was adopted. Overall,
revenues for the 1993-1994 Fiscal Year were approximately $800 million lower
than original projections, and expenditures were approximately $780 million
higher, primarily because of higher health and welfare caseloads, lower
property taxes which required greater State support for K-14 education to
make up the shortfall, and lower than anticipated federal government payments
for immigration-related costs. The reports in May and June, 1994, indicated
that revenues in the second half of the 1993-94 Fiscal Year were very close
to the projections made in the Governor's Budget of January 10, 1994, which
was consistent with a slow turnaround in the economy.
The Department of Finance's July 1994 Bulletin including the final June
receipts, reported that June revenues were $114 million, or 2.5%, above
projections, with final end-of-year results at $377 million, or approximately
1.1%, above the projections in the May 1994 Revision to the 1994-95
Governor's Budget ("May Revision"). Part of this result was due to the
end-of-year adjustments and reconciliations. Personal income tax and sales
tax continued to track projections. The largest factor in the higher than
anticipated revenues was from bank and corporation taxes, which were $140
million, or 18.4%, above projections in June.
During the 1993-1994 Fiscal Year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December
21, 1994. This borrowing reduced the cash deficit at the end of the 1993-94
Fiscal Year. Nevertheless, because of the $1.5 billion variance from the
original 1993-1994 Budget Act assumptions, the General Fund ended the Fiscal
Year at June 30, 1994 carrying forward an accumulated deficit of
approximately $1.7 billion.
Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion or revenue
anticipation warrants issued as part of the Deficit Retirement and Reduction
Plan, the State issued an additional $2.0 billion of revenue anticipation
warrants, maturing July 26, 1994, which were needed to fund the State's
obligations and expenses through the end of the 1993-94 Fiscal Year.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8
on the Richter Scale struck Los Angeles (the "Northbridge Earthquake").
Significant property damage to private and public facilities occurred in a
four-county area including northern Los Angeles County, Ventura County, and
parts of Orange and San Bernardino Counties. Although some individuals and
businesses suffered losses totaling in the billions of dollars, the overall
effect on the earthquake on the regional and state economy is not expected to
be serious.
The 1994-95 fiscal year represented the fourth consecutive year that the
Governor and the Legislature were faced with a difficult budget environment.
Many program cuts and budgetary adjustments had already been made in the last
three years.
The Governor's Budget Proposal, as updated in May and June 1994,
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget proposal sets forth revenue and
expenditure forecasts and revenue and expenditure proposals which result in
operating surpluses for the budget for both 1994-95 and 1995-96, and lead to
the elimination of the accumulated budget deficit, estimated at about $1.7
billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8,
1994, projected revenues and transfers of $41.9 billion, $2.1
billion higher than revenues in 1993-94. This reflected the Administration's
forecast of an improving economy. Also included in this figure was the
projected receipt of about $360 million from the Federal Government to
reimburse the State's cost of incarcerating undocumented immigrants, most of
which eventually was not received. The Legislature took no action on a
proposal in the January 1994-95 Governor's Budget to undertake an expansion
of the transfer of certain programs to counties, which would also have
transferred to counties 0.5% of the State's current sales tax.
The 1994-95 Budget Act projected Special Fund revenues of $12.1 billion,
a decrease of 2.4% from 1993-94 estimated revenues. The 1994-95 Budget Act
projected General Fund expenditures of $40.9 billion, an increase of $1.6
billion over 1993-94. The 1994-95 Budget Act also projected Special Fund
expenditures of $12.3 billion, a 4.7% increase over 1993-94 estimated
expenditures.
Among other major features of the 1994-95 Budget Act were reductions in
health and welfare costs, increases in educational funding, and increased
funding for anticipated growth in the State's prison inmate population,
including provisions for implementing recent legislation which requires
mandatory life prison terms for certain third time felony offenders.
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June, 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving approximately $390 million in the 1995-96 Fiscal Year.
The 1994-95 Budget assumed that the State would use a cash flow
borrowing program in 1994-95 which combined one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the
State to defer repayment of approximately $1.0 billion of its accumulated
budget deficit into the 1995-96 Fiscal Year. The Budget Adjustment law
enacted along with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 Fiscal Year.
Because of the accumulated budget deficit over the past several years,
the payment of certain unbudgeted expenditures to schools to maintain
constant per-pupil aid levels, and a reduction of the level of available
internal borrowing, the State's cash resources have been significantly
reduced. This has required the State to rely on a series of external
borrowings for the past several years to pay its normal expenses, including
borrowings which have gone past the end of the fiscal year. In February
1994, the State borrowed $3.2 billion, maturing by December 1994. In July
1994, the State borrowed a total of $7.0 billion to meet its cash flow
requirements for the 1994-95 fiscal year and to fund part of its deficit into
the 1995-96 fiscal year. A total of $4.0 billion of this borrowing matures
in April 1996. The State will continue to utilize external borrowing to
meet its cash needs to the foreseeable future.
In order to assure repayment of the $4 billion, 22-month
borrowing, the State enacted legislation (the "Trigger Law") which
can lead to automatic, across-the-board cuts in General Fund expenditures in
either the 1994-95 or 1995-96 fiscal years if cash flow projections made at
certain times during those years show deterioration from the projections made
in July 1994 when the borrowings were made. This plan places the burden on
the legislature to maintain ongoing control over the annual budget, and could
exert additional pressure on local governments reliant on appropriated
program expenditures. On November 15, 1994, the State Controller as part of
the Trigger Law reported that the cash position of the General Fund on June
30, 1995 would be about $580 million better than earlier projected, so no
automatic budget adjustments were required in 1994-95. The Controller's
report showed that loss of federal funds was offset by higher revenues, lower
expenditures, and certain other increases in cash resources.
Again in 1995, the State experienced difficulties in obtaining a
consensus on the Budget which produced a two-month delay in passage. The
enacted FY 1995-96 Budget projects General Fund revenues of $44.1 billion and
expenditures of $43.4 billion. Key components built into the budget included
the receipt of about $830 million of new Federal aid for undocumented aliens'
costs and the successful resolution of litigation concerning previous budget
actions. This Budget proposes to eliminate the outstanding deficit including
all short-term borrowings and generate a small surplus of $289 million by
year end. On October 16, 1995, the State Controller indicated that the cash
position of the General Fund exceeded requirements for enacting the
Trigger Law. Initial results show that the major tax sources (Income, Sales
and Corporation Taxes) of the state are exceeding projections by $440
million. The tax revenue growth provides some evidence of the breadth of
California's economic rebound and offsets some reductions in anticipated
Federal aid during 1995. Attainment of FY 1995-96 Budget projections hinge
on the continuation of the economic recovery into 1996 and the maintenance of
fiscal discipline by the state.
On January 10, 1996, the Governor released his proposed budget for the
next fiscal year (the "Governor's Budget"). The governor requested total
General Fund appropriations of about $45.2 billion, based on projected
revenues and transfers of about $45.6 billion. The Governor renewed a
proposal, which had been rejected by the Legislature in 1995, for a 15
percent phased cut in individual and corporate tax rates over three years
(the budget proposal assumes this will be enacted, reducing revenues in
1996-97 by about $600 million). There was also a proposal to restructure
trial court funding in a way which would result in a $300 million decrease in
General fund revenues. The Governor's budget projects external cash flow
borrowing of up to $3.2 billion, to mature by June 30, 1997.
ORANGE COUNTY BANKRUPTCY PROCEEDINGS. On December 6, 1994, Orange
County, California (the "County"), together with its pooled investment funds
(the "Pooled Funds") filed for protection under Chapter 9 of the Federal
Bankruptcy Code, after reports that the Pooled Funds had suffered significant
market losses in their investments, causing a liquidity crisis for the Pooled
Funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the Pooled
Funds. As of mid-January 1995, following a restructuring of most of the
Pooled Funds' assets to increase their liquidity and reduce their exposure to
interest rate increases, the County estimated the Pooled Funds' loss at about
$1.69 billion, or about 23% of their initial deposits approximately $7.5
billion. A Recovery Plan which includes the diversion of public transit
revenues to the General Fund was adopted by the County and approved by the
State Legislature in the fall of 1995. The most recent plan calls for the
County to pay for investment losses to the investment pool participants over
15 years. Before the plan can be submitted to the bankruptcy court for
approval, the proposal must be unanimously approved by the investment pool
participants. The County anticipates receiving court approval of the plan
and emerging from bankruptcy by the end of fiscal year 1996.
The State has no existing obligation with respect to any outstanding
obligations or securities of Orange County or any of the other participating
entities.
LITIGATION. The State is a party to numerous legal proceedings, many of
which normally recur in governmental operations. In addition, the State is
involved in certain other legal proceedings that, if decided against the
State, may require the State to make significant future expenditures or may
impair future revenue sources.
Among the more significant lawsuits pending against the State are the
following: (i) a lawsuit seeking reimbursement for alleged state-mandated
costs; (ii) lawsuits related to contamination at the Stringfellow toxic waste
site; (iii) an action involving 3,000 plaintiffs seeking recovery for damages
caused by the Yuba River flood of February, 1986; (iv) challenges to several
budget appropriations in the 1994 and 1995 budget acts; and (v) actions
challenging the transfer of moneys from special fund accounts within the
State Treasury to the State's General Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
SECURITIES: Because Mackenzie New York Municipal Fund intends to concentrate
its investments in issuers located in New York (as used in this subsection,
the "State"), the Fund will be significantly affected by any economic,
political or regulatory developments which affect the ability of New York
issuers to pay interest or repay principal on their obligations. The
following information constitutes only a brief summary, does not purport to
be a complete description and is based on information from sources believed
by the Trust to be reliable, including official statements relating to
securities offerings of New York issuers and periodic publications by
national rating organizations. Such information, however, has not been
independently verified by the Trust.
NEW YORK STATE. The financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
authorities, the City of New York (the "City") or other localities could
adversely affect the State's financial condition.
There are a number of methods by which the State may incur debt. Under
the State Constitution, the State may not, with limited exceptions for
emergencies, undertake long-term borrowing (i.e., borrowing for more than one
year) unless the borrowing is authorized in a specific amount for a single
work or purpose by the Legislature and approved by the voters. There is no
limitation on the amount of long-term debt that may be so authorized and
subsequently incurred by the State.
The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New
York's authorities and public benefit corporations ("Authorities"). Payments
of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State also employs two other types of long- term financing
mechanisms that are State-supported but do not result in general obligations
of the State: moral obligation and lease-purchase or contractual- obligation
financing. Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes were $2.471 and $2.722 billion in the aggregate for the
State's 1994-95 and 1995-96 fiscal years, respectively, and were estimated to
be $2.926 billion for the State's 1996-97 fiscal year. The State has never
defaulted on any of its general obligation indebtedness or its obligations
under lease-purchase or contractual- obligation financing arrangements and
has never been called upon to make any direct payments pursuant to its
guarantees. There has never been a default on any moral obligation debt of
any Authority.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally
funded through New York State's annual seasonal borrowing. The legislation
empowered LGAC to issue its bonds and notes in an amount not in excess of
$4.7 billion (exclusive of certain refunding bonds) plus certain other
amounts. As of June 1995, LGAC had issued its bonds to provide net proceeds
of $4.7 billion completing the program. The impact of LGAC's borrowing is
that the State is able to meet its cash flow needs in the first quarter of
the fiscal year without relying on short-term seasonal borrowings. The
1996-97 State Financial Plan includes no spring borrowing. This reflects
success of the LGAC program in permitting the State to accelerate local aid
payments from the first quarter of the current fiscal year to the fourth
quarter of the previous fiscal year.
On January 6, 1992, Moody's lowered from "A" to "Baa1" its rating of
those New York State bonds that are backed by annual legislative
appropriations. Moody's also placed its "A" rating of the State's general
obligation bonds under review for possible downgrading. On January 13, 1992,
S&P lowered its rating of the State's general obligation bonds from "A" to
"A-." Moody's and S&P variously cited the State's continued economic
deterioration, chronic operating deficits, and the legislative stalemate in
closing the budget gap, as factors contributing to the downgrades. On
February 14, 1994, S&P raised its outlook to positive and, on July 13, 1995,
confirmed its "A-" rating on the State's general obligation bonds. On July
3, 1995, Moody's reconfirmed its "A" rating on the State's general obligation
bonds.
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all
proposed appropriations or reappropriation and any new or modified revenue
measures to be enacted in connection with the Executive Budget. The entire
plan constitutes the proposed State financial plan for that fiscal year. The
Governor submits to the Legislature, on at least a quarterly basis, reports
of actual receipts, revenues, disbursements, expenditures, tax refunds and
reimbursements, and repayment of advances in form suitable for comparison
with the State financial plan, together with explanations of deviations from
the State financial plan. At such time, the Governor is required to submit
any amendments to the State financial plan necessitated by such deviations.
The State ended its 1995-96 fiscal year on March 31, 1996 with a General
Fund cash surplus. The Division of the Budget reported that revenues
exceeded projections by $270 million, while spending for social service
programs was lower than forecast by $120 million and all other spending was
lower by $55 million. The General Fund closing fund balance was $287
million, an increase of $129 million from 1994-95 levels. General Fund
receipts totaled 32.81 billion, a decrease of 1.1 percent from 1994-95
levels. This decrease reflects the impact of tax reductions enacted and
effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on June 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1996-97 fiscal year was
formulated on July 25, 1996 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor.
The 1996-97 State Financial Plan is projected to be balanced on cash
basis. As compared to the Governor's proposed budget as revised on March 20,
1996, the State's adopted budget for 1996-97 increases General Fund spending
by $842 million, primarily from increases for education, special education
and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund
these additional expenditures include $540 million in increased revenues
projected for 1996-97 based on higher-than-projected tax collections during
the first half of calendar 1996, $110 million in projected receipts from a
new State tax amnesty program, and other resources including certain
non-recurring resources. The total amount of non-recurring resources
included in the 1996-97 state budget is projected to be $1.3 billion, or 3.9
percent of total General Fund receipts.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, federal
financial and monetary policies, the availability of credit and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience
worse-than-predicted results in the 1995-96 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
The General Fund is projected to be balanced on a cash basis for the
1996-97 fiscal year. Total receipts and transfers from other funds are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General fund disbursements and transfers to other funds
are projected to be $33.12 billion, an increase of $444 million from the
total amount disbursed in the prior fiscal year.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address
any potential budgetary imbalance, the State may need to take significant
actions to align recurring receipts and disbursements in future fiscal years.
The State anticipates that its borrowings for capital purposes in its
1996-97 fiscal year will consist of approximately $411 million in general
obligation bonds and $154 million in general obligation commercial paper
issuances. In addition, it is anticipated that the State will issue $153.6
million in general obligation bonds for the purpose of redeeming outstanding
bond anticipation notes. The Legislature has also authorized the issuance of
up to $101 million in certificates of participation for equipment purchases
during the State's 1996-97 fiscal year. The projection of the State
regarding its borrowings for the 1996-97 fiscal year may change if actual
receipts fall short of State projections or if other circumstances require.
AUTHORITIES. The fiscal stability of the State is related to the fiscal
stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue producing public benefit
facilities. Authorities are not subject to the constitutional restrictions
on the incurrence of debt that apply to the State itself and may issue bonds
and notes within the amounts of, and as otherwise restricted by, their
legislative authorization. As of September 30, 1995, the latest data
available, 17 Authorities had outstanding debt of $100 million or more. The
aggregate outstanding debt, including refunding bonds, of these 17
Authorities was $73.45 billion.
Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. The Metropolitan Transportation
Authority (the "MTA") receives the bulk of this financial assistance in order
to carry out mass transit and commuter services. For the 1996-97 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.09 billion. Failure of the State to appropriate necessary amounts or to
take other action to permit certain Agencies to meet their obligations could
result in a default by one or more of such Agencies. If a default were to
occur, it would likely have a significant effect on the marketability of
obligations of the State and the Agencies.
State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, the Triborough Bridge and Tunnel Authority (the "TBTA")
and the New York City Transit Authority and the Manhattan and Bronx Surface
Transit Operating Authority (the "TA"). TA to issue an aggregate of $6.5
billion in bonds to finance a portion of a new $11.98 billion MTA capital
plan for the 1995 through 1999 calendar years (the "1995-99 Capital
Program"), and authorized the MTA to submit the 1995-99 Capital Program to
the Capital Program Review Board for approval. This plan will supersede the
overlapping portion of the MTA's 1992-96 Capital Program. This is the fourth
capital plan since the Legislature authorized procedures for the adoption,
approval and amendment of MTA capital programs and is designed to upgrade the
performance of the MTA's transportation systems by investing in new rolling
stock, maintaining replacement schedules for existing assets and bringing the
MTA system into a state of good repair. The 1995-99 Capital Program assumes
the issuance of an estimated $5.1 billion in bonds under this $6.5 billion
aggregate bonding authority. The remainder of the plan is projected to be
financed through assistance from the State, the federal government, and the
City of New York, and from various other revenues generated from actions
taken by the MTA.
There can be no assurance that all the necessary governmental actions
for the 1995-99 Capital Program or future capital programs will be taken,
that funding sources currently identified will not be decreased or
eliminated, or that the 1995-99 Capital Program, or parts thereof, will not
be delayed or reduced. If the 1995-99 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could, among other things,
impair the MTA's ability to meet its operating expenses without additional
State assistance.
NEW YORK CITY AND MUNICIPAL ASSISTANCE CORPORATION. The fiscal health of
the State is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its 1981 through 1995
fiscal years, which end on June 30, show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its
net General Fund position.
The City's economy, whose rate of growth slowed substantially over the
past three years, is currently in recession. During the 1990 and 1991 fiscal
years, as a result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax sources and increases
in social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets in accordance
with the Financial Plan.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and the State. In that year the City lost
access to public credit markets and was not able to sell debt to the public
again until 1979. In response to the City's fiscal crisis, the State created
the Municipal Assistance Corporation ("MAC") to provide financing assistance
for the City, and the New York State Financial Control Board (the "Control
Board") to exercise certain oversight and review functions with respect to
the City's financing. Prior to 1985, MAC had the authority to issue bonds
and notes and to pay or lend the proceeds to the City. Since 1985 MAC has
been authorized to issue bonds and notes only to refund its outstanding bonds
and notes. MAC also has the authority to exchange its obligations for City
obligations. MAC bonds are payable from appropriations of certain State
sales and use taxes imposed by the City, the State stock transfer tax and per
capita State aid to the City. The State is not, however, obligated to
continue these taxes, continue to appropriate revenue from these taxes or
continue the appropriation of per capita State aid to pay MAC obligations.
MAC does not have taxing powers and its bonds are not obligations enforceable
against either the City or the State.
According to a recent OSDC economic report, the City's economy was slow
to recover from the recession and is expected to experience a weak employment
situation, and moderate wage and income growth, during the 1995-96 period.
Also, Financial Plan reports of OSDC, the Control Board, and the City
Comptroller have variously indicated that many of the City's balanced budgets
have been accomplished, in part, through the use of non- recurring resource,
tax and fee increases, personnel reductions and additional State assistance;
that the City has not yet brought its long-term expenditures in line with
recurring revenues; that the City's proposed gap-closing programs, if
implemented, would narrow future budget gaps; that these programs tend to
rely heavily on actions outside the direct control of the City; and that the
City is therefore likely to continue to face futures projected budget gaps
requiring the City to reduce expenditures and/or increase revenues.
According to the most recent staff reports of OSDC, the Control Board and the
City Comptroller during the four- year period covered by the current
Financial Plan, the City is relying on obtaining substantial resources from
initiatives needing approval and cooperation of its municipal labor unions,
Covered Organizations, and City Council, as well as the State and Federal
governments, among others, and there can be no assurance that such approval
can be obtained.
On February 11, 1991, Moody's lowered its rating on the City's general
obligation bonds to "Baa1" from "A". On July 6, 1993, S&P reaffirmed the
City's "A-" rating on $20.4 billion of general obligation bonds stating that
"[t]he City has identified additional gap- closing measures that have
recurring value and will reduce next year's budget gap . . . by approximately
$400 million." Officials at Moody's also indicated that there were no plans
to alter its "Baa1" rating on the City's general obligation bonds.
On July 10, 1995, S&P revised its rating on the City's general
obligation bonds downward to "BBB+." S&P stated that "structural budgetary
balance remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector." Other factors identified by S&P in
lowering its rating on City general obligation bonds, included a trend of
using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance the
City's financial plan, optimistic projections of additional federal and State
aid or mandate relief, a history of cash flow difficulties caused by State
budget delays and continued high debt levels. Since July 15, 1993, Fitch
Investors Service ("Fitch") has maintained an "A" rating on the City's
general obligation bonds. On July 12, 1995, Fitch stated that the City's
credit trend remains "declining."
The Mayor is responsible for preparing the City's four-year financial
plan. On February 10, 1994 the City released a financial plan for the 1996
through 1999 fiscal years (the "1996 1999 Financial Plan" or "Financial
Plan"). The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the Financial Plan,
employment growth, the ability to implement proposed reductions in City
personnel and other cost reduction initiatives which may require in certain
cases the cooperation of the City's municipal unions, the ability of the New
York City Health and Hospitals Corporation ("HHC") and the Board of Education
("BOE") to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and federal aid and
mandate relief and the impact on City revenues of proposals for federal and
State welfare reform.
Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided
for in the City's financial plan or if other uncertainties materialize that
reduce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional actions,
including increases in taxes and reductions in essential City services. The
City might also seek additional assistance from New York State.
OTHER LOCALITIES. Certain localities, in addition to the City, could
have financial problems leading to requests for additional State assistance
during the State's 1996-97 fiscal year and thereafter. The potential impact
on the State of such requests by localities is not included in the
projections of the State receipts and disbursements in the State's 1996-97
fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City
of Yonkers (the "Yonkers' Board") by the State in 1984. The Yonkers' Board
is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1994, the total indebtedness of all
localities in the State other than the City was approximately $17.7 billion,
a small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
to enabling State legislation. State law requires the Comptroller to review
and make recommendations concerning the budgets of those local government
units other than the City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Seventeen localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1994.
From time to time, Federal expenditure reductions could reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. The
longer-range problems of declining urban population, increasing expenditures
and other economic trends could adversely affect localities and require
increasing State assistance in the future.
LITIGATION. Certain litigation pending against the State, its
subdivisions and their officers and employees could have a substantial and
long-term adverse effect on State finances. The State is a party to numerous
legal proceedings, many of which normally recur in governmental operations.
Because of the prospective nature of these proceedings, no estimate of the
potential loss can be made.
Among the more significant of these cases are those that involve: (i)
claims to land in upstate New York by several Indian tribes; (ii) certain
aspects of the State's Medicaid policies and its rates and regulations,
including reimbursements to providers of mandatory and optional Medicaid
services; (iii) a challenge to the practice of reimbursing certain Office of
Mental Health patient care expenses from the client's Social Security
benefits; (iv) an action against the State and City officials alleging
inadequate shelter allowances to maintain proper housing; (v) a claim that
the assessment of the petroleum business tax pursuant to Tax Law 301 to
such fuel violates the Commerce Clause of the United States Constitution; and
(vi) claims against Yonkers, its public schools, the State, the State
Education Department and the New York State Urban Development Corporation
that the defendants have not fulfilled their responsibility to alleviate
segregation in public schools in Yonkers.
The legal proceedings noted above involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State
is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in
the 1996-97 fiscal year or thereafter. Adverse developments in these
proceedings or the initiation of new proceedings could affect the ability of
the State to maintain a balanced 1996-97 State Financial Plan. An adverse
decision in any of these proceedings could exceed the amount of the 1996-97
State Financial Plan reserve for the payment of judgments and, therefore,
could affect the ability of the State to maintain a balanced 1996-97 State
Financial Plan. The State has stated its belief that the 1996-97 State
Financial Plan includes sufficient reserves for the payment of judgments that
may be required during the 1996-97 fiscal year.
U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds), and (2) Federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA certificates, which
are mortgage-backed securities). When these securities are held to maturity,
the payment of principal and interest is unconditionally guaranteed by the
U.S. Government, and thus they are of the highest possible credit quality.
U.S. Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of
a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the
full faith and credit of the U.S. Government. Although the mortgage loans in
the pool will have maturities of up to 30 years, the actual average life of
the loans typically will be substantially less because the mortgages will be
subject to normal principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in
market interest rates. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of
the security. Conversely, when interest rates are rising, the rate of
prepayments tends to decrease, thereby lengthening the actual average life of
the security (and increasing the security's price volatility). Accordingly,
it is not possible to predict accurately the average life of a particular
pool. Reinvestment of prepayments may occur at higher or lower rates than
the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar maturities
at "locking in" yields during periods of declining interest rates. GNMA
certificates may appreciate or decline in market value during periods of
declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury. However, they involve Federal sponsorship in one way or another;
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan
Banks, Federal National Mortgage Association and Student Loan Marketing
Association.
INVESTMENT-GRADE DEBT SECURITIES
Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best
quality (i.e., capacity to pay interest and repay principal is extremely
strong). Bonds rated Aa/AA are considered to be of high quality (i.e.,
capacity to pay interest and repay principal is very strong and differs from
the highest rated issues only to a small degree). Bonds rated A are viewed as
having many favorable investment attributes, but elements may be present that
suggest a susceptibility to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. Bonds rated
Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal,
but certain protective elements may be lacking (i.e., such bonds lack
outstanding investment characteristics and have some speculative
characteristics). The Fund may invest in debt securities that are given an
investment-grade rating by Moody's or S&P, and may also invest in unrated
debt securities that are considered by IMI to be of comparable quality.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Funds may invest in bank obligations, which may include certificates
of deposit, bankers' acceptances, and other short-term debt obligations.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity).
Investments in certificates of deposit and bankers' acceptances are limited
to obligations of (i) banks having total assets in excess of $1 billion, and
(ii) other banks which do not meet the $1 billion asset requirement, if the
principal amount of such obligation is fully insured by the Federal Deposit
Insurance Corporation ("FDIC"). Investments in certificates of deposit of
savings associations are limited to obligations of federally or state
chartered institutions that have total assets in excess of $1 billion and
whose deposits are insured by the FDIC.
COMMERCIAL PAPER
The Funds may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. Investments in commercial
paper are limited to obligations rated Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or A-1 by Standard and Poor's Corporation ("S&P") or, if not
rated by Moody's or S&P, issued by companies having an outstanding debt issue
currently rated Aaa or Aa by Moody's or AAA or AA by S&P.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. Repurchase agreements
are contracts under which a Fund buys a money market instrument and obtains
a simultaneous commitment from the seller to repurchase the instrument at a
specified time and at an agreed-upon yield. A Fund will not enter into a
repurchase agreement with more than seven days to maturity if, as a result,
more than 10% of the Fund's net assets would be invested in illiquid
securities including such repurchase agreements. The Funds may enter into
repurchase agreements with banks or broker-dealers deemed to be creditworthy
by MIMI under guidelines approved by the Board of Trustees. In the unlikely
event of failure of the executing bank or broker-dealer, a Fund could
experience some delay in obtaining direct ownership of the underlying
collateral and might incur a loss if the value of the security should
decline, as well as costs in disposing of the security.
BORROWING
As a fundamental policy, the Funds may borrow from banks as a temporary
measure for extraordinary or emergency purposes. A Fund may borrow in
amounts up to 10% of its total assets taken at cost or market value,
whichever is lower. All borrowings will be repaid before any additional
investments are made. A Fund may not mortgage, pledge or in any other manner
transfer any of its assets as security for any indebtedness. Borrowing may
exaggerate the effect on a Fund's net asset value of any increase or decrease
in the value of the Fund's portfolio securities. Money borrowed will be
subject to interest costs (which may include commitment fees and/or the cost
of maintaining minimum average balances).
RESTRICTED AND ILLIQUID SECURITIES
It is each Fund's policy that restricted securities, including
restricted securities offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), and any other illiquid securities (including certain repurchase
agreements and other securities which are not readily marketable) may not
constitute, at the time of purchase, more than 10% of the value of the Fund's
net assets. Issuers of restricted securities may not be subject to the
disclosure and other investor protection requirements that would be
applicable if their securities were publicly traded. Restricted securities
may be sold only in privately negotiated transactions or in a public offering
with respect to which a registration statement is in effect under the 1933
Act. Where a registration statement is required, a Fund may be required to
bear all or part of the registration expenses. There may be a lapse of time
between the Fund's decision to sell a restricted or illiquid security and the
point at which the Fund is permitted or able to do so. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid,
each Fund will carefully monitor each of its investments in these securities,
focusing on factors, such as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing
the level of illiquidity in a Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these restricted
securities.
TEMPORARY INVESTMENTS
From time to time on a temporary basis, a Fund may invest in
fixed-income obligations the interest on which is subject to Federal income
tax. Except when a Fund is in a "defensive" investment position, it will not
purchase a taxable security if, as a result, more than 20% of its total net
assets would be invested in taxable securities.
This limitation is a fundamental policy of each Fund, i.e., it may not
be changed without a majority vote of a Fund's outstanding securities.
Temporary taxable investments of a Fund may consist of obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
commercial paper rated A-l by S&P or Prime-1 by Moody's, corporate
obligations rated AAA or AA by S&P or Aaa or Aa by Moody's, certificates of
deposit or bankers' acceptances of domestic banks or thrifts with at least $1
billion in assets, or repurchase agreements with such banks or with
broker-dealers. Repurchase agreements may be entered into with respect to
any securities eligible for investment by a Fund, including municipal
securities. The income from a repurchase agreement with respect to a
municipal security would not be tax- exempt. See "Repurchase Agreements,"
"Restricted and Illiquid Securities" and Appendix A for a further description
of repurchase agreements, illiquid securities and of the Moody's and S&P
ratings relating to taxable securities.
MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE CALIFORNIA MUNICIPAL FUND
AND MACKENZIE NEW YORK MUNICIPAL FUND ONLY: Each of these three Funds may
invest in short-term municipal securities for temporary defensive purposes.
Short-term municipal securities consist of notes and short-term municipal
loans and obligations, including municipal paper, master demand notes and
variable rate demand notes. Short-term municipal notes include Tax
Anticipation Notes (i.e, notes issued in anticipation of the receipt of tax
funds), Bond Anticipation Notes (i.e, notes issued in anticipation of receipt
of the proceeds of bond placements), Revenue Anticipation Notes (i.e, notes
issued in anticipation of the receipt of revenues other than taxes or bond
placements), and Project Notes (i.e, obligations of municipal housing
agencies on which the payment of principal and interest ordinarily is backed
by the full faith and credit of the U.S. Government) when a market for such
securities exists. Municipal paper typically consists of the very short-term
unsecured negotiable promissory notes of municipal issuers.
A municipal master demand note is an arrangement under which a Fund
participates in a note agreement between a bank acting on behalf of its
clients and a municipal borrower, whereby amounts maintained by the Fund in
an account with the bank are provided to the municipal borrower and payments
of interest and principal on the note are credited to the Fund's account.
Interest rates on master demand notes typically are tied to market interest
rates, and therefore may fluctuate daily. The amounts borrowed under these
notes may be repaid at any time by the borrower without penalty, and must be
repaid upon the demand of the Fund. Variable rate demand notes are
tax-exempt obligations that are payable by the municipal issuer at par value
plus accrued interest on demand by the Fund (generally with three to ten
days' notice). If no demand is made, the note will mature on a specified
date from one to thirty years from its issuance. Payment on the note may be
backed by a stand-by letter of credit. As with a master demand note, the
yield on a variable rate demand note is adjusted automatically to reflect a
particular market rate. Variable rate demand notes typically are callable by
the issuer prior to maturity.
Where short-term municipal securities are rated, a Fund will limit its
investments to "high quality" short-term securities. For short-term
municipal notes this includes ratings of AA or better by Standard & Poor's
Corporation ("S&P") or MIG 2 or better by Moody's Investors Service, Inc.
("Moody's"); for municipal paper this includes A-2 or better by S&P or
Prime-2 or better by Moody's. Unrated short-term municipal securities will
be included within the Fund's overall limitation on investments in unrated
securities. This limitation provides that not more than 20% of a Fund's
total assets may be invested in unrated municipal securities, exclusive of
unrated securities that are guaranteed as to principal and interest by the
full faith and credit of the U.S. Government or are issued by an issuer
having outstanding an issue of municipal bonds within one of the four highest
ratings classifications.
OTHER INVESTMENT TECHNIQUES
Although none of the Funds have done so in the last year and have no
current intention of doing so in the foreseeable future, each Fund may (i)
lend its portfolio securities, (ii) purchase securities on a "when-issued" or
firm commitment basis, (iii) acquire puts or standby commitments, (iv) engage
in transactions in certain types of financial futures (such as interest rate
futures) and related options, and options on individual securities and bond
indices, (v) engage in "conversion" and spread transactions, and (vi) write
straddles.
Investments in the obligations of the governments of Puerto Rico and
Guam require a careful assessment of certain risk factors, including reliance
on substantial Federal assistance and favorable tax programs, above- average
levels of unemployment and low wealth levels, and susceptibility to adverse
shifts in the energy prices as well as U.S. foreign trade/monetary policies.
INVESTMENT RESTRICTIONS
The Funds' investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment
restrictions set forth below, are fundamental policies of the Funds and may
not be changed with respect to a particular Fund without the approval of a
majority of the Fund's outstanding voting shares. Under these restrictions,
a Fund may not:
(i) purchase securities of any one issuer (except U.S. government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer (provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations);
(ii) invest in real estate, real estate mortgage loans,
commodities, commodity futures contracts or interests in oil,
gas and/or mineral exploration or development programs,
although a Fund may purchase and sell (a) securities that are
secured by real estate, (b) securities of issuers that invest
or deal in real estate, and (c) futures contracts as described
in the Prospectus;
(iii) make investments in securities for the purpose of exercising
control over or management of the issuer;
(iv) participate on a joint or a joint and several basis in any
trading account in securities, although the "bunching" of
orders of the Funds--or of the Funds and of other accounts
under the investment management of the persons rendering
investment advice to the Funds--for the sale or purchase of
portfolio securities shall not be considered participation in
a joint securities trading account;
(v) purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, although
the deposit or payment by a Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin;
(vi) make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the lending of
portfolio securities (provided that the loan is secured
continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on daily
marked-to-market basis in an amount at least equal to the
current market value of the securities loaned), or (c) entry
into repurchase agreements with banks or broker-dealers;
(vii) borrow amounts in excess of 10% of its total assets, taken at
lower of cost or market value, and then only from banks as
a temporary measure for extraordinary or emergency purposes;
(viii) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held
by the Fund (except as may be necessary in connection with
permitted borrowings and then not in excess of 20% of the
Fund's total assets); provided, however, that this does not
prohibit escrow, collateral or margin arrangements in
connection with the Fund's use of options, short sales,
futures contracts and options on futures contracts;
(ix) purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after
such purchase the value of the Fund's investments in such
industry would exceed 25% of the value of the total assets of
the Fund;
(x) act as an underwriter of securities;
(xi) make short sales of securities or maintain a short position;
or
(xii) issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase agreement or any permitted borrowing.
ADDITIONAL RESTRICTIONS
Each Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, a Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs);
(iii) purchase or retain securities of any company if, to the
knowledge of the Trust, officers and Trustees of the Trust and
officers and directors of MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than
5% of such securities;
(iv) purchase any security if as a result a Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(v) invest more than 10% of its net assets taken at market value
at the time of the investment in "illiquid securities."
Illiquid securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over-the-counter that the Fund
has purchased, securities being used to cover certain options
that the Fund has written, securities for which market
quotations are not readily available, or other securities that
legally or in the Investment Manager's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not
include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain
conditions intended to provide liquidity, or to other factors,
is liquid; or
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets,
and except that the Fund may purchase shares of other
investment companies subject to such restrictions as may be
imposed by the 1940 Act, and rules thereunder, or by any state
in which shares of the Fund are registered.
In addition, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will treat securities eligible for resale under Rule
144A of the Securities Act of 1933 and securities of unseasoned issuers as
described in non-fundamental restriction (iv) above, as subject to the Fund's
restriction on investing in restricted securities (see "Restricted and
Illiquid Securities" under "Investment Objectives and Policies," above).
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall, unless
otherwise indicated, apply to each Fund on an individual basis, and only at
the time a transaction is entered into. Accordingly, if a percentage
limitation is adhered to at the time of investment by a Fund, a later
increase or decrease in the percentage that results from circumstances not
involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances
beyond the Fund's control, will not be considered a violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors (and except as noted below, bears the cost
of providing) the rights and privileges described below. The Trust reserves
the right to amend or terminate any one or more of such rights and
privileges. Notice of amendments to or terminations of rights and privileges
will be provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to other
funds distributed by IMDI, which funds are not described in this SAI. These
funds are: Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy
Emerging Growth Fund, Ivy Global Fund, Ivy Global Science & Technology Fund,
Ivy International Value Fund, Ivy Global Natural Resources Fund, Ivy Asia
Pacific Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund, Ivy International Bond Fund, Ivy Latin America Strategy Fund, Ivy Money
Market Fund, Ivy New Century Fund and Ivy Short-Term Bond Fund, the seventeen
series of Ivy Fund (collectively, with the Funds, the "Ivy and Mackenzie
Funds"). Investors should obtain a current prospectus before exercising any
right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for Class A and Class B
shareholders of the Funds. The minimum initial and subsequent investment
pursuant to this plan is $50 per month. The Automatic Investment Method may
be discontinued at any time upon receipt by Ivy Mackenzie Services Corp.
("IMSC") of telephone instructions or written notice of such discontinuation
from the investor. See "Automatic Investment Method" in the Account
Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of a Fund have an exchange
privilege with certain other Ivy and Mackenzie Funds. Before effecting an
exchange, shareholders of a Fund should obtain and read the currently
effective prospectus for the Ivy or Mackenzie Fund into which the exchange is
to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another
Ivy or Mackenzie Fund (or for shares of another Ivy or Mackenzie Fund that
currently offers only a single class of shares) ("new Class A Shares") on the
basis of the relative net asset value per Class A share, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. (The additional sales charge will be
waived for outstanding Class A shares that have been invested for a period of
12 months or longer.) Class A shareholders may also exchange their Class A
shares for Class A shares of Ivy Money Market Fund (no initial sales charge
will be assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A: Class A shareholders may exchange their Class A shares subject
to a contingent deferred sales charge, as described in the Prospectus
("outstanding Class A shares"), for Class A shares of another Ivy or
Mackenzie Fund (or for shares of another Ivy or Mackenzie Fund that currently
offers only a single class of shares) ("new Class A shares") on the basis of
the relative net asset value per Class A share, without the payment of any
contingent deferred sales charge that would otherwise be due upon the
redemption of the outstanding Class A shares. Class A shareholders of the
Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC period following an exchange if such schedule is higher (or such
period is longer) than the CDSC period, if any, applicable to the new Class
A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy or Mackenzie
Fund ("new Class B shares") on the basis of the relative net asset value per
Class B share, without the payment of any contingent deferred sales charge
that would otherwise be due upon the redemption of the outstanding Class B
shares. Class B shareholders of the Fund exercising the exchange privilege
will continue to be subject to the Fund's CDSC schedule (or period) following
an exchange if such schedule is higher (or such period is longer) than the
CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy or Mackenzie Fund will be subject to the Fund's CDSC
schedule (or period) if such schedule is higher (or such period is longer)
than the CDSC schedule (or period) applicable to the Ivy or Mackenzie Fund
from which the exchange was made.
For purposes of both the exchange feature and computing the contingent
deferred sales charge that may be payable upon the redemption of the new
Class B shares (prior to conversion), the holding period of the outstanding
Class B shares is "tacked" onto the holding period of the new Class B shares.
The following contingent deferred sales charge table ("Table 1") applies
to Class B shares of Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund, Mackenzie New York Municipal Fund, Ivy Bond Fund, Ivy Canada
Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy International Bond Fund,
Ivy New Century Fund, Ivy Latin America Fund, Ivy China Region Fund, Ivy
International Value Fund, Ivy Global Natural Resources Fund, Ivy Asia Pacific
Fund and Ivy Global Science & Technology Fund ("Table 1 Funds"):
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- --------------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge table ("Table 2") applies
to Class B shares of Mackenzie Limited Term Municipal Fund and Ivy Short-Term
Bond Fund ("Table 2 Funds"):
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- --------------------
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The CDSC schedule for Table 1 Funds is higher (and the period is longer)
than the CDSC schedule (and period) for Table 2 Funds.
If a shareholder exchanges Class B shares of a Table 1 Fund for Class B
shares of a Table 2 Fund, Table 1 will continue to apply to the Class B
shares following the exchange. For example, an investor may decide to
exchange Class B shares of a Table 1 Fund ("outstanding Class B shares") for
Class B shares of a Table 2 Fund ("new Class B shares") after having held the
outstanding Class B shares for two years. The 4% CDSC that generally would
apply to a redemption of outstanding Class B shares held for two years would
not be deducted at the time of the exchange. If, three years later, the
investor redeems the new Class B shares, a 2% CDSC will be assessed upon the
redemption because by "tacking" the two year holding period of the
outstanding Class B shares onto the three year holding period of the new
Class B shares, the investor will be deemed to have held the new Class B
shares for five years.
If a shareholder exchanges Class B shares of a Table 2 Fund for Class B
shares of a Table 1 Fund, Table 1 will apply to the Class B shares following
the exchange. For example, an investor may decide to exchange Class B shares
of a Table 2 Fund ("outstanding Class B shares") for Class B shares of a
Table 1 Fund ("new Class B shares") after having held the outstanding Class
B shares for two years. The 2.5% CDSC that generally would apply to a
redemption of outstanding Class B shares held for two years would not be
deducted at the time of the exchange. If, three years later, the investor
redeems the new Class B shares, a 2% CDSC will be assessed upon the
redemption because by "tacking" the two year holding period of the
outstanding Class B shares onto the three year holding period of the new
Class B shares, the investor will be deemed to have held the new Class B
shares for five years.
The minimum amount that a shareholder may exchange into an Ivy or
Mackenzie Fund in which shares are not already held is $1,000. No exchange
out of any of the Funds (other than by a complete exchange of all shares of
that Fund) may be made if it would reduce the shareholder's interest in that
Fund to less than $1,000. Exchanges are available only in states where the
exchange can be legally made.
Each exchange will be made on the basis of the relative net asset values
per share of each fund of the Ivy and Mackenzie Funds next computed following
receipt of telephone instructions by IMSC or a properly executed request by
the IMSC. Exchanges, whether written or telephonic, must be received by IMSC
by the close of regular trading on the New York Stock Exchange (the
"Exchange") (normally 4:00 p.m., eastern time), to receive the price computed
on the day of receipt; exchange requests received after that time will
receive the price next determined following receipt of the request. This
exchange privilege may be modified or terminated at any time, upon at least
60 days' notice when such notice is required by Rules adopted by the
Securities and Exchange Commission ("SEC"). See "Redemptions."
An exchange of shares between any of the Ivy or Mackenzie Funds will
result in a taxable gain or loss. Generally, any such taxable gain or loss
will be a capital gain or loss (long-term or short-term, depending on the
holding period of the shares) in the amount of the difference between the net
asset value of the shares surrendered and the shareholder's tax basis for
those shares. However, in certain circumstances, shareholders will be
ineligible to take sales charges into account in computing taxable gain or
loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax- deferred retirement
plan would not be taxable to the plan and will not be taxed to the
participant until distribution. Each investor should consult his or her tax
adviser regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments made pursuant to a
non-binding Letter of Intent. A Letter of Intent may be submitted by an
individual, his or her spouse and children under the age of 21 or a trustee
or other fiduciary of a single trust estate or single fiduciary account. See
the Account Application in the Prospectus. Any investor may submit a Letter
of Intent stating that he or she will invest, over a period of 13 months, at
least $100,000 in Class A shares of a Fund. A Letter of Intent may be
submitted at the time of an initial purchase of Class A shares of a Fund or
within 90 days of the initial purchase, in which case the Letter of Intent
will be backdated. A shareholder may include the value (at the applicable
offering price) of all Class A shares of the Funds, Ivy Short-Term Bond Fund,
Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy International Value Fund, Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy New Century Fund, Ivy
Latin America Strategy Fund and Ivy China Region Fund (and shares that have
been exchanged into Ivy Money Market Fund from any of the other funds in the
Ivy and Mackenzie Funds), held of record by him or her as of the date of his
or her Letter of Intent as an accumulation credit toward the completion of
such Letter. During the term of the Letter of Intent, the Funds' transfer
agent will hold in escrow Class A shares representing 5% of the indicated
amount (less any accumulation credit value). The escrowed Class A shares
will be released when the full indicated amount has been purchased. If the
full indicated amount is not purchased during the term of the Letter of
Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid
and that which he or she would have paid on his or her aggregate purchases if
the total of such purchases had been made at a single time. Such payment
will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy or the
Trust to sell the indicated amount of Class A shares and the investor should
read carefully all the provisions thereof before signing.
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of a Fund may reinvest all or
a part of the proceeds of the redemption back into Class A shares of that
Fund at net asset value (without a sales charge) within 60 days from the date
of redemption. This privilege may be exercised only once. The reinvestment
will be made at the net asset value next determined after receipt by the
Funds' transfer agent of the reinvestment order accompanied by the funds to
be reinvested. No compensation will be paid to any sales personnel or dealer
in connection with the transaction. Any redemption is a taxable event. A
loss realized on a redemption generally may be disallowed for tax purposes if
the reinvestment privilege is exercised within 30 days after the redemption.
In certain circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to certain investments in Class
A shares of the Funds by an individual, his or her spouse and children under
the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401
of the Code. An investment qualifies for a reduced sales charge if the sum
of: (a) the combined value, determined at the higher of current offering
price or amount invested, of Class A shares held by the persons identified
above in (i) any of the Funds, (ii) any of the series of Ivy Fund (except for
shares of Ivy Money Market Fund, but including shares that have been
exchanged from any of the Ivy or Mackenzie Funds into Ivy Money Market Fund),
and (iii) any other investment company distributed by IMDI currently owned;
and (b) the value of the Class A shares being purchased, exceeds: (i)
$25,000, with respect to an investment in Mackenzie Limited Term Municipal
Fund; (ii) $50,000, with respect to an investment in Ivy Canada Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy Emerging
Growth Fund, Ivy International Fund, Ivy International Bond Fund, Ivy New
Century Fund, Ivy Latin America Strategy Fund, Ivy China Region Fund, Ivy
Global Science & Technology Fund, Ivy International Value Fund, Ivy Asia
Pacific Fund or Ivy Global Natural Resources Fund; or (iii) $100,000, with
respect to an investment in Mackenzie National Municipal Fund, Mackenzie
California Municipal Fund, Mackenzie New York Municipal Fund, Ivy Short-Term
Bond Fund or Ivy Bond Fund.
At the time an investment takes place, MIMI, in the case of a wire
order, or IMSC, in the case of a direct mail remittance, must be notified by
the investor or his or her dealer that the investment qualifies for the
reduced charge on the basis of previous investments. The reduced charge is
subject to confirmation of the investor's holdings through a check of the
Funds' records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (the
"Withdrawal Plan") by telephone instructions to IMSC or delivery to IMSC of
a written election to so redeem, accompanied by a surrender to IMSC of all
share certificates then outstanding in the name of such shareholder, properly
endorsed by him or her. A Withdrawal Plan may not be established if the
investor is currently participating in the Automatic Investment Method. The
Withdrawal Plan may involve the use of principal and, to the extent that it
does, depending on the amount withdrawn, the investor's principal may be
depleted. A redemption under the Withdrawal Plan is a taxable event.
Investors contemplating participation in the Withdrawal Plan should consult
their tax advisers.
Additional investments made by investors participating in the Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial or contingent
deferred sales changes.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by
the investor are liquidated at any time, the Withdrawal Plan will terminate
automatically. The Trust or MIMI may terminate the Withdrawal Plan at any
time after reasonable notice to shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board of
Trustees of the Trust, MIMI places orders for the purchase and sale of the
Funds' portfolio securities. All portfolio transactions are effected at the
best price and execution obtainable. Purchases and sales of debt securities
are usually principal transactions and, therefore, brokerage commissions are
usually not required to be paid by a Fund for such purchases and sales,
although the price paid generally includes undisclosed compensation to the
dealer. The prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and purchases of
after-market securities from dealers normally reflect the spread between the
bid and asked prices. In connection with over-the- counter transactions,
MIMI attempts to deal directly with the principal market makers, except in
those circumstances where it believes that better prices and execution are
elsewhere. Subject to the requirement of best price and execution, MIMI may
select broker- dealers that provide it with research services and may
consider sales of Fund shares as a factor in the selection of broker-dealers.
MIMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the
nature of each firm's professional services. Commissions charged and
investment services rendered, including statistical, research, and counseling
services by brokerage firms, are among the factors that are considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers
through whom the Trust effects securities transactions may be used by MIMI in
servicing all of its accounts. In addition, not all of these services may be
used by MIMI in connection with the services it provides to the Fund or the
Trust. MIMI may consider sales of Fund shares as a factor in the selection
of broker-dealers and may select broker-dealers who provide it with research
services. MIMI will not, however, execute brokerage transactions other than
at the best price and execution.
A Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. A Fund will consider accepting securities only
to increase its holdings in a portfolio security or to take a new portfolio
position in a security that MIMI deems to be a desirable investment for the
Fund. While no minimum has been established, it is expected that a Fund will
not accept securities having an aggregate value of less than $1 million. The
Trust may reject in whole or in part any or all offers to pay for Fund shares
with securities and may discontinue accepting securities as payment for Fund
shares at any time without notice. The Trust will value accepted securities
in the manner and at the same time provided for valuing portfolio securities
of a Fund, and Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will accept only
securities that are delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by
the Trust must comply with applicable laws of certain states.
During the fiscal years ended June 30, 1994, 1995 and 1996, none of the
Funds paid brokerage commissions.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
<TABLE>
POSITION
WITH THE BUSINESS
NAME, ADDRESS, AGE TRUST AND
PRINCIPAL OCCUPATIONS AFFILIATIONS
- --------------------- -------- -----------------------------------------
<S> <C> <C>
Michael G. Landry (50) Trustee President, Chairman and
700 South Federal Hwy. and Director of Mackenzie
Suite 300 President Investment Management Inc.
Boca Raton, FL (1987-present); President and Director of Ivy Management, Inc. (1992-present);
33432 Chairman and Director of Mackenzie Ivy Investor Services Corp. (1993-present); Director
and President of Mackenzie Ivy Funds Distribution, Inc. (1993-1994); Chairman and Director
of Mackenzie Ivy Funds Distribution, Inc. (1994-present); President and Trustee of Ivy Fund
(1992-present); President of Mackenzie Series Trust (1987 - present); Director and President
of The Mackenzie Funds Inc. (1987-1995). [Deemed to be an "interested person" of the Trust,
as defined under the 1940 Act.]
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research Corp. (instruments and controls); Director, Burr-Brown Corp.
(72) (operational amplifiers); Director, Metritage Incorporated (level measuring instruments);
60 Concord Street Trustee of Ivy Fund (1967-present).
Wilmington, MA 01887
Paul H. Broyhill (72) Trustee Chairman, BMC Fund, Inc. (1983-present);
800 Hickory Blvd. Chairman, Broyhill Family Foundation, Inc. (1983-present);
Golfview Park Chairman and President, Broyhill Investments, Inc. (1983-present);
Lenoir, NC 28645 Chairman, Broyhill Timber Resources (1983-present);
Director of The Mackenzie Funds Inc. (1988-1995);
Trustee of Ivy Fund (1992-present);
Management of a personal portfolio of fixed income and equity investments (1983-present).
Stanley Channick (72) Trustee President, The Whitestone Corporation (insurance agency);
11 Bala Avenue President, Scott Management Company (administrative services for insurance companies);
Bala Cynwyd, PA 19004 President, The Channick Group (consultants to insurance companies and national trade
associations);
Trustee of Ivy Fund (1984-1993); Director of The Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director of The Mackenzie Funds, Inc. (1987-1995);
(75) Trustee and Second Vice Chairman, East Tennessee Public Communications Corp. (WSJK-TV)
322 Seventh Street (1984-present);
Bristol, TN 37620-2218 Director, Manager and Vice President, Massengill-DeFriece Foundation (charitable
organization) (1950-present); Trustee of Ivy Fund (1992-present).
Roy J. Glauber (71) Trustee Mallinckrodt Professor of Physics, Harvard University (since 1974); Trustee of Ivy Fund
(1961-1991);
Trustee of Mackenzie Series Trust (1994-present).
Joseph G. Rosenthal Trustee Chartered Accountant (1958-present); Director of The Mackenzie Funds Inc. (1987-1995);
(62) Trustee of Ivy Fund (1992-present).
110 Jardin Drive
Unit #12
Concord, Ontario
Canada L4K 2T7
J. Brendan Swan (66) Trustee President, Airspray International, Inc.; Joint
4701 North Federal Managing Director, Airspray International B.V. (an environmentally sensitive packaging company);
Hwy. #465 Trustee of Ivy Fund (1992-present);
Pompano Beach, FL Director, The Mackenzie Funds Inc. (1992-1995).
33064
Keith J. Carlson (40) Vice Senior Vice President and
700 South Federal Hwy. President Director of Mackenzie Investment Management, Inc. (1994-present);
Suite 300 Senior Vice President, Secretary and Treasurer of Mackenzie
Boca Raton, FL 33432 Investment Management Inc. (1985-1994); Senior Vice President and Director of Ivy Management,
Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management, Inc.
(1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); President and Director of
Mackenzie Ivy Investor Services Corp. (1993-present); Vice President of Mackenzie Series Trust
(1994-present); Treasurer of Mackenzie Series Trust (1985-1994); President and Director of
Mackenzie Ivy Funds Distribution, Inc. (1994- present); Executive Vice President and Director
of Mackenzie Ivy Funds Distribution, Inc. (1993-1994); Treasurer of Ivy Fund (1992-1994); Vice
President of Ivy Fund (1994-present).
C. William Ferris (52) Secretary/ Senior Vice President, Secretary/Treasurer and Director of Mackenzie Investment Management Inc.
700 South Federal Hwy. Treasurer (1994-present); Senior Vice President, Finance and Administration/Compliance Officer of
Suite 300 Mackenzie Investment Management Inc. (1989-1994);
Boca Raton, FL 33432 Senior Vice President, Secretary/Treasurer and Clerk of Ivy Management, Inc. (1989-1994);
Senior Vice President, Secretary/Treasurer of Mackenzie Ivy Funds Distribution, Inc.
(1993-1994);
Secretary/Treasurer and Director of Mackenzie Ivy Investor Services Corp. (1993-1994);
Secretary of Mackenzie Series Trust (1993-1994); Secretary/Treasurer and Director of Mackenzie
Ivy Investor Services Corp. (1993-present); Secretary/Treasurer of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994- present);
Secretary of Ivy Fund (1993-1994); Secretary/Treasurer of Ivy Fund (1994-present).
</TABLE>
As of September 30, 1996, all Trustees and executive officers of the
Trust as a group owned beneficially or of record none of the outstanding
Class A and Class B shares of any of the Funds.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of MIMI are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in MIMI's
Code of Ethics. The Code of Ethics contains provisions and requirements
designed to identify and address certain conflicts of interest between
personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which
personal transactions may not be made in certain securities, and requires the
submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio
managers, traders, research analysts and others involved in the investment
advisory process. Exceptions to these and other provisions of the Code of
Ethics may be granted in particular circumstances after review by appropriate
personnel.
COMPENSATION TABLE
(for the fiscal year ending June 30, 1996)
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPEN-
AGGREGATE ACCRUED AS ANNUAL SATION
COMPEN- PART OF BENEFITS FROM TRUST
NAME, SATION FUND UPON PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT TRUSTEE
- -------- ---------- -------- ---------- ----------
[S] [C] [C] [C] [C]
John S. Anderegg, Jr. 2,335 N/A N/A 2,335
(Trustee)
Paul H. Broyhill 2,335 N/A N/A 2,335
(Trustee)
Stanley Channick 5,860 N/A N/A 5,860
(Trustee)
Frank W. DeFriece, Jr. 2,335 N/A N/A 2,335
(Trustee)
Roy J. Glauber 5,860 N/A N/A 5,860
(Trustee)
Michael G. Landry -0- N/A N/A -0-
(Trustee and President)
Joseph G. Rosenthal 2,335 N/A N/A 2,335
(Trustee)
J. Brendan Swan 2,335 N/A N/A 2,335
(Trustee)
Keith J. Carlson -0- N/A N/A -0-
(Vice President)
C. William Ferris -0- N/A N/A -0-
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Mackenzie Investment Management Inc. ("MIMI") provides business
management and investment advisory services to the Funds pursuant to a
Business Management and Investment Advisory Agreement (the "Agreement"). The
Agreement was approved by shareholders of Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund on
October 24, 1990, after having first been approved on September 5, 1990 by
the Board of Trustees, including a majority of the Trustees who neither are
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the distribution
plans described below (see "Distribution Services") or in any related
agreement (the "Independent Trustees"). The Agreement was approved by the
Board of Trustees for Mackenzie Limited Term Municipal Fund on May 16, 1991,
and by the initial shareholder of the Fund on June 20, 1991. The
continuation of the Agreement with respect to all of the Funds was last
approved on August 24, 1996 by the Board of Trustees, including the
Independent Trustees. MIMI is a subsidiary of Mackenzie Financial
Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a
public corporation organized under the laws of Ontario whose shares are
listed for trading on The Toronto Stock Exchange. MFC is registered in
Ontario as a mutual fund dealer.
Under the Agreement, MIMI makes investments for the account of each Fund
in accordance with its best judgment and within the investment objectives and
restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy
decisions adopted by the Trust's Board of Trustees. MIMI also provides an
investment program, determines the securities to be purchased or sold by a
Fund and places orders with brokers or dealers who deal in such securities.
MIMI also provides certain business management services pursuant to the
Agreement. MIMI is obligated to (1) coordinate with the Funds' custodian and
transfer agent and monitor the services they provide to the Funds; (2)
coordinate with and monitor any other third parties furnishing services to
the Funds; (3) provide the Funds with any necessary office space, telephones
and other communications facilities; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Funds or by MIMI acting
in some other capacity pursuant to a separate agreement or arrangement with
the Funds; (5) maintain or supervise the maintenance by third parties of such
books and records of the Trust as may be required by applicable Federal or
state law; (6) authorize and permit MIMI's directors, officers and employees
who may be elected or appointed as trustees or officers of the Trust to serve
in such capacities; and (7) take such other action with respect to the Trust,
after approval by the Trust, as may be required by applicable law, including
without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies.
For MIMI's services under the Agreement, each Fund pays MIMI a monthly
fee at an annual rate of 0.55% of the Fund's average net assets. For the
fiscal years ended June 30, 1996, 1995 and 1994, MIMI received fees of
$513,762, $761,172 and $727,421, respectively, from Mackenzie Limited Term
Municipal Fund; $146,137, $187,610 and $223,155, respectively, from Mackenzie
National Municipal Fund; $209,516, $221,717, and $253,535, respectively, from
Mackenzie California Municipal Fund; and $222,574, $235,164 and $243,239,
respectively, from Mackenzie New York Municipal Fund.
The Trust pays the following expenses under the Agreement: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated
with MIMI; (3) interest expenses; (4) taxes and governmental fees, including
any original issue taxes or transfer taxes applicable to the sale or delivery
of shares or certificates therefor; (5) brokerage commissions and other
expenses incurred in acquiring or disposing of portfolio securities; (6) the
expenses of registering and qualifying shares for sale with the SEC and with
various state securities commissions; (7) accounting and legal costs; (8)
insurance premiums; (9) fees and expenses of the Trust's Custodian and
Transfer Agent and any related services; (10) expenses of obtaining
quotations of portfolio securities and of pricing shares; (11) expenses of
maintaining the Trust's legal existence and of shareholders' meetings; (12)
expenses of preparation and distribution to existing shareholders of periodic
reports, proxy materials and prospectuses; and (13) fees and expenses of
membership in industry organizations.
MIMI voluntarily limits the total Fund expenses (excluding interest,
12b-1 fees, taxes, brokerage commissions, litigation and indemnification
expenses, and other extraordinary expenses) to an annual rate of (i) 0.64% of
the average net assets of Mackenzie Limited Term Municipal Fund, and (ii)
0.85% of the average net assets of Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund.
As long as a Fund's expense limitation continues, it may lower the Fund's
expenses and increase its yield. A Fund's expense limitation may be
terminated or revised at any time, at which time the Fund's expenses may
increase and its yield may be reduced, depending on the total assets of the
Fund. Shareholders of Mackenzie Limited Term Municipal Fund and Mackenzie
National Municipal Fund will receive 30 days' notice of any termination of
the Fund's expense limitation. If a Fund's expense limitation is terminated,
MIMI will comply with any applicable state regulations, which may require
MIMI to make reimbursements to a Fund in the event that the Fund's aggregate
operating expenses, including the management and advisory fee and shareholder
and administrative services fee, but generally excluding interest, taxes,
brokerage commissions and extraordinary expense, are in excess of specific
applicable limitations. For the fiscal year ended June 30, 1996, voluntary
expense reimbursements for Mackenzie Limited Term Municipal Fund, Mackenzie
National Municipal Fund, Mackenzie California Municipal Fund and Mackenzie
New York Municipal Fund and were $373,984, $106,248, $66,721 and $83,090,
respectively.
The Agreement will continue in effect with respect to each Fund for more
than its initial two-year period only so long as the continuance is
specifically approved at least annually (i) by the vote of a majority of the
Independent Trustees, and (ii) either (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act), or (b) by
the vote of a majority of the entire Board of Trustees. If the question of
continuance of the Agreement (or adoption of any new agreement) is presented
to a Fund's shareholders, continuance (or adoption) shall be effected only if
approved by the affirmative vote of a majority of the Fund's outstanding
voting securities. See "Capitalization and Voting Rights." The Agreement
may be terminated with respect to a Fund at any time, without payment any
penalty, by the vote of a majority of the Board of Trustees, or by the vote
of a majority of the Fund's outstanding voting securities, on 60 days'
written notice to MIMI, or by MIMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
MIMI and MFC reserve all rights in the name "Mackenzie" and permit the use of
the name "Mackenzie" or any name derived from the name "Mackenzie" by a Fund
and the Trust only so long as the Agreement or any extension, renewal or
amendment thereof remains in effect.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Class A and Class B shares
of the Funds pursuant to an Amended and Restated Distribution Agreement with
the Trust dated April 1, 1994 (the "Distribution Agreement").1[Effective
October 1, 1993, IMDI succeeded to and is continuing MIMI's broker-dealer
activities. The provisions of the Funds' previous Distribution Agreements
with MIMI remain unchanged by the succession.] The Distribution Agreement
does not obligate IMDI to sell any specific amount of Fund shares. The
Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a
majority of the entire Board of Trustees or a majority of the outstanding
voting securities of a Fund. The Distribution Agreement may be terminated
with respect to a Fund at any time, without payment of any penalty, by IMDI
on 60 days' written notice to the Fund or by the Fund by vote of either a
majority of the outstanding voting securities of the Fund or a majority of
the Independent Trustees on 60 days' written notice to IMDI. The
Distribution Agreement shall terminate automatically in the event of its
assignment.
Under the terms of the Distribution Agreement, IMDI is entitled to
deduct a contingent deferred sales charge on the redemption of Class B shares
of the Funds in the manner set forth in the Prospectus. IMDI may reallow all
or a portion of the contingent deferred sales charge to dealers as IMDI may
determine from time to time. During the fiscal year ended June 30, 1996,
IMDI received $15,109, $3,596, $1,154 and $5,486 in contingent deferred sales
charges on redemptions of Class B shares of Mackenzie Limited Term Municipal
Fund, Mackenzie National Municipal Fund, Mackenzie California Municipal Fund
and Mackenzie New York Municipal Fund, respectively. During the fiscal year
ended June 30, 1995, IMDI received $8,876, $6,798, $4,231 and $583 in
contingent deferred sales charges on redemptions of Class B shares of
Mackenzie Limited Term Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund,
respectively. During the period from April 1, 1994 (commencement of sales of
Class B shares) to June 30, 1994, IMDI received no contingent deferred sales
charges on redemptions of Class B shares of Mackenzie Limited Term Municipal
Fund, Mackenzie National Municipal Fund and Mackenzie California Municipal
Fund. During the same period, IMDI received $485 in contingent deferred
sales charges on redemptions of Mackenzie New York Municipal Fund.
IMDI is also entitled under the Distribution Agreement to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Funds' then-current
Prospectus, and the net asset value on which such price is based. Out of
such commission, IMDI may allow to dealers such concession as IMDI may
determine from time to time. During the last three fiscal years, the sales
commissions paid by each of the Funds to IMDI pursuant to the Distribution
Agreement for sales of Class A shares, and the amounts reallowed to dealers,
were as follows:
MACKENZIE LIMITED TERM MUNICIPAL FUND. During the fiscal years ended
June 30, 1996 and 1995 and the nine months ended June 30, 1994, IMDI received
$36,848, $155,685 and $816,793, respectively, in commissions from sales of
Class A shares of the Fund, of which $8,684, $33,813 and $193,175,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $382,984 in commissions from
sales of Class A shares of the Fund, of which $86,956 was retained after
dealers' reallowances.
MACKENZIE NATIONAL MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$10,373, $52,035 and $79,937, respectively, in commissions from sales of
Class A shares of the Fund, of which $2,051, $11,118 and $15,708,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $34,716 in commissions from
sales of Class A shares of the Fund, of which $5,694 was retained after
dealers' reallowances.
MACKENZIE CALIFORNIA MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$14,119, $49,841 and $66,168, respectively, in commissions from sales of
Class A shares of the Fund, of which $2,830, $10,201 and $7,932,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $38,820 in commissions from
sales of Class A shares of the Fund, of which $13,267 was retained after
dealers' reallowances.
MACKENZIE NEW YORK MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$29,270, $65,484 and $164,893, respectively, in commissions from sales of
Class A shares of the Fund, of which $5,796, $13,595 and $33,248,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $85,283 in commissions from
sales of Class A shares of the Fund, of which $16,359 was retained after
dealers' reallowances.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company whose
shares are registered on Form N-1A to issue multiple classes of shares in
accordance with a written plan approved by the investment company's board of
directors/trustees and filed with the SEC. At a meeting held on December
1-2, 1995, the Board of Trustees of the Trust adopted a multi-class plan (the
"Rule 18f-3 plan") on behalf of each Fund. The key features of the Rule
18f-3 plan are as follows: (i) shares of each class of each Fund represent
an equal pro rata interest in the Fund and generally have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications, terms and conditions, except that each class
bears certain class-specific expenses and has separate voting rights on
certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of
another class; (ii) subject to certain limitations described in each Fund's
Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy or Mackenzie fund; and (iii) each
Fund's Class B shares will convert automatically into Class A shares of the
Fund after a period of eight years, based on the relative net asset value of
such shares at the time of conversion.
RULE 12b-1 DISTRIBUTION PLANS. As described in the Prospectus, each
Fund has adopted pursuant to Rule 12b-1 under the 1940 Act separate
distribution plans pertaining to its Class A and Class B shares (the "Class
A Plan" and the "Class B Plan," collectively, the "Plans"). In adopting each
Plan, a majority of the Independent Trustees have concluded in conformity
with the requirements of the 1940 Act that there is a reasonable likelihood
that the Plan will benefit a Fund and its shareholders. The Trustees of the
Trust believe that the Plans should result in greater sales and/or fewer
redemptions of Fund shares, although it is impossible to know for certain the
level of sales and redemptions of Fund shares in the absence of a Plan or
under an alternative distribution arrangement.
Under each Fund's Class A and Class B Plan, each Fund pays IMDI a
service fee, accrued daily and paid monthly, at the annual rate of up to
0.25% of the average net assets attributable to its Class A shares or Class
B shares, as the case may be. The services for which service fees may be
paid include, among other services, advising clients or customers regarding
the purchase, sale or retention of shares of a Fund, answering routine
inquiries concerning a Fund and assisting shareholders in changing options or
enrolling in specific plans. Pursuant to each Fund's Plans, service fee
payments made out of or charged against the assets attributable to that
Fund's Class A or Class B shares must be in reimbursement for services
rendered for or on behalf of that class of the Fund. The expenses not
reimbursed in any one given month may be reimbursed in a subsequent month.
No Class A Plan provides for the payment of interest or carrying charges as
distribution expenses.
Each Fund also pays IMDI a distribution fee based on the average net
assets attributable to its Class B shares, accrued daily and paid monthly at
the following annual rates: 0.50%, for Mackenzie Limited Term Municipal
Fund; and 0.75%, for Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund and Mackenzie New York Municipal Fund. IMDI may reallow all
or a portion of the service and distribution fees to dealers as MIMI may
determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result
in the sale of Class B shares of a Fund, including the printing of
prospectuses for persons other than shareholders and the preparation,
printing and distribution of sales literature and advertising materials.
Pursuant to each Fund's Class B Plan, IMDI may include interest, carrying or
other finance charges in its calculation of Class B distribution expenses, if
not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC. The SEC order permitting the imposition of a contingent deferred
sales charge on Class B shares does not currently permit IMDI to recover such
charges.
Among other things, each Plan provides that (1) IMDI will submit to the
Board of Trustees of the Trust at least quarterly, and the Trustees will
review, written reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made; (2) the Plan will continue in
effect only so long as such continuance is approved at least annually, and
any material amendment thereto is approved, by the votes of a majority of the
Trust's Board of Trustees, including the Independent Trustees, cast in person
at a meeting called for that purpose; (3) payments by a Fund under the Plan
shall not be materially increased without the affirmative vote of the holders
of a majority of the outstanding shares of the relevant class; and (4) while
the Plan is in effect, the selection and nomination of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust shall be
committed to the discretion of the Trustees who are not "interested persons"
of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid to MIMI by the Funds. IMDI also may make payments (such
as the service fee payments described above) to unaffiliated broker-dealers
for services rendered in the distribution of the Funds' shares. To qualify
for such payments, shares may be subject to a minimum holding period.
However, no such payments will be made to any dealer or broker, if at the end
of each year the amount of shares held does not exceed a minimum amount. The
minimum holding period and minimum level of holdings will be determined from
time to time by IMDI.
Each Plan may be amended at any time with respect to the class of shares
of a Fund to which the Plan relates by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated with
respect to the class of shares of a Fund to which the Plan relates at any
time, without payment of any penalty, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of that class.
RULE 12B-1 PAYMENTS BY THE FUNDS FOR DISTRIBUTION-RELATED
SERVICES:
MACKENZIE LIMITED TERM MUNICIPAL FUND. During the period from July 1,
1993 to September 30, 1993, the Fund paid MIMI $65,146 pursuant to the Class
A Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $265,119,
$340,929 and $228,045, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $1,115, $15,139 and $16,450,
respectively, pursuant to the Class B Plan.
MACKENZIE NATIONAL MUNICIPAL FUND. During the period from July 1, 1993
to September 30, 1993, the Fund paid MIMI $26,593 pursuant to the Class A
Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $74,712,
$83,272 and $64,109, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $771, $8,042 and $9,273,
respectively, pursuant to the Class B Plan.
MACKENZIE CALIFORNIA MUNICIPAL FUND. During the period from July 1,
1993 to September 30, 1993, the Fund paid MIMI $30,288 pursuant to the Class
A Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $84,893,
$100,518 and $92,452, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $168, $5,868 and 11,122,
respectively, pursuant to the Class B Plan.
MACKENZIE NEW YORK MUNICIPAL FUND. During the period from July 1, 1993
to September 30, 1993, the Fund paid MIMI $27,182 pursuant to the Class A
Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $83,038,
$103,901 and $96,899, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $1,374, $11,975 and $17,083,
respectively, pursuant to the Class B Plan.
DISTRIBUTION-RELATED EXPENSES BORNE BY IMDI:
MACKENZIE LIMITED TERM MUNICIPAL FUND: During the fiscal year ended
June 30, 1996, IMDI expended the following amounts in marketing Class A and
Class B shares of the Fund: advertising, $19,412 and $467, respectively;
printing and mailing of prospectuses to persons other than current
shareholders, $11,799 and $284, respectively; compensation to dealers,
$40,373 and $971, respectively; compensation to sales personnel, $140,835 and
$3,386, respectively; seminars and meetings, $10,093 and $243, respectively;
travel and entertainment, $27,531 and $662, respectively; general and
administrative, $102,189 and $2,457, respectively; telephone, $4,053 and $97,
respectively; and occupancy and equipment rental, $8,981 and $216,
respectively.
MACKENZIE NATIONAL MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $5,537 and $200, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$4,105 and $148, respectively; compensation to dealers, $14,169 and $512,
respectively; compensation to sales personnel, $40,257 and $1,456,
respectively; seminars and meetings, $3,542 and $128, respectively; travel
and entertainment, $7,858 and $284, respectively; general and administrative,
$28,527 and $1,032, respectively; telephone, $1,153 and $42, respectively;
and occupancy and equipment rental, $2,558 and $92, respectively.
MACKENZIE CALIFORNIA MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $8,019 and $241, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$4,629 and 139, respectively; compensation to dealers, $18,545 and $558,
respectively; compensation to sales personnel, $57,935 and 1,742,
respectively; seminars and meetings, $4,637 and $139, respectively; travel
and entertainment, $11,409 and $343, respectively; general and
administrative, $40,841 and $1,228, respectively; telephone, $1,665 and $50,
respectively; and occupancy and equipment rental, $3,706 and $111,
respectively.
MACKENZIE NEW YORK MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $8,391 and $370, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$5,213 and $230, respectively; compensation to dealers, $22,534 and $993,
respectively; compensation to sales personnel, $60,779 and $2,679,
respectively; seminars and meetings, $5,634 and $248, respectively; travel
and entertainment, $11,929 and $526, respectively; general and
administrative, $42,599 and 1,878, respectively; telephone, $1,742 and $77,
respectively; and occupancy and equipment rental, $3,875 and $171,
respectively.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and member of the
principal securities exchanges, located at 40 Water Street, Boston,
Massachusetts 02109 (the "Custodian"), has been retained to act as Custodian
of the Trust's investments. Its primary responsibility is to maintain
custody of the cash and securities in each Fund's portfolio. Brown Brothers
may receive, as partial payment for its services, a portion of the Trust's
brokerage business, subject to its ability to provide best price and
execution. The First National Bank of Boston, One Financial Center, Boston,
Massachusetts 02111, served as the Trust's custodian until May 31, 1993.
FUND ACCOUNTING
Pursuant to a Fund Accounting Services Agreement dated July 1, 1991
(effective July 16, 1991), MIMI provides certain accounting and pricing
services for the Funds. As compensation for such services, each Fund pays
MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee
is based on the net assets of the Fund at the preceding month end at the
following rates: $1,000 when the net assets are less than $1,500 when the
net assets are $20 to $75 million; $4,000 when the net assets are $75 to $100
million; and $6,000 when the net assets are over $100 million. For the
fiscal years ended June 30, 1996, 1995 and 1994, the Funds paid the following
amounts to MIMI pursuant to the agreement: Mackenzie Limited Term Municipal
Fund, $83,991, $104,676, and $93,126, respectively; Mackenzie National
Municipal Fund, $27,338, $27,467 and$26,935, respectively; Mackenzie
California Municipal Fund, $26,765, $24,790 and $24,062, respectively; and
Mackenzie New York Municipal Fund, $29,975, $29,126 and$27,625, respectively.
TRANSFER AND DIVIDEND PAYING AGENT
Ivy Mackenzie Services Corp. ("IMSC" or the "Transfer Agent") acts as
the Trust's transfer agent and dividend paying agent pursuant to a Transfer
Agency and Shareholder Services Agreement. For transfer agency and
shareholder services, each Fund pays IMSC an annual fee of $20.75 per open
account and $4.48 for each account that is closed. In addition, each Fund
reimburses IMSC monthly for out-of-pocket expenses. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays
such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate fee (e.g., .10%), based on the average daily
net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
MIMI provides various administrative services to the Trust pursuant to
an Administrative Services Agreement. As compensation for these services,
each Fund pays MIMI a monthly fee at the annual rate of .10% of each Fund's
average daily net assets. Outside of providing administrative services to
the Trust, as described above, MIMI may also act on behalf of IMDI in paying
commissions to broker-dealers with respect to sales of a Fund's Class B
shares.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public accountants, 200
East Las Olas Boulevard, Suite 1700, Ft. Lauderdale, Florida 33301, has been
selected as auditors for the Trust. The audit services performed by Coopers
& Lybrand L.L.P. include audits of the annual financial statements of each of
the funds of the Trust. Other services provided primarily relate to filings
with the SEC and the review of the Trust's tax returns.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest with a par value of $0.001 per share. When
issued, shares of each class of a Fund are fully paid, non-assessable,
redeemable and fully transferable. No class of shares of a Fund has
preemptive rights or subscription rights.
The Declaration of Trust permits the Trustees to create separate series
or portfolios and to divide any series or portfolio into one or more classes.
The Trustees have authorized five series, each of which represents a fund.
The Trustees have further authorized the issuance of Classes A and B shares
for the Funds.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law
or by the provisions of the Trust's By-Laws. Shares of each class of a Fund
entitle their holders to one vote per share (with proportionate voting for
fractional shares). On matters affecting only one Fund, only the
shareholders of that Fund are entitled to vote. All classes of shares of a
Fund will vote together, except with respect to the distribution plan
applicable to its Class A or Class B shares or when a class vote is required
by the 1940 Act. On matters relating to all of the Funds, but affecting each
Fund differently, separate votes by the shareholders of each Fund are
required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting
by the shareholders of each Fund. If the Trustees determine that a matter
does not affect the interests of a Fund, then the shareholders of that Fund
will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all of
the Funds.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy;
or (2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to any Fund if a majority of the outstanding voting securities
of that Fund votes for the approval of the matter, notwithstanding that: (1)
the matter has not been approved by a majority of the outstanding voting
securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Trust's shares do not have cumulative voting rights and accordingly the
holders of more than 50% of the outstanding shares could elect the entire
Board of Trustees, in which case the holders of the remaining shares would
not be able to elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations
of the Trust, which are binding only on the assets and property of the Trust,
and requires that notice of the disclaimer be given in each contract or
obligation entered into or executed by the Trust or its Trustees. The
Amended and Restated Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder of a Fund held
personally liable for the obligations of that Fund. The risk of a
shareholder of the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be
unable to meet its obligations and, thus, should be considered remote.
PRINCIPAL HOLDERS OF SECURITIES:
MACKENZIE LIMITED TERM MUNICIPAL FUND: To the knowledge of the Trust,
as of September 30, 1996, no shareholder owned beneficially or of record 5%
or more of the Fund's total outstanding shares, except that of the
outstanding Class B shares of the Fund, Elizabeth & B.L. Perry, 1744 Pebble
Creek Drive, Prattville, AL 36066-7207, owned of record 23,099.261 shares
(12.27%); Yolanda D. Acinapura, 330 Cherry Lane, Havertown, PA 19083-1617,
owned of record 21,047.910 shares (11.18%) and William E. Anderson
Consulting, 11109 NW 113th Street, Yukon, OK 73099, owned of record
13,792.722 shares (7.32%).
MACKENZIE NATIONAL MUNICIPAL FUND: To the knowledge of the Trust, as of
September 30, 1996, no shareholder owned beneficially or of record 5% or more
of the Fund's total outstanding shares, except that of the outstanding Class
B shares of the Fund, Bianca Van Der Zee, 907 Maple Branch, Pearland, TX
77584, owned of record 32,108.408 shares (26.45%); Ruth Swartz, 1161 Cayuga
Drive, Grand Blanc, MI 48439-4823, owned of record 16,114.112 shares
(13.27%); Paul H. Meyer, 8172 Hunnicut, Dallas, TX 75228-5929, owned of
record 13,779.197 shares (11.35%); Smith Barney, 388 Greenwich Street, New
York, NY 10013, owned of record 12,321.858 shares (10.15%); John and Assuata
Digianno, 271-20 77th Road, New Hyde Park, NY 11040-1428, owned of record
11,079.717 (9.12%) and Smith Barney, 388 Greenwich Street, New York, NY 10013
owned of record 10,148.146 (8.36%). Bianca Van Der Zee, 907 Maple Branch,
Pearland, TX 77584, may be deemed to hold a controlling interest, as defined
in the 1940 Act, in Class B shares of the Fund. Accordingly, as long as
Bianca Van Der Zee holds such an interest, he or she may have the ability to
influence a vote on any matter that is submitted for approval only to Class
B shareholders of the Fund.
MACKENZIE CALIFORNIA MUNICIPAL FUND: To the knowledge of the Trust, as
of September 30, 1996, no shareholder owned beneficially or of record 5% or
more of the Fund's total outstanding shares, except that of the outstanding
Class B shares of the Fund, The Feldman Family Trust, 25381-G Alicia Parkway
- - #214, Laguna Hills, CA 92653, owned of record 22,895.412 (19.69%); The
Donald R. Melen Trust, 353 Euclid Avenue #308, Oakland, CA 94610, owned of
record 14,822.613 (12.75%); Esther Finnigan Trust, 1512 B Granite Hills
Drive, El Cajon, CA 92019, owned of record 10,557.756 (9.08%); The Bell
Trust, 27031 Vista Point, San Juan Capistrano, CA 92675, owned of record
7,387.412 shares (6.35%) and Robert and Dorothy Kishi, 1301 W 184th Street,
Gardena, CA 90248, owned of record 6,081.153 shares (5.23%).
MACKENZIE NEW YORK MUNICIPAL FUND: To the knowledge of the Trust, as of
September 30, 1996, no shareholder owned beneficially or of record 5% or more
of the Fund's total outstanding shares, except that of the outstanding Class
B shares of the Fund, Susan E. Madigan, 455 Village Lane, Box 126, Orient, NY
11957, owned of record 48,836.499 shares (19.87%); Harold L. Mendelson,
146-01 45th Avenue, Suite 402, Flushing, NY 11355, owned of record 23,572.940
shares (9.59%); Smith Barney, 388 Greenwich Street, New York, NY 10013, owned
of record 14,089.580 (5.73%) and Barbara A. Shonyo, 6 Juniper Lane,
Liverpool, NY 13090, owned of record 13,510.420 shares (5.49%).
NET ASSET VALUE
The market price of a Fund share is its net asset value. The net asset
value per share is calculated separately for each Fund, and is computed by
dividing the value of the assets of the Fund, less its liabilities, by the
number of shares of the Fund outstanding. A Fund's liabilities are allocated
between its Classes. The total of such liabilities allocated to a Class plus
that Class' distribution fee and any other expenses specially allocated to
that Class are then deducted from the proportionate interest of the Class in
the Fund's assets, and the resulting amount for each Class is divided by the
number of shares of that Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and net asset value per share is
determined as of the close of regular trading on the New York Stock Exchange
(the "Exchange") (normally 4:00 p.m., Eastern Time) on each day the Exchange
is open for trading. The Trust's offices will be closed, and net asset value
will not be calculated on the following national business holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. On any day on which either or
both of the Funds' Custodian or the Exchange close early as a result of such
day being a partial holiday or otherwise, the Funds reserve the right to
advance the time on that day by which purchase and redemption requests must
be received.
Municipal securities held by the Funds are valued through a pricing
service and/or in accordance with procedures approved by the Board of
Trustees. Valuations furnished by a pricing service are based on a
computerized matrix system and/or appraisals based in each case upon
information concerning market transactions and quotations from recognized
municipal securities dealers. In valuing the Funds' municipal securities,
the pricing service considers factors such as yields or prices of municipal
bonds of comparable quality, type of issue, coupon, maturity and rating,
indications as to value from dealers, and general market conditions. The
Trust's officers, under the general supervision of the Board of Trustees,
will regularly review procedures used and valuations provided by the pricing
service.
Taxable securities held by a Fund for which market quotations are
readily available will be valued at market value, which is the last reported
sale price or, at the mean between the latest available bid and asked prices.
The Board of Trustees has determined that securities having 60 days or less
remaining to maturity will be valued at their amortized cost, which
approximates market value when such amortized cost is believed to reflect the
fair market value of such securities.
The sale of a Fund's shares will be suspended during any period when the
determination of its net asset value is suspended pursuant to rules or orders
of the SEC, and may be suspended by the Board of Trustees whenever in its
judgment it is in the best interest of the Fund to do so.
PORTFOLIO TURNOVER
A change in securities held by a Fund is known as "portfolio turnover"
and may involve the payment by the Fund of dealer markup or underwriting
commission and other transaction costs on the sale of securities, as well as
on the reinvestment of the proceeds in other securities. A Fund's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for the most recently completed fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during that year. For purposes of determining a Fund's portfolio turnover
rate, all securities whose maturities at the time of acquisition were one
year or less are excluded. The annual portfolio turnover rates for the Funds
are provided in the Prospectus.
REDEMPTIONS
Shares of a Fund are redeemed at their net asset value next determined
after a redemption request in proper form has been received by IMSC, less any
applicable contingent deferred sales charge. Unless a shareholder requests
that the proceeds of any redemption be wired to his or her bank account,
payment for shares tendered for redemption is made by check within seven days
after tender in proper form, except that the Trust reserves the right to
suspend the right of redemption or to postpone the date of payment upon
redemption, to the extent permitted by Federal securities laws, (i) for any
period during which the New York Stock Exchange is closed (other than
customary weekend and holiday closing) or during which trading on the
Exchange is restricted, (ii) for any period during which an emergency exists
as determined by the SEC as a result of which disposal of securities owned by
a Fund is not reasonably practicable or it is not reasonably practicable for
a Fund fairly to determine the value of its net assets, or (iii) for such
other periods as the SEC may by order permit for the protection of
shareholders of a Fund.
Under unusual circumstances, when the Board of Trustees deems it in the
best interest of a Fund's shareholders, that Fund may make payment for shares
repurchased or redeemed, in whole or in part, in securities of the Fund taken
at current value. If any such redemption in kind is to be made, the Fund
intends to make an election pursuant to Rule 18f-1 under the 1940 Act. This
will require the Fund to redeem with cash at a shareholder's election in any
case where the redemption involves less than $250,000 (or 1% of the Fund's
net asset value at the beginning of each 90-day period during which such
redemptions are in effect, if that amount is less than $250,000). If payment
is made in the form of Fund securities, the redeeming shareholder may incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may redeem those accounts
of shareholders who have maintained an investment, including sales charges
paid, of less than $1,000 in a Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems
it advisable. The $1,000 balance will be determined by actual dollar amounts
invested by the shareholder, unaffected by market fluctuations. The Trust
will notify any such shareholder by certified mail of its intention to redeem
such account, and the shareholder shall have 60 days from the date of such
letter to invest such additional sum as shall raise the value of such account
above that minimum. Should the shareholder fail to forward such sum within
60 days of the date of the Trust's letter of notification, the Trust will
redeem the shares held in such account and transmit the redemption in value
thereof to the shareholder. However, those shareholders who are investing
pursuant to the Automatic Investment Method will not be redeemed
automatically unless they have ceased making payments pursuant to the plan
for a period of at least six consecutive months, and these shareholders will
be given six months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who
wish to avoid tax consequences would have to "rollover" any sum so redeemed
into another qualified plan within 60 days. The Trustees of the Trust may
change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a
single previously designated bank account. Delivery of the proceeds of a
wire redemption request of $250,000 or more may be delayed by the Fund for up
to seven days if deemed appropriate under then current market conditions.
The Trust reserves the right to change this minimum or to terminate the
telephonic redemption privilege without prior notice. The Trust cannot be
responsible for the efficiency of the Federal wire system of the
shareholder's dealer of record or bank. The shareholder is responsible for
any charges by the shareholder's bank.
The Funds employ reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In
the absence of such procedures, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of a Fund will convert
automatically to Class A shares of that Fund, based on the relative net asset
values per share of the two Classes, as of the close of business on the first
business day after the last day of the calendar quarter in which the eighth
anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (i)
the date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the
exchange privileges for Class B shares) the date on which the original Class
B shares were issued. For purposes of conversion of Class B shares, Class B
shares purchased through the reinvestment of dividends and capital gain
distributions paid in respect of Class B shares will be held in a separate
sub-account. Each time any Class B shares in the shareholder's regular
account (other than those shares in the sub-account) convert to Class A
shares, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through the reinvestment of
dividends and capital gain distributions.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Funds. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders
should consult a competent tax advisor about the tax consequences to them of
investing in any Fund.
GENERAL
Each Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code. In order to
qualify, each Fund must, among other things, (a) derive in each taxable year
at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, or other income (including but not
limited to gains from options, futures, and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive in each taxable year less than 30% of its gross income from the
sale or other disposition of certain assets (namely (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stocks or securities (or options and
futures with respect to stocks and securities)) held less than three months
(the "30% Limitation"); and (c) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies, and other securities, with such other
securities of any one issuer limited for purposes of this calculation to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in securities of any other issuer (other than
U.S. Government securities and the securities of other regulated investment
companies).
As a regulated investment company, a Fund generally will not be subject
to U.S. Federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (net
long-term capital gains in excess of net short-term capital losses) that it
distributes to shareholders, if at least 90% of both its investment company
taxable income and its net tax-exempt interest income for the taxable year is
distributed. Each Fund intends to distribute such income.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement are subject
to a nondeductible 4% excise tax. To avoid that tax, each Fund must
distribute during each calendar year an amount equal to (1) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for the twelve-month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December of that year to shareholders of
record at some date in such a month and paid by the Fund during January of
the following calendar year. Such distributions will be taken into account
by shareholders in the calendar year the distributions are declared, rather
than the calendar year in which the distributions are received.
Certain of the Funds may enter into put transactions with respect to
municipal obligations they hold. The IRS has issued published and private
rulings concerning the treatment of such put transactions for Federal income
tax purposes. The Fund's situation is distinguishable from those addressed
in these rulings; thus, there can be no assurance that a Fund will be treated
as the owner of the municipal obligations subject to the puts or that the
interest on such obligations received by the Fund will be exempt from Federal
income tax. If the Fund is not treated as the owner of the municipal
obligations subject to the puts, distributions of income derived from such
obligations would be taxed as ordinary income.
DISCOUNT
Certain of the bonds purchased by a Fund may be treated as bonds that
were originally issued at a discount. Original issue discount represents
interest for Federal income tax purposes and can generally be defined as the
difference between the price at which a security was issued and its stated
redemption price at maturity. Original issue discount is treated for Federal
income tax purposes as income earned by a Fund, although no cash is actually
received by a Fund, and therefore is subject to the distribution requirements
of the Code. The amount of income earned by a Fund generally is determined
on the basis of a constant yield to maturity that takes into account the
semi-annual compounding of accrued interest.
In addition, some of the bonds may be purchased by a Fund at a discount
that exceeds the original issue discount on such bonds, if any. This
additional discount represents market discount for Federal income tax
purposes. The gain realized on the disposition of any bond, including a
tax-exempt bond, having market discount will be treated as ordinary income to
the extent it does not exceed the accrued market discount on such bond
(unless a Fund elects for all its debt securities acquired after the first
day of the first taxable year to which the election applies having a fixed
maturity date of more than one year from the date of issue to include market
discount in income in tax years to which it is attributable). Generally,
market discount accrues on a daily basis for each day the bond is held by a
Fund at a constant rate over the time remaining to the bond's maturity.
DISTRIBUTIONS
Each Fund intends to qualify to pay "exempt- interest dividends" to its
shareholders but there is no guarantee that any particular Fund will so
qualify. A Fund will be so qualified if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consist of state
and municipal securities on which interest payments are exempt from Federal
income tax and such interest payments when distributed are designated as
exempt-interest dividends by the Fund. Exempt-interest dividends are
excludable from a shareholder's gross income for Federal income tax purposes.
Exempt- interest dividends, however, must be taken into account by
shareholders in determining whether their total incomes are large enough to
result in taxation of up to 85% of their social security benefits or certain
railroad retirement benefits. Exempt-interest dividends that are
attributable to certain private activity bonds may constitute an item of tax
preference for purposes of the alternative minimum tax. For corporate
shareholders, exempt-interest dividends may comprise all or part of an
adjustment to alternative minimum taxable income, which may result in the
imposition or increase in such tax. Each Fund will inform shareholders
annually as to the portion of the distributions from the Fund that
constituted exempt-interest dividends.
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Because no
portion of a Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by a Fund is expected to be
eligible for the corporate dividends-received deduction. Distributions of
net capital gains, if any, that are designated as capital gain dividends are
taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held a Fund's shares, and are not
eligible for the dividends received deduction. The tax treatment of
distributions from a Fund is the same whether the dividends are received in
cash or in additional shares. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received
equal to the net asset value of a share of the Fund on the reinvestment date.
A distribution of an amount in excess of a Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
that is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will
be notified annually as to the U.S. Federal tax status distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution will be taxable
(unless it is an exempt-interest dividend) even though it represents a return
of invested capital. Investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at this time may reflect the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will receive a
distribution that will nevertheless be taxable to them (unless it is an
exempt-interest dividend).
Deductions for interest expense incurred to acquire or carry shares of
a Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of a
Fund). In addition, a shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, which bears the same
ratio to the total of such interest as the exempt-interest dividends bear to
the total dividends, excluding capital gain dividends received by the
shareholder. Under rules issued by the IRS for determining when borrowed
funds are considered used for the purposes of purchasing or carrying
particular assets, the purchase of shares may be considered to have been with
borrowed funds even though the borrowed funds are not directly traceable to
the purchase of shares.
Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuers. The Funds, MIMI, MFC and their affiliates, and the
Funds' counsel make no review of proceedings relating to the issuance of
state or municipal securities and the bases of such opinions.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including
through reinvestment of dividends) within a period of 61 days beginning 30
days before and ending 30 days after the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital
gains received or treated as having been received by the shareholder with
respect to such shares. Any loss realized by shareholder on the redemption,
sale or exchange of shares of a Fund with respect to which exempt-interest
dividends have been paid will, to the extent of such exempt-interest
dividends, be disallowed if such shares have been held by the shareholder for
six months or less.
In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized
on the disposition of their stock. This prohibition generally applies where
(1) the shareholder incurs a sales charge in acquiring the stock of a Fund,
(2) the stock is disposed of before the 91st day after the date on which it
was acquired, and (3) the shareholder subsequently acquires the stock of the
same or another Fund and the otherwise applicable sales charge is reduced
under a "reinvestment right" received upon the initial purchase of regulated
investment company shares. The term "reinvestment right" means any right to
acquire stock of one or more Funds without the payment of a sales charge or
with the payment of a reduced sales charge. Sales charges affected by this
rule are treated as if they were incurred with respect to the stock acquired
under the reinvestment right. This provision may be applied to successive
acquisitions of Fund shares.
BACKUP WITHHOLDING
Each Fund will be required to report to the IRS all distributions (other
than exempt-interest dividends) as well as gross proceeds from the redemption
of that Fund's shares, except in the case of certain exempt shareholders.
All such reportable distributions and proceeds will be subject to withholding
of Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Fund with
and to certify the shareholder's correct taxpayer identification number or
social security number; (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect; or (3) when
required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. If the withholding provisions are applicable,
any such distributions or proceeds, whether reinvested in additional shares
or taken in cash, will be reduced by the amounts required to be withheld.
OTHER TAXATION
The foregoing discussion relates only to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by a Fund
also may be subject to state and local taxes, and their treatment under state
and local income tax laws may differ from the U.S. Federal income tax
treatment. In certain states, Fund distributions that are derived from
interest on obligations of that state or its municipalities or any political
subdivisions thereof may be exempt from state and local taxes. Fund
distributions that are derived from interest on obligations of the U.S.
Government and certain of its agencies, authorities and instrumentalities
also may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers with respect to particular
questions of U.S. Federal, state and local taxation. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds should consult their tax advisers
before purchasing shares of a Fund. The term "substantial user" generally
includes any "non-exempt person" who regularly uses in his or her trade or
business a part of a facility financed by industrial development bonds.
Generally, an individual will not be a "related person" of a substantial user
under the Code unless the person or his or her immediate family owns directly
or indirectly in the aggregate more than a 50% equity interest in the
substantial user. Shareholders who are not U.S. persons should consult their
tax advisers regarding U.S. and foreign tax consequences of ownership of
shares of a Fund, including the likelihood that distributions to them would
be subject to withholding of U.S. Federal income tax at a rate of 30% (or at
a lower rate under a tax treaty).
SPECIAL INFORMATION RELATING TO MACKENZIE CALIFORNIA MUNICIPAL FUND
Under California law, a mutual fund that qualifies as a regulated
investment company generally must have at least 50% of its total assets in
California state and local issues or certain U.S. Government obligations or
a combination thereof at the end of each quarter of its taxable year in order
to be eligible to pay dividends that will be exempt from California personal
income tax. Generally, shareholders who are California residents will not
incur California personal income tax on the amount of dividends received by
them from Mackenzie California Municipal Fund that the Fund designates as
California exempt-interest dividends derived from California state and local
issues or certain U.S. Government obligations, whether taken in cash or
reinvested in additional shares. Gain on the sale or redemption of Fund
shares is subject to California personal income tax. Shareholders will
normally be subject to California personal income tax on dividends paid from
interest income derived from taxable securities and from securities issued by
states other than California and its subsidiaries and on distribution of net
capital gains.
SPECIAL INFORMATION RELATING TO MACKENZIE NEW YORK MUNICIPAL FUND
Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by New York residents from interest on
qualifying New York bonds generally are exempt from New York State and New
York City personal income taxes, but not corporate franchise taxes.
Dividends and distributions derived from taxable income and capital gains are
not exempt from New York State and New York City taxes. Interest on
indebtedness incurred or continued by a shareholder to purchase or carry
shares of the Fund is not deductible for New York State or New York City
personal income tax purposes. Gain on the sale or redemption of Fund shares
generally is subject to New York State and New York City personal income tax.
PERFORMANCE INFORMATION
Performance information for the separate classes of shares of a Fund may
be compared, in reports and promotional literature, to: (i) the S&P 500
Index, Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so
that investors may compare a Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets,
or tracked by other services, companies, publications, or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real
rate of return from an investment in a Fund. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses. Performance rankings are
based on historical information and are not intended to indicate future
performance.
In addition, the Trust may, from time to time, include various measures
of a Fund's performance including the current yield, the tax-equivalent yield
and the average annual total return of shares of the Funds in advertisements,
promotional literature or reports to shareholders or prospective investors.
Such materials may occasionally cite statistics to reflect a Fund's
volatility or risk.
YIELD. Quotations of yield for a specific Class of shares of a Fund
will be based on all investment income attributable to that Class earned
during a particular 30-day (or one month) period (including dividends and
interest), less expenses attributable to that Class accrued during the period
("net investment income"), and will be computed by dividing the net
investment income per share of that Class earned during the period by the
maximum offering price per share (in the case of Class A shares) or the net
asset value per share (in the case of Class B shares) on the last day of the
period, according to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during
the period attributable to a specific
Class of shares,
b = expenses accrued for the period
attributable to that Class (net of
reimbursements),
c = the average daily number of shares of
that Class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per share
(in the case of Class A shares) or
the net asset value per share (in the
case of Class B shares) on the last
day of the period.
The yield for Class A and Class B shares of the Funds for the 30-day
period ended June 30, 1996 were: Mackenzie Limited Term Municipal Fund --
4.24% and 3.89%, respectively; Mackenzie California Municipal Fund -- 4.35%
and 4.11%, respectively; Mackenzie National Municipal Fund -- 4.28% and
4.36%, respectively; and Mackenzie New York Municipal Fund -- 4.34% and
4.06%, respectively. The yield figures reflect voluntary expense
reimbursements by MIMI. Without the voluntary reimbursements, the yield for
Class A and Class B shares of each Fund for the same 30-day period would have
been: Mackenzie Limited Term Municipal Fund -- 3.68% and 3.31%,
respectively; Mackenzie California Municipal Fund -- 4.11% and 3.86%,
respectively; Mackenzie National Municipal Fund -- 3.86% and 3.91%,
respectively; and Mackenzie New York Municipal Fund -- 3.76% and 3.45%,
respectively.
TAX-EQUIVALENT YIELD. Tax-equivalent yield for a specific Class of
shares of a Fund is the net annualized taxable yield needed to produce a
specified tax-exempt yield at a given tax rate based on a specified 30-day
(or one month) period assuming semi-annual compounding of income.
Tax-equivalent yield is calculated by dividing that portion of a Fund's yield
(as computed in the yield description above) that is tax-exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of
the yield of the Fund that is not tax-exempt. Thus, for example, for the
thirty- day period ended June 30, 1996, taxpayers with effective combined
federal, state and/or city marginal income tax rates of 28% and 31% would
have had to have earned (i) a taxable yield of 5.89% and 6.14% (or 5.11% and
5.33% without the voluntary reimbursements), respectively, to receive
after-tax income equal to the 4.24% (or 3.68% without the voluntary
reimbursements) tax-free yield of Class A shares of Mackenzie Limited Term
Municipal Fund for that period; (ii) a taxable yield of 5.95% and 6.21% (or
5.37% and 5.60% without the voluntary reimbursements), respectively, to
receive after-tax income equal to the 4.28% (or 3.86% without the voluntary
reimbursements) tax-free yield of Class A shares of Mackenzie National
Municipal Fund for that period; (iii) a taxable yield of 6.04% and 6.30% (or
5.71% and 5.96% without the voluntary reimbursements), respectively, to
receive after-tax income equal to the 4.35% (or 4.11% without the voluntary
reimbursements) tax-free yield of Class A shares of Mackenzie California
Municipal Fund for that period; and (iv) a taxable yield of 6.02% and 6.28%
(or 5.22% and 5.45% without the voluntary reimbursements), income equal to
the 4.34% (or 3.76% without the voluntary reimbursements) tax-free yield of
Class A shares of Mackenzie New York Municipal Fund for that period. For the
thirty-day period ended June 30, 1996, taxpayers with effective combined
federal, state and/or city marginal income tax rates of 28% and 31% would
have had to have earned (i) a taxable yield of 5.41% and 5.64% (or 4.60% and
4.80% without the voluntary reimbursements), respectively, to receive
after-tax income equal to the 3.89% (or 3.31% without the voluntary
reimbursements) tax-free yield of Class B shares of Mackenzie Limited Term
Municipal Fund for that period; (ii) a taxable yield of 6.05% and 6.31% (or
5.44% and 5.67% without the voluntary reimbursements), respectively, to
receive after-tax income equal to the 4.36% (or 3.91% without the voluntary
reimbursements) tax-free yield of Class B shares of Mackenzie National
Municipal Fund for that period; (iii) a taxable yield of 5.70% and 5.95% (or
5.36% and 5.59% without the voluntary reimbursements), respectively, to
receive after-tax income equal to the 4.11% (or 3.86% without the voluntary
reimbursements) tax-free yield Class B shares of Mackenzie California
Municipal Fund for that period; and (iv) a taxable yield of 5.63% and 5.88%
(or 4.79% and 5.00% without the voluntary reimbursements), respectively, to
receive after-tax income equal to the 4.06% (or 3.45% without the voluntary
reimbursements) tax-free yield of Class B shares of Mackenzie New York
Municipal Fund for that period. For a more detailed explanation of
tax-equivalent yields, see Appendix B of this SAI.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific Class of shares of a Fund
will be expressed in terms the average annual compounded rate of return that
would cause a hypothetical investment in that Class of a Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV")
of such hypothetical investment on the last day of the designated period,
according to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specific Class
T = the average annual total return of shares of
that Class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for a Fund, it is assumed that all
dividends and capital gains distributions made by a Fund are reinvested at
net asset value in additional shares of the same Class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
3.00% sales charge for Mackenzie Limited Term Municipal Fund, and the maximum
4.75% sales charge for Mackenzie National Municipal Fund, Mackenzie
California Municipal Fund and Mackenzie New York Municipal Fund, is deducted
from the initial $1,000 payment and, for Class B shares, the applicable
contingent deferred sales charge imposed upon redemption of Class B shares
held for the period is deducted. Standardized Return quotations for the
Funds do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods
of over eight years will reflect conversion of the Class B shares to Class A
shares at the end of the eighth year. Standardized Return quotations are
determined to the nearest 1/100 of 1%.
A Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return
data that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor contingent deferred sales
charges are taken into account in calculating Non-Standardized Return; a
sales charge, if deducted, would reduce the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A and Class B shares of the Funds for
the periods indicated. In determining the average annual total return for a
specific Class of shares of a Fund, recurring fees, if any, that are charged
to all shareholder accounts are taken into consideration. For any account
fees that vary with the size of the account of a Fund, the account fee used
for purposes of the following computations is assumed to be the fee that
would be charged to the mean account size of the Fund. Shares of the Funds
outstanding as of March 31, 1994 were designated Class A shares.
MACKENZIE LIMITED TERM MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: 1.32% 0.98% 4.46% 3.98%
Inception to
June 30, 1996:[#] 4.44% 3.67% 5.10% 4.51%
</TABLE>
- --------------------------
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 3.00%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.
[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The commencement of operations for Mackenzie Limited Term
Municipal Fund (formerly Limited Term Portfolio of the Zweig
Tax-Free Fund, Inc.), and the Class A shares of that Fund,
was April 22, 1985. From that date until August 2, 1991,
the fund was managed by Zweig/Glaser Advisors. Effective
August 2, 1991, the Fund is being managed (with the same
investment objectives) by MIMI, which date is the "inception"
date for Class A shares in the above table. The inception
date for Class B shares of the Fund was April 1, 1994.
[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 0.93% and 4.14%, respectively.
[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 0.58% and 3.27%, respectively.
[3] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class A shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 4.05% and 4.78%, respectively.
[4] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 3.58% and 4.11%, respectively.
MACKENZIE NATIONAL MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: (0.28)% (1.12)% 4.69% 3.88%
Five years ended
June 30, 1996: 5.49% N/A 6.52% N/A
Inception to
June 30, 1996:[#] 6.20% 3.55% 6.84% 4.82%
</TABLE>
- --------------------------
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.
[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1, 1994.
[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year ended
June 30, 1996, the five years ended June 30, 1996 and the period
from inception through June 30, 1996 would have been (.69)%,
5.23% and 5.10%, respectively.
[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been (1.52)% and 3.22%, respectively. (Since the
inception date for Class B shares of the Fund was April 1, 1994,
there were no Class B shares outstanding for the duration of the
five year period ending June 30, 1996.)
[3] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class A shares for the one year ended
June 30, 1996, the five years ended June 30, 1996 and the period
from inception through June 30, 1996 would have been 4.27%, 6.26%
and 5.73%, respectively.
[4] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 3.46% and 4.49%, respectively. (Since the
inception date for Class B shares of the Fund was April 1, 1994,
there were no Class B shares outstanding for the duration of the
five year period ending June 30, 1996.)
MACKENZIE CALIFORNIA MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<C> <C> <C> <C>
One year ended
June 30, 1996: 0.51% (0.30)% 5.52% 4.70%
Five years ended
June 30, 1996: 5.67% N/A 6.70% N/A
Inception[#] to
June 30, 1996: 6.65% 3.99% 7.29% 5.25%
- ---------------------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.
[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for the Class B shares of the Fund was
April 1, 1994.
[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year
ended June 30, 1996, the five years ended June 30, 1996 and
the period from inception through June 30, 1996 would have
been 0.32%, 5.54% and 5.75%, respectively.
[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been (0.51)% and 3.83%,
respectively. (Since the inception date for Class B shares
of the Fund was April 1, 1994, there were no Class B shares
outstanding for the duration of the five year period ending
June 30, 1996.)
[3] The Non-Standardized Return figures for Class A shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class A
shares for the one year ended June 30, 1996, the five years
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 5.32%, 6.58% and 6.38%,
respectively.
[4] The Non-Standardized Return figures for Class B shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class B
shares for the one year ended June 30, 1996 and the period
from inception through June 30, 1996 would have been 4.49%
and 5.08%, respectively. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no
Class B shares outstanding for the duration of the five year
period ending June 30, 1996.)
MACKENZIE NEW YORK MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: 0.12% (0.63)% 5.11% 4.37%
Five years ended
June 30, 1996: 6.05% N/A 7.09% N/A
Inception[#] to
June 30, 1996: 6.49% 3.92% 7.13% 5.18%
_________________________________
</TABLE>
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.
[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for the Class B shares of the Fund was
April 1, 1994.
[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year
ended June 30, 1996, the five years ended June 30, 1996 and
the period from inception through June 30, 1996 would have
been (0.09)%, 5.88% and 5.59%, respectively.
[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 0.85% and 3.73%, respectively.
(Since the inception date for Class B shares of the Fund was
April 1, 1994, there were no Class B shares outstanding for
the duration of the five year period ending June 30, 1996.)
[3] The Non-Standardized Return figures for Class A shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class A
shares for the one year ended June 30, 1996, the five years
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 4.90%, 6.92% and 6.23%,
respectively.
[4] The Non-Standardized Return figures for Class B shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class B
shares for the one year ended June 30,1996 and the period
from inception through June 30, 1996 would have been 4.15%
and 4.99%, respectively. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no
Class B shares outstanding for the duration of the five year
period ending June 30, 1996.)
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific Class
of shares of the Fund for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by
computing the cumulative rates of return of a hypothetical investment in a
specific Class of shares of the Fund over such periods, according to the
following formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000
to purchase shares of a specific Class
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
MACKENZIE LIMITED TERM MUNICIPAL FUND. The following table summarizes
the calculation of Cumulative Total Return for the periods indicated through
June 30, 1996, assuming the maximum 3.00% sales charge has been assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A 1.32% 23.85%
Class B 0.98% 7.44%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through June 30, 1996, assuming the maximum
3.00% sales charge has not been assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A 4.46% 27.68%
Class B 3.98% 10.44%
___________________________
[*] The inception date for Mackenzie Limited Term Municipal Fund
(and the Class A shares of the Fund) was April 22, 1985; the
inception date for Class B shares of the Fund was April 1,
1994. From commencement until August 2, 1991, this fund
(formerly Limited Term Portfolio of the Zweig Tax-Free Fund,
Inc.) was managed by Zweig/Glaser Advisors. Effective
August 2, 1991, the Fund is being managed by MIMI with the
same investment objectives.
MACKENZIE NATIONAL MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A (0.28)% 30.64% 63.48%
Class B (1.12)% N/A[**] 6.16%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through June 30, 1996, assuming the maximum
4.75% sales charge has not been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A 4.69% 37.15% 71.63%
Class B 3.88% N/A[**] 11.16%
___________________________
[*] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.
[**] No Class B shares were outstanding for the duration of the
time period indicated.
MACKENZIE CALIFORNIA MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A 0.51% 31.74% 69.21%
Class B (0.30)% N/A[**] 7.21%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through June 30, 1996, assuming the maximum
4.75% sales charge has not been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A 5.52% 38.31% 77.65%
Class B 4.70% N/A[**] 12.21%
___________________________
[*] The inception date for Mackenzie California Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.
[**] No Class B shares were outstanding for the duration of the
time period indicated.
MACKENZIE NEW YORK MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A 0.12% 34.16% 67.18%
Class B (0.63)% N/A[**] 7.04%
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through June 30, 1996, assuming the maximum
4.75% sales charge has not been assessed.
SINCE
ONE YEAR FIVE YEARS INCEPTION[*]
Class A 5.11% 40.85% 75.52%
Class B 4.37% N/A[**] 12.04%
___________________________
[*] The inception date for Mackenzie New York Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.
[**] No Class B shares were outstanding for the duration of the
time period indicated.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain
a number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results
of actual or hypothetical investments; changes in dividends, distributions or
share values; or any graphic illustration of such data. These data may cover
any period of the Trust's existence and may or may not include the impact of
sales charges, taxes or other factors.
Performance quotations for a Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when
comparing performance information regarding a Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of a Fund's shares and the risks associated with a Fund's investment
objectives and policies. At any time in the future, performance quotations
may be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the
future.
The Funds may also cite endorsements or use for comparison their
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston
Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's
Digest, Consumer Guide Publications, Changing Times, Financial Planning,
Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post,
Institutional Investor, International Fund Monitor, Investor's Daily, Los
Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster,
Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National
Underwriter Nelson's Director of Investment Managers, New York Times,
Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension
World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time,
U.S. News and World Report, USA Today, The Wall Street Journal, and
Washington Post.
FINANCIAL STATEMENTS
The Funds' Portfolios of Investments as of June 30, 1996, Statements of
Assets and Liabilities as of June 30, 1996, Statements of Operations for the
fiscal year ended June 30, 1996, Statements of Changes in Net Assets for the
fiscal year ended June 30, 1996 and the fiscal year ended June 30, 1995,
Financial Highlights, Notes to Financial Statements, and Reports of
Independent Accountants are included in each Fund's June 30, 1996 Annual
Report to Shareholders, which is incorporated by reference into this SAI.
Copies of the Funds' financial statements may be obtained upon request and
without charge from MIMI at the address and telephone number provided on the
cover of this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investor Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1994 Issue (McGraw Hill, New York, 1994).]
(a) MOODY'S:
CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be
of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. Bonds rated Aa are judged by Moody's to be of high
quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or
fluctuations of protective elements may be of greater amplitude, or there may
be other elements present which make the long-term risks appear somewhat
larger than those applicable to Aaa securities. Bonds which are rated A by
Moody's possess many favorable investment attributes and are considered as
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Bonds rated Baa by Moody's are considered medium-grade obligations,
i.e., 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 bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Bonds
which are rated Ba are judged to have speculative elements; their future
cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative- type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years; (7) financial strength of
a parent company and the relationships which exist with the issuer; and (8)
recognition by management of obligations which may be present or may arise as
a result of public interest questions and preparations to meet such
obligations. Issuers within this Prime category may be given ratings 1, 2 or
3, depending on the relative strengths of these factors. The designation of
Prime-1 indicates the highest quality repayment capacity of the rated issue.
(b) S&P:
CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Debt rated AAA by S&P is considered by S&P to be the highest grade
obligation. Capacity to pay interest and repay principal is extremely
strong. Debt rated AA is judged by S&P to have a very strong capacity to pay
interest and repay principal and differs from the highest rated issues only
in small degree. Debt rated A by S&P has a strong capacity to pay interest
and repay principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or exposures to
adverse conditions. Debt rated BB has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-rating.
Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating. The rating CC typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service
payments are continued.
COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days.
Commercial paper rated A by S&P has the following characteristics: (i)
liquidity ratios are adequate to meet cash requirements; (ii) long-term
senior debt rating should be A or better, although in some cases BBB credits
may be allowed if other factors outweigh the BBB; (iii) the issuer should
have access to at least one additional channel of borrowing; (iv) basic
earnings and cash flow should have an upward trend with allowances made for
unusual circumstances; and (v) typically the issuer's industry should be well
established and the issuer should have a strong position within its industry
and the reliability and quality of management should be unquestioned.
Issues rated A are further referred to by use of numbers 1, 2 and 3 to denote
relative strength within this highest classification. For example, the A-1
designation indicates that the degree of safety regarding timely payment of
debt is strong.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
II. MUNICIPAL OBLIGATIONS RATINGS
(a) MOODY'S:
Aaa
Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa
Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A
Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds rated Baa are considered medium grade obligations, i.e., 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 bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Moody's letter ratings may be modified by the addition of a numerical
modifier, which is used to show relative standing within the major rating
categories, except in the Aaa grade.
MIG Ratings: Moody's ratings for state and municipal short-term
obligations will be designated Moody's Investment Grade or MIG. Such ratings
recognize the differences between short-term credit risk and long-term risk.
Factors affecting the liquidity of the borrower and short-term cyclical
elements are critical in short-term ratings, while other factors of the major
importance in bond risk, long-term secular trends for example, may be less
important over the short run.
VMIG Ratings: A short-term rating may also be assigned on an issue
having a demand feature. Such ratings will be designated as VMIG or, if the
demand feature is not rated, as NR. Short-term ratings on issues with demand
features are differentiated by the use of the VMIG symbol to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to the
external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access
for refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly
or predominantly speculative, there is specific risk.
(b) S&P:
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to
the municipality and the factors outlined in the rating definitions below are
weighted in determining the rating. Because revenue bonds in general are
payable from specifically pledged revenues, the essential element in the
security for a revenue bond is the quantity and quality of the pledged
revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the
quality of general obligation bond credit is usually appropriate in the
rating analysis of a revenue bond, other factors are important, including
particularly the competitive position of the municipal enterprise under
review and the basic security covenants. Although a rating reflects S&P's
judgment as to the issuer's capacity for the timely payment of debt service,
in certain instances it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur, i.e., an insurance
program, Federal or State guaranty, or the automatic withholding and use of
State aid to pay the defaulted debt service.
AAA
PRIME -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
GENERAL OBLIGATION BONDS -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality
of management appears superior.
REVENUE BONDS -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds, and debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA
HIGH GRADE -- The investment characteristics of general obligation and
revenue bonds in this group differ in only small degrees from those of the
prime quality issues. Bonds rated "AA" have the second strongest capacity
for payment of debt service.
GOOD GRADE -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
GENERAL OBLIGATION BONDS -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.
REVENUE BONDS -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
S&P's letter ratings may be modified by the addition of a plus or a
minus sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
SP-1
These notes show a very strong or strong capacity to pay principal and
interest. Those issues with overwhelming safety characteristics will be
given a plus (+) designation.
SP-2
These notes show a satisfactory capacity to pay principal and interest.
<PAGE>
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME
MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE LIMITED TERM
MUNICIPAL FUND
The following table illustrates the approximate taxable yields for
individuals that are equivalent to various tax-exempt yields, based upon 1996
Federal income tax rates. The table illustrates the approximate yield you
would have to earn on taxable investments to equal a given tax-exempt yield
in your income tax bracket. Locate your taxable income, then locate your tax
bracket based on joint or single tax return filing. Read across to find the
approximate equivalent taxable yield you would need to match a given
tax-exempt yield. There is, of course, no assurance that an investment in a
Fund will result in the realization of any particular return.
1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 5% 6% 7%
Return Return
$0-40,100 $0-24,000 15% 5.88% 7.06% 8.24%
$40,101- $24,001- 28% 6.94 8.33 9.72
96,900 58,150
$96,901- $58,151- 31% 7.25 8.70 10.14
147,700 121,300
$147,701- $121,301- 36% 7.81 9.38 10.94
263,750 263,750
Over Over 39.6% 8.28 9.93 11.59
$263,750 $263,750
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 8% 9% 10%
Return Return
$0-40,100 $0-24,000 15% 9.41% 10.59% 11.76%
$40,101- $24,001- 28 11.11 12.50 13.89
96,900 58,150
$96,901- $58,151- 31 11.59 13.04 14.49
147,700 121,300
$147,701- $121,301- 36 12.50 14.06 15.63
263,750 263,750
Over Over 39.6 13.25 14.90 16.56
$263,750 $263,750
INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-40,100 $0-24,000 15% 12.94% 14.12%
$40,101- $24,001- 28 15.28 16.67
96,900 58,150
$96,901- $58,151- 31 15.94 17.39
147,700 121,300
$147,701- $121,301- 36 17.19 18.75
263,750 263,750
Over Over 39.6 18.21 19.87
$263,750 $263,750
[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult
their own tax advisor with respect to the particular tax
consequences to them of an investment in a Fund. This table
does not take into account any taxes other than the regular
Federal income tax. This table reflects certain assumptions,
including: (i) the Federal alternative minimum tax is not
applicable, and (ii) a shareholder has no net capital gain for
the taxable year. Depending upon the circumstances, a
shareholder's effective marginal tax rate may differ from his
or her tax bracket rate. This can be attributable to a
variety of factors, including the phase out of personal
exemptions and the reduction of certain itemized deductions
for taxpayers whose adjusted gross incomes exceed specified
thresholds.
MACKENZIE CALIFORNIA MUNICIPAL FUND
The following table illustrates the approximate taxable yields for
individuals that are equivalent to various tax-exempt yields, based upon
combined 1996 Federal and California income tax rates. For cases in which
two or more state or Federal brackets fall within a bracket shown, the
highest state bracket is combined with the highest Federal bracket. The
combined Federal and California income tax brackets shown reflect the fact
that state income taxes are currently deductible as an itemized deduction for
Federal tax purposes (however, a taxpayer's itemized deductions may be
subject to an overall limitation, the effect of which has not been taken into
account in preparing this table). The table illustrates the approximate
yield you would have to earn on taxable investments to equal a given
tax-exempt yield in your income tax bracket. Locate your taxable income,
then locate your tax bracket based on joint or single tax return filing.
Read across to find the approximate equivalent taxable yield you would need
to match a given tax-exempt yield. There is, of course, no assurance that an
investment in a Fund will result in the realization of any particular return.
1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 5% 6% 7%
Return Return
$0-40,100 $0-24,000 20.10% 6.26% 7.51% 8.76%
$40,101- $24,001- 34.70 7.66 9.19 10.72
96,900 58,150
$96,901- $58,151- 37.42 7.99 9.59 11.19
147,700 111,695
$147,701- $111,696- 42.40 8.68 10.42 12.15
263,750 223,390
Over Over 46.24 9.30 11.16 13.02
$263,750 $223,390
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 8% 9% 10%
Return Return
$0-40,100 $0-24,000 20.10% 10.01% 11.26% 12.52%
$30,101- $24,001- 34.70 12.25 13.78 15.31
96,900 58,150
$96,901- $58,151- 37.42 12.78 14.38 15.98
147,700 111,695
$147,701- $111,696- 42.40 13.89 15.63 17.36
263,750 223,390
Over Over 46.24 14.88 16.74 18.60
$263,750 $223,390
INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-40,100 $0-24,000 20.10% 13.77% 15.02%
$30,101- $24,001- 34.70 16.85 18.38
96,900 58,150
$96,901- $58,151- 37.42 17.58 19.18
147,700 111,695
$147,701- $111,696- 42.40 19.31 21.07
263,750 223,390
Over Over 46.24 20.46 22.32
$263,750 $223,390
[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult
their own tax advisor with respect to the particular tax
consequences to them of an investment in a Fund. This table
does not take into account any taxes other than the regular
Federal income tax and the regular California personal
income tax. This table reflects certain assumptions,
including: (i) there are no Federal or California minimum
taxes applicable, and (ii) a shareholder has no net capital
gain for the taxable year. In addition, this table does not
reflect the fact that a shareholder's taxable income for
Federal income tax purposes may not be the same as the
shareholder's taxable income for California personal income
tax purposes. Depending upon the circumstances, a
shareholder's effective marginal tax rate may differ from
his or her tax bracket rate. This can be attributable to a
variety of factors, including the Federal phase out of
personal exemptions and reduction of certain itemized
deductions for taxpayers whose adjusted gross incomes exceed
specified thresholds.
MACKENZIE NEW YORK MUNICIPAL FUND
The following tables illustrate the approximate taxable yields for
individuals that are equivalent to various tax-exempt yields, based upon, in
the case of the first table, 1996 combined Federal and New York State income
tax rates and, in the case of the second table, 1996 combined Federal, New
York State and New York City income tax rates. For cases in which two or
more state (or city) brackets fall within a Federal bracket, the highest
state (or city) bracket is combined with the Federal bracket. The combined
income tax brackets shown reflect the fact that city and state income taxes
are currently deductible as an itemized deduction for Federal tax purposes
(however, a taxpayer's itemized deductions may be subject to an overall
limitation, the effect of which has not been taken into account in preparing
these tables). The tables illustrate the approximate yield you would have to
earn on taxable investments to equal a given tax-exempt yield in your income
tax bracket. Locate your taxable income, then locate your tax bracket based
on joint or single tax return filing. Read across to find the approximate
equivalent taxable yield you would need to match a given tax-exempt yield.
There is, of course, no assurance that an investment in a Fund will result in
the realization of any particular return.
NEW YORK STATE
1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 5% 6% 7%
Return Return
$0-40,100 $0-24,000 21.06% 6.33% 7.60% 8.87%
$40,101- $24,001- 33.13 7.48 8.97 10.47
96,900 58,150
$96,901- $58,151- 35.92 7.80 9.36 10.92
147,700 121,300
$147,701- $121,301- 40.56 8.41 10.09 11.78
263,750 263,750
Over Over 43.90 8.91 10.70 12.48
$263,750 $263,750
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 8% 9% 10%
Return Return
$0-40,100 $0-24,000 21.06% 10.13% 11.40% 12.67%
$40,101- $24,001- 33.13 11.96 13.46 14.95
96,900 58,150
$96,901- $58,151- 35.92 12.48 14.04 15.61
147,700 121,300
$147,701- $121,301- 40.56 13.46 15.14 16.82
263,750 263,750
Over Over 43.90 14.26 16.04 17.83
$263,750 $263,750
INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-40,100 $0-24,000 21.06% 13.93% 15.20%
$40,101- $24,001- 33.13 16.45 17.95
96,900 58,150
$96,901- $58,151- 35.92 17.17 18.73
147,700 121,300
$147,701- $121,301- 40.56 18.51 20.19
263,750 263,750
Over Over 43.90 19.61 21.39
$263,750 $263,750
[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult their own tax
advisor with respect to the particular tax consequences to them of an
investment in a Fund. This table does not take into account: (i) any taxes
other than the regular Federal income tax and the regular New York State
personal income tax, or (ii) the New York State tax table benefit recapture
tax. This table reflects certain assumptions, including: (i) there are no
Federal or New York State minimum taxes applicable, and (ii) a shareholder
has no net capital gain for the taxable year. In addition, this table does
not reflect the fact that a shareholder's taxable income for Federal income
tax purposes may not be the same as the shareholder's taxable income for New
York State income tax purposes. Depending upon the circumstances, a
shareholder's effective marginal tax rate may differ from his or her tax
bracket rate. This can be attributable to a variety of factors, including
the Federal phase out of personal exemptions and reduction of certain
itemized deductions for taxpayers whose adjusted gross incomes exceed
specified thresholds.
NEW YORK STATE AND CITY
1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 5% 6% 7%
Return Return
$0-40,100 $0-24,000 24.79% 6.65% 7.98% 9.31%
$40,101- $24,001- 36.30 7.85 9.42 10.99
96,900 50,000
$96,901- $50,001- 39.00 8.20 9.84 11.48
147,700 121,300
$147,701- $121,301- 43.42 8.84 10.60 12.37
263,750 263,750
Over Over 46.60 9.36 11.24 13.11
$263,750 $263,750
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:
Joint Single 8% 9% 10%
Return Return
$0-40,100 $0-24,000 24.79% 10.64% 11.97% 13.30%
$40,001- $24,001- 36.30 12.56 14.13 15.70
96,900 50,000
96,901- 50,001- 39.00 13.11 14.75 16.39
147,700 121,300
$147,701- $121,301- 43.42 14.14 15.91 17.67
263,750 263,750
Over Over 46.60 14.98 16.85 18.73
$263,750 $263,750
INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-40,100 $0-24,000 24.79% 14.63% 15.96%
$39,001- $24,001- 36.30 17.27 18.84
96,900 50,000
$96,901- $50,001- 39.00 18.03 19.67
147,700 121,300
$147,701- $121,301- 43.42 19.44 21.21
263,750 263,750
Over Over 46.60 20.60 22.47
$263,750 $263,750
[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult
their own tax advisor with respect to the particular tax
consequences to them of an investment in a Fund. This table
does not take into account: (i) any taxes other than the
regular Federal income tax, the regular New York State
personal income tax, and the regular New York City personal
income tax (including the temporary tax surcharge and the
additional tax), or (ii) the New York State tax table
benefit recapture tax. This table reflects certain
assumptions, including: (i) there are no Federal, state, or
city minimum taxes applicable, and (ii) a shareholder has no
net capital gain for the taxable year. In addition, this
table does not reflect the fact that a shareholder's taxable
income for Federal income tax purposes may not be the same
as the shareholder's taxable income for state and city tax
purposes. Depending upon the circumstances, a shareholder's
effective marginal tax rate may differ from his or her tax
bracket rate. This can be attributable to a variety of
factors, including the Federal phase out of personal
exemptions and reduction of certain itemized deductions for
taxpayers whose adjusted gross incomes exceed specified
thresholds.
<PAGE>
ANNUAL REPORT-THORNBURG LIMITED TERM NATIONAL
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Class Shares
Thornburg Thornburg
Limited Term Municipal Limited Term Municipal
as of 6/30/96 Fund-National Fund-National
A Shares C Shares
SEC Yield 4.19% 3.89%
Taxable Equiv. Yields 6.94% 6.44%
NAV $13.35 $13.37
Max. Offering Price $13.69 $13.37
as of 6/30/96
1 Year 2.01% 4.05%
5 Years 5.48% NA
10 Years 6.30% NA
Since Inception 7.09% 4.54%
Inception Date (9/28/84) (9/1/94)
If you like the Thornburg Limited Term Municipal Fund - National Portfolio, you
might be interested in the Thornburg Limited Term U.S. Government Fund, a
managed portfolio of short/intermediate obligations issued by the U.S.
Government or by its agencies or instrumentalities, or Thornburg Limited Term
Income Fund which invests in short/intermediate investment grade debt
obligations. These Funds may be particularly suitable for your IRA, Pension
Plan, or Profit Sharing Plan. You might also be interested in the California
Portfolio of the Fund or in the Thornburg Intermediate Municipal Fund which has
a National Portfolio, a New Mexico Portfolio, and a Florida Portfolio. These
Funds offer investors the ability to earn tax-exempt dividends from managed
portfolios of short or intermediate municipal bonds. (Interest income may be
subject to some state and local taxes. Consult with your tax advisor for your
tax status.)
You can find the Thornburg Family of Funds listed in the mutual fund section of
most major newspapers. Look for the listings under Thornburg Funds. For more
complete information on any of the Funds listed above, including charges and
expenses, obtain a prospectus from your broker or write to: Thornburg Securities
Corporation, Inc., 119 E. Marcy Street, Suite 202, Santa Fe, New Mexico 87501.
Read the prospectus carefully before you invest or send money.
Taxable equivalent yields assume a 39.6% marginal federal tax rate. The
municipal funds, except Thornburg Limited Term National, may be subject to the
alternative minimum tax. Currently there are no such investments in Thornburg
Limited Term Municipal Fund National Portfolio, although portions of this Fund's
income may be subject to such a tax in the future. Net investment income of the
National Portfolios will be subject to applicable state and local taxes.
The data quoted 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.
The total return data shown above reflects the deduction of the maximum sales
charge of the Class A Shares of 2.50%.
letter to shareholders
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501 (505-984-0200)
August 1, 1996
Dear Fellow Shareholder:
I am pleased to present the Annual Report for the National Portfolio of
Thornburg Limited Term Municipal Fund for the fiscal year ending June 30, 1996.
The net asset value of the A shares decreased 2 cents per share to $13.35 during
the year. If you were with us for the entire period, you received dividends of
62.7 cents per share. If you reinvested your dividends, you received 64 cents
per share. Investors who owned C Shares received dividends of 56.6 and 57.7
cents per share, respectively. For a longer perspective on investment returns
and share price fluctuations, please read the exhibits included in this report.
It would not surprise me to see interest rates increase a bit over the next
year. The U.S. economy is generally firm, the economies of other developed
countries are strengthening, and many lesser developed countries are growing as
well. Investors here in the U.S. are exhibiting peculiar tendencies. With
respect to stocks, investors shoveled almost $150 billion into equity mutual
funds during the first 7 months of 1996, focusing in particular on the riskiest
funds. As risk prone as investors have become with stocks, bond funds have had
net investment of approximately zero this year.
Americans have been net sellers of individual municipal and U.S. government
bonds, while simultaneously increasing investments in foreign bonds. Meanwhile,
foreign investors seem to like bond investments here. They have been supporting
the U.S. bond market for about two years. I suppose the grass is always greener
on the other side of the ocean. We like it here at home, but we have positioned
your bond portfolio conservatively so as to be able to react quickly to change
and take advantage of any opportunities that arise.
Your Limited Term Municipal Fund portfolio currently holds over 470 municipal
obligations from 47 states and 2 U.S. Territories. Approximately 86% of the
bonds are rated A or better by one of the major rating agencies. As you know, we
"ladder" the maturities of the bonds in your portfolio so that some bonds are
scheduled to mature at par during each of the next 10 years. Today, your fund's
weighted average maturity is approximately 3.6 years, and we always keep it
below 5 years. Percentages of the portfolio maturing within each of the next 10
years are summarized below:
% of portfolio maturing within Cumulative % maturing by end of
1 year = 16% year 1 = 16%
1 to 2 years = 14% year 2 = 30%
2 to 3 years = 14% year 3 = 44%
3 to 4 years = 17% year 4 = 61%
4 to 5 years = 17% year 5 = 78%
5 to 6 years = 11% year 6 = 89%
6 to 7 years = 5% year 7 = 94%
7 to 8 years = 3% year 8 = 97%
8 to 9 years = 1% year 9 = 98%
9 to 10 years = 1% year 10 = 99%
Over the years, our practice of laddering a diversified portfolio of short and
intermediate maturity municipal bonds has allowed your fund to consistently
perform well in varying interest rate environments. For instance, the A shares
of Limited Term Municipal Fund received "A" letter grades for one, three, and
five year performance relative to other short term municipal bond funds through
June 30, 1996.* These rankings, which were published in The Wall Street Journal,
reflect total returns in the top 20% of all short term municipal bond funds for
those periods. For the 10-year period ending June 30, 1996, the A Shares of
Thornburg Limited Term Municipal Fund had the highest total return out of seven
short municipal funds, according to Lipper Analytical Services.
Many municipal bonds issued between 1985 and 1990 are being paid off early.
Money to pay off these bonds prior to maturity already has been raised. You may
own municipal bonds or unit trusts which are being redeemed. Your investment in
Thornburg Limited Term Municipal Fund will not be redeemed until you sell it.
Please remember that you can easily add to your investment each month by
authorizing a simple, automatic transfer from your checking account.
Currently, your fund is the longest running mutual fund of any description to
continuously receive a 5 star rating from Morningstar. Limited Term Municipal
Fund has had the 5 star overall rating for 106 months. I would like to attribute
this to capable execution of a thoroughly sensible investment strategy over
time. Thank you for investing in Thornburg Limited Term Municipal Fund.
Sincerely,
/s/ Brian J. McMahon
Brian J. McMahon
Managing Director
(footnotes)
Morningstar proprietary ratings reflects historical risk adjusted performance as
of 6/30/96. Ratings are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
star (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten year average annual returns and a risk factor that reflects fund
performance relative to three month Treasury bill returns. 10% of the funds in
an investment category receive five stars 22.5% receive four stars. LTMFX is
ranked 4-Stars for the 3 year and 5 year periods and 5-Stars for the 10 year
period ending 6/30/96. The number of funds within the Municipal, National
category tracked by Morningstar as of 6/30/96 is 304,195 and 106 on a 3-,5-, and
10-year basis.
*Source: The Wall Street Journal, July 3, 1996. Performance data are supplied by
Lipper Analytical Services, Inc., and reflect performance for the 1, 3, and 5
year periods ending June 30, 1996. An "A" ranking reflects total returns in the
top 20% of all funds within the short term municipal objective, as defined by
The Wall Street Journal. The average maturity and average quality of the funds
within the short municipal objective may differ. At June 30, 1996, 44, 30 and 14
short municipal funds reported 1-year, 3-year, and 5-year total returns,
respectively. Performance calculations used to obtain these rankings assume
deduction of all expenses and reinvestment of all distributions, but do not
include the effect of any sales charge on total return.
statement of assets and liablities
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
June 30, 1996
ASSETS
Investments, at value (cost $903,161,256) $923,629,163
Cash 315,329
Receivable for fund shares sold 1,800,036
Interest receivable 14,920,246
Prepaid expenses and other assets 26,810
TOTAL ASSETS 940,691,584
LIABILITIES
Payable for securities purchased 3,753,674
Dividends payable 1,222,537
Payable for fund shares redeemed 999,633
Accounts payable and accrued expenses 403,108
Accounts payable investment adviser (Note 3) 533,875
TOTAL LIABILITIES 6,912,827
NET ASSETS $933,778,757
NET ASSET VALUE:
Class A Shares:
Net asset value and redemption price per share
($917,831,208 applicable to 68,745,878 shares of
beneficial interest outstanding - Note 4) $13.35
Maximum sales charge, 2.50% of offering
price (2.57% of net asset value per share) .34
Maximum Offering Price Per Share $13.69
Class C Shares:
Net asset value and offering price per share*
($15,947,549 applicable to 1,192,469 shares of
beneficial interest outstanding - Note 4) $13.37
* Redemption price per share is equal to net asset value less any
applicable contingent deferred
sales charge.
See notes to financial statements.
statement of operations
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Year Ended June 30, 1996
INVESTMENT INCOME
Interest income (net of premium amortized $52,705,242
of $2,337,065)
EXPENSES
Investment advisory fees (Note 3) 6,584,836
Distribution and service fees (Note 3):
Class A Shares 1,154,408
Class B Shares 5,529
Class C Shares 63,880
Transfer agent fees 652,736
Custodian fees 312,430
Accounting fees 99,720
Professional fees 85,955
Registration and filing fees 71,862
Other expenses 143,761
TOTAL EXPENSES 9,175,117
Less:
Expenses reimbursed by investment adviser (Note 3) (29,691)
NET EXPENSES 9,145,426
NET INVESTMENT INCOME 43,559,816
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS - NOTE 5
Net realized loss on investments sold (69,749)
Decrease in unrealized appreciation of investments (1,545,063)
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (1,614,812)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $41,945,004
See notes to financial statements.
statements of changes in net assets
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Year Ended Year Ended
June 30, 1996 June 30, 1995
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income $ 43,559,816 $ 47,287,795
Net realized loss on investments sold (69,749) (4,022,722)
Increase (Decrease) in unrealized
appreciation of investments (1,545,063) 9,446,075
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 41,945,004 52,711,148
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A Shares (43,028,755) (47,098,833)
Class B Shares (32,246) (52,849)
Class C Shares (498,815) (136,113)
FUND SHARE TRANSACTIONS -- (Note 4)
Class A Shares (12,641,152) (103,592,542)
Class B Shares (2,834,331) 2,773,214
Class C Shares 9,590,852 6,380,857
NET DECREASE IN NET ASSETS (7,499,443) (89,015,118)
NET ASSETS:
Beginning of year 941,278,200 1,030,293,318
End of year $ 933,778,757 $ 941,278,200
See notes to financial statements.
notes to financial statements
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Note 1 - ORGANIZATION
Thornburg Limited Term Municipal Fund, Inc. (the "Fund") was incorporated in
Maryland on February 14, 1984. The Fund was reorganized in 1986 as a series
investment company with separate investment portfolios. The current portfolios
are the National Portfolio (the "Portfolio") and California Portfolio. The Fund
is an open-end diversified management investment company, registered under the
Investment Company Act of 1940, as amended. The primary investment objective of
the Fund is to obtain as high a level of current income exempt from federal
income tax as is consistent with preservation of capital.
On September 1, 1994 the Portfolio began offering three classes of shares of
beneficial interest, Class A, Class B and Class C shares. All shares outstanding
prior to September 1, 1994 are considered Class A shares. On September 28, 1995,
all existing Class B shares were converted at net asset value, without the
imposition of a deferred sales charge, into Class A shares of an equivalent
value. The Fund no longer offers Class B shares. Each class of shares of a
Portfolio represents an interest in the same portfolio of investments of the
Fund, except that (i) Class A shares are sold subject to a front-end sales
charge collected at the time the shares are purchased and bear a service fee,
(ii) Class C shares are sold at net asset value without a sales charge at the
time of purchase, but are subject to a contingent deferred sales charge upon
redemption within one year, and bear both a service fee and a distribution fee,
and (iii) the respective classes have different reinvestment privileges.
Additionally, each Portfolio may allocate among its classes certain expenses,
to the extent allowable to specific classes, including transfer agent fees,
government registration fees, certain printing and postage costs, and
administrative and legal expenses. Currently, class specific expenses of the
Portfolio are limited to distribution fees and certain custody and transfer
agent expenses.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the
Fund are as follows:
Valuation of Investments: In determining net asset value, the Portfolio utilizes
an independent pricing service approved by the Board of Directors. Debt
investment securities have a primary market over the counter and are valued
on the basis of valuations furnished by the pricing service. The pricing service
values portfolio securities at quoted bid prices or the yield equivalents when
quotations are not readily available. Securities for which quotations are not
readily available are valued at fair value as determined by the pricing service
using methods which include consideration of yields or prices of municipal
obligations of comparable quality, type of issue, coupon, maturity and rating;
indications as to value from dealers and general market conditions. The
valuation procedures used by the pricing service and the portfolio valuations
received by the Portfolio are reviewed by the officers of the Fund under the
general supervision of the Board of Directors. Short-term obligations having
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value.
Federal Income Taxes: It is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable (if any) and tax exempt income to its
shareholders. Therefore, no provision for Federal income tax is required.
Dividends paid by the Portfolio for the year ended June 30, 1996 represent
exempt interest dividends which are excludable by shareholders from gross income
for Federal income tax purposes.
When-Issued and Delayed Delivery Transactions: The Portfolio may engage in
when-issued or delayed delivery transactions. To the extent the Portfolio
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and not for the
purpose of investment leverage or to speculate on interest rate changes. At the
time the Portfolio makes a commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value in determining its
net asset value. When effecting such transactions, assets of the Portfolio of an
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Portfolio's records on the trade date. Securities
purchased on a when-issued or delayed delivery basis do not earn interest until
the settlement date.
Dividends: Net investment income of the Portfolio is declared daily as a
dividend on shares for which the Portfolio has received payment. Dividends are
paid monthly and are reinvested in additional shares of the Portfolio at 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 capital gains, to the extent
available, will be distributed annually.
General: Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discounts on
securities purchased are amortized to call dates or maturity dates of the
respective securities. Realized gains and losses from the sale of securities are
recorded on an identified cost basis.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the year ending June 30,
1996, these fees were payable at annual rates ranging from 3/4 of 1% to 4/10 of
1% of the average daily net assets of the Portfolio. Beginning July 1, 1996,
these fees will be payable at annual rates ranging from 1/2 of 1% to 9/40 of 1%
of the average daily net assets of the Portfolio. Also, effective July 1, 1996,
the Portfolio entered into an Administrative Services Agreement with the
Adviser, whereby the Adviser will perform certain administrative services for
the shareholders of each class of the Portfolio's shares, and for which fees
will be payable at an annual rate of up to 1/8 of 1% of the average daily net
assets attributable to each class of shares.
In the event normal operating expenses of the Portfolio, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale, the
Adviser will reimburse the Portfolio for such excess. No such reimbursement was
required as a result of this limitation. For the year ended June 30, 1996, the
Adviser reimbursed certain operating expenses amounting to $29,691.
The Fund has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of Portfolio shares. For the
year ended June 30, 1996, the Distributor earned commissions aggregating
$124,901 from the sale of Class A shares, and collected contingent deferred
sales charges aggregating $7,505 from redemptions of Class C shares of the Fund.
Pursuant to a Service Plan under Rule 12b-1 of the Investment Company Act of
1940, the Portfolio may reimburse to the Adviser amounts not to exceed .25 of 1%
per annum of the average net assets attributable to each class of shares of the
Fund for payments made by the Adviser to securities dealers and other financial
institutions to obtain various shareholder related services. The Adviser may pay
out of its own funds additional expenses for distribution of the Portfolio's
shares.
The Portfolio has also adopted a Distribution Plan pursuant to Rule 12b-1,
applicable only to the Portfolio's Class B and Class C shares, under which the
Portfolio can (i) reimburse the Distributor for certain distribution expenses on
a monthly basis at an annual rate of up to .75% of the average daily net assets
attributable to Class B shares, and (ii) compensate the Distributor for services
in promoting the sale of Class C shares at an annual rate of up to .75% of the
average daily net assets attributable to Class C shares. Total fees incurred by
each class of shares of the Portfolio under their respective service and
distribution plans for the year ended June 30, 1996 are set forth in the
statement of operations.
Certain officers and directors of the Fund are also officers and/or directors of
the Adviser and Distributor. The compensation of unaffiliated directors of the
Fund is borne by the Fund.
Note 4 - SHARES OF BENEFICIAL INTEREST
At June 30, 1996 there were 600,000,000 shares of the Fund (including
485,000,000 for the Portfolio) of $.001 par value common stock authorized,
and capital paid in for the Portfolio aggregated $919,090,740.
Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended
June 30, 1996 June 30, 1995
------------- -------------
Class A Shares Shares Amount Shares Amount
Shares sold 10,705,592 $144,174,891 10,393,212 $136,432,966
Shares issued to
shareholders
in reinvestment of
distributions 2,128,377 28,634,345 2,183,285 28,759,060
Shares repurchased (13,781,715) (185,450,388) (20,550,093) (268,784,568)
Net Decrease (947,746) ($12,641,152) (7,973,596) ($103,592,542)
Class B Shares
Shares sold 46,556 $623,905 220,994 $2,909,077
Shares issued to
shareholders
in reinvestment of
distributions 1,871 25,134 2,925 38,614
Shares repurchased (259,380) (3,483,370) (12,966) (174,477)
Net Increase (Decrease) (210,953) ($2,834,331) 210,953 $2,773,214
Class C Shares
Shares sold 1,097,905 $14,807,056 564,508 $7,461,870
Shares issued to
shareholders
in reinvestment of
distributions 31,748 427,775 8,707 114,914
Shares repurchased (420,008) (5,643,979) (90,391) (1,195,927)
Net Increase 709,645 $9,590,852 482,824 $6,380,857
Note 5 - INVESTMENT SECURITY TRANSACTIONS
Purchases and proceeds from maturities or sales of investment securities of the
Portfolio other than short-term securities aggregated $210,500,247 and
$189,215,260, respectively. The cost of investments for Federal income tax
purposes is $903,815,406. At June 30, 1996, the aggregate gross unrealized
appreciation and depreciation, based on cost for Federal income tax purposes
were $22,767,997 and $2,954,240, respectively.
Accumulated net realized losses from security transactions included in net
assets at June 30, 1996 aggregated $5,779,890.
For Federal income tax purposes, the Portfolio has realized capital loss
carryforwards of $4,648,000 from prior fiscal years available to offset future
realized capital gains. To the extent that such carryforwards are used, no
capital gains distributions will be made. The carryforwards expire as follows:
June 30, 1998 - $97,000, June 30, 1999 - $304,000, June 30, 2002 - $807,000,
June 30, 2003 - $602,000, and June 30, 2004 - $2,838,000.
financial highlights
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Per share operating performance
(for a share outstanding
throughout the year)
<TABLE>
Year Ended June 30,
-------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Class of Shares: A A A A A
Net asset value, beginning of year $13.37 $13.27 $13.59 $13.09 $12.83
Income from investment operations:
Net investment income .63 .64 .63 .68 .79
Net realized and unrealized
gain (loss) on investments (.02) .10 (.32) .50 .26
Total from investment operations .61 .74 .31 1.18 1.05
Less dividends from:
Net investment income (.63) (.64) (.63) (.68) (.79)
Change in net asset value (.02) .10 (.32) .50 .26
Net asset value, end of year $13.35 $13.37 $13.27 $13.59 $13.09
Total return (a) 4.60% 5.76% 2.25% 9.24% 8.40%
Ratios/Supplemental Data Ratios to
average net assets:
Net investment income 4.66% 4.86% 4.60% 5.03% 5.96%
Expenses .97% .97% .95% 1.01% 1.04%
Portfolio turnover rate 20.60% 23.02% 15.63% 19.30% 27.63%
Net assets
at end of year (000) $917,831 $931,987$1,030,293 $895,500$521,683
(a) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Per share operating performance
(for a share outstanding
throughout the period) Period from
Year Ended Sept. 1, 1994 (a)
June 30, 1996 to June 30, 1995
Class of Shares: B* C B C
Net asset value, beginning of period $13.38 $13.40 $13.29 $13.29
Income from investment operations:
Net investment income .13 .57 .46 .46
Net realized and unrealized
gain (loss) on investments .05 (.03) .09 .11
Total from investment operations .18 .54 .55 .57
Less dividends from:
Net investment income (.13) (.57) (.46) (.46)
Change in net asset value .05 (.03) .09 .11
Net asset value, end of period $13.43 $13.37 $13.38 $13.40
Total return (b) 1.56% 4.05% 4.14% 4.25%
Ratios/Supplemental Data Ratios
to average net assets:
Net investment income 4.17%(c) 4.22% 4.24%(c) 4.21%(c)
Expenses, after expense reductions 1.59%(c) 1.41% 1.57%(c) 1.60%(c)
Expenses, before expense reductions 2.01%(c) 1.63% 2.30%(c) 1.84%(c)
Portfolio turnover rate 20.60% 20.60% 23.02% 23.02%
Net assets
at end of period (000) $0 $15,948 $2,823 $6,469
(a) Commencement of sales of Class B and Class C shares.
(b) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
The total return for Class B shares reflects a period of 90 days.
(c) Annualized.
* Period from July 1, 1995 to September 28, 1995, on which date all Class B
shares were converted into Class A shares.
</TABLE>
<TABLE>
<CAPTION>
schedule of investments
Par Amount Issuer Name & Description Credit Value
Rating
Alabama (1.74%)
<C> <S> <C> <C> <C>
$1,675,000 Alabama A&M University Housing & General Fee Revenue Series 1992, 5.90%
due 11/1/02 (Living & Learning Center Project; Insured: MBIA) Aaa/AAA $1,768,030
515,000 Alabama Higher Education Loan Corporation Student Loan Revenue
Refunding Series 1994-A, 4.70% due 3/1/97 (Insured: FSA) Aaa/AAA 517,827
540,000 Alabama Higher Education Loan Corporation Student Loan Revenue
Refunding Series 1994-A, 4.70% due 9/1/97 (Insured: FSA) Aaa/AAA 543,710
2,250,000 Alabama Industrial Access Road & Bridge Corporation Capital Improvement
Series 1991, 5.60% due 6/1/97 A1/NR 2,283,547
1,000,000 Alabama Water Pollution Control Authority Series 1991, 6.45% due 8/15/02
(Insured: AMBAC) Aaa/AAA 1,070,900
2,500,000 Birmingham Special Care Facility Finance Authority Revenue Series 1990,
7.625% due 12/1/10, put 12/1/00 (Methodist Homes for the Aging Project;
LOC: South Trust Bank) A1/NR 2,697,875
1,550,000 Birmingham Jefferson Civic Center Authority Special Tax Series 1989, 7.20% due 1/1/01 A/A+ 1,660,329
1,120,000 Birmingham Jefferson Civic Center Authority Special Tax, 6.90% due 1/1/98 A/A+ 1,155,829
1,495,000 Houston County Hospital Board Revenue Refunding Series 1984, 7.625% due 4/1/07, pre-refunded
2/15/02 @ 100 (South East Alabama Medical Center Project; Insured: MBIA) Aaa/AAA 1,565,714
1,695,000 Montgomery County Revenue Warrants Series 1992, 6.625% due 4/1/02 NR/A 1,795,547
965,000 Morgan County-Decatur Healthcare Revenue, 5.40% due 3/1/00 (Decatur General Hospital
Project; Insured: Connie Lee) NR/AAA 983,248
Alaska (1.13%)
2,500,000 North Slope Borough G.O. Refunding Series 1992-A, 5.80% due 6/30/02 (Insured: MBIA) Aaa/AAA 2,606,600
2,500,000 North Slope Borough G.O. Capital Appreciation Series B, 0% due 1/1/99 (Insured: MBIA) Aaa/AAA 2,233,425
7,000,000 North Slope Borough G.O. Capital Appreciation Series B, 0% due 1/1/01 (Insured: MBIA) Aaa/AAA 5,649,840
Arizona (3.39%)
5,250,000 Arizona Educational Loan Marketing Corporation Revenue, Series 1992-A, 6.40% due 3/1/98 A/NR 5,411,385
1,250,000 Arizona Educational Loan Marketing Corporation Revenue, Series 1992-A, 6.70% due 3/1/00 A/NR 1,302,962
1,600,000 Arizona State Certificate of Participation Series 1994-A, 5.45% due 5/1/98
(Insured: AMBAC) Aaa/AAA 1,627,040
1,000,000 Arizona Municipal Finance Program Certificate of Participation Series 15, 8.65% due 8/1/04
(Flagstaff Project; Insured: BIG) Aaa/AAA 1,044,310
1,255,000 Maricopa Hospital District General Obligation Series A, 5.00% due 6/1/98 (Insured: FGIC) Aaa/AAA 1,273,110
1,550,000 Maricopa County School District # 8 Series 1992, 0% due 7/1/99
(Osborn Elementary School District Project) A1/A 1,351,399
2,000,000 Maricopa County Unified School District # 41 Refunding, 0% due 7/1/97 (Insured: FGIC) Aaa/AAA 1,914,280
2,000,000 Maricopa County/Paradise Valley Unified School District General Obligation
Refunding Series 1992, 0% due 7/1/01 (Insured: AMBAC) Aaa/AAA 1,565,260
2,980,000 Maricopa County Unified School District # 97, 0% due 7/1/97 (Insured: FGIC) Aaa/AAA 2,852,277
1,390,000 Maricopa County Unified School District # 97, 0% due 7/1/98 (Insured: FGIC) Aaa/AAA 1,273,157
710,000 Mohave County Certificate of Participation, 4.90% due 7/1/98 NR/BBB 701,601
730,000 Mohave County Certificate of Participation, 5.10% due 7/1/99 NR/BBB 712,743
2,000,000 Pima County/Tucson Unified School District # 1 School Improvement Series 1992-D,
5.50% due 7/1/02 (Insured: FGIC) Aaa/AAA 2,075,480
350,000 Pinal County Certificate of Participation, 7.90% due 6/1/01 NR/BBB 358,344
118,476 Scottsdale IDA Hospital Revenue Refunding Series A, Amortizing Coupon
M-COATES, 7.50% final due 9/1/97 (Scottsdale Memorial Hospital Project) Aaa*/AAA* 124,020
175,000 South Tucson Municipal Property Corporation Series 1990, 8.20% due 6/1/99 NR/BB 180,829
175,000 South Tucson Municipal Property Corporation Series 1990, 8.25% due 6/1/00 NR/BB 181,907
1,290,000 Tempe General Obligation Series 1993-A, 0% due 7/1/99 Aa/AA+ 1,126,376
4,950,000 Tempe I.D.A. Guaranteed Multifamily Housing Revenue Series 1991-A, 6.25%
due 10/1/07, put 10/1/96 (Elliot Grove Project; Insured: Connecticut General Life) NR/AA 4,960,346
1,200,000 Tucson Water System Revenue Refunding Series 1992, 5.80% due 7/1/99 A1/A+ 1,240,704
California (18.05%)
1,000,000 California Health Facilities Financing Authority Series A, 7.40% due 7/1/01
(Episcopal Homes Project; Insured: California Mortgage Insurance) NR/A 1,056,330
7,440,000 California Health Facilities Financing Authority Series 1991-D, 6.50%
pre-refunded 7/1/01 @ 102 (Catholic Health Care Project; Insured: AMBAC) Aaa/AAA 8,173,882
500,000 California Pollution Control Financing Authority, 3.40% due 11/1/26, put 7/1/96 daily
demand notes (Pacific Gas & Electric Project; LOC: Banque National Paris) NR/AA 500,000
2,155,000 California Public Capital Improvement Finance Authority Revenue Series
1988-E, 8.25% due 3/1/98 Baa/NR 2,263,828
2,000,000 California State General Obligation, 6.50% due 10/1/99 A1/A 2,123,540
1,225,000 California Statewide Communities Development Authority Insured Health
Facilities Revenue Certificate of Participation Series 1992, 6.40% due 5/1/02
(Eskaton Properties Inc. Phase II Project) NR/A 1,263,306
1,100,000 California Statewide Communities Development Authority Certificate of Participation,
2.387% (inverse floater) due 1/1/02 (Motion Picture & Television Fund Project;
Insured: AMBAC) Aaa/AAA 928,246
1,920,000 Chula Vista Multifamily Housing Refunding Revenue Series 1985, 5.75%
due 11/1/07, mandatory put 11/1/97 (Eucalyptus Grove Project; Insured:
Continental Insurance Co.) NR/A+ 1,931,021
910,000 Fairfield-Suisun Sewer District Revenue Refunding Series A, 6.50% due 5/1/03
(Insued: MBIA) Aaa/AAA 988,870
7,730,000 Glendale Hospital Revenue Series 1994, 7.625% due 1/1/05
(Verdugo Hills Project; Surety Bond: Industrial Indemnity) NR/A+ 8,265,457
1,000,000 Lancaster Redevelopment Agency Lease Revenue Notes Series 1995, 4.90% due 12/1/00
(LOC: Sumitomo Bank / Dai Ichi Kangyo Bank) NR/SP1 979,200
5,710,000 Los Angeles Water and Power, 7.10% due 1/15/31, crossover refunded 1/15/01 @102 Aa/AA- 6,307,951
1,500,000 Los Angeles Unified School District Certificate of Participation, 6.20% due 6/1/01
(Dr. Francisco Bravo Medical Project) A/A- 1,574,985
1,400,000 Los Angeles Wastewater System Revenue, 6.80% pre-refunded 8/1/98 @102 AAA/A 1,500,268
2,000,000 Los Angeles County Certificate of Participation Mobile Digital Communications,
7.70% due 7/15/01 Baa1/BBB+ 2,071,620
1,000,000 Los Angeles County Certificate of Participation (LAC-CAL Equipment Project)
Series 1992-A, 5.70% due 12/1/96 Baa/BBB 1,005,770
3,000,000 Los Angeles County Certificate of Participation (LAC-CAL Equipment Project)
Series 1992-B, 5.00% due 9/1/96 Baa/BBB 3,003,330
1,485,000 Los Angeles County Health Facilities Authority Rev., 7.20% due 3/1/01
refunded 3/1/98 (Civic View Medical Center Project) AAA+/A 1,585,846
2,500,000 Los Angeles County Pension Obligation Certificates, 6.75% due 6/30/02 Baa1/BBB+ 2,550,425
3,500,000 Los Angeles County Pension Obligation Certificates, 6.875% due 6/30/07 Baa1/BBB+ 3,570,630
1,050,000 Los Angeles County Certificate of Participation Series B, 5.50% due 7/1/98 A1/A+ 1,072,575
1,000,000 Los Angeles Transit Finance Corporation Certificate of Participation
Series 1992-B, 5.70% due 7/1/99 A1/A+ 1,028,880
1,995,000 Los Angeles Transportation Commission Certificate of Participation, 5.90% due 7/1/00 A1/A+ 2,069,733
2,500,000 Los Angeles Transportation Commission Certificate of Participation, 6.00% due 7/1/01 A1/A+ 2,605,050
2,000,000 MSR Public Power Agency Series 1987-C, 6.70% due 7/1/02 A/A 2,057,900
1,500,000 MSR Public Power Agency Series F, 5.45% due 7/1/01
(San Juan Project; Insured: AMBAC) Aaa/AAA 1,555,770
265,000 New Haven Unified School District Certificate of Participation, 7.00% due 12/1/99 NR/A- 282,405
1,000,000 Northern California Power Agency Series A, 6.75% due 7/1/01(Geothermal #3 Project) A/A- 1,015,250
2,500,000 Orange County Refunding Recovery, 5.10% due 6/1/02 (Insured: MBIA) Aaa/AAA 2,527,900
7,600,000 Orange County Refunding Recovery, 6.50% due 6/1/04 (Insured: MBIA) Aaa/AAA 8,265,532
5,200,000 Orange County Refunding Recovery, 6.50% due 6/1/05 (Insured: MBIA) Aaa/AAA 5,662,072
1,000,000 Orange County Local Transportation Measure "M" Sales Tax Revenue, 5.50% due 2/15/01 Aa/AA 1,018,720
8,300,000 Orange County Local Transportation Authority Sales Tax Revenue, 1.87%
(inverse floater) due 2/15/99 (Insured: FGIC) Aaa/AAA 7,757,097
13,000,000 Orange County Recovery Certificate of Participation Series A,
5.50% due 7/1/02 (Insured: MBIA) Aaa/AAA 13,415,350
2,000,000 Orange County Special Financing Authority Teeter Plan Revenue Series E, 6.15%
due 11/1/14, put 11/1/99 (LOC: Industrial Bank of Japan) A1/A+ 2,022,620
5,000,000 Orange County Special Financing Authority Teeter Plan Revenue Series E, 6.35%
due 11/1/14, put 11/1/01 (LOC: Industrial Bank of Japan) A1/A+ 5,044,450
3,000,000 Oxnard Harbor District Revenue Refunding, 6.60% due 8/1/00
(Insured: Capital Guaranty) Aaa/AAA 3,218,880
2,880,000 Redwood City Multifamily Housing Revenue Series 1985-B, 5.20% due 10/1/08,
put 10/1/00 (Redwood Shores Apartment Project; LOC: Continental Casualty) NR/A+ 2,860,243
2,100,000 San Joaquin County Certificate of Participation, 5.50% due 9/1/99
(General Hospital Project) A/A- 2,101,638
2,000,000 San Marcos PFA Tax Allocation Series 1992-A, 5.60% due 1/1/01
(Insured: Capital Guaranty) Escrowed to Maturity Aaa/AAA 2,081,420
1,995,000 San Marcos PFA Custodial Receipts Revenue, 0% due 3/1/98, Escrowed to Maturity Aaa/NR 1,853,634
1,310,000 San Marcos PFA Custodial Receipts Revenue, 0% due 7/1/98, Escrowed to Maturity Aaa/NR 1,197,523
1,990,000 San Marcos PFA Custodial Receipts Revenue, 0% due 9/1/98, Escrowed to Maturity Aaa/NR 1,804,035
1,990,000 San Marcos PFA Custodial Receipts Revenue, 0% due 3/1/99, Escrowed to Maturity Aaa/NR 1,756,991
1,990,000 San Marcos PFA Custodial Receipts Revenue, 0% due 9/1/99, Escrowed to Maturity Aaa/NR 1,716,574
1,995,000 San Marcos PFA Custodial Receipts Revenue, 0% due 3/1/00, Escrowed to Maturity Aaa/NR 1,675,261
4,180,000 Santa Margarita / Dana Point Authority Revenue Improvement District Series A,
9.50% due 8/1/03 (Insured: MBIA) Aaa/AAA 5,262,662
6,140,000 Simi Valley Community Development Agency Certificate of Participation,
6.05% due 10/1/18, mandatory put 10/1/99 (Simi Valley Business Center
Project; Insured: New England Mutual Life) NR/AA- 6,419,247
1,000,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.875% due 8/1/04 (Integrated Waste Project) NR/A+ 1,032,110
7,500,000 South Coast Local Education Agencies Series 1995-A, 5.00% due 8/14/96 NR/SP1+ 7,508,775
2,000,000 Southgate Recreation & Park District Certificate of Participation, 5.15% due 10/1/21, put
10/1/01 (Wildhawk Golf Club Project; LOC: U.S. Bank of California) NR/A+ 2,014,480
1,200,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 6/1/98 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,216,644
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 6/1/99 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,317,589
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.15% due 6/1/00 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,324,427
1,400,000 University of California Regents Certificate of Participation Series 1996-A,
5.25% due 6/1/01 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,432,214
1,200,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 9/1/97 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,216,236
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 9/1/98 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,319,708
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 9/1/99 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,323,179
1,400,000 University of California Regents Certificate of Participation Series 1996-A,
5.15% due 9/1/00 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,433,656
1,500,000 University of California Regents Certificate of Participation Series 1996-A,
5.25% due 9/1/01 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,543,650
1,600,000 University of California Regents Certificate of Participation Series 1996-A,
5.35% due 9/1/02 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,654,208
510,000 University of California Revenue Series A, 11.00% due 9/1/99 NR/A- 604,334
780,000 University of California Revenue Series A, 6.30% due 9/1/00 NR/A- 827,353
Colorado (4.72%)
1,000,000 Adams County School District #12 Series A, 7.20% due 12/15/97, prerefunded 12/15/96 A/AAA* 1,025,590
500,000 Arvada Limited Sales & Use Tax Series 1991, 6.50% due 6/1/01, Escrowed to Maturity Aaa*/NR 534,155
2,355,000 Boulder Urban Renewal Authority Tax Increment Refunding Series 1992, 5.90%
due 3/1/01 (Insured: MBIA) Aaa/AAA 2,468,228
1,465,000 Boulder Urban Renewal Authority Tax Increment Refunding Series 1992, 6.00%
due 3/1/02 (Insured: MBIA) Aaa/AAA 1,535,774
55,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 5/1/98 NR/CCC 51,304
385,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 11/1/98 NR/CCC 357,619
390,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 11/1/99 NR/CCC 355,844
490,000 Castle Pines Metropolitan District General Obligation Refunding & Improvement,
7.50% due 12/1/99 (Insured: FSA) Aaa/AAA 533,076
2,000,000 Colorado Housing Finance Authority Capital Appreciation Series A, 0% due 11/1/01 Aa/AA+ 1,478,240
1,000,000 Colorado Certificate of Participation, 4.75% due 5/1/97 (Insured: AMBAC) Aaa/AAA 1,007,620
885,000 Colorado Student Loan Authority Revenue, 6.625% due 6/1/99 A/NR 927,073
1,140,000 Colorado Student Loan Revenue Series 1992-B, 6.20% due 9/1/98 A/NR 1,178,212
865,000 Colorado Student Loan Revenue Series 1992-B, 6.40% due 9/1/99 A/NR 900,845
3,555,000 Colorado Student Loan Revenue Series 1992-B, 6.55% due 12/1/02 A/NR 3,705,767
2,500,000 Colorado Student Obligation Bond Authority Revenue Series 1992-F, 5.90% due 9/1/02 A/NR 2,519,025
3,230,000 Colorado Student Obligation Bond Authority Revenue Series 1994-L, 5.90% due 9/1/00 A/NR 3,336,816
890,000 Denver Housing Corporation Revenue, 7.20% due 10/1/04 (HUD Section 8) A/NR 903,065
1,080,000 Denver City & County Industrial Development Revenue, 7.40% due 3/1/03
(University of Denver Project) NR/BBB+ 1,166,281
1,155,000 Denver City & County Industrial Development Revenue, 7.50% due 3/1/04
(University of Denver Project) NR/BBB+ 1,246,765
1,185,000 Denver City & County Industrial Development Revenue, 7.60% due 3/1/05
(University of Denver Project) NR/BBB+ 1,279,124
1,000,000 Denver City & County Industrial Development Revenue, 5.375% due 7/1/11, put 7/1/00
(Translogic Corporation Project; LOC: Commerzbank) NR/AA- 1,000,170
420,000 Denver City & County Industrial Development Revenue Series 1985, 6.40% due 6/1/10,
put 6/1/99 (4999 Ltd. Project; LOC: Central Bank National Association) NR/A+ 441,273
2,175,000 Highlands Ranch Metro District #2 General Obligation, 6.00% due 6/15/04 (Insured: FSA) Aaa/AAA 2,317,876
2,800,000 Jefferson County Industrial Development Refunding Revenue Series 1993,
4.60% due 12/1/97 (Dayton Hudson Project) NR/BBB+ 2,774,828
2,000,000 Summit County Recreational Facilities Revenue, 5.80% due 4/1/17, put 10/1/98
(Copper Mountain Project; LOC: Daiwa Bank) NR/BBB 1,966,800
1,000,000 University of Colorado Certificate of Participation, 7.10% due 12/1/99 A/NR 1,069,720
321,106 Westminster Installment Note, 8.00% due 12/12/96 A*/NR 325,737
1,750,000 Westminster MFHR, 7.75% due 12/1/07, put 12/1/98 (Green Lawn Aptartments
Project; Insured: FGIC) Aaa/AAA 1,776,583
2,725,000 Westminster Multifamily Housing Revenue series 1995, 5.95% due
9/1/15, put 9/1/06 (Semper Village Apartments; Insured A.X.A. Re/U.K.) NR/AA 2,740,478
1,245,000 Westminster Sales & Use Tax Revenue Refunding Series 1996, 5.50% due 12/1/00 NR/AA 1,280,819
1,350,000 Westminster Sales & Use Tax Revenue Refunding Series 1996, 5.50% due 12/1/01 NR/AA 1,390,068
Connecticut (2.66%)
2,195,000 Bristol Resource Recovery Facility Solid Waste
Revenue Refunding Series 1995, 5.20% due 7/1/97 (Ogden Martin of Bristol Project) A/NR 2,200,312
2,290,000 Bristol Resource Recovery Facility Solid Waste
Revenue Refunding Series 1995, 5.40% due 7/1/98 (Ogden Martin of Bristol Project) A/NR 2,299,916
1,045,000 Capital Region Education Council, 6.375% due 10/15/05 NR/BBB 1,014,632
1,320,000 Connecticut Housing Finance Authority Series B1, 7.55% due 11/15/08 (LOC: FHA/VA) Aa/AA 1,334,824
700,000 Connecticut Resource Recovery Authority, 7.125% due 11/15/08 (Wallingford Project;
LOC: National Westminister) Aa2/AA 728,119
10,000,000 Connecticut Unemployment Compensation Advance Fund Refunding Revenue Series 1996-A,
5.50% due 5/15/01 (Insured: AMBAC) Aaa/AAA 10,313,900
1,000,000 Connecticut Special Tax Obligation Revenue Series C, 7.40%
due 10/1/04, pre-refunded 10/1/98 NR/AAA 1,085,020
5,540,000 Connecticut State Special Tax Obligation Series 1989-B, 0% due 7/1/99
(Transportation Infrastructure Project; Insured: AMBAC) Aaa/AAA 4,831,600
715,000 New Haven General Obligation Series 1991, 8.125% due 8/15/96 Baa/BBB 718,739
Dist. of Col. (2.16%)
1,000,000 District of Columbia General Obligation 1986 Series A, 7.60% due 6/1/00,
prerefunded 6/1/97 Aaa*/B 1,048,310
1,000,000 District of Columbia General Obligation 1988 Series A, 7.65% due 12/1/03
(Insured: MBIA) Aaa/AAA 1,095,330
1,505,000 District of Columbia General Obligation Capital Appreciation Refunding,
0% due 6/1/02 (Insured: MBIA) Aaa/AAA 1,100,095
6,230,000 District of Columbia General Obligation 1994 Series A-3, 4.90% due 6/1/00 Ba/B 5,986,033
1,500,000 District of Columbia General Obligation Refunding Series A, 5.30% due 6/1/00 Ba/B 1,462,155
500,000 District of Columbia General Obligation Refunding Series A, 5.50% due 6/1/01 Ba/B 483,875
2,000,000 District of Columbia General Obligation Refunding Series A, 5.50% due 6/1/01
(Insured: FSA) Aaa/AAA 2,040,480
4,000,000 District of Columbia Certificate of Participation Series 1993, 6.875% due 1/1/03 NR/B- 3,982,400
1,000,000 District of Columbia Revenue, 6.00% due 7/15/03
(Children's Hospital Project; Insured: FGIC) Aaa/AAA 1,044,870
1,330,000 District of Columbia Revenue, 6.00% due 8/15/05
(Medlantic Healthcare Project; Insured: MBIA) Aaa/AAA 1,392,683
275,000 District of Columbia Association of American Medical College, 7.20% due 2/15/01 NR/AA- 295,251
Florida (3.33%)
550,000 Brevard County Tourist Development Tax Revenue, 6.325% due 3/1/03
(Florida Marlins Training Facilities) NR/NR 561,473
620,000 Cape Coral Special Assessment, 6.50% due 7/1/98 (Insured: MBIA) Aaa/AAA 643,678
3,000,000 Collier County School Board Certificates of Participation,
5.50% due 2/15/03 (Insured: FSA) Aaa/AAA 3,082,980
6,590,000 Dade County Housing Finance Authority Multifamily Mortgage Revenue
Series 1985-A, 4.60% due 1/1/15, put 1/1/99
(Gulf View Apartments Project; LOC: Sumitomo & Credit Suisse) NR/AAA 6,619,589
9,000,000 Florida Housing Agency MFHR Series RR, 5.50% due 11/1/07, put 11/1/97
(Palm Beach Oxford Project; Insured: Financial Security Assurance) Aaa/AAA 9,057,420
3,000,000 Florida Housing Finance Authority Multifamily Housing Revenue, 5.10% due 4/1/13, put
4/1/02 (Park Colony Project; LOC: Mellon Bank) NR/A+ 2,995,320
2,500,000 Florida Housing Finance Authority Series 1983-I, 4.85% due 12/1/05, put 12/1/99
(Wood Forest Project; LOC: Connecticut General) NR/AA 2,522,675
270,000 Florida Housing Finance Authority Series 1983-I, 4.85% due 12/1/05, put 12/1/99
(Wood Forest Project; LOC: Connecticut General) NR/AA 272,449
1,220,000 Florida Housing Finance Authority Capital Appreciation Residential
Mortgage Revenue, 0% due 7/15/01 (LOC: Citibank) NR/AA 713,688
1,500,000 Florida Housing Finance Agency Revenue, 6.25% due 12/1/06
(Hammocks Place Project) NR/AAA 1,562,295
1,000,000 Lee County Scholl Board Certificate of Participation, 6.20% due 8/1/00 (Insured: FSA) Aaa/AAA 1,044,980
665,000 Martin County Combined Special Assessment Series 1990-A, 8.125% due 3/1/01 NR/NR 730,283
940,000 Palm Beach County Industrial Development Revenue Series 1996, 6.00% due 12/1/06
(Lourdes-Noreen McKeen Residence for Geriatric Care Project; LOC: Allied Irish Bank) NR/A+ 939,943
Georgia (.68%)
2,930,000 Augusta Housing Authority MFHR Series 1992, 5.50% due 4/1/05, put 4/1/97
(Stevens Creek Commons Project; LOC: Federal Home Loan Bank) NR/AAA 2,967,797
3,320,000 DeKalb County Multifamily Housing Revenue Series 1985-G, 5.50% due 7/15/07,
put 7/15/97 (DeKalb Crossing Project; Insured: Continental Casualty) NR/A+ 3,343,804
Hawaii (1.33%)
6,000,000 Hawaii State Refunding Series CB, 5.00% due 1/1/00 Aa/AA 6,073,020
2,000,000 Hawaii Airport System Revenue Refunding, 5.10% due 7/1/99 (Insured: MBIA) Aaa/AAA 2,030,600
1,340,000 Hawaii State Department Budget & Finance Special Purpose Mortgage
Revenue, 6.70% due 7/1/97 (Queens Medical Center Project; Insured: FGIC) Aaa/AAA 1,377,600
1,210,000 Hawaii State Department Budget & Finance Special Purpose Mortgage
Revenue, 7.125% due 7/1/98 (Wahiawa General Hospital Project) NR/BBB- 1,244,582
1,500,000 Hawaii State Department Budget & Finance Special Purpose Mortgage Revenue,
5.70% due 7/1/03 (Kapiolani Health Care System Project) A/A 1,517,250
Idaho (.62%)
667,857 Boise Industrial Development Corporation IDRB Series 1985, 10.816% due 8/29/00
(Associated Dairies Project; Guaranteed: Chemical Bank) A2*/A* 667,857
4,980,000 Idaho Falls Electric Revenue Refunding, 0% due 4/1/00 (Insured: FGIC) Aaa/AAA 4,147,045
925,000 Idaho Student Loan Marketing Association Refunding Revenue Series 1992,
6.40% due 10/1/99 NR/NR 933,769
Illinois (2.04%)
1,455,000 Cook County Community College District 508 COP, 7.70% due 1/1/97 (Insured: FGIC) Aaa/AAA 1,483,285
1,800,000 Cook County Community College District 508 COP, 8.50% due 1/1/02 (Insured: FGIC) Aaa/AAA 2,095,380
1,000,000 Hoffman Estates Tax Increment Revenue, 7.00% due 11/15/97 (Hoffman
Estates Economic Development Project; LOC: Union Bank of Switzerland) Aaa/AAA 1,034,660
2,000,000 Illinois Health Facilities Authority Revenue Series 1992, 7.00% due 7/1/02
(Trinity Medical Center Project) Baa1/NR 2,040,120
1,000,000 Illinois Health Facilities Authority Revenue Series 1993-A, 7.875% due 8/15/05
(Community Provider Pooled Loan Program Project) NR/NR 1,024,330
1,000,000 Illinois Educational Facilities Authority Revenue, 5.625% due 10/1/26,
put 10/1/96 (Museum of Science and Industry Project; LOC: Sanwa Bank) Aa3/NR 1,005,190
5,415,000 Lombard Multifamily Housing Refunding Revenue, 6.50% due 12/15/06,
mandatory tender 12/15/96 (Clover Creek Apartments Project; Surety Bond: Continental Casualty) NR/A+ 5,480,684
3,000,000 Southern Illinois University Revenue Refunding Series 86-A, 7.125% due 4/1/03 A/A 3,037,620
1,575,000 Winnebago & Boone Counties School District # 205 G.O.,
7.00% due 2/1/98 (Insured: FSA) NR/AAA 1,646,757
Indiana (1.60%)
1,195,000 Columbus School Building Corporation, 5.50% due 1/15/01 (Insured: MBIA) Aaa/AAA 1,232,714
1,255,000 Columbus School Building Corporation, 5.50% due 1/15/02 (Insured: MBIA) Aaa/AAA 1,293,001
895,000 Gary Indiana Judgement Funding General Obligation, 6.60% due 6/15/99 NR/NR 922,799
570,000 Gary Indiana Judgement Funding General Obligation, 6.60% due 12/15/99 NR/NR 590,058
2,000,000 Indiana Bond Bank Series B, 7.25% due 2/1/01 (Special Loan Program) A/A 2,128,940
1,120,000 Indiana Bond Bank Special Program Series 1992-B, 5.60% due 8/1/99 NR/A 1,148,314
1,000,000 Indiana Bond Bank State Revolving Fund Guaranty Revenue Series 1993-A,
5.30% due 2/1/99 NR/A 1,015,650
2,640,000 Indiana Bond Bank State Revolving Fund Guaranty Revenue Series 1993-A,
5.50% due 2/1/00 NR/A 2,697,552
1,500,000 Indiana Health Facilities Revenue, 5.55% due 7/1/01
(Marion General Hospital Project; Insured: MBIA) Aaa/AAA 1,544,850
500,000 Indianapolis Economic Development Revenue, 8.625% due 12/1/07, put 12/1/97
(Suncrest Project; FNMA Collateralized) NR/AAA 528,700
1,645,000 Logansport Multi-Purpose School Building Corporation First Mortgage
Refunding Series 1992, 5.50% due 7/1/01 NR/A 1,686,158
Iowa (1.53%)
500,000 Davenport Hospital Revenue Series A, 6.90% due 7/1/99 (St. Luke's
Hospital Project; Insured: AMBAC) Aaa/AAA 531,070
1,225,000 Des Moines Hospital Revenue Refunding Series 1996-A, 6.25% due 11/15/04
(Des Moines General Hospital Project; LOC: Norwest) Aa2/NR 1,294,359
500,000 Iowa Higher Educational Loan Facilities Authority, 5.50% due 8/1/02 (Insured: MBIA) Aaa/AAA 500,165
1,500,000 Iowa Certificate of Participation, 6.10% due 7/1/01 (Insured: AMBAC) Aaa/AAA 1,577,040
2,000,000 Iowa Student Loan Liquidity Corporation Student Loan Revenue 1991
Series C, 6.80% due 12/1/02 Aaa/AAA 2,125,760
750,000 Iowa Student Loan Liquidity Corporation Student Loan Revenue
Series A, 6.35% due 3/1/01 Aa1/NR 785,317
2,600,000 Marion Commercial Development Revenue Refunding Series 1991-A, 7.25% due 1/1/14,
put 7/1/02 (Collins Road Project; Insured: Trygg-Hansa) NR/A+ 2,762,032
4,445,000 Muscatine Electric Revenue Refunding Series 1992,
5.40% due 1/1/00 (Insured: AMBAC) Aaa/AAA 4,554,658
Kansas (.80%)
1,000,000 Kansas City Industrial Revenue Series 12/1/84, 7.20% due 12/1/04
(Ash Grove Cement Project) Aa2/NR 1,023,750
2,000,000 Lenexa Industrial Revenue Series 8/1/83, 9.50% due 8/1/98 (J.C. Nichols Co. Project) NR/NR 2,170,180
15,000 Olathe Single Family Mortgage Revenue Series A, 9.375% due 11/1/00 NR/A 15,338
4,025,000 Topeka Multifamily Housing Revenue Refunding Series 1991-A, 7.25%
due 4/1/21, put 4/1/02 (Fleming Court Project; Insured: Trygg-Hansa) NR/A+ 4,209,587
Kentucky (.89%)
630,000 Danville Multi-Lease Revenue Series E, 5.40% due 11/1/96 Baa1/NR 632,470
4,500,000 Jefferson County Insured Hospital Revenue Series 1992, 7.881% (inverse floater)
due 10/1/02 (Alliant Health Systems; Insured: MBIA) Aaa/AAA 4,882,500
2,590,000 Paintsville First Mortgage Revenue Series 1991 (Paul B. Hall Medical
Center Project), 8.50% due 9/1/03 (Guaranteed: Health Management Associates) NR/NR 2,722,479
Louisiana (4.28%)
290,000 East Baton Rouge Sewage Commission Sewer Revenue, 8.05% due 9/1/96 Baa/BBB 292,071
2,020,000 East Baton Rouge Parish Public Improv. Sales Tax Series 1993-A, 8.00%
due 2/1/00 (Insured: FGIC) Aaa/AAA 2,234,302
2,165,000 East Baton Rouge Parish Public Improv. Sales Tax Series 1993-A, 8.00%
due 2/1/01 (Insured: FGIC) Aaa/AAA 2,440,669
1,100,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 0.927%
(inverse floater) due 7/1/97 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,074,810
1,000,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 1.427%
(inverse floater) due 7/1/98 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 950,760
1,200,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 1.727%
(inverse floater) due 7/1/99 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,104,912
1,100,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 1.977%
(inverse floater) due 7/1/00 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 980,232
1,300,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 2.177%
(inverse floater) due 7/1/01 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,123,109
3,000,000 Louisiana PFA MFHR Series 1991, 6.00% due 7/1/07, put 7/1/97
(Riverview Villas Project; Guaranteed: Connecticut General Life) NR/AA 3,004,950
3,000,000 Louisiana PFA Student Loan Revenue Series A-1, 5.90% due 3/1/99 Aaa/NR 3,085,470
2,250,000 Louisiana PFA Student Loan Revenue Series A-1, 6.10% due 3/1/00 Aaa/NR 2,325,870
1,850,000 Louisiana PFA Local Government G.O. Refunding Series A, 4.85% due 3/1/99
(Insured: FSA) Aaa/AAA 1,861,859
1,500,000 Louisiana General Obligation Refunding Series 1987-B, 8.00% due 5/1/00,
pre-refunded 5/1/97 (Insured: Capital Guaranty) NR/AAA 1,582,590
500,000 Louisiana Recovery District Sales Tax Series 1988, 7.625% due 7/1/96 A/A- 500,140
2,450,000 Louisiana Recovery District Sales Tax Refunding Series 1992, 5.70% due 7/1/98 A/A- 2,507,257
5,000,000 Louisiana Recovery District Sales Tax Refunding Series 1992,
5.50% due 7/1/98 (Insured: MBIA) Aaa/AAA 5,101,700
500,000 Louisiana State University Agricultural & Mechanical College Board,
7.70% due 4/15/02, Escrowed to Maturity NR/AAA* 567,430
1,120,000 Orleans Levee District Refunding Improvement Series A, 7.50% due 11/1/98 NR/BBB+ 1,127,403
6,760,000 Orleans Levee District Public Improvement Trust Receipts Series 1995-A, 5.95%
due 11/1/01 (Insured: FSA) Aaa/NR 7,131,732
460,000 Ouachita Parish Hospital Revenue District # 1 Series 1991, 7.25% due 7/1/01 NR/A- 496,220
Maine (.17%)
500,000 Regional Waste Systems Incorporated Series A-C, 7.30% due 7/1/98 NR/AA 526,545
1,000,000 Topsham Revenue, 7.20% due 9/1/05, put 9/1/96
(Guaranteed: Continental Insurance Co.) NR/AA+ 1,005,770
Maryland (.36%)
2,000,000 Howard County Maryland Multifamily Housing Revenue, 7.00% due 7/1/24,
put 7/1/04, (Chase Glen Prject; Guaranty: Avalon Prop.) NR/NR 2,129,620
1,105,000 Washington Suburban Sanitary District Series 1994, 8.75% due 6/1/99 Aa1/AA 1,232,627
Massachusetts (5.37%)
1,000,000 Boston General Obligation Series A, 7.25% due 7/1/99 A/A+ 1,068,530
1,600,000 Boston General Obligation Series A, 7.60% due 2/1/04, prerefunded 2/1/99 Aaa+/A+ 1,752,608
1,000,000 Boston FHA Insured City Hospital Revenue Series A, 7.15% due 2/15/01, pre-refunded 8/15/00
(Boston City Hospital Project) Aaa/NR 1,109,440
90,000 Haverhill General Obligation Municipal Purpose Loan Series 1991, 7.50% due 10/15/11 Baa/BBB 98,860
765,000 Holyoke General Obligation, 9.85%, due 11/1/08, refunded 11/1/97 @ 102 Aaa/NR 832,986
595,000 Holyoke General Obligation Electric Revenue Series 1991-A, 8.00% due 6/1/01 Baa/NR 636,959
500,000 Holyoke General Obligation Sewer Revenue Series B, 8.00% due 6/1/01 Baa/NR 530,925
1,670,000 Holyoke General Obligation School Project Loan Act of 1948, 7.35% due 8/1/02 Baa/NR 1,836,115
1,060,000 Lynn General Obligation, 7.00% due 1/15/04 Baa1/NR 1,131,486
685,000 Massachusetts Educational Loan Revenue Series 1985-C, 7.875% due 6/1/03
(LOC: Rabobank Nederland) NR/AAA 720,757
2,000,000 Massachusetts General Obligation Consolidated Loan of 1991 Series B, 0% due 6/1/01 A1/A+ 1,581,060
2,000,000 Massachusetts General Obligation Consolidated Series 1987-A, 5.75% due 3/1/99 A1/A+ 2,054,980
2,315,000 Massachusetts Dedicated Income Tax Series A General Obligation, 7.875% due 6/1/97 A1/A+ 2,401,164
3,000,000 Massachusetts Hynes Convention Center Authority Refunding Series 1992, 0% due 9/1/00 A1/A+ 2,475,120
2,500,000 Massachusetts Hynes Convention Center Authority Refunding Series 1992, 0% due 9/1/02 A1/A+ 1,836,250
690,000 Massachusetts State Health & Education Facilities Authority Series B, 6.50% due 7/1/97
(Charlton Hospital Project) A/A 705,111
1,465,000 Massachusetts State Health & Education Facilities Authority Series B, 6.70% due 7/1/98
(Charlton Hospital Project) A/A 1,519,674
1,245,000 Massachusetts State Health & Education Facilities Authority Series B, 6.875% due 7/1/99
(Charlton Hospital Project) A/A 1,303,440
2,665,000 Massachusetts State Health & Education Facilities Authority Series B, 5.50% due 5/15/11, put
5/15/01 (Community Health Capital Fund Project; LOC: First National Bank of Boston) NR/NR 2,661,429
2,500,000 Massachusetts IFA Recovery Refunding Revenue Series 1993-A, 5.45% due 7/1/01
(Insured: FSA) Aaa/AAA 2,557,050
1,920,000 Massachusetts IFA Stetson Place Development Trust Series A, 5.125% due 6/1/08,
put 6/1/98 (LOC: State Street Bank & Trust) Aa2/NR 1,935,475
2,345,000 New Bedford Industrial Revenue, 7.42% due 7/1/02 (Aerovox Corporation Project) NR/A- 2,405,407
2,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1993-E, 5.00% due 7/1/99 A1/A- 2,010,520
1,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1992-F, 6.50% due 9/1/02 Aa/NR 1,066,740
3,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1993-B, 5.40% due 6/1/00 A1/A- 3,060,360
2,500,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1993-G, 5.00% due 8/1/00 AA1/A- 2,487,125
425,000 South Essex Sewer District General Obligation, 9.00% due 12/1/96 Baa1/NR 434,231
425,000 South Essex Sewer District General Obligation, 9.00% due 12/1/97 Baa1/NR 454,189
425,000 South Essex Sewer District General Obligation, 9.00% due 12/1/98 Baa1/NR 468,656
295,000 South Essex Sewer District General Obligation, 9.00% due 12/1/99 Baa1/NR 334,182
550,000 Springfield General Obligation, 7.75% due 5/1/99 Baa/NR 588,979
250,000 Springfield General Obligation, 7.75% due 5/1/00 Baa/NR 270,850
300,000 Springfield General Obligation, 7.75% due 5/1/01 Baa/NR 326,886
300,000 Springfield General Obligation, 7.80% due 5/1/02 Baa/NR 329,805
2,000,000 University of Massachusetts Bldg. Authority Ref. Revenue Series 1991-A, 6.80% due 5/1/99 A1/A+ 2,118,740
1,000,000 University of Massachusetts Bldg. Authority Ref. Revenue Series 1991-A, 7.15% due 5/1/03 A1/A+ 1,123,190
1,250,000 Worcester Municipal Purpose Loan of 1991 General Obligation,
6.80% due 5/15/01 (Insured: MBIA) Aaa/AAA 1,359,812
Michigan (2.17%)
1,300,000 Detroit General Obligation Series 1990-A, 8.50% due 4/1/00 Ba1/BBB 1,430,845
1,500,000 Detroit Distributable State Aid General Obligation Unlimited Series 1992,
5.625% due 5/1/97 Baa/BBB+ 1,524,255
3,000,000 Detroit Economic Development Corp. Refunding, 7.00% due 6/1/12, put 6/1/02
(F.H. Associates Project; Surety: ITT Lyndon Property Insurance) NR/NR 3,148,290
24,357 Fenton Lease Purchase Agreement, 8.00% due 8/1/96 NR/NR 24,403
1,200,000 Flint Tax Increment Finance Authority Limited Tax General Obligation Series 1985,
9.30% due 6/1/97, Escrowed to Maturity Baa/AAA* 1,258,752
1,490,000 Michigan State Hospital Finance Authority Revenue Series 1991-A, 8.30% due 9/1/02 Ba/BBB- 1,543,357
6,570,000 Michigan State Housing Development Authority Rental Housing Rev. Series 1992-A,
5.40% due 4/1/98 (Detroit Edison Project) NR/A+ 6,636,291
2,000,000 Wayne County Building Authority Limited Tax General Obligation Sinking Fund
Series 1992-A, 7.80% due 3/1/05, prerefunded 3/1/02 @ 102 Baa/AAA* 2,190,080
2,000,000 Wayne County Wastewater Control System Limited Tax General Obligation
Refunding, 7.875% due 5/1/02 Baa/BBB- 2,304,820
Minnesota (2.46%)
4,820,000 Burnsville MFHR Series 1991, 7.20% due 5/1/11, put 5/1/02
(The Atrium Project; Insured: Trygg-Hansa) NR/A+ 5,018,536
1,100,000 Coon Rapids Industrial Development Ref. Rev., 6.75% due 12/1/01 (LOC: Norwest Bank) Aa3/AA 1,113,717
2,000,000 Hennepin County G.O. Solid Waste Revenue Refunding Series 1992,
4.65% due 10/1/97 Aaa/AAA 2,020,100
1,500,000 Metropolitan Council Minneapolis - St. Paul Area Sports Facilities Revenue,
5.30% due 10/1/00 (Hubert H. Humphrey Metrodome Project) A/A 1,523,265
3,300,000 Minneapolis-Saint Paul Housing & Redevelopment Authority Series 1993,
5.00% due 12/1/04, put 12/1/98 (Corporate Partner Project; LOC: Continental Insurance) NR/A+ 3,265,086
5,000,000 Minneapolis-Saint Paul Housing & Redevelopment Authority Single Family Mortgage Revenue
Series 96-B, 5.125% due 6/1/32, put 6/1/00 (GNMA/FNMA) Aaa/NR 4,999,400
640,000 Minneapolis MFHR Refunding Series 1991, 6.75% due 10/1/01
(Churchill Apartments Project; FHA Insurance Mortgage) NR/AAA 677,824
1,250,000 Minneapolis School District Certificate of Participation, 5.30% due 2/1/00 Baa1/A 1,250,737
1,795,000 Minneapolis-Saint Paul Single Family Housing Revenue Series A, 8.25% due 11/1/07 NR/AAA 1,895,071
945,000 Saint Cloud Industrial Development Revenue Refunding Series 1992, 6.25%
due 4/1/98 (Alton Realty Co. & Pan-O-Gold Baking Co. Project;
LOC: Norwest Bank of Minnesota) NR/AA- 956,992
Mississippi (.56%)
2,000,000 Mississippi Higher Education Assistance Corporation Student Loan Revenue
Series 1992-B, 6.00% due 1/1/00 NR/A 2,053,280
1,100,000 Mississippi Hospital Equipment & Facilities Authority Revenue, 8.60%
due 1/1/01 (Rush Medical Foundation Project) Baa/NR 1,194,501
1,910,000 Ridgeland Multifamily Housing Rev. Series 1985, 6.50% due 10/1/07, put 10/1/97
(Sunchase Apartments Project) NR/AAA 1,921,804
Missouri (1.51%)
4,000,000 Missouri Higher Education Loan Authority Student Loan Revenue Refunding,
5.50% due 2/15/00 Aa/NR 4,046,880
3,000,000 Missouri Economic Development Export & Infrastructure Board Industrial
Revenue Series 1993, 5.375% due 5/1/03, mandatory put 5/1/00
(Mark Twain Tower Project; Lincoln National Insurance Guaranty) NR/A 3,013,710
760,000 Missouri State Housing Development Authority Revenue, 6.30% due 7/15/99 Aa/AA+ 772,874
1,055,000 Missouri Health & Education Facilities Authority Revenue, 0% due 1/1/02
(Missouri Baptist Medical Center Project) Escrowed to Maturity Aaa*/A- 767,090
255,000 Missouri State Environmental Improvement & Energy Resources Authority Water
Pollution Control Revenue Series 1991-A, 6.50% due 12/1/02
(State Revolving Revenue Project) A1/NR 273,472
325,000 Missouri State Environmental Improvement & Energy Resources Authority Water
Pollution Control Revenue Series 1991-A, 6.60% due 12/1/03
(State Revolving Revenue Project) AA/NR 349,892
935,000 St. Louis County Industrial Development Authority Housing Revenue
Series 1992-A, 6.00% due 6/1/98 A/NR 959,684
3,860,000 St. Louis IDA Refunding Revenue Series 1993-B, 5.10% due 12/1/08,
put 12/1/00, (Westport Residence Project; Guaranteed: Lincoln National Corporation) NR/A 3,802,872
Montana (.17%)
1,000,000 Billings Tax Increment Urban Renewal Series 1987-A,
8.65% due 3/1/99, refunded 3/1/98 Aaa/NR 1,073,630
435,000 Montana Higher Education Student Loan Revenue Series 1992-A, 6.70% due 12/1/01 A/NR 458,969
Nebraska (.77%)
2,985,000 Nebraska Industrial Finance Authority Tax Exempt Multifamily Housing Revenue Refunding
Series 1995-A, 5.50% due 12/1/25, put 12/1/05 (Willow Park Apartments Project;
FNMA Collateral) NR/AAA 2,967,538
2,500,000 Nebraska Public Power District Series 1993, 5.10% due 1/1/00 A1/A+ 2,534,400
1,500,000 Nebraska Investment Finance Authority Hospital Equipment Revenue, 6.85% due 3/1/02
(Insured: MBIA) Aaa/AAA 1,637,205
Nevada (.52%)
760,000 Las Vegas Downtown Redevelopment Project Revenue, 7.65% due 6/1/97 Baa/A- 777,921
780,000 Las Vegas Valley Water District, 6.60% due 8/1/98 (Insured: AMBAC) Aaa/AAA 814,367
1,085,000 Washoe County Airport Authority Revenue Refunding, 5.30% due 7/1/00 (Insured: MBIA) Aaa/AAA 1,103,380
1,325,000 Washoe County Airport Authority Revenue Refunding, 5.45% due 7/1/01 (Insured: MBIA) Aaa/AAA 1,355,237
700,000 Washoe County Airport Authority Revenue Refunding, 5.60% due 7/1/02 (Insured: MBIA) Aaa/AAA 720,468
New Hampshire (.34%)
40,000 New Hampshire Higher Educational & Health Facilities Authority Student
Loan Revenue 1983 Series A, 10.00% due 9/1/97 (New Hampshire Higher
Educational Assistance Foundation; Insured: AMBAC) Aaa/AAA 42,348
990,000 New Hampshire Industrial Development Authority Revenue Series 1995,
7.70% due 7/1/00 (Electra/ PJ-Allied Project) A2/NR 989,653
2,030,000 New Hampshire Industrial Development Authority Revenue, 6.40% due 12/1/09,
put 12/1/99 (Central Vermont Public Service Project; LOC: Toronto Dominion Bank) NR/AA 2,141,203
New Jersey (.56%)
2,400,000 New Jersey Economic Development Authority Series 1991, 6.875% due 10/1/14,
optional put 10/1/98 (Fairway Corporation II Project; Guaranty: Provident Mutual Life) A2/NR 2,413,224
1,000,000 New Jersey Health Care Facilities Financing Authority Revenue, 7.00% due 7/1/03
(Christ Hospital Project; Insured: Connie Lee) NR/AAA 1,101,510
1,000,000 New Jersey Turnpike Authority Revenue Series A, 5.70% due 1/1/01 Baa1/BBB+ 1,025,910
618,367 New Jersey Wastewater Treatment Trust - Wastewater Treatment Insured Loan
Revenue Series 1987, Amortizing Coupon M-COATES, 9.00% due 9/1/97 Aaa*/AAA* 657,603
New Mexico (.83%)
250,000 Espanola Sinking Fund Sales Tax Revenue, 7.70% due 7/1/96 (Escrowed to Maturity) Aaa*/AAA* 250,160
5,390,000 Jicarilla Apache Tribe Tribal Revenue Refunding, 7.75% due 7/1/05 NR/A 5,526,690
239,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/97 (ETM) NR/AAA 251,368
261,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/98 (ETM) NR/AAA 284,939
273,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/99 (ETM) NR/AAA 302,378
285,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/99 (ETM) NR/AAA 320,622
298,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/00 (ETM) NR/AAA 339,413
326,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/01 (ETM) NR/AAA 381,922
New York (4.16%)
1,785,000 Islip Resource Recovery Agency Series 85 D, 5.95% due 7/1/03 (Insured: AMBAC) Aaa/AAA 1,890,708
630,000 Jamestown General Obligation Series A, 7.00% due 3/15/97 Baa/NR 643,387
3,000,000 Metropolitan Transit Authority Series M, 5.10% due 7/1/98 Baa/BBB+ 3,032,460
1,240,000 New York City General Obligation Series E, 7.20% due 2/1/00 Baa1/BBB+ 1,319,806
2,760,000 New York City General Obligation Series D, 6.30% due 2/1/01 Baa1/BBB+ 2,849,479
2,695,000 New York City General Obligation Series E, 6.30% due 8/1/01 Baa1/BBB+ 2,790,646
2,175,000 New York City Municipal Water Finance Authority Water & Sewer System Revenue,
7.10% due 6/15/97 A/A- 2,239,619
1,000,000 New York City Municipal Water Finance Authority Water & Sewer System Revenue,
7.15% due 6/15/98 A/A- 1,050,870
3,000,000 New York Dorm Authority Revenue State University Educational Facilities, 5.25%
due 7/1/02 (Insured: AMBAC) Aaa/AAA 3,061,890
1,000,000 New York Dorm Authority Revenue State University Educational Facilities Series A,
7.00% due 5/15/04 Baa1/BBB+ 1,092,120
7,110,000 New York State Dormitory Authority Series 1994-B, 6.00% due 7/1/24, put 12/5/99
(Miriam Osborn Memorial Home Project; LOC: Banque Paribas) A1/A 7,432,225
230,000 New York State Health Facilities Revenue Refunding Series 1990-A,
7.90% due 11/1/99 Baa/BBB+ 233,321
1,555,000 New York State Health Facilities Revenue Refunding Series 1990-A,
7.90% due 11/1/99 Baa/BBB+ 1,684,096
1,500,000 Local Government Assistance Corporation Revenue Series D, 6.50% due 4/1/02 A/A 1,613,565
1,500,000 New York State Medical Care Facilities Finance Agency 1991 Series A,
7.25% due 2/15/01 Baa1/BBB+ 1,606,965
2,500,000 New York State Urban Development Corporation,
7.60% due 4/1/03, prerefunded 4/1/01 AAA/BBB 2,842,050
2,500,000 Syracuse Industrial Development Authority Pilot Revenue Refunding Series 1995,
5.125% due 10/15/02 (LOC: ABN AMRO Bank) NR/AA 2,458,925
570,000 Westchester County I.D.A. Civic Facility Revenue,
6.25% due 4/1/05 (Julia Dykman Project) NR/BBB 570,844
North Carolina (.38%)
2,860,000 Carteret County Certificate of Participation Series 1992, 6.50% due 2/1/00
(Elementary School Project) aa1/BBB+ 2,960,357
545,000 North Carolina Housing Finance Authority Single Family Housing Revenue, 6.80%
due 7/1/08 (Insured: FHA/VA) Aa1/AA+ 549,006
North Dakota (.25%)
1,000,000 North Dakota Building Authority Refunding Revenue Series 1993-A, 5.15% due 6/1/00
(Insured: AMBAC) Aaa/AAA 1,013,420
1,250,000 North Dakota Student Loan Revenue, 5.45% due 7/1/02 (Insured: AMBAC) Aaa/AAA 1,250,375
Ohio (3.82%)
1,000,000 Barberton Hospital Facilities Series 1992, 6.65% due 1/1/02 A/NR 1,054,010
2,000,000 Belmont County IDRB Series 1991, 6.50% due 1/1/00 (May Department Stores Co. Project) NR/A 2,088,260
400,000 Cambridge Hospital Revenue Refunding Series 1991, 7.25% due 12/1/97 NR/BBB 414,104
3,000,000 Cincinnati School District Tax Anticipation Notes, 5.40% due 12/1/96 NR/A- 3,020,010
1,500,000 Cincinnati School District Revenue Anticipation Notes, 5.75% due 6/15/98 NR/A- 1,536,255
1,000,000 Cincinnati School District Revenue Anticipation Notes, 6.15% due 6/15/02 NR/A- 1,051,810
1,250,000 Cincinnati School District Revenue Anticipation Notes, 6.05% due 6/15/00 NR/A- 1,300,738
2,250,000 Clermont County Hospital Facilities Revenue Refunding Series 1993-B, 4.70% due 9/1/99
(Mercy Health System Project; Insured: MBIA) Aaa/AAA 2,256,435
2,000,000 Cleveland Certificate of Participation, 7.10% due 7/1/02
(Motor Vehicle & Community Equipment Project) Baa/BBB 2,093,220
5,000,000 Cleveland School District Revenue Anticipation Notes Series 1993, 4.70% due 6/1/99
(Insured: AMBAC) Aaa/AAA 5,006,300
3,000,000 Cuyahoga County Housing Revenue Series 1993, 7.00% due 4/1/00
(North Coast Community Homes Project) NR/NR 3,074,820
1,000,000 Erie County Hospital Improvement Refunding Revenue Series 1992, 6.25%
due 1/1/01 (Firelands Community Hospital Project) A/A- 1,034,820
2,000,000 Franklin County General Obligation, 6.375% due 12/1/17, pre-refunded 12/1/01 @102 Aaa/AAA 2,178,720
1,100,000 Hamilton County Hospital Facilities Refunding Revenue Series 1992,
6.25% due 1/1/01 (Episcopal Retirement Homes, Inc. Project; LOC: Fifth/Third Bank) Aa2/NR 1,154,879
510,000 Lorain County First Mortgage Revenue Series 1992-B, 6.375% due 2/1/07,
put 2/1/97 (Kendal at Oberlin Project; LOC: Bank of Ireland) A1/A- 516,054
3,095,000 Ohio Water Development Authority Safe Water Refunding Series 1992,
0% due 12/1/00 (Insured: MBIA) Aaa/AAA 2,516,637
1,060,000 Switzerland Local School District of Monroe County Revenue Anticipation Notes
Series 1995, 6.25% due 6/15/00 NR/NR 1,066,233
2,765,000 Warren County Hospital Facilities Improvement and Refunding Revenue,
6.80% due 7/1/01 (Otterbein Home Project; LOC: Fifth/Third Bank) Aa2/NR 2,949,094
910,000 Washington County Hospital Facilities Revenue, 6.875% due 9/1/02
(Marietta Area Health Project) Baa1/NR 947,629
Oklahoma (.76%)
1,190,000 Broken Arrow Utility System & Sales Tax Revenue Refunding Series 1992-A, 6.00%
due 5/1/01 (Insured: FGIC) Aaa/AAA 1,253,058
230,000 Comanche County SFMR Refunding 1990 Series, 7.60% due 12/1/98 A1/NR 240,707
240,000 Comanche County SFMR Refunding 1990 Series, 7.65% due 6/1/99 A1/NR 251,839
1,060,000 Oklahoma City Municipal Improvement Authority Water & Sewer Revenue Series
Refunding A, 0% due 7/1/00 (Insured: AMBAC) Aaa/AAA 877,839
1,220,000 Pushmatahah County Town of Antlers Hospital Authority Revenue Refunding
Series 1991, 8.75% due 6/1/03 NR/NR 1,320,906
1,155,000 Tulsa Industrial Development Hospital Revenue, 5.60% due 2/15/03
(St. Johns Medical Center Project) Aa/AA 1,167,647
1,940,000 Tulsa PFA Solid Waste Steam & Electric Revenue Refunding Series 1994, 4.90%
due 11/1/99 (Ogden Martin Systems of Tulsa Inc. Project; Insured: AMBAC) Aaa/AAA 1,937,866
Oregon (.54%)
2,500,000 Clackamas County Hospital Facilities Revenue, 6.10% due 10/1/01 A1/AA- 2,625,550
2,000,000 Oregon State Department of Transportation Regional Light Rail Extension,
5.20% due 6/1/98 (Westside Light Rail Project; Insured: MBIA) Aaa/AAA 2,036,920
300,000 Springfield General Obligation, 6.70% due 10/1/00 A/A 302,130
Pennsylvania (4.99%)
1,900,000 Allentown Area Hospital Authority Revenue Series 1991, 7.75% due 7/1/98
(Sacred Heart Hospital Project) NR/BBB 2,008,699
1,250,000 Armstrong County Hospital Authority Series 1992-A, 5.25% due 11/1/12,
put 11/1/97 (LOC: Pittsburgh National Bank) A1/NR 1,270,150
1,000,000 Chester County Utility, 7.00% pre-refunded 8/1/01 Aa/AAA* 1,099,220
550,000 Clairton School District General Obligation, 0% due 11/1/99 NR/A 463,150
500,000 Clairton School District General Obligation, 0% due 11/1/02 NR/A 349,875
3,060,000 Delaware County Health Facilities Authority Revenue Series 1993-B, 5.375%
due 11/15/99 (Mercy Health Corporation of S.E. Pennsylvania Project) NR/BBB 3,029,614
2,500,000 Delaware County Industrial Development Authority Refunding Revenue Series A,
7.40% due 12/1/98 (Resource Recovery Project; LOC: Bank of America) Aa3/AA- 2,609,925
2,030,000 Erie School District General Obligation, 0% due 6/1/00, Escrowed to Maturity Aaa*/A 1,694,238
1,000,000 Erie School District General Obligation, 0% due 12/1/00, Escrowed to Maturity Aaa*/A 815,590
3,365,000 Harrisburg Authority Commonwealth Lease Revenue Series 1991,
6.25% due 6/1/00 (Insured: FSA) Aaa/AAA 3,515,752
1,300,000 Harrisburg Authority Lease Revenue, 6.50% due 6/1/04 (Insured: FSA)
crossover refunded 6/1/01 Aaa/AAA 1,385,540
1,455,000 McKeesport Area School District General Obligation Refunding Revenue Series 1991,
0% due 10/1/00 NR/A 1,176,120
1,680,000 McKeesport Area School District General Obligation Refunding Revenue Series 1991,
0% due 10/1/02 NR/A 1,199,218
2,000,000 Pennsylvania State Refunding & Projects General Obligation Series A, 6.50% due 1/1/00 A1/AA- 2,119,160
4,270,000 Pennsylvania State Certificate of Participation, 4.60% due 6/1/97 A/A- 4,294,339
4,085,000 Pennsylvania State Certificate of Participation, 4.60% due 12/1/97 A/A- 4,115,106
875,000 Pennsylvania Higher Education Facilities Authority Revenue, 8.05% due 3/1/97 Baa/BBB 899,833
1,770,000 Philadelphia Gas Works Revenue 14th Series, 5.60% due 7/1/99 Baa1/BBB 1,798,320
1,565,000 Philadelphia Water & Sewer Revenue 12th Series, 7.60% due 7/1/98 refunded 7/1/96 Aaa/AAA 1,596,801
2,850,000 Philadelphia Water & Wastewater Revenue Series 1993, 4.875% due 6/15/01
(Insured: FSA) Aaa/AAA 2,856,783
2,245,000 Philadelphia Hospital & Higher Education Facilities Authority Hospital Revenue
Series 1991, 7.00% due 7/1/01 (Graduate Health System Project) Baa1/BBB+ 2,368,610
3,000,000 Southeastern Pennsylvania Transportation Authority Series 1994, 6.00% due 6/1/99
(LOC: Canadian Imperial Bank of Commerce) Aa3/AA- 3,113,610
2,825,000 State Public School District Building Authority, Reading School District Capital Appreciation
Series B, 0% due 7/15/00 (Insured: MBIA) Aaa/AAA 2,344,496
Puerto Rico (.14%)
250,000 Puerto Rico Public Improvement General Obligation, 6.60% due 7/1/04 Baa/A- 277,588
1,000,000 Puerto Rico Electric Power Revenue Refunding Series 1992-Q, 5.70% due 7/1/00 Baa1/A- 1,030,620
Rhode Island (.45%)
2,000,000 Rhode Island Depositor's Economic Protection Corp. Series 1992-A, 6.10% due 8/1/02
(Insured: FSA) Aaa/AAA 2,124,980
825,000 Rhode Island Health & Educational Building Corporation Health Facilities
Revenue, 8.00% due 7/1/00 (Steere House Issue Project) NR/NR 868,643
1,169,000 Rhode Island Industrial Facilities Corporation Series 1991, 5.875% due 6/1/02
(Paramount Cards, Inc.; LOC: Daichi Kangyo Bank) A1/NR 1,175,780
South Carolina (.33%)
500,000 Florence County Public Facilities Corporation, 7.30% due 3/1/03, prerefunded 3/1/00
(Law Enforcement Project; Insured: AMBAC) Aaa/AAA 548,215
2,000,000 Piedmont Municipal Power Agency Series 1992,
5.20% due 1/1/98 (Electric Revenue Project) A/BBB 2,021,060
500,000 South Carolina State Housing Authority Multifamily Revenue, 7.375% due 12/1/07 NR/NR 445,000
South Dakota (.40%)
760,000 South Dakota Housing Development Authority Home Ownership Mortgage
Series 1993-A, 4.75% due 5/1/99 Aa/AA 761,657
1,400,000 South Dakota Health & Education Facilities Authority Revenue Series 1992,
5.40% due 9/1/01 (Rapid City Regional Hospital Project; Insured: MBIA) Aaa/AAA 1,429,624
1,250,000 South Dakota Lease Revenue Series 93B, 8.00% due 9/1/03 (LOC: FSA) Aaa/AAA 1,458,863
Tennessee (1.61%)
5,000,000 Chattanooga-Hamilton County Hospital Revenue, 9.976% due 5/25/21, refunded
5/1/01 @ 102 (Erlanger Medical Center Project; Insured: FSA) Aaa/AAA 5,962,500
1,565,000 Clarksville Natural Gas Corporation Series 1994-A, 7.00% due 5/1/02
(Guaranty: Louis Dreyfus Natural Gas) NR/BBB- 1,588,710
1,130,000 Clarksville Natural Gas Corporation Series 1994-A, 7.00% due 11/1/02
(Guaranty: Louis Dreyfus Natural Gas) NR/BBB- 1,147,662
4,000,000 Clarksville Public Building Authority Pooled Loan Refunding,
(GIC: Assured Return) 4.75% due 12/1/00 NR/AA- 3,974,680
1,120,000 Copperhill Industrial Development Board, 7.80% due 12/1/00
(City Services Company Project) Baa3/BBB 1,127,448
1,000,000 Southeast Tax Exempt Mortgage Bond Trust Tender Option Certificates Series 1990,
7.25% due 4/1/17, put 4/1/03 NR/AAA 1,097,550
Texas (7.36%)
13,840,000 Bell County Health Facilities Development Corporation Series 1993-A, 4.75% due 10/1/23,
put 10/1/98 (Central Texas Pooled Health Care Loan Program; Guaranteed: Sun Life of America) NR/AA- 13,777,582
1,655,000 Bexar County Health Facilities Development Corporate Hospital Revenue
Series 1991, 7.40% due 5/1/00 Baa1/BBB 1,776,345
1,065,000 Cypress-Fairbanks Independent School District General Obligation,
0% due 2/1/02 (Insured: FGIC) Aaa/AAA 802,307
1,685,000 Dallas Waterworks & Sewer System Revenue, 7.10% due 4/1/99 Aa/AA 1,768,020
315,000 Dallas Waterworks & Sewer System Revenue, 7.10% due 4/1/99 Aa/AA 328,227
2,015,000 Ector County Hospital Revenue, 7.125% due 4/15/02 Baa1/BBB 2,133,462
80,000 Fort Worth HFC SFMR Series 1985, 9.15% due 11/1/96 (Insured: MBIA) Aaa/AAA 80,573
1,920,000 Harris County Health Facilities Development Corporation, 7.375% due 12/1/25, put 12/1/98
(Greater Houston Pooled Health Care Project; Guaranteed: Prudential) Aa/NR 1,946,208
4,000,000 Harris County Flood Control District L.T.G.O. Series 1991-A, 0% due 10/1/01 Aa/AA+ 3,085,320
955,000 Harris County Health Facilities Dev. Corp. Hospital Revenue, 6.70% due 6/1/00
(Memorial Hospital Systems Project) A/A- 1,011,116
2,850,000 Humble Independent School District of Harris County Series 1992,
0% due 2/15/00 (PSF Guaranty) Aaa/AAA 2,405,115
1,295,000 Irving Flood Control District Section 3 Refunding Capital Appreciation, 0% due 9/1/01 Baa/NR 952,874
1,530,000 Jefferson County Health Facilities Development Corporation Hospital Revenue
Series 1989, 8.125% due 10/1/99 (Baptist Health Care System Project) Baa/BBB 1,583,611
925,000 La Joya Independent School District Unlimited Tax School Refunding Series 1987,
8.00% due 8/1/97 Baa/NR 928,543
325,000 La Joya Independent School District Unlimited Tax School Refunding Series 1987,
8.00% due 8/1/97 Baa/NR 326,245
2,630,000 Lancaster Independent School District Unlimited Tax Refunding, 0% due 2/15/99
(PSF Guaranty) Aaa/AAA 2,331,653
2,300,000 Lancaster Independent School District Unlimited Tax Refunding, 0% due 2/15/98
(PSF Guaranty) Aaa/AAA 2,144,290
2,230,000 Lower Colorado River Authority Jr. Lien Refunding Revenue Series 1992, 0%
due 1/1/01 (Insured: AMBAC) Aaa/AAA 1,806,233
845,000 North Texas Health Facilities Development Corporation Revenue Series 1988,
8.25% due 9/1/98 (Wichita Falls United Diagnostic Center Project) A*/A* 901,742
1,000,000 North Texas Higher Education Student Loan Revenue,
6.50% due 4/1/99 (Insured: AMBAC) Aaa/AAA 1,041,760
350,000 Northgate Crossing Utility District Road System & Drainage System Unlimited
Tax Sinking Fund Series 1986, 9.25% due 12/1/98 NR/NR 350,095
1,040,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/06 pre-refunded 8/1/98 Aaa/AAA 1,110,169
1,115,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/07 pre-refunded 8/1/98 Aaa/AAA 1,190,229
1,295,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/09 pre-refunded 8/1/98 Aaa/AAA 1,382,374
1,395,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/10 pre-refunded 8/1/98 Aaa/AAA 1,489,121
1,500,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/11 pre-refunded 8/1/98 Aaa/AAA 1,601,205
1,615,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/12 pre-refunded 8/1/98 Aaa/AAA 1,723,964
2,135,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/13 pre-refunded 8/1/98 Aaa/AAA 2,279,048
1,000,000 Palo Duro River Authority Unlimited Tax Refunding Series 1992, 5.10% due 8/1/97
Capital Guaranty Insurance) NR/AAA 1,013,710
4,600,000 Plano Capital Appreciation Refunding General Obligation, 0% due 3/1/01 A1/AA- 3,661,646
955,000 Tarrant County HFC Multifamily Housing Revenue, 4.50% due 9/1/06, put 9/1/96
(Bedford Springs Project; Guaranteed: Provident Mutual Life Insurance Corporation) NR/AA- 956,117
190,000 Texas Housing Agency MFHR 1983-A, 10.00% due 3/1/05 NR/NR 114,000
220,000 Texas Housing Agency MFHR 1983-B, 10.00% due 3/1/05 NR/NR 132,000
5,880,000 Texas Public Finance Authority Series B, 5.25% due 2/1/98 (Insured: AMBAC) Aaa/AAA 5,975,668
705,000 Texas Water Resource Finance Authority Revenue, 7.00% due 8/15/99
(Insured: AMBAC) Aaa/AAA 749,746
995,000 Texas Water Resource Finance Authority Revenue, 7.40% due 8/15/00 A/A 1,064,511
880,000 Texas Water Resources Authority Revenue, 7.50% due 8/15/01 A/A- 944,002
1,100,000 Trinity HFC Multifamily Housing Revenue Series 1982, 10.00% due 6/1/98
(Timberline Apartment Project) NR/NR 1,100,000
Utah (1.36%)
970,000 Davis County Housing Authority MFHR, 7.50% due 6/1/97 (Fox Creek Apartment Project;
FNMA Pass-through Certificates) NR/AAA 997,538
8,000,000 Intermountain Power Agency Power Supply Revenue, 0% pre-refunded 7/1/00 @ 101 Aaa/AAA 6,607,040
2,220,000 Utah Student Loan Revenue Series 1992-G, 5.20% due 11/1/98 (Insured: AMBAC) Aaa/AAA 2,250,103
600,000 Utah Municipal Finance Co-op Local Government Revenue, 7.10% due 6/1/00 NR/AA 642,108
2,000,000 Weber County Housing Authority MFHR Series 1991, 6.50% due 11/1/18, put 11/1/01
(Cherry Creek Apartment Project; LOC: First Security Bank of Utah, Insured: FGIC) Aaa/AAA 2,052,080
Virginia (1.26%)
3,000,000 Hampton Redevelopment Housing Authority Series 1994, 7.00% due 7/1/24,
put 7/1/04 (Chase Hampton Apartments Project) NR/NR 3,196,380
1,755,000 Henrico County IDA Public Facility Lease Revenue, 6.50% due 8/1/00
(Henrico County Jail Project) Aa/AA 1,869,917
3,000,000 Suffolk Redevelopment Housing Authority Series 1994, 7.00% due 7/1/24,
put 7/1/04 (Chase Heritage at Dulles Project) NR/NR 3,145,830
1,960,000 Virginia Housing Development Authority Series C-8, 5.70% due 7/1/03 Aa1/AA+ 1,981,854
685,000 Virginia Housing Development Authority Series D-4, 5.00% due 7/1/00 Aa1/AA+ 691,432
730,000 Virginia Housing Development Authority Series D-4, 5.15% due 7/1/01 Aa1/AA+ 735,891
Washington (2.99%)
1,010,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992,
5.55% due 7/1/99 A1/A 1,032,119
1,125,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992,
5.75% due 7/1/00 A1/A 1,158,998
1,295,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992-E,
5.50% due 7/1/97 A1/A 1,313,881
1,370,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992-E,
0% due 7/1/98 A1/A 1,248,700
1,000,000 Spokane County Airport Revenue Refunding Series 1993, 4.80% due 6/1/99
(Insured: MBIA) Aaa/AAA 1,004,020
2,500,000 Spokane County Industrial Development Corporation Refunding, 4.75% due 12/1/97
(Jensen - Byrd Project; LOC: U.S. Bank of Washington) A1/NR 2,492,775
725,000 Spokane County School District # 363 Unlimited Tax G.O. Ref. Series 1992,
5.40% due 12/1/00 A/NR 743,002
1,000,000 Sumner Limited Tax General Obligation Anticipation Notes, 4.70% due 8/1/98 NR/NR 1,000,420
2,880,000 Washington Health Care Facilities Authority Pooled Equipment
Series 1992-B, 7.20% due 6/1/02 (Kadlec Medical Center Project) Baa1/NR 2,972,736
1,945,000 Washington Health Care Facilities Authority Pooled Equipment
Series 1992-A, 7.35% due 6/1/02 (Dominican Health Project) Baa/NR 2,025,931
1,040,000 Washington Public Power Supply System Series G Project #1 Rev., 7.15% due 7/1/01 Aa/AA 1,128,275
2,000,000 Washington Public Power Supply System Project #1 Ref. Rev., 6.50% due 7/1/02 Aa/AA 2,099,060
3,500,000 Washington Public Power Supply System Project #1 Ref. Rev., 5.30% due 7/1/02 Aa/AA 3,451,245
500,000 Washington Public Power Supply System Series C Project #2 Rev., 7.20% due 7/1/99 Aa/AA 531,660
250,000 Washington Public Power Supply System Project #2 Ref. Rev., 7.50% due 7/1/02 Aa/AA 273,168
2,000,000 Washington Public Power Supply System Project #2 Ref. Rev., 7.50% due 7/1/03 Aa/AA 2,207,680
1,700,000 Washington Public Power Supply System Series B Refunding, 7.15% due 7/1/01 Aa/AA 1,823,930
1,000,000 Washington Public Power Supply System Series B, 7.25% due 7/1/00 Aa/AA 1,074,320
West Virginia (.99%)
871,829 Marion County SFMR Series 1992, 7.75% due 7/10/11 Baa/NR 913,310
220,000 Randolph County Building Commission Hospital Revenue, 6.80% due 11/1/97 Baa1/BBB 222,721
1,000,000 West Virginia General Obligation Highway Refunding Series 1992-A, 5.30% due 2/1/00 A1/A+ 1,017,260
5,000,000 West Virginia Parkway Economic Development Tourism Authority Series 1993, 3.827%
(inverse floater) due 5/15/01 (Insured: FGIC) Aaa/AAA 4,701,450
2,500,000 West Virginia Parkway Economic Development Tourism Authority Series 1993, 3.927%
(inverse floater) due 5/15/02 (Insured: FGIC) Aaa/AAA 2,348,850
Wisconsin (1.16%)
900,000 Cady Small Business Pollution Control Revenue Refunding Series 1992, 6.20%
due 4/1/00 (Summit Cheese Project; Guaranteed: SBA) Aaa/AAA 909,423
1,500,000 Wisconsin Health & Education Facilities Authority Series 1992, 5.50%
due 8/15/01 (Wheaton Franciscan Services Inc. Project; Insured: MBIA) Aaa/AAA 1,539,615
3,000,000 Wisconsin Health & Education Facilities Authority, 5.00% due 8/15/98
(Sorrowful Mother Project) NR/AA- 3,028,170
1,000,000 Wisconsin Health & Education Facilities Authority Series 1993, 4.75% due 2/15/98
(Lacrosse Project; Insured: FSA) Aaa/AAA 1,005,870
1,045,000 Wisconsin Health & Education Facilities Authority Series 1993, 5.00% due 2/15/99
(Lacrosse Project; Insured: FSA) Aaa/AAA 1,053,903
3,045,000 Wisconsin Health & Education Facilities Authority Revenue, 5.75% due 11/15/01
(Insured: FSA) Aaa/AAA 3,161,563
Wyoming (.31%)
1,560,549 Evanston Industrial Development Revenue Series 1983, 9.90% due 4/1/04
(Wybanco Project; LOC: Texas Commerce Bank) A2*/A+* 1,549,687
300,000 Natrona County Hospital Revenue Series 1990, 7.20% due 9/15/96
(Wyoming Medical Center Project) Baa1/BBB+ 301,983
1,000,000 Wyoming Student Loan Corporation Revenue, 6.25% due 12/1/99 NR/AA 1,042,690
TOTAL INVESTMENTS (100%) (Cost $903,161,256) $923,629,163
*Indicates rating on other debt issued by the same issuer, rather than on the security held by the Fund.
These securities are deemed by the Adviser to be comparable with those of issuers having debt ratings
in the 4 highest grades by Moody's or S & P.
+Credit ratings are unaudited.
See notes to financial statements.
</TABLE>
independent auditor's report
To the Board of Directors and Shareholders
Thornburg Limited Term Municipal Fund, Inc. National Portfolio
Santa Fe, New Mexico
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Thornburg Limited Term Municipal Fund, Inc. -
National Portfolio as of June 30, 1996, the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principals used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material aspects, the financial position of
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio as of June 30,
1996, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principals.
/s/ McGladrey & Pullen
New York, New York
July 26, 1996
The next page of this financial is a graph tracking the percentage change in
share price of the Thornburg Limited Term Municipal Fund - National Porftolio
Class A shares vs. the percentage change in the Lipper Municipal Bond Fund
Index from January 1, 1987 through June 30, 1996.
A hard copy of this graph is on file with the S.E.C.
The final page of this report is bar chart showing the dollar return of
a $100,000.00 investment in Thornburg Limited Term Municipal Fund -
National Porftolio Class A shares on 6/30/86 vs. the same investment in
Donoghue's Taxable Money Market Fund Average and Donoghue's Tax Free Money
Market Fund Average.
A hard copy of this graph is on file with the S.E.C.
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND-
NATIONAL PORTFOLIO CLASS SHARES
Semiannual Report 12/31/96
Thornburg Thornburg Thornburg
Ltd Term Muni Ltd Term Muni Ltd Term Muni
Fund-National Fund-National Fund-National
A Shares C Shares I Shares
SEC Yield 3.94% 3.59% 4.41%
Taxable Equiv. Yields 6.52% 5.94% 7.03%
NAV $ 13.45 $ 13.47 $ 13.45
Max. Offering Price $ 13.79 $ 13.47 $ 13.45
1 Year Ending 1.35% 3.47% NA
5 Years Ending 5.19% NA NA
10 Years Ending 6.08% NA NA
Since Inception 7.05% 4.82% 3.86%*
Inception Date (9/28/84) (9/1/94) (7/5/96)
*Not Annualized
Taxable equivalent yields assume a 39.6% marginal federal tax rate.
The municipal funds, except Thornburg Limited Term National, may be subject to
the alternative minimum tax.Currently there are no such investments in
Thornburg Limited Term Municipal National Portfolio, although portions of this
Fund's income may be subject to such a tax in the future. Net investment income
of the National Portfolios will be subject to applicable state and local taxes.
The data quoted 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.
The total return data shown above reflects the deduction of the maximum sales
charge of the Class A Shares of 2.50%.
l e t t e r t o s h a r e h o l d e r s
Dear Shareholder:
After rising to their highest levels in several years in 1994, interest rates
fell sharply during 1995. During 1996, rates in the U.S. increased again,
although bond yields in most of the world fell sharply. The net asset value of
Thornburg Limited Term Municipal Fund A shares decreased 10 cents per share to
$13.45 during 1996. If you were with us for the entire period, you received
dividends of 62.3 cents per share. If you reinvested your dividends, you
received 63.6 cents per share. Investors who owned C Shares received dividends
of 56.9 and 58 cents per share, respectively.
Strong forces are acting in opposite ways on U.S. interest rates at this time.
The U.S. economy is generally firm and the economies of many developing
countries are growing as well. Americans have been net sellers of individual
municipal and U.S. government bonds, preferring instead to pour money into
stocks, money market funds and, recently, emerging market debt funds. By
themselves, these forces should put upward pressure on our interest rates.
However, most other developed countries have sluggish economies, much lower
interest rates than ours, and currencies that have been depreciating relative to
the U.S. dollar. As a result, foreign money has been pouring into the U.S. bond
market, lifting bond prices and lowering yields from the levels that would
otherwise exist. In the last 2 years, foreign purchases of U.S. Treasury
bonds have accounted for more than 100% of the net issuance of Treasury
bonds, up from an average of approximately 20% between 1980-1994. The
graph below illustrates this trend, which does not appear to be subsiding.
Your Limited Term Municipal Fund Portfolio currently holds approximately 480
obligations from municipal borrowers in 48 states and 2 U.S. territories.
Approximately 87% of the bonds are rated A or better by one of the major rating
agencies. As you know, we "ladder" the maturities of the bonds in your portfolio
so that some bonds are scheduled to mature at par during each of the next 10
years. Today, your fund's weighted average maturity is approximately 3.6 years,
and we always keep it below 5 years. Percentages of the portfolio maturing
within each of the next 10 years are summarized as follows.
% of portfolio maturing within Cumulative % maturing by end of
1 year = 11% year 1 = 11%
1 to 2 years = 14% year 2 = 25%
2 to 3 years = 16% year 3 = 41%
3 to 4 years = 18% year 4 = 59%
4 to 5 years = 17% year 5 = 76%
5 to 6 years = 11% year 6 = 87%
6 to 7 years = 5% year 7 = 92%
7 to 8 years = 4% year 8 = 96%
8 to 9 years = 3% year 9 = 99%
9 to 10 years = 1% year 10 = 100%
I believe that a laddered portfolio of municipal bonds such as yours can usually
outperform a single municipal bond investment, and that it can offer the
additional benefits of convenience, diversification and more favorable balance
of price risk and reinvestment risk. It is not possible to measure every
individual bond from every conceivable starting and ending date against your
fund, however, it is possible to make some comparison. On January 1, 1992 a
representative yield for a $1 million (or more) national market block of AA
rated municipal bonds maturing January 1, 1997 was 4.90%, according to Delphis
Hanover Corporation. Let's assume an investor purchased such a municipal bond
at that time and held it to maturity. On January 1, 1997, this investor's
average annual total return from that bond would have been 4.68%, assuming
reinvestment of the 1992 to 1996 interest payments at prevailing money market
rates. The average annual return would have been 4.90% if the investor was
somehow able to reinvest the interest payments at 4.90%. Your average annual
total return on a purchase of up to $50,000 of Thornburg Limited Term Municipal
Fund was 5.19% for the 5 year period ended January 1, 1997. Your fund return was
higher if you made a larger quantity purchase. Of course, past performance is no
guarantee of future results and returns may be higher or lower in the future.
Currently, Thornburg Limited Term Municipal Fund is the longest running mutual
fund of any description to continuously receive a 5 star rating from
Morningstar.* I would like to attribute this to capable execution of a thorough-
ly sensible investment strategy over time. Thank you for investing in Thornburg
Limited Term Municipal Fund.
Sincerely,
Brian J. McMahon
Managing Director
* Morningstar propriety rating reflects historical risk adjusted performance as
of 12/31/96. Ratings are subject to change every month. Funds with at least
three years of performance history are assigned ratings from one star
(lowest) to five star (highest). Morningstar ratings are calculated from the
funds' three-, five-, and ten year average annual returns and a risk factor
that reflects fund performance relative to three month Treasury bill returns.
10% of the funds in an investment category receive five stars, 22.5% receive
four stars. Thornburg Limited Term Municipal Fund is ranked 4-stars for the 3
year period, 5-stars for the 5 year period, and 5-stars for the 10 year
period ending 12/31/96. There were 340 bond funds with 3-year ratings, 193
bond funds with 5-year ratings and 119 with 10-year ratings in Morningstar's
Municipal National category.
s t a t e m e n t o f a s s e t s a n d l i a b i l i t i e s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
December 31, 1996
(unaudited)
ASSETS
Investments, at value (cost $915,407,429) $942,626,765
Cash 1,499,330
Receivable for fund shares sold 609,548
Receivable for securities sold 5,106
Interest receivable 14,613,552
Prepaid expenses and other assets 93,379
TOTAL ASSETS 959,447,680
LIABILITIES
Payable for securities purchased 54,155,576
Dividends payable 1,177,288
Payable for fund shares redeemed 1,735,182
Accounts payable and accrued expenses 514,631
Accounts payable investment adviser (Note 3) 453,076
TOTAL LIABILITIES 58,035,753
NET ASSETS $901,411,927
NET ASSET VALUE:
Class A Shares:
Net asset value and redemption price per share
($873,253,294 applicable to 64,927,937 shares of beneficial interest
outstanding - Note 4) $13.45
Maximum sales charge, 2.50% of offering
price (2.57% of net asset value per share) .34
Maximum Offering Price Per Share $13.79
Class C Shares:
Net asset value and offering price per share*
($18,648,380 applicable to 1,384,223 shares of beneficial interest
outstanding - Note 4) $13.47
Class I Shares:
Net asset value, offering and redemption price per share
($9,510,253 applicable to 706,952 shares of beneficial interest
outstanding - Note 4) $13.45
* Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge. See notes to financial
statements.
s t a t e m e n t o f o p e r a t i o n s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Six Month Period Ended December 31, 1996
(unaudited)
INVESTMENT INCOME
Interest income (net of premium amortized $26,065,114
of $1,196,848)
EXPENSES
Investment advisory fees (Note 3) 2,122,095
Administration Fees (Note 3)
Class A Shares 568,075
Class C Shares 10,912
Class I Shares 2,160
Distribution and service fees (Note 3):
Class A Shares 1,136,150
Class C Shares 54,562
Transfer agent fees 288,379
Custodian fees 172,737
Accounting fees 52,765
Professional fees 51,685
Registration and filing fees 42,556
Other expenses 62,291
TOTAL EXPENSES 4,564,367
Less:
Expenses reimbursed by investment adviser (Note 3) (32,140)
NET EXPENSES 4,532,227
NET INVESTMENT INCOME 21,532,887
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NOTE 5
Net realized gain on investments sold 75,241
Increase in unrealized appreciation of investments 6,751,429
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 6,826,670
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $28,359,557
See notes to financial statements.
s t a t e m e n t s o f c h a n g e s i n n e t a s s e t s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
(unaudited)
Six Month Period Year Ended
Ended December 31, 1996 June 30, 1996 June 30,1996
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income $21,532,887 $43,559,816
Net realized gain (loss) on investments sold 75,241 (69,749)
Increase (Decrease) in
unrealized
appreciation of investments 6,751,429 (1,545,063)
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 28,359,557 41,945,004
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A shares (20,951,776) (43,028,755)
Class B Shares -- (32,246)
Class C Shares (366,154) (498,815)
Class I Shares (214,957) --
FUND SHARE TRANSACTIONS-- (Note 4)
Class A Shares (51,187,137) (12,641,152)
Class B Shares -- (2,834,331)
Class C Shares 2,578,374 9,590,852
Class I Shares 9,415,263 --
NET DECREASE IN NET ASSETS (32,366,830) (7,499,443)
NET ASSETS:
Beginning of period 933,778,757 941,278,200
End of period $901,411,927 $933,778,757
See notes to financial statements.
n o t e s t o f i n a n c i a l s t a t e m e n t s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Note 1 - ORGANIZATION
Thornburg Limited Term Municipal Fund, Inc. (the "Fund") was incorporated in
Maryland on February 14, 1984. The Fund was reorganized in 1986 as a series
investment company with separate investment portfolios. The current portfolios
are as follows: National Portfolio (the "Portfolio") and California Portfolio.
The Fund is an open-end diversified management investment company, registered
under the Investment Company Act of 1940, as amended. The primary investment
objective of the Fund is to obtain as high a level of current income exempt from
federal income tax as is consistent with preservation of capital.
The Fund currently offers three classes of shares of beneficial interest in the
portfolio, Class A, Class C and Institutional Class (Class I) shares. The Fund
no longer offers Class B shares. Each class of shares of the Portfolio
represents an interest in the same portfolio of investments of the Fund, except
that (i) Class A shares are sold subject to a front-end sales charge collected
at the time the shares are purchased and bear a service fee, (ii) Class B shares
were sold at net asset value without a sales charge at the time of purchase, but
were subject to a contingent deferred sales charge upon redemption, and bore
both a service fee and a distribution fee, (iii) Class C shares are sold at net
asset value without a sales charge at the time of purchase, but are subject to a
contingent deferred sales charge upon redemption within one year, and bear both
a service fee and a distribution fee, (iv) Class I shares are sold at net asset
value without a sales charge at the time of purchase, and (v) the respective
classes have different reinvestment privileges. Additionally, the Portfolio may
allocate among its classes certain expenses, to the extent allowable to specific
classes, including transfer agent fees, government registration fees, certain
printing and postage costs, and administrative and legal expenses. Currently,
class specific expenses of the Portfolio are limited to distribution fees,
administrative fees and transfer agent expenses.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the
Fund are as follows:
Valuation of Investments: In determining the net asset value of the Portfolio,
the Fund utilizes an independent pricing service approved by the Board of
Directors. Debt investment securities have a primary market over the counter and
are valued on the basis of valuations furnished by the pricing service. The
pricing service values portfolio securities at quoted bid prices or the yield
equivalents when quotations are not readily available. Securities for which
quotations are not readily available are valued at fair value as determined by
the pricing service using methods which include consideration of yields or
prices of municipal obligations of comparable quality, type of issue, coupon,
maturity and rating; indications as to value from dealers and general market
conditions. The valuation procedures used by the pricing service and the
portfolio valuations received by the Portfolio are reviewed by the officers of
the Fund under the general supervision of the Board of Directors. Short-term
obligations having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
Federal Income Taxes: It is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable (if any) and tax exempt income to its
shareholders. Therefore, no provision for Federal income tax is required.
Dividends paid by the Portfolio for the period ended December 31, 1996 represent
exempt interest dividends which are excludable by shareholders from gross income
for Federal income tax purposes.
When-Issued and Delayed Delivery Transactions: The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Portfolio
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and not for the
purpose of investment leverage or to speculate on interest rate changes. At the
time the Fund makes a commitment to purchase a security for the portfolio on a
when-issued basis, it will record the transaction and reflect the value in
determining its net asset value. When effecting such transactions, assets of the
Portfolio of an amount sufficient to make payment for the portfolio securities
to be purchased will be segregated on the Portfolio's records on the trade date.
Securities purchased on a when-issued or delayed delivery basis do not earn
interest until the settlement date.
Dividends: Net investment income of the Portfolio is declared daily as a
dividend on shares for which the Fund has received payment. Dividends are paid
monthly and are reinvested in additional shares of the Portfolio at 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 capital gains, to the extent available,
will be distributed annually.
General: Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discounts on
securities purchased are amortized to call dates or maturity dates of the
respective securities. Realized gains and losses from the sale of securities are
recorded on an identified cost basis. Use of Estimates: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the period ending December
31, 1996, these fees were payable at annual rates ranging from 1/2 of 1% to 9/40
of 1% of the average daily net assets of the Portfolio. Also, the Portfolio
entered into an Administrative Service Agreement with the Adviser, whereby the
Adviser will perform certain administrative services for the shareholders of
each class of the Portfolio's shares, and for which fees will be payable at an
annual rate of up to 1/8 of 1% of the average daily net assets attributable to
each class of shares.
In the event normal operating expenses of the Portfolio, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Portfolio's shares are qualified for sale,
the Adviser will reimburse the Portfolio for such excess. No such reimbursement
was required as a result of this limitation. For the period ended December 31,
1996, the Adviser voluntarily reimbursed certain operating expenses amounting to
$32,140. These expenses may be repaid to the Adviser by the Portfolio, however
such repayment will depend upon the overall level of Portfolio expenses for the
entire fiscal year ending June 30, 1997.
The Fund has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of Portfolio shares. For the
period ended December 31, 1996, the Distributor earned commissions aggregating
$61,442 from the sale of Class A shares, and collected contingent deferred sales
charges aggregating $7,524 from redemptions of Class C shares of the Portfolio.
Pursuant to a Service Plan under Rule 12b-1 of the Investment Company Act of
1940, the Fund may reimburse to the Adviser amounts not to exceed .25 of 1% per
annum of the average net assets attributable to each class of shares of the
Portfolio for payments made by the Adviser to securities dealers and other
financial institutions to obtain various shareholder related services. The
Adviser may pay out of its own funds additional expenses for distribution of the
Portfolio's shares.
The Fund has also adopted a Distribution Plan pursuant to Rule 12b-1, applicable
only to the Portfolio's Class C shares under which the Fund compensates the
Distributor for services in promoting the sale of Class C shares of the
Portfolio at an annual rate of up to .75% of the average daily net assets
attributable to Class C shares. Total fees incurred by each class of shares of
the Portfolio under their respective Service and Distribution Plans for the
period ended December 31, 1996, are set forth in the statement of operations.
Certain officers and directors of the Fund are also officers and/or directors of
the Adviser and Distributor. The compensation of unaffiliated directors of the
Fund is borne by the Fund.
Note 4 - SHARES OF BENEFICIAL INTEREST
At December 31, 1996 there were 600,000,000 shares of the Fund (including
485,000,000 for the Portfolio) of $.001 par value common stock authorized, and
capital paid in for the Portfolio aggregated $879,897,240. Transactions in
shares of beneficial interest were as follows:
Six Month Period Year Ended
Ended December 31, 1996 June 30, 1996
----------------------- -------------
Class A Shares Shares Amount Shares Amount
Shares sold 3,202,991 $42,942,640 10,705,592 $144,174,891
Shares issued to shareholders
in reinvestment of
distributions 1,030,941 13,832,887 2,128,377 28,634,345
Shares repurchased (8,051,873) (107,962,664)(13,781,715) (185,450,388)
Net Decrease (3,817,941) ($51,187,137) (947,746) ($12,641,152)
Class B Shares
Shares sold -- -- 46,556 $623,905
Shares issued to shareholders
in reinvestment of
distributions -- -- 1,871 25,134
Shares repurchased -- -- (259,380) (3,483,370)
Net Decrease -- -- (210,953) ($2,834,331)
Class C Shares
Shares sold 396,983 $5,332,209 1,097,905 $14,807,056
Shares issued to shareholders
in reinvestment of
distributions 22,862 307,259 31,748 427,775
Shares repurchased (228,091) (3,061,094) (420,008) (5,643,979)
Net Increase 191,754 $2,578,374 709,645 $9,590,852
Class I Shares
Shares sold 766,585 $10,214,243 -- --
Shares issued to shareholders
in reinvestment of
distributions 9,759 131,020 -- --
Shares repurchased (69,392) (930,000) -- --
Net Increase 706,952 $9,415,263 -- --
Note 5 - INVESTMENT SECURITY TRANSACTIONS
Purchases and proceeds from maturities or sales of investment securities of the
Portfolio other than short-term securities aggregated $121,375,562 and
$123,797,519, respectively. The cost of investments for Federal income tax
purposes is $916,061,579. At December 31, 1996, the aggregate gross unrealized
appreciation and depreciation, based on cost for Federal income tax purposes
were $28,375,382 and $1,156,046, respectively.
Accumulated net realized losses from security transactions included in net
assets at December 31, 1996 aggregated $5,704,649. For Federal income tax
purposes, the Portfolio has realized capital loss carryforwards of $4,648,000
from prior fiscal years available to offset future realized capital gains. To
the extent that such carryforwards are used, no capital gains distributions will
be made. The carryforwards expire as follows:
June 30, 1998 - $97,000, June 30, 1999 - $304,000, June 30, 2002 - $807,000,
June 30, 2003 - $602,000, and June 30, 2004 - $2,838,000.
f i n a n c i a l h i g h l i g h t s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Per share operating performance
(for a share outstanding
throughout the period)
Six Month Period
Ending December 31, Year Ended June 30,
1996 1996 1995 1994 1993 1992
(unaudited)
Class of Shares: A A A A A A
Net asset value, beginning of period $13.35 $13.37 $13.27 $13.59 $13.09 $12.83
Income from investment
operations:
Net investment income .31 .63 .64 .63 .68 .79
Net realized and unrealized
gain (loss) on investments .10 (.02) .10 (.32) .50 .26
Total from investment operations .41 .61 .74 .31 1.18 1.05
Less dividends from:
Net investment income (.31) (.63) (.64) (.63) (.68) (.79)
Change in net asset value .10 (.02) .10 (.32) .50 .26
Net asset value, end of period $13.45 $13.35 $13.37 $13.27 $13.59 $13.09
Total return (a) 3.11% 4.60% 5.76% 2.25% 9.24% 8.40%
Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.61%(b)4.66% 4.86% 4.60% 5.03% 5.96%
Expenses .97%(b) .97% .97% .95% 1.01% 1.04%
Portfolio turnover rate 13.16% 20.60% 23.02% 15.63%19.30% 27.63%
Net assets
at end of period (000) $873,253 $917,831 $931,987 $1,030,293 $895,500 $521,683
(a) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
(b) Annualized.
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
Per share operating performance
(for a share outstanding
throughout the period) Period from
Six Month Period Year Ended Sept. 1, 1994 (a)
Ending December 31, June 30, to June 30,
1996 1996 1995
(unaudited)
Class of Shares: C I** B* C B C
Net asset value, beginning of period $13.37 $13.27 $13.38 $13.40 $13.29 $13.29
Income from investment operations:
Net investment income .28 .33 .13 .57 .46 .46
Net realized and unrealized
gain (loss) on investments .10 .18 .05 (.03) .09 .11
Total from
investment operations .38 .51 .18 .54 .55 .57
Less dividends from:
Net investment income (.28) (.33) (.13) (.57) (.46) (.46)
Change in net asset value .10 .18 .05 (.03) .09 .11
Net asset value, end of period 13.47 $13.45 $13.43 $13.37 $13.38 $13.40
Total return (b) 2.90% 3.86% 1.56% 4.05% 4.14% 4.25%
Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.19%(c)4.97%(c)4.17%(c)4.22%4.24%(c)4.21%(c)
Exp., after expense reductions 1.38%(c) .60%(c)1.59%(c)1.41%1.57%(c)1.60%(c)
Exp., before expense reductions1.50%(c) .89%(c)2.01%(c)1.63%2.30%(c)1.84%(c)
Portfolio turnover rate 13.16%13.16% 20.60% 20.60% 23.02% 23.02%
Net assets
at end of period (000) $18,648$9,510 $0 $15,948 $2,823 $6,469
(a) Commencement of sales of Class B and Class C shares.
(b) Sales loads are not reflected in computing total return, which is
not annualized for periods less than one year. The total return for
Class B Shares reflects a period of 90 days.
(c) Annualized.
* Period from July 1, 1995 to September 28, 1995, on which date all
Class B shares were converted into Class A shares. ** Sales of Class I
shares commenced on July 5, 1996.
<TABLE>
<CAPTION>
s c h e d u l e o f i n v e s t m e n t s
Thornburg Limited Term Municipal Fund, Inc. - National Portfolio
December 31, 1996 CUSIPS: Class A - 532-723-103,Class C - 532-723-509, Class
I 532-723-806
NASDAQ Symbols: Class A - LTMFX Class C -LTMCX
Principal Credit Rating+
Amount Issuer-Description Moody's/S&P Value
<S> <C> <C>
Alabama (1.73%)
$1,675,000 Alabama A&M University Housing & General Fee Revenue Series 1992, 5.90%
due 11/1/02 (Living & Learning Center Project; Insured: MBIA) Aaa/AAA $1,790,659
515,000 Alabama Higher Education Loan Corporation Student Loan Revenue
Refunding Series 1994-A, 4.70% due 3/1/97 (Insured: FSA) Aaa/AAA 515,819
540,000 Alabama Higher Education Loan Corporation Student Loan Revenue
Refunding Series 1994-A, 4.70% due 9/1/97 (Insured: FSA) Aaa/AAA 543,316
2,250,000 Alabama Industrial Access Road & Bridge Corporation Capital Improvement
Series 1991, 5.60% due 6/1/97 A1/NR 2,268,652
1,000,000 Alabama Water Pollution Control Authority Series 1991, 6.45% due 8/15/02
(Insured: AMBAC) Aaa/AAA 1,079,070
2,500,000 Birmingham Special Care Facility Finance Authority Revenue Series 1990,
7.625% due 12/1/10, put 12/1/00 (Methodist Homes for the Aging Project;
LOC: South Trust Bank) A1/NR 2,691,125
1,550,000 Birmingham Jefferson Civic Center Authority Special Tax Series 1989, 7.20% due 1/1/01 A/A+ 1,657,864
1,320,000 Birmingham Jefferson Civic Center Authority Special Tax, 6.90% due 1/1/98 A/A+ 1,349,396
1,495,000 Houston County Hospital Board Revenue Refunding Series 1984, 7.625% due 4/1/07, pre-refunded
2/15/02 @ 100 (South East Alabama Medical Center Project; Insured: MBIA) Aaa/AAA 1,575,835
1,695,000 Montgomery County Revenue Warrants Series 1992, 6.625% due 4/1/02 NR/A 1,825,498
965,000 Morgan County-Decatur Healthcare Revenue, 5.40% due 3/1/00 (Decatur General Hospital
Project; Insured: Connie Lee) NR/AAA 990,592
Alaska (1.14%)
2,500,000 North Slope Borough G.O. Refunding Series 1992-A, 5.80% due 6/30/02 (Insured: MBIA) Aaa/AAA 2,650,425
2,500,000 North Slope Borough G.O. Capital Appreciation Series B, 0% due 1/1/99 (Insured: MBIA) Aaa/AAA 2,290,250
7,000,000 North Slope Borough G.O. Capital Appreciation Series B, 0% due 1/1/01 (Insured: MBIA) Aaa/AAA 5,797,050
Arizona (3.31%)
5,250,000 Arizona Educational Loan Marketing Corporation Revenue, Series 1992-A, 6.40% due 3/1/98 A/NR 5,385,398
1,250,000 Arizona Educational Loan Marketing Corporation Revenue, Series 1992-A, 6.70% due 3/1/00 A/NR 1,316,275
1,600,000 Arizona State Certificate of Participation Series 1994-A, 5.45% due 5/1/98 (Insured: AMBAC) Aaa/AAA 1,628,272
2,320,000 Arizona Municipal Finance Program Certificate of Participation Series 15, 8.65% due 8/1/04
(Flagstaff Project; Insured: BIG) Aaa/AAA 2,875,849
1,255,000 Maricopa Hospital District General Obligation Series A, 5.00% due 6/1/98 (Insured: FGIC) Aaa/AAA 1,275,544
1,550,000 Maricopa County School District # 8 Series 1992, 0% due 7/1/99
(Osborn Elementary School District Project) A1/A 1,393,776
3,800,000 Maricopa School District # 41 - Gilbert General Obligation, 0% due 7/1/01 (Insured: FGIC) Aaa/AAA 3,098,102
2,000,000 Maricopa County Unified School District # 41 Refunding, 0% due 7/1/97 (Insured: FGIC) Aaa/AAA 1,962,860
2,000,000 Maricopa County/Paradise Valley Unified School District General Obligation
Refunding Series 1992, 0% due 7/1/01 (Insured: AMBAC) Aaa/AAA 1,630,580
2,980,000 Maricopa County Unified School District # 97, 0% due 7/1/97 (Insured: FGIC) Aaa/AAA 2,924,661
1,390,000 Maricopa County Unified School District # 97, 0% due 7/1/98 (Insured: FGIC) Aaa/AAA 1,307,128
710,000 Mohave County Certificate of Participation, 4.90% due 7/1/98 NR/BBB 705,555
730,000 Mohave County Certificate of Participation, 5.10% due 7/1/99 NR/BBB 721,758
2,000,000 Pima County/Tucson Unified School District # 1 School Improvement Series 1992-D,
5.50% due 7/1/02 (Insured: FGIC) Aaa/AAA 2,097,480
80,457 Scottsdale IDA Hospital Revenue Refunding Series A, Amortizing Coupon
M-COATES, 7.50% final due 9/1/97 (Scottsdale Memorial Hospital Project) Aaa*/AAA* 83,410
175,000 South Tucson Municipal Property Corporation Series 1990, 8.20% due 6/1/99 NR/BB 180,796
175,000 South Tucson Municipal Property Corporation Series 1990, 8.25% due 6/1/00 NR/BB 182,346
1,290,000 Tempe General Obligation Series 1993-A, 0% due 7/1/99 Aa/AA+ 1,161,968
1,200,000 Tucson Water System Revenue Refunding Series 1992, 5.80% due 7/1/99 A1/A+ 1,245,120
Arkansas (.08%)
1,000,000 Arkansas State General Obligation College Savings, 0% due 6/1/02 Aa/AA 777,110
California (15.08%)
1,000,000 California Health Facilities Financing Authority Series A, 7.40% due 7/1/01
(Episcopal Homes Project; Insured: California Mortgage Insurance) NR/A 1,054,480
7,440,000 California Health Facilities Financing Authority Series 1991-D, 6.50%
pre-refunded 7/1/01 @ 102 (Catholic Health Care Project; Insured: AMBAC) Aaa/AAA 8,197,169
2,155,000 California Public Capital Improvement Finance Authority Revenue Series
1988-E, 8.25% due 3/1/98 Baa/NR 2,240,144
2,000,000 California State General Obligation, 6.50% due 10/1/99 A1/A 2,121,860
1,225,000 California Statewide Communities Development Authority Insured Health
Facilities Revenue Certificate of Participation Series 1992, 6.40% due 5/1/02
(Eskaton Properties Inc. Phase II Project) NR/A 1,278,116
1,100,000 California Statewide Communities Development Authority Certificate of
Participation, 3.11% (inverse floater) due 1/1/02 (Motion Picture & Television
Fund Project; Insured: AMBAC) Aaa/AAA 993,124
1,905,000 Chula Vista Multifamily Housing Refunding Revenue Series 1985, 5.75%
due 11/1/07, mandatory put 11/1/97 (Eucalyptus Grove Project; Insured:
Continental Insurance Co.) NR/A+ 1,909,420
910,000 Fairfield-Suisun Sewer District Revenue Refunding Series A, 6.50% due 5/1/03
(Insued: MBIA) Aaa/AAA 994,848
7,730,000 Glendale Hospital Revenue Series 1994, 7.625% due 1/1/05
(Verdugo Hills Project; Surety Bond: Industrial Indemnity) NR/A+ 8,462,417
1,000,000 Lancaster Redevelopment Agency Lease Revenue Notes Series 1995, 4.90% due 12/1/00
(LOC: Sumitomo Bank / Dai Ichi Kangyo Bank) NR/SP1 991,750
5,710,000 Los Angeles Water and Power, 7.10% due 1/15/31, crossover refunded 1/15/01 @102 Aa/AA- 6,359,912
1,500,000 Los Angeles Unified School District Certificate of Participation, 6.20% due 6/1/01
(Dr. Francisco Bravo Medical Project) A/A- 1,586,520
1,400,000 Los Angeles Wastewater System Revenue, 6.80% pre-refunded 8/1/98 @102 AAA/A 1,491,686
2,000,000 Los Angeles County Certificate of Participation Mobile Digital Communications,
7.70% due 7/15/01 Baa1/BBB+ 2,043,160
1,485,000 Los Angeles County Health Facilities Authority Rev., 7.20% due 3/1/01
refunded 3/1/98 (Civic View Medical Center Project) AAA+/A 1,571,382
1,050,000 Los Angeles County Certificate of Participation Series B, 5.50% due 7/1/98 A1/A+ 1,068,270
1,000,000 Los Angeles Transit Finance Corporation Certificate of Participation
Series 1992-B, 5.70% due 7/1/99 A1/A+ 1,027,130
1,995,000 Los Angeles Transportation Commission Certificate of Participation, 5.90% due 7/1/00 A1/A+ 2,066,241
2,500,000 Los Angeles Transportation Commission Certificate of Participation, 6.00% due 7/1/01 A1/A+ 2,609,850
2,000,000 MSR Public Power Agency Series 1987-C, 6.70% due 7/1/02 A/A 2,044,300
1,500,000 MSR Public Power Agency Series F, 5.45% due 7/1/01
(San Juan Project; Insured: AMBAC) Aaa/AAA 1,565,535
265,000 New Haven Unified School District Certificate of Participation, 7.00% due 12/1/99 NR/A- 281,838
2,500,000 Orange County Refunding Recovery, 5.10% due 6/1/02 (Insured: MBIA) Aaa/AAA 2,569,000
4,000,000 Orange County Refunding Recovery, 5.20% due 6/1/03 (Insured: MBIA) Aaa/AAA 4,136,600
7,600,000 Orange County Refunding Recovery, 6.50% due 6/1/04 (Insured: MBIA) Aaa/AAA 8,452,948
5,200,000 Orange County Refunding Recovery, 6.50% due 6/1/05 (Insured: MBIA) Aaa/AAA 5,809,752
1,000,000 Orange County Local Transportation Measure "M" Sales Tax Revenue, 5.50% due 2/15/01 Aa/AA 1,037,950
8,300,000 Orange County Local Transportation Authority Sales Tax Revenue, 2.60%
(inverse floater) due 2/15/99 (Insured: FGIC) Aaa/AAA 8,053,905
13,000,000 Orange County Recovery Certificate of Participation Series A, 5.50% due 7/1/02 (Insured: MBIA)Aaa/AAA13,587,860
2,000,000 Orange County Special Financing Authority Teeter Plan Revenue Series E, 6.15%
due 11/1/14, put 11/1/99 (LOC: Industrial Bank of Japan) A1/A+ 2,056,980
5,000,000 Orange County Special Financing Authority Teeter Plan Revenue Series E, 6.35%
due 11/1/14, put 11/1/01 (LOC: Industrial Bank of Japan) A1/A+ 5,107,650
2,475,000 Oxnard Harbor District Revenue Refunding, 6.60% due 8/1/00 (Insured: Capital Guaranty) Aaa/AAA 2,601,745
2,855,000 Redwood City Multifamily Housing Revenue Series 1985-B, 5.20% due 10/1/08,
put 10/1/00 (Redwood Shores Apartment Project; LOC: Continental Casualty) NR/A+ 2,854,772
2,100,000 San Joaquin County Certificate of Participation, 5.50% due 9/1/99
(General Hospital Project) A/A- 2,130,471
2,000,000 San Marcos PFA Tax Allocation Series 1992-A, 5.60% due 1/1/01
(Insured: Capital Guaranty) Escrowed to Maturity Aaa/AAA 2,096,860
1,310,000 San Marcos PFA Custodial Receipts Revenue, 0% due 7/1/98, Escrowed to Maturity Aaa/NR 1,230,090
1,990,000 San Marcos PFA Custodial Receipts Revenue, 0% due 3/1/99, Escrowed to Maturity Aaa/NR 1,812,273
1,990,000 San Marcos PFA Custodial Receipts Revenue, 0% due 9/1/99, Escrowed to Maturity Aaa/NR 1,771,478
1,995,000 San Marcos PFA Custodial Receipts Revenue, 0% due 3/1/00, Escrowed to Maturity Aaa/NR 1,730,623
4,180,000 Santa Margarita / Dana Point Authority Revenue Improvement District Series A,
9.50% due 8/1/03 (Insured: MBIA) Aaa/AAA 5,293,134
6,035,000 Simi Valley Community Development Agency Certificate of Participation,
6.05% due 10/1/18, mandatory put 10/1/99 (Simi Valley Business Center
Project; Insured: New England Mutual Life) NR/AA- 6,299,333
1,000,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.875% due 8/1/04 (Integrated Waste Project) NR/A+ 1,039,650
2,000,000 Southgate Recreation & Park District Certificate of Participation, 5.15% due 10/1/21, put
10/1/01 (Wildhawk Golf Club Project; LOC: U.S. Bank of California) NR/A+ 2,040,320
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.00% due 6/1/99 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,326,312
1,300,000 University of California Regents Certificate of Participation Series 1996-A,
5.15% due 6/1/00 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,333,475
1,400,000 University of California Regents Certificate of Participation Series 1996-A,
5.25% due 6/1/01 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,444,408
1,400,000 University of California Regents Certificate of Participation Series 1996-A,
5.15% due 9/1/00 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,438,458
1,500,000 University of California Regents Certificate of Participation Series 1996-A,
5.25% due 9/1/01 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,549,965
510,000 University of California Revenue Series A, 11.00% due 9/1/99 NR/A- 593,339
780,000 University of California Revenue Series A, 6.30% due 9/1/00 NR/A- 823,407
Colorado (5.30%)
500,000 Arvada Limited Sales & Use Tax Series 1991, 6.50% due 6/1/01, Escrowed to Maturity Aaa*/NR 537,555
2,355,000 Boulder Urban Renewal Authority Tax Increment Refunding Series 1992, 5.90%
due 3/1/01 (Insured: MBIA) Aaa/AAA 2,479,438
1,465,000 Boulder Urban Renewal Authority Tax Increment Refunding Series 1992, 6.00%
due 3/1/02 (Insured: MBIA) Aaa/AAA 1,542,997
10,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 5/1/98 NR/CCC 9,513
385,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 11/1/98 NR/CCC 363,713
390,000 Boulder County Single Family Revenue Series 1982-A, 10.00% due 11/1/99 NR/CCC 361,401
490,000 Castle Pines Metropolitan District General Obligation Refunding & Improvement,
7.50% due 12/1/99 (Insured: FSA) Aaa/AAA 532,875
2,000,000 Colorado Housing Finance Authority Capital Appreciation Series A, 0% due 11/1/01 Aa/AA+ 1,529,260
1,000,000 Colorado Certificate of Participation, 4.75% due 5/1/97 (Insured: AMBAC) Aaa/AAA 1,004,170
885,000 Colorado Student Loan Authority Revenue, 6.625% due 6/1/99 A/NR 925,816
1,140,000 Colorado Student Loan Revenue Series 1992-B, 6.20% due 9/1/98 A/NR 1,172,809
855,000 Colorado Student Loan Revenue Series 1992-B, 6.40% due 9/1/99 A/NR 892,269
3,405,000 Colorado Student Loan Revenue Series 1992-B, 6.55% due 12/1/02 A/NR 3,623,907
2,490,000 Colorado Student Obligation Bond Authority Revenue Series 1992-F, 5.90% due 9/1/02 A/NR 2,571,921
3,230,000 Colorado Student Obligation Bond Authority Revenue Series 1994-L, 5.90% due 9/1/00 A/NR 3,356,713
890,000 Denver Housing Corporation Revenue, 7.20% due 10/1/04 (HUD Section 8) A/NR 903,270
1,080,000 Denver City & County Industrial Development Revenue, 7.40% due 3/1/03 NR/BBB+ 1,177,664
(University of Denver Project)
1,155,000 Denver City & County Industrial Development Revenue, 7.50% due 3/1/04
(University of Denver Project) NR/BBB+ 1,258,950
1,185,000 Denver City & County Industrial Development Revenue, 7.60% due 3/1/05
(University of Denver Project) NR/BBB+ 1,288,379
3,500,000 Denver City & County Industrial Development Revenue, 5.375% due 7/1/11, put 7/1/00
(Translogic Corporation Project; LOC: Commerzbank) NR/AA- 3,514,945
405,000 Denver City & County Industrial Development Revenue Series 1985, 6.40% due 6/1/10,
put 6/1/99 (4999 Ltd. Project; LOC: Central Bank National Association) NR/A+ 423,926
2,335,000 Denver School District #1 Certificate of Participation Series 1996, 5.25% due 12/15/01
(Insured: AMBAC) Aaa/AAA 2,411,962
2,460,000 Denver School District #1 Certificate of Participation Series 1996, 5.50% due 12/15/02
(Insured: AMBAC) Aaa/AAA 2,574,144
2,175,000 Highlands Ranch Metro District #2 General Obligation, 6.00% due 6/15/04 (Insured: FSA) Aaa/AAA 2,358,157
2,800,000 Jefferson County Industrial Development Refunding Revenue Series 1993,
4.60% due 12/1/97 (Dayton Hudson Project) NR/BBB+ 2,791,461
2,000,000 Summit County Recreational Facilities Revenue, 5.80% due 4/1/17, put 10/1/98
(Copper Mountain Project; LOC: Daiwa Bank) NR/BBB 1,982,040
1,000,000 University of Colorado Certificate of Participation, 7.10% due 12/1/99 A/NR 1,073,520
1,750,000 Westminster MFHR, 7.75% due 12/1/07, put 12/1/98 (Green Lawn Apartments
Project; Insured: FGIC) Aaa/AAA 1,777,475
2,725,000 Westminster Multifamily Housing Revenue series 1995, 5.95% due
9/1/15, put 9/1/06 (Semper Village Apartments; Insured A.X.A. Re/U.K.) NR/AA 2,804,052
1,245,000 Westminster Sales & Use Tax Revenue Refunding Series 1996, 5.50% due 12/1/00 NR/AA 1,292,820
1,350,000 Westminster Sales & Use Tax Revenue Refunding Series 1996, 5.50% due 12/1/01 NR/AA 1,406,484
Connecticut(2.53%)
1,710,000 Bristol Resource Recovery Facility Solid Waste
Revenue Refunding Series 1995, 5.20% due 7/1/97 (Ogden Martin of Bristol Project) A/NR 1,714,839
2,290,000 Bristol Resource Recovery Facility Solid Waste
Revenue Refunding Series 1995, 5.40% due 7/1/98 (Ogden Martin of Bristol Project) A/NR 2,308,343
1,045,000 Capital Region Education Council, 6.375% due 10/15/05 NR/BBB 1,038,981
1,000,000 Connecticut Housing Finance Authority Series 1988-B, 6.90% due 11/15/98 Aa/AA 1,026,250
565,000 Connecticut Housing Finance Authority Series B1, 7.55% due 11/15/08 (LOC: FHA/VA) Aa/AA 567,413
700,000 Connecticut Resource Recovery Authority, 7.125% due 11/15/08 (Wallingford Project;
LOC: National Westminister) Aa2/AA 723,758
10,000,000 Connecticut Unemployment Compensation Advance Fund Refunding Revenue Series 1996-A,
5.50% due 5/15/01 (Insured AMBAC) Aaa/AAA 10,416,500
1,000,000 Connecticut Special Tax Obligation Revenue Series C, 7.40%
due 10/1/04, pre-refunded 10/1/98 NR/AAA 1,077,790
5,540,000 Connecticut State Special Tax Obligation Series 1989-B, 0% due 7/1/99
(Transportation Infrastructure Project; Insured: AMBAC) Aaa/AAA 4,977,358
Delaware (.17%)
1,500,000 Delaware Solid Waste System Revenue, 6.00% due 7/1/03 (Insured: MBIA) Aaa/AAA 1,615,005
District of Columbia (1.81%)
1,000,000 District of Columbia General Obligation 1986 Series A, 7.60% due 6/1/00, pre-refunded 6/1/97 Aaa*/B 1,030,760
1,000,000 District of Columbia General Obligation 1988 Series A, 7.65% due 12/1/03 (Insured: MBIA) Aaa/AAA 1,085,110
1,505,000 District of Columbia General Obligation Capital Appreciation Refunding,
0% due 6/1/02 (Insured: MBIA) Aaa/AAA 1,153,583
3,380,000 District of Columbia General Obligation 1994 Series A-3, 4.90% due 6/1/00 Ba/B 3,342,888
1,500,000 District of Columbia General Obligation Refunding Series A, 5.30% due 6/1/00 Ba/B 1,502,250
2,000,000 District of Columbia General Obligation Refunding Series A, 5.50% due 6/1/01 (Insured: FSA) Aaa/AAA 2,063,060
4,000,000 District of Columbia Certificate of Participation Series 1993, 6.875% due 1/1/03 NR/B- 4,097,440
1,000,000 District of Columbia Revenue, 6.00% due 7/15/03 (Children's Hospital Project; Insured: FGIC) Aaa/AAA 1,059,680
1,330,000 District of Columbia Revenue, 6.00% due 8/15/05 (Medlantic Healthcare Project; Insured: MBIA) Aaa/AAA 1,424,071
275,000 District of Columbia Association of American Medical College, 7.20% due 2/15/01 NR/AA- 297,897
25,000 District of Columbia Health Revenue Assoc. of American Medical Colleges, 0% due 2/15/02 NR/AA- 17,758
Florida (3.12%)
550,000 Brevard County Tourist Development Tax Revenue, 6.325% due 3/1/03 (Florida Marlins'
Training Facilities) (Nova University Project) Escrowed to Maturity NR/NR 565,339
620,000 Cape Coral Special Assessment, 6.50% due 7/1/98 (Insured: MBIA) Aaa/AAA 640,981
3,000,000 Collier County School Board Certificates of Participation, 5.50% due 2/15/03 (Insured: FSA) Aaa/AAA 3,122,760
5,000,000 Dade County Solid Waste System Special Obligation Revenue, 5.25% due 10/1/03
(Insured: AMBAC) Aaa/AAA 5,158,300
6,590,000 Dade County Housing Finance Authority Multifamily Mortgage Revenue Series 1985-A,
4.60% due 1/1/15, put 1/1/99 (Gulf View Apartments Project; LOC: Sumitomo & Credit Suisse) NR/AAA 6,603,575
3,000,000 Florida Housing Finance Authority Multifamily Housing Revenue, 5.10% due 4/1/13, put
4/1/02 (Park Colony Project; LOC: Mellon Bank) NR/A+ 3,026,550
3,000,000 Florida Housing Finance Authority Series 1983-I, 4.85% due 12/1/05, put 12/1/99
(Wood Forest Project; LOC: Connecticut General) NR/AA 3,015,420
770,000 Florida Housing Finance Authority Series 1983-I, 4.85% due 12/1/05, put 12/1/99
(Wood Forest Project; LOC: Connecticut General) NR/AA 777,970
760,000 Florida Housing Finance Authority Capital Appreciation Residential
Mortgage Revenue, 0% due 7/15/01 (LOC: Citibank) NR/AA 471,489
1,500,000 Florida Housing Finance Agency Revenue, 6.25% due 12/1/06
(Hammocks Place Project) NR/AAA 1,568,415
1,000,000 Lee County School Board Certificate of Participation, 6.20% due 8/1/00 (Insured: FSA) Aaa/AAA 1,050,710
1,195,000 Lee County School Board Certificate of Participation, 6.30% due 8/1/01 (Insured: FSA) Aaa/AAA 1,284,159
665,000 Martin County Combined Special Assessment Series 1990-A, 8.125% due 3/1/01 NR/NR 733,036
445,000 North Broward Hospital Revenue, 5.80% due 1/1/00 (Insured: MBIA) Aaa/AAA 463,472
940,000 Palm Beach County Industrial Development Revenue Series 1996, 6.00% due 12/1/06
(Lourdes-Noreen McKeen Residence for Geriatric Care Project; LOC: Allied Irish Bank) NR/A+ 974,056
Georgia (.95%)
2,930,000 Augusta Housing Authority MFHR Series 1992, 5.50% due 4/1/05, put 4/1/97
(Stevens Creek Commons Project; LOC: Federal Home Loan Bank) NR/AAA 2,945,441
1,590,000 Burke County Development Authority Pollution Control Revenue, 6.25% due 1/1/03
(Insured: MBIA) Aaa/AAA 1,714,895
3,250,000 DeKalb County Multi-family Housing Revenue Series 1985-G, 5.50% due 7/15/07,
put 7/15/97 (DeKalb Crossing Project; Insured: Continental Casualty) NR/A+ 3,255,103
1,000,000 Gwinnett County Dev Auth Rev, 6.95% due 6/1/01 (Mead Corp. Project) Escrowed to Maurity NR/AAA* 1,052,910
Hawaii (1.12%)
6,000,000 Hawaii State Refunding Series CB, 5.00% due 1/1/00 Aa/AA 6,125,520
2,000,000 Hawaii Airport System Revenue Refunding, 5.10% due 7/1/99 (Insured: MBIA) Aaa/AAA 2,043,720
840,000 Hawaii State Department Budget & Finance Special Purpose Mortgage
Revenue, 7.125% due 7/1/98 (Wahiawa General Hospital Project) NR/BBB- 861,403
1,500,000 Hawaii State Department Budget & Finance Special Purpose Mortgage
Revenue, 5.70% due 7/1/03 (Kapiolani Health Care System Project) A/A 1,545,090
Idaho (.61%)
589,286 Boise Industrial Development Corporation IDRB Series 1985, 10.816% due 8/29/00
(Associated Dairies Project; Guaranteed: Chemical Bank) A2*/A* 589,350
4,980,000 Idaho Falls Electric Revenue Refunding, 0% due 4/1/00 (Insured: FGIC) Aaa/AAA 4,291,664
820,000 Idaho Student Loan Marketing Association Refunding Revenue Series 1992,
6.40% due 10/1/99 NR/NR 836,605
Illinois (1.24%)
3,350,000 Cook County Community Unified School District #401 Series 1996, 0% due 12/103
(Insured: FSA) Aaa/AAA 2,390,325
1,455,000 Cook County Community College District 508 COP, 7.70% due 1/1/97 (Insured: FGIC) Aaa/AAA 1,455,000
1,800,000 Cook County Community College District 508 COP, 8.50% due 1/1/02 (Insured: FGIC) Aaa/AAA 2,101,122
1,000,000 Hoffman Estates Tax Increment Revenue, 7.00% due 11/15/97 (Hoffman
Estates Economic Development Project; LOC: Union Bank of Switzerland) Aaa/AAA 1,025,770
2,000,000 Illinois Health Facilities Authority Revenue Series 1992, 7.00% due 7/1/02
(Trinity Medical Center Project) Baa1/NR 2,061,900
1,000,000 Illinois Health Facilities Authority Revenue Series 1993-A, 7.875% due 8/15/05
(Community Provider Pooled Loan Program Project) NR/NR 1,040,400
1,575,000 Winnebago & Boone Counties School District # 205 G.O., 7.00% due 2/1/98 (Insured: FSA) NR/AAA 1,629,495
Indiana (4.05%)
1,195,000 Columbus School Building Corporation, 5.50% due 1/15/01 (Insured: MBIA) Aaa/AAA 1,240,004
1,255,000 Columbus School Building Corporation, 5.50% due 1/15/02 (Insured: MBIA) Aaa/AAA 1,305,150
895,000 Gary Indiana Judgement Funding General Obligation, 6.60% due 6/15/99 NR/NR 925,296
570,000 Gary Indiana Judgement Funding General Obligation, 6.60% due 12/15/99 NR/NR 592,469
2,000,000 Indiana Bond Bank Series B, 7.25% due 2/1/01 (Special Loan Program) A/A 2,094,000
1,120,000 Indiana Bond Bank Special Program Series 1992-B, 5.60% due 8/1/99 NR/A 1,154,922
1,000,000 Indiana Bond Bank State Revolving Fund Guaranty Revenue Series 1993-A,
5.30% due 2/1/99 NR/A 1,020,690
2,640,000 Indiana Bond Bank State Revolving Fund Guaranty Revenue Series 1993-A,
5.50% due 2/1/00 NR/A 2,715,874
3,000,000 Indiana Health Facilities Hospital Revenue, 8.30% due 8/15/20, pre-refunded 8/15/00 @102
(Hancock Memorial Project) NR/AAA 3,422,970
1,500,000 Indiana Health Facilities Revenue, 5.55% due 7/1/01
(Marion General Hospital Project; Insured: MBIA) Aaa/AAA 1,559,805
500,000 Indianapolis Economic Development Revenue, 8.625% due 12/1/07, put 12/1/97
(Suncrest Project; FNMA Collateralized) NR/AAA 522,660
6,200,000 Indianapolis Ind Local Public Improvement Bond Bank Trans Rev Series 1996,
6.00% due 1/10/01 NR/NR 6,289,528
1,220,000 Indianapolis Ind Local Public Improvement Bond Bank Trans Rev, 0% due 7/1/05 Aa/AA- 787,290
1,240,000 Indianapolis Ind Local Public Improvement Bond Bank Trans Rev, 0% due 7/1/06 Aa/AA- 752,308
10,000,000 Jasper County Pollution Control Revenue Series 1994-C, 5.10% due 4/1/19, put
1/2/97 daily demand notes (LOC: United Bank of Switzerland) Aaa/VMIG1 10,000,000
1,645,000 Logansport Multi-Purpose School Building Corporation First Mortgage
Refunding Series 1992, 5.50% due 7/1/01 NR/A 1,703,891
1,000,000 Purdue University Certificates of Participation Series 1996, 4.65% due 7/1/02 Aa2/AA- 995,930
1,100,000 Purdue University Certificates of Participation Series 1996, 4.75% due 7/1/03 Aa2/AA- 1,098,724
Iowa (1.51%)
500,000 Davenport Hospital Revenue Series A, 6.90% due 7/1/99 (St. Luke's
Hospital Project; Insured: AMBAC) Aaa/AAA 530,750
1,225,000 Des Moines Hospital Revenue Refunding Series 1996-A, 6.25% due 11/15/04
(Des Moines General Hospital Project; LOC: Norwest) Aa2/NR 1,316,140
500,000 Iowa Higher Educational Loan Facilities Authority, 5.50% due 8/1/02 (Insured: MBIA) Aaa/AAA 500,790
1,500,000 Iowa Certificate of Participation, 6.10% due 7/1/01 (Insured: AMBAC) Aaa/AAA 1,589,895
2,000,000 Iowa Student Loan Liquidity Corporation Student Loan Revenue 1991
Series C, 6.80% due 12/1/02 Aaa/AAA 2,145,500
750,000 Iowa Student Loan Liquidity Corporation Student Loan Revenue
Series A, 6.35% due 3/1/01 Aa1/NR 780,735
2,600,000 Marion Commercial Development Revenue Refunding Series 1991-A, 7.25% due 1/1/14,
put 7/1/02 (Collins Road Project; Insured: Trygg-Hansa) NR/A+ 2,765,412
4,445,000 Muscatine Electric Revenue Refunding Series 1992, 5.40% due 1/1/00 (Insured: AMBAC) Aaa/AAA 4,585,018
Kansas (.91%)
1,000,000 Kansas City Industrial Revenue Series 12/1/84, 7.20% due 12/1/04
(Ash Grove Cement Project) Aa2/NR 1,034,050
2,000,000 Lenexa Industrial Revenue Series 8/1/83, 9.50% due 8/1/98 (J.C. Nichols Co. Project) NR/NR 2,138,020
10,000 Olathe Single Family Mortgage Revenue Series A, 9.375% due 11/1/00 NR/A 10,251
1,000,000 Sedwick County Unified School District No. 265, 8.20% due 10/1/03 (Insured: FSA) Aaa/AAA 1,205,660
4,025,000 Topeka Multifamily Housing Revenue Refunding Series 1991-A, 7.25%
due 4/1/21, put 4/1/02 (Fleming Court Project; Insured: Trygg-Hansa) NR/A+ 4,220,213
Kentucky (.80%)
4,500,000 Jefferson County Insured Hospital Revenue Series 1992, 7.77% (inverse floater)
due 10/1/02 (Alliant Health Systems; Insured: MBIA) Aaa/AAA 5,085,000
2,350,000 Paintsville First Mortgage Revenue Series 1991, 8.50% due 9/1/03
(Paul B. Hall Medical Center Project; Guaranteed: Health Management Associates) NR/NR 2,497,016
Louisiana (4.25%)
2,020,000 East Baton Rouge Parish Public Improv. Sales Tax Series 1993-A, 8.00%
due 2/1/00 (Insured: FGIC) Aaa/AAA 2,227,434
2,165,000 East Baton Rouge Parish Public Improv. Sales Tax Series 1993-A, 8.00%
due 2/1/01 (Insured: FGIC) Aaa/AAA 2,441,211
1,100,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 1.65%
(inverse floater) due 7/1/97 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,088,901
1,000,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 2.15%
(inverse floater) due 7/1/98 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 973,810
1,200,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 2.45%
(inverse floater) due 7/1/99 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,153,860
1,100,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 2.70%
(inverse floater) due 7/1/00 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,036,893
1,300,000 Louisiana Public Facilities Authority Hospital Revenue & Refunding, 2.90%
(inverse floater) due 7/1/01 (St. Francis Medical Center Project; Insured: FSA) Aaa/AAA 1,198,132
3,000,000 Louisiana PFA MFHR Series 1991, 6.00% due 7/1/07, put 7/1/97
(Riverview Villas Project; Guaranteed: Connecticut General Life) NR/AA 3,006,570
3,000,000 Louisiana PFA Student Loan Revenue Series A-1, 5.90% due 3/1/99 Aaa/NR 3,068,760
2,250,000 Louisiana PFA Student Loan Revenue Series A-1, 6.10% due 3/1/00 Aaa/NR 2,326,793
1,850,000 Louisiana PFA Local Government G.O. Refunding Series A, 4.85% due 3/1/99
(Insured: FSA) Aaa/AAA 1,877,620
915,000 Louisiana PFA MFHR, 5.95% due 3/15/05 (Oakleigh Apts. Project; LOC: AXA Guaranty) NR/AA 939,696
1,500,000 Louisiana General Obligation Refunding Series 1987-B, 8.00% due 5/1/00,
pre-refunded 5/1/97 (Insured: Capital Guaranty) NR/AAA 1,551,300
2,125,000 Louisiana Unlimited Tax General Obligation Series A, 6.00% due 8/1/01 (Insured: FGIC) Aaa/AAA 2,256,495
2,450,000 Louisiana Recovery District Sales Tax Refunding Series 1992, 5.70% due 7/1/98 A/A- 2,514,362
5,000,000 Louisiana Recovery District Sales Tax Refunding Series 1992,
5.50% due 7/1/98 (Insured: MBIA) Aaa/AAA 5,114,000
500,000 Louisiana State University Agricultural & Mechanical College Board,
7.70% due 4/15/02, Escrowed to Maturity NR/AAA* 570,575
5,815,000 Orleans Levee District Public Improvement Trust Receipts Series 1995-A, 5.95%
due 11/1/01 (Insured: FSA) Aaa/NR 6,192,801
460,000 Ouachita Parish Hospital Revenue District # 1 Series 1991, 7.25% due 7/1/01 NR/A- 508,259
Maine (.38%)
3,000,000 Maine Finance Authority MFHR Series 1988, 5.25% due 9/1/18, put 9/3/99
(Back Bay Tower Project; LOC: Sakura Bank) A3/NR 3,076,590
500,000 Regional Waste Systems Incorporated Series A-C, 7.30% due 7/1/98 NR/AA 522,530
Maryland (.36%)
2,000,000 Howard County Maryland Multifamily Housing Revenue, 7.00% due 7/1/24,
put 7/1/04, (Chase Glen Prject; Guaranty: Avalon Prop.) NR/NR 2,158,160
1,105,000 Washington Suburban Sanitary District Series 1994, 8.75% due 6/1/99 Aa1/AA 1,222,826
Massachuse (5.67%)
1,000,000 Boston General Obligation Series A, 7.25% due 7/1/99 A/A+ 1,061,180
1,600,000 Boston General Obligation Series A, 7.60% due 2/1/04, prerefunded 2/1/99 Aaa+/A+ 1,741,104
1,000,000 Boston FHA Insured City Hospital Revenue Series A, 7.15% due 2/15/01, pre-refunded 8/15/00
(Boston City Hospital Project) Aaa/NR 1,111,020
90,000 Haverhill General Obligation Municipal Purpose Loan Series 1991, 7.50% due 10/15/11 Baa/BBB 99,588
765,000 Holyoke General Obligation, 9.85%, due 11/1/08, refunded 11/1/97 @ 102 Aaa/NR 815,452
595,000 Holyoke General Obligation Electric Revenue Series 1991-A, 8.00% due 6/1/01 Baa/NR 641,243
500,000 Holyoke General Obligation Sewer Revenue Series B, 8.00% due 6/1/01 Baa/NR 534,865
1,670,000 Holyoke General Obligation School Project Loan Act of 1948, 7.35% due 8/1/02 Baa/NR 1,855,520
1,060,000 Lynn General Obligation, 7.00% due 1/15/04 Baa1/NR 1,149,167
660,000 Massachusetts Educational Loan Revenue Series 1985-C, 7.875% due 6/1/03
(LOC: Rabobank Nederland) NR/AAA 684,017
2,000,000 Massachusetts General Obligation Consolidated Loan of 1991 Series B, 0% due 6/1/01 A1/A+ 1,641,000
2,000,000 Massachusetts General Obligation Consolidated Series 1987-A, 5.75% due 3/1/99 A1/A+ 2,044,900
2,315,000 Massachusetts Dedicated Income Tax Series A General Obligation, 7.875% due 6/1/97 A1/A+ 2,357,272
3,000,000 Massachusetts Hynes Convention Center Authority Refunding Series 1992, 0% due 9/1/00 A1/A+ 2,560,260
2,500,000 Massachusetts Hynes Convention Center Authority Refunding Series 1992, 0% due 9/1/02 A1/A+ 1,928,825
690,000 Massachusetts State Health & Education Facilities Authority Series B, 6.50% due 7/1/97
(Charlton Hospital Project) A/A 698,584
1,465,000 Massachusetts State Health & Education Facilities Authority Series B, 6.70% due 7/1/98
(Charlton Hospital Project) A/A 1,508,716
1,245,000 Massachusetts State Health & Education Facilities Authority Series B, 6.875% due 7/1/99
(Charlton Hospital Project) A/A 1,301,610
2,650,000 Massachusetts State Health & Education Facilities Authority Series B, 5.50% due 5/15/11, put
5/15/01 (Community Health Capital Fund Project; LOC: First National Bank of Boston) NR/NR 2,674,380
2,500,000 Massachusetts IFA Recovery Refunding Revenue Series 1993-A, 5.45% due 7/1/01
(Insured: FSA) Aaa/AAA 2,586,525
1,910,000 Massachusetts IFA Stetson Place Development Trust Series A, 5.125% due 6/1/08,
put 6/1/98 (LOC: State Street Bank & Trust) Aa2/NR 1,918,977
5,000,000 Massachusetts IFA First Mortgage Revenue Series 1996-B, 5.00% due 5/1/26, put 5/1/02
(Orchard Cove Project; LOC: Fleet National Bank) NR/A 4,999,650
2,080,000 New Bedford Industrial Revenue, 7.42% due 7/1/02 (Aerovox Corporation Project) NR/A- 2,135,910
2,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1993-E, 5.00% due 7/1/99 A1/A- 2,026,220
1,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1992-F, 6.50% due 9/1/02 Aa/NR 1,078,560
3,000,000 New England Educational Loan Marketing Corporation Student Loan Revenue
Series 1993-B, 5.40% due 6/1/00 A1/A- 3,066,390
425,000 South Essex Sewer District General Obligation, 9.00% due 12/1/97 Baa1/NR 445,408
425,000 South Essex Sewer District General Obligation, 9.00% due 12/1/98 Baa1/NR 462,986
295,000 South Essex Sewer District General Obligation, 9.00% due 12/1/99 Baa1/NR 332,610
550,000 Springfield General Obligation, 7.75% due 5/1/99 Baa/NR 586,801
250,000 Springfield General Obligation, 7.75% due 5/1/00 Baa/NR 271,402
300,000 Springfield General Obligation, 7.75% due 5/1/01 Baa/NR 330,408
300,000 Springfield General Obligation, 7.80% due 5/1/02 Baa/NR 331,728
1,500,000 Tanton General Obligation, 8.00% due 2/1/06 (Insured: MBIA) Aaa/AAA 1,830,135
2,000,000 University of Massachusetts Bldg. Authority Ref. Revenue Series 1991-A, 6.80% due 5/1/99 A1/A+ 2,117,940
1,000,000 University of Massachusetts Bldg. Authority Ref. Revenue Series 1991-A, 7.15% due 5/1/03 A1/A+ 1,134,710
1,250,000 Worcester Municipal Purpose Loan of 1991 General Obligation,
6.80% due 5/15/01 (Insured: MBIA) Aaa/AAA 1,364,637
Michigan (2.43%)
1,300,000 Detroit General Obligation Series 1990-A, 8.50% due 4/1/00 Ba1/BBB 1,432,935
1,500,000 Detroit Distributable State Aid General Obligation Unlimited Series 1992,
5.625% due 5/1/97 Baa/BBB+ 1,510,335
3,000,000 Detroit Economic Development Corp. Refunding, 7.00% due 6/1/12, put 6/1/02
(F.H. Associates Project; Surety: ITT Lyndon Property Insurance) NR/NR 3,172,890
1,000,000 Flint Hospital Building Authority, 4.20% due 7/1/15, put 1/7/97 weekly demand notes
(LOC: LaSalle National Bank) A1/VMIG1 1,000,000
1,200,000 Flint Tax Increment Finance Authority Limited Tax General Obligation Series 1985,
9.30% due 6/1/97, Escrowed to Maturity Baa/AAA* 1,227,660
1,325,000 Michigan State Hospital Finance Authority Revenue Series 1991-A, 8.30% due 9/1/02 Ba/BBB- 1,391,064
6,570,000 Michigan State Housing Development Authority Rental Housing Rev. Series 1992-A,
5.40% due 4/1/98 (Detroit Edison Project) NR/A+ 6,659,746
1,865,000 Wayne County Wastewater Control System Limited Tax General Obligation
Refunding, 7.875% due 5/1/02 Baa/BBB- 2,072,854
2,000,000 Wayne County Building Authority Limited Tax General Obligation Sinking Fund
Series 1992-A, 7.80% due 3/1/05, pre-refunded 3/1/02 @ 102 Baa/AAA* 2,316,860
1,940,000 West Ottowa Public Schools General Obligation Unlimited Tax, 6.30% due 5/1/03
(Insured: FGIC) Aaa/AAA 2,106,297
Minnesota (2.36%)
4,820,000 Burnsville MFHR Series 1991, 7.20% due 5/1/11, put 5/1/02
(The Atrium Project; Insured: Trygg-Hansa) 5,019,934
975,000 Coon Rapids Industrial Development Ref. Rev., 6.75% due 12/1/01 (LOC: Norwest Bank) Aa3/AA 991,741
2,000,000 Hennepin County G.O. Solid Waste Revenue Refunding Series 1992, 4.65% due 10/1/97 Aaa/AAA 2,016,820
1,500,000 Metropolitan Council Minneapolis - St. Paul Area Sports Facilities Revenue,
5.30% due 10/1/00 (Hubert H. Humphrey Metrodome Project) A/A 1,537,230
3,245,000 Minneapolis-Saint Paul Housing & Redevelopment Authority Series 1993,
5.00% due 12/1/04, put 12/1/98 (corporate Partner Project; LOC: Continental Insurance) NR/A+ 3,269,013
5,000,000 Minneapolis-Saint Paul Housing & Redevelopment Authority Single Family Mortgage Revenue
Series 96-B, 5.125% due 6/1/32, put 6/1/00 (GNMA/FNMA) Aaa/NR 5,000,500
595,000 Minneapolis MFHR Refunding Series 1991, 6.75% due 10/1/01
(Churchill Apartments Project; FHA Insurance Mortgage) NR/AAA 631,259
1,250,000 Minneapolis School District Certificate of Participation, 5.30% due 2/1/00 Baa1/A 1,264,800
1,510,000 Minneapolis-Saint Paul Single Family Housing Revenue Series A, 8.25% due 11/1/07 NR/AAA 1,562,608
945,000 Saint Cloud Industrial Development Revenue Refunding Series 1992, 6.25%
due 4/1/98 (Alton Realty Co. & Pan-O-Gold Baking Co. Project;
(LOC: Norwest Bank of Minnesota) NR/AA- 956,359
Mississippi (.55%)
2,000,000 Mississippi Higher Education Assistance Corporation Student Loan Revenue
Series 1992 NR/A 2,059,560
1,100,000 Mississippi Hospital Equipment & Facilities Authority Revenue, 8.60%
due 1/1/01 Baa/NR 1,179,871
1,900,000 Ridgeland Multifamily Housing Rev. Series 1985, 6.50% due 10/1/07, put 10/1/97
(Sunchase Apartments Project) NR/AAA 1,914,098
Missouri (1.65%)
1,555,000 Jackson County Public Building Corporation Leasehold Revenue Series 1996, 6.00% due
12/1/04 (Capital Improvements Project; Insured MBIA) Aaa/AAA 1,588,510
4,000,000 Missouri Higher Education Loan Authority Student Loan Revenue Refunding,
5.50% due 2/15/00 Aa/NR 4,080,040
3,000,000 Missouri Economic Development Export & Infrastructure Board Industrial
Revenue Series 1993, 5.375% due 5/1/03, mandatory put 5/1/00
(Mark Twain Tower Project; Lincoln National Insurance Guaranty) NR/A 3,041,280
760,000 Missouri State Housing Development Authority Revenue, 6.30% due 7/15/99 Aa/AA+ 771,993
1,055,000 Missouri Health & Education Facilities Authority Revenue, 0% due 1/1/02
(Missouri Baptist Medical Center Project) Escrowed to Maturity Aaa*A- 794,605
255,000 Missouri State Environmental Improvement & Energy Resources Authority Water
Pollution Control Revenue Series 1991-A, 6.50% due 12/1/02
(State Revolving Revenue Project) A1/NR 279,421
325,000 Missouri State Environmental Improvement & Energy Resources Authority Water
Pollution Control Revenue Series 1991-A, 6.60% due 12/1/03
(State Revolving Revenue Project) AA/NR 356,382
820,000 St. Louis County Industrial Development Authority Housing Revenue
Series 1992-A, 6.00% due 6/1/98 A/NR 838,926
3,860,000 St. Louis IDA Refunding Revenue Series 1993-B, 5.10% due 12/1/08,
put 12/1/00 (westport Residence Project; Guaranteed: lincoln National Corporation) NR/A 3,832,826
Montana (.16%)
1,000,000 Billings Tax Increment Urban Renewal Series 1987-A,
8.65% due 3/1/99, refunded 3/1/98 Aaa/NR 1,055,490
435,000 Montana Higher Education Student Loan Revenue Series 1992-A, 6.70% due 12/1/01 A/NR 466,272
Nebraska (.77%)
2,970,000 Nebraska Industrial Finance Authority Tax Exempt Multifamily Housing Revenue Refunding
Series 1995-A, 5.50% due 12/1/25, put 12/1/05 (Willow Park Apartments Project;
FNMA Collateral) NR/AAA 3,011,639
2,500,000 Nebraska Public Power District Series 1993, 5.10% due 1/1/00 A1/A+ 2,553,625
1,500,000 Nebraska Investment Finance Authority Hospital Equipment Revenue, 6.85% due 3/1/02
(Insured: MBIA) Aaa/AAA 1,646,175
Nevada (.51%)
760,000 Las Vegas Downtown Redevelopment Project Revenue, 7.65% due 6/1/97 Baa/A- 767,494
780,000 Las Vegas Valley Water District, 6.60% due 8/1/98 (Insured: AMBAC) Aaa/AAA 810,661
1,085,000 Washoe County Airport Authority Revenue Refunding, 5.30% due 7/1/00 (Insured: MBIA) Aaa/AAA 1,113,177
1,325,000 Washoe County Airport Authority Revenue Refunding, 5.45% due 7/1/01 (Insured: MBIA) Aaa/AAA 1,369,772
700,000 Washoe County Airport Authority Revenue Refunding, 5.60% due 7/1/02 (Insured: MBIA) Aaa/AAA 729,848
New Hampshire (.32%)
920,000 New Hampshire Industrial Development Authority Revenue Series 1995,
7.70% due 7/1/00 (Electra/ PJ-Allied Project) A2/NR 921,674
2,030,000 New Hampshire Industrial Development Authority Revenue, 6.40% due 12/1/09,
put 12/1/99 (Central Vermont Public Service Project; LOC: Toronto Dominion Bank) NR/AA 2,131,967
New Jersey (.53%)
2,400,000 New Jersey Economic Development Authority Series 1991, 6.875% due 10/1/14,
optional put 10/1/98 (Fairway Corporation II Project; Guaranty: Provident Mutual Life) A2/NR 2,404,512
1,000,000 New Jersey Health Care Facilities Financing Authority Revenue, 7.00% due 7/1/03
(Christ Hospital Project; Insured: Connie Lee) NR/AAA 1,113,350
1,000,000 New Jersey Turnpike Authority Revenue Series A, 5.70% due 1/1/01 Baa1/BBB+ 1,039,400
421,434 New Jersey Wastewater Treatment Trust - Wastewater Treatment Insured Loan
Revenue Series 1987, Amortizing Coupon M-COATES, 9.00% due 9/1/97 Aaa*/AAA* 441,899
New Mexico (1.00%)
5,390,000 Jicarilla Apache Tribe Tribal Revenue Refunding, 7.75% due 7/1/05 NR/A 5,505,508
239,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/97 (ETM) NR/AAA 245,424
261,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/98 (ETM) NR/AAA 280,173
273,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/99 (ETM) NR/AAA 298,596
285,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 7/1/99 (ETM) NR/AAA 317,148
298,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/00 (ETM) NR/AAA 336,850
326,000 Santa Fe County Office and Training Facilities Series 1990, 9.00% due 1/1/01 (ETM) NR/AAA 379,546
745,000 Santa Fe Solid Waste Management Agency Facility Revenue, 5.75% due 6/1/04 NR/A 766,679
510,000 Santa Fe Solid Waste Management Agency Facility Revenue, 5.90% due 6/1/05 NR/A 528,085
775,000 Santa Fe Solid Waste Management Agency Facility Revenue, 6.00% due 6/1/06 NR/A 804,876
New York (4.38%)
1,785,000 Islip Resource Recovery Agency Series 85-D, 5.95% due 7/1/03 (Insured: AMBAC) Aaa/AAA 1,920,000
630,000 Jamestown General Obligation Series A, 7.00% due 3/15/97 Baa/NR 634,246
500,000 Metropolitan Transit Authority Service Contract Commuter Fac Rev, 7.00% due 7/1/02 Baa1/BBB 542,825
3,000,000 Metropolitan Transit Authority Series M, 5.10% due 7/1/98 Baa/BBB+ 3,031,470
2,760,000 New York City General Obligation Series D, 6.30% due 2/1/01 Baa1/BBB+ 2,884,697
2,695,000 New York City General Obligation Series E, 6.30% due 8/1/01 Baa1/BBB+ 2,830,046
1,000,000 New York City General Obligation Series E, 7.00% due 8/1/04 Aaa/AAA 1,130,950
1,140,000 New York City General Obligation Series E, 7.20% due 2/1/00 Baa1/BBB+ 1,234,495
100,000 New York City General Obligation Series E, 7.20% due 2/1/00 Baa1/BBB+ 106,473
2,175,000 New York City Municipal Water Finance Authority Water & Sewer System Revenue,
7.10% due 6/15/97 A/A- 2,209,234
1,000,000 New York City Municipal Water Finance Authority Water & Sewer System Revenue,
7.15% due 6/15/98 A/A- 1,044,230
3,000,000 New York Dorm Authority Revenue State University Educational Facilities, 5.25%
due 7/1/02 (Insured: AMBAC) Aaa/AAA 3,103,980
1,000,000 New York Dorm Authority Revenue State University Educational Facilities Series A,
7.00% due 5/15/04 Baa1/BBB+ 1,099,020
7,310,000 New York State Dormitory Authority Series 1994-B, 6.00% due 7/1/24, put 12/5/99
(Miriam Osborn Memorial Home Project; LOC: Banque Paribas) A1/A 7,615,777
1,555,000 New York State Health Facilities Revenue Refunding Series 1990-A,
7.90% due 11/1/99 Baa/BBB+ 1,649,295
1,500,000 Local Government Assistance Corporation Revenue Series D, 6.50% due 4/1/02 A/A 1,629,570
1,500,000 New York State Medical Care Facilities Finance Agency 1991 Series A, 7.25%
due 2/15/01 Baa1/BBB+ 1,623,045
2,500,000 New York State Urban Development Corporation, 7.60% due 4/1/03,
pre-refunded 4/1/01 AAA/BBB 2,839,975
2,500,000 Syracuse Industrial Development Authority Pilot Revenue Refunding Series 1995,
5.125% due 10/15/02 (LOC: ABN AMRO Bank) NR/AA 2,505,875
1,000,000 Triborough Bridge and Tunnel Authority, 6.50% due 1/1/04 (Insured: MBIA) Aaa/AAA 1,082,320
570,000 Westchester County I.D.A. Civic Facility Revenue, 6.25% due 4/1/05
(Julia Dykman Project) NR/BBB 579,656
North Carolina (.59%)
2,860,000 Carteret County Certificate of Participation Series 1992, 6.50% due 2/1/00
(Elementary School Project) Baa1/BBB+ 2,972,741
535,000 North Carolina Housing Finance Authority Single Family Housing Revenue, 6.80%
due 7/1/08 (Insured: FHA/VA) Aa1/AA+ 539,012
1,865,000 North Carolina Municipal Power Agency No. 1 Catawba Electrical Revenue, 6.00% due 1/1/05
(Insured: MBIA) Aaa/AAA 2,005,509
North Dakota(.24%)
1,000,000 North Dakota Building Authority Refunding Revenue Series 1993-A, 5.15% due 6/1/00
(Insured: AMBAC) Aaa/AAA 1,022,240
1,250,000 North Dakota Student Loan Revenue, 5.45% due 7/1/02 (Insured: AMBAC) Aaa/AAA 1,239,088
Ohio (3.36%)
1,000,000 Barberton Hospital Facilities Series 1992, 6.65% due 1/1/02 A/NR 1,067,290
2,000,000 Belmont County IDRB Series 1991, 6.50% due 1/1/00 (May Department Stores Co. Project) NR/A 2,095,080
400,000 Cambridge Hospital Revenue Refunding Series 1991, 7.25% due 12/1/97 NR/BBB 410,308
1,500,000 Cincinnati School District Revenue Anticipation Notes, 5.75% due 6/15/98 NR/A- 1,535,880
1,000,000 Cincinnati School District Revenue Anticipation Notes, 6.15% due 6/15/02 NR/A- 1,073,360
1,250,000 Cincinnati School District Revenue Anticipation Notes, 6.05% due 6/15/00 NR/A- 1,316,725
2,250,000 Clermont County Hospital Facilities Revenue Refunding Series 1993-B, 4.70% due 9/1/99
(Mercy Health System Project; Insured: MBIA) Aaa/AAA 2,277,990
2,000,000 Cleveland Certificate of Participation, 7.10% due 7/1/02
(Motor Vehicle & Community Equipment Project) Baa/BBB 2,116,140
5,000,000 Cleveland School District Revenue Anticipation Notes Series 1993, 4.70% due 6/1/99
(Insured: AMBAC) Aaa/AAA 5,052,900
2,620,000 Cuyahoga County Housing Revenue Series 1993, 7.00% due 4/1/00
(North Coast Community Homes Project) NR/NR 2,690,609
1,000,000 Erie County Hospital Improvement Refunding Revenue Series 1992, 6.25%
due 1/1/01 (Firelands Community Hospital Project) A/A- 1,046,660
2,000,000 Franklin County General Obligation, 6.375% due 12/1/17, pre-refunded 12/1/01 @102 Aaa/AAA 2,202,340
1,100,000 Hamilton County Hospital Facilities Refunding Revenue Series 1992,
6.25% due 1/1/01 (Episcopal Retirement Homes, Inc. Project; LOC: Fifth/Third Bank) Aa2/NR 1,162,337
3,095,000 Ohio Water Development Authority Safe Water Refunding Series 1992,
0% due 12/1/00 (Insured: MBIA) Aaa/AAA 2,606,918
1,060,000 Switzerland Local School District of Monroe County Revenue Anticipation Notes
Series 1995, 6.25% due 6/15/00 NR/NR 1,073,059
2,765,000 Warren County Hospital Facilities Improvement and Refunding Revenue,
6.80% due 7/1/01 (Otterbein Home Project; LOC: Fifth/Third Bank) Aa2/NR 2,969,804
910,000 Washington County Hospital Facilities Revenue, 6.875% due 9/1/02
(Marietta Area Health Project) Baa1/NR 956,801
Oklahoma (.83%)
1,190,000 Broken Arrow Utility System & Sales Tax Revenue Refunding Series 1992-A, 6.00%
due 5/1/01 (Insured: FGIC) Aaa/AAA 1,261,400
210,000 Comanche County SFMR Refunding 1990 Series, 7.60% due 12/1/98 A1/NR 218,408
220,000 Comanche County SFMR Refunding 1990 Series, 7.65% due 6/1/99 A1/NR 229,845
1,060,000 Oklahoma City Municipal Improvement Authority Water & Sewer Revenue Series
Refunding A, 0% due 7/1/00 (Insured: AMBAC) Aaa/AAA 905,876
1,220,000 Pushmatahah County Town of Antlers Hospital Authority Revenue Refunding
Series 1991, 8.75% due 6/1/03 NR/NR 1,332,350
1,155,000 Tulsa Industrial Development Hospital Revenue, 5.60% due 2/15/03
(St. Johns Medical Center Project) Aa/AA 1,189,673
1,940,000 Tulsa Public Facilities Authority Solid Waste Steam & Electric Revenue Refunding Series 1994,
4.90% due 11/1/99 (Ogden Martin Systems of Tulsa Inc. Project; Insured: AMBAC) Aaa/AAA 1,961,864
750,000 Tulsa Public Facilities Authority Solid Waste Steam & Electric Revenue Refunding Series 1994,
5.45% due 11/1/04 (Ogden Martin Systems of Tulsa Inc. Project; Insured: AMBAC) Aaa/AAA 765,262
Oregon (.69%)
2,500,000 Clackamas County Hospital Facilities Revenue, 6.10% due 10/1/01 A1/AA- 2,649,100
1,325,000 Emerald Peoples Utility District Revenue, 7.20% due 11/1/03 (Insured: FGIC) Aaa/AAA 1,519,325
2,000,000 Oregon State Department of Transportation Regional Light Rail Extension,
5.20% due 6/1/98 (Westside Light Rail Project; Insured: MBIA) Aaa/AAA 2,039,300
260,000 Springfield General Obligation, 6.70% due 10/1/00 A/A 261,760
Pennsylvania (4.48%)
1,900,000 Allentown Area Hospital Authority Revenue Series 1991, 7.75% due 7/1/98
(Sacred Heart Hospital Project) NR/BBB 1,975,278
1,250,000 Armstrong County Hospital Authority Series 1992-A, 5.25% due 11/1/12,
put 11/1/97 (LOC: Pittsburgh National Bank) A1/NR 1,263,125
1,000,000 Chester County Utility, 7.00% pre-refunded 8/1/01 Aa/AAA* 1,103,320
550,000 Clairton School District General Obligation, 0% due 11/1/99 NR/A 482,768
500,000 Clairton School District General Obligation, 0% due 11/1/02 NR/A 376,560
3,060,000 Delaware County Health Facilities Authority Revenue Series 1993-B, 5.375%
due 11/15/99 (Mercy Health Corporation of S.E. Pennsylvania Project) NR/BBB 3,054,982
2,500,000 Delaware County Industrial Development Authority Refunding Revenue Series A,
7.40% due 12/1/98 (Resource Recovery Project; LOC: Bank of America) Aa3/AA- 2,613,000
2,030,000 Erie School District General Obligation, 0% due 6/1/00, Escrowed to Maturity Aaa*/A 1,736,685
1,000,000 Erie School District General Obligation, 0% due 12/1/00, Escrowed to Maturity Aaa*/A 836,200
3,365,000 Harrisburg Authority Commonwealth Lease Revenue Series 1991,
6.25% due 6/1/00 (Insured: FSA) Aaa/AAA 3,560,338
1,300,000 Harrisburg Authority Lease Revenue, 6.50% due 6/1/04
crossover refunded 6/1/01 (Insured: FSA) Aaa/AAA 1,417,533
1,455,000 McKeesport Area School District General Obligation Refunding Revenue Series 1991,
0% due 10/1/00 NR/A 1,225,968
1,680,000 McKeesport Area School District General Obligation Refunding Revenue Series 1991,
0% due 10/1/02 NR/A 1,270,382
1,000,000 Pennsylvania Infrastructure Authority Revenue Pennvest Subseries B, 6.25% due 9/1/02 NR/AA+ 1,079,650
2,000,000 Pennsylvania State Refunding & Projects General Obligation Series A, 6.50% due 1/1/00 A1/AA- 2,124,920
4,085,000 Pennsylvania State Certificate of Participation, 4.60% due 12/1/97 A/A- 4,118,048
715,000 Pennsylvania State Higher Education Facilities Authority Revenue, 6.15% due 4/1/04 Baa/NR 738,095
875,000 Pennsylvania State Higher Education Facilities Authority Revenue, 8.05% due 3/1/97 Baa/BBB 881,370
1,770,000 Philadelphia Gas Works Revenue 14th Series, 5.60% due 7/1/99 Baa1/BBB 1,809,683
2,600,000 Philadelphia Water & Wastewater Revenue Series 1993, 4.875% due 6/15/01
(Insured: FSA) Aaa/AAA 2,638,922
2,245,000 Philadelphia Hospital & Higher Education Facilities Authority Hospital Revenue
Series 1991, 7.00% due 7/1/01 (Graduate Health System Project) Baa1/BBB+ 2,390,498
3,000,000 Southeastern Pennsylvania Transportation Authority Series 1994, 6.00% due 6/1/99
(LOC: Canadian Imperial Bank of Commerce) Aa3/AA- 3,125,550
2,825,000 State Public School District Building Authority, Reading School District Capital Appreciation
Series B, 0% due 7/15/00 (Insured: MBIA) Aaa/AAA 2,418,398
Puerto Rico (.14%)
250,000 Puerto Rico Public Improvement General Obligation, 6.60% due 7/1/04 Baa/A- 280,160
1,000,000 Puerto Rico Electric Power Revenue Refunding Series 1992-Q, 5.70% due 7/1/00 Baa1/A- 1,036,170
Rhode Island(.43%)
2,000,000 Rhode Island Depositor's Economic Protection Corp. Series 1992-A, 6.10% due 8/1/02
(Insured: FSA) Aaa/AAA 2,146,960
680,000 Rhode Island Health & Educational Building Corporation Health Facilities
Revenue, 8.00% due 7/1/00 (Steere House Issue Project) NR/NR 717,658
1,169,000 Rhode Island Industrial Facilities Corporation Series 1991, 5.875% due 6/1/02
(Paramount Cards, Inc. Project; LOC: Bank of Scotland) A1/NR 1,193,233
South Caro (.72%)
500,000 Florence County Public Facilities Corporation, 7.30% due 3/1/03, pre-refunded 3/1/00
(Law Enforcement Project; Insured: AMBAC) Aaa/AAA 548,965
2,000,000 Piedmont Municipal Power Agency Series 1992, 5.20% due 1/1/98
(Electric Revenue Project) A/BBB 2,030,240
860,000 Piedmont Municipal Power Agency Electric Revenue, 6.25% due 1/1/04 (Insured: FGIC) Aaa/AAA 926,822
1,800,000 Piedmont Municipal Power Agency Electric Revenue, 4.20% due 1/1/25, put 1/7/97
weekly demand notes (Insured: MBIA) A1/VMIG1 1,800,000
500,000 South Carolina State Housing Authority Multifamily Revenue, 7.375% due 12/1/07 NR/NR 455,000
915,000 York County School District No. 4, 7.00% due 3/1/03 (Insured: FGIC) Aaa/AAA 1,030,464
South Dako (.31%)
1,400,000 South Dakota Health & Education Facilities Authority Revenue Series 1992,
5.40% due 9/1/01 (Rapid City Regional Hospital Project; Insured: MBIA) Aaa/AAA 1,445,864
1,250,000 South Dakota Lease Revenue Series 93-B, 8.00% due 9/1/03 (Insured: FSA) Aaa/AAA 1,473,913
Tennessee (1.17%)
5,000,000 Chattanooga-Hamilton County Hospital Revenue, 9.976% due 5/25/21, refunded
5/1/01 @ 102 (Erlanger Medical Center Project; Insured: FSA) Aaa/AAA 6,068,750
1,565,000 Clarksville Natural Gas Corporation Series 1994-A, 7.00% due 5/1/02
(Guaranty: Louis Dreyfus Natural Gas) NR/BBB- 1,609,524
1,130,000 Clarksville Natural Gas Corporation Series 1994-A, 7.00% due 11/1/02
(Guaranty: Louis Dreyfus Natural Gas) NR/BBB- 1,162,657
1,095,000 Copperhill Industrial Development Board, 7.80% due 12/1/00
(City Services Company Project) Baa3/BBB 1,103,574
1,000,000 Southeast Tax Exempt Mortgage Bond Trust Tender Option Certificates Series 1990,
7.25% due 4/1/17, put 4/1/03 NR/AAA 1,071,200
Texas (7.06%)
9,770,000 Bell County Health Facilities Development Corporation Series 1993-A, 4.75% due 10/1/23,
put 10/1/98 (Central Texas Pooled Health Care Loan Program Project;
Guaranteed: Sun Life of America) NR/AA- 9,831,258
1,655,000 Bexar County Health Facilities Development Corporate Hospital Revenue
Series 1991, 7.40% due 5/1/00 Baa1/BBB 1,772,058
1,065,000 Cypress-Fairbanks Independent School District General Obligation,
0% due 2/1/02 (Insured: FGIC) Aaa/AAA 837,239
1,685,000 Dallas Waterworks & Sewer System Revenue, 7.10% due 4/1/99 Aa/AA 1,752,535
315,000 Dallas Waterworks & Sewer System Revenue, 7.10% due 4/1/99 Aa/AA 326,179
2,015,000 Ector County Hospital Revenue, 7.125% due 4/15/02 Baa1/BBB 2,149,481
1,970,000 Harris County Health Facilities Development Corporation, 7.375% due 12/1/25, put 12/1/98
(Greater Houston Pooled Health Care Project; Guaranteed: Prudential) Aa/NR 1,986,134
4,000,000 Harris County Flood Control District L.T.G.O. Series 1991-A, 0% due 10/1/01 Aa/AA+ 3,216,880
955,000 Harris County Health Facilities Dev. Corp. Hospital Revenue, 6.70% due 6/1/00
(Memorial Hospital Systems Project) A/A- 1,013,723
1,100,000 Houston Housing Finance Corp. SFMRB Series A, 5.35% due 6/1/02 (Insured: FSA) Aaa/AAA 1,119,019
2,850,000 Humble Independent School District of Harris County Series 1992,
0% due 2/15/00 (PSF Guaranty) Aaa/AAA 2,481,039
1,295,000 Irving Flood Control District Section 3 Refunding Capital Appreciation, 0% due 9/1/01 Baa/NR 996,373
1,195,000 Jefferson County Health Facilities Development Corporation Hospital Revenue
Series 1989, 8.125% due 10/1/99 (Baptist Health Care System Project) Baa/BBB 1,237,076
2,630,000 Lancaster Independent School District Unlimited Tax Refunding, 0% due 2/15/99
(PSF Guaranty) Aaa/AAA 2,402,400
2,300,000 Lancaster Independent School District Unlimited Tax Refunding, 0% due 2/15/98
(PSF Guaranty) Aaa/AAA 2,196,339
2,230,000 Lower Colorado River Authority Jr. Lien Refunding Revenue Series 1992, 0%
due 1/1/01 (Insured: AMBAC) Aaa/AAA 1,856,185
585,000 North Texas Health Facilities Development Corporation Revenue Series 1988,
8.25% due 9/1/98 (Wichita Falls United Diagnostic Center Project) A*/A* 614,560
1,000,000 North Texas Higher Education Student Loan Revenue, 6.50% due 4/1/99
(Insured: AMBAC) Aaa/AAA 1,040,520
250,000 Northgate Crossing Utility District Road System & Drainage System Unlimited
Tax Sinking Fund Series 1986, 9.25% due 12/1/98 NR/NR 250,067
1,040,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/06 pre-refunded 8/1/98 Aaa/AAA 1,098,698
1,115,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/07 pre-refunded 8/1/98 Aaa/AAA 1,177,931
1,295,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/09 pre-refunded 8/1/98 Aaa/AAA 1,368,090
1,395,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/10 pre-refunded 8/1/98 Aaa/AAA 1,473,734
1,500,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/11 pre-refunded 8/1/98 Aaa/AAA 1,584,660
1,615,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/12 pre-refunded 8/1/98 Aaa/AAA 1,706,151
2,135,000 Palo Duro River Authority General Obligation, 7.60% due 8/1/13 pre-refunded 8/1/98 Aaa/AAA 2,255,499
1,000,000 Palo Duro River Authority Unlimited Tax Refunding Series 1992, 5.10% due 8/1/97
(Capital Guaranty Insurance) NR/AAA 1,009,280
4,600,000 Plano Capital Appreciation Refunding General Obligation, 0% due 3/1/01 A1/AA- 3,799,738
1,355,000 San Antonio Bexar County General Obligation Improvement Forward Refunding
Series 1998, 5.00% due 8/1/99 Aa/AA 1,346,098
1,415,000 San Antonio Bexar County General Obligation Improvement Forward Refunding
Series 1998, 5.50% due 8/1/01 Aa/AA 1,423,391
885,000 Tarrant County HFC Multifamily Housing Revenue, 5.00% due 9/1/06
(Bedford Springs Project; Guaranteed: Provident Mutual Life Insurance Corporation) NR/AA- 885,504
5,880,000 Texas Public Finance Authority Series B, 5.25% due 2/1/98 (Insured: AMBAC) Aaa/AAA 5,981,665
1,200,000 Texas Water Resource Finance Authority Revenue, 7.00% due 8/15/99
(Insured: AMBAC) Aaa/AAA 1,275,480
985,000 Texas Water Resource Finance Authority Revenue, 7.40% due 8/15/00 A/A 1,054,836
870,000 Texas Water Resources Authority Revenue, 7.50% due 8/15/01 A/A- 933,814
1,100,000 Trinity HFC Multifamily Housing Revenue Series 1982, 10.00% due 6/1/98
(Timberline Apartment Project) NR/NR 1,100,000
Utah (2.76%)
965,000 Davis County Housing Authority MFHR, 7.50% due 6/1/97 (Fox Creek Apartment Project;
Insured: FNMA Pass-through Certificates) NR/AAA 978,018
6,685,000 Intermountain Power Agency Power Supply Rev, 5.50% due 7/1/00 (Insured: MBIA) Aaa/AAA 6,802,723
5,055,000 Intermountain Power Agency Power Supply Rev Series B, 5.50% due 7/1/01
(Insured: MBIA) Aaa/AAA 5,195,832
8,000,000 Intermountain Power Agency Power Supply Revenue, 0% pre-refunded 7/1/00 @ 101 Aaa/AAA 6,862,560
2,045,000 Ogden Neighborhood Development Agency Tax Increment Revenue Series AS, 0% due 12/30/05
(LOC: Sumitomo Bank) A1/NR 1,220,272
2,220,000 Utah Student Loan Revenue Series 1992-G, 5.20% due 11/1/98 (Insured: AMBAC) Aaa/AAA 2,250,814
600,000 Utah Municipal Finance Co-op Local Government Revenue, 7.10% due 6/1/00 NR/AA 639,846
2,000,000 Weber County Housing Authority MFHR Series 1991, 6.50% due 11/1/18, put 11/1/01
(Cherry Creek Apartment Project; LOC: First Security Bank of Utah, Insured: FGIC) Aaa/AAA 2,070,660
Virginia (1.17%)
3,000,000 Hampton Redevelopment Housing Authority Series 1994, 7.00% due 7/1/24,
put 7/1/04 (Chase Hampton Apartments Project) NR/NR 3,227,760
445,000 Henrico County Governmental Project Lease Revenue, 4.55% due 6/1/01 Aa/AA 447,461
1,755,000 Henrico County IDA Public Facility Lease Revenue, 6.50% due 8/1/00
(Henrico County Jail Project) Aa/AA 1,877,060
3,000,000 Suffolk Redevelopment Housing Authority Series 1994, 7.00% due 7/1/24,
put 7/1/04 (Chase Heritage at Dulles Project) NR/NR 3,190,230
1,960,000 Virginia Housing Development Authority Series C-8, 5.70% due 7/1/03 Aa1/AA+ 2,011,509
255,000 Virginia Housing Development Authority Series D-4, 5.00% due 7/1/00 Aa1/AA+ 259,251
Washington (2.97%)
1,010,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992,
5.55% due 7/1/99 A1/A 1,037,694
1,125,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992,
5.75% due 7/1/00 A1/A 1,166,760
1,295,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992-E,
5.50% due 7/1/97 A1/A 1,306,875
1,370,000 Chelan County Public Utility District #1 Consolidated System Revenue Series 1992-E,
0% due 7/1/98 A1/A 1,284,731
1,000,000 Spokane County Airport Revenue Refunding Series 1993, 4.80% due 6/1/99
(Insured: MBIA) Aaa/AAA 1,013,160
2,500,000 Spokane County Industrial Development Corporation Refunding, 4.75% due 12/1/97
(Jensen - Byrd Project; LOC: U.S. Bank of Washington) A1/NR 2,502,575
725,000 Spokane County School District # 363 Unlimited Tax G.O. Ref. Series 1992,
5.40% due 12/1/00 A/NR 749,744
1,000,000 Sumner Limited Tax General Obligation Anticipation Notes, 4.70% due 8/1/98 NR/NR 1,000,160
2,880,000 Washington Health Care Facilities Authority Pooled Equipment
Series 1992-B, 7.20% due 6/1/02 (Kadlec Medical Center Project) Baa1/NR 3,061,814
1,945,000 Washington Health Care Facilities Authority Pooled Equipment
Series 1992-A, 7.35% due 6/1/02 (Dominican Health Project) Baa/NR 2,022,392
1,040,000 Washington Public Power Supply System Series G Project #1 Rev., 7.15% due 7/1/01 Aa/AA 1,134,744
2,000,000 Washington Public Power Supply System Project #1 Ref. Rev., 6.50% due 7/1/02 Aa/AA 2,142,720
3,500,000 Washington Public Power Supply System Project #1 Ref. Rev., 5.30% due 7/1/02 Aa/AA 3,571,855
500,000 Washington Public Power Supply System Series C Project #2 Rev., 7.20% due 7/1/99 Aa/AA 532,365
250,000 Washington Public Power Supply System Project #2 Ref. Rev., 7.50% due 7/1/02 Aa/AA 276,175
2,000,000 Washington Public Power Supply System Project #2 Ref. Rev., 7.50% due 7/1/03 Aa/AA 2,229,060
1,700,000 Washington Public Power Supply System Series B Refunding, 7.15% due 7/1/01 Aa/AA 1,837,003
1,000,000 Washington Public Power Supply System Series B, 7.25% due 7/1/00 Aa/AA 1,081,420
West Virgi (.89%)
837,742 Marion County SFMR Series 1992, 7.75% due 7/10/11 Baa/NR 888,584
115,000 Randolph County Building Commission Hospital Revenue, 6.80% due 11/1/97 Baa1/BBB 116,419
5,000,000 West Virginia Parkway Economic Development Tourism Authority Series 1993, 4.55%
(inverse floater) due 5/15/01 (Insured: FGIC) Aaa/AAA 4,899,300
2,500,000 West Virginia Parkway Economic Development Tourism Authority Series 1993, 4.65%
(inverse floater) due 5/15/02 (Insured: FGIC) Aaa/AAA 2,450,600
Wisconsin (1.14%)
900,000 Cady Small Business Pollution Control Revenue Refunding Series 1992, 6.20%
due 4/1/00 (Summit Cheese Project; Guaranteed: SBA) Aaa/AAA 914,652
1,500,000 Wisconsin Health & Education Facilities Authority Series 1992, 5.50%
due 8/15/01 (Wheaton Franciscan Services Inc. Project; Insured: MBIA) Aaa/AAA 1,556,190
3,000,000 Wisconsin Health & Education Facilities Authority, 5.00% due 8/15/98
(Sorrowful Mother Project) NR/AA- 3,034,290
1,000,000 Wisconsin Health & Education Facilities Authority Series 1993, 4.75% due 2/15/98
(Lacrosse Project; Insured: FSA) Aaa/AAA 1,010,640
1,045,000 Wisconsin Health & Education Facilities Authority Series 1993, 5.00% due 2/15/99
(Lacrosse Project; Insured: FSA) Aaa/AAA 1,060,696
3,045,000 Wisconsin Health & Education Facilities Authority Revenue, 5.75% due 11/15/01
(Insured: FSA) Aaa/AAA 3,194,753
Wyoming (.27%)
1,493,955 Evanston Industrial Development Revenue Series 1983, 9.90% due 4/1/04
(Wybanco Project; LOC: Texas Commerce Bank) A2*/A+* 1,481,745
1,000,000 Wyoming Student Loan Corporation Revenue, 6.25% due 12/1/99 NR/AA 1,044,230
TOTAL INVESTMENTS (100%) $942,626,766
</TABLE>
* Indicates rating on other debt issued by the same issuer,
rather than on the security held by the Fund. These securities
are deemed by the Adviser to be comparable with those of
issuers having debt ratings in the 4 highest grades by Moody's
or S & P. +Credit ratings are unaudited. See notes to
financial statements.
Thornburg Limited Term Municipal Fund
National Portfolio-Class A Shares
Percent Change in Share Prices
January 1, 1987 Through December 31, 1996
The Fund's Class A Share price movements have been moderate even though changes
in interest rates have caused bond prices to swing erratically in the last 9
years. The graph above plots the percentage changes in bid price for Class A
shares of Limited Term Municipal Fund National Portfolio as well as the
percentage changes in the Lipper Bond Fund Index, an index of share prices of
ten large municipal bond funds. Past performance of the Fund and the Index does
not guarantee future results. The price of the Class A shares will fluctuate and
you may have a gain or loss when you sell your shares. Although you could invest
in shares of the funds in the Index, you cannot invest in the Index itself.
Class C Shares of the Fund have been offered since September 1, 1994. The C
Shares have different sales charges, expense ratios and returns.
Thornburg Limited Term Municipal Fund
National Portfolio-A Shares
Outperformed Taxable and Tax - Free Money Market Funds
INVESTORS SOMETIMES ASK US TO COMPARE LIMITED TERM MUNICIPAL FUND TO MONEY
MARKET FUND RETURNS. THESE INVESTMENTS HAVE CERTAIN DIFFERENCES, AND INVESTORS
IN LIMITED TERM MUNICIPAL FUND TOOK MORE RISK THAN MONEY MARKET FUND INVESTORS
TO EARN THEIR HIGHER RETURNS
On September 1, 1994 Thornburg Limited Term Municipal Fund National Portfolio
begin offering Class C Shares of the Fund. The chart above is for the Fund's
Class A Shares only. Class C Shares have different sales charges and expenses.
See the inside front cover page for the 30 day SEC yield and the total returns
at the maximum offering prices for one year, five years, ten years, and since
inception for each class of shares of the Fund.
Note 1: Future increases, if any, of any of these investments may bear no
relationship to prior increases. Quotations for the money fund averages are
based upon 30 day yield quotations for taxable and tax-exempt money funds as
quoted in "Donoghue's Money Fund Report" for the months covered by this
analysis. The increase for the Class A Shares of Limited Term Municipal Fund -
National Portfolio is based upon the dividends paid for the months covered by
this analysis, the beginning offering price at $13.24 per share and the ending
NAV at $13.45 per share. These investments returned the $100,000 initial
investment in addition to the amounts shown above.
Note 2: This analysis does not take into account the effect, if any, caused by
state and local income taxes. This analysis also assumes the income from the
taxable money fund is taxed at 50% federal tax rate in 1985 and 1986, and 38.5%
rate in 1987, a 31% rate 1988 to 1992, and a 39.6% rate in 1993 to 1996. The
portion of the increase of Limited Term Municipal Fund representing appreciation
of the share price is assumed to be taxed at a 28% federal tax rate. The average
money market fund increases shown above may differ from the return of a
particular money market fund. It is not possible to invest in these money fund
averages.
Note 3: The net asset value of the money funds did not fluctuate. The net asset
value of the Class A Shares of LTMFX did vary from time to time, and will
continue to vary in the future. The analysis assumes that the investor received
the net asset value of the shares owned, plus accrued income, at time of sale.
Due to the effect of sales commissions, the net asset value of the Limited Term
Municipal Fund's Class A Shares is less than the offering price of the shares.
Redemptions are made at the then current net asset value, which may give you a
gain or loss when you sell your shares.
Note 4: This analysis assumes that the dividends from each of these investment
vehicles were reinvested and compounded monthly. Most money funds declare
dividends daily and pay them monthly. Limited Term Municipal Fund also declares
dividends daily and pays them monthly.
<PAGE>
<PAGE> 1
<TABLE>
<CAPTION>
MACKENZIE
June 30, 1996
<S> <C> <C> <C> <C>
MACKENZIE MARKET COMMENTARY:
LIMITED TERM
MUNICIPAL During the first six months of the year been supported by a stable US treasury
FUND interest rates trended higher in response to market and high absolute levels of interest
faster than expected economic growth. rates.
Additionally, energy and grain prices went For the twelve months ended June 30,
up because of colder than normal weather 1996, the total return of the Mackenzie Limited
- -------------------- and low inventories of these commodities. Term Municipal Fund was 4.46% without
ANNUAL On the labor front, a surprising number of sales charge. This compares with the average
REPORT new jobs were created and unemployment of all Intermediate Municipal Debt Funds
- -------------------- declined, leading to an increase in labor tracked by Lipper Analytical Services, Inc.
This report and the costs. Historically, these factors have pre- which was 4.86% for the same period. (For
financial statements saged an increase in inflation and as market the Fund's total return with sales charge and
contained herein are participants fear a repeat of the downturn in performance commentary, please see the
submitted for the bond prices similar to 1994, the tone of the following page.)
general information of fixed income markets has swung dramati- As municipalities continue to focus on
the shareholders. This cally from complacency to caution. improving their balance sheets, municipal
report is not authorized Our research indicates the pace of credit fundamentals are enhanced. We
for distribution to economic growth will moderate in the believe a stable supply of municipal issuance
prospective investors months to come as the economy is in the and increased demand should allow the
unless preceded or later stages of a longer term economic municipal bond market to perform well in
accompanied by an recovery. This deceleration should allay fears the months ahead.
effective prospectus. of a resurgence of inflation. Additionally,
the Federal Reserve Board is firmly commit- MACKENZIE INVESTMENT MANAGEMENT, INC.
Mackenzie Investment ted to price stability and we expect that they
Management Inc. will act to defend this mission. Monetary
Via Mizner Financial policy is currently somewhat restrictive
Plaza which should act as a brake on the economy
700 South Federal Hwy. over the near future.
Boca Raton, FL 33432 The municipal bond market continues
1-800-456-5111 to outperform US treasuries. The most
predominant reason for the strength in the
municipal market is likely explained by a
shift in asset allocation. Equity investors,
who are uncomfortable with the increased
volatility of US stock markets, have been
rotating assets into municipal bond funds.
Should equity markets continue to experi-
ence volatility, we would expect this trend to
persist. The municipal bond market has also
---------------------------------------------------------------------------------------------------
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill President Services Corp. Management Inc.
Stanley Channick Keith J. Carlson, P.O. Box 3022 Boca Raton, FL
Frank W. DeFriece Vice President Boca Raton, FL
Roy J. Glauber C. William Ferris, 33431-0922 DISTRIBUTOR
Michael G. Landry Secretary/Treasurer 1-800-777-6472 Ivy Mackenzie
Joseph G. Rosenthal Distributors, Inc.
J. Brendan Swan CUSTODIAN AUDITORS Via Mizner Financial Plaza
Brown Brothers Coopers & Lybrand L.L.P. 700 South Federal Highway
LEGAL COUNSEL Harriman & Co. Fort Lauderdale, FL Boca Raton, FL 33432
Dechert Price Boston, MA
& Rhoads [LOGO IVY MACKENZIE]
Boston, MA
</TABLE>
<PAGE> 2
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1996, the Mackenzie Limited Term Municipal
Fund had a total return of 4.46%. This compares with the average of all
Intermediate Municipal Debt Funds tracked by Lipper Analytical Services, Inc.
which was 4.86% for the same period. The Fund's underperformance can be
attributed to the manager's decision to extend the average duration of the Fund
as a means of providing a higher level of tax-free income.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND+
[CHART]
+ Previous periods during which the Fund was advised by Zweig/Glaser Advisors
are not shown.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
MACKENZIE LIMITED TERM MUNICIPAL FUND
FOR PERIOD ENDING 6/30/96
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
- --------------------------------------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
- --------------------------------------------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Yr. 1.32% .93% .98% 3.98% .58% 3.58%
- -------------------------------------------------------------------------------------------
Since Inception 4.44% 4.14% 3.67% 4.51% 3.27% 4.11%
- -------------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 3.00%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 3%.
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie Limited Term Municipal Fund will fluctuate and at redemption
may be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
- - ------------------------------------------------------------------------------
<PAGE> 3
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 93.7% PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA -- 1.5%
A2 NR Huntsville Alabama Ind. Rev. (TRW Inc. Project), 12.75%, 08/01/02................... $1,000,000 $ 1,072,460
-----------
ALASKA -- 4.3%
Aaa AAA North Slope Boro Alaska (GO)(NC)(MBIA Insured), 0.00%, 01/01/01..................... 4,000,000 3,205,000
-----------
ARIZONA -- 3.6%
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%, 07/01/00................... 500,000 411,250
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%, 01/01/01................... 750,000 599,062
Baa1 A Maricopa County Arizona School District (GO)(NC), 5.60%, 07/01/03................... 500,000 505,000
Aa AA- Maricopa County Arizona Unified School District (GO)(NC), 7.75%, 07/01/03........... 1,000,000 1,158,750
-----------
2,674,062
-----------
CALIFORNIA -- 17.4%
A NR California Educational Facilities Authority (NC), 6.30%, 09/01/00................... 450,000 474,750
NR A- California Health Facilities Financing Authority -- Downey Community Hospital,
5.30%, 05/15/04................................................................... 500,000 488,750
A1 A California State (GO)(NC), 6.75%, 05/01/02.......................................... 500,000 546,875
A1 A California State (GO)(NC), 7.10%, 09/01/02.......................................... 500,000 556,875
A1 A California State (GO)(NC), 9.25%, 03/01/05.......................................... 350,000 446,250
A1 AA- Clovis Unified School Series A (GO)(NC),10.90%, 08/01/99............................ 250,000 292,187
A1 AA- Clovis Unified School Series B (GO)(NC), 0.00%, 08/01/02............................ 1,000,000 732,500
A A Los Angeles County California Certificate of Participation, Correctional Facility
Improvements, 6.90%, 03/01/01..................................................... 500,000 522,500
A A Los Angeles County California Certificate of Participation, Disney Parking Project
(NC), 0.00%, 09/01/03............................................................. 250,000 162,188
Aa AA Los Angeles Dept. of Water & Power (NC), 9.00%, 07/15/98............................ 500,000 626,875
Aa AA- Los Angeles Dept. of Water & Power (NC), 9.00%, 02/01/02............................ 500,000 599,375
NR A-p Mount San Antonio California Community College (NC), 5.20%, 04/01/00................ 500,000 498,125
Aaa AAA Palomar Pomerado Health System (NC)(MBIA Insured), 0.00%, 11/01/03.................. 500,000 342,500
NR A- Pomona California Public Financing Authority (NC), 5.625%, 10/01/03................. 500,000 500,000
NR A- Redwood City California Public Financing Authority, 7.10%, 07/15/01................. 750,000 816,563
A A San Bernardino California Joint Powers Financing Authority (NC), 4.90%, 12/01/03.... 500,000 486,875
A BBB+ San Francisco California Port Revenue (NC), 9.00%, 07/01/03......................... 1,000,000 1,212,500
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured), 7.75%. 02/01/02........ 500,000 569,375
A A Southern California Public Power Authority, 6.75%, 07/01/01......................... 1,000,000 1,073,750
Aa NR University of California Certificate of Participation (NC), 10.00%, 11/01/03........ 1,500,000 1,942,500
-----------
12,891,313
-----------
COLORADO -- 0.8%
Baa1 NR El Paso County Colorado School District (GO)(NC), 8.25%, 12/15/04................... 500,000 602,500
-----------
CONNECTICUT -- 0.8%
Baa BBB New Haven Connecticut (GO)(NC), 9.50%, 11/15/03..................................... 500,000 608,125
-----------
FLORIDA -- 7.4%
NR AA East Lee County Florida Water Control District (NC) (Asset Guaranty Insured), 5.50%,
11/01/03.......................................................................... 200,000 204,250
Aaa AAA Hillsborough County Florida Utility (MBIA Insured), 9.75%, 12/01/03................. 150,000 184,125
Aaa AAA Jacksonville Port Authority Rev. (MBIA Insured)(NC), 7.625%, 11/01/02............... 550,000 633,875
Aaa AAA Jacksonville Port Authority Rev. (MBIA Insured)(NC), 7.625%, 11/01/03............... 1,000,000 1,166,250
Aaa AAA Pasco County Florida School Board Certificate of Participation (FSA Insured)(NC),
6.10%, 08/01/01................................................................... 250,000 265,000
Aaa AAA Port St. Lucie Florida Stormwater Utility Revenue, 7.40%, 11/01/00 (Pre-refunded)... 250,000 277,188
Aaa AAA Volusia County School Board (NC)(FSA Insured), 10.00%, 08/01/00..................... 2,300,000 2,739,875
-----------
5,470,563
-----------
GEORGIA -- 0.7%
A1 A+ Savannah Georgia Resource Recovery Authority, 5.95%, 12/01/02....................... 500,000 519,375
-----------
GUAM -- 1.3%
NR BBB Guam Government (GO), 5.90%, 09/01/05............................................... 1,000,000 991,250
-----------
HAWAII -- 0.7%
Aa AA Honolulu City & County (GO)(NC), 7.25%, 07/01/00.................................... 500,000 546,250
-----------
IDAHO -- 1.0%
NR BBB+ Boise Idaho Urban Renewal Agency Parking Revenue, 6.00%, 09/01/02................... 700,000 719,250
-----------
ILLINOIS -- 1.8%
A A- Illinois Health Facilities Authority -- Illinois Masonic Medical Center, 5.20%,
10/01/03.......................................................................... 500,000 484,375
Aaa AAA Metropolitan Pier & Exposition Authority Illinois (NC) (MBIA Insured), 0.00%,
12/15/01.......................................................................... 500,000 380,000
Aaa AAA Will & Kendall Counties Illinois School District (GO)(AMBAC Insured), 5.45%,
01/01/05.......................................................................... 500,000 504,375
-----------
1,368,750
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IOWA -- 0.8%
Aaa AAA Muscatine Iowa Electric, 9.50%, 01/01/04 (Escrowed to Maturity)..................... $ 500,000 $ 604,375
-----------
LOUISIANA -- 3.6%
Aaa AAA Louisiana Gas & Fuels (FGIC Insured), 7.25%, 11/15/00............................... 500,000 545,625
A3 A Louisiana State Offshore Terminal Authority (NC), 6.25%, 09/01/04................... 2,000,000 2,102,500
-----------
2,648,125
-----------
MAINE -- 2.2%
NR A+ Maine Muni Bond Bank, 7.30%, 11/01/99 (Pre-refunded)................................ 1,500,000 1,651,875
-----------
MARYLAND -- 2.1%
Aa AA Maryland State Individual Development Financing Authority -- Holy Cross (NC), 5.50%,
12/01/01.......................................................................... 1,500,000 1,533,750
-----------
MASSACHUSETTS -- 3.2%
A A+ Massachusetts (GO), 6.50%, 07/01/02................................................. 500,000 540,625
Baa1 NR Massachusetts State Health & Educational Facilities Authority Revenue (Holyoke
Hospital), 6.25%, 07/01/04........................................................ 1,000,000 1,032,500
A1 A- Massachusetts State Industrial Finance Agency (NC)(Mass Biomedical), 0.00%,
08/01/00.......................................................................... 1,000,000 820,000
-----------
2,393,125
-----------
MINNESOTA -- 1.4%
Baa3 NR International Falls Minnesota Pollution Control Revenue, 7.15%, 5/15/98............. 500,000 520,000
NR BBB+ Minneapolis Minnesota Community Development, 7.00%, 12/01/03........................ 500,000 521,250
-----------
1,041,250
-----------
MISSISSIPPI -- 2.2%
Aaa AAA Columbus Mississippi (MBIA Insured)(NC), 8.80%, 05/01/02............................ 500,000 593,750
NR A- Mississippi Medical Center Educational Building Corporation, University of
Mississippi Medical Center Project (NC), 7.00%, 12/01/00.......................... 1,000,000 1,060,000
-----------
1,653,750
-----------
NEVADA -- 0.8%
Aaa AAA Reno Nevada (GO)(NC)(MBIA Insured), 8.70%, 05/01/99................................. 545,000 604,269
-----------
NEW HAMPSHIRE -- 0.5%
Aa AA New Hampshire State (GO)(NC), 0.00%, 07/01/04....................................... 500,000 333,125
-----------
NEW YORK -- 5.4%
Aaa AAA Brookhaven New York Series A (MBIA Insured)(GO)(NC), 7.00%, 11/01/04................ 300,000 339,750
Baa1 BBB Metropolitan Transportation Authority New York Service Contract, 7.00%, 07/01/02.... 1,000,000 1,090,000
Baa1 A- New York City (GO)(NC), Series A, 7.00%, 08/01/03................................... 500,000 530,625
Baa1 A- New York City (GO)(NC), Series D, 5.70%, 08/01/02................................... 750,000 749,062
Baa BBB- New York City Health & Hospital Corporation Revenue, 6.00%, 02/15/05................ 750,000 745,312
Aa NR New York State Medical Care Facilities Financing Agency (SONYMA Insured), 6.00%,
11/15/02.......................................................................... 500,000 522,500
-----------
3,977,249
-----------
NORTH CAROLINA -- 1.4%
NR A- Gastonia North Carolina Housing Corporation, 5.75%, 07/01/04........................ 1,000,000 1,038,750
-----------
OKLAHOMA -- 0.7%
A A Southern Oklahoma Memorial Hospital (NC), 5.60%, 02/01/00........................... 500,000 508,125
-----------
OREGON -- 0.5%
Aa AA- Oregon State (GO)(NC), 9.00%, 10/01/00.............................................. 300,000 350,250
-----------
PENNSYLVANIA -- 2.2%
Aaa AAA Pennsylvania Higher Ed. Series A (FGIC Insured)(NC), 6.80%, 12/01/00................ 1,000,000 1,071,250
Aa3 AA- Southeastern Pennsylvania Transportation Authority (NC), 6.00%, 06/01/01............ 500,000 523,125
-----------
1,594,375
-----------
PUERTO RICO -- 4.5%
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/03.................................. 1,000,000 697,500
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/04.................................. 400,000 263,000
Baa1 A Puerto Rico Commonwealth (GO)(NC), 5.10%, 07/01/02.................................. 400,000 404,000
Baa1 A- Puerto Rico Electric Power Authority Power Revenue, 6.80%, 07/01/00................. 900,000 967,500
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%, 07/01/03.......................... 1,000,000 1,027,500
-----------
3,359,500
-----------
RHODE ISLAND -- 4.5%
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%, 10/01/02........................ 1,400,000 1,702,750
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%, 10/01/01........................ 1,385,000 1,649,881
-----------
3,352,631
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA -- 2.6%
Aaa AAA Charleston County SC (NC), 8.25%, 07/01/00.......................................... $ 500,000 $ 558,750
Aaa AAA Edgefield County Central School District (FSA Insured)(GO)(NC), 8.50%, 02/01/02..... 300,000 353,625
A BBB Piedmont South Carolina Municipal Power Agency, 6.05%, 01/01/04..................... 1,000,000 1,033,750
-----------
1,946,125
-----------
TEXAS -- 9.5%
A A- Austin Texas Water Sewer & Electric (NC), 14.00%, 11/15/01 (Escrowed to Maturity)... 15,000 19,631
A A- Austin Texas Water Sewer & Electric, 14.00%, 11/15/01 (Pre-refunded)................ 985,000 1,281,731
Aaa NR Channelview Texas Independent School District (GO)(NC), 7.00%, 08/15/02............. 500,000 556,250
Aaa AAA Denton County Texas (GO)(MBIA Insured), 7.75%, 07/15/02............................. 1,000,000 1,150,000
A A- Harris County Texas Health Facs. Dev. (NC), 6.90%, 06/01/02......................... 1,000,000 1,067,500
Aaa AAA Houston Texas Water Conveyance Cert. Series F (NC)(AMBAC Insured), 7.20%,
12/15/02.......................................................................... 1,000,000 1,120,000
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG Insured), 0.00%, 02/15/02.... 2,000,000 1,512,500
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG Insured), 0.00%, 02/15/04.... 500,000 338,750
-----------
7,046,362
-----------
UTAH -- 1.3%
Baa BBB+ Davis County Utah Solid Waste Management and Recovery Revenue, 5.90%, 06/15/03...... 1,000,000 978,750
-----------
WASHINGTON -- 3.0%
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC Insured), 7.50%,
12/01/02.......................................................................... 500,000 573,750
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC Insured), 7.50%,
12/01/03.......................................................................... 500,000 580,000
NR AA- Washington State Health Care Facilities Authority (NC), 6.20%, 02/15/01............. 500,000 523,125
Aaa AAA Washington State Public Power Supply, 7.50%, 07/01/15 (Pre-refunded)................ 485,000 534,714
-----------
2,211,589
-----------
TOTAL INVESTMENTS -- 93.7%
(Cost -- $69,538,015)*.............................................................. 69,496,248
OTHER ASSETS, LESS LIABILITIES -- 6.3%.............................................. 4,708,531
-----------
NET ASSETS -- 100%.................................................................. $74,204,779
===========
*Cost for Federal income tax purposes is $69,272,102.
AMBAC - AMBAC Indemnity Corporation
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Association
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
NR - Not Rated
PSFG - Permanent School Fund Guaranty
SONYMA - State of New York Mortgage Agency
OTHER INFORMATION:
At June 30, 1996, net unrealized depreciation based on cost for Federal income tax
purposes is as follows:
Gross unrealized appreciation................................................................ $ 783,071
Gross unrealized depreciation................................................................ (558,925)
-----------
Net unrealized depreciation......................................................... $ 224,146
===========
Purchases and sales of municipal securities aggregated $30,788,167 and $68,201,377,
respectively, for the period ended June 30, 1996.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 6
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $69,538,015).............................................................. $69,496,248
Cash................................................................................................................ 3,496,585
Receivables:
Fund shares sold.................................................................................................. 2,475
Interest.......................................................................................................... 1,212,711
Manager for expense reimbursement................................................................................. 36,181
Deferred organization expenses...................................................................................... 9,670
Other assets........................................................................................................ 20,358
-----------
Total assets...................................................................................................... 74,274,228
-----------
LIABILITIES
Payables:
Management fee.................................................................................................... 33,236
12b-1 service and distribution fees............................................................................... 15,754
Administrative services fee....................................................................................... 6,043
Fund accounting................................................................................................... 6,250
Transfer agent.................................................................................................... 8,166
-----------
Total liabilities................................................................................................. 69,449
-----------
NET ASSETS.......................................................................................................... $74,204,779
===========
CLASS A:
Net asset value and redemption price per share ($72,125,863/7,124,675 shares outstanding)........................... $ 10.12
===========
Maximum offering price per share ($10.12 X 100/97.00)*.............................................................. $ 10.43
===========
CLASS B:
Net asset value and offering price per share ($2,078,916/205,390 shares outstanding)**.............................. $ 10.12
===========
NET ASSETS CONSIST OF:
Capital paid-in................................................................................................... $75,869,080
Accumulated net realized loss on investments...................................................................... (1,669,709)
Accumulated undistributed net investment income................................................................... 47,175
Net unrealized depreciation on investments........................................................................ (41,767)
-----------
NET ASSETS.......................................................................................................... $74,204,779
===========
</TABLE>
* On sales of more than $25,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
(See Notes to Financial Statements)
<PAGE> 7
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
Investment income
Interest................................................................................................ $4,953,127
----------
Expenses
Management fee.......................................................................................... $513,762
Transfer agent.......................................................................................... 107,108
Administrative services fee............................................................................. 93,411
Custodian fees.......................................................................................... 77,277
Blue Sky fees........................................................................................... 22,023
Auditing and accounting fees............................................................................ 31,867
Shareholder reports..................................................................................... 7,249
Amortization of organization expenses................................................................... 11,548
Fund accounting......................................................................................... 83,991
Trustees' fees.......................................................................................... 4,860
12b-1 service and distribution fees
Class A............................................................................................... 228,045
Class B............................................................................................... 16,450
Legal................................................................................................... 30,196
Other................................................................................................... 15,019
----------
1,242,806
Expenses reimbursed by manager.......................................................................... (373,984)
Fees paid indirectly.................................................................................... (26,496)
----------
Net expenses.......................................................................................... 842,326
----------
NET INVESTMENT INCOME..................................................................................... 4,110,801
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments........................................................................ 535,769
Net unrealized depreciation during the period on investments............................................ (112,650)
----------
Net gain on investments............................................................................... 423,119
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $4,533,920
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations:
Net investment income............................................................................. $ 4,110,801 $ 6,092,576
Net realized gain (loss) on investments........................................................... 535,769 (3,702,309)
Net unrealized appreciation (depreciation) during the period on investments....................... (112,650) 5,286,010
------------ ------------
Net increase resulting from operations.......................................................... 4,533,920 7,676,277
------------ ------------
Class A distributions
From net investment income........................................................................ (3,954,375) (6,013,129)
In excess of net investment income................................................................ -- (891,631)
------------ ------------
Total distributions to Class A shareholders..................................................... (3,954,375) (6,904,760)
------------ ------------
Class B distributions
From net investment income........................................................................ (83,982) (79,447)
In excess of net investment income................................................................ -- (11,782)
------------ ------------
Total distributions to Class B shareholders..................................................... (83,982) (91,229)
------------ ------------
Fund share transactions (Note 4):
Class A........................................................................................... (36,365,347) (47,921,734)
Class B........................................................................................... (283,443) 1,381,678
------------ ------------
Net decrease resulting from Fund share transactions............................................. (36,648,790) (46,540,056)
------------ ------------
TOTAL DECREASE IN NET ASSETS........................................................................ (36,153,227) (45,859,768)
NET ASSETS
Beginning of period............................................................................... 110,358,006 156,217,774
------------ ------------
END OF PERIOD..................................................................................... $ 74,204,779 $110,358,006
============ ============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS).............................................. $ 47,175 $ (25,269)
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 9
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------------------
SELECTED PER SHARE DATA 1996 1995 1994 1993 1992
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $ 10.11 $ 10.02 $ 10.47 $ 10.41 $ 10.36
------- -------- -------- ------- -------
Income from investment operations
Net investment income(a).................................... .44 .43 .62 .63 .63
Net gain (loss) on investments (both realized and
unrealized)............................................... .01 .16 (.45) .07 .05
------- -------- -------- ------- -------
Total from investment operations.......................... .45 .59 .17 .70 .68
------- -------- -------- ------- -------
Less distributions
From net investment income.................................. .44 .43 .62 .63 .62
In excess of net investment income.......................... -- .07 -- .01 --
From net realized gain...................................... -- -- -- -- .01
------- -------- -------- ------- -------
Total distributions....................................... .44 .50 .62 .64 .63
------- -------- -------- ------- -------
Net asset value, end of period................................ $ 10.12 $ 10.11 $ 10.02 $ 10.47 $ 10.41
======= ======== ======== ======= =======
Total return(%)(b)............................................ 4.46 6.07 1.56 6.97 6.56
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)...................... $72,126 $108,000 $155,187 $94,460 $30,005
Ratio of expenses to average net assets
With expense reimbursement and fees paid indirectly(%)(c)... .89 .89 .88 .85 .97
Without expense reimbursement and fees paid
indirectly(%)(c).......................................... 1.32 1.18 1.11 1.20 1.25
Ratio of net investment income to average net assets(%)(a).... 4.41 4.38 6.06 6.13 6.24
Portfolio turnover rate(%).................................... 34 53 36 32 62
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
FOR THE YEAR ENDED (COMMENCEMENT)
CLASS B JUNE 30, TO JUNE 30,
--------------------- --------------
SELECTED PER SHARE DATA 1996 1995 1994
------ ------ --------------
<S> <C> <C> <C>
Net asset value, beginning of period................................................... $10.11 $10.02 $10.11
------ ------ ------
Income from investment operations
Net investment income(a)............................................................. .40 .38 .12
Net gain (loss) on investments (both realized and unrealized)........................ .01 .16 (.06)
------ ------ ------
Total from investment operations................................................... .41 .54 .06
------ ------ ------
Less distributions
From net investment income........................................................... .40 .38 .12
In excess of net investment income................................................... -- .07 .03
------ ------ ------
Total distributions................................................................ .40 .45 .15
------ ------ ------
Net asset value, end of period......................................................... $10.12 $10.11 $10.02
====== ====== ==============
Total return(%)........................................................................ 3.98(b) 5.54(b) .63(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............................................... $2,079 $2,358 $1,030
Ratio of expenses to average net assets
With expense reimbursement and fees paid indirectly(%)(c)............................ 1.39 1.39 1.38(e)
Without expense reimbursement and fees paid indirectly(%)(c)......................... 1.82 1.68 1.61(e)
Ratio of net investment income to average net assets(%)(a)............................. 3.91 3.88 5.56(e)
Portfolio turnover rate(%)............................................................. 34 53 36
</TABLE>
(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid indirectly
through an expense offset arrangement.
(d) Total return represents aggregate total return and does not reflect a
sales charge.
(e) Annualized.
(See Notes to Financial Statements)
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
Mackenzie Limited Term Municipal Fund (the Fund) is a series of shares of
Mackenzie Series Trust. The shares of beneficial interest are $.001 par value
and an unlimited number of shares of Class A and Class B are authorized.
Mackenzie Series Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated April 22, 1985 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of
valuation based upon a matrix system (which considers factors such as security
prices, yields, maturities and ratings), both as furnished by an independent
pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from securities transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,936,000 as of June 30, 1996 which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $606,000 in
1997, $11,000 in 2001, $21,000 in 2002, $560,000 in 2003 and $738,000 in 2004.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net investment
income are declared monthly and net realized capital gains, if any, are declared
in June. An additional distribution may be declared if necessary to avoid the
payment of a four percent Federal excise tax.
On January 1, 1996, under a Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940, approved by the Fund's Board December 2, 1995, the Fund
discontinued its practice of declaring daily a dividend to Class A shares at the
rate per share of the excess 12b-1 fees of Class B shares over Class A shares.
For the Fund's taxable year ended June 30, 1996, 100% of distributions paid
were exempt interest dividends for Federal income tax purposes.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its issuing Class B shares have been deferred and are being
amortized on a straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the year ended June 30, 1996,
custody fees were reduced by $26,496 under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on the Fund's average net assets.
If the Fund's total expenses in any fiscal year (excluding interest, taxes,
brokerage commissions, extraordinary expenses and other expenses subject to
approval by state securities administrators) exceed limits applicable under
state securities laws, MIMI will bear the excess expenses. Currently, MIMI
voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1
fees, brokerage commissions, interest, litigation and indemnification expenses,
and other extraordinary expenses) to an annual rate of .64% of its average net
assets. The voluntary expense limitation may be terminated or revised at any
time on 30 days notice to shareholders. Expenses reimbursed by manager reflected
in the Statement of Operations consists of a voluntary reimbursement.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. As compensation for those services, the Fund pays MIMI fees plus
certain out-of-pocket expenses. Such fees are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1996, the net amount of underwriting
discount retained by IMDI was $8,684.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .50% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees are reflected as 12b-1 service and
distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. The Fund pays a
monthly fee and certain out-of-pocket expenses. Such fees and expenses are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 670,451 $ 6,832,013 2,084,010 $ 20,459,375
Issued on reinvestment of
distributions........... 241,989 2,465,947 418,632 4,149,371
Repurchased.............. (4,468,714) (45,663,307) (7,316,999) (72,530,480)
---------- ------------ ---------- ------------
Net decrease............. (3,556,274) $(36,365,347) (4,814,357) $(47,921,734)
============ ============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------------------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 60,104 $ 617,543 189,520 $ 1,974,377
Issued on reinvestment of
distributions........... 4,981 50,750 5,698 56,431
Repurchased.............. (92,882) (951,736) (64,904) (649,130)
---------- ------------ ---------- ------------
Net increase (decrease).. (27,797) $ (283,443) 130,314 $ 1,381,678
============ ============== ============ ==============
</TABLE>
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and
Board of Trustees of
Mackenzie Limited Term Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of June 30, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 15, 1996
MLTMF-2-896
<PAGE>
<PAGE> 1
DECEMBER 31, 1996 [MACKENZIE LOGO]
MACKENZIE LIMITED TERM MUNICIPAL FUND
MARKET COMMENTARY:
Overall, fixed income markets in 1996 were marked by unfulfilled
expectations and interest rate volatility. Following a quarter point decrease
in the discount rate in January 1996, there were several indicators pointing to
increased economic growth--increased wage pressure, higher petroleum and grain
prices, a strong dollar and full employment--and bond markets responded by
pushing interest rates higher.
Later in the year, market participants watched guardedly for inflation
to rear its head. However, US Gross Domestic Product (GDP) and the Consumer
Price Index (CPI) continued to reflect moderate growth which resulted in
interest rates coming down, only to rise again by year end.
The municipal bond market also had to contend with interest rate
volatility and inflationary pressures caused by increased economic growth, as
well as first quarter concerns about proposed tax reform. We believe continued
evidence of a moderating economy should, however, keep interest rates in a
trading range and inflation should remain low. But the threat of tax reform
still looms. A Republican-controlled Congress could bring tax reform and
related issues to the forefront once again. The demand for municipal bonds
has, however, remained strong as supply continued to decrease from its high in
1993.
Municipal credit rating agencies have come under fire for not detecting
fiscal problems early enough to warn investors. We believe it will be
important, therefore, to focus on higher credit quality and strong underlying
fundamentals in the coming year.
The Mackenzie Limited Term Municipal Fund maintains its disciplined
investment approach and focus on shorter term, investment grade bonds. With an
average maturity of just more than five years and 84% of the Fund rated A or
better, we believe this Fund should provide conservative tax-free investors with
a good balance of yield and return.
MACKENZIE INVESTMENT MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Chairman Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill Keith J. Carlson, President Services Corp. Management Inc.
Keith J. Carlson C. William Ferris, P.O. Box 3022 Boca Raton, FL
Stanley Channick Secretary/Treasurer Boca Raton, FL 33431-0922
Frank W. DeFriece, Jr. 1-800-777-6472 DISTRIBUTOR
Roy J. Glauber CUSTODIAN Ivy Mackenzie
Michael G. Landry Brown Brothers Harriman & Co. AUDITORS Distributors, Inc.
Joseph G. Rosenthal Boston, MA Coopers & Lybrand L.L.P. Via Mizner Financial Plaza
J. Brendan Swan Fort Lauderdale, FL 700 South Federal Highway
Boca Raton, FL 33432
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
</TABLE>
<PAGE> 2
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 96.7% PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA -- 1.6%
A2 NR Huntsville Alabama Ind. Rev. (TRW Inc. Project), 12.75%,
08/01/02.................................................. $1,000,000 $ 1,040,689
-----------
ALASKA -- 5.2%
Aaa AAA North Slope Boro Alaska (GO)(NC)(MBIA Insured), 0.00%,
01/01/01.................................................. 4,000,000 3,305,000
-----------
ARIZONA -- 4.3%
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%,
07/01/00.................................................. 500,000 425,625
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%,
01/01/01.................................................. 750,000 621,562
Baa1 A Maricopa County Arizona School District (GO)(NC), 5.60%,
07/01/03.................................................. 500,000 513,125
Aa AA- Maricopa County Arizona Unified School District (GO)(NC),
7.75%, 07/01/03........................................... 1,000,000 1,165,000
-----------
2,725,312
-----------
CALIFORNIA -- 15.1%
A1 A California State (GO)(NC), 9.25%, 03/01/05.................. 350,000 450,187
A1 AA- Clovis Unified School Series B (GO)(NC), 0.00%, 08/01/02.... 1,000,000 763,750
A A Los Angeles County California Certificate of Participation,
Correctional Facility Improvements, 6.90%, 03/01/01....... 500,000 528,125
A A Los Angeles County California Certificate of Participation,
Disney Parking Project (NC), 0.00%, 09/01/03.............. 250,000 171,250
Aa AA Los Angeles Dept. of Water & Power (NC), 9.00%, 09/01/04.... 500,000 627,500
Aa AA- Los Angeles Dept. of Water & Power (NC), 9.00%, 02/01/02.... 500,000 597,500
Aaa AAA Palomar Pomerado Health System (NC)(MBIA Insured), 0.00%,
11/01/03.................................................. 500,000 360,000
NR A- Pomona California Public Financing Authority (NC), 5.625%,
10/01/03.................................................. 500,000 507,500
NR A- Redwood City California Public Financing Authority, 7.10%.
07/15/01.................................................. 750,000 818,438
A BBB+ San Francisco California Port Revenue (NC), 9.00%,
07/01/03.................................................. 1,000,000 1,213,750
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured),
7.75%. 02/01/02........................................... 500,000 571,875
A A Southern California Public Power Authority, 6.75%,
07/01/01.................................................. 1,000,000 1,078,750
Aa NR University of California Certificate of Participation (NC),
10.00%, 11/01/03.......................................... 1,500,000 1,942,500
-----------
9,631,125
-----------
COLORADO -- 1.0%
Baa1 NR El Paso County Colorado School District (GO)(NC), 8.25%,
12/15/04.................................................. 500,000 608,750
-----------
CONNECTICUT -- 1.0%
Baa BBB New Haven Connecticut (GO)(NC), 9.50%, 11/15/03............. 500,000 611,875
-----------
FLORIDA -- 8.1%
NR AA East Lee County Florida Water Control District (NC) (Asset
Guaranty Insured), 5.50%, 11/01/03........................ 200,000 206,750
Aaa AAA Hillsborough County Florida Utility (MBIA Insured), 9.75%.
12/01/03.................................................. 150,000 181,687
Aaa AAA Jacksonville Port Authority Rev. (MBIA Insured)(NC), 7.625%,
11/01/02.................................................. 550,000 634,563
Aaa AAA Jacksonville Port Authority Rev. (MBIA Insured)(NC), 7.625%,
11/01/03.................................................. 1,000,000 1,171,250
Aaa AAA Pasco County Florida School Board Certificate of
Participation (FSA Insured)(NC),
6.10%, 08/01/01........................................... 250,000 266,875
Aaa AAA Volusia County School Board (NC)(FSA Insured), 10.00%,
08/01/00.................................................. 2,300,000 2,702,500
-----------
5,163,625
-----------
GEORGIA -- 0.8%
A1 A+ Savannah Georgia Resource Recovery Authority, 5.95%,
12/01/02.................................................. 500,000 526,250
-----------
GUAM -- 1.6%
NR BBB Guam Government (GO), 5.90%, 09/01/05....................... 1,000,000 1,006,250
-----------
HAWAII -- 0.9%
Aa AA Honolulu City & County (GO)(NC), 7.25%, 07/01/00............ 500,000 545,000
-----------
IDAHO -- 1.1%
NR BBB+ Boise Idaho Urban Renewal Agency Parking Revenue, 6.00%,
09/01/02.................................................. 700,000 725,375
-----------
ILLINOIS -- 3.1%
A A- Illinois Health Facilities Authority -- Ill Masonic Medical
Center, 5.20%, 10/01/03................................... 500,000 494,375
A A- Illinois Health, 7.00%, 01/01/04............................ 300,000 306,000
Aaa AAA Metropolitan Pier & Exposition Authority Illinois (NC) (MBIA
Insured), 0.00%, 12/15/01................................. 500,000 395,625
Aaa AAA Will & Kendall Counties Illinois School District (GO)(AMBAC
Insured), 5.45%, 01/01/05................................. 750,000 767,813
-----------
1,963,813
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE>
<PAGE> 3
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IOWA -- 0.9%
Aaa AAA Muscatine Iowa Electric, 9.50%, 01/01/04 (Escrowed to
Maturity)................................................. $ 500,000 $ 596,875
-----------
LOUISIANA -- 3.4%
A3 A Louisiana State Offshore Terminal Authority (NC), 6.25%,
09/01/04.................................................. 2,000,000 2,140,000
-----------
MASSACHUSETTS -- 2.5%
A A+ Massachusetts (GO), 6.50%, 07/01/02......................... 500,000 545,625
Baa1 NR Massachusetts State Health & Educational Facilities
Authority Revenue (Holyoke Hospital), 6.25%, 07/01/04....... 1,000,000 1,051,250
-----------
1,596,875
-----------
MINNESOTA -- 1.6%
Baa3 NR International Falls Minnesota
Pollution Control Revenue, 7.15%, 5/15/98................... 500,000 516,875
BBB+ Minneapolis Minnesota Community Development, 7.00%,
NR 12/01/03.................................................. 500,000 528,750
-----------
1,045,625
-----------
MISSISSIPPI -- 2.6%
Aaa AAA Columbus Mississippi (MBIA Insured)(NC), 8.80%, 05/01/02.... 500,000 593,750
A- Mississippi Medical Center Educational Building Corporation,
University of Mississippi
NR Medical Center Project (NC), 7.00%, 12/01/00.............. 1,000,000 1,066,250
-----------
1,660,000
-----------
NEVADA -- 0.9%
Aaa AAA Reno Nevada (GO)(NC)(MBIA Insured), 8.70%, 05/01/99......... 545,000 598,138
-----------
NEW HAMPSHIRE -- 0.6%
Aa AA New Hampshire State (GO)(NC), 0.00%, 07/01/04............... 500,000 351,250
-----------
NEW YORK -- 4.5%
Baa1 A- New York City (GO)(NC), Series A., 7.00%, 08/01/03.......... 500,000 548,125
Baa1 A- New York City (GO)(NC), Series D, 5.70%, 08/01/02........... 750,000 773,437
Baa BBB- New York City Health & Hospital Corporation Revenue, 6.00%,
02/15/05.................................................. 750,000 760,313
Aa NR New York State Medical Care Facilities Financing Agency
(SONYMA Insured), 6.00%, 11/15/02......................... 750,000 798,750
-----------
2,880,625
-----------
NORTH CAROLINA -- 1.5%
NR A- Gastonia North Carolina Housing Corporation, 5.75%,
07/01/04.................................................. 915,000 958,463
-----------
OKLAHOMA -- 0.8%
A A Southern Oklahoma Memorial Hospital (NC), 5.60%, 02/01/00... 500,000 511,250
-----------
OREGON -- 0.4%.
Aa AA- Oregon State (GO)(NC), 9.00%, 10/01/00...................... 300,000 348,375
-----------
PENNSYLVANIA -- 4.9%
A NR New Castle PA Area Hospital Authority, 6.20, 11/15/02....... 450,000 473,625
Aaa AAA Pennsylvania Higher Ed. Series A (FGIC Insured)(NC), 6.80%,
12/01/00.................................................. 1,000,000 1,068,750
Ba BBB+ Philadelphia PA Hospitals & Highered Facilities Authority,
6.20%, 07/01/00........................................... 1,000,000 1,032,500
Aa3 AA- Southeastern Pennsylvania Transportation Authority (NC),
6.00%, 06/01/01........................................... 500,000 527,500
-----------
3,102,375
-----------
PUERTO RICO -- 3.7%
Baa1 A- Puerto Rico Commonwealth (NC), 6.60%, 07/01/04.............. 300,000 327,375
Baa1 A- Puerto Rico Electric Power Authority Power Revenue, 6.80%,
07/01/00.................................................. 900,000 959,625
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%,
07/01/03.................................................. 1,000,000 1,038,750
-----------
2,325,750
-----------
RHODE ISLAND -- 7.7%
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%,
10/01/02.................................................. 1,400,000 1,702,750
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%,
10/01/01.................................................. 1,385,000 1,642,956
A NR Rhode Island State Student Loan Authority, 6.55%,
12/01/00.................................................. 1,500,000 1,580,625
-----------
4,926,331
-----------
SOUTH CAROLINA -- 0.6%
Aaa AAA Edgefield County Central School District (FSA
Insured)(GO)(NC),
8.50%, 02/01/02............................................. 300,000 353,625
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 4
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS -- 11.2%
A A- Austin Texas Water Sewer & Electric (NC),
14.00%, 11/15/01 (Escrowed to Maturity)..................... $ 15,000 $ 18,094
A A- Austin Texas Water Sewer & Electric, 14.00%, 11/15/01
(Pre-refunded)............................................ 985,000 1,245,900
Aaa AAA Denton County Texas (GO)(MBIA Insured), 7.75%, 07/15/02..... 1,000,000 1,153,750
A A- Harris County Texas Health Facs. Dev. (NC), 6.90%,
06/01/02.................................................. 1,000,000 1,077,500
A A- Harris County Texas Health Facs. Dev. (NC), 6.80%,
07/01/04.................................................. 500,000 546,250
Aaa AAA Houston Texas Water Conveyance Cert. Series F
(NC)(AMBAC Insured), 7.20%, 12/15/02........................ 1,000,000 1,132,500
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG
Insured), 0.00%, 02/15/02................................. 2,000,000 1,575,000
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG
Insured), 0.00%, 02/15/04................................. 500,000 353,750
-----------
7,102,744
-----------
UTAH -- 1.6%
Baa BBB+ Davis County Utah Solid Waste Management and Recovery
Revenue, 5.90%, 06/15/03.................................. 1,000,000 1,003,750
-----------
WASHINGTON -- 3.5%
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC
Insured), 7.50%, 12/01/02................................. 500,000 576,875
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC
Insured), 7.50%, 12/01/03................................. 500,000 585,000
NR AA- Washington State Health Care Facilties Authority (NC),
6.20%, 02/15/01........................................... 500,000 526,875
Aaa AAA Washington State Public Power Supply, 7.50%, 07/01/15
(Pre-refunded)............................................ 485,000 531,075
-----------
2,219,825
-----------
TOTAL INVESTMENTS -- 96.7% (Cost -- $61,053,746)(a)......... 61,574,940
OTHER ASSETS, LESS LIABILITIES -- 3.3%...................... 2,117,916
-----------
NET ASSETS -- 100%.......................................... $63,692,856
===========
(a) Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At December 31, 1996, net unrealized appreciation based on cost for Federal income tax
purposes is as follows:
Gross unrealized appreciation............................... $ 1,983,247
Gross unrealized depreciation............................... (1,462,053)
-----------
Net unrealized appreciation................................. $ 521,194
===========
Purchases and sales of municipal securities aggregated $5,312,856 and $13,787,842,
respectively, for the period ended December 31, 1996.
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Association
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
NC -- Non Callable
PSFG -- Permanent School Fund Guaranty
SONYMA -- State of New York Mortgage Agency
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $61,053,746)...... $61,574,940
Cash........................................................ 1,140,186
Receivables
Interest.................................................. 1,093,156
Manager for expense reimbursement......................... 17,303
Other assets................................................ 21,717
-----------
Total assets.............................................. 63,847,302
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 213
Fund shares repurchased................................... 87,227
Management fee............................................ 30,089
12b-1 service and distribution fees....................... 14,904
Other payables to related parties......................... 17,052
Accrued expenses............................................ 4,961
-----------
Total liabilities......................................... 154,446
-----------
NET ASSETS.................................................. $63,692,856
===========
CLASS A
Net asset value and redemption price per share ($61,944,558
/ 6,077,355 shares outstanding)........................... $ 10.19
===========
Maximum offering price per share ($10.19 x 100 /97.00)*..... $ 10.51
===========
CLASS B
Net asset value and offering price per share ($1,748,298 /
171,514 shares outstanding)**............................. $ 10.19
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $64,862,706
Accumulated net realized loss on investments.............. (1,549,282)
Accumulated net investment loss........................... (141,762)
Net unrealized appreciation on investments................ 521,194
-----------
NET ASSETS.................................................. $63,692,856
===========
</TABLE>
* On sales of more than $25,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,822,638
----------
EXPENSES
Management fee............................................ $190,267
Transfer agent............................................ 51,041
Administrative services fee............................... 34,594
Custodian fees............................................ 2,949
Blue Sky fees............................................. 7,592
Auditing and accounting fees.............................. 15,963
Shareholder reports....................................... 2,305
Fund accounting........................................... 23,675
Trustees' fees............................................ 2,496
12b-1 service and distribution fees....................... 91,399
Legal..................................................... 13,872
Other..................................................... 8,229
----------
444,382
Expenses reimbursed by manager............................ (131,465)
----------
Net expenses............................................ 312,917
----------
NET INVESTMENT INCOME....................................... 1,509,721
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.......................... 120,427
Net unrealized appreciation during the period on
investments............................................. 562,961
----------
Net gain on investments................................. 683,388
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $2,193,109
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 6
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------ ------------
1996* 1996
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 1,509,721 $ 4,110,801
Net realized gain on investments.......................... 120,427 535,769
Net unrealized appreciation (depreciation) during the
period on investments................................... 562,961 (112,650)
------------ ------------
Net increase resulting from operations.................. 2,193,109 4,533,920
------------ ------------
Class A distributions
From net investment income................................ (1,472,151) (3,954,375)
In excess of net investment income........................ (184,321) --
------------ ------------
Total distributions to Class A shareholders............. (1,656,472) (3,954,375)
------------ ------------
Class B distributions
From net investment income................................ (37,570) (83,982)
In excess of net investment income........................ (4,616) --
------------ ------------
Total distributions to Class B shareholders............. (42,186) (83,982)
------------ ------------
Fund share transactions (Note 4)
Class A................................................... (10,662,698) (36,365,347)
Class B................................................... (343,676) (283,443)
------------ ------------
Net decrease resulting from Fund share transactions..... (11,006,374) (36,648,790)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (10,511,923) (36,153,227)
NET ASSETS
Beginning of period....................................... 74,204,779 110,358,006
------------ ------------
END OF PERIOD............................................. $63,692,856 $ 74,204,779
============ ============
ACCUMULATED NET INVESTMENT INCOME (LOSS).................... $ (141,762) $ 47,175
============ ============
</TABLE>
* Unaudited.
(See Notes to Financial Statements)
<PAGE> 7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX
CLASS A MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
------------- -------------------------------------------------------------
1996* 1996 1995 1994 1993 1992
SELECTED PER SHARE DATA ------------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 10.12 $ 10.11 $ 10.02 $ 10.47 $ 10.41 $ 10.36
------- ------- -------- -------- ------- -------
Income from investment operations
Net investment income (a).................... .22 .44 .43 .62 .63 .63
Net realized and unrealized gain (loss)
on investments............................. .10 .01 .16 (.45) .07 .05
------- ------- -------- -------- ------- -------
Total from investment operations........... .32 .45 .59 .17 .70 .68
------- ------- -------- -------- ------- -------
Less distributions
From net investment income................... .22 .44 .43 .62 .63 .62
In excess of net investment income........... .03 -- .07 -- .01 --
From net realized gain....................... -- -- -- -- -- .01
------- ------- -------- -------- ------- -------
Total distributions........................ .25 .44 .50 .62 .64 .63
------- ------- -------- -------- ------- -------
Net asset value, end of period................. $ 10.19 $ 10.12 $ 10.11 $ 10.02 $ 10.47 $ 10.41
======= ======= ======== ======== ======= =======
Total return(%)(b)............................. 3.22(d) 4.46(b) 6.07(b) 1.56(b) 6.97(b) 6.56(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $61,945 $72,126 $108,000 $155,187 $94,460 $30,005
Ratio of expenses to average net assets
With expense reimbursement(%)(c)............. .89(e) .92 .89 .88 .85 .97
Without expense reimbursement(%)(c).......... 1.27(e) 1.32 1.18 1.11 1.20 1.25
Ratio of net investment income to average net
assets(%)(a)................................. 4.38(e) 4.41 4.38 6.06 6.13 6.24
Portfolio turnover rate(%)..................... 8 34 53 36 32 62
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B MONTHS ENDED FOR THE YEAR (COMMENCEMENT) TO
DECEMBER 31, ENDED JUNE 30, JUNE 30,
------------- ------------------ -----------------
1996* 1996 1995 1994
SELECTED PER SHARE DATA ------------- ------ ------ -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.12 $10.11 $10.02 $10.11
------ ------ ------ ------
Income from investment operations
Net investment income(a).................................. .20 .40 .38 .12
Net realized and unrealized gain (loss)
(both realized and unrealized).......................... .09 .01 .16 (.06)
------ ------ ------ ------
Total from investment operations........................ .29 .41 .54 .06
------ ------ ------ ------
Less distributions
From net investment income................................ .20 .40 .38 .12
In excess of net investment income........................ .02 -- .07 .03
------ ------ ------ ------
Total distributions..................................... .22 .40 .45 .15
------ ------ ------ ------
Net asset value, end of period.............................. $10.19 $10.12 $10.11 $10.02
====== ====== ====== ======
Total return(%)............................................. 2.92(d) 3.98(b) 5.54(b) .63(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,748 $2,079 $2,358 $1,030
Ratio of expenses to average net assets
With expense reimbursement(%)(c).......................... 1.41(e) 1.42 1.39 1.38(e)
Without expense reimbursement(%)(c)....................... 1.79(e) 1.82 1.68 1.61(e)
Ratio of net investment income to average net
assets(%)(a).............................................. 3.86(e) 3.91 3.88 5.56(e)
Portfolio turnover rate(%).................................. 8 34 53 36
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include any fees paid
indirectly. The ratio of expenses to average net assets with
expense reimbursement has been restated for the year ended
June 30, 1996.
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Annualized.
* Unaudited.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Mackenzie Limited Term Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of
valuation based upon a matrix system (which considers factors such as security
prices, yields, maturities and ratings), both as furnished by an independent
pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from securities transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,936,000 as of June 30, 1996 which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $606,000 in
1997, $11,000 in 2001, $21,000 in 2002, $560,000 in 2003 and $738,000 in 2004.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net investment
income are declared monthly and net realized capital gains, if any, are declared
semi-annually. An additional distribution may be declared if necessary to avoid
the payment of a four percent Federal excise tax.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the six months ended December 31,
1996, custody fees were not reduced under this arrangement.
2 RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on the Fund's average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.64% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time on 30 days notice to shareholders.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended December 31, 1996, the net amount of
underwriting discount retained by IMDI was $2,655.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .50% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $84,095 and $7,304 for Class A and
Class B, respectively, are reflected as 12b-1 service and distribution fees in
the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees
and expenses of $49,430 and $1,611 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 241,197 $ 2,425,820 670,451 $ 6,832,013
Issued on reinvestment of
distributions........... 101,836 1,031,714 241,989 2,465,947
Repurchased.............. (1,390,353) (14,120,232) (4,468,714) (45,663,307)
---------- ------------ ---------- ------------
Net decrease............. (1,047,320) $(10,662,698) (3,556,274) $(36,365,347)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,880 $ 29,139 60,104 $ 617,543
Issued on reinvestment of
distributions........... 2,232 22,613 4,981 50,750
Repurchased.............. (38,988) (395,428) (92,882) (951,736)
---------- ------------ ---------- ------------
Net decrease............. (33,876) $ (343,676) (27,797) $ (283,443)
========== ============ ========== ============
</TABLE>
03MCTMX123196
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Relating to the Acquisition of the Assets of
MACKENZIE CALIFORNIA MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
This Statement of Additional Information, relating specifically to the
proposed acquisition of substantially all of the assets of Mackenzie California
Municipal Fund, a series of Mackenzie Series Trust, by Thornburg Limited Term
Municipal Fund California Portfolio ("Thornburg Fund"), a series of Thornburg
Limited Term Municipal Fund, Inc., in exchange solely for Class A voting shares
of Thornburg Fund, consists of this cover page and the following documents, each
of which is attached hereto and incorporated by reference herein:
1. Thornburg Limited Term Municipal Fund, Inc. Statement of Additional
Information dated November 1, 1996, as revised May 6, 1997;
2. Mackenzie Series Trust Statement of Additional Information dated
October 25, 1996;
3. Thornburg Limited Term Municipal Fund California Portfolio Annual
Report, June 30, 1996;
4. Thornburg Limited Term Municipal Fund California Portfolio Semiannual
Report, March 31, 1997;
5. Mackenzie California Municipal Fund Annual Report, June 30, 1996;
6. Mackenzie California Municipal Fund Semiannual Report,
December 31, 1996; and
7. Pro Forma Financial Statements.
The financial statements of Mackenzie California Municipal Fund contained
in its Annual Report to shareholders for the fiscal year ended June 30, 1996
have been audited by Coopers & Lybrand, L.L.P., that Fund's independent
auditors. The financial statements of Thornburg Limited Term Municipal Fund
California Portfolio contained in its Annual Report to shareholders for the
fiscal year ended June 30, 1996 have been audited by McGladrey & Pullen, LLP,
that Fund's independent auditors.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated July 28, 1997 relating to the above referenced
acquisition may be obtained from Thornburg Limited Term Municipal Fund, Inc. at
the number and address shown above. This Statement of Additional Information
relates to, and should be read with, the Prospectus/Proxy Statement.
The date of this Statement of Additional Information is July 28, 1997.
<PAGE>
(ITEM 1 is included as part of the preceding
Statement of Additional Information.)
(ITEM 2 is included as part of the preceding
Statement of Additional Information.)
<PAGE>
ANNUAL REPORT-THORNBURG LIMITED TERM CALIFORNIA
The First page of this financial depicts a chart called:
"What Double Tax-Free Income Means to You":
A hard copy of this chart is on file with the S.E.C.
letter to shareholders
119 East Marcy Street Suite 201, Santa Fe, New Mexico 87501
August 1, 1996
Dear Fellow Shareholder:
I am pleased to present the Annual Report for the California Portfolio of
Thornburg Limited Term Municipal Fund for the fiscal year ending June 30, 1996.
The net asset value of the A shares increased 3 cents per share to $12.64 during
the year. If you were with us for the entire period, you received dividends of
58.3 cents per share. If you reinvested your dividends, you received 59.6 cents
per share. Investors who owned C Shares received dividends of 52.5 and 53.5
cents per share, respectively. For a longer perspective on investment returns
and share price fluctuations, please read the exhibits included in this report.
It would not surprise me to see interest rates increase a bit over the next
year. The U.S. economy is generally firm, the economies of other developed
countries are strengthening, and many lesser developed countries are growing as
well. Investors here in the U.S. are exhibiting peculiar tendencies. With
respect to stocks, investors shoveled almost $150 billion into equity mutual
funds during the first 7 months of 1996, focusing in particular on the riskiest
funds. As risk prone as investors have become with stocks, bond funds have had
net investment of approximately zero this year.
Americans have been net sellers of individual municipal and U.S. government
bonds, while simultaneously increasing investments in foreign bonds. Meanwhile,
foreign investors seem to like bond investments here. They have been supporting
the U.S. bond market for about two years. I suppose the grass is always greener
on the other side of the ocean. We like it here at home, but we have positioned
your bond portfolio conservatively so as to be able to react quickly to change
and take advantage of any opportunities that arise.
Your Limited Term Municipal Fund California Portfolio currently holds
approximately 130 municipal obligations from California municipal borrowers.
Approximately 84% of the bonds are rated A or better by one of the major rating
agencies. As you know, we "ladder" the maturities of the bonds in your portfolio
so that some bonds are scheduled to mature at par during each of the next 10
years. Today, your fund's weighted average maturity is approximately 3.7 years,
and we always keep it below 5 years. Percentages of the portfolio maturing
within each of the next 10 years are summarized below:
% of portfolio maturing within Cumulative % maturing by end of
1 year = 11% year 1 = 11%
1 to 2 years = 13% year 2 = 24%
2 to 3 years = 15% year 3 = 39%
3 to 4 years = 15% year 4 = 54%
4 to 5 years = 17% year 5 = 71%
5 to 6 years = 14% year 6 = 85%
6 to 7 years = 7% year 7 = 92%
7 to 8 years = 3% year 8 = 95%
8 to 9 years = 3% year 9 = 98%
9 to 10 years = 1% year 10 = 99%
Over the years, our practice of laddering a diversified portfolio of short and
intermediate maturity municipal bonds has allowed your fund to consistently
perform well in varying interest rate environments. For instance, the A shares
of Limited Term Municipal Fund-California Portfolio received "A" letter grades
for one, three, and five year performance relative to other short term municipal
bond funds through June 30, 1996.* These rankings, which were published in The
Wall Street Journal, reflect total returns in the top 20% of all short term
municipal bond funds for those periods.
Many municipal bonds issued between 1985 and 1990 are being paid off early.
Money to pay off these bonds prior to maturity already has been raised. You may
own municipal bonds or unit trusts which are being redeemed. Your investment in
Thornburg Limited Term Municipal Fund will not be redeemed until you sell it.
Please remember that you can easily add to your investment each month by
authorizing a simple, automatic transfer from your checking account.
Currently, Limited Term Municipal Fund California Portfolio is ranked 5 stars by
Morningstar. Over the seventy-seven month time frame that it has been ranked by
Morningstar, the fund has an average rating of 4.9 stars, making it the highest
ranked California tax-free fund during that time period. I would like to
attribute this to capable execution of a thoroughly sensible investment strategy
over time. Thank you for investing in Thornburg Limited Term Municipal
Fund-California Portfolio.
Sincerely,
/s/ Brian J. McMahon
Brian J. McMahon
Managing Director
(footnotes)
Morningstar proprietary ratings reflects historical risk adjusted performance as
of 6/30/96. Ratings are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
star (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten year average annual returns and a risk factor that reflects fund
performance relative to three month Treasury bill returns. 10% of the funds in
an investment category receive five stars 22.5% receive four stars. LTCAX is
ranked 5-Stars for the 3 year and 5 year periods ending 6/30/96. The number of
funds within the Municipal, California category tracked by Morningstar as of
6/30/96 is 97and 60 on a 3-and 5-year basis.
*Source: The Wall Street Journal, July 3, 1996. Performance data are supplied by
Lipper Analytical Services, Inc., and reflect performance for the 1, 3, and 5
year periods ending June 30, 1996. An "A" ranking reflects total returns in the
top 20% of all funds within the short term municipal objective, as defined by
The Wall Street Journal. The average maturity and average quality of the funds
within the short municipal objective may differ. At June 30, 1996 44, 30 and 14
short municipal funds reported 1-year, 3-year, and 5-year total returns,
respectively. Performance calculations used to obtain these rankings assume
deduction of all expenses and reinvestment of all distributions, but do not
include the effect of any sales charge on total return.
statement of assets and liabilities
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
June 30, 1996
ASSETS
Investments, at value (cost $93,458,998) $94,887,493
Cash 168,499
Receivable for fund shares sold 297,046
Interest receivable 1,761,216
Prepaid expenses and other assets 3,198
TOTAL ASSETS 97,117,452
LIABILITIES
Dividends payable 134,542
Payable for fund shares redeemed 31,779
Accounts payable and accrued expenses 75,015
Accounts payable investment adviser (Note 3) 53,115
TOTAL LIABILITIES 294,451
NET ASSETS $96,823,001
NET ASSET VALUE:
Class A Shares:
Net asset value and redemption price per share
($94,379,465 applicable to 7,467,163 shares of
beneficial interest outstanding - Note 4) $12.64
Maximum sales charge, 2.50% of offering
price (2.57% of net asset value per share) .32
Maximum Offering Price Per Share $12.96
Class C Shares:
Net asset value and offering price per share*
($2,443,536 applicable to 193,164 shares of
beneficial interest outstanding - Note 4) $12.65
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Year Ended June 30, 1996
statement of operations
INVESTMENT INCOME
Interest income (net of premium amortized
of $257,990) $5,579,968
EXPENSES
Investment advisory fees (Note 3) 748,077
Distribution and service fees (Note 3):
Class A Shares 122,572
Class B Shares 1,170
Class C Shares 8,162
Transfer agent fees 76,379
Custodian fees 66,165
Professional fees 23,725
Accounting fees 10,980
Other expenses 23,010
TOTAL EXPENSES 1,080,240
Less:
Expenses reimbursed by investment adviser (Note 3) (75,198)
NET EXPENSES 1,005,042
NET INVESTMENT INCOME 4,574,926
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NOTE 5
Net realized gain on investments sold 13,209
Increase in unrealized appreciation of investments 196,447
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 209,656
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $4,784,582
See notes to financial statements.
statements of changes in net assets
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Year Ended Year Ended
June 30, 1996 June 30, 1995
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income $4,574,926 $4,907,357
Net realized gain (loss) on investments sold 13,209 (481,286)
Increase in
unrealized
appreciation of investments 196,447 406,462
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 4,784,582 4,832,533
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A Shares (4,504,908) (4,870,883)
Class B Shares (6,799) (13,254)
Class C Shares (63,219) (23,220)
FUND SHARE TRANSACTIONS -- (Note 4)
Class A Shares (4,674,335) (12,810,506)
Class B Shares (594,362) 582,859
Class C Shares 1,661,567 799,527
NET DECREASE IN NET ASSETS (3,397,474) (11,502,944)
NET ASSETS:
Beginning of year 100,220,475 111,723,419
End of year $ 96,823,001 $ 100,220,475
See notes to financial statements.
notes to financial statements
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Note 1 - ORGANIZATION
Thornburg Limited Term Municipal Fund, Inc. (the "Fund") was incorporated in
Maryland on February 14, 1984. The Fund was reorganized in 1986 as a series
investment company with separate investment portfolios. The current portfolios
are the National Portfolio and California Portfolio (the "Portfolio"). The Fund
is an open-end diversified management investment company, registered under the
Investment Company Act of 1940, as amended. The primary investment objective of
the Fund is to obtain as high a level of current income exempt from federal
income tax as is consistent with preservation of capital. In addition, the
California Portfolio will invest primarily in Municipal Obligations originating
in California with the object of obtaining exemption of interest dividends from
any income taxes imposed by California on individuals.
On September 1, 1994 the Portfolio began offering three classes of shares of
beneficial interest, Class A, Class B and Class C shares. All shares outstanding
prior to September 1, 1994 are considered Class A shares. On September 28, 1995,
all existing Class B shares were converted at net asset value, without the
imposition of a deferred sales charge, into Class A shares of an equivalent
value. The Fund no longer offers Class B shares. Each class of shares of a
Portfolio represents an interest in the same portfolio of investments of the
Fund, except that (i) Class A shares are sold subject to a front-end sales
charge collected at the time the shares are purchased and bear a service fee,
(ii) Class C shares are sold at net asset value without a sales charge at the
time of purchase, but are subject to a contingent deferred sales charge upon
redemption within one year, and bear both a service fee and a distribution fee,
and (iii) the respective classes have different reinvestment privileges.
Additionally, each Portfolio may allocate among its classes certain expenses, to
the extent allowable to specific classes, including transfer agent fees,
government registration fees, certain printing and postage costs, and
administrative and legal expenses. Currently, class specific expenses of the
Portfolio are limited to distribution fees and certain custody and transfer
agent expenses.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the
Fund are as follows:
Valuation of Investments: In determining net asset value, the Portfolio utilizes
an independent pricing service approved by the Board of Directors. Debt
investment securities have a primary market over the counter and are valued on
the basis of valuations furnished by the pricing service. The pricing service
values portfolio securities at quoted bid prices or the yield equivalents when
quotations are not readily available. Securities for which quotations are not
readily available are valued at fair value as determined by the pricing service
using methods which include consideration of yields or prices of municipal
obligations of comparable quality, type of issue, coupon, maturity and rating;
indications as to value from dealers and general market conditions. The
valuation procedures used by the pricing service and the portfolio valuations
received by the Portfolio are reviewed by the officers of the Fund under the
general supervision of the Board of Directors. Short-term obligations having
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value.
Federal Income Taxes: It is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable (if any) and tax exempt income to its
shareholders. Therefore, no provision for Federal income tax is required.
Dividends paid by the Portfolio for the year ended June 30, 1996 represent
exempt interest dividends which are excludable by shareholders from gross income
for Federal income tax purposes.
When-Issued and Delayed Delivery Transactions: The Portfolio may engage in
when-issued or delayed delivery transactions. To the extent the Portfolio
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and not for the
purpose of investment leverage or to speculate on interest rate changes. At the
time the Portfolio makes a commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value in determining its
net asset value. When effecting such transactions, assets of the Portfolio of an
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Portfolio's records on the trade date. Securities
purchased on a when-issued or delayed delivery basis do not earn interest until
the settlement date.
Dividends: Net investment income of the Portfolio is declared daily as a
dividend on shares for which the Portfolio has received payment. Dividends are
paid monthly and are reinvested in additional shares of the Portfolio at 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 capital gains, to the extent
available, will be distributed annually.
General: Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discounts on
securities purchased are amortized to call dates or maturity dates of the
respective securities. Realized gains and losses from the sale of securities are
recorded on an identified cost basis.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the year ending June 30,
1996, these fees were payable at annual rates ranging from 3/4 of 1% to 4/10 of
1% of the average daily net assets of the Portfolio. Beginning July 1, 1996,
these fees will be payable at annual rates ranging from 1/2 of 1% to 9/40 of 1%
of the average daily net assets of the Portfolio. Also, effective July 1, 1996,
the Portfolio entered into an Administrative Services Agreement with the
Adviser, whereby the Adviser will perform certain administrative services for
the shareholders of each class of the Portfolio's shares, and for which fees
will be payable at an annual rate of up to 1/8 of 1% of the average daily net
assets attributable to each class of shares.
In the event normal operating expenses of the Portfolio, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale, the
Adviser will reimburse the Portfolio for such excess. No such reimbursement was
required as a result of this limitation. For the year ended June 30, 1996, the
Adviser reimbursed certain operating expenses amounting to $75,198.
The Fund has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of Portfolio shares. For the
year ended June 30, 1996, the Distributor earned commissions aggregating $16,639
from the sale of Class A shares, and collected contingent deferred sales charges
aggregating $1,115 from redemptions of Class C shares of the Fund.
Pursuant to a Service Plan under Rule 12b-1 of the Investment Company Act of
1940, the Portfolio may reimburse to the Adviser amounts not to exceed .25 of 1%
per annum of the average net assets attributable to each class of shares of the
Fund for payments made by the Adviser to securities dealers and other financial
institutions to obtain various shareholder related services. The Adviser may pay
out of its own funds additional expenses for distribution of the Portfolio's
shares.
The Portfolio also has adopted a Distribution Plan pursuant to Rule 12b-1,
applicable only to the Portfolio's Class B and Class C shares, under which the
Portfolio can (i) reimburse the Distributor for certain distribution expenses on
a monthly basis at an annual rate of up to .75% of the average daily net assets
attributable to Class B shares, and (ii) compensate the Distributor for services
in promoting the sale of Class C shares of the Fund at an annual rate of up to
.75% of the average daily net assets attributable to Class C shares. Total fees
incurred by each class of shares of the Portfolio under their respective service
and distribution plans for the year ended June 30, 1996 are set forth in the
statement of operations.
Certain officers and directors of the Fund are also officers and /or directors
of the Adviser and the Distributor. The compensation of unaffiliated directors
of the Fund is borne by the Fund.
Note 4 - SHARES OF BENEFICIAL INTEREST:
At June 30, 1996, there were 600,000,000 shares of the Fund (including
115,000,000 for the Portfolio) of $.001 par value common stock authorized and
capital paid-in aggregated $96,311,516. Transactions in shares of beneficial
interest were as follows:
Year Ended Year Ended
June 30, 1996 June 30, 1995
Class A Shares Shares Amount Shares Amount
Shares sold 1,028,241 $ 13,063,252 1,016,756 $ 12,634,104
Shares issued to shareholders
in reinvestment of
distributions 227,171 2,885,798 224,628 2,785,930
Shares repurchased (1,626,759) (20,623,385) (2,292,000) (28,230,540)
Net Decrease (371,347) ($ 4,674,335) (1,050,616) ($12,810,506)
Class B Shares
Shares sold 17,477 $ 220,496 45,930 $ 572,142
Shares issued to shareholders
in reinvestment of
distributions 352 4,458 864 10,717
Shares repurchased (64,623) (819,316) -- --
Net Increase (Decrease) (46,794) ($ 594,362) 46,794 $ 582,859
Class C Shares
Shares sold 164,199 $ 2,090,620 149,655 $ 1,864,152
Shares issued to shareholders
in reinvestment of
distributions 4,010 50,090 1,636 20,266
Shares repurchased (37,612) (479,143) (88,724) (1,084,891)
Net Increase 130,597 $ 1,661,567 62,567 $ 799,527
Note 5 - SECURITIES TRANSACTIONS
Purchases and proceeds from maturities or sales of investment securities of the
Portfolio, other than short-term securities, aggregated $22,208,441 and
$26,949,231, respectively. The cost of investments is the same for financial
reporting and Federal income tax purposes. At June 30, 1996, the aggregate gross
unrealized appreciation and depreciation, based on cost for Federal income tax
purposes, were $1,901,541 and $473,045, respectively.
Accumulated net realized losses from security transactions included in net
assets at June 30, 1996 aggregated $917,010.
For Federal income tax purposes, the Portfolio has realized capital loss
carryforwards of $917,010 from prior fiscal years available to offset future
realized capital gains. To the extent that such carryforwards are used, no
capital gains distributions will be made. The carryforwards expire as follows:
June 30, 1997 - $45,141, June 30, 1998 - $60,181, June 30, 1999 - $14,395, June
30, 2000 - $410, June 30, 2002 - $315,597, and June 30, 2003 -$481,286.
financial highlights
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Per share operating performance
(for a share outstanding
throughout the year)
Year Ended June 30,
1996 1995 1994 1993 1992
Class of Shares: A A A A A
Net asset value, beginning of year $12.61 $12.57 $12.85 $12.48 $12.24
Income from investment operations:
Net investment income .58 .58 .58 .65 .72
Net realized and unrealized
gain (loss) on investments .03 .04 (.28) .37 .24
Total from investment operations .61 .62 .30 1.02 .96
Less dividends from:
Net investment income (.58) (.58) (.58) (.65) (.72)
Change in net asset value .03 .04 (.28) .37 .24
Net asset value, end of year $12.64 $12.61 $12.57 $12.85 $12.48
Total return (a) 4.94% 5.12% 2.37% 8.36% 8.10%
Ratios/Supplemental Data Ratios
to average net assets:
Net investment income 4.59% 4.69% 4.51% 5.07% 5.80%
Expenses, after expense reductions 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before expense reductions 1.05% 1.04% 1.03% 1.06% 1.10%
Portfolio turnover rate 22.68% 18.54% 15.26% 20.81% 30.56%
Net assets
at end of year (000) $94,379 $98,841 $111,723 $81,874 $53,130
(a) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Per share operating performance
(for a share outstanding
throughout the period) Period from
Year Ended Sept. 1, 1994 (a)
June 30, 1996 to June 30, 1995
- --------------------------------------------------------------------------------
Class of Shares: B* C B C
Net asset value, beginning of period $12.62 $12.62 $12.55 $12.55
Income from investment operations:
Net investment income .13 .53 .43 .42
Net realized and unrealized
gain (loss) on investments .06 .03 .07 .07
Total from investment operations .19 .56 .50 .49
Less dividends from:
Net investment income (.13) (.53) (.43) (.42)
Change in net asset value .06 .03 .07 .07
Net asset value, end of period $12.68 $12.65 $12.62 $12.62
Total Return (b) 1.59% 4.46% 3.99% 3.98%
Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.15% (c) 4.16% 4.10%(c) 4.07%(c)
Expenses, after expense reductions 1.63% (c) 1.43% 1.60%(c) 1.63%(c)
Expenses, before expense reductions 3.67% (c) 2.92% 4.51%(c) 3.21%(c)
Portfolio turnover rate 22.68% 22.68% 18.54% 18.54%
Net assets
at end of period (000) $0 $2,444 $590 $790
(a) Commencement of sales of Class B and Class C shares.
(b) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
The total return for Class B shares reflects a period of 90 days.
(c) Annualized.
* Period from July 1, 1995 to September 28, 1995, on which date all Class B
shares were converted into Class A shares.
<TABLE>
<CAPTION>
schedule of investments
Thornburg Limited Term Municipal Fund, California Portfolio
Par Amount Issue Name & Description Credit
Rating Value
<C> <S> <C> <C>
$ 615,000 Alameda-Contra Costa Transit District Refunding Certificate of Participation
Series 1989, 7.20% due 8/1/00 Baa/BBB- $ 657,669
370,000 Albany Public Facilities Financing Authority Lease Revenue, 6.60% due 9/1/00
(Library Community Center Project) Baa1/NR 388,052
165,000 Antioch Unified School District Certificate of Participation, 0% due 7/1/05 (Insured: FSA) Aaa/AAA 91,108
1,300,000 Berkeley Health Facility Revenue Refinancing Series A, 5.70% due 12/1/98
(Alta Bates Medical Center Project) Baa/BBB+ 1,297,322
500,000 California Counties Lease Finance Authority Certificate of Participation, 7.30% due 10/1/98 A/NR 504,035
500,000 California Educational Facilities Authority Revenue Series 1993, 5.15% due 9/1/03
(Santa Clara University Project) A1/NR 506,245
840,000 California HFA Home Ownership and Improvement Series A, 0% due 2/1/04 (Insured: FHA/VA) Aa/AA- 502,269
670,000 California HFA Revenue Series 1985-B, 9.875% due 2/1/17 Aa/AA- 696,204
30,000 California HFA Single Family Mortgage Revenue Series 1982-A, 10.00% due 2/1/02
(LOC: Citibank) Aa/AA- 30,009
145,000 California HFA Revenue Series 1990-A, 0% due 8/1/01 Aa/AA- 100,159
550,000 California HFA, 6.40% due 9/1/98 (San Gabriel Hospital Project; Insured: Cal. Mortgage) NR/A 563,205
Prerefunded 9/1/96 @ 102
500,000 California HFA, 7.80% due 7/1/06 (Episcopal Homes Project; Insured: Cal. Mortgage) NR/A 515,530
1,000,000 California HFA Secured Revenue Series 1991, 6.65% due 9/1/01
(Good Samaritan Hospital Project) Baa/A- 1,051,080
505,000 California HFA Financing Authority, 5.25% due 8/1/00
(Marin General Hospital Project; Insured: FSA) Aaa/AAA 518,796
760,000 California Public Capital Improvement Finance Auth. Rev. Series 1988-E, 8.25% due 3/1/98 Baa/NR 798,380
1,000,000 California State General Obligation, 6.50% due 10/1/99 A1/A+ 1,061,770
216,931 California State Veterans General Obligation Bonds Amortizing Coupon M-COATES,
7.30% due 10/1/01 *Aaa/AAA* 234,478
1,000,000 California Veterans Affairs Home Purchase Revenue Series A, 7.40% due 8/1/97 Aa/A+ 1,030,710
250,000 California Veterans Affairs Home Purchase Revenue Series A, 7.50% due 8/1/98 Aa/A+ 264,388
1,390,000 California Veterans Affairs Home Purchase Revenue Series A, 6.55% due 8/1/01 Aa/A+ 1,444,905
850,000 California State University Revenue, 6.40% due 11/1/02 Crossover Refunded 11/1/00 @ 102 A1/A- 918,238
730,000 California Statewide Community Development Authority Insured Health
Facilities Revenue Certificate of Participation Series 1992, 6.40% due 5/1/02 (Eskaton
Properties Incorporated Phase II Project) NR/A 752,827
1,000,000 California Statewide Community Development Authority Certificate of Participation, 1.837%
(inverse floater) due 1/1/00 (Motion Picture and Television Fund Project; Insured: AMBAC) Aaa/AAA 897,260
1,000,000 California Statewide Community Development Authority Certificate of Participation, 2.127%
(inverse floater) due 1/1/01 (Motion Picture and Television Fund Project; Insured: AMBAC) Aaa/AAA 870,320
1,000,000 California Statewide Community Development Authority Insured Health Facilities Revenue
Series 1996 A, 6.00% due 9/1/04 (San Gabriel Medical Center Project; Insured: Cal Health) NR/A 1,025,860
130,000 Cerritos-Compton Glendale College District General Obligation
Certificate of Participation, 8.00% due 2/1/98 NR/NR 136,517
1,915,000 Chula Vista Variable Rate Multifamily Housing Refunding Revenue Series 1985,
5.75% due 11/1/07, put 11/1/97 (Eucalyptus Grove Project; Continental Casualty Surety Bond) NR/A+ 1,925,992
250,000 Clovis & Fresno Unified School District Certificate of Participation Series A, 6.70% due 5/1/97 NR/A 253,138
700,000 Coachella Valley Water District No. 71 Certificate of Participation, 5.75% due 10/1/00
(Storm Water District Project) A/NR 724,192
660,000 Cupertino Public Facilities Corporation Certificate of Participation Series 1992-B, 5.60%
due 7/1/00 A1/A+ 678,559
60,000 El Paso de Robles Newark Water District Certificate of Participation
Association of Bay Area Governments Finance Corporation, 7.40% due 6/1/98 NR/NR 61,631
350,000 Foothill-De Anza Community College District Certificate of Participation, 7.35% due 3/1/07 NR/A- 384,898
600,000 Fresno Multifamily Housing Revenue Refunding, 5.10% due 10/1/05, put 4/1/99
(Maple Leaf Project; Insured: Continental Insurance) NR/A- 595,092
560,000 Fruitvale School District Certificate of Participation, 7.60% due 6/1/99 Baa/NR 599,446
2,000,000 Glendale Hospital Revenue Refunding Series 1994, 7.625% due 1/1/05
(Verdugo Hills Project; LOC: Industrial Indemnity) NR/A+ 2,138,540
200,000 Hayward Unified School District Certificate of Participation, 7.60% due 10/1/00 Baa/NR 210,530
200,000 Hermosa Beach Lynwood and Vernon Certificate of Participation,
7.10% due 9/1/99, partially pre-refunded NR/BBB 208,432
2,895,000 Huntington Beach City School District 1995 Capital Certfificates, 6.25% due 4/1/97 NR/NR 2,902,730
800,000 Industry Industrial Revenue Refunding, 7.00% due 12/1/00, put 12/1/99
(Camco Chemical Project; LOC: Provident Bank) *A/A* 796,048
605,000 Inglewood Certificate of Participation, 6.70% due 8/1/00 (Civic Center Improvement Project) A/BBB 638,251
635,000 Inglewood Certificate of Participation, 6.80% due 8/1/01 (Civic Center Improvement Project) A/BBB 673,494
690,000 Inglewood Certificate of Participation, 6.90% due 8/1/02 (Civic Center Improvement Project) A/BBB 723,037
360,000 Irvine Ranch Water District Joint Powers Agency Revenue, 7.00% due 2/15/98 NR/A+ 367,492
480,000 Lake Elsinore Public Financing Authority Tax Allocation Revenue Series 1992-C,
6.15% due 2/1/01 (Insured: FGIC) Aaa/AAA 509,232
2,000,000 Lancaster Redevelopment Agency Lease Revenue Series 1995, 4.90% due 12/1/00
(Public Improvement Project; LOC: Sumitomo - Dai Ichi Kangyo) NR/A 1,958,400
1,500,000 Los Angeles Equipment Acquisition Program L Certificate of Participation, 5.80% due 12/1/98 A/A+ 1,540,110
1,000,000 Los Angeles Municipal Improvement Corporation Lease Revenue, 5.00% due 2/1/00 A/A+ 1,005,110
1,500,000 Los Angeles Unified School District Certificate of Participation, 6.30% due 6/1/02 A/A- 1,586,265
1,000,000 Los Angeles County Certificate of Participation Mobile Digital Comm., 7.70% due 7/15/01 Baa1/BBB+ 1,035,810
350,000 Los Angeles County Housing Authority MFHR, 7.625% due 12/1/29,
mandatory put 12/1/99 (Monrovia Project A; Insured: Continental Casualty) NR/A- 357,150
1,245,000 Los Angeles County Pension Obligation Certificate of Participation,
6.875% due 6/30/07 Baa1/BBB+ 1,270,124
1,000,000 Los Angeles County Transit Finance Corporation Certificate of Participation
Series 1992-B, 5.70% due 7/1/99 A1/NR 1,028,880
100,000 Los Angeles County Compton Civic Center Courthouse Facility Revenue, 7.75% due 10/1/96 Baa1/A 100,573
250,000 Lynwood Unified School District Certificate of Participation, 7.20% due 11/1/98
(Capital Improvement Project) Baa/NR 257,012
2,000,000 MSR Public Power Agency Series 1987 C, 6.70% due 7/1/02 (San Juan Project) A/A 2,057,900
375,000 Marysville Hospital Revenue, 6.00% due 1/1/04 (Fremont-Rideout Health Group
Project; Insured: AMBAC) Aaa/AAA 397,751
200,000 Midpeninsula Regional Open Space District Certificate of Participation, 7.20%
due 9/1/00, refunded 9/1/99 *Aaa/A 219,766
360,000 Midpeninsula Regional Open Space District Certificate of Participation, 4.75% due 9/1/99 NR/A 361,451
460,000 Midpeninsula Regional Open Space District Certificate of Participation, 4.80% due 9/1/00 NR/A 460,658
1,230,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 4.70% due 8/1/98 A1/NR 1,238,967
1,000,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 4.80% due 8/1/99 A1/NR 1,005,090
835,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 5.00% due 8/1/00 A1/NR 841,713
660,000 Mountain View Shoreline Reg. Park Community Tax Allocation Series 1993-A, 4.70% due 8/1/99 A/A 650,734
810,000 National City Community Development Commission Tax Allocation Series
1992-A, 5.70% due 8/1/99 (Downtown Redevelopment Project; Insured: AMBAC) Aaa/AAA 840,326
500,000 National City Community Development Commission Tax Allocation Series
1992-A, 5.90% due 8/1/00 (Downtown Redevelopment Project; Insured: AMBAC) Aaa/AAA 525,680
330,000 New Haven Unified School District Certificate of Participation, 7.30% due 12/1/01 NR/A- 350,203
355,000 New Haven Unified School District Certificate of Participation, 7.30% due 12/1/02 NR/A- 375,402
380,000 New Haven Unified School District Certificate of Participation, 7.40% due 12/1/03 NR/A- 401,489
410,000 New Haven Unified School District Certificate of Participation, 7.40% due 12/1/04 NR/A- 432,230
940,000 Ontario Individual Development Revenue Series 1990-A, 7.75% due 9/1/20,
put 8/31/00 (Great Western Foam Project; LOC: Wells Fargo Bank) NR/A 957,851
1,100,000 Orange County Refunding Recovery, 5.10% due 6/1/02 (Insured: MBIA) Aaa/AAA 1,112,276
1,000,000 Orange County Refunding Recovery, 5.20% due 6/1/03 (Insured: MBIA) Aaa/AAA 1,011,550
2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/04 (Insured: MBIA) Aaa/AAA 2,175,140
375,000 Orange County Subordinate Airport Revenue Certificate of Participation,
7.70% due 7/1/98 (1990 Loading Bridge and Baggage Handling Project) NR/NR 382,616
900,000 Orange County Local Transportation Authority Sales Tax Rev., 5.50% due 2/15/01
(Measure M Sales Tax Project) Aa/AA 916,848
510,000 Orange County Local Transportation Authority Sales Tax Rev., 6.00% due 2/15/06
(Measure M Sales Tax Project) Aa/AA 525,754
1,000,000 Orange County Local Transportation Authority Sales Tax Revenue 2nd Series,
1.877% (inverse floater) due 2/15/99 (Insured: FGIC) Aaa/AAA 934,590
2,000,000 Orange County Recovery Certificate of Participation Series A, 5.50% due 7/1/02
(Insured: MBIA) Aaa/AAA 2,063,900
1,425,000 Oxnard Harbor District Refunding Revenue, 6.60% due 8/1/00 (Capital Guaranty) Aaa/AAA 1,528,968
300,000 Oxnard IDA IDRB, 9.50% due 10/1/97 (Green Foods Project; LOC: Mitsubishi Bank Ltd.) Aa2/NR 302,787
750,000 Paramount Unified School District Certificate of Patricipation, 0% due 9/1/14 (Insured: FSA) Aaa/AAA 540,000
100,000 Perris School District Certificate of Participation, 5.10% due 3/1/00 (Insured: FSA) Aaa/AAA 101,971
990,000 Redwood City Multifamily Housing Revenue Series 1985-B, 5.20% due 10/1/08, put 10/1/00
(Redwood Shores Apartments Project; Insured: Continental Casualty) NR/A+ 983,209
150,000 Riverside Certificate of Participation, 8.00% due 10/1/96 Baa1/A- 151,390
100,000 Riverside County Housing Authority Revenue Series A, 7.50% due 10/1/96 Baa/NR 100,377
465,000 Riverside County Housing Authority Revenue Series A, 7.75% due 10/1/00 Baa/NR 474,533
295,000 Sacramento Financing Authority Series 1991, 6.30% due 11/1/02 A1/A+ 315,435
550,000 Sacramento Municipal Utility District Electric Refunding Revenue Series R, 6.60% due 2/1/97 A/A- 558,938
1,000,000 Sacramento Regional Transportation Authority Certificate of Participation, 6.00% due 3/1/99 A1/NR 1,035,550
1,000,000 Sacramento Regional Transportation Authority Certificate of Participation, 6.25% due 3/1/01 A1/NR 1,056,140
200,000 Sacramento Unified School District Certificate of Participation, 4.60% due 2/1/19, Prerefunded NR/NR6 199,978
950,000 Sacramento MFHR, 5.875% due 2/1/08, put 2/1/03 (Fairways I Apartments Project;
Insured: FNMA) NR/AAA 962,787
450,000 San Diego County Regional Trans. Community Sales Tax Rev. Series A,
6.125% due 4/1/98 (Escrowed to Maturity) AAA/AA- 465,813
255,000 San Francisco City & County Agency Redevelopment Agency Lease Revenue, 0% due 7/1/00 A/A- 209,942
240,000 San Francisco City & County Agency Refunding Series Sec 8, 6.125%
due 7/1/02 (Insured: MBIA / FHA) Aaa/AAA 240,379
700,000 San Francisco Unified School District Certificate of Participation, 8.10%
due 7/1/98, pre-refunded 7/1/96 @ 102 (Civic Improvement Project) A/AAA* 714,252
400,000 San Jacinto IDA IDRB Series 1990, 7.20% due 6/1/98 (Edelbrock Foundry
Corporation Project; LOC: Bank of America) NR/AA- 421,648
2,000,000 San Joaquin County Certificate of Participation, 5.25% due 9/1/98 (General Hospital Project) A/A- 2,008,820
1,440,000 San Joaquin County Certificate of Participation, 5.60% due 9/1/00 (General Hospital Project) A/A- 1,433,002
895,000 San Joaquin County Certificate of Participation, 5.90% due 9/1/03 (General Hospital Project) A/A- 876,509
1,310,000 San Marcos Public Facility Authority Capital Improvement Series 1991, 0% due 1/1/99, ETM Aaa/NR 1,167,446
410,000 San Marcos Public Facility Authority Capital Improvement Series 1991, 0% due 1/1/00, ETM Aaa/NR 348,217
500,000 Santa Ana Community Red. Agency Tax Allocation Series 1989-B, 7.10% due 9/1/98 NR/BB+ 516,810
500,000 Santa Cruz County Public Financing Authority Revenue Series C,
7.00% due 8/1/96 (Escrowed to Maturity) NR/AAA 501,400
315,000 Santa Monica Community College District Certificate of Participation, 7.65% due 5/1/01,
put 11/1/97 (Rancho Corrales Project) NR/A 325,152
810,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.40% due 8/1/00 (Integrated Waste Project) NR/A+ 831,449
950,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.80% due 8/1/03 (Integrated Waste Project) NR/A+ 982,614
150,000 South Coast Air Quality Management District Building Corporation
Installment Sale Revenue, 9.75% due 8/1/98 (Escrowed to Maturity) Aaa/AAA 166,783
1,500,000 South Coast Local Education Angencies Pooled Tax & Revenue Anticipation Notes
Series 1995-A, 5.00% due 8/14/96 NR/Sp1+ 1,501,755
700,000 Stanislaus Waste to Energy Finance Agency Solid Waste Facility Revenue Certificate,
7.20% due 1/1/97 (Ogden Martin Systems Project) NR/BBB+ 707,350
250,000 Stanislaus Waste to Energy Finance Agency Solid Waste Facility Revenue Certificate,
7.30% due 1/1/98 (Ogden Martin Systems Project) NR/BBB+ 257,595
340,000 Suisun City Redevelopment Agency 1990 Tax Allocation,
7.20% due 10/1/01, pre-refunded 4/1/00 *Aaa/A- 376,887
500,000 Sulphur Springs Union School District General Obligation Series B, 5.70% due 3/1/01 NR/A 520,305
450,000 Sunline Transit Agency Certificate of Participation California Transit Finance Corporation
Series A, 5.50% due 7/1/02 A/NR 459,913
900,000 Sweetwater Union High School District Certificate of Participation, 6.40% due 11/1/01 Baa1/BBB+ 948,447
190,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/98 (Community Recreation Center Project) NR/A 196,452
200,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/99 (Community Recreation Center Project) NR/A 207,938
210,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/00 (Community Recreation Center Project) NR/A 219,091
255,000 Torrance Unified School District Certificate of Participation, 6.10% due 10/1/00 Baa1/NR 257,741
275,000 Trinity County Public Utilities District Certificate of Participation, 5.25% due 4/1/98 NR/BBB- 272,797
290,000 Trinity County Public Utilities District Certificate of Participation, 5.50% due 4/1/99 NR/BBB- 285,253
750,000 Turlock Irrigation District Certificate of Participation, 6.80% due 1/1/00, Prerefunded 1/1/98 @102
(1991 Capital Improvements Project) Baa1/A- 796,658
365,000 Turlock Irrigation District Certificate of Participation, 7.00% due 1/1/01, Prerefunded 1/1/98 @ 102
(1991 Capital Improvements Project) Baa1/A- 388,765
420,000 Turlock Irrigation District Certificate of Participation, 7.15% due 1/1/03, Prerefunded 1/1/98 @ 102
(1991 Capital Improvements Project) Baa1/A- 448,262
1,600,000 University of California Regents Certificate of Participation Series 1996,
5.45% due 6/1/03 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,647,296
635,000 University of California Research Facilities Revenue, 11.00% due 9/1/98 NR/A- 720,661
870,000 University of California Research Facilities Revenue, 5.25% due 9/1/02 NR/A- 874,028
625,000 Vallejo Public Financing Authority Local Agency Revenue Series A, 5.00% due 9/2/98 NR/A- 630,344
500,000 West Covina Certificate of Participation, 5.90% due 9/1/96 (Civic Center Complex Project) NR/A 501,910
495,000 Yorba Linda Public Financing Authority Certificate of Participation,
7.00% due 11/1/00 (Recycling Equipment Project) A/NR 512,097
1,000,000 Yuba City Public Financing Authority Series 1991, 7.25% due 12/1/96 NR/NR 1,006,260
TOTAL INVESTMENTS (Cost $93,458,998) $94,887,493
* Indicates rating on other debt issued by the same issuer,
rather than on the security held by the Fund. These
securities are deemed by the Adviser to be comparable with
those of issuers having debt ratings in the 4 highest grades
by Moody's or S&P. +Credit ratings are unaudited. See notes
to financial statements.
</TABLE>
To the Board of Directors and Shareholders
Thornburg Limited Term Municipal Fund, Inc. California Portfolio
Santa Fe, New Mexico
independent auditor's report
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Thornburg Limited Term Municipal Fund, Inc. -
California Portfolio as of June 30, 1996 the related statement of operations for
the year ended, the statement of changes in net assets for each of the two years
in the period then ended, and financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principals used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material aspects, the financial position of
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio as of June
30, 1996, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principals.
/S/ McGladrey & Pullen, L.L.P.
New York, New York
July 26, 1996
The last page of this report shows the Thornburg Limited Term Municipal
Fund - California Portfolio - A shares total return in dollars vs.
Donoghue's Taxable Money Market Fund Avg. and California Tax Free Money Market
Fund Average on a $100,000. investment on 7/1/91 through 6/30/96.
A hard copy of the graph is on file with the S.E.C.<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND-
CALIFORNIA PORTFOLIO CLASS SHARES
FUND FACTS
Thornburg Thornburg
Limited Term Municipal Limited Term Municipal
Fund-California Fund-California
A Shares C Shares
SEC Yield 3.86% 3.54%
Taxable Equiv. Yields 7.05% 6.46%
NAV $12.74 $12.75
Max. Offering Price $13.07 $12.75
TOTAL RETURNS
(Annual Average - After Subtracting Maximum Sales Charge)
1 Year Ending 1.68% 3.89%
5 Years Ending 5.01% NA
Since Inception 5.89% 4.87%
Inception Date (2/19/87) (9/1/94)
(a) Taxable equivalent yields assume a 39.6% marginal federal tax rate, and an
9.30% state of California marginal tax rate. Portions of the income of the
municipal funds may be subject to the alternative minimum tax. (b) The data
quoted represents 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. (c) The total
return data reflects the deduction of the maximum sales charge of the Class A
Shares of 2.50%.
What Double Tax - Free Income Means to You:<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIND YOUR TAXABLE INCOME Combined To Equal a California
AND READ ACROSS Income Tax-Free Yield Of*
Tax 3.75% 4.00% 4.25% 4.50% 4.75% 5.00%
$24,000 - 25,484 $40,100 - 50,968 32.32% 5.54% 5.91% 6.28% 6.65% 7.02% 7.39%
$25,484 - 32,207 $50,968 - 64,414 33.76% 5.66% 6.04% 6.42% 6.79% 7.17% 7.55%
$32,207 - 58,150 $64,414 - 96,900 34.70% 5.74% 6.13% 6.51% 6.89% 7.27% 7.66%
$58,150 - 121,300 $96,900 - 147,700 37.42% 5.99% 6.39% 6.79% 7.19% 7.59% 7.99%
$121,300 -263,750 $147,700 - 263,750 41.95% 6.46% 6.89% 7.32% 7.75% 8.18% 8.61%
$263,750 - and up** $263,750 - and up** 45.22% 6.85% 7.30% 7.76% 8.21% 8.67% 9.13%
<FN>
*The yields listed are for illustration only and not necessarily representative
of any class of shares of the Limited Term Municipal Fund - California
Portfolio.
**1996 maximum Federal tax bracket of 39.6%. Maximum California tax
bracket of 9.30%. Taxable equivalent yields do not take the federal alternative
minimum tax, to which investors may or may not be subject, into account.
</FN>
</TABLE>
Dear Shareholder:
After rising to their highest levels in several years in 1994, interest rates
fell steadily during 1995. During 1996, interest rates in the U.S. increased
again, although interest rates in most of the world fell sharply. The net asset
value of Thornburg Limited Term Municipal Fund California Portfolio A shares
decreased 9 cents per share to $12.74 during 1996. If you were with us for the
entire period, you received dividends of 57.7 cents per share. If you reinvested
your dividends, you received 58.8 cents per share.
Investors who owned C Shares received dividends of 52.6 and 53.6 cents per
share, respectively.
Strong forces are acting in opposite ways on U.S. interest rates at this time.
The U.S. economy is generally firm and the economies of many developing
countries are growing as well. Americans have been net sellers of individual
municipal and U.S. government bonds, preferring instead to pour money into
stocks, money market funds and, recently, emerging market debt funds. By
themselves, these forces should put upward pressure on our interest rates.
However, most other developed countries have sluggish economies, much lower
interest rates than ours, and currencies that have been depreciating relative to
the U.S. dollar. As a result, foreign money has been pouring into the U.S. bond
market, lifting bond prices and lowering yields from the levels that would
otherwise exist. In the last 2 years, foreign purchases of U.S. Treasury bonds
have accounted for more than 100% of the net issuance of Treasury bonds, up from
an average of approximately 20% between 1980-1994. The graph below illustrates
this trend, which does not appear to be subsiding.
Your Limited Term Municipal Fund California Portfolio currently holds
approximately 130 obligations from California municipal borrowers. Approximately
87% of the bonds are rated A or better by one of the major rating agencies. As
you know, we "ladder" the maturities of the bonds in your portfolio so that some
bonds are scheduled to mature at par during each of the next 10 years. Today,
your fund's weighted average maturity is approximately 3.8 years, and we always
keep it below 5 years. Percentages of the portfolio maturing within each of the
next 10 years are summarized as follows.
% of portfolio maturing within Cumulative % maturing by end of
1 year = 13% year 1 = 13%
1 to 2 years = 13% year 2 = 26%
2 to 3 years = 12% year 3 = 38%
3 to 4 years = 19% year 4 = 57%
4 to 5 years = 8% year 5 = 65%
5 to 6 years = 15% year 6 = 80%
6 to 7 years = 7% year 7 = 87%
7 to 8 years = 6% year 8 = 93%
8 to 9 years = 5% year 9 = 98%
9 to 10 years = 1% year 10 = 99%
I believe that a laddered portfolio of municipal bonds such as yours can usually
outperform a single municipal bond investment, and that it can offer the
additional benefits of convenience, diversification and more favorable balance
of price risk and reinvestment risk. It is not possible to measure every
individual bond from every conceivable starting and ending date against your
fund, however, it is possible to make some comparison. On January 1, 1992 a
representative yield for a $1 million (or more) national market block of AA
rated municipal bonds maturing January 1, 1997 was 4.90%, according to Delphis
Hanover Corporation. (A California bond would typically have had a slightly
lower yield due). Let's assume an investor purchased such a municipal bond at
that time and held it to maturity. On January 1, 1997, this investor's average
annual total return from that bond would have been 4.68%, assuming reinvestment
of the 1992 to 1996 interest payments at prevailing money market rates. The
average annual return would have been 4.90% if the investor was somehow able to
reinvest the interest payments at 4.90%. Your average annual total return on a
purchase of up to $50,000 of Thornburg Limited Term Municipal Fund California
was 5.01% for the 5 year period ended January 1, 1997. Your fund return was
higher if you made a larger quantity purchase. Of course, past performance is no
guarantee of future results and returns may be higher or lower in the future.
Currently, Limited Term Municipal Fund California Portfolio is ranked 5 stars by
Morningstar.* Over the eighty-one month time frame that it has been ranked by
Morningstar, the fund has an average rating of 4.9 stars, making it the highest
ranked California tax-free fund during that time period. I would like to
attribute this to capable execution of a thoroughly sensible investment strategy
over time. Thank you for investing in Thornburg Limited Term Municipal
Fund-California Portfolio.
Sincerely,
Brian J. McMahon
Managing Director
[GRAPHIC OMITTED]
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
December 31, 1996
(unaudited)
ASSETS
Investments, at value (cost $96,725,034) $98,959,644
Cash 66,640
Receivable for fund shares sold 58,216
Interest receivable 1,717,918
Prepaid expenses and other assets 14,612
TOTAL ASSETS 100,817,030
LIABILITIES
Payable for securities purchased 2,719,666
Dividends payable 124,784
Payable for fund shares redeemed 5,000
Accounts payable and accrued expenses 80,635
Accounts payable investment adviser (Note 3) 62,055
TOTAL LIABILITIES 2,992,140
NET ASSETS $97,824,890
NET ASSET VALUE:
Class A Shares:
Net asset value and redemption price per share
($93,941,397 applicable to 7,371,948 shares of beneficial
interest outstanding - Note 4) $12.74
Maximum sales charge, 2.50% of offering
price (2.57% of net asset value per share) .33
Maximum Offering Price Per Share $13.07
Class C Shares:
Net asset value and offering price per share*
($3,883,493 applicable to 304,492 shares of beneficial
interest outstanding - Note 4) $12.75
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge. See notes to financial statements.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Six Month Period Ended December 31, 1996
(unaudited)
INVESTMENT INCOME
Interest income (net of premium amortized $2,701,410
of $116,752)
EXPENSES
Investment advisory fees (Note 3) 246,096
Administration Fees (Note 3)
Class A Shares 59,576
Class C Shares 1,948
Distribution and service fees (Note 3):
Class A Shares 119,153
Class C Shares 9,738
Transfer agent fees 32,594
Custodian fees 30,237
Professional fees 10,904
Accounting Fees 5,262
Other expenses 6,918
TOTAL EXPENSES 522,426
Less:
Expenses reimbursed by investment adviser (Note 3) (24,009)
NET EXPENSES 498,417
NET INVESTMENT INCOME 2,202,993
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS - NOTE 5
Net realized loss on investments sold (5,802)
Increase in unrealized appreciation of investments 806,115
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 800,313
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,003,306
See notes to financial statements.
n o t e s t o f i n a n c i a l s t a t e m e n t s
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
(unaudited)
Six Month Period Year Ended
Ended December 31, 1996 June 30, 1996
----------
INCREASE (DECREASE) IN
NET ASSETS FROM:
OPERATIONS:
Net investment income $2,202,993 $4,574,926
Net realized gain (loss) on investments sold (5,802) 13,209
Increase in unrealized
appreciation of investments 806,115 196,447
NET INCREASE IN NET ASSETS
RESULTING FROM 3,003,306 4,784,582
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A Shares (2,139,265) (4,504,908)
Class B Shares -- (6,799)
Class C Shares (63,728) (63,219)
FUND SHARE TRANSACTIONS-- (Note 4)
Class A Shares (1,212,493) (4,674,335)
Class B Shares -- (594,362)
Class C Shares 1,414,069 1,661,567
NET INCREASE (DEACREASE) IN NET ASSETS 1,001,889 (3,397,474)
NET ASSETS:
Beginning of period 96,823,001 100,220,475
End of period $97,824,890 $96,823,001
See notes to financial statements.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Note 1 - ORGANIZATION
Thornburg Limited Term Municipal Fund, Inc. (the "Fund") was incorporated in
Maryland on February 14, 1984. The Fund was reorganized in 1986 as a series
investment company with separate investment portfolios. The current portfolios
are as follows: National Portfolio and California Portfolio (the "Portfolio").
The Fund is an open-end diversified management investment company, registered
under the Investment Company Act of 1940, as amended. The primary investment
objective of the Fund is to obtain as high a level of current income exempt from
federal income tax as is consistent with preservation of capital. In addition,
the California Portfolio will invest primarily in Municipal Obligations
originating in California with the object of obtaining exemption of interest
dividends from any income taxes imposed by California on individuals.
The Fund currently offers two classes of shares of beneficial interest in the
portfolio, Class A and Class C shares. The Fund no longer offers Class B shares.
Each class of shares of a Portfolio represents an interest in the same portfolio
of investments of the Fund, except that (i) Class A shares are sold subject to a
front-end sales charge collected at the time the shares are purchased and bear a
service fee, (ii) Class B shares were sold at net asset value without a sales
charge at the time of purchase, but were subject to a contingent deferred sales
charge upon redemption, and bore both a service fee and a distribution fee,
(iii) Class C shares are sold at net asset value without a sales charge at the
time of purchase, but are subject to a contingent deferred sales charge upon
redemption within one year, and bear both a service fee and a distribution fee,
and (iv) the respective classes have different reinvestment privileges.
Additionally, the Portfolio may allocate among its classes certain expenses, to
the extent allowable to specific classes, including transfer agent fees,
government registration fees, certain printing and postage costs, and
administrative and legal expenses. Currently, class specific expenses of the
Portfolio are limited to distribution fees, administration fees and transfer
agent expenses.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the
Fund are as follows:
Valuation of Investments: In determining the net asset value of the portfolio,
the Fund utilizes an independent pricing service approved by the Board of
Directors. Debt investment securities have a primary market over the counter and
are valued on the basis of valuations furnished by the pricing service. The
pricing service values portfolio securities at quoted bid prices or the yield
equivalents when quotations are not readily available. Securities for which
quotations are not readily available are valued at fair value as determined by
the pricing service using methods which include consideration of yields or
prices of municipal obligations of comparable quality, type of issue, coupon,
maturity and rating; indications as to value from dealers and general market
conditions. The valuation procedures used by the pricing service and the
portfolio valuations received by the Portfolio are reviewed by the officers of
the Fund under the general supervision of the Board of Directors. Short-term
obligations having remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
Federal Income Taxes: It is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable (if any) and tax exempt income to its
shareholders. Therefore, no provision for Federal income tax is required.
Dividends paid by the Portfolio for the period ended December 31, 1996 represent
exempt interest dividends which are excludable by shareholders from gross income
for Federal income tax purposes.
When-Issued and Delayed Delivery Transactions: The Fund may engage in
when-issued or delayed delivery transactions. To the extent the Portfolio
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objectives and not for the
purpose of investment leverage or to speculate on interest rate changes. At the
time the Fund makes a commitment to purchase a security for the portfolio on a
when-issued basis, it will record the transaction and reflect the value in
determining its net asset value. When effecting such transactions, assets of the
Portfolio of an amount sufficient to make payment for the portfolio securities
to be purchased will be segregated on the Portfolio's records on the trade date.
Securities purchased on a when-issued or delayed delivery basis do not earn
interest until the settlement date.
Dividends: Net investment income of the Portfolio is declared daily as a
dividend on shares for which the Fund has received payment. Dividends are paid
monthly and are reinvested in additional shares of the Portfolio at 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 capital gains, to the extent available,
will be distributed annually.
General: Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discounts on
securities purchased are amortized to call dates or maturity dates of the
respective securities. Realized gains and losses from the sale of securities are
recorded on an identified cost basis.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the period ending December
31, 1996, these fees were payable at annual rates ranging from 1/2 of 1% to 9/40
of 1% of the average daily net assets of the Portfolio. Also, the Portfolio
entered into an Administrative Service agreement with the Advisor, whereby the
Adviser will perform certain administrative services for the shareholders of
each class of the Portfolio's shares, and for which fees will be payable at an
annual rate of up to 1/8 of 1% of the average daily net assets attributable to
each class of shares.
In the event normal operating expenses of the Portfolio, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Portfolio's shares are qualified for sale,
the Adviser will reimburse the Portfolio for such excess. No such reimbursement
was required as a result of this limitation. For the period ended December 31,
1996, the Adviser voluntarily reimbursed certain operating expenses amounting to
$24,009. These expenses may be repaid to the Adviser by the Portfolio, however
such repayment will depend upon the overall level of Portfolio expenses for the
entire fiscal year ending June 30, 1997.
The Fund has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of Portfolio shares. For the
period ended December 31, 1996, the Distributor earned commissions aggregating
$12,142 from the sale of Class A shares, and collected contingent deferred sales
charges aggregating $875 from redemptions of Class C shares of the Portfolio.
Pursuant to a Service Plan under Rule 12b-1 of the Investment Company Act of
1940, the Fund may reimburse to the Adviser amounts not to exceed .25 of 1% per
annum of the average net assets attributable to each class of shares of the
Portfolio for payments made by the Adviser to securities dealers and other
financial institutions to obtain various shareholder related services. The
Adviser may pay out of its own funds additional expenses for distribution of the
Portfolio's shares.
The Fund also has adopted a Distribution Plan pursuant to Rule 12b-1, applicable
only to the Portfolio's Class C shares, under which the Fund can compensate the
Distributor for services in promoting the sale of Class C shares of the
Portfolio at an annual rate of up to .75% of the average daily net assets
attributable to Class C shares. Total fees incurred by each class of shares of
the Portfolio under their respective service and distribution plans for the
period ended December 31, 1996 are set forth in the statement of operations.
Certain officers and directors of the Fund are also officers and /or directors
of the Adviser and the Distributor. The compensation of unaffiliated directors
of the Fund is borne
by the Fund.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Note 4 - SHARES OF BENEFICIAL INTEREST:
At December 31, 1996, there were 600,000,000 shares of the Fund (including
115,000,000 for the Portfolio) of $.001 par value common stock authorized and
capital paid-in aggregated $96,513,092. Transactions in shares of beneficial
interest were as follows:
Six Month Period Year Ended
Ended December 31, 1996 June 30, 1996
----------------- -------------
Class A Shares Shares Amount Shares Amount
Shares sold 485,676 $6,164,500 1,028,241 $13,063,252
Shares issued to shareholders
in reinvestment of
distributions 109,148 1,387,803 227,171 2,885,798
Shares repurchased (690,039) (8,764,796) (1,626,759) (20,623,385)
Net Decrease (95,215) ($1,212,493) (371,347) ($4,674,335)
Class B Shares
Shares sold -- -- 17,477 $220,496
Shares issued to shareholders
in reinvestment of
distributions -- -- 352 4,458
Shares repurchased -- -- (64,623) (819,316)
Net Increase -- -- (46,794) ($594,362)
Class C Shares
Shares sold 127,465 $1,619,512 164,199 $2,090,620
Shares issued to shareholders
in reinvestment of
distributions 3,554 45,258 4,010 50,090
Shares repurchased (19,691) (250,701) (37,612) (479,143)
Net Increase 111,328 $1,414,069 130,597 $1,661,567
Note 5 - SECURITIES TRANSACTIONS
Purchases and proceeds from maturities or sales of investment securities of the
Portfolio, other than short-term securities, aggregated $11,396,746 and
$8,788,820, respectively. The cost of investments is the same for financial
reporting and Federal income tax purposes. At December 31, 1996, the aggregate
gross unrealized appreciation and depreciation, based on cost for Federal income
tax purposes, were $2,428,858 and $194,248, respectively.
Accumulated net realized losses from security transactions included in net
assets at December 31, 1996 aggregated $922,812.
For Federal income tax purposes, the Portfolio has realized capital loss
carryforwards of $917,010 from prior fiscal years available to offset future
realized capital gains. To the extent that such carryforwards are used, no
capital gains distributions will be made. The carryforwards expire as follows:
June 30, 1997 - $45,141, June 30, 1998 - $60,181, June 30, 1999 - $14,395, June
30, 2000 - $410, June 30, 2002 - $315,597, and June 30, 2003 -$481,286.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Per share operating performance
(for a share outstanding
throughout the period)
Six Month Period
Ending December 31, Year Ended June 30,
1996 1996 1995 1994 1993 1992
(unaudited)
Class of Shares: A A A A A A
Net asset value, beginning of period $12.64 $12.61 $12.57 $12.85 $12.48 $12.24
Income from investment operations:
Net investment income .29 .58 .58 .58 .65 .72
Net realized and unrealized
gain (loss) on investments .10 .03 .04 (.28) .37 .24
Total from investment operations .39 .61 .62 .30 1.02 .96
Less dividends from
Net investment income (.29) (.58) (.58) (.58) (.65) (.72)
Change in net asset value .10 .03 .04 (.28) .37 .24
Net asset value, end of period $12.74 $12.64 $12.61 $12.57 $12.85 $12.48
Total return (a) 3.09% 4.94% 5.12% 2.37% 8.36% 8.10%
Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.49(b) 4.59% 4.69% 4.51% 5.07% 5.80%
Expenses, after expense reductions 1.00(b) 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, before expense reductions 1.03(b) 1.05% 1.04% 1.03% 1.06% 1.10%
Portfolio turnover rate 9.33% 22.68% 18.54% 15.26% 20.81% 30.56%
Net assets
at end of period (000) $93,941 $94,379 $98,841 $111,723 $81,874 $53,130
(a) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
(b) Annualized.
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Per share operating performance
(for a share outstanding
throughout the period) Period from
Six Month Period Year Ended Sept. 1, 1994 (a)
Ending December 31, June 30, to June 30,
1996 1996 1995
(unaudited)
Class of Shares: C B* C B C
Net asset value, beginning of period $12.65 $12.62 $12.62 $12.55 $12.55
Income from investment operations:
Net investment income .26 .13 .53 .43 .42
Net realized and unrealized
gain on investments .10 .06 .03 .07 .07
Total from investment operations .36 .19 .56 .50 .49
Less dividends from:
Net investment income (.26) (.13) (.53) (.43) (.42)
Change in net asset value .10 .06 .03 .07 .07
Net asset value, end of period $12.75 $12.68 $12.65 $12.62 $12.62
Total return (b) 2.88% 1.59% 4.46% 3.99% 3.98%
Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.09%(c) 4.15%(c) 4.16% 4.10%(c) 4.07%(c)
Expenses, after expense reductions 1.40%(c) 1.63%(c) 1.43% 1.60%(c) 1.63%(c)
Expenses, before expense reductions 1.96%(c) 3.67%(c) 2.92% 4.51%(c) 3.21%(c)
Portfolio turnover rate 9.33% 22.68% 22.68% 18.54% 18.54%
Net assets
at end of period (000) $3,883 $0 $2,444 $590 $790
(a) Commencement of sales of Class B and Class C shares.
(b) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year. The total return for Class B
shares reflects a period of 90 days.
(c) Annualized.
* Period from July 1, 1995 to September 28, 1995, on which date all Class B
shares were converted into Class A shares
<TABLE>
<CAPTION>
Principal Credit Rating+
Amount Issuer-Description Moody's/S&P Value
<S> <C> <C> <C>
$ 615,000 Alameda-Contra Costa Transit District Refunding Certificate of Participation
Series 1989, 7.20% due 8/1/00 Baa/BBB- $ 658,511
370,000 Albany Public Facilities Financing Authority Lease Revenue, 6.60% due 9/1/00
(Library Community Center Project) Baa1/NR 390,694
165,000 Antioch Unified School District Certificate of Participation, 0% due 7/1/05 (Insured: FSA) Aaa/AAA 95,844
1,300,000 Berkeley Health Facility Revenue Refinancing Series A, 5.70% due 12/1/98
(Alta Bates Medical Center Project) Baa/BBB+ 1,305,044
500,000 California Counties Lease Finance Authority Certificate of Participation, 7.30% due 10/1/98 A/NR 504,370
835,000 California Educational Facilities Authority Revenue, 5.60% due 10/1/00 (U.S.C. Project) Aa3/AA 859,875
1,805,000 California Educational Facilities Authority Revenue, 5.60% due 10/1/02 (U.S.C. Project) Aa3/AA 1,868,446
500,000 California Educational Facilities Authority Revenue Series 1993, 5.15% due 9/1/03
(Santa Clara University Project) A1/NR 514,910
670,000 California HFA Revenue Series 1985-B, 9.875% due 2/1/17 Aa/AA- 699,862
30,000 California HFA Single Family Mortgage Revenue Series 1982-A, 10.00% due 2/1/02
(LOC: Citibank) Aa/AA- 30,012
145,000 California HFA Revenue Series 1990-A, 0% due 8/1/01 Aa/AA- 105,269
500,000 California HFA, 7.80% due 7/1/06 (Episcopal Homes Project; Insured: Cal. Mortgage) NR/A 514,040
1,000,000 California HFA Secured Revenue Series 1991, 6.65% due 9/1/01
(Good Samaritan Hospital Project) Baa/A- 1,065,310
505,000 California HFA Financing Authority, 5.25% due 8/1/00
(Marin General Hospital Project; Insured: FSA) Aaa/AAA 521,771
760,000 California Public Capital Improvement Finance Auth. Rev. Series 1988-E, 8.25% due 3/1/98 Baa/NR 790,028
1,000,000 California State General Obligation, 6.50% due 10/1/99 A1/A+ 1,060,930
200,570 California State Veterans General Obligation Bonds Amortizing Coupon M-COATES,
7.30% due 10/1/01 *Aaa/AAA* 215,898
1,000,000 California Veterans Affairs Home Purchase Revenue Series A, 7.40% due 8/1/97 Aa/A+ 1,017,440
250,000 California Veterans Affairs Home Purchase Revenue Series A, 7.50% due 8/1/98 Aa/A+ 261,597
1,390,000 California Veterans Affairs Home Purchase Revenue Series A, 6.55% due 8/1/01 Aa/A+ 1,454,913
850,000 California State University Revenue, 6.40% due 11/1/02, crossover refunded 11/1/00 @ 102 A1/A- 924,639
730,000 California Statewide Community Development Authority Insured Health
(Eskaton Properties Incorporated Phase II Project) NR/A 761,653
1,000,000 California Statewide Community Development Authority Certificate of Participation, 2.56%
(inverse floater) due 1/1/00 (Motion Picture and Television Fund Project; Insured: AMBAC) Aaa/AAA 944,070
1,000,000 California Statewide Community Development Authority Certificate of Participation, 2.85%
(inverse floater) due 1/1/01 (Motion Picture and Television Fund Project; Insured: AMBAC) Aaa/AAA 928,150
1,000,000 California Statewide Community Development Authority Insured Health Facilities Revenue
Series 1996-A, 6.00% due 9/1/04 (San Gabriel Medical Center Project; Insured: Cal Health) NR/A 1,048,040
130,000 Cerritos-Compton Glendale College District General Obligation
Certificate of Participation, 8.00% due 2/1/98 NR/NR 134,935
1,905,000 Chula Vista Variable Rate Multifamily Housing Refunding Revenue Series 1985,
5.75% due 11/1/07, put 11/1/97 (Eucalyptus Grove Project; Continental Casualty Surety Bond) NR/A+ 1,909,420
250,000 Clovis & Fresno Unified School District Certificate of Participation Series A, 6.70% due 5/1/97 NR/A 252,237
700,000 Coachella Valley Water District # 71 Certificate of Participation, 5.75% due 10/1/00
(Storm Water District Project) A/NR 727,874
660,000 Cupertino Public Facilities Corporation Certificate of Participation Series 1992-B, 5.60%
due 7/1/00 A1/A+ 682,407
60,000 El Paso de Robles Newark Water District Certificate of Participation
Association of Bay Area Governments Finance Corporation, 7.40% due 6/1/98 NR/NR 61,414
350,000 Foothill-De Anza Community College District Certificate of Participation, 7.35% due 3/1/07 NR/A- 388,455
600,000 Fresno Multifamily Housing Revenue Refunding, 5.10% due 10/1/05, put 4/1/99
(Maple Leaf Project; Insured: Continental Insurance) NR/A- 598,062
560,000 Fruitvale School District Certificate of Participation, 7.60% due 6/1/99 Baa/NR 597,162
2,000,000 Glendale Hospital Revenue Refunding Series 1994, 7.625% due 1/1/05
(Verdugo Hills Project; LOC: Industrial Indemnity) NR/A+ 2,189,500
200,000 Hayward Unified School District Certificate of Participation, 7.60% due 10/1/00 Baa/NR 208,476
200,000 Hermosa Beach Lynwood and Vernon Certificate of Participation,
7.10% due 9/1/99, partially pre-refunded NR/BBB 207,042
2,895,000 Huntington Beach City School District 1995 Capital Certfificates, 6.25% due 4/1/97 NR/NR 2,913,962
605,000 Inglewood Certificate of Participation, 6.70% due 8/1/00 (Civic Center Improvement Project) A/BBB 640,683
635,000 Inglewood Certificate of Participation, 6.80% due 8/1/01 (Civic Center Improvement Project) A/BBB 679,926
690,000 Inglewood Certificate of Participation, 6.90% due 8/1/02 (Civic Center Improvement Project) A/BBB 731,103
200,000 Irvine Ranch Improvement Board, 5.00% due 9/2/15, put 1/2/97 (daily demand notes)
(LOC: National Westminister) Aa2/AA 200,000
300,000 Irvine Ranch Water District. 5.00% due 8/1/16, put 1/2/97 (daily demand notes)
(LOC: National Westminster) VMIG1/A1 300,000
360,000 Irvine Ranch Water District Joint Powers Agency Revenue, 7.00% due 2/15/98 NR/A+ 372,254
480,000 Lake Elsinore Public Financing Authority Tax Allocation Revenue Series 1992-C,
6.15% due 2/1/01 (Insured: FGIC) Aaa/AAA 510,691
2,000,000 Lancaster Redevelopment Agency Lease Revenue Series 1995, 4.90% due 12/1/00
(Public Improvement Project; LOC: Sumitomo - Dai Ichi Kangyo) NR/A 1,983,500
1,500,000 Los Angeles Equipment Acquisition Program L Certificate of Participation, 5.80% due 12/1/98 A/A+ 1,537,020
1,000,000 Los Angeles Municipal Improvement Corporation Lease Revenue, 5.00% due 2/1/00 A/A+ 1,006,870
1,500,000 Los Angeles Unified School District Certificate of Participation, 6.30% due 6/1/02 A/A- 1,601,790
1,000,000 Los Angeles County Certificate of Participation Mobile Digital Comm., 7.70% due 7/15/01 Baa1/BBB+ 1,021,580
245,000 Los Angeles County Certificate of Participation, 0% due 10/1/02 Baa1/BBB 174,396
700,000 Los Angeles County Certificate of Participation, 0% due 4/1/03 Baa1/BBB 479,381
350,000 Los Angeles County Housing Authority Multifamily Housing Revenue, 7.625% due 12/1/29,
mandatory put 12/1/99 (Monrovia Project A; Insured: Continental Casualty) NR/A- 353,829
1,000,000 Los Angeles County Transit Finance Corporation Certificate of Participation
Series 1992-B, 5.70% due 7/1/99 A1/NR 1,027,130
250,000 Lynwood Unified School District Certificate of Participation, 7.20% due 11/1/98
(Capital Improvement Project) Baa/NR 259,912
2,000,000 MSR Public Power Agency Series 1987-C, 6.70% due 7/1/02 (San Juan Project) A/A 2,044,300
375,000 Marysville Hospital Revenue, 6.00% due 1/1/04 (Fremont-Rideout Health Group
Project; Insured: AMBAC) Aaa/AAA 401,947
200,000 Midpeninsula Regional Open Space District Certificate of Participation, 7.20%
due 9/1/00, refunded 9/1/99 *Aaa/A 219,170
360,000 Midpeninsula Regional Open Space District Certificate of Participation, 4.75% due 9/1/99 NR/A 364,291
460,000 Midpeninsula Regional Open Space District Certificate of Participation, 4.80% due 9/1/00 NR/A 464,899
1,230,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 4.70% due 8/1/98 A1/NR 1,241,722
1,000,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 4.80% due 8/1/99 A1/NR 1,012,550
835,000 Morgan Hill Unified School District Certificate of Participation Series 1993, 5.00% due 8/1/00 A1/NR 848,644
660,000 Mountain View Shoreline Reg. Park Community Tax Allocation Series 1993-A, 4.70% due 8/1/99 A/A 666,851
810,000 National City Community Development Commission Tax Allocation Series
1992-A, 5.70% due 8/1/99 (Downtown Redevelopment Project; Insured: AMBAC) Aaa/AAA 842,035
500,000 National City Community Development Commission Tax Allocation Series
1992-A, 5.90% due 8/1/00 (Downtown Redevelopment Project; Insured: AMBAC) Aaa/AAA 527,305
330,000 New Haven Unified School District Certificate of Participation, 7.30% due 12/1/01 NR/A- 349,473
355,000 New Haven Unified School District Certificate of Participation, 7.30% due 12/1/02 NR/A- 374,880
380,000 New Haven Unified School District Certificate of Participation, 7.40% due 12/1/03 NR/A- 400,999
410,000 New Haven Unified School District Certificate of Participation, 7.40% due 12/1/04 NR/A- 431,890
930,000 Ontario Individual Development Revenue Series 1990-A, 7.75% due 9/1/20,
put 8/31/00 (Great Western Foam Project; LOC: Wells Fargo Bank) NR/A 941,216
1,000,000 Orange Multifamily Housing Revenue, 5.60% due 10/1/27
(Villa Santiago Rehab Project; Insured: FNMA) NR/AAA 1,016,870
1,100,000 Orange County Refunding Recovery, 5.10% due 6/1/02 (Insured: MBIA) Aaa/AAA 1,130,360
1,000,000 Orange County Refunding Recovery, 5.20% due 6/1/03 (Insured: MBIA) Aaa/AAA 1,034,150
2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/04 (Insured: MBIA) Aaa/AAA 2,224,460
2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/05 (Insured: MBIA) Aaa/AAA 2,234,520
900,000 Orange County Local Transportation Authority Sales Tax Rev., 5.50% due 2/15/01
(Measure M Sales Tax Project) Aa/AA 934,155
1,550,000 Orange County Local Transportation Authority Sales Tax Rev., 5.70% due 2/15/03
(Measure M Sales Tax Project) Aa/AA 1,636,350
1,050,000 Orange County Local Transportation Authority Sales Tax Rev., 5.75% due 2/15/04
(Measure M Sales Tax Project) Aa/AA 1,112,108
510,000 Orange County Local Transportation Authority Sales Tax Rev., 6.00% due 2/15/06
(Measure M Sales Tax Project) Aa/AA 548,117
1,000,000 Orange County Local Transportation Authority Sales Tax Revenue 2nd Series,
2.60% (inverse floater) due 2/15/99 (Insured: FGIC) Aaa/AAA 970,350
2,000,000 Orange County Recovery Certificate of Participation Series A, 5.50% due 7/1/02
(Insured: MBIA) Aaa/AAA 2,090,440
200,000 Orange County Sanitation District, 3.55% due 8/1/15, put 1/2/97 (daily demand notes)
(LOC: National Westminster) Aa2/VMIG1 200,000
1,175,000 Oxnard Harbor District Refunding Revenue, 6.60% due 8/1/00 (Capital Guaranty) Aaa/AAA 1,235,172
300,000 Oxnard IDA IDRB, 9.50% due 10/1/97 (Green Foods Project; LOC: Mitsubishi Bank Ltd.) Aa2/NR 302,946
510,000 Paramount Unified School District Certificate of Patricipation, 0% due 9/1/14 (Insured: FSA) Aaa/AAA 406,496
100,000 Perris School District Certificate of Participation, 5.10% due 3/1/00 (Insured: FSA) Aaa/AAA 102,518
980,000 Redwood City Multifamily Housing Revenue Series 1985-B, 5.20% due 10/1/08, put 10/1/00
(Redwood Shores Apartments Project; Insured: Continental Casualty) NR/A+ 979,922
465,000 Riverside County Housing Authority Revenue Series A, 7.75% due 10/1/00 Baa/NR 477,820
295,000 Sacramento Financing Authority Series 1991, 6.30% due 11/1/02 A1/A+ 318,237
550,000 Sacramento Municipal Utility District Electric Refunding Revenue Series R, 6.60% due 2/1/97 A/A- 551,336
1,000,000 Sacramento Regional Transportation Authority Certificate of Participation, 6.00% due 3/1/99 A1/NR 1,034,530
1,000,000 Sacramento Regional Transportation Authority Certificate of Participation, 6.25% due 3/1/01 A1/NR 1,061,450
940,000 Sacramento MFHR, 5.875% due 2/1/08, put 2/1/03 (Fairways I Apartments Project;
Insured: FNMA) NR/AAA 954,918
450,000 San Diego County Regional Trans. Community Sales Tax Rev. Series A,
6.125% due 4/1/98 (Escrowed to Maturity) AAA/AA- 463,567
255,000 San Francisco City & County Agency Redevelopment Agency Lease Revenue, 0% due 7/1/00 A/A- 216,584
225,000 San Francisco City & County Agency Refunding Series Sec 8, 6.125%
due 7/1/02 (Insured: MBIA / FHA) Aaa/AAA 225,405
400,000 San Jacinto IDA IDRB Series 1990, 7.20% due 6/1/98 (Edelbrock Foundry
Corporation Project; LOC: Bank of America) NR/AA- 417,948
2,000,000 San Joaquin County Certificate of Participation, 5.25% due 9/1/98 (General Hospital Project) A/A- 2,019,220
1,440,000 San Joaquin County Certificate of Participation, 5.60% due 9/1/00 (General Hospital Project) A/A- 1,465,128
895,000 San Joaquin County Certificate of Participation, 5.90% due 9/1/03 (General Hospital Project) A/A- 922,074
1,310,000 San Marcos Public Facility Authority Capital Improvement Series 1991, 0% due 1/1/99, ETM Aaa/NR 1,201,964
410,000 San Marcos Public Facility Authority Capital Improvement Series 1991, 0% due 1/1/00, ETM Aaa/NR 358,340
440,000 Santa Ana Community Development Agency Series D, 6.50% due 12/15/14, pre-refunded
12/15/00 @ 102 Aaa/AAA 464,644
500,000 Santa Ana Community Red. Agency Tax Allocation Series 1989-B, 7.10% due 9/1/98 NR/BB+ 513,550
315,000 Santa Monica Community College District Certificate of Participation, 7.65% due 5/1/01,
put 11/1/97 (Rancho Corrales Project) NR/A 323,146
810,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.40% due 8/1/00 (Integrated Waste Project) NR/A+ 837,095
950,000 Sonoma County Certificate of Participation Public Works Improvement Program,
5.80% due 8/1/03 (Integrated Waste Project) NR/A+ 988,637
150,000 South Coast Air Quality Management District Building Corporation
Installment Sale Revenue, 9.75% due 8/1/98 (Escrowed to Maturity) Aaa/AAA 163,606
1,435,000 South Orange County Public Finance Authority Special Tax Revenue, 7.00% due 9/1/05
(Insured: MBIA) Aaa/AAA 1,646,691
700,000 Stanislaus Waste to Energy Finance Agency Solid Waste Facility Revenue Certificate,
7.20% due 1/1/97, (Ogden Martin Systems Project) NR/BBB+ 700,000
250,000 Stanislaus Waste to Energy Finance Agency Solid Waste Facility Revenue Certificate,
7.30% due 1/1/98, (Ogden Martin Systems Project) NR/BBB+ 255,885
340,000 Suisun City Redevelopment Agency 1990 Tax Allocation,
7.20% due 10/1/01, pre-refunded 4/1/00 *Aaa/A- 377,199
500,000 Sulphur Springs Union School District General Obligation Series B, 5.70% due 3/1/01 NR/A 523,500
450,000 Sunline Transit Agency Certificate of Participation California Transit Finance Corporation
Series A, 5.50% due 7/1/02 NR/A 466,168
900,000 Sweetwater Union High School District Certificate of Participation, 6.40% due 11/1/01 Baa1/BBB+ 949,680
190,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/98 (Community Recreation Center Project) NR/A 195,827
200,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/99 (Community Recreation Center Project) NR/A 208,398
210,000 Temecula Community Services Certificate of Participation Series 1992,
6.00% due 10/1/00 (Community Recreation Center Project) NR/A 219,929
255,000 Torrance Unified School District Certificate of Participation, 6.10% due 10/1/00 Baa1/NR 259,883
275,000 Trinity County Public Utilities District Certificate of Participation, 5.25% due 4/1/98 NR/BBB- 276,694
290,000 Trinity County Public Utilities District Certificate of Participation, 5.50% due 4/1/99 NR/BBB- 292,474
750,000 Turlock Irrigation District Certificate of Participation, 6.80% due 1/1/00
(1991 Capital Improvements Project), pre-refunded 1/1/98 @ 102 Baa1/A- 788,370
365,000 Turlock Irrigation District Certificate of Participation, 7.00% due 1/1/01
(1991 Capital Improvements Project), pre-refunded 1/1/98 @ 102 Baa1/A- 384,382
420,000 Turlock Irrigation District Certificate of Participation, 7.15% due 1/1/03
(1991 Capital Improvements Project), pre-refunded 1/1/98 @ 102 Baa1/A- 442,919
1,600,000 University of California Regents Certificate of Participation Series 1996,
5.45% due 6/1/03 (Various Capital Projects; Insured: MBIA) Aaa/AAA 1,673,040
635,000 University of California Research Facilities Revenue, 11.00% due 9/1/98 NR/A- 703,948
870,000 University of California Research Facilities Revenue, 5.25% due 9/1/02 NR/A- 887,261
625,000 Vallejo Public Financing Authority Local Agency Revenue Series A, 5.00% due 9/2/98 NR/A- 631,038
495,000 Yorba Linda Public Financing Authority Certificate of Participation,
7.00% due 11/1/00 (Recycling Equipment Project) A/NR 513,726
TOTAL INVESTMENTS $98,959,644
<FN>
* Indicates rating on other debt issued by the same issuer,
rather than on the security held by the Fund. These
securities are deemed by the Adviser to be comparable with
those of issuers having debt ratings in the 4 highest grades
by Moody's or S&P. +Credit ratings are unaudited.
See notes to financial statements.
</FN>
</TABLE>
Thornburg Limited Term Municipal Fund
California Portfolio-A Shares+
Outperformed Taxable and Tax - Free Money Market Funds
INVESTORS SOMETIMES ASK US TO COMPARE LIMITED TERM MUNICIPAL FUND TO MONEY
MARKET FUND RETURNS. THESE INVESTMENTS HAVE CERTAIN DIFFERENCES, AND INVESTORS
IN LIMITED TERM MUNICIPAL FUND TOOK MORE RISK THAN MONEY MARKET FUND INVESTORS
TO EARN THEIR HIGHER RETURNS
[GRAPHIC OMITTED]
Increase In a $100,000 Investment
1/1/92 through 12/31/96
(After Sales Charge and Fund Expenses)
Donoghue's Taxable Money
Market Fund Average
California Tax-Free Money
Market Fund Average
Limited Term Municipal Fund
California Portfolio-A Shares
+On September 1, 1994 Thornburg Limited Term Municipal Fund- California
Portfolio began offering Class C Shares of the Fund. The chart above is for the
Fund's Class A Shares only. Class C Shares have different sales charges and
expenses. See the inside front cover page for the 30 day SEC yield and the total
returns at the maximum offering prices for one year, five years, and since
inception for each class of shares of the Fund.
Note 1: Future increases, if any, of any of these investments may bear no
relationship to prior increases. Quotations for the money fund averages are
based upon 30 day yield quotations for taxable and tax-exempt money funds as
quoted in "Donoghue's Money Fund Report" for the months covered by this
analysis. The increase for the Class A Shares of Limited Term Municipal Fund -
California Portfolio is based upon the dividends paid for the months covered by
this analysis, the beginning offering price at $12.38 per share and the ending
NAV at $12.74 per share. These investments returned the $100,000 initial
investment in addition to the amounts shown above.
Note 2: This analysis does not take into account the effect, if any, of the
federal alternative minimum tax. This analysis assumes the income from the
taxable money fund was taxed at a 31% federal tax rate through 1992 and a 39.6%
rate from 1993 to 1995. It also assumes that the income from the taxable money
fund is taxed by the state of California at 11% from 1991 to 1995, and 9.3% in
1996. The portion of the increase of Limited Term Municipal Fund, California
Portfolio representing appreciation of the share price is assumed to be taxed at
a 28% federal tax rate and a11% California tax rate. The average money market
fund increases shown above may differ from the return of a particular money
market fund. It is not possible to invest in these money fund averages.
Note 3: The net asset value of the money funds did not fluctuate. The net asset
value of the Class A Shares of LTCAX did vary from time to time, and will
continue to vary in the future. The analysis assumes that the investor received
the net asset value of the shares owned, plus accrued income, at time of sale.
Due to the effect of sales commissions, the net asset value of the Limited Term
Municipal Fund's Class A Shares is less than the offering price of the shares.
Redemptions are made at the then current net asset value which may give you a
gain or loss when you sell your shares.
Note 4: This analysis assumes that the dividends from each of these investment
vehicles were reinvested and compounded monthly. Most money funds declare
dividends daily and pay them monthly. Limited Term Municipal Fund also declares
dividends daily and pays them monthly.
INVESTMENT MANAGER
Thornburg Management Company, Inc.
119 East Marcy Street
Santa Fe, NM 87501
(800) 847-0200
PRINCIPAL UNDERWRITER
Thornburg Securities Corporation
119 East Marcy Street
Santa Fe, NM 87501
(800) 847-0200
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information. Performance data
quoted represent past performance and are not indicative of future results.
Thornburg
Limited Term
Municipal Fund--
California Portfolio
Semi-Annual Report
December 31, 1996
[GRAPHIC OMITTED]
<PAGE>
<PAGE> 1
<TABLE>
<CAPTION>
MACKENZIE
June 30, 1996
<S> <C> <C> <C> <C>
MACKENZIE MARKET COMMENTARY:
CALIFORNIA
MUNICIPAL During the first six months of the year been supported by a stable US treasury
FUND interest rates trended higher in response to market and high absolute levels of interest
faster than expected economic growth. rates.
Additionally, energy and grain prices went For the twelve months ended June 30,
up because of colder than normal weather 1996, the total return of the Mackenzie
- -------------------- and low inventories of these commodities. California Municipal Fund was 5.52% without
ANNUAL On the labor front, a surprising number of sales charge. This compares with the average
REPORT new jobs were created and unemployment of all California Municipal Debt Funds
- -------------------- declined, leading to an increase in labor tracked by Lipper Analytical Services, Inc.
This report and the costs. Historically, these factors have pre- which was 6.25% for the same period. (For
financial statements saged an increase in inflation and as market the Fund's total return with sales charge and
contained herein are participants fear a repeat of the downturn in performance commentary, please see the
submitted for the bond prices similar to 1994, the tone of the following page.)
general information of fixed income markets has swung dramati- As municipalities continue to focus on
the shareholders. This cally from complacency to caution. improving their balance sheets, municipal
report is not authorized Our research indicates the pace of credit fundamentals are enhanced. For
for distribution to economic growth will moderate in the example, Standard & Poor's recently increased
prospective investors months to come as the economy is in the its rating on a new municipal issue from
unless preceded or later stages of a longer term economic California to A+. This reflects the State's
accompanied by an recovery. This deceleration should allay fears ability to successfully handle its budgetary
effective prospectus. of a resurgence of inflation. Additionally, concerns. We believe a stable supply of
the Federal Reserve Board is firmly commit- municipal issuance and increased demand
Mackenzie Investment ted to price stability and we expect that they should allow the municipal bond market to
Management Inc. will act to defend this mission. Monetary perform well in the months ahead.
Via Mizner Financial policy is currently somewhat restrictive
Plaza which should act as a brake on the economy MACKENZIE INVESTMENT MANAGEMENT, INC.
700 South Federal Hwy. over the near future.
Boca Raton, FL 33432 The municipal bond market continues
1-800-456-5111 to outperform US treasuries. The most
predominant reason for the strength in the
municipal market is likely explained by a
shift in asset allocation. Equity investors,
who are uncomfortable with the increased
volatility of US stock markets, have been
rotating assets into municipal bond funds.
Should equity markets continue to experi-
ence volatility, we would expect this trend to
persist. The municipal bond market has also
---------------------------------------------------------------------------------------------------
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill President Services Corp. Management Inc.
Stanley Channick Keith J. Carlson, P.O. Box 3022 Boca Raton, FL
Frank W. DeFriece Vice President Boca Raton, FL
Roy J. Glauber C. William Ferris, 33431-0922 DISTRIBUTOR
Michael G. Landry Secretary/Treasurer 1-800-777-6472 Ivy Mackenzie
Joseph G. Rosenthal Distributors, Inc.
J. Brendan Swan CUSTODIAN AUDITORS Via Mizner Financial Plaza
Brown Brothers Coopers & Lybrand L.L.P. 700 South Federal Highway
LEGAL COUNSEL Harriman & Co. Fort Lauderdale, FL Boca Raton, FL 33432
Dechert Price Boston, MA
& Rhoads [LOGO IVY MACKENZIE]
Boston, MA
</TABLE>
<PAGE> 2
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1996, the Mackenzie California Municipal
Fund had a total return of 5.52%. This compares with the average of all
California Municipal Debt Funds tracked by Lipper Analytical Services, Inc.
which was 6.25% for the same period. The Fund's underperformance can be
attributed to the manager's decision to extend the average duration of the Fund
as a means of providing a higher level of tax-free income.
PERFORMANCE COMPARISON OF A $10,000 INVESTMENT
SINCE INCEPTION OF THE FUND
[CHART]
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie California Municipal Fund will fluctuate and at redemption may
be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
MACKENZIE CALIFORNIA MUNICIPAL FUND
FOR PERIOD ENDING 6/30/96
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
- ---------------------------------------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
- ---------------------------------------------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Yr. .51% .32% (.30)% 4.70% (.51)% 4.49%
- ---------------------------------------------------------------------------------------------
5 Yr. 5.67% 5.54% -- -- -- --
- ---------------------------------------------------------------------------------------------
Since Inception 6.65% 5.75% 3.99% 5.25% 3.83% 5.08%
- ---------------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
- -------------------------------------------------------------------------------
<PAGE> 3
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 96.0% PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB- Adelanto California Public Financing Authority, 6.30%, 09/01/28..................... $1,000,000 $ 940,000
A A- Bakersfield California Hospital Revenue, 6.50%, 01/01/22............................ 2,000,000 2,007,500
Baa BBB+ Berkeley California Health Facilities Revenue, 6.55%, 12/02/22...................... 1,000,000 991,250
NR A+ California Health Facilities Authority (Pacific Presbyterian Medical Center),
7.00%, 06/01/08 (Pre-refunded).................................................... 250,000 255,938
NR AA- California Health Facilities Authority (Stanford University), 7.20%, 11/01/96
(Pre-refunded).................................................................... 5,000 5,158
Aa AA- California Housing Finance Authority, 6.90%, 08/01/16............................... 100,000 101,500
A2 A+ California Pollution Control Financing Authority, 6.85%, 12/01/08................... 500,000 536,875
A2 A+ California Pollution Control Financing Authority, 7.20%, 09/01/15................... 5,000 5,118
A1 A California State (GO)(NC), 6.75%, 05/01/02.......................................... 500,000 546,875
A1 A California State (GO)(NC), 9.50%, 05/01/03.......................................... 500,000 626,250
A1 A+ California State (GO)(NC), 9.50%, 02/01/10.......................................... 1,000,000 1,376,250
A1 A- California State Public Works Revenue, 7.375%, 04/01/06............................. 5,000 5,413
A A- California State Public Works Revenue (NC), 8.35%, 12/01/99......................... 500,000 553,750
A1 AA- Clovis Unified School District (GO)(NC), 10.90%, 08/01/99........................... 475,000 555,156
NR NR Costa Mesa City Hall, 7.50%, 10/01/97 (Pre-refunded)................................ 50,000 52,187
Baa BBB Duarte California City of Hope National Medical Center Certificate of Participation,
6.25%, 04/01/23................................................................... 1,000,000 976,250
Aaa NR Fontana Redevelopment Agency, 8.00%, 09/01/98 (Pre-refunded)........................ 20,000 21,950
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California Toll Road Revenue (NC),
0.00%, 01/01/18................................................................... 750,000 176,250
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California Toll Road Revenue (NC),
0.00%, 01/01/24................................................................... 1,000,000 152,500
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California Toll Road Revenue (NC),
6.00%, 01/01/34................................................................... 500,000 473,750
NR BBB Guam Government (GO), 5.375%, 11/15/13.............................................. 500,000 445,000
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14...................................... 450,000 459,000
NR BBB Hawaiian Gardens California Redevelopment Agency, 0.00%, 12/01/16................... 1,000,000 238,750
NR BBB Inglewood California Redevelopment Agency, 6.125%, 7/01/23.......................... 500,000 473,125
NR A+ Irvine Ranch Water District Power Agency, 7.80%, 02/15/08........................... 25,000 26,094
Baa NR Irwindale California Community Redevelopment Agency, 6.60%, 08/01/18................ 1,300,000 1,303,250
A NR Kern High School District (GO)(NC), 7.00%, 08/01/06................................. 700,000 798,000
Aaa AAA Kern High School District (GO)(NC), 9.00%, 08/01/06................................. 680,000 884,000
NR BBB Long Beach Aquarium of the Pacific, California, 6.125%, 07/01/23.................... 750,000 697,500
Aaa AAA Los Angeles Convention & Exhibition Center, 9.00%, 12/01/05 (Pre-refunded).......... 5,000 6,444
Baa1 A- Los Angeles County Certificate of Participation (Disney Parking Project) (NC),
0.00%, 09/01/06................................................................... 2,000,000 1,050,000
Baa1 A- Los Angeles County Certificate of Participation (Disney Parking Project) (NC),
0.00%, 09/01/15................................................................... 1,000,000 273,750
Aaa AAA Los Angeles County Certificate of Participation, (Sheriff's Training Academy),
7.75%, 07/01/96 (Pre-refunded).................................................... 25,000 25,500
Aa AA- Los Angeles Department of Water & Power, 7.10%, 01/15/01 (Pre-refunded)............. 600,000 664,500
Aa AA Los Angeles Department of Water & Power, 7.625%, 08/01/97 (Pre-refunded)............ 20,000 21,376
Aa AA- Los Angeles Department of Water & Power, 9.00%, 09/01/04............................ 1,000,000 1,253,750
NR AAA Los Angeles Harbor Department Revenue, 7.60%, 10/01/18, (Escrowed to Maturity)...... 205,000 244,206
NR AAA Los Angeles State Building Authority, 7.50%, 03/01/98 (Pre-refunded)................ 5,000 5,369
Aaa AAA Los Angeles Waste Water System Revenue (NC)(MBIA Insured), 8.80%, 06/01/00.......... 500,000 572,500
A1 A+ Modesto Irrigation District Certificate of Participation, 7.25%, 10/01/15........... 110,000 112,713
NR AAA Morgan Hill California Redevelopment Agency (FHA Insured), 6.45%, 12/01/27.......... 1,000,000 1,018,750
Aaa AAA Oakland Redevelopment Agency (AMBAC Insured), 7.40%, 05/01/07....................... 100,000 106,250
Aaa AAA Palomar Pomerado California Health System (NC), 0.00%, 11/02/03..................... 500,000 342,500
Baa1 NR Perris California High School District Certificate of Participation, 5.85%,
09/01/11.......................................................................... 2,000,000 1,915,000
Aa NR Piedmont Unified School District (GO), 0.00%, 08/01/13.............................. 1,000,000 361,250
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/04.................................. 500,000 328,750
NR BBB- Puerto Rico Educational Facility (Polytechnic University), 5.70%, 08/01/13.......... 250,000 229,687
Baa1 A Puerto Rico Public Buildings Authority, 6.60%, 07/01/04............................. 100,000 109,125
Aaa AAA Rancho Cucamonga Redevelopment Agency (FGIC Insured), 7.70%, 05/01/98
(Pre-refunded).................................................................... 35,000 37,231
NR A Richmond California Joint Powers Financing Authority Revenue, 5.20%, 05/15/05....... 500,000 483,750
A A Riverside County Certificate of Participation, 7.75%, 12/01/03...................... 30,000 30,926
Aaa AAA Salinas California Redevelopment Agency (CGIC Insured), 0.00%, 11/01/22............. 2,000,000 397,500
Aa3 A+ San Diego Industrial Development Revenue (San Diego Gas & Electric), 7.875%,
08/01/97 (Pre-refunded)........................................................... 35,000 37,182
Aaa AAA San Jose Certificate of Participation, 7.875%, 09/01/96 (Pre-refunded).............. 35,000 35,939
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured), 7.75%, 02/01/02........ 500,000 569,375
NR AAA Santa Clara County Certificate of Participation (American Baptist Homes), 8.00%,
03/01/98 (Pre-refunded)........................................................... 20,000 21,625
NR A+ Santa Clara Electric Revenue, 7.80%, 07/01/10....................................... 35,000 36,204
A1 A+ Santa Cruz Hospital Revenue (Dominican), 7.00%, 12/01/13............................ 100,000 103,625
NR A Santa Rosa Insured Revenue (Episcopal Homes) (CA Mortgage Insurance) 7.125%,
06/01/14.......................................................................... 250,000 256,393
</TABLE>
(See Notes to Financial Statements)
<PAGE> 4
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 96.0% PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB Snowline Joint Unified School District Certificate of Participation, 7.25%,
04/01/18.......................................................................... $ 750,000 $ 784,687
Aa A+ Southern California Public Power Authority (NC), 0.00%, 07/01/15.................... 2,000,000 627,500
NR BBB Tracy Certificates of Participation (I-205 Improvement), 7.00%, 10/01/27............ 1,000,000 1,021,250
Aaa AAA University of California Housing System Revenue (NC) (MBIA Insured), 8.00%,
11/01/00.......................................................................... 500,000 564,375
NR BBB+ University of California at Los Angeles Parking Revenue, 7.75%, 11/01/96
(Pre-refunded).................................................................... 60,000 61,993
Aaa AAA Walnut Valley USD (MBIA Insured)(GO)(NC), 8.75%, 08/01/10........................... 1,000,000 1,307,500
Aaa AAA Walnut Valley USD (AMBAC Insured)(GO)(NC), 9.00%, 08/01/06.......................... 800,000 1,031,000
Baa1 NR Yuba City Unified School District Certificate of Participation
(Andros Karperos School), 6.70%, 02/01/13......................................... 650,000 653,250
-----------
TOTAL INVESTMENTS -- 96.0% (Cost -- $31,530,428)*................................... 32,387,364
OTHER ASSETS, LESS LIABILITIES -- 4.0%.............................................. 1,350,938
-----------
NET ASSETS -- 100%.................................................................. $33,738,302
===========
*Cost is approximately the same for Federal income tax purposes.
AMBAC - AMBAC Indemnity Corporation
CGIC - Capital Guaranty Insurance Company
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Authority
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
NR - Not Rated
OTHER INFORMATION:
At June 30, 1996, net unrealized appreciation based on cost for financial statement
and Federal income tax purposes is as follows:
Gross unrealized appreciation................................................................ $ 1,113,295
Gross unrealized depreciation................................................................ (256,359)
-----------
Net unrealized appreciation.......................................................... $ 856,936
===========
Purchases and sales of municipal securities aggregated $12,407,305 and $18,397,056,
respectively, for the period ended June 30, 1996.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $31,530,428).............................................................. $32,387,364
Cash................................................................................................................ 801,001
Receivables:
Interest.......................................................................................................... 620,098
Manager for expense reimbursement................................................................................. 6,476
Deferred organization expenses...................................................................................... 5,072
Other assets........................................................................................................ 3,774
-----------
Total assets...................................................................................................... 33,823,785
-----------
LIABILITIES
Payables:
Fund shares repurchased........................................................................................... 55,213
Management fee.................................................................................................... 14,834
12b-1 service and distribution fees............................................................................... 7,334
Administrative services fee....................................................................................... 2,697
Fund accounting................................................................................................... 2,600
Transfer agent.................................................................................................... 2,260
Other accrued expenses and liabilities.............................................................................. 545
-----------
Total liabilities................................................................................................. 85,483
-----------
NET ASSETS.......................................................................................................... $33,738,302
===========
CLASS A:
Net asset value and redemption price per share ($32,603,534 / 3,219,952 shares outstanding)......................... $ 10.13
===========
Maximum offering price per share ($10.13 x 100 / 95.25)*............................................................ $ 10.64
===========
CLASS B:
Net asset value and offering price per share ($1,134,768 / 112,129 shares outstanding)**............................ $ 10.12
===========
NET ASSETS CONSIST OF:
Capital paid-in................................................................................................... $32,606,139
Accumulated net realized gain on investments...................................................................... 226,637
Accumulated net investment income................................................................................. 48,590
Net unrealized appreciation on investments........................................................................ 856,936
-----------
NET ASSETS.......................................................................................................... $33,738,302
===========
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<S> <C> <C>
Investment income
Interest................................................................................................ $2,356,051
----------
Expenses
Management fee.......................................................................................... $209,516
Transfer agent.......................................................................................... 25,659
Administrative services fee............................................................................. 38,094
Custodian fees.......................................................................................... 9,789
Blue Sky fees........................................................................................... 18,677
Auditing and accounting fees............................................................................ 29,731
Shareholder reports..................................................................................... 3,753
Amortization of organization expenses................................................................... 1,833
Fund accounting......................................................................................... 26,765
Trustees' fees.......................................................................................... 4,860
12b-1 service and distribution fees
Class A............................................................................................... 92,452
Class B............................................................................................... 11,122
Legal................................................................................................... 23,113
Other................................................................................................... 5,139
----------
500,503
Expenses reimbursed by manager.......................................................................... (66,721)
Fees paid indirectly.................................................................................... (6,412)
----------
Net expenses.......................................................................................... 427,370
----------
NET INVESTMENT INCOME..................................................................................... 1,928,681
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments........................................................................ 935,504
Net unrealized depreciation during the period on investments............................................ (778,289)
----------
Net gain on investments............................................................................... 157,215
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $2,085,896
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 6
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations:
Net investment income........................................................................... $ 1,928,681 $ 1,994,895
Net realized gain (loss) on investments......................................................... 935,504 (809,513)
Net unrealized appreciation (depreciation) during the period on investments..................... (778,289) 1,608,795
----------- -----------
Net increase resulting from operations........................................................ 2,085,896 2,794,177
----------- -----------
Class A distributions
From net investment income...................................................................... (1,815,075) (1,970,835)
In excess of net investment income.............................................................. -- (74,599)
----------- -----------
Total distributions to Class A shareholders................................................... (1,815,075) (2,045,434)
----------- -----------
Class B distributions
From net investment income...................................................................... (46,329) (24,060)
----------- -----------
Total distributions to Class B shareholders................................................... (46,329) (24,060)
----------- -----------
Fund share transactions (Note 5):
Class A......................................................................................... (6,579,399) (3,153,266)
Class B......................................................................................... 136,933 847,991
----------- -----------
Net decrease resulting from Fund share transactions........................................... (6,442,466) (2,305,275)
----------- -----------
TOTAL DECREASE IN NET ASSETS...................................................................... (6,217,974) (1,580,592)
NET ASSETS
Beginning of period............................................................................. 39,956,276 41,536,868
----------- -----------
END OF PERIOD................................................................................... $33,738,302 $39,956,276
============ ============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)............................................ $ 48,590 $ (18,687)
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 7
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------
SELECTED PER SHARE DATA 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................................... $ 10.08 $ 9.91 $ 10.44 $ 10.29 $ 9.94
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).............................................. .52 .49 .59 .58 .52
Net gain (loss) on investments (both realized and unrealized)......... .03 .19 (.48) .35 .51
------- ------- ------- ------- -------
Total from investment operations.................................... .55 .68 .11 .93 1.03
------- ------- ------- ------- -------
Less distributions
From net investment income............................................ .50 .49 .59 .60 .52
In excess of net investment income.................................... -- .02 -- -- .07
From net realized gain................................................ -- -- .05 .18 .09
------- ------- ------- ------- -------
Total distributions................................................. .50 .51 .64 .78 .68
------- ------- ------- ------- -------
Net asset value, end of period.......................................... $ 10.13 $ 10.08 $ 9.91 $ 10.44 $ 10.29
======= ======= ======= ======= =======
Total return(%)(b)...................................................... 5.52 7.09 .82 9.55 10.80
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................ $32,604 $38,963 $41,423 $47,493 $46,288
Ratio of expenses to average net assets
With expense reimbursement and fees paid indirectly(%)(e)............. 1.10 1.10 1.10 1.10 1.10
Without expense reimbursement and fees paid indirectly(%)(e).......... 1.29 1.22 1.18 1.20 1.19
Ratio of net investment income to average net assets(%)(a).............. 5.08 4.94 5.65 5.80 5.66
Portfolio turnover rate(%).............................................. 34 81 26 91 42
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
FOR THE YEAR (COMMENCEMENT)
CLASS B ENDED JUNE 30, TO JUNE 30,
--------------------- --------------
SELECTED PER SHARE DATA 1996 1995 1994
------ ------ --------------
<S> <C> <C> <C>
Net asset value, beginning of period............................................... $10.08 $ 9.91 $ 9.97
------ ------ -----
Income from investment operations
Net investment income(a)......................................................... .45 .43 .11
Net (gain) loss on investments (both realized and unrealized).................... .02 .17 (.03)
------ ------ -----
Total from investment operations............................................... .47 .60 .08
------ ------ -----
Less distributions
From net investment income....................................................... .43 .43 .11
From net capital gain............................................................ -- -- .03
------ ------ -----
Total distributions............................................................ .43 .43 .14
------ ------ -----
Net asset value, end of period..................................................... $10.12 $10.08 $ 9.91
====== ====== ==========
Total return(%).................................................................... 4.70(b) 6.30(b) .82(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........................................... $1,135 $ 993 $ 114
Ratio of expenses to average net assets
With expense reimbursement and fees paid indirectly(%)(e)........................ 1.85 1.85 1.85(d)
Without expense reimbursement and fees paid indirectly(%)(e)..................... 2.04 1.97 1.93(d)
Ratio of net investment income to average net assets(%)(a)......................... 4.33 4.19 4.90(d)
Portfolio turnover rate(%)......................................................... 34 81 26
</TABLE>
(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a
sales charge.
(d) Annualized.
(e) Beginning in July 1995, total expenses include fees paid indirectly
through an expense offset arrangement.
(See Notes to Financial Statements)
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
Mackenzie California Municipal Fund (the Fund) is a series of shares of
Mackenzie Series Trust. The shares of beneficial interest are $.001 par value
and an unlimited number of shares of Class A and Class B are authorized.
Mackenzie Series Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated April 22, 1985 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from these estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of
valuation based upon a matrix system (which considers factors such as security
prices, yields, maturities and ratings), both as furnished by an independent
pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net investment
income are declared monthly, and net realized capital gains, if any, are
declared in June. An additional distribution may be declared if necessary to
avoid the payment of a four percent Federal excise tax.
On January 1, 1996, under a Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940, approved by the Fund's Board December 2, 1995, the Fund
discontinued its practice of declaring daily a dividend to Class A shares at the
rate per share of the excess 12b-1 fees of Class B shares over Class A shares.
For the Fund's taxable year ended June 30, 1996, 100% of the distributions
paid were exempt interest dividends for Federal income tax purposes.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its issuing Class B shares have been deferred and are being
amortized on a straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out of pocket expenses. For the year ended June 30, 1996,
custody fees were reduced by $6,412 under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on the Fund's average net assets.
If the Fund's total expenses in any fiscal year (excluding interest, taxes,
brokerage commissions, extraordinary expenses and other expenses subject to
approval by state securities administrators) exceed limits applicable under
state securities laws, MIMI will bear the excess expenses. Currently, MIMI
voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1
fees, brokerage commissions, interest, litigation and indemnification expenses,
and other extraordinary expenses) to an annual rate of .85% of its average net
assets. The voluntary expense limitation may be terminated or revised at any
time. Expenses reimbursed by manager reflected in the Statement of Operations
consists of a voluntary reimbursement.
MIMI provides certain administrative, accounting and pricing services for
the Fund. As compensation for those services, the Fund pays MIMI fees plus
certain out-of-pocket expenses. Such fees are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1996, the net amount of underwriting
discount retained by IMDI was $2,831.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees are reflected as 12b-1 service and
distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. The Fund pays a
monthly fee and certain out-of-pocket expenses. Such fees and expenses are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of
California and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of California securities than is a municipal
bond fund that is not concentrated in these issuers to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ---------------------------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 119,552 $ 1,214,729 669,257 $ 6,416,826
Issued on reinvestment of
distributions............. 86,484 880,926 94,364 925,974
Repurchased................ (851,457) (8,675,054) (1,079,814) (10,496,066)
-------- ----------- ---------- ------------
Net decrease............... (645,421) $(6,579,399) (316,193) $ (3,153,266)
========== ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 18,173 $ 185,487 95,956 $ 938,462
Issued on reinvestment of
distributions............. 3,777 38,474 1,929 18,233
Repurchased................ (8,394) (87,028) (10,797) (108,704)
-------- ----------- ---------- ------------
Net increase............... 13,556 $ 136,933 87,088 $ 847,991
========== ============= ============ ==============
</TABLE>
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and
Board of Trustees of
Mackenzie California Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of June 30, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 15, 1996
MCAMF-2-896
<PAGE>
<PAGE> 1
DECEMBER 31, 1996 [MACKENZIE LOGO]
MACKENZIE CALIFORNIA MUNICIPAL FUND
MARKET COMMENTARY:
Overall, fixed income markets in 1996 were marked by unfulfilled
expectations and interest rate volatility. Following a quarter point decrease
in the discount rate in January 1996, there were several indicators pointing to
increased economic growth--increase wage pressure, higher petroleum and grain
prices, a strong dollar and full employment--and bond markets responded by
pushing interest rates higher.
Later in the year, market participants watched guardedly for inflation
to rear its head. However, US Gross Domestic Product (GDP) and the Consumer
Price Index (CPI) continued to reflect moderate growth which resulted in
interest rates coming down, only to rise again by the year end.
The municipal bond market also had to contend with interest rate
volatility and inflationary pressures caused by increased economic growth, as
well as first quarter concerns about proposed tax reform. We believe continued
evidence of a moderating economy should, however, keep interest rates in a
trading range and inflation should remain low. But the threat of tax reform
still looms. A Republican-controlled Congress could bring tax reform and
related issues to the forefront once again. The demand for municipal bonds has,
however, remained strong as supply continued to decrease from its high in 1993.
Municipal credit rating agencies have come under fire for not detecting
fiscal problems early enough to warn investors. We believe it will be
important, therefore, to focus on higher credit quality and strong underlying
fundamentals in the coming year.
The Mackenzie California Municipal Fund maintains its disciplined
investment approach and focus on investment grade bonds. With an average
maturity of just more than 16 years and broad diversification across many
issuers, we believe this Fund should provide conservative tax-free investors
with a good balance of yield and return.
MACKENZIE INVESTMENT MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Chairman Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill Keith J. Carlson, President Services Corp. Management Inc.
Keith J. Carlson C. William Ferris, P.O. Box 3022 Boca Raton, FL
Stanley Channick Secretary/Treasurer Boca Raton, FL 33431-0922
Frank W. DeFriece, Jr. 1-800-777-6472 DISTRIBUTOR
Roy J. Glauber CUSTODIAN Ivy Mackenzie
Michael G. Landry Brown Brothers Harriman & Co. AUDITORS Distributors, Inc.
Joseph G. Rosenthal Boston, MA Coopers & Lybrand L.L.P. Via Mizner Financial Plaza
J. Brendan Swan Fort Lauderdale, FL 700 South Federal Highway
Boca Raton, FL 33432
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
</TABLE>
<PAGE> 2
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 97.7% PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB- Adelanto California Public Financing Authority, 6.30%,
09/01/28.................................................. $1,000,000 $ 975,000
A3 A- Bakersfield California Hospital Revenue, 6.50%, 01/01/22.... 2,000,000 2,042,500
Baa BBB+ Berkeley California Health Facilities Revenue, 6.55%,
12/01/22.................................................. 1,000,000 1,013,750
NR A+ California Health Facilities Authority (Pacific Presbyterian
Medical Center), 7.00%, 06/01/08
(Pre-refunded)............................................ 250,000 270,937
NR A- California Health Facilities Authority (Pomona), 7.00%,
01/01/17 (Pre-refunded)................................... 650,000 660,803
NR A- California Health Facilities Authority (Downey Community),
5.30%, 05/15/04 (Pre-refunded)............................ 500,000 501,250
Aa AA- California Housing Finance Authority, 6.90%, 08/01/16....... 100,000 100,964
A2 A+ California Pollution Control Financing Authority, 6.85%,
12/01/08.................................................. 500,000 536,875
A2 A+ California Pollution Control Financing Authority, 7.20%,
09/01/15.................................................. 5,000 5,120
A1 A California State (GO)(NC), 6.75%, 05/01/02.................. 500,000 551,250
A1 A California State (GO)(NC), 9.50%, 05/01/03.................. 500,000 628,750
A1 A+ California State (GO)(NC), 9.50%, 02/01/10.................. 1,000,000 1,396,250
A1 A- California State Public Works Revenue, 7.375%, 04/01/06..... 5,000 5,512
A A- California State Public Works Revenue (NC), 8.35%,
12/01/99.................................................. 500,000 549,375
NR NR Costa Mesa City Hall, 7.50%, 10/01/97 (Pre-refunded)........ 50,000 51,455
Baa BBB Duarte California City of Hope National Medical Center
Certificate of Participation,
6.25%, 04/01/23........................................... 1,000,000 1,006,250
Aaa NR Fontana Redevelopment Agency, 8.00%, 09/01/98
(Pre-refunded)............................................ 20,000 21,700
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 0.00%, 01/01/18................... 750,000 203,438
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 0.00%, 01/01/24................... 1,000,000 183,750
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 6.00%, 01/01/34................... 500,000 496,250
NR BBB Guam Government (GO), 5.375%, 11/15/13...................... 500,000 465,000
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14.............. 450,000 471,375
NR BBB Hawaiian Gardens California Redevelopment Agency, 0.00%,
12/01/16.................................................. 1,000,000 261,250
NR BBB Inglewood California Redevelopment Agency, 6.125%,
7/01/23................................................... 500,000 500,000
NR A+ Irvine Ranch Water District Power Agency, 7.80%, 02/15/08... 25,000 25,906
Baa NR Irwindale California Community Redevelopment Agency, 6.60%,
08/01/18.................................................. 1,300,000 1,342,250
Aaa AAA Kern High School District (GO)(NC), 9.00%, 08/01/06......... 680,000 894,200
A NR Kern High School District (GO)(NC), 7.00%, 08/01/10......... 165,000 195,319
Aaa AAA Los Angeles Convention & Exhibition Center, 9.00%, 12/01/05
(Pre-refunded)............................................ 5,000 6,506
Baa1 A- Los Angeles County Certificate of Participation, (Disney
Parking Project), (NC), 0.00%, 09/01/06................... 2,000,000 1,122,500
Baa1 A- Los Angeles County Certificate of Participation, (Disney
Parking Project), (NC), 0.00%, 09/01/15................... 1,000,000 297,500
Aa AA Los Angeles Department of Water & Power, 7.625%, 08/01/97
(Pre-refunded)............................................ 20,000 21,072
Aa AA- Los Angeles Department of Water & Power, 9.00%, 09/01/04.... 500,000 627,500
NR AAA Los Angeles Harbor Department Revenue, 7.60%, 10/01/18,
(Escrowed to Maturity).................................... 205,000 250,100
NR AAA Los Angeles State Building Authority, 7.50%, 03/01/11
(Pre-refunded)............................................ 5,000 5,300
Aaa AAA Los Angeles Waste Water System Revenue (NC)(MBIA Insured),
8.80%, 06/01/00........................................... 500,000 569,375
NR AAA Morgan Hill California Redevelopment Agency (FHA Insured),
6.45%, 12/01/27........................................... 1,000,000 1,033,750
A A- Northern California Power Agency (NC), 5.65%, 07/01/97...... 700,000 716,625
Aaa AAA Oakland Redevelopment Agency (AMBAC Insured), 7.40%,
05/01/07.................................................. 100,000 105,625
Aaa AAA Palomar Pomerado California Health System (NC), 0.00%,
11/02/03.................................................. 500,000 360,000
Baa1 NR Perris California High School District Certificate of
Participation, 5.85%, 09/01/11............................ 2,000,000 1,970,000
Aa NR Piedmont Unified School District (GO), 0.00%, 08/01/13...... 1,000,000 378,750
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/04.......... 500,000 343,125
NR BBB- Puerto Rico Educational Facility (Polytechnic University),
5.70%, 08/01/13........................................... 250,000 235,000
Aaa AAA Rancho Cucamonga Redevelopment Agency (FGIC Insured), 7.70%,
05/01/98 (Pre-refunded)................................... 35,000 36,750
NR A Richmond California Joint Powers Financing Authority
Revenue, 5.20%, 05/15/05.................................. 500,000 502,500
Aaa AAA Salinas California Redevelopment Agency (CGIC Insured),
0.00%, 11/01/22........................................... 2,000,000 442,500
Aa3 A+ San Diego Industrial Development Revenue (San Diego Gas &
Electric), 7.875%, 08/01/97
(Pre-refunded)............................................ 35,000 36,592
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured),
7.75%, 02/01/02........................................... 500,000 571,875
NR AAA Santa Clara County Certificate of Participation (American
Baptist Homes), 8.00%, 03/01/98
(Pre-refunded)............................................ 20,000 21,300
NR A+ Santa Clara Electric Revenue, 7.80%, 07/01/10............... 35,000 36,064
A1 A+ Santa Cruz Hospital Revenue (Dominican), 7.00%, 12/01/13.... 100,000 103,308
</TABLE>
(See Notes to Financial Statements)
<PAGE> 3
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR A Santa Rosa Insured Revenue (Episcopal Homes) (CA Mortgage
Insurance), 7.125%, 06/01/14.............................. $ 250,000 $ 255,515
NR BBB Snowline Joint Unified School District Certificate of
Participation, 7.25%, 04/01/18............................ 750,000 793,125
Aa A+ Southern California Public Power Authority (NC), 0.00%,
07/01/15.................................................. 2,000,000 672,500
NR BBB Tracy Certificates of Participation (I-205 Improvement),
7.00%, 10/01/27........................................... 1,000,000 1,037,500
Aaa AAA University of California Housing System Revenue (NC)(MBIA
Aaa Insured), 8.00%, 11/01/00................................. 500,000 563,125
AAA Walnut Valley USD (MBIA Insured)(GO)(NC), 8.75%, 08/01/10... 1,000,000 1,328,750
Aaa AAA Walnut Valley USD (AMBAC Insured)(GO)(NC), 9.00%,
08/01/06.................................................. 800,000 1,043,000
Baa1 NR Yuba City Unified School District Certificate of
Participation
(Andros Karperos School), 6.70%, 02/01/13................... 650,000 661,375
-----------
TOTAL INVESTMENTS -- 97.7% (Cost -- $30,085,732)*........... 31,504,986
OTHER ASSETS, LESS LIABILITIES -- 2.3%...................... 739,467
-----------
NET ASSETS -- 100%.......................................... $32,244,453
===========
</TABLE>
* Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At December 31, 1996, net unrealized appreciation based on
cost for financial statement and Federal income tax purposes
is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation............................... $ 1,467,784
Gross unrealized depreciation............................... (48,530)
-----------
Net unrealized appreciation................................. $ 1,419,254
===========
</TABLE>
Purchases and sales of municipal securities aggregated
$2,677,553 and $4,369,012 respectively, for the period
ended December 31, 1996.
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
NC -- Non Callable
(See Notes to Financial Statements)
<PAGE> 4
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $30,085,732)...... $31,504,986
Cash........................................................ 204,997
Receivables
Interest.................................................. 545,656
Manager for expense reimbursement......................... 8,918
Other assets................................................ 14,472
-----------
Total assets.............................................. 32,279,029
-----------
LIABILITIES
Payables
Management fee............................................ 15,140
12b-1 service and distribution fees....................... 7,916
Other payables to related parties......................... 7,899
Other accrued expenses and liabilities...................... 3,621
-----------
Total liabilities......................................... 34,576
-----------
NET ASSETS.................................................. $32,244,453
===========
CLASS A
Net asset value and redemption price per share
($31,013,307 / 3,044,330 shares outstanding).............. $ 10.19
===========
Maximum offering price per share ($10.19 x 100 / 95.25)*.... $ 10.70
===========
CLASS B
Net asset value and offering price per share
($1,231,146 / 120,835 shares outstanding)**............... $ 10.19
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $30,897,971
Accumulated net realized loss on investments.............. (21,634)
Accumulated net investment loss........................... (51,138)
Net unrealized appreciation on investments................ 1,419,254
-----------
NET ASSETS.................................................. $32,244,453
===========
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,025,862
----------
EXPENSES
Management fee............................................ $92,063
Transfer agent............................................ 14,644
Administrative services fee............................... 16,739
Custodian fees............................................ 1,658
Blue Sky fees............................................. 5,460
Auditing and accounting fees.............................. 15,963
Shareholder reports....................................... 1,823
Fund accounting........................................... 13,689
Trustees' fees............................................ 2,496
12b-1 service and distribution fees....................... 46,347
Legal..................................................... 13,869
Other..................................................... 3,800
----------
228,551
Expenses reimbursed by manager............................ (39,854)
----------
Net expenses............................................ 188,697
----------
NET INVESTMENT INCOME....................................... 837,165
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.......................... 151,687
Net unrealized appreciation during the period on
investments............................................. 562,318
----------
Net gain on investments................................. 714,005
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,551,170
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------ -----------
1996* 1996
------------ -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 837,165 $ 1,928,681
Net realized gain on investments.......................... 151,687 935,504
Net unrealized appreciation (depreciation) during the
period on investments................................... 562,318 (778,289)
----------- -----------
Net increase resulting from operations.................. 1,551,170 2,085,896
----------- -----------
Class A distributions
From net investment income................................ (811,654) (1,815,075)
In excess of net investment income........................ (96,832) --
From net realized gain.................................... (145,918) --
In excess of net realized gain............................ (239,821) --
----------- -----------
Total distributions to Class A shareholders............. (1,294,225) (1,815,075)
----------- -----------
Class B distributions
From net investment income................................ (25,511) (46,329)
In excess of net investment income........................ (2,896) --
From net realized gain.................................... (5,769) --
In excess of net realized gain............................ (8,450) --
----------- -----------
Total distributions to Class B shareholders............. (42,626) (46,329)
----------- -----------
Fund share transactions (Note 5)
Class A................................................... (1,796,339) (6,579,399)
Class B................................................... 88,171 136,933
----------- -----------
Net decrease resulting from Fund share transactions..... (1,708,168) (6,442,466)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (1,493,849) (6,217,974)
NET ASSETS
Beginning of period....................................... 33,738,302 39,956,276
----------- -----------
END OF PERIOD............................................. $32,244,453 $33,738,302
=========== ===========
ACCUMULATED NET INVESTMENT INCOME (LOSS).................... $ (51,138) $ 48,590
=========== ===========
</TABLE>
* Unaudited.
(See Notes to Financial Statements)
<PAGE> 6
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX
CLASS A MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
------------ -----------------------------------------------------------
1996* 1996 1995 1994 1993 1992
SELECTED PER SHARE DATA ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.13 $ 10.08 $ 9.91 $ 10.44 $ 10.29 $ 9.94
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income(a)........................ .26 .52 .49 .59 .58 .52
Net realized and unrealized gain (loss) on
investments................................... .21 .03 .19 (.48) .35 .51
------- ------- ------- ------- ------- -------
Total from investment operations.............. .47 .55 .68 .11 .93 1.03
------- ------- ------- ------- ------- -------
Less distributions
From net investment income...................... .26 .50 .49 .59 .60 .52
In excess of net investment income.............. .03 -- .02 -- -- .07
From net realized gain.......................... .05 -- -- .05 .18 .09
In excess of net realized gain.................. .07 -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions........................... .41 .50 .51 .64 .78 .68
------- ------- ------- ------- ------- -------
Net asset value, end of period.................... $ 10.19 $ 10.13 $ 10.08 $ 9.91 $ 10.44 $ 10.29
======= ======= ======= ======= ======= =======
Total return(%)................................... 4.75(c) 5.52(b) 7.09(b) .82(b) 9.55(b) 10.80(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).......... $31,013 $32,604 $38,963 $41,423 $47,493 $46,288
Ratio of expenses to average net assets
With expense reimbursement(%)(e)................ 1.10(d) 1.12 1.10 1.10 1.10 1.10
Without expense reimbursement(%)(e)............. 1.34(d) 1.29 1.22 1.18 1.20 1.19
Ratio of net investment income to average net
assets(%)(a).................................... 5.03(d) 5.08 4.94 5.65 5.80 5.66
Portfolio turnover rate(%)........................ 8 34 81 26 91 42
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE APRIL 1, 1994
CLASS B MONTHS ENDED YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, JUNE 30, JUNE 30,
------------ ---------------------- -----------------
1996* 1996 1995 1994
SELECTED PER SHARE DATA ------------ ------ ---------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.12 $10.08 $ 9.91 $9.97
------ ------ ------ -----
Income from investment operations
Net investment income(a).................................. .22 .45 .43 .11
Net realized and unrealized gain (loss) on investments.... .22 .02 .17 (.03)
------ ------ ------ -----
Total from investment operations........................ .44 .47 .60 .08
------ ------ ------ -----
Less distributions
From net investment income................................ .22 .43 .43 .11
In excess of net investment income........................ .03 -- -- --
From net capital gain..................................... .05 -- -- .03
In excess of net realized gain............................ .07 -- -- --
------ ------ ------ -----
Total distributions..................................... .37 .43 .43 .14
------ ------ ------ -----
Net asset value, end of period.............................. $10.19 $10.12 $10.08 $9.91
====== ====== ====== =====
Total return(%)............................................. 4.39(c) 4.70(b) 6.30(b) .82(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,231 $1,135 $ 993 $ 114
Ratio of expenses to average net assets
With expense reimbursement(%)(e).......................... 1.85(d) 1.87 1.85 1.85(d)
Without expense reimbursement(%)(e)....................... 2.09(d) 2.04 1.97 1.93(d)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.27(d) 4.33 4.19 4.90(d)
Portfolio turnover rate(%).................................. 8 34 81 26
</TABLE>
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not
reflect a sales charge.
(d) Annualized.
(e) Beginning in July 1995, total expenses include any fees paid
indirectly. The ratio of expenses to average net assets with
expense reimbursement has been restated for the year ended
June 30, 1996.
* Unaudited.
(See Notes to Financial Statements)
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Mackenzie California Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from these estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of
valuation based upon a matrix system (which considers factors such as security
prices, yields, maturities and ratings), both as furnished by an independent
pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly, and net realized capital gains, if any,
are declared semi-annually. An additional distribution may be declared if
necessary to avoid the payment of a four percent Federal excise tax.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the six months ended December 31,
1996, custody fees were not reduced under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on its average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.85% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time.
MIMI provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees are reflected as Administrative services fee and Fund
accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended December 31, 1996, the net amount of
underwriting discount retained by IMDI was $1,515.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $40,374 and $5,973 for Class A and
Class B, respectively, are reflected as 12b-1 service and distribution fees in
the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees
and expenses of $14,094 and
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
$550 for Class A and Class B, respectively, are reflected as Transfer agent in
the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of
California and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of California securities than is a municipal
bond fund that is not concentrated in these issuers to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 55,039 $ 548,385 119,552 $ 1,214,729
Issued on reinvestment of
distributions................ 69,779 705,004 86,484 880,926
Repurchased................... (300,440) (3,049,728) (851,457) (8,675,054)
-------- ----------- -------- -----------
Net decrease.................. (175,622) $(1,796,339) (645,421) $(6,579,399)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 11,119 $ 112,216 18,173 $ 185,487
Issued on reinvestment of
distributions................ 3,667 37,090 3,777 38,474
Repurchased................... (6,080) (61,135) (8,394) (87,028)
-------- ----------- -------- -----------
Net increase.................. 8,706 $ 88,171 13,556 $ 136,933
======== =========== ======== ===========
</TABLE>
03MCCAX123196
<PAGE>
<TABLE>
Thornburg Limited Term Municipal Fund, Inc. - California Portfolio
Pro Forma Schedule of Investments
December 31, 1996
(Unaudited)
<CAPTION>
Thornburg Mackenzie Pro Forma Combined
Issuer-Description Principal Value Principal Value Principal Value
------------------ --------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Adelanto California Public Financing Authority, 6.30%, 09/01/28 $1,000,000 $975,000 $1,000,000 $975,000
Alameda Contra Costa CA Tran , 7.2%, 08/01/2000 $615,000 $658,511 615,000 658,511
Albany CA Pub Facs Fing Auth , 6.6%, 09/01/2000 370,000 390,694 370,000 390,694
Antioch CA Uni Sch Dist Ctfs , 0.0%, 07/01/2005 165,000 95,844 165,000 95,844
Bakersfield California Hospital Revenue, 6.50%, 01/01/22 2,000,000 2,042,500 2,000,000 2,042,500
Berkeley CA Health Fac Rev , 5.7%, 12/01/98 1,300,000 1,305,044 1,300,000 1,305,044
Berkley, California Health Facility, 6.55%, 12/01/22 1,000,000 1,013,750 1,000,000 1,013,750
California Cntys Lease Fing , 7.3%, 10/01/98 500,000 504,370 500,000 504,370
California Edl Facs Auth Rev , 5.15%, 09/01/2003 500,000 514,910 500,000 514,910
California Edl Facs Auth Rev , 5.6%, 10/01/2000 835,000 859,875 835,000 859,875
California Edl Facs Auth Rev , 5.6%, 10/01/2002 1,805,000 1,868,446 1,805,000 1,868,446
California Health Facilities Auth (Downey Community), 5.30%, 500,000 501,250 500,000 501,250
05/15/04 (Pre-refunded)
California Health Facilities Auth (Pacific Presb. Med Cntr), 250,000 270,937 250,000 270,937
7.00%, 06/01/08 (Pre-refunded)
California Health Facilities Auth (Pomona), 7.00%, 01/01/17 650,000 660,803 650,000 660,803
(Pre-refunded)
California Hlth Facs Fing Rev , 5.25%, 08/01/2000 505,000 521,771 505,000 521,771
California Hlth Facs Fing Rev , 6.65%, 09/01/2001 1,000,000 1,065,310 1,000,000 1,065,310
California Hlth Facs Fing Rev , 7.8%, 07/01/2006 500,000 514,040 500,000 514,040
California Housing Finance Authority, 6.90%, 08/01/16 100,000 100,964 100,000 100,964
California Hsg Fin Agy Rev , 0.0%, 08/01/2001 145,000 105,269 145,000 105,269
California Hsg Fin Agy Rev , 10%, 02/01/2002 30,000 30,012 30,000 30,012
California Hsg Fin Agy Rev , 9.875%, 02/01/2017 670,000 699,862 670,000 699,862
California Pollution Control Financing Authority, 6.85%, 012/01/08 500,000 536,875 500,000 536,875
California Pollution Control Financing Authority, 7.20%, 09/01/15 5,000 5,120 5,000 5,120
California Pub Cap Impts Rev , 8.25%, 03/01/98 760,000 790,028 760,000 790,028
California St Dept Vet Affairs, 6.55%, 08/01/2001 1,390,000 1,454,913 1,390,000 1,454,913
California St Dept Vet Affairs, 7.4%, 08/01/97 1,000,000 1,017,440 1,000,000 1,017,440
California St Dept Vet Affairs, 7.5%, 08/01/98 250,000 261,598 250,000 261,598
California St Univ Rev , 6.4%, 11/01/2002 850,000 924,639 850,000 924,639
California St , 6.5%, 10/01/99 1,000,000 1,060,930 1,000,000 1,060,930
California St , 7.3%, 10/01/2001 200,570 215,898 200,570 215,898
California State Public Works Revenue(NC), 8.35%, 12/01/99 500,000 549,375 500,000 549,375
California State Public Works Revenue, 7.375%, 04/01/06 5,000 5,512 5,000 5,512
California State (GO) (NC), 6.75%, 05/01/02 500,000 551,250 500,000 551,250
California State (GO) (NC), 9.50%, 02/01/10 1,000,000 1,396,250 1,000,000 1,396,250
California State (GO) (NC), 9.50%, 05/01/03 500,000 628,750 500,000 628,750
California Stwde Cmntys Dev , 2.56%, 01/01/2000 1,000,000 944,070 1,000,000 944,070
California Stwde Cmntys Dev , 2.85%, 01/01/2001 1,000,000 928,150 1,000,000 928,150
California Stwde Cmntys Dev , 6%, 09/01/2004 1,000,000 1,048,040 1,000,000 1,048,040
California Stwde Cmntys Dev , 6.4%, 05/01/2002 730,000 761,653 730,000 761,653
Cerritos Compton Glendale CA , 8%, 02/01/98 130,000 134,935 130,000 134,935
Chula Vista CA Mlt Fam Hsg Rev, 5.75%, 11/01/2007 1,905,000 1,909,420 1,905,000 1,909,420
Clovis + Fresno Uni Sch CA , 6.7%, 05/01/97 250,000 252,238 250,000 252,238
Coachella Vy CA Wtr Dist No 71, 5.75%, 10/01/2000 700,000 727,874 700,000 727,874
Costa Mesa City Hall, 7.50%, 10/01/97 (Pre-refunded) 50,000 51,455 50,000 51,455
Cupertino CA Ctfs Partn , 5.6%, 07/01/2000 660,000 682,407 660,000 682,407
Duarte Cal City of Hope Nat Med Cntr Cert of Part, 6.25%,04/01/23 1,000,000 1,006,250 1,000,000 1,006,250
El Paso De Robles Newark CA , 7.4%, 06/01/98 60,000 61,414 60,000 61,414
Fontana Redevelopment Agency, 8.00%, 09/01/98 (Pre-refunded) 20,000 21,700 20,000 21,700
Foothill De Anza CA Cmnty , 7.35%, 03/01/2007 350,000 388,455 350,000 388,455
FoothillL/Eastern Trans Corridor Agency, Cal Toll Road Rev (NC), 750,000 203,438 750,000 203,438
0.00%, 01/01/18
FoothillL/Eastern Trans Corridor Agency, Cal Toll Road Rev (NC), 1,000,000 183,750 1,000,000 183,750
0.00%, 01/01/24
FoothillL/Eastern Trans Corridor Agency, Cal Toll Road Rev (NC), 500,000 496,250 500,000 496,250
6.00%, 01/01/34
Fresno CA Multifamily Hsg Rev , 5.1%, 10/01/2005 600,000 598,062 600,000 598,062
Fruitvale CA Sch Dist , 7.6%, 06/01/99 560,000 597,162 560,000 597,162
Glendale CA Hosp Rev , 7.625%, 01/01/2005 2,000,000 2,189,500 2,000,000 2,189,500
Guam Government (GO), 5.375%, 11/15/13 500,000 465,000 500,000 465,000
Guam Power Authority Revenue, 6.625%, 10/01/14 450,000 471,375 450,000 471,375
Hawaiian Gardens California Redevelopment Agency, 0.00%, 12/01/16 1,000,000 261,250 1,000,000 261,250
Hayward CA Uni Sch Dist , 7.6%, 10/01/2000 200,000 208,476 200,000 208,476
Hermosa Beach CA , 7.1%, 09/01/99 200,000 207,042 200,000 207,042
Huntington Beach CA City Sch , 6.25%, 04/01/97 2,895,000 2,913,962 2,895,000 2,913,962
Inglewood CA Partn , 6.7%, 08/01/2000 605,000 640,683 605,000 640,683
Inglewood CA Partn , 6.8%, 08/01/2001 635,000 679,926 635,000 679,926
Inglewood CA Partn , 6.9%, 08/01/2002 690,000 731,103 690,000 731,103
Inglewood California Redevelopment Agency, 6.125%, 7/01/23 500,000 500,000 500,000 500,000
Irvine CA Impt Bd Act 1915 , 5%, 09/02/2015 200,000 200,000 200,000 200,000
Irvine Ranch CA Wtr Dist , 5%, 08/01/2016 300,000 300,000 300,000 300,000
Irvine Ranch CA Wtr Dist , 7%, 02/15/98 360,000 372,254 360,000 372,254
Irvine Ranch Water District Power Agency, 7.80%, 02/15/08 25,000 25,906 25,000 25,906
Irwindale California Community Redevelopment Agency, 6.60%, 1,300,000 1,342,250 1,300,000 1,342,250
08/01/18
Kern High School District {GO} {NC}, 7.0%, 08/01/10 165,000 195,319 165,000 195,319
Kern High School District {GO} {NC}, 9.0%, 08/01/06 680,000 894,200 680,000 894,200
Lake Elsinore CA Pub Fing Auth, 6.15%, 02/01/2001 480,000 510,691 480,000 510,691
Lancaster CA Redev Agy Lease , 4.9%, 12/01/2000 2,000,000 1,983,500 2,000,000 1,983,500
Los Angeles CA Ctfs Partn , 5.8%, 12/01/98 1,500,000 1,537,020 1,500,000 1,537,020
Los Angeles CA Mun Impt Corp , 5%, 02/01/2000 1,000,000 1,006,870 1,000,000 1,006,870
Los Angeles CA Uni Sch Dist , 6.3%, 06/01/2002 1,500,000 1,601,790 1,500,000 1,601,790
Los Angeles Cnty CA Partn, 0.0%, 04/01/2003 700,000 479,381 700,000 479,381
Los Angeles Cnty CA Partn, 0.0%, 10/01/2002 245,000 174,396 245,000 174,396
Los Angeles Cnty CA Partn, 7.7%, 07/15/2001 1,000,000 1,021,580 1,000,000 1,021,580
Los Angeles Cnty CA Hsg , 7.625%, 12/01/2029 350,000 353,829 350,000 353,829
Los Angeles Cnty CA Trans , 5.7%, 07/01/99 1,000,000 1,027,130 1,000,000 1,027,130
Los Angeles Cnty Cert of Part, (Disney Parking Project), (NC), 2,000,000 1,122,500 2,000,000 1,122,500
0.00%, 09/01/06
Los Angeles Cnty Cert of Part, (Disney Parking Project), (NC), 1,000,000 297,500 1,000,000 297,500
0.00%, 09/01/15
Los Angeles Convention & Exhibition Center, 9.00%, 12/01/05 5,000 6,506 5,000 6,506
(Pre-refunded)
Los Angeles Department of Water & Power, 7.625%, 8/1/97 20,000 21,072 20,000 21,072
(Pre-refunded)
Los Angeles Department of Water & Power, 9.0%, 09/01/04 500,000 627,500 500,000 627,500
Los Angeles Harbor Department Revenue, 7.60%, 10/01/18, 205,000 250,100 205,000 250,100
(Escrowed to Maturity)
Los Angeles State Building Authority, 7.5%, 03/01/11 (Pre-refunded) 5,000 5,300 5,000 5,300
Los Angeles Waste Water System Revenue (NC) (MBIA Insured), 8.80%, 500,000 569,375 500,000 569,375
06/01/00
Lynwood CA Uni Sch Dist , 7.2%, 11/01/98 250,000 259,913 250,000 259,913
M S R Pub Pwr Agy CA San Juan , 6.7%, 07/01/2002 2,000,000 2,044,300 2,000,000 2,044,300
Marysville CA Hosp Rev , 6%, 01/01/2004 375,000 401,948 375,000 401,948
Midpeninsula Regl Open Space , 4.75%, 09/01/99 360,000 364,291 360,000 364,291
Midpeninsula Regl Open Space , 4.8%, 09/01/2000 460,000 464,899 460,000 464,899
Midpeninsula Regl Open Space , 7.2%, 09/01/2000 200,000 219,170 200,000 219,170
Morgan Hill CA Uni Sch Dist , 4.7%, 08/01/98 1,230,000 1,241,722 1,230,000 1,241,722
Morgan Hill CA Uni Sch Dist , 4.8%, 08/01/99 1,000,000 1,012,550 1,000,000 1,012,550
Morgan Hill CA Uni Sch Dist , 5%, 08/01/2000 835,000 848,644 835,000 848,644
Morgan Hill California Redevelopment Agency (FHA Insured), 6.45%, 1,000,000 1,033,750 1,000,000 1,033,750
12/01/27
Mountain View CA Shoreline Pk , 4.7%, 08/01/99 660,000 666,851 660,000 666,851
National City CA Commn Tax All, 5.7%, 08/01/99 810,000 842,036 810,000 842,036
National City CA Commn Tax All, 5.9%, 08/01/2000 500,000 527,305 500,000 527,305
New Haven CA Uni Sch Dist , 7.3%, 12/01/2001 330,000 349,473 330,000 349,473
New Haven CA Uni Sch Dist, 7.3%, 12/01/2002 355,000 374,880 355,000 374,880
New Haven CA Uni Sch Dist, 7.4%, 12/01/2003 380,000 400,999 380,000 400,999
New Haven CA Uni Sch Dist, 7.4%, 12/01/2004 410,000 431,890 410,000 431,890
Northern California Power Agency (NC), 5.65%, 7/01/97 700,000 716,625 700,000 716,625
Oakland Redevelopment Agency(AMBAC insured), 7.40%, 05/01/07 100,000 105,625 100,000 105,625
Ontario CA Indl Dev Auth Rev , 7.75%, 09/01/2020 930,000 941,216 930,000 941,216
Orange CA Multifamily Rev , 5.6%, 10/01/2027 1,000,000 1,016,870 1,000,000 1,016,870
Orange Cnty CA Loc Transn Tax , 2.6%, 02/15/99 1,000,000 970,350 1,000,000 970,350
Orange Cnty CA Loc Transn Tax , 5.5%, 02/15/2001 900,000 934,155 900,000 934,155
Orange Cnty CA Loc Transn Tax , 5.75%, 02/15/2004 1,050,000 1,112,108 1,050,000 1,112,108
Orange Cnty CA Loc Transn Tax , 5.7%, 02/15/2003 1,550,000 1,636,351 1,550,000 1,636,351
Orange Cnty CA Loc Transn Tax , 6%, 02/15/2006 510,000 548,117 510,000 548,117
Orange Cnty CA Recovery, 5.5%, 07/01/2002 2,000,000 2,090,440 2,000,000 2,090,440
Orange Cnty CA Var Santn Dists, 5%, 08/01/2015 200,000 200,000 200,000 200,000
Orange Cnty CA , 5.1%, 06/01/2002 1,100,000 1,130,360 1,100,000 1,130,360
Orange Cnty CA , 5.2%, 06/01/2003 1,000,000 1,034,150 1,000,000 1,034,150
Orange Cnty CA , 6.5%, 06/01/2004 2,000,000 2,224,460 2,000,000 2,224,460
Orange Cnty CA , 6.5%, 06/01/2005 2,000,000 2,234,520 2,000,000 2,234,520
Oxnard CA Hbr Dist , 6.6%, 08/01/2000 1,175,000 1,235,172 1,175,000 1,235,172
Oxnard CA Indl Dev Fin Auth , 9.5%, 10/01/97 300,000 302,946 300,000 302,946
Palomar Pomerado California Health System (NC), 0.00%, 11/02/03 500,000 360,000 500,000 360,000
Paramount CA Uni Sch Dist, 0.0%, 09/01/2014 510,000 406,496 510,000 406,496
Perris CA Sch Dist Ctfs Partn , 5.1%, 03/01/2000 100,000 102,518 100,000 102,518
Perris California High School Dist Cert of Part, 5.85%, 09/01/11 2,000,000 1,970,000 2,000,000 1,970,000
Piedmont Unified School District (GO), 0.00%, 08/01/13 1,000,000 378,750 1,000,000 378,750
Puerto Rico Commonweatlh (GO) (NC), 0.00% 7/01/04 500,000 343,125 500,000 343,125
Puerto Rico Educational Facility (Polytechnic University), 5.7%, 250,000 235,000 250,000 235,000
08/01/2013
Rancho Cucamonga Redev. Agency (FDIC Insured), 7.7%, 05/01/98 35,000 36,750 35,000 36,750
(Pre-refunded)
Redwood City CA Mlt Fam Hsg , 5.2%, 10/01/2008 980,000 979,922 980,000 979,922
Richmond California Joint Powers Financing Authority Revenue, 500,000 502,500 500,000 502,500
5.20%, 05/15/05
Riverside Cnty CA Hsg Auth Rev, 7.75%, 10/01/2000 465,000 477,820 465,000 477,820
Sacramento CA City Fing Auth , 6.3%, 11/01/2002 295,000 318,237 295,000 318,237
Sacramento CA Regl Tran Dist , 6%, 03/01/99 1,000,000 1,034,530 1,000,000 1,034,530
Sacramento CA Regl Tran Dist , 6.25%, 03/01/2001 1,000,000 1,061,450 1,000,000 1,061,450
Sacramento CA Util Dist Elec , 6.6%, 02/01/97 550,000 551,337 550,000 551,337
Sacramento Cnty CA Mlt Fam Hsg, 5.875%, 02/01/2008 940,000 954,918 940,000 954,918
Salinas California Redevelopment Agency(CGIC Insured), 0.00%, 2,000,000 442,500 2,000,000 442,500
11/01/22
San Diego Cnty CA Trans Commn , 6.125%, 04/01/98 450,000 463,568 450,000 463,568
San Diego Industrial Rev (San Diego Gas & Elec), 7.875%, 08/01/97 35,000 36,592 35,000 36,592
(Pre-refunded)
San Francisco CA City + Cnty , 0.0%, 07/01/2000 255,000 216,584 255,000 216,584
San Francisco CA City + Cnty , 6.125%, 07/01/2002 225,000 225,405 225,000 225,405
San Jacinto CA Indl Dev Auth , 7.2%, 06/01/98 400,000 417,948 400,000 417,948
San Joaquin Cnty CA Partn, 5.25%, 09/01/98 2,000,000 2,019,220 2,000,000 2,019,220
San Joaquin Cnty CA Partn, 5.6%, 09/01/2000 1,440,000 1,465,128 1,440,000 1,465,128
San Joaquin Cnty CA Partn, 5.9%, 09/01/2003 895,000 922,074 895,000 922,074
San Marcos CA Pub Facs Auth , 0.0%, 01/01/2000 410,000 358,340 410,000 358,340
San Marcos CA Pub Facs Auth , 0.0%, 01/01/99 1,310,000 1,201,964 1,310,000 1,201,964
Santa Ana CA Cmnty Redev Agy , 6.5%, 12/15/2014 440,000 464,644 440,000 464,644
Santa Ana CA Cmnty Redev Agy , 7.1%, 09/01/98 500,000 513,550 500,000 513,550
Santa Clara Certificate of Participation (NC) (MBIA Insured), 500,000 571,875 500,000 571,875
7.75%, 02/01/02
Santa Clara Electric Revenue, 7.80%, 07/01/10 35,000 36,064 35,000 36,064
Santa Cruz Hospital Revenue (Dominican), 7.00%, 12/01/13 100,000 103,308 100,000 103,308
Santa Monica CA Cmnty College , 7.65%, 05/01/2001 315,000 323,146 315,000 323,146
Santa Rosa Insured Revenue (Episcopal Homes) (CA Mrtg Ins), 250,000 255,515 250,000 255,515
7.125%, 06/01/14
Sata Clara Cnty Cert. of Part. (Amer. Baptist Homes), 8.00%, 20,000 21,300 20,000 21,300
03/01/98 (Pre-refunded)
Snowline Joint Unified School District Certificate of Participation, 750,000 793,125 750,000 793,125
7.25%, 04/01/18
Sonoma Cnty CA Ctfs Partn , 5.4%, 08/01/2000 810,000 837,095 810,000 837,095
Sonoma Cnty CA Ctfs Partn , 5.8%, 08/01/2003 950,000 988,637 950,000 988,637
South Coast Air Quality Mgmt , 9.75%, 08/01/98 150,000 163,607 150,000 163,607
South Orange Cnty CA Pub Fing , 7%, 09/01/2005 1,435,000 1,646,691 1,435,000 1,646,691
Southern California Public Power Authority (NC), 0.00%, 07/01/15 2,000,000 672,500 2,000,000 672,500
Stanislaus CA Waste , 7.2%, 01/01/97 700,000 700,000 700,000 700,000
Stanislaus CA Waste , 7.3%, 01/01/98 250,000 255,885 250,000 255,885
Suisun City CA Redev Tax Alloc, 7.2%, 10/01/2001 340,000 377,199 340,000 377,199
Sulphur Springs CA Un Sch Dist, 5.7%, 03/01/2001 500,000 523,500 500,000 523,500
Sunline Trans Agy CA , 5.5%, 07/01/2002 450,000 466,169 450,000 466,169
Sweetwater CA Un High Sch , 6.4%, 11/01/2001 900,000 949,680 900,000 949,680
Temecula CA Cmnty Svcs Dist , 6%, 10/01/2000 210,000 219,929 210,000 219,929
Temecula CA Cmnty Svcs Dist , 6%, 10/01/98 190,000 195,827 190,000 195,827
Temecula CA Cmnty Svcs Dist , 6%, 10/01/99 200,000 208,398 200,000 208,398
Torrence CA Uni Sch Dist , 6.1%, 10/01/2000 255,000 259,883 255,000 259,883
Tracy Certificate of Participation (I-205 Improvement), 7.00%, 1,000,000 1,037,500 1,000,000 1,037,500
10/01/27
Trinity Cnty CA Pub Utils Dist, 5.25%, 04/01/98 275,000 276,694 275,000 276,694
Trinity Cnty CA Pub Utils Dist, 5.5%, 04/01/99 290,000 292,474 290,000 292,474
Turlock CA Irr Dist Ctfs Partn, 6.8%, 01/01/2000 750,000 788,370 750,000 788,370
Turlock CA Irr Dist Ctfs Partn, 7%, 01/01/2001 365,000 384,382 365,000 384,382
Turlock CA Irr Dist Ctfs Partn, 7.15%, 01/01/2003 420,000 442,919 420,000 442,919
University CA Ctfs Partn , 5.45%, 06/01/2003 1,600,000 1,673,040 1,600,000 1,673,040
University CA Revs , 11%, 09/01/98 635,000 703,948 635,000 703,948
University CA Revs , 5.25%, 09/01/2002 870,000 887,261 870,000 887,261
University of California Housing Sys. Rev (NC) (MBIA Insured), 500,000 563,125 500,000 563,125
8.00%, 11/01/00
Vallejo CA Pub Fin Auth , 5%, 09/02/98 625,000 631,038 625,000 631,038
Walnut Valley USD (MBIA Insured) (GO) (NC), 8.75%, 08/01/10 1,000,000 1,328,750 1,000,000 1,328,750
Walnut Valley USD (MBIA Insured) (GO) (NC), 9.00%, 08/01/06 800,000 1, 043,000 800,000 1,043,000
Yorba Linda CA Ctfs , 7%, 11/01/2000 495,000 513,726 495,000 513,726
Yuba City Unified Sch Dist Cert. of Part. (Andros Karperos Sch), 650,000 661,375 650,000 661,375
6.70%, 02/01/13 ---------- ---------- ---------- ---------- ----------- -----------
Total Investments (cost $ 126,810,766) $96,210,570 98,959,644 36,910,000 31,604,986 133,120,570 130,464,630
=========== ========== ========== ========== =========== ===========
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
<PAGE>
<TABLE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC. - CALIFORNIA PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(Unaudited)
Thornburg Mackenzie Pro Forma Pro Forma
California California Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value
(Cost-Thornburg $96,725,034;
Mackenzie $30,085,732) $ 98,959,644 $ 31,504,986 $ $130,464,630
Cash 66,640 204,997 271,637
Interest receivable 1,717,918 545,656 2,263,574
Other 72,828 23,390 96,218
----------- ----------- ----------- ------------
Total assets 100,817,030 32,279,029 133,096,059
---------------------------------------------------
LIABILITIES
Payable for securities
purchased 2,719,666 2,719,666
Dividends payable 124,784 124,784
Accrued expenses and other 85,635 19,436 105,071
Accounts payable investment adviser 62,055 15,140 77,195
---------- --------- ----------- ------------
Total liabilities 2,992,140 34,576 3,026,716
--------------------------------------------------
NET ASSETS $97,824,890 $32,244,453 $ $130,069,343
=========== =========== ========== ============
Net assets consist of:
Paid-in capital $96,513,092 $30,897,971 $ $127,411,063
Accumulated net realized loss (922,812) (21,634) (944,446)
Distribution in excess of net
investment income (51,138) (51,138)
Net unrealized appreciation 2,234,610 1,419,254 3,653,864
---------- ---------- ---------- -----------
$97,824,890 $32,244,453 $ 0 $130,069,343
===================================================
Class A Shares:
Net assets applicable to class $93,941,397 $31,013,307 $1,231,146 $126,185,850
Fund shares outstanding 7,371,948 3,044,330(3h) 2,530,962 12,947,240
Net asset value per share 12.74 10.19 22.93
Class B Shares:
Net assets applicable to class $ $ 1,231,146 $(1,231,146) $
Fund shares outstanding 120,835 (120,835)
Net asset value per share 10.19
Class C Shares:
Net assets applicable to class $ 3,883,493 $ $ $3,883,493
Fund shares outstanding 304,492 304,492
Net asset value per share 12.75 12.75
See Notes to Pro Forma Financial Statements.
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC. - CALIFORNIA PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(Unaudited)
Thornburg Mackenzie Pro Forma Pro Forma
California California Adjustments Combined
---------- ---------- ----------- ---------
INVESTMENT INCOME
Interest income
(net of premium amortized) $5,469,751 $2,152,741 $ $7,622,492
EXPENSES
Investment advisory fees 618,182 191,298(3a) 27,716 837,196
Distribution and service fees:
Class A Shares 179,950 84,078(3b) 2,894 266,922
Class B Shares 11,577(3b) (11,577)
Class C Shares 14,608 14,608
Administration fees:
Class A Shares 59,576 33,625(3c) 4,185 97,386
Class B Shares 1,157(3c) (1,157)
Class C Shares 1,948 1,948
Transfer agent fees 69,381 28,030 97,411
Custodian fees 63,397 4,230 67,627
Professional fees 17,747 28,764(3d) (20,000) 26,511
Accounting fees 16,242 46,227(3e) (40,500) 21,969
Other 21,065 33,272(3f) (5,000) 49,337
--------- ------- -------- ---------
Total expenses 1,062,096 462,258 (43,439) 1,480,915
Less:
Expenses reimbursed by
investment adviser (63,883) (68,323)(3g) (43,548) (175,754)
Fees paid indirectly (2,572) (2,572)
-----------------------------------------------
Net expenses 998,213 391,363 (86,987) 1,302,589
-----------------------------------------------
Net investment income 4,471,538 1,761,378 86,987 6,319,903
Realized and unrealized gain
on investments
Net realized gain (loss)
on investments sold (18,441) 685,425 666,984
Increase in unrealized
appreciation (depreciation)
of investments (335,740) (1,386,643) (1,722,383)
-----------------------------------------------
NET realized and unrealized
gain (loss) on investments (354,181) (701,218) (1,055,399)
Net increase in net assets
resulting from operations $4,117,357 $1,060,160 $86,987 $5,264,504
===============================================
See Notes to Pro Forma Financial Statements.
</TABLE>
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC. - CALIFORNIA PORTFOLIO
NOTES TO PRO FORMA FINANCIAL STATEMENTS
- -------------------------------------------------------------------
Note 1. Basis Presentation
The pro forma financial statements give effect to the proposed
combination of Thornburg Limited Term Municipal Fund, Inc. -
California Portfolio (Thornburg) and MacKenzie California
Municipal Fund series of MacKenzie Series Trust (MacKenzie),
pursuant to a Plan of Reorganization, under which all the assets
of MacKenzie will be transferred to Thornburg in exchange solely
for Thornburg shares and the assumption of all the liabilities
of MacKenzie as of the "closing date".
The Reorganization will be accounted for as a tax free business
combination. In accordance with the method of accounting for
such combinations of investment companies, the historical cost
basis of the investment securities acquired from MacKenzie will
be carried forward to Thornburg, and the statements of
operations, changes in net assets and the financial highlights
are not restated. The number of Thornburg shares to be issued
in the combination will be determined by dividing the value of
the total net assets of MacKenzie on the closing date by the net
asset value per share of Thornburg.
(b) The pro forma statement of operations, excludes by,
adjustment certain expenses which would have been eliminated
upon the effectiveness of the proposed combination; and reflects
adjustments for expense waiver and/or reimbursement provisions
effective following the Reorganization. The pro forma statement
of operations does not necessarily reflect the result of
operations as they would have been had Thornburg and MacKenzie
constituted a single entity during the 12 months ended December 31, 1996.
(c) The pro forma portfolio of investments, the pro forma
statement of operation and the pro forma statement of assets and
liabilities should be read in conjunction with the historical
financial statements of Thornburg and MacKenzie.
Note 2. Significant Accounting Policies
Significant accounting policies of the Fund are as follows:
Valuation of Investments: In determining the net asset value of
the portfolio, the Fund utilizes an independent pricing service
approved by the Board of Directors. Debt investment securities
have a primary market over the counter and are valued on the
basis of valuations furnished by the pricing service. The
pricing service values portfolio securities at quoted bid prices
or the yield equivalents when quotations are not readily
available. Securities for which quotations are not readily
available are valued at fair value as determined by the pricing
service using methods which include consideration of yields or
prices of municipal obligations of comparable quality; type of
issue, coupon, maturity and rating; indications as to value from
dealers, and general market conditions. The valuation
procedures used by the pricing service and the portfolio
valuations received by the Portfolio are reviewed by the
officers of the Fund under the general supervision of the Board
of Directors. Short term obligations having remaining
maturities of 60 days or less are valued at amortized cost,
which approximates market value.
Federal Income Taxes: It is the policy of the Fund to comply
with the provisions of the Internal Revenue Code applicable to
"regulated investment companies" and to distribute all of its
taxable (if any) and tax-exempt income to its shareholders.
Therefore, no provision for Federal Income tax is required.
<PAGE>
Note 2. Significant Accounting Policies (Continued)
When-issued and Delayed Delivery Transactions: The Fund may
engage in when-issued or delayed delivery transactions. To the
extent the Fund engages in such transactions, it will do so for
the purpose of acquiring portfolio securities consistent with
its investment objectives and not for the purpose of investment
leverage or to speculate on interest-rate changes. At the time
the Fund makes a commitment to purchase a security for the
portfolio on a when-issued basis, it will record the transaction
and reflect the value in determining its net asset value. When
effecting such transactions, assets of the Fund of an amount
sufficient to make payment for the portfolio securities to be
purchased will be segregated on the Fund's records on the trade
date. Securities purchased on a when-issued or delayed delivery
basis do not earn interest until the settlement date.
Dividends: Net investment income of the Fund is declared daily
as a dividend on shares for which the Fund has received payment.
Dividends are paid monthly and are reinvested in additional
shares of the Fund at 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 capital gains, to the extent
available, will be distributed annually.
General: Securities transactions are accounted for on a
trade-date basis. Interest income is accrued as earned.
Premiums and original-issue discounts on securities purchased
are amortized to call dates or maturity dates of the respective
securities. Realized gains and losses from the sale of
securities are recorded on an identified cost basis.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases
and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
Fees Paid Indirectly: Mackenzie has an arrangement whereby a
certain percentage of quarterly cumulative credits resulting
from cash balances on deposit with the custodian are used to
offset custody fees, including transaction and out-of -pocket
expenses.
Note 3. Details of Pro Forma Adjustments
(a) Investment Advisory Fees - To reflect the pro forma investment
advisory fee.
(b) Distribution and service fees - To reflect the pro forma distribution
and service fees.
(c) Administration fees - To reflect the pro forma administrative fee.
(d) Professional fees - Elimination of duplicative expenses.
(e) Accounting fees - Elimination of duplicative expenses.
(f) Other - Elimination of duplicative trustees fees.
(g) Expenses reimbursed by investment adviser - To reflect Thornburg's
expense reimbursement on the pro forma combined average net assets.
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Note 3. Details of Pro Forma Adjustments (continued)
(g) Shares Outstanding - Class A shares of Thornburg issued in
exchange for the net assets of Mackenzie
