As Filed with the Securities and Exchange Commission
June 25, 1996
1933 Act Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ Post-Effective Amendment No. ___
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
- --------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
119 East Marcy Street, Suite 202, Santa Fe, NM 87501
- ---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Area Code and Telephone Number: (505) 984-0200
--------------
H. Garrett Thornburg, Jr.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
- ---------------------------------------
(Name and Address of Agent for Service)
Charles W. N. Thompson, Jr.
White, Koch, Kelly & McCarthy, P. A.
Post Office Box 787
Santa Fe, New Mexico 87504-0787
- ------------------------------------
(Copies of all Correspondence)
Approximate date of proposed public offering: As soon as possible
after this Registration Statement becomes effective.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24(f) under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant
filed the notice required by Rule 24f-2 with respect to its most recent
fiscal year on August 26, 1996.
- ---------------------------------------------------------------------------
It is proposed that this filing will become effective on July 25,
1997, pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
EXPLANATORY NOTE
The Registrant is filing as portions of this Registration Statement two
combined Prospectus/Proxy Statements, which relate respectively to two of
its separate series, THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL
PORTFOLIO and THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO.
Accordingly, this Registration Statement is organized as follows:
- Cross Reference Sheet with respect to Thornburg Limited Term
Municipal Fund National Portfolio
- Cross Reference Sheet with respect to Thornburg Limited Term
Municipal Fund California Portfolio
- Letter to Shareholders of Mackenzie Limited Term Municipal Fund
- Letter to Shareholders of Mackenzie California Municipal Fund
- Supplemental Letter to Mackenzie Shareholders
- Notice of Special Meeting of Shareholders of Mackenzie Limited
Term Municipal Fund
- Notice of Special Meeting of Shareholders of Mackenzie
California Municipal Fund
- Prospectus/Proxy Statement respecting the proposed acquisition
of substantially all of the assets of Mackenzie Limited Term
Municipal Fund by Thornburg Limited Term Municipal Fund
National Portfolio (together with Exhibits A and B)
- Prospectus/Proxy Statement respecting the proposed acquisition
of substantially all of the assets of Mackenzie California
Municipal Fund by Thornburg Limited Term Municipal Fund
California Portfolio (together with Exhibits A and B)
- Statement of Additional Information relating to the acquisition
of the assets of Mackenzie Limited Term Municipal Fund
- Statement of Additional Information relating to the acquisition
of the assets of Mackenzie California Municipal Fund
- Part C Information
- Exhibits
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
(Thornburg Limited Term Municipal Fund National Portfolio)
Form N-14 Cross Reference Sheet
Part A. Prospectus/Proxy Statement
Item No. and Caption Statement Caption
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Summary of the Proposed
Risk Factors Reorganization; Principal
Risk Factors; Comparative
Fee Table; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Purchase,
Redemption and Exchange
Procedures of Mackenzie
and Thornburg Funds;
Comparative Information on
Shareholder Rights
4. Information About the Transaction Summary of the Proposed
Reorganization;
Information About the
Reorganization
5. Information About the Registrant Summary of the Proposed
Reorganization; Investment
Advisers and Distributors
of Mackenzie and Thornburg
Funds; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Principal Risk
Factors; Fees and Expenses
of Mackenzie and Thornburg
Thornburg Funds;
Comparative Fee Table;
Purchase, Redemption and
Exchange Procedures for
Mackenzie and Thornburg
Funds; Dividend Policies
of the Mackenzie and
Thornburg Funds;
Comparative Information on
Shareholder Rights;
Additional Information
About Mackenzie and
Thornburg Funds.
6. Information About the Company Summary of the Proposed
Being Acquired Reorganization; Investment
Advisers and Distributors
of Mackenzie and Thornburg
Funds; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Principal Risk
Factors; Fees and Expenses
of Mackenzie and Thornburg
Funds; Comparative Fee
Table; Purchase,
Redemption and Exchange
Procedures of Mackenzie
and Thornburg Funds;
Dividend Policies of
Mackenzie and Thornburg
Funds; Comparative
Information on Shareholder
Rights; Additional
Information about
Mackenzie and Thornburg
Funds.
7. Voting Information Information About the
Reorganization; Voting
Information
8. Interest of Certain Not Applicable
Persons and Experts
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
Part B. Statement of Additional
Item No. and Caption Information Caption
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About Registrant Statement of Additional
Information of Thornburg
Limited Term Municipal
Fund, Inc., November 1,
1996, as revised
May 6, 1997.
13. Additional Information About the Company Statement of Additional
Being Acquired Information of Mackenzie
Series Trust, dated
October 25, 1996.
14. Financial Statements Annual Report of Thornburg
Limited Term Municipal
Fund National Portfolio,
June 30, 1996; Semiannual
Report of Thornburg
Limited Term Municipal
Fund National Portfolio,
December 31, 1996;
Annual Report of Mackenzie
Limited Term Municipal
Fund, June 30, 1996;
Semiannual Report of
Mackenzie Limited Term
Municipal Fund,
December 31, 1996.
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
(Thornburg Limited Term Municipal Fund California Portfolio)
Form N-14 Cross Reference Sheet
Part A. Prospectus/Proxy Statement
Item No. and Caption Statement Caption
1. Beginning of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Summary of the Proposed
Risk Factors Reorganization; Principal
Risk Factors; Comparative
Fee Table; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Comparative
Information on Shareholder
Rights
4. Information About the Transaction Summary of the Proposed
Reorganization;
Information About the
Reorganization
5. Information About the Registrant Summary of the Proposed
Reorganization; Investment
Advisers and Distributors
of Mackenzie and Thornburg
Funds; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Principal Risk
Factors; Fees and Expenses
of Mackenzie and Thornburg
Funds; Comparative Fee
Table; Purchase,
Redemption and Exchange
Procedures for the
Mackenzie and Thornburg
Funds; Dividend Policies
of Mackenzie and
Thornburg Funds;
Comparative Information on
Shareholder Rights;
Additional Information
About Mackenzie and
Thornburg Funds.
6. Information About the Company Summary of the Proposed
Being Acquired Reorganization; Investment
Advisers and Distributors
of Mackenzie and Thornburg
Funds; Comparison of
Investment Objectives,
Policies and Restrictions
of Mackenzie and Thornburg
Funds; Principal Risk
Factors; Fees and Expenses
of Mackenzie and Thornburg
Funds; Comparative Fee
Table; Purchase,
Redemption and Exchange
Procedures of Mackenzie
and Thornburg Funds;
Dividend Policies of
Mackenzie and Thornburg
Funds; Comparative
Information on Shareholder
Rights; Additional
Information about
Mackenzie and Thornburg
Funds.
7. Voting Information Information About the
Reorganization; Voting
Information
8. Interest of Certain Not Applicable
Persons and Experts
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
Part B. Statement of Additional
Item No. and Caption Information Caption
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About Registrant Statement of Additional
Information of Thornburg
Limited Term Municipal
Fund, Inc., November 1,
1996, as revised
May 6, 1997.
13. Additional Information About the Company Statement of Additional
Being Acquired Information of Mackenzie
Series Trust, dated
October 25, 1996.
14. Financial Statements Annual Report of Thornburg
Limited Term Municipal
Fund California Portfolio,
June 30, 1996; Semiannual
Report of Thornburg
Limited Term Municipal
Fund California Portfolio,
December 31, 1996;
Annual Report of Mackenzie
California Municipal Fund,
June 30, 1996; Semiannual
Report of Mackenzie
California Municipal Fund,
December 31, 1996.
Pro forma financial
statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
MACKENZIE SERIES TRUST
(Mackenzie Limited Term Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Date:____________________
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 ________________, 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,
________________________________________
President and Trustee
Mackenzie Series Trust
<PAGE>
MACKENZIE SERIES TRUST
(Mackenzie California Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Date:____________________
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 ________________, 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,
________________________________________
President and Trustee
Mackenzie Series Trust
<PAGE>
[MACKENZIE LETTERHEAD]
Dear Shareholder:
WHY IS A SHAREHOLDER MEETING BEING HELD?
Shareholders are being asked to vote on reorganizations of certain
Mackenzie Funds into certain Thornburg Funds which pursue similar
investment objectives.
HOW WILL THIS REORGANIZATION AFFECT CURRENT MACKENZIE SHAREHOLDERS?
Assuming shareholders of the affected Mackenzie Funds approve the
reorganizations, the assets of each of these funds will be combined with
those of the appropriate Thornburg Fund. You will receive Class A shares
of the appropriate Thornburg Fund regardless of the class(es) of Mackenzie
Fund shares you own. The Thornburg Fund shares you receive will be equal
in dollar value, at the time of their issuance, to the shares of your
Mackenzie Fund. 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 Portfolio, Intermediate Municipal Fund and Limited
Term California Portfolio 5 stars overall. These overall ratings are an
average of Morningstar's historical ratings for the Funds. The table below
shows historical Morningstar ratings for the Class A shares of each Fund as
of March 31, 1997.
<PAGE>
<TABLE>
3 year 5 year 10 year
-------- -------- ---------
<S> <C> <C> <C> <C>
Category
Number of Funds [in category during the period] 1,237 601 267 --------------
Thornburg Limited Term Municipal - National 4 stars 5 stars 5 stars Muni Short
Thornburg Intermediate Municipal Fund 5 stars 5 stars - Muni Natl Long
Thornburg Limited Term Municipal - California 4 stars 5 stars 5 stars Muni Short
SOURCE: MORNINGSTAR Advanced Analytics for Principia, 3/31/97.
Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 3/31/97. 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.
Average annual total returns for each fund, which reflect the
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 3/31/97
are as follows: Thornburg Limited Term Municipal - National,
1.56%, 5.07%, 5,89%; Thornburg Intermediate Municipal Fund,
1.52%, 6.39%, 6.63% (since 7/22/91 inception); and Thornburg
Limited Term - California, 1.65%, 4.87%, 5.81%.
WILL SHAREHOLDERS HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER
TRANSACTION FEE IN CONNECTION WITH THE REORGANIZATION?
No, Mackenzie Shareholders will not pay any sales charge. The costs
associated with the reorganization will be borne by MIMI and TMC.
WHO ADVISES THORNBURG FUNDS AND PROVIDES OTHER SERVICES?
Thornburg Management Company, Inc. ("TMC") 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,
and Thornburg Securities Corporation is the distributor of the Thornburg
Funds.
HOW DO ADVISORY FEES AND OTHER OPERATING COSTS CURRENTLY PAID BY THE
MACKENZIE FUNDS DIFFER FROM THOSE PAID BY THE THORNBURG FUNDS?
With one exception, the current advisory fees and other operating
costs of each Thornburg Fund are lower than those of the corresponding
Mackenzie Fund. That exception, Thornburg Limited Term Municipal Fund
National Portfolio, has similar but slightly higher costs than Mackenzie
Limited Term Municipal Fund. Current fees and costs may assume fee waivers
or expense reimbursements by TMC or MIMI. Please see the Prospectus/Proxy
Statements.
WHAT WILL EXISTING MACKENZIE SHAREHOLDERS DO TO OPEN A THORNBURG FUND
ACCOUNT?
At the time the reorganization is completed, a shareholder's interest
in a Mackenzie Fund will automatically be transferred to the appropriate
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 THE MACKENZIE FUND BEFORE THE
REORGANIZATION TAKES PLACE?
A shareholder may choose to redeem or exchange his or her shares of a
Mackenzie Fund before 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 unless the account is not subject
to taxes.
WHERE SHOULD SHAREHOLDERS CALL FOR INFORMATION?
Shareholders who want to learn more about Thornburg Funds should call
800-847-0200 or visit Thornburg's website at www.thornburg.com.
<PAGE>
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>
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>
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 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>
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>
PROXY STATEMENT AND PROSPECTUS
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, FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY GOVERNMENTAL AGENCY.
The date of this prospectus/proxy statement is _________________,
1997.
<PAGE>
TABLE OF CONTENTS
Summary of the Proposed Reorganization
Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund
Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund
Principal Risk Factors
Fees and Expenses of Mackenzie Fund and Thornburg Fund
Performance Information
Purchase, Redemption and Exchange Procedures of Mackenzie Fund and
Thornburg Fund
Dividend Policies of Mackenzie Fund and Thornburg Fund
Comparative Information About Shareholder Rights
Additional Information About Shareholder Accounts
Information About the Reorganization
Capitalization
Additional Information About Thornburg Fund and Mackenzie Fund
Voting Information
Exhibit A: Plan and Agreement of Reorganization
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>
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 voting securities of the
Class A shares of Mackenzie Fund and a majority of the outstanding voting
securities of the Class B shares of Mackenzie Fund.
At or about the same time that 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, none of the contemplated transactions will be effected and the
Board of Trustees of Mackenzie Fund will consider the alternatives
available to it with respect to Mackenzie Fund. See "Voting Information."
The Trustees of Mackenzie Trust have approved the reorganization
because they believe it would benefit Mackenzie Fund through Thornburg'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 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 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 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 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 the Funds Invest In
- ------------------------------
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 obligations, 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
obligations. 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.
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
("S&P"), (iii) municipal bonds rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by S&P, (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 S&P, 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 obligations 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.
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.
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 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 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, 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 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, applicable to its
Class A shares, under which Class A shareholders pay a 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 .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>
<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>
<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, 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.
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.
Mackenzie Fund Thornburg Fund
Class A Class B Class A
--------------- --------------- ----------------
Before After Before After Before After
Expense Expense Expense Expense Expense Expense
Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
------- ------- ------- ------- ------- -------
Yield for 30 days
ended June 30, 1997
Average annual total return
for following periods
ending on June 30, 1997
One Year
Five Years
Ten Years
Since Inception
(April 22, 1985 and
April 1, 1994 for
Class A and Class B
shares, respectively,
of Mackenzie Fund;
and September ___, 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. Yield or 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>
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.
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.
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 0%
thereafter
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.
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 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.
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 dollar 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 and proxy statement as
Exhibit A.
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 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 $__________ in two
installments, subject to adjustment for redemptions of shares issued in the
reorganization, 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 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
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 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.
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.
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>
CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 1996
<CAPTION>
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 _____________ 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.
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 D. F. King & Co. to assist in soliciting proxies for
the meeting at an estimated cost of $6,000.
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 ______
Class A shares and ______ 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 the same date, there were ______ outstanding shares of Thornburg
Fund. As of the same date, no persons were known to own more than 5% of
that 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.
"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 in 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>
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 President or Vice President 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
_________________________ By:__________________________________________
_______________ __________________, _________________
Attest: MACKENZIE SERIES TRUST on behalf of MACKENZIE
LIMITED TERM MUNICIPAL FUND
_________________________ By:__________________________________________
_______________ __________________, _________________
<PAGE>
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>
EXHIBIT B
THORNBURG
MUNICIPAL FUNDS
Thornburg Limited Term Municipal Fund National Portfolio
Thornburg Limited Term Municipal Fund California Portfolio
Thornburg Intermediate Municipal Fund
Thornburg Florida Intermediate Municipal Fund
Thornburg New Mexico Intermediate Municipal Fund
PROSPECTUS
February 1, 1997
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
THORNBURG MUNICIPAL FUNDS
Prospectus
February 1, 1997
The Thornburg Municipal Funds are separate investment portfolios ("Funds")
offered through this combined prospectus by Thornburg Limited Term
Municipal Fund, Inc. and Thornburg Investment Trust.
All of the Funds are managed by Thornburg Management Company, Inc. (TMC).
Each of the active Funds offers Class A shares through this Prospectus,
which are sold at net asset value plus an initial sales charge imposed at
the time of sale. Limited Term National Fund, Limited California Fund and
Intermediate National Fund also offer Class C shares through this
Prospectus, sold without an initial sales charge but subject to a sales
charge if redeemed within one year of purchase and an annual distribution
fee. One or more Funds may offer other classes of shares. See "Your
Account-Buying Fund Shares," beginning on page 18.
Each Fund has the objective of providing, through investment in a
professionally managed portfolio of Municipal Obligations, as high a level
of current income exempt from federal income tax as is consistent, in the
view of the Funds' investment adviser, with preservation of capital.
Each of the Funds having a state's name will invest primarily in Municipal
Obligations of the state having the same name, with the objective of having
interest dividends paid to its state's shareholders exempt from any
individual income taxes imposed by that state. Each of the Limited Term
Funds will maintain a portfolio having a dollar-weighted average maturity
of normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. Each of the
Intermediate Funds will maintain a portfolio having a dollar-weighted
average maturity of normally three to ten years, with the objective of
reducing fluctuations in net asset value relative to long-term municipal
bond portfolios. The Intermediate Funds will expect lower yields than those
received on long term bond portfolios, while seeking higher yields and
expecting higher share price volatility than the Limited Term Funds. During
temporary periods the portfolio maturity of the Intermediate Funds may be
reduced for defensive purposes. There is no limitation on the maturity of
any specific security a Fund may purchase, subject to the limitation on the
average maturity of each Fund. There can be no assurance that the Funds'
respective objectives will be achieved.
This Prospectus sets forth concisely the information a prospective investor
should know about the Funds before investing. It should be read and
retained for further reference. Additional information about the Limited
Term Funds is contained in a Statement of Additional Information -
Thornburg Limited Term Municipal Funds dated November 1, 1996, and
additional information about the Intermediate Funds is contained in a
Statement of Additional Information - Thornburg Intermediate Municipal
Funds dated February 1, 1997. Each of these Statements of Additional
Information has been filed with the Securities and Exchange Commission and
may be obtained at no charge by contacting Thornburg Securities
Corporation, 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501,
800-847-0200. This Prospectus incorporates by reference both Statements of
Additional Information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES INVOLVE INVESTMENT RISKS (INCLUDING POSSIBLE LOSS OF
PRINCIPAL), AND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, AND ARE NOT INSURED BY, ANY BANK, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY.
<PAGE>
LIMITED TERM MUNICIPAL FUNDS
(series of Thornburg Limited Term Municipal Fund, Inc.):
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
INTERMEDIATE TERM MUNICIPAL FUNDS
(series of Thornburg Investment Trust):
Thornburg Intermediate Municipal Fund ("Intermediate National Fund")
Thornburg Alabama Intermediate Municipal Fund
("Intermediate Alabama Fund")*
Thornburg Arizona Intermediate Municipal Fund
("Intermediate Arizona Fund")*
Thornburg Florida Intermediate Municipal Fund
("Intermediate Florida Fund")
Thornburg New Mexico Intermediate Municipal Fund
("Intermediate New Mexico Fund")
Thornburg Pennsylvania Intermediate Municipal Fund
("Intermediate Pennsylvania Fund")*
Thornburg Tennessee Intermediate Municipal Fund
("Intermediate Tennessee Fund")*
Thornburg Texas Intermediate Municipal Fund
("Intermediate Texas Fund")*
Thornburg Utah Intermediate Municipal Fund
("Intermediate Utah Fund")*
* Funds marked with an asterisk are not currently active, and propose to
commence investment operations in the future.
<PAGE>
TABLE OF CONTENTS
1 Expense Information
4 Financial Highlights
8 Management Discussion of Fund Performance
12 Investment Objectives and Policies
15 Your Account - Buying Fund Shares
20 Selling Fund Shares
22 Investor Services, Transaction Services
23 Shareholder and Account Policies
24 Taxes
26 Service and Distribution Plans
26 Transaction Details
28 Exchange Restrictions
28 Performance
30 Organization of the Funds
30 Thornburg Management Company, Inc.
and Thornburg Securities Corporation
31 Additional Information
<PAGE>
NOTES
<LOGO>
<PAGE> 1
EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Limited Term Municipal Funds Thornburg Intermediate Municipal Funds
---------------------------- --------------------------------------
Class A Class C Class A Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases 2.50% none 3.50% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50 <FN1> 0.50% <FN2> 0.50 <FN1> 0.60% <FN2>
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
<FN>
<FN1> Imposed only on redemptions of purchases greater than $1 million
in the event of a redemption within 12 months of purchase.
<FN2> Imposed only on redemptions of Class C shares within 12 months of purchase.
</FN>
</TABLE>
<PAGE>
<TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
Thornburg Limited Term at the end of each time period:
Municipal Fund - <CAPTION>
National Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- ------------------ ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .45% .45% Class A $35 $56 $78 $143
12b-1 Fees (after fee waivers Class C $19 $44 $76 $168
for Class C) * .25% .63%
Other Expenses .28% .30% You would pay the following expenses on the same $1,000 investment, assuming
----- ----- no redemption at the end of each period:
Total Fund Operating Expenses .98% 1.38%
One Year 3 Years 5 Years 10 Years
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A $35 $56 $78 $143
Class C $14 $44 $76 $168
* Expenses reflect rounding. Expenses have been restated to reflect
current fees. Amounts shown for Class C shares of Limited Term
National Fund are based upon a partial waiver of the Class C 12b-1
fee. Absent the waiver, the Class C 12b-1 fees would have been 1.00%
and the total Fund operating expenses would have been 1.75% for the
Class C shares. Long-term Class C shareholders may pay more than
the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
1
<PAGE> 2
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
Thornburg Limited Term at the end of each time period:
Municipal Fund - <CAPTION>
California Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- -------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $35 $56 $79 $146
12b-1 Fees (after fee waivers Class C $19 $45 $77 $170
for Class C) * .25% .63%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .27%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $35 $56 $79 $146
Class C $14 $45 $77 $170
* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the
Limited Term California Fund reflect an assumption of certain Fund
operating expenses. Absent the assumption of expenses, other
expenses would have been .30% and total Fund operating expenses would
have been 1.05%. Amounts shown for Class C of the Limited Term
California Fund reflect a partial waiver of 12b-1 fees and assumption
of certain Fund operating expenses. Absent the waiver of 12b-1 fees
and assumption of expenses, 12b-1 fees and other expenses would have
been 1.00% and 1.42%, respectively, and total Fund operating expenses
would have been 2.92%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg Intermediate <CAPTION>
Municipal Fund Class A Class C One Year 3 Years 5 Years 10 Years
- ---------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $45 $66 $89 $154
12b-1 Fees (after fee waivers Class C $20 $45 $77 $170
for Class C) * .25% .60%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .30%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $45 $66 $89 $154
Class C $14 $45 $77 $170
* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
National Fund reflect an assumption of certain Fund operating
expenses. Absent the assumption of expenses, other expenses would
have been .34% and total Fund operating expenses would have been
1.09%. Amounts shown for Class C of the Intermediate National Fund
reflect a partial waiver of Rule 12b-1 fees and assumption of certain
Fund operating expenses. Absent the waiver of 12b-1 fees and
assumption of expenses, 12b-1 fees and other expenses would have been
1.00% and .47%, respectively, and the total Fund operating expenses
would have been 1.97%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
2
<PAGE> 3
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg New Mexico <CAPTION>
Intermediate Municipal Fund Class A One Year 3 Years 5 Years 10 Years
- --------------------------- ------- -------- ------- ------- --------
<S> <C> <S> <C> <C> <C> <C>
Management Fees .50% Class A $45 $66 $89 $154
12b-1 Fees .25%
Other Expenses (after
assumption of expenses) * .25%
-----
Total Fund Operating Expenses 1.00%
* Expenses reflect rounding. Amounts shown have been restated to reflect
current fees. Amounts shown for Class A of the Intermediate New Mexico
Fund reflect assumption of certain Fund operating expenses. Absent the
assumption of expenses, the operating expenses would have been .32%, and
total Fund operating expenses would have been 1.07%.
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg Florida <CAPTION>
Intermediate Municipal Fund Class A One Year 3 Years 5 Years 10 Years
- --------------------------- ------- -------- ------- ------- --------
<S> <C> <S> <C> <C> <C> <C>
Management Fees .50% Class A $45 $66 $89 $154
12b-1 Fees .25%
Other Expenses (after
assumption of expenses for
Class A and Class C) * .25%
-----
Total Fund Operating Expenses 1.00%
* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
Florida Fund reflect assumption of certain Fund operating expenses
Absent the assumption of expenses, other expenses would have been
.59% and total Fund operating expenses would have been 1.34%.
</TABLE>
EXPLANATION OF TABLES
THE INFORMATION IN THE TABLES ABOVE SHOULD BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The expense figures shown in the tables
above are presented to assist the investor in understanding the various
costs that an investor in a Fund will bear, directly or indirectly. The
Funds' investment adviser and distributor may not waive fees or assume Fund
expenses in the future.
3
<PAGE> 4
FINANCIAL HIGHLIGHTS
The table on the following pages present, for each Fund, per share income
and capital changes for a share outstanding throughout each period
indicated. The information for the years ended June 30, 1989, 1990, 1991,
1992, 1993, 1994, 1995 and 1996 for the Limited Term National Fund and the
Limited Term California Fund, and the information for all of the years
presented for the Intermediate Funds, has been audited by McGladrey &
Pullen, LLP, independent auditors, whose reports thereon are incorporated
by reference in the registration statements for the respective Funds. The
information should be read in conjunction with the 1996 Annual Report for
each Limited Term Fund and the 1996 Annual Report for each Intermediate
Fund.
<PAGE>
<TABLE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net Net (Loss) at end
Value Unrealized from Net from Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Exp. Exp. Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(c)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
National Fund
- -------------
Class A
Year ended:
June 30, 1987 12.68 .83 .02 .85 ( .83) $( .01) 12.69 6.87 (1.00) (1.10) 6.27 47.00 127,074
June 30, 1988 12.69 .84 .06 .90 ( .84) 12.75 7.37 (1.10) (1.20) 6.58 66.00 164,489
June 30, 1989 12.75 .85 .05 .90 ( .85) 12.80 7.29 (1.15) (1.15) 6.66 69.96 184,139
June 30, 1990 12.80 .86 (.06) .80 ( .86) 12.74 6.48 (1.11) (1.11) 6.73 67.51 217,325
June 30, 1991 12.74 .85 .09 .94 ( .85) 12.83 7.60 (1.07) (1.07) 6.58 32.36 312.882
June 30, 1992 12.83 .79 .26 1.05 ( .79) 13.09 8.40 (1.04) (1.04) 5.96 27.63 521,683
June 30, 1993 13.09 .68 .50 1.18 ( .68) 13.59 9.24 (1.01) (1.01) 5.03 19.30 895,500
June 30, 1994 13.59 .63 (.32) .31 ( .63) 13.27 2.25 (0.95) (0.95) 4.60 15.63 1,030,293
June 30, 1995 13.27 .64 .10 .74 ( .64) 13.37 5.76 (0.97) (0.97) 4.86 23.02 931,987
June 30, 1996 13.37 .63 (.02) .61 ( .63) 13.35 4.60 (0.97) (0.97) 4.66 20.60 917,831
Class B <F(a)>
9/1/94 <F(b)> $13.29 $ .46 $ .09 $ .55 $( .46) $13.38 4.14% (1.57)% (2.30)% 4.24% 23.02% $2,823
to 6/30/95 <F(d)> <F(d)> <F(d)>
7/1/95 to 13.38 .13 .05 .18 ( .13) 13.43 1.56 (1.59) (2.01) 4.17 20.60 0
9/28/95 <F(d)> <F(d)> <F(d)>
Class C
9/1/94 <F(b)> $13.29 $ .46 $ .11 $ .57 $( .46) $13.40 4.25% (1.60)% (1.84)% 4.21% 23.02% $6,469
to 6/30/95 <F(d)> <F(d)> <F(d)>
Year ended 13.40 .57 (.03) .54 ( .57) 13.37 4.05 (1.41) (1.63) 4.22 20.60 15,948
6/30/96
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(c)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
California Fund
- ---------------
Class A
2/20/87 <F(b)> $12.13 $ .26 $(.12) $ .14 $( .26) $12.01 1.10% (0.67)% (.81)% 5.73% 74.00% $6,041
to 6/30/87 <F(d)> <F(d)> <F(d)>
Year ended:
June 30, 1988 12.01 .78 .07 .85 ( .78) 12.08 7.10 (0.85) (1.73) 6.30 29.00 11,641
June 30, 1989 12.08 .77 .07 .84 ( .77) 12.15 7.17 (1.00) (1.38) 6.27 58.80 12,794
June 30, 1990 12.15 .76 (.04) .72 ( .76) 12.11 6.15 (1.00) (1.22) 6.16 49.05 26,517
June 30, 1991 12.11 .75 .13 .88 ( .75) 12.24 7.45 (1.00) (1.20) 6.08 39.66 33,487
June 30, 1992 12.24 .72 .24 .96 ( .72) 12.48 8.10 (1.00) (1.10) 5.80 30.56 53,130
June 30, 1993 12.48 .65 .37 1.02 ( .65) 12.85 8.36 (1.00) (1.06) 5.07 20.81 81,874
June 30, 1994 12.85 .58 (.28) .30 ( .58) 12.57 2.37 (1.00) (1.03) 4.51 15.26 111,723
June 30, 1995 12.57 .58 .04 .62 ( .58) 12.61 5.12 (1.00) (1.04) 4.69 18.54 98,841
June 30, 1996 12.61 .58 .03 .61 ( .58) 12.64 4.94 (1.00) (1.05) 4.59 22.68 94,379
Class B <F(a)>
9/1/94 <F(b)> $12.55 $ .43 $ .07 $ .50 $( .43) $12.62 3.99% (1.60)% (4.51)% 4.10% 18.54% $590
to 6/30/95 <F(d)> <F(d)> <F(d)>
7/1/95 to 12.62 .13 .06 .19 ( .13) 12.68 1.59 (1.63) (3.67) 4.15 22.68 0
9/28/95 <F(d)> <F(d)> <F(d)>
Class C
9/1/94 <F(b)> $12.55 $ .42 $ .07 $ .49 $( .42) $12.62 3.98% (1.63)% (3.21)% 4.07% 18.54% $790
to 6/30/95 <F(d)> <F(d)> <F(d)>
Year ended
6/30/96 12.62 .53 .03 .56 ( .53) 12.65 4.46 (1.43) (2.92) 4.16 22.68 2,444
<FN>
<F(a)> Class B shares are no longer offered by the Funds, <F(c)> Sales charges are not reflected in computing total return,
and all outstanding Class Be shares were converted which is not annualized for periods less than one year.
into Class A shares on September 28, 1995. <F(d)> Annualized.
<F(b)> Commencement of operations.
4 5
<PAGE> 6
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
National Fund
- -------------
Class A
7/23/91 <F(b)> $12.06 $ .16 $ .05 $ .21 $( .16) $12.11 1.77% (0.25)% (2.78)% 5.80% 3.40% $9,719
to 9/30/91 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1992 12.11 .78 .48 1.26 ( .78) 12.59 10.76 (0.48) (1.19) 6.15 46.15 81,428
Sept. 30, 1993 12.59 .71 .88 1.59 ( .71) 13.47 13.01 (0.70) (1.06) 5.37 14.29 182,319
Sept. 30, 1994 13.47 .67 (.72) (.05) ( .67) $( .02) 12.73 (.38) (0.95) (1.05) 5.23 27.37 207,718
Sept. 30, 1995 12.73 .68 .45 1.13 ( .68) 13.18 9.16 (1.00) (1.08) 5.31 32.20 227,881
Sept. 30, 1996 13.18 .68 .05 .73 ( .68) 13.23 5.64 (1.00) (1.09) 5.12 12.64 246,128
Class B <F(a)>
9/1/94 <F(b)> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.99)% (1.70)% (1.70)% 4.57% 27.37% $342
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.73 .59 .40 .99 ( .59) 13.13 8.30 (1.65) (2.86) 4.59 32.20 0
Class C
9/1/94 <F(b)> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.97)% (1.76)% (1.76)% 4.51% 27.37% $139
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.73 .60 .47 1.07 ( .60) 13.20 8.60 (1.66) (2.35) 4.62 32.20 4,001
Sept. 30, 1996 13.20 .63 .04 .67 ( .63) 13.24 5.14 (1.40) (1.97) 4.73 12.64 7,586
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
New Mexico Fund
- ---------------
Class A
6/21/91 <F(b)> $12.06 $ .23 $ .15 $ .38 $( .23) $12.21 3.18% (0.25)% (1.32)% 6.57% 49.67% $20,511
to 9/30/91 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1992 12.21 .74 .43 1.17 ( .74) 12.64 9.98 (0.42) (1.12) 5.76 32.15 71,034
Sept. 30, 1993 12.64 .65 .72 1.37 ( .65) 13.36 10.96 (0.61) (1.01) 4.95 10.33 128,590
Sept. 30, 1994 13.36 .60 (.63) (.03) ( .60) $( .01) 12.72 (.26) (0.90) (1.04) 4.58 6.87 143,910
Sept. 30, 1995 12.72 .60 .40 1.00 ( .60) 13.12 8.10 (1.00) (1.06) 4.71 17.06 136,742
Sept. 30, 1996 13.12 .63 (.03) .60 ( .63) 13.09 4.68 (1.00) (1.07) 4.81 10.88 131,307
Class B <F(a)>
9/1/94 <F(b)> $12.87 $ .05 $(.15) $(.10) $( .05) $12.72 (0.80)% (1.71)% (10.90)% 3.47% 6.87% $81
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.72 .52 .37 .89 ( .52) 13.09 7.42 (1.64) (4.71) 4.06 17.06 0
Class C <F(c)>
9/1/94 <F(b)> $12.87 $ .04 $(.16) $(.12) $( .04) $12.71 (0.90)% (1.74)% (21.92)% 3.49% 6.87% $59
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.71 .52 .41 .93 ( .52) 13.12 7.48 (1.66) (15.86) 4.05 17.06 141
4 month period 13.12 .19 .15 .34 ( .19) 13.27 2.57 (1.40) (13.03) 4.22 4.84 0
ended 1/31/96 <F(f)> <F(f)> <F(f)>
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
Florida Fund
- ------------
Class A
2/1/94 <F(b)> $12.06 $ .40 $(.52) $(.12) $( .40) $11.54 (0.95)% (0.25)% (1.95)% 5.09% 19.94% $8,076
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 11.54 .63 .29 .92 ( .63) 11.83 8.22 (0.38) (1.44) 5.41 89.60 14,822
Sept. 30, 1996 11.83 .57 .05 .62 ( .57) 11.88 5.37 (.61) (1.34) 4.80 77.12 19,501
Class B <F(a)>
9/1/94 <F(b)> $11.72 $ .05 $(.17) $(.12) $( .05) $11.55 (1.02)% (1.05)% (7.80)% 4.80% 19.94% $20
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 11.55 .55 .28 .83 ( .55) 11.83 7.55 (1.08) (5.35) 4.69 89.60 0
Class C <F(d)>
9/1/94 <F(b)> $11.72 $ .05 $(.18) $(.13) $( .05) $11.54 (1.10)% (1.10)% (40.31)% 4.89% 19.94% $109
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended
Sept. 30, 1995 11.54 .55 .32 .87 ( .55) 11.86 7.74 (1.08) (19.08) 4.65 89.60 259
7 month period
ended 4/30/96 11.86 .31 (.02) .29 ( .31) 11.84 2.47 (0.97) ( 6.03) 4.46 77.12 0
<F(f)> <F(f)> <F(f)>
<FN>
<F(a)> Class B shares are no longer offered by the Funds, and
all outstanding Class B shares were converted into
Class A shares on September 28, 1995.
<F(b)> Commencement of operations.
<F(c)> Class C shares are no longer offered by the Intermediate
New Mexico Fund, and all outstanding Class C shares were
converted into Class A shares of the Fund on January 31, 1996.
<F(d)> Class C shares are no longer offered by the Intermediate
Florida Fund, and all outstanding Class C shares were
converted into Class A shares of the Fund on April 30, 1996.
<F(e)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(f)> Annualized.
</FN>
</TABLE>
6 7
<PAGE> 8
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The following graphs compare how $10,000 would have appreciated if invested
in shares of the named Fund, a broad based securities market index, and the
Consumer Price Index, a general measure of inflation. The table
accompanying each graph shows average annual total return for the Fund for
the designated period. Class A total return figures assume an investment of
$10,000 at the public offering price for purchases up to $10,000; Class C
total return figures assume an investment of $10,000.
Comparison of Fund performance to widely used indices is imperfect, because
the indices do not reflect the ladder ed maturity strategy each Fund uses.
Each index shown attempts to model the total return of a constant maturity
bond portfolio, including bonds from throughout the United States. Each
index also assumes no trading costs for buying and selling bonds, no
custodial or accounting costs, and coupons are immediately reinvested at no
transactional cost. Consequently, the reader should remain aware of the
inherent limitations in comparing a theoretical index to actual results of
a Fund portfolio.
Each Fund "ladders" or arrays the maturities of its bonds. The Limited
Term Municipal Funds maintain a weighted average maturity using this
technique which is normally no more than five years, while the Intermediate
Municipal Funds' weighted average maturity is normally no more than 10
years.
Interest rates during 1995 generally decreased, causing interest dividends
to decrease somewhat as Fund cash flow was reinvested at lower rates, and
causing the value of the Funds' portfolios to increase relative to their
expected values in a flat interest rate environment. In the first three
quarters of 1996, higher economic growth led to rising interest rates and
decreasing bond prices.
Bond prices in the U.S. rose dramatically over 1995 and then fell through
the first nine months of 1996. For example, as the yield on the 6.25% U.S.
Treasury bond due in August 2023 decreased from 7.95% to 6.03% between
January 31, 1995 and December 29, 1995, the market value of the bond
increased by approximately 27.2%. Since December 1995, the yield on the
bond has risen to 7.05% as of September 30, 1996, and the price has fallen
by 12.1%. Similarly, market values of U.S. Treasury bonds due in 2001 and
2006 have fallen by 5.6% and 8.0%, respectively since January 1, 1996.
Municipal bond prices also decreased across the spectrum of maturities as
market yields on municipal bonds increased. The market produced total
returns of 4.27% and 6.08% respectively, for the Lehman Brothers 5 year
general obligation bond index and the Merrill Lynch Municipal Bond (7-12)
year Index for the 12 months ending September 30, 1996. The net asset
values of Intermediate National Fund and Intermediate Florida Fund
increased by 0.38% and 0.42%, respectively, over this same 12 month period,
while the net asset value of the Intermediate New Mexico Fund declined by
0.23%. The net asset value of Limited Term National Fund decreased by
0.37%, and the net asset value of the Limited Term California Fund
increased by 0.08% over the one year period ending September 30, 1996. If
interest rates continue to fall, the net asset values of all the Funds
should increase. However, over time, dividend income would decrease.
8
<PAGE> 9
LIMITED TERM NATIONAL FUND
Index Comparison
Compares performance of the Limited Term National Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
October 1, 1984 to June 30, 1996. On June 30, 1996, the weighted average
securities ratings of the Index an d the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund
were 4.9 years and 3.5 years, respectively. Class C shares became available
on September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.
<appears as a graph in the prospectus.>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/96): 2.01%
Five Years: 5.48%
Ten Years: 6.30%
From Inception (9/28/84): 7.09%
<appears as a graph in the prospectus.>
Average Annual Total Returns
C Shares One Year (12 mos. ended 6/30/96): 4.05%
From Inception (9/1/94): 4.54%
9
<PAGE> 10
LIMITED TERM CALIFORNIA FUND
Index Comparison
Compares performance of the Limited Term California Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
February 28, 1987 to June 30, 1996. On June 30, 1996, the weighted average
securities ratings of the Index and the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund
were 4.9 years and 3.7 years, respectively. Class C shares became available
on September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.
<appears as two side-by-side graphs in the prospectus>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/96): 2.34%
Five Years: 5.23%
From Inception (2/19/87): 5.87%
INTERMEDIATE NATIONAL FUND
Index Comparison
Compares performance of the Intermediate National Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, July 23, 1991
to September 30, 1996. On September 30, 1996, the weighted average securities
ratings of the Index and the Fund were AA and A+, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.6
years and 7.7 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.
<appears as two graphs side-by-side in the prospectus>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/96): 1.93%
5 Years: 6.77%
From Inception (7/23/91): 6.86%
10
<PAGE> 11
INTERMEDIATE NEW MEXICO FUND
Index Comparison
Compares performance of the Intermediate New Mexico Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, June 18, 1991
to September 30, 1996. On September 30, 1996, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.6
years and 6.6 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.
<appears as a graph in the prospectus.>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/96): 0.99%
5 Years: 5.86%
From Inception (6/21/91): 6.15%
INTERMEDIATE FLORIDA FUND
Index Comparison
Compares performance of Intermediate Florida Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to September 30, 1996. On September 30, 1996, the weighted average
securities ratings of the Index and the Fund were AA and AA+, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
8.6 years and 6.7 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.
<appears as a graph in the prospectus.>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/96): 1.67%
From Inception (2/01/94): 3.28%
11
<PAGE> 12
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of each Fund is to obtain as high a level
of current income exempt from federal income tax as is consistent, in the
view of TMC, with preservation of capital. Each single state Fund will
invest primarily in Municipal Obligations originating in its state with the
object of obtaining exemption of interest dividends from any income taxes
imposed by that state on individuals. The Intermediate Florida Fund and the
Intermediate Pennsylvania Fund have the additional objective of obtaining
exemption from ad valorem taxes imposed by those states on securities held
by individuals. The secondary objective of the Limited Term Funds is to
minimize expected fluctuations in net asset value relative to longer
intermediate and long-term bond portfolios. The secondary objective of the
Intermediate Funds is to reduce fluctuations in net asset value relative to
long-term municipal bond portfolios, while seeking higher yields than the
Limited Term Municipal Funds expect to receive. There is a risk in all
investments, however, and there is no assurance that the Funds' objectives
will be achieved. Income otherwise exempt from federal income tax may be
subject to the federal alternative minimum tax, and distributions from
gains attributable to market discount are characterized as ordinary income
for federal income tax purposes. The primary and secondary investment
objectives of each Fund are fundamental policies of that Fund, and may not
be changed without a vote of the Fund's shareholders.
Each Fund will pursue its primary objective by investing in a portfolio of
investment grade or equivalent obligations which are issued by states and
state agencies, and local governments and agencies, and by United States
territories and possessions ("Municipal Obligations"). Each single state
Fund will invest primarily in Municipal Obligations originating in the
state of the same name. Municipal Obligations are discussed below under the
caption "Municipal Obligations," and investment grade ratings are discussed
below under the caption "Investment Ratings."
Each of the Limited Term Funds will seek to achieve its secondary objective
of minimizing fluctuations in net asset value by maintaining a portfolio
of investments with a dollar-weighted average maturity normally not
exceeding five years. Each Intermediate Fund will seek to achieve its
secondary objective of obtaining lower share price fluctuation than a
long-term portfolio and obtaining higher yields than a limited term
portfolio by maintaining a dollar-weighted average portfolio maturity
normally between three and ten years. Any Intermediate Fund may maintain a
portfolio maturity shorter than three years as a defensive strategy during
abnormal market conditions. If your sole objective is preservation of
capital, then the Funds may not be suitable for you because their net asset
values will vary as market interest rates fluctuate. Investors whose sole
objective is preservation of capital may wish to consider a high quality
money market fund.
Except to the extent a Fund is invested in temporary investments for
defensive purposes, the objective of each Fund under normal conditions is
to invest 100% of its net assets in Municipal Obligations. As a fundamental
policy which may not be changed without a vote of the Fund's shareholders,
each Fund must normally invest at least 80% of its net assets in Municipal
Obligations. Under normal conditions each single state Fund will invest
100%, and as a matter of fundamental policy, will invest at least 65% of
its total assets in Municipal Obligations which originate in the state
having the same name as the Fund. Any Fund may purchase obligations issued
by or on behalf of territories or possessions of the United States and
their agencies and instrumentalities.
The Funds have reserved the right to invest up to 20% of each Fund's net
assets in "temporary investments" in taxable securities (of comparable
quality to the above tax-exempt investments) that would produce interest
not exempt from federal income tax. Such temporary investments, which may
include repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk,
12
<PAGE> 13
may be made due to market conditions, pending investment of idle funds or
to afford liquidity. Such investments are, like any investment, subject to
market risks and fluctuations in value. In addition, each Fund's temporary
taxable investments may exceed 20% of its net assets when made for
defensive purposes during periods of abnormal market conditions. The Funds
do not expect to find it necessary to make temporary investments in taxable
investments.
MUNICIPAL OBLIGATIONS
Municipal Obligations are obligations bearing interest exempt from federal
income taxes, which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities. Municipal
Obligations include notes (including tax-exempt commercial paper), bonds,
municipal leases and participation interests in these obligations.
Interest on Municipal Obligations may be subject to the alternative minimum
tax or state income taxes. See "Federal Taxes."
The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of outstanding
Municipal Obligations will vary with changes in prevailing interest rate
levels and as a result of changing evaluations of the ability of their
issuers to meet interest and principal payments. Variations in market
value of Municipal Obligations held in a Fund's portfolio arising from
these or other factors will cause changes in the net asset value of that
Fund's shares. See "How Fund Shares Are Priced." Municipal Obligations
often grant the issuer the option to pay off the obligation prior to its
final maturity. Prepayment of Municipal Obligations may reduce the expected
yield on invested funds, the net asset value of a Fund, or both if interest
rates have declined below the level prevailing when the obligation was
purchased. If interest rates have declined, reinvestment of the proceeds
from the prepayment of Municipal Obligations may result in a lower yield to
a Fund. In addition, the federal income tax treatment of gains from market
discount as ordinary income may increase the price volatility of Municipal
Obligations.
Obligations of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the United States Bankruptcy Code. In
addition, the obligations of such issuers may become subject to the laws
enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to
levy taxes. There is also the possibility that, as a result of legislation
or other conditions, the power or ability of any issuer to pay, when due,
the principal of and interest on its Municipal Obligations may be
materially and adversely affected.
VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS
The Funds may purchase variable rate Municipal Obligations. These variable
rate securities bear rates of interest that are adjusted periodically
according to formulas intended to reflect market rates of interest, and
these may include "inverse floaters," whose rates vary inversely with
changes in market rates of interest. The values of inverse floaters will
tend to be more volatile than fixed rate municipal securities having
similar credit quality, redemption provisions, and maturity. No Fund will
invest more than 10% of its total assets in securities whose rates vary
inversely with changes in market rates of interest. Each Fund also may
purchase variable rate demand instruments and also may purchase fixed rate
municipal demand instruments either in the public market or privately from
banks, insurance companies and other financial institutions. These
instruments provide for periodic adjustment of the interest rate paid to
the holder. The "demand" feature permits the holder to demand payment of
principal and interest prior to the final stated maturity, either from the
issuer or by drawing on a bank letter of credit, a guarantee or insurance
issued with respect to the instrument.
13
<PAGE> 14
MUNICIPAL LEASES
Each Fund may invest in Municipal Leases. These obligations are used by
state and local governments to acquire a wide variety of equipment and
facilities. Many such obligations include "non-appropriation" clauses
which provide that the governmental issuer has no obligation to make
payments unless money is appropriated for that purpose. If an issuer
stopped making payment on a Municipal Lease held by a Fund, the Lease would
lose some or all of its value. Often, a Fund will not hold the obligation
directly, but will purchase a "participation interest" in the obligation,
which gives the Fund an undivided interest in the underlying Municipal
Lease. Some Municipal Leases may be illiquid under certain circumstances,
and TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition by a Fund and periodically while it is held.
SECURITIES RATINGS AND CREDIT QUALITY
Each Fund's assets will normally consist of (1) Municipal Obligations
(including Municipal Leases) or participation interests therein that are
rated at the time of purchase within the four highest grades by Moody's
Investors Service ("Moody's"), Fitch Investors Service ("Fitch"), or
Standard & Poor's Corporation ("S&P"), (2) Municipal Obligations (including
Municipal Leases) or participation interests therein that are not rated by
a rating agency, but are issued by obligors that either have other
comparable debt obligations that are rated within the four highest grades
(Baa or BBB or better) by Moody's or S&P or Fitch or, in the case of
obligors whose obligations are unrated, are deemed by TMC to be comparable
with issuers having such debt ratings, and (3) cash. Securities rated in
the described categories are described as "investment grade," and are
regarded as having a capacity to pay interest and repay principal that
varies from "extremely strong" to "adequate." According to S&P, for
example, BBB bonds normally exhibit adequate protection parameters,
although adverse economic conditions or other changes are more likely to
lead to a weakened capacity compared to higher rated categories, and AAA
bonds exhibit extremely strong capacity. Securities rated Baa are regarded
by Moody's as having some speculative characteristics. Securities rated
BBB by Fitch are considered to have adequate capacity, although adverse
changes in economic conditions and circumstances are more likely to have an
adverse impact than for higher rated categories. Please see the Statement
of Additional Information for Thornburg Investment Trust - Intermediate
Municipal Funds or the Statement of Additional Information for Thornburg
Limited Term Municipal Fund, Inc. for detailed descriptions of these
ratings.
Investments in Municipal Obligations may also include (i) variable rate
demand instruments that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of high quality and
minimal credit risk, (ii) tax-exempt commercial paper that is rated within
the two highest grades of a rating agency, and (iii) municipal notes that
are rated within the two highest grades of a rating agency or, if unrated,
are deemed by TMC to be of comparable quality to such rated municipal
notes. To the extent that unrated Municipal Obligations may be less
liquid, there may be somewhat greater risk in purchasing unrated Municipal
Obligations than in purchasing comparable, rated Municipal Obligations. If
a Fund experienced unexpected net redemptions, it could be forced to sell
such unrated Municipal Obligations at disadvantageous prices without regard
to the Obligations' investment merits, depressing the Fund's net asset
value and possibly reducing the Fund's overall investment performance.
Credit ratings do not reflect the risk that market values of Municipal
Obligations will fluctuate with changes in interest rates, and credit
rating firms may fail to change credit ratings in a timely fashion to
reflect events subsequent to initial ratings. Accordingly, in addition to
using credit rating information, TMC subjects each issue under
consideration for investment to its own credit analysis in an effort to
assess the issuer's financial soundness. This analysis is performed on a
continuing basis for all issues held by the Funds, and TMC may determine to
dispose of portfolio securities upon a change in ratings or adverse events
or market conditions not reflected in ratings. TMC evaluates the credit
quality of unrated Municipal Obligations purchased by each Fund under
14
<PAGE> 15
the general supervision of its Directors or Trustees, and determines the
equivalency of unrated obligations to rated obligations.
WHEN-ISSUED TRANSACTIONS
Each Fund may purchase Municipal Obligations on a "when-issued" or delayed
delivery basis, which means that the securities are not delivered until a
future date that may be as many as 45 days after the Fund has agreed to the
purchase. These transactions may involve an element of risk because the
value of the securities is subject to market fluctuation, no interest
accrues to the purchaser before delivery of the securities, and at the time
of delivery the market value may be less than cost. When a Fund agrees to
purchase Municipal Obligations on a "when-issued" basis, it will maintain
high grade liquid debt assets equal in value to the purchase price of the
"when-issued" securities in a segregated account with its custodian bank.
INVESTMENT RESTRICTIONS
Each of the Funds is subject to the restriction that it will not purchase
any investment or enter into any transactions if, as a result, more than
10% of the Fund's net assets will be illiquid investments. Each of the
Funds is subject to other investment restrictions, which are described in
that Fund's Statement of Additional Information.
SPECIAL CONSIDERATIONS AFFECTING SINGLE-STATE FUNDS
Each of the single-state Intermediate Municipal Funds is a non-diversified
series of Thornburg Investment Trust, and each therefore may invest more
than five percent of its portfolio assets in the securities of a single
issuer, provided that it may not purchase any security (other than
securities issued or guaranteed as to principal or interest by the United
States or its instrumentalities) if, as a result, more than five percent of
the Trust's total assets would be invested in securities of a single
issuer. All other Funds are diversified series. Because each of the single
state Funds will purchase primarily Municipal Obligations originating from
within its state, an investment in a single state Fund may be riskier than
an investment in either the Limited Term National Fund or the Intermediate
National Fund, which purchase Municipal Obligations from throughout the
United States.
Local economic factors could have varying effects on the obligations owned
by each single state Fund. In particular, economic developments in
California, though improving, could impair the ability of certain
California state and municipal issuers to pay their obligations in some
situations. Taxpayer initiatives, weakness in tax collections and
reallocation of certain revenues previously available to county and local
governments could reduce the revenues available to some California
issuers. The State of New Mexico anticipates a small budget surplus in the
current year. Lower taxes available in some New Mexico locales, and
reductions in staffing at research and military facilities at Los Alamos,
White Sands and Albuquerque could adversely affect the ability of nearby
municipalities to meet their obligations. Florida has experienced rapid
economic growth. While the economy has broadened, this growth has brought
pressure for more infrastructure, educational facilities, and other
improvements. Although recent state budgets have been balanced, over-
dependence on the sensitive sales tax creates vulnerability to recession
and to slower growth in the tax base in the future. Also, health care,
educational and correctional program cost increases could impose future
financial and budgetary pressures on the state.
YOUR ACCOUNT -
BUYING FUND SHARES IN GENERAL
Each Fund offers Class A shares, and Limited Term National Fund, Limited
California Fund and Intermediate National Fund offer Class C shares. Each
of a Fund's shares represents an equal undivided interest in the Fund's
assets, and each Fund has common investment objectives and a common
investment portfolio. Each class may have varying annual expenses and
sales charge structures, which may affect performance.
Class A shares are sold subject to a sales charge which is deducted at the
time you purchase your shares. TSC deducts the Class A sales charge shown
in the table on page 17 and invests the balance of your investment at net
asset value. This class also pays a service fee. Class C shares are sold
at net asset value, subject
15
<PAGE> 16
to payment of a sales charge if redeemed within one year of purchase. They
also pay both a service and a distribution fee. The various service or
service and distribution fees are Fund expenses which are deducted from
each class' annual income. If you do not specify a class of shares in your
order, your money will be invested in Class A shares of the Fund you
purchase.
Financial advisors and others who sell shares of the Fund receive different
compensation for selling different classes of the Funds' shares. Shares of
the Funds may be purchased through investment dealers, brokers or
agents("financial advisors") who have agreements with the Funds'
distributor, Thornburg Securities Corporation (TSC), or through TSC in
those states where TSC is registered. Although shares of the National Funds
generally are available in most states, shares of the single state Funds
are or will be available only in their respective states and certain other
states where those Funds are qualified for sale. All orders are subject to
acceptance by the Funds, and the Funds and TSC reserve the right to
refuse any order in whole or in part.
Each Fund also may issue one or more other classes of shares not offered
through this Prospectus. Different classes may have different sales
charges and other expenses which may affect performance. Investors may
telephone the Funds' distributor, TSC, at (800) 847-0200 to obtain more
information concerning the various classes of shares which may be available
to them through their sales representatives. Investors may also obtain
information respecting the different classes of shares through their sales
representative or other person who is offering or making available shares
of the Funds.
NET ASSET VALUE
When you purchase shares, the price is based on the net asset value (NAV)
next determined after receipt of your order. The net asset value is the
value of a share, and is computed for each class of a Fund by adding the
value of investments, cash and other assets for the class, subtracting
liabilities, and then dividing by the number of shares outstanding. Share
price is normally calculated at 4:00 p.m. Eastern time on each day the New
York Stock Exchange is open for business.
BUYING CLASS A SHARES
When you buy Class A shares the sales charge applicable to your investment
is deducted from the price you pay and the balance is invested at NAV. The
sales charge is shown in the table below.
Because the fees for Class A shares of each Fund are lower than the fees
for Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the
initial sales charge, however, means that you purchase fewer Class A shares
than Class C shares of each Fund for a given amount invested.
LETTERS OF INTENT. If you are in any of the special classes of investors
who can buy Class A shares at net asset value or at a reduced sales charge,
you should consider buying Class A shares. If you are planning a large
purchase or purchases under the Right of Accumulation or Letter of Intent
you should consider if your overall costs will be lower by buying Class A
shares, particularly if you plan to hold your shares for an extended period
of time.
If you intend to invest, over the course of 13 or fewer months, an amount
of money that would qualify for a reduced sales charge if it were made in
one investment, you can qualify for the reduced sales charge on the entire
amount of your investment by signing a "Letter of Intent" (LOI). Each
investment you make during the 13 months will be charged the reduced sales
commission applicable to the amount stated in your LOI. You do not have to
reach the goal you set. If you don't, you will have to pay the difference
between the sales charge you would have paid and the sales charge you did
pay. You may pay this amount directly to TSC, or TSC will redeem a
sufficient number of your shares in the Fund to obtain the difference.
16
<PAGE> 17
<TABLE>
Class A Shares Dealer
Concession
Total Sales Charge or Agency
Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering
Price
<S> <C> <C> <C>
Limited Term Municipal Funds
- ----------------------------
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% .85%
$1,000,000 and up 0.00% 0.00% <FN*>
Intermediate Municipal Funds
- ----------------------------
Less than $50,000.00 3.50% 3.63% 3.00%
$50,000 to 99,999.99 3.00% 3.09% 2.75%
$100,000 to 249,999.99 2.50% 2.56% 2.25%
$250,000 to 499,999.99 2.00% 2.04% 1.75%
$500,000 to 999,999.99 1.50% 1.52% 1.25%
$1,000,000 and up 0.00% 0.00% <FN*>
<FN>
<FN*> No sales charge will be payable at the time of purchase on
investments of $1 million of more made by a purchaser. A contingent
deferred sales charge will be imposed on these investments in the
event of a share redemption within one year following the share
purchase at the rate of 1/2 of 1%. In determining whether such a
sales charge is payable and the amount of any charge, it is assumed
that shares not subject to the charge are the first redeemed followed
by other shares held for the longest period of time. The
applicability of these charges will be unaffected by transfers of
registration. TSC or TMC intend to pay a commission of up to 1/2 of
1% to dealers who place orders of $1 million or more for a single
purchaser.
At certain times, for specific periods, TSC may reallow up to the full
sales charge to all dealers who sell Fund shares. These "full
reallowances" may be based upon the dealer reaching specified minimum
sales goals. TSC will reallow the full sales charge only after
notifying all dealers who sell Fund shares. During such periods,
dealers may be considered underwriters under securities laws. TMC or
TSC also may pay additional cash or non-cash compensation to dealer
firms which have selling agreements with TSC. Those firms may pay
additional compensation to financial advisors who sell Fund shares.
Non-cash compensation may include travel and lodging in connection
with seminars or other educational programs.
</FN>
</TABLE>
RIGHTS OF ACCUMULATION. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the
table on page 16, the amount of your new investment in excess of the
breakpoint will be charged the reduced sales charge applicable to that
range.
WAIVERS. You may purchase Class A shares of each Fund with no sales charge
if you notify TSC or the Funds' transfer agent, NFDS, at the time you
purchase shares that you belong to one of the categories below. If you do
not provide such notification at the time of purchase, your purchase will
not qualify for the waiver of sales charge.
A SHAREHOLDER WHO REDEEMED CLASS A SHARES OF A THORNBURG FUND. For two
years after such a redemption you will pay no sales charge on amounts
that you reinvest in Class A shares of one of the Funds covered by this
prospectus, up to the amount you previously redeemed.
AN OFFICER, TRUSTEE, DIRECTOR, OR EMPLOYEE OF TMC (or any investment
company managed by TMC), TSC, any affiliated Thornburg Company, the
Fund's custodian bank or Transfer Agent and members of their families
including trusts established for the benefit of the foregoing.
17
<PAGE> 18
EMPLOYEES OF BROKERAGE FIRMS who are members in good standing with the
National Association of Securities Dealers, Inc. (NASD); employees of
financial planning firms who p lace orders for the Fund through a member in
good standing with NASD; the families of both types of employees. Orders must
be placed through an NASD member firm who has signed an agreement with TSC to
sell Fund shares.
CUSTOMERS of bank trust departments, companies with trust powers, investment
dealers and investment advisors who charge fees for service, including
investment dealers who utilize wrap fee or similar arrangements. Accounts
established through these persons are subject to conditions, fees and
restrictions imposed by these persons.
INVESTORS PURCHASING $1 MILLION OR MORE. However, a contingent deferred sales
charge of 1/2 of 1% applies to shares redeemed within one year of purchase.
THOSE PERSONS WHO ARE DETERMINED BY THE DIRECTORS OR TRUSTEES OF THE FUND to
have acquired their shares under special circumstances not involving any
sales expenses to the Funds or Distributor.
PURCHASES PLACED THROUGH A BROKER THAT MAINTAINS ONE OR MORE OMNIBUS ACCOUNTS
WITH THE FUNDS provided that such purchases are made by: (i) investment
advisors 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 advisors or financial
planners who place trades for their own accounts if the accounts are linked
to the master account of such investment advisor or financial planner on the
books and records of the broker or agent; and (iii) retirement and deferred
compensation plans and trusts used to fund those plans, including, but not
limited to, those defined in Sections 401(a), 403(b) or 457 of the Internal
Revenue Code and "rabbi trusts." Investors may be charged a fee if they
effect transactions in Fund shares through a broker or agent.
PROCEEDS FROM A LOAD FUND REDEMPTION. You may purchase shares of any Fund at
net asset value without a sales charge to the extent that the purchase
represents proceeds from a redemption (within the previous 60 days) of shares
of another mutual fund which has a sales charge. When making a direct
purchase at net asset value under this provision, the Fund must receive one
of the following with your direct purchase order: (i) the redemption check
representing the proceeds of the shares redeemed, endorsed to the order of
the Fund, or (ii) a copy of the confirmation from the other fund, showing the
redemption transaction. Standard back office procedures should be followed
for wire order purchases made through broker dealers. Purchases with
redemptions from money market funds are not eligible for this privilege. This
provision may be terminated anytime by TSC or the Funds
without notice.
18
<PAGE> 19
BUYING CLASS C SHARES
You can buy Class C shares of Limited Term National Fund, Limited Term
California Fund or Intermediate National Fund at NAV but you will pay a
contingent deferred sales charge (CDSC) of 1/2 of 1% on shares of Limited
Term Funds and 6/10 of 1% on shares of the Intermediate National Fund if you
redeem your shares within one year of purchase. The CDSC applies only to
Class C shares purchased on or after October 2, 1995. The CDSC will be
imposed upon the lower of the purchase price or net asset value at redemption
of each share redeemed. The CDSC is not imposed upon shares you buy by
reinvesting dividends or capital gain distributions. Maximum purchase amount
for Class C shares is less than $1 million. Class C shares are charged higher
annual expenses than Class A shares.
If your investment horizon is relatively short and you do not qualify to
purchase Class A shares at a reduced sales charge, you should consider
purchasing Class C shares.
OPENING AN ACCOUNT
___________________________________________________________________________
Buying Shares To Open an Account To Add to an Account
- ---------------------------------------------------------------------------
In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Automatic Investment
Plans $ 100 $ 100
Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor
By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.
By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.
Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200.
If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared. 19
<PAGE> 20
STREET NAME OWNERSHIP OF SHARES
Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Fund nor the Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a
shareholder elect s to hold Fund shares in street-name through a brokerage
firm account rather than directly in the shareholder's own name. Further,
neither the Fund nor the Transfer Agent will be responsible to the investor
for any loss to the investor due to the brokerage firm's failure, its loss of
property or funds, or its acts or omissions. Prospective investors are urged
to confer with their financial advisor to learn about the different options
available for owning mutual fund shares. You may receive share certificates
or hold shares in your name with the Transfer Agent upon request.
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (by selling them back to the Fund or by selling the
shares through you r financial advisor). Your shares will be purchased by the
Fund at the next share price (NAV) calculated after your order is received in
proper form and accepted. The amount of the CDSC, if any, will be deducted
and the remaining proceeds sent to you. No CDSC is imposed on the amount by
which the value of a share may have appreciated. Similarly, no CDSC is
imposed on shares obtained through reinvestment of dividends or capital
gains. Shares not subject to a CDSC will be redeemed first. Share price is
normally calculated at 4 p.m. Eastern time.
To sell shares in an account, you may use any of the methods described on the
following page.
If you are selling some but not all of your shares, leave at least $1,000
worth of shares in the account to keep it open.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and your Fund from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
* You wish to redeem more than $10,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address than the one on your
account (record address),
* The check is being made payable to someone other than the account owner,
or
* The redemption proceeds are being transferred to a Thornburg account with
a different registration.
You should be able to obtain a signature guarantee from a bank, broker
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.
TELEPHONE REDEMPTION. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares of any Fund by telephone simply by calling a Fund
Customer Service Representative. Money can be wired directly to the bank
account designated by you on the application or sent to you in a check. The
Funds' Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.
If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:
NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017
20
<PAGE> 21
The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for,
and will not be liable for, the authenticity of withdrawal instructions
received by telephone or the delivery or transmittal of the redemption
proceeds if they follow instructions communicated by telephone that they
reasonably believe to be genuine. By electing telephone redemption you are
giving up a measure of security you otherwise may have by redeeming shares
only with written instructions, and you may bear the risk of any losses
resulting from telephone redemption. The Funds' Transfer Agent will attempt
to implement reasonable procedures to prevent unauthorized transactions and
the Funds or their Transfer Agent could be liable if these procedures are not
employed. These procedures will include recording of telephone transactions,
providing written confirmation of such transactions within 5 days, and
requesting certain information to better confirm the identity
of the caller at the time of the transaction.
____________________________________________________________________________
Redeeming Shares Account Type Special Requirements
- ----------------------------------------------------------------------------
Through Your Financial All account types Consult with your financial
Advisor advisor. Your financial
advisor may charge a fee.
By Mail Individual, Joint The letter of instruction
Tenant, Sole Pro- must be signed by all
prietorship, UGMA, persons required to sign
UTMA for transactions, exactly as
Send to: NFDS their names appear on the
c/o Thornburg Funds account, and must include:
P.O. Box 419017 * Your name,
Kansas City, MO * The Fund's name,
64141-6017 * Your Fund account number,
* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed
above,
* Signature guarantee, if
required.
Trust In addition to the above
requirements, the trustee
must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
Business or In addition to the above
Organization requirements, at least one
person authorized by
corporate resolution to act
on the account must sign the
letter which must be
signature guaranteed.
Include a corporate
resolution with corporate
seal.
Executor, Call 1-800-847-0200 for
Administrator, instructions.
Conservator, Guardian
By Telephone All account types You must sign up for the
1-800-847-0200 except Street-Name telephone redemption feature
before using it.
* Minimum Wire $1,000
* Minimum Check $50.00
By Systematic Withdrawal All account types You must sign up for this
Plan feature to use it.
* Minimum Account Balance
$10,000
* Minimum Check $50.00
21
<PAGE> 22
INVESTOR SERVICES
Thornburg Funds provides a variety of services to help you manage your
account.
Information Services
Thornburg Funds' telephone representatives are available Monday through
Friday from 9:30 am to 6:30 pm Eastern time. Whenever you call, you can speak
with someone equipped to provide the information or service you need.
Thornburg Funds' Audio Response system is available 24 hours a day, 365 days
a year. This computerized system gives you instant access to your account
information and up-to-date figures on all of the Thornburg Funds.
Statements and reports that Thornburg Funds send to you include the
following:
* Account statements after every transaction affecting your account
* Monthly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem shares)
TRANSACTION SERVICES
Automatic Investment Plan. One easy way to pursue your financial goals is to
invest money regularly. Thornburg Funds let you transfer as little as $100
from your bank account into your Fund account on a weekly, monthly or
quarterly basis, automatically. Because the Fund's Automatic Investment Plan
has a lower minimum than a regular purchase, it is an ideal way for beginning
investors to invest in a Fund.
While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be an excellent way to
invest for retirement, a home, educational expenses, and other long-term
financial goals. Call 1-800-847-0200 and speak to a Fund Customer Service
Representative for more information.
Exchange Privilege. You may exchange Class A shares of any other Thornburg
Fund for Class A shares of one of the Thornburg Municipal Funds.
If you are exchanging from one of the Funds covered by this prospectus into
another Thornburg Fund, you may (i) have to pay the difference between the
front end sales charge you paid on the Fund out of which you are exchanging
and the front end sales charge applicable to the Fund into which you are
exchanging; or (ii) you may qualify for a reduced sales charge or no sales
charge on that Fund. Please consult the exchange an d reinvestment privilege
information in the Prospectus of the other Thornburg Fund.
Note that exchanges out of a Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be suspended
or revoked, see page 31.
Systematic withdrawal plans let you set up periodic redemptions from your
account. Because of the sales charge on Class A shares of each Fund, you may
not want to set up a systematic withdrawal plan during a period when you are
buying Class A shares on a regular basis.
22
<PAGE> 23
SHAREHOLDER AND ACCOUNT POLICIES
Dividends, Capital Gains, and Taxes
The Funds distribute substantially all of their net income and realized
capital gains, if any, to shareholders each year. Each Fund declares its net
investment income daily and distributes it monthly. Each Fund will distribute
net realized capital gains, if any, at least annually. Capital gain
distributions normally will be declared and payable in December.
Distribution Options
Each Fund earns interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions.
When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options, (which you can change at
any time).
Dividends
1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may also
instruct the Fund to invest your dividends in the shares of any other
Thornburg Fund.
2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end.
Capital Gains
1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
You may also instruct the Fund to re invest your capital gain
distributions in shares of any other Thornburg Fund.
2. Cash Option. You will be sent a check for any capital gain distributions.
Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges.
Turnover and Capital Gains
The Funds do not intend to engage in short-term trading for profits.
Nevertheless, when a Fund believes that a security will no longer contribute
towards its reaching its goal, it will normally sell that security.
When a Fund sells a security at a profit it realizes a capital gain. When it
sells a security at a loss it realizes a capital loss. A fund must, by law,
distribute capital gains, net of any losses, to its shareholders. Whether you
reinvest your capital gain distributions or take them in cash, the
distribution is taxable.
To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio manager,
the integrity and income generating aspects of the portfolio would be
unaffected by doing so.
23
<PAGE> 24
TAXES
Federal Taxes
The Limited Term National Fund, Limited Term California Fund, Intermediate
National Fund, Intermediate New Mexico Fund and Intermediate Florida Fund
each have qualified under Subchapter M of the Internal Revenue Code (the
"Code ") for tax treatment as a regulated investment company, and each of
these Funds intends to continue its qualification so long as qualification is
in the best interests of the shareholders. The other Funds also intend to
qualify for this treatment under Subchapter M. This tax treatment relieves a
Fund from paying federal income tax on income which is currently distributed
to its shareholders. Each Fund also intends to satisfy conditions that will
enable it to designate distributions from the interest income generated by
its investments in Municipal Obligations, which are exempt from federal
income tax when received by the Fund, as Exempt Interest Dividends.
Shareholders receiving Exempt Interest Dividends will not be subject to
federal income tax on the amount of such dividends, except to the extent the
alternative minimum tax may be imposed.
The Funds' counsel, White, Koch, Kelly & McCarthy, Professional Association,
has not made and normally will not make any review of the proceedings
relating to the issuance of the Municipal Obligations or the basis for any
opinions issued in connection therewith. In the case of certain Municipal
Obligations, federal tax exemption is dependent upon the issuer (and other
users) complying with certain ongoing requirements. There can be no assurance
that the issuer (and other users) will comply with these requirements, in
which event the interest on such Municipal Obligations could be determined to
be taxable, in most cases retroactively from the date of issuance. Certain
matters under the Code, including certain exceptions to the foregoing, are
discussed more specifically below.
Each Fund will receive the opinion of its counsel or other assurances before
commencing investment operations that such distributions will constitute
Exempt Interest Dividends under the Code if certain conditions are satisfied.
Distributions by each Fund of net interest income received from certain
temporary investments (such as certificates of deposit, corporate commercial
paper and obligations of the United States government, its agencies and
instrumentalities) and net short-term capital gains realized by each Fund, if
any, will be taxable to shareholders as ordinary income whether received in
cash or additional shares. Distributions to shareholders will not qualify for
the dividends received deduction for corporations. Any net long-term capital
gains realized by a Fund, whether or not distributed, will be taxable to
shareholders as long-term capital gains regardless of the length of time
investors have held their shares, although gains attributable to market
discount on portfolio securities will be characterized as ordinary income.
Each year each Fund will, where applicable, mail to shareholders information
on the tax status of dividends and distributions, including the respective
percentages of tax-exempt and taxable income and an allocation of tax-exempt
income on a state-by-state basis. The exemption of interest income for
federal income tax purposes does not necessarily result in an exemption under
the income or other tax laws of any state or local taxing authorities. (See
"State Taxes," below). Shareholders are advised to consult their own tax
advisers for more detailed information concerning the federal, state and
local taxation of each Fund and the income tax consequences to its
shareholders.
The Code treats interest on certain Municipal Obligations which are private
activity bonds under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Funds may
purchase without limitation private activity bonds the interest on which is
subject to treatment under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations, although the
frequency and amounts of these purchases are presently uncertain. Some
portion of Exempt Interest Dividends may, as a result of these purchases, be
treated as a preference item for purposes of the alternative minimum tax on
individuals and corporations. Shareholders are advised to consult their own
tax advisers as to the extent and effect of this treatment.
24
<PAGE> 25
State Taxes
Distributions of interest income from Municipal Obligations will not
necessarily be exempt from taxes under the income or other tax laws of any
state or local taxing authority. Distributions to individuals attributable to
interest on Municipal Obligations originating in Alabama, California,
Arizona, New Mexico, and Tennessee will not be subject to personal income
taxes imposed by the state of the same name as the Fund. For example, an
individual resident in New Mexico, who owns shares in the Intermediate New
Mexico Fund, will not be required by New Mexico to pay income taxes on
interest dividends attributable to obligations originating in that state.
Capital gain distributions are taxable by these states, irrespective of the
origins of the obligations from which the gains arise. Individual
shareholders of the Pennsylvania Intermediate Fund, who are Pennsylvania
residents, will not be subject to Pennsylvania income tax on distributions
attributable to interest on obligations originating in Pennsylvania, or
distributions attributable to gains on dispositions of obligations of
Pennsylvania and its political subdivisions and obligations of the United
States and its territories and possessions. Additionally, individual
shareholders will be exempt from Pennsylvania personal property tax on their
Intermediate Pennsylvania Fund shares to the extent the Fund's assets consist
of obligations described in the preceding sentence. Individual residents in
Pittsburgh will enjoy a similar exemption from personal property taxes
imposed by the City and School District of Pittsburgh.
Florida and Texas do not currently impose an income tax on individuals
or do not impose an income tax on distributions to individuals attributable
to Municipal Obligations. Florida imposes a personal property or
"intangibles" tax which is generally applicable to securities owned by
individual residents in Florida, but the intangibles tax will not apply to
Florida Fund shares if the Funds' assets as of the close of the preceding
taxable year consist only of obligations of Florida and its political
subdivisions and obligations of the United States, Puerto Rico, Guam or the
United States Virgin Islands.
With respect to distributions of interest income from the Limited Term
National Fund and the Intermediate National Fund, the laws of the several
states and local taxing authorities vary with respect to the taxation of such
distributions, and shareholders of these Funds are advised to consult their
own tax advisers in that regard. The Limited Term National Fund and the
Intermediate National Fund will advise shareholders approximately 60 days
after the end of each calendar year as to the percentage of income derived
from each state as to which it has any Municipal Obligations in order to
assist shareholders in the preparation of their state and local tax returns.
Prospective investors are urged to confer with their own tax advisers for
more detailed information concerning state tax consequences. In particular,
corporations should note that the preceding outline of state taxes pertains
principally to individuals, and tax treatment of corporations may be
different.
25
<PAGE> 26
SERVICE AND DISTRIBUTION PLANS
Service Plan - Class A and Class C. Each class of each Fund has adopted a
Service Plan under which TMC makes payments to securities dealers and other
financial institutions and organizations to obtain various shareholder
related services. The Service Plans permit each of these Funds to reimburse
TMC for these payments at annual rates up to .25% of each class' net assets.
No assets of any class of any Fund will be used to reimburse expenses
attributable to any other class of the same, or any other Fund.
Class C Distribution Plan. Each Fund offering Class C shares has adopted a
Class C Distribution Plan applicable to its Class C shares, under which the
Fund will pay to TSC on a monthly basis an annual distribution fee of up to
.75% of the average daily net assets attributable to Class C shares of the
Fund. This distribution fee is an addition to the service fee described above
under "Service Plan - All Classes" and is charged to and reduces the income
allocated to Class C shares. TSC intends to use these amounts principally to
compensate dealers (including banks) who sell Class C shares. TSC also will
engage in other distribution related activities, including advertising and
other promotional activities. However, the distribution fee paid to TSC is
not computed with respect to TSC's actual expenses, and the fees received by
TSC may be more or less than its actual distribution expenses. TSC may, but
is not obligated to, waive any part or all of its compensation provided for
under the Class C Distribution Plan.
The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 19 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.
TRANSACTION DETAILS
The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued on the basis of
valuations obtained from independent pricing services.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
You may initiate many transactions by telephone. Note that a Fund will not be
responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
The Fund will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you want the ability to
redeem and exchange by telephone, fill in the appropriate section of the
application. If you have an existing account to which you wish to add this
feature, call the Fund for a telephone redemption application. If you are
unable to reach the Fund by phone (for example, during periods of unusual
market activity), consider placing your order by mail or by using your
financial advisor.
26
<PAGE> 27
The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions "
on page 31. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.
When you place an order to buy shares, your order will be processed at the
next share price calculated after your order is received. If you open or add
to your account yourself rather than through your financial advisor please
note the following:
* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
* The Funds do not accept cash.
* If your check does not clear, your purchase will be cancelled and you
could be liable for any losses or fees the Fund or its Transfer Agent has
incurred.
When you buy shares of a Fund or sell them through your financial advisor,
you may be charged a fee for this service. Please read your financial
advisor's program materials for any additional procedures, service features
or fees that may apply.
Certain financial institutions that have entered sales agreements with TSC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received and accepted. (Except that a
CDSC will be deducted from Class C shares within one year of purchase and a
CDSC of 1/2 of 1% will be deducted from redemptions of Class A shares within
one year of purchase where no sales charge was imposed on the purchase
because it exceeded $1,000,000). Note the following:
* Consult your financial advisor for procedures governing redemption through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds have
elected to pay in cash all requests for redemption by any shareholder.
They may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset value
of a Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits its withdrawal. In the case of a redemption
in kind, securities delivered in payment for shares would be valued at the
same value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities. 27
EXCHANGE RESTRICTIONS
As a shareholder you have the privilege of exchanging Class A shares of the
Funds for Class A shares of other Thornburg Funds. However, you should not
the following:
* The Fund you are exchanging into must be registered for sale in your
state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* If you exchange Class A shares into a Fund with a higher sales charge, you
may have to pay the percentage-point difference between that Fund's sales
charge and any sales charge you have previously paid in connection with
the shares you are exchanging. For example, if you had already paid a
sales charge of 2.5% on your shares and you exchange them into a Fund with
a 4.5% sales charge, you would pay an additional 2% sales charge.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt performance and shareholders, each Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges out of a Fund
in any calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for purposes of the four exchange limit.
* Each Fund reserves the right to refuse exchange purchases by any person or
group if, in TMC's judgement, the Fund would be unable to invest the money
effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund.
Although a Fund will attempt to give prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time. The Funds
reserve the right to terminate or modify the exchange privilege in the
future.
PERFORMANCE
YIELD COMPUTATION AND TOTAL RETURN
The Funds may quote their yields and returns in reports, sales literature and
advertisements. Yield and return information are computed separately for
Class A and Class C shares. Yield and return for Class C shares of a Fund
ordinarily will be less than t hat of Class A shares of the same Fund because
of the additional distribution fees imposed upon Class C shares.
Additionally, yield and return could differ in minor respects among classes
of the same Fund because of allocation of certain expenses to one or more
specific classes to which the expenses relate. Any return quoted should not
be considered a representation of the return in the future since return
figures are based upon historical earnings. Actual performance will vary.
Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
f or that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtain ed using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the
28
<PAGE> 29
30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3)The non-standardized calculation
may reflect the average offering price per share for the period or the
beginning offering price per share for the period, whereas the standardized
calculation will always reflect the maximum offering price per share on the
last day of the period; (4)The non-standardized calculation may reflect an
offering price per share other than the maximum offering price, provided
that any time any Fund's return is quoted in reports, sales literature or
advertisements using a public offering price which is less than the Fund's
maximum public offering price, the return computed by using the Fund's
maximum public offering price also will be quoted in the same piece; (5)The
non-standard return quotation may include the effective return obtained by
compounding the monthly dividends.
Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
includes the effect of paying the maximum sales charge (Class A shares) or
the deduction of the applicable CDSC (Class C shares) and assumes the
reinvestment of all dividends. The Funds also may furnish average annual
total return quotations for other periods, or based upon investments at
various sales charge levels or at net asset value. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Yields and returns described in this section may also be quoted on a
"taxable equivalent yield" basis by computing the taxable yield or return
which a hypothetical investor subject to a specified income tax rate must
realize to receive the same yield or return after taxes. When a taxable
equivalent yield is quoted, the following additional information will be
furnished: (1) a standardized current yield; (2) the length of and the last
day of the base period used in computing the quotation; and (3) a description
of the method by which the quotation is computed. Yield and return
information may be useful in reviewing the performance of the Funds and for
providing a basis for comparison with other investment alternatives.
Comparative information about the yield or distribution rate of the shares of
a Fund and a bout average rates of return on certificates of deposit, bank
money market deposit accounts, money market mutual funds and other short-term
investments may also be included in advertisements and communications of the
Fund. Any such comparison will contain information about the differences
between the Funds and those investments.
From time to time, in advertisements and other types of literature, the
performance of the Funds may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Funds may
illustrate performance or the characteristics of their respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of a Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Funds' share price or net asset
value relative to changes in the value of other investments, and (iv) the
relationship
29
<PAGE> 30
over time of changes in the Funds' (or other investments) net asset values or
prices and the Funds' (or other investments') investment returns. The Funds
also may illustrate or refer to their respective investment portfolios,
investment techniques and strategies, and general market or economic trends
in advertising or communications to shareholders or prospective shareholders,
including reprints of interviews or articles written by or about, and
including comments by, Fund managers. These illustrations, references and
comments ordinarily will relate to topics addressed in the Funds' Prospectus
and Statements of Additional Information.
ORGANIZATION OF THE FUNDS
Each of the Limited Term Municipal Funds are diversified series of Thornburg
Limited Term Municipal Fund, Inc., a Maryland corporation organized as a
diversified, open-end management investment company. The Limited Term
Municipal Funds are managed by their investment adviser, Thornburg Management
Company, Inc., under the supervision of the Board of Directors of Thornburg
Limited Term Municipal Fund, Inc. (the "Company" ). The Company currently
offers two series of stock, referred to in this Prospectus as Limited Term
National Fund and Limited Term California Fund, each in multiple classes, and
the Board of Directors is authorized to divide authorized but unissued shares
into additional series and classes.
Each of the Intermediate Municipal Funds are series of Thornburg Investment
Trust, a Massachusetts business trust (the "Trust") organized as a
diversified, open-end management investment company under a Declaration of
Trust (the "Declaration" ). Each of the single-state Intermediate Funds is a
non-diversified series of the Trust, and the Intermediate Municipal Funds are
managed by their investment adviser, Thornburg Management Company, Inc. under
the supervision of the Trust's Trustees. The Trust currently has 12
authorized Funds, nine of which are described in this Prospectus. The
Trustees are authorized to divide the Trust's shares into additional series
and classes.
No Fund is liable for the liabilities of any other Fund. However, because the
Company and the Trust share this Prospectus with respect to the Funds, there
is a possibility that one of these companies could be liable for any
misstatements, inaccuracies or incomplete disclosure in the Prospectus
respecting Funds offered by the other company. The Company and the Trust do
not concede, and specifically disclaim, any such liability.
Each Fund may hold special shareholder meetings and mail proxy materials.
These meetings may be called to elect or remove Directors or Trustees, change
fundamental investment policies, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Each Fund will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based
upon the number of shares you own. Shares do not have cumulative voting
rights or preemptive rights.
THORNBURG MANAGEMENT COMPANY, INC. AND THORNBURG SECURITIES CORP.
The Funds are managed by Thornburg Management Company, Inc. (TMC). TMC
performs investment management services for each Fund under the terms of an
Investment Advisory Agreement which specifies that TMC will select
investments for the Fund, monitor those investments and the markets
generally, and perform related services. TMC also performs administrative
services specific to each class of shares of each Fund under an
Administrative Services Agreement which requires that TMC will supervise,
administer and perform certain administrative services necessary for the
maintenance of each class' shareholders. TMC's services to the Limited Term
Municipal Funds are supervised by the Directors of Thornburg Limited Term
Municipal Fund, Inc., and TMC's services to the Intermediate Municipal Funds
are supervised by the Trustees of Thornburg Investment Trust.
For each of the Funds, TMC receives a management fee and an administrative
services fee, computed according to the following scales and paid monthly as
a percentage of each Fund's average daily net assets:
30
<PAGE> 31
<TABLE>
Limited Term Intermediate Term All Funds
Municipal Funds Municipal Funds Annual
Net Assets Annual Investment Annual Investment Administrative
Management Fee Management Fee Fee
- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 to $500 million .50% .50% .125%
$500 million to $1 billion .40% .45% .125%
$1 billion to $1.5 billion .30% .40% .125%
$1.5 billion to $2 billion .25% .35% .125%
Over $2 billion .225% .275% .125%
</TABLE>
<PAGE>
TMC was established in 1982. Today, the Thornburg Funds include Thornburg
Value Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Limited
Term Income Fund in addition to the Funds covered by this Prospectus. The
Thornburg Funds total over $1.6 billion in assets. Thornburg Management
Company Inc. is known as a provider of conservative investment products. For
more than a decade the Thornburg Funds have been committed to preserving and
increasing the real wealth of their shareholders. The key to growing real
wealth is increasing buying power after taxes, inflation, and investment
related expenses.
Brian J. McMahon, a Managing Director of TMC, has primary responsibility for
the day-to-day management of each of the Fund portfolios. He has held this
responsibility for each of the Limited Term National Fund and the Limited
Term California Fund since their respective inceptions in 1984 and 1987. He
has held the same responsibility for the Intermediate National Fund and the
Intermediate New Mexico Municipal Fund, which commenced operations in 1991,
and for the Intermediate Florida Fund, which commenced operations in February
1994. Mr. McMahon is assisted by other employees of TMC in managing the
Funds.
TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
if expenses fall below the limit prior to the end of the fiscal year. Fee
waivers and expense reimbursements will increase a Fund's yield, and
repayment of waivers or reimbursements will lower the Fund's yield.
In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. Funds will not bear any costs of sales or promotion incurred
in connection with the distribution of their shares, except as provided for
under the service and distribution plans applicable to each Fund class, as
described above under "Service and Distribution Plans."
Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.
H. Garrett Thornburg, Jr. a Trustee and President of the Trust and a Director
and Chairman of the Company, is the controlling stockholder of both TMC and
TSC.
ADDITIONAL INFORMATION
Reports to Shareholders
Shareholders will receive annual reports of their Fund containing financial
statements audited by the Funds' independent auditors, and also will receive
unaudited semi-annual reports. In addition, each shareholder will receive an
account statement no less often than quarterly.
Custodian and Transfer Agent
The custodian of each Fund's assets is State Street Bank & Trust Co. National
Financial Data Services is the transfer agent for the Funds and
performs bookkeeping, data processing and administrative services incident to
the maintenance of shareholder accounts.
General Counsel
Legal matters in connection with the issuance of shares of the Funds are
passed upon by White, Koch, Kelly & McCarthy, Professional Association, Post
Office Box 787, Santa Fe, New Mexico 87504-0787.
31
<PAGE> back cover
Investment Adviser
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Distributor
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Auditor
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
Custodian
State Street Bank & Trust Co.
Boston, Massachusetts
Transfer Agent
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017
No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus and, if given or made, the information or representation must not
be relied upon as having been authorized by any Fund or Thornburg Securities
Corporation. This Prospectus constitutes an offer to sell securities of a
Fund only in those states where the Fund's shares have been registered or
otherwise qualified for sale. A Fund will not accept applications from
persons residing in states where the Fund's shares are not registered.
<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
<PAGE>
PROXY STATEMENT AND PROSPECTUS
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, FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY GOVERNMENTAL AGENCY.
The date of this prospectus/proxy statement is _________________,
1997.
<PAGE>
TABLE OF CONTENTS
Summary of the Proposed Reorganization
Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund
Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund
Principal Risk Factors
Fees and Expenses of Mackenzie Fund and Thornburg Fund
Performance Information
Purchase, Redemption and Exchange Procedures of Mackenzie Fund and
Thornburg Fund
Dividend Policies of Mackenzie Fund and Thornburg Fund
Comparative Information About Shareholder Rights
Additional Information About Shareholder Accounts
Information About the Reorganization
Capitalization
Additional Information About Thornburg Fund and Mackenzie Fund
Voting Information
Exhibit A: Plan and Agreement of Reorganization
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>
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."
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 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 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 state 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 the Funds Invest In
- ------------------------------
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 obligations, 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
obligations. 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.
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 obligations
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.
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.
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.
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 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 in the future.
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, 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 sales 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>
<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% .25
----- ----- ----- -----
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 be .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.
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.
Mackenzie Fund Thornburg Fund
Class A Class B Class A
--------------- --------------- ----------------
Before After Before After Before After
Expense Expense Expense Expense Expense Expense
Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
------- ------- ------- ------- ------- -------
Yield for 30 days
ended June 30, 1997
Average annual total return
for following periods
ending on June 30, 1997
One Year
Five Years
Ten Years
Since Inception
(April 15, 1988 and
April 1, 1994 for
Class A and Class B
shares, respectively,
of Mackenzie Fund;
and February ___, 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. Yield or 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>
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.
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.
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 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 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.
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.
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.
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 following
approval of the reorganization (the "Closing Date"). 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 $__________ in two
installments, subject to adjustment for redemptions of shares issued in the
reorganization, 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 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
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 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.
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>
CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 1996
<CAPTION>
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 _____________ 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.
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 D. F. King & Co. to assist in soliciting proxies for
the meeting at an estimated cost of $6,000.
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 _____________, 1997, there were issued and outstanding
______ Class A shares and ______ 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 the same date, there were ______ outstanding shares of Thornburg
Fund. As of the same date, no persons were known to own more than 5% of
that 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.
"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 in 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 in 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>
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 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 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;
(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 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.
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 President or Vice President 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
_________________________ By:__________________________________________
_______________ __________________, _________________
Attest: MACKENZIE SERIES TRUST on behalf of MACKENZIE
CALIFORNIA MUNICIPAL FUND
_________________________ By:__________________________________________
_______________ ____________________, ____________________
<PAGE>
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>
EXHIBIT B
Thornburg Municipal Funds Prospectus
February 1, 1997
Filed as Exhibit B to Prospectus/Proxy Statement
for
Mackenzie Limited Term Municipal Fund,
which is part of this registration statement.
<PAGE>
Part B
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 _______________, 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 _____________,
1997.
<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)
Year Ended June 30,
-------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
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>
<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
thoroughly 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>
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 _______________, 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 _____________,
1997.
(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>
[Insert Item 7]<PAGE>
Part C
Other Information
- -----------------
Item 15. Indemnification
- -------------------------
Reference is made to Article EIGHTH and paragraphs (e) and (f) of
Article SEVENTH of the Registrant's Articles of Incorporation previously
filed as Exhibit 1, to Article X of the Registrant's By-Laws previously filed
as Exhibit 2 and to Section 2-418 of the Maryland General Corporation Law.
Reference is also made to Section 7 of the Distribution Agreement
previously filed as Exhibit 6(a).
The directors and officers (the "insureds") of both the Registrant and
the Adviser are insured under a joint directors and officers liability
policy. The policy covers amounts which the insureds become legally
obligated to pay by reason of any act, error, omission, misstatement,
misleading statement or neglect or breach of duty in the performance of their
duties as directors, trustees and officers. In addition, the policy covers
the Registrant and the Adviser to the extent that they have legally
indemnified the insureds for amounts incurred by the insureds as described in
the preceding sentence. The coverage excludes amounts that the insureds
become obligated to pay by reason of conduct which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of the
insured's duty.
The application for the foregoing provisions is limited by the following
undertaking set forth in the rules promulgated by the Securities and Exchange
commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policies
expressed in such Act and that if a claim for indemnification
against such liabilities other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.
Item 16. Exhibits
- ------------------
(1) Articles of Incorporation, as amended.
(2) By-laws
(3) Not applicable
(4) Agreement and Plan of Reorganization - filed herewith as
Exhibit A to each of the Prospectus/Proxy Statements.
(5) Not applicable
(6) (a) Form of Restated Investment Advisory Agreement incorporated
by reference from post-effective amendment no. 25 to
registrant's Registration Statement on Form N-1A, filed
August 30, 1996
(b) Form of Administrative Services Agreement, incorporated by
reference from post-effective amendment no. 25 to
registrant's Registration Statement on Form N-1A, filed
August 30, 1996
(7) Form of Underwriting Agreement
(8) Not applicable
(10) (a) Form of Class A Service Plan
(b) Multiple Class Plan pursuant to Rule 18F-3, as revised
June 9, 1997
(11) Opinion and consent of Koch, Kelly & McCarthy, P.A.
(12) Opinion and consent of Dechert Price and Rhoads, as to
tax consequences (to be filed by post-effective amendment)
(13) Not applicable
(14) (a) Consent of McGladrey & Pullen, LLP, independent auditors
(b) Consent of Coopers & Lybrand, L.L.P., independent auditors
(15) Not applicable
(16) Powers of attorney
(17) (a) Declaration pursuant to Rule 24f-2
(b) Proxy card (Mackenzie Limited Term Municipal Fund)
(c) Proxy card (Mackenzie California Municipal Fund)
Item 17. Undertakings
- ----------------------
(1) The undersigned registrant agrees that prior to any public
offering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings
by person who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
(3) The undersigned registrant agrees to file, by post-effective
amendment, an opinion of counsel or a copy of an Internal Revenue
Service ruling supporting the tax consequences of the proposed
acquisition of assets and issuance of shares described in this
Registration Statement within a reasonable time after receipt of
such opinion or ruling.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Santa Fe, and State of New Mexico on the 24th day of June, 1997.
LIMITED TERM MUNICIPAL FUND, INC.
Registrant
*
By _____________________________________
Brian J. McMahon, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
* *
- -------------------------------- -----------------------------------
Brian J. McMahon, President H. Garrett Thornburg, Jr., Chairman
and Principal Executive Officer Director, Treasurer and Principal
Financial and Accounting Officer
*
- --------------------------------
J. Burchenal Ault, Director
*
- --------------------------------
Eliot R. Cutler, Director
*
- --------------------------------
James E. Monaghan, Jr., Director
*
- --------------------------------
A. G. Newmyer III, Director
*
- --------------------------------
Richard M. Curry, Director
* By: /s/
____________________________
Charles W. N. Thompson, Jr.
As Attorney-In-Fact June 24, 1997
INDEX TO EXHIBITS
(1) Articles of Incorporation, as amended.
(2) By-laws
(7) Form of Underwriting Agreement
(10) (a) Form of Class A Service Plan
(b) Multiple Class Plan pursuant to Rule 18F-3, as revised
June 9, 1997
(11) Opinion and consent of Koch, Kelly & McCarthy, P.A.
(14) (a) Consent of McGladrey & Pullen, LLP, independent auditors
(b) Consent of Coopers & Lybrand, L.L.P., independent auditors
(16) Powers of attorney
(17) (a) Declaration pursuant to Rule 24f-2
(b) Proxy card (Mackenzie Limited Term Municipal Fund)
(c) Proxy card (Mackenzie California Municipal Fund)
<PAGE>
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
TAX-FREE MUNICIPAL LEASE FUND, INC.
The undersigned, in order to form a Corporation under the general laws
of the State of Maryland, hereby certifies as follows:
FIRST: (1) The name and post office address of the incorporator are
Kenneth L. Henderson, One Rockefeller Plaza, New York, New York 10020. The
incorporator is over eighteen years of age.
(2) The incorporator is forming the corporation named in these
Articles of Incorporation under the general laws of the State of Maryland.
SECOND: The name of the corporation (the "Corporation") is TAX-FREE
MUNICIPAL LEASE FUND, INC.
THIRD: The purposes for which the Corporation is formed are:
(a) to conduct, operate and carry on the business of an
investment company;
(b) To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise dispose of notes, bills, bonds,
debentures, leases, installment purchase contracts, participation
and other negotiable or nonnegotiable instruments, obligations
and evidences of indebtedness issued or guaranteed as to
principal and interest by the United States Government, or any
agency or instrumentality thereof, any State or local government,
or any agency or instrumentality thereof, or any other securities
of any kind issued by any corporation or other issuer organized
under the laws of the United States or any State, territory or
possession thereof or any foreign country or any subdivision
thereof or otherwise, to pay for the same in cash or by the issue
of stock, including treasury stock, bonds or notes of the
Corporation or otherwise; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any
and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of
such rights, powers and privileges in respect to any such
investments;
(c) to conduct research and investigations in respect of
securities, organizations, businesses and general business and
financial conditions in the United States of America and
elsewhere for the purpose of obtaining information pertinent to
the investment and employment of the assets of the Corporation
and to procure any or all of the foregoing to be done by others
as independent contractors and to pay compensation therefor;
(d) to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting
as security the assets of the Corporation, and to endorse,
guarantee or undertake the performance of any obligation,
contract or engagement of any other person, firm, association or
corporation;
(e) to issue, sell, distribute, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, or dispose of, transfer,
and otherwise deal in, shares of stock of the Corporation,
including shares of stock of the Corporation in fractional
denominations, and to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of shares of stock of the
Corporation, any funds or property of the Corporation, whether
capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the State of Maryland and by
these Articles of Incorporation.
(f) to conduct its business, promote its purposes, and
carry on its operations in any and all of its branches and
maintain offices both within and without the State of Maryland,
in any and all States of the United States of America, in the
District of Columbia, and in any or all commonwealths,
territories, dependencies, colonies, possessions, agencies, or
instrumentalities of the United States of America and of foreign
governments;
(g) to carry out all or any part of the foregoing purposes
or objects as principal or agent, or in conjunction with any
other person, firm, association, corporation or other entity, or
as a partner or member of a partnership, syndicate or joint
venture or otherwise, and in any part of the world to the same
extent and as fully as natural persons might or could do;
(h) to have and exercise all of the powers and privileges
conferred by the laws of the State of Maryland upon corporations
formed under the laws of such State; and
(i) to do any and all such further acts and things and to
exercise any and all such further powers and privileges as may be
necessary, incidental, relative, conducive, appropriate or
desirable for the foregoing purposes.
The enumeration herein of the objects and purposes of the Corporation
shall be construed as powers as well as objects and purposes and shall not
be deemed to exclude by inference any powers, objects or purposes which the
Corporation is empowered to exercise, whether expressly by force of the
laws of the State of Maryland now or hereafter in effect, or impliedly by
the reasonable construction of the such laws.
FOURTH: The post office address of the principal office of the
Corporation within the State of Maryland is 32 South Street, Baltimore,
Maryland 21202, in care of The Corporation Trust, Incorporated.
The resident agent of the Corporation in the State of Maryland is The
Corporation Trust, Incorporated, 32 South Street, Baltimore, Maryland
21202.
FIFTH: (1) The total number of shares of stock of all classes which
the Corporation shall have authority to issue is one hundred million
(100,000,000), all of which stock shall have a par value of One Tenth of
One Cent ($.001) per share. The aggregate par value of all authorized
shares of stock of the Corporation is One Hundred Thousand Dollars
($100,000).
(2)(a) The Board of Directors of the Corporation is authorized
to classify and to reclassify, from time to time, any unissued shares of
stock of the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, and qualifications or
terms and conditions of or rights to require redemption of the stock and,
pursuant to such classification or reclassification, to increase or
decrease the number of authorized shares of any class, but the number of
shares of any class shall not be reduced by the Board of Directors below
the number of shares thereof then outstanding.
(b) Without limiting the generality of the foregoing, the
dividends and distributions of investment income and capital
gains with respect to the stock of the Corporation, and with
respect to each class that hereafter may be created, shall be in
such amount as may be declared from time to time by the Board of
Directors, and such dividends and distributions may vary from
class to class to such extent and for such purposes as the Board
of Directors may deem appropriate, including, but not limited to,
the purpose of complying with requirements of regulatory or
legislative authorities.
(3) Until such time as the Board of Directors shall provide
otherwise in accordance with Section (2) of this Article FIFTH, all of the
authorized shares of the Corporation are designated as Common Stock. Such
shares and the holders thereof shall be subject to the following
provisions:
(a) As more fully set forth hereafter, the assets and
liabilities and the income and expenses of each class of the
Corporation's stock shall be determined separately, and,
accordingly, the net asset value, the dividends payable, and the
amounts distributable in the event of dissolution of the
Corporation, to holders of shares of the Corporation's stock may
vary from class to class. Except for these differences and
certain other differences hereafter set forth, each class of the
Corporation's stock shall have the same preference, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of and rights
to require redemption.
(b) All consideration received by the Corporation for the
issue or sale of shares of a class of the Corporation's stock,
together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to that class for all purposes,
subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Corporation. Such
consideration, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be,
are herein referred to as "assets belonging to" that class.
(c) The assets belonging to a class of the Corporation's
stock shall be charged with the liabilities of the Corporation
with respect to that class and with an allocable share of the
liabilities of the Corporation not attributable to any particular
class, in the latter case in the proportion that the aggregate
net asset value of that class bears to the aggregate net asset
value of all classes of the Corporation's stock as determined in
accordance with Article NINTH of these Articles of Incorporation.
The determination of the Board of Directors shall be conclusive
as to the allocation of liabilities, including accrued expenses
and reserves, and assets to a particular class or classes.
(d) Each holder of stock of the Corporation, upon request
to the Corporation (accompanied by surrender of the appropriate
stock certificates in proper form for transfer, if any
certificates h ave been issued to represent such shares) shall be
entitled to require the Corporation to redeem, to the extent that
the Corporation may lawfully effect such redemption under the
laws of the State of Maryland, all or any part of the shares of
stock standing in the name of such holder on the books of the
Corporation at a price per share equal to the net asset value per
share computed in accordance with Article NINTH hereof.
(e)(i) If the net asset value of the shares of a class of
the Corporation's stock held by a stockholder shall be less than
the Minimum Amount (as defined below) then in effect with respect
to shares of that class, or with respect to the category of
holders in which the stockholder is included of shares of that
class, the Corporation may redeem all of those shares, upon
notice given to the holder in accordance with paragraph (iii) of
this subsection (e), to the extent that the Corporation may
lawfully effect such redemption under the laws of the State of
Maryland. The term "Minimum Amount" when used herein shall mean
One Thousand Dollars ($1,000) unless otherwise fixed by the Board
of Directors from time to time, provided that the Minimum Amount
may not in any event exceed Twenty-Five Thousand Dollars
($25,000). The Board of Directors may establish differing
Minimum Amounts for each class of the corporation's stock and for
categories of holders of shares of any class of stock based on
such criteria as the Board of Directors may deem appropriate.
(ii) The Corporation shall be entitled, but not required,
to redeem shares of stock from any stockholder or stockholders,
to the extent and at such times as the Board of Trustees shall,
in its absolute discretion, determine to be necessary or
advisable to prevent the Corporation from qualifying as a
"personal holding company" within the meaning of the Internal
Revenue Code of 1954, as amended from time to time. Notice of
any such redemption shall be given in accordance with paragraph
(iii) of this subsection (e).
(iii) The notice referred to in paragraphs (i) and (ii) of
this subsection (e) shall be in writing personally delivered or
deposited in the mail, at lest thirty days (or such other number
of days as may be specified from time to time by the Board of
Directors) prior to such redemption. If m ailed, the notice
shall be addressed to the stockholder at his post office address
as shown on the books of the Corporation, and sent by certified
or registered mail, postage prepaid. The price for shares
acquired by the Corporation pursuant to this subsection (e) shall
be an amount equal to the net asset value of such shares,
computed in accordance with Article NINTH hereof.
(f) Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by the
Corporation within seven business days of such surrender out of
the funds legally available therefor, provided that the
Corporation may suspend the right of the holders of stock of the
Corporation to redeem shares of stock and may postpone the right
of such holders to receive payment for any shares when permitted
or required to do so by applicable statutes or regulations.
Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation shall select.
(g) The right of any holder of stock of the Corporation
redeemed by the Corporation as provided in subsections (d) or (e)
of this section (3) to receive dividends thereon and all other
rights of such holder with respect to such shares shall terminate
at the time as of which the purchase or redemption price of such
shares is determined, except the right of such holder to receive
(i) the redemption price of such shares from the Corporation or
its designated agent and (ii) any dividend or distribution to
which such holder has previously become entitled as the record
holder of such shares on the record date for such dividend of
distribution. If shares of stock are redeemed by the Corporation
pursuant to subsection (e) of this section (3) and certificates
representing the redeemed shares have been issued, the redemption
price need not be paid by the Corporation until the certificates
have been received by the Corporation or its agent duly endorsed
for transfer.
(h) The Corporation shall be entitled to purchase shares of
its stock, to the extent that the Corporation may lawfully effect
such purchase under the laws of the State of Maryland, upon such
terms and conditions and for such consideration as the Board of
Directors shall deem advisable, by agreement with the stockholder
at a price not exceeding the net asset value per share computed
in accordance with Article NINTH hereof.
(i) The net asset value of each share of a class of the
Corporations' stock issued and sold or redeemed or purchased at
net asset value shall be the net asset value per share of the
shares of that class determined in accordance with Article NINTH
hereof based on the assets belonging to that class less the
liabilities charged to that class.
(j) In the absence of any specification as to the purpose
for which shares of stock of the Corporation are redeemed or
purchased by it, all shares so redeemed or purchased shall be
deemed to be retired in the sense contemplated by the laws of the
State of Maryland and the number of the authorized shares of
stock of the Corporation shall not be reduced by the number of
any shares redeemed or purchased by it.
(k) Shares of each class of stock shall be entitled to such
dividends or distributions, in shares of stock or in cash or
both, as may be declared from time to time by the Board of
Directors, acting in its sole discretion, with respect to such
class, provided that dividends or distributions shall be paid on
shares of a class of stock only out of lawfully available assets
belonging to that class.
(l) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a class of the Corporation's
stock shall be entitled to receive, as a class, out of the assets
of the Corporation available for distribution to stockholders,
the assets belonging to that class. The assets so distributable
to the stockholders of a class shall be distributed among such
stockholders in proportion to the number of shares of that class
held by them and recorded on the books of the Corporation. In
the event that there are any assets available for distribution
that are not attributable to any particular class of stock, such
assets shall be allocated to all classes in proportion to the net
asset value of the respective classes and then distributed to the
holders of stock of each class in proportion to the net asset
value of the shares of that class held by the respective holders.
(m) On each matter submitted to a vote of the stockholders,
each holder of a share of stock shall be entitled to one vote for
each such share standing in his name on the books of the
Corporation, irrespective of the class thereof; provided,
however, that to the extent class voting is required by the
Investment Company Act of 1940 or regulations thereunder, as from
time to time amended, or the laws of the State of Maryland as to
any such matter, those requirements shall apply.
(n) The Corporation may issue shares of stock in factional
denominations to the same extent as its whole shares, and shares
in fractional denominations shall be shares of stock having
proportionately to the respective fractions represented thereby
all the rights of whole shares, including without limitation the
right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation,
but excluding the right to receive a stock certificate
representing fractional shares.
(4) No holder of any shares of stock of the Corporation
shall be entitled as of right to subscribe for, purchase, or otherwise
acquire any such shares which the Corporation shall issue or propose to
issue; and any and all of the shares of stock of the Corporation, whether
now or hereafter authorized, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status, by
the Board od Directors to such persons, firms, corporations and
associations, and for such lawful consideration and on such terms as the
Board of Directors in its discretion may determine without first offering
same, or any thereof, to any said holder.
(5) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of
these Articles of Incorporation, as from time to time amended.
SIXTH: The number of directors of the Corporation, until such
number shall be increased pursuant to the By-Laws of the Corporation, shall
be one. The number of directors shall never be less than the number
prescribed by the General Corporation Law of the State of Maryland and
shall never be more than twenty. The name of the person who shall act as
director of the Corporation until the number of directors is increased in
accordance with the By-Laws of the Corporation or until the first annual
meeting of shareholders or until his successor is duly chosen and qualifies
is H. Garrett Thornburg, Jr.
SEVENTH: The following provisions are inserted for the purpose
of defining, limiting and regulating the powers of the Corporation and of
the Board of Directors and stockholders.
(a) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall
have and may exercise all powers of Corporation except those
powers which are by law, by these Articles of Incorporation or by
the By-Laws conferred upon or reserved to the stockholders. In
furtherance and not in limitation of the powers conferred by law,
the Board of Directors shall have power:
(i) to make, alter and repeal by-laws of the
Corporation;
(ii) to issue and sell, from time to time, shares of
any class of the Corporation's stock in such amounts and on
such terms and conditions, and for such amount and kind of
consideration, as the Board of Directors shall determine,
provided that the consideration per share to be received by
the Corporation shall be not less than the greater of the
net asset value per share of that class of stock at such
time computed in accordance with Article NINTH hereof or the
par value thereof;
(iii) from time to time to set apart out of any assets
of the Corporation otherwise available for dividends a
reserve or reserves for working capital or for any other
proper purpose or purposes, and to reduce, abolish or add to
any such reserve or reserves from time to time as said Board
of Directors may deem to be in the best interests of the
Corporation; and to determine in its discretion what part of
the assets of the Corporation available for dividends in
excess of such reserve or reserves shall be declared in
dividends and paid to the stockholders of the Corporation;
and
(iv) from time to time to determine to what extend and
at what times and places and under what conditions and
regulations the accounts, books, and records of the
Corporation, or any of them, shall be open to the inspection
of the stockholders; and no stockholder shall have any right
to inspect any account or book or documents of the
Corporation, except as conferred by the laws of the State of
Maryland, unless and until authorized to do so by resolution
of the Board of Directors or of the stockholders of the
Corporation.
(b) Notwithstanding any provision of the General
Corporation Law of the State of Maryland requiring a greater
proportion than a majority of the votes of all classes or of any
class of the Corporation's stock entitled to be cast in order to
take or authorize any action, any such action may be taken or
authorized upon the concurrence of a majority of the aggregate
number of votes entitled to be cast thereon subject to any
applicable requirements of the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the United
States Securities and Exchange Commission or any successor
thereto.
(c) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in
person or by proxy of the holders of one-third of the shares of
stock of the Corporation entitled to vote shall constitute a
quorum at any meeting of the stockholders.
(d) Any determination made in good faith and, so far as
accounting matters are involved, in accordance with generally
accepted accounting principles by or pursuant to the direction of
the Board of Directors as to the amount of the assets, debts,
obligations, or liabilities of the Corporation, as to the amount
of any reserves or changes set up and propriety thereof, as to
the time of or purpose for creating such reserves or changes, as
to the use, alteration or cancellation of any reserves or charges
set up and the propriety thereof, as to the time of or purpose
for creating such reserves or charges, as to the use, alteration
or cancellation of any reserves or charges (whether or not any
debt, obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged or
shall be then or thereafter required to be paid or discharged),
as to the value of or the method of valuing any investment owned
or held by the Corporation, as to the market value or fair value
of any investment or fair value of any other asset of the
Corporation, as to the allocation of any asset of the Corporation
to a particular class or classes of the Corporation's stock, as
to the charging of any liability of the Corporation to a
particular class or classes of the Corporation's stock, as to the
number of shares of the Corporation outstanding, as to the
estimated expense to the Corporation in connection with purchases
of its shares, as to the ability to liquidate investments in
orderly fashion, or as to any other matters relating to the
issue, sale, purchase or other acquisition or disposition of
investments or shares of the Corporation, shall be final and
conclusive and shall be binding upon the Corporation and all
holders of its shares, past, present and future, and shares of
the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be
binding as aforesaid.
(e) Except to the extent prohibited by the Investment
Company Act of 1940, as amended, or rules, regulations or orders
thereunder promulgated by the United States Securities and
Exchange Commission or any successor thereto or by the By-Laws of
the Corporation, a director, officer or employee of the
Corporations hall not be disqualified by his position from
dealing or contracting with the Corporation, nor shall any
transaction or contract of the Corporation be void or voidable by
reason of the fact that any director, officer or employee, or any
firm of which any director, officer or employee is a member, or
any corporation of which any director, officer or employee is a
stockholder, officer or director, is in any way interested in
such transaction or contract; provided that in case a director,
or a firm or corporation of which a director is a member,
stock-holder, officer or director, is so interested, such fact
shall be disclosed to or shall have been known by the Board of
Directors or a majority thereof; and any director of the
Corporation who is so interested, or who is a member,
stockholder, officer or director of such firm or corporation, may
be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which shall
authorize any such transaction or contract, with like force and
effect as if he were not such director, or member, stockholder,
officer or director of such firm or corporation.
(f) Specifically and without limitation of subsection (e)
of this Article SEVENTH but subject to the exception therein
prescribed, the Corporation may enter into management or
advisory, underwriting, distribution and administration contracts
and other contracts, and may otherwise do business, with
Thornburg Management Company, Inc., and any parent, subsidiary or
affiliate of such firm or any affiliate of any such affiliate, or
the stockholders, directors, officers and employees thereof, and
may deal freely with one another notwithstanding that the Board
of Directors of the Corporation may be composed in part of
directors, officers or employees of such firm and/or its parents,
subsidiaries or affiliates and that officers of the Corporation
may have been, be or become directors, officers, or employees of
such firm and/or its parents, subsidiaries or affiliates, and
neither such management or advisory, underwriting, distribution
or administration contracts nor any other contract or transaction
between the Corporation and such firm and/or its parents,
subsidiaries or affiliates shall be invalidated or in any way
affected thereby, nor shall any director or officer of the
Corporation be liable to the Corporation or to any stockholder or
creditor thereof or to any person for any loss incurred by it or
him under or by reason of such contract or transaction; provided
that nothing herein shall protect any director or officer of the
Corporation against any liability to the Corporation or to its
security holders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
and provided always that such contract or transaction shall have
been on terms that were not unfair to the Corporation at the time
at which it was entered into.
EIGHTH: To the maximum extend permitted by the General
Corporation Law of the State of Maryland, as from time to time amended, and
other applicable law, the Corporation shall indemnify and defend its
currently acting and its former directors and officers and those persons
who, at the request of the Corporation, serve or have served another
corporation, partnership, joint venture, trust or other enterprise in one
or more of such capacities.
NINTH: For the purpose of the computation of net asset value
referred to in these Articles of Incorporation, the following rules shall
apply:
(a) The net asset value of each share of a class of the
Corporation's stock issued or sold at its net asset value shall
be the net asset value per share of that class next determined,
as provided in subsection (d) of this Article NINTH, following
acceptance by the Corporation of the purchase order, subscription
or other agreement with respect to the issue of sale of such
share.
(b) The net asset value of each share of a class of the
Corporation's stock redeemed by the Corporation at the request of
its holder shall be the net asset value per share of that class
next determined, as provided in subsection (d) of this Article
NINTH, following the time the Corporation received a request for
redemption of such share in good order with all appropriate
documentation, including stock certificates, if any, duly
endorsed for transfer.
(c) The net asset value of each share of a class of the
Corporation's stock purchased or redeemed by it otherwise than
upon request for redemption by the holder of the share shall be
(i) the net asset value per share of that class of the
Corporation's stock next determined, as provided in subsection
(d) of this Article NINTH, following the Corporation's
determination or agreement to purchase or redeem such share, the
expiration of any notice period and fulfillment of any other
conditions precedent to such purchase or redemption, or (ii) such
lower price per share as may be specified in the agreement, if
any, with the stockholder for the purchase or redemption of his
shares.
(d) The net asset value of a share of a class of the
Corporation's stock as at the time of a particular determination
shall be the quotient obtained by dividing the value at such time
of the net assets of that class (i.e., the value of the assets
belonging to that class less the liabilities charged to that
class exclusive of capital stock and surplus) by the total number
of shares of that class outstanding at such time, all determined
and computed as provided in the Corporation's By-Laws or by or
pursuant to the direction of the Board of Directors.
(e) The Corporation shall determine the net asset value per
share of a class of its stock on such days and at such times as
may be determined by the Board of Directors subject to any
applicable rules and regulations of the Securities and Exchange
Commission or any successor thereto.
(f) The Corporation may suspend the determination of the
net asset value of a class of its stock during any period when it
may suspend the right of the holders of shares of that class to
require the Corporation to redeem their shares.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation
or in any amendment hereto in the manner now or hereafter prescribed by the
laws of the State of Maryland, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator of
the Corporation, has adopted and signed these Articles of Incorporation for
the purpose of forming the Corporation described herein pursuant to the
General Corporation Law of the State of Maryland and does hereby
acknowledge that said adoption and signing are his act.
________________________________________
Kenneth L. Henderson
Dated: February 13, 1984
<PAGE>
TAX-FREE MUNICIPAL LEASE FUND, INC.
ARTICLES OF AMENDMENT
TAX-FREE MUNICIPAL LEASE FUND, INC. a Maryland Corporation having its
principal office at 32 South street, Baltimore, Maryland (hereinafter
called the Corporation), hereby certifies to the State Department of
Assessments and taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by
striking out article SECOND of the Articles of Incorporation and inserting
in lieu thereof the following:
"SECOND: The name of the corporation (the "Corporation")
is LIMITED TERM MUNICIPAL FUND, INC."
SECOND: The board of directors of the Corporation on April 19,
1985, duly adopted a resolution in which was set forth the foregoing
amendment to the charter, declaring that the said amendment of the charter
as proposed was advisable and directing that it be submitted for action
thereon by the stockholders of the Corporation at a special meeting to be
held on June 26, 1985.
THIRD: Notice setting forth the said amendment of the charter
and stating that the purpose of the meeting of the stockholders would be to
take action thereon, was given, as required by law, to all stockholders
entitled to vote thereon. The amendment of the charter of the Corporation
as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote of 68,084% of all the
votes entitled to be cast thereon.
FOURTH: The amendment of the charter of the Corporation as
hereinabove set forth has been duly advised by the board of directors and
approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, TAX-FREE MUNICIPAL LEASE FUND, INC. has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on June 26, 1985.
TAX-FREE MUNICIPAL LEASE FUND, INC.
----------------------------------------
(Name of Corporation)
By______________________________________
President
H. Garrett Thornburg, Jr.
----------------------------------------
Witness:
______________________________
Secretary
______________________________
THE UNDERSIGNED, President of TAX-FREE MUNICIPAL LEASE FUND, INC., who
executed on behalf of said corporation the foregoing Articles of Amendment,
of which this certificate is made a part, hereby acknowledges, in the name
and on behalf of said corporation, the foregoing Articles of Amendment to
be the corporate act of said corporation and further certifies that, to the
best of his knowledge, information and belief, the matters and facts set
forth therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
___________________________________
H. GARRETT THORNBURG, JR.
<PAGE>
EXHIBIT 2
BY-LAWS
OF
LIMITD TERM MUNICIPAL FUND, INC.
(a Maryland corporation)
August 4, 1988
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall have
a principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have and maintain such
offices at such other places within and without the State of Maryland as
the Board of Directors may from time to time determine or as the business
of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meeting of stockholders shall be held
at such place, either within the State of Maryland or at such other place
within the United States, as shall be fixed from time to time by the Board
of Directors.
Section 2. Annual Meetings. Annual metings of stockholders shall be
held on a date fixed from time to time by the Board of Directors not less
than ninety nor more than one hundred and twenty days following the end of
each fiscal year of the Corporation, for the election directors and the
transaction of any other business within the powers of the Corporation.
However, an annual meeting of stockholders need not be held for any year in
which none of the following is required to be acted on by stockholders
under the Investment Company Act of 1940: (a) election of directors;
(b) approval of the investment advisory agreement; (c) ratification of the
selection of independent public accountants; or (d) approval of a
distribution agreement.
Section 3. Notice of Meetings. Written or printed notice of the
annual or any special meeting, stating the place, date and hour thereof,
shall be given to each stockholder entitled to vote thereat not less than
ten nor more than ninety days before the date of the meeting. Notice of
any special meeting shall state the purpose thereof.
Section 4. Special Meetings. Special meetings of stockholders may be
called by the chairman, the president or by the Board of Directors and
shall be called by the secretary upon the written request of holders of
shares entitled to cast not less than twenty-five percent of all the
votesentitled to be cast at such meeting. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. In the case of such request for a special meeting, upon payment
by such stockholders to the Corporation of the estimated reasonable cost of
prepring and mailing a notice of such meeting, the secretary shall give the
notice of such meeting. The secretary shall not be required to call a
special meeting to consider any matter which is substantially the same as a
matter acted upon at any special or annual meeting of stockholders held
within the preceding twelve months unless requested to do so by holders of
shares entitled to cast not less than a majority of all votes entitled to
be cast at such meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice thereof.
Section 5. Quorum. Except as may other otherwise be expressly
provided by applicable statutes or regulations, the holders of one-third of
the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings
of the stockholders for the transaction of business.
Section 6. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by
express provision of the Investment Company Act of 1940, as from time to
time in effect, or other statutes or rules or orders of the United States
Securities and Exchange Commission or any successor thereto or of the
Articles of Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question.
Section 7. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to one vote in person or by proxy for each share
of the stock having voting power held by such stockholder, but no proxy
shall be voted after eleven months from its date, unless otherwise provided
in the proxy.
Section 8. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjoiurnment thereof, to express consent to corporat
eaction in writing without a meeting, or to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or for
th epurpose of any other lawful action, the Board of Directors may fix, in
advance, a record date which shall be not more than ninety days and, in the
case of a meeting of stockholders, not less than ten days prior to the date
on which the particular action requiring such determination of stockholders
is to be taken. In lieu of fixing a record date, the Board of Directors
may provide that the stock transfer books shall be closed for a stated
period, but not to exceed, in any case, twenty days. If the stock transfer
books are closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be
closed for at least ten days immediately preceding such meeting. If no
record date is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) the record date for the determination of
stockholders entitled to notice of, or to vote at, a meeting of
stockholders shall be at the close of business on the day on which notice
of the meeting of stockholders is mailed or the day thirty days before the
meeting, whichever is the closer date to the meeting; and (2) the record
date for the determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of business on
the day on which the resolution of the Board of Directors declaring the
dividend or allotment of rights is adopted, provided that the payment or
allotment date shall not be more than ninety days after the date of the
adoption of such resolution.
Section 9. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by appointment
made by the directors in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall
determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, and the
validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in
connection withthe right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct
the election or vote with fairness to all stockholders. On request of the
person presiding at the meeting or any stockholder, the inspector or
inspectors, if any, shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of
any fact found by him or them.
Section 10. Action by Stockholders by Consent. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the United States Securities and Exchange
Commission or any successor thereto, any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting if a
consent in writing, setting forth such action, is signed by all the
stockholders entitled to vote on the subject matter thereof and any other
stockholders entitled to notice of a meeting of stockholders (but not to
vote thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed with the
records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors which shall
constitute the entire Board of Directors shall be one, unless a greater
number is required by the Maryland General Corporation Law, in which event
the number of directors constituting the entire Board of Directors shall be
three. Such number may be increased or decreased from time to time by the
vote of a majority of the entire Board of Directors within the limits and
in the manner permitted by law, but may at no time be more than twenty as
provided in the Articles of Incorporation. The tenure of office of a
director in office at the time of any decrease in the number of directors
shall not be affected as a result thereof. The directors shall be elected
to hold office at the annual meeting of stockholders, except as provided in
Seciton 2 of this Article, and each director shall hold office until the
next annual meeting of stockholders or until his successor is elected and
has qualified. Any director may resign at any time upon written notice to
the Corporation. Any director may be removed, either with or without
cause, at any meeting of stockholders duly called and at which a quorum is
present, by the affirmative vote of the majority of the votes entitled to
be cast thereon, and the vacancy in the Board of Directors caused by such
removal may be filled by the stockholders at the time of such removal.
Directors need not be stockholders.
Seciton 2. Vacancies and Newly-Created Directorhsips. Except to the
extent prohibited by the Investment Company Act of 1940, as from time to
time in effect, or rules or orders of the United States Securiites and
Exchange Commission or any successor thereto, (a) any vacancy occurring in
the Board of Directors for any cause other than by reason of an increase in
the number of directors may be fileld by a majority of the remaining
members of the Board of Directors although such majority is less than a
quorum, (b) any vacancy occurring by reason of an increase in the number of
directors may be filled by a majority of the directors then in office,
through less than a quorum, and (c) a director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until the next
annual meeting of stockholders or until his successor is elected and
qualifies.
Section 3. Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors which shall
exercise all such powers of the Corporation and do all such lawful acts and
things as ar enot by statute or by the Articles of Incorporation or by
these By-Laws conferred upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately following the adjournment of
the annual meeting of stockholders and at the place thereof. No notice of
such meeting to the directors shall be necessary in order legally to
constitute the meeting, provided a quorum shall be present. In the event
such meeting is not so held, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors.
Section 5. Other Meetings. The Board of Directors or any committee
thereof may hold meetings, both regular and special, either within or
without the State of Maryland. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from
time to time be determiend by the Board of Directors. Special meetings of
the Board of Directors may be called by the chairman, the president or by
two or more directors. Notice of special meetings of the Board of
Directors shall be given by the Secretary to each director at least three
days before th emeeting if by mail or at least 24 hours before the meeting
if given in person or by telephone or by telegraph. The notice need not
specify the business to be transacted.
Section 6. Quorum and Voting. At meetings of the Board of Directors,
one-third of the entire Board of Directors, but in no event less than two
if the number of Directors constitutiong the entire board of Directors is
two or more, shall cosntitute a quorum for the transaction of business.
The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present.
Section 7. Committees. The Board of Directors may, by resoltuion
passed by a majority of the entire Board of Directors, appoint from among
its members an exeutive and other committees of the Board of Directors,
each committee to be composed of two or more of the directors. The Board
of Directors may, to the extent provided in the resolution establishing a
committee, delegate to such committee, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, except
the pwoer to declare dividends, to issue stock, to be recommend to
stockholders any action requiring stockholders' approval, to amend the
By-Laws or to approve any merger or share exchange which does nto require
stockholders' approval. such committee or committees shall have the name
or names as may be determined from time to time by resoltuion adopted by
the Board of Directors. Unless the Board of Directors designates one or
more directors as alternate members of any committee, who may replace an
absent or disqualified member at any meeting of the committee, the members
of any such committee present at any meeting and not disqualified from
voting may, whether or not they constitute a quorum, unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any absent or disqualified member of such committee. At meetings of any
such committee, a majority of the members or alternate members of such
committee shall constitute a quorum for the transaction of business and the
act of a majority of the members or alternate members present at any
meeting at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings, which shall be filed with the records
of the Corporation.
Section 9. Action by Board of Directors and Committees by Consent.
Except to the extent prohibited by the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the United States
Securities and Exchange Commission or any successor thereto, any action
required or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting if a written
consent thereto is signed by all members of the Board of Directors or of
such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or committee.
Section 10. Meetings by Conference Telephone. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, ro rules or orders of the United States Securities and Exchange
Commission or any successor thereto, the members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of
Directors or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and such participation shall
constitute presence in person at such meeting.
Section 11. Fees and Expenses. The Directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salaryas director, as determined by this Board of Directors.
No such payment shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like reimbursement and compensation
for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the
Corporation shall be deemed to be given at the time when deposited in the
United States mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of any statute, of the Articles of Incorporation
or of these By-Laws, a waiver thereof in wiritng, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed the equivalent of notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting except
when the person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because
the meeting is not lawfully called or convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a president, a secretary and a treasurer. The
Board of Directors may also appoint a chairman of the Board and such number
of vice presidents and additional officers or assistant officers and agents
as it may deem advisable who shall hold their offices for such terms and
shall exercise such pwoers and perform such duties as shall be determined
from time to time by the Board of Directors. Any number of offices, except
the offices of president and vice president, may be held by the same
person. No officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required by law to be
executed, acknowledged or verified by two or more officers.
Section 2. Tenure of Officers. The officers of the Corporaiton shall
hold office at the pleasure of the Board of Directors. Each officer shall
hold his office until his successor is elected and has qualified or until
his earlier resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. Any officer elected or appointed
by the Board of Directors may be removed at any time by the Board of
Directors when, in its judgment, the best interests of the Corporation will
be served thereby. Any vacancy occurring in any office of the Corporation
by death, resignation, removal or otherwise shall be fileld by the Board of
Directors.
Seciton 3. President. The presidnet shall, unless the Board of
Directors shall have appointed a Chairman, b ethe chief executive officer
and shall preside at all meetings of the stockholders or of the Board of
Directors. He shall be ex officio a member of all committees designated by
the Board of Directors, shall have responsibility for general and active
management of the business of the Corporation and shall see that all orders
and resolutions of the Board of Directors are carried into effect. He
shall execute bonds, mortgages and other contracts requiring a seal, under
the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 4. Vice Presidents. The vice presidents shall act under the
direction of the president and in the absence or disability of the
president shall perform the duties and exercise the powers of the
president. They shall perform such other duties and have such other powers
as the president or the Board of Directors may from time to time prescribe.
The Board of Directors may designate one or more executive vice presidents
or may otherwise specify the order of seniority of the vice presidents and,
in that event, the duties and powers of the president shall descend to the
vice presidents in the specified order of seniority.
Section 5. Secretary. The secretary shall act under the direction of
the president. Subject to the direction of the president he shall attend
all meetings of the Board of Directors and all meetings of stockholders and
record the proceedings in a book to be kept for that purpose and shall
perform like duties for the committees designated by the Board of Directors
when required. He shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the president or the
Board of Directors. He shall keep in safe custody the seal of the
Corporation and shall affix the seal or cause it to be affixed to any
instrument requiring it.
Section 6. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the
secretary, perform the duties and exercise and powers of the secretary.
They shall perform such other duties and have such other powers as the
president or the Board of Directors may from time to time prescribe.
Section 7. Treasurer. The treasurer shall act under the direction of
the president. Subject to the direction of the president he shall have the
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the president or the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
president and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
Section 8. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the president or
the Board of Directors, shall, in the absence or disability of the
treasurer, perform such other duties and have such other powers as the
president or the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who has
made full payment of the consideration for such stock shall be entitled
upon request to have a certificate, signed by, or in the name of the
Corporation by, the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an assistant
secretary of the Corporation, certifying the class and number of whole
shares of stock owned by him in the Corporation.
Section 2. Fractional Share Interests or Scrip. The Corporation may,
but shall not be obliged to, issue fractions of a share of stock, arrange
for the disposition of fractional interests by those entitled thereto, pay
in cash the fair value of fractions of a share of stock as of the time when
those entitled to receive such fractions are determined, or issue scrip or
other evidence of ownership which shall entitle the holder to receive a
certificate for a full share of stock upon the surrender of such scrip or
other evidence of ownership aggregating a full share. Fractional shares of
stock shall have proportionately to the respective fractions represented
thereby all the rights of whole shares, including the right to vote, the
right to receive dividends and distributions and the right to participate
upon liquidation of the Corporation, excluding, however, the right to
receive a stock certificate representing such factional shares. The Board
of Directors may cause such scrip or evidence of ownership to be issued
subject to the condition that it shall become void if not exchanged for
certificates representing full shares of stock before a specified date or
subject to the condition that the shares of stock for which such scrip or
evidence of ownership is exchangeable may be sold by the corporation and
the proceeds thereof distributed to the holders of such scrip or evidence
of ownership, or subject to any other reasonable conditions which the Board
of Directors shall deem advisable, including provisions for forfeiture of
such proceeds to the corporation if not claimed within a period of not less
than three years after the date of the original issuance of scrip
certificates.
Section 3. Signatures on Certificates. Any of or all the signatures
on a certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall cease to
be such officer before such certificate is issued, it may be issued with
the same effect as if he were such officer at the date of issue. The seal
of the Corporation or a facsimile thereof may, but need not, be affixed to
certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making
of any affidavit of that fact by the person claiming the certificate or
certificates to be lost, stolen or destroyed. When authorizing such issue
of anew certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or
his legal representative, to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate or certificates alleged to have
been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered owner
of shares, and if a certificate has been issued to represent such shares,
upon surrender to the Corporation or a transfer agent of the Corporation of
a certificate for shares of stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, subject to the
Corporation's rights to redeem or purchase such shares, it shall be the
duty of the Corporation, if it is satisfied that all provisions of the
Articles of Incorporation, of the By-Laws and of the law regarding the
transfer of shares have been duly complied with, to record the transaction
upon its books, issue a new certificate to the person entitled thereto upon
request for such certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be
the exclusive owner for all purposes including redemption, voting and
dividends, and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in their absolute discretion, determine to be
proper as a reserve or reserves to meet contingencies, or for the repairing
or maintaining any property of the Corporation, or for the purchase of
additional property, or for such other purpose as the Board of Directors
shall thank conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation
may, subject to the provisions of the Articles of Incorporation and of the
provisions of applicable law, be declared by the Board of Directors at any
time. Dividends may be paid in cash, in property or in shares of the
Corporation's stock, subject to the provisions of the Articles of
Incorporation and of applicable law.
Section 3. Capital Gain Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal
year shall be determined by the Board of Directors. Such distributions may
be paid in cash, in property, or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and applicable
law. Each such payment or distribution shall be accompanied by a statement
as to the source of such payment, to the extent required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time
designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words
"Corporate Seal, Maryland". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in another manner
reproduced.
Section 7. Filing of By-Laws. A certified copy of the By-Laws,
including all amendments, shall be kept at the principal office of the
Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the Corporation
shall be examined by an independent firm of public accountants at the close
of each fiscal year of the Corporation and at such other times, if any, as
may be directed by the Board of Directors of the Corporation. Within one
hundred and twenty days of the close of each fiscal year a report based
upon such examination at the close of that fiscal year shall be mailed to
each stockholder of the Corporation of record at the close of such fiscal
year, unless the Board of Directors shall set another record date, at his
address as the same appears on the books of the Corporation. Each such
report shall contain such information as is required to be set forth
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated by the United States Securities and Exchange Commission
thereunder. Such report shall also be submitted at the annual meeting of
the stockholders and filed within twenty days thereafter at the principal
office of the Corporation in the State of Maryland.
Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate
stock ledger containing the names and addresses of all stockholders and the
number of shares of stock held by each stockholder. Such stock ledger may
be in written form or in any other form capable of being converted into
written from within a reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At every
annual meeting of the stockholders of the Corporation there shall be
submitted for ratification or rejection the name of the firm of independent
public accountants which has been selected for the fiscal year in which
such annual meeting is held by a majority of those members of the Board of
Directors who are not interested persons (as defined in the Investment
Company Act of 1940) of the Corporation.
Section 11. Custodian. All securities and similar investments owned
by the Corporation shall be held by a custodian which shall be either a
trust company or a national bank of good standing, having a capital surplus
and undivided profits aggregating not less than two million dollars
($2,000,000), or a member firm of the New York Stock Exchange, Inc. The
terms of custody of such securities and cash shall include such provisions
required to be contained therein by the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder by the United States
Securities and Exchange Commission. Upon the resignation or inability to
serve of any such custodian the Corporation shall (a) use its best efforts
to obtain a successor custodian, (b) require the cash and securities of the
Corporation held by the custodian to be delivered directly to the successor
custodian, and (c) in the event that no successor custodian can be found,
submit to the stockholders of the Corporation, before permitting delivery
of such cash and securities to anyone other than a successor custodian, the
question whether the Corporation shall be dissolved or shall function
without a custodian; provided, however, that nothing herein contained shall
prevent the termination of any agreement between the Corporation and any
such custodian by the affirmative vote of the holders of a majority of all
the stock of the Corporation at the time outstanding and entitled to vote.
Upon its resignation or inability to serve and pending action by the
Corporation as set forth in this Section, the custodian may deliver any
assets of the Corporation held by it to a qualified bank or trust company
or to a member firm of the Now York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.
Section 12. Investment Advisers; Underwriters. The Corporation may
enter into one or more management or advisory, underwriting, distribution
or administration contracts with any person, firm, partnership, association
or corporation, but such contract or contracts shall continue in effect
only so long as such continuance is specifically approved annually (a) by a
majority of the Board of Directors or by vote of the holders of a majority
of the voting securities of the Corporation, and (b) by vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the directors who are not parties to such contracts or
interested persons (as defined in the Investment Company Act of 1940) of
any such party.
ARTICLE IX
Amendments
The Board of Directors shall have the power, by a majority vote of
the entire Board of Directors at any meeting thereof, to make, alter and
repeal By-Laws of the Corporation.
ARTICLE X
Indemnification
Notwithstanding anything to the contrary in the Maryland General
Corporation Law or the Corporation's Articles of Incorporation:
In the event that a claim for indemnification is asserted by
a director, officer or controlling person of the Corporation in
connection with the registered securities of the Corporation, the
Corporation will not make such indemnification unless (i) the
Corporation has submitted, before a court or other body, the
question of whether the person to be indemnified was liable by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties, and has obtained a final decision
on the merits that such person was not liable by reason of such
conduct or (ii) in the absence of such a decision, the
Corporation shall have obtained a reasonable determination, based
upon a review of the facts, that such person was not liable by
virtue of such conduct, by (a) the vote of a majority of a quorum
of directors who are neither interested persons as such term is
defined in the Investment Company Act of 1940, nor parties to the
proceeding ("Disinterested, Non-Party Directors") or (b) an
independent legal counsel in a written opinion.
The Corporation will not advance attorneys' fees or other
expenses incurred by the person to be indemnified unless the
Corporation shall have (i) received an undertaking by or on
behalf of such person to repay the advance unless it is
ultimately determined that such person is entitled to
indemnification and at least one of the following conditions
shall have occurred: (x) such person shall provide security for
his undertakings, (y) the Corporation shall be insured against
losses arising by reason of any lawful advances or (z) a majority
of the Disinterested, Non-Party Directors of the Corporation, or
an independent legal counsel in a written opinion, shall have
determined that based on a review of readily available facts
there is reason to believe that such person ultimately will be
found entitled to indemnification.
<PAGE>
EXHIBIT 7
AMENDED THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made the 23rd day of July, 1984, as amended June 6, 1994,
between THORNBURG LIMITED TERM MUNICIPAL FUND, INC., a Maryland corporation
(the "Fund"), and THORNBURG SECURITIES CORPORATION, a Delaware corporation
(the "Distributor"), as subsequently renewed in accordance with the
Investment Company Act of 1940, as amended, (the "1940 Act").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the 1940 Act as a diversified
open-end management investment company and it is in the interest of the
Fund to offer its shares for sale continuously; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with respect to the continuous offering of the Fund's shares of Common
Stock, $.001 par value (the "Shares"), to commence after the effectiveness
of its initial registration statement filed pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), and the 1940 Act.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor.
(a) The Fund hereby appoints the Distributor as its exclusive
agent to sell and to arrange for the sale of the Shares, including both
issued and treasury shares, on the terms and for the period set forth in
this Agreement, and Distributor hereby accepts such appointment and agrees
to act hereunder.
(b) The exclusive rights granted to the Distributor to sell the
Shares shall not apply to Shares issued by the Fund: (i) in connection
with the merger or consolidation with the Fund of any other investment
company or personal holding company or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding
shares of any such company by the Fund; or (ii) pursuant to reinvestment by
shareholders of the Fund of dividends or capital gains distributions; or
(iii) pursuant to any sale by the Fund of Shares at Net Asset Value (as
defined below).
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to sell, as agent for the Fund, from
time to time during the term of this Agreement, Shares (whether unissued or
treasury shares, in the Fund's sole discretion) upon the terms described in
the Prospectus and in the Statement of Additional Information. As used in
this Agreement, the terms "Prospectus" and "Statement of Additional
Information" shall mean the prospectus or the statement of additional
information, as the case may be, included as part of the Fund's
Registration Statement, as such prospectus or statement may be amended or
supplemented from time to time, and the term "Registration Statement" shall
mean the Registration Statement most recently filed from time to time by
the Fund with the Securities and Exchange Commission and effective under
the 1933 Act and the 1940 Act, as such Registration Statement is amended by
any amendments thereto at the time in effect.
(b) Upon commencement of the Fund's operations, the Distributor
will hold itself available to receive orders, satisfactory to the
Distributor, for the purchase of Shares and will accept such orders on
behalf of the Fund as of the time of receipt of such orders and will
transmit such orders as are so accepted to the Fund's transfer and dividend
disbursing agent as promptly as practicable. Purchase orders shall be
deemed effective at the time and in the manner set forth in the Prospectus
and in the Statement of Additional Information.
(c) The Distributor in its discretion may sell Shares to such
registered and qualified retail dealers as it may select, in accordance
with Section 5 hereof.
(d) The offering price of Shares shall be the net asset value
(as defined in the Articles of Incorporation of the Fund and determined as
set forth in the Prospectus and in the Statement of Additional Information)
per Share next determined following receipt of an order ("Net Asset
Value"), plus the applicable sales charge, if any, determined as set forth
in the Prospectus. The Fund shall furnish the Distributor, with all
possible promptness, an advice of each computation of Net Asset Value.
(e) The Distributor shall not be obligated to sell any certain
number of Shares and nothing herein contained shall prevent the Distributor
from entering into like distribution arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
Section 3. Compensation of the Distributor. The above-mentioned
sales charge shall constitute the entire compensation of the Distributor.
Out of such sales charge, the Distributor may allow such concessions or
reallowances to Selected Dealers as are set forth in the Prospectus or as
it may from time to time determine. The Distributor also shall be entitled
to receive as compensation hereunder any contingent deferred sales charge
imposed upon the redemption of Fund shares.
Section 4. Duties of the Fund.
(a) The Fund agrees to sell its Shares so long as it has Shares
available for sale; and to deliver certificates for, or cause the Fund's
transfer agent to issue non-negotiable share deposit receipts evidencing,
such Shares registered in such names and amounts as the Distributor has
requested in writing, as promptly as practicable after receipt by the Fund
of the Net Asset Value thereof and written request of the Distributor
therefor.
(b) The Fund shall keep the Distributor fully informed with
regard to its affairs and shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of
Shares of the Fund, and this shall include one certified copy, upon request
by the Distributor, of all financial statements prepared for the Fund by
independent accountants and such reasonable number of copies of its most
current Prospectus and Statement of Additional Information and annual and
interim reports as the Distributor may request and shall cooperate fully in
the efforts of the Distributor to sell and arrange for the sale of the
Fund's Shares and in the performance of the Distributor under this
Agreement.
(c) The Fund shall take, from time to time, all necessary action
to fix the number of authorized Shares and such steps, including payment of
the related filing fee, as may be necessary to register the same under the
1933 Act to the end that there will be available for sale such number of
Shares as the Distributor may be expected to sell. The Fund agrees to file
from time to time such amendments, reports and other documents as may be
necessary in order that there shall be no untrue statement of a material
fact and no omission to state a material fact in the Registration
Statement, Prospectus or Statement of Additional Information which omission
would make the statements therein misleading.
(d) The Fund shall use its best efforts to qualify and maintain
the qualification of an appropriate number of its Shares for sale under the
securities laws of such jurisdictions as the Distributor and the Fund may
approve, and, if necessary or appropriate in connection therewith, to
qualify and maintain the qualification of the Fund as a broker or dealer in
such states; provided that the Fund shall not be required to amend its
Articles of Incorporation or By-Laws to comply with the laws of any state,
to maintain an office in any state, to change the terms of the offering of
its Shares in any state from the terms set forth in its Registration
Statement, Prospectus and Statement of Additional Information, to qualify
as a foreign corporation in any state or to consent to service of process
in any state other than with respect to claims arising out of the offering
of its Shares. The Distributor shall furnish such information and other
material relating to its affairs and activities as may be required by the
Fund in connection with such qualifications.
Section 5. Selected Dealers' Agreements.
(a) The Distributor shall have the right to enter into selected
dealers' agreements with securities dealers of its choice ("Selected
Dealers") for the sale of Shares and to fix therein the portion of the
sales charge that may be allocated to the Selected Dealers. In making
agreements with Selected Dealers, the Distributor shall act as agent for
the Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at Net Asset Value, plus the applicable sales charge as set
forth in the Prospectus.
(b) Within the United States, the Distributor shall offer and
sell Shares only to such Selected Dealers as are members in good standing
of the National Association of Securities Dealers, Inc. (the "NASD").
(c) The Distributor shall adopt and follow procedures, as
approved by the Fund, for the confirmation of sales of Shares to investors
and Selected Dealers, the collection of amounts payable by investors and
Selected Dealers as to such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
NASD.
Section 6. Expenses.
(a) The Fund shall bear all costs and expenses of the continuous
offering of its Shares in connection with: (i) fees and disbursements of
its counsel and independent accountants, (ii) the preparation, filing and
printing (including typesetting) of any registration statements, statements
of additional information and prospectuses required by and under the
federal securities laws, (iii) the preparation and mailing of annual and
interim reports, statements of additional information, prospectuses and
proxy materials to its then current shareholders and to government agencies
and (iv) the qualification of Shares for sale and of the Fund as a broker
or dealer under the securities laws of such states or other jurisdictions
as shall be selected by the Fund and the Distributor pursuant to Section
4(d) hereof and the costs and expenses payable to each such state for
continuing such qualification therein.
(b) The Distributor shall bear (i) the costs and expenses of
preparing, printing and distributing any materials not prepared by the Fund
and other materials used by the Distributor in connection with its offering
of Shares for sale to the public, including the additional cost of printing
copies of the Prospectus and the Statement of Additional Information and of
annual and interim reports to shareholders other than copies thereof
required for distribution to then current shareholders or for filing with
any federal securities authorities, (ii) any expenses of advertising
incurred by the Distributor in connection with such offering and (iii) the
expenses of registration or qualification of the Distributor as a broker or
dealer under federal or state laws and the expenses of continuing such
registration or qualification.
Section 7. Indemnification. The Fund agrees to indemnify, defend
and hold the Distributor, its officers and directors and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers, directors or any such
controlling person may incur under the 1933 Act, or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof, or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with information furnished in writing by
the Distributor to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement, to the extent
that it might require indemnity of any person who is also an officer or
director of the Fund or who controls the Fund within the meaning of Section
15 of the 1933 Act, shall not inure to the benefit of such officer,
director or controlling person unless a court of competent jurisdiction
shall determine, or it shall have been determined by controlling precedent,
that such result would not be against public policy as expressed in the
1933 Act; and further provided that in no event shall anything contained
herein be so construed as to protect the Distributor against any liability
to the Fund or to its security holders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement. The Fund's
agreement to indemnify the Distributor, its officers and directors and any
such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the
Distributor, its officers or directors, or any such controlling person,
such notification to be given by letter or telegram addressed to the Fund
at the address set forth in Section 10 hereof. The Fund agrees promptly to
notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the issue
and sale of any of its Shares.
The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person, if any, who controls the Fund within
the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including
the cost of investigating or defending against such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
the Fund, its directors or officers or any such controlling person may
incur under the 1933 Act or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Fund, its directors
or officers or any such controlling person resulting from such claims or
demands shall arise out of or be based upon any alleged untrue statement of
a material fact contained in information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or Prospectus
or shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be stated in
the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the
Fund, its directors and officers, and any such controlling person as
aforesaid is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers or directors
or any such controlling person, such notification to be given to the
Distributor at the address set forth in Section 10 hereof.
Section 8. Compliance with Securities Laws. The Fund represents
that it is registered as an open-end investment company under the 1940 Act,
and agrees that it will comply with all of the provisions of the 1940 Act
and of the rules and regulations thereunder. The Fund and the Distributor
each agree to comply with all of the applicable terms and provisions of
Section 4(d), all applicable state securities or "Blue Sky" laws. The
Distributor agrees to comply with all of the applicable terms and
provisions of the Securities Exchange Act of 1934.
Section 9. Term of Agreement; Termination. This Agreement shall
commence on the first date set forth above. This Agreement shall continue
in effect for a period more than two years from the date hereof only so
long as such continuance is specifically approved at least annually in
conformity with the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act). In addition, this Agreement may
be terminated by either party at any time, without penalty, on not less
than six months' written notice to the other party.
Section 10. Notices. Any notice required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Distributor at 119 East Marcy
Street, Suite 202, Santa Fe, New Mexico 87501, Attention: President; or (2)
to the Fund at 119 East Marcy Street, Suite 202, Santa Fe, New Mexico
87501, Attention: President.
Section 11. Amendments. This Agreement may be amended by the
parties only if such amendment is in writing and signed by both parties and
is approved by: (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Fund (as defined in
the 1940 Act), and (b) a majority of the members of the Board of Directors
of the Fund who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party (other than solely by reason of
being a director of the Fund) cast in person at a meeting called for the
purpose of voting on such approval.
Section 12. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable
to contracts made and wholly performed in that State and the applicable
provisions of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
By:__________________________________________
BRIAN J. McMAHON, President
THORNBURG SECURITIES CORPORATION
By:__________________________________________
H. GARRETT THORNBURG, JR., President
<PAGE>
EXHIBIT 10(a)
AMENDED PLAN AND AGREEMENT OF DISTRIBUTION
PURSUANT TO RULE 12b-1
(Class A Service Plan)
THIS AMENDED PLAN AND AGREEMENT is made as of the 1st day of July,
1996, by and between Thornburg Limited Term Municipal Fund, Inc., a
Maryland corporation (the "Company"), in respect of Thornburg Limited Term
Municipal Fund National Portfolio and Thornburg Limited Term Municipal Fund
California Portfolio, series of the Company (collectively the "Funds"), and
Thornburg Management Company, Inc., a Delaware corporation ("Thornburg").
RECITALS
1. The Company engages in business as an open-end management
investment company and is registered as such under the Investment Company
Act of 1940, as amended (the "1940 Act").
2. The Company wishes to adopt a revised Plan and Agreement, on
behalf of each of the Funds (the "Plan and Agreement") to authorize the use
of the Fund's assets to finance certain activities as permitted under Rule
12b-1 adopted under the 1940 Act, and in this regard seeks to enter into an
agreement to retain Thornburg in accordance with the terms hereunder. This
Plan and Agreement supersedes that certain Plan and Agreement of
Distribution Pursuant to Rule 12b-1 dated October 23, 1987.
3. Thornburg seeks to be retained to perform services in accordance
with the Plan and Agreement.
4. This Plan and Agreement has been approved by a vote of the
Directors of the Company, including a majority of the Directors who are not
interested persons of the Company, as defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of this Plan and
Agreement (sometimes the "Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on this Plan and Agreement.
AGREEMENT
NOW, THEREFORE, the Company hereby adopts this Plan in respect of each
of the Funds, and the Company and Thornburg hereby enter into this
Agreement pursuant to the Plan in accordance with the requirements of Rule
12b-1 under the 1940 Act, and provide and agree as follows:
1. The Company is hereby authorized to utilize the assets of each of
the Funds to finance certain activities in connection with distribution of
the Fund's shares and providing shareholder services.
2. Subject to the supervision of the Directors, the Company hereby
retains and appoints Thornburg as its agent to obtain shareholder services
and to promote the distribution of each Fund's Class A shares by providing
services and engaging in activities beyond those specifically required by
the Distribution Agreement between the Company and Thornburg Securities
Corporation ("TSC") and to provide related services. The activities and
services to be provided by Thornburg hereunder shall include one or more of
the following: (a) the payment of compensation (including incentive
compensation) to securities dealers, financial institutions and other
organizations which render services to each Fund's Class A shareholders as
the Company may from time to time agree, and which render distribution,
shareholder account services, and administrative services in connection
with the distribution of shares of each such Fund all as the Company may
from time to time agree; (b) the printing and distribution of reports and
prospectuses for the use of potential investors in each such Fund; (c)
preparing and distributing sales literature; (d) providing advertising and
engaging in other promotional activities, including direct mail
solicitation, and television, radio, newspaper and other media
advertisements; and (e) such other services and activities as may from time
to time be agreed upon by the Company including, but not limited to,
providing personal services to shareholders, maintaining shareholder
accounts, providing shareholder liaison services and providing information
to shareholders.
3. Thornburg hereby undertakes to use its best efforts to promote
sales of Class A shares of each Fund to investors and to promote
shareholder services by engaging in those activities specified in paragraph
2 above as may be necessary and as it from time to time believes will best
further sales of such shares. In so doing, Thornburg may utilize the
services of TSC.
4. The Company is hereby authorized to expend, out of the assets of
each Fund, on a monthly basis, and shall reimburse Thornburg monthly to
such extent, for its actual direct expenditures incurred in engaging in the
activities and providing the services specified in paragraph 2 above for
Class A shares of that Fund, an amount computed at an annual rate of up to
.25 of 1% of the Fund's average daily net assets attributable to Class A
shares, together with any applicable gross receipts tax, sales tax, value
added tax, compensating tax or similar exaction imposed by any federal,
state or local government, but the aggregate of those taxes will not exceed
10%.
5. To the extent that expenditures made by Thornburg out of its own
resources to finance any activity primarily intended to result in the sale
of shares of a Fund, pursuant to this Plan and Agreement or otherwise, may
be deemed to constitute the indirect use of the Fund's assets, such
indirect use of the Fund's assets is hereby authorized in addition to, and
not in lieu of, any other payments authorized under this Plan and
Agreement.
6. The Treasurer of the Company shall provide and the Directors
shall review, at least quarterly, a written report of all amounts expended
pursuant to the Plan and Agreement. Each such report shall itemize the
types of expenses incurred for which payment is being made and the purposes
and the amounts of such expenses. Upon request, Thornburg shall provide to
the Directors such information as may reasonably be required for it to
review the continuing appropriateness of the Plan and Agreement.
7. This Plan and Agreement shall become effective as to a Fund upon
execution after approval by a vote of at least a majority of the
outstanding Class A shares of the Fund, and shall continue in effect for a
period of one year from the date of such approval unless terminated as
provided below. Thereafter, the Plan and Agreement shall continue in
effect from year to year, provided that continuance is approved at least
annually by a vote of the Directors, including a majority of the
Disinterested Directors, cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated as to Class A
shares of a Fund at any time, without penalty, by the vote of a majority of
the Disinterested Directors or by the vote of a majority of the outstanding
Class A shares of the Fund. Thornburg, or the Company by vote of a
majority of the Disinterested Directors or of the holders of a majority of
the Fund`s outstanding Class A shares, may terminate the Agreement under
this Plan, without penalty, upon 30 days' written notice to the other
party.
8. So long as the Plan remains in effect, the selection and
nomination of persons to serve as Directors of the Company who are not
"interested persons" of the Company shall be committed to the discretion of
the Directors then in office who are not "interested persons" of the
Company. However, nothing contained herein shall prevent the participation
of other persons in the selection and nomination process, provided that a
final decision on any such selection or nomination is within the discretion
of, and approved by, a majority of the Directors then in office who are not
"interested persons" of the Company.
9. This Plan may not be amended to increase materially the amount to
be spent by the Company hereunder without approval of the Class A
shareholders of the affected Fund. All material amendments to the Plan and
to the Agreement must be approved by the vote of the Directors, including a
majority of the Disinterested Directors, cast in person at a meeting called
for the purpose of voting on such amendment.
10. To the extent that this Plan and Agreement constitutes a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act it shall
remain in effect as such, so as to authorize the use by the Company of the
Funds' assets in the amounts and for the purposes set forth herein,
notwithstanding the occurrence of an assignment, as defined by the 1940 Act
and the rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, it shall terminate automatically in the event of an
attempted assignment. Upon a termination of the Agreement as to a Fund,
the Company may continue to make payments on behalf of the Fund pursuant to
the Plan only upon the approval of a new Agreement, which may or may not be
with Thornburg, or the adoption of other arrangements regarding the use of
the amounts authorized to be paid by the Company hereunder, by the
Directors in accordance with the procedures set forth in paragraph 7 above.
11. The Company shall preserve in an easily accessible place copies
of this Plan and Agreement and all reports made pursuant to this Plan and
Agreement, together with minutes of all Directors' meetings at which the
adoption, amendment or continuance of the Plan were considered (describing
the factors considered and the basis for decision), for a period of not
less than six years from the date of this Plan and Agreement.
12. This Plan and Agreement shall be construed in accordance with the
laws of the State of New Mexico and applicable provisions of the 1940 Act.
To the extent the applicable law of the State of New Mexico or any
provisions herein conflict with the applicable provisions of the 1940 Act,
the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Plan and Agreement on the day and year first above written in Santa
Fe, New Mexico.
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
(Thornburg Limited Term Municipal Fund National Portfolio
and
Thornburg Limited Term Municipal Fund California Portfolio)
By:_______________________________________________
THORNBURG MANAGEMENT COMPANY, INC.
By:_______________________________________________
<PAGE>
EXHIBIT 10(b)
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
PLAN FOR MULTIPLE CLASS DISTRIBUTION
July 1, 1996
(as revised June 9, 1997)
THIS PLAN FOR MULTIPLE CLASS DISTRIBUTION is adopted and approved by
the Board of Directors of Thornburg Limited Term Municipal Fund, Inc. (the
"Company"), in respect of its two series, Thornburg Limited Term Municipal
Fund National Portfolio and Thornburg Limited Term Municipal Fund
California Portfolio, effective July 1, 1996, and as revised June 9, 1997
to reflect the offering of Class I shares by the California Portfolio.
Recitals
A. The Company applied for and obtained an exemptive order from the
Securities and Exchange Commission pursuant to Section 6(c) of the
Investment Company Act of 1940 (the "Investment Company Act") for an
exemption from certain provisions thereof and rules adopted thereunder.
The exemptive order was issued to the Company and certain affiliated or
associated persons on August 3, 1994 under file number 812-8068, and
exempted the Company's issuance and sale of multiple classes of securities
from (1) Section 18(g) of the Investment Company Act, to the extent the
issuance and sale of these securities result in a "senior security"; (2)
Section 18(i) of the Investment Company Act to the extent that the
different voting rights associated with each class of shares may be deemed
to result in some shares issued by the Company having unequal voting rights
with every other share of outstanding voting stock; and (3) Sections
2(a)(32), 2(a)(35), 22(c) and 22(d) of the Investment Company Act and Rule
22c-1 thereunder, to the extent necessary or appropriate to permit the
imposition of a contingent deferred sales charge ("CDSC") in connection
with the redemption of the shares of the Portfolios and certain other new
share classes from time to time with varying sales charges and shareholder
distribution and service fee arrangements.
B. The Securities and Exchange Commission subsequently adopted Rule
18f-3 and other rule changes under the Investment Company Act, to permit
open-end investment management companies such as the Company to issue
multiple classes of shares without seeking exemptive relief.
C. The Board of Directors of the Company, by adoption of resolutions
at a meeting duly called and held on June 10, 1996, have determined, (i) to
invoke Rule 18f-3 in the Company's issuance of multiple classes of shares
and operation of its multiple class distribution system, and (ii) to adopt
this Plan in accordance with paragraph (d) of Rule 18f-3 as a restatement
of the multiple class distribution system.
D. The Board of Directors, by its adoption of this Plan, finds that
this Plan is in the best interests of the Company, each Portfolio, and each
class of shares offered by the Company's Portfolios.
E. The terms of this Plan are adopted and approved subject to the
provisions of Rule 18f-3, and all such terms will be governed in their
interpretation and operation by Rule 18f-3.
Plan Provisions
THEREFORE, the Company will, effective July 1, 1996, offer multiple
classes of shares and operate its multiple class distribution system
subject to the following terms and provisions.
1. In General. Subject to provisions of this Plan hereinafter set
forth, each Portfolio may issue multiple classes of shares under which each
class (i) may have a different arrangement for shareholder services or the
distribution of securities or both, and shall pay all of the expenses of
that arrangement, and (ii) may pay a different share of other expenses (not
including advisory or custodial fees or other expenses related to the
management of the Company's assets) if these expenses are actually incurred
in a different amount by that class, or if the class receives services of a
different kind or to a different degree than other classes. Except for the
class designations, the service and distribution fee structure, the
possible allocation of certain expenses, and certain voting rights
respecting plans and agreements adopted under Rule 12b-1 under the
Investment Company Act, each class of shares of each Portfolio issued under
the multiple class distribution system will be identical in all respects
with (a) each other class so issued by a Portfolio, and (b) the currently
issued and outstanding shares of the Portfolio.
2. Class A Shares. Class A shares will be offered by each Portfolio
at net asset value plus a front-end sales charge. Sales charges may be
subject from time to time to certain reductions permitted by Section 22(d)
of the Investment Company Act and Rule 22d-1 thereunder and set forth in
the Company's registration statement. Class A shareholders will be
assessed an ongoing service fee under a service plan based upon a
percentage of the average daily net asset value of Class A shares.
Administrative services will be provided to each class by Thornburg
Management Company, Inc., pursuant to an administrative services agreement
adopted for that class by the Board of Directors.
3. Class C Shares. Class C shares will be offered by each Portfolio
at net asset value without the imposition of a sales load at the time of
purchase. Class C shares are subject to a 1/2 of 1% contingent deferred
sales charge if redeemed within one year of purchase. This CDSC applies
only to Class C shares purchased on or after October 2, 1995. The CDSC
will be imposed upon the lower of the purchase price or net asset value at
redemption of each share redeemed. The CDSC is not imposed upon shares
purchased by reinvesting dividends or capital gain distributions. A
service fee will be imposed on Class C shares in the same manner it is
imposed on Class A shares, pursuant to a service plan. Class C shares also
will pay an annual distribution fee assessed under a Class C distribution
plan applicable only to the Portfolio's Class C shares. Administrative
services will be provided to each class by Thornburg Management Company,
Inc. pursuant to an administrative services agreement adopted for that
class by the Board of Directors.
4. Institutional Class Shares. The National Portfolio will offer
institutional or "Class I" shares, pursuant to resolutions adopted by the
Board of Directors on December 11, 1995 and April 1, 1996. The California
Portfolio will offer Class I shares pursuant to resolutions adopted by the
Board of Directors on December 11, 1995, April 1, 1996 and December 9,
1996. Class I shares are offered by the National Portfolio in a prospectus
separate from that employed to offer Class A and Class C shares of either
of the Company's Portfolios. Class I shares will be offered for sale at
net asset value without imposition of a sales charge at the time of sale or
redemption, to certain institutional and other investors specified from
time to time in the Company's registration statement. Institutional Class
shares will be subject to a plan and agreement pursuant to Rule 12b-1 in
the nature of a service plan similar to that adopted for Class A shares.
Administrative services will be provided to each class by Thornburg
Management Company, Inc. pursuant to an administrative services agreement
adopted for that class by the Board of Directors.
5. Future Classes. Future classes of shares may be offered by one
or both Portfolios. Each future class will be subject to the same
investment advisory agreement as all other shares of the Portfolio, but
certain administrative or shareholder or other services may be provided to
the future class by other organizations pursuant to agreements or other
arrangements specific to one or more of the future classes and under which
administrative or other expenses may be charged to each such class.
Expenses attributable to these services will be charged only to the future
class or classes to which the expenses relate and the delivery of such
services will augment or replace and not be duplicative of the services
provided by and charged for by Thornburg Management Company, Inc. or
Thornburg Securities Corporation. Rule 12b-1 plans, other agreements and
arrangements relating to future classes of shares, conversion and exchange
features associated with these shares and the allocation of expenses to
those shares will be specified in each such case by resolution of the Board
of Directors.
6. Computations of Net Asset Value and Expense Allocations. The net
asset value of all outstanding shares of all classes of each Portfolio will
be computed on a daily basis. Investment income and unrealized and
realized gains or losses will be allocated to each class of shares based
upon its relative percentage of the Portfolio's net assets. Expenses also
will be allocated to each class based upon its relative percentage of the
Portfolio's net assets except to the extent (i) each class bears the
specific expenses of the class's Rule 12b-1 plan (if any), (ii) different
administrative services are assessed to each class under a specific
administrative services agreement adopted for the class, and (iii) transfer
agent fee differentials attributable to specific classes and other class
specific expenses relating to classes of shares ("Class Expenses") are
identified and allocated to a specific class. Class Expenses applicable to
more than one class will be allocated among those classes based upon the
relative percentages of net assets. Administrative and Class Expenses will
be limited to (a) transfer agent fees identified by the transfer agent as
being attributable to a specific class of shares, (b) printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders, (c)
Blue Sky fees and costs attributable to registration, qualification or
exemption of the class's shares, (d) Securities and Exchange Commission
registration fees incurred by a class of shares, (e) administrative
expenses required to support the shareholders of a specific class, (f)
litigation or other legal expenses relating solely to one class of shares,
and (g) any other expenses subsequently identified that should be properly
allocated to one class that are approved by the Board of Directors by
resolution. Dividends paid to each class of shares of a Portfolio will be
declared and paid on the same days and at the same times, and except as
noted with respect to the expenses of Rule 12b-1 plan payments, transfer
agent fees and Class Expenses, will be determined in the same manner for
each class of a Portfolio. A procedures memorandum and worksheets
demonstrating the determination of net asset value and dividend and
distribution amounts was filed as an exhibit to the Company's application
for exemptive order on June 7, 1994, and is incorporated in this Plan. The
methodology and procedures reflected in the memorandum and worksheets have
been reviewed by the Company's independent auditors, who have rendered a
report on the methodology for the Company. On an ongoing basis, the
Directors will review the methodology and procedures with management and
the independent auditors to determine that the methodology and procedures
are adequate to ensure that the calculations and allocations will be made
in an appropriate manner.
7. Conversion of Shares. As of the date of this Plan's adoption, no
class currently authorized for issuance by either of the Company's
Portfolios will convert into shares of any other class of the same
Portfolio. The Board of Directors may specify and respecify from time to
time by resolution conversion of any class of shares into any other class
of shares of the same Portfolio. In all events, any class of shares with a
conversion feature will convert into another class of shares on the basis
of the relative net asset values of the two classes, without the imposition
of any sales load, fee or other charge. After conversion, the converted
shares will be subject to asset based sales charges and service fees (as
those terms are defined in Article III, Section 26 of the NASD's Rules of
Fair Practice), if any, that in the aggregate are lower than the asset
based sales charges and service fees to which they were subject prior to
the conversion.
8. Compliance Standards. The Portfolios' principal underwriter,
Thornburg Securities Corporation, will be required to adopt compliance
standards as to when each class of shares may appropriately be sold to
particular investors.
9. No Liquidation or Distribution Preference. Each class of shares
offered by a Portfolio will be redeemable at all times (subject to the same
limitations set forth in the Portfolio's prospectus and statement of
additional information for all classes of shares offered by that Portfolio)
and no class of shares will have any preference or priority over any other
class in the Portfolio, and no class will be protected by any distribution
or liquidation preference or by any reserve or other account for
distribution or liquidation purposes.
10. Reinvestment and Exchange Privileges. Each of the Portfolios
currently offers reinvestment privileges and exchanges relating to its
Class A shares, as described in the Company's registration statement.
There are not, as of the effective date of this Plan, any reinvestment
privileges or exchange privileges with respect to Class C shares or
Institutional Class shares. The Board of Directors may specify from time
to time by resolution exchange or conversion privileges in conformity with
Rule 18f-3, Rule 11a-3 and other provisions of the 1940 Act and the rules
thereunder.
11. Review by Board of Directors. The Board of Directors will
periodically review each of the Portfolios for the existence of any
material conflicts among the different share classes. The Directors,
including a majority of the independent Directors, may take such action
reasonably necessary to correct any conflicts which develop. The
Directors, in fulfilling this responsibility may request and receive from
the Company's investment adviser and distributor reports of any potential
or existing conflicts. In evaluating whether or not conflicts exist, the
Directors will consider specifically if the allocations of fees and
expenses, the delivery of services, waivers or reimbursements of expenses
or availability of voting rights discriminate against one class or favor
one class at the expense of another. If there is any waiver or
reimbursement of a Class Expense, the Directors will consider whether or
not the waiver or reimbursement constitutes a de facto cross subsidization
between classes. The Directors will periodically review statements of
distribution expenses incurred and the amounts of those expenses paid for
by the portfolios under Rule 12b-1 plans and agreements. The Directors and
the independent Directors will periodically review the method of allocating
distribution expenses among the classes and consider if the method of
allocating is likely to subsidize the distribution or servicing of another
class of shares. The Directors will periodically evaluate the services
provided to each class and consider if the services are appropriate and the
cost is reasonable.
12. Amendment. The Board of Directors may amend this Plan any time
and from time to time by adoption of resolutions, and resolutions
subsequently adopted by the Board of Directors and relating to the subject
matter hereof shall be deemed to amend and supersede this Plan as to the
subject matter of those resolutions.
<PAGE>
EXHIBIT 11
WHITE Attorneys and Counselors at Law
KOCH, KELLY William Booker Kelly Julie A. Wittenberger
& John F. McCarthy, Jr. John T.L. Grubesic
McCARTHY Benjamin Phillips
A Professional Association David F. Cunningham Of Counsel
Albert V. Gonzales Rebecca Dempsey
Janet Clow
Kevin V. Reilly Special Counsel
Charles W. N. Thompson, Jr. Paul L. Bloom
M. Karen Kilgore
Sandra J. Brinck
Aaron J. Wolf
Mary E. Walta
June 24, 1997
Thornburg Limited Term Municipal Fund, Inc.
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Re: Thornburg Limited Term Municipal Fund, Inc.
Registration Statement on Form N-14 as filed with the
Securities and Exchange Commission
Ladies and Gentlemen:
The Class A shares proposed to be issued by each of Thornburg Limited
Term Municipal Fund National Portfolio and Thornburg Limited Term Municipal
Fund California Portfolio, when issued in accordance with those series'
respective prospectuses included in the above referenced Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the references made to this firm in the described
Registration Statement of Thornburg Limited Term Municipal Fund, Inc. and
the prospectuses which are part of that Registration Statement. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
/s/ White, Koch, Kelly & McCarthy, P. A.
WHITE, KOCH, KELLY & McCARTHY, P. A.
433 Paseo de Peralta P.O. Box 787, Santa Fe, New Mexico 87504-0787
(505) 982-4374 Fax Nos. (505) 982-0350; 984-8631 e-mail [email protected]
EXHIBIT 14(a)
McGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference of our report
dated July 26, 1996, on the financial statements of National Portfolio and
California Portfolio series of Thornburg Limited Term Municipal Fund, Inc.,
referred to therein in the Registration Statement on Form N-14 as filed
with the Securities and Exchange Commission.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
New York, New York
June 11, 1997
<PAGE>
EXHIBIT 14(b)
COOPERS Coopers & Lybrand L.L.P.
&LYBRAND a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Mackenzie Series Trust
We hereby consent to the inclusion in the Registration Statement on Form N-
14 (hereafter the "Registration Statement") of Thornburg Limited Term
Municipal Fund, Inc., of our reports dated August 15, 1996, relating to the
financial statements and financial highlights of Mackenzie California
Municipal Fund and Mackenzie Limited Term Municipal Fund (hereafter the
"Funds") appearing in the June 30, 1996 Annual Reports to Shareholders of
the Funds, which annual reports are included in the Registration Statement.
/s/
Fort Lauderdale, Florida
June 25, 1997
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
EXHIBIT 17(a)
DECLARATION PURSUANT TO RULE 24f-2
by Thornburg Limited Term Municipal Fund, Inc.
At the time of the initial filing of its registration statement on Form
N-1A on February 17, 1984, the registrant declared that an indefinite
number of shares are registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and registrant paid the $500 fee required by the Rule.
<PAGE>
EXHIBIT 17(b)
MACKENZIE LIMITED TERM MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST
SPECIAL MEETING OF SHAREHOLDERS - September 4, 1997
The undersigned shareholder of MACKENZIE LIMITED TERM MUNICIPAL FUND (the
"Fund"), a series of Mackenzie Series Trust, a Massachusetts business
trust, hereby appoints C. William Ferris, Keith J. Carlson and Deborah P.
Mason, and each of them, with full power of substitution and revocation, as
proxies to represent the undersigned at the Special Meeting of Shareholders
of the Fund, which shall be held on [July 25], 1997 at 10:00 a.m. eastern
time, at the offices of Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, Suite 300, 700 Federal Highway, Boca Raton, Florida 33432,
and at any and all adjournments thereof, and thereat to vote all shares of
the Fund which the undersigned would be entitled to vote, with all powers
the undersigned would possess if personally present, in accordance with the
following instructions:
1. FOR ___ AGAINST ___ ABSTAIN ___ as to the proposal to approve the
Agreement and Plan of Reorganization, dated __________, 1997 between
Mackenzie Series Trust, on behalf of the Fund, and Thornburg
Limited Term Municipal Fund, Inc., on behalf of Thornburg Limited Term
Municipal Fund National Portfolio ("Thornburg Fund"), and the proposed
transaction whereby substantially all of the assets of the Fund will
be transferred to Thornburg Fund, in exchange for Thornburg Fund
Class A shares; immediately thereafter, the Class A shares of
Thornburg Fund will be distributed to the Fund's Class A and Class B
shareholders in total liquidation of the Fund, which will thereafter
be dissolved, all as more fully described in the Prospectus/Proxy
Statement dated __________, 1997;
and, in their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.
If more than one of the proxies, or their substitutes, are present at
the meeting or at any adjournment thereof, they jointly (or, if only one is
present and voting, then that one) shall have authority and may exercise
all the powers granted hereby. This proxy, when properly executed, will be
voted in accordance with the instructions marked hereon by the undersigned.
In the absence of contrary instructions, this proxy will be voted FOR the
proposal.
The undersigned hereby acknowledges receipt of the accompanying Notice
of Meeting and Prospectus/Proxy Statement dated __________, 1997, and
Thornburg Fund's prospectus dated February 1, 1997.
IMPORTANT: Please insert date of signing.
Dated: _________________, 1997
______________________________
Signature of Shareholder
______________________________
Signature of Shareholder
(if held jointly)
This Proxy shall be signed exactly as your name(s) appear hereon. If
as attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add title as such.
PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT 17(c)
MACKENZIE CALIFORNIA MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST
SPECIAL MEETING OF SHAREHOLDERS - September 4, 1997
The undersigned shareholder of MACKENZIE CALIFORNIA MUNICIPAL FUND (the
"Fund"), a series of Mackenzie Series Trust, a Massachusetts business
trust, hereby appoints C. William Ferris, Keith J. Carlson and Deborah P.
Mason, and each of them, with full power of substitution and revocation, as
proxies to represent the undersigned at the Special Meeting of Shareholders
of the Fund, which shall be held on [July 25], 1997 at 10:00 a.m. eastern
time, at the offices of Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, Suite 300, 700 Federal Highway, Boca Raton, Florida 33432,
and at any and all adjournments thereof, and thereat to vote all shares of
the Fund which the undersigned would be entitled to vote, with all powers
the undersigned would possess if personally present, in accordance with the
following instructions:
1. FOR ___ AGAINST ___ ABSTAIN ___ as to the proposal to approve the
Agreement and Plan of Reorganization, dated __________, 1997 between
Mackenzie Series Trust, on behalf of the Fund, and Thornburg Limited
Term Municipal Fund, Inc., on behalf of Thornburg Limited Term
Municipal Fund California Portfolio ("Thornburg Fund"), and the
proposed transaction whereby substantially all of the assets of the
Fund will be transferred to Thornburg Fund, in exchange for Thornburg
Fund Class A shares; immediately thereafter, the Class A shares of
Thornburg Fund will be distributed to the Fund's Class A and Class B
shareholders in total liquidation of the Fund, which will thereafter
be dissolved, all as more fully described in the Prospectus/Proxy
Statement dated __________, 1997;
and, in their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.
If more than one of the proxies, or their substitutes, are present at
the meeting or at any adjournment thereof, they jointly (or, if only one is
present and voting, then that one) shall have authority and may exercise
all the powers granted hereby. This proxy, when properly executed, will be
voted in accordance with the instructions marked hereon by the undersigned.
In the absence of contrary instructions, this proxy will be voted FOR the
proposal.
The undersigned hereby acknowledges receipt of the accompanying Notice
of Meeting and Prospectus/Proxy Statement dated __________, 1997, and
Thornburg Fund's prospectus dated February 1, 1997.
IMPORTANT: Please insert date of signing.
Dated: _________________, 1997
______________________________
Signature of Shareholder
______________________________
Signature of Shareholder
(if held jointly)
This Proxy shall be signed exactly as your name(s) appear hereon. If
as attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add title as such.
PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
