-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GoNHwLP61B70Vl9fO+4fuSkb/ZtU7DdyaTDWwtiygcMOezjM0VBkHSIgSqPz4lzV 8DgWoUDTrHoWebb7lBYRbQ== 0000816153-04-000003.txt : 20040130 0000816153-04-000003.hdr.sgml : 20040130 20040129175814 ACCESSION NUMBER: 0000816153-04-000003 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20040130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THORNBURG INVESTMENT TRUST CENTRAL INDEX KEY: 0000816153 IRS NUMBER: 061158764 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-112317 FILM NUMBER: 04553672 BUSINESS ADDRESS: STREET 1: 119 E MARCY ST STREET 2: SUITE 202 CITY: SANTA FE STATE: NM ZIP: 87501 BUSINESS PHONE: 5059840200 MAIL ADDRESS: STREET 1: 119 EAST MARCY ST STREET 2: SUITE 202 CITY: SANTA FE STATE: NM ZIP: 87501 FORMER COMPANY: FORMER CONFORMED NAME: THORNBURG INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LIMITED TERM TRUST DATE OF NAME CHANGE: 19870816 N-14 1 titn-14.txt THORNBURG INVESTMENT TRUST N-14 FILING As Filed with the Securities and Exchange Commission January 29, 2004 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 INVESTMENT TRUST - --------------------------- (Exact Name of Registrant as Specified in Charter) 119 East Marcy Street, Suite 202, Santa Fe, NM 87501 - ---------------------------------------------- --------- (Address of Principal Executive Office) (Zip Code) Area Code and Telephone Number: (505) 984-0200 -------------- Garrett Thornburg 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 24f 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 December 12, 2003. - --------------------------------------------------------------------------- It is proposed that this filing will become effective on February 28, 2004, pursuant to Rule 488 under the Securities Act of 1933. EXPLANATORY NOTE The Registrant is filing as portions of this Registration Statement four combined Prospectus/Proxy Statements, which relate respectively to different share classes of two of its newly formed, separate series, THORNBURG LIMITED TERM MUNICIPAL FUND and THORNBURG LIMITED TERM CALIFORNIA MUNICIPAL FUND. Each of these series was organized to acquire in a reorganization all of the assets, respectively, of the two existing series of Thornburg Limited Term Municipal Fund, Inc., THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO and THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO. Accordingly, this Registration Statement is organized as follows: - Letter to Shareholders of Thornburg Limited Term Municipal Fund National Portfolio. - Letter to Shareholders of Thornburg Limited Term Municipal Fund California Portfolio. - Supplemental Letter to Shareholders of Thornburg Limited Term Municipal Fund National Portfolio. - Supplement Letter to Shareholders of Thornburg Limited Term Municipal Fund California Portfolio. - Notice of Special Meeting of Shareholders of Thornburg Limited Term Municipal Fund National Portfolio. - Notice of Special Meeting of Shareholders of Thornburg Limited Term Municipal Fund California Portfolio. - Form of Proxy Card (Thornburg Limited Term Municipal Fund National Portfolio) - Form of Proxy Card (Thornburg Limited Term Municipal Fund California Portfolio) - Prospectus/Proxy Statement (Class A and Class C Shares) respecting the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio by Thornburg Limited Term Municipal Fund. - Prospectus/Proxy Statement (Institutional Class Shares) respecting the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio by Thornburg Limited Term Municipal Fund. - Prospectus/Proxy Statement (Class A and Class C Shares) respecting the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio by Thornburg California Limited Term Municipal Fund. - Prospectus/Proxy Statement (Institutional Class Shares) respecting the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio by Thornburg California Limited Term Municipal Fund. - Statement of Additional Information (Class A and Class C Shares) relating to the acquisition of the assets of Thornburg Limited Term Municipal Fund National Portfolio. - Statement of Additional Information (Institutional Class Shares) relating to the acquisition of the assets of Thornburg Limited Term Municipal Fund National Portfolio. - Statement of Additional Information (Class A and Class C Shares) relating to the acquisition of the assets of Thornburg Limited Term Municipal Fund California Portfolio. - Statement of Additional Information (Institutional Class Shares) relating to the acquisition of the assets of Thornburg Limited Term Municipal Fund California Portfolio. - Part C Information. - Exhibits THORNBURG LIMITED TERM MUNICIPAL FUND, INC. (Thornburg Limited Term Municipal Fund National Portfolio) 119 East Marcy Street Santa Fe, New Mexico 87501 Date: _______________ Dear Shareholder: A special meeting of shareholders of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc. has been called for April __, 2004, at which time the shareholders of the Fund will be asked to consider a proposal for reorganizing the Fund into Thornburg Limited Term Municipal Fund (the "New Fund"), a newly organized Fund series of Thornburg Investment Trust which has investment objectives and policies identical to those of the Fund. The proposal was reviewed and unanimously approved by the Board of Directors of Thornburg Limited Term Municipal Fund, Inc., on behalf of the Fund as being in the best interests of the Fund and its shareholders. As a result of the proposed transaction, the New Fund will acquire all of the assets of the Fund, and you will become a shareholder of the New Fund. As a shareholder of the Fund, you will receive New Fund shares of the same class as the class of the Fund you own at the time of the reorganization. The net asset value of the shares of the New Fund you receive will be the same as the net asset value of your shares in the Fund. 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 and federal income tax purposes. WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE. In considering these matters, you should note: - The investment adviser and the individuals who currently manage the Fund will not change as a result of the reorganization. - The investment goals and strategies of the New Fund will be identical to the investment goals and strategies of the Fund. - You will receive shares in the New Fund of the same value and class as your shares in the Fund. - Expenses of the New Fund will not increase as a result of the reorganization. - The Board of Directors of the Fund believe the reorganization is in the best interests of the Fund's shareholders. Detailed information about the proposed transaction and the reasons for it are contained in the enclosed materials. Please exercise your right to vote. IT IS VERY IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO LATER THAN _____________, 2004. Remember, your vote is very important, no matter how large or small your Fund holdings. To vote, you may use any one of the following methods: - By Mail. Please complete, date and sign the enclosed proxy card and mail it in the enclosed, postage-paid envelope. - By Telephone. Have your proxy card available. Call the toll-free number listed on the proxy card. Follow the recorded instructions and enter your control number from the proxy card. - By Internet. Have your proxy card available. Go to the website listed on the proxy card. Follow the instructions on the website and enter your control number from the proxy card. NOTE: You may receive more than one proxy package if you hold shares of the Fund in more than one account. You must return separate proxy cards for separate holdings. Sincerely, __________________________________ Chairman of the Board of Directors Thornburg Limited Term Municipal Fund, Inc. THORNBURG LIMITED TERM MUNICIPAL FUND, INC. (Thornburg Limited Term Municipal Fund California Portfolio) 119 East Marcy Street Santa Fe, New Mexico 87501 Date: _________________ Dear Shareholder: A special meeting of shareholders of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc. has been called for April ___, 2004, at which time the shareholders of the Fund will be asked to consider a proposal for reorganizing the Fund into Thornburg California Limited Term Municipal Fund (the "New Fund"), a newly organized Fund series of Thornburg Investment Trust which has investment objectives and policies identical to those of the Fund. The proposal was reviewed and unanimously approved by the Board of Directors of Thornburg Limited Term Municipal Fund, Inc., on behalf of the Fund as being in the best interests of the Fund and its shareholders. As a result of the proposed transaction, the New Fund will acquire all of the assets of the Fund, and you will become a shareholder of the New Fund. As a shareholder of the Fund, you will receive New Fund shares of the same class as the class of the Fund you own at the time of the reorganization. The net asset value of the shares of the New Fund you receive will be the same as the net asset value of your shares in the Fund. 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 and federal income tax purposes. WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE. In considering these matters, you should note: - The investment adviser and the individuals who currently manage the Fund will not change as a result of the reorganization. - The investment goals and strategies of the New Fund will be identical to the investment goals and strategies of the Fund. - You will receive shares in the New Fund of the same value and class as your shares in the Fund. - Expenses of the New Fund will not increase as a result of the reorganization. - The Board of Directors of the Fund believe the reorganization is in the best interests of the Fund's shareholders. Detailed information about the proposed transaction and the reasons for it are contained in the enclosed materials. Please exercise your right to vote. IT IS VERY IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED BY NO LATER THAN _________________, 2004. Remember, your vote is very important, no matter how large or small your Fund holdings. To vote, you may use any one of the following methods: - By Mail. Please complete, date and sign the enclosed proxy card and mail it in the enclosed, postage-paid envelope. - By Telephone. Have your proxy card available. Call the toll-free number listed on the proxy card. Follow the recorded instructions and enter your control number from the proxy card. - By Internet. Have your proxy card available. Go to the website listed on the proxy card. Follow the instructions on the website and enter your control number from the proxy card. NOTE: You may receive more than one proxy package if you hold shares of the Fund in more than one account. You must return separate proxy cards for separate holdings. Sincerely, ---------------------------------- Chairman of the Board of Directors Thornburg Limited Term Municipal Fund, Inc. THE FOLLOWING IS IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSAL ON WHICH YOU ARE ASKED TO VOTE. PLEASE READ THE ENTIRE PROSPECTUS/PROXY STATEMENT PROVIDED TO YOU. WHY IS A SHAREHOLDER MEETING BEING HELD? Shareholders are being asked to vote on a reorganization in which all of the assets of your Fund will be acquired by Thornburg Limited Term Municipal Fund (the "New Fund"), a newly organized fund series with identical investment goals and strategies. HOW WILL THIS REORGANIZATION AFFECT CURRENT SHAREHOLDERS? If the reorganization is approved by shareholders, shareholders of your Fund will receive shares of the New Fund having the same value as their Fund shares. You will automatically be a shareholder in the New Fund. WHY IS THE REORGANIZATION BEING RECOMMENDED? The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing those functions. Currently, there are 12 Thornburg mutual funds, two of which are funds of Thornburg Limited Term Municipal Fund, Inc., and ten of which are funds of Thornburg Investment Trust, a separate investment company. The reorganization will combine the two funds of Thornburg Limited Term Municipal Fund, Inc. with the ten funds of Thornburg Investment Trust, so that all 12 funds are combined within only one investment company. There will be no change in the investment objective or polices of your Fund as a result of the reorganization, and your investment manager and the individuals managing your Fund's investments will not change because of the reorganization. WILL SHAREHOLDERS HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER TRANSACTION FEE IN CONNECTION WITH THE REORGANIZATION? No, there are no sales loads, commissions or other fees in connection with the transaction. WHO WILL PROVIDE INVESTMENT MANAGEMENT AND OTHER SERVICES TO MY FUND AFTER THE REORGANIZATION? Thornburg Investment Management, Inc. ("TIM") , which currently manages your Fund, will continue to provide those services after the reorganization, under a contract which is substantially identical to the current contract. Similarly, transfer agent and custodial services will continue to be provided by the same firms. WILL THE ADVISORY FEES AND OTHER FEES CHANGE? No, the investment advisory fee rate rates, the fee rates for administrative services provided by TIM, and any Rule 12b-1 fees charged to your class of shares will not change as a result of the reorganization. WHICH CLASS OF SHARES WILL I RECEIVE? You will receive the same class of shares you hold at the time of the reorganization. WHAT WILL EXISTING SHAREHOLDERS DO TO OPEN A NEW THORNBURG INVESTMENT TRUST ACCOUNT? At the time the reorganization is completed, a shareholder's interest in the Fund will automatically be transferred to the New Fund and a written confirmation will be sent to the shareholder. WILL ALL OF MY CURRENT ACCOUNT PRIVILEGES, SUCH AS TELEPHONE REDEMPTION, SYSTEMATIC PURCHASES, AND LETTERS OF INTENT, TRANSFER WITH MY ACCOUNT IN THE NEW FUND? Yes. All of the features you have selected for your current account will be available with your new account. 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 meeting of the Internal Revenue Code. If the reorganization so qualifies, in general, a shareholder will recognize no gain or loss upon the receipt of the shares of the New Fund in connection with the reorganization. WHAT IF A SHAREHOLDER REDEEMS SHARES OF THE FUND BEFORE THE REORGANIZATION TAKES PLACE? A shareholder may choose to redeem or exchange shares of the Fund before the reorganization takes place. If so, the redemption or exchange will be treated as a normal redemption or exchange of shares and generally will be a taxable transaction unless the account is not subject to taxes. HOW DO I VOTE? Shareholders of the Fund are asked to vote at the Fund's Special Meeting of Shareholders which is scheduled for _________, 2004. Your vote is very important. You have the flexibility of voting by mailing in your proxy card, by telephone, or by Internet. 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. THE FOLLOWING IS IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSAL ON WHICH YOU ARE ASKED TO VOTE. PLEASE READ THE ENTIRE PROSPECTUS/PROXY STATEMENT PROVIDED TO YOU. WHY IS A SHAREHOLDER MEETING BEING HELD? Shareholders are being asked to vote on a reorganization in which all of the assets of your Fund will be acquired by Thornburg California Limited Term Municipal Fund (the "New Fund"), a newly organized fund series with identical investment goals and strategies. HOW WILL THIS REORGANIZATION AFFECT CURRENT SHAREHOLDERS? If the reorganization is approved by shareholders, shareholders of your Fund will receive shares of the New Fund having the same value as their Fund shares. You will automatically be a shareholder in the New Fund. WHY IS THE REORGANIZATION BEING RECOMMENDED? The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing those functions. Currently, there are 12 Thornburg mutual funds, two of which are funds of Thornburg Limited Term Municipal Fund, Inc., and ten of which are funds of Thornburg Investment Trust, a separate investment company. The reorganization will combine the two funds of Thornburg Limited Term Municipal Fund, Inc. with the ten funds of Thornburg Investment Trust, so that all 12 funds are combined within only one investment company. There will be no change in the investment objective or polices of your Fund as a result of the reorganization, and your investment manager and the individuals managing your Fund's investments will not change because of the reorganization. WILL SHAREHOLDERS HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER TRANSACTION FEE IN CONNECTION WITH THE REORGANIZATION? No, there are no sales loads, commissions or other fees in connection with the transaction. WHO WILL PROVIDE INVESTMENT MANAGEMENT AND OTHER SERVICES TO MY FUND AFTER THE REORGANIZATION? Thornburg Investment Management, Inc. ("TIM") , which currently manages your Fund, will continue to provide those services after the reorganization, under a contract which is substantially identical to the current contract. Similarly, transfer agent and custodial services will continue to be provided by the same firms. WILL THE ADVISORY FEES AND OTHER FEES CHANGE? No, the investment advisory fee rate rates, the fee rates for administrative services provided by TIM, and any Rule 12b-1 fees charged to your class of shares will not change as a result of the reorganization. WHICH CLASS OF SHARES WILL I RECEIVE? You will receive the same class of shares you hold at the time of the reorganization. WHAT WILL EXISTING SHAREHOLDERS DO TO OPEN A NEW THORNBURG INVESTMENT TRUST ACCOUNT? At the time the reorganization is completed, a shareholder's interest in the Fund will automatically be transferred to the New Fund and a written confirmation will be sent to the shareholder. WILL ALL OF MY CURRENT ACCOUNT PRIVILEGES, SUCH AS TELEPHONE REDEMPTION, SYSTEMATIC PURCHASES, AND LETTERS OF INTENT, TRANSFER WITH MY ACCOUNT IN THE NEW FUND? Yes. All of the features you have selected for your current account will be available with your new account. 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 meeting of the Internal Revenue Code. If the reorganization so qualifies, in general, a shareholder will recognize no gain or loss upon the receipt of the shares of the New Fund in connection with the reorganization. WHAT IF A SHAREHOLDER REDEEMS SHARES OF THE FUND BEFORE THE REORGANIZATION TAKES PLACE? A shareholder may choose to redeem or exchange shares of the Fund before the reorganization takes place. If so, the redemption or exchange will be treated as a normal redemption or exchange of shares and generally will be a taxable transaction unless the account is not subject to taxes. HOW DO I VOTE? Shareholders of the Fund are asked to vote at the Fund's Special Meeting of Shareholders which is scheduled for _________, 2004. Your vote is very important. You have the flexibility of voting by mailing in your proxy card, by telephone, or by Internet. 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. THORNBURG LIMITED TERM MUNICIPAL FUND, INC. Thornburg Limited Term Municipal Fund National Portfolio 119 East Marcy Street Santa Fe, New Mexico 87501 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL ___, 2004 To the Shareholders of Thornburg Limited Term Municipal Fund National Portfolio Notice is hereby given that a Special Meeting of Shareholders (the "Meeting") of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., a Maryland corporation ("Thornburg LTMF") will be held at the offices of the Fund, 119 East Marcy Street, Santa Fe, New Mexico 87501 in April ___, 2004, at 10:00 a.m. Mountain Time, for the following purposes: 1. To consider and act upon an Agreement and Plan of Reorganization providing for: the transfer of all of the assets of the Fund to Thornburg Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Investment Trust, in exchange solely for voting shares of the New Fund, and for the distribution of those shares to the shareholders of the Fund and the subsequent dissolution of the Fund; and 2. To transact such other business as may properly come before the meeting. The Board of Directors has fixed the close of business on _____________, 2004 as the record date for shareholders entitled to notice of and to vote at the meeting. A complete list of the shareholders of the Fund entitled to vote at the Meeting will be available and open to the examination of any shareholder of the Fund for any purpose germane to the Meeting during ordinary business hours at the Fund's offices, 119 East Marcy Street, Santa Fe, New Mexico 87501. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. By Order of the Board of Directors Dawn B. Fischer ----------------------------------- Secretary YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION. 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. THORNBURG LIMITED TERM MUNICIPAL FUND, INC. Thornburg Limited Term Municipal Fund California Portfolio 119 East Marcy Street Santa Fe, New Mexico 87501 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL ___, 2004 To the Shareholders of Thornburg Limited Term Municipal Fund California Portfolio Notice is hereby given that a Special Meeting of Shareholders (the "Meeting") of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., a Maryland corporation ("Thornburg LTMF") will be held at the offices of the Fund, 119 East Marcy Street, Santa Fe, New Mexico 87501 in April ___, 2004, at 10:00 a.m. Mountain Time, for the following purposes: 1. To consider and act upon an Agreement and Plan of Reorganization providing for: the transfer of all of the assets of the Fund to Thornburg California Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Investment Trust, in exchange solely for voting shares of the New Fund, and for the distribution of those shares to the shareholders of the Fund and the subsequent dissolution of the Fund; and 2. To transact such other business as may properly come before the meeting. The Board of Directors has fixed the close of business on _____________, 2004 as the record date for shareholders entitled to notice of and to vote at the meeting. A complete list of the shareholders of the Fund entitled to vote at the Meeting will be available and open to the examination of any shareholder of the Fund for any purpose germane to the Meeting during ordinary business hours at the Fund's offices, 119 East Marcy Street, Santa Fe, New Mexico 87501. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. By Order of the Board of Directors Dawn B. Fischer ----------------------------------- Secretary YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION. 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. Control Number: _____________ THORNBURG LIMITED TERM MUNICIPAL FUND, INC. (Thornburg Limited Term Municipal Fund National Portfolio) PROXY FOR SPECIAL MEETING OF SHAREHOLDERS THIS PROXY IS SOLICITED April __, 2004 BY THE BOARD OF DIRECTORS The undersigned shareholder of THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., a Maryland corporation, hereby appoints Dawn B. Fischer, George T. Strickland and Leigh Moiola and each of them, each with full power of substitution, as proxies to represent the undersigned at the Special Meeting of Shareholders of the Fund, which shall be held on April __, 2004 at 10:00 a.m. prevailing Mountain Time at the offices of Thornburg Investment Management, Inc., 119 East Marcy Street, Santa Fe, New Mexico 87501, and at any and all adjournments thereof, and at the meeting 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 December ___, 2003 between Thornburg Limited Term Municipal Fund, Inc., on behalf of the Fund, and Thornburg Investment Trust, on behalf of Thornburg Limited Term Municipal Fund (the "New Fund"), and the proposed transaction whereby substantially all of the assets of the Fund will be transferred to the New Fund, in exchange for shares of the New Fund; immediately thereafter, the shares of the New Fund will be distributed to the shareholders of the Fund in complete liquidation of the Fund; which will thereafter be dissolved; 2. In their discretion, upon such other business as may properly come before the Meeting or any adjournment 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 in present and voting, then that one) shall have authority and may exercise all of 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 instructions, this proxy will be voted for the proposal. IMPORTANT: Please insert the date of signing. Date: ___________________ 2004 _______________________________________ Signature of Shareholder ________________________________________ Signature of Shareholder (if held jointly) This proxy card should be signed exactly as your name(s) appear hereon. If an attorney, executor, guardian or in some representative capacity or as an officer of a corporation or other entity, please add title as such. By signing this proxy card, receipt of the Notice of Special Meeting of Shareholders and Prospectus/Proxy Statement is acknowledged. PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. Control Number: _____________ THORNBURG LIMITED TERM MUNICIPAL FUND, INC. (Thornburg Limited Term Municipal Fund California Portfolio) PROXY FOR SPECIAL MEETING OF SHAREHOLDERS THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS April ___, 2004 The undersigned shareholder of THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., a Maryland corporation, hereby appoints Dawn B. Fischer, George T. Strickland and Leigh Moiola and each of them, each with full power of substitution, as proxies to represent the undersigned at the Special Meeting of Shareholders of the Fund, which shall be held on April ___, 2004 at 11:00 a.m. prevailing Mountain Time at the offices of Thornburg Investment Management, Inc., 119 East Marcy Street, Santa Fe, New Mexico 87501, and at any and all adjournments thereof, and at the meeting 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 December __, 2003 between Thornburg Limited Term Municipal Fund, Inc., on behalf of the Fund, and Thornburg Investment Trust, on behalf of Thornburg California Limited Term Municipal Fund (the "New Fund"), and the proposed transaction whereby substantially all of the assets of the Fund will be transferred to the New Fund, in exchange for shares of the New Fund; immediately thereafter, the shares of the New Fund will be distributed to the shareholders of the Fund in complete liquidation of the Fund; which will thereafter be dissolved; 2. In their discretion, upon such other business as may properly come before the Meeting or any adjournment 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 of 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 instructions, this proxy will be voted for the proposal. IMPORTANT: Please insert the date of signing. Date: ____________, 2004 __________________________________________ Signature of Shareholder __________________________________________ Signature of Shareholder (if held jointly) This proxy card should be signed exactly as your name(s) appear hereon. If an attorney, executor, guardian or in some representative capacity or as an officer of a corporation or other entity, please add title as such. By signing this proxy card, receipt of the Notice of Special Meeting of Shareholders and Prospectus/Proxy Statement is acknowledged. PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. PROSPECTUS AND PROXY STATEMENT (for Holders of Class A and Class C Shares) RELATING TO THE ACQUISITION OF THE ASSETS OF THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO a separate series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 BY AND IN EXCHANGE FOR SHARES OF THORNBURG LIMITED TERM MUNICIPAL FUND a separate series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Prospectus/Proxy Statement relates to the proposed transfer of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund") in exchange solely for shares of Thornburg Limited Term Municipal Fund (the "New Fund"). The Fund and the New Fund each have the same investment objective, which is to seek as high a level of interest income which is exempt from federal income taxes as is consistent, in the view of the Funds' investment adviser, with the preservation of capital. As a result of the proposed transaction, each shareholder of the Fund will receive shares of the New Fund equal in value at the date of the exchange to the value of the shareholder's shares of the Fund. 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 the New Fund that a prospective investor should know before investing. The New Fund's "Thornburg Limited Term Municipal Funds" Prospectus for Class A and C shares dated __________, 2004 (the "New Fund Prospectus") containing information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A Statement of Additional Information dated ________________, 2004 (the "Statement of Additional Information") containing additional information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A copy of the New Fund Prospectus and 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 the Fund's current "Thornburg Funds" prospectus for Class A and Class C shares dated February 1, 2004, and its Statement of Additional Information for Class A and Class C shares dated February 1, 2004 are incorporated by reference into this Prospectus/Proxy statement, and may be obtained without charge by writing to Thornburg at the address shown above or by calling 1-800-847-0200. 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 INVESTMENT TRUST OR THORNBURG LIMITED TERM MUNICIPAL FUND, INC. INVESTMENTS IN THORNBURG LIMITED TERM MUNICIPAL FUND (THE "NEW FUND") ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THE NEW 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 __________, 2004. TABLE OF CONTENTS Summary of the Proposed Reorganization Investment Adviser and Distributor of the Fund and the New Fund Investment Goals, Policies and Restrictions of the Fund and the New Fund Principal Risk Factors Fees and Expenses of the Fund and the New Fund Purchase, Redemption and Exchange Procedures for the Fund and the New Fund Dividend Policies of the Fund and the New Fund Comparative Information on Shareholder Rights Additional Information About Shareholder Accounts Information About the Reorganization Capitalization Additional Information About the Fund and the New Fund Voting Information Exhibit A: Agreement and Plan of Reorganization For detailed information about the New Fund, see the Thornburg Limited Term Municipal Funds Prospectus dated __________ 2004 (the "New Fund Prospectus"), which may be obtained without charge by writing Thornburg at the address above or by calling 1-800-847-0200. SUMMARY OF THE PROPOSED REORGANIZATION The Board of Directors of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), including the Directors who are not "interested persons" of Thornburg LTMF (the "Independent Directors"), as defined in the Investment Company Act of 1940, have reviewed and unanimously approved an agreement and plan of reorganization (the "Agreement") between Thornburg LTMF on behalf of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund") and Thornburg Investment Trust ("Thornburg Trust") on behalf of Thornburg Limited Term Municipal Fund (the "New Fund") providing for the acquisition of substantially all of the assets of the Fund, a separate fund (sometimes referred to as a "series") of Thornburg LTMF, by the New Fund, a separate series of Thornburg Trust, in exchange solely for voting shares of the New Fund. The aggregate net asset value of the shares of the acquiring New Fund issued in the exchange will equal the aggregate net asset value of the shares outstanding for the acquired Fund. In connection with the transaction, shares of the New Fund will then be distributed to the Fund's shareholders pro rata by class so that holders of each Class of shares of the Fund will receive shares of the corresponding Class of shares of the New Fund. The Fund thereafter will be terminated. These transactions are referred to as the "reorganization." As a result of the reorganization, each owner of Class A and Class C shares of the Fund will become an owner of the corresponding class of shares of the New Fund, having an aggregate net asset value equal to the net asset value of that shareholder's shares in the Fund. No sales charge will be imposed on the transaction. As a condition to the closing, Thornburg Trust and Thornburg LTMF will obtain a legal opinion 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 shares of the New Fund in the reorganization will remain free to redeem their shares after the reorganization. The Fund and the New Fund have identical investment objectives and policies. The New Fund will commence operations upon the completion of the reorganization with the same portfolio of investments owned by the Fund. The New Fund will have the same investment manager as the Fund, Thornburg Investment Management, Inc. ("TIMI"), which will perform investment management services under an investment management agreement having substantially identical terms and providing for the same fees as the Fund's current investment advisory agreement. Expenses of the New Fund are expected to be substantially the same as the expenses of the Fund before the reorganization, as follows: Fund Annual Operating Expenses Before the Reorganization - -------------------------------------------- Class A .93% Class C 1.68% Expected New Fund Annual Operating Expenses After the Reorganization - --------------------------------------------- Class A .93% Class C 1.68% Expenses of the reorganization will be paid by the Fund and are not expected to have a material effect on the expenses of the Fund. The reorganization is expected to result in cost savings to the shareholders of the New Fund after the reorganization. For the reasons set forth below, the Board of Directors of LTMF, including all of the Independent Directors, have unanimously concluded that the reorganization is in the best interests of the shareholders of the Fund. The Board of Directors of Thornburg LTMF therefore have submitted the Agreement for approval by the shareholders of the Fund at a special meeting of shareholders to be held on April __, 2003 (the "Meeting"). Approval of the reorganization with respect to the Fund requires a vote of a majority of the outstanding shares of each of the three classes of the Fund's shares. This Prospectus/Proxy Statement pertains to and is directed to holders of the Fund's Class A and Class C Shares. At or about the same time that substantially all of the assets of the Fund are acquired by the New Fund, Thornburg California Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg LTMF's other series, Thornburg Limited Term Municipal Fund California Portfolio. Each of these transactions has been approved by Thornburg LTMF's Board of Directors. The acquisition of substantially all of the assets of the Fund and Thornburg Limited Term Municipal Fund California Portfolio are referred to collectively herein as the "Related Transactions." Completion of the reorganization is contingent upon proper shareholder approval being received for each of the Related Transactions, and the satisfaction of all other conditions to closing the Related Transactions. There can be no assurance shareholder approval can be obtained for each Related Transaction or that the conditions of the other Related Transaction will be satisfied. If shareholders of the Fund approve the reorganization and the other Related Transaction is not approved, the Board of Directors of Thornburg LTMF will consider the alternatives available to it with respect to the Fund, including completion of the reorganization respecting the Fund. See "Voting Information." The Board of Directors has approved the reorganization because they believe it would benefit the Fund. The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing these functions. The Board of Directors considered these objectives of the reorganization, together with other factors, which are discussed below under the caption "Information About the Reorganization." THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. INVESTMENT ADVISER AND DISTRIBUTOR The investment adviser to both the Fund and to the New Fund is Thornburg Investment Management, Inc. ("TIMI"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TIMI has been the investment adviser for the Fund since its inception in 1984. TIMI is also the investment adviser for all of the 12 Funds offered by Thornburg Trust, including the New Fund and Thornburg California Limited Term Municipal Fund (the two Funds organized to consummate the Related Transactions), four other Funds which invest principally in municipal obligations for tax exempt current income, two Funds which invest in U.S. Government and other fixed income obligations for current income, three Funds which invest primarily for capital appreciation, and one Fund which invests for current income and capital appreciation. TIMI also provides to each Thornburg mutual fund under its management supervision, administration and performance of certain administrative services. Fees charged to the Fund and the New Fund for these services are described below under "Fees and Expenses of the Fund and the New Fund." The distributor of shares to both the Fund and to the New Fund is Thornburg Securities Corporation ("TSC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TSC has been the distributor for the Fund since its inception in 1984. TSC is also distributor for each other Thornburg mutual fund. INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE FUND AND THE NEW FUND Investment Goals and Strategies of the Funds - -------------------------------------------- The investment goals and strategies of the Fund and the New Fund are identical. The primary investment goal of each Fund is to obtain as high a level of current income exempt from federal individual income tax as is consistent, in the view of the investment adviser, with preservation of capital. The secondary goal of each Fund is to reduce expected changes in its share price compared to longer intermediate and long-term bond portfolios. Each Fund's primary and secondary goals are fundamental policies, and may not be changed without a majority vote of the Fund's shareholders. Each Fund pursues its primary goal by investing principally in a laddered maturity portfolio of municipal obligations issued by states and state agencies, local governments and their agencies and by certain United States territories and possessions. The investment adviser, Thornburg Investment Management, Inc. ("TIMI"), actively manages each Fund's portfolio. Investment decisions are based upon outlooks for interest rates and securities markets, the supply of municipal debt securities, and analysis of specific securities. Each Fund invests in obligations and participations in obligations which are rated at the time of purchase as investment grade or, if unrated, which are issued by obligors which have comparable investment grade obligations outstanding or which are deemed by TIMI to be comparable to obligors with outstanding investment grade obligations. Each Fund's portfolio is "laddered" by investing in obligations of different maturities so that some obligations mature during each of the coming years. Because the magnitude of changes in value of interest bearing obligations is greater for obligations with longer terms, each Fund seeks to reduce changes in its share value by maintaining a portfolio of investments with a dollar-weighed average maturity normally less than five years. There is no limitation on the maturity of any specific security each Fund may purchase. Each Fund may dispose of any security before it matures. Each Fund also attempts to reduce changes in its share value through credit analysis, selection and diversification. Each Fund ordinarily acquires and holds securities for investment rather than for realization of gains by short term trading on market fluctuations. However, it may dispose of any security prior to its scheduled maturity to enhance income or reduce loss, to change the portfolio's average maturity, or to otherwise respond to current market conditions. The objective of preserving capital may prevent the Fund from obtaining the highest yields available. Each Fund normally invests 100% of its assets in municipal obligations. Each Fund may invest up to 20% of its assets in taxable securities which produce income not exempt from federal income tax because of market conditions, pending investment of idle funds or to afford liquidity. A Fund's temporary taxable investments may exceed 20% of its assets when made for defensive purposes during periods of abnormal market conditions. If a Fund found it necessary to own taxable investments, some of its income would be subject to federal income tax. PRINCIPAL RISK FACTORS Because the Funds' investment goals and policies are identical, the risks of investing in the New Fund are expected to be the same as the risks of investing in the Fund. The value of each Fund's shares and its dividends will fluctuate in response to changes in interest rates. When interest rates increase, the value of the Fund's investments declines and the Fund's share value is reduced. This effect is more pronounced for intermediate and longer term obligations owned by a Fund. During periods of declining interest rates the Fund's dividends decline. The value of Fund shares also could be reduced if municipal obligations held by the Fund were downgraded by rating agencies, or went into default, or if legislation or other government action reduces the ability of issuers to pay principal and interest when due or changes the tax treatment of interest on municipal obligations. Nonrated obligations may have, or may be perceived to have, greater risk of default. The loss of money is a risk of investing in the Fund, and when you sell your shares they may be worth less than what you paid for them. An investment in either Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For a further discussion of the investment objectives, policies and restrictions applicable to the New Fund, please see the New Fund Prospectus, which is available without charge by calling 1-800-847-0200. FEES AND EXPENSES OF THE FUND AND THE NEW FUND Advisory and Administration Fees and Fund Expenses - -------------------------------------------------- The Fund and the New Fund each have contractual arrangements to obtain investment management, administrative and distribution services which are substantially identical. The Fund and The New Fund are each contractually obligated to pay an investment management fee to TIMI based upon the Fund's assets. The fee is computed on average daily net assets at an annual rate as follows: Net Assets Annual Rate ---------- ----------- 0 to $500 million .50% $500 million to $1 billion .40% $1 billion to $1.5 billion .30% $1.5 billion to $2.0 billion .25% more than $2.0 billion .225% TIMI also has entered into agreements with the Fund and the New Fund to provide administrative services at an annual rate of .125% of average daily net assets for Class A and Class C shares of each Fund. Investment advisory fees, and the other expenses currently paid by the Fund and expected to be paid by the New Fund are set out below. The Shareholder Transaction Expense table shows the transaction fees paid by a shareholder in each Fund upon a purchase or redemption of shares. The Annual Operating Expenses table shows the annual Fund operating expense for the Fund for its fiscal year ended June 30, 2003 and compares those fee and expense percentages to the expected annual fund operating expenses for the New Fund for its current fiscal year. Shareholder Transaction Expenses Fees Paid Directly From Your Investment Fund New Fund Class A Class C Class A Class C ------- ------- ------- ------- Maximum Sales Charge (Load) on 1.50% none 1.50% none Purchases (as a percentage of offering price) Maximum Deferred Sales Charge 0.50%(1) 0.50% (2) 0.50% (1) 0.50% (2) (Load) on Redemptions (as a percentage of redemption proceeds on original purchase price, whichever is lower) Redemption Fees (as a none none none none percentage of amount redeemed) Annual Operating Expenses Expenses That Are Deducted From Fund Assets (as a percentage of average net assets) Fund New Fund (3) Class A Class C Class A Class C ------- ------- ------- ------- Investment Advisory Fee .43% .43% .43% .43% Distribution and Service (12b-1) Fees .25 1.00% .25% 1.00% Other Expenses .25% .25% .25% .25% ----- ----- ----- ----- Total Annual Operating Expenses .93% 1.68%(4) .93% 1.68%(4) (1) Imposed only on redemptions of any part or all of a purchase of $1 million or more within 12 months of purchase. (2) Imposed only on redemptions of Class C shares within 12 months of purchase. (3) The New Fund is a newly organized Fund which has not conducted any business except incident to the reorganization. The fees and expenses shown for the New Fund are estimated fees and expenses expected to be incurred for the fiscal year ending June 30, 2004. (4) For the fiscal year ending June 30, 2004, Thornburg Investment Management, Inc. and Thornburg Securities Corporation are waiving fees and reimbursing expenses so that actual Class C expenses do not exceed 1.24%. Thornburg Investment Management, Inc. and Thornburg Securities Corporation intend to waive fees and reimburse expenses for Class C shares of the New Fund after the reorganization so that actual Class C expenses do not exceed 1.24%. Waivers of fees and reimbursements of expenses may be terminated at any time. EXAMPLE: The following Example is intended to help you compare the cost of investing in the New Fund with the cost of investing in the Fund. The Example assumes that you invest $10,000 in each respective Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, that dividends and distributions are reinvested, and that each Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund New Fund Pro Forma Class A Class C Class A Class C ------- ------- ------- ------- 1 Year $243 $221 $243 $221 3 Years $442 $530 $442 $530 5 Years $657 $913 $657 $913 10 Years $1,276 $1,987 $1,276 $1,987 You would pay the following expenses if you did not redeem your Class C shares: Fund New Fund Pro Forma Class C Class C ------- ------- 1 Year $171 $171 3 Years $530 $530 5 Years $913 $913 10 Years $1,987 $1,987 PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES FOR THE FUND AND THE NEW FUND Sales Charges - ------------- Share purchase, redemption and exchange procedures for the Class A and Class C shares of the Fund are identical with the purchase, redemption and exchange procedures for the corresponding share classes of the New Fund. Purchasing Class A Shares - ------------------------- Class A shares of the Fund and the New Fund are sold at net asset value plus a sales charge at the rates shown in the table below. Class A shares are also subject to a Rule 12b-1 Service Plan, which provides for the Fund's payment of up to 1/4 of 1% of the class's net assets each year for shareholder and distribution services. As a Percentage As a Percentage Of Offering Price Of Net Asset Value ----------------- ------------------ Less than $250,000.00 1.50% 1.52% $250,000 to 499,999.99 1.25% 1.27% $500,000 to 999,999.99 1.00% 1.01% $1,000,000 and over 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. Class A shares also are sold to specified classes of investors at reduced or no sales charges. For example, a shareholder who redeems Class A shares may reinvest with no sales charge within 2 years of the redemption. Additionally, each time the value of a shareholder's account plus the amount of a new investment passes one of the breakpoints in the table above, the portion of new investments in excess of the breakpoint will be subject to the reduced sales charge. These privileges, and other opportunities for purchase at reduced or no sales charge are described in the New Fund Prospectus, which is available without charge by calling 1- 800-847-0200. Purchasing Class C Shares - ------------------------- Class C shares of the Fund and the New Fund are sold at net asset value without a sales charge at the time of purchase. Class C shares are subject to a contingent deferred sales charge of 1/2 of 1% of the shares are redeemed within one year of purchase. Class C shares are also subject to Rule 12b-1 Service and Distribution Plans, which provide for the Fund's payment of up to 1% of the class's net assets each year for shareholder and distribution services. Other information respecting the purchase of Class C shares is provided in the New Fund Prospectus. Exchange Privileges - ------------------- Class A shares of the Fund may be exchanged for Class A shares of other Thornburg funds, subject to certain conditions described in the Fund's prospectus. Similarly, Class A shares of the New Fund may be exchanged for Class A shares of other Thornburg mutual funds under the same conditions, 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 you paid on the shares you are exchanging. This charge remains applicable to exchanges of shares received in the reorganization. Each of the Funds permits exchanges by telephone if the telephone exchange privilege has been elected by the shareholder. Shareholders of the Fund who previously elected the telephone exchange privilege will be deemed to have elected the exchange privilege of the New Fund if the reorganization is completed. Redemptions - ------------ Shares of the Fund and the New 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 specific circumstances. The Fund and the New Fund impose a CDSC of 1/2 of 1% on redemptions of part or all of any purchase of $1 million or more of Class A shares in the event of a redemption within 12 months of purchase. The Fund and the New Fund Class C shares are subject to a CDSC of 1/2 of 1% if redeemed within one year of purchase. Shareholders' holding periods for Class A and Class C shares of the Fund will be added to the period they hold New Fund Class A or Class C shares received in the reorganization to determine if the CDSC is applicable to any redemption of those shares. Shareholders of the Fund who previously elected the telephone redemption privilege will be deemed to have elected the New Fund's telephone redemption privilege if the reorganization is completed. DIVIDEND POLICIES OF FUNDS The Fund distributes substantially all of its net investment income and realized capital gains to its shareholders. The Fund declares net income dividends daily and distributes those dividends monthly, and 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. The New Fund intends to follow the same policies. COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS The Fund is a diversified series of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), a Maryland corporation organized in 1984. As a Maryland corporation, Thornburg LTMF is governed by applicable Maryland and federal law, its articles of incorporation and its bylaws. The business of Thornburg LTMF is supervised by its Board of Directors. The New Fund is a diversified series of Thornburg Trust, a Massachusetts business trust organized in 1987. As a Massachusetts business trust, Thornburg Trust is governed by applicable Massachusetts and federal law, its declaration of trust, as amended, and its bylaws. The business of Thornburg Trust is supervised by Thornburg Trust's Trustees. Thornburg LTMF is currently authorized under its articles of incorporation, as amended, to issue 300,000,000 Class A shares of the Fund, 150,000,000 Class C shares of the Fund, and 250,000,000 Institutional Class shares. Each share has a par value of $.001. The Board of Directors is permitted to increase this authorization from time to time under Maryland law. The Board of Directors is also permitted to create additional funds or "series," and to divide each such series into two or more classes of shares. Thornburg 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. All of the shares of Thornburg LTMF and of Thornburg Trust, 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 Thornburg LTMF nor Thornburg Trust permits cumulative voting. Neither Thornburg LTMF nor Thornburg Trust holds annual shareholder meetings. There normally will not be any meetings of shareholders of Thornburg LTMF, Thornburg Trust or either of the Funds to elect directors or trustees unless fewer than a majority of the directors or trustees then holding office have been elected by shareholders. However, the Board of Directors of Thornburg LTMF or the Trustees of Thornburg Trust may call special meetings from time to time to seek shareholder approval of certain matters, and meetings of shareholders of either Thornburg LTMF or Thornburg Trust will be called upon written request of shareholders holding in the aggregate not less than 10% of the outstanding shares of any affected series or class having voting rights. Under Maryland law, shareholders of Thornburg LTMF are not liable for the obligations of Thornburg LTMF. However, under Massachusetts law, there is a remote possibility that shareholders of a Thornburg Trust could, under certain circumstances, be held personally liable for the obligations of such a trust. The declaration of trust for Thornburg Trust contains provisions intended to limit any such liability and to provide indemnification out of Fund property for any shareholder charged or held personally liable for obligations or liabilities of the shareholder's fund solely by reason of being or having been a shareholder of that Fund and not because of the shareholder's acts or omissions or for some other reason. Consequently, the risk of a shareholder of the New Fund incurring financial loss on account of shareholder liability is limited to circumstances in which the New Fund itself would be unable to meet its obligations. ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS If the reorganization is approved, the New Fund will establish an account for each Fund shareholder. No further purchases of the shares of the Fund may be made after the date on which the shareholders of the Fund approve the reorganization, and the share transfer books of the 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 the Fund. Redemption requests or transfer instructions received by the Fund after that date will be treated as requests for the redemption or instructions for transfer of shares of the New Fund credited to the accounts of shareholders of the New Fund. Accordingly, those redemption requests or transfer instructions after the close of business on the day before Closing will be forwarded to the New Fund. For a complete description of redemption procedures for the New Fund, see the sections of the New Fund Prospectus under the caption "Selling Fund Shares." INFORMATION ABOUT THE REORGANIZATION Agreement and Plan of Reorganization - ------------------------------------ The following summary of the proposed Agreement and Plan of Reorganization (the "Agreement") is qualified in its entirety by reference to the Agreement attached to this Prospectus/Proxy Statement as Exhibit A. The Agreement provides that the New Fund will acquire substantially all of the assets of the Fund in exchange solely for shares of the New Fund on the earliest practicable date following shareholder approval of the reorganization (the "Closing Date"). The number of full and fractional shares of the New Fund to be issued to shareholders of the Fund will be determined on the basis of the relative net asset values per share and aggregate net assets of the New Fund and the 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 the Fund will be determined by dividing each class's respective assets, less its respective share of liabilities, by the total number of the class's outstanding shares. Portfolio securities of the Fund will be valued in accordance with the valuation practices of the Fund as described in its prospectus, which is incorporated by reference herein. Valuation procedures of the New Fund are the same as the valuation procedures of the Fund. Immediately after the transfer of the Fund's assets to the New Fund on the Closing Date, the 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 the New Fund received by the Fund and will be dissolved as soon thereafter as reasonably practicable. The distribution will be accomplished by the establishment of accounts on the share records of the New Fund in the name of each shareholder of the Fund, each representing the respective pro rata number of full and fractional shares of the New Fund due each of those shareholders. Following the reorganization, shareholders will own shares of the New Fund of the same class as the Fund shares owned before the reorganization. No certificates for shares of the New Fund will be issued. The consummation of the reorganization is subject to the conditions set forth in the Agreement. The reorganization is also subject to approval by the Fund's shareholders. Approval requires the affirmative vote of the holders of a majority of each class of shares of the Fund. Further, completion of the reorganization is subject to shareholder approval of the "Related Transaction", which is the proposed transaction in which Thornburg California Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio. If shareholders of the Fund approve the reorganization, but the Related Transaction is not approved, the Board of Directors of the 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 the Fund, by resolution of the Board of Directors of the Fund or the Trustees of Thornburg Trust, under circumstances specified in the Agreement. The Fund will pay the costs of the reorganization, which include fees and costs associated with preparing, filing, printing and distributing proxy materials, proxy solicitation costs, costs associated with qualifying shares for sale in various states, and the deregistration and dissolution of Thornburg LTMF. The Board of Directors of Thornburg LTMF have determined that participation in the reorganization is in the best interests of shareholders of the Fund. Full and fractional shares of beneficial interest of the New Fund will be issued to shareholders of the Fund in accordance with the procedures under the Agreement described above. Each share will be fully paid and non-assessable by the New Fund when issued, and will have no preemptive or conversion rights. See comparative information on shareholder rights, below, for additional information with respect to the shares of the New Fund. Considerations of the Fund's Board of Directors - ----------------------------------------------- Thornburg Investment Management, Inc. ("TIMI"), the investment adviser to both the Fund and the New Fund, proposed and recommended the reorganization to the Board of Directors of Thornburg (the "Board") to simplify certain compliance and administrative functions and to reduce the costs associated with the performance of those functions. Based upon TIMI's recommendation, and after consideration of the rationale for the reorganization and certain additional factors described below, the Board, including all of the directors who are not "interested persons" ("Independent Directors") as that term is used in the Investment Company Act of 1940 (the "1940 Act"), has determined that the reorganization is in the best interest of the shareholders of the Fund and that the terms of the agreement and plan of reorganization are fair and reasonable. The Board considered the recent increases in compliance and related functions performed for the Fund, and the likely further increase in those functions in the future due to regulatory and rulemaking initiatives by the Congress and the Securities and Exchange Commission. The Board noted specifically in this connection the following factors: . increased duties for the Board assuring compliance with revised regulations applicable to mutual funds generally; . increased audit committee functions and additional time devoted to audit committee functions by the independent accountants; . increased number of filings by Thornburg LTMF of documents required under state and federal law and increased time for review and discussion of those filings by the Board; and, . increased Board fees and associated travel expenses and other expenses occasioned by these increased activities. The Board further noted in this regard that these functions are generally duplicative of comparable functions performed for and by Thornburg Investment Trust and its Trustees and audit committee. The Board concluded that the general complexity of compliance, and administration of compliance could be reduced significantly if the two funds currently offered by Thornburg LTMF were combined with the ten existing funds offered by Thornburg Investment Trust. This combination would, in the Board's view, eliminate the current duplication and reduce complexity by substituting one investment company in the place of two. Moreover, the Board concluded that the reorganization would result in significant cost savings, because the two funds of Thornburg Trust which will acquire Thornburg LTMF's two current funds will share with Thornburg Trust's other funds a number of costs which are currently duplicated (and thus not shared) by Thornburg LTMF and Thornburg Trust. In this latter regard the Board considered: . legal fees and costs associated with advice on compliance matters, preparation of documents related to compliance, preparation of documents for Board of Directors and audit committee meetings; . legal counsel preparation for and attendance at Board of Directors and audit committee meetings; . fees and costs associated with preparation and filing of registration statements and other periodic filings, and general corporate work associated with the maintenance of an additional corporate entity; . costs, including Directors' fees and travel and other expenses associated with the Board's and the audit committee's fees and meetings; and . expenses and fees of the independent accountants. The Board also considered the likelihood of future increases in these costs because of increased rulemaking and regulatory complexity, increasing duties placed on investment company directors and audit committees, the possible need to hire additional legal counsel and other persons for audit committees, and possible increases in the frequency of shareholder meetings to elect investment company directors. Based upon estimates by TIMI and legal counsel, the Board determined that it was reasonable to conclude that the costs of the reorganization could be recovered in less than two years. The Board also considered other factors in evaluating the proposed reorganization, including the following: (1) There would be no change in investment objectives, investment policies, or investment risks as a result of the reorganization; (2) After the reorganization, investment management, administrative services, and other functions would be performed under contracts having substantially the same terms as the existing contracts; (3) Fees and expenses for the New Fund are expected to be virtually the same as fees and expenses for the Fund, except for the costs of the reorganization (which are expected to be offset, and exceeded over time by cost savings); (4) The reorganization will result in no dilution of shareholders' interests; (5) Shareholders of the Fund will receive shares in the New Fund of the class corresponding to the same class of shares in the Fund; (6) The reorganization will be accomplished without recognition of gain or loss for federal income tax purposes by shareholders of Thornburg LTMF; and (7) No sales charges or transaction fees will be assessed against shareholders in connection with the reorganization. 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 the Fund, the New Fund, or shareholders of the Fund as a consequence of the reorganization. As a condition to the closing of the reorganization, the Fund and the New Fund will receive an opinion of legal counsel to that effect based on certain assumptions and representations made by the Fund and the New Fund. Shareholders of the 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 the 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 the Fund and the New Fund as of December 31, 2003 and the pro forma capitalization of the combined New Fund as if the reorganization occurred on that date. These numbers will be different at the time of closing because the Fund's net assets for each class will increase or decrease. CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 2003 FUND NEW FUND PRO FORMA ---- -------- --------- NET ASSETS - ----------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ TOTAL $_____ -0- $_____ NET ASSETS PER SHARE - -------------------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ SHARES OUTSTANDING - ------------------ Class A shares _____ -0- _____ Class C shares _____ -0- _____ Class I shares _____ -0- _____ TOTAL -0- (1) SHARES AUTHORIZED - ----------------- Class A shares 300,000,000 unlimited unlimited Class C shares 150,000,000 unlimited unlimited Class I shares 250,000,000 unlimited unlimited TOTAL 700,000,000 unlimited unlimited (1) It is anticipated that a nominal number of shares of each class will be issued to an officer of TIMI in order to permit the consummation of corporate actions before the reorganization. ADDITIONAL INFORMATION ABOUT THE FUNDS Additional information respecting the New Fund is included in the Thornburg Limited Term Municipal Funds prospectus dated _______________, 2004 (the "New Fund Prospectus") and in the Thornburg Limited Term Municipal Funds Statement of Additional Information dated ___________________, 2004, which has been filed with the Securities and Exchange Commission. Additional information is also included in the Statement of Additional Information dated ________________, 2004 related to the reorganization which has been filed with the Securities and Exchange Commission. The described New Fund Prospectus and statements of additional information are incorporated by reference herein. Copies of the New Fund Prospectus and the statements of additional information are available upon request and without charge by calling 1-800-847-0200. Information about the Fund is included in the Thornburg Funds prospectus dated February 1, 2004, and in the Thornburg Funds Statement of Additional Information dated February 1, 2004. The described prospectus and statement of additional information may been filed with the Securities and Exchange Commission and are incorporated by reference herein. Copies of the prospectus and the statement of additional information are available upon request and without charge by calling 1-800-847-0200. Reports and other information filed by Thornburg LTMF and Thornburg Trust can be inspected and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information about the Public Reference Room may be obtained by calling the Commission at 1-202-942-8090. Reports and other information about the Funds are also available on the Commission's Internet site at http://www.sec.gov and copies of information may be obtained, upon payment of a duplicating fee, by writing the Commission's Public Reference Section, Washington, D.C. 20549-0102, or contacting the Commission by e-mail at publicinfo@sec.gov. Thornburg LTMF files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-4302. Thornburg Investment Trust files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-05201. VOTING INFORMATION Proxies for the meeting are being solicited from the Fund's shareholders by the Board of Directors of Thornburg LTMF. A proxy may be revoked at any time at or before the meeting by oral or written notice to the secretary of Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, (800) 847-0200. Unless revoked, all valid proxies will be voted in accordance with the specifications therein 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 TIMI and its affiliates or by a professional proxy solicitation firm or firms. Expenses of proxy solicitation will be borne by the Fund. Thornburg LTMF has engaged the proxy solicitation firm of ___________ to assist in soliciting proxies for the meeting at an estimated cost of $______. Shares of the Fund of record at the close of business on _____________ (the "Record Date") will be entitled to vote at the meeting or any adjournment thereof. The presence in person or by proxy of one-third of the Fund's outstanding shares of the meeting will constitute a quorum. 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 the outstanding shares of the Fund entitled to vote at the meeting. As of _____________,2004, there were issued and outstanding ______ Class A shares, _________ Class C shares and ________ Class I shares of the Fund. As of the same date, the following persons were known to own of record or beneficially 5% or more of the issued and outstanding shares of any Class of the Funds: [to be inserted] As of the same date, there were issued and outstanding ____ Class A shares, ______ Class C shares, and ______ Class I shares of beneficial interest of the New Fund. All of these shares were held by ________, 119 East Marcy Street, Santa Fe, New Mexico 87501. Ms. _______ was issued these shares in order to permit certain actions in connection with the initial organization of the New Fund. 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 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 DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION. Submission of Shareholder Proposals - ----------------------------------- The 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 Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501. Other Matters to Come Before the Meeting - ---------------------------------------- The Board of Directors of Thornburg LTMF knows 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 Directors. EXHIBIT A to PROSPECTUS/PROXY STATEMENT AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of the ____ day of December 2003, by and between THORNBURG INVESTMENT TRUST, a Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg National Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Trust, and THORNBURG LIMITED TERM MUNICIPAL FUND, INC. a Maryland corporation ("Thornburg LTMF"), in respect of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a separate series of Thornburg LTMF. 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 the Fund to the New Fund in exchange solely for Class A, Class C and Class I voting shares of beneficial interest of the New Fund having no par value (the "New Fund Class A Shares," "New Fund Class C Shares," and "New Fund Class I Shares," respectively, and collectively the "New Fund Shares") and (ii) the distribution on the Closing Date (hereinafter defined) of the New Fund Shares to the shareholders of the New Fund in complete liquidation of the Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. All actions required to be taken by Thornburg Trust pursuant to this Agreement, and all representations, warranties and covenants of Thornburg Trust hereunder, are taken and made on behalf of the New Fund. 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 the New 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, Thornburg LTMF agrees to transfer the Assets of the New Fund as set forth in paragraph (b) to the New Fund, and Thornburg Trust agrees to deliver to the New Fund in exchange therefor the number of the New 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 the New Fund Shares 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 the New 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 the New Fund on the closing date provided in paragraph 3(a) (the "Closing Date"). The New 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, which could not reasonably be paid before Closing and are not otherwise borne by any other person; and (ii) costs resulting from the liquidation and deregistration of the Fund and Thornburg LTMF. The Assets will not include any rights in and to the "Thornburg" name or any variant thereof. The Fund has provided the New Fund with a list of the current securities holdings of National Portfolio as of the date of execution of this Agreement. Thornburg LTMF and the Fund reserve the right to sell any of these securities in the ordinary course of business but will not, without prior notification to Thornburg Trust, acquire any additional securities for the Fund other than securities of the type in which the New Fund is permitted to invest. (c) On the Closing Date, Thornburg LTMF will cause the Fund to be liquidated and to distribute pro rata to the Fund's shareholders of record (the "Fund Shareholders"), determined on and as of the close of business on the Valuation Date specified in paragraph 2(a), the New Fund Shares received by Thornburg LTMF pursuant to paragraph (a). Specifically, Thornburg LTMF shall (i) distribute the New Fund Class A Shares received in the exchange, pro rata, to the Fund Shareholders holding Class A shares of the Fund, (ii) distribute the New Fund Class C shares received in the exchange, pro rata, to the Fund Shareholders holding Class C shares of the Fund, and (iii) distribute the New Fund Class I Shares received in the exchange, pro rata, to the Fund Shareholders holding Class I shares of the Fund. The liquidation and distribution will be accomplished by the transfer of the New Fund Shares then credited to the account of the Fund on the books of New Fund, to open accounts on the share records of the Fund in the names of the Fund Shareholders and representing the respective pro rata number of New Fund due the Fund Shareholders. (d) As of the Closing Date, any physically-issued share certificates held by former Fund Shareholders and relating to Fund shares exchanged for New Fund Shares in accordance with the preceding paragraph (c) will represent only the right to receive the appropriate number of New Fund Shares. As of the Closing Date, persons holding those certificates will be requested to surrender their certificates. No redemption or repurchase of any New Fund Shares credited to former Fund Shareholders in place of Fund shares represented by unsurrendered certificates will be permitted until those certificates have been surrendered for cancellation or the certificates are cancelled upon the delivery of lost certificate affidavits. (e) Any transfer taxes payable upon issuance of New Fund Shares in a name other than that of the registered holder of the New Fund Shares on the books of the Fund as of the Closing Date shall, as a condition of such issuance and transfer, be paid by the person to whom the New Fund Shares are to be issued and transferred. (f) The Fund shall be dissolved as soon as reasonably practicable following the Closing Date. Thornburg LTMF 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 Trust will not assume any liability of Thornburg LTMF, or acquire any Asset subject to any liability, in connection with the transactions contemplated by this Agreement, except that the New Fund will assume the obligation to pay for any portfolio securities purchased by the Portfolio before the Closing Date in the ordinary course of its business and the purchase of which was disclosed to the New Fund by the New Fund Portfolio when the commitment to purchase arose. 2. Valuation. (a) The value of the Fund's Assets to be acquired by the New 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 the Fund's Assets consisting of portfolio securities will be computed by Kenny Information Systems, subject to adjustment by the amount, if any, agreed to by the New Fund and the 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 the New Fund (subject to the third sentence hereafter) as set forth in the then current prospectuses and statement of additional information applicable to the New Fund, subject to adjustments agreed to by the Fund and the New Fund. 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 the Fund, the New Fund and the 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 value of the Assets of each class of the Fund shall be divided, as of the close of business on the New York Stock Exchange and after the declaration of any dividends on the Valuation Date, among the Class A, Class C and Class I shares of National Portfolio (the "Class A Assets," "Class C Assets," and "Class I Assets"), respectively, in accordance with the Fund's customary method of accounting. (c) The net asset value of each New 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 the New Fund's then current prospectuses, and in accordance with the New Fund's customary method of accounting. (d) On the Closing Date, the New Fund shall issue to the Fund full and fractional New Fund Class A, Class C and Class I shares in the respective numbers determined in accordance with this paragraph 2(d). The number of New Fund Class A shares shall be determined by dividing the value of the Class A Assets by the net asset value of a New Fund Class A share determined in accordance with paragraph 2(c). The number of New Fund Class C shares shall be determined by dividing the value of the Class C Assets by the net asset value of a New Fund Class C share determined in accordance with paragraph 2(c). The number of New Fund Class I shares shall be determined by dividing the value of the Class I Assets by the net asset value of a New Fund Class I share determined in accordance with paragraph 2(c). 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 Fund's Shareholders has been obtained. 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) The Fund's portfolio securities shall be available for inspection by the New Fund, its custodian bank or such other agents of Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices of the Fund's custodian, no later than five business days preceding the Valuation Date, and the Fund will immediately notify the New Fund's investment adviser of any portfolio security thereafter acquired or sold by the Fund. The Fund's securities and cash shall be delivered by Thornburg LTMF to State Street Bank & Trust Company, Boston, MA 02205-9087, as custodian for the New Fund for the account of the New 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." The Fund will cause its custodian to deliver at Closing a certificate of an authorized officer of the Custodian stating that the Fund's have been delivered in proper form to the New 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 the New Fund or the 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) Thornburg LTMF shall deliver to Thornburg Trust shareholder and shareholder account information as of the close of business on the Valuation Date as reasonably requested by Thornburg Trust. The New Fund shall issue and deliver a confirmation to the Fund at the Closing stating the number of New Fund Shares to be credited on the Closing Date to the Fund, and stating the number of New Fund Shares credited to the Fund's account on the books of the New Fund. Thornburg Trust shall issue and deliver to each former Fund Shareholder, after the Closing, a confirmation stating the number of New 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 may reasonably request. 4. Representations and Warranties. (a) Thornburg LTMF represents and warrants to Thornburg Trust as follows: (i) The Fund is a series of Thornburg LTMF, which is a corporation duly formed and validly existing 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 undr the 1940 Act is in full force and effect; (iii) The current prospectuses and statements of additional information of the Fund, each dated November 1, 2003, 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 Thornburg LTMF, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the 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 Thornburg LTMF's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Fund or Thornburg LTMF is a party or by which it is bound; (vi) The 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 the Fund is a party will be terminated without liability to the Fund or the New 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 the 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 the 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 the Fund at June 30, 2003 have been audited by PricewaterhouseCoopers, LLP, independent 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, 2003, when issued, fairly reflect, or in the case of the December 31, 2003 statements will fairly reflect, in all material respects the assets, financial condition, results of operations, and changes in net assets of the Fund as of and for the periods ended on those dates and have, or in the case of the December 31, 2003 statements, shall have been prepared, in accordance with generally accepted accounting principles consistently applied; and there are as of the dates thereof no known liabilities of the Fund other than liabilities disclosed or provided for in the foregoing statements; (x) Since June 30, 2003, there has been no material adverse change in the Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business; and the 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 the Fund's Shares is not a material adverse change; (xi) At the Closing Date, all material federal and other tax returns and reports of the 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 Thornburg LTMF's knowledge no such return of or relating to the Fund is currently under audit, and no assessment has been asserted with respect to the Fund; (xii) The 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) The Fund is authorized to issue 300,000,000, 150,000,000 and 125,000,000 Class A, Class C and Class I shares, respectively, of the Fund, at the date hereof. All issued and outstanding shares of the 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 shares of the Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by Thornburg LTMF. All of the issued and outstanding Shares of the Fund 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 Trust pursuant to paragraph 3(d). The Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the Fund; (xiv) At the Closing Date, the Fund will have good and marketable title to the Assets to be transferred to the New 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, the New 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 the New 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 Thornburg LTMF's Board of Directors, and this Agreement constitutes a valid and binding obligation of Thornburg LTMF, enforceable in accordance with its terms, subject to the approval of the shareholders of the Fund, 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 the New New Fund 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; (xvii) The registration statement filed by the New Fund on Form N-14 relating to the New Fund Shares that will be registered with the Commission pursuant to this Agreement, which shall include the proxy statement of Thornburg LTMF in respect of the 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 the proxy materials of Thornburg LTMF in respect of the 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 the 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 Thornburg LTMF. (b) Thornburg Trust represents and warrants to Thornburg LTMF as follows: (i) The New Fund is a series of Thornburg Trust, which is a business trust duly formed and validly existing under the laws of the Commonwealth of Massachusetts; (ii) Thornburg 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 prospectuses and statements of additional information for shares of the New Fund, when effective, shall conform in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Commission thereunder and will 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 Trust, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the New 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 Trust's Declaration of Trust or By- Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the New Fund or Thornburg Trust is a party or by which it is bound; (vi) The New 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 the New Fund or any of its properties or assets. Thornburg Trust knows of no facts which might form the basis for the institution of such proceedings, and neither Thornburg Trust nor the New 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) At the Closing Date, all federal and other tax returns and reports of the New 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 Trust's knowledge, no such return of or relating to the New Fund is currently under audit, and no assessment has been asserted with respect to the New Fund; (ix) The New Fund intends to meet the requirements of Subchapter M of the Code, and intends to be treated as a regulated investment company for the first taxable fiscal year of its operation including the Closing Date; (x) Thornburg Trust is authorized to issue an unlimited number of shares of beneficial interest having no par value. All issued and outstanding New Fund Shares at the Closing Date will be duly and validly issued and outstanding, fully paid and non-assessable. The New Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the New Fund, nor is there outstanding any security convertible into New Fund Shares (except as the trustees of Thornburg Trust may convert classes of shares in accordance with Thornburg Trust's Declaration of Trust, as amended); (xi) 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 Trust's trustees, and this Agreement constitutes a valid and binding obligation of Thornburg Trust 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; (xii) New Fund Shares to be issued and delivered to the 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 New Fund Shares, and will be fully paid and non-assessable by Thornburg Trust, except to the extent that shareholders of Thornburg Trust may be held personally liable for obligations of Thornburg Trust; (xiii) 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 Trust; (xiv) At the Closing Date, the New 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 Thornburg LTMF; and (xv) The information furnished by Thornburg 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. 5. Covenants of the Parties. (a) The New Fund and the 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) Thornburg LTMF will call a meeting of the shareholders of the 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) Thornburg LTMF covenants that the New Fund Shares to be issued hereunder will not be sold or distributed other than in accordance with the terms of this Agreement. (d) Thornburg LTMF will furnish to Thornburg Trust 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. Thornburg LTMF will furnish, or cause its transfer agent to furnish, to Thornburg Trust all information reasonably requested respecting the beneficial ownership of Thornburg LTMF shares, shareholders and shareholder accounts for the mailing of the Reorganization Proxy Materials and for the establishment of New Fund accounts for shareholders of the Fund in accordance with paragraph 1(c). Thornburg LTMF will furnish, or cause its custodian or other agents to furnish, all portfolio asset information reasonably requested by Thornburg Trust in connection with, and to facilitate, the transactions contemplated by this Agreement. (e) Subject to the provisions of this Agreement, Thornburg Trust and Thornburg LTMF 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) Thornburg LTMF shall furnish to Thornburg Trust within 30 days after the Closing Date a detailed trial balance of the Fund's assets and liabilities and computations showing amortization of premium on portfolio securities. Thornburg Funds shall furnish to Thornburg Trust when available the final federal income tax return for the Fund. (g) Thornburg LTMF will, as promptly as practicable after the Closing, wind up the business of the Fund, deregister the 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 shareholders of the Fund, and file any necessary federal and state tax returns. (h) Thornburg Trust 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 Trust 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 Thornburg LTMF. The obligations of Thornburg LTMF to consummate the transactions provided for herein shall be subject, at its election, to the performance by Thornburg Trust 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 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; and (b) Thornburg 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 Thornburg Trust made in this Agreement are true and correct at and as of the Closing Date. 7. Conditions Precedent to Obligations of Thornburg Trust. The obligations of Thornburg Trust to complete 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 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 Thornburg Trust the following information prepared as of the Closing Date: (i) net asset value pricing sheet of the 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 the Fund's general ledger; (iii) supporting schedules with the details for accounts receivable and accounts payable; (iv) certification from the Fund's custodian that it has delivered to the New Fund's custodian the Assets acquired by the New Fund; and (v) confirmation from the New Fund's transfer agent of the aggregate number of the Fund's shares outstanding and a reconciliation of that number to the number of shares shown in the pricing sheet referred to in (i) above; (c) Thornburg LTMF shall have delivered to Thornburg 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 Thornburg 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; (d) This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Fund in accordance with applicable law and evidence of the approval shall have been delivered to Thornburg Trust; and (e) The parties shall have received a favorable opinion of White, Koch, Kelly & McCarthy, P.A. satisfactory to Thornburg LTMF and Thornburg Trust, 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 White, Koch, Kelly & McCarthy, P.A. of representations it shall request of Thornburg Trust and Thornburg LTMF. 8. Further Conditions Precedent to Obligations of Thornburg Trust and Thornburg LTMF. 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 Trust or Thornburg LTMF 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 Trust or Thornburg LTMF; and (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. Thornburg LTMF will pay the costs of the transactions contemplated hereby, including the expenses of preparing and filing the N- 14 Registration Statement, the costs of distributing the prospectuses and proxy materials, proxy solicitation costs, and other costs. 10. Massachusetts Business Trust. Thornburg Trust is organized as a Massachusetts business trust, and references in this Agreement to Thornburg Trust mean and refer to the trustees of Thornburg 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 Thornburg Trust conducts its business. It is expressly agreed that the obligations of Thornburg Trust hereunder shall not be binding upon any of Thornburg Trust's trustees, shareholders, nominees, officers, agents, or employees of Thornburg Trust, or New Fund personally, but bind only the property of the New Fund, as provided in Thornburg Trust's Declaration of Trust. Moreover, no series of Thornburg Trust other than the New Fund shall be responsible for the obligations of Thornburg Trust hereunder, and all persons shall look only to the respective assets of the New Fund to satisfy the obligations of Thornburg Trust hereunder. The execution and delivery of this Agreement have been authorized by Thornburg Trust's trustees, on behalf of the New Fund, and this Agreement has been signed by authorized officers of Thornburg 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 the New Fund, as provided in Thornburg Trust's Declaration of Trust. 11. Indemnification. (a) The New Fund agrees to indemnify and hold harmless the Fund and each of the 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, the Fund or any of its directors 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 the New Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Fund agrees to indemnify and hold harmless the New Fund and each of the New 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, the New 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 the Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. 12. Entire Agreement; Survival of Warranties. (a) Thornburg Trust and Thornburg LTMF 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 Trust and Thornburg LTMF. In addition, either Thornburg Trust or Thornburg LTMF 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 Trust or Thornburg LTMF, or their respective trustees, directors or officers, to the other party or its trustees, directors or officers, but each shall bear, except as otherwise provided in section 9, 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 Thornburg LTMF and Thornburg Trust; provided, however, that following the shareholders' meeting called by the Fund pursuant to this Agreement, no such amendment may have the effect of changing the provisions for determining the number of New Fund Shares to be issued to the Fund's 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 Trust, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: Brian J. McMahon, and to Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: George T. Strickland. 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. THORNBURG INVESTMENT TRUST on behalf of THORNBURG NATIONAL LIMITED TERM MUNICIPAL FUND By: ------------------------------------- ------------------, ---------------- THORNBURG LIMITED TERM MUNICIPAL FUND, INC., on behalf of THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO By: ------------------------------------- ------------------, ---------------- EXHIBIT A to Agreement and Plan of Reorganization Dated December ___, 2003 Thornburg Investment Trust (on behalf of Thornburg National Limited Term Municipal Fund) and Thornburg Limited Term Municipal Fund, Inc. (on behalf of Thornburg Limited Term Municipal Fund National Portfolio) Subparagraph 4(a)(x): None. PROSPECTUS AND PROXY STATEMENT (For Holders of Institutional Class Shares) RELATING TO THE ACQUISITION OF THE ASSETS OF THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO a separate series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 BY AND IN EXCHANGE FOR SHARES OF THORNBURG LIMITED TERM MUNICIPAL FUND a separate series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Prospectus/Proxy Statement relates to the proposed transfer of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund") in exchange solely for shares of Thornburg Limited Term Municipal Fund (the "New Fund"). The Fund and the New Fund each have the same investment objective, which is to seek as high a level of interest income which is exempt from federal income taxes as is consistent, in the view of the Funds' investment adviser, with the preservation of capital. As a result of the proposed transaction, each shareholder of the Fund will receive shares of the New Fund equal in value at the date of the exchange to the value of the shareholder's shares of the Fund. 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 the New Fund that a prospective investor should know before investing. The New Fund's "Thornburg Limited Term Municipal Funds Institutional Class Shares Prospectus" dated _________, 2004 (the "New Fund Prospectus") containing information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A Statement of Additional Information dated ________________, 2004 (the "Statement of Additional Information") containing additional information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A copy of the New Fund Prospectus and 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 the Fund's current "Thornburg Institutional Class Shares" Prospectus for Class I shares dated February 1, 2004, and its Statement of Additional Information for Institutional Class Shares dated February 1, 2004 are incorporated by reference into this Prospectus/Proxy Statement, and may be obtained without charge by writing to Thornburg at the address shown above or by calling 1-800-847-0200. 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 INVESTMENT TRUST OR THORNBURG LIMITED TERM MUNICIPAL FUND, INC. INVESTMENTS IN THORNBURG LIMITED TERM MUNICIPAL FUND (THE "NEW FUND") ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THE NEW 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 __________, 2004. TABLE OF CONTENTS Summary of the Proposed Reorganization Investment Adviser and Distributor of the Fund and the New Fund Investment Goals, Policies and Restrictions of the Fund and the New Fund Principal Risk Factors Fees and Expenses of the Fund and the New Fund Performance Information Purchase, Redemption and Exchange Procedures for the Fund and the New Fund Dividend Policies of the Fund and the New Fund Comparative Information on Shareholder Rights Additional Information About Shareholder Accounts Information About the Reorganization Capitalization Additional Information About the Fund and the New Fund Voting Information Exhibit A: Agreement and Plan of Reorganization For detailed information about the New Fund, see the Thornburg Limited Term Municipal Funds Institutional Class Shares Prospectus dated __________ 2004, (the "New Fund Prospectus"), which may be obtained without charge by writing Thornburg at the address noted above or by calling 1-800-847-0200. SUMMARY OF THE PROPOSED REORGANIZATION The Board of Directors of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), including the Directors who are not "interested persons" of Thornburg LTMF (the "Independent Directors"), as defined in the Investment Company Act of 1940, have reviewed and unanimously approved an agreement and plan of reorganization (the "Agreement") between Thornburg LTMF on behalf of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund") and Thornburg Investment Trust ("Thornburg Trust") on behalf of Thornburg Limited Term Municipal Fund (the "New Fund") providing for the acquisition of substantially all of the assets of the Fund, a separate fund (sometimes referred to as a "series") of Thornburg LTMF, by the New Fund, a separate series of Thornburg Trust in exchange solely for voting shares of the New Fund. The aggregate net asset value of the shares of the acquiring New Fund issued in the exchange will equal the aggregate net asset value of the shares outstanding for the acquired Fund. In connection with the transaction, shares of the New Fund will then be distributed to the Fund's shareholders pro rata by class so that holders of each Class of Shares of the Fund will receive shares of the corresponding class of shares of the New Fund. The Fund thereafter will be terminated. These transactions are referred to as the "reorganization." As a result of the reorganization, each owner of Institutional Class (Class I) shares of the Fund will become an owner of the corresponding class of shares of the New Fund, having an aggregate net asset value equal to the net asset value of that shareholder's shares in the Fund. No sales charge will be imposed on the transaction. As a condition to the closing, Thornburg Trust and Thornburg LTMF will obtain a legal opinion 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 shares of the New Fund in the reorganization will remain free to redeem their shares after the reorganization. The Fund and the New Fund have identical investment objectives and policies. The New Fund will commence operations upon the completion of the reorganization with the same portfolio of investments owned by the Fund. The New Fund will have the same investment manager as the Fund, Thornburg Investment Management, Inc. ("TIMI") which will perform investment management services under an investment management agreement having substantially identical terms and providing for the same fees as the Fund's current investment advisory agreement. Expenses of the New Fund are expected to be substantially the same as the expenses of the Fund before the reorganization, as follows: Fund Annual Operating Expenses Before the Reorganization - -------------------------------------------- Class I .58% Expected New Fund Annual Operating Expenses After the Reorganization - --------------------------------------------- Class I .58% Expenses of the reorganization will be paid by the Fund, and are not expected to have a material effect on the expenses of the Fund. The reorganization is expected to result in cost savings to the shareholders of the New Fund after the reorganization. For the reasons set forth below, the Board of Directors of LTMF, including all of the Independent Directors, have unanimously concluded that the reorganization is in the best interests of the shareholders of the Fund. The Board of Directors of Thornburg LTMF therefore have submitted the Agreement for approval by the shareholders of the Fund at a special meeting of shareholders to be held on April __, 2003 (the "Meeting"). Approval of the reorganization with respect to the Fund requires a vote of a majority of the outstanding shares of each of the three Classes of the Fund's shares. This Prospectus/Proxy Statement pertains to and is directed to holders of the Fund's Institutional Class ("Class I") shares. At or about the same time that substantially all of the assets of the Fund are acquired by the New Fund, Thornburg California Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg LTMF's other series, Thornburg Limited Term Municipal Fund California Portfolio. Each of these transactions has been approved by Thornburg LTMF's Board of Directors. The acquisition of substantially all of the assets of the Fund and Thornburg Limited Term Municipal Fund California Portfolio are referred to collectively herein as the "Related Transactions." Completion of the reorganization is contingent upon proper shareholder approval being received for each of the Related Transactions, and the satisfaction of all other conditions to closing the Related Transactions. There can be no assurance shareholder approval can be obtained for each Related Transaction or that the conditions of the other Related Acquisition will be satisfied. If shareholders of the Fund approve the reorganization and the other Related Transaction is not approved, the Board of Directors of Thornburg LTMF will consider the alternatives available to it with respect to the Fund, including completion of the reorganization respecting the Fund. See "Voting Information." The Board of Directors has approved the reorganization because they believe it would benefit the Fund. The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing these functions. The Board of Directors considered these objectives of the reorganization, together with other factors, which are discussed below under the caption "Information About the Reorganization." THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. INVESTMENT ADVISER AND DISTRIBUTOR The investment adviser to both the Fund and to the New Fund is Thornburg Investment Management, Inc. ("TIMI"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TIMI has been the investment adviser for the Fund since its inception in 1984. TIMI is also the investment adviser for all of the 12 Funds offered by Thornburg Trust, including the New Fund and Thornburg California Limited Term Municipal Fund (the two Funds organized to consummate the Related Transactions), four other Funds which invest principally in municipal obligations for tax exempt current income, two Funds which invest in U.S. Government and other fixed income obligations for current income, three Funds which invest primarily for capital appreciation, and one Fund which invests for current income and capital appreciation. TIMI also provides to each Thornburg mutual fund under its management supervision, administration and performance of certain administrative services. Fees charged to the Fund and the New Fund for these services are described below under "Fees and Expenses of the Fund and the New Fund." The distributor of shares to both the Fund and to the New Fund is Thornburg Securities Corporation ("TSC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TSC has been the distributor for the Fund since its inception in 1984. TSC is also distributor for each other Thornburg mutual fund. INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE FUND AND THE NEW FUND Investment Goals and Strategies of the Funds - -------------------------------------------- The investment goals and strategies of the Fund and the New Fund are identical. The primary investment goal of each Fund is to obtain as high a level of current income exempt from federal individual income tax as is consistent, in the view of the investment adviser, with preservation of capital. The secondary goal of each Fund is to reduce expected changes in its share price compared to longer intermediate and long-term bond portfolios. Each Fund's primary and secondary goals are fundamental policies, and may not be changed without a majority vote of the Fund's shareholders. Each Fund pursues its primary goal by investing principally in a laddered maturity portfolio of municipal obligations issued by states and state agencies, local governments and their agencies and by certain United States territories and possessions. The investment adviser, Thornburg Investment Management, Inc. ("TIMI") actively manages each Fund's portfolio. Investment decisions are based upon outlooks for interest rates and securities markets, the supply of municipal debt securities, and analysis of specific securities. Each Fund invests in obligations and participations in obligations which are rated at the time of purchase as investment grade or, if unrated, which are issued by obligors which have comparable investment grade obligations outstanding or which are deemed by TIMI to be comparable to obligors with outstanding investment grade obligations. Each Fund's portfolio is "laddered" by investing in obligations of different maturities so that some obligations mature during each of the coming years. Because the magnitude of changes in value of interest bearing obligations is greater for obligations with longer terms, each Fund seeks to reduce changes in its share value by maintaining a portfolio of investments with a dollar-weighed average maturity normally less than five years. There is no limitation on the maturity of any specific security each Fund may purchase. Each Fund may dispose of any security before it matures. Each Fund also attempts to reduce changes in its share value through credit analysis, selection and diversification. Each Fund ordinarily acquires and holds securities for investment rather than for realization of gains by short term trading on market fluctuations. However, it may dispose of any security prior to its scheduled maturity to enhance income or reduce loss, to change the portfolio's average maturity, or to otherwise respond to current market conditions. The objective of preserving capital may prevent the Fund from obtaining the highest yields available. Each Fund normally invests 100% of its assets in municipal obligations. Each Fund may invest up to 20% of its assets in taxable securities which produce income not exempt from federal income tax because of market conditions, pending investment of idle funds or to afford liquidity. A Fund's temporary taxable investments may exceed 20% of its assets when made for defensive purposes during periods of abnormal market conditions. If a Fund found it necessary to own taxable investments, some of its income would be subject to federal income tax. PRINCIPAL RISK FACTORS Because the Funds' investment goals and policies are identical, the risks of investing in the New Fund are expected to be the same as the risks of investing in the Fund. The value of each Fund's shares and its dividends will fluctuate in response to changes in interest rates. When interest rates increase, the value of the Fund's investments declines and the Fund's share value is reduced. This effect is more pronounced for intermediate and longer term obligations owned by a Fund. During periods of declining interest rates the Fund's dividends decline. The value of Fund shares also could be reduced if municipal obligations held by the Fund were downgraded by rating agencies, or went into default, or if legislation or other government action reduces the ability of issuers to pay principal and interest when due or changes the tax treatment of interest on municipal obligations. Nonrated obligations may have, or may be perceived to have, greater risk of default. The loss of money is a risk of investing in the Fund, and when you sell your shares they may be worth less than what you paid for them. An investment in either Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For a further discussion of the investment objectives, policies and restrictions applicable to the New Fund, please see the New Fund Prospectus, which is available without charge by calling 1-800-847-0200. FEES AND EXPENSES OF THE FUND AND THE NEW FUND Advisory and Administration Fees and Fund Expenses - -------------------------------------------------- The Fund and the New Fund each have contractual arrangements to obtain investment management, administrative and distribution services which are substantially identical. The Fund and The New Fund are each contractually obligated to pay an investment management fee to TIMI based upon the Fund's assets. The fee is computed on average daily net assets of an annual rate as follows: Net Assets Annual Rate 0 to $500 million .50% $500 million to $1 billion .40% $1 billion to $1.5 billion .30% $1.5 billion to $2.0 billion .25% more than $2.0 billion .225% TIMI also has entered into agreements with the Fund and the New Fund to provide administrative services at an annual rate of .05% of average daily net assets for Institutional Class shares of each Fund. Investment advisory fees, and the other expenses currently paid by the Fund and expected to be paid by the New Fund are set out below. The Shareholder Transaction Expense table shows the transaction fees paid by a shareholder in each Fund upon a purchase or redemption of shares. The Annual Operating Expenses table shows the annual Fund operating expense for the Fund for its fiscal year ended June 30, 2003 and compares those fee and expense percentages to the expected annual fund operating expenses for the New Fund for its current fiscal year. Shareholder Transaction Expenses Fees Paid Directly From Your Investment Fund New Fund Class I Class I ------- -------- Maximum Sales Charge (Load) on none none Purchases (as a percentage of offering price) Maximum Deferred Sales Charge none none (Load) on Redemptions (as a percentage of redemption proceeds on original purchase price, whichever is lower) Redemption Fees (as a none none percentage of amount redeemed) Annual Operating Expenses Expenses That Are Deducted From Fund Assets (as a percentage of average net assets) Fund New Fund (1) Class I Class I ------- -------- Investment Advisory Fee .43% .43% Distribution and Service (12b-1) Fees .00% .00% Other Expenses .15% .15% ----- ----- Total Annual Operating Expenses .58% .58% (1) The New Fund is a newly organized Fund which has not conducted any business except incident to the reorganization. The fees and expenses shown for The New Fund are estimated fees and expenses expected to be incurred for the fiscal year ending June 30, 2004. EXAMPLE: The following Example is intended to help you compare the cost of investing in the New Fund with the cost of investing in the Fund Portfolio. The Example assumes that you invest $10,000 in each respective Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, that dividends and distributions are reinvested, and that each Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund New Fund Pro Forma Class A Class I -------- -------- 1 Year $59 $59 3 Years $166 $166 5 Years $324 $324 10 Years $726 $726 PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES FOR THE FUND AND THE NEW FUND Sales Charges - -------------- Share purchase, redemption and exchange procedures for the Institutional shares of the Fund are identical with the purchase, redemption and exchange procedures for the corresponding share class of the New Fund. Purchasing Institutional Class Shares - ------------------------------------- The Fund's Institutional Class ("Class I") shares are sold with no initial sales charge or contingent deferred sales charge at the net asset value per share. Qualified individual investors and qualified institutions purchasing shares for their own account are eligible to purchase Institutional Class shares provided they invest a minimum of $2,500,000. The minimum amount for subsequent purchases is $5,000. Qualified institutions include corporations, banks and insurance companies purchasing for their own account and other institutions such as trusts, endowments and foundations. Qualified employee benefit or retirement plans other than an individual retirement account ("IRA") or SEP-IRA are also eligible to purchase Institutional Class shares, provided they either invest a minimum of $1,000,000 in the funds or have 100 or more eligible participants enrolled in the plan. There is no minimum amount for subsequent purchases. Investment dealers, financial advisers or other investment professionals, including bank trust departments and companies with trust powers, purchasing for the accounts of others within a clearly defined "wrap" or other fee based investment advisory program are eligible to purchase Institutional Class shares. The Fund's distributor will establish a minimum amount per program or per account to qualify for purchase of Institutional Class shares. The minimum amount per program is currently $100,000. Exchange Privileges - -------------------- Class I shares of the Fund may be exchanged for Class I shares of other Thornburg funds, subject to certain conditions described in the Fund's prospectus. Similarly, Class I shares of the New Fund may be exchanged for Class I shares of other Thornburg mutual funds subject to the same conditions. Each of the Funds permits exchanges by telephone if the telephone exchange privilege has been elected by the shareholder. Shareholders of the Fund who previously elected the telephone exchange privilege will be deemed to have elected the exchange privilege of the New Fund if the reorganization is completed. Redemptions - ----------- Shares of the Fund and the New Fund properly presented for redemption may be redeemed at the next determined net asset value per share. Shareholders of the Fund who previously elected the telephone redemption privilege will be deemed to have elected the New Fund's telephone redemption privilege if the reorganization is completed. DIVIDEND POLICIES OF FUNDS The Fund distributes substantially all of its net investment income and realized capital gains to its shareholders. The Fund declares net income dividends daily and distributes those dividends monthly, and 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. The New Fund intends to follow the same policies. COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS The Fund is a diversified series of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), a Maryland corporation organized in 1984. As a Maryland corporation, Thornburg LTMF is governed by applicable Maryland and federal law, its articles of incorporation and its bylaws. The business of Thornburg LTMF is supervised by its Board of Directors. The New Fund is a diversified series of Thornburg Trust, a Massachusetts business trust organized in 1987. As a Massachusetts business trust, Thornburg Trust is governed by applicable Massachusetts and federal law, its declaration of trust, as amended, and its bylaws. The business of Thornburg Trust is supervised by Thornburg Trust's Trustees. Thornburg LTMF is currently authorized under its articles of incorporation, as amended, to issue 300,000,000 Class A shares of the Fund, 150,000,000 Class C shares of the Fund, and 250,000,000 Institutional Class shares. Each share has a par value of $.001. The Board of Directors is permitted to increase this authorization from time to time under Maryland law. The Board of Directors is also permitted to create additional funds or "series," and to divide each such series into two or more classes of shares. Thornburg 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. All of the shares of Thornburg LTMF and of Thornburg Trust, 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 Thornburg LTMF nor Thornburg Trust permits cumulative voting. Neither Thornburg LTMF nor Thornburg Trust holds annual shareholder meetings. There normally will not be any meetings of shareholders of Thornburg LTMF, Thornburg Trust or either of the Funds to elect directors or trustees unless fewer than a majority of the directors or trustees then holding office have been elected by shareholders. However, the Board of Directors of Thornburg LTMF or the trustees of Thornburg Trust may call special meetings from time to time to seek shareholder approval of certain matters, and meetings of shareholders of either Thornburg LTMF or Thornburg Trust will be called upon written request of shareholders holding in the aggregate not less than 10% of the outstanding shares of any affected series or class having voting rights. Under Maryland law, shareholders of Thornburg LTMF are not liable for the obligations of Thornburg LTMF. However, under Massachusetts law, there is a remote possibility that shareholders of a Thornburg Trust could, under certain circumstances, be held personally liable for the obligations of such a trust. The declaration of trust for Thornburg Trust contains provisions intended to limit any such liability and to provide indemnification out of Fund property for any shareholder charged or held personally liable for obligations or liabilities of the shareholder's fund solely by reason of being or having been a shareholder of that Fund and not because of the shareholder's acts or omissions or for some other reason. Consequently, the risk of a shareholder of the New Fund incurring financial loss on account of shareholder liability is limited to circumstances in which the New Fund itself would be unable to meet its obligations. ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS If the reorganization is approved, the New Fund will establish an account for each Fund shareholder. No further purchases of the shares of the Fund may be made after the date on which the shareholders of the Fund approve the reorganization, and the share transfer books of the 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 the Fund. Redemption requests or transfer instructions received by the Fund after that date will be treated as requests for the redemption or instructions for transfer of shares of the New Fund credited to the accounts of shareholders of the Fund. Accordingly, those redemption requests or transfer instructions after the close of business on the day before Closing will be forwarded to the New Fund. For a complete description of redemption procedures for the New Fund, see the sections of the New Fund Prospectus under the caption "Selling Fund Shares." INFORMATION ABOUT THE REORGANIZATION Agreement and Plan of Reorganization - ------------------------------------ The following summary of the proposed Agreement and Plan of Reorganization (the "Agreement") is qualified in its entirety by reference to the Agreement attached to this Prospectus/Proxy Statement as Exhibit A. The Agreement provides that the New Fund will acquire substantially all of the assets of the Fund in exchange solely for shares of the New Fund on the earliest practicable date following shareholder approval of the reorganization (the "Closing Date"). The number of full and fractional shares of the New Fund to be issued to shareholders of the Fund will be determined on the basis of the relative net asset values per share and aggregate net assets of the New Fund and the 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 the Fund will be determined by dividing each class's respective assets, less its respective share of liabilities, by the total number of the class's outstanding shares. Portfolio securities of the Fund will be valued in accordance with the valuation practices of the Fund as described in its prospectus, which is incorporated by reference herein. Valuation procedures of the New Fund are the same as the valuation procedures of the Fund. Immediately after the transfer of the Fund's assets to the New Fund on the Closing Date, the 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 the New Fund received by the Fund and will be dissolved as soon thereafter as reasonably practicable. The distribution will be accomplished by the establishment of accounts on the share records of the New Fund in the name of each shareholder of the Fund, each representing the respective pro rata number of full and fractional shares of the New Fund due each of those shareholders. Following the reorganization, shareholders will own shares of the New Fund of the same class as the Fund shares owned before the reorganization. No certificates for shares of the New Fund will be issued. The consummation of the reorganization is subject to the conditions set forth in the Agreement. The reorganization is also subject to approval by the Fund's shareholders. Approval requires the affirmative vote of the holders of a majority of each class of shares of the Fund. Further, completion of the reorganization is subject to shareholder approval of the "Related Transaction", which is the proposed transaction in which Thornburg California Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio. If shareholders of the Fund approve the reorganization, but the Related Transaction is not approved, the Board of Directors of the 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 the Fund, by resolution of the Board of Directors of the Fund or the Trustees of Thornburg Trust, under circumstances specified in the Agreement. The Fund will pay the costs of the reorganization, which include fees and costs associated with preparing, filing, printing and distributing proxy materials, proxy solicitation costs, costs associated with qualifying shares for sale in various states, and the deregistration and dissolution of Thornburg LTMF. The Board of Directors of Thornburg LTMF have determined that participation in the reorganization is in the best interests of shareholders of the Fund. Full and fractional shares of beneficial interest of the New Fund will be issued to shareholders of the Fund in accordance with the procedures under the Agreement described above. Each share will be fully paid and non-assessable by the New Fund when issued, and will have no preemptive or conversion rights. See comparative information on shareholder rights, below, for additional information with respect to the shares of the New Fund. Considerations of the Fund's Board of Directors - ----------------------------------------------- Thornburg Investment Management, Inc. ("TIMI"), the investment adviser to both the Fund and the New Fund, proposed and recommended the reorganization to the Board of Directors of Thornburg (the "Board") to simplify certain compliance and administrative functions and to reduce the costs associated with the performance of those functions. Based upon TIMI's recommendation, and after consideration of the rationale for the reorganization and certain additional factors described below, the Board, including all of the directors who are not "interested persons" ("Independent Directors") as that term is used in the Investment Company Act of 1940 (the "1940 Act"), has determined that the reorganization is in the best interest of the shareholders of the Fund and that the terms of the agreement and plan of reorganization are fair and reasonable. The Board considered the recent increases in compliance and related functions performed for the Fund, and the likely further increase in those functions in the future due to regulatory and rulemaking initiatives by the Congress and the Securities and Exchange Commission. The Board noted specifically in this connection the following factors: . increased duties for the Board assuring compliance with revised regulations applicable to mutual funds generally; . increased audit committee functions and additional time devoted to audit committee functions by the independent accountants; . increased number of filings by Thornburg LTMF of documents required under state and federal law and increased time for review and discussion of those filings by the Board; and, . increased Board fees and associated travel expenses and other expenses occasioned by these increased activities. The Board further noted in this regard that these functions are generally duplicative of comparable functions performed for and by Thornburg Investment Trust and its Trustees and audit committee. The Board concluded that the general complexity of compliance, and administration of compliance could be reduced significantly if the two funds currently offered by Thornburg LTMF were combined with the ten existing funds offered by Thornburg Investment Trust. This combination would, in the Board's view, eliminate the current duplication and reduce complexity by substituting one investment company in the place of two. Moreover, the Board concluded that the reorganization would result in significant cost savings, because the two funds of Thornburg Trust which will acquire Thornburg LTMF's two current funds will share with Thornburg Trust's other funds a number of costs which are currently duplicated (and thus not shared) by Thornburg LTMF and Thornburg Trust. In this latter regard the Board considered: . legal fees and costs associated with advice on compliance matters, preparation of documents related to compliance, preparation of documents for Board of Directors and audit committee meetings; . legal counsel preparation for and attendance at Board of Directors and audit committee meetings; . fees and costs associated with preparation and filing of registration statements and other periodic filings, and general corporate work associated with the maintenance of an additional corporate entity; . costs, including Directors' fees and travel and other expenses associated with the Board's and the audit committee's fees and meetings; and . expenses and fees of the independent accountants. The Board also considered the likelihood of future increases in these costs because of increased rulemaking and regulatory complexity, increasing duties placed on investment company directors and audit committees, the possible need to hire additional legal counsel and other persons for audit committees, and possible increases in the frequency of shareholder meetings to elect investment company directors. Based upon estimates by TIMI and legal counsel, the Board determined that it was reasonable to conclude that the costs of the reorganization could be recovered in less than two years. The Board also considered other factors in evaluating the proposed reorganization, including the following: (1) There would be no change in investment objectives, investment policies, or investment risks as a result of the reorganization; (2) After the reorganization, investment management, administrative services, and other functions would be performed under contracts having substantially the same terms as the existing contracts; (3) Fees and expenses for the New Fund are expected to be virtually the same as fees and expenses for the Fund, except for the costs of the reorganization (which are expected to be offset, and exceeded over time by cost savings); (4) The reorganization will result in no dilution of shareholders' interests; (5) Shareholders of the Fund will receive shares in the New Fund of the class corresponding to the same class of shares in the Fund; (6) The reorganization will be accomplished without recognition of gain or loss for federal income tax purposes by shareholders of Thornburg LTMF; and (7) No sales charges or transaction fees will be assessed against shareholders in connection with the reorganization. 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 the Fund, the New Fund, or shareholders of the Fund as a consequence of the reorganization. As a condition to the closing of the reorganization, the Fund and the New Fund will receive an opinion of legal counsel to that effect based on certain assumptions and representations made by the Fund and the New Fund. Shareholders of the 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 the 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 the Fund and the New Fund as of December 31, 2003 and the pro forma capitalization of the combined New Fund as if the reorganization occurred on that date. These numbers will be different at the time of closing because the Fund's net assets for each class will increase or decrease. CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 2003 FUND NEW FUND PRO FORMA ---- -------- --------- NET ASSETS - ---------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ TOTAL $_____ -0- $_____ NET ASSETS PER SHARE Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ SHARES OUTSTANDING Class A shares _____ -0- _____ Class C shares _____ -0- _____ Class I shares _____ -0- _____ TOTAL -0- (1) SHARES AUTHORIZED Class A shares 300,000,000 unlimited unlimited Class C shares 150,000,000 unlimited unlimited Class I shares 250,000,000 unlimited unlimited TOTAL 700,000,000 unlimited unlimited (1) It is anticipated that a nominal number of shares of each class will be issued to an officer of TIMI in order to permit the consummation of corporate actions before the reorganization. ADDITIONAL INFORMATION ABOUT THE FUNDS Additional information respecting the New Fund is included in the Thornburg Limited Term Municipal Funds Institutional Class Shares prospectus dated _______________, 2004 (the "New Fund Prospectus") and in the Thornburg Limited Term Municipal Funds Institutional Class Shares Statement of Additional Information dated ___________________, 2004, which has been filed with the Securities and Exchange Commission. Additional information is also included in the Statement of Additional Information dated ________________, 2004 related to the reorganization which has been filed with the Securities and Exchange Commission. The described New Fund Prospectus and statements of additional information are incorporated by reference herein. Copies of the New Fund Prospectus and the statements of additional information are available upon request and without charge by calling 1-800-847-0200. Information about the Fund is included in the Thornburg Institutional Class Shares dated February 1, 2004, and in the Thornburg Funds Institutional Class Shares Statement of Additional Information dated February 1, 2004. The described prospectus and statement of additional information have been filed with the Securities and Exchange Commission and are incorporated by reference herein. Copies of the prospectus and the statement of additional information are available upon request and without charge by calling 1-800-847-0200. Reports and other information filed by Thornburg LTMF and Thornburg Trust can be inspected and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information about the Public Reference Room may be obtained by calling the Commission at 1-202-942-8090. Reports and other information about the Funds are also available on the Commission's Internet site at http://www.sec.gov and copies of information may be obtained, upon payment of a duplicating fee, by writing the Commission's Public Reference Section, Washington, D.C. 20549-0102, or contacting the Commission by e-mail at publicinfo@sec.gov. Thornburg LTMF files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-4302. Thornburg Investment Trust files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-05201. VOTING INFORMATION Proxies for the meeting are being solicited from the Fund's shareholders by the Board of Directors of Thornburg LTMF. A proxy may be revoked at any time at or before the meeting by oral or written notice to the secretary of Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, (800) 847-0200. Unless revoked, all valid proxies will be voted in accordance with the specifications therein 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 TIMI and its affiliates or by a professional proxy solicitation firm or firms. Expenses of proxy solicitation will be borne by the Fund. Thornburg LTMF has engaged the proxy solicitation firm of ___________ to assist in soliciting proxies for the meeting at an estimated cost of $______. Shares of the Fund of record at the close of business on _____________ (the "Record Date") will be entitled to vote at the meeting or any adjournment thereof. The presence in person or by proxy of one-third of the Fund's outstanding shares at the meeting will constitute a quorum. 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 the outstanding shares of the Fund entitled to vote at the meeting. As of _____________,2004, there were issued and outstanding ______ Class A shares, and ______ Class C shares and ________ Class I shares of the Fund. As of the same date, the following persons were known to own of record or beneficially 5% or more of the issued and outstanding shares of any Class of the Fund: [to be inserted] As of the same date, there were issued and outstanding ____ Class A shares, ______ Class C shares, and ______ Class I shares of beneficial interest of the New Fund. All of these shares were held by ________, 119 East Marcy Street, Santa Fe, New Mexico 87501. Ms. _______ was issued these shares in order to permit certain actions in connection with the initial organization of the New Fund. 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 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 DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION. Submission of Shareholder Proposals - ----------------------------------- The 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 Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501. Other Matters to Come Before the Meeting - ---------------------------------------- The Board of Directors of Thornburg LTMF knows 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 Directors. EXHIBIT A to PROSPECTUS/PROXY STATEMENT AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of the ____ day of December 2003, by and between THORNBURG INVESTMENT TRUST, a Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg National Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Trust, and THORNBURG LIMITED TERM MUNICIPAL FUND, INC. a Maryland corporation ("Thornburg LTMF"), in respect of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a separate series of Thornburg LTMF. 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 the Fund to the New Fund in exchange solely for Class A, Class C and Class I voting shares of beneficial interest of the New Fund having no par value (the "New Fund Class A Shares," "New Fund Class C Shares," and "New Fund Class I Shares," respectively, and collectively the "New Fund Shares") and (ii) the distribution on the Closing Date (hereinafter defined) of the New Fund Shares to the shareholders of the New Fund in complete liquidation of the Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. All actions required to be taken by Thornburg Trust pursuant to this Agreement, and all representations, warranties and covenants of Thornburg Trust hereunder, are taken and made on behalf of the New Fund. 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 the New 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, Thornburg LTMF agrees to transfer the Assets of the New Fund as set forth in paragraph (b) to the New Fund, and Thornburg Trust agrees to deliver to the New Fund in exchange therefor the number of the New 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 the New Fund Shares 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 the New 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 the New Fund on the closing date provided in paragraph 3(a) (the "Closing Date"). The New 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, which could not reasonably be paid before Closing and are not otherwise borne by any other person; and (ii) costs resulting from the liquidation and deregistration of the Fund and Thornburg LTMF. The Assets will not include any rights in and to the "Thornburg" name or any variant thereof. The Fund has provided the New Fund with a list of the current securities holdings of National Portfolio as of the date of execution of this Agreement. Thornburg LTMF and the Fund reserve the right to sell any of these securities in the ordinary course of business but will not, without prior notification to Thornburg Trust, acquire any additional securities for the Fund other than securities of the type in which the New Fund is permitted to invest. (c) On the Closing Date, Thornburg LTMF will cause the Fund to be liquidated and to distribute pro rata to the Fund's shareholders of record (the "Fund Shareholders"), determined on and as of the close of business on the Valuation Date specified in paragraph 2(a), the New Fund Shares received by Thornburg LTMF pursuant to paragraph (a). Specifically, Thornburg LTMF shall (i) distribute the New Fund Class A Shares received in the exchange, pro rata, to the Fund Shareholders holding Class A shares of the Fund, (ii) distribute the New Fund Class C shares received in the exchange, pro rata, to the Fund Shareholders holding Class C shares of the Fund, and (iii) distribute the New Fund Class I Shares received in the exchange, pro rata, to the Fund Shareholders holding Class I shares of the Fund. The liquidation and distribution will be accomplished by the transfer of the New Fund Shares then credited to the account of the Fund on the books of New Fund, to open accounts on the share records of the Fund in the names of the Fund Shareholders and representing the respective pro rata number of New Fund due the Fund Shareholders. (d) As of the Closing Date, any physically-issued share certificates held by former Fund Shareholders and relating to Fund shares exchanged for New Fund Shares in accordance with the preceding paragraph (c) will represent only the right to receive the appropriate number of New Fund Shares. As of the Closing Date, persons holding those certificates will be requested to surrender their certificates. No redemption or repurchase of any New Fund Shares credited to former Fund Shareholders in place of Fund shares represented by unsurrendered certificates will be permitted until those certificates have been surrendered for cancellation or the certificates are cancelled upon the delivery of lost certificate affidavits. (e) Any transfer taxes payable upon issuance of New Fund Shares in a name other than that of the registered holder of the New Fund Shares on the books of the Fund as of the Closing Date shall, as a condition of such issuance and transfer, be paid by the person to whom the New Fund Shares are to be issued and transferred. (f) The Fund shall be dissolved as soon as reasonably practicable following the Closing Date. Thornburg LTMF 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 Trust will not assume any liability of Thornburg LTMF, or acquire any Asset subject to any liability, in connection with the transactions contemplated by this Agreement, except that the New Fund will assume the obligation to pay for any portfolio securities purchased by the Portfolio before the Closing Date in the ordinary course of its business and the purchase of which was disclosed to the New Fund by the New Fund Portfolio when the commitment to purchase arose. 2. Valuation. (a) The value of the Fund's Assets to be acquired by the New 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 the Fund's Assets consisting of portfolio securities will be computed by Kenny Information Systems, subject to adjustment by the amount, if any, agreed to by the New Fund and the 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 the New Fund (subject to the third sentence hereafter) as set forth in the then current prospectuses and statement of additional information applicable to the New Fund, subject to adjustments agreed to by the Fund and the New Fund. 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 the Fund, the New Fund and the 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 value of the Assets of each class of the Fund shall be divided, as of the close of business on the New York Stock Exchange and after the declaration of any dividends on the Valuation Date, among the Class A, Class C and Class I shares of National Portfolio (the "Class A Assets," "Class C Assets," and "Class I Assets"), respectively, in accordance with the Fund's customary method of accounting. (c) The net asset value of each New 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 the New Fund's then current prospectuses, and in accordance with the New Fund's customary method of accounting. (d) On the Closing Date, the New Fund shall issue to the Fund full and fractional New Fund Class A, Class C and Class I shares in the respective numbers determined in accordance with this paragraph 2(d). The number of New Fund Class A shares shall be determined by dividing the value of the Class A Assets by the net asset value of a New Fund Class A share determined in accordance with paragraph 2(c). The number of New Fund Class C shares shall be determined by dividing the value of the Class C Assets by the net asset value of a New Fund Class C share determined in accordance with paragraph 2(c). The number of New Fund Class I shares shall be determined by dividing the value of the Class I Assets by the net asset value of a New Fund Class I share determined in accordance with paragraph 2(c). 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 Fund's Shareholders has been obtained. 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) The Fund's portfolio securities shall be available for inspection by the New Fund, its custodian bank or such other agents of Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices of the Fund's custodian, no later than five business days preceding the Valuation Date, and the Fund will immediately notify the New Fund's investment adviser of any portfolio security thereafter acquired or sold by the Fund. The Fund's securities and cash shall be delivered by Thornburg LTMF to State Street Bank & Trust Company, Boston, MA 02205-9087, as custodian for the New Fund for the account of the New 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." The Fund will cause its custodian to deliver at Closing a certificate of an authorized officer of the Custodian stating that the Fund's have been delivered in proper form to the New 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 the New Fund or the 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) Thornburg LTMF shall deliver to Thornburg Trust shareholder and shareholder account information as of the close of business on the Valuation Date as reasonably requested by Thornburg Trust. The New Fund shall issue and deliver a confirmation to the Fund at the Closing stating the number of New Fund Shares to be credited on the Closing Date to the Fund, and stating the number of New Fund Shares credited to the Fund's account on the books of the New Fund. Thornburg Trust shall issue and deliver to each former Fund Shareholder, after the Closing, a confirmation stating the number of New 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 may reasonably request. 4. Representations and Warranties. (a) Thornburg LTMF represents and warrants to Thornburg Trust as follows: (i) The Fund is a series of Thornburg LTMF, which is a corporation duly formed and validly existing 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 undr the 1940 Act is in full force and effect; (iii) The current prospectuses and statements of additional information of the Fund, each dated November 1, 2003, 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 Thornburg LTMF, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the 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 Thornburg LTMF's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Fund or Thornburg LTMF is a party or by which it is bound; (vi) The 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 the Fund is a party will be terminated without liability to the Fund or the New 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 the 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 the 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 the Fund at June 30, 2003 have been audited by PricewaterhouseCoopers, LLP, independent 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, 2003, when issued, fairly reflect, or in the case of the December 31, 2003 statements will fairly reflect, in all material respects the assets, financial condition, results of operations, and changes in net assets of the Fund as of and for the periods ended on those dates and have, or in the case of the December 31, 2003 statements, shall have been prepared, in accordance with generally accepted accounting principles consistently applied; and there are as of the dates thereof no known liabilities of the Fund other than liabilities disclosed or provided for in the foregoing statements; (x) Since June 30, 2003, there has been no material adverse change in the Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business; and the 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 the Fund's Shares is not a material adverse change; (xi) At the Closing Date, all material federal and other tax returns and reports of the 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 Thornburg LTMF's knowledge no such return of or relating to the Fund is currently under audit, and no assessment has been asserted with respect to the Fund; (xii) The 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) The Fund is authorized to issue 300,000,000, 150,000,000 and 125,000,000 Class A, Class C and Class I shares, respectively, of the Fund, at the date hereof. All issued and outstanding shares of the 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 shares of the Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by Thornburg LTMF. All of the issued and outstanding Shares of the Fund 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 Trust pursuant to paragraph 3(d). The Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the Fund; (xiv) At the Closing Date, the Fund will have good and marketable title to the Assets to be transferred to the New 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, the New 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 the New 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 Thornburg LTMF's Board of Directors, and this Agreement constitutes a valid and binding obligation of Thornburg LTMF, enforceable in accordance with its terms, subject to the approval of the shareholders of the Fund, 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 the New New Fund 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; (xvii) The registration statement filed by the New Fund on Form N-14 relating to the New Fund Shares that will be registered with the Commission pursuant to this Agreement, which shall include the proxy statement of Thornburg LTMF in respect of the 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 the proxy materials of Thornburg LTMF in respect of the 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 the 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 Thornburg LTMF. (b) Thornburg Trust represents and warrants to Thornburg LTMF as follows: (i) The New Fund is a series of Thornburg Trust, which is a business trust duly formed and validly existing under the laws of the Commonwealth of Massachusetts; (ii) Thornburg 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 prospectuses and statements of additional information for shares of the New Fund, when effective, shall conform in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Commission thereunder and will 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 Trust, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the New 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 Trust's Declaration of Trust or By- Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the New Fund or Thornburg Trust is a party or by which it is bound; (vi) The New 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 the New Fund or any of its properties or assets. Thornburg Trust knows of no facts which might form the basis for the institution of such proceedings, and neither Thornburg Trust nor the New 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) At the Closing Date, all federal and other tax returns and reports of the New 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 Trust's knowledge, no such return of or relating to the New Fund is currently under audit, and no assessment has been asserted with respect to the New Fund; (ix) The New Fund intends to meet the requirements of Subchapter M of the Code, and intends to be treated as a regulated investment company for the first taxable fiscal year of its operation including the Closing Date; (x) Thornburg Trust is authorized to issue an unlimited number of shares of beneficial interest having no par value. All issued and outstanding New Fund Shares at the Closing Date will be duly and validly issued and outstanding, fully paid and non-assessable. The New Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the New Fund, nor is there outstanding any security convertible into New Fund Shares (except as the trustees of Thornburg Trust may convert classes of shares in accordance with Thornburg Trust's Declaration of Trust, as amended); (xi) 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 Trust's trustees, and this Agreement constitutes a valid and binding obligation of Thornburg Trust 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; (xii) New Fund Shares to be issued and delivered to the 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 New Fund Shares, and will be fully paid and non-assessable by Thornburg Trust, except to the extent that shareholders of Thornburg Trust may be held personally liable for obligations of Thornburg Trust; (xiii) 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 Trust; (xiv) At the Closing Date, the New 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 Thornburg LTMF; and (xv) The information furnished by Thornburg 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. 5. Covenants of the Parties. (a) The New Fund and the 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) Thornburg LTMF will call a meeting of the shareholders of the 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) Thornburg LTMF covenants that the New Fund Shares to be issued hereunder will not be sold or distributed other than in accordance with the terms of this Agreement. (d) Thornburg LTMF will furnish to Thornburg Trust 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. Thornburg LTMF will furnish, or cause its transfer agent to furnish, to Thornburg Trust all information reasonably requested respecting the beneficial ownership of Thornburg LTMF shares, shareholders and shareholder accounts for the mailing of the Reorganization Proxy Materials and for the establishment of New Fund accounts for shareholders of the Fund in accordance with paragraph 1(c). Thornburg LTMF will furnish, or cause its custodian or other agents to furnish, all portfolio asset information reasonably requested by Thornburg Trust in connection with, and to facilitate, the transactions contemplated by this Agreement. (e) Subject to the provisions of this Agreement, Thornburg Trust and Thornburg LTMF 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) Thornburg LTMF shall furnish to Thornburg Trust within 30 days after the Closing Date a detailed trial balance of the Fund's assets and liabilities and computations showing amortization of premium on portfolio securities. Thornburg Funds shall furnish to Thornburg Trust when available the final federal income tax return for the Fund. (g) Thornburg LTMF will, as promptly as practicable after the Closing, wind up the business of the Fund, deregister the 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 shareholders of the Fund, and file any necessary federal and state tax returns. (h) Thornburg Trust 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 Trust 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 Thornburg LTMF. The obligations of Thornburg LTMF to consummate the transactions provided for herein shall be subject, at its election, to the performance by Thornburg Trust 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 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; and (b) Thornburg 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 Thornburg Trust made in this Agreement are true and correct at and as of the Closing Date. 7. Conditions Precedent to Obligations of Thornburg Trust. The obligations of Thornburg Trust to complete 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 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 Thornburg Trust the following information prepared as of the Closing Date: (i) net asset value pricing sheet of the 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 the Fund's general ledger; (iii) supporting schedules with the details for accounts receivable and accounts payable; (iv) certification from the Fund's custodian that it has delivered to the New Fund's custodian the Assets acquired by the New Fund; and (v) confirmation from the New Fund's transfer agent of the aggregate number of the Fund's shares outstanding and a reconciliation of that number to the number of shares shown in the pricing sheet referred to in (i) above; (c) Thornburg LTMF shall have delivered to Thornburg 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 Thornburg 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; (d) This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Fund in accordance with applicable law and evidence of the approval shall have been delivered to Thornburg Trust; and (e) The parties shall have received a favorable opinion of White, Koch, Kelly & McCarthy, P.A. satisfactory to Thornburg LTMF and Thornburg Trust, 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 White, Koch, Kelly & McCarthy, P.A. of representations it shall request of Thornburg Trust and Thornburg LTMF. 8. Further Conditions Precedent to Obligations of Thornburg Trust and Thornburg LTMF. 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 Trust or Thornburg LTMF 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 Trust or Thornburg LTMF; and (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. Thornburg LTMF will pay the costs of the transactions contemplated hereby, including the expenses of preparing and filing the N- 14 Registration Statement, the costs of distributing the prospectuses and proxy materials, proxy solicitation costs, and other costs. 10. Massachusetts Business Trust. Thornburg Trust is organized as a Massachusetts business trust, and references in this Agreement to Thornburg Trust mean and refer to the trustees of Thornburg 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 Thornburg Trust conducts its business. It is expressly agreed that the obligations of Thornburg Trust hereunder shall not be binding upon any of Thornburg Trust's trustees, shareholders, nominees, officers, agents, or employees of Thornburg Trust, or New Fund personally, but bind only the property of the New Fund, as provided in Thornburg Trust's Declaration of Trust. Moreover, no series of Thornburg Trust other than the New Fund shall be responsible for the obligations of Thornburg Trust hereunder, and all persons shall look only to the respective assets of the New Fund to satisfy the obligations of Thornburg Trust hereunder. The execution and delivery of this Agreement have been authorized by Thornburg Trust's trustees, on behalf of the New Fund, and this Agreement has been signed by authorized officers of Thornburg 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 the New Fund, as provided in Thornburg Trust's Declaration of Trust. 11. Indemnification. (a) The New Fund agrees to indemnify and hold harmless the Fund and each of the 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, the Fund or any of its directors 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 the New Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Fund agrees to indemnify and hold harmless the New Fund and each of the New 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, the New 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 the Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. 12. Entire Agreement; Survival of Warranties. (a) Thornburg Trust and Thornburg LTMF 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 Trust and Thornburg LTMF. In addition, either Thornburg Trust or Thornburg LTMF 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 Trust or Thornburg LTMF, or their respective trustees, directors or officers, to the other party or its trustees, directors or officers, but each shall bear, except as otherwise provided in section 9, 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 Thornburg LTMF and Thornburg Trust; provided, however, that following the shareholders' meeting called by the Fund pursuant to this Agreement, no such amendment may have the effect of changing the provisions for determining the number of New Fund Shares to be issued to the Fund's 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 Trust, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: Brian J. McMahon, and to Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: George T. Strickland. 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. THORNBURG INVESTMENT TRUST on behalf of THORNBURG NATIONAL LIMITED TERM MUNICIPAL FUND By: ------------------------------------- ------------------, ---------------- THORNBURG LIMITED TERM MUNICIPAL FUND, INC., on behalf of THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO By: ------------------------------------- ------------------, ---------------- EXHIBIT A to Agreement and Plan of Reorganization Dated December ___, 2003 Thornburg Investment Trust (on behalf of Thornburg National Limited Term Municipal Fund) and Thornburg Limited Term Municipal Fund, Inc. (on behalf of Thornburg Limited Term Municipal Fund National Portfolio) Subparagraph 4(a)(x): None. PROSPECTUS AND PROXY STATEMENT (For Holders of Class A and Class C Shares) RELATING TO THE ACQUISITION OF THE ASSETS OF THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO a separate series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 BY AND IN EXCHANGE FOR SHARES OF THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND a separate series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Prospectus/Proxy Statement relates to the proposed transfer of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio (the 'Fund') in exchange solely for shares of Thornburg Limited Term Municipal Fund (the 'New Fund'). The Fund and the New Fund each have the same investment objective, which is to seek as high a level of interest income which is exempt from federal and California state individual income taxes as is consistent, in the view of the Funds' investment adviser, with the preservation of capital. As a result of the proposed transaction, each shareholder of the Fund Portfolio will receive shares of the New Fund equal in value at the date of the exchange to the value of that shareholder's shares of the Fund. 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 the New Fund that a prospective investor should know before investing. The New Fund's "Thornburg Limited Term Municipal Funds" Prospectus for Class A and Class C shares dated _______, 2004 (the "New Fund Prospectus") containing information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A Statement of Additional Information dated ________________, 2004 (the 'Statement of Additional Information') containing additional information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus/proxy statement. A copy of the New Prospectus and 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 the Fund's current 'Thornburg Funds' prospectus for Class A and Class C shares dated February 1, 2004, and its Statement of Additional Information for Class A and Class C shares dated February 1, 2004 are incorporated by reference into Prospectus/Proxy Statement, and may be obtained without charge by writing to Thornburg at the address shown above or by calling 1-800-847-0200. 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 INVESTMENT TRUST OR THORNBURG LIMITED TERM MUNICIPAL FUND, INC. INVESTMENTS IN THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND (THE 'NEW FUND') ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THE NEW 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 __________, 2004. TABLE OF CONTENTS Summary of the Proposed Reorganization Investment Adviser and Distributor of the Fund and the New Fund Investment Goals, Policies and Restrictions of the Fund and the New Fund Principal Risk Factors Fees and Expenses of the Fund and the New Fund Purchase, Redemption and Exchange Procedures for the Fund and the New Fund Dividend Policies of the Fund and the New Fund Comparative Information on Shareholder Rights Additional Information About Shareholder Accounts Information About the Reorganization Capitalization Additional Information About the Fund and the New Fund Voting Information Exhibit A: Agreement and Plan of Reorganization For detailed information about the New Fund, see the Thornburg Limited Term Municipal Funds Prospectus dated __________ 2004 (the "New Fund Prospectus"), which may be obtained without charge by writing Thornburg at the address above or by calling 1-800-847-0200. SUMMARY OF THE PROPOSED REORGANIZATION The Board of Directors of Thornburg Limited Term Municipal Fund, Inc. ('Thornburg LTMF'), including the Directors who are not 'interested persons' of Thornburg LTMF (the 'Independent Directors'), as defined in the Investment Company Act of 1940, have reviewed and unanimously approved an agreement and plan of reorganization (the 'Agreement') between Thornburg LTMF on behalf of Thornburg Limited Term Municipal Fund California Portfolio (the 'Fund') and Thornburg Investment Trust ('Thornburg Trust') on behalf of Thornburg California Limited Term Municipal Fund (the 'New Fund') providing for the acquisition of substantially all of the assets of the Fund, a separate fund (sometimes referred to as a 'series') of Thornburg LTMF, by the New Fund, a separate series of Thornburg Trust in exchange solely for voting shares of the New Fund. The aggregate net asset value of the shares of the acquiring the New Fund issued in the exchange will equal the aggregate net asset value of the shares outstanding for the acquired Fund. In connection with the transaction, shares of the New Fund will then be distributed to the Fund's shareholders pro rata by class so that holders of each class of shares of the fund will receive shares of the corresponding class of shares of the New Fund. The Fund thereafter will be terminated. These transactions are referred to as the 'reorganization.' As a result of the reorganization, each owner of Class A and Class C shares of the Fund will become an owner of the corresponding class of shares of the New Fund, having an aggregate net asset value equal to the net asset value of that shareholder's shares in the Fund. No sales charge will be imposed on the transaction. As a condition to the closing, Thornburg Trust and Thornburg LTMF will obtain a legal opinion 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 shares of the New Fund in the reorganization will remain free to redeem their shares after the reorganization. The Fund and the New Fund have identical investment objectives and policies. The New Fund will commence operations upon the completion of the reorganization with the same portfolio of investments owned by the Fund. The New Fund will have the same investment manager as the Fund, Thornburg Investment Management, Inc. ("TIMI") which will perform investment management services under an investment management agreement having substantially identical terms and providing for the same fees as the Fund's current investment advisory agreement. Expenses of the New Fund are expected to be substantially the same as the expenses of the Fund before the reorganization, as follows: Fund Annual Operating Expenses Before the Reorganization - -------------------------------------------- Class A 1.02% Class C 1.80 % Expected New Fund Annual Operating Expenses After the Reorganization - --------------------------------------------- Class A 1.02% Class C 1.80% Expenses of the reorganization will be paid by the Fund and are not expected to have a material effect on the expenses of the Fund. The reorganization is expected to result in cost savings to the shareholders of the New Fund after the reorganization. For the reasons set forth below, the Board of Directors of LTMF, including all of the Independent Directors, have unanimously concluded that the reorganization is in the best interests of the shareholders of the Fund. The Board of Directors of Thornburg LTMF therefore have submitted the Agreement for approval by the shareholders of the Fund at a special meeting of shareholders to be held on April __, 2003 (the 'Meeting'). Approval of the reorganization with respect to the Fund requires a vote of a majority of the outstanding shares of each of the three classes of the Fund's shares. This Prospectus/Proxy Statement pertains to and is directed to holders of the Fund's Class A and Class C shares. At or about the same time that substantially all of the assets of the Fund are acquired by the New Fund, Thornburg Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg LTMF's other series, Thornburg Limited Term Municipal Fund National Portfolio. Each of these transactions has been approved by Thornburg LTMF's Board of Directors. The acquisition of substantially all of the assets of the Fund and Thornburg Limited Term Municipal Fund National Portfolio are referred to collectively herein as the 'Related Transactions.' Completion of the reorganization is contingent upon proper shareholder approval being received for each of the Related Transactions, and the satisfaction of all other conditions to closing the Related Acquisitions. There can be no assurance shareholder approval can be obtained for each Related Transaction or that the conditions of the other Related Transaction will be satisfied. If shareholders of the Fund approve the reorganization and the other Related Transaction is not approved, the Board of Directors of Thornburg LTMF will consider the alternatives available to it with respect to the Fund, including completion of the reorganization respecting the Fund. See 'Voting Information.' The Board of Directors has approved the reorganization because they believe it would benefit the Fund. The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing these functions. The Board of Directors considered these objectives of the reorganization, together with other factors, which are discussed below under the caption 'Information About the Reorganization.' THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. INVESTMENT ADVISER AND DISTRIBUTOR The investment adviser to both the Fund and to the New Fund is Thornburg Investment Management, Inc. ('TIMI'), 119 East Marcy Street, Santa Fe, New Mexico 87501. TIMI has been the investment adviser for the Fund since its inception in 1984. TIMI is also the investment adviser for all of the 12 Funds offered by Thornburg Trust, including the New Fund and Thornburg Limited Term Municipal Fund (the two Funds organized to consummate the Related Transaction), four other Funds which invest principally in municipal obligations for tax exempt current income, two Funds which invest in U.S. Government and other fixed income obligations for current income, three Funds which invest primarily for capital appreciation, and one Fund which invests for current income and capital appreciation. TIMI also provides to each Thornburg mutual fund under its management supervision, administration and performance of certain administrative services. Fees charged to the Fund and the New Fund for these services are described below under 'Fees and Expenses of the Fund and the New Fund.' The distributor of shares to both the Fund and to the New Fund is Thornburg Securities Corporation ('TSC'), 119 East Marcy Street, Santa Fe, New Mexico 87501. TSC has been the distributor for the Fund since its inception in 1987. TSC is also distributor for each other Thornburg mutual fund. INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE FUND AND THE NEW FUND Investment Goals and Strategies of the Funds - -------------------------------------------- The investment goals and strategies of the Fund and the New Fund are identical. The primary investment goal of each Fund is to obtain as high a level of current income exempt from federal and California state individual income tax as is consistent, in the view of the investment adviser, with preservation of capital. The secondary goal of each Fund is to reduce expected changes in its share price compared to longer intermediate and long-term bond portfolios. Each Fund's primary and secondary goals are fundamental policies, and may not be changed without a majority vote of the Fund's shareholders. Each Fund pursues its primary goal by investing principally in a laddered maturity portfolio of municipal obligations issued by the State of California and its agencies, and by California local governments and their agencies. The investment adviser, Thornburg Investment Management, Inc. ('TIMI') actively manages each Fund's portfolio. Investment decisions are based upon outlooks for interest rates and securities markets, the supply of municipal debt securities, and analysis of specific securities. Each Fund invests in obligations and participations in obligations which are rated at the time of purchase as investment grade or, if unrated, which are issued by obligors which have comparable investment grade obligations outstanding or which are deemed by TIMI to be comparable to obligors with outstanding investment grade obligations. The Fund may invest in obligations issued by certain United States territories and possessions. Each Fund's portfolio is 'laddered' by investing in obligations of different maturities so that some obligations mature during each of the coming years. Because the magnitude of changes in value of interest bearing obligations is greater for obligations with longer terms, each Fund seeks to reduce changes in its share value by maintaining a portfolio of investments with a dollar-weighed average maturity normally less than five years. There is no limitation on the maturity of any specific security each Fund may purchase. Each Fund may dispose of any security before it matures. Each Fund also attempts to reduce changes in its share value through credit analysis, selection and diversification. Each Fund ordinarily acquires and holds securities for investment rather than for realization of gains by short term trading on market fluctuations. However, it may dispose of any security prior to its scheduled maturity to enhance income or reduce loss, to change the portfolio's average maturity, or to otherwise respond to current market conditions. The objective of preserving capital may prevent the Fund from obtaining the highest yields available. Under normal conditions each Fund invests at least 80% of its assets in municipal obligations originating in California which are exempt from California and regular federal income taxes, and normally invests 100% of its assets in municipal obligations originating in California or issued by United States territories and possessions. Each Fund may invest up to 20% of its assets in taxable securities which would produce income not exempt from federal or California income tax. These investments may be made due to market conditions, pending investment of idle funds or to afford liquidity. Each Fund's temporary taxable investments may exceed 20% of its assets when made for defensive purposes during periods s of abnormal market conditions. If the Fund found it necessary to own taxable investments, some of its income would be subject to federal and California income taxes. PRINCIPAL RISK FACTORS Because the Funds' investment goals and policies are identical, the risks of investing in the New Fund are expected to be the same as the risks of investing in the Fund. The value of each Fund's shares and its dividends will fluctuate in response to changes in interest rates. When interest rates increase, the value of the Fund's investments declines and the Fund's share value is reduced. This effect is more pronounced for intermediate and longer term obligations owned by a Fund. During periods of declining interest rates the Fund's dividends decline. The value of Fund shares also could be reduced if municipal obligations held by the Fund were downgraded by rating agencies, or went into default, or if legislation or other government action reduces the ability of issuers to pay principal and interest when due or changes the tax treatment of interest on municipal obligations. Nonrated obligations may have, or may be perceived to have, greater risk of default. The loss of money is a risk of investing in the Fund, and when you sell your shares they may be worth less than what you paid for them. An investment in either Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For a further discussion of the investment objectives, policies and restrictions applicable to the New Fund, please see the New Fund Prospectus, which is available without charge by calling 1-800-847-0200. FEES AND EXPENSES OF THE FUND AND THE NEW FUND Advisory and Administration Fees and Fund Expenses - -------------------------------------------------- The Fund and the New Fund each have contractual arrangements to obtain investment management, administrative and distribution services which are substantially identical. The Fund and The New Fund are each contractually obligated to pay an investment management fee to TIMI based upon the Fund's assets. The fee is computed on average daily net assets at an annual rate as follows: Net Assets Annual Rate ---------- ----------- 0 to $500 million .50% $500 million to $1 billion .40% $1 billion to $1.5 billion .30% $1.5 billion to $2.0 billion .25% more than $2.0 billion .225% TIMI also has entered into agreements with National Portfolio and Thornburg Fund to provide administrative services at an annual rate of .125% of average daily net assets for Class A and Class C shares of each Fund. Investment advisory fees, and the other expenses currently paid by the Fund and expected to be paid by the New Fund are set out below. The Shareholder Transaction Expense table shows the transaction fees paid by a shareholder in each Fund upon a purchase or redemption of shares. The Annual Operating Expenses table shows the annual Fund operating expense for the Fund for its fiscal year ended June 30, 2003 and compares those fee and expense percentages to the expected annual fund operating expenses for the New Fund for its current fiscal year. Shareholder Transaction Expenses Fees Paid Directly From Your Investment Fund New Fund Class A Class C Class A Class C ------- ------- -------- -------- Maximum Sales Charge (Load) on 1.50% none 1.50% none Purchases (as a percentage of offering price) Maximum Deferred Sales Charge 0.50% (1) 0.50% (2) 0.50% (1) 0.50% (2) (Load) on Redemptions (as a percentage of redemption proceeds on original purchase price, whichever is lower) Redemption Fees (as a none none none none percentage of amount redeemed) Annual Operating Expenses Expenses That Are Deducted From Fund Assets (as a percentage of average net assets) Fund New Fund (3) Class A Class C Class A Class C ------- ------- -------- -------- Investment Advisory Fee .50% .50% .50% .50% Distribution and Service (126-1) Fees .25% 1.00% .25% 1.00% Other Expenses .27% .30% .27% .30% ----- ----- ----- ----- Total Annual Operating Expenses 1.02% 1.80%(4) 1.02% 1.80%(4) (1) Imposed only on redemptions of any part or all of a purchase of $1 million or more within 12 months of purchase. (2) Imposed only on redemptions of Class C shares within 12 months of purchase. (3) The New Fund is a newly organized Fund which has not conducted any business except incident to the reorganization. The fees and expenses shown for The New Fund are estimated fees and expenses expected to be incurred for the fiscal year ending June 30, 2004. (4) For the fiscal year ending June 30, 2004, Thornburg Investment Management, Inc. and Thornburg Securities Corporation are waiving fees and reimbursing expenses so that actual Class A expenses do not exceed .99% and actual Class C expenses do not exceed 1.24%. Thornburg Investment Management, Inc. and Thornburg Securities Corporation intend to waive fees and reimburse expenses for Class A and Class C shares of the New Fund after the reorganization so that actual Class A expenses do not exceed .99% and actual Class C expenses do not exceed 1.24%. Waivers of fees and reimbursements of expenses may be terminated at any time. EXAMPLE: The following Example is intended to help you compare the cost of investing in the New Fund with the cost of investing in the Fund. The Example assumes that you invest $10,000 in each respective Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, that dividends and distributions are reinvested, and that each Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund New Fund Pro Forma Class A Class C Class A Class C ------- ------- ------- ------- 1 Year $252 $221 $252 $221 3 Years $470 $566 $470 $566 5 Years $705 $975 $705 $975 10 Years $1,379 $2,116 $1,379 $1,116 You would pay the following expenses if you did not redeem your Class C shares: Fund New Fund Pro Forma Class C Class C ------- ------- 1 Year $171 $171 3 Years $566 $566 5 Years $975 $975 10 Years $2,116 $2,116 PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES FOR THE FUND AND THE NEW FUND Sales Charges - ------------- Share purchase, redemption and exchange procedures for the Class A and Class C shares of the Fund are identical with the purchase, redemption and exchange procedures for the corresponding share classes of the New Fund. Purchasing Class A Shares - ------------------------- Class A shares of the Fund and the New Fund are sold at net asset value plus a sales charge at the rates shown in the table below. Class A shares are also subject to a Rule 12b-1 Service Plan, which provides for the Fund's payment of up to 1/4 of 1% of the class's net assets each year for shareholder and distribution services. As a Percentage As a Percentage Of Offering Price Of Net Asset Value ----------------- ------------------ Less than $250,000.00 1.50% 1.52% $250,000 to 499,999.99 1.25% 1.27% $500,000 to 999,999.99 1.00% 1.01% $1,000,000 and over 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. Class A shares also are sold to specified classes of investors at reduced or no sales charges. For example, a shareholder who redeems Class A shares may reinvest with no sales charge within 2 years of the redemption. Additionally, each time the value of a shareholder's account plus the amount of a new investment passes one of the breakpoints in the table above, the portion of new investments in excess of the breakpoint will be subject to the reduced sales charge. These privileges, and other opportunities for purchase at reduced or no sales charge are described in the New Fund Prospectus, which is available without charge by calling 1- 800-847-0200. Purchasing Class C Shares - ------------------------- Class C shares of the Fund and the New Fund are sold at net asset value without a sales charge at the time of purchase. Class C shares are subject to a contingent deferred sales charge of 1/2 of 1% of the shares are redeemed within one year of purchase. Class C shares are also subject to Rule 12b-1 Service and Distribution Plans, which provide for the Fund's payment of up to 1% of the class's net assets each year for shareholder and distribution services. Other information respecting the purchase of Class C shares is provided in the New Fund Prospectus. Exchange Privileges - -------------------- Class A shares of the Fund may be exchanged for Class A shares of other Thornburg funds, subject to certain conditions described in the Fund's prospectus. Similarly, Class A shares of the New Fund may be exchanged for Class A shares of other Thornburg mutual funds under the same conditions, 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 you paid on the shares you are exchanging. This charge remains applicable to exchanges of shares received in the reorganization. Each of the Funds permits exchanges by telephone if the telephone exchange privilege has been elected by the shareholder. Shareholders of the Fund who previously elected the telephone exchange privilege will be deemed to have elected the exchange privilege of the New Fund if the reorganization is completed. Redemptions - ----------- Shares of the Fund and the New 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 specific circumstances. The Fund and the New Fund impose a CDSC of 1/2 of 1% on redemptions of part or all of any purchase of $1 million or more of Class A shares in the event of a redemption within 12 months of purchase. The Fund and the New Fund Class C shares are subject to a CDSC is 1/2 of 1% if redeemed within one year of purchase. Shareholders' holding periods for Class A and Class C shares of the Fund will be added to the period they hold New Fund Class A or Class C shares received in the reorganization to determine if the CDSC is applicable to any redemption of those shares. Shareholders of the Fund who previously elected the telephone redemption privilege will be deemed to have elected the New Fund's telephone redemption privilege if the reorganization is completed. DIVIDEND POLICIES OF FUNDS The Fund distributes substantially all of its net investment income and realized capital gains to its shareholders. The Fund declares net income dividends daily and distributes those dividends monthly, and 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. The New Fund intends to follow the same policies. COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS The Fund is a diversified series of Thornburg Limited Term Municipal Fund, Inc. ('Thornburg LTMF'), a Maryland corporation organized in 1984. As a Maryland corporation, Thornburg LTMF is governed by applicable Maryland and federal law, its articles of incorporation and its bylaws. The business of Thornburg LTMF is supervised by its Board of Directors. The New Fund is a diversified series of Thornburg Trust, a Massachusetts business trust organized in 1987. As a Massachusetts business trust, Thornburg Trust is governed by applicable Massachusetts and federal law, its declaration of trust, as amended, and its bylaws. The business of Thornburg Trust is supervised by Thornburg Trust's Trustees. Thornburg LTMF is currently authorized under its articles of incorporation, as amended, to issue 300,000,000 Class A shares of the Fund, 150,000,00 Class C shares of the Fund, and 250,000,000 Institutional Class shares. Each share has a par value of $.001. The Board of Directors is permitted to increase this authorization from time to time under Maryland law. The Board of Directors is also permitted to create additional funds or 'series,' and to divide each such series into two or more classes of shares. Thornburg 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. All of the shares of Thornburg LTMF and of Thornburg Trust, 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 Thornburg LTMF nor Thornburg Trust permits cumulative voting. Neither Thornburg LTMF nor Thornburg Trust holds annual shareholder meetings. There normally will not be any meetings of shareholders of Thornburg LTMF, Thornburg Trust or either of the Funds to elect directors or trustees unless fewer than a majority of the directors or trustees then holding office have been elected by shareholders. However, the Board of Directors of Thornburg LTMF or the trustees of Thornburg Trust may call special meetings from time to time to seek shareholder approval of certain matters, and meetings of shareholders of either Thornburg LTMF or Thornburg Trust will be called upon written request of shareholders holding in the aggregate not less than 10% of the outstanding shares of any affected series or class having voting rights. Under Maryland law, shareholders of Thornburg LTMF are not liable for the obligations of Thornburg LTMF. However, under Massachusetts law, there is a remote possibility that shareholders of a Thornburg Trust could, under certain circumstances, be held personally liable for the obligations of such a trust. The declaration of trust for Thornburg Trust contains provisions intended to limit any such liability and to provide indemnification out of Fund property for any shareholder charged or held personally liable for obligations or liabilities of the shareholder's fund solely by reason of being or having been a shareholder of that fund and not because of the shareholder's acts or omissions or for some other reason. Consequently, the risk of a shareholder of the New Fund incurring financial loss on account of shareholder liability is limited to circumstances in which the New Fund itself would be unable to meet its obligations. ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS If the reorganization is approved, the New Fund will establish an account for each Fund shareholder. No further purchases of the shares of the Fund may be made after the date on which the shareholders of the Fund approve the reorganization, and the share transfer books of the 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 the Fund. Redemption requests or transfer instructions received by the Fund after that date will be treated as requests for the redemption or instructions for transfer of shares of the New Fund credited to the accounts of shareholders of the Fund. Accordingly, those redemption requests or transfer instructions after the close of business on the day before Closing will be forwarded to the New Fund. For a complete description of redemption procedures for the New Fund, see the sections of the New Fund Prospectus under the caption 'Selling Fund Shares.' INFORMATION ABOUT THE REORGANIZATION Agreement and Plan of Reorganization - ------------------------------------ The following summary of the proposed Agreement and Plan of Reorganization (the 'Agreement') is qualified in its entirety by reference to the Agreement attached to this Prospectus/Proxy Statement as Exhibit A. The Agreement provides that the New Fund will acquire substantially all of the assets of the Fund in exchange solely for shares of the New Fund on the earliest practicable date following shareholder approval of the reorganization (the 'Closing Date'). The number of full and fractional shares of the New Fund to be issued to shareholders of the Fund will be determined on the basis of the relative net asset values per share and aggregate net assets of the New Fund and the 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 the Fund will be determined by dividing each class's respective assets, less its respective share of liabilities, by the total number of the class's outstanding shares. Portfolio securities of the Fund will be valued in accordance with the valuation practices of the Fund as described in its prospectus, which is incorporated by reference herein. Valuation procedures of the New Fund are the same as the valuation procedures of the Fund. Immediately after the transfer of the Fund's assets to the New Fund on the Closing Date, the 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 the New Fund received by the Fund and will be dissolved as soon thereafter as reasonably practicable. The distribution will be accomplished by the establishment of accounts on the share records of the New Fund in the name of each shareholder of the Fund, each representing the respective pro rata number of full and fractional shares of the New Fund due each of those shareholders. Following the reorganization, shareholders will own shares of the New Fund of the same class as the Fund shares owned before the reorganization. No certificates for shares of the New Fund will be issued. The consummation of the reorganization is subject to the conditions set forth in the Agreement. The reorganization is also subject to approval by the Fund's shareholders. Approval requires the affirmative vote of the holders of a majority of each class of shares of the Fund. Further, completion of the reorganization is subject to shareholder approval of the 'Related Transaction', which is the proposed transaction in which Thornburg Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio. If shareholders of the Fund approve the reorganization, but the Related Transaction is not approved, the Board of Directors of the 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 the Fund, by resolution of the Board of Directors of the Fund or the Trustees of Thornburg Trust, under circumstances specified in the Agreement. The Fund will pay the costs of the reorganization, which include fees and costs associated with preparing, filing, printing and distributing proxy materials, proxy solicitation costs, costs associated with qualifying shares for sale in various states, and the deregistration and dissolution of Thornburg LTMF. The Board of Directors of Thornburg LTMF have determined that participation in the reorganization is in the best interests of shareholders of the Fund. Full and fractional shares of beneficial interest of the New Fund will be issued to shareholders of the Fund in accordance with the procedures under the Agreement described above. Each share will be fully paid and non-assessable by the New Fund when issued, and will have no preemptive or conversion rights. See comparative information on shareholder rights, below, for additional information with respect to the shares of the New Fund. Considerations of the Fund's Board of Directors - ----------------------------------------------- Thornburg Investment Management, Inc. ("TIMI"), the investment adviser to both the Fund and the New Fund, proposed and recommended the reorganization to the Board of Directors of Thornburg (the "Board") to simplify certain compliance and administrative functions and to reduce the costs associated with the performance of those functions. Based upon TIMI's recommendation, and after consideration of the rationale for the reorganization and certain additional factors described below, the Board, including all of the directors who are not "interested persons" ("Independent Directors") as that term is used in the Investment Company Act of 1940 (the "1940 Act"), has determined that the reorganization is in the best interest of the shareholders of the Fund and that the terms of the agreement and plan of reorganization are fair and reasonable. The Board considered the recent increases in compliance and related functions performed for the Fund, and the likely further increase in those functions in the future due to regulatory and rulemaking initiatives by the Congress and the Securities and Exchange Commission. The Board noted specifically in this connection the following factors: . increased duties for the Board assuring compliance with revised regulations applicable to mutual funds generally; . increased audit committee functions and additional time devoted to audit committee functions by the independent accountants; . increased number of filings by Thornburg LTMF of documents required under state and federal law and increased time for review and discussion of those filings by the Board; and, . increased Board fees and associated travel expenses and other expenses occasioned by these increased activities. The Board further noted in this regard that these functions are generally duplicative of comparable functions performed for and by Thornburg Investment Trust and its Trustees and audit committee. The Board concluded that the general complexity of compliance, and administration of compliance could be reduced significantly if the two funds currently offered by Thornburg LTMF were combined with the ten existing funds offered by Thornburg Investment Trust. This combination would, in the Board's view, eliminate the current duplication and reduce complexity by substituting one investment company in the place of two. Moreover, the Board concluded that the reorganization would result in significant cost savings, because the two funds of Thornburg Trust which will acquire Thornburg LTMF's two current funds will share with Thornburg Trust's other funds a number of costs which are currently duplicated (and thus not shared) by Thornburg LTMF and Thornburg Trust. In this latter regard the Board considered: . legal fees and costs associated with advice on compliance matters, preparation of documents related to compliance, preparation of documents for Board of Directors and audit committee meetings; . legal counsel preparation for and attendance at Board of Directors and audit committee meetings; . fees and costs associated with preparation and filing of registration statements and other periodic filings, and general corporate work associated with the maintenance of an additional corporate entity; . costs, including Directors' fees and travel and other expenses associated with the Board's and the audit committee's fees and meetings; and . expenses and fees of the independent accountants. The Board also considered the likelihood of future increases in these costs because of increased rulemaking and regulatory complexity, increasing duties placed on investment company directors and audit committees, the possible need to hire additional legal counsel and other persons for audit committees, and possible increases in the frequency of shareholder meetings to elect investment company directors. Based upon estimates by TIMI and legal counsel, the Board determined that it was reasonable to conclude that the costs of the reorganization could be recovered in less than two years. The Board also considered other factors in evaluating the proposed reorganization, including the following: (1) There would be no change in investment objectives, investment policies, or investment risks as a result of the reorganization; (2) After the reorganization, investment management, administrative services, and other functions would be performed under contracts having substantially the same terms as the existing contracts; (3) Fees and expenses for the New Fund are expected to be virtually the same as fees and expenses for the Fund, except for the costs of the reorganization (which are expected to be offset, and exceeded over time by cost savings); (4) The reorganization will result in no dilution of shareholders' interests; (5) Shareholders of the Fund will receive shares in the New Fund of the class corresponding to the same class of shares in the Fund; (6) The reorganization will be accomplished without recognition of gain or loss for federal income tax purposes by shareholders of Thornburg LTMF; and (7) No sales charges or transaction fees will be assessed against shareholders in connection with the reorganization. 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 the Fund, the New Fund, or shareholders of the Fund as a consequence of the reorganization. As a condition to the closing of the reorganization, the Fund and the New Fund will receive an opinion of legal counsel to that effect based on certain assumptions and representations made by the Fund and the New Fund. Shareholders of the 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 the 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 the Fund and the New Fund as of December 31, 2003 and the pro forma capitalization of the combined New Fund as if the reorganization occurred on that date. These numbers will be different at the time of closing because the Fund's net assets for each class will increase or decrease. CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 2003 FUND NEW FUND PRO FORMA ---- -------- --------- NET ASSETS - ---------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ TOTAL $_____ -0- $_____ NET ASSETS PER SHARE - -------------------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ SHARES OUTSTANDING - ------------------- Class A shares _____ -0- _____ Class C shares _____ -0- _____ Class I shares _____ -0- _____ TOTAL -0- (1) SHARES AUTHORIZED - ------------------ Class A shares 300,000,000 unlimited unlimited Class C shares 150,000,000 unlimited unlimited Class I shares 250,000,000 unlimited unlimited TOTAL 700,000,000 unlimited unlimited (1) It is anticipated that a nominal number of shares of each class will be issued to an officer of TIMI in order to permit the consummation of corporate actions before the reorganization. ADDITIONAL INFORMATION ABOUT THE FUNDS Additional information respecting the New Fund is included in the Thornburg Limited Term Municipal Funds prospectus dated _______________, 2004 (the "New Fund Prospectus") and in the Thornburg Limited Term Municipal Funds Statement of Additional Information dated ___________________, 2004, which has been filed with the Securities and Exchange Commission. Additional information is also included in the Statement of Additional Information dated ________________, 2004 related to the reorganization which has been filed with the Securities and Exchange Commission. The described New Fund Prospectus and statements of additional information are incorporated by reference herein. Copies of the New Fund Prospectus and the statements of additional information are available upon request and without charge by calling 1-800-847-0200. Information about the Fund is included in the Thornburg Funds prospectus dated February 1, 2004, and in the Thornburg Funds Statement of Additional Information dated February 1, 2004. The described prospectus and statement of additional information may been filed with the Securities and Exchange Commission and are incorporated by reference herein. Copies of the prospectus and the statement of additional information are available upon request and without charge by calling 1-800-847-0200. Reports and other information filed by Thornburg LTMF and Thornburg Trust can be inspected and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information about the Public Reference Room may be obtained by calling the Commission at 1-202-942-8090. Reports and other information about the Funds are also available on the Commission's Internet site at http://ww,sec.gov and copies of information may be obtained, upon payment of a duplicating fee, by writing the Commission's Public Reference Section, Washington, D.C. 20549-0102, or contacting the Commission by e-mail at publicinfo@sec.gov. Thornburg LTMF files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-4302. Thornburg Investment Trust files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-05201. VOTING INFORMATION Proxies for the meeting are being solicited from the Fund's shareholders by the Board of Directors of Thornburg LTMF. A proxy may be revoked at any time at or before the meeting by oral or written notice to the secretary of Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, (800) 847-0200. Unless revoked, all valid proxies will be voted in accordance with the specifications therein 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 TIMI and its affiliates or by a professional proxy solicitation firm or firms. Expenses of proxy solicitation will be borne by the Fund. TIMI has engaged the proxy solicitation firm of ___________ to assist in soliciting proxies for the meeting at an estimated cost of $______. Shares of the Fund of record at the close of business on _____________ (the 'Record Date') will be entitled to vote at the meeting or any adjournment thereof. The presence in person or by proxy of one-third of the Fund's outstanding shares at the meeting will constitute a quorum. 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 the outstanding shares of the Fund entitled to vote at the meeting. As of _____________,2004, there were issued and outstanding ______ Class A shares, __________ Class C shares and ________ Class I shares of the Fund. As of the same date, persons were known to own of record or beneficially 5% or more of the issued and outstanding shares of any Class of the Fund: [to be inserted] As of the same date, there were issued and outstanding ____ Class A shares, ______ Class C shares, and ______ Class I shares of beneficial interest of the New Fund. All of these shares were held by ________, 119 East Marcy Street, Santa Fe, New Mexico 87501. Ms. _______ was issued these shares in order to permit certain actions in connection with the initial organization of the New Fund. In the event that a quorum of all classes of shares 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 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 DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE REORGANIZATION. Submission of Shareholder Proposals - ----------------------------------- The 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 Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501. Other Matters to Come Before the Meeting - ---------------------------------------- The Board of Directors of Thornburg LTMF knows 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 Directors. EXHIBIT A to PROSPECTUS/PROXY STATEMENT AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of the ____ day of December 2003, by and between THORNBURG INVESTMENT TRUST, a Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg California Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Trust, and THORNBURG LIMITED TERM MUNICIPAL FUND, INC. a Maryland corporation ("Thornburg LTMF"), in respect of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a separate series of Thornburg LTMF. 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 the Fund to the New Fund in exchange solely for Class A, Class C and Class I voting shares of beneficial interest of the New Fund having no par value (the "New Fund Class A Shares," "New Fund Class C Shares," and "New Fund Class I Shares," respectively, and collectively the "New Fund Shares") and (ii) the distribution on the Closing Date (hereinafter defined) of the New Fund Shares to the shareholders of the New Fund in complete liquidation of the Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. All actions required to be taken by Thornburg Trust pursuant to this Agreement, and all representations, warranties and covenants of Thornburg Trust hereunder, are taken and made on behalf of the New Fund. 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 the New 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, Thornburg LTMF agrees to transfer the Assets of the New Fund as set forth in paragraph (b) to the New Fund, and Thornburg Trust agrees to deliver to the New Fund in exchange therefor the number of the New 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 the New Fund Shares 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 the New 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 the New Fund on the closing date provided in paragraph 3(a) (the "Closing Date"). The New 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, which could not reasonably be paid before Closing and are not otherwise borne by any other person; and (ii) costs resulting from the liquidation and deregistration of the Fund and Thornburg LTMF. The Assets will not include any rights in and to the "Thornburg" name or any variant thereof. The Fund has provided the New Fund with a list of the current securities holdings of National Portfolio as of the date of execution of this Agreement. Thornburg LTMF and the Fund reserve the right to sell any of these securities in the ordinary course of business but will not, without prior notification to Thornburg Trust, acquire any additional securities for the Fund other than securities of the type in which the New Fund is permitted to invest. (c) On the Closing Date, Thornburg LTMF will cause the Fund to be liquidated and to distribute pro rata to the Fund's shareholders of record (the "Fund Shareholders"), determined on and as of the close of business on the Valuation Date specified in paragraph 2(a), the New Fund Shares received by Thornburg LTMF pursuant to paragraph (a). Specifically, Thornburg LTMF shall (i) distribute the New Fund Class A Shares received in the exchange, pro rata, to the Fund Shareholders holding Class A shares of the Fund, (ii) distribute the New Fund Class C shares received in the exchange, pro rata, to the Fund Shareholders holding Class C shares of the Fund, and (iii) distribute the New Fund Class I Shares received in the exchange, pro rata, to the Fund Shareholders holding Class I shares of the Fund. The liquidation and distribution will be accomplished by the transfer of the New Fund Shares then credited to the account of the Fund on the books of New Fund, to open accounts on the share records of the Fund in the names of the Fund Shareholders and representing the respective pro rata number of New Fund due the Fund Shareholders. (d) As of the Closing Date, any physically-issued share certificates held by former Fund Shareholders and relating to Fund shares exchanged for New Fund Shares in accordance with the preceding paragraph (c) will represent only the right to receive the appropriate number of New Fund Shares. As of the Closing Date, persons holding those certificates will be requested to surrender their certificates. No redemption or repurchase of any New Fund Shares credited to former Fund Shareholders in place of Fund shares represented by unsurrendered certificates will be permitted until those certificates have been surrendered for cancellation or the certificates are cancelled upon the delivery of lost certificate affidavits. (e) Any transfer taxes payable upon issuance of New Fund Shares in a name other than that of the registered holder of the New Fund Shares on the books of the Fund as of the Closing Date shall, as a condition of such issuance and transfer, be paid by the person to whom the New Fund Shares are to be issued and transferred. (f) The Fund shall be dissolved as soon as reasonably practicable following the Closing Date. Thornburg LTMF 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 Trust will not assume any liability of Thornburg LTMF, or acquire any Asset subject to any liability, in connection with the transactions contemplated by this Agreement, except that the New Fund will assume the obligation to pay for any portfolio securities purchased by the Portfolio before the Closing Date in the ordinary course of its business and the purchase of which was disclosed to the New Fund by the New Fund Portfolio when the commitment to purchase arose. 2. Valuation. (a) The value of the Fund's Assets to be acquired by the New 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 the Fund's Assets consisting of portfolio securities will be computed by Kenny Information Systems, subject to adjustment by the amount, if any, agreed to by the New Fund and the 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 the New Fund (subject to the third sentence hereafter) as set forth in the then current prospectuses and statement of additional information applicable to the New Fund, subject to adjustments agreed to by the Fund and the New Fund. 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 the Fund, the New Fund and the 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 value of the Assets of each class of the Fund shall be divided, as of the close of business on the New York Stock Exchange and after the declaration of any dividends on the Valuation Date, among the Class A, Class C and Class I shares of National Portfolio (the "Class A Assets," "Class C Assets," and "Class I Assets"), respectively, in accordance with the Fund's customary method of accounting. (c) The net asset value of each New 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 the New Fund's then current prospectuses, and in accordance with the New Fund's customary method of accounting. (d) On the Closing Date, the New Fund shall issue to the Fund full and fractional New Fund Class A, Class C and Class I shares in the respective numbers determined in accordance with this paragraph 2(d). The number of New Fund Class A shares shall be determined by dividing the value of the Class A Assets by the net asset value of a New Fund Class A share determined in accordance with paragraph 2(c). The number of New Fund Class C shares shall be determined by dividing the value of the Class C Assets by the net asset value of a New Fund Class C share determined in accordance with paragraph 2(c). The number of New Fund Class I shares shall be determined by dividing the value of the Class I Assets by the net asset value of a New Fund Class I share determined in accordance with paragraph 2(c). 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 Fund's Shareholders has been obtained. 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) The Fund's portfolio securities shall be available for inspection by the New Fund, its custodian bank or such other agents of Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices of the Fund's custodian, no later than five business days preceding the Valuation Date, and the Fund will immediately notify the New Fund's investment adviser of any portfolio security thereafter acquired or sold by the Fund. The Fund's securities and cash shall be delivered by Thornburg LTMF to State Street Bank & Trust Company, Boston, MA 02205-9087, as custodian for the New Fund for the account of the New 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." The Fund will cause its custodian to deliver at Closing a certificate of an authorized officer of the Custodian stating that the Fund's have been delivered in proper form to the New 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 the New Fund or the 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) Thornburg LTMF shall deliver to Thornburg Trust shareholder and shareholder account information as of the close of business on the Valuation Date as reasonably requested by Thornburg Trust. The New Fund shall issue and deliver a confirmation to the Fund at the Closing stating the number of New Fund Shares to be credited on the Closing Date to the Fund, and stating the number of New Fund Shares credited to the Fund's account on the books of the New Fund. Thornburg Trust shall issue and deliver to each former Fund Shareholder, after the Closing, a confirmation stating the number of New 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 may reasonably request. 4. Representations and Warranties. (a) Thornburg LTMF represents and warrants to Thornburg Trust as follows: (i) The Fund is a series of Thornburg LTMF, which is a corporation duly formed and validly existing 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 undr the 1940 Act is in full force and effect; (iii) The current prospectuses and statements of additional information of the Fund, each dated November 1, 2003, 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 Thornburg LTMF, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the 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 Thornburg LTMF's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Fund or Thornburg LTMF is a party or by which it is bound; (vi) The 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 the Fund is a party will be terminated without liability to the Fund or the New 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 the 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 the 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 the Fund at June 30, 2003 have been audited by PricewaterhouseCoopers, LLP, independent 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, 2003, when issued, fairly reflect, or in the case of the December 31, 2003 statements will fairly reflect, in all material respects the assets, financial condition, results of operations, and changes in net assets of the Fund as of and for the periods ended on those dates and have, or in the case of the December 31, 2003 statements, shall have been prepared, in accordance with generally accepted accounting principles consistently applied; and there are as of the dates thereof no known liabilities of the Fund other than liabilities disclosed or provided for in the foregoing statements; (x) Since June 30, 2003, there has been no material adverse change in the Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business; and the 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 the Fund's Shares is not a material adverse change; (xi) At the Closing Date, all material federal and other tax returns and reports of the 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 Thornburg LTMF's knowledge no such return of or relating to the Fund is currently under audit, and no assessment has been asserted with respect to the Fund; (xii) The 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) The Fund is authorized to issue 300,000,000, 150,000,000 and 125,000,000 Class A, Class C and Class I shares, respectively, of the Fund, at the date hereof. All issued and outstanding shares of the 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 shares of the Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by Thornburg LTMF. All of the issued and outstanding Shares of the Fund 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 Trust pursuant to paragraph 3(d). The Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the Fund; (xiv) At the Closing Date, the Fund will have good and marketable title to the Assets to be transferred to the New 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, the New 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 the New 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 Thornburg LTMF's Board of Directors, and this Agreement constitutes a valid and binding obligation of Thornburg LTMF, enforceable in accordance with its terms, subject to the approval of the shareholders of the Fund, 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 the New New Fund 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; (xvii) The registration statement filed by the New Fund on Form N-14 relating to the New Fund Shares that will be registered with the Commission pursuant to this Agreement, which shall include the proxy statement of Thornburg LTMF in respect of the 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 the proxy materials of Thornburg LTMF in respect of the 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 the 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 Thornburg LTMF. (b) Thornburg Trust represents and warrants to Thornburg LTMF as follows: (i) The New Fund is a series of Thornburg Trust, which is a business trust duly formed and validly existing under the laws of the Commonwealth of Massachusetts; (ii) Thornburg 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 prospectuses and statements of additional information for shares of the New Fund, when effective, shall conform in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Commission thereunder and will 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 Trust, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the New 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 Trust's Declaration of Trust or By- Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the New Fund or Thornburg Trust is a party or by which it is bound; (vi) The New 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 the New Fund or any of its properties or assets. Thornburg Trust knows of no facts which might form the basis for the institution of such proceedings, and neither Thornburg Trust nor the New 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) At the Closing Date, all federal and other tax returns and reports of the New 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 Trust's knowledge, no such return of or relating to the New Fund is currently under audit, and no assessment has been asserted with respect to the New Fund; (ix) The New Fund intends to meet the requirements of Subchapter M of the Code, and intends to be treated as a regulated investment company for the first taxable fiscal year of its operation including the Closing Date; (x) Thornburg Trust is authorized to issue an unlimited number of shares of beneficial interest having no par value. All issued and outstanding New Fund Shares at the Closing Date will be duly and validly issued and outstanding, fully paid and non-assessable. The New Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the New Fund, nor is there outstanding any security convertible into New Fund Shares (except as the trustees of Thornburg Trust may convert classes of shares in accordance with Thornburg Trust's Declaration of Trust, as amended); (xi) 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 Trust's trustees, and this Agreement constitutes a valid and binding obligation of Thornburg Trust 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; (xii) New Fund Shares to be issued and delivered to the 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 New Fund Shares, and will be fully paid and non-assessable by Thornburg Trust, except to the extent that shareholders of Thornburg Trust may be held personally liable for obligations of Thornburg Trust; (xiii) 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 Trust; (xiv) At the Closing Date, the New 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 Thornburg LTMF; and (xv) The information furnished by Thornburg 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. 5. Covenants of the Parties. (a) The New Fund and the 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) Thornburg LTMF will call a meeting of the shareholders of the 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) Thornburg LTMF covenants that the New Fund Shares to be issued hereunder will not be sold or distributed other than in accordance with the terms of this Agreement. (d) Thornburg LTMF will furnish to Thornburg Trust 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. Thornburg LTMF will furnish, or cause its transfer agent to furnish, to Thornburg Trust all information reasonably requested respecting the beneficial ownership of Thornburg LTMF shares, shareholders and shareholder accounts for the mailing of the Reorganization Proxy Materials and for the establishment of New Fund accounts for shareholders of the Fund in accordance with paragraph 1(c). Thornburg LTMF will furnish, or cause its custodian or other agents to furnish, all portfolio asset information reasonably requested by Thornburg Trust in connection with, and to facilitate, the transactions contemplated by this Agreement. (e) Subject to the provisions of this Agreement, Thornburg Trust and Thornburg LTMF 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) Thornburg LTMF shall furnish to Thornburg Trust within 30 days after the Closing Date a detailed trial balance of the Fund's assets and liabilities and computations showing amortization of premium on portfolio securities. Thornburg Funds shall furnish to Thornburg Trust when available the final federal income tax return for the Fund. (g) Thornburg LTMF will, as promptly as practicable after the Closing, wind up the business of the Fund, deregister the 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 shareholders of the Fund, and file any necessary federal and state tax returns. (h) Thornburg Trust 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 Trust 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 Thornburg LTMF. The obligations of Thornburg LTMF to consummate the transactions provided for herein shall be subject, at its election, to the performance by Thornburg Trust 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 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; and (b) Thornburg 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 Thornburg Trust made in this Agreement are true and correct at and as of the Closing Date. 7. Conditions Precedent to Obligations of Thornburg Trust. The obligations of Thornburg Trust to complete 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 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 Thornburg Trust the following information prepared as of the Closing Date: (i) net asset value pricing sheet of the 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 the Fund's general ledger; (iii) supporting schedules with the details for accounts receivable and accounts payable; (iv) certification from the Fund's custodian that it has delivered to the New Fund's custodian the Assets acquired by the New Fund; and (v) confirmation from the New Fund's transfer agent of the aggregate number of the Fund's shares outstanding and a reconciliation of that number to the number of shares shown in the pricing sheet referred to in (i) above; (c) Thornburg LTMF shall have delivered to Thornburg 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 Thornburg 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; (d) This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Fund in accordance with applicable law and evidence of the approval shall have been delivered to Thornburg Trust; and (e) The parties shall have received a favorable opinion of White, Koch, Kelly & McCarthy, P.A. satisfactory to Thornburg LTMF and Thornburg Trust, 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 White, Koch, Kelly & McCarthy, P.A. of representations it shall request of Thornburg Trust and Thornburg LTMF. 8. Further Conditions Precedent to Obligations of Thornburg Trust and Thornburg LTMF. 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 Trust or Thornburg LTMF 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 Trust or Thornburg LTMF; and (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. Thornburg LTMF will pay the costs of the transactions contemplated hereby, including the expenses of preparing and filing the N- 14 Registration Statement, the costs of distributing the prospectuses and proxy materials, proxy solicitation costs, and other costs. 10. Massachusetts Business Trust. Thornburg Trust is organized as a Massachusetts business trust, and references in this Agreement to Thornburg Trust mean and refer to the trustees of Thornburg 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 Thornburg Trust conducts its business. It is expressly agreed that the obligations of Thornburg Trust hereunder shall not be binding upon any of Thornburg Trust's trustees, shareholders, nominees, officers, agents, or employees of Thornburg Trust, or New Fund personally, but bind only the property of the New Fund, as provided in Thornburg Trust's Declaration of Trust. Moreover, no series of Thornburg Trust other than the New Fund shall be responsible for the obligations of Thornburg Trust hereunder, and all persons shall look only to the respective assets of the New Fund to satisfy the obligations of Thornburg Trust hereunder. The execution and delivery of this Agreement have been authorized by Thornburg Trust's trustees, on behalf of the New Fund, and this Agreement has been signed by authorized officers of Thornburg 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 the New Fund, as provided in Thornburg Trust's Declaration of Trust. 11. Indemnification. (a) The New Fund agrees to indemnify and hold harmless the Fund and each of the 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, the Fund or any of its directors 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 the New Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Fund agrees to indemnify and hold harmless the New Fund and each of the New 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, the New 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 the Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. 12. Entire Agreement; Survival of Warranties. (a) Thornburg Trust and Thornburg LTMF 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 Trust and Thornburg LTMF. In addition, either Thornburg Trust or Thornburg LTMF 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 Trust or Thornburg LTMF, or their respective trustees, directors or officers, to the other party or its trustees, directors or officers, but each shall bear, except as otherwise provided in section 9, 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 Thornburg LTMF and Thornburg Trust; provided, however, that following the shareholders' meeting called by the Fund pursuant to this Agreement, no such amendment may have the effect of changing the provisions for determining the number of New Fund Shares to be issued to the Fund's 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 Trust, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: Brian J. McMahon, and to Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: George T. Strickland. 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. THORNBURG INVESTMENT TRUST on behalf of THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND By: ------------------------------------- ------------------, ---------------- THORNBURG LIMITED TERM MUNICIPAL FUND, INC., on behalf of THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO By: ------------------------------------- ------------------, ---------------- EXHIBIT A to Agreement and Plan of Reorganization Dated December ___, 2003 Thornburg Investment Trust (on behalf of Thornburg California Limited Term Municipal Fund) and Thornburg Limited Term Municipal Fund, Inc. (on behalf of Thornburg Limited Term Municipal Fund California Portfolio) Subparagraph 4(a)(x): None. PROSPECTUS AND PROXY STATEMENT (For Holders of Institutional Class Shares) RELATING TO THE ACQUISITION OF THE ASSETS OF THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO a separate series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 BY AND IN EXCHANGE FOR SHARES OF THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND a separate series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Prospectus/Proxy Statement relates to the proposed transfer of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund") in exchange solely for shares of Thornburg Limited Term Municipal Fund (the "New Fund"). The Fund and the New Fund each have the same investment objective, which is to seek as high a level of interest income which is exempt from federal and California state individual income taxes as is consistent, in the view of the Funds' investment adviser, with the preservation of shareholders' capital. As a result of the proposed transaction, each shareholder of the Fund Portfolio will receive shares of the New Fund equal in value at the date of the exchange to the value of the shareholder's shares of the Fund. 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 the New Fund that a prospective investor should know before investing. The New Fund's "Thornburg Limited Term Municipal Funds Institutional Class Shares Prospectus" dated ___________, 2004 (the "New Fund Prospectus") containing information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this Prospectus/Proxy Statement. A Statement of Additional Information dated February 1, 2004 (the "Statement of Additional Information") containing additional information about the New Fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus/proxy statement. A copy of the New Fund Prospectus and 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 the Fund's current "Thornburg Funds" prospectus for Class I shares dated February 1, 2004, and its Statement of Additional Information for Institutional Class Shares dated ______________________, 2004 are incorporated by reference into this Prospectus/Proxy Statement, and may be obtained without charge by writing to Thornburg at the address shown above or by calling 1-800-847-0200. 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 INVESTMENT TRUST OR THORNBURG LIMITED TERM MUNICIPAL FUND, INC. INVESTMENTS IN THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND (THE "NEW FUND") ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THE NEW 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 __________, 2004. TABLE OF CONTENTS Summary of the Proposed Reorganization Investment Adviser and Distributor of the Fund and the New Fund Investment Goals, Policies and Restrictions of the Fund and the New Fund Principal Risk Factors Fees and Expenses of the Fund and the New Fund Purchase, Redemption and Exchange Procedures for the Fund and the New Fund Dividend Policies of the Fund and the New Fund Comparative Information on Shareholder Rights Additional Information About Shareholder Accounts Information About the Reorganization Capitalization Additional Information About the Fund and the New Fund Voting Information Exhibit A: Agreement and Plan of Reorganization For detailed information about the New Fund, see the Thornburg Limited Term Municipal Funds Institutional Class Shares Prospectus dated __________ 2004, (the "New Fund Prospectus"), which may be obtained without charge by writing Thornburg at the address noted above or by calling 1-800-847-0200. SUMMARY OF THE PROPOSED REORGANIZATION The Board of Directors of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), including the Directors who are not "interested persons" of Thornburg LTMF (the "Independent Directors"), as defined in the Investment Company Act of 1940, have reviewed and unanimously approved an agreement and plan of reorganization (the "Agreement") between Thornburg LTMF on behalf of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund") and Thornburg Investment Trust ("Thornburg Trust") on behalf of Thornburg California Limited Term Municipal Fund (the "New Fund") providing for the acquisition of substantially all of the assets of the Fund, a separate fund (sometimes referred to as a "series") of Thornburg LTMF, by the New Fund, a separate series of Thornburg Trust in exchange solely for voting shares of the New Fund. The aggregate net asset value of the shares of the acquiring the New Fund issued in the exchange will equal the aggregate net asset value of the shares outstanding for the acquired Fund. In connection with the transaction, shares of the New Fund will then be distributed to the Fund's shareholders pro rata by class so that holders of each class of shares of the Fund will receive shares of the corresponding class of shares of the New Fund. The Fund thereafter will be terminated. These transactions are referred to as the "reorganization." As a result of the reorganization, each owner of Institutional Class ("Class I") shares of the Fund will become an owner of the corresponding class of shares of the New Fund, having an aggregate net asset value equal to the net asset value of that shareholder's shares in the Fund. No sales charge will be imposed on the transaction. As a condition to the closing, Thornburg Trust and Thornburg LTMF will obtain a legal opinion 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 shares of the New Fund in the reorganization will remain free to redeem their shares after the reorganization. The Fund and the New Fund have identical investment objectives and policies. The New Fund will commence operations upon the completion of the reorganization with the same portfolio of investments owned by the Fund. The New Fund will have the same investment manager as the Fund, Thornburg Investment Management, Inc. ("TIMI"), which will perform investment management services under an investment management agreement having substantially identical terms and providing for the same fees as the Fund's current investment advisory agreement. Expenses of the New Fund are expected to be substantially the same as the expenses of the Fund before the reorganization, as follows: Fund Annual Operating Expenses Before the Reorganization - ------------------------- Class I .75% Expected New Fund Annual Operating Expenses After the Reorganization - ------------------------- Class I .75% Expenses of the reorganization will be paid by the Fund, and are not expected to have a material effect on the expenses of the Fund. The reorganization is expected to result in cost savings to the shareholders of the New Fund after the reorganization. For the reasons set forth below, the Board of Directors of LTMF, including all of the Independent Directors, have unanimously concluded that the reorganization is in the best interests of the shareholders of the Fund. The Board of Directors of Thornburg LTMF therefore have submitted the Agreement for approval by the shareholders of the Fund at a special meeting of shareholders to be held on April __, 2003 (the "Meeting"). Approval of the reorganization with respect to the Fund requires a vote of a majority of the outstanding shares of each of the three classes of the Fund's shares. This Prospectus/Proxy Statement pertains to and is directed to holders of the Fund's Institutional Class ("Class I") shares. At or about the same time that substantially all of the assets of the Fund are acquired by the New Fund, Thornburg California Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg LTMF's other series, Thornburg Limited Term Municipal Fund California Portfolio. Each of these transactions has been approved by Thornburg LTMF's Board of Directors. The acquisition of substantially all of the assets of the Fund and Thornburg Limited Term Municipal Fund California Portfolio are referred to collectively herein as the "Related Transactions." Completion of the reorganization is contingent upon proper shareholder approval being received for each of the Related Transactions, and the satisfaction of all other conditions to closing the Related Transactions. There can be no assurance shareholder approval can be obtained for each Related Transactions or that the conditions of the other Related Transactions will be satisfied. If shareholders of the Fund approve the reorganization and the other Related Transactions is not approved, the Board of Directors of Thornburg LTMF will consider the alternatives available to it with respect to the Fund, including completion of the reorganization respecting the Fund. See "Voting Information." The Board of Directors has approved the reorganization because they believe it would benefit the Fund. The reorganization is intended to simplify legal and regulatory compliance functions, and to reduce the costs of performing these functions. The Board of Directors considered these objectives of the reorganization, together with other factors, which are discussed below under the caption "Information About the Reorganization." THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION. INVESTMENT ADVISER AND DISTRIBUTOR The investment adviser to both the Fund and to the New Fund is Thornburg Investment Management, Inc. ("TIMI"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TIMI has been the investment adviser for the Fund since its inception in 1987. TIMI is also the investment adviser for all of the 12 Funds offered by Thornburg Trust, including the New Fund and Thornburg Limited Term Municipal Fund (the two Funds organized to consummate the Related Transaction), four other Funds which invest principally in municipal obligations for tax exempt current income, two Funds which invest in U.S. Government and other fixed income obligations for current income, three Funds which invest primarily for capital appreciation, and one Fund which invests for current income and capital appreciation. TIMI also provides to each Thornburg mutual fund under its management supervision, administration and performance of certain administrative services. Fees charged to the Fund and the New Fund for these services are described below under "Fees and Expenses of the Fund and the New Fund." The distributor of shares to both the Fund and to the New Fund is Thornburg Securities Corporation ("TSC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. TSC has been the distributor for the Fund since its inception in 1987. TSC is also distributor for each other Thornburg mutual fund. INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE FUND AND THE NEW FUND Investment Goals and Strategies of the Funds - -------------------------------------------- The investment goals and strategies of the Fund and the New Fund are identical. The primary investment goal of each Fund is to obtain as high a level of current income exempt from federal and California state individual income tax as is consistent, in the view of the investment adviser, with preservation of capital. The secondary goal of each Fund is to reduce expected changes in its share price compared to longer intermediate and long-term bond portfolios. Each Fund's primary and secondary goals are fundamental policies, and may not be changed without a majority vote of the Fund's shareholders. Each Fund pursues its primary goal by investing principally in a laddered maturity portfolio of municipal obligations issued by the State of California and its agencies, and by California local governments and their agencies. The investment adviser, Thornburg Investment Management, Inc. ("TIMI") actively manages each Fund's portfolio. Investment decisions are based upon outlooks for interest rates and securities markets, the supply of municipal debt securities, and analysis of specific securities. Each Fund invests in obligations and participations in obligations which are rated at the time of purchase as investment grade or, if unrated, which are issued by obligors which have comparable investment grade obligations outstanding or which are deemed by TIMI to be comparable to obligors with outstanding investment grade obligations. The Fund may invest in obligations issued by certain United States territories and possessions. Each Fund's portfolio is "laddered" by investing in obligations of different maturities so that some obligations mature during each of the coming years. Because the magnitude of changes in value of interest bearing obligations is greater for obligations with longer terms, each Fund seeks to reduce changes in its share value by maintaining a portfolio of investments with a dollar-weighed average maturity normally less than five years. There is no limitation on the maturity of any specific security each Fund may purchase. Each Fund may dispose of any security before it matures. Each Fund also attempts to reduce changes in its share value through credit analysis, selection and diversification. Each Fund ordinarily acquires and holds securities for investment rather than for realization of gains by short term trading on market fluctuations. However, it may dispose of any security prior to its scheduled maturity to enhance income or reduce loss, to change the portfolio's average maturity, or to otherwise respond to current market conditions. The objective of preserving capital may prevent the Fund from obtaining the highest yields available. Under normal conditions each Fund invests at least 80% of its assets in municipal obligations originating in California which are exempt from California and regular federal income taxes, and normally invests 100% of its assets in municipal obligations originating in California or issued by United States territories and possessions. Each Fund may invest up to 20% of its assets in taxable securities which would produce income not exempt from federal or California income tax. These investments may be made due to market conditions, pending investment of idle funds or to afford liquidity. Each Fund's temporary taxable investments may exceed 20% of its assets when made for defensive purposes during periods s of abnormal market conditions. If the Fund found it necessary to own taxable investments, some of its income would be subject to federal and California income taxes. PRINCIPAL RISK FACTORS Because the Funds' investment goals and policies are identical, the risks of investing in the New Fund are expected to be the same as the risks of investing in the Fund. The value of each Fund's shares and its dividends will fluctuate in response to changes in interest rates. When interest rates increase, the value of the Fund's investments declines and the Fund's share value is reduced. This effect is more pronounced for intermediate and longer term obligations owned by a Fund. During periods of declining interest rates the Fund's dividends decline. The value of Fund shares also could be reduced if municipal obligations held by the Fund were downgraded by rating agencies, or went into default, or if legislation or other government action reduces the ability of issuers to pay principal and interest when due or changes the tax treatment of interest on municipal obligations. Nonrated obligations may have, or may be perceived to have, greater risk of default. The loss of money is a risk of investing in the Fund, and when you sell your shares they may be worth less than what you paid for them. An investment in either Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. For a further discussion of the investment objectives, policies and restrictions applicable to the New Fund, please see the New Fund Prospectus, which is available without charge by calling 1-800-847-0200. FEES AND EXPENSES OF THE FUND AND THE NEW FUND Advisory and Administration Fees and Fund Expenses - -------------------------------------------------- The Fund and the New Fund each have contractual arrangements to obtain investment management, administrative and distribution services which are substantially identical. The Fund and The New Fund are each contractually obligated to pay an investment management fee to TIMI based upon the Fund's assets. The fee is computed on average daily net assets of an annual rate as follows: Net Assets Annual Rate ---------- ----------- 0 to $500 million .50% $500 million to $1 billion .40% $1 billion to $1.5 billion .30% $1.5 billion to $2.0 billion .25% more than $2.0 billion .225% TIMI also has entered into agreements with the Fund and the New Fund to provide administrative services at an annual rate of .05% of average daily net assets for Institutional Class shares of each Fund. Investment advisory fees, and the other expenses currently paid by the Fund and expected to be paid by the New Fund are set out below. The Shareholder Transaction Expense table shows the transaction fees paid by a shareholder in each Fund upon a purchase or redemption of shares. The Annual Operating Expenses table shows the annual Fund operating expense for the Fund for its fiscal year ended June 30, 2003 and compares those fee and expense percentages to the expected annual fund operating expenses for the New Fund for its current fiscal year. Shareholder Transaction Expenses Fees Paid Directly From Your Investment Fund New Fund Class I Class I ------- -------- Maximum Sales Charge (Load) on none none Purchases (as a percentage of offering price) Maximum Deferred Sales Charge none none (Load) on Redemptions (as a percentage of redemption proceeds on original purchase price, whichever is lower) Redemption Fees (as a none none percentage of amount redeemed) Annual Operating Expenses Expenses That Are Deducted From Fund Assets (as a percentage of average net assets) Fund New Fund (1) Class I Class I ------- -------- Investment Advisory Fee .50% .50% Distribution and Service (12b-1) Fees .00% .00% Other Expenses .25% .25% ----- ----- Total Annual Operating Expenses .75% (2) .75%(2) (1) The New Fund is a newly organized Fund which has not conducted any business except incident to the reorganization. The fees and expenses shown for The New Fund are estimated fees and expenses expected to be incurred for the fiscal year ending June 30, 2004. (2) For the fiscal year ending June 30, 2004, Thornburg Investment Management, Inc. is waiving fees and reimbursing expenses so that actual Class I expenses do not exceed .65%. Thornburg Investment Management, Inc. intends to waive fees and reimburse expenses for Class I shares of the New Fund after the reorganization so that actual Class I expenses do not exceed ..65%. Waivers of fees and reimbursements of expenses may be terminated at any time. EXAMPLE: The following Example is intended to help you compare the cost of investing in the New Fund with the cost of investing in the Fund Portfolio. The Example assumes that you invest $10,000 in each respective Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, that dividends and distributions are reinvested, and that each Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: Fund New Fund Pro Forma Class I Class I ------- -------- 1 Year $77 $77 3 Years $240 $240 5 Years $417 $417 10 Years $930 $930 PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES FOR THE FUND AND THE NEW FUND Sales Charges - -------------- Share purchase, redemption and exchange procedures for the Institutional Class shares of the Fund are identical with the purchase, redemption and exchange procedures for the corresponding share class of the New Fund. Purchasing Institutional Class Shares - ------------------------------------- The Fund's Institutional Class ("Class I") shares are sold with no initial sales charge or contingent deferred sales charge at the net asset value per share. Qualified individual investors and qualified institutions purchasing shares for their own account are eligible to purchase Institutional Class shares provided they invest a minimum of $2,500,000. The minimum amount for subsequent purchases is $5,000. Qualified institutions include corporations, banks and insurance companies purchasing for their own account and other institutions such as trusts, endowments and foundations. Qualified employee benefit or retirement plans other than an individual retirement account ("IRA") or SEP-IRA are also eligible to purchase Institutional Class shares, provided they either invest a minimum of $1,000,000 in the funds or have 100 or more eligible participants enrolled in the plan. There is no minimum amount for subsequent purchases. Investment dealers, financial advisers or other investment professionals, including bank trust departments and companies with trust powers, purchasing for the accounts of others within a clearly defined "wrap" or other fee based investment advisory program are eligible to purchase Institutional Class shares. The Fund's distributor will establish a minimum amount per program or per account to qualify for purchase of Institutional Class shares. The minimum amount per program is currently $100,000. Exchange Privileges - ------------------- Class I shares of the Fund may be exchanged for Class I shares of other Thornburg funds, subject to certain conditions described in the Fund's prospectus. Similarly, Class I shares of the New Fund may be exchanged for Class I shares of other Thornburg mutual funds subject to the same conditions. Each of the Funds permits exchanges by telephone if the telephone exchange privilege has been elected by the shareholder. Shareholders of the Fund who previously elected the telephone exchange privilege will be deemed to have elected the exchange privilege of the New Fund if the reorganization is completed. Redemptions - ----------- Shares of the Fund and the New Fund properly presented for redemption may be redeemed at the next determined net asset value per share. Shareholders of the Fund who previously elected the telephone redemption privilege will be deemed to have elected the New Fund's telephone redemption privilege if the reorganization is completed. DIVIDEND POLICIES OF FUNDS The Fund distributes substantially all of its net investment income and realized capital gains to its shareholders. The Fund declares net income dividends daily and distributes those dividends monthly, and 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. The New Fund intends to follow the same policies. COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS The Fund is a diversified series of Thornburg Limited Term Municipal Fund, Inc. ("Thornburg LTMF"), a Maryland corporation organized in 1984. As a Maryland corporation, Thornburg LTMF is governed by applicable Maryland and federal law, its articles of incorporation and its bylaws. The business of Thornburg LTMF is supervised by its Board of Directors. The New Fund is a diversified series of Thornburg Trust, a Massachusetts business trust organized in 1987. As a Massachusetts business trust, Thornburg Trust is governed by applicable Massachusetts and federal law, its declaration of trust, as amended, and its bylaws. The business of Thornburg Trust is supervised by Thornburg Trust's Trustees. Thornburg LTMF is currently authorized under its articles of incorporation, as amended, to issue 300,000,000 Class A shares of the Fund, 150,000,000 Class C shares of the Fund, and 250,000,000 Institutional Class shares. Each share has a par value of $.001. The Board of Directors is permitted to increase this authorization from time to time under Maryland law. The Board of Directors is also permitted to create additional funds or "series," and to divide each such series into two or more classes of shares. Thornburg 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. All of the shares of Thornburg LTMF and of Thornburg Trust, 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 Thornburg LTMF nor Thornburg Trust permits cumulative voting. Neither Thornburg LTMF nor Thornburg Trust holds annual shareholder meetings. There normally will not be any meetings of shareholders of Thornburg LTMF, Thornburg Trust or either of the Funds to elect directors or trustees unless fewer than a majority of the directors or trustees then holding office have been elected by shareholders. However, the Board of Directors of Thornburg LTMF or the trustees of Thornburg Trust may call special meetings from time to time to seek shareholder approval of certain matters, and meetings of shareholders of either Thornburg LTMF or Thornburg Trust will be called upon written request of shareholders holding in the aggregate not less than 10% of the outstanding shares of any affected series or class having voting rights. Under Maryland law, shareholders of Thornburg LTMF are not liable for the obligations of Thornburg LTMF. However, under Massachusetts law, there is a remote possibility that shareholders of a Thornburg Trust could, under certain circumstances, be held personally liable for the obligations of such a trust. The declaration of trust for Thornburg Trust contains provisions intended to limit any such liability and to provide indemnification out of Fund property for any shareholder charged or held personally liable for obligations or liabilities of the shareholder's fund solely by reason of being or having been a shareholder of that Fund and not because of the shareholder's acts or omissions or for some other reason. Consequently, the risk of a shareholder of the New Fund incurring financial loss on account of shareholder liability is limited to circumstances in which the New Fund itself would be unable to meet its obligations. ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS If the reorganization is approved, the New Fund will establish an account for each Fund shareholder. No further purchases of the shares of the Fund may be made after the date on which the shareholders of the Fund approve the reorganization, and the share transfer books of the 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 the Fund. Redemption requests or transfer instructions received by the Fund after that date will be treated as requests for the redemption or instructions for transfer of shares of the New Fund credited to the accounts of shareholders of the Fund. Accordingly, those redemption requests or transfer instructions after the close of business on the day before Closing will be forwarded to the New Fund. For a complete description of redemption procedures for the New Fund, see the sections of the New Fund Prospectus under the caption "Selling Fund Shares." INFORMATION ABOUT THE REORGANIZATION Agreement and Plan of Reorganization - ------------------------------------ The following summary of the proposed Agreement and Plan of Reorganization (the "Agreement") is qualified in its entirety by reference to the Agreement attached to this Prospectus/Proxy Statement as Exhibit A. The Agreement provides that the New Fund will acquire substantially all of the assets of the Fund in exchange solely for shares of the New Fund on the earliest practicable date following shareholder approval of the reorganization (the "Closing Date"). The number of full and fractional shares of the New Fund to be issued to shareholders of the Fund will be determined on the basis of the relative net asset values per share and aggregate net assets of the New Fund and the 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 the Fund will be determined by dividing each class's respective assets, less its respective share of liabilities, by the total number of the class's outstanding shares. Portfolio securities of the Fund will be valued in accordance with the valuation practices of the Fund as described in its prospectus, which is incorporated by reference herein. Valuation procedures of the New Fund are the same as the valuation procedures of the Fund. Immediately after the transfer of the Fund's assets to the New Fund on the Closing Date, the 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 the New Fund received by the Fund and will be dissolved as soon thereafter as reasonably practicable. The distribution will be accomplished by the establishment of accounts on the share records of the New Fund in the name of each shareholder of the Fund, each representing the respective pro rata number of full and fractional shares of the New Fund due each of those shareholders. Following the reorganization, shareholders will own shares of the New Fund of the same class as the Fund shares owned before the reorganization. No certificates for shares of the New Fund will be issued. The consummation of the reorganization is subject to the conditions set forth in the Agreement. The reorganization is also subject to approval by the Fund's shareholders. Approval requires the affirmative vote of the holders of a majority of each class of shares of the Fund. Further, completion of the reorganization is subject to shareholder approval of the "Related Transaction", which is the proposed transaction in which Thornburg Limited Term Municipal Fund will acquire substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio. If shareholders of the Fund approve the reorganization, but the Related Transaction is not approved, the Board of Directors of the 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 the Fund, by resolution of the Board of Directors of the Fund or the Trustees of Thornburg Trust, under circumstances specified in the Agreement. The Fund will pay the costs of the reorganization, which include fees and costs associated with preparing, filing, printing and distributing proxy materials, proxy solicitation costs, costs associated with qualifying shares for sale in various states, and the deregistration and dissolution of Thornburg LTMF. The Board of Directors of Thornburg LTMF have determined that participation in the reorganization is in the best interests of shareholders of the Fund. Full and fractional shares of beneficial interest of the New Fund will be issued to shareholders of the Fund in accordance with the procedures under the Agreement described above. Each share will be fully paid and non-assessable by the New Fund when issued, and will have no preemptive or conversion rights. See comparative information on shareholder rights, below, for additional information with respect to the shares of the New Fund. Considerations of the Fund's Board of Directors - ----------------------------------------------- Thornburg Investment Management, Inc. ("TIMI"), the investment adviser to both the Fund and the New Fund, proposed and recommended the reorganization to the Board of Directors of Thornburg (the "Board") to simplify certain compliance and administrative functions and to reduce the costs associated with the performance of those functions. Based upon TIMI's recommendation, and after consideration of the rationale for the reorganization and certain additional factors described below, the Board, including all of the directors who are not "interested persons" ("Independent Directors") as that term is used in the Investment Company Act of 1940 (the "1940 Act"), has determined that the reorganization is in the best interest of the shareholders of the Fund and that the terms of the agreement and plan of reorganization are fair and reasonable. The Board considered the recent increases in compliance and related functions performed for the Fund, and the likely further increase in those functions in the future due to regulatory and rulemaking initiatives by the Congress and the Securities and Exchange Commission. The Board noted specifically in this connection the following factors: . increased duties for the Board assuring compliance with revised regulations applicable to mutual funds generally; . increased audit committee functions and additional time devoted to audit committee functions by the independent accountants; . increased number of filings by Thornburg LTMF of documents required under state and federal law and increased time for review and discussion of those filings by the Board; and, . increased Board fees and associated travel expenses and other expenses occasioned by these increased activities. The Board further noted in this regard that these functions are generally duplicative of comparable functions performed for and by Thornburg Investment Trust and its Trustees and audit committee. The Board concluded that the general complexity of compliance, and administration of compliance could be reduced significantly if the two funds currently offered by Thornburg LTMF were combined with the ten existing funds offered by Thornburg Investment Trust. This combination would, in the Board's view, eliminate the current duplication and reduce complexity by substituting one investment company in the place of two. Moreover, the Board concluded that the reorganization would result in significant cost savings, because the two funds of Thornburg Trust which will acquire Thornburg LTMF's two current funds will share with Thornburg Trust's other funds a number of costs which are currently duplicated (and thus not shared) by Thornburg LTMF and Thornburg Trust. In this latter regard the Board considered: . legal fees and costs associated with advice on compliance matters, preparation of documents related to compliance, preparation of documents for Board of Directors and audit committee meetings; . legal counsel preparation for and attendance at Board of Directors and audit committee meetings; . fees and costs associated with preparation and filing of registration statements and other periodic filings, and general corporate work associated with the maintenance of an additional corporate entity; . costs, including Directors' fees and travel and other expenses associated with the Board's and the audit committee's fees and meetings; and . expenses and fees of the independent accountants. The Board also considered the likelihood of future increases in these costs because of increased rulemaking and regulatory complexity, increasing duties placed on investment company directors and audit committees, the possible need to hire additional legal counsel and other persons for audit committees, and possible increases in the frequency of shareholder meetings to elect investment company directors. Based upon estimates by TIMI and legal counsel, the Board determined that it was reasonable to conclude that the costs of the reorganization could be recovered in less than two years. The Board also considered other factors in evaluating the proposed reorganization, including the following: (1) There would be no change in investment objectives, investment policies, or investment risks as a result of the reorganization; (2) After the reorganization, investment management, administrative services, and other functions would be performed under contracts having substantially the same terms as the existing contracts; (3) Fees and expenses for the New Fund are expected to be virtually the same as fees and expenses for the Fund, except for the costs of the reorganization (which are expected to be offset, and exceeded over time by cost savings); (4) The reorganization will result in no dilution of shareholders' interests; (5) Shareholders of the Fund will receive shares in the New Fund of the class corresponding to the same class of shares in the Fund; (6) The reorganization will be accomplished without recognition of gain or loss for federal income tax purposes by shareholders of Thornburg LTMF; and (7) No sales charges or transaction fees will be assessed against shareholders in connection with the reorganization. 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 the Fund, the New Fund, or shareholders of the Fund as a consequence of the reorganization. As a condition to the closing of the reorganization, the Fund and the New Fund will receive an opinion of legal counsel to that effect based on certain assumptions and representations made by the Fund and the New Fund. Shareholders of the 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 the 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 the Fund and the New Fund as of December 31, 2003 and the pro forma capitalization of the combined New Fund as if the reorganization occurred on that date. These numbers will be different at the time of closing because the Fund's net assets for each class will increase or decrease. CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 2003 FUND NEW FUND PRO FORMA ---- -------- --------- NET ASSETS - ----------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ TOTAL $_____ -0- $_____ NET ASSETS PER SHARE - -------------------- Class A shares $_____ -0- $_____ Class C shares $_____ -0- $_____ Class I shares $_____ -0- $_____ SHARES OUTSTANDING - ------------------- Class A shares _____ -0- _____ Class C shares _____ -0- _____ Class I shares _____ -0- _____ TOTAL -0- (1) SHARES AUTHORIZED - ------------------ Class A shares 300,000,000 unlimited unlimited Class C shares 150,000,000 unlimited unlimited Class A shares 250,000,000 unlimited unlimited TOTAL 700,000,000 unlimited unlimited (1) It is anticipated that a nominal number of shares of each class will be issued to an officer of TIMI in order to permit the consummation of corporate actions before the reorganization. ADDITIONAL INFORMATION ABOUT THE FUNDS Additional information respecting the New Fund is included in the Thornburg Limited Term Municipal Funds Institutional Class Shares prospectus dated _______________, 2004 (the "New Fund Prospectus") which accompanies this Prospectus and Proxy Statement and in the Thornburg Limited Term Municipal Funds Institutional Class Shares Statement of Additional Information dated ___________________, 2004, which has been filed with the Securities and Exchange Commission. Additional information is also included in the Statement of Additional Information dated ________________, 2004 related to the reorganization which has been filed with the Securities and Exchange Commission. The described New Fund Prospectus and statements of additional information are incorporated by reference herein. Copies of the New Fund Prospectus and the statements of additional information are available upon request and without charge by calling 1-800-847-0200. Information about the Fund is included in the Thornburg Institutional Class Shares prospectus dated February 1, 2004, and in the Thornburg Funds Institutional Class Statement of Additional Information dated February 1, 2004. The described prospectus and statement of additional information have been filed with the Securities and Exchange Commission and are incorporated by reference herein. Copies of the prospectus and the statement of additional information are available upon request and without charge by calling 1-800-847-0200. Reports and other information filed by Thornburg LTMF and Thornburg Trust can be inspected and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information about the Public Reference Room may be obtained by calling the Commission at 1-202-942-8090. Reports and other information about the Funds are also available on the Commission's Internet site at http://www.sec.gov and copies of information may be obtained, upon payment of a duplicating fee, by writing the Commission's Public Reference Section, Washington, D.C. 20549-0102, or contacting the Commission by e-mail at publicinfo@sec.gov. Thornburg LTMF files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-4302. Thornburg Investment Trust files its registration statements and certain other information with the Commission under Investment Company Act of 1940 file number 811-05201. VOTING INFORMATION Proxies for the meeting are being solicited from the Fund's shareholders by the Board of Directors of Thornburg LTMF. A proxy may be revoked at any time at or before the meeting by oral or written notice to the secretary of Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, (800) 847-0200. Unless revoked, all valid proxies will be voted in accordance with the specifications therein 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 TIMI and its affiliates or by a professional proxy solicitation firm or firms. Expenses of proxy solicitation will be borne by the Fund. TIMI has engaged the proxy solicitation firm of ___________ to assist in soliciting proxies for the meeting at an estimated cost of $______. Shares of the Fund of record at the close of business on _____________ (the "Record Date") will be entitled to vote at the meeting or any adjournment thereof. The presence in person or by proxy of one-third of the Fund's outstanding shares at the meeting will constitute a quorum. 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 the outstanding shares of the Fund entitled to vote at the meeting. As of _____________,2004, there were issued and outstanding ______ Class A shares, ________ Class C shares and ________ Class I shares of the Fund. As of the same date, the following persons known to own of record or beneficially 5% or more of the issued and outstanding shares of any Class of the Fund: [to be inserted] As of the same date, there were issued and outstanding ____ Class A shares, ______ Class C shares, and ______ Class I shares of beneficial interest of the New Fund. All of these shares were held by ________, 119 East Marcy Street, Santa Fe, New Mexico 87501. Ms. _______ was issued these shares in order to permit certain actions in connection with the initial organization of the New Fund. 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 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 DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS, RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION. Submission of Shareholder Proposals - ----------------------------------- The 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 Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501. Other Matters to Come Before the Meeting - ---------------------------------------- The Board of Directors of Thornburg LTMF knows 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 Directors. EXHIBIT A to PROSPECTUS/PROXY STATEMENT AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of the ____ day of December 2003, by and between THORNBURG INVESTMENT TRUST, a Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg California Limited Term Municipal Fund (the "New Fund"), a separate series of Thornburg Trust, and THORNBURG LIMITED TERM MUNICIPAL FUND, INC. a Maryland corporation ("Thornburg LTMF"), in respect of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a separate series of Thornburg LTMF. 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 the Fund to the New Fund in exchange solely for Class A, Class C and Class I voting shares of beneficial interest of the New Fund having no par value (the "New Fund Class A Shares," "New Fund Class C Shares," and "New Fund Class I Shares," respectively, and collectively the "New Fund Shares") and (ii) the distribution on the Closing Date (hereinafter defined) of the New Fund Shares to the shareholders of the New Fund in complete liquidation of the Fund as provided herein, all upon the terms and conditions hereinafter set forth in this Agreement. All actions required to be taken by Thornburg Trust pursuant to this Agreement, and all representations, warranties and covenants of Thornburg Trust hereunder, are taken and made on behalf of the New Fund. 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 the New 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, Thornburg LTMF agrees to transfer the Assets of the New Fund as set forth in paragraph (b) to the New Fund, and Thornburg Trust agrees to deliver to the New Fund in exchange therefor the number of the New 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 the New Fund Shares 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 the New 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 the New Fund on the closing date provided in paragraph 3(a) (the "Closing Date"). The New 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, which could not reasonably be paid before Closing and are not otherwise borne by any other person; and (ii) costs resulting from the liquidation and deregistration of the Fund and Thornburg LTMF. The Assets will not include any rights in and to the "Thornburg" name or any variant thereof. The Fund has provided the New Fund with a list of the current securities holdings of National Portfolio as of the date of execution of this Agreement. Thornburg LTMF and the Fund reserve the right to sell any of these securities in the ordinary course of business but will not, without prior notification to Thornburg Trust, acquire any additional securities for the Fund other than securities of the type in which the New Fund is permitted to invest. (c) On the Closing Date, Thornburg LTMF will cause the Fund to be liquidated and to distribute pro rata to the Fund's shareholders of record (the "Fund Shareholders"), determined on and as of the close of business on the Valuation Date specified in paragraph 2(a), the New Fund Shares received by Thornburg LTMF pursuant to paragraph (a). Specifically, Thornburg LTMF shall (i) distribute the New Fund Class A Shares received in the exchange, pro rata, to the Fund Shareholders holding Class A shares of the Fund, (ii) distribute the New Fund Class C shares received in the exchange, pro rata, to the Fund Shareholders holding Class C shares of the Fund, and (iii) distribute the New Fund Class I Shares received in the exchange, pro rata, to the Fund Shareholders holding Class I shares of the Fund. The liquidation and distribution will be accomplished by the transfer of the New Fund Shares then credited to the account of the Fund on the books of New Fund, to open accounts on the share records of the Fund in the names of the Fund Shareholders and representing the respective pro rata number of New Fund due the Fund Shareholders. (d) As of the Closing Date, any physically-issued share certificates held by former Fund Shareholders and relating to Fund shares exchanged for New Fund Shares in accordance with the preceding paragraph (c) will represent only the right to receive the appropriate number of New Fund Shares. As of the Closing Date, persons holding those certificates will be requested to surrender their certificates. No redemption or repurchase of any New Fund Shares credited to former Fund Shareholders in place of Fund shares represented by unsurrendered certificates will be permitted until those certificates have been surrendered for cancellation or the certificates are cancelled upon the delivery of lost certificate affidavits. (e) Any transfer taxes payable upon issuance of New Fund Shares in a name other than that of the registered holder of the New Fund Shares on the books of the Fund as of the Closing Date shall, as a condition of such issuance and transfer, be paid by the person to whom the New Fund Shares are to be issued and transferred. (f) The Fund shall be dissolved as soon as reasonably practicable following the Closing Date. Thornburg LTMF 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 Trust will not assume any liability of Thornburg LTMF, or acquire any Asset subject to any liability, in connection with the transactions contemplated by this Agreement, except that the New Fund will assume the obligation to pay for any portfolio securities purchased by the Portfolio before the Closing Date in the ordinary course of its business and the purchase of which was disclosed to the New Fund by the New Fund Portfolio when the commitment to purchase arose. 2. Valuation. (a) The value of the Fund's Assets to be acquired by the New 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 the Fund's Assets consisting of portfolio securities will be computed by Kenny Information Systems, subject to adjustment by the amount, if any, agreed to by the New Fund and the 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 the New Fund (subject to the third sentence hereafter) as set forth in the then current prospectuses and statement of additional information applicable to the New Fund, subject to adjustments agreed to by the Fund and the New Fund. 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 the Fund, the New Fund and the 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 value of the Assets of each class of the Fund shall be divided, as of the close of business on the New York Stock Exchange and after the declaration of any dividends on the Valuation Date, among the Class A, Class C and Class I shares of National Portfolio (the "Class A Assets," "Class C Assets," and "Class I Assets"), respectively, in accordance with the Fund's customary method of accounting. (c) The net asset value of each New 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 the New Fund's then current prospectuses, and in accordance with the New Fund's customary method of accounting. (d) On the Closing Date, the New Fund shall issue to the Fund full and fractional New Fund Class A, Class C and Class I shares in the respective numbers determined in accordance with this paragraph 2(d). The number of New Fund Class A shares shall be determined by dividing the value of the Class A Assets by the net asset value of a New Fund Class A share determined in accordance with paragraph 2(c). The number of New Fund Class C shares shall be determined by dividing the value of the Class C Assets by the net asset value of a New Fund Class C share determined in accordance with paragraph 2(c). The number of New Fund Class I shares shall be determined by dividing the value of the Class I Assets by the net asset value of a New Fund Class I share determined in accordance with paragraph 2(c). 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 Fund's Shareholders has been obtained. 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) The Fund's portfolio securities shall be available for inspection by the New Fund, its custodian bank or such other agents of Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices of the Fund's custodian, no later than five business days preceding the Valuation Date, and the Fund will immediately notify the New Fund's investment adviser of any portfolio security thereafter acquired or sold by the Fund. The Fund's securities and cash shall be delivered by Thornburg LTMF to State Street Bank & Trust Company, Boston, MA 02205-9087, as custodian for the New Fund for the account of the New 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." The Fund will cause its custodian to deliver at Closing a certificate of an authorized officer of the Custodian stating that the Fund's have been delivered in proper form to the New 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 the New Fund or the 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) Thornburg LTMF shall deliver to Thornburg Trust shareholder and shareholder account information as of the close of business on the Valuation Date as reasonably requested by Thornburg Trust. The New Fund shall issue and deliver a confirmation to the Fund at the Closing stating the number of New Fund Shares to be credited on the Closing Date to the Fund, and stating the number of New Fund Shares credited to the Fund's account on the books of the New Fund. Thornburg Trust shall issue and deliver to each former Fund Shareholder, after the Closing, a confirmation stating the number of New 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 may reasonably request. 4. Representations and Warranties. (a) Thornburg LTMF represents and warrants to Thornburg Trust as follows: (i) The Fund is a series of Thornburg LTMF, which is a corporation duly formed and validly existing 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 undr the 1940 Act is in full force and effect; (iii) The current prospectuses and statements of additional information of the Fund, each dated November 1, 2003, 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 Thornburg LTMF, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the 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 Thornburg LTMF's Articles of Incorporation or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Fund or Thornburg LTMF is a party or by which it is bound; (vi) The 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 the Fund is a party will be terminated without liability to the Fund or the New 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 the 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 the 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 the Fund at June 30, 2003 have been audited by PricewaterhouseCoopers, LLP, independent 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, 2003, when issued, fairly reflect, or in the case of the December 31, 2003 statements will fairly reflect, in all material respects the assets, financial condition, results of operations, and changes in net assets of the Fund as of and for the periods ended on those dates and have, or in the case of the December 31, 2003 statements, shall have been prepared, in accordance with generally accepted accounting principles consistently applied; and there are as of the dates thereof no known liabilities of the Fund other than liabilities disclosed or provided for in the foregoing statements; (x) Since June 30, 2003, there has been no material adverse change in the Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business; and the 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 the Fund's Shares is not a material adverse change; (xi) At the Closing Date, all material federal and other tax returns and reports of the 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 Thornburg LTMF's knowledge no such return of or relating to the Fund is currently under audit, and no assessment has been asserted with respect to the Fund; (xii) The 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) The Fund is authorized to issue 300,000,000, 150,000,000 and 125,000,000 Class A, Class C and Class I shares, respectively, of the Fund, at the date hereof. All issued and outstanding shares of the 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 shares of the Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by Thornburg LTMF. All of the issued and outstanding Shares of the Fund 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 Trust pursuant to paragraph 3(d). The Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the Fund; (xiv) At the Closing Date, the Fund will have good and marketable title to the Assets to be transferred to the New 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, the New 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 the New 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 Thornburg LTMF's Board of Directors, and this Agreement constitutes a valid and binding obligation of Thornburg LTMF, enforceable in accordance with its terms, subject to the approval of the shareholders of the Fund, 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 the New New Fund 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; (xvii) The registration statement filed by the New Fund on Form N-14 relating to the New Fund Shares that will be registered with the Commission pursuant to this Agreement, which shall include the proxy statement of Thornburg LTMF in respect of the 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 the proxy materials of Thornburg LTMF in respect of the 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 the 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 Thornburg LTMF. (b) Thornburg Trust represents and warrants to Thornburg LTMF as follows: (i) The New Fund is a series of Thornburg Trust, which is a business trust duly formed and validly existing under the laws of the Commonwealth of Massachusetts; (ii) Thornburg 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 prospectuses and statements of additional information for shares of the New Fund, when effective, shall conform in all material respects to the applicable requirements of the 1933 Act and the rules and regulations of the Commission thereunder and will 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 Trust, no consent, approval, authorization or order of any court or governmental authority is required for the consummation by the New 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 Trust's Declaration of Trust or By- Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the New Fund or Thornburg Trust is a party or by which it is bound; (vi) The New 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 the New Fund or any of its properties or assets. Thornburg Trust knows of no facts which might form the basis for the institution of such proceedings, and neither Thornburg Trust nor the New 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) At the Closing Date, all federal and other tax returns and reports of the New 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 Trust's knowledge, no such return of or relating to the New Fund is currently under audit, and no assessment has been asserted with respect to the New Fund; (ix) The New Fund intends to meet the requirements of Subchapter M of the Code, and intends to be treated as a regulated investment company for the first taxable fiscal year of its operation including the Closing Date; (x) Thornburg Trust is authorized to issue an unlimited number of shares of beneficial interest having no par value. All issued and outstanding New Fund Shares at the Closing Date will be duly and validly issued and outstanding, fully paid and non-assessable. The New Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any securities issuable by the New Fund, nor is there outstanding any security convertible into New Fund Shares (except as the trustees of Thornburg Trust may convert classes of shares in accordance with Thornburg Trust's Declaration of Trust, as amended); (xi) 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 Trust's trustees, and this Agreement constitutes a valid and binding obligation of Thornburg Trust 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; (xii) New Fund Shares to be issued and delivered to the 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 New Fund Shares, and will be fully paid and non-assessable by Thornburg Trust, except to the extent that shareholders of Thornburg Trust may be held personally liable for obligations of Thornburg Trust; (xiii) 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 Trust; (xiv) At the Closing Date, the New 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 Thornburg LTMF; and (xv) The information furnished by Thornburg 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. 5. Covenants of the Parties. (a) The New Fund and the 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) Thornburg LTMF will call a meeting of the shareholders of the 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) Thornburg LTMF covenants that the New Fund Shares to be issued hereunder will not be sold or distributed other than in accordance with the terms of this Agreement. (d) Thornburg LTMF will furnish to Thornburg Trust 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. Thornburg LTMF will furnish, or cause its transfer agent to furnish, to Thornburg Trust all information reasonably requested respecting the beneficial ownership of Thornburg LTMF shares, shareholders and shareholder accounts for the mailing of the Reorganization Proxy Materials and for the establishment of New Fund accounts for shareholders of the Fund in accordance with paragraph 1(c). Thornburg LTMF will furnish, or cause its custodian or other agents to furnish, all portfolio asset information reasonably requested by Thornburg Trust in connection with, and to facilitate, the transactions contemplated by this Agreement. (e) Subject to the provisions of this Agreement, Thornburg Trust and Thornburg LTMF 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) Thornburg LTMF shall furnish to Thornburg Trust within 30 days after the Closing Date a detailed trial balance of the Fund's assets and liabilities and computations showing amortization of premium on portfolio securities. Thornburg Funds shall furnish to Thornburg Trust when available the final federal income tax return for the Fund. (g) Thornburg LTMF will, as promptly as practicable after the Closing, wind up the business of the Fund, deregister the 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 shareholders of the Fund, and file any necessary federal and state tax returns. (h) Thornburg Trust 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 Trust 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 Thornburg LTMF. The obligations of Thornburg LTMF to consummate the transactions provided for herein shall be subject, at its election, to the performance by Thornburg Trust 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 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; and (b) Thornburg 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 Thornburg Trust made in this Agreement are true and correct at and as of the Closing Date. 7. Conditions Precedent to Obligations of Thornburg Trust. The obligations of Thornburg Trust to complete 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 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 Thornburg Trust the following information prepared as of the Closing Date: (i) net asset value pricing sheet of the 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 the Fund's general ledger; (iii) supporting schedules with the details for accounts receivable and accounts payable; (iv) certification from the Fund's custodian that it has delivered to the New Fund's custodian the Assets acquired by the New Fund; and (v) confirmation from the New Fund's transfer agent of the aggregate number of the Fund's shares outstanding and a reconciliation of that number to the number of shares shown in the pricing sheet referred to in (i) above; (c) Thornburg LTMF shall have delivered to Thornburg 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 Thornburg 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; (d) This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Fund in accordance with applicable law and evidence of the approval shall have been delivered to Thornburg Trust; and (e) The parties shall have received a favorable opinion of White, Koch, Kelly & McCarthy, P.A. satisfactory to Thornburg LTMF and Thornburg Trust, 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 White, Koch, Kelly & McCarthy, P.A. of representations it shall request of Thornburg Trust and Thornburg LTMF. 8. Further Conditions Precedent to Obligations of Thornburg Trust and Thornburg LTMF. 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 Trust or Thornburg LTMF 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 Trust or Thornburg LTMF; and (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. Thornburg LTMF will pay the costs of the transactions contemplated hereby, including the expenses of preparing and filing the N- 14 Registration Statement, the costs of distributing the prospectuses and proxy materials, proxy solicitation costs, and other costs. 10. Massachusetts Business Trust. Thornburg Trust is organized as a Massachusetts business trust, and references in this Agreement to Thornburg Trust mean and refer to the trustees of Thornburg 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 Thornburg Trust conducts its business. It is expressly agreed that the obligations of Thornburg Trust hereunder shall not be binding upon any of Thornburg Trust's trustees, shareholders, nominees, officers, agents, or employees of Thornburg Trust, or New Fund personally, but bind only the property of the New Fund, as provided in Thornburg Trust's Declaration of Trust. Moreover, no series of Thornburg Trust other than the New Fund shall be responsible for the obligations of Thornburg Trust hereunder, and all persons shall look only to the respective assets of the New Fund to satisfy the obligations of Thornburg Trust hereunder. The execution and delivery of this Agreement have been authorized by Thornburg Trust's trustees, on behalf of the New Fund, and this Agreement has been signed by authorized officers of Thornburg 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 the New Fund, as provided in Thornburg Trust's Declaration of Trust. 11. Indemnification. (a) The New Fund agrees to indemnify and hold harmless the Fund and each of the 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, the Fund or any of its directors 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 the New Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Fund agrees to indemnify and hold harmless the New Fund and each of the New 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, the New 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 the Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement. 12. Entire Agreement; Survival of Warranties. (a) Thornburg Trust and Thornburg LTMF 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 Trust and Thornburg LTMF. In addition, either Thornburg Trust or Thornburg LTMF 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 Trust or Thornburg LTMF, or their respective trustees, directors or officers, to the other party or its trustees, directors or officers, but each shall bear, except as otherwise provided in section 9, 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 Thornburg LTMF and Thornburg Trust; provided, however, that following the shareholders' meeting called by the Fund pursuant to this Agreement, no such amendment may have the effect of changing the provisions for determining the number of New Fund Shares to be issued to the Fund's 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 Trust, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: Brian J. McMahon, and to Thornburg LTMF, 119 East Marcy Street, Santa Fe, New Mexico 87501, Attention: George T. Strickland. 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. THORNBURG INVESTMENT TRUST on behalf of THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND By: ------------------------------------- ------------------, ---------------- THORNBURG LIMITED TERM MUNICIPAL FUND, INC., on behalf of THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO By: ------------------------------------- ------------------, ---------------- EXHIBIT A to Agreement and Plan of Reorganization Dated December ___, 2003 Thornburg Investment Trust (on behalf of Thornburg California Limited Term Municipal Fund) and Thornburg Limited Term Municipal Fund, Inc. (on behalf of Thornburg Limited Term Municipal Fund California Portfolio) Subparagraph 4(a)(x): None. STATEMENT OF ADDITIONAL INFORMATION (For Holders of Class A and Class C Shares) Relating to the Acquisition of the Assets of THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO a series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 by and in exchange solely for shares of THORNBURG LIMITED TERM MUNICIPAL FUND, INC a series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Statement of Additional Information, relating specifically to the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., by Thornburg Limited Term Municipal Fund (the "New Fund"), a series of Thornburg Investment Trust, in exchange solely for voting shares of the New 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 Funds Statement of Additional Information _____________, 2004, [to be added by amendment]; 2. Thornburg Funds Statement of Additional Information dated February 1, 2004, 2004, [to be added by amendment]; and 3. Thornburg Limited Term Municipal Fund National Portfolio Annual Report, June 30, 2003; and 4. Thornburg Limited Term Municipal Fund National Portfolio Semiannual Report, December 31, 2003 [to be added by amendment]. This Statement of Additional information is not a prospectus. A Prospectus/Proxy Statement dated _________________, 2004 relating to the above referenced acquisition may be obtained from Thornburg Investment Trust at the number and address shown above. This Statement of Additional Information relates to, and should be read with, the Prospectus/Proxy Statement. 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, 2003 have been audited by PricewaterhouseCoopers, LLP, that Fund's independent auditors. The date of this Statement of Additional Information is _________, 2004. Thornburg Limited Term Municipal Fund National Portfolio Annual Report June 30, 2003 Thornburg Limited Term Municipal Fund - National Portfolio ALL DATA AS OF 06/30/03. Fund facts: Thornburg Limited Term Municipal Fund - National Portfolio A Shares C Shares Annualized Distribution Rate (at NAV) 2.99% 2.70% SEC Yield 1.63% 1.36% NAV $14.01 $14.04 Maximum Offering Price $14.22 $14.04 Total returns: (Annual Average - After Subtracting Maximum Sales Charge) One Year 4.38% 5.78% Three Years 5.80% 5.99% Five Years 4.58% 4.51% Ten Years 4.60% N/A Fifteen Years 5.66% N/A Since Inception 6.36% 4.59% Inception Date 9/28/84 9/1/94 The investment return and principal value of an investment in the Fund will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. Maximum sales charge of the Fund's Class A Shares is 1.50%. The data quoted represent past performance and may not be construed as a guarantee of future results. The SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund's shares at the end of the period. The distribution rate is calculated by taking the sum of the month's total distribution factors and dividing this sum by a 30-day period and annualizing to 360-day year. The value is then divided by the ending NAV to arrive at the annualized distribution yield. The yield is calculated on a periodic basis and is subject to change depending on the Fund's NAV and current distributions. Letter to shareholders Thornburg Limited Term Municipal Fund, Inc. - National Portfolio July 14, 2003 Dear Fellow Shareholder: I am pleased to present the annual report for the National Portfolio of Thornburg Limited Term Municipal Fund. The net asset value of the Class A shares increased by 36 cents to $14.01 during the year ending June 30, 2003. If you were with us for the entire period, you received dividends of 44.6 cents per share. If you reinvested dividends, you received 45.3 cents per share. Investors who owned Class C shares received dividends of 41.1 and 41.6 cents per share, respectively. Over the last year, interest rates on high-quality municipal bonds have fallen substantially. Falling interest rates drive up the price of most of the bonds owned by the Fund and this has resulted in an increasing share price. Your Fund is a laddered portfolio of over 640 municipal obligations from 49 states. Approximately 93% of the bonds are rated A or better by one of the major rating agencies. Today, your Fund's weighted average maturity is 4.3 years; we always keep it below 5 years. As you know, we ladder the maturity dates of the bonds in your portfolio so that some of the bonds are scheduled to mature during each of the coming years. The chart below portrays the percentages of your Fund's bond portfolio maturing in each of the coming years: % of portfolio Cumulative % maturing within maturing by end of 1 years = 13% year 1 = 13% 1 to 2 years = 10% year 2 = 23% 2 to 3 years = 14% year 3 = 37% 3 to 4 years = 9% year 4 = 46% 4 to 5 years = 11% year 5 = 57% 5 to 6 years = 10% year 6 = 67% 6 to 7 years = 9% year 7 = 76% 7 to 8 years = 11% year 8 = 87% 8 to 9 years = 7% year 9 = 94% 9 to 10 years = 6% year 10 = 100% Percentages can and do vary. Data as of 6/30/03. Three powerful trends seem to be driving recent performance of the municipal market. The first is persistent economic weakness. The U.S. unemployment rate, at 6.4%, just hit a nine-year high. GDP growth is sputtering along at about 2%. Our European and Japanese trading partners are, by and large, worse off than are we, and the Federal Reserve Board seems to be at least as worried about deflation as it is about inflation. We continue to believe that low interest rates, tax cuts, and rising corporate profits will eventually lead to steady economic and employment growth, and probably give rise to somewhat higher interest rates. However, that process is taking longer than we formerly thought and may not materialize until next year. The second trend is financial stress in many of our cities and states. A combination of flat (or in some cases down) tax revenues and rising expenses for items such as Medicaid and pension systems has led to large budget deficits for more than half of the 50 states. The states have dealt with the problem in a variety of ways. According to the Fiscal Survey of the States published by the National Association of State Budget Officers, 28 states have made across-the-board spending cuts, 22 states have used reserve funds, and 17 have laid off employees. Governors in 29 states recommended tax and fee increases totaling $17.5 billion. The challenges have led to a number of high-profile downgrades by the major bond rating agencies, particularly in California where the deficit has yet to be dealt with. Yet in the midst of all these problems, many municipal credits are doing just fine. Standard & Poor's recently reported that upgrades outpaced downgrades in the second quarter of 2003 by a ratio of 1.6:1. This is because the municipal bond market is made up of much more than bond issues of the 50 states. Many of our cities, counties, school districts, water and sewer authorities, transportation authorities, and health care providers have benefited from stable revenues based upon property taxes, sales taxes, and fees for essential services. The municipal bond market, historically has a much lower default rate than the corporate bond market, and we continue to enjoy some success finding good bonds at relatively reasonable prices. The third trend exerting pressure on the municipal market is the heavy supply of bonds. $198 billion of municipal bonds were issued in the first half of 2003, a 19% increase over the record pace of 2002. The first half total already exceeds full-year volume for 1994, 1995, and 1996. The heavy supply has often saturated traditional sources of demand and pushed high- quality tax-free municipal bond yields to levels approaching taxable Treasury bond yields. The relative attractiveness of the municipal bond market should allow full coupon municipals to outperform the Treasury bond market if the heavy supply abates and the yield ratios revert to historical norms. So called "market discount" municipal bonds may lag if interest rates continue to rise. The Wall Street Journal ran a front-page story on July 7, 2003, about retirees who are forced to pinch pennies as money market and CD rates plunge. We believe that laddering short and intermediate bonds -- as we have done for your account -- is the best way to address this problem. Laddering bonds simultaneously moderates the income-flow risk of plunging short-term yields and the principal risk that affects all bonds when interest rates rise. To see how your Fund has performed over time relative to the money market fund averages, turn to the back of this report. Over the years, our practice of laddering a diversified portfolio of short- and intermediate-maturity municipal bonds has allowed your Fund to perform consistently well in varying interest rate environments. Thank you for investing in the National Portfolio of the Thornburg Limited Term Municipal Fund. Sincerely, George Strickland Portfolio Manager Past performance cannot guarantee future results. Statement of assets and liabilities Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 ASSETS Investments at value (cost $1,249,257,949) ................ $ 1,316,577,099 Cash ...................................................... 86,898 Receivable for investments sold ........................... 10,634,303 Receivable for fund shares sold ........................... 6,222,041 Interest receivable ....................................... 15,938,113 Prepaid expenses and other assets ......................... 40,035 Total Assets ............................ 1,349,498,489 LIABILITIES Payable for investments purchased ......................... 8,873,424 Payable for fund shares redeemed .......................... 4,770,682 Accounts payable and accrued expenses ..................... 417,977 Payable to investment advisor (Note 3) .................... 575,346 Dividends payable ......................................... 1,056,444 Total Liabilities ....................... 15,693,873 NET ASSETS ................................................ $ 1,333,804,616 NET ASSETS CONSIST OF: Net unrealized appreciation (depreciation) on investments $ 67,319,150 Accumulated net realized gain (loss) .................. (7,189,234) Net capital paid in on shares of beneficial interest .. 1,273,674,700 $ 1,333,804,616 NET ASSET VALUE: Class A Shares: Net asset value and redemption price per share ($998,877,676 applicable to 71,283,604 shares of beneficial interest outstanding - Note 4) ............................. $ 14.01 Maximum sales charge, 1.50% of offering price ................ 0.21 Maximum Offering Price Per Share ............................. $ 14.22 Class C Shares: Net asset value and offering price per share* ($137,559,448 applicable to 9,798,791 shares of beneficial interest outstanding - Note 4) ............................. $ 14.04 Class I Shares: Net asset value, offering and redemption price per share ($197,367,492 applicable to 14,082,631 shares of beneficial interest outstanding - Note 4) ............................. $ 14.01 * 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, 2003 INVESTMENT INCOME: Interest income (net of premium amortized of $8,977,858) ..... $ 47,291,162 EXPENSES: Investment advisory fees (Note 3) ............................ 4,938,499 Administration fees (Note 3) Class A Shares ...................................... 1,123,154 Class C Shares ...................................... 114,096 Class I Shares ...................................... 78,492 Distribution and service fees (Note 3) Class A Shares ...................................... 2,246,309 Class C Shares ...................................... 912,771 Transfer agent fees Class A Shares ...................................... 424,411 Class C Shares ...................................... 56,092 Class I Shares ...................................... 32,637 Registration and filing fees Class A Shares ...................................... 32,193 Class C Shares ...................................... 21,653 Class I Shares ...................................... 12,683 Custodian fees (Note 3) ...................................... 421,940 Professional fees ............................................ 78,761 Accounting fees .............................................. 67,695 Director fees ................................................ 48,080 Other expenses ............................................... 175,747 Total Expenses ............................. 10,785,213 Less: Distribution and service fees waived (Note 3) ....... (456,385) Fees paid indirectly (Note 3) ....................... (9,253) Net Expenses ............................... 10,319,575 Net Investment Income ...................... 36,971,587 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments sold ................. 877,102 Increase (Decrease) in unrealized appreciation of investments 28,100,206 Net Realized and Unrealized Gain (Loss) on Investments ................. 28,977,308 Net Increase (Decrease) in Net Assets Resulting From Operations ............................ $ 65,948,895 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, 2003 June 30, 2002 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ....................................... $ 36,971,587 $ 32,763,519 Net realized gain (loss) on investments sold ................ 877,102 (90,520) Increase (Decrease) in unrealized appreciation of investments 28,100,206 13,508,557 Net Increase (Decrease) in Net Assets Resulting from Operations ................. 65,948,895 46,181,556 DIVIDENDS TO SHAREHOLDERS: >From net investment income Class A Shares ..................................... (28,771,058) (27,197,050) Class C Shares ..................................... (2,645,994) (1,278,738) Class I Shares ..................................... (5,554,535) (4,287,731) FUND SHARE TRANSACTIONS (NOTE 4): Class A Shares ..................................... 190,903,532 119,814,146 Class C Shares ..................................... 78,064,848 31,840,288 Class I Shares ..................................... 69,803,156 35,893,452 Net Increase (Decrease) in Net Assets ..... 367,748,844 200,965,923 NET ASSETS: Beginning of year .................................. 966,055,772 765,089,849 End of year ........................................ $ 1,333,804,616 $ 966,055,772
See notes to financial statements. Notes to financial statements Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 NOTE 1 - ORGANIZATION Thornburg Limited Term Municipal Fund, Inc. (the "Company") was incorporated in Maryland on February 14, 1984. The Company was reorganized in 1986 as a series investment company with separate investment portfolios. The current portfolios are as follows: National Portfolio (the "Fund") and California Portfolio. The Company 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, Class A, Class C and Institutional Class (Class I) shares. Each class of shares of the Fund represents an interest in the same portfolio of investments, 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, (iii) Class I shares are sold at net asset value without a sales charge at the time of purchase, and (iv) the respective classes have different reinvestment privileges. Additionally, the Fund may allocate among its classes certain expenses, to the extent applicable 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 Fund are limited to service and distribution fees, administrative fees, and certain registration and transfer agent expenses. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the Company are as follows: Valuation of Investments: In determining the net asset value of the Fund, the Company 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, normally at 4:00 p.m. EST 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 Fund are reviewed by the officers of the Company 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 Company 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. When-Issued and Delayed Delivery Transactions: The Company may engage in when-issued or delayed delivery transactions. To the extent the Company engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with the investment objectives of the Fund and not for the purpose of investment leverage or to speculate on interest rate changes. At the time the Company makes a commitment to purchase a security for the Fund, on a when-issued basis, the Fund will record the transaction and reflect the value in determining its net asset value. When effecting such transactions, assets of the Fund of an amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date. Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Company has received payment. Dividends are paid monthly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder's option, paid by check. Net capital gains, to the extent available, will be distributed at least annually. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and 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. Net investment income, other than class specific expenses, and realized and unrealized gains and losses, are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of the dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to all funds are allocated among the funds based upon their relative net asset values or other appropriate allocation methods. 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. Guarantees and Indemnifications: Under the Company's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Company enters into contracts with service providers that contain general indemnification clauses. The Company's maximum exposure under these arrangements is unknown. However, based on experience, the Company expects the risk of loss to be remote. NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement, Thornburg Investment Management, Inc. (the "Advisor") serves as the investment advisor and performs services for which the fees are payable at the end of each month. For the year ended June 30, 2003, these fees were payable at annual rates ranging from .50 of 1% to .225 of 1% of the average daily net assets of the Fund. The Company also has an Administrative Services Agreement with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund's shares, and for which fees will be payable at an annual rate of up to .125 of 1% of the average daily net assets attributable to each class of shares. The Company has an underwriting agreement with Thornburg Securities Corporation (the "Distributor"), which acts as the Distributor of Fund shares. For the year ended June 30, 2003, the Distributor has advised the Fund that it earned commissions aggregating $13,412 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $50,181 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 Company may reimburse to the Advisor 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 Advisor to securities dealers and other financial institutions to obtain various shareholder related services. The Advisor may pay out of its own resources additional expenses for distribution of the Fund's shares. The Company has also adopted a Distribution Plan pursuant to Rule 12b-1, applicable only to the Fund's Class C shares under which the Company compensates 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 Fund under their respective Service and Distribution plans and Class C distribution fees waived by the Distributor for the year ended June 30, 2003, are set forth in the statement of operations. The Company has an agreement with the custodian bank to indirectly pay a portion of the custodian's fees through credits earned by the Fund's cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the statement of operations. For the year ended June 30, 2003 fees paid indirectly were $9,253. Certain officers and directors of the Company are also officers and/or directors of the Advisor and Distributor. The compensation of unaffiliated directors is borne by the Company. NOTE 4 - SHARES OF BENEFICIAL INTEREST At June 30, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended June 30, 2003 June 30, 2002 Shares Amount Shares Amount Class A Shares Shares sold .................... 24,734,784 $ 343,160,230 14,793,127 $ 200,278,818 Shares issued to shareholders in reinvestment of dividends ... 1,359,442 18,874,006 1,279,137 17,324,540 Shares repurchased ............. (12,329,726) (171,130,704) (7,235,058) (97,789,212) Net Increase (Decrease) ........ 13,764,500 $ 190,903,532 8,837,206 $ 119,814,146 Class C Shares Shares sold .................... 7,145,702 $ 99,350,605 2,673,390 $ 36,269,094 Shares issued to shareholders in reinvestment of dividends ... 135,892 1,892,308 67,839 920,499 Shares repurchased ............. (1,670,144) (23,178,065) (394,190) (5,349,305) Net Increase (Decrease) ........ 5,611,450 $ 78,064,848 2,347,039 $ 31,840,288 Class I Shares Shares sold .................... 7,667,976 $ 106,488,989 4,212,256 $ 57,113,329 Shares issued to shareholders in reinvestment of dividends ... 309,747 4,303,264 250,826 3,398,094 Shares repurchased ............. (2,952,400) (40,989,097) (1,816,802) (24,617,971) Net Increase (Decrease) ........ 5,025,323 $ 69,803,156 2,646,280 $ 35,893,452
NOTE 5 - SECURITIES TRANSACTIONS For the year ended June 30, 2003, the Fund had purchase and sale transactions (excluding short-term securities) of $464,940,831 and $169,087,060, respectively. NOTE 6 - INCOME TAXES At June 30, 2003, information on the tax components of capital is as follows: Cost of investments for tax purposes $ 1,249,264,407 Gross tax unrealized appreciation $ 67,526,116 Gross tax unrealized depreciation (213,424) Net tax unrealized appreciation (depreciation) on investments $ 67,312,692 Undistributed tax-exempt income $ 1,056,444 At June 30, 2003, the Fund had tax basis capital losses, which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2004 $ 2,669,769 2008 1,088,098 2009 3,565,103 $ 7,322,970 The Fund utilized $738,463 of capital loss carry forwards during the year ended June 30, 2003. Unutilized tax basis capital losses may be carried forward to offset realized gains in future years. To the extent such carry forwards are used, capital gain distributions may be reduced to the extent provided by regulations. Dividends paid by the Fund for the years ended June 30, 2003 and June 30, 2002, represent exempt interest dividends, which are excludable by shareholders from gross income for Federal income tax purposes.
Financial highlights Thornburg Limited Term Municipal Fund, Inc. - National Portfolio Year Ended June 30, 2003 2002 2001 2000 1999 Class A Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 13.65 $ 13.44 $ 13.06 $ 13.26 $ 13.50 Income from investment operations: Net investment income ....................... 0.45 0.52 0.58 0.59 0.59 Net realized and unrealized gain (loss) on investments ......... 0.36 0.21 0.38 (0.20) (0.24) Total from investment operations ..................... 0.81 0.73 0.96 0.39 0.35 Less dividends from: Net investment income ....................... (0.45) (0.52) (0.58) (0.59) (0.59) Change in net asset value ............................ 0.36 0.21 0.38 (0.20) (0.24) Net asset value, end of year ......................... $ 14.01 $ 13.65 $ 13.44 $ 13.06 $ 13.26 Total return (a) ..................................... 5.99% 5.54% 7.49% 3.00% 2.58% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 3.20% 3.83% 4.36% 4.48% 4.35% Expenses, after expense reductions .......... 0.93% 0.95% 0.99% 0.96% 0.96% Expenses, after expense reductions and net of custody credits ......... 0.93% 0.95% -- -- -- Expenses, before expense reductions ......... 0.93% 0.96% 0.99% 0.96% 0.96% Portfolio turnover rate .............................. 15.81% 19.59% 25.37% 33.65% 22.16% Net assets at end of year (000) ..................... $ 998,878 $ 785,145 $ 654,157 $ 672,775 $ 807,232 (a) Sales loads are not reflected in computing total return.
Year Ended June 30, 2003 2002 2001 2000 1999 Class C Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 13.67 $ 13.46 $ 13.08 $ 13.28 $ 13.53 Income from investment operations: Net investment income ....................... 0.41 0.47 0.53 0.53 0.53 Net realized and unrealized gain (loss) on investments ......... 0.37 0.21 0.38 (0.20) (0.25) Total from investment operations ..................... 0.78 0.68 0.91 0.33 0.28 Less dividends from: Net investment income ............................ (0.41) (0.47) (0.53) (0.53) (0.53) Change in net asset value ............................ 0.37 0.21 0.38 (0.20) (0.25) Net asset value, end of year ......................... $ 14.04 $ 13.67 $ 13.46 $ 13.08 $ 13.28 Total return ......................................... 5.78% 5.13% 7.07% 2.57% 2.08% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 2.89% 3.42% 3.96% 4.06% 3.93% Expenses, after expense reductions .......... 1.18% 1.33% 1.38% 1.38% 1.38% Expenses, after expense reductions and net of custody credits ......... 1.18% 1.33% -- -- -- Expenses, before expense reductions ......... 1.68% 1.80% 1.85% 1.82% 1.78% Portfolio turnover rate .............................. 15.81% 19.59% 25.37% 33.65% 22.16% Net assets at end of year (000) ..................... $ 137,559 $ 57,258 $ 24,773 $ 21,322 $ 28,048
Year Ended June 30, 2003 2002 2001 2000 1999 Class I Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 13.65 $ 13.44 $ 13.06 $ 13.26 $ 13.51 Income from investment operations: Net investment income ....................... 0.49 0.57 0.63 0.63 0.64 Net realized and unrealized gain (loss) on investments ......... 0.36 0.21 0.38 (0.20) (0.25) Total from investment operations ..................... 0.85 0.78 1.01 0.43 0.39 Less dividends from: Net investment income ............................ (0.49) (0.57) (0.63) (0.63) (0.64) Change in net asset value ............................ 0.36 0.21 0.38 (0.20) (0.25) Net asset value, end of year ......................... $ 14.01 $ 13.65 $ 13.44 $ 13.06 $ 13.26 Total return ......................................... 6.36% 5.91% 7.91% 3.37% 2.87% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 3.54% 4.18% 4.75% 4.84% 4.71% Expenses, after expense reductions .......... 0.58% 0.60% 0.60% 0.60% 0.60% Expenses, after expense reductions and net of custody credits ......... 0.58% 0.60% -- -- -- Expenses, before expense reductions ......... 0.58% 0.62% 0.65% 0.62% 0.61% Portfolio turnover rate .............................. 15.81% 19.59% 25.37% 33.65% 22.16% Net assets at end of year (000) ..................... $ 197,367 $ 123,652 $ 86,160 $ 76,470 $ 81,326
Schedule of Investments Thornburg Limited Term Municipal Fund, Inc. - National Portfolio CUSIPS: CLASS A - 532-723-103, CLASS C - 532-723-509, CLASS I - 532-723-806 NASDAQ SYMBOLS: CLASS A - LTMFX, CLASS C - LTMCX, CLASS I - LTMIX Alabama (1.00%) 980,000 Birmingham General Obligation, 7.25% due 7/1/2004 (ETM)* NR/NR $1,041,368 2,935,000 Huntsville Health Care Series A, 4.65% due 6/1/2024 put 6/1/2005 (Insured: MBIA) Aaa/AAA 3,080,693 1,000,000 Morgan County Decatur Health Care Authority Hospital Revenue, 6.10% due 3/1/2007 NR/AAA 1,044,900 (Insured: Connie Lee) 1,920,000 Scottsboro Industrial Development Board Refunding, 5.25% due 5/1/2009 (LOC: PNC NR/NR 1,980,288 Bank) 500,000 Shelby County Series A, 7.20% due 8/1/2005 (Insured: MBIA) (ETM)* Aaa/AAA 502,505 5,000,000 Wilsonville Industrial Development Board Pollution Control Revenue Refunding, Aaa/AAA 5,335,300 4.20% due 6/1/2019 put 6/1/2006 (Southern Electric Gaston Project; Insured: AMBAC) Alaska (0.10%) 2,070,000 North Slope Borough Alaska, 0% due 6/30/2006 (Insured: MBIA) Aaa/AAA 1,961,077 Arizona (0.90%) 1,000,000 Arizona State Transportation Board Grant Anticipation Notes, 4.80% due 1/1/2004 Aa3/AA- 1,003,180 2,250,000 Arizona State Transportation Board Highway Revenue Subordinated Series A Aa2/AA 2,372,670 Refunding, 4.875% due 7/1/2007 235,000 Glendale Water & Sewer Revenue, 9.00% due 7/1/2003 (ETM)* Aaa/AAA 235,052 650,000 Maricopa County Arizona School District 97, 5.50% due 7/1/2008 (Insured: FGIC) Aaa/NR 748,098 3,200,000 Maricopa County Industrial Development Authority Multi Family Housing Revenue NR/AAA 3,629,536 Series A, 6.50% due 10/1/2025 pre-refunded 10/1/2005 @ 102 1,000,000 Maricopa County School District 008, 7.50% due 7/1/2008 (Insured: MBIA) Aaa/AAA 1,242,540 500,000 Maricopa County Unified School District 40 General Obligation, 5.60% due A3/A- 500,060 7/1/2003 1,000,000 Pima County Industrial Development Authority Education Revenue Series C, 6.40% Baa3/NR 1,021,940 due 7/1/2013 (Arizona Charter Schools Project) 760,000 Pima County Industrial Development Authority Industrial Revenue Refunding Lease Aaa/AAA 804,726 Obligation A, 7.25% due 7/15/2010 (Insured: FSA) 500,000 Tucson Water Revenue Series D, 9.75% due 7/1/2008 Aa3/A+ 672,550 Arkansas (0.80%) 2,000,000 Conway Electric Revenue Refunding, 5.00% due 8/1/2007 A2/NR 2,203,080 1,000,000 Fayetteville Arkansas Sales & Use Tax Capital Improvement, 4.00% due 6/1/2005 NR/AA- 1,045,570 1,000,000 Jefferson County Hospital Revenue Refunding & Improvement, 5.50% due 6/1/2010 NR/A 1,117,120 (Regional Medical Center Project) 1,075,000 Jefferson County Hospital Revenue Refunding & Improvement, 5.50% due 6/1/2011 NR/A 1,193,895 (Regional Medical Center Project) 2,645,000 Little Rock Hotel & Restaurant Gross Receipts Tax Refunding, 7.125% due 8/1/2009 A3/NR 3,179,634 1,735,000 Rogers Sales & Use Tax Revenue, 6.00% due 11/1/2007 A1/AA 1,788,768 California (3.70%) 1,350,000 Bay Area Government Association Rapid Transit, 5.00% due 6/15/2008 (Insured: Aaa/AAA 1,354,144 AMBAC) 2,600,000 California State Department Water Resources Power Supply Series A, 5.50% due A3/BBB+ 2,943,564 5/1/2012 2,550,000 California State Department Water Resources Power Supply Series A, 6.00% due A3/BBB+ 2,970,597 5/1/2013 4,120,000 Irvine Improvement Bond Act 1915 Adjusted Assessment District, 1.20% due VMIG1/A-1 4,120,000 9/2/2024 put 7/1/2003 (daily demand notes) 400,000 Irvine Improvement Bond Act 1915 Assessment District Number 00-18 Series A, VMIG1/NR 400,000 1.20% due 9/2/2026 put 7/1/2003 (LOC: Bank of New York) (daily demand notes) 2,000,000 Irvine Improvement Bond Act 1915 Limited Obligation Assessment District, 1.20% VMIG1/A1+ 2,000,000 due 9/2/2025 put 7/1/2003 (daily demand notes) 900,000 Irvine Ranch California Water District, 0.85% due 4/1/2033 put 7/1/2003 (daily VMIG1/A1+ 900,000 demand notes) 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aaa/AA- 41,338 9.00% due 9/1/2004 pre-refunded 9/1/2003 420,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 433,856 9.00% due 9/1/2004 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 41,334 9.00% due 9/1/2004 (ETM)* 7,050,000 Metropolitan Water District Southern California Waterworks Revenue, 0.90% due VMIG1/A1+ 7,050,000 7/1/2035 put 7/1/2003 (daily demand notes) 1,275,000 Metropolitan Water District Southern California Waterworks Revenue Series C-1, VMIG1/A1+ 1,275,000 1.00% due 7/1/2036 put 7/1/2003 (daily demand notes) 7,600,000 Orange County Refunding Recovery, 6.50% due 6/1/2004 (Insured: MBIA) Aaa/AAA 7,981,064 5,200,000 Orange County Refunding Recovery, 6.50% due 6/1/2005 (Insured: MBIA) Aaa/AAA 5,709,860 1,440,000 Orange County Special Financing Authority Teeler Pan Revenue, 1.10% due Aaa/A-1 1,440,000 11/1/2014 put 7/8/2003 (weekly demand notes) 300,000 Orange County Special Financing Authority Teeter Plan Revenue Series D, 1.20% Aaa/A-1 300,000 due 11/1/2014 put 7/8/2003 (Insured: AMBAC) (weekly demand notes) 1,000,000 San Francisco Port Community Revenue, 9.00% due 7/1/2003 A1/A- 1,000,210 3,000,000 San Jose Financing Authority Lease Revenue Series D, 5.00% due 6/1/2039 Aaa/AAA 3,291,570 mandatory put 6/1/2006 (Civic Center Project; Insured: AMBAC) 4,180,000 Santa Margarita & Dana Point Authority Revenue Improvement District Series A, Aaa/AAA 4,210,180 9.50% due 8/1/2003 (Insured: MBIA) 800,000 Stockton Multi Family Housing Revenue Series A, 1.25% due 9/1/2018 put 7/1/2003 NR/A1+ 800,000 (Mariners Pointe Associates Project; LOC: Credit Suisse) (daily demand notes) Colorado (2.60%) 1,500,000 Adams County Communication Center Series A, 4.75% due 12/1/2006 Baa1/NR 1,597,890 1,000,000 Adams County School District Number 012 Series A, 4.375% due 12/15/2007 Aa3/AA- 1,100,990 6,000,000 Central Platte Valley Metropolitan District Co. Refunding Series A, 5.00% due NR/A-1 6,531,960 12/1/2031 put 12/1/2009 (LOC: US Bank) 1,950,000 Colorado Department Transport Revenue Anticipation Notes, 6.00% due 6/15/2008 Aaa/AAA 2,284,464 (Insured: AMBAC) 1,000,000 Colorado Educational & Cultural Facilities, 4.90% due 4/1/2008 (Nashville Public NR/BBB+ 1,074,810 Radio Project) 5,705,000 Colorado Health Facilities Authority Revenue Catholic Health Initiatives, 5.00% Aa2/A1+ 6,279,779 due 9/1/2007 515,000 Colorado Health Facilities Authority Revenue Catholic Health Initiatives A, Aa2/A1+ 572,515 5.375% due 12/1/2009 475,000 Colorado Housing Finance Authority, 5.25% due 10/1/2007 A1/AA+ 478,634 500,000 Denver City & County Certificates Participation Series A, 5.50% due 5/1/2006 Aaa/AAA 554,625 (Insured: MBIA) 2,650,000 Denver City & County Certificates Participation Series B, 5.00% due 12/1/2010 Aa2/AA 2,941,129 500,000 Denver Colorado Health & Hospital Authority Healthcare Revenue Series A, 1.30% VMIG1/A-1 500,000 due 12/1/2032 put 7/1/2003 (LOC: Bank One) (daily demand notes) 1,820,000 Dove Valley Metropolitan District Colorado Arapahoe County, Series B, 3.30% due NR/A1+ 1,876,493 11/1/2025 Put 11/1/2005 @100 (LOC: BNP Paribas) 500,000 El Paso County School District General Obligation 20 Series B, 8.25% due Aa3/NR 550,990 12/15/2004 (State Aid Withholding) 2,175,000 Highlands Ranch Metro District 2 General Obligation, 6.00% due 6/15/2004 Aaa/AAA 2,278,269 (Insured: FSA) 1,000,000 Lakewood Colorado Certificates Participation, 4.40% due 12/1/2008 (Insured: Aaa/AAA 1,102,120 MBIA) 1,000,000 Section 14 Metropolitan District Jefferson Refunding Series A, 6.20% due NR/A+ 1,069,020 12/1/2013 (LOC: US Bank Trust) 1,150,000 Superior Metropolitan District 1 Variable Refunding & Improvement Series A, NR/AA- 1,199,208 5.45% due 12/1/2020 put 12/1/2004 (LOC: BNP) 2,725,000 Westminister Multi Family Housing Revenue Series 1995, 5.95% due 9/1/2015 put NR/AA 2,767,401 9/1/2006 (Semper Village Apartments Project; Insured: AXA) Connecticut (0.80%) 1,685,000 Bridgeport General Obligation, 6.00% due 3/1/2005 (Insured: AMBAC) Aaa/AAA 1,813,498 1,325,000 Bridgeport General Obligation, 6.00% due 3/1/2006 (Insured: AMBAC) Aaa/AAA 1,474,884 1,045,000 Capitol Region Education Council, 6.375% due 10/15/2005 NR/BBB 1,134,275 1,100,000 Connecticut State Health & Educational Yale University Series V-1, 1.00% due VMIG1/A1+ 1,100,000 7/1/2036 put 7/1/2003 (daily demand notes) 2,425,000 Connecticut State Health And Educational Facilities Authority Revenue Yale VMIG1/A1+ 2,425,000 University Series V-2, 1.00% due 7/1/2036 put 7/1/2003 (daily demand notes) 2,010,000 New Haven Connecticut, 3.00% due 11/1/2004 (Insured: FGIC) Aaa/AAA 2,062,481 500,000 New Haven General Obligation, 9.50% due 11/15/2003 A3/A- 514,825 Delaware (0.40%) 2,000,000 Delaware State Health Facilities Authority Revenue, 6.25% due 10/1/2006 Aaa/AAA 2,156,800 (Insured: MBIA) (ETM)* 1,370,000 Delaware State Health Facilities Authority Revenue Nanticoke Series A, 5.25% due NR/AA 1,507,795 5/1/2012 (Memorial Hospital Project; Insured: Radian) 1,445,000 Delaware State Health Facilities Authority Revenue Nanticoke Series A, 5.25% due NR/AA 1,574,096 5/1/2013 (Memorial Hospital Project; Insured: Radian) District of Columbia (3.00%) 2,825,000 District of Columbia Refunding Series B-1, 5.20% due 6/1/2004 (Insured: AMBAC) Aaa/AAA 2,932,858 745,000 District of Columbia, 5.50% due 6/1/2004 (Insured: FSA) Aaa/AAA 775,478 605,000 District of Columbia, 5.50% due 6/1/2008 (Insured: AMBAC) Aaa/AAA 692,217 5,950,000 District of Columbia Certificates Participation, 5.25% due 1/1/2013 (Insured: Aaa/AAA 6,693,393 AMBAC) 4,430,000 District of Columbia Hospital Revenue, 5.70% due 8/15/2008 (Medlantic Healthcare Aaa/AAA 5,048,074 Project; Insured: MBIA) (ETM)* 1,500,000 District of Columbia Hospital Revenue Refunding, 5.10% due 8/15/2008 (Medlantic Aaa/AAA 1,688,010 Healthcare Group A Project; Insured: MBIA) (ETM)* 1,250,000 District of Columbia Refunding Series C, 5.00% due 6/1/2007 (Insured: XLCA) Aaa/AAA 1,380,575 1,330,000 District of Columbia Revenue, 6.00% due 8/15/2005 (Medlantic Healthcare Project; Aaa/AAA 1,459,688 Insured: MBIA) (ETM)* 500,000 District of Columbia Revenue, 5.50% due 10/1/2005 Aaa/AAA 545,060 500,000 District of Columbia Revenue, 6.00% due 1/1/2007 (American Assoc. Advancement Aaa/AAA 565,160 Science Project; Insured: AMBAC) 2,000,000 District of Columbia Tax Capital Appreciation, 0% due 7/1/2009 (Mandarin Aaa/AAA 1,637,440 Oriental Project; Insured: FSA) 1,480,000 District of Columbia Tax Capital Appreciation, 0% due 7/1/2012 (Mandarin Aaa/AAA 1,032,478 Oriental Project; Insured: FSA) 1,990,000 District of Columbia Tax Revenue Capital Appreciation, 0% due 7/1/2011 (Mandarin Aaa/AAA 1,462,013 Oriental Project; Insured: FSA) 5,000,000 District of Columbia Unrefunded Balance Series B, 5.75% due 6/1/2009 (Insured: Aaa/AAA 5,842,400 MBIA) 6,010,000 Washington DC Convention Center Senior Lien, 5.00% due 10/1/2007 Aaa/AAA 6,717,978 750,000 Washington District of Columbia Convention Center Authority Dedicated Tax Aaa/AAA 828,232 Revenue, 5.00% due 10/1/2006 (Insured: AMBAC) Florida (5.40%) 5,500,000 Broward County Resource Recovery Revenue Refunding, 5.375% due 12/1/2009 A3/AA- 6,099,610 4,150,000 Capital Projects Finance Authority, 1.00% due 6/1/2012 put 7/1/2003 (LOC: Bank VMIG1/NR 4,150,000 of Scotland) (daily demand notes) 1,000,000 Capital Projects Finance Authority Student Housing, 5.50% due 10/1/2012 (Capital Aaa/AAA 1,134,020 Projects Student Housing; Insured: MBIA) 2,996,000 Crossings at Fleming Island Community Development Refunding Series B, 5.45% due Aaa/AAA 3,463,316 5/1/2010 (Insured: MBIA) 6,000,000 Dade County Solid Waste Systems Special Obligation Revenue Refunding, 6.00% due Aaa/AAA 6,968,280 10/1/2007 (Insured: AMBAC) 5,000,000 Dade County Water & Sewer Systems Revenue, 1.30% due 10/5/2022 put 7/8/2003 VMIG1/A1+ 5,000,000 (Insured: FGIC) (weekly demand notes) 200,000 East County Water Control District Lee County Drain, 5.50% due 11/1/2003 NR/AA 202,852 (Insured: Radian) 800,000 Florida Housing Finance Agency Multi Family Housing Kings D, 1.30% due 8/1/2006 NR/A1+ 800,000 put 7/8/2003 (LOC: Credit Suisse First Boston) (weekly demand notes) 1,375,000 Florida State, 8.25% due 7/1/2003 (Pollution Control Project) Aa2/AA+ 1,375,275 2,450,000 Hillsborough County Industrial Development Authority Pollution Control Revenue Baa1/BBB- 2,474,892 Refunding, 4.00% due 5/15/2018 put 8/1/2007 (Tampa Electric Co. Project) 40,000 Hillsborough County Utility Revenue Refunding, 9.75% due 12/1/2003 (ETM)* Aaa/AAA 41,464 1,000,000 Jacksonville Electric Authority Revenue Refunding Series 10, 6.50% due 10/1/2003 Aa2/AA 1,013,590 5,000,000 Jacksonville Electric St. John's River Park Systems Revenue Refunding Issue-2 Aa2/AA 5,708,800 17th Series, 5.25% due 10/1/2012 1,910,000 Miami Dade County School Board Certificates Participation Series A, 5.00% due Aaa/AAA 2,096,588 5/1/2006 (Insured: MBIA) 3,390,000 Miami Dade County School Board Certificates Participation Series C, 5.00% due Aaa/AAA 3,796,969 8/1/2007 (Insured: MBIA) 3,850,000 Miami Dade County Special Housing Revenue Refunding, 5.80% due 10/1/2012 A3/NR 3,908,520 1,395,000 Orange County Health Facilities Authority, 5.80% due 11/15/2009 (Hospital A3/A 1,579,572 Adventist Health System Project) 3,120,000 Orange County Health Facilities Authority Revenue Refunding, 6.25% due Aaa/AAA 3,523,104 11/15/2008 (Hospital Adventist Health Systems Project; Insured: AMBAC) 925,000 Orange County Health Facilities Authority Revenue Unrefunded Balance Series A, Aaa/AAA 1,082,824 6.25% due 10/1/2007 (Orlando Regional Hospital Project; Insured: MBIA) 800,000 Orange County School Board Certificates Participation Series B, 1.20% due VMIG1/AAA 800,000 8/1/2027 put 7/1/2003 (Insured: MBIA) (daily demand notes) 8,080,000 Orange County School District Series B, 0.90% due 8/1/2025 put 7/1/2003 Aaa/NR 8,080,000 (Insured: AMBAC) (daily demand notes) 940,000 Palm Beach County Industrial Development Revenue Series 1996, 6.00% due NR/A 1,072,230 12/1/2006 (Lourdes-Noreen McKeen Residence Project; LOC: Allied Irish Bank) (ETM)* 3,940,000 Pelican Marsh Community Development District Refunding Series A, 5.00% due NR/NR 4,178,212 5/1/2011 (Insured: Radian) 2,000,000 University Athletic Association Inc. Florida Athletic Program Revenue Refunding, VMIG1/NR 2,020,400 2.20% due 10/1/2031 put 10/1/2005 (LOC: Suntrust Bank) Georgia (1.40%) 1,700,000 Burke County Development Authority Pollution, 6.35% due 1/1/2004 (Oglethorpe Aaa/AAA 1,744,795 Power Corp. Project; Insured: MBIA) 500,000 Cobb County School District, 4.75% due 2/1/2005 Aa1/AA+ 511,400 1,000,000 Dekalb County, 5.50% due 1/1/2004 Aaa/AA+ 1,022,260 1,000,000 Georgia Municipal Association Inc. Certificates of Participation City Court Aaa/AAA 1,111,270 Atlanta Project, 5.00% due 12/1/2006 (Insured: AMBAC) 1,550,000 Georgia Municipal Electric Power Authority Revenue, 7.00% due 1/1/2008 (Insured: Aaa/AAA 1,856,993 MBIA) 730,000 Georgia Municipal Electric Power Authority Revenue Series Y, 6.30% due 1/1/2006 A2/A+ 807,957 1,000,000 Georgia Municipal Gas Authority, 6.30% due 7/1/2009 (Southern Storage Gas NR/A 1,046,800 Project) 5,000,000 Milledgeville Baldwin County Development Authority Student Housing Revenue, VMIG1/NR 5,187,900 5.00% due 9/1/2032 put 9/1/2004 (Ga. College & State University Foundation Project; LOC: First Union Natl Bank) 2,000,000 Monroe County Development Authority Pollution Control, 6.75% due 1/1/2010 Aaa/AAA 2,449,360 (Oglethorpe Power Scherer A Refunding; Insured: MBIA) 1,000,000 Monroe County Development Authority Pollution Control Revenue Oglethorpe Power Aaa/AAA 1,259,350 Scherer A, 6.80% due 1/1/2012 (Insured: MBIA) 910,000 Municipal Electric Authority Georgia Unrefunded Balance Subordinated A, 6.00% Aaa/AAA 1,008,562 due 1/1/2006 (Project One; Insured: AMBAC) Hawaii (0.50%) 2,000,000 Hawaii State Department Budget & Finance Special Purpose Hawaiian Electric Co., Aaa/AAA 2,228,880 4.95% due 4/1/2012 (Insured: MBIA) 1,500,000 Hawaii State Department Budget & Finance Special Purpose Mortgage Revenue, 5.70% Baa1/BBB+ 1,500,165 due 7/1/2003 (Kapiolani Health Care System Project) 1,565,000 Hawaii State Series Cn, 6.25% due 3/1/2006 (Insured: FGIC) Aaa/AAA 1,755,695 1,000,000 Honolulu City & County Refunding Series A, 7.35% due 7/1/2006 Aa3/AA- 1,163,530 Illinois (11.50%) 3,345,000 Champaign County Community Unit Series C, 0% due 1/1/2009 (Insured: FGIC) Aaa/AAA 2,847,164 2,000,000 Chicago Board of Education, 6.00% due 12/1/2009 (Insured: FGIC) Aaa/AAA 2,391,120 750,000 Chicago Board of Education School Reform, 6.25% due 12/1/2012 (Insured: MBIA) Aaa/AAA 927,300 2,300,000 Chicago Housing Authority Capital Program Revenue, 5.25% due 7/1/2010 Aa3/AA 2,515,349 2,000,000 Chicago Metropolitan Water Reclamation District, 6.90% due 1/1/2007 Aaa/AA+ 2,330,220 1,340,000 Chicago Midway Airport Revenue Series A, 5.40% due 1/1/2009 (Insured: MBIA) Aaa/AAA 1,501,617 900,000 Chicago Midway Airport Revenue Series C, 5.50% due 1/1/2013 (Insured: MBIA) Aaa/AAA 1,038,159 3,420,000 Chicago O'Hare International Airport Refunding General Airport Series A, 6.375% Aaa/AAA 3,727,766 due 1/1/2012 (Insured: MBIA) 1,000,000 Chicago O'Hare International Airport Revenue, 5.375% due 1/1/2007 (Insured: Aaa/AAA 1,101,280 AMBAC) 1,105,000 Chicago O'Hare International Airport Revenue, 5.00% due 1/1/2012 (Insured: MBIA) Aaa/AAA 1,222,561 1,000,000 Chicago O'Hare International Airport Revenue 2nd Lien Series C-1, 5.00% due Aaa/AAA 1,121,120 1/1/2010 (Insured: MBIA) 3,000,000 Chicago O'Hare International Airport Revenue Passenger Facility Change Series A, Aaa/AAA 3,320,220 6.00% due 1/1/2006 (Insured: AMBAC) 5,000,000 Chicago O'Hare International Airport Revenue Refunding, 4.80% due 1/1/2005 Aaa/AAA 5,186,250 (Insured: AMBAC) 5,000,000 Chicago O'Hare International Airport Revenue Refunding Series A, 4.90% due Aaa/AAA 5,187,900 1/1/2006 (Insured: MBIA) 1,000,000 Chicago O'Hare International Airport Revenue Series C-1, 5.00% due 1/1/2008 Aaa/AAA 1,113,050 (Insured: MBIA) 1,700,000 Chicago Park District, 6.60% due 11/15/2014 partially pre-refunded 5/15/2005 Aa3/AA 1,885,980 1,000,000 Chicago Park District Parking Facility Revenue, 5.25% due 1/1/2004 (ETM)* Baa1/A 1,021,620 1,000,000 Chicago Park District Parking Facility Revenue, 5.75% due 1/1/2010 (ETM)* Baa1/A 1,176,220 750,000 Chicago Public Building Commerce Building Revenue, 5.00% due 3/1/2005 (Insured: Aaa/AAA 795,630 AMBAC) 2,000,000 Chicago Public Building Commerce Building Revenue Series C, 5.50% due 2/1/2006 Aaa/AAA 2,198,400 (Insured: FGIC) 2,000,000 Chicago Refunding Series A, 5.375% due 1/1/2013 (Insured: MBIA) Aaa/AAA 2,282,440 1,000,000 Chicago Refunding Series A-2, 6.125% due 1/1/2012 (Insured: AMBAC) Aaa/AAA 1,208,790 5,000,000 Chicago Tax Increment Allocation Capital Appreciation Central Series A, 0% due Aaa/AAA 4,812,050 12/1/2005 (Insured: AMBAC) 1,000,000 Collinsville Leased Facilities Revenue Refunding, 5.15% due 11/1/2004 (Insured: Aaa/AAA 1,023,240 MBIA) 2,545,000 Cook & Will Counties Township High School District 206 Series C, 0% due Aaa/AAA 2,449,333 12/1/2005 (Insured: FSA) 995,000 Cook County Capital Improvement, 5.50% due 11/15/2008 pre-refunded 11/15/2006 Aaa/AAA 1,134,061 3,350,000 Cook County Community Unified School District 401 Series 1996, 0% due 12/1/2003 Aaa/AAA 3,335,997 (Insured: FSA) 2,650,000 Cook County Series C Refunding, 5.80% due 11/15/2004 (Insured: FGIC) Aaa/AAA 2,820,210 5,000,000 Du Page County Forest Preservation District, 0% due 11/1/2009 Aaa/AAA 4,156,600 1,500,000 Glenview Multi Family Revenue Refunding, 5.20% due 12/1/2027 put 12/1/2007 NR/AAA 1,622,955 (Collateralized: FNMA) 1,015,000 Hoffman Estates Illinois Tax Increment Revenue, 0% due 5/15/2005 A3/NR 946,610 3,075,000 Hoffman Estates Illinois Tax Increment Revenue, 0% due 5/15/2006 (Hoffman A3/NR 2,750,249 Estates Economic Dev. Project; Guarantee: Sears) 5,000,000 Hoffman Estates Illinois Tax Increment Revenue Refunding, 5.25% due 11/15/2009 Aaa/AAA 5,264,350 (Economic Development Project; Insured: AMBAC) 1,500,000 Hoffman Estates Tax Increment Revenue, 0% due 5/15/2004 A3/NR 1,456,650 3,000,000 Illinois Development Finance Authority Pollution Control Revenue Refunding, Aaa/AAA 3,420,360 5.70% due 1/15/2009 (Commonwealth Edison Company Project; Insured: MBIA) 860,000 Illinois Development Finance Authority Revenue, 4.00% due 11/15/2005 (Insured: Aaa/AAA 908,521 XLCA) 915,000 Illinois Development Finance Authority Revenue, 4.00% due 11/15/2006 (Insured: Aaa/AAA 979,526 XLCA) 3,635,000 Illinois Development Finance Authority Revenue, 6.00% due 11/15/2009 (Adventist Aaa/AAA 4,231,940 Health Project; Insured: MBIA) 3,860,000 Illinois Development Finance Authority Revenue, 6.00% due 11/15/2010 (Adventist Aaa/AAA 4,491,843 Health Project; Insured: MBIA) 785,000 Illinois Development Finance Authority Revenue, 5.25% due 2/15/2011 (Insured: NR/AAA 830,452 AMBAC) 400,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 407,928 Providers A, 5.60% due 7/1/2004 1,000,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 1,032,600 Providers A, 5.60% due 7/1/2005 1,000,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 1,038,600 Providers A, 5.60% due 7/1/2006 500,000 Illinois Health Facilities Authority Revenue, 5.20% due 10/1/2003 (Illinois A3/NR 505,305 Masonic Medical Center Project) (ETM)* 2,100,000 Illinois Health Facilities Authority Revenue, 5.50% due 11/15/2003 (Advocate Aa3/AA 2,131,962 Network Health Care Project) 915,000 Illinois Health Facilities Authority Revenue, 5.50% due 11/15/2007 (OSF A2/A 1,010,590 Healthcare System Project) 1,000,000 Illinois Health Facilities Authority Revenue, 5.75% due 11/15/2007 (OSF A2/A 1,030,210 Healthcare System Project) 1,290,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2008 (Iowa Health A1/NR 1,478,172 System Project) 1,375,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2009 (Iowa Health A1/NR 1,589,899 System Project) 1,465,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2010 (Iowa Health A1/NR 1,701,744 System Project) 1,560,000 Illinois Health Facilities Authority Revenue, 6.00% due 2/15/2011 (Iowa Health Aaa/AAA 1,801,753 System Project; Insured: AMBAC) 3,000,000 Illinois Health Facilities Authority Revenue Refunding, 5.50% due 11/15/2011 Aaa/AAA 3,351,360 (Methodist Medical Center Project; Insured: MBIA) 395,000 Illinois Health Facilities Authority Revenue Series 1993-A, 7.875% due 8/15/2005 NR/NR 402,248 (Community Provider Pooled Loan Program Project) 1,885,000 Illinois Health Facilities Authority Revenue Series A, 9.25% due 7/1/2024 Aaa/NR 2,057,195 pre-refunded 7/1/2004 (Edgewater Medical Center Project) 1,040,000 Illinois Hospital District, 5.50% due 1/1/2010 (Insured: FGIC) Aaa/AAA 1,176,822 500,000 Illinois State COPS Central Management Department, 5.00% due 7/1/2007 (Insured: Aaa/AAA 557,425 AMBAC) 1,000,000 Illinois State Partners Series A, 6.00% due 7/1/2006 (Insured: AMBAC) Aaa/AAA 1,125,990 2,000,000 Illinois State Refunding, 5.125% due 12/1/2006 (Insured: FGIC) Aaa/AAA 2,202,580 5,000,000 Illinois State Sales Tax Revenue First Series, 5.00% due 6/15/2006 Aa3/AAA 5,491,400 1,150,000 Kane, Mc Henry, Cook & De Kalb Counties Community Unit School District 300, 0% Aaa/NR 896,345 due 12/1/2010 (Insured: AMBAC) 2,000,000 Lake County Community High School District 117 Series B, 0% due 12/1/2006 Aaa/NR 1,873,240 (Insured: FGIC) 3,235,000 Lake County Community High School District 117 Series B, 0% due 12/1/2011 Aaa/NR 2,397,556 (Insured: FGIC) 1,000,000 McHenry & Kane Counties Community Consolidated School District Number 158, 0% Aaa/AAA 803,130 due 1/1/2010 (Insured: FGIC) 3,900,000 Metropolitan Pier & Exposition Authority, 0% due 6/15/2004 (Insured: AMBAC) Aaa/AAA 3,863,808 1,250,000 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Refunding Aaa/AAA 1,437,075 Series A-2002, 6.00% due 6/15/2007 (McCormick Place Exposition Project; Insured: AMBAC) 3,750,000 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Refunding Aaa/AAA 4,247,587 Series A-2002, 6.00% due 6/15/2007 pre-refunded 6/15/2006 @102 (McCormick Place Exposition Project; Insured: AMBAC) 2,445,000 Naperville City, Du Page & Will Counties Economic Development Revenue, 6.10% due NR/A+ 2,618,888 5/1/2008 (Hospital & Health System Association Project; LOC: American National Bank) 1,100,000 Peoria Public Building Commission School District Facilities Revenue, 0% due Aaa/NR 993,256 12/1/2007 (Insured: FGIC) 6,300,000 University of Illinois Revenues, 0% due 10/1/2006 (Insured: MBIA) Aaa/AAA 5,933,718 5,000,000 Will County Community School 365-U Capital Appreciation, 0% due 11/1/2011 Aaa/AAA 3,716,650 (Insured: FSA) Indiana (4.60%) 1,370,000 Allen County Economic Development Revenue, 5.00% due 12/30/2012 (Indiana NR/NR 1,462,872 Institute of Technology Project) 965,000 Allen County Economic Development Revenue First Mortgage, 5.20% due 12/30/2005 NR/NR 1,034,557 (Indiana Institute of Technology Project) 690,000 Allen County Economic Development Revenue First Mortgage, 5.30% due 12/30/2006 NR/NR 754,846 (Indiana Institute of Technology Project) 1,110,000 Allen County Economic Development Revenue First Mortgage, 5.60% due 12/30/2009 NR/NR 1,226,173 (Indiana Institute of Technology Project) 1,115,000 Allen County Jail Building Corp. First Mortgage, 5.75% due 10/1/2010 Aa3/NR 1,313,470 1,000,000 Ball State University Revenues Student Fee Series K, 5.75% due 7/1/2012 Aaa/AAA 1,181,170 (Insured: FGIC) 1,085,000 Boone County Hospital Association Lease Revenue, 5.00% due 1/15/2007 (Insured: Aaa/AAA 1,198,686 FGIC) (ETM)* 850,000 Boonville Junior High School Building Corp. Revenue, 0% due 7/1/2010 (State Aid) NR/A 657,084 850,000 Boonville Junior High School Building Corp. Revenue, 0% due 1/1/2011 (State Aid) NR/A 634,755 950,000 Boonville Junior High School Building Corp. Revenue Refunding, 0% due 7/1/2011 NR/A 695,761 (State Aid) 1,175,000 Center Grove 2000 Building First Mortgage, 5.00% due 7/15/2009 (Insured: AMBAC) Aaa/AAA 1,330,170 1,135,000 Center Grove 2000 Building First Mortgage, 5.00% due 7/15/2010 (Insured: AMBAC) Aaa/AAA 1,283,424 910,000 Eagle Union Middle School Building Corp., 5.50% due 7/15/2009 (Insured: AMBAC) Aaa/AAA 1,066,875 (ETM)* 1,860,000 Elberfeld J. H. Castle School Building Corp. Indiana First Mortgage (State Aid), NR/A 1,757,049 0% due 1/15/2006 1,860,000 Elberfeld J. H. Castle School Building Corp. Indiana First Mortgage Refunding, Aaa/AAA 1,621,083 0% due 7/5/2008 (Insured: MBIA) 500,000 Fort Wayne Economic Development Income Tax Revenue, 3.90% due 12/1/2003 Aaa/NR 505,840 (Insured: FSA) 965,000 Goshen Multi School Building Corp. 1st Mortgage, 5.20% due 7/15/2007 (Insured: Aaa/AAA 1,084,110 MBIA) 2,305,000 Hammond Multi-School Building Corp. First Mortgage Refunding Bond Series 1997, NR/A 2,588,446 6.00% due 7/15/2008 (Lake County Project) 1,805,000 Hobart Building Corp. First Mortgage, 5.30% due 8/1/2005 (Insured: AMBAC) Aaa/AAA 1,829,747 390,000 Huntington Economic Development Revenue, 6.00% due 11/1/2006 (United Methodist NR/NR 414,547 Membership Project) 700,000 Huntington Economic Development Revenue, 6.15% due 11/1/2008 (United Methodist NR/NR 758,268 Membership Project) 790,000 Huntington Economic Development Revenue, 6.20% due 11/1/2010 (United Methodist NR/NR 845,592 Membership Project) 285,000 Indiana Health Facility Financing Authority Hospital Revenue, 5.75% due Aaa/NR 299,943 11/1/2005 (Daughter's Charity Project) (ETM)* 1,295,000 Indiana Health Facility Financing Authority Hospital Revenue Series D, 5.00% due Aaa/NR 1,426,766 11/1/2026 pre-refunded 11/1/2007 1,335,000 Indiana Health Facility Financing Authority Revenue A, 1.05% due 10/1/2032 put NR/A-1 1,335,000 7/1/2003 (Fayette Memorial Hospital Association Project; LOC: U.S. Bank & Trust) (daily demand notes) 670,000 Indiana State Educational Facilities Authority Revenue, 5.75% due 10/1/2009 NR/A- 753,683 (University Indianapolis Project) 1,000,000 Indiana State Office Building Commission Capital Complex Revenue, 5.00% due Aaa/AAA 1,022,740 7/1/2005 (Insured: AMBAC) 2,500,000 Indiana University Revenues Refunding, 0% due 8/1/2007 (Insured: AMBAC) Aaa/AAA 2,275,125 1,100,000 Indianapolis Airport Authority Revenue Refunding Series A, 5.35% due 7/1/2007 Aaa/AAA 1,225,202 (Insured: FGIC) 1,220,000 Indianapolis Local Public Improvement Bond Bank Transportation Revenue, 0% due Aa2/AA- 1,187,328 7/1/2005 (ETM)* 1,240,000 Indianapolis Local Public Improvement Bond Bank Transportation Revenue, 0% due Aa2/AA- 1,178,893 7/1/2006 (ETM)* 2,200,000 Indianapolis Resource Recovery Revenue Refunding, 6.75% due 12/1/2004 (Ogden Aaa/AAA 2,359,082 Martin Systems, Inc. Project; Insured: AMBAC) 2,000,000 Indianapolis Resource Recovery Revenue Refunding, 6.75% due 12/1/2006 (Ogden Aaa/AAA 2,292,440 Martin Systems, Inc. Project; Insured: AMBAC) 855,000 Knox Middle School Building Corp. First Mortgage, 6.00% due 7/15/2008 (Insured: Aaa/AAA 1,000,239 FGIC) 455,000 Knox Middle School Building Corp. First Mortgage, 6.00% due 7/15/2009 (Insured: Aaa/AAA 539,239 FGIC) 890,000 Merrillville Multi School Building Corp. Refunding First Mortgage, 6.55% due Aaa/AAA 980,362 7/1/2005 (Insured: MBIA) 625,000 Monroe County Community School Building Corp. Revenue Refunding, 5.00% due Aaa/AAA 689,356 1/15/2007 (Insured: AMBAC) 535,000 New Albany Floyd County School Building Corp., 6.20% due 7/1/2003 (ETM)* NR/NR 535,075 800,000 North Adams Community Schools, 3.50% due 7/15/2004 (Insured: FSA) Aaa/AAA 820,352 940,000 North Adams Community Schools, 4.00% due 7/15/2005 (Insured: FSA) Aaa/AAA 989,876 1,070,000 North Central Campus School Building Corp. Indiana, 4.50% due 7/10/2005 Aaa/AAA 1,137,763 (Insured: AMBAC) 1,000,000 Northwest Allen Building Corp. First Mortgage, 5.30% due 12/1/2005 (Insured: Aaa/AAA 1,058,450 MBIA) 835,000 Peru Community School Corp. Capital Appreciation Refunding First Mortgage, 0% NR/A 645,488 due 7/1/2010 1,450,000 Tri Creek School Building Corp. Inc. First Mortgage, 5.00% due 1/15/2004 NR/AA- 1,481,305 1,540,000 Vigo County Elementary School Building Corp. Refunding & Improvement First Aaa/AAA 1,632,261 Mortgage, 4.00% due 1/10/2006 (Insured: FSA) 1,635,000 Vigo County Elementary School Building Corp. Refunding & Improvement First Aaa/AAA 1,752,181 Mortgage, 4.00% due 1/10/2008 (Insured: FSA) 995,000 Wawasee Community School Corp. First Mortgage, 5.50% due 7/15/2010 (State Aid) NR/AA- 1,132,797 1,095,000 Wawasee Community School Corp. First Mortgage, 5.50% due 7/15/2011 (State Aid) NR/AA- 1,250,129 2,080,000 West Clark School Building Corp. First Mortgage, 5.75% due 7/15/2011 (Insured: Aaa/AAA 2,459,725 FGIC) 1,820,000 Westfield Elem. School Building Corp. First Mortgage Series 1997, 6.80% due Aaa/AAA 2,150,785 7/15/2007 (Insured: AMBAC) (ETM)* Iowa (2.90%) 4,320,000 Ames Hospital Revenue, 6.25% due 8/15/2006 (Insured: AMBAC) Aaa/AAA 4,391,453 2,900,000 Ankeny Community School District Sales & Services Tax Revenue, 5.00% due NR/A+ 3,178,458 7/1/2010 3,660,000 Des Moines Limited Obligation Revenue, 6.25% due 12/1/2015 put 12/1/2005 (Des NR/NR 3,666,881 Moines Parking Associates Project; LOC: Wells Fargo Bank) 6,650,000 Iowa Finance Authority Commercial Development Revenue Refunding, 5.75% due NR/AA 7,180,537 4/1/2014 put 4/1/2010 (Governor Square Project; Insured: AXA) 435,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2007 (Iowa A1/NR 491,058 Health Services Project) 1,765,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2009 (Iowa A1/NR 2,041,823 Health Services Project) 1,955,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2010 (Iowa A1/NR 2,273,411 Health Services Project) 3,145,000 Iowa Finance Authority Hospital Facility Revenue, 6.00% due 2/15/2011 (Iowa Aaa/AAA 3,638,450 Health Services Project; Insured: AMBAC) 1,000,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.50% due 12/1/2003 Aa3/AA- 1,017,500 1,000,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.50% due 12/1/2004 Aa3/AA- 1,056,870 1,430,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.75% due 12/1/2007 Aa3/AA- 1,621,734 3,295,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.75% due 12/1/2010 Aa3/AA- 3,790,041 1,000,000 Iowa Higher Education Loan Authority Revenue Variable, 1.20% due 4/1/2033 put NR/A1+ 1,000,000 7/1/2003 (St. Ambrose Project; LOC: Northern Trust) (daily demand notes) 1,000,000 Iowa State University Revenues, 6.20% due 9/1/2003 Aa2/AA 1,008,690 1,170,000 Iowa University Science & Technology Revenue Refunding Series B, 5.20% due Aa3/A+ 1,260,406 7/1/2005 (Academic Building Project) 115,000 Muscatine Electric Revenue, 9.50% due 1/1/2004 (ETM)* Aaa/AAA 119,903 530,000 University of Iowa Facilities Corp. Revenue Series A, 4.875% due 6/1/2005 Aa2/AA- 565,796 Kansas (0.70%) 500,000 Dodge Unified School District 443 Ford County, 8.25% due 9/1/2006 (Insured: FSA) Aaa/AAA 601,100 2,000,000 Kansas City Hospital Revenue Refunding, 5.80% due 8/1/2004 (Sisters Charity Aa2/AA 2,047,340 Health Services Project) 1,000,000 Kansas City Hospital Revenue Refunding, 5.90% due 8/1/2005 (Sisters Charity Aa2/AA 1,023,350 Health Services Project) 6,000,000 La Cygne Environmental Improvement Refunding, 3.90% due 3/1/2015 put 8/31/2004 VMIG1/A-2 6,111,000 (Kansas City Power & Light Co. Project) Kentucky (1.30%) 315,000 Campbell & Kenton Counties Sanitation District 1 Revenue, 6.50% due 8/1/2005 Aaa/AAA 319,590 (ETM)* 7,400,000 Kentucky Economic Development Finance Authority Series C, 0% due 10/1/2009 Aaa/AAA 7,592,548 converts to 5.35% 10/1/2005 (Norton Healthcare Project; Insured: MBIA) 7,830,000 Kentucky Economic Development Finance Authority Series C, 0% due 10/1/2010 Aaa/AAA 8,062,473 converts to 5.40% 10/1/2005 (Norton Healthcare Project; Insured: MBIA) 505,000 Kentucky State Turnpike Authority Resources Recovery Revenue, 0% due 7/1/2006 Aaa/AAA 428,891 (Insured: FGIC) 150,000 Louisville Water Revenue Refunding, 6.00% due 11/15/2006 (ETM)* Aaa/AAA 170,880 420,000 Paintsville First Mortgage Revenue Series 1991, 8.50% due 9/1/2003 (Paul B. Hall NR/NR 420,882 Medical Center Project; Guarantee: Health Management Associates) Louisiana (3.20%) 4,000,000 Jefferson Parish Hospital District 2, 5.25% due 12/1/2015 crossover-refunded Aaa/AAA 4,223,760 12/1/2005 (Insured: FGIC) 1,440,000 Jefferson Sales Tax District Special Sales Tax Revenue Refunding, 5.25% due Aaa/AAA 1,613,174 12/1/2006 (Insured: AMBAC) 1,515,000 Jefferson Sales Tax District Special Sales Tax Revenue Refunding, 5.25% due Aaa/AAA 1,722,722 12/1/2007 (Insured: AMBAC) 1,000,000 Lake Charles Harbor & Terminal District Revenue, 5.50% due 5/1/2006 (Reynolds A3/A- 1,012,340 Metal Project; LOC: Canadian Imperial Bank) 1,000,000 Louisiana Local Govt. Environmental Facilities & Community Dev. Auth. Multi Baa1/NR 1,004,310 Family Revenue Series A, 5.00% due 9/1/2012 (Bellemont Apartments Project) 1,000,000 Louisiana Offshore Authority Deepwater Port Revenue Series B, 6.25% due 9/1/2004 A3/A 1,056,510 2,620,000 Louisiana PFA Revenue, 5.375% due 12/1/2008 (Wynhoven Health Care Center NR/NR 2,736,616 Project; Guaranteed: Archdiocese of New Orleans) 1,000,000 Louisiana Public Facilities Authority Revenue, 5.75% due 10/1/2008 (Loyola A1/A+ 1,146,810 University Project) 1,280,000 Louisiana Public Facilities Authority Revenue Refunding, 5.50% due 10/1/2006 A1/A+ 1,420,365 (Loyola University Project) 4,635,000 Louisiana State Correctional Facility Lease, 5.00% due 12/15/2008 (Insured: NR/AA 5,082,324 Radian) 5,000,000 Louisiana State Offshore Term Refunding Series D, 4.00% due 9/1/2023 put A3/A 5,223,000 9/1/2008 (Loop LLC Project) 2,350,000 Louisiana State Offshore Terminal Authority Deepwater Port Revenue, 4.375% due A3/A 2,481,342 10/1/2020 put 6/1/2007 1,000,000 Louisiana State Offshore Terminal Authority Deepwater Port Revenue Series B, A3/A 1,008,340 6.20% due 9/1/2003 1,000,000 New Orleans Refunding, 0% due 9/1/2006 (Insured: AMBAC) Aaa/AAA 944,190 5,000,000 Orleans Parish School Board, 0% due 2/1/2008 (ETM)* Aaa/AAA 4,183,050 1,000,000 Plaquemines Port Harbor & Terminal Refunding Electro Coal D Convertible, 5.00% Ba1/BB+ 989,390 due 9/1/2007 (Teco Energy Inc. Project) 2,590,000 Shreveport Louisiana Water & Sewer Revenue Refunding Series A, 4.00% due Aaa/AAA 2,697,614 12/1/2004 (Insured: FSA) 3,000,000 St. Charles Parish Pollution Control Revenue Variable Refunding Series A, 4.90% Baa3/BBB- 3,152,580 due 6/1/2030 put 6/1/2005 (Entergy Louisiana Inc. Project) Maine (0.10%) 1,000,000 Regional Waste Systems Inc. Solid Waste Resources Recovery Revenue Series P, Aaa/AAA 1,112,570 6.25% due 7/1/2010 (Insured: FSA) Maryland (0.50%) 580,000 Baltimore Maryland, 7.00% due 10/15/2009 (Insured: MBIA) Aaa/AAA 728,857 2,050,000 Baltimore Public Improvement Series A, 7.00% due 10/15/2006 (Insured: MBIA) Aaa/AAA 2,401,719 2,750,000 Howard County Multi Family Housing Revenue, 7.00% due 7/1/2024 put 7/1/2004 Baa2/NR 2,803,405 (Chase Glen Project; Guarantee: Avalon Prop.) 500,000 Maryland State Department Transportation Consolidated, 4.375% due 6/15/2004 Aa2/AA 506,365 Massachusetts (1.60%) 2,000,000 Boston Economic Development & Industrial Corp., 5.15% due 7/1/2025 put 7/1/2005 Aa3/NR 2,087,720 (LOC: Fleet National Bank) 1,060,000 Lynn General Obligation, 7.00% due 1/15/2004 Baa1/NR 1,091,132 3,470,000 Massachusetts Development Finance Agency Resource Recovery Revenue Series A, Aaa/AAA 3,958,854 5.50% due 1/1/2011 (Insured: MBIA) 1,000,000 Massachusetts Industrial Finance Agency Pollution Control Revenue Refunding, A2/A 1,022,680 5.875% due 8/1/2008 (Eastern Edison Co. Project) 1,000,000 Massachusetts Industrial Finance Agency Revenue, 8.375% due 2/15/2018 NR/NR 1,185,290 pre-refunded 2/15/2006 @ 102 (Glenmeadow Retirement Project) 900,000 Massachusetts Municipal Wholesale Electric Co. Power Supply Systems Revenue, Aaa/AAA 963,954 5.00% due 7/1/2005 (Stony Brook Intermediate Project A; Insured: MBIA) 1,000,000 Massachusetts Municipal Wholesale Electric Co. Power Supply Systems Revenue Aaa/AAA 1,071,060 Series A, 5.00% due 7/1/2005 (Stony Brook Peaking Project; Insured: MBIA) 515,000 Massachusetts State Health & Education Facility, Daughters Of Charity, Series D, Aaa/AA+ 534,879 5.50% due 7/1/2004 (ETM)* 3,415,000 Massachusetts State Health & Educational Series H, 5.375% due 5/15/2012 (New Aaa/AAA 3,903,379 England Medical Center Hospital Project; Insured: FGIC) 3,800,000 Massachusetts State Water Resources Authority, Series A, 1.25% due 8/1/2023 put VMIG1/A1+ 3,800,000 7/8/2003 (Insured: FGIC) (weekly demand notes) 1,500,000 Taunton General Obligation, 8.00% due 2/1/2006 (Insured: MBIA) Aaa/AAA 1,744,425 Michigan (2.50%) 2,500,000 Detroit Michigan Capital Improvement Series A, 5.00% due 4/1/2005 (Insured: Aaa/AAA 2,660,625 MBIA) 1,405,000 Detroit Michigan Series A, 6.00% due 4/1/2007 (Insured: FGIC) (ETM)* Aaa/AAA 1,619,277 1,670,000 Jackson County Hospital Finance Authority Hospital Revenue Series A, 5.00% due Aaa/NR 1,816,476 6/1/2006 (W.A. Foote Memorial Hospital Project; Insured: AMBAC) 1,000,000 Kalamazoo Hospital Finance Authority Facility Revenue, 5.50% due 5/15/2005 Aaa/NR 1,071,250 (Bronson Methodist Hospital Project; Insured: MBIA) 2,000,000 Michigan Hospital Finance Authority Revenue, 5.375% due 7/1/2012 (Insured: FSA) Aaa/AAA 2,139,900 2,370,000 Michigan Hospital Finance Authority Revenue, 4.80% due 11/1/2017 pre-refunded Aaa/NR 2,469,279 7/1/2004 @100 10,000,000 Michigan Hospital Finance Authority Revenue Series A, 5.375% due 11/15/2033 put Aa2/AA 11,189,000 11/15/2007 (Ascension Health Project) 655,000 Michigan Housing Development Authority Single Family Insured Mortgage Revenue Aa1/AA+ 655,714 Series A, 5.00% due 4/1/2010 (Insured: FHA/VA Mtgs) 1,000,000 Michigan State Job Development Authority Pollution Control Revenue, 5.55% due Baa1/BBB 1,001,490 4/1/2009 (General Motors Corp. Project; Guarantee: GM) 2,500,000 Michigan Strategic Fund Refunding Detroit, 4.85% due 9/1/2030 put 9/1/2011 Aaa/NR 2,773,500 (Edison Co. Project; Insured: AMBAC) 1,000,000 Missouri State Health & Educational Facilities Authority Revenue Series A, 5.00% NR/AA- 1,092,960 due 6/1/2011 1,000,000 Oakland County Economic Development Corp. Limited, 5.50% due 6/1/2014 (LOC: A1/NR 1,065,740 First of America Bank-Central) 800,000 Oxford Area Community School District, 5.00% due 5/1/2012 (Guaranteed: School Aaa/AAA 902,912 Bond Loan Fund) 2,550,000 Wayne State University Revenues, 5.00% due 11/15/2004 (Insured: FGIC) Aaa/AAA 2,687,113 Minnesota (0.60%) 1,000,000 Breckenridge Health Facilities Revenue Catholic Health Corp., 5.25% due Aaa/AAA 1,030,470 11/15/2013 (Insured: MBIA) 1,915,000 Osseo Independent School District 279 Crossover Refunding Series B, 5.00% due Aa2/NR 2,084,363 2/1/2006 3,000,000 Southern Minnesota Municipal Power Agency Revenue Refunding Series A, 5.00% due Aaa/AAA 3,256,980 1/1/2006 (Insured: AMBAC) 1,450,000 University of Minnesota Refunding Series A, 5.50% due 7/1/2006 Aa2/AA 1,617,866 500,000 Waconia Housing & Redevelopment Authority Public Project, 5.70% due 1/1/2012 Baa3/A- 500,730 Mississippi (0.30%) 1,020,000 Gautier Utility District Systems Revenue Refunding, 5.50% due 3/1/2012 (Insured: Aaa/NR 1,190,207 FGIC) 700,000 Hattiesburg Water & Sewer Revenue Refunding Systems, 5.20% due 8/1/2006 Aaa/AAA 764,988 (Insured: AMBAC) 1,000,000 Mississippi Hospital Equipment & Facilities Authority Revenue, 6.50% due Aaa/AAA 1,101,460 5/1/2006 (Refunding Mississippi Baptist Medical Center; Insured: MBIA) 955,000 Ridgeland Multi Family Housing Revenue, 4.95% due 10/1/2007 (FNMA: NR/A1+ 1,000,401 Collateralized) Missouri (0.20%) 825,000 Jackson County Public Building Corp. Leasehold Revenue Series 1996, 6.00% due Aaa/AAA 881,686 12/1/2004 (Capital Improvement Project; Insured: MBIA) 1,275,000 Missouri Development Finance Board Healthcare Facilities Revenue Series A, 4.80% A2/NR 1,334,657 due 11/1/2012 (Lutheran Home Aged Project; LOC: Commerce Bank) 105,000 Missouri Environmental Improvement & Energy Resources Authority Water Pollution Aaa/NR 106,524 Control Revenue, 6.60% due 12/1/2003 Montana (1.10%) 10,440,000 Forsyth Pollution Control Revenue Refunding, 5.00% due 10/1/2032 put 12/30/2008 Aaa/AAA 11,563,970 (Insured: AMBAC) 2,500,000 Forsyth Pollution Control Revenue Refunding, 5.20% due 5/1/2033 put 5/1/2009 Baa2/BBB+ 2,558,500 (Portland General Project) Nebraska (1.40%) 1,995,000 Lancaster County School District 1, 4.00% due 7/15/2007 (Lincoln Public School Aa2/AAA 2,154,400 Project) 1,455,000 Madison County Hospital Authority Revenue Number 1, 5.25% due 7/1/2010 (Faith NR/AA 1,611,922 Regional Health Services Project; Insured: Radian) 1,625,000 Madison County Hospital Authority Revenue Number 1, 5.50% due 7/1/2012 (Faith NR/AA 1,819,740 Regional Health Services Project; Insured: Radian) 2,705,000 Nebraska IFA Tax Exempt Multi Family Housing Revenue Refunding 1995-A, 5.50% due NR/AAA 2,794,589 12/1/2025 put 12/1/2005 (Willow Park Apartments Project; Collateralized: FNMA) 5,000,000 Omaha Public Power District Nebraska Electric Revenue Refunding Systems B, 5.00% Aa2/AA 5,638,550 due 2/1/2013 3,005,000 Omaha Public Power District Nebraska Electric Revenue Series A, 7.50% due NR/AA 3,265,624 2/1/2006 (ETM)* 1,300,000 University of Nebraska Facilities Corp., 5.00% due 7/15/2008 Aa2/AA- 1,468,025 Nevada (1.70%) 5,000,000 Humboldt County Pollution Control Revenue Refunding, 6.55% due 10/1/2013 (Sierra Aaa/AAA 5,207,500 Pacific Project; Insured: AMBAC) 1,830,000 Las Vegas Special Refunding Local Improvement District 707 Series A, 5.125% due Aaa/AAA 1,991,516 6/1/2011 (Insured: FSA) 840,000 Nevada Colorado River Commission Power Delivery A, 7.00% due 9/15/2008 Aa2/AA 994,190 1,510,000 Nevada Housing Division FNMA Multi Family Certificate A, 4.80% due 4/1/2008 NR/AAA 1,572,272 (Collateralized: FNMA) 1,000,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,125,960 1/15/2009 (Insured: Radian) 1,000,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,126,870 1/15/2010 (Insured: Radian) 1,285,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,442,927 1/15/2011 (Insured: Radian) 5,000,000 Washoe County Hospital Facility Revenue Series 1993 A, 6.00% due 6/1/2015 A2/A+ 5,105,650 (Washoe Medical Center Project) 3,500,000 Washoe County School District, 5.50% due 6/1/2008 (Insured: FSA) Aaa/AAA 4,016,845 New Hampshire (0.60%) 500,000 New Hampshire Capital Appreciation General Obligation, 0% due 7/1/2004 Aa2/AA+ 495,025 300,000 New Hampshire Health & Education Facilities Authority Revenue, 1.00% due Aaa/NR 300,000 7/1/2032 put 7/1/2003 (St. Anselm College project; LOC: Fleet Bank) (daily demand notes) 1,500,000 New Hampshire Health & Education Facilities Authority Revenue Anticipation Notes NR/SP-1 1,524,375 D, 3.50% due 4/30/2004 2,485,000 New Hampshire Industrial Development Authority Revenue, 5.50% due 12/1/2009 put NR/AA- 2,578,834 12/1/2004 (Central Vermont Public Services Project; LOC: Citizens Bank) 2,600,000 New Hampshire Municipal Bond Bank Refunding Series A-2, 4.60% due 7/15/2004 Aaa/AAA 2,697,344 (Insured: MBIA) New Jersey (0.20%) 1,000,000 New Jersey Health Care Facilities Financing Authority Revenue, 7.00% due NR/AAA 1,000,160 7/1/2003 (Christ Hospital Project; Insured: Connie Lee) 1,920,000 Pequannock River Basin Regional Sewage Authority Refunding Series M, 5.00% due Aaa/NR 2,054,438 12/1/2006 (Sewer Revenue Project; Insured: MBIA) New Mexico (2.00%) 1,600,000 Albuquerque Educational Facilities Revenue Refunding, 1.20% due 10/15/2016 put VMIG1/AA 1,600,000 7/8/2003 (Albuquerque Academy Project; Insured: Bank of America) (weekly demand notes) 750,000 Farmington Pollution Control Revenue, 1.05% due 5/1/2024 put 7/1/2003 (LOC: Bank P1/A1+ 750,000 of America) (daily demand notes) 800,000 Farmington Pollution Control Revenue, 1.00% due 9/1/2024 put 7/1/2003 (LOC: P1/A1+ 800,000 Barclays Bank) (daily demand notes) 4,865,000 New Mexico Highway Commission Revenue Subordinated Lien Tax Series B, 5.00% due Aaa/AAA 5,509,126 6/15/2011 (Insured: AMBAC) 9,625,000 New Mexico Housing Authority, Multi Family Housing Revenue, 1.25% due 1/15/2033 NR/A1+ 9,625,000 put 7/8/2003 (Arbors/Courtyard Apartments Project) (weekly demand notes) 8,000,000 New Mexico State, 4.00% due 9/1/2005 Aa1/AA+ 8,455,680 New York (7.10%) 1,000,000 Brookhaven Industrial Development Agency Civic Facility Revenue, 4.375% due A2/BBB+ 1,047,530 11/1/2031 put 11/1/2006 (Methodist Retirement Community Project; LOC: Northfork Bank) 1,000,000 Hempstead Town Industrial Development Agency Refunding, 5.00% due 12/1/2008 Aaa/AAA 1,103,460 (American Fuel Co. Project; Insured: MBIA) 1,500,000 Long Island Power Authority Electric Systems Revenue General Series A, 6.00% due Aaa/AAA 1,746,675 12/1/2007 (Insured: AMBAC) 2,350,000 Long Island Power Authority Electric Systems Revenue Subordinated Series 8 Aaa/AAA 2,407,904 Subseries 8-D, 4.50% due 4/1/2010 put 4/1/2004 (Insured: AMBAC) 7,000,000 Long Island Power Authority General Series B, 5.00% due 12/1/2006 Baa1/A- 7,625,170 4,535,000 Metro Transportation Authority New York Service Series B, 5.25% due 7/1/2007 A3/AA- 5,091,807 1,050,000 Monroe County Industrial Development Agency, 5.375% due 6/1/2007 (St. John NR/AA 1,175,769 Fisher College Project; Insured: Radian) 2,800,000 New York Adjusted Subseries E-3, 0.85% due 8/1/2023 put 7/1/2003 (daily demand VMIG1/A1+ 2,800,000 notes) 2,300,000 New York City Adjusted Series H, 1.40% due 8/1/2014 put 7/1/2003 (Insured: MBIA) VMIG1/A-2 2,300,000 (daily demand notes) 2,000,000 New York City General Obligation, 0.95% due 8/1/2020 put 7/1/2003 (daily demand VMIG1/A1+ 2,000,000 notes) 700,000 New York City General Obligation, 0.85% due 8/1/2021 put 7/1/2003 (daily demand VMIG1/A1+ 700,000 notes) 500,000 New York City General Obligation Series A, 7.00% due 8/1/2003 A2/A 502,415 710,000 New York City Housing Development Corp. Multi Family Housing Revenue Refunding Aa2/AA 722,943 Series A, 5.50% due 11/1/2009 2,215,000 New York City Industrial Development Agency Civic Facility, 5.25% due 6/1/2011 NR/A 2,434,706 (Lycee Francais De New York Project Series A; Insured: ACA) 2,330,000 New York City Industrial Development Agency Civic Facility, 5.25% due 6/1/2012 NR/A 2,563,140 (Lycee Francais De New York Project Series A; Insured: ACA) 8,600,000 New York City Municipal Water Finance Authority Water & Sewer Systems Revenue VMIG1/A1+ 8,600,000 2003 Sub Series A, 1.15% due 6/15/2018 put 7/1/2003 (LOC: Bank of New York) (daily demand notes) 10,450,000 New York City Transitional Finance Authority, 1.00% due 11/1/2022 put 7/1/2003 VMIG1/A1+ 10,450,000 (daily demand notes) 1,500,000 New York City Transitional Refunding Future Tax Secured Series A, 4.50% due Aa2/AA+ 1,566,270 11/1/2004 1,040,000 New York Dormitory Authority, 6.00% due 7/1/2007 (Champlain Valley Physicians NR/AAA 1,196,666 Project; Insured: Connie Lee) 1,895,000 New York Dormitory Authority Revenues, 6.00% due 9/1/2008 pre-refunded 9/1/2005 NR/AA 1,992,498 (Norton Healthcare Project) 1,600,000 New York Dormitory Authority Revenues Mental Health Services Facilities Aaa/AAA 1,810,208 Improvement B, 5.00% due 8/15/2010 (Insured: MBIA) 4,000,000 New York Dormitory Authority Revenues Series B, 5.25% due 11/15/2026 put Aaa/AAA 4,514,600 5/15/2012 (Insured: AMBAC) 560,000 New York Medical Care Facilities Finance Agency Revenue, 6.40% due 11/1/2014 Aaa/AAA 567,739 (Insured: FSA) 1,000,000 New York Series B, 5.50% due 8/1/2011 (Insured: MBIA) Aaa/AAA 1,157,530 2,200,000 New York Series B, 0.95% due 10/1/2021 put 7/1/2003 (daily demand notes) VMIG1/A1+ 2,200,000 12,000,000 New York State Dormitory Authority Revenues, 4.00% due 12/15/2005 NR/AA 12,746,760 2,500,000 New York State Urban Development Corp. Revenue Refunding Facilities A, 6.50% due Aaa/AAA 3,044,550 1/1/2011 (Correctional Capital Project; Insured: FSA) 1,320,000 New York Thruway Authority General Revenue Special Obligation, 0% due 1/1/2006 NR/BBB 1,251,202 255,000 New York Urban Development Corp. Revenue University Facilities Grants, 6.00% due A3/AA- 280,502 1/1/2006 3,425,000 New York Urban Development Corp. Series 7, 6.00% due 1/1/2006 A3/AA- 3,767,534 710,000 Oneida County Industrial Development Agency Series C, 6.00% due 1/1/2009 (Civic NR/AA 822,379 Facility Faxton Hospital Project; Insured: Radian) 2,000,000 Tobacco Settlement Financing Corp. New York Revenue Asset Backed Series A-1C, NR/AA- 2,091,680 5.00% due 6/1/2012 1,000,000 Tobacco Settlement Financing Corp. New York Revenue Asset Backed Series A-1C, NR/AA- 1,049,270 5.25% due 6/1/2012 170,000 Westchester County IDA Civic Facility Revenue, 6.25% due 4/1/2005 (Julia Dykman NR/NR 172,502 Project) North Carolina (2.10%) 1,000,000 Charlotte Certificates Participation Series B, 5.00% due 6/1/2006 (FY Project) Aa1/AA+ 1,098,000 135,000 Gastonia Housing Corp. First Lien Rev Series A, 5.75% due 7/1/2004 (Golfview NR/A- 135,612 Village Square Apartment Project) 925,000 North Carolina Capital Facilities Finance Agency Educational Facilities Revenue Aaa/AAA 1,026,944 Series A, 5.00% due 4/1/2007 (Johnson & Wales University Project; Insured: XL Capital) 2,860,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue, 6.125% due Aaa/AAA 3,367,393 1/1/2009 (Insured: MBIA) 3,000,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue Refunding Baa3/BBB 3,238,860 Series D, 5.375% due 1/1/2011 650,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue Series C, Baa3/BBB 696,455 5.25% due 1/1/2012 1,000,000 North Carolina Eastern Municipal Power Agency Power Systems Series A, 5.50% due Baa3/BBB 1,089,160 1/1/2012 1,055,000 North Carolina Eastern Municipal Power Agency Power Systems Series C, 5.25% due Baa3/BBB 1,125,727 1/1/2013 2,400,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue, 6.00% Aaa/AAA 2,839,608 due 1/1/2010 (Insured: MBIA) 2,505,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue Series Baa1/BBB+ 2,808,030 A, 5.50% due 1/1/2013 1,000,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue Series Baa1/BBB+ 1,145,010 B, 6.375% due 1/1/2013 3,400,000 North Carolina Municipal Power Agency Series A, 6.00% due 1/1/2007 (Insured: Aaa/AAA 3,862,808 MBIA) 3,700,000 North Carolina Municipal Power Agency Series A, 6.00% due 1/1/2008 (Insured: Aaa/AAA 4,280,678 MBIA) 1,030,000 University of North Carolina Systems Pool Revenue Refunding Series B, 5.00% due Aaa/AAA 1,170,935 4/1/2012 (Insured: AMBAC) North Dakota (0.10%) 910,000 Grand Forks Health Care Systems Revenue Bond Series 1997, 6.25% due 8/15/2005 Aaa/AAA 996,031 (Altru Health System Project; Insured: MBIA) Ohio (3.50%) 2,510,000 Bellefontaine Hospital Revenue Refunding, 6.00% due 12/1/2013 (Mary Rutan Health NR/BBB 2,595,516 Associates Project) 4,415,000 Cleveland Cuyahoga County Port Authority Revenue, 6.00% due 11/15/2010 NR/NR 4,762,019 2,255,000 Cuyahoga County Hospital Revenue Refunding Series B, 6.00% due 1/15/2006 A2/A 2,476,193 (University Hospital Health Systems Project) 1,400,000 Hudson City Library Improvement, 6.35% due 12/1/2011 Aa2/NR 1,704,206 585,000 Lake County Sewer & Water District Improvement, 5.30% due 12/1/2011 Aa2/NR 649,572 1,680,000 Lorain County Hospital Revenue Refunding & Improvement Catholic Healthcare A, A1/AA- 1,694,549 5.00% due 10/1/2003 1,200,000 Lorain County Hospital Revenue Refunding Catholic Healthcare Partners B, 6.00% Aaa/AAA 1,394,352 due 9/1/2008 (Insured: MBIA) 1,300,000 Mahoning Valley District Water Refunding, 5.85% due 11/15/2008 (Insured: FSA) Aaa/AAA 1,528,228 770,000 Mahoning Valley District Water Refunding, 5.90% due 11/15/2009 (Insured: FSA) Aaa/AAA 918,063 2,250,000 Montgomery County Revenue, 6.00% due 12/1/2008 (Catholic Health Initiatives Aa2/AA 2,587,320 Project) 2,385,000 Montgomery County Revenue, 6.00% due 12/1/2009 (Catholic Health Initiatives Aa2/AA 2,762,498 Project) 1,530,000 Montgomery County Revenue, 6.00% due 12/1/2010 (Catholic Health Initiatives Aa2/AA 1,767,380 Project) 1,000,000 Montgomery County Solid Waste Revenue, 6.00% due 11/1/2005 (Insured: MBIA) Aaa/AAA 1,105,650 2,000,000 Ohio State Building Authority Refunding Adult Corrections Facilities, 5.00% due Aaa/AAA 2,214,640 10/1/2006 (Insured: FSA) 4,000,000 Ohio State Building Authority Refunding State Correctional Facilities A, 4.60% Aa2/AA 4,036,720 due 10/1/2003 4,000,000 Ohio State Building Authority State Facilities, 6.125% due 10/1/2011 Aa2/AA 4,132,280 pre-refunded 10/1/2003 @ 102 (Adult Control Building A Project) 1,000,000 Ohio State Highway Capital Improvement Series C, 5.00% due 5/1/2006 Aa1/AAA 1,096,600 5,000,000 Ohio State Unlimited Tax General Obligation Series A, 5.75% due 6/15/2010 Aa1/AA+ 5,804,800 680,000 Plain Local School District Capital Appreciation, 0% due 12/1/2006 (Insured: Aaa/NR 639,064 FGIC) 845,000 Plain Local School District Capital Appreciation, 0% due 12/1/2007 (Insured: Aaa/NR 766,550 FGIC) 975,000 Reading Revenue Development, 6.00% due 2/1/2009 (St. Mary's Educational NR/AA 1,123,190 Institute Project; Insured: Radian) Oklahoma (1.60%) 675,000 Broken Arrow, 4.40% due 12/1/2005 Aa3/AA- 676,607 1,235,000 Claremore Public Works Authority Revenue Refunding, 6.00% due 6/1/2006 (Insured: Aaa/NR 1,389,634 FSA) 1,340,000 Claremore Public Works Authority Revenue Refunding, 6.00% due 6/1/2007 (Insured: Aaa/NR 1,541,992 FSA) 740,000 Jenks Aquarium Authority Revenue First Mortgage, 5.50% due 7/1/2010 (Insured: Aaa/NR 836,119 MBIA) 740,000 Oklahoma Development Finance Authority Health Facilities Revenue, 5.75% due Aaa/AAA 856,187 6/1/2011 (Insured: AMBAC) 2,380,000 Oklahoma Authority Revenue Refunding Health Systems Obligation Group Series A, Aaa/AAA 2,708,345 5.75% due 8/15/2007 (Insured: MBIA) 2,340,000 Oklahoma Authority Revenue Refunding Health Systems Obligation Group Series A, Aaa/AAA 2,716,014 6.00% due 8/15/2010 (Insured: MBIA) 5,000,000 Oklahoma Housing Development Authority Revenue Lease Purchase Program Series A, Aa3/NR 5,377,250 5.10% due 11/1/2005 2,650,000 Tulsa County Independent School District, 4.50% due 8/1/2006 Aa3/A+ 2,881,053 1,000,000 Tulsa Metropolitan Utility Authority Water Series A, 5.60% due 11/1/2004 NR/AA- 1,057,300 750,000 Tulsa Public Facilities Authority Solid Waste Steam & Electric Revenue Refunding Aaa/AAA 790,035 Series 1994, 5.45% due 11/1/2004 (Ogden Martin Systems of Tulsa Project; Insured: AMBAC) Oregon (0.40%) 1,070,000 Clackamas County Hospital Facility Authority Revenue Refunding Series A, 5.50% NR/NR 1,070,385 due 9/15/2008 (Odd Fellows Home Project) 1,325,000 Emerald People's Utility District Revenue, 7.20% due 11/1/2003 (Insured: FGIC) Aaa/AAA 1,352,362 1,000,000 Medford Hospital Facilities Authority Revenue Series A, 5.25% due 8/15/2006 Aaa/AAA 1,102,300 (Asante Health Systems Project; Insured: MBIA) 640,000 Portland Oregon, 4.40% due 3/1/2004 Aa2/NR 654,867 750,000 Salem Oregon Water & Sewer Revenue, 6.00% due 6/1/2005 (Insured: MBIA) Aaa/AAA 816,150 Pennsylvania (2.90%) 1,505,000 Allegheny County Hospital Development Health Series B, 6.30% due 5/1/2009 (South Baa1/NR 1,564,583 Hills Health System Project) 1,000,000 Allegheny County Hospital Development Refunding, 4.40% due 11/1/2005 (Health Aaa/AAA 1,064,480 Center UPMC Health Systems Project; Insured: MBIA) 395,000 Coatesville Area School District Series A Refunding, 5.00% due 10/1/2003 Aaa/AAA 399,041 (Insured: AMBAC) 305,000 Delaware County Authority Health Care Revenue, 6.00% due 11/15/2007 pre-refunded Aaa/NR 316,410 11/15/2005 (Mercy Health Corp. Project) 1,000,000 Delaware County Pennsylvania Authority Revenue, 5.50% due 11/15/2007 (Insured: Aaa/AAA 1,129,770 AMBAC) 4,250,000 Delaware County Pollution Control Refunding Series A, 5.20% due 4/1/2021 put A3/BBB+ 4,405,677 10/1/2004 (Peco Energy Co. Project) 1,000,000 Frazier Pennsylvania School District, 4.80% due 8/15/2003 NR/SP1+ 1,003,240 1,000,000 Geisinger Authority Health Systems Revenue, 5.50% due 8/15/2009 Aa2/AA- 1,121,630 1,605,000 Manheim Township School Authority School Revenue Series 1978, 6.625% due NR/AAA 1,797,793 12/1/2007 pre-refunded 12/1/2005 730,000 Montgomery County Higher Education & Health Authority, 6.25% due 7/1/2006 Baa3/NR 757,930 550,000 Montgomery County Higher Education & Health Authority, 6.375% due 7/1/2007 Baa3/NR 572,577 2,000,000 Montgomery County Industrial Development Authority Pollution Control Revenue A2/BBB+ 2,073,260 Series A, 5.20% due 10/1/2030 put 10/1/2004 (Peco Energy Co. Project) 150,000 Pennsylvania Higher Education Facilities Authority Revenue, 6.15% due 4/1/2004 Baa3/NR 155,858 (ETM)* 1,500,000 Pennsylvania Higher Educational Facilities Authority Health Services Revenue, A3/A 1,596,195 5.50% due 1/1/2009 (University Pennsylvania Health Systems Project) 750,000 Pennsylvania Higher Educational Facility Series A, 6.00% due 1/1/2005 A3/A 795,803 (University Pennsylvania Health Systems Project) 4,500,000 Pennsylvania State Higher Educational Facilities Authority, 7.00% due 1/1/2009 A3/A 4,698,045 1,500,000 Pennsylvania State Higher Educational Facilities Authority Revenue, 4.00% due VMIG1/NR 1,571,820 11/1/2032 put 11/1/2005 (LOC: Allied Irish Banks P.L.C.) 5,255,000 Pennsylvania State Unrefunded First Series, 5.00% due 4/15/2005 Aa2/AA 5,349,905 1,520,000 Philadelphia Authority For Industrial Development Revenues, 8.00% due 1/1/2014 Aaa/NR 1,610,774 pre-refunded 7/1/2004 1,000,000 Philadelphia Hospital & Higher Education Facilities Authority Revenue, 5.50% due A1/AA- 1,089,230 5/15/2006 (Jefferson Health Systems Project) 1,255,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.00% due 7/1/2008 Aaa/AAA 1,397,304 (Latrobe Area Hospital Project; Insured: AMBAC) 1,320,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.00% due 7/1/2009 Aaa/AAA 1,474,031 (Latrobe Area Hospital Project; Insured: AMBAC) 1,400,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.25% due 7/1/2011 Aaa/AAA 1,581,706 (Latrobe Area Hospital Project; Insured: AMBAC) 1,000,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.25% due 7/1/2012 Aaa/AAA 1,132,910 (Latrobe Area Hospital Project; Insured: AMBAC) Rhode Island (2.10%) 860,000 Providence Public Building Authority Refunding Series B, 5.50% due 12/15/2003 Aaa/AAA 877,811 (Insured: FSA) 1,075,000 Providence Public Building Authority Refunding Series B, 5.75% due 12/15/2007 Aaa/AAA 1,244,828 (Insured: FSA) 1,000,000 Providence Public Building Authority School Project Series B, 5.00% due Aaa/AAA 1,087,810 12/15/2005 (Insured: MBIA) 1,000,000 Providence Public Building Authority School Project Series B, 4.00% due Aaa/AAA 1,079,550 12/15/2006 (Insured: MBIA) 1,000,000 Providence Public Building Authority School Project Series B, 4.00% due Aaa/AAA 1,085,070 12/15/2007 (Insured: MBIA) 1,880,000 Providence Series C, 5.50% due 1/15/2012 (Insured: FSA) Aaa/AAA 2,197,701 4,455,000 Rhode Island Bond Authority Revenue Refunding Series A, 5.00% due 10/1/2005 Aaa/AAA 4,814,519 (State Public Projects; Insured: AMBAC) 10,085,000 Rhode Island Bond Authority Revenue Refunding Series A, 5.00% due 10/1/2006 Aaa/AAA 11,160,565 (State Public Projects; Insured: AMBAC) 2,075,000 Rhode Island Economic Development Corp. Revenue, 5.75% due 7/1/2010 (Providence NR/AA 2,358,611 Place Mall Project; Insured: Radian) 1,960,000 Rhode Island State Health & Education Building, 4.50% due 9/1/2009 (Butler NR/A+ 2,111,449 Hospital Project; LOC: Fleet National Bank) South Carolina (1.40%) 2,050,000 Charleston County Certificates of Participation, 6.00% due 12/1/2007 (Insured: Aaa/AAA 2,389,193 MBIA) 1,000,000 Medical University South Carolina Hospital Facilities Revenue, 5.50% due Baa2/BBB+ 1,082,560 7/1/2005 (ETM)* 945,000 Piedmont Municipal Power Agency Electric Revenue, 6.375% due 1/1/2006 (Insured: Aaa/AAA 1,052,059 FGIC) 400,000 Piedmont Municipal Power Agency Electric Revenue Variable Refunding Series C, VMIG1/A1+ 400,000 1.20% due 1/1/2022 put 7/8/2003 (Insured: MBIA) (weekly demand notes) 5,000,000 Richland County Environmental Improvement Revenue Refunding Series A, 4.25% due Baa2/BBB 5,222,800 10/1/2007 (International Paper Co. Project) 2,000,000 South Carolina State Public Service Authority Revenue Refunding Series D, 5.00% Aa2/AA- 2,166,180 due 1/1/2006 2,315,000 South Carolina State Public Service Authority Revenue Refunding Series D, 5.00% Aa2/AA- 2,548,815 due 1/1/2007 1,000,000 South Carolina State Refunding, 4.50% due 4/1/2005 (Capital Improvement Project) Aaa/AAA 1,022,540 1,720,000 York County Refunding, 5.00% due 6/1/2006 (Insured: FSA) Aaa/AAA 1,889,076 South Dakota (0.50%) 1,160,000 South Dakota Health & Educational Facilities Authority Revenue, 5.00% due Aaa/AAA 1,286,730 9/1/2010 (Rapid City Regional Hospital Project; Insured: MBIA) 1,100,000 South Dakota Health & Educational Facilities Authority Revenue, 5.50% due Aaa/AAA 1,259,291 9/1/2011 (Rapid City Regional Hospital Project; Insured: MBIA) 1,250,000 South Dakota Lease Revenue Series 93-B, 8.00% due 9/1/2003 (Insured: FSA) Aaa/AAA 1,264,400 2,235,000 South Dakota State Building Authority Lease Revenue, 6.625% due 9/1/2012 Aaa/AAA 2,300,620 pre-refunded 9/1/2004 @100 (Insured: AMBAC) Tennessee (0.50%) 2,420,000 Clarksville Natural Gas Refunding, 5.00% due 11/1/2004 NR/BBB+ 2,510,726 870,000 Franklin Industrial Development Multi Family Refunding Housing Series A, 5.75% Aaa/AAA 930,221 due 4/1/2010 (Insured: FSA) 1,000,000 Hamilton County Industrial Development Board, 5.75% due 9/1/2005 (Insured: FGIC) Aaa/AAA 1,093,810 1,050,000 Shelby County Tennessee Series A, 0% due 5/1/2011 pre-refunded 5/1/2005 @ 69.561 Aa2/AA+ 713,580 985,000 Tennessee Housing Development Agency Mortgage Finance Series A, 5.70% due A1/AA 1,006,611 7/1/2008 Texas (11.60%) 1,000,000 Amarillo Health Facilities Corp. Hospital Revenue, 5.50% due 1/1/2011 (Baptist Aaa/NR 1,127,460 St. Anthony's Hospital Corp. Project; Insured: FSA) 1,000,000 Austin Texas Refunding, 5.00% due 3/1/2011 Aa2/AA+ 1,126,370 1,000,000 Austin Utility Systems Revenue Refunding Comb Series A, 5.60% due 5/15/2007 Aaa/AAA 1,023,510 (Insured: MBIA) 1,000,000 Bell County Health Facilities Development Corp. Revenue Series A, 6.25% due Aaa/AAA 1,180,630 8/15/2010 (Scott & White Memorial Hospital Project; Insured: MBIA) 1,800,000 Bexar County Housing Finance Corp. Multi Family Housing Revenue, 5.00% due Aaa/NR 1,926,522 1/1/2011 (Insured: MBIA) 1,250,000 Cedar Hill Independent School District Capital Appreciation Refunding, 0% due NR/AAA 950,713 8/15/2010 (Guarantee: PSF) 1,700,000 Clint Independent School District Refunding, 5.50% due 2/15/2011 (Guarantee: Aaa/AAA 1,967,359 PSF) 1,425,000 Clint Independent School District Refunding, 5.50% due 2/15/2012 (Guarantee: Aaa/AAA 1,637,667 PSF) 3,300,000 Coppell Independent School District Capital Appreciation Refunding, 0% due NR/AAA 3,004,782 8/15/2007 (Guarantee: PSF) 1,025,000 Corpus Christi Business & Job Development Corp. Sales Tax Revenue, 5.00% due Aaa/AAA 1,162,463 9/1/2012 (Refunding & Improvement Arena Project; Insured: AMBAC) 2,200,000 Corpus Christi Independent School Refunding, 5.45% due 8/15/2003 (PSF Guarantee) Aaa/AA 2,208,184 2,000,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2005 (Insured: Aaa/AAA 2,168,440 FSA) 4,070,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2006 (Insured: Aaa/AAA 4,541,184 FSA) 2,000,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2008 (Insured: Aaa/AAA 2,299,700 FSA) 4,780,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2009 (Insured: Aaa/AAA 5,546,855 FSA) 1,735,000 Cypress Fairbanks Independent School District Unrefunded Balance Series A, Aaa/AAA 1,742,686 6.125% due 8/1/2011 (PSF Guarantee) 1,080,000 Dallas Independent School District Unrefunded Balance, 5.60% due 8/15/2004 (PSF Aaa/AAA 1,086,124 Guarantee) 450,000 Dallas Tax Increment Financing Reinvestment Zone 2, 5.75% due 8/15/2006 NR/AA 497,777 (Insured: Radian) 1,200,000 Dallas/Fort Worth Regional Airport Revenue Refunding Joint Series A, 7.375% due Aaa/AAA 1,283,112 11/1/2011 (Insured: FGIC) 1,245,000 Duncanville Independent School District Capital Appreciation Refunding Series B, Aaa/AAA 899,077 0% due 2/15/2012 (Guarantee: PSF) 4,945,000 Duncanville Independent School District Refunding Series B, 0% due 2/15/2011 Aaa/AAA 3,761,513 (Guarantee: PSF) 4,500,000 Ector County Hospital District Hospital Revenue Refunding, 5.50% due 4/15/2004 Aaa/AAA 4,652,010 (Insured: MBIA) 3,800,000 Fort Worth Water & Sewer Revenue Refunding & Improvement, 5.25% due 2/15/2011 Aa2/AA 4,256,266 1,390,000 Fort Worth Water & Sewer Revenue Series 2001, 5.25% due 2/15/2011 (Tarrant & Aa2/AA 1,585,226 Denton County Project) 2,005,000 Grapevine Texas, 5.25% due 2/15/2012 (Insured: FGIC) Aaa/AAA 2,184,768 4,000,000 Gulf Coast Waste Disposal Authority Environmental Facilities Revenue Refunding, Baa2/BBB+ 4,206,800 4.20% due 11/1/2006 (Occidental Project) 1,000,000 Gulf Coast Waste Disposal Authority Texas Revenue Refunding, 5.00% due 10/1/2010 Aaa/AAA 1,134,330 (Bayport Area Systems Project; Insured: AMBAC) 1,000,000 Gulf Coast Waste Disposal Authority Texas Revenue Refunding, 5.00% due 10/1/2011 Aaa/AAA 1,131,540 (Bayport Area Systems Project; Insured: AMBAC) 750,000 Harlingen Consolidated Independent School, 7.50% due 8/15/2009 (Guarantee: PSF) Aaa/AAA 952,335 500,000 Harris County Health Facilities Development Corp. Hospital Revenue Refunding Aaa/AAA 604,075 Series A, 6.00% due 6/1/2012 (Memorial Hospital Systems Project; Insured: MBIA) 4,410,000 Harris County Health Facilities Development Corp. Thermal Utility Revenue, 5.45% Aaa/AAA 5,063,606 due 2/15/2011 (Insured: AMBAC) 600,000 Harris County Health Facilities Hospital Series A, 6.00% due 6/1/2010 (Memorial Aaa/AAA 698,784 Hospital Systems Project; Insured: MBIA) 755,000 Harris County Hospital District Mortgage Revenue, 7.40% due 2/15/2010 (Insured: Aaa/AAA 864,422 AMBAC) (ETM)* 1,045,000 Harris County Hospital District Mortgage Revenue Unrefunded Balance Refunding, Aaa/AAA 1,236,277 7.40% due 2/15/2010 (Insured: AMBAC) 10,000,000 Harris County Hospital District Revenue Refunding, 5.75% due 2/15/2011 (Insured: Aaa/AAA 11,452,300 MBIA) 2,000,000 Harris County Hospital District Revenue Refunding, 5.75% due 2/15/2012 (Insured: Aaa/AAA 2,258,640 MBIA) 3,260,000 Harris County Sports Authority Revenue Capital Appreciation Senior Lien Series Aaa/AAA 2,548,798 G, 0% due 11/15/2010 (Insured: MBIA) 3,000,000 Hays Consolidated Independent School District Capital Appreciation, 0% due Aaa/AAA 2,241,450 8/15/2011 (Guarantee: PSF) 500,000 Irving Independent School District Capital Appreciation, 0% due 2/15/2004 Aaa/AAA 496,985 (Guarantee: PSF) 1,000,000 Lewisville Combination Contract Revenue, 4.125% due 5/1/2031 put 11/1/2006 NR/AA- 1,061,370 (Special Assessment Castle Hills Project Number 3; LOC: Wells Fargo Bank) 500,000 Lower Colorado River Authority Revenue Refunding & Improvement, 8.00% due Aaa/AAA 654,785 5/15/2010 (Insured: FSA) 3,065,000 Mesquite Independent School District Capital Appreciation Refunding, 0% due NR/AAA 2,210,662 8/15/2011 (Guarantee: PSF) 1,415,000 Midlothian Independent School District Capital Appreciation Refunding, 0% due Aaa/NR 1,253,365 2/15/2008 (Guarantee: PSF) 1,200,000 Midlothian Independent School District Capital Appreciation Refunding, 0% due Aaa/NR 1,016,340 2/15/2009 (Guarantee: PSF) 700,000 Midtown Redevelopment Authority Texas Tax, 6.00% due 1/1/2010 (Insured: Radian) NR/AA 799,680 740,000 Midtown Redevelopment Authority Texas Tax, 6.00% due 1/1/2011 (Insured: Radian) NR/AA 849,572 2,275,000 New Caney Independent School District Capital Appreciation Refunding, 0% due Aaa/AAA 2,222,379 2/15/2005 (Guarantee: PSF) 710,000 Northside Independent School District Series A, 2.25% due 8/1/2031 put 8/1/2004 VMIG1/A1+ 710,717 6,000,000 Sam Rayburn Municipal Power Agency Refunding, 5.50% due 10/1/2012 Baa2/BBB- 6,530,100 1,970,000 Socorro Independent School District Series A, 5.75% due 2/15/2011 (Guarantee: NR/AAA 2,250,252 PSF) 965,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2007 Aaa/AAA 852,886 (Insured: AMBAC) 1,120,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2008 Aaa/AAA 941,002 (Insured: AMBAC) 1,275,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2009 Aaa/AAA 1,009,583 (Insured: AMBAC) 1,440,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2010 Aaa/AAA 1,069,056 (Insured: AMBAC) 500,000 Spring Branch Independent School District, 7.50% due 2/1/2011 (Guarantee: PSF) Aaa/AAA 643,310 580,000 Tarrant County Health Facilities, 5.875% due 11/15/2007 (Adventist/Sunbelt A3/A 650,221 Health System Project) 650,000 Tarrant County Health Facilities, 6.00% due 11/15/2009 (Adventist/Sunbelt Health A3/A 741,065 System Project) 730,000 Tarrant County Health Facilities, 6.10% due 11/15/2011 (Adventist/Sunbelt Health A3/A 828,878 System Project) 1,400,000 Tarrant County Health Facilities Development Corp., 5.75% due 2/15/2011 (Texas Aaa/AAA 1,574,258 Health Resources Project; Insured: MBIA) 1,000,000 Texarkana Health Facilities Development Corp. Hospital Revenue, 5.75% due Aaa/AAA 1,145,230 10/1/2008 (Insured: MBIA) 1,945,000 Texas Affordable Housing Corp. M Series A, 4.85% due 9/1/2012 (Insured: MBIA) Aaa/AAA 2,096,768 2,000,000 Texas Affordable Housing Corp. Portfolio A, 4.85% due 9/1/2012 (Insured: MBIA) Aaa/AAA 2,156,060 1,000,000 Texas Public Finance Authority Building Revenue State Preservation Project Aaa/AAA 1,184,530 Series B, 6.00% due 8/1/2011 (Insured: FSA) 6,700,000 Texas State Public Finance Authority Building Revenue Capital Appreciation Aaa/AAA 6,554,744 Refunding, 0% due 2/1/2005 (Insured: MBIA) 7,000,000 Texas State Turnpike Authority Central Texas Turnpike Systems Rev. Bond Aa3/AA 7,850,990 Anticipation Note 2nd Tier, 5.00% due 6/1/2008 1,000,000 Travis County, 5.00% due 3/1/2007 Aaa/AAA 1,108,230 500,000 Travis County, 5.00% due 3/1/2010 Aaa/AAA 554,820 2,300,000 Travis County Health Development Corp. Series A, 5.75% due 11/15/2008 (Insured: Aaa/AAA 2,643,735 MBIA) 1,000,000 Travis County Health Facilities Development Corp. Revenue Ascension Health Aaa/AAA 1,140,100 Credit Series A, 5.75% due 11/15/2007 (Insured: MBIA) 3,750,000 Travis County Health Facilities Development Corp. Revenue Series A, 5.75% due Aaa/AAA 4,342,537 11/15/2009 (Insured: MBIA) 2,000,000 Travis County Health Facilities Development Series A, 5.75% due 11/15/2010 Aaa/AAA 2,293,920 (Ascension Health Project; Insured: MBIA) 1,000,000 University of Texas Permanent University Fund, 8.00% due 7/1/2003 (ETM)* Aaa/AAA 1,000,190 2,020,000 Washington County Health Facilities Development Corp. Revenue, 5.35% due NR/A 2,227,939 6/1/2009 (Insured: ACA) Utah (1.30%) 370,000 Intermountain Power Agency Power Supply Revenue Capital Appreciation B, 0% due A1/A+ 364,605 7/1/2004 630,000 Intermountain Power Agency Power Supply Revenue Capital Appreciation Series B, A1/A+ 624,229 0% due 7/1/2004 (ETM)* 385,000 Intermountain Power Agency Power Supply Revenue Series A, 5.20% due 7/1/2006 A1/A+ 392,742 (ETM)* 355,000 Intermountain Power Agency Power Supply Revenue Series A, 5.00% due 7/1/2012 Aaa/AAA 355,032 (Insured: MBIA) (ETM)* 4,000,000 Intermountain Power Agency Power Supply Revenue Series A, 5.50% due 7/1/2013 A1/A+ 4,080,440 (ETM)* 500,000 Intermountain Power Agency Utah Power Supply Series E, 6.25% due 7/1/2009 Aaa/AAA 600,515 (Insured: FSA) 2,500,000 Salt Lake County Housing Authority MFHR Refunding Series 1993, 5.40% due Aaa/NR 2,544,925 12/15/2018 put 12/15/2003 (Summertree Project; LOC: FNMA) 1,500,000 Salt Lake County Municipal Building, 5.50% due 10/1/2009 Aa1/AA+ 1,750,890 840,000 Snyderville Basin Sewer Improvement, 5.00% due 11/1/2006 (Insured: AMBAC) Aaa/AAA 934,811 510,000 Utah Board Regents Auxiliary Systems & Student Fee Revenue Refunding Series A, NR/AA 573,169 5.00% due 5/1/2010 1,570,000 Utah County Municipal Building Authority Lease Revenue, 5.00% due 11/1/2010 Aaa/NR 1,781,636 (Insured: AMBAC) 265,000 Utah Housing Finance Agency Refunding Single Family Mortgage, 5.35% due 7/1/2003 Aaa/AA 265,024 (Insured: FHA/VA) 500,000 Utah State University Hospital Board of Regents Revenue, 5.50% due 8/1/2005 Aaa/AAA 542,180 (Insured: AMBAC) 1,000,000 Utah State University Hospital Board of Regents Revenue, 5.25% due 8/1/2008 Aaa/AAA 1,117,530 (Insured: MBIA) 890,000 Utah Water Finance Agency Revenue Pooled Loan Financing Program Series A, 5.00% Aaa/NR 1,009,144 due 10/1/2011 (Insured: FHA/VA) Vermont (0.10%) 880,000 Vermont Educational & Health Buildings Financing Agency Revenue, 6.00% due NR/BBB 940,183 9/1/2006 (Northwestern Medical Center Project) Virginia (1.90%) 1,010,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2007 Aaa/AAA 1,164,530 (Insured: AMBAC) 1,070,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2008 Aaa/AAA 1,251,622 (Insured: AMBAC) 1,130,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2009 Aaa/AAA 1,335,931 (Insured: AMBAC) 1,195,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2010 Aaa/AAA 1,418,847 (Insured: AMBAC) 4,000,000 Capital Region Airport Commission Virginia Refunding Series B, 8.125% due Aaa/AAA 4,339,040 7/1/2014 (Insured: AMBAC) 1,500,000 Chesterfield County Industrial Development, 5.50% due 10/1/2009 (Vepco Project) A3/BBB+ 1,605,270 2,075,000 Fairfax County Economic Development Authority Lease Revenue, 5.30% due 5/15/2004 Aa1/AA+ 2,152,626 (Government Center Project) 530,000 Hampton General Obligation Refunding Bond, 5.85% due 3/1/2007 Aa2/AA 534,145 500,000 Hampton Hospital Facilities Revenue Series A, 5.00% due 11/1/2005 Aa2/AA 537,420 3,000,000 Hampton Redevelopment Housing Authority Multi Family Housing Refunding Series Baa1/A1+ 3,072,900 1994, 7.00% due 7/1/2024 put 7/1/2004 (Chase Hampton Apartments Project; LOC: Credit Suisse) 1,460,000 Norton Industrial Development Authority Hospital Revenue Refunding Improvement, NR/A 1,651,523 5.75% due 12/1/2012 (Norton Community Hospital Project; Insured: ACA) 3,000,000 Suffolk Redevelopment Housing Authority MFHR, 7.00% due 7/1/2024 put 7/1/2004 Baa2/NR 3,048,870 (Chase Heritage @ Dulles Project) 3,000,000 Suffolk Redevelopment Housing Authority Refunding, 4.85% due 7/1/2031 put Aaa/NR 3,256,350 7/1/2011 (Windsor at Potomac Project; Collateralized: FNMA) Washington (3.40%) 1,760,000 Energy Northwest Washington Wind Project Revenue Series A, 4.95% due 7/1/2008 A3/A- 1,872,869 705,000 Energy Northwest Washington Wind Project Revenue Series B, 4.95% due 7/1/2008 A3/A- 750,212 785,000 Energy Northwest Washington Wind Project Revenue Series B, 5.20% due 7/1/2010 A3/A- 832,940 950,000 Grant County Priest Rapids Hydroelectric, 6.00% due 1/1/2006 (Insured: AMBAC) Aaa/AAA 1,052,144 1,885,000 King County School District Number 414 Lake Washington Refunding, 3.00% due Aa1/AA 1,936,837 12/1/2004 1,880,000 Lewis County Washington Public Utility District Refunding, 5.00% due 10/1/2007 Aa1/AA- 2,088,492 575,000 Seattle Municipal Light & Power Revenue, 5.45% due 11/1/2010 pre-refunded Aa3/A+ 595,194 11/1/03 @ 102 1,425,000 Seattle Municipal Light & Power Revenue, 5.45% due 11/1/2010 Aa3/A+ 1,472,994 1,000,000 Seattle Municipal Light & Power Revenue Refunding, 4.75% due 7/1/2007 (Insured: Aaa/AAA 1,098,810 FSA) 2,655,000 Seattle Municipal Light & Power Revenue Refunding, 5.30% due 11/1/2007 Aa3/A+ 2,746,916 pre-refunded 11/1/2003 @ 102 1,000,000 Spokane Regional Solid Waste Refunding, 5.00% due 12/1/2005 (Insured: AMBAC) Aaa/AAA 1,080,040 1,000,000 Spokane Regional Solid Waste Refunding, 5.00% due 12/1/2006 (Insured: AMBAC) Aaa/AAA 1,102,850 1,000,000 Spokane Regional Solid Waste Refunding, 5.25% due 12/1/2007 (Insured: AMBAC) Aaa/AAA 1,125,380 550,000 Tacoma Conservation Systems Project Revenue, 6.20% due 1/1/2006 (Tacoma Public Aa1/AA- 591,090 Utilities Project) 800,000 University of Washington Alumni Association Lease Revenue Refunding, 4.50% due Aaa/AAA 829,088 8/15/2004 (University of Washington Medical Center Project; Insured: MBIA) 900,000 University of Washington Alumni Association Lease Revenue Refunding, 4.50% due Aaa/AAA 953,136 8/15/2005 (University of Washington Medical Center Project; Insured: MBIA) 1,000,000 University of Washington Alumni Association Lease Revenue Refunding, 5.00% due Aaa/AAA 1,091,880 8/15/2006 (University of Washington Medical Center Project; Insured: MBIA) 1,100,000 University of Washington Alumni Association Lease Revenue Refunding, 5.00% due Aaa/AAA 1,215,753 8/15/2007 (University of Washington Medical Center Project; Insured: MBIA) 1,500,000 Washington Health Care Facilities, 5.50% due 12/1/2009 (Providence Services Aaa/AAA 1,716,705 Project; Insured: MBIA) 2,500,000 Washington Public Power Supply Refunding Series A, 5.00% due 7/1/2011 (Insured: Aaa/AAA 2,783,750 FSA) 1,140,000 Washington Public Power Supply System Refunding Revenue, 0% due 7/1/2008 Aa1/AA- 986,590 (Nuclear Project Number 3) 1,655,000 Washington Public Power Supply System Series 96-A, 6.00% due 7/1/2006 (Insured: Aaa/AAA 1,864,540 MBIA) 1,000,000 Washington Public Power Supply Systems, 6.00% due 7/1/2008 (Nuclear Project Aaa/AAA 1,168,760 Number 1; Insured: AMBAC) 3,445,000 Washington Public Power Supply Systems Refunding Series B, 0% due 7/1/2004 Aa1/AA- 3,399,836 (Nuclear Project Number 3) 1,000,000 Washington Public Power Supply Systems Revenue Refunding Series A, 5.10% due Aaa/AAA 1,128,790 7/1/2010 (Nuclear Project Number 2; Insured: FSA) 830,000 Washington Public Power Supply Systems Revenue Refunding Series B, 0% due Aa1/AA- 718,307 7/1/2008 (Nuclear Project Number 3) 1,000,000 Washington State Health Care Facilities Authority Revenue, 4.00% due 7/1/2005 Aaa/AAA 1,046,310 (Overlake Hospital Medical Center Project; Insured: MBIA) 985,000 Washington State Higher Education Facilities Authority Revenue Series A, 5.70% Aaa/AAA 999,568 due 11/1/2011 (Insured: MBIA) 900,000 Washington State Public Power Supply, 5.40% due 7/1/2012 (Insured: FSA) Aaa/AAA 1,037,835 5,000,000 Washington State Public Power Supply Systems Revenue Refunding Series A, 6.00% Aaa/AAA 5,653,800 due 7/1/2007 (Nuclear Project Number 1; Insured: AMBAC) West Virginia (0.20%) 585,000 Harrison County Nursing Facility Revenue Refunding, 5.625% due 9/1/2010 (Salem NR/NR 593,898 Health Care Corp. Project; LOC: Fleet Bank) 193,938 Marion County SFMR Series 1992, 7.75% due 7/10/2011 NR/NR 199,418 2,000,000 West Virginia Statewide Commission Lottery Revenue Series 1997-A, 5.50% due Aaa/AAA 2,165,120 7/1/2005 (Insured: MBIA) Wisconsin (0.70%) 1,500,000 Bradley Pollution Control Revenue, 6.75% due 7/1/2009 (Owens Illinois Waste B1/BB+ 1,851,885 Project) (ETM)* 3,325,000 Milwaukee Wisconsin, 5.00% due 3/15/2005 Aa2/AA 3,533,511 800,000 Wisconsin State Health & Educational Facilities Authority, 5.90% due 8/15/2005 Aaa/AAA 869,960 (Wheaton Franciscan Services Inc. Project; Insured: MBIA) 2,000,000 Wisconsin State Health & Educational Facilities Authority Revenue, 6.00% due Aaa/AAA 2,288,360 8/15/2008 (Aurora Health Care Inc. Project; Insured: MBIA) 500,000 Wisconsin Transportation Revenue Series A, 5.50% due 7/1/2012 pre-refunded Aa3/AA- 587,915 7/1/2010 @ 100 Wyoming (0.30%) 1,615,000 West Park Hospital District Revenue, 5.90% due 7/1/2010 (Insured: ACA) NR/A 1,745,750 2,500,000 Wyoming Farm Loan Board Revenue, 0% due 4/1/2009 NR/AA- 2,093,100 Municipal Trust Certs. (0.70%) 2,778,427 Clipper Caraval Tax Exempt Certificate Series 1998, 4.50% due 10/6/2005 Aaa/NR 2,825,632 (Insured: AMBAC) 5,600,000 Municipal Tax Exempt Trust Certificate Class A1 to A5, 4.60% due 8/6/2008 NR/AAA 5,922,896 (Insured: AMBAC) TOTAL INVESTMENTS (100%) (Cost $1,249,257,949) $ 1,316,577,099 + Credit ratings are unaudited. * Escrowed to maturity See notes to financial statements.
Report of independent auditors Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 To the Board of Directors and Shareholders of Thornburg Limited Term Municipal Fund, Inc. - National Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Limited Term Municipal Fund, Inc.- National Portfolio (the "Fund") at June 30, 2003, 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 four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year ended June 30, 1999 were audited by other independent accountants whose report dated July 27, 1999 expressed an unqualified opinion on those financial highlights. PricewaterhouseCoopers LLP New York, New York July 30, 2003 Index Comparisons Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 LIMITED TERM MUNICIPAL FUND - NATIONAL PORTFOLIO Index Comparison Compares performance of Limited Term Municipal Fund - National Portfolio, the Lehman 5-Year General Obligation Bond Index and the Consumer Price Index for the periods ended June 30, 2003. On June 30, 2003, the weighted average securities ratings of both the Index and the Fund were AA and the weighted average portfolio maturities of the Index and the Fund were 4.9 years and 4.3 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. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Thornburg Limited Term Municipal Fund - National Portfolio Class A Total Returns, Since September 30, 1984, versus Lehman 5 Year GO Index and Consumer Price Index (C.P.I.) Lehman 5 yr. GO Index Fund A Shares CPI Class A Shares Average Annual Total Returns (at max. offering price) (year ended 6/30/03) One year: 4.38% Five years: 4.58% Ten years: 4.60% Fifteen years: 5.66% >From inception (9/28/84): 6.36% Thornburg Limited Term Municipal Fund - National Portfolio Class C Total Returns, Since Inception, versus Lehman 5 Year GO Index and Consumer Price Index (C.P.I.) Lehman 5 yr. GO Index Fund C Shares CPI Class C Shares Average Annual Total Returns (year ended 6/30/03) One year: 5.78% Five years: 4.51% >From inception (9/1/94): 4.59% Investors sometimes ask us to compare Limited Term Municipal Fund - National Portfolio to money market fund returns. These investments have certain differences, and investors in Limited Term Municipal Fund - National Portfolio took more risk than money market fund investors to earn their higher returns. *Prior to 7/5/96 the illustrations include actual returns of the Class A shares adjusted for the lower Institutional expenses. 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 tax-exempt money funds as quoted in "Lipper Tax- exempt Money Market Index" for the months covered by this analysis. The increase for the Class I shares of Thornburg Limited Term Municipal Fund - National Portfolio is based upon the dividends paid for the months covered by this analysis, the beginning NAV price at $13.59 per share and the ending NAV at $14.01 per share. These investments returned the $10,000 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. The portion of the increase, if any, of Thornburg Limited Term Municipal Fund - National Portfolio representing appreciation of the share price is assumed to be taxed at a 15% 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: Generally, money market funds seek to maintain an investment portfolio with an average maturity of 90 days or less. Thornburg Limited Term Municipal Fund - National Portfolio invests in short-to-intermediate maturity municipal obligations. The net asset value of the money funds did not fluctuate. The net asset value of the Class I shares of LTMIX did vary from time to time, and will continue to vary in the future due to the effect of changes in interest rates on the value of the investments the Fund holds. The analysis assumes that the investor received the net asset value of the shares owned, plus accrued income, at time of sale. 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. Thornburg Limited Term Municipal Fund - National Portfolio also declares dividends daily and pays them monthly. Note 5: An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such funds.
Directors and Officers Thornburg Limited Term Municipal Fund - National Portfolio Name, Address (1) Position(s) Term of Principal Member of Other And Age Held with Office Occupation(s) Portfolios Directorships Fund (2) and During Past in Fund Held by Length of 5 Years Complex Director or Time Overseen Nominee for Served by Director Director or Nominee for Director (2) Interested Directors Garrett Thornburg, Chairman Director CEO, Chairman and Controlling Twelve None 57 of the Since Shareholder of Thornburg Board of 1984; Investment Management, Inc. Directors, (4) (investment adviser) and Thornburg Treasurer (3) Securities Corporation (securities dealer); Chairman of Trustees of Thornburg Investment Trust (registered investment company); CEO and Chairman of Thornburg Mortgage, Inc. (real estate investment trust); Chairman of Thornburg Mortgage Advisory Corporation (investment manager to Thornburg Mortgage, Inc.). Independent Directors David D. Chase, Director Director Chairman, President and CEO Twelve Trustee, 62 since 2001 of general partner of Vestor Thornburg (4) Partners, LP, Santa Fe, NM Investment Trust (private equity fund); Chairman and CEO of Vestor Holdings, Inc., Santa Fe, NM (merchant bank). Eliot R. Cutler, Director Director Partner, Akin, Gump, Strauss, Two Director of 56 since 1984 Hauer & Feld, LLP, Washington Skanska, AB (4) D.C. (law firm) since November (construction services) 2000; partner, Cutler & Stanfield, Washington, D.C. (law firm) until November 2000. James E. Monaghan, Jr., Director Director President, Monaghan & Two None 56 since 1984 Associates, Inc. and (4) Strategies West, Inc. Denver, Colorado (business consultants). A.G. Newmyer III, Director Director Private investor and management Two None 53 since 1984 consultant. (4) Advisory Director Richard M. Curry, Advisory Advisory Managing Director, McDonald Not applicable None 60 Director (6) Director (5) & Co., Cincinnati, Ohio Since (securities dealer) and District 2002 (6) President, Key Bank, Cincinnati, Ohio, since March 2000. Officers of the Fund (who are not Directors) (7) Brian J. McMahon, President President President and Managing Director Not applicable Not applicable 47 since 1997 of Thornburg Investment (4) Management, Inc.; President of Thornburg Investment Trust Dawn B. Fischer, Secretary Secretary Vice President, Secretary and Not applicable Not applicable 56 Since 1984 Managing Director of Thornburg (4) Investment Management, Inc.; Secretary and Assistant Treasurer of Thornburg Investment Trust; Secretary of Thornburg Securities Corporation; Vice President, Daily Tax Free Income Fund, Inc. (registered investment company). Steven J. Bohlin, Vice President Vice Vice President and Managing Not applicable Not applicable 44 President Director of Thornburg Investment Since 1991 Management, Inc.; Vice President (4) and Treasurer of Thornburg Investment Trust. George T. Strickland, Vice President Vice Vice President and Managing Not applicable Not applicable 40 Treasureer President Director of Thornburg Investment Since 1999; Management, Inc.; Vice President Treasurer of Thornburg Investment Trust. since 2003 Leigh Moiola, Vice President Vice Vice President, and Managing Not applicable Not applicable 36 President Director since 1998, of Since 1999 Thornburg Investment Management, (4) Inc.; Vice President of Thornburg Investment Trust since 2001. Kenneth Ziesenheim, Vice President Vice Managing Director of Thornburg Not applicable Not applicable 49 President Investment Management, Inc.; Since 1995 President of Thornburg Securities (4) Corporation; Vice President of Thornburg Investment Trust. Kerry D. Lee, Vice President Vice Associate of Thornburg Investment Not applicable Not applicable 36 President Management, Inc.; Vice President Since 1999 of Thornburg Investment Trust (4) since 1999. Dale Van Scoyk, Vice President Vice Account Manager for Thornburg Not applicable Not applicable 56 President Investment Management, Inc. Since 1999 1997-1999, and Managing Director (4) and Vice President since 1999; Vice President of Thornburg Investment Trust since 1998; National Account Manager for Heartland Funds 1993-1997. Joshua Gonze, Vice President Vice Associate and Vice President of Not applicable Not applicable 40 President Thornburg Investment Management, Since 2001 Inc. since 1999; Vice President of (4) Thornburg Investment Trust since 2001 Christopher Ihlefeld, Vice President Vice Associate and Vice President of Not applicable Not applicable 32 President Thornburg Investment Mgt, Inc.; Since 1999 Assistant Vice President of (4) Thornburg Investment Trust since 1999. (1) Each person's address is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (2) The Fund is one of two separate investment "funds" or "portfolios" of Thornburg Limited Term Municipal Fund, Inc. (the "Company"), organized as a Maryland corporation. The Company currently has two funds, which are considered for certain regulatory purposes as parts of a "fund complex" with the nine funds of Thornburg Investment Trust. Thornburg Investment Management, Inc. is the investment adviser to, and manages, the eleven funds of the Company and Thornburg Investment Trust. (3) Mr. Thornburg is considered an "interested" Director under the Investment Company Act of 1940 because he is a director and controlling shareholder of the investment adviser, Thornburg Investment Management, Inc., and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Company. (4) Thornburg Limited Term Municipal Fund, Inc.'s Amended By-Laws provide that each Director shall serve in office until the next annual meeting or the election and qualification of the Director's successor. In accordance with Maryland law, the Company does not hold an annual meeting each year; it may hold shareholder meetings as circumstances require. Officers serve at the pleasure of the Board of Directors. (5) Mr. Cutler may be considered an "interested" Director of the Company because he is associated with a partnership which receives a portion of Thornburg Investment Management, Inc.'s revenues. (6) As an Advisory Director, Mr. Curry serves at the pleasure of the Board of Directors. (7) Assistant vice presidents, assistant secretaries and assistant treasurers are not shown.
The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200 The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200 Thornburg limited term municipal fund national portfolio - a shares Outperformed Tax-Exempt Money Market Funds Investors sometimes ask us to compare Limited Term Municipal Fund - National Portfolio to money market fund returns. These investments have certain differences, and investors in Limited Term Municipal Fund - National Portfolio took more risk than money market fund investors to earn their higher returns. Return from a hypothetical $10,000 investment 6/30/93 through 6/30/03 (after sales charges and fund expenses) Lipper Tax-exempt Money Market Index $2,986 Thornburg Limited Term Municipal Fund - Nat'l Portfolio A Shares (after capital gains taxes) $5,596 The chart above is for the Fund's Class A shares only. Class C and Class I 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, fifteen years, and since inception for Class A and Class C 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 tax-exempt money funds as quoted in "Lipper Tax-exempt Money Market Index" 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 $13.80 per share and the ending NAV at $14.01 per share. These investments returned the $10,000 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. The portion of the increase, if any, of Limited Term Municipal Fund - National Portfolio representing appreciation of the share price is assumed to be taxed at a 15% 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: Generally, money market funds seek to maintain an investment portfolio with an average maturity of 90 days or less. Limited Term Municipal Fund - National Portfolio invests in short-to-intermediate maturity municipal obligations. 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 due to the effect of changes in interest rates on the value of the investments the Fund holds. The analysis assumes that the investor received the net asset value of the shares owned, plus accrued income, at time of sale. 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 - National Portfolio also declares dividends daily and pays them monthly. Note 5: An investment in a Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Investment Manager Thornburg Investment Management, Inc. 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 Principal Underwriter Thornburg Securities Corporation 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 www.thornburg.com 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 do not guarantee future results. STATEMENT OF ADDITIONAL INFORMATION (For Holders of Institutional Class Shares) Relating to the Acquisition of the Assets of THORNBURG LIMITED TERM MUNICIPAL FUND NATIONAL PORTFOLIO a series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 by and in exchange solely for shares of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. a series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Statement of Additional Information, relating specifically to the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund National Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., by Thornburg Limited Term Municipal Fund (the "New Fund"), a series of Thornburg Investment Trust, in exchange solely for voting shares of the New 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 Funds Institutional Class Shares Statements of Additional Information, [to be added by amendment]; 2. Thornburg Institutional Class Shares Statement of Additional Information dated February 1, 2004, [to be added by amendment]; and 3. Thornburg Limited Term Municipal Fund National Portfolio (Institutional Class shares) Annual Report, June 30, 2003; and 4. Thornburg Limited Term Municipal Fund National Portfolio (Institutional Class Shares) Semiannual Report, December 31, 2003 [to be added by amendment]. This Statement of Additional information is not a prospectus. A Prospectus/Proxy Statement dated _________________, 2004 relating to the above referenced acquisition may be obtained from Thornburg Investment Trust at the number and address shown above. This Statement of Additional Information relates to, and should be read with, the Prospectus/Proxy Statement. 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, 2003 have been audited by PricewaterhouseCoopers, LLP, that Fund's independent auditors. The date of this Statement of Additional Information is _________, 2004. Thornburg Limited Term Municipal Fund National Portfolio I Shares Annual Report June 30, 2003 Thornburg Limited Term Municipal Fund - National Portfolio ALL DATA AS OF 06/30/03.Fund facts: Thornburg Limited Term Municipal Fund - National Portfolio I Shares Annualized Distribution Rate (at NAV) 3.31% SEC Yield 1.98% NAV $14.01 Maximum Offering Price $14.01 Total returns: (Annual Average) One Year 6.36% Three Years 6.72% Five Years 5.27% Since Inception 5.47% Inception Date 7/5/96 The investment return and principal value of an investment in the Fund will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. The data quoted represent past performance and may not be construed as a guarantee of future results. The SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund's shares at the end of the period. The distribution rate is calculated by taking the sum of the month's total distribution factors and dividing this sum by a 30-day period and annualizing to a 360-day year. The value is then divided by the ending NAV to arrive at the annualized distribution yield. The yield is calculated on a periodic basis and is subject to change depending on the Fund's NAV and current distributions. Letter to shareholders Thornburg Limited Term Municipal Fund, Inc. - National Portfolio July 14, 2003 Dear Fellow Shareholder: I am pleased to present the annual report for the National Portfolio of Thornburg Limited Term Municipal Fund. The net asset value of the I shares increased by 36 cents to $14.01 during the year ending June 30, 2003. If you were with us for the entire period, you received dividends of 49.5 cents per share. If you reinvested dividends, you received 50.3 cents per share. Over the last year, interest rates on high-quality municipal bonds have fallen substantially. Falling interest rates drive up the price of most of the bonds owned by the Fund and this has resulted in an increasing share price. Your Fund is a laddered portfolio of over 640 municipal obligations from 49 states. Approximately 93% of the bonds are rated A or better by one of the major rating agencies. Today, your Fund's weighted average maturity is 4.3 years; we always keep it below 5 years. As you know, we ladder the maturity dates of the bonds in your portfolio so that some of the bonds are scheduled to mature during each of the coming years. The chart below portrays the percentages of your Fund's bond portfolio maturing in each of the coming years: % of portfolio Cumulative % maturing within maturing by end of 1 years = 13% year 1 = 13% 1 to 2 years = 10% year 2 = 23% 2 to 3 years = 14% year 3 = 37% 3 to 4 years = 9% year 4 = 46% 4 to 5 years = 11% year 5 = 57% 5 to 6 years = 10% year 6 = 67% 6 to 7 years = 9% year 7 = 76% 7 to 8 years = 11% year 8 = 87% 8 to 9 years = 7% year 9 = 94% 9 to 10 years = 6% year 10 = 100% Percentages can and do vary. Data as of 6/30/03. Three powerful trends seem to be driving recent performance of the municipal market. The first is persistent economic weakness. The U.S. unemployment rate, at 6.4%, just hit a nine-year high. GDP growth is sputtering along at about 2%. Our European and Japanese trading partners are, by and large, worse off than are we, and the Federal Reserve Board seems to be at least as worried about deflation as it is about inflation. We continue to believe that low interest rates, tax cuts, and rising corporate profits will eventually lead to steady economic and employment growth, and probably give rise to somewhat higher interest rates. However, that process is taking longer than we formerly thought and may not materialize until next year. The second trend is financial stress in many of our cities and states. A combination of flat (or in some cases down) tax revenues and rising expenses for items such as Medicaid and pension systems has led to large budget deficits for more than half of the 50 states. The states have dealt with the problem in a variety of ways. According to the Fiscal Survey of the States published by the National Association of State Budget Officers, 28 states have made across-the-board spending cuts, 22 states have used reserve funds, and 17 have laid off employees. Governors in 29 states recommended tax and fee increases totaling $17.5 billion. The challenges have led to a number of high-profile downgrades by the major bond rating agencies, particularly in California where the deficit has yet to be dealt with. Yet in the midst of all these problems, many municipal credits are doing just fine. Standard & Poor's recently reported that upgrades outpaced downgrades in the second quarter of 2003 by a ratio of 1.6:1. This is because the municipal bond market is made up of much more than bond issues of the 50 states. Many of our cities, counties, school districts, water and sewer authorities, transportation authorities, and health care providers have benefited from stable revenues based upon property taxes, sales taxes, and fees for essential services. The municipal bond market, historically has a much lower default rate than the corporate bond market, and we continue to enjoy some success finding good bonds at relatively reasonable prices. The third trend exerting pressure on the municipal market is the heavy supply of bonds. $198 billion of municipal bonds were issued in the first half of 2003, a 19% increase over the record pace of 2002. The first half total already exceeds full-year volume for 1994, 1995, and 1996. The heavy supply has often saturated traditional sources of demand and pushed high- quality tax-free municipal bond yields to levels approaching taxable Treasury bond yields. The relative attractiveness of the municipal bond market should allow full coupon municipals to outperform the Treasury bond market if the heavy supply abates and the yield ratios revert to historical norms. So called "market discount" municipal bonds may lag if interest rates continue to rise. The Wall Street Journal ran a front-page story on July 7, 2003, about retirees who are forced to pinch pennies as money market and CD rates plunge. We believe that laddering short and intermediate bonds -- as we have done for your account -- is the best way to address this problem. Laddering bonds simultaneously moderates the income-flow risk of plunging short-term yields and the principal risk that affects all bonds when interest rates rise. To see how your Fund has performed over time relative to the money market fund averages, turn to the back of this report. Over the years, our practice of laddering a diversified portfolio of short- and intermediate-maturity municipal bonds has allowed your Fund to perform consistently well in varying interest rate environments. Thank you for investing in the National Portfolio of the Thornburg Limited Term Municipal Fund. Sincerely, George Strickland Portfolio Manager Past performance cannot guarantee future results. Statement of assets and liabilities Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 ASSETS Investments at value (cost $1,249,257,949) ................ $ 1,316,577,099 Cash ...................................................... 86,898 Receivable for investments sold ........................... 10,634,303 Receivable for fund shares sold ........................... 6,222,041 Interest receivable ....................................... 15,938,113 Prepaid expenses and other assets ......................... 40,035 Total Assets ............................ 1,349,498,489 LIABILITIES Payable for investments purchased ......................... 8,873,424 Payable for fund shares redeemed .......................... 4,770,682 Accounts payable and accrued expenses ..................... 417,977 Payable to investment advisor (Note 3) .................... 575,346 Dividends payable ......................................... 1,056,444 Total Liabilities ....................... 15,693,873 NET ASSETS ................................................ $ 1,333,804,616 NET ASSETS CONSIST OF: Net unrealized appreciation (depreciation) on investments $ 67,319,150 Accumulated net realized gain (loss) .................. (7,189,234) Net capital paid in on shares of beneficial interest .. 1,273,674,700 $ 1,333,804,616 NET ASSET VALUE: Class A Shares: Net asset value and redemption price per share ($998,877,676 applicable to 71,283,604 shares of beneficial interest outstanding - Note 4) ............................. $ 14.01 Maximum sales charge, 1.50% of offering price ................ 0.21 Maximum Offering Price Per Share ............................. $ 14.22 Class C Shares: Net asset value and offering price per share* ($137,559,448 applicable to 9,798,791 shares of beneficial interest outstanding - Note 4) ............................. $ 14.04 Class I Shares: Net asset value, offering and redemption price per share ($197,367,492 applicable to 14,082,631 shares of beneficial interest outstanding - Note 4) ............................. $ 14.01 * 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, 2003 INVESTMENT INCOME: Interest income (net of premium amortized of $8,977,858) ..... $ 47,291,162 EXPENSES: Investment advisory fees (Note 3) ............................ 4,938,499 Administration fees (Note 3) Class A Shares ...................................... 1,123,154 Class C Shares ...................................... 114,096 Class I Shares ...................................... 78,492 Distribution and service fees (Note 3) Class A Shares ...................................... 2,246,309 Class C Shares ...................................... 912,771 Transfer agent fees Class A Shares ...................................... 424,411 Class C Shares ...................................... 56,092 Class I Shares ...................................... 32,637 Registration and filing fees Class A Shares ...................................... 32,193 Class C Shares ...................................... 21,653 Class I Shares ...................................... 12,683 Custodian fees (Note 3) ...................................... 421,940 Professional fees ............................................ 78,761 Accounting fees .............................................. 67,695 Director fees ................................................ 48,080 Other expenses ............................................... 175,747 Total Expenses ............................. 10,785,213 Less: Distribution and service fees waived (Note 3) ....... (456,385) Fees paid indirectly (Note 3) ....................... (9,253) Net Expenses ............................... 10,319,575 Net Investment Income ...................... 36,971,587 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments sold ................. 877,102 Increase (Decrease) in unrealized appreciation of investments 28,100,206 Net Realized and Unrealized Gain (Loss) on Investments ................. 28,977,308 Net Increase (Decrease) in Net Assets Resulting From Operations ............................ $ 65,948,895 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, 2003 June 30, 2002 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ....................................... $ 36,971,587 $ 32,763,519 Net realized gain (loss) on investments sold ................ 877,102 (90,520) Increase (Decrease) in unrealized appreciation of investments 28,100,206 13,508,557 Net Increase (Decrease) in Net Assets Resulting from Operations ................. 65,948,895 46,181,556 DIVIDENDS TO SHAREHOLDERS: >From net investment income Class A Shares ..................................... (28,771,058) (27,197,050) Class C Shares ..................................... (2,645,994) (1,278,738) Class I Shares ..................................... (5,554,535) (4,287,731) FUND SHARE TRANSACTIONS (NOTE 4): Class A Shares ..................................... 190,903,532 119,814,146 Class C Shares ..................................... 78,064,848 31,840,288 Class I Shares ..................................... 69,803,156 35,893,452 Net Increase (Decrease) in Net Assets ..... 367,748,844 200,965,923 NET ASSETS: Beginning of year .................................. 966,055,772 765,089,849 End of year ........................................ $ 1,333,804,616 $ 966,055,772
See notes to financial statements. Notes to financial statements Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 NOTE 1 - ORGANIZATION Thornburg Limited Term Municipal Fund, Inc. (the "Company") was incorporated in Maryland on February 14, 1984. The Company was reorganized in 1986 as a series investment company with separate investment portfolios. The current portfolios are as follows: National Portfolio (the "Fund") and California Portfolio. The Company 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, Class A, Class C and Institutional Class (Class I) shares. Each class of shares of the Fund represents an interest in the same portfolio of investments, 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, (iii) Class I shares are sold at net asset value without a sales charge at the time of purchase, and (iv) the respective classes have different reinvestment privileges. Additionally, the Fund may allocate among its classes certain expenses, to the extent applicable 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 Fund are limited to service and distribution fees, administrative fees, and certain registration and transfer agent expenses. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the Company are as follows: Valuation of Investments: In determining the net asset value of the Fund, the Company 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, normally at 4:00 p.m. EST 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 Fund are reviewed by the officers of the Company 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 Company 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. When-Issued and Delayed Delivery Transactions: The Company may engage in when-issued or delayed delivery transactions. To the extent the Company engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with the investment objectives of the Fund and not for the purpose of investment leverage or to speculate on interest rate changes. At the time the Company makes a commitment to purchase a security for the Fund, on a when-issued basis, the Fund will record the transaction and reflect the value in determining its net asset value. When effecting such transactions, assets of the Fund of an amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date. Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Company has received payment. Dividends are paid monthly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder's option, paid by check. Net capital gains, to the extent available, will be distributed at least annually. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and 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. Net investment income, other than class specific expenses, and realized and unrealized gains and losses, are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of the dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to all funds are allocated among the funds based upon their relative net asset values or other appropriate allocation methods. 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. Guarantees and Indemnifications: Under the Company's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Company enters into contracts with service providers that contain general indemnification clauses. The Company's maximum exposure under these arrangements is unknown. However, based on experience, the Company expects the risk of loss to be remote. NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement, Thornburg Investment Management, Inc. (the "Advisor") serves as the investment advisor and performs services for which the fees are payable at the end of each month. For the year ended June 30, 2003, these fees were payable at annual rates ranging from .50 of 1% to .225 of 1% of the average daily net assets of the Fund. The Company also has an Administrative Services Agreement with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund's shares, and for which fees will be payable at an annual rate of up to .125 of 1% of the average daily net assets attributable to each class of shares. The Company has an underwriting agreement with Thornburg Securities Corporation (the "Distributor"), which acts as the Distributor of Fund shares. For the year ended June 30, 2003, the Distributor has advised the Fund that it earned commissions aggregating $13,412 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $50,181 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 Company may reimburse to the Advisor 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 Advisor to securities dealers and other financial institutions to obtain various shareholder related services. The Advisor may pay out of its own resources additional expenses for distribution of the Fund's shares. The Company has also adopted a Distribution Plan pursuant to Rule 12b-1, applicable only to the Fund's Class C shares under which the Company compensates 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 Fund under their respective Service and Distribution plans and Class C distribution fees waived by the Distributor for the year ended June 30, 2003, are set forth in the statement of operations. The Company has an agreement with the custodian bank to indirectly pay a portion of the custodian's fees through credits earned by the Fund's cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the statement of operations. For the year ended June 30, 2003 fees paid indirectly were $9,253. Certain officers and directors of the Company are also officers and/or directors of the Advisor and Distributor. The compensation of unaffiliated directors is borne by the Company. NOTE 4 - SHARES OF BENEFICIAL INTEREST At June 30, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended June 30, 2003 June 30, 2002 Shares Amount Shares Amount Class A Shares Shares sold .................... 24,734,784 $ 343,160,230 14,793,127 $ 200,278,818 Shares issued to shareholders in reinvestment of dividends ... 1,359,442 18,874,006 1,279,137 17,324,540 Shares repurchased ............. (12,329,726) (171,130,704) (7,235,058) (97,789,212) Net Increase (Decrease) ........ 13,764,500 $ 190,903,532 8,837,206 $ 119,814,146 Class C Shares Shares sold .................... 7,145,702 $ 99,350,605 2,673,390 $ 36,269,094 Shares issued to shareholders in reinvestment of dividends ... 135,892 1,892,308 67,839 920,499 Shares repurchased ............. (1,670,144) (23,178,065) (394,190) (5,349,305) Net Increase (Decrease) ........ 5,611,450 $ 78,064,848 2,347,039 $ 31,840,288 Class I Shares Shares sold .................... 7,667,976 $ 106,488,989 4,212,256 $ 57,113,329 Shares issued to shareholders in reinvestment of dividends ... 309,747 4,303,264 250,826 3,398,094 Shares repurchased ............. (2,952,400) (40,989,097) (1,816,802) (24,617,971) Net Increase (Decrease) ........ 5,025,323 $ 69,803,156 2,646,280 $ 35,893,452
NOTE 5 - SECURITIES TRANSACTIONS For the year ended June 30, 2003, the Fund had purchase and sale transactions (excluding short-term securities) of $464,940,831 and $169,087,060, respectively. NOTE 6 - INCOME TAXES At June 30, 2003, information on the tax components of capital is as follows: Cost of investments for tax purposes $ 1,249,264,407 Gross tax unrealized appreciation $ 67,526,116 Gross tax unrealized depreciation (213,424) Net tax unrealized appreciation (depreciation) on investments $ 67,312,692 Undistributed tax-exempt income $ 1,056,444 At June 30, 2003, the Fund had tax basis capital losses, which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2004 $ 2,669,769 2008 1,088,098 2009 3,565,103 $ 7,322,970 The Fund utilized $738,463 of capital loss carry forwards during the year ended June 30, 2003. Unutilized tax basis capital losses may be carried forward to offset realized gains in future years. To the extent such carry forwards are used, capital gain distributions may be reduced to the extent provided by regulations. Dividends paid by the Fund for the years ended June 30, 2003 and June 30, 2002, represent exempt interest dividends, which are excludable by shareholders from gross income for Federal income tax purposes. Financial highlights
Year Ended June 30, 2003 2002 2001 2000 1999 Class I Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 13.65 $ 13.44 $ 13.06 $ 13.26 $ 13.51 Income from investment operations: Net investment income ....................... 0.49 0.57 0.63 0.63 0.64 Net realized and unrealized gain (loss) on investments ......... 0.36 0.21 0.38 (0.20) (0.25) Total from investment operations ..................... 0.85 0.78 1.01 0.43 0.39 Less dividends from: Net investment income ............................ (0.49) (0.57) (0.63) (0.63) (0.64) Change in net asset value ............................ 0.36 0.21 0.38 (0.20) (0.25) Net asset value, end of year ......................... $ 14.01 $ 13.65 $ 13.44 $ 13.06 $ 13.26 Total return ......................................... 6.36% 5.91% 7.91% 3.37% 2.87% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 3.54% 4.18% 4.75% 4.84% 4.71% Expenses, after expense reductions .......... 0.58% 0.60% 0.60% 0.60% 0.60% Expenses, after expense reductions and net of custody credits ......... 0.58% 0.60% -- -- -- Expenses, before expense reductions ......... 0.58% 0.62% 0.65% 0.62% 0.61% Portfolio turnover rate .............................. 15.81% 19.59% 25.37% 33.65% 22.16% Net assets at end of year (000) ..................... $ 197,367 $ 123,652 $ 86,160 $ 76,470 $ 81,326
Schedule of Investments Thornburg Limited Term Municipal Fund, Inc. - National Portfolio CUSIPS: CLASS A - 532-723-103, CLASS C - 532-723-509, CLASS I - 532-723-806 NASDAQ SYMBOLS: CLASS A - LTMFX, CLASS C - LTMCX, CLASS I - LTMIX Alabama (1.00%) 980,000 Birmingham General Obligation, 7.25% due 7/1/2004 (ETM)* NR/NR $1,041,368 2,935,000 Huntsville Health Care Series A, 4.65% due 6/1/2024 put 6/1/2005 (Insured: MBIA) Aaa/AAA 3,080,693 1,000,000 Morgan County Decatur Health Care Authority Hospital Revenue, 6.10% due 3/1/2007 NR/AAA 1,044,900 (Insured: Connie Lee) 1,920,000 Scottsboro Industrial Development Board Refunding, 5.25% due 5/1/2009 (LOC: PNC NR/NR 1,980,288 Bank) 500,000 Shelby County Series A, 7.20% due 8/1/2005 (Insured: MBIA) (ETM)* Aaa/AAA 502,505 5,000,000 Wilsonville Industrial Development Board Pollution Control Revenue Refunding, Aaa/AAA 5,335,300 4.20% due 6/1/2019 put 6/1/2006 (Southern Electric Gaston Project; Insured: AMBAC) Alaska (0.10%) 2,070,000 North Slope Borough Alaska, 0% due 6/30/2006 (Insured: MBIA) Aaa/AAA 1,961,077 Arizona (0.90%) 1,000,000 Arizona State Transportation Board Grant Anticipation Notes, 4.80% due 1/1/2004 Aa3/AA- 1,003,180 2,250,000 Arizona State Transportation Board Highway Revenue Subordinated Series A Aa2/AA 2,372,670 Refunding, 4.875% due 7/1/2007 235,000 Glendale Water & Sewer Revenue, 9.00% due 7/1/2003 (ETM)* Aaa/AAA 235,052 650,000 Maricopa County Arizona School District 97, 5.50% due 7/1/2008 (Insured: FGIC) Aaa/NR 748,098 3,200,000 Maricopa County Industrial Development Authority Multi Family Housing Revenue NR/AAA 3,629,536 Series A, 6.50% due 10/1/2025 pre-refunded 10/1/2005 @ 102 1,000,000 Maricopa County School District 008, 7.50% due 7/1/2008 (Insured: MBIA) Aaa/AAA 1,242,540 500,000 Maricopa County Unified School District 40 General Obligation, 5.60% due A3/A- 500,060 7/1/2003 1,000,000 Pima County Industrial Development Authority Education Revenue Series C, 6.40% Baa3/NR 1,021,940 due 7/1/2013 (Arizona Charter Schools Project) 760,000 Pima County Industrial Development Authority Industrial Revenue Refunding Lease Aaa/AAA 804,726 Obligation A, 7.25% due 7/15/2010 (Insured: FSA) 500,000 Tucson Water Revenue Series D, 9.75% due 7/1/2008 Aa3/A+ 672,550 Arkansas (0.80%) 2,000,000 Conway Electric Revenue Refunding, 5.00% due 8/1/2007 A2/NR 2,203,080 1,000,000 Fayetteville Arkansas Sales & Use Tax Capital Improvement, 4.00% due 6/1/2005 NR/AA- 1,045,570 1,000,000 Jefferson County Hospital Revenue Refunding & Improvement, 5.50% due 6/1/2010 NR/A 1,117,120 (Regional Medical Center Project) 1,075,000 Jefferson County Hospital Revenue Refunding & Improvement, 5.50% due 6/1/2011 NR/A 1,193,895 (Regional Medical Center Project) 2,645,000 Little Rock Hotel & Restaurant Gross Receipts Tax Refunding, 7.125% due 8/1/2009 A3/NR 3,179,634 1,735,000 Rogers Sales & Use Tax Revenue, 6.00% due 11/1/2007 A1/AA 1,788,768 California (3.70%) 1,350,000 Bay Area Government Association Rapid Transit, 5.00% due 6/15/2008 (Insured: Aaa/AAA 1,354,144 AMBAC) 2,600,000 California State Department Water Resources Power Supply Series A, 5.50% due A3/BBB+ 2,943,564 5/1/2012 2,550,000 California State Department Water Resources Power Supply Series A, 6.00% due A3/BBB+ 2,970,597 5/1/2013 4,120,000 Irvine Improvement Bond Act 1915 Adjusted Assessment District, 1.20% due VMIG1/A-1 4,120,000 9/2/2024 put 7/1/2003 (daily demand notes) 400,000 Irvine Improvement Bond Act 1915 Assessment District Number 00-18 Series A, VMIG1/NR 400,000 1.20% due 9/2/2026 put 7/1/2003 (LOC: Bank of New York) (daily demand notes) 2,000,000 Irvine Improvement Bond Act 1915 Limited Obligation Assessment District, 1.20% VMIG1/A1+ 2,000,000 due 9/2/2025 put 7/1/2003 (daily demand notes) 900,000 Irvine Ranch California Water District, 0.85% due 4/1/2033 put 7/1/2003 (daily VMIG1/A1+ 900,000 demand notes) 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aaa/AA- 41,338 9.00% due 9/1/2004 pre-refunded 9/1/2003 420,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 433,856 9.00% due 9/1/2004 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 41,334 9.00% due 9/1/2004 (ETM)* 7,050,000 Metropolitan Water District Southern California Waterworks Revenue, 0.90% due VMIG1/A1+ 7,050,000 7/1/2035 put 7/1/2003 (daily demand notes) 1,275,000 Metropolitan Water District Southern California Waterworks Revenue Series C-1, VMIG1/A1+ 1,275,000 1.00% due 7/1/2036 put 7/1/2003 (daily demand notes) 7,600,000 Orange County Refunding Recovery, 6.50% due 6/1/2004 (Insured: MBIA) Aaa/AAA 7,981,064 5,200,000 Orange County Refunding Recovery, 6.50% due 6/1/2005 (Insured: MBIA) Aaa/AAA 5,709,860 1,440,000 Orange County Special Financing Authority Teeler Pan Revenue, 1.10% due Aaa/A-1 1,440,000 11/1/2014 put 7/8/2003 (weekly demand notes) 300,000 Orange County Special Financing Authority Teeter Plan Revenue Series D, 1.20% Aaa/A-1 300,000 due 11/1/2014 put 7/8/2003 (Insured: AMBAC) (weekly demand notes) 1,000,000 San Francisco Port Community Revenue, 9.00% due 7/1/2003 A1/A- 1,000,210 3,000,000 San Jose Financing Authority Lease Revenue Series D, 5.00% due 6/1/2039 Aaa/AAA 3,291,570 mandatory put 6/1/2006 (Civic Center Project; Insured: AMBAC) 4,180,000 Santa Margarita & Dana Point Authority Revenue Improvement District Series A, Aaa/AAA 4,210,180 9.50% due 8/1/2003 (Insured: MBIA) 800,000 Stockton Multi Family Housing Revenue Series A, 1.25% due 9/1/2018 put 7/1/2003 NR/A1+ 800,000 (Mariners Pointe Associates Project; LOC: Credit Suisse) (daily demand notes) Colorado (2.60%) 1,500,000 Adams County Communication Center Series A, 4.75% due 12/1/2006 Baa1/NR 1,597,890 1,000,000 Adams County School District Number 012 Series A, 4.375% due 12/15/2007 Aa3/AA- 1,100,990 6,000,000 Central Platte Valley Metropolitan District Co. Refunding Series A, 5.00% due NR/A-1 6,531,960 12/1/2031 put 12/1/2009 (LOC: US Bank) 1,950,000 Colorado Department Transport Revenue Anticipation Notes, 6.00% due 6/15/2008 Aaa/AAA 2,284,464 (Insured: AMBAC) 1,000,000 Colorado Educational & Cultural Facilities, 4.90% due 4/1/2008 (Nashville Public NR/BBB+ 1,074,810 Radio Project) 5,705,000 Colorado Health Facilities Authority Revenue Catholic Health Initiatives, 5.00% Aa2/A1+ 6,279,779 due 9/1/2007 515,000 Colorado Health Facilities Authority Revenue Catholic Health Initiatives A, Aa2/A1+ 572,515 5.375% due 12/1/2009 475,000 Colorado Housing Finance Authority, 5.25% due 10/1/2007 A1/AA+ 478,634 500,000 Denver City & County Certificates Participation Series A, 5.50% due 5/1/2006 Aaa/AAA 554,625 (Insured: MBIA) 2,650,000 Denver City & County Certificates Participation Series B, 5.00% due 12/1/2010 Aa2/AA 2,941,129 500,000 Denver Colorado Health & Hospital Authority Healthcare Revenue Series A, 1.30% VMIG1/A-1 500,000 due 12/1/2032 put 7/1/2003 (LOC: Bank One) (daily demand notes) 1,820,000 Dove Valley Metropolitan District Colorado Arapahoe County, Series B, 3.30% due NR/A1+ 1,876,493 11/1/2025 Put 11/1/2005 @100 (LOC: BNP Paribas) 500,000 El Paso County School District General Obligation 20 Series B, 8.25% due Aa3/NR 550,990 12/15/2004 (State Aid Withholding) 2,175,000 Highlands Ranch Metro District 2 General Obligation, 6.00% due 6/15/2004 Aaa/AAA 2,278,269 (Insured: FSA) 1,000,000 Lakewood Colorado Certificates Participation, 4.40% due 12/1/2008 (Insured: Aaa/AAA 1,102,120 MBIA) 1,000,000 Section 14 Metropolitan District Jefferson Refunding Series A, 6.20% due NR/A+ 1,069,020 12/1/2013 (LOC: US Bank Trust) 1,150,000 Superior Metropolitan District 1 Variable Refunding & Improvement Series A, NR/AA- 1,199,208 5.45% due 12/1/2020 put 12/1/2004 (LOC: BNP) 2,725,000 Westminister Multi Family Housing Revenue Series 1995, 5.95% due 9/1/2015 put NR/AA 2,767,401 9/1/2006 (Semper Village Apartments Project; Insured: AXA) Connecticut (0.80%) 1,685,000 Bridgeport General Obligation, 6.00% due 3/1/2005 (Insured: AMBAC) Aaa/AAA 1,813,498 1,325,000 Bridgeport General Obligation, 6.00% due 3/1/2006 (Insured: AMBAC) Aaa/AAA 1,474,884 1,045,000 Capitol Region Education Council, 6.375% due 10/15/2005 NR/BBB 1,134,275 1,100,000 Connecticut State Health & Educational Yale University Series V-1, 1.00% due VMIG1/A1+ 1,100,000 7/1/2036 put 7/1/2003 (daily demand notes) 2,425,000 Connecticut State Health And Educational Facilities Authority Revenue Yale VMIG1/A1+ 2,425,000 University Series V-2, 1.00% due 7/1/2036 put 7/1/2003 (daily demand notes) 2,010,000 New Haven Connecticut, 3.00% due 11/1/2004 (Insured: FGIC) Aaa/AAA 2,062,481 500,000 New Haven General Obligation, 9.50% due 11/15/2003 A3/A- 514,825 Delaware (0.40%) 2,000,000 Delaware State Health Facilities Authority Revenue, 6.25% due 10/1/2006 Aaa/AAA 2,156,800 (Insured: MBIA) (ETM)* 1,370,000 Delaware State Health Facilities Authority Revenue Nanticoke Series A, 5.25% due NR/AA 1,507,795 5/1/2012 (Memorial Hospital Project; Insured: Radian) 1,445,000 Delaware State Health Facilities Authority Revenue Nanticoke Series A, 5.25% due NR/AA 1,574,096 5/1/2013 (Memorial Hospital Project; Insured: Radian) District of Columbia (3.00%) 2,825,000 District of Columbia Refunding Series B-1, 5.20% due 6/1/2004 (Insured: AMBAC) Aaa/AAA 2,932,858 745,000 District of Columbia, 5.50% due 6/1/2004 (Insured: FSA) Aaa/AAA 775,478 605,000 District of Columbia, 5.50% due 6/1/2008 (Insured: AMBAC) Aaa/AAA 692,217 5,950,000 District of Columbia Certificates Participation, 5.25% due 1/1/2013 (Insured: Aaa/AAA 6,693,393 AMBAC) 4,430,000 District of Columbia Hospital Revenue, 5.70% due 8/15/2008 (Medlantic Healthcare Aaa/AAA 5,048,074 Project; Insured: MBIA) (ETM)* 1,500,000 District of Columbia Hospital Revenue Refunding, 5.10% due 8/15/2008 (Medlantic Aaa/AAA 1,688,010 Healthcare Group A Project; Insured: MBIA) (ETM)* 1,250,000 District of Columbia Refunding Series C, 5.00% due 6/1/2007 (Insured: XLCA) Aaa/AAA 1,380,575 1,330,000 District of Columbia Revenue, 6.00% due 8/15/2005 (Medlantic Healthcare Project; Aaa/AAA 1,459,688 Insured: MBIA) (ETM)* 500,000 District of Columbia Revenue, 5.50% due 10/1/2005 Aaa/AAA 545,060 500,000 District of Columbia Revenue, 6.00% due 1/1/2007 (American Assoc. Advancement Aaa/AAA 565,160 Science Project; Insured: AMBAC) 2,000,000 District of Columbia Tax Capital Appreciation, 0% due 7/1/2009 (Mandarin Aaa/AAA 1,637,440 Oriental Project; Insured: FSA) 1,480,000 District of Columbia Tax Capital Appreciation, 0% due 7/1/2012 (Mandarin Aaa/AAA 1,032,478 Oriental Project; Insured: FSA) 1,990,000 District of Columbia Tax Revenue Capital Appreciation, 0% due 7/1/2011 (Mandarin Aaa/AAA 1,462,013 Oriental Project; Insured: FSA) 5,000,000 District of Columbia Unrefunded Balance Series B, 5.75% due 6/1/2009 (Insured: Aaa/AAA 5,842,400 MBIA) 6,010,000 Washington DC Convention Center Senior Lien, 5.00% due 10/1/2007 Aaa/AAA 6,717,978 750,000 Washington District of Columbia Convention Center Authority Dedicated Tax Aaa/AAA 828,232 Revenue, 5.00% due 10/1/2006 (Insured: AMBAC) Florida (5.40%) 5,500,000 Broward County Resource Recovery Revenue Refunding, 5.375% due 12/1/2009 A3/AA- 6,099,610 4,150,000 Capital Projects Finance Authority, 1.00% due 6/1/2012 put 7/1/2003 (LOC: Bank VMIG1/NR 4,150,000 of Scotland) (daily demand notes) 1,000,000 Capital Projects Finance Authority Student Housing, 5.50% due 10/1/2012 (Capital Aaa/AAA 1,134,020 Projects Student Housing; Insured: MBIA) 2,996,000 Crossings at Fleming Island Community Development Refunding Series B, 5.45% due Aaa/AAA 3,463,316 5/1/2010 (Insured: MBIA) 6,000,000 Dade County Solid Waste Systems Special Obligation Revenue Refunding, 6.00% due Aaa/AAA 6,968,280 10/1/2007 (Insured: AMBAC) 5,000,000 Dade County Water & Sewer Systems Revenue, 1.30% due 10/5/2022 put 7/8/2003 VMIG1/A1+ 5,000,000 (Insured: FGIC) (weekly demand notes) 200,000 East County Water Control District Lee County Drain, 5.50% due 11/1/2003 NR/AA 202,852 (Insured: Radian) 800,000 Florida Housing Finance Agency Multi Family Housing Kings D, 1.30% due 8/1/2006 NR/A1+ 800,000 put 7/8/2003 (LOC: Credit Suisse First Boston) (weekly demand notes) 1,375,000 Florida State, 8.25% due 7/1/2003 (Pollution Control Project) Aa2/AA+ 1,375,275 2,450,000 Hillsborough County Industrial Development Authority Pollution Control Revenue Baa1/BBB- 2,474,892 Refunding, 4.00% due 5/15/2018 put 8/1/2007 (Tampa Electric Co. Project) 40,000 Hillsborough County Utility Revenue Refunding, 9.75% due 12/1/2003 (ETM)* Aaa/AAA 41,464 1,000,000 Jacksonville Electric Authority Revenue Refunding Series 10, 6.50% due 10/1/2003 Aa2/AA 1,013,590 5,000,000 Jacksonville Electric St. John's River Park Systems Revenue Refunding Issue-2 Aa2/AA 5,708,800 17th Series, 5.25% due 10/1/2012 1,910,000 Miami Dade County School Board Certificates Participation Series A, 5.00% due Aaa/AAA 2,096,588 5/1/2006 (Insured: MBIA) 3,390,000 Miami Dade County School Board Certificates Participation Series C, 5.00% due Aaa/AAA 3,796,969 8/1/2007 (Insured: MBIA) 3,850,000 Miami Dade County Special Housing Revenue Refunding, 5.80% due 10/1/2012 A3/NR 3,908,520 1,395,000 Orange County Health Facilities Authority, 5.80% due 11/15/2009 (Hospital A3/A 1,579,572 Adventist Health System Project) 3,120,000 Orange County Health Facilities Authority Revenue Refunding, 6.25% due Aaa/AAA 3,523,104 11/15/2008 (Hospital Adventist Health Systems Project; Insured: AMBAC) 925,000 Orange County Health Facilities Authority Revenue Unrefunded Balance Series A, Aaa/AAA 1,082,824 6.25% due 10/1/2007 (Orlando Regional Hospital Project; Insured: MBIA) 800,000 Orange County School Board Certificates Participation Series B, 1.20% due VMIG1/AAA 800,000 8/1/2027 put 7/1/2003 (Insured: MBIA) (daily demand notes) 8,080,000 Orange County School District Series B, 0.90% due 8/1/2025 put 7/1/2003 Aaa/NR 8,080,000 (Insured: AMBAC) (daily demand notes) 940,000 Palm Beach County Industrial Development Revenue Series 1996, 6.00% due NR/A 1,072,230 12/1/2006 (Lourdes-Noreen McKeen Residence Project; LOC: Allied Irish Bank) (ETM)* 3,940,000 Pelican Marsh Community Development District Refunding Series A, 5.00% due NR/NR 4,178,212 5/1/2011 (Insured: Radian) 2,000,000 University Athletic Association Inc. Florida Athletic Program Revenue Refunding, VMIG1/NR 2,020,400 2.20% due 10/1/2031 put 10/1/2005 (LOC: Suntrust Bank) Georgia (1.40%) 1,700,000 Burke County Development Authority Pollution, 6.35% due 1/1/2004 (Oglethorpe Aaa/AAA 1,744,795 Power Corp. Project; Insured: MBIA) 500,000 Cobb County School District, 4.75% due 2/1/2005 Aa1/AA+ 511,400 1,000,000 Dekalb County, 5.50% due 1/1/2004 Aaa/AA+ 1,022,260 1,000,000 Georgia Municipal Association Inc. Certificates of Participation City Court Aaa/AAA 1,111,270 Atlanta Project, 5.00% due 12/1/2006 (Insured: AMBAC) 1,550,000 Georgia Municipal Electric Power Authority Revenue, 7.00% due 1/1/2008 (Insured: Aaa/AAA 1,856,993 MBIA) 730,000 Georgia Municipal Electric Power Authority Revenue Series Y, 6.30% due 1/1/2006 A2/A+ 807,957 1,000,000 Georgia Municipal Gas Authority, 6.30% due 7/1/2009 (Southern Storage Gas NR/A 1,046,800 Project) 5,000,000 Milledgeville Baldwin County Development Authority Student Housing Revenue, VMIG1/NR 5,187,900 5.00% due 9/1/2032 put 9/1/2004 (Ga. College & State University Foundation Project; LOC: First Union Natl Bank) 2,000,000 Monroe County Development Authority Pollution Control, 6.75% due 1/1/2010 Aaa/AAA 2,449,360 (Oglethorpe Power Scherer A Refunding; Insured: MBIA) 1,000,000 Monroe County Development Authority Pollution Control Revenue Oglethorpe Power Aaa/AAA 1,259,350 Scherer A, 6.80% due 1/1/2012 (Insured: MBIA) 910,000 Municipal Electric Authority Georgia Unrefunded Balance Subordinated A, 6.00% Aaa/AAA 1,008,562 due 1/1/2006 (Project One; Insured: AMBAC) Hawaii (0.50%) 2,000,000 Hawaii State Department Budget & Finance Special Purpose Hawaiian Electric Co., Aaa/AAA 2,228,880 4.95% due 4/1/2012 (Insured: MBIA) 1,500,000 Hawaii State Department Budget & Finance Special Purpose Mortgage Revenue, 5.70% Baa1/BBB+ 1,500,165 due 7/1/2003 (Kapiolani Health Care System Project) 1,565,000 Hawaii State Series Cn, 6.25% due 3/1/2006 (Insured: FGIC) Aaa/AAA 1,755,695 1,000,000 Honolulu City & County Refunding Series A, 7.35% due 7/1/2006 Aa3/AA- 1,163,530 Illinois (11.50%) 3,345,000 Champaign County Community Unit Series C, 0% due 1/1/2009 (Insured: FGIC) Aaa/AAA 2,847,164 2,000,000 Chicago Board of Education, 6.00% due 12/1/2009 (Insured: FGIC) Aaa/AAA 2,391,120 750,000 Chicago Board of Education School Reform, 6.25% due 12/1/2012 (Insured: MBIA) Aaa/AAA 927,300 2,300,000 Chicago Housing Authority Capital Program Revenue, 5.25% due 7/1/2010 Aa3/AA 2,515,349 2,000,000 Chicago Metropolitan Water Reclamation District, 6.90% due 1/1/2007 Aaa/AA+ 2,330,220 1,340,000 Chicago Midway Airport Revenue Series A, 5.40% due 1/1/2009 (Insured: MBIA) Aaa/AAA 1,501,617 900,000 Chicago Midway Airport Revenue Series C, 5.50% due 1/1/2013 (Insured: MBIA) Aaa/AAA 1,038,159 3,420,000 Chicago O'Hare International Airport Refunding General Airport Series A, 6.375% Aaa/AAA 3,727,766 due 1/1/2012 (Insured: MBIA) 1,000,000 Chicago O'Hare International Airport Revenue, 5.375% due 1/1/2007 (Insured: Aaa/AAA 1,101,280 AMBAC) 1,105,000 Chicago O'Hare International Airport Revenue, 5.00% due 1/1/2012 (Insured: MBIA) Aaa/AAA 1,222,561 1,000,000 Chicago O'Hare International Airport Revenue 2nd Lien Series C-1, 5.00% due Aaa/AAA 1,121,120 1/1/2010 (Insured: MBIA) 3,000,000 Chicago O'Hare International Airport Revenue Passenger Facility Change Series A, Aaa/AAA 3,320,220 6.00% due 1/1/2006 (Insured: AMBAC) 5,000,000 Chicago O'Hare International Airport Revenue Refunding, 4.80% due 1/1/2005 Aaa/AAA 5,186,250 (Insured: AMBAC) 5,000,000 Chicago O'Hare International Airport Revenue Refunding Series A, 4.90% due Aaa/AAA 5,187,900 1/1/2006 (Insured: MBIA) 1,000,000 Chicago O'Hare International Airport Revenue Series C-1, 5.00% due 1/1/2008 Aaa/AAA 1,113,050 (Insured: MBIA) 1,700,000 Chicago Park District, 6.60% due 11/15/2014 partially pre-refunded 5/15/2005 Aa3/AA 1,885,980 1,000,000 Chicago Park District Parking Facility Revenue, 5.25% due 1/1/2004 (ETM)* Baa1/A 1,021,620 1,000,000 Chicago Park District Parking Facility Revenue, 5.75% due 1/1/2010 (ETM)* Baa1/A 1,176,220 750,000 Chicago Public Building Commerce Building Revenue, 5.00% due 3/1/2005 (Insured: Aaa/AAA 795,630 AMBAC) 2,000,000 Chicago Public Building Commerce Building Revenue Series C, 5.50% due 2/1/2006 Aaa/AAA 2,198,400 (Insured: FGIC) 2,000,000 Chicago Refunding Series A, 5.375% due 1/1/2013 (Insured: MBIA) Aaa/AAA 2,282,440 1,000,000 Chicago Refunding Series A-2, 6.125% due 1/1/2012 (Insured: AMBAC) Aaa/AAA 1,208,790 5,000,000 Chicago Tax Increment Allocation Capital Appreciation Central Series A, 0% due Aaa/AAA 4,812,050 12/1/2005 (Insured: AMBAC) 1,000,000 Collinsville Leased Facilities Revenue Refunding, 5.15% due 11/1/2004 (Insured: Aaa/AAA 1,023,240 MBIA) 2,545,000 Cook & Will Counties Township High School District 206 Series C, 0% due Aaa/AAA 2,449,333 12/1/2005 (Insured: FSA) 995,000 Cook County Capital Improvement, 5.50% due 11/15/2008 pre-refunded 11/15/2006 Aaa/AAA 1,134,061 3,350,000 Cook County Community Unified School District 401 Series 1996, 0% due 12/1/2003 Aaa/AAA 3,335,997 (Insured: FSA) 2,650,000 Cook County Series C Refunding, 5.80% due 11/15/2004 (Insured: FGIC) Aaa/AAA 2,820,210 5,000,000 Du Page County Forest Preservation District, 0% due 11/1/2009 Aaa/AAA 4,156,600 1,500,000 Glenview Multi Family Revenue Refunding, 5.20% due 12/1/2027 put 12/1/2007 NR/AAA 1,622,955 (Collateralized: FNMA) 1,015,000 Hoffman Estates Illinois Tax Increment Revenue, 0% due 5/15/2005 A3/NR 946,610 3,075,000 Hoffman Estates Illinois Tax Increment Revenue, 0% due 5/15/2006 (Hoffman A3/NR 2,750,249 Estates Economic Dev. Project; Guarantee: Sears) 5,000,000 Hoffman Estates Illinois Tax Increment Revenue Refunding, 5.25% due 11/15/2009 Aaa/AAA 5,264,350 (Economic Development Project; Insured: AMBAC) 1,500,000 Hoffman Estates Tax Increment Revenue, 0% due 5/15/2004 A3/NR 1,456,650 3,000,000 Illinois Development Finance Authority Pollution Control Revenue Refunding, Aaa/AAA 3,420,360 5.70% due 1/15/2009 (Commonwealth Edison Company Project; Insured: MBIA) 860,000 Illinois Development Finance Authority Revenue, 4.00% due 11/15/2005 (Insured: Aaa/AAA 908,521 XLCA) 915,000 Illinois Development Finance Authority Revenue, 4.00% due 11/15/2006 (Insured: Aaa/AAA 979,526 XLCA) 3,635,000 Illinois Development Finance Authority Revenue, 6.00% due 11/15/2009 (Adventist Aaa/AAA 4,231,940 Health Project; Insured: MBIA) 3,860,000 Illinois Development Finance Authority Revenue, 6.00% due 11/15/2010 (Adventist Aaa/AAA 4,491,843 Health Project; Insured: MBIA) 785,000 Illinois Development Finance Authority Revenue, 5.25% due 2/15/2011 (Insured: NR/AAA 830,452 AMBAC) 400,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 407,928 Providers A, 5.60% due 7/1/2004 1,000,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 1,032,600 Providers A, 5.60% due 7/1/2005 1,000,000 Illinois Development Finance Authority Revenue Refunding Community Rehab NR/BBB 1,038,600 Providers A, 5.60% due 7/1/2006 500,000 Illinois Health Facilities Authority Revenue, 5.20% due 10/1/2003 (Illinois A3/NR 505,305 Masonic Medical Center Project) (ETM)* 2,100,000 Illinois Health Facilities Authority Revenue, 5.50% due 11/15/2003 (Advocate Aa3/AA 2,131,962 Network Health Care Project) 915,000 Illinois Health Facilities Authority Revenue, 5.50% due 11/15/2007 (OSF A2/A 1,010,590 Healthcare System Project) 1,000,000 Illinois Health Facilities Authority Revenue, 5.75% due 11/15/2007 (OSF A2/A 1,030,210 Healthcare System Project) 1,290,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2008 (Iowa Health A1/NR 1,478,172 System Project) 1,375,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2009 (Iowa Health A1/NR 1,589,899 System Project) 1,465,000 Illinois Health Facilities Authority Revenue, 6.50% due 2/15/2010 (Iowa Health A1/NR 1,701,744 System Project) 1,560,000 Illinois Health Facilities Authority Revenue, 6.00% due 2/15/2011 (Iowa Health Aaa/AAA 1,801,753 System Project; Insured: AMBAC) 3,000,000 Illinois Health Facilities Authority Revenue Refunding, 5.50% due 11/15/2011 Aaa/AAA 3,351,360 (Methodist Medical Center Project; Insured: MBIA) 395,000 Illinois Health Facilities Authority Revenue Series 1993-A, 7.875% due 8/15/2005 NR/NR 402,248 (Community Provider Pooled Loan Program Project) 1,885,000 Illinois Health Facilities Authority Revenue Series A, 9.25% due 7/1/2024 Aaa/NR 2,057,195 pre-refunded 7/1/2004 (Edgewater Medical Center Project) 1,040,000 Illinois Hospital District, 5.50% due 1/1/2010 (Insured: FGIC) Aaa/AAA 1,176,822 500,000 Illinois State COPS Central Management Department, 5.00% due 7/1/2007 (Insured: Aaa/AAA 557,425 AMBAC) 1,000,000 Illinois State Partners Series A, 6.00% due 7/1/2006 (Insured: AMBAC) Aaa/AAA 1,125,990 2,000,000 Illinois State Refunding, 5.125% due 12/1/2006 (Insured: FGIC) Aaa/AAA 2,202,580 5,000,000 Illinois State Sales Tax Revenue First Series, 5.00% due 6/15/2006 Aa3/AAA 5,491,400 1,150,000 Kane, Mc Henry, Cook & De Kalb Counties Community Unit School District 300, 0% Aaa/NR 896,345 due 12/1/2010 (Insured: AMBAC) 2,000,000 Lake County Community High School District 117 Series B, 0% due 12/1/2006 Aaa/NR 1,873,240 (Insured: FGIC) 3,235,000 Lake County Community High School District 117 Series B, 0% due 12/1/2011 Aaa/NR 2,397,556 (Insured: FGIC) 1,000,000 McHenry & Kane Counties Community Consolidated School District Number 158, 0% Aaa/AAA 803,130 due 1/1/2010 (Insured: FGIC) 3,900,000 Metropolitan Pier & Exposition Authority, 0% due 6/15/2004 (Insured: AMBAC) Aaa/AAA 3,863,808 1,250,000 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Refunding Aaa/AAA 1,437,075 Series A-2002, 6.00% due 6/15/2007 (McCormick Place Exposition Project; Insured: AMBAC) 3,750,000 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Refunding Aaa/AAA 4,247,587 Series A-2002, 6.00% due 6/15/2007 pre-refunded 6/15/2006 @102 (McCormick Place Exposition Project; Insured: AMBAC) 2,445,000 Naperville City, Du Page & Will Counties Economic Development Revenue, 6.10% due NR/A+ 2,618,888 5/1/2008 (Hospital & Health System Association Project; LOC: American National Bank) 1,100,000 Peoria Public Building Commission School District Facilities Revenue, 0% due Aaa/NR 993,256 12/1/2007 (Insured: FGIC) 6,300,000 University of Illinois Revenues, 0% due 10/1/2006 (Insured: MBIA) Aaa/AAA 5,933,718 5,000,000 Will County Community School 365-U Capital Appreciation, 0% due 11/1/2011 Aaa/AAA 3,716,650 (Insured: FSA) Indiana (4.60%) 1,370,000 Allen County Economic Development Revenue, 5.00% due 12/30/2012 (Indiana NR/NR 1,462,872 Institute of Technology Project) 965,000 Allen County Economic Development Revenue First Mortgage, 5.20% due 12/30/2005 NR/NR 1,034,557 (Indiana Institute of Technology Project) 690,000 Allen County Economic Development Revenue First Mortgage, 5.30% due 12/30/2006 NR/NR 754,846 (Indiana Institute of Technology Project) 1,110,000 Allen County Economic Development Revenue First Mortgage, 5.60% due 12/30/2009 NR/NR 1,226,173 (Indiana Institute of Technology Project) 1,115,000 Allen County Jail Building Corp. First Mortgage, 5.75% due 10/1/2010 Aa3/NR 1,313,470 1,000,000 Ball State University Revenues Student Fee Series K, 5.75% due 7/1/2012 Aaa/AAA 1,181,170 (Insured: FGIC) 1,085,000 Boone County Hospital Association Lease Revenue, 5.00% due 1/15/2007 (Insured: Aaa/AAA 1,198,686 FGIC) (ETM)* 850,000 Boonville Junior High School Building Corp. Revenue, 0% due 7/1/2010 (State Aid) NR/A 657,084 850,000 Boonville Junior High School Building Corp. Revenue, 0% due 1/1/2011 (State Aid) NR/A 634,755 950,000 Boonville Junior High School Building Corp. Revenue Refunding, 0% due 7/1/2011 NR/A 695,761 (State Aid) 1,175,000 Center Grove 2000 Building First Mortgage, 5.00% due 7/15/2009 (Insured: AMBAC) Aaa/AAA 1,330,170 1,135,000 Center Grove 2000 Building First Mortgage, 5.00% due 7/15/2010 (Insured: AMBAC) Aaa/AAA 1,283,424 910,000 Eagle Union Middle School Building Corp., 5.50% due 7/15/2009 (Insured: AMBAC) Aaa/AAA 1,066,875 (ETM)* 1,860,000 Elberfeld J. H. Castle School Building Corp. Indiana First Mortgage (State Aid), NR/A 1,757,049 0% due 1/15/2006 1,860,000 Elberfeld J. H. Castle School Building Corp. Indiana First Mortgage Refunding, Aaa/AAA 1,621,083 0% due 7/5/2008 (Insured: MBIA) 500,000 Fort Wayne Economic Development Income Tax Revenue, 3.90% due 12/1/2003 Aaa/NR 505,840 (Insured: FSA) 965,000 Goshen Multi School Building Corp. 1st Mortgage, 5.20% due 7/15/2007 (Insured: Aaa/AAA 1,084,110 MBIA) 2,305,000 Hammond Multi-School Building Corp. First Mortgage Refunding Bond Series 1997, NR/A 2,588,446 6.00% due 7/15/2008 (Lake County Project) 1,805,000 Hobart Building Corp. First Mortgage, 5.30% due 8/1/2005 (Insured: AMBAC) Aaa/AAA 1,829,747 390,000 Huntington Economic Development Revenue, 6.00% due 11/1/2006 (United Methodist NR/NR 414,547 Membership Project) 700,000 Huntington Economic Development Revenue, 6.15% due 11/1/2008 (United Methodist NR/NR 758,268 Membership Project) 790,000 Huntington Economic Development Revenue, 6.20% due 11/1/2010 (United Methodist NR/NR 845,592 Membership Project) 285,000 Indiana Health Facility Financing Authority Hospital Revenue, 5.75% due Aaa/NR 299,943 11/1/2005 (Daughter's Charity Project) (ETM)* 1,295,000 Indiana Health Facility Financing Authority Hospital Revenue Series D, 5.00% due Aaa/NR 1,426,766 11/1/2026 pre-refunded 11/1/2007 1,335,000 Indiana Health Facility Financing Authority Revenue A, 1.05% due 10/1/2032 put NR/A-1 1,335,000 7/1/2003 (Fayette Memorial Hospital Association Project; LOC: U.S. Bank & Trust) (daily demand notes) 670,000 Indiana State Educational Facilities Authority Revenue, 5.75% due 10/1/2009 NR/A- 753,683 (University Indianapolis Project) 1,000,000 Indiana State Office Building Commission Capital Complex Revenue, 5.00% due Aaa/AAA 1,022,740 7/1/2005 (Insured: AMBAC) 2,500,000 Indiana University Revenues Refunding, 0% due 8/1/2007 (Insured: AMBAC) Aaa/AAA 2,275,125 1,100,000 Indianapolis Airport Authority Revenue Refunding Series A, 5.35% due 7/1/2007 Aaa/AAA 1,225,202 (Insured: FGIC) 1,220,000 Indianapolis Local Public Improvement Bond Bank Transportation Revenue, 0% due Aa2/AA- 1,187,328 7/1/2005 (ETM)* 1,240,000 Indianapolis Local Public Improvement Bond Bank Transportation Revenue, 0% due Aa2/AA- 1,178,893 7/1/2006 (ETM)* 2,200,000 Indianapolis Resource Recovery Revenue Refunding, 6.75% due 12/1/2004 (Ogden Aaa/AAA 2,359,082 Martin Systems, Inc. Project; Insured: AMBAC) 2,000,000 Indianapolis Resource Recovery Revenue Refunding, 6.75% due 12/1/2006 (Ogden Aaa/AAA 2,292,440 Martin Systems, Inc. Project; Insured: AMBAC) 855,000 Knox Middle School Building Corp. First Mortgage, 6.00% due 7/15/2008 (Insured: Aaa/AAA 1,000,239 FGIC) 455,000 Knox Middle School Building Corp. First Mortgage, 6.00% due 7/15/2009 (Insured: Aaa/AAA 539,239 FGIC) 890,000 Merrillville Multi School Building Corp. Refunding First Mortgage, 6.55% due Aaa/AAA 980,362 7/1/2005 (Insured: MBIA) 625,000 Monroe County Community School Building Corp. Revenue Refunding, 5.00% due Aaa/AAA 689,356 1/15/2007 (Insured: AMBAC) 535,000 New Albany Floyd County School Building Corp., 6.20% due 7/1/2003 (ETM)* NR/NR 535,075 800,000 North Adams Community Schools, 3.50% due 7/15/2004 (Insured: FSA) Aaa/AAA 820,352 940,000 North Adams Community Schools, 4.00% due 7/15/2005 (Insured: FSA) Aaa/AAA 989,876 1,070,000 North Central Campus School Building Corp. Indiana, 4.50% due 7/10/2005 Aaa/AAA 1,137,763 (Insured: AMBAC) 1,000,000 Northwest Allen Building Corp. First Mortgage, 5.30% due 12/1/2005 (Insured: Aaa/AAA 1,058,450 MBIA) 835,000 Peru Community School Corp. Capital Appreciation Refunding First Mortgage, 0% NR/A 645,488 due 7/1/2010 1,450,000 Tri Creek School Building Corp. Inc. First Mortgage, 5.00% due 1/15/2004 NR/AA- 1,481,305 1,540,000 Vigo County Elementary School Building Corp. Refunding & Improvement First Aaa/AAA 1,632,261 Mortgage, 4.00% due 1/10/2006 (Insured: FSA) 1,635,000 Vigo County Elementary School Building Corp. Refunding & Improvement First Aaa/AAA 1,752,181 Mortgage, 4.00% due 1/10/2008 (Insured: FSA) 995,000 Wawasee Community School Corp. First Mortgage, 5.50% due 7/15/2010 (State Aid) NR/AA- 1,132,797 1,095,000 Wawasee Community School Corp. First Mortgage, 5.50% due 7/15/2011 (State Aid) NR/AA- 1,250,129 2,080,000 West Clark School Building Corp. First Mortgage, 5.75% due 7/15/2011 (Insured: Aaa/AAA 2,459,725 FGIC) 1,820,000 Westfield Elem. School Building Corp. First Mortgage Series 1997, 6.80% due Aaa/AAA 2,150,785 7/15/2007 (Insured: AMBAC) (ETM)* Iowa (2.90%) 4,320,000 Ames Hospital Revenue, 6.25% due 8/15/2006 (Insured: AMBAC) Aaa/AAA 4,391,453 2,900,000 Ankeny Community School District Sales & Services Tax Revenue, 5.00% due NR/A+ 3,178,458 7/1/2010 3,660,000 Des Moines Limited Obligation Revenue, 6.25% due 12/1/2015 put 12/1/2005 (Des NR/NR 3,666,881 Moines Parking Associates Project; LOC: Wells Fargo Bank) 6,650,000 Iowa Finance Authority Commercial Development Revenue Refunding, 5.75% due NR/AA 7,180,537 4/1/2014 put 4/1/2010 (Governor Square Project; Insured: AXA) 435,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2007 (Iowa A1/NR 491,058 Health Services Project) 1,765,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2009 (Iowa A1/NR 2,041,823 Health Services Project) 1,955,000 Iowa Finance Authority Hospital Facility Revenue, 6.50% due 2/15/2010 (Iowa A1/NR 2,273,411 Health Services Project) 3,145,000 Iowa Finance Authority Hospital Facility Revenue, 6.00% due 2/15/2011 (Iowa Aaa/AAA 3,638,450 Health Services Project; Insured: AMBAC) 1,000,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.50% due 12/1/2003 Aa3/AA- 1,017,500 1,000,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.50% due 12/1/2004 Aa3/AA- 1,056,870 1,430,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.75% due 12/1/2007 Aa3/AA- 1,621,734 3,295,000 Iowa Finance Authority Revenue Trinity Health Series B, 5.75% due 12/1/2010 Aa3/AA- 3,790,041 1,000,000 Iowa Higher Education Loan Authority Revenue Variable, 1.20% due 4/1/2033 put NR/A1+ 1,000,000 7/1/2003 (St. Ambrose Project; LOC: Northern Trust) (daily demand notes) 1,000,000 Iowa State University Revenues, 6.20% due 9/1/2003 Aa2/AA 1,008,690 1,170,000 Iowa University Science & Technology Revenue Refunding Series B, 5.20% due Aa3/A+ 1,260,406 7/1/2005 (Academic Building Project) 115,000 Muscatine Electric Revenue, 9.50% due 1/1/2004 (ETM)* Aaa/AAA 119,903 530,000 University of Iowa Facilities Corp. Revenue Series A, 4.875% due 6/1/2005 Aa2/AA- 565,796 Kansas (0.70%) 500,000 Dodge Unified School District 443 Ford County, 8.25% due 9/1/2006 (Insured: FSA) Aaa/AAA 601,100 2,000,000 Kansas City Hospital Revenue Refunding, 5.80% due 8/1/2004 (Sisters Charity Aa2/AA 2,047,340 Health Services Project) 1,000,000 Kansas City Hospital Revenue Refunding, 5.90% due 8/1/2005 (Sisters Charity Aa2/AA 1,023,350 Health Services Project) 6,000,000 La Cygne Environmental Improvement Refunding, 3.90% due 3/1/2015 put 8/31/2004 VMIG1/A-2 6,111,000 (Kansas City Power & Light Co. Project) Kentucky (1.30%) 315,000 Campbell & Kenton Counties Sanitation District 1 Revenue, 6.50% due 8/1/2005 Aaa/AAA 319,590 (ETM)* 7,400,000 Kentucky Economic Development Finance Authority Series C, 0% due 10/1/2009 Aaa/AAA 7,592,548 converts to 5.35% 10/1/2005 (Norton Healthcare Project; Insured: MBIA) 7,830,000 Kentucky Economic Development Finance Authority Series C, 0% due 10/1/2010 Aaa/AAA 8,062,473 converts to 5.40% 10/1/2005 (Norton Healthcare Project; Insured: MBIA) 505,000 Kentucky State Turnpike Authority Resources Recovery Revenue, 0% due 7/1/2006 Aaa/AAA 428,891 (Insured: FGIC) 150,000 Louisville Water Revenue Refunding, 6.00% due 11/15/2006 (ETM)* Aaa/AAA 170,880 420,000 Paintsville First Mortgage Revenue Series 1991, 8.50% due 9/1/2003 (Paul B. Hall NR/NR 420,882 Medical Center Project; Guarantee: Health Management Associates) Louisiana (3.20%) 4,000,000 Jefferson Parish Hospital District 2, 5.25% due 12/1/2015 crossover-refunded Aaa/AAA 4,223,760 12/1/2005 (Insured: FGIC) 1,440,000 Jefferson Sales Tax District Special Sales Tax Revenue Refunding, 5.25% due Aaa/AAA 1,613,174 12/1/2006 (Insured: AMBAC) 1,515,000 Jefferson Sales Tax District Special Sales Tax Revenue Refunding, 5.25% due Aaa/AAA 1,722,722 12/1/2007 (Insured: AMBAC) 1,000,000 Lake Charles Harbor & Terminal District Revenue, 5.50% due 5/1/2006 (Reynolds A3/A- 1,012,340 Metal Project; LOC: Canadian Imperial Bank) 1,000,000 Louisiana Local Govt. Environmental Facilities & Community Dev. Auth. Multi Baa1/NR 1,004,310 Family Revenue Series A, 5.00% due 9/1/2012 (Bellemont Apartments Project) 1,000,000 Louisiana Offshore Authority Deepwater Port Revenue Series B, 6.25% due 9/1/2004 A3/A 1,056,510 2,620,000 Louisiana PFA Revenue, 5.375% due 12/1/2008 (Wynhoven Health Care Center NR/NR 2,736,616 Project; Guaranteed: Archdiocese of New Orleans) 1,000,000 Louisiana Public Facilities Authority Revenue, 5.75% due 10/1/2008 (Loyola A1/A+ 1,146,810 University Project) 1,280,000 Louisiana Public Facilities Authority Revenue Refunding, 5.50% due 10/1/2006 A1/A+ 1,420,365 (Loyola University Project) 4,635,000 Louisiana State Correctional Facility Lease, 5.00% due 12/15/2008 (Insured: NR/AA 5,082,324 Radian) 5,000,000 Louisiana State Offshore Term Refunding Series D, 4.00% due 9/1/2023 put A3/A 5,223,000 9/1/2008 (Loop LLC Project) 2,350,000 Louisiana State Offshore Terminal Authority Deepwater Port Revenue, 4.375% due A3/A 2,481,342 10/1/2020 put 6/1/2007 1,000,000 Louisiana State Offshore Terminal Authority Deepwater Port Revenue Series B, A3/A 1,008,340 6.20% due 9/1/2003 1,000,000 New Orleans Refunding, 0% due 9/1/2006 (Insured: AMBAC) Aaa/AAA 944,190 5,000,000 Orleans Parish School Board, 0% due 2/1/2008 (ETM)* Aaa/AAA 4,183,050 1,000,000 Plaquemines Port Harbor & Terminal Refunding Electro Coal D Convertible, 5.00% Ba1/BB+ 989,390 due 9/1/2007 (Teco Energy Inc. Project) 2,590,000 Shreveport Louisiana Water & Sewer Revenue Refunding Series A, 4.00% due Aaa/AAA 2,697,614 12/1/2004 (Insured: FSA) 3,000,000 St. Charles Parish Pollution Control Revenue Variable Refunding Series A, 4.90% Baa3/BBB- 3,152,580 due 6/1/2030 put 6/1/2005 (Entergy Louisiana Inc. Project) Maine (0.10%) 1,000,000 Regional Waste Systems Inc. Solid Waste Resources Recovery Revenue Series P, Aaa/AAA 1,112,570 6.25% due 7/1/2010 (Insured: FSA) Maryland (0.50%) 580,000 Baltimore Maryland, 7.00% due 10/15/2009 (Insured: MBIA) Aaa/AAA 728,857 2,050,000 Baltimore Public Improvement Series A, 7.00% due 10/15/2006 (Insured: MBIA) Aaa/AAA 2,401,719 2,750,000 Howard County Multi Family Housing Revenue, 7.00% due 7/1/2024 put 7/1/2004 Baa2/NR 2,803,405 (Chase Glen Project; Guarantee: Avalon Prop.) 500,000 Maryland State Department Transportation Consolidated, 4.375% due 6/15/2004 Aa2/AA 506,365 Massachusetts (1.60%) 2,000,000 Boston Economic Development & Industrial Corp., 5.15% due 7/1/2025 put 7/1/2005 Aa3/NR 2,087,720 (LOC: Fleet National Bank) 1,060,000 Lynn General Obligation, 7.00% due 1/15/2004 Baa1/NR 1,091,132 3,470,000 Massachusetts Development Finance Agency Resource Recovery Revenue Series A, Aaa/AAA 3,958,854 5.50% due 1/1/2011 (Insured: MBIA) 1,000,000 Massachusetts Industrial Finance Agency Pollution Control Revenue Refunding, A2/A 1,022,680 5.875% due 8/1/2008 (Eastern Edison Co. Project) 1,000,000 Massachusetts Industrial Finance Agency Revenue, 8.375% due 2/15/2018 NR/NR 1,185,290 pre-refunded 2/15/2006 @ 102 (Glenmeadow Retirement Project) 900,000 Massachusetts Municipal Wholesale Electric Co. Power Supply Systems Revenue, Aaa/AAA 963,954 5.00% due 7/1/2005 (Stony Brook Intermediate Project A; Insured: MBIA) 1,000,000 Massachusetts Municipal Wholesale Electric Co. Power Supply Systems Revenue Aaa/AAA 1,071,060 Series A, 5.00% due 7/1/2005 (Stony Brook Peaking Project; Insured: MBIA) 515,000 Massachusetts State Health & Education Facility, Daughters Of Charity, Series D, Aaa/AA+ 534,879 5.50% due 7/1/2004 (ETM)* 3,415,000 Massachusetts State Health & Educational Series H, 5.375% due 5/15/2012 (New Aaa/AAA 3,903,379 England Medical Center Hospital Project; Insured: FGIC) 3,800,000 Massachusetts State Water Resources Authority, Series A, 1.25% due 8/1/2023 put VMIG1/A1+ 3,800,000 7/8/2003 (Insured: FGIC) (weekly demand notes) 1,500,000 Taunton General Obligation, 8.00% due 2/1/2006 (Insured: MBIA) Aaa/AAA 1,744,425 Michigan (2.50%) 2,500,000 Detroit Michigan Capital Improvement Series A, 5.00% due 4/1/2005 (Insured: Aaa/AAA 2,660,625 MBIA) 1,405,000 Detroit Michigan Series A, 6.00% due 4/1/2007 (Insured: FGIC) (ETM)* Aaa/AAA 1,619,277 1,670,000 Jackson County Hospital Finance Authority Hospital Revenue Series A, 5.00% due Aaa/NR 1,816,476 6/1/2006 (W.A. Foote Memorial Hospital Project; Insured: AMBAC) 1,000,000 Kalamazoo Hospital Finance Authority Facility Revenue, 5.50% due 5/15/2005 Aaa/NR 1,071,250 (Bronson Methodist Hospital Project; Insured: MBIA) 2,000,000 Michigan Hospital Finance Authority Revenue, 5.375% due 7/1/2012 (Insured: FSA) Aaa/AAA 2,139,900 2,370,000 Michigan Hospital Finance Authority Revenue, 4.80% due 11/1/2017 pre-refunded Aaa/NR 2,469,279 7/1/2004 @100 10,000,000 Michigan Hospital Finance Authority Revenue Series A, 5.375% due 11/15/2033 put Aa2/AA 11,189,000 11/15/2007 (Ascension Health Project) 655,000 Michigan Housing Development Authority Single Family Insured Mortgage Revenue Aa1/AA+ 655,714 Series A, 5.00% due 4/1/2010 (Insured: FHA/VA Mtgs) 1,000,000 Michigan State Job Development Authority Pollution Control Revenue, 5.55% due Baa1/BBB 1,001,490 4/1/2009 (General Motors Corp. Project; Guarantee: GM) 2,500,000 Michigan Strategic Fund Refunding Detroit, 4.85% due 9/1/2030 put 9/1/2011 Aaa/NR 2,773,500 (Edison Co. Project; Insured: AMBAC) 1,000,000 Missouri State Health & Educational Facilities Authority Revenue Series A, 5.00% NR/AA- 1,092,960 due 6/1/2011 1,000,000 Oakland County Economic Development Corp. Limited, 5.50% due 6/1/2014 (LOC: A1/NR 1,065,740 First of America Bank-Central) 800,000 Oxford Area Community School District, 5.00% due 5/1/2012 (Guaranteed: School Aaa/AAA 902,912 Bond Loan Fund) 2,550,000 Wayne State University Revenues, 5.00% due 11/15/2004 (Insured: FGIC) Aaa/AAA 2,687,113 Minnesota (0.60%) 1,000,000 Breckenridge Health Facilities Revenue Catholic Health Corp., 5.25% due Aaa/AAA 1,030,470 11/15/2013 (Insured: MBIA) 1,915,000 Osseo Independent School District 279 Crossover Refunding Series B, 5.00% due Aa2/NR 2,084,363 2/1/2006 3,000,000 Southern Minnesota Municipal Power Agency Revenue Refunding Series A, 5.00% due Aaa/AAA 3,256,980 1/1/2006 (Insured: AMBAC) 1,450,000 University of Minnesota Refunding Series A, 5.50% due 7/1/2006 Aa2/AA 1,617,866 500,000 Waconia Housing & Redevelopment Authority Public Project, 5.70% due 1/1/2012 Baa3/A- 500,730 Mississippi (0.30%) 1,020,000 Gautier Utility District Systems Revenue Refunding, 5.50% due 3/1/2012 (Insured: Aaa/NR 1,190,207 FGIC) 700,000 Hattiesburg Water & Sewer Revenue Refunding Systems, 5.20% due 8/1/2006 Aaa/AAA 764,988 (Insured: AMBAC) 1,000,000 Mississippi Hospital Equipment & Facilities Authority Revenue, 6.50% due Aaa/AAA 1,101,460 5/1/2006 (Refunding Mississippi Baptist Medical Center; Insured: MBIA) 955,000 Ridgeland Multi Family Housing Revenue, 4.95% due 10/1/2007 (FNMA: NR/A1+ 1,000,401 Collateralized) Missouri (0.20%) 825,000 Jackson County Public Building Corp. Leasehold Revenue Series 1996, 6.00% due Aaa/AAA 881,686 12/1/2004 (Capital Improvement Project; Insured: MBIA) 1,275,000 Missouri Development Finance Board Healthcare Facilities Revenue Series A, 4.80% A2/NR 1,334,657 due 11/1/2012 (Lutheran Home Aged Project; LOC: Commerce Bank) 105,000 Missouri Environmental Improvement & Energy Resources Authority Water Pollution Aaa/NR 106,524 Control Revenue, 6.60% due 12/1/2003 Montana (1.10%) 10,440,000 Forsyth Pollution Control Revenue Refunding, 5.00% due 10/1/2032 put 12/30/2008 Aaa/AAA 11,563,970 (Insured: AMBAC) 2,500,000 Forsyth Pollution Control Revenue Refunding, 5.20% due 5/1/2033 put 5/1/2009 Baa2/BBB+ 2,558,500 (Portland General Project) Nebraska (1.40%) 1,995,000 Lancaster County School District 1, 4.00% due 7/15/2007 (Lincoln Public School Aa2/AAA 2,154,400 Project) 1,455,000 Madison County Hospital Authority Revenue Number 1, 5.25% due 7/1/2010 (Faith NR/AA 1,611,922 Regional Health Services Project; Insured: Radian) 1,625,000 Madison County Hospital Authority Revenue Number 1, 5.50% due 7/1/2012 (Faith NR/AA 1,819,740 Regional Health Services Project; Insured: Radian) 2,705,000 Nebraska IFA Tax Exempt Multi Family Housing Revenue Refunding 1995-A, 5.50% due NR/AAA 2,794,589 12/1/2025 put 12/1/2005 (Willow Park Apartments Project; Collateralized: FNMA) 5,000,000 Omaha Public Power District Nebraska Electric Revenue Refunding Systems B, 5.00% Aa2/AA 5,638,550 due 2/1/2013 3,005,000 Omaha Public Power District Nebraska Electric Revenue Series A, 7.50% due NR/AA 3,265,624 2/1/2006 (ETM)* 1,300,000 University of Nebraska Facilities Corp., 5.00% due 7/15/2008 Aa2/AA- 1,468,025 Nevada (1.70%) 5,000,000 Humboldt County Pollution Control Revenue Refunding, 6.55% due 10/1/2013 (Sierra Aaa/AAA 5,207,500 Pacific Project; Insured: AMBAC) 1,830,000 Las Vegas Special Refunding Local Improvement District 707 Series A, 5.125% due Aaa/AAA 1,991,516 6/1/2011 (Insured: FSA) 840,000 Nevada Colorado River Commission Power Delivery A, 7.00% due 9/15/2008 Aa2/AA 994,190 1,510,000 Nevada Housing Division FNMA Multi Family Certificate A, 4.80% due 4/1/2008 NR/AAA 1,572,272 (Collateralized: FNMA) 1,000,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,125,960 1/15/2009 (Insured: Radian) 1,000,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,126,870 1/15/2010 (Insured: Radian) 1,285,000 Sparks Redevelopment Agency Tax Allocation Revenue Refunding Series A, 5.70% due NR/AA 1,442,927 1/15/2011 (Insured: Radian) 5,000,000 Washoe County Hospital Facility Revenue Series 1993 A, 6.00% due 6/1/2015 A2/A+ 5,105,650 (Washoe Medical Center Project) 3,500,000 Washoe County School District, 5.50% due 6/1/2008 (Insured: FSA) Aaa/AAA 4,016,845 New Hampshire (0.60%) 500,000 New Hampshire Capital Appreciation General Obligation, 0% due 7/1/2004 Aa2/AA+ 495,025 300,000 New Hampshire Health & Education Facilities Authority Revenue, 1.00% due Aaa/NR 300,000 7/1/2032 put 7/1/2003 (St. Anselm College project; LOC: Fleet Bank) (daily demand notes) 1,500,000 New Hampshire Health & Education Facilities Authority Revenue Anticipation Notes NR/SP-1 1,524,375 D, 3.50% due 4/30/2004 2,485,000 New Hampshire Industrial Development Authority Revenue, 5.50% due 12/1/2009 put NR/AA- 2,578,834 12/1/2004 (Central Vermont Public Services Project; LOC: Citizens Bank) 2,600,000 New Hampshire Municipal Bond Bank Refunding Series A-2, 4.60% due 7/15/2004 Aaa/AAA 2,697,344 (Insured: MBIA) New Jersey (0.20%) 1,000,000 New Jersey Health Care Facilities Financing Authority Revenue, 7.00% due NR/AAA 1,000,160 7/1/2003 (Christ Hospital Project; Insured: Connie Lee) 1,920,000 Pequannock River Basin Regional Sewage Authority Refunding Series M, 5.00% due Aaa/NR 2,054,438 12/1/2006 (Sewer Revenue Project; Insured: MBIA) New Mexico (2.00%) 1,600,000 Albuquerque Educational Facilities Revenue Refunding, 1.20% due 10/15/2016 put VMIG1/AA 1,600,000 7/8/2003 (Albuquerque Academy Project; Insured: Bank of America) (weekly demand notes) 750,000 Farmington Pollution Control Revenue, 1.05% due 5/1/2024 put 7/1/2003 (LOC: Bank P1/A1+ 750,000 of America) (daily demand notes) 800,000 Farmington Pollution Control Revenue, 1.00% due 9/1/2024 put 7/1/2003 (LOC: P1/A1+ 800,000 Barclays Bank) (daily demand notes) 4,865,000 New Mexico Highway Commission Revenue Subordinated Lien Tax Series B, 5.00% due Aaa/AAA 5,509,126 6/15/2011 (Insured: AMBAC) 9,625,000 New Mexico Housing Authority, Multi Family Housing Revenue, 1.25% due 1/15/2033 NR/A1+ 9,625,000 put 7/8/2003 (Arbors/Courtyard Apartments Project) (weekly demand notes) 8,000,000 New Mexico State, 4.00% due 9/1/2005 Aa1/AA+ 8,455,680 New York (7.10%) 1,000,000 Brookhaven Industrial Development Agency Civic Facility Revenue, 4.375% due A2/BBB+ 1,047,530 11/1/2031 put 11/1/2006 (Methodist Retirement Community Project; LOC: Northfork Bank) 1,000,000 Hempstead Town Industrial Development Agency Refunding, 5.00% due 12/1/2008 Aaa/AAA 1,103,460 (American Fuel Co. Project; Insured: MBIA) 1,500,000 Long Island Power Authority Electric Systems Revenue General Series A, 6.00% due Aaa/AAA 1,746,675 12/1/2007 (Insured: AMBAC) 2,350,000 Long Island Power Authority Electric Systems Revenue Subordinated Series 8 Aaa/AAA 2,407,904 Subseries 8-D, 4.50% due 4/1/2010 put 4/1/2004 (Insured: AMBAC) 7,000,000 Long Island Power Authority General Series B, 5.00% due 12/1/2006 Baa1/A- 7,625,170 4,535,000 Metro Transportation Authority New York Service Series B, 5.25% due 7/1/2007 A3/AA- 5,091,807 1,050,000 Monroe County Industrial Development Agency, 5.375% due 6/1/2007 (St. John NR/AA 1,175,769 Fisher College Project; Insured: Radian) 2,800,000 New York Adjusted Subseries E-3, 0.85% due 8/1/2023 put 7/1/2003 (daily demand VMIG1/A1+ 2,800,000 notes) 2,300,000 New York City Adjusted Series H, 1.40% due 8/1/2014 put 7/1/2003 (Insured: MBIA) VMIG1/A-2 2,300,000 (daily demand notes) 2,000,000 New York City General Obligation, 0.95% due 8/1/2020 put 7/1/2003 (daily demand VMIG1/A1+ 2,000,000 notes) 700,000 New York City General Obligation, 0.85% due 8/1/2021 put 7/1/2003 (daily demand VMIG1/A1+ 700,000 notes) 500,000 New York City General Obligation Series A, 7.00% due 8/1/2003 A2/A 502,415 710,000 New York City Housing Development Corp. Multi Family Housing Revenue Refunding Aa2/AA 722,943 Series A, 5.50% due 11/1/2009 2,215,000 New York City Industrial Development Agency Civic Facility, 5.25% due 6/1/2011 NR/A 2,434,706 (Lycee Francais De New York Project Series A; Insured: ACA) 2,330,000 New York City Industrial Development Agency Civic Facility, 5.25% due 6/1/2012 NR/A 2,563,140 (Lycee Francais De New York Project Series A; Insured: ACA) 8,600,000 New York City Municipal Water Finance Authority Water & Sewer Systems Revenue VMIG1/A1+ 8,600,000 2003 Sub Series A, 1.15% due 6/15/2018 put 7/1/2003 (LOC: Bank of New York) (daily demand notes) 10,450,000 New York City Transitional Finance Authority, 1.00% due 11/1/2022 put 7/1/2003 VMIG1/A1+ 10,450,000 (daily demand notes) 1,500,000 New York City Transitional Refunding Future Tax Secured Series A, 4.50% due Aa2/AA+ 1,566,270 11/1/2004 1,040,000 New York Dormitory Authority, 6.00% due 7/1/2007 (Champlain Valley Physicians NR/AAA 1,196,666 Project; Insured: Connie Lee) 1,895,000 New York Dormitory Authority Revenues, 6.00% due 9/1/2008 pre-refunded 9/1/2005 NR/AA 1,992,498 (Norton Healthcare Project) 1,600,000 New York Dormitory Authority Revenues Mental Health Services Facilities Aaa/AAA 1,810,208 Improvement B, 5.00% due 8/15/2010 (Insured: MBIA) 4,000,000 New York Dormitory Authority Revenues Series B, 5.25% due 11/15/2026 put Aaa/AAA 4,514,600 5/15/2012 (Insured: AMBAC) 560,000 New York Medical Care Facilities Finance Agency Revenue, 6.40% due 11/1/2014 Aaa/AAA 567,739 (Insured: FSA) 1,000,000 New York Series B, 5.50% due 8/1/2011 (Insured: MBIA) Aaa/AAA 1,157,530 2,200,000 New York Series B, 0.95% due 10/1/2021 put 7/1/2003 (daily demand notes) VMIG1/A1+ 2,200,000 12,000,000 New York State Dormitory Authority Revenues, 4.00% due 12/15/2005 NR/AA 12,746,760 2,500,000 New York State Urban Development Corp. Revenue Refunding Facilities A, 6.50% due Aaa/AAA 3,044,550 1/1/2011 (Correctional Capital Project; Insured: FSA) 1,320,000 New York Thruway Authority General Revenue Special Obligation, 0% due 1/1/2006 NR/BBB 1,251,202 255,000 New York Urban Development Corp. Revenue University Facilities Grants, 6.00% due A3/AA- 280,502 1/1/2006 3,425,000 New York Urban Development Corp. Series 7, 6.00% due 1/1/2006 A3/AA- 3,767,534 710,000 Oneida County Industrial Development Agency Series C, 6.00% due 1/1/2009 (Civic NR/AA 822,379 Facility Faxton Hospital Project; Insured: Radian) 2,000,000 Tobacco Settlement Financing Corp. New York Revenue Asset Backed Series A-1C, NR/AA- 2,091,680 5.00% due 6/1/2012 1,000,000 Tobacco Settlement Financing Corp. New York Revenue Asset Backed Series A-1C, NR/AA- 1,049,270 5.25% due 6/1/2012 170,000 Westchester County IDA Civic Facility Revenue, 6.25% due 4/1/2005 (Julia Dykman NR/NR 172,502 Project) North Carolina (2.10%) 1,000,000 Charlotte Certificates Participation Series B, 5.00% due 6/1/2006 (FY Project) Aa1/AA+ 1,098,000 135,000 Gastonia Housing Corp. First Lien Rev Series A, 5.75% due 7/1/2004 (Golfview NR/A- 135,612 Village Square Apartment Project) 925,000 North Carolina Capital Facilities Finance Agency Educational Facilities Revenue Aaa/AAA 1,026,944 Series A, 5.00% due 4/1/2007 (Johnson & Wales University Project; Insured: XL Capital) 2,860,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue, 6.125% due Aaa/AAA 3,367,393 1/1/2009 (Insured: MBIA) 3,000,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue Refunding Baa3/BBB 3,238,860 Series D, 5.375% due 1/1/2011 650,000 North Carolina Eastern Municipal Power Agency Power Systems Revenue Series C, Baa3/BBB 696,455 5.25% due 1/1/2012 1,000,000 North Carolina Eastern Municipal Power Agency Power Systems Series A, 5.50% due Baa3/BBB 1,089,160 1/1/2012 1,055,000 North Carolina Eastern Municipal Power Agency Power Systems Series C, 5.25% due Baa3/BBB 1,125,727 1/1/2013 2,400,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue, 6.00% Aaa/AAA 2,839,608 due 1/1/2010 (Insured: MBIA) 2,505,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue Series Baa1/BBB+ 2,808,030 A, 5.50% due 1/1/2013 1,000,000 North Carolina Municipal Power Agency Number 1 Catawba Electric Revenue Series Baa1/BBB+ 1,145,010 B, 6.375% due 1/1/2013 3,400,000 North Carolina Municipal Power Agency Series A, 6.00% due 1/1/2007 (Insured: Aaa/AAA 3,862,808 MBIA) 3,700,000 North Carolina Municipal Power Agency Series A, 6.00% due 1/1/2008 (Insured: Aaa/AAA 4,280,678 MBIA) 1,030,000 University of North Carolina Systems Pool Revenue Refunding Series B, 5.00% due Aaa/AAA 1,170,935 4/1/2012 (Insured: AMBAC) North Dakota (0.10%) 910,000 Grand Forks Health Care Systems Revenue Bond Series 1997, 6.25% due 8/15/2005 Aaa/AAA 996,031 (Altru Health System Project; Insured: MBIA) Ohio (3.50%) 2,510,000 Bellefontaine Hospital Revenue Refunding, 6.00% due 12/1/2013 (Mary Rutan Health NR/BBB 2,595,516 Associates Project) 4,415,000 Cleveland Cuyahoga County Port Authority Revenue, 6.00% due 11/15/2010 NR/NR 4,762,019 2,255,000 Cuyahoga County Hospital Revenue Refunding Series B, 6.00% due 1/15/2006 A2/A 2,476,193 (University Hospital Health Systems Project) 1,400,000 Hudson City Library Improvement, 6.35% due 12/1/2011 Aa2/NR 1,704,206 585,000 Lake County Sewer & Water District Improvement, 5.30% due 12/1/2011 Aa2/NR 649,572 1,680,000 Lorain County Hospital Revenue Refunding & Improvement Catholic Healthcare A, A1/AA- 1,694,549 5.00% due 10/1/2003 1,200,000 Lorain County Hospital Revenue Refunding Catholic Healthcare Partners B, 6.00% Aaa/AAA 1,394,352 due 9/1/2008 (Insured: MBIA) 1,300,000 Mahoning Valley District Water Refunding, 5.85% due 11/15/2008 (Insured: FSA) Aaa/AAA 1,528,228 770,000 Mahoning Valley District Water Refunding, 5.90% due 11/15/2009 (Insured: FSA) Aaa/AAA 918,063 2,250,000 Montgomery County Revenue, 6.00% due 12/1/2008 (Catholic Health Initiatives Aa2/AA 2,587,320 Project) 2,385,000 Montgomery County Revenue, 6.00% due 12/1/2009 (Catholic Health Initiatives Aa2/AA 2,762,498 Project) 1,530,000 Montgomery County Revenue, 6.00% due 12/1/2010 (Catholic Health Initiatives Aa2/AA 1,767,380 Project) 1,000,000 Montgomery County Solid Waste Revenue, 6.00% due 11/1/2005 (Insured: MBIA) Aaa/AAA 1,105,650 2,000,000 Ohio State Building Authority Refunding Adult Corrections Facilities, 5.00% due Aaa/AAA 2,214,640 10/1/2006 (Insured: FSA) 4,000,000 Ohio State Building Authority Refunding State Correctional Facilities A, 4.60% Aa2/AA 4,036,720 due 10/1/2003 4,000,000 Ohio State Building Authority State Facilities, 6.125% due 10/1/2011 Aa2/AA 4,132,280 pre-refunded 10/1/2003 @ 102 (Adult Control Building A Project) 1,000,000 Ohio State Highway Capital Improvement Series C, 5.00% due 5/1/2006 Aa1/AAA 1,096,600 5,000,000 Ohio State Unlimited Tax General Obligation Series A, 5.75% due 6/15/2010 Aa1/AA+ 5,804,800 680,000 Plain Local School District Capital Appreciation, 0% due 12/1/2006 (Insured: Aaa/NR 639,064 FGIC) 845,000 Plain Local School District Capital Appreciation, 0% due 12/1/2007 (Insured: Aaa/NR 766,550 FGIC) 975,000 Reading Revenue Development, 6.00% due 2/1/2009 (St. Mary's Educational NR/AA 1,123,190 Institute Project; Insured: Radian) Oklahoma (1.60%) 675,000 Broken Arrow, 4.40% due 12/1/2005 Aa3/AA- 676,607 1,235,000 Claremore Public Works Authority Revenue Refunding, 6.00% due 6/1/2006 (Insured: Aaa/NR 1,389,634 FSA) 1,340,000 Claremore Public Works Authority Revenue Refunding, 6.00% due 6/1/2007 (Insured: Aaa/NR 1,541,992 FSA) 740,000 Jenks Aquarium Authority Revenue First Mortgage, 5.50% due 7/1/2010 (Insured: Aaa/NR 836,119 MBIA) 740,000 Oklahoma Development Finance Authority Health Facilities Revenue, 5.75% due Aaa/AAA 856,187 6/1/2011 (Insured: AMBAC) 2,380,000 Oklahoma Authority Revenue Refunding Health Systems Obligation Group Series A, Aaa/AAA 2,708,345 5.75% due 8/15/2007 (Insured: MBIA) 2,340,000 Oklahoma Authority Revenue Refunding Health Systems Obligation Group Series A, Aaa/AAA 2,716,014 6.00% due 8/15/2010 (Insured: MBIA) 5,000,000 Oklahoma Housing Development Authority Revenue Lease Purchase Program Series A, Aa3/NR 5,377,250 5.10% due 11/1/2005 2,650,000 Tulsa County Independent School District, 4.50% due 8/1/2006 Aa3/A+ 2,881,053 1,000,000 Tulsa Metropolitan Utility Authority Water Series A, 5.60% due 11/1/2004 NR/AA- 1,057,300 750,000 Tulsa Public Facilities Authority Solid Waste Steam & Electric Revenue Refunding Aaa/AAA 790,035 Series 1994, 5.45% due 11/1/2004 (Ogden Martin Systems of Tulsa Project; Insured: AMBAC) Oregon (0.40%) 1,070,000 Clackamas County Hospital Facility Authority Revenue Refunding Series A, 5.50% NR/NR 1,070,385 due 9/15/2008 (Odd Fellows Home Project) 1,325,000 Emerald People's Utility District Revenue, 7.20% due 11/1/2003 (Insured: FGIC) Aaa/AAA 1,352,362 1,000,000 Medford Hospital Facilities Authority Revenue Series A, 5.25% due 8/15/2006 Aaa/AAA 1,102,300 (Asante Health Systems Project; Insured: MBIA) 640,000 Portland Oregon, 4.40% due 3/1/2004 Aa2/NR 654,867 750,000 Salem Oregon Water & Sewer Revenue, 6.00% due 6/1/2005 (Insured: MBIA) Aaa/AAA 816,150 Pennsylvania (2.90%) 1,505,000 Allegheny County Hospital Development Health Series B, 6.30% due 5/1/2009 (South Baa1/NR 1,564,583 Hills Health System Project) 1,000,000 Allegheny County Hospital Development Refunding, 4.40% due 11/1/2005 (Health Aaa/AAA 1,064,480 Center UPMC Health Systems Project; Insured: MBIA) 395,000 Coatesville Area School District Series A Refunding, 5.00% due 10/1/2003 Aaa/AAA 399,041 (Insured: AMBAC) 305,000 Delaware County Authority Health Care Revenue, 6.00% due 11/15/2007 pre-refunded Aaa/NR 316,410 11/15/2005 (Mercy Health Corp. Project) 1,000,000 Delaware County Pennsylvania Authority Revenue, 5.50% due 11/15/2007 (Insured: Aaa/AAA 1,129,770 AMBAC) 4,250,000 Delaware County Pollution Control Refunding Series A, 5.20% due 4/1/2021 put A3/BBB+ 4,405,677 10/1/2004 (Peco Energy Co. Project) 1,000,000 Frazier Pennsylvania School District, 4.80% due 8/15/2003 NR/SP1+ 1,003,240 1,000,000 Geisinger Authority Health Systems Revenue, 5.50% due 8/15/2009 Aa2/AA- 1,121,630 1,605,000 Manheim Township School Authority School Revenue Series 1978, 6.625% due NR/AAA 1,797,793 12/1/2007 pre-refunded 12/1/2005 730,000 Montgomery County Higher Education & Health Authority, 6.25% due 7/1/2006 Baa3/NR 757,930 550,000 Montgomery County Higher Education & Health Authority, 6.375% due 7/1/2007 Baa3/NR 572,577 2,000,000 Montgomery County Industrial Development Authority Pollution Control Revenue A2/BBB+ 2,073,260 Series A, 5.20% due 10/1/2030 put 10/1/2004 (Peco Energy Co. Project) 150,000 Pennsylvania Higher Education Facilities Authority Revenue, 6.15% due 4/1/2004 Baa3/NR 155,858 (ETM)* 1,500,000 Pennsylvania Higher Educational Facilities Authority Health Services Revenue, A3/A 1,596,195 5.50% due 1/1/2009 (University Pennsylvania Health Systems Project) 750,000 Pennsylvania Higher Educational Facility Series A, 6.00% due 1/1/2005 A3/A 795,803 (University Pennsylvania Health Systems Project) 4,500,000 Pennsylvania State Higher Educational Facilities Authority, 7.00% due 1/1/2009 A3/A 4,698,045 1,500,000 Pennsylvania State Higher Educational Facilities Authority Revenue, 4.00% due VMIG1/NR 1,571,820 11/1/2032 put 11/1/2005 (LOC: Allied Irish Banks P.L.C.) 5,255,000 Pennsylvania State Unrefunded First Series, 5.00% due 4/15/2005 Aa2/AA 5,349,905 1,520,000 Philadelphia Authority For Industrial Development Revenues, 8.00% due 1/1/2014 Aaa/NR 1,610,774 pre-refunded 7/1/2004 1,000,000 Philadelphia Hospital & Higher Education Facilities Authority Revenue, 5.50% due A1/AA- 1,089,230 5/15/2006 (Jefferson Health Systems Project) 1,255,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.00% due 7/1/2008 Aaa/AAA 1,397,304 (Latrobe Area Hospital Project; Insured: AMBAC) 1,320,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.00% due 7/1/2009 Aaa/AAA 1,474,031 (Latrobe Area Hospital Project; Insured: AMBAC) 1,400,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.25% due 7/1/2011 Aaa/AAA 1,581,706 (Latrobe Area Hospital Project; Insured: AMBAC) 1,000,000 Sayre Pennsylvania Health Care Facilities Authority Series A, 5.25% due 7/1/2012 Aaa/AAA 1,132,910 (Latrobe Area Hospital Project; Insured: AMBAC) Rhode Island (2.10%) 860,000 Providence Public Building Authority Refunding Series B, 5.50% due 12/15/2003 Aaa/AAA 877,811 (Insured: FSA) 1,075,000 Providence Public Building Authority Refunding Series B, 5.75% due 12/15/2007 Aaa/AAA 1,244,828 (Insured: FSA) 1,000,000 Providence Public Building Authority School Project Series B, 5.00% due Aaa/AAA 1,087,810 12/15/2005 (Insured: MBIA) 1,000,000 Providence Public Building Authority School Project Series B, 4.00% due Aaa/AAA 1,079,550 12/15/2006 (Insured: MBIA) 1,000,000 Providence Public Building Authority School Project Series B, 4.00% due Aaa/AAA 1,085,070 12/15/2007 (Insured: MBIA) 1,880,000 Providence Series C, 5.50% due 1/15/2012 (Insured: FSA) Aaa/AAA 2,197,701 4,455,000 Rhode Island Bond Authority Revenue Refunding Series A, 5.00% due 10/1/2005 Aaa/AAA 4,814,519 (State Public Projects; Insured: AMBAC) 10,085,000 Rhode Island Bond Authority Revenue Refunding Series A, 5.00% due 10/1/2006 Aaa/AAA 11,160,565 (State Public Projects; Insured: AMBAC) 2,075,000 Rhode Island Economic Development Corp. Revenue, 5.75% due 7/1/2010 (Providence NR/AA 2,358,611 Place Mall Project; Insured: Radian) 1,960,000 Rhode Island State Health & Education Building, 4.50% due 9/1/2009 (Butler NR/A+ 2,111,449 Hospital Project; LOC: Fleet National Bank) South Carolina (1.40%) 2,050,000 Charleston County Certificates of Participation, 6.00% due 12/1/2007 (Insured: Aaa/AAA 2,389,193 MBIA) 1,000,000 Medical University South Carolina Hospital Facilities Revenue, 5.50% due Baa2/BBB+ 1,082,560 7/1/2005 (ETM)* 945,000 Piedmont Municipal Power Agency Electric Revenue, 6.375% due 1/1/2006 (Insured: Aaa/AAA 1,052,059 FGIC) 400,000 Piedmont Municipal Power Agency Electric Revenue Variable Refunding Series C, VMIG1/A1+ 400,000 1.20% due 1/1/2022 put 7/8/2003 (Insured: MBIA) (weekly demand notes) 5,000,000 Richland County Environmental Improvement Revenue Refunding Series A, 4.25% due Baa2/BBB 5,222,800 10/1/2007 (International Paper Co. Project) 2,000,000 South Carolina State Public Service Authority Revenue Refunding Series D, 5.00% Aa2/AA- 2,166,180 due 1/1/2006 2,315,000 South Carolina State Public Service Authority Revenue Refunding Series D, 5.00% Aa2/AA- 2,548,815 due 1/1/2007 1,000,000 South Carolina State Refunding, 4.50% due 4/1/2005 (Capital Improvement Project) Aaa/AAA 1,022,540 1,720,000 York County Refunding, 5.00% due 6/1/2006 (Insured: FSA) Aaa/AAA 1,889,076 South Dakota (0.50%) 1,160,000 South Dakota Health & Educational Facilities Authority Revenue, 5.00% due Aaa/AAA 1,286,730 9/1/2010 (Rapid City Regional Hospital Project; Insured: MBIA) 1,100,000 South Dakota Health & Educational Facilities Authority Revenue, 5.50% due Aaa/AAA 1,259,291 9/1/2011 (Rapid City Regional Hospital Project; Insured: MBIA) 1,250,000 South Dakota Lease Revenue Series 93-B, 8.00% due 9/1/2003 (Insured: FSA) Aaa/AAA 1,264,400 2,235,000 South Dakota State Building Authority Lease Revenue, 6.625% due 9/1/2012 Aaa/AAA 2,300,620 pre-refunded 9/1/2004 @100 (Insured: AMBAC) Tennessee (0.50%) 2,420,000 Clarksville Natural Gas Refunding, 5.00% due 11/1/2004 NR/BBB+ 2,510,726 870,000 Franklin Industrial Development Multi Family Refunding Housing Series A, 5.75% Aaa/AAA 930,221 due 4/1/2010 (Insured: FSA) 1,000,000 Hamilton County Industrial Development Board, 5.75% due 9/1/2005 (Insured: FGIC) Aaa/AAA 1,093,810 1,050,000 Shelby County Tennessee Series A, 0% due 5/1/2011 pre-refunded 5/1/2005 @ 69.561 Aa2/AA+ 713,580 985,000 Tennessee Housing Development Agency Mortgage Finance Series A, 5.70% due A1/AA 1,006,611 7/1/2008 Texas (11.60%) 1,000,000 Amarillo Health Facilities Corp. Hospital Revenue, 5.50% due 1/1/2011 (Baptist Aaa/NR 1,127,460 St. Anthony's Hospital Corp. Project; Insured: FSA) 1,000,000 Austin Texas Refunding, 5.00% due 3/1/2011 Aa2/AA+ 1,126,370 1,000,000 Austin Utility Systems Revenue Refunding Comb Series A, 5.60% due 5/15/2007 Aaa/AAA 1,023,510 (Insured: MBIA) 1,000,000 Bell County Health Facilities Development Corp. Revenue Series A, 6.25% due Aaa/AAA 1,180,630 8/15/2010 (Scott & White Memorial Hospital Project; Insured: MBIA) 1,800,000 Bexar County Housing Finance Corp. Multi Family Housing Revenue, 5.00% due Aaa/NR 1,926,522 1/1/2011 (Insured: MBIA) 1,250,000 Cedar Hill Independent School District Capital Appreciation Refunding, 0% due NR/AAA 950,713 8/15/2010 (Guarantee: PSF) 1,700,000 Clint Independent School District Refunding, 5.50% due 2/15/2011 (Guarantee: Aaa/AAA 1,967,359 PSF) 1,425,000 Clint Independent School District Refunding, 5.50% due 2/15/2012 (Guarantee: Aaa/AAA 1,637,667 PSF) 3,300,000 Coppell Independent School District Capital Appreciation Refunding, 0% due NR/AAA 3,004,782 8/15/2007 (Guarantee: PSF) 1,025,000 Corpus Christi Business & Job Development Corp. Sales Tax Revenue, 5.00% due Aaa/AAA 1,162,463 9/1/2012 (Refunding & Improvement Arena Project; Insured: AMBAC) 2,200,000 Corpus Christi Independent School Refunding, 5.45% due 8/15/2003 (PSF Guarantee) Aaa/AA 2,208,184 2,000,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2005 (Insured: Aaa/AAA 2,168,440 FSA) 4,070,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2006 (Insured: Aaa/AAA 4,541,184 FSA) 2,000,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2008 (Insured: Aaa/AAA 2,299,700 FSA) 4,780,000 Corpus Christi Utility Systems Revenue Refunding, 5.50% due 7/15/2009 (Insured: Aaa/AAA 5,546,855 FSA) 1,735,000 Cypress Fairbanks Independent School District Unrefunded Balance Series A, Aaa/AAA 1,742,686 6.125% due 8/1/2011 (PSF Guarantee) 1,080,000 Dallas Independent School District Unrefunded Balance, 5.60% due 8/15/2004 (PSF Aaa/AAA 1,086,124 Guarantee) 450,000 Dallas Tax Increment Financing Reinvestment Zone 2, 5.75% due 8/15/2006 NR/AA 497,777 (Insured: Radian) 1,200,000 Dallas/Fort Worth Regional Airport Revenue Refunding Joint Series A, 7.375% due Aaa/AAA 1,283,112 11/1/2011 (Insured: FGIC) 1,245,000 Duncanville Independent School District Capital Appreciation Refunding Series B, Aaa/AAA 899,077 0% due 2/15/2012 (Guarantee: PSF) 4,945,000 Duncanville Independent School District Refunding Series B, 0% due 2/15/2011 Aaa/AAA 3,761,513 (Guarantee: PSF) 4,500,000 Ector County Hospital District Hospital Revenue Refunding, 5.50% due 4/15/2004 Aaa/AAA 4,652,010 (Insured: MBIA) 3,800,000 Fort Worth Water & Sewer Revenue Refunding & Improvement, 5.25% due 2/15/2011 Aa2/AA 4,256,266 1,390,000 Fort Worth Water & Sewer Revenue Series 2001, 5.25% due 2/15/2011 (Tarrant & Aa2/AA 1,585,226 Denton County Project) 2,005,000 Grapevine Texas, 5.25% due 2/15/2012 (Insured: FGIC) Aaa/AAA 2,184,768 4,000,000 Gulf Coast Waste Disposal Authority Environmental Facilities Revenue Refunding, Baa2/BBB+ 4,206,800 4.20% due 11/1/2006 (Occidental Project) 1,000,000 Gulf Coast Waste Disposal Authority Texas Revenue Refunding, 5.00% due 10/1/2010 Aaa/AAA 1,134,330 (Bayport Area Systems Project; Insured: AMBAC) 1,000,000 Gulf Coast Waste Disposal Authority Texas Revenue Refunding, 5.00% due 10/1/2011 Aaa/AAA 1,131,540 (Bayport Area Systems Project; Insured: AMBAC) 750,000 Harlingen Consolidated Independent School, 7.50% due 8/15/2009 (Guarantee: PSF) Aaa/AAA 952,335 500,000 Harris County Health Facilities Development Corp. Hospital Revenue Refunding Aaa/AAA 604,075 Series A, 6.00% due 6/1/2012 (Memorial Hospital Systems Project; Insured: MBIA) 4,410,000 Harris County Health Facilities Development Corp. Thermal Utility Revenue, 5.45% Aaa/AAA 5,063,606 due 2/15/2011 (Insured: AMBAC) 600,000 Harris County Health Facilities Hospital Series A, 6.00% due 6/1/2010 (Memorial Aaa/AAA 698,784 Hospital Systems Project; Insured: MBIA) 755,000 Harris County Hospital District Mortgage Revenue, 7.40% due 2/15/2010 (Insured: Aaa/AAA 864,422 AMBAC) (ETM)* 1,045,000 Harris County Hospital District Mortgage Revenue Unrefunded Balance Refunding, Aaa/AAA 1,236,277 7.40% due 2/15/2010 (Insured: AMBAC) 10,000,000 Harris County Hospital District Revenue Refunding, 5.75% due 2/15/2011 (Insured: Aaa/AAA 11,452,300 MBIA) 2,000,000 Harris County Hospital District Revenue Refunding, 5.75% due 2/15/2012 (Insured: Aaa/AAA 2,258,640 MBIA) 3,260,000 Harris County Sports Authority Revenue Capital Appreciation Senior Lien Series Aaa/AAA 2,548,798 G, 0% due 11/15/2010 (Insured: MBIA) 3,000,000 Hays Consolidated Independent School District Capital Appreciation, 0% due Aaa/AAA 2,241,450 8/15/2011 (Guarantee: PSF) 500,000 Irving Independent School District Capital Appreciation, 0% due 2/15/2004 Aaa/AAA 496,985 (Guarantee: PSF) 1,000,000 Lewisville Combination Contract Revenue, 4.125% due 5/1/2031 put 11/1/2006 NR/AA- 1,061,370 (Special Assessment Castle Hills Project Number 3; LOC: Wells Fargo Bank) 500,000 Lower Colorado River Authority Revenue Refunding & Improvement, 8.00% due Aaa/AAA 654,785 5/15/2010 (Insured: FSA) 3,065,000 Mesquite Independent School District Capital Appreciation Refunding, 0% due NR/AAA 2,210,662 8/15/2011 (Guarantee: PSF) 1,415,000 Midlothian Independent School District Capital Appreciation Refunding, 0% due Aaa/NR 1,253,365 2/15/2008 (Guarantee: PSF) 1,200,000 Midlothian Independent School District Capital Appreciation Refunding, 0% due Aaa/NR 1,016,340 2/15/2009 (Guarantee: PSF) 700,000 Midtown Redevelopment Authority Texas Tax, 6.00% due 1/1/2010 (Insured: Radian) NR/AA 799,680 740,000 Midtown Redevelopment Authority Texas Tax, 6.00% due 1/1/2011 (Insured: Radian) NR/AA 849,572 2,275,000 New Caney Independent School District Capital Appreciation Refunding, 0% due Aaa/AAA 2,222,379 2/15/2005 (Guarantee: PSF) 710,000 Northside Independent School District Series A, 2.25% due 8/1/2031 put 8/1/2004 VMIG1/A1+ 710,717 6,000,000 Sam Rayburn Municipal Power Agency Refunding, 5.50% due 10/1/2012 Baa2/BBB- 6,530,100 1,970,000 Socorro Independent School District Series A, 5.75% due 2/15/2011 (Guarantee: NR/AAA 2,250,252 PSF) 965,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2007 Aaa/AAA 852,886 (Insured: AMBAC) 1,120,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2008 Aaa/AAA 941,002 (Insured: AMBAC) 1,275,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2009 Aaa/AAA 1,009,583 (Insured: AMBAC) 1,440,000 Southlake Tax Increment Certificates Obligation Series B, 0% due 2/15/2010 Aaa/AAA 1,069,056 (Insured: AMBAC) 500,000 Spring Branch Independent School District, 7.50% due 2/1/2011 (Guarantee: PSF) Aaa/AAA 643,310 580,000 Tarrant County Health Facilities, 5.875% due 11/15/2007 (Adventist/Sunbelt A3/A 650,221 Health System Project) 650,000 Tarrant County Health Facilities, 6.00% due 11/15/2009 (Adventist/Sunbelt Health A3/A 741,065 System Project) 730,000 Tarrant County Health Facilities, 6.10% due 11/15/2011 (Adventist/Sunbelt Health A3/A 828,878 System Project) 1,400,000 Tarrant County Health Facilities Development Corp., 5.75% due 2/15/2011 (Texas Aaa/AAA 1,574,258 Health Resources Project; Insured: MBIA) 1,000,000 Texarkana Health Facilities Development Corp. Hospital Revenue, 5.75% due Aaa/AAA 1,145,230 10/1/2008 (Insured: MBIA) 1,945,000 Texas Affordable Housing Corp. M Series A, 4.85% due 9/1/2012 (Insured: MBIA) Aaa/AAA 2,096,768 2,000,000 Texas Affordable Housing Corp. Portfolio A, 4.85% due 9/1/2012 (Insured: MBIA) Aaa/AAA 2,156,060 1,000,000 Texas Public Finance Authority Building Revenue State Preservation Project Aaa/AAA 1,184,530 Series B, 6.00% due 8/1/2011 (Insured: FSA) 6,700,000 Texas State Public Finance Authority Building Revenue Capital Appreciation Aaa/AAA 6,554,744 Refunding, 0% due 2/1/2005 (Insured: MBIA) 7,000,000 Texas State Turnpike Authority Central Texas Turnpike Systems Rev. Bond Aa3/AA 7,850,990 Anticipation Note 2nd Tier, 5.00% due 6/1/2008 1,000,000 Travis County, 5.00% due 3/1/2007 Aaa/AAA 1,108,230 500,000 Travis County, 5.00% due 3/1/2010 Aaa/AAA 554,820 2,300,000 Travis County Health Development Corp. Series A, 5.75% due 11/15/2008 (Insured: Aaa/AAA 2,643,735 MBIA) 1,000,000 Travis County Health Facilities Development Corp. Revenue Ascension Health Aaa/AAA 1,140,100 Credit Series A, 5.75% due 11/15/2007 (Insured: MBIA) 3,750,000 Travis County Health Facilities Development Corp. Revenue Series A, 5.75% due Aaa/AAA 4,342,537 11/15/2009 (Insured: MBIA) 2,000,000 Travis County Health Facilities Development Series A, 5.75% due 11/15/2010 Aaa/AAA 2,293,920 (Ascension Health Project; Insured: MBIA) 1,000,000 University of Texas Permanent University Fund, 8.00% due 7/1/2003 (ETM)* Aaa/AAA 1,000,190 2,020,000 Washington County Health Facilities Development Corp. Revenue, 5.35% due NR/A 2,227,939 6/1/2009 (Insured: ACA) Utah (1.30%) 370,000 Intermountain Power Agency Power Supply Revenue Capital Appreciation B, 0% due A1/A+ 364,605 7/1/2004 630,000 Intermountain Power Agency Power Supply Revenue Capital Appreciation Series B, A1/A+ 624,229 0% due 7/1/2004 (ETM)* 385,000 Intermountain Power Agency Power Supply Revenue Series A, 5.20% due 7/1/2006 A1/A+ 392,742 (ETM)* 355,000 Intermountain Power Agency Power Supply Revenue Series A, 5.00% due 7/1/2012 Aaa/AAA 355,032 (Insured: MBIA) (ETM)* 4,000,000 Intermountain Power Agency Power Supply Revenue Series A, 5.50% due 7/1/2013 A1/A+ 4,080,440 (ETM)* 500,000 Intermountain Power Agency Utah Power Supply Series E, 6.25% due 7/1/2009 Aaa/AAA 600,515 (Insured: FSA) 2,500,000 Salt Lake County Housing Authority MFHR Refunding Series 1993, 5.40% due Aaa/NR 2,544,925 12/15/2018 put 12/15/2003 (Summertree Project; LOC: FNMA) 1,500,000 Salt Lake County Municipal Building, 5.50% due 10/1/2009 Aa1/AA+ 1,750,890 840,000 Snyderville Basin Sewer Improvement, 5.00% due 11/1/2006 (Insured: AMBAC) Aaa/AAA 934,811 510,000 Utah Board Regents Auxiliary Systems & Student Fee Revenue Refunding Series A, NR/AA 573,169 5.00% due 5/1/2010 1,570,000 Utah County Municipal Building Authority Lease Revenue, 5.00% due 11/1/2010 Aaa/NR 1,781,636 (Insured: AMBAC) 265,000 Utah Housing Finance Agency Refunding Single Family Mortgage, 5.35% due 7/1/2003 Aaa/AA 265,024 (Insured: FHA/VA) 500,000 Utah State University Hospital Board of Regents Revenue, 5.50% due 8/1/2005 Aaa/AAA 542,180 (Insured: AMBAC) 1,000,000 Utah State University Hospital Board of Regents Revenue, 5.25% due 8/1/2008 Aaa/AAA 1,117,530 (Insured: MBIA) 890,000 Utah Water Finance Agency Revenue Pooled Loan Financing Program Series A, 5.00% Aaa/NR 1,009,144 due 10/1/2011 (Insured: FHA/VA) Vermont (0.10%) 880,000 Vermont Educational & Health Buildings Financing Agency Revenue, 6.00% due NR/BBB 940,183 9/1/2006 (Northwestern Medical Center Project) Virginia (1.90%) 1,010,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2007 Aaa/AAA 1,164,530 (Insured: AMBAC) 1,070,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2008 Aaa/AAA 1,251,622 (Insured: AMBAC) 1,130,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2009 Aaa/AAA 1,335,931 (Insured: AMBAC) 1,195,000 Alexandria Industrial Development Authority Revenue, 5.75% due 10/1/2010 Aaa/AAA 1,418,847 (Insured: AMBAC) 4,000,000 Capital Region Airport Commission Virginia Refunding Series B, 8.125% due Aaa/AAA 4,339,040 7/1/2014 (Insured: AMBAC) 1,500,000 Chesterfield County Industrial Development, 5.50% due 10/1/2009 (Vepco Project) A3/BBB+ 1,605,270 2,075,000 Fairfax County Economic Development Authority Lease Revenue, 5.30% due 5/15/2004 Aa1/AA+ 2,152,626 (Government Center Project) 530,000 Hampton General Obligation Refunding Bond, 5.85% due 3/1/2007 Aa2/AA 534,145 500,000 Hampton Hospital Facilities Revenue Series A, 5.00% due 11/1/2005 Aa2/AA 537,420 3,000,000 Hampton Redevelopment Housing Authority Multi Family Housing Refunding Series Baa1/A1+ 3,072,900 1994, 7.00% due 7/1/2024 put 7/1/2004 (Chase Hampton Apartments Project; LOC: Credit Suisse) 1,460,000 Norton Industrial Development Authority Hospital Revenue Refunding Improvement, NR/A 1,651,523 5.75% due 12/1/2012 (Norton Community Hospital Project; Insured: ACA) 3,000,000 Suffolk Redevelopment Housing Authority MFHR, 7.00% due 7/1/2024 put 7/1/2004 Baa2/NR 3,048,870 (Chase Heritage @ Dulles Project) 3,000,000 Suffolk Redevelopment Housing Authority Refunding, 4.85% due 7/1/2031 put Aaa/NR 3,256,350 7/1/2011 (Windsor at Potomac Project; Collateralized: FNMA) Washington (3.40%) 1,760,000 Energy Northwest Washington Wind Project Revenue Series A, 4.95% due 7/1/2008 A3/A- 1,872,869 705,000 Energy Northwest Washington Wind Project Revenue Series B, 4.95% due 7/1/2008 A3/A- 750,212 785,000 Energy Northwest Washington Wind Project Revenue Series B, 5.20% due 7/1/2010 A3/A- 832,940 950,000 Grant County Priest Rapids Hydroelectric, 6.00% due 1/1/2006 (Insured: AMBAC) Aaa/AAA 1,052,144 1,885,000 King County School District Number 414 Lake Washington Refunding, 3.00% due Aa1/AA 1,936,837 12/1/2004 1,880,000 Lewis County Washington Public Utility District Refunding, 5.00% due 10/1/2007 Aa1/AA- 2,088,492 575,000 Seattle Municipal Light & Power Revenue, 5.45% due 11/1/2010 pre-refunded Aa3/A+ 595,194 11/1/03 @ 102 1,425,000 Seattle Municipal Light & Power Revenue, 5.45% due 11/1/2010 Aa3/A+ 1,472,994 1,000,000 Seattle Municipal Light & Power Revenue Refunding, 4.75% due 7/1/2007 (Insured: Aaa/AAA 1,098,810 FSA) 2,655,000 Seattle Municipal Light & Power Revenue Refunding, 5.30% due 11/1/2007 Aa3/A+ 2,746,916 pre-refunded 11/1/2003 @ 102 1,000,000 Spokane Regional Solid Waste Refunding, 5.00% due 12/1/2005 (Insured: AMBAC) Aaa/AAA 1,080,040 1,000,000 Spokane Regional Solid Waste Refunding, 5.00% due 12/1/2006 (Insured: AMBAC) Aaa/AAA 1,102,850 1,000,000 Spokane Regional Solid Waste Refunding, 5.25% due 12/1/2007 (Insured: AMBAC) Aaa/AAA 1,125,380 550,000 Tacoma Conservation Systems Project Revenue, 6.20% due 1/1/2006 (Tacoma Public Aa1/AA- 591,090 Utilities Project) 800,000 University of Washington Alumni Association Lease Revenue Refunding, 4.50% due Aaa/AAA 829,088 8/15/2004 (University of Washington Medical Center Project; Insured: MBIA) 900,000 University of Washington Alumni Association Lease Revenue Refunding, 4.50% due Aaa/AAA 953,136 8/15/2005 (University of Washington Medical Center Project; Insured: MBIA) 1,000,000 University of Washington Alumni Association Lease Revenue Refunding, 5.00% due Aaa/AAA 1,091,880 8/15/2006 (University of Washington Medical Center Project; Insured: MBIA) 1,100,000 University of Washington Alumni Association Lease Revenue Refunding, 5.00% due Aaa/AAA 1,215,753 8/15/2007 (University of Washington Medical Center Project; Insured: MBIA) 1,500,000 Washington Health Care Facilities, 5.50% due 12/1/2009 (Providence Services Aaa/AAA 1,716,705 Project; Insured: MBIA) 2,500,000 Washington Public Power Supply Refunding Series A, 5.00% due 7/1/2011 (Insured: Aaa/AAA 2,783,750 FSA) 1,140,000 Washington Public Power Supply System Refunding Revenue, 0% due 7/1/2008 Aa1/AA- 986,590 (Nuclear Project Number 3) 1,655,000 Washington Public Power Supply System Series 96-A, 6.00% due 7/1/2006 (Insured: Aaa/AAA 1,864,540 MBIA) 1,000,000 Washington Public Power Supply Systems, 6.00% due 7/1/2008 (Nuclear Project Aaa/AAA 1,168,760 Number 1; Insured: AMBAC) 3,445,000 Washington Public Power Supply Systems Refunding Series B, 0% due 7/1/2004 Aa1/AA- 3,399,836 (Nuclear Project Number 3) 1,000,000 Washington Public Power Supply Systems Revenue Refunding Series A, 5.10% due Aaa/AAA 1,128,790 7/1/2010 (Nuclear Project Number 2; Insured: FSA) 830,000 Washington Public Power Supply Systems Revenue Refunding Series B, 0% due Aa1/AA- 718,307 7/1/2008 (Nuclear Project Number 3) 1,000,000 Washington State Health Care Facilities Authority Revenue, 4.00% due 7/1/2005 Aaa/AAA 1,046,310 (Overlake Hospital Medical Center Project; Insured: MBIA) 985,000 Washington State Higher Education Facilities Authority Revenue Series A, 5.70% Aaa/AAA 999,568 due 11/1/2011 (Insured: MBIA) 900,000 Washington State Public Power Supply, 5.40% due 7/1/2012 (Insured: FSA) Aaa/AAA 1,037,835 5,000,000 Washington State Public Power Supply Systems Revenue Refunding Series A, 6.00% Aaa/AAA 5,653,800 due 7/1/2007 (Nuclear Project Number 1; Insured: AMBAC) West Virginia (0.20%) 585,000 Harrison County Nursing Facility Revenue Refunding, 5.625% due 9/1/2010 (Salem NR/NR 593,898 Health Care Corp. Project; LOC: Fleet Bank) 193,938 Marion County SFMR Series 1992, 7.75% due 7/10/2011 NR/NR 199,418 2,000,000 West Virginia Statewide Commission Lottery Revenue Series 1997-A, 5.50% due Aaa/AAA 2,165,120 7/1/2005 (Insured: MBIA) Wisconsin (0.70%) 1,500,000 Bradley Pollution Control Revenue, 6.75% due 7/1/2009 (Owens Illinois Waste B1/BB+ 1,851,885 Project) (ETM)* 3,325,000 Milwaukee Wisconsin, 5.00% due 3/15/2005 Aa2/AA 3,533,511 800,000 Wisconsin State Health & Educational Facilities Authority, 5.90% due 8/15/2005 Aaa/AAA 869,960 (Wheaton Franciscan Services Inc. Project; Insured: MBIA) 2,000,000 Wisconsin State Health & Educational Facilities Authority Revenue, 6.00% due Aaa/AAA 2,288,360 8/15/2008 (Aurora Health Care Inc. Project; Insured: MBIA) 500,000 Wisconsin Transportation Revenue Series A, 5.50% due 7/1/2012 pre-refunded Aa3/AA- 587,915 7/1/2010 @ 100 Wyoming (0.30%) 1,615,000 West Park Hospital District Revenue, 5.90% due 7/1/2010 (Insured: ACA) NR/A 1,745,750 2,500,000 Wyoming Farm Loan Board Revenue, 0% due 4/1/2009 NR/AA- 2,093,100 Municipal Trust Certs. (0.70%) 2,778,427 Clipper Caraval Tax Exempt Certificate Series 1998, 4.50% due 10/6/2005 Aaa/NR 2,825,632 (Insured: AMBAC) 5,600,000 Municipal Tax Exempt Trust Certificate Class A1 to A5, 4.60% due 8/6/2008 NR/AAA 5,922,896 (Insured: AMBAC) TOTAL INVESTMENTS (100%) (Cost $1,249,257,949) $ 1,316,577,099 + Credit ratings are unaudited. * Escrowed to maturity See notes to financial statements.
Report of independent auditors Thornburg Limited Term Municipal Fund, Inc. - National Portfolio June 30, 2003 To the Board of Directors and Class I Shareholders of Thornburg Limited Term Municipal Fund, Inc. - National Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Limited Term Municipal Fund, Inc.- National Portfolio (the "Fund") at June 30, 2003, 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 the Class I shares for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year ended June 30, 1999 were audited by other independent accountants whose report dated July 27, 1999 expressed an unqualified opinion on those financial highlights. PricewaterhouseCoopers LLP New York, New York July 30, 2003 Index Comparisons Thornburg Limited Term Municipal Fund, Inc. - National Portfolio LIMITED TERM MUNICIPAL FUND - NATIONAL PORTFOLIO Index Comparison Compares performance of Limited Term Municipal Fund - National Portfolio, the Lehman 5-Year General Obligation Bond Index and the Consumer Price Index for the periods ended June 30, 2003. On June 30, 2003, the weighted average securities ratings of both the Index and the Fund were AA and the weighted average portfolio maturities of the Index and the Fund were 4.9 years and 4.3 years, respectively. Past performance of the Index and the Fund may not be indicative of future performance. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Thornburg Limited Term Municipal Fund - National Portfolio Class I Total Returns, Since July 5, 1996, versus Lehman 5 Year GO Index and Consumer Price Index (C.P.I.) Lehman 5 yr. GO Index Fund I Shares CPI Class I Shares Average Annual Total Returns (Period ended 6/30/03) One year: 6.36% Three years: 6.72% Five years: 5.27% >From inception (7/5/96): 5.47%
Directors and Officers Thornburg Limited Term Municipal Fund - National Portfolio Name, Address (1) Position(s) Term of Principal Member of Other And Age Held with Office Occupation(s) Portfolios Directorships Fund (2) and During Past in Fund Held by Length of 5 Years Complex Director or Time Overseen Nominee for Served by Director Director or Nominee for Director (2) Interested Directors Garrett Thornburg, Chairman Director CEO, Chairman and Controlling Twelve None 57 of the Since Shareholder of Thornburg Board of 1984; Investment Management, Inc. Directors, (4) (investment adviser) and Thornburg Treasurer (3) Securities Corporation (securities dealer); Chairman of Trustees of Thornburg Investment Trust (registered investment company); CEO and Chairman of Thornburg Mortgage, Inc. (real estate investment trust); Chairman of Thornburg Mortgage Advisory Corporation (investment manager to Thornburg Mortgage, Inc.). Independent Directors David D. Chase, Director Director Chairman, President and CEO Twelve Trustee, 62 since 2001 of general partner of Vestor Thornburg (4) Partners, LP, Santa Fe, NM Investment Trust (private equity fund); Chairman and CEO of Vestor Holdings, Inc., Santa Fe, NM (merchant bank). Eliot R. Cutler, Director Director Partner, Akin, Gump, Strauss, Two Director of 56 since 1984 Hauer & Feld, LLP, Washington Skanska, AB (4) D.C. (law firm) since November (construction services) 2000; partner, Cutler & Stanfield, Washington, D.C. (law firm) until November 2000. James E. Monaghan, Jr., Director Director President, Monaghan & Two None 56 since 1984 Associates, Inc. and (4) Strategies West, Inc. Denver, Colorado (business consultants). A.G. Newmyer III, Director Director Private investor and management Two None 53 since 1984 consultant. (4) Advisory Director Richard M. Curry, Advisory Advisory Managing Director, McDonald Not applicable None 60 Director (6) Director (5) & Co., Cincinnati, Ohio Since (securities dealer) and District 2002 (6) President, Key Bank, Cincinnati, Ohio, since March 2000. Officers of the Fund (who are not Directors) (7) Brian J. McMahon, President President President and Managing Director Not applicable Not applicable 47 since 1997 of Thornburg Investment (4) Management, Inc.; President of Thornburg Investment Trust Dawn B. Fischer, Secretary Secretary Vice President, Secretary and Not applicable Not applicable 56 Since 1984 Managing Director of Thornburg (4) Investment Management, Inc.; Secretary and Assistant Treasurer of Thornburg Investment Trust; Secretary of Thornburg Securities Corporation; Vice President, Daily Tax Free Income Fund, Inc. (registered investment company). Steven J. Bohlin, Vice President Vice Vice President and Managing Not applicable Not applicable 44 President Director of Thornburg Investment Since 1991 Management, Inc.; Vice President (4) and Treasurer of Thornburg Investment Trust. George T. Strickland, Vice President Vice Vice President and Managing Not applicable Not applicable 40 Treasureer President Director of Thornburg Investment Since 1999; Management, Inc.; Vice President Treasurer of Thornburg Investment Trust. since 2003 Leigh Moiola, Vice President Vice Vice President, and Managing Not applicable Not applicable 36 President Director since 1998, of Since 1999 Thornburg Investment Management, (4) Inc.; Vice President of Thornburg Investment Trust since 2001. Kenneth Ziesenheim, Vice President Vice Managing Director of Thornburg Not applicable Not applicable 49 President Investment Management, Inc.; Since 1995 President of Thornburg Securities (4) Corporation; Vice President of Thornburg Investment Trust. Kerry D. Lee, Vice President Vice Associate of Thornburg Investment Not applicable Not applicable 36 President Management, Inc.; Vice President Since 1999 of Thornburg Investment Trust (4) since 1999. Dale Van Scoyk, Vice President Vice Account Manager for Thornburg Not applicable Not applicable 56 President Investment Management, Inc. Since 1999 1997-1999, and Managing Director (4) and Vice President since 1999; Vice President of Thornburg Investment Trust since 1998; National Account Manager for Heartland Funds 1993-1997. Joshua Gonze, Vice President Vice Associate and Vice President of Not applicable Not applicable 40 President Thornburg Investment Management, Since 2001 Inc. since 1999; Vice President of (4) Thornburg Investment Trust since 2001 Christopher Ihlefeld, Vice President Vice Associate and Vice President of Not applicable Not applicable 32 President Thornburg Investment Mgt, Inc.; Since 1999 Assistant Vice President of (4) Thornburg Investment Trust since 1999. (1) Each person's address is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (2) The Fund is one of two separate investment "funds" or "portfolios" of Thornburg Limited Term Municipal Fund, Inc. (the "Company"), organized as a Maryland corporation. The Company currently has two funds, which are considered for certain regulatory purposes as parts of a "fund complex" with the nine funds of Thornburg Investment Trust. Thornburg Investment Management, Inc. is the investment adviser to, and manages, the eleven funds of the Company and Thornburg Investment Trust. (3) Mr. Thornburg is considered an "interested" Director under the Investment Company Act of 1940 because he is a director and controlling shareholder of the investment adviser, Thornburg Investment Management, Inc., and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Company. (4) Thornburg Limited Term Municipal Fund, Inc.'s Amended By-Laws provide that each Director shall serve in office until the next annual meeting or the election and qualification of the Director's successor. In accordance with Maryland law, the Company does not hold an annual meeting each year; it may hold shareholder meetings as circumstances require. Officers serve at the pleasure of the Board of Directors. (5) Mr. Cutler may be considered an "interested" Director of the Company because he is associated with a partnership which receives a portion of Thornburg Investment Management, Inc.'s revenues. (6) As an Advisory Director, Mr. Curry serves at the pleasure of the Board of Directors. (7) Assistant vice presidents, assistant secretaries and assistant treasurers are not shown.
The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200. The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200. Thornburg limited term municipal fund national portfolio - I shares Outperformed Tax-Exempt Money Market Funds Investors sometimes ask us to compare Limited Term Municipal Fund - National Portfolio to money market fund returns. These investments have certain differences, and investors in Limited Term Municipal Fund - National Portfolio took more risk than money market fund investors to earn their higher returns. Return from a hypothetical $10,000 investment 6/30/93* through 6/30/03 Lipper Tax-exempt Money Market Index $2,986 Thornburg Limited Term Municipal Fund - Nat'l Portfolio I Shares (after capital gains taxes) $6,421 The chart above is for the Fund's Class I Shares only. Class A and Class C shares of the Fund have different sales charges and expenses. See the inside front cover page for the 30-day SEC yield and the total returns for one year, three years, five years, and since inception for the Class I shares. *Prior to 7/5/96 the illustrations include actual returns of the Class A shares adjusted for the lower Institutional expenses. 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 tax-exempt money funds as quoted in "Lipper Tax- exempt Money Market Index" for the months covered by this analysis. The increase for the Class I shares of Thornburg Limited Term Municipal Fund - National Portfolio is based upon the dividends paid for the months covered by this analysis, the beginning NAV price at $13.59 per share and the ending NAV at $14.01 per share. These investments returned the $10,000 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. The portion of the increase, if any, of Thornburg Limited Term Municipal Fund - National Portfolio representing appreciation of the share price is assumed to be taxed at a 15% 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: Generally, money market funds seek to maintain an investment portfolio with an average maturity of 90 days or less. Thornburg Limited Term Municipal Fund - National Portfolio invests in short-to-intermediate maturity municipal obligations. The net asset value of the money funds did not fluctuate. The net asset value of the Class I shares of LTMIX did vary from time to time, and will continue to vary in the future due to the effect of changes in interest rates on the value of the investments the Fund holds. The analysis assumes that the investor received the net asset value of the shares owned, plus accrued income, at time of sale. 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. Thornburg Limited Term Municipal Fund - National Portfolio also declares dividends daily and pays them monthly. Note 5: An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such funds. Investment Manager Thornburg Investment Management, Inc. 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 Principal Underwriter Thornburg Securities Corporation 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 www.thornburg.com 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 do not guarantee future results. STATEMENT OF ADDITIONAL INFORMATION (For Holders of Class A and Class C Shares) Relating to the Acquisition of the Assets of THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO a series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 by and in exchange solely for shares of THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND, a series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Statement of Additional Information, relating specifically to the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., by Thornburg Limited Term California Municipal Fund (the "New Fund"), a series of Thornburg Investment Trust, in exchange solely for voting shares of the New 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 Funds Statement of Additional Information ___________, 2004, [to be added by amendment]; 2. Thornburg Funds Statement of Additional Information dated February 1, 2004, [to be added by amendment]; and 3. Thornburg Limited Term Municipal Fund California Portfolio Annual Report, June 30, 2003; and 4. Thornburg Limited Term Municipal Fund California Portfolio Semiannual Report, December 31, 2003 [to be added by amendment]. This Statement of Additional information is not a prospectus. A Prospectus/Proxy Statement dated _________________, 2004 relating to the above referenced acquisition may be obtained from Thornburg Investment Trust at the number and address shown above. This Statement of Additional Information relates to, and should be read with, the Prospectus/Proxy Statement. 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, 2003 have been audited by PricewaterhouseCoopers, LLP, that Fund's independent auditors. The date of this Statement of Additional Information is _________, 2004. Thornburg Limited Term Municipal Fund California Portfolio Annual Report June 30, 2003 Thornburg Limited Term Municipal Fund, Inc. - California Portfolio ALL DATA AS OF 6/30/03. Fund facts: Thornburg Limited Term Municipal Fund, Inc. - California Portfolio A Shares C Shares Annualized Distribution Rate (at NAV) 2.72% 2.36% SEC Yield 1.54% 1.20% NAV $13.20 $13.21 Maximum Offering Price $13.40 $13.21 Total returns: (Annual Average - After Subtracting Maximum Sales Charge) One Year 3.24% 4.51% Three Years 4.76% 4.86% Five Years 4.05% 3.97% Ten Years 4.37% N/A Since Inception 5.43% 4.36% Inception Date 2/19/87 9/1/94 The investment return and principal value of an investment in the fund will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. Maximum sales charge of the Fund's Class A Shares is 1.50%. The data quoted represent past performance and may not be construed as a guarantee of future results. The SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund's shares at the end of the period. The distribution rate is calculated by taking the sum of the month's total distribution factors and dividing this sum by a 30-day period and annualizing to 360-day year. The value is then divided by the ending NAV to arrive at the annualized distribution yield. The yield is calculated on a periodic basis and is subject to change depending on the Fund's NAV and current distributions. Letter to shareholders Thornburg Limited Term Municipal Fund, Inc. - California Portfolio July 14, 2003 Dear Fellow Shareholder: I am pleased to present the annual report for the California Portfolio of Thornburg Limited Term Municipal Fund. The net asset value of the Class A shares increased by 24 cents to $13.20 during the year ending June 30, 2003. If you were with us for the entire period, you received dividends of 37.9 cents per share. If you reinvested dividends, you received 38.4 cents per share. Investors who owned Class C shares received dividends of 33.9 and 34.3 cents per share, respectively. Over the last year, interest rates on high-quality municipal bonds have fallen substantially. Falling interest rates drive up the price of most of the bonds owned by the Fund, and this has resulted in an increasing share price. Your Thornburg Limited Term Municipal Fund, California Portfolio is a laddered portfolio of over 170 municipal obligations from all over the State. Approximately 97% of the bonds are rated A or better by one of the major rating agencies. Today, your Fund's weighted average maturity is 4.9 years; we always keep it below 5 years. As you know, we ladder the maturity dates of the bonds in your portfolio so that some of the bonds are scheduled to mature during each of the coming years. The following chart describes the percentages of your Fund's bond portfolio maturing in each of the coming years: % of portfolio Cumulative % maturing within maturing by end of 1 year = 9% year 1 = 9% 1 to 2 years = 9% year 2 = 18% 2 to 3 years = 14% year 3 = 32% 3 to 4 years = 8% year 4 = 40% 4 to 5 years = 13% year 5 = 53% 5 to 6 years = 11% year 6 = 64% 6 to 7 years = 6% year 7 = 70% 7 to 8 years = 6% year 8 = 76% 8 to 9 years = 11% year 9 = 87% 9 to 10 years = 10% year 10 = 97 As of 6/30/03. Portfolio holdings can and do vary over time. Three powerful trends seem to be driving recent performance of the municipal market. The first trend is persistent economic weakness. The U.S. unemployment rate, at 6.4%, has just hit a nine-year high. GDP growth is sputtering along at about 2%. Our European and Japanese trading partners are, by and large, worse off than are we, and the Federal Reserve Board appears to be at least as worried about deflation as it is about inflation. We continue to believe that low interest rates, tax cuts, and rising corporate profits will eventually lead to steady economic and employment growth and probably give rise to somewhat higher interest rates. However, that process is taking longer than we formerly thought and may not materialize until next year. The second trend is financial stress in many of our cities and states. A combination of flat or declining tax revenues and rising expenses for items such as Medicaid and pension systems has led to large budget deficits for more than half of the 50 states. The challenges have led to a number of high-profile credit rating downgrades by the major bond rating agencies. The deficit problem is particularly pronounced in California because of its magnitude ($38 billion at last count) and the inability of the government to reach consensus on how to deal with it. A variety of plans has been proposed, but none has been implemented as yet. In the meantime, the deficit continues to grow by an estimated $55 million per day. Thanks to a large and diverse economy and currently moderate debt levels, we expect that the State will continue to pay its bills, including principal and interest on its bonds. Until we see a viable plan implemented, however, we are maintaining very high credit quality in the California portfolio, with over 77% of the portfolio rated AAA by Moody's or Standard & Poor's. It is notable that in the midst of these problems, many municipal credits are doing just fine. Standard & Poor's recently reported that, nationwide, upgrades outpaced downgrades in the second quarter of 2003 by a ratio of 1.6:1. This is because the municipal bond market is made up of much more than bond issues of the 50 states. Many of our cities, counties, school districts, water and sewer authorities, transportation authorities, and healthcare providers have benefited from stable revenues based upon property taxes, sales taxes, and fees for essential services. The municipal bond market, historically has a much lower default rate than the corporate bond market, and we continue to enjoy some success finding good bonds at relatively reasonable prices. The third trend exerting pressure on the municipal market is the heavy supply of bonds. $198 billion of municipal bonds were issued in the first half of 2003, a 19% increase over the record pace of 2002. The first half total already exceeds full-year volume for 1994, 1995, and 1996. The heavy supply has often saturated traditional sources of demand and pushed high quality tax-free municipal bond yields to levels approaching taxable Treasury bond yields. The relative attractiveness of the municipal bond market should allow full coupon municipals to outperform the Treasury bond market if the heavy supply abates and yield ratios revert to historical norms. The Wall Street Journal ran a front-page story on July 7, 2003, about retirees who are forced to pinch pennies as money market and CD rates plunge. We believe that laddering short and intermediate bonds -- as we have done for your account -- is the best way to address this problem. Laddering bonds moderates the income-flow risk of plunging short-term yields and the principal risk that affects all bonds when interest rates rise. To see how your Fund has performed over time relative to the money market fund averages, turn to the back of this report. Over the years, the practice of laddering a diversified portfolio of short- and intermediate-maturity municipal bonds has allowed your Fund to perform consistently well in varying interest rate environments. Thank you for investing in the California Portfolio of Thornburg Limited Term Municipal Fund. Sincerely, George Strickland Portfolio Manager Past performance cannot guarantee future results. Statement of assets and liabilities Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 ASSETS Investments at value (cost $185,795,442) ........................$ 193,763,769 Cash ............................................................ 31,071 Receivable for investments sold ................................. 510,000 Receivable for fund shares sold ................................. 672,287 Interest receivable ............................................. 2,797,779 Prepaid expenses and other assets ............................... 2,850 Total Assets .................................. 197,777,756 LIABILITIES Payable for investments purchased ............................... 3,702,692 Payable for fund shares redeemed ................................ 1,422,827 Accounts payable and accrued expenses ........................... 72,326 Payable to investment advisor (Note 3) .......................... 95,916 Dividends payable ............................................... 136,359 Total Liabilities ............................. 5,430,120 NET ASSETS ......................................................$ 192,347,636 NET ASSETS CONSIST OF: Net unrealized appreciation (depreciation) on investments ..$ 7,968,327 Accumulated net realized gain (loss) ....................... (794,213) Net capital paid in on shares of beneficial interest ....... 185,173,522 $ 192,347,636 NET ASSET VALUE: Class A Shares: Net asset value and redemption price per share ($149,269,028 applicable to 11,304,831 shares of beneficial interest outstanding - Note 4) ................................$ 13.20 Maximum sales charge, 1.50% of offering price ................... 0.20 Maximum Offering Price Per Share ................................$ 13.40 Class C Shares: Net asset value and offering price per share* ($22,486,977 applicable to 1,701,640 shares of beneficial interest outstanding - Note 4) ................................$ 13.21 Class I Shares: Net asset value, offering and redemption price per share ($20,591,631 applicable to 1,557,952 shares of beneficial interest outstanding - Note 4) ................................$ 13.22 *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. - California Portfolio Year Ended June 30, 2003 INVESTMENT INCOME: Interest income (net of premium amortized of $1,989,796) ........ $ 6,569,014 EXPENSES: Investment advisory fees (Note 3) ............................... 850,698 Administration fees (Note 3) Class A Shares ......................................... 170,338 Class C Shares ......................................... 23,226 Class I Shares ......................................... 7,644 Distribution and service fees (Note 3) Class A Shares ......................................... 340,675 Class C Shares ......................................... 185,809 Transfer agent fees Class A Shares ......................................... 57,397 Class C Shares ......................................... 19,589 Class I Shares ......................................... 16,005 Custodian fees (Note 3) ......................................... 105,823 Registration and filing fees .................................... 4,362 Professional fees ............................................... 15,447 Accounting fees ................................................. 9,809 Director fees ................................................... 7,071 Other expenses .................................................. 20,839 Total Expenses ................................ 1,834,732 Less: Expenses reimbursed by investment advisor (Note 3) ..... (43,579) Distribution and service fees waived (Note 3) .......... (92,904) Fees paid indirectly (Note 3) .......................... (2,208) Net Expenses .................................. 1,696,041 Net Investment Income ......................... 4,872,973 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments sold .................... 57,393 Increase (Decrease) in unrealized appreciation of investments ... 2,933,907 Net Realized and Unrealized Gain (Loss) on Investments .................... 2,991,300 Net Increase (Decrease) in Net Assets Resulting From Operations ............................... $ 7,864,273 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, 2003 June 30, 2002 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ....................................... $ 4,872,973 $ 4,272,747 Net realized gain (loss) on investments sold ................ 57,393 96,064 Increase (Decrease) in unrealized appreciation of investments 2,933,907 1,489,825 Net Increase (Decrease) in Net Assets Resulting from Operations ....................... 7,864,273 5,858,636 DIVIDENDS TO SHAREHOLDERS: >From net investment income Class A Shares ..................................... (3,907,510) (3,641,689) Class C Shares ..................................... (478,583) (333,629) Class I Shares ..................................... (489,837) (294,472) FUND SHARE TRANSACTIONS (NOTE 4): Class A Shares ..................................... 31,614,924 24,187,536 Class C Shares ..................................... 6,082,493 9,557,877 Class I Shares ..................................... 10,211,834 4,506,387 Net Increase (Decrease) in Net Assets ..... 50,897,594 39,840,646 NET ASSETS: Beginning of year .................................. 141,450,042 101,609,396 End of year ........................................ $ 192,347,636 $ 141,450,042
See notes to financial statements. Notes to financial statements Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 NOTE 1 - ORGANIZATION Thornburg Limited Term Municipal Fund, Inc. (the "Company") was incorporated in Maryland on February 14, 1984. The Company 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 "Fund"). The Company is an open-end diversified management investment company, registered under the Investment Company Act of 1940, as amended. The primary investment objective of the Company 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 Fund will invest primarily in Municipal Obligations originating in California with the objective of obtaining exemption of interest dividends from any income taxes imposed by California on individuals. The Fund currently offers three classes of shares of beneficial interest, Class A, Class C and Institutional Class (Class I) shares. Each class of shares of the Fund represents an interest in the same portfolio of investments, 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, (iii) Class I shares are sold at net asset value without a sales charge at the time of purchase, and (iv) the respective classes have different reinvestment privileges. Additionally, the Fund may allocate among its classes certain expenses, to the extent applicable 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 Fund are limited to service and distribution fees, administrative fees, and certain transfer agent expenses. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the Company are as follows: Valuation of Investments: In determining the net asset value of the Fund, the Company 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, normally at 4:00 p.m. EST or at 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 Fund are reviewed by the officers of the Company 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 Company 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. When-Issued and Delayed Delivery Transactions: The Company may engage in when-issued or delayed delivery transactions. To the extent the Company 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 Company makes a commitment to purchase a security for the Fund, on a when-issued basis, the Fund will record the transaction and reflect the value in determining its net asset value. When effecting such transactions, assets of the Fund of an amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date. Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Company has received payment. Dividends are paid monthly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder's option, paid by check. Net capital gains, to the extent available, will be distributed at least annually. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and 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. Net investment income, other than class specific expenses, and realized and unrealized gains and losses, are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of the dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to all Funds are allocated among the Funds based upon their relative net asset values or other appropriate allocation methods. 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. Guarantees and Indemnifications: Under the Company's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Company enters into contracts with service providers that contain general indemnification clauses. The Company's maximum exposure under these arrangements is unknown. However, based on experience, the Company expects the risk of loss to be remote. NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement, Thornburg Investment Management, Inc. (the "Advisor") serves as the investment advisor and performs services for which the fees are payable at the end of each month. For the year ended June 30, 2003, these fees were payable at annual rates ranging from .50 of 1% to .225 of 1% of the average daily net assets of the Fund. The Company also has entered into an Administrative Services Agreement with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund's shares, and for which fees will be payable at an annual rate of up to .125 of 1% of the average daily net assets attributable to each class of shares. For the year ended June 30, 2003, the Advisor voluntarily reimbursed certain class specific expenses and administrative fees of $28,008 for Class A shares and $15,571 for Class I shares. The Company has an underwriting agreement with Thornburg Securities Corporation (the "Distributor"), which acts as the distributor of Fund shares. For the year ended June 30, 2003 the Distributor has advised the Fund that it earned commissions aggregating $4,017 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $3,156 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 Company may reimburse to the Advisor amounts not to exceed .25 of 1% per annum of the average daily net assets attributable to each class of shares of the Fund for payments made by the Advisor to securities dealers and other financial institutions to obtain various shareholder related services. The Advisor may pay out of its own resources additional expenses for distribution of the Fund's shares. The Company also has adopted a Distribution Plan pursuant to Rule 12b-1, applicable only to the Fund's Class C shares, under which the Company can 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 Fund under their respective Service and Distribution plans and Class C distribution fees waived by the Distributor for the year ended June 30, 200 are set forth in the statement of operations. The Company has an agreement with the custodian bank to indirectly pay a portion of the custodian's fees through credits earned by the Fund's cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the statement of operations. For the year ended June 30, 2003 fees paid indirectly were $2,208. Certain officers and directors of the Company are also officers and /or directors of the Advisor and the Distributor. The compensation of unaffiliated directors is borne by the Company. NOTE 4 - SHARES OF BENEFICIAL INTEREST At June 30, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended June 30, 2003 June 30, 2002 Shares Amount Shares Amount Class A Shares Shares sold .................... 5,242,685 $ 68,754,114 2,888,793 $ 37,226,901 Shares issued to shareholders in reinvestment of dividends ... 199,540 2,620,134 195,828 2,523,069 Shares repurchased ............. (3,028,552) (39,759,324) (1,208,763) (15,562,434) Net Increase (Decrease) ........ 2,413,673 $ 31,614,924 1,875,858 $ 24,187,536 Class C Shares Shares sold .................... 606,383 $ 7,970,447 780,669 $ 10,078,776 Shares issued to shareholders in reinvestment of dividends ... 23,883 313,949 16,362 210,986 Shares repurchased ............. (168,027) (2,201,903) (57,081) (731,885) Net Increase (Decrease) ........ 462,239 $ 6,082,493 739,950 $ 9,557,877 Class I Shares Shares sold .................... 1,157,992 $ 15,228,991 506,711 $ 6,532,257 Shares issued to shareholders in reinvestment of dividends ... 29,869 392,681 19,974 257,579 Shares repurchased ............. (411,162) (5,409,838) (176,918) (2,283,449) Net Increase (Decrease) ........ 776,699 $ 10,211,834 349,767 $ 4,506,387
NOTE 5 - SECURITIES TRANSACTIONS For the year ended June 30, 2003, the Fund had purchase and sale transactions(excluding short-term securities) of $91,153,078 and $40,791,433, respectively. NOTE 6 - INCOME TAXES At June 30, 2003, information on the tax components of capital is as follows: Cost of investments for tax purpose $ 185,795,442 Gross tax unrealized appreciation $ 8,047,781 Gross tax unrealized depreciation (79,454) Net tax unrealized appreciation (depreciation) on investments $ 7,968,327 Undistributed tax exempt income $ 136,359 At June 30, 2003, the Fund had tax basis capital losses, which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2004 $ 373,652 2008 205,990 2009 214,571 $ 794,213 The Fund utilized $57,393 of capital loss carry forwards during the year ended June 30, 2003. Unutilized tax basis capital losses may be carried forward to offset realized gains in future years. To the extent such carry forwards are used, capital gain distributions may be reduced to the extent provided by regulations. Dividends paid by the Fund for the years ended June 30, 2003 and June 30, 2002, represent exempt interest dividends, which are excludable by shareholders from gross income for Federal income tax purposes.
Financial highlights Thornburg Limited Term Municipal Fund, Inc. - California Portfolio Year Ended June 30, 2003 2002 2001 2000 1999 Class A Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 12.96 $ 12.79 $ 12.59 $ 12.75 $ 12.90 Income from investment operations: Net investment income ....................... 0.38 0.46 0.54 0.54 0.53 Net realized and unrealized gain (loss) on investments ......... 0.24 0.17 0.20 (0.16) (0.15) Total from investment operations ..................... 0.62 0.63 0.74 0.38 0.38 Less dividends from: Net investment income ....................... (0.38) (0.46) (0.54) (0.54) (0.53) Change in net asset value ............................ 0.24 0.17 0.20 (0.16) (0.15) Net asset value, end of year ......................... $ 13.20 $ 12.96 $ 12.79 $ 12.59 $ 12.75 Total return (a) ..................................... 4.83% 5.03% 6.00% 3.10% 2.97% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 2.87% 3.58% 4.26% 4.28% 4.11% Expenses, after expense reductions .......... 0.99% 1.00% 0.99% 0.99% 0.99% Expenses, after expense reductions and net of custody credits ......... 0.99% 0.99% -- -- -- Expenses, before expense reductions ......... 1.02% 1.01% 1.05% 1.01% 1.02% Portfolio turnover rate .............................. 26.03% 25.16% 15.45% 21.34% 21.71% Net assets at end of year (000) .....................$ 149,269 $ 115,237 $ 89,967 $ 90,035 $ 113,835 (a) Sales loads are not reflected in computing total return
Year Ended June 30, 2003 2002 2001 2000 1999 Class C Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 12.97 $ 12.80 $ 12.61 $ 12.76 $ 12.91 Income from investment operations: Net investment income ....................... 0.34 0.41 0.49 0.49 0.48 Net realized and unrealized gain (loss) on investments ......... 0.24 0.17 0.19 (0.15) (0.15) Total from investment operations ..................... 0.58 0.58 0.68 0.34 0.33 Less dividends from: Net investment income ....................... (0.34) (0.41) (0.49) (0.49) (0.48) Change in net asset value ............................ 0.24 0.17 0.19 (0.15) (0.15) Net asset value, end of year ......................... $ 13.21 $ 12.97 $ 12.80 $ 12.61 $ 12.76 Total return ......................................... 4.51% 4.60% 5.49% 2.73% 2.56% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 2.56% 3.15% 3.86% 3.88% 3.70% Expenses, after expense reductions .......... 1.30% 1.38% 1.40% 1.40% 1.40% Expenses, after expense reductions and net of custody credits ......... 1.30% 1.37% -- -- -- Expenses, before expense reductions ......... 1.80% 1.86% 2.01% 1.94% 1.92% Portfolio turnover rate .............................. 26.03% 25.16% 15.45% 21.34% 21.71% Net assets at end of year (000) ..................... $ 22,487 $ 16,081 $ 6,392 $ 7,411 $ 7,892
Year Ended June 30, 2003 2002 2001 2000 1999 Class I Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 12.97 $ 12.79 $ 12.60 $ 12.75 $ 12.90 Income from investment operations: Net investment income ....................... 0.42 0.51 0.59 0.58 0.58 Net realized and unrealized gain (loss) on investments ......... 0.25 0.18 0.19 (0.15) (0.15) Total from investment operations ..................... 0.67 0.69 0.78 0.43 0.43 Less dividends from: Net investment income ....................... (0.42) (0.51) (0.59) (0.58) (0.58) Change in net asset value ............................ 0.25 0.18 0.19 (0.15) (0.15) Net asset value, end of year ......................... $ 13.22 $ 12.97 $ 12.79 $ 12.60 $ 12.75 Total return ......................................... 5.27% 5.48% 6.28% 3.50% 3.33% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 3.20% 3.92% 4.60% 4.60% 4.45% Expenses, after expense reductions .......... 0.65% 0.66% 0.65% 0.65% 0.65% Expenses, after expense reductions and net of custody credits ......... 0.65% 0.65% -- -- -- Expenses, before expense reductions ......... 0.75% 0.84% 0.98% 0.79% 0.78% Portfolio turnover rate .............................. 26.03% 25.16% 15.45% 21.34% 21.71% Net assets at end of year (000) ..................... $ 20,592 $ 10,133 $ 5,520 $ 5,793 $ 12,724
Schedule of investments Schedule of Investments Thornburg Limited Term Municipal Fund, Inc. - California Portfolio CUSIPS: CLASS A - 532-723-202, CLASS C - 532-723-707, CLASS I - 532-723-889 NASDAQ SYMBOLS: CLASS A - LTCAX, CLASS C - LTCCX, CLASS I - LTCIX 435,000 Abag Finance Authority, 4.75% due 10/1/2011 (California School of Mechanical Arts A3/NR $478,900 Project) 455,000 Abag Finance Authority, 4.75% due 10/1/2012 (California School of Mechanical Arts A3/NR 499,977 Project) 1,200,000 Abag Finance Authority Variable Taxable Refunding Series C, 1.15% due 10/1/2027 put NR/A1+ 1,200,000 7/1/2003 (LOC: BNP Paribus) (daily demand notes) 425,000 Alameda Certificates Participation, 4.60% due 5/1/2011 NR/A+ 463,165 295,000 Alum Rock Union Elementary School District General Obligation Refunding Bonds, 8.00% Aaa/AAA 353,487 due 9/1/2006 (Insured: FGIC) 380,000 Alum Rock Union Elementary School District General Obligation Refunding Bonds, 8.00% Aaa/AAA 470,808 due 9/1/2007 (Insured: FGIC) 550,000 Anaheim City School District, 3.25% due 8/1/2004 (Insured: FGIC) Aaa/AAA 563,497 750,000 Bay Area Government Associates Lease Series 2002, 5.00% due 7/1/2004 (Insured: AMBAC) Aaa/AAA 779,625 785,000 Bay Area Government Associates Lease Series 2002, 5.00% due 7/1/2005 (Insured: AMBAC) Aaa/AAA 842,077 765,000 Bay Area Government Associates Lease Series 2002, 4.00% due 7/1/2006 (Insured: AMBAC) Aaa/AAA 820,486 315,000 Bay Area Government Association Rapid Transit, 5.00% due 6/15/2008 (Insured: AMBAC) Aaa/AAA 315,967 7,000,000 Bay Area Government Association Rapid Transit, 4.875% due 6/15/2009 (Insured: AMBAC) Aaa/AAA 7,231,000 675,000 Bear Valley California Unified School District Series A, 4.00% due 8/1/2005 (Insured: NR/AAA 713,057 MBIA) 1,000,000 California Department Water Resources Revenue, 5.25% due 12/1/2005 (Central Valley Aa2/AA 1,030,400 Project) 160,000 California Educational Facilities Authority Revenue, 6.10% due 6/1/2008 (Keck Baa2/NR 181,240 Graduate Institute Project) 170,000 California Educational Facilities Authority Revenue, 6.10% due 6/1/2009 (Keck Baa2/NR 194,086 Graduate Institute Project) 500,000 California Educational Facilities Authority Revenue Series 1993, 5.15% due 9/1/2003 A1/NR 503,390 (Santa Clara University Project) 750,000 California Health Facilities Authority Revenue, 5.45% due 10/1/2013 (Kaiser A3/A 752,700 Permanente Project) 500,000 California Health Facilities Authority Revenue Kaiser Permanente Med, 5.45% due Aaa/AAA 503,905 10/1/2013 (Insured: AMBAC) 500,000 California Health Facilities Financing Authority Revenue Kaiser Permanente Series A, Aaa/AAA 558,005 5.25% due 6/1/2012 (Insured: FSA) 700,000 California Health Facilities Financing Revenue, 6.40% due 10/1/2005 (Sisters of Aa3/AA- 716,450 Providence Project) 670,000 California HFA Revenue Series 1985-B, 9.875% due 2/1/2017 Aa2/AA- 672,633 525,000 California Housing Finance Agency Revenue Series H, 7.00% due 8/1/2024 Aa2/AA- 526,932 1,220,000 California Infrastructure & Economic Development, 5.35% due 12/1/2009 (American NR/A 1,375,696 Center For Wine and Food Arts Project; Insured: ACA) 500,000 California Mobile Home Park Financing Series A, 4.75% due 11/15/2010 (Insured: ACA) NR/A 536,230 570,000 California Mobile Home Park Financing Series A, 5.00% due 11/15/2013 (Insured: ACA) NR/A 615,475 300,000 California Pollution Control Financing Authority Series A, 5.90% due 6/1/2014 (San A2/A 320,538 Diego Gas & Electric Project) 2,650,000 California Pollution Control Solid Waste Authority, 6.75% due 7/1/2011 (ETM)* Aaa/NR 3,046,731 1,000,000 California Pollution Control Solid Waste Authority Series B, 4.45% due 7/1/2027 put NR/BBB 1,023,140 7/1/2005 (Waste Management Inc. Project) 190,000 California Rural HMFA Single Family Mortgage Revenue, 5.25% due 6/1/2010 NR/AAA 205,681 (Collateralized: GNMA/FNMA) 85,000 California Rural HMFA Single Family Mortgage Revenue, 5.65% due 6/1/2010 NR/AAA 92,329 (Collateralized: GNMA/FNMA) 500,000 California State, 7.00% due 8/1/2003 A2/A 502,385 1,500,000 California State, 11.00% due 8/1/2003 (Insured: FGIC) Aaa/AAA 1,512,630 500,000 California State, 6.40% due 2/1/2006 (Insured: MBIA) Aaa/AAA 560,650 2,000,000 California State, 7.50% due 10/1/2007 (Insured: MBIA) Aaa/AAA 2,438,920 560,000 California State, 6.60% due 2/1/2010 (Insured: MBIA) Aaa/AAA 679,207 1,250,000 California State, 6.50% due 9/1/2010 (Insured: AMBAC) Aaa/AAA 1,528,200 1,500,000 California State, 5.50% due 3/1/2012 pre-refunded 3/1/2004 Aaa/AAA 1,563,780 2,080,000 California State Department Water Resources Power Supply Series A, 5.50% due 5/1/2008 A3/BBB+ 2,329,579 800,000 California State Department Water Resources Power Supply Series A, 5.25% due 5/1/2009 Aaa/AAA 910,504 (Insured: MBIA) 1,000,000 California State Refunding, 5.75% due 10/1/2010 (Insured: FSA) Aaa/AAA 1,179,070 3,000,000 California State Refunding, 5.25% due 2/1/2011 (Insured: FSA) Aaa/AAA 3,411,240 3,000,000 California State Veterans - Series Bh, 5.20% due 12/1/2011 (Insured: FSA) Aaa/AAA 3,308,760 1,000,000 California State Veterans Bonds, 9.50% due 2/1/2010 (Insured: MBIA) Aaa/AAA 1,380,590 320,000 California Statewide Community Development, 4.875% due 12/1/2010 (Sisters of Charity Aaa/AAA 330,992 Project; Insured: MBIA) 1,000,000 California Statewide Community Development Authority, 5.00% due 7/1/2005 (Insured: Aaa/AAA 1,072,710 FSA) 1,000,000 California Statewide Community Development Authority Insured Health Facility Revenue NR/NR 1,055,680 Series 1996-A, 6.00% due 9/1/2004 (San Gabriel Medical Center Project) (ETM)* 595,000 California Statewide Community Development Authority Revenue, 5.125% due 6/1/2008 Aaa/AAA 661,967 (Louisiana Orthopedic Hospital Foundation Project; Insured: AMBAC) 1,000,000 California Statewide Community Development Authority Series 1996-A, 6.00% due NR/NR 1,097,870 9/1/2005 (San Gabriel Medical Center Project; Insured: California Health) (ETM)* 1,000,000 California Statewide Community Development Authority Solid Waste Revenue, 4.95% due NR/BBB 1,017,710 4/1/2011 put 4/1/2004 (Waste Management Inc. Project) 2,000,000 California Statewide Community Development Series E, 4.70% due 11/1/2036 put 6/1/2009 NR/A-1 2,150,560 (Kaiser Permanente Project) 355,000 California Statewide Community Development Variable Series A, 1.20% due 1/1/2031 put Aaa/A-1 355,000 7/1/2003 (daily demand notes) 975,000 Capistrano Unified School District Number 92-1 Community Facilities District Special NR/NR 1,170,175 Tax, 7.10% due 9/1/2021 pre-refunded 9/1/2007 100,000 Castaic Lake Water Agency Refunding Water Systems Improvement Project Series A, 7.25% Aaa/AAA 125,843 due 8/1/2009 (Insured: MBIA) 780,000 Central Union High School District Imperial County Refunding, 5.00% due 8/1/2011 Aaa/AAA 885,854 (Insured: FGIC) 830,000 Central Union High School District Imperial County Refunding, 5.00% due 8/1/2012 Aaa/AAA 944,863 (Insured: FGIC) 205,000 Central Valley School Districts Financing Authority, 0% due 2/1/2007 (Insured: MBIA) Aaa/AAA 189,531 800,000 Coachella Valley California Unified School District Certificates Participation Aaa/AAA 908,848 Refunding, 5.00% due 9/1/2012 (Insured: MBIA) 2,320,000 Desert Sands California Unified School District Series F, 4.00% due 3/1/2006 (Measure Aaa/AAA 2,473,259 O Project; Insured: MBIA) 550,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2004 Aaa/AAA 583,187 (Insured: MBIA) 500,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2005 Aaa/AAA 554,470 (Insured: MBIA) 700,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2006 Aaa/AAA 807,163 (Insured: MBIA) 840,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2007 Aaa/AAA 993,392 (Insured: MBIA) 2,730,000 El Monte Certificates of Participation Senior Department Public Services Facility Aaa/AAA 3,072,861 Phase II, 5.00% due 1/1/2009 (Insured: AMBAC) 500,000 Escondido Joint Powers Financing Authority Lease Revenue Refunding, 0% due 9/1/2013 Aaa/AAA 289,425 (California Center For The Arts Project; Insured: AMBAC) 3,015,000 Escondido Multi Family Housing Revenue Refunding Bond Series 1997-A, 5.40% due NR/AAA 3,230,241 1/1/2027 put 7/1/2007 (Terrace Gardens Project; Collateralized: FNMA) 2,000,000 Folsom Cordova Unified School District School Facilities Improvement District-2 Aaa/AAA 2,086,900 Series A, 4.50% due 10/1/2004 (Insured: MBIA) 200,000 Foothill De Anza Community College District Certificates of Participation, 7.35% due NR/AA- 202,150 3/1/2007 pre-refunded 9/1/2003 400,000 Fresno County Housing Authority Multi Family Revenue Refunding Series A, 4.90% due NR/AAA 428,336 11/1/2027 mandatory put 11/1/2007 (Housing Creek Park Apartments Project; Collateralized: FNMA) 575,000 Hawaiian Gardens Redevelopment Agency Refunding, 5.50% due 12/1/2008 NR/BBB+ 644,558 1,000,000 Irwindale Community Redevelopment Agency, 6.60% due 8/1/2018 pre-refunded 8/1/2005 Baa3/NR 1,127,270 420,000 Julian Union High School District, 4.875% due 11/1/2005 (Insured: MBIA) Aaa/AAA 447,649 165,000 Kern High School District, 7.00% due 8/1/2010 (ETM)* A/NR 210,634 500,000 Kern High School District Refunding Series A, 6.30% due 8/1/2011 (Insured: MBIA) Aaa/AAA 608,235 680,000 Kern High School District Series B, 9.00% due 8/1/2006 (ETM)* Aaa/AAA 835,149 250,000 Los Angeles Certificates of Participation, 0% due 9/1/2003 A2/A 249,382 1,400,000 Los Angeles Certificates of Participation, 5.00% due 2/1/2012 (Insured: MBIA) Aaa/AAA 1,579,998 835,000 Los Angeles Community Redevelopment Agency, 5.00% due 7/1/2009 (Cinerama Dome Public NR/A 897,834 Parking Project; Insured: ACA) 435,000 Los Angeles Community Redevelopment Agency, 5.75% due 7/1/2010 (Cinerama Dome Public NR/A 483,198 Parking Project; Insured: ACA) 2,125,000 Los Angeles Community Redevelopment Agency Series H, 6.50% due 12/1/2014 (Insured: Aaa/AAA 2,209,702 FSA) 5,000 Los Angeles Convention & Exhibition Center, 9.00% due 12/1/2020 pre-refunded Aaa/AAA 5,924 12/1/2005 275,000 Los Angeles Convention & Exhibition Center Authority Certificates Refunding, 0% due Aaa/AAA 266,041 8/15/2005 (Insured: AMBAC) 2,000,000 Los Angeles County Capital Asset, 5.00% due 4/1/2008 (Insured: AMBAC) Aaa/AAA 2,246,520 1,700,000 Los Angeles County Metropolitan Transportation Authority Sales Tax Revenue, 9.00% due Aaa/AAA 2,154,818 7/1/2007 (Insured: MBIA) 700,000 Los Angeles Department Airport Revenue Refunding Series A, 5.50% due 5/15/2010 Aaa/AAA 763,441 (Insured: FGIC) 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aaa/AA- 41,338 9.00% due 9/1/2004 pre-refunded 9/1/2003 415,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 428,691 9.00% due 9/1/2004 45,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 46,501 9.00% due 9/1/2004 (ETM)* 3,000,000 Los Angeles Department Water & Power Revenue Series A, 5.25% due 7/1/2011 (Insured: Aaa/AAA 3,456,330 MBIA) 1,940,000 Los Angeles Multi Family Revenue, 5.85% due 12/1/2027 put 12/01/2007 (Collateralized: NR/AAA 2,094,405 FNMA) 585,000 Los Angeles Special Assessment, 3.75% due 3/1/2004 (Insured: AMBAC) Aaa/AAA 596,016 2,500,000 Los Angeles Unified School District Series E, 5.50% due 7/1/2012 (Insured: MBIA) Aaa/AAA 2,940,275 355,000 Marysville Hospital Revenue, 5.55% due 1/1/2013 (Fremont - Rideout Health Group Aaa/AAA 368,249 Project; Insured: AMBAC) 2,800,000 Metropolitan Water District Southern California Waterworks Revenue, 0.95% due VMIG1/A1+ 2,800,000 7/1/2035 put 7/1/2003 (daily demand notes) 1,000,000 Metropolitan Water District Southern California Waterworks Revenue Series C-1, 1.00% VMIG1/A1+ 1,000,000 due 7/1/2036 put 7/1/2003 (daily demand notes) 3,000,000 Modesto High School District Stanislaus County Series A, 0% due 8/1/2012 (Insured: Aaa/AAA 2,136,690 FGIC) 1,205,000 Moorpark Mobile Home Park Revenue Series A, 5.80% due 5/15/2010 (Villa Delaware NR/A 1,304,003 Arroyo Project; Insured: ACA) 2,500,000 Natomas Unified School District California Certificates, 2.50% due 2/1/2028 put Aaa/AAA 2,530,600 2/1/2005 (Natomas High School Project) 1,400,000 New Haven Unified School District Refunding, 12.00% due 8/1/2006 (Insured: FSA) Aaa/AAA 1,828,890 1,000,000 New Haven Unified School District Refunding, 12.00% due 8/1/2008 (Insured: FSA) Aaa/AAA 1,452,050 1,000,000 Norco California Special Taxes Refunding Community Facilities District Number 93-1, NR/NR 1,007,730 5.40% due 7/1/2020 360,000 Northern California Power Agency Public Power Revenue, 5.65% due 7/1/2007 (Geothermal Baa2/A- 415,102 Project 3-A) (ETM)* 340,000 Northern California Power Agency Public Power Revenue, 5.65% due 7/1/2007 Baa2/A- 382,211 65,000 Oakland Redevelopment Agency, 7.40% due 5/1/2007 (Insured: AMBAC) Aaa/AAA 65,333 1,000,000 Orange County Airport Revenue Bond, 6.00% due 7/1/2007 (Insured: MBIA) Aaa/AAA 1,142,360 4,200,000 Orange County California Apartment Development Revenue Variable Rate, 1.00% due VMIG1/NR 4,200,000 11/1/2009 put 7/1/2003 (Laguna Summit Apartments X Project; LOC: Bank of America) (daily demand notes) 510,000 Orange County Local Transportation Authority Sales Tax Revenue, 6.00% due 2/15/2006 Aa2/AA+ 568,497 600,000 Orange County Recovery Certificates Participation Series A, 6.00% due 7/1/2006 Aaa/AAA 678,798 (Insured: MBIA) 2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/2004 (Insured: MBIA) Aaa/AAA 2,100,280 2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/2005 (Insured: MBIA) Aaa/AAA 2,196,100 1,000,000 Piedmont Unified School District Series B, 0% due 8/1/2013 pre-refunded 8/1/2007 Aa3/NR 636,970 3,350,000 Pittsburg California Redevelopment Agency Tax Allocation Refunding, 5.25% due Aaa/AAA 3,867,675 8/1/2012 (Los Medanos Community Development Project A; Insured: MBIA) 200,000 Pleasant Hill Multi Family Housing Refunding, 5.30% due 10/1/2020 put 10/1/2005 NR/AAA 212,928 (Ellinwood Apartments Project; Collateralized: FNMA) 1,000,000 Pleasanton Unified School District Series B, 0% due 8/1/2016 (Insured: MBIA) Aaa/AAA 497,760 580,000 Pomona Unified School District General Obligation, 5.35% due 2/1/2005 (Insured: MBIA) Aaa/AAA 617,509 340,000 Pomona Unified School District General Obligation, 5.40% due 8/1/2005 (Insured: MBIA) Aaa/AAA 368,791 320,000 Pomona Unified School District Refunding Series A, 6.10% due 2/1/2010 (Insured: MBIA) Aaa/AAA 381,194 295,000 Porterville Certificates Participation, 6.10% due 10/1/2005 (Water Systems Refunding Aaa/AAA 326,149 Project; Insured: AMBAC) 1,000,000 Puerto Rico Commonwealth Highway & Transportation Authority, 5.50% due 7/1/2009 Aaa/AAA 1,163,230 (Insured: FSA) 1,000,000 Puerto Rico Commonwealth Highway & Transportation Authority Highway Revenue Refunding Aaa/AAA 1,133,480 Series Aa, 5.00% due 7/1/2008 (Insured: FGIC) 600,000 Puerto Rico Municipal Finance Agency Series A, 6.00% due 7/1/2011 (Insured: FSA) Aaa/AAA 727,698 5,000,000 Rancho Santiago Community College District Series A, 4.00% due 9/1/2005 (Insured: Aaa/AAA 5,292,550 MBIA) 500,000 Richmond Joint Powers Financing Authority Revenue Series A, 5.20% due 5/15/2005 NR/A 533,100 500,000 Sacramento County Sanitation District Financing Authority Revenue, 4.80% due Aaa/AA 517,780 12/1/2004 (ETM)* 560,000 Sacramento County Sanitation District Financing Authority Revenue Series A, 5.75% due Aa3/AA 663,370 12/1/2009 800,000 Sacramento Municipal Utility District Electric Revenue, 5.30% due 11/15/2005 Aaa/AAA 829,080 (Insured: FSA) 330,000 Sacramento Municipal Utility District Electric Revenue Refunding Series C, 5.75% due Aaa/AAA 337,808 11/15/2007 (Insured: MBIA) (ETM)* 2,335,000 Salinas Redevelopment Agency Tax Allocation Series A, 0% due 11/1/2022 (Insured: FSA) Aaa/AAA 835,696 3,000,000 San Bernardino County Multi Family Housing Revenue Refunding Series A, 4.75% due Aaa/NR 3,235,860 12/15/2031 put 12/15/2011 (Collateralized: FNMA) 190,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 200,634 5.10% due 9/1/2011 205,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 217,093 5.20% due 9/1/2012 300,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 319,092 5.30% due 9/1/2013 175,000 San Bernardino County Transportation Authority Sales Tax Revenue Series A, 6.00% due Aaa/AAA 186,349 3/1/2010 (Insured: FGIC) (ETM)* 1,250,000 San Bernardino Multi Family Housing Refunding, 4.45% due 5/1/2031 mandatory put NR/AAA 1,331,575 5/1/2011 (Alberta Park Vista Apts A Project; Collateralized: FNMA) 430,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2005 Aaa/AAA 472,407 (Insured: MBIA) 455,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2006 Aaa/AAA 521,958 (Insured: MBIA) 425,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2007 Aaa/AAA 502,966 (Insured: MBIA) 500,000 San Francisco Bay Area Rapid Transit Refunding Sales Tax Revenue, 0% due 7/1/2004 Aaa/AAA 494,335 (Insured: AMBAC) 1,000,000 San Francisco Bay Area Transit Bridge Toll Notes, 5.625% due 8/1/2006 (Insured: ACA) NR/A 1,102,350 1,100,000 San Francisco International Airport Revenue Series Issue 13B, 8.00% due 5/1/2007 Aaa/AAA 1,282,215 (Insured: MBIA) 895,000 San Joaquin County Certificates of Participation, 5.90% due 9/1/2003 (General A2/A- 902,464 Hospital Project) (ETM)* 2,200,000 San Jose Evergreen Community College District Series C, 0% due 9/1/2011 (Insured: Aaa/AAA 1,593,592 AMBAC) 2,700,000 San Jose Financing Authority Lease Revenue Series D, 5.00% due 6/1/2039 mandatory put Aaa/AAA 2,962,413 6/1/2006 (Civic Center Project; Insured: AMBAC) 500,000 San Jose Redevelopment Agency Tax Allocation, 5.75% due 8/1/2011 (Merged Area A2/A 511,680 Redevelopment Project Series B) 1,900,000 San Marcos Public Facilities Authority Revenue Community Facilities District Number Aaa/NR 1,696,339 88-1, 0% due 3/1/2008 (ETM)* 2,000,000 Santa Ana Multi Family Housing Revenue Bonds Series B, 5.65% due 11/1/2021 put NR/AAA 2,043,900 11/1/2006 (Collateralized: FNMA) 1,000,000 Santa Clara County Financing Authority, 5.00% due 8/1/2005 (Measure B Transportation A2/NR 1,065,580 Improvement Program) 2,000,000 Santa Clara County Housing Authority Series B, 3.80% due 8/1/2004 (River Town A1/NR 2,002,540 Apartments Project; LOC: Union Bank Cal.) 610,000 Santa Cruz County Certificates Refunding, 4.00% due 8/1/2005 A2/NR 640,518 1,000,000 Santa Margarita/Dana Point Authority Revenue Refunding Improvement Districts 1&2 Aaa/AAA 1,047,100 Series A, 5.375% due 8/1/2004 (Insured: MBIA) 575,000 Seal Beach Redevelopment Agency Mobile Home Park Revenue Series A, 5.20% due NR/A 634,070 12/15/2013 (Insured: ACA) 1,435,000 South Orange County Public Finance Authority Special Tax Revenue, 7.00% due 9/1/2005 Aaa/AAA 1,607,171 (Insured: MBIA) 1,500,000 South Orange County Public Financing Authority Special Tax Revenue Series C, 8.00% Aaa/AAA 1,908,150 due 8/15/2008 (Foothill Area Project; Insured: FGIC) 3,250,000 Southern California Public Power Authority Revenue Refunding Series A, 5.50% due Aaa/AAA 3,315,390 7/1/2012 (Power Project; Insured: AMBAC) (ETM)* 350,000 Southern California Revenue, 5.15% due 7/1/2015 (Public Power Project; Insured: Aaa/AAA 393,764 AMBAC) 250,000 Southern California Revenue, 5.15% due 7/1/2015 (Public Power Project; Insured: Aaa/AAA 281,260 AMBAC) 2,315,000 Stanton Multi Family Housing Revenue Bond Series 1997, 5.625% due 8/1/2029 put NR/AAA 2,498,093 8/1/2009 (Continental Gardens Project; Collateralized: FNMA) 500,000 Turlock Irrigation District Revenue Refunding Series A, 5.75% due 1/1/2018 (Insured: Aaa/AAA 501,665 MBIA) 2,380,000 Ukiah Unified School District Certificates Participation, 4.00% due 9/1/2006 Aaa/AAA 2,563,998 (Insured: MBIA) 1,000,000 Ukiah Unified School District Certificates Participation, 5.00% due 9/1/2008 Aaa/AAA 1,134,670 (Insured: MBIA) 500,000 University California Revenues Refunding, 5.00% due 12/1/2006 Aaa/AAA 518,190 625,000 Upland Unified School District Convertible Capital Appreciation, 0% due 8/1/2007 Aaa/AAA 681,544 (Insured: FSA) 500,000 Ventura County Community College Series A, 5.00% due 8/1/2012 (Insured: MBIA) Aaa/AAA 569,195 160,000 Ventura Unified School District Series F, 6.75% due 8/1/2004 (Insured: FSA) Aaa/AAA 169,870 115,000 Ventura Unified School District Series F, 6.75% due 8/1/2005 (Insured: FSA) Aaa/AAA 127,824 455,000 Victorville Redevelopment Agency Tax Allocation Bear Valley Road Special Escrow Fund Aaa/AAA 484,516 A, 5.00% due 12/1/2014 (Insured: FSA) 800,000 Walnut Valley Unified School District, 9.00% due 8/1/2006 (ETM)* Aaa/AAA 982,528 1,000,000 Walnut Valley Unified School District, 8.75% due 8/1/2010 (ETM)* Aaa/AAA 1,389,970 245,000 Walnut Valley Unified School District Series A, 6.70% due 8/1/2005 (Insured: MBIA) Aaa/AAA 272,068 250,000 Walnut Valley Unified School District Series A, 6.80% due 2/1/2007 (Insured: MBIA) Aaa/AAA 292,458 250,000 Walnut Valley Unified School District Series A, 6.90% due 2/1/2008 (Insured: MBIA) Aaa/AAA 300,632 100,000 Walnut Valley Unified School District Series A, 7.00% due 8/1/2008 (Insured: MBIA) Aaa/AAA 122,635 450,000 Washington Township Health Care District Revenue, 5.00% due 7/1/2009 A2/NR 496,247 570,000 West Contra Costa Unified School District Series A, 6.50% due 8/1/2005 (Insured: Aaa/AAA 630,511 MBIA) 595,000 West Contra Costa Unified School District Series A, 7.00% due 8/1/2006 (Insured: Aaa/AAA 692,592 MBIA) 655,000 West Contra Costa Unified School District Series A, 7.00% due 8/1/2008 (Insured: Aaa/AAA 803,259 MBIA) 1,000,000 Whittier Solid Waste Revenue Refunding Series A, 5.375% due 8/1/2014 (Insured: AMBAC) Aaa/AAA 1,022,860 TOTAL INVESTMENTS (Cost $185,795,442) $ 193,763,769 +Credit ratings are unaudited. *Escrowed to maturity See notes to financial statements.
Report of independent auditors Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 To the Board of Directors and Shareholders of Thornburg Limited Term Municipal Fund, Inc. - California Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Limited Term Municipal Fund, Inc.- California Portfolio (the "Fund") at June 30, 2003, 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 four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year ended June 30, 1999 were audited by other independent accountants whose report dated July 27, 1999 expressed an unqualified opinion on those financial highlights. PricewaterhouseCoopers LLP New York, New York July 30, 2003 Index Comparisons Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 Index Comparison Compares performance of Thornburg Limited Term Municipal Fund - California Portfolio, the Lehman 5-Year General Obligation Bond Index and the Consumer Price Index for the periods ended June 30, 2003. On June 30, 2003, the weighted average securities ratings of both the Index and the Fund were AA and the weighted average portfolio maturities of the Index and the Fund were 4.9 years and 4.9 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. Performance data and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Thornburg Limited Term Municipal Fund California Class A Total Returns, Since February 28, 1987, versus Lehman 5-Year General Obligation Bond Index and Consumer Price Index (C.P.I.) Lehman 5-year GO index Fund A Shares CPI Class A Shares Average Annual Total Returns (periods ending 6/30/03) (at max. offering price) One year: 3.24% Five years: 4.05% Ten years: 4.37% Since inception: (2/19/87): 5.43% Thornburg Limited Term Municipal Fund California Class C Total Returns, Since September 1, 1994, versus Lehman 5-Year General Obligation Bond Index and Consumer Price Index (C.P.I.) Lehman 5-year GO index Fund C Shares CPI Class C Shares Average Annual Total Returns (periods ending 6/30/03) One year: 4.51% Five years: 3.97% Since inception: (9/1/94): 4.36%
Directors and Officers Thornburg Limited Term Municipal Fund, Inc. - California Portfolio Name, Address (1) Position(s) Term of Principal Member of Other And Age Held with Office Occupation(s) Portfolios Directorships Fund (2) and During Past in Fund Held by Length of 5 Years Complex Director or Time Overseen Nominee for Served by Director Director or Nominee for Director (2) Interested Directors Garrett Thornburg, Chairman Director CEO, Chairman and Controlling Twelve None 57 of the Since Shareholder of Thornburg Board of 1984; Investment Management, Inc. Directors, (4) (investment adviser) and Thornburg Treasurer (3) Securities Corporation (securities dealer); Chairman of Trustees of Thornburg Investment Trust (registered investment company); CEO and Chairman of Thornburg Mortgage, Inc. (real estate investment trust); Chairman of Thornburg Mortgage Advisory Corporation (investment manager to Thornburg Mortgage, Inc.). Independent Directors David D. Chase, Director Director Chairman, President and CEO Twelve Trustee, 62 since 2001 of general partner of Vestor Thornburg (4) Partners, LP, Santa Fe, NM Investment Trust (private equity fund); Chairman and CEO of Vestor Holdings, Inc., Santa Fe, NM (merchant bank). Eliot R. Cutler, Director Director Partner, Akin, Gump, Strauss, Two Director of 56 since 1984 Hauer & Feld, LLP, Washington Skanska, AB (4) D.C. (law firm) since November (construction services) 2000; partner, Cutler & Stanfield, Washington, D.C. (law firm) until November 2000. James E. Monaghan, Jr., Director Director President, Monaghan & Two None 56 since 1984 Associates, Inc. and (4) Strategies West, Inc. Denver, Colorado (business consultants). A.G. Newmyer III, Director Director Private investor and management Two None 53 since 1984 consultant. (4) Advisory Director Richard M. Curry, Advisory Advisory Managing Director, McDonald Not applicable None 60 Director (6) Director (5) & Co., Cincinnati, Ohio Since (securities dealer) and District 2002 (6) President, Key Bank, Cincinnati, Ohio, since March 2000. Officers of the Fund (who are not Directors) (7) Brian J. McMahon, President President President and Managing Director Not applicable Not applicable 47 since 1997 of Thornburg Investment (4) Management, Inc.; President of Thornburg Investment Trust Dawn B. Fischer, Secretary Secretary Vice President, Secretary and Not applicable Not applicable 56 Since 1984 Managing Director of Thornburg (4) Investment Management, Inc.; Secretary and Assistant Treasurer of Thornburg Investment Trust; Secretary of Thornburg Securities Corporation; Vice President, Daily Tax Free Income Fund, Inc. (registered investment company). Steven J. Bohlin, Vice President Vice Vice President and Managing Not applicable Not applicable 44 President Director of Thornburg Investment Since 1991 Management, Inc.; Vice President (4) and Treasurer of Thornburg Investment Trust. George T. Strickland, Vice President Vice Vice President and Managing Not applicable Not applicable 40 Treasureer President Director of Thornburg Investment Since 1999; Management, Inc.; Vice President Treasurer of Thornburg Investment Trust. since 2003 Leigh Moiola, Vice President Vice Vice President, and Managing Not applicable Not applicable 36 President Director since 1998, of Since 1999 Thornburg Investment Management, (4) Inc.; Vice President of Thornburg Investment Trust since 2001. Kenneth Ziesenheim, Vice President Vice Managing Director of Thornburg Not applicable Not applicable 49 President Investment Management, Inc.; Since 1995 President of Thornburg Securities (4) Corporation; Vice President of Thornburg Investment Trust. Kerry D. Lee, Vice President Vice Associate of Thornburg Investment Not applicable Not applicable 36 President Management, Inc.; Vice President Since 1999 of Thornburg Investment Trust (4) since 1999. Dale Van Scoyk, Vice President Vice Account Manager for Thornburg Not applicable Not applicable 56 President Investment Management, Inc. Since 1999 1997-1999, and Managing Director (4) and Vice President since 1999; Vice President of Thornburg Investment Trust since 1998; National Account Manager for Heartland Funds 1993-1997. Joshua Gonze, Vice President Vice Associate and Vice President of Not applicable Not applicable 40 President Thornburg Investment Management, Since 2001 Inc. since 1999; Vice President of (4) Thornburg Investment Trust since 2001 Christopher Ihlefeld, Vice President Vice Associate and Vice President of Not applicable Not applicable 32 President Thornburg Investment Mgt, Inc.; Since 1999 Assistant Vice President of (4) Thornburg Investment Trust since 1999. (1) Each person's address is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (2) The Fund is one of two separate investment "funds" or "portfolios" of Thornburg Limited Term Municipal Fund, Inc. (the "Company"), organized as a Maryland corporation. The Company currently has two funds, which are considered for certain regulatory purposes as parts of a "fund complex" with the nine funds of Thornburg Investment Trust. Thornburg Investment Management, Inc. is the investment adviser to, and manages, the eleven funds of the Company and Thornburg Investment Trust. (3) Mr. Thornburg is considered an "interested" Director under the Investment Company Act of 1940 because he is a director and controlling shareholder of the investment adviser, Thornburg Investment Management, Inc., and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Company. (4) Thornburg Limited Term Municipal Fund, Inc.'s Amended By-Laws provide that each Director shall serve in office until the next annual meeting or the election and qualification of the Director's successor. In accordance with Maryland law, the Company does not hold an annual meeting each year; it may hold shareholder meetings as circumstances require. Officers serve at the pleasure of the Board of Directors. (5) Mr. Cutler may be considered an "interested" Director of the Company because he is associated with a partnership which receives a portion of Thornburg Investment Management, Inc.'s revenues. (6) As an Advisory Director, Mr. Curry serves at the pleasure of the Board of Directors. (7) Assistant vice presidents, assistant secretaries and assistant treasurers are not shown.
The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200 Thornburg limited term municipal fund CALIFORNIA portfolio - a shares Outperformed Tax-Exempt Money Market Funds Investors sometimes ask us to compare Limited Term Municipal Fund - California Portfolio to money market fund returns. These investments have certain differences, and investors in Limited Term Municipal Fund - California Portfolio took more risk than money market fund investors to earn their higher returns. Return from a hypothetical $10,000 investment 6/30/93 through 6/30/03 (after sales charges and fund expenses) Lipper California Tax-exempt Money Market Index $2,702 Thornburg Limited Term Municipal Fund - California Portfolio (after capital gains taxes) $5,269 The chart above is for the Fund's Class A Shares only. Class C and Class I 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, three years, five years, ten years, and since inception for Class A and one year, three years, five years, and since inception for Class C 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 tax-exempt money funds as quoted in "Lipper California Tax-exempt Money Market Index" 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 $13.05 per share and the ending NAV at $13.20 per share. These investments returned the $10,000 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. The portion of the increase, if any, of Limited Term Municipal Fund - - California Portfolio representing appreciation of the share price is assumed to be taxed at a 15% 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: Generally, money market funds seek to maintain an investment portfolio with an average maturity of 90 days or less. Limited Term Municipal Fund - California Portfolio invests in short-to-intermediate maturity municipal obligations. 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 due to the effect of changes in interest rates on the value of the investments the Fund holds. The analysis assumes that the investor received the net asset value of the shares owned, plus accrued income, at time of sale. 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 - California Portfolio also declares dividends daily and pays them monthly. Note 5: An investment in a Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Investment Manager Thornburg Investment Management, Inc. 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 Principal Underwriter Thornburg Securities Corporation 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 www.thornburg.com 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 do not guarantee future results. STATEMENT OF ADDITIONAL INFORMATION (For Holders of Institutional Class Shares) Relating to the Acquisition of the Assets of THORNBURG LIMITED TERM MUNICIPAL FUND CALIFORNIA PORTFOLIO a series of THORNBURG LIMITED TERM MUNICIPAL FUND, INC. 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 by and in exchange solely for voting shares of THORNBURG CALIFORNIA LIMITED TERM MUNICIPAL FUND, a series of THORNBURG INVESTMENT TRUST 119 East Marcy Street Santa Fe, New Mexico 87501 (800) 847-0200 This Statement of Additional Information, relating specifically to the proposed acquisition of substantially all of the assets of Thornburg Limited Term Municipal Fund California Portfolio (the "Fund"), a series of Thornburg Limited Term Municipal Fund, Inc., by Thornburg California Limited Term Municipal Fund (the "New Fund"), a series of Thornburg Investment Trust, in exchange solely for voting shares of the New 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 Funds Institutional Class Shares Statement of Additional Information _________________, 2004, [to be added by amendment]; 2. Thornburg Funds Institutional Class Statement of Additional Information dated February 1, 2004, [to be added by amendment]; 3. Thornburg Limited Term Municipal Fund California Portfolio Annual Report (Institutional Class Shares), June 30, 2003; and 4. Thornburg Limited Term Municipal Fund California Portfolio Semiannual Report (Institutional Class Shares), December 31, 2003 [to be added by amendment]. This Statement of Additional information is not a prospectus. A Prospectus/Proxy Statement dated _________________, 2004 relating to the above referenced acquisition may be obtained from Thornburg Investment Trust at the number and address shown above. This Statement of Additional Information relates to, and should be read with, the Prospectus/Proxy Statement. 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, 2003 have been audited by PricewaterhouseCoopers, LLP, that Fund's independent auditors. The date of this Statement of Additional Information is _________, 2004. Thornburg Limited Term Municipal Fund California Portfolio I Shares Annual Report June 30, 2003 Thornburg Limited Term Municipal Fund, Inc. - California Portfolio ALL DATA AS OF 06/30/03. Fund facts: Thornburg Limited Term Municipal Fund, Inc. - California Portfolio I Shares Annualized Distribution Rate (at NAV) 3.06% SEC Yield 1.90% NAV $13.22 Maximum Offering Price $13.22 Total returns: (Annual Average) One Year 5.27% Three Years 5.67% Five Years 4.76% Since Inception 5.10% Inception Date 4/1/97 The investment return and principal value of an investment in the Fund will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. The data quoted represent past performance and may not be construed as a guarantee of future results. The SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund's shares at the end of the period. The distribution rate is calculated by taking the sum of the month's total distribution factors and dividing this sum by a 30-day period and annualizing to a 360-day year. The value is then divided by the ending NAV to arrive at the annualized distribution yield. The yield is calculated on a periodic basis and is subject to change depending on the Fund's NAV and current distributions. Letter to shareholders Thornburg Limited Term Municipal Fund, Inc. - California Portfolio July 14, 2003 Dear Fellow Shareholder: I am pleased to present the annual report for the California Portfolio of Thornburg Limited Term Municipal Fund. The net asset value of the I shares increased by 25 cents to $13.22 during the year ending June 30, 2003. If you were with us for the entire period, you received dividends of 42.5 cents per share. If you reinvested dividends, you received 43.1 cents per share. Over the last year, interest rates on high-quality municipal bonds have fallen substantially. Falling interest rates drive up the price of most of the bonds owned by the Fund, and this has resulted in an increasing share price. Your Thornburg Limited Term Municipal Fund, California Portfolio is a laddered portfolio of over 170 municipal obligations from all over the State. Approximately 97% of the bonds are rated A or better by one of the major rating agencies. Today, your Fund's weighted average maturity is 4.9 years; we always keep it below 5 years. As you know, we ladder the maturity dates of the bonds in your portfolio so that some of the bonds are scheduled to mature during each of the coming years. The following chart describes the percentages of your Fund's bond portfolio maturing in each of the coming years: % of portfolio Cumulative % maturing within maturing by end of 1 year = 9% year 1 = 9% 1 to 2 years = 9% year 2 = 18% 2 to 3 years = 14% year 3 = 32% 3 to 4 years = 8% year 4 = 40% 4 to 5 years = 13% year 5 = 53% 5 to 6 years = 11% year 6 = 64% 6 to 7 years = 6% year 7 = 70% 7 to 8 years = 6% year 8 = 76% 8 to 9 years = 11% year 9 = 87% 9 to 10 years = 10% year 10 = 97 As of 6/30/03. Portfolio holdings can and do vary over time. Three powerful trends seem to be driving recent performance of the municipal market. The first trend is persistent economic weakness. The U.S. unemployment rate, at 6.4%, has just hit a nine-year high. GDP growth is sputtering along at about 2%. Our European and Japanese trading partners are, by and large, worse off than are we, and the Federal Reserve Board appears to be at least as worried about deflation as it is about inflation. We continue to believe that low interest rates, tax cuts, and rising corporate profits will eventually lead to steady economic and employment growth and probably give rise to somewhat higher interest rates. However, that process is taking longer than we formerly thought and may not materialize until next year. The second trend is financial stress in many of our cities and states. A combination of flat or declining tax revenues and rising expenses for items such as Medicaid and pension systems has led to large budget deficits for more than half of the 50 states. The challenges have led to a number of high-profile credit rating downgrades by the major bond rating agencies. The deficit problem is particularly pronounced in California because of its magnitude ($38 billion at last count) and the inability of the government to reach consensus on how to deal with it. A variety of plans has been proposed, but none has been implemented as yet. In the meantime, the deficit continues to grow by an estimated $55 million per day. Thanks to a large and diverse economy and currently moderate debt levels, we expect that the State will continue to pay its bills, including principal and interest on its bonds. Until we see a viable plan implemented, however, we are maintaining very high credit quality in the California portfolio, with over 77% of the portfolio rated AAA by Moody's or Standard & Poor's. It is notable that in the midst of these problems, many municipal credits are doing just fine. Standard & Poor's recently reported that, nationwide, upgrades outpaced downgrades in the second quarter of 2003 by a ratio of 1.6:1. This is because the municipal bond market is made up of much more than bond issues of the 50 states. Many of our cities, counties, school districts, water and sewer authorities, transportation authorities, and healthcare providers have benefited from stable revenues based upon property taxes, sales taxes, and fee s for essential services. The municipal bond market, historically has a much lower default rate than the corporate bond market, and we continue to enjoy some success finding good bonds at relatively reasonable prices. The third trend exerting pressure on the municipal market is the heavy supply of bonds. $198 billion of municipal bonds were issued in the first half of 2003, a 19% increase over the record pace of 2002. The first half total already exceeds full-year volume for 1994, 1995, and 1996. The heavy supply has often saturated traditional sources of demand and pushed high quality tax-free municipal bond yields to levels approaching taxable Treasury bond yields. The relative attractiveness of the municipal bond market should allow full coupon municipals to outperform the Treasury bond market if the heavy supply abates and yield ratios revert to historical norms. The Wall Street Journal ran a front-page story on July 7, 2003, about retirees who are forced to pinch pennies as money market and CD rates plunge. We believe that laddering short and intermediate bonds -- as we have done for your account -- is the best way to address this problem. Laddering bonds moderates the income-flow risk of plunging short-term yields and the principal risk that affects all bonds when interest rates rise. To see how your Fund has performed over time relative to the money market fund averages, turn to the back of this report. Over the years, the practice of laddering a diversified portfolio of short- and intermediate-maturity municipal bonds has allowed your Fund to perform consistently well in varying interest rate environments. Thank you for investing in the California Portfolio of Thornburg Limited Term Municipal Fund. Sincerely, George Strickland Portfolio Manager Past performance cannot guarantee future results. Statement of assets and liabilities Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 ASSETS Investments at value (cost $185,795,442) ........................$ 193,763,769 Cash ............................................................ 31,071 Receivable for investments sold ................................. 510,000 Receivable for fund shares sold ................................. 672,287 Interest receivable ............................................. 2,797,779 Prepaid expenses and other assets ............................... 2,850 Total Assets .................................. 197,777,756 LIABILITIES Payable for investments purchased ............................... 3,702,692 Payable for fund shares redeemed ................................ 1,422,827 Accounts payable and accrued expenses ........................... 72,326 Payable to investment advisor (Note 3) .......................... 95,916 Dividends payable ............................................... 136,359 Total Liabilities ............................. 5,430,120 NET ASSETS ......................................................$ 192,347,636 NET ASSETS CONSIST OF: Net unrealized appreciation (depreciation) on investments ..$ 7,968,327 Accumulated net realized gain (loss) ....................... (794,213) Net capital paid in on shares of beneficial interest ....... 185,173,522 $ 192,347,636 NET ASSET VALUE: Class A Shares: Net asset value and redemption price per share ($149,269,028 applicable to 11,304,831 shares of beneficial interest outstanding - Note 4) ................................$ 13.20 Maximum sales charge, 1.50% of offering price ................... 0.20 Maximum Offering Price Per Share ................................$ 13.40 Class C Shares: Net asset value and offering price per share* ($22,486,977 applicable to 1,701,640 shares of beneficial interest outstanding - Note 4) ................................$ 13.21 Class I Shares: Net asset value, offering and redemption price per share ($20,591,631 applicable to 1,557,952 shares of beneficial interest outstanding - Note 4) ................................$ 13.22 *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. - California Portfolio Year Ended June 30, 2003 INVESTMENT INCOME: Interest income (net of premium amortized of $1,989,796) ........ $ 6,569,014 EXPENSES: Investment advisory fees (Note 3) ............................... 850,698 Administration fees (Note 3) Class A Shares ......................................... 170,338 Class C Shares ......................................... 23,226 Class I Shares ......................................... 7,644 Distribution and service fees (Note 3) Class A Shares ......................................... 340,675 Class C Shares ......................................... 185,809 Transfer agent fees Class A Shares ......................................... 57,397 Class C Shares ......................................... 19,589 Class I Shares ......................................... 16,005 Custodian fees (Note 3) ......................................... 105,823 Registration and filing fees .................................... 4,362 Professional fees ............................................... 15,447 Accounting fees ................................................. 9,809 Director fees ................................................... 7,071 Other expenses .................................................. 20,839 Total Expenses ................................ 1,834,732 Less: Expenses reimbursed by investment advisor (Note 3) ..... (43,579) Distribution and service fees waived (Note 3) .......... (92,904) Fees paid indirectly (Note 3) .......................... (2,208) Net Expenses .................................. 1,696,041 Net Investment Income ......................... 4,872,973 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments sold .................... 57,393 Increase (Decrease) in unrealized appreciation of investments ... 2,933,907 Net Realized and Unrealized Gain (Loss) on Investments .................... 2,991,300 Net Increase (Decrease) in Net Assets Resulting From Operations ............................... $ 7,864,273 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, 2003 June 30, 2002 INCREASE (DECREASE) IN NET ASSETS FROM: OPERATIONS: Net investment income ....................................... $ 4,872,973 $ 4,272,747 Net realized gain (loss) on investments sold ................ 57,393 96,064 Increase (Decrease) in unrealized appreciation of investments 2,933,907 1,489,825 Net Increase (Decrease) in Net Assets Resulting from Operations ....................... 7,864,273 5,858,636 DIVIDENDS TO SHAREHOLDERS: From net investment income Class A Shares ..................................... (3,907,510) (3,641,689) Class C Shares ..................................... (478,583) (333,629) Class I Shares ..................................... (489,837) (294,472) FUND SHARE TRANSACTIONS (NOTE 4): Class A Shares ..................................... 31,614,924 24,187,536 Class C Shares ..................................... 6,082,493 9,557,877 Class I Shares ..................................... 10,211,834 4,506,387 Net Increase (Decrease) in Net Assets ..... 50,897,594 39,840,646 NET ASSETS: Beginning of year .................................. 141,450,042 101,609,396 End of year ........................................ $ 192,347,636 $ 141,450,042
See notes to financial statements. Notes to financial statements Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 NOTE 1 - ORGANIZATION Thornburg Limited Term Municipal Fund, Inc. (the "Company") was incorporated in Maryland on February 14, 1984. The Company 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 "Fund"). The Company is an open-end diversified management investment company, registered under the Investment Company Act of 1940, as amended. The primary investment objective of the Company 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 Fund will invest primarily in Municipal Obligations originating in California with the objective of obtaining exemption of interest dividends from any income taxes imposed by California on individuals. The Fund currently offers three classes of shares of beneficial interest, Class A, Class C and Institutional Class (Class I) shares. Each class of shares of the Fund represents an interest in the same portfolio of investments, 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, (iii) Class I shares are sold at net asset value without a sales charge at the time of purchase, and (iv) the respective classes have different reinvestment privileges. Additionally, the Fund may allocate among its classes certain expenses, to the extent applicable 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 Fund are limited to service and distribution fees, administrative fees, and certain transfer agent expenses. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the Company are as follows: Valuation of Investments: In determining the net asset value of the Fund, the Company 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, normally at 4:00 p.m. EST or at 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 Fund are reviewed by the officers of the Company 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 Company 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. When-Issued and Delayed Delivery Transactions: The Company may engage in when-issued or delayed delivery transactions. To the extent the Company 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 Company makes a commitment to purchase a security for the Fund, on a when-issued basis, the Fund will record the transaction and reflect the value in determining its net asset value. When effecting such transactions, assets of the Fund of an amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date. Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Company has received payment. Dividends are paid monthly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder's option, paid by check. Net capital gains, to the extent available, will be distributed at least annually. General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and 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. Net investment income, other than class specific expenses, and realized and unrealized gains and losses, are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of the dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to all Funds are allocated among the Funds based upon their relative net asset values or other appropriate allocation methods. 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. Guarantees and Indemnifications: Under the Company's organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Company enters into contracts with service providers that contain general indemnification clauses. The Company's maximum exposure under these arrangements is unknown. However, based on experience, the Company expects the risk of loss to be remote. NOTE 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Pursuant to an Investment Advisory Agreement, Thornburg Investment Management, Inc. (the "Advisor") serves as the investment advisor and performs services for which the fees are payable at the end of each month. For the year ended June 30, 2003, these fees were payable at annual rates ranging from .50 of 1% to .225 of 1% of the average daily net assets of the Fund. The Company also has entered into an Administrative Services Agreement with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund's shares, and for which fees will be payable at an annual rate of up to .125 of 1% of the average daily net assets attributable to each class of shares. For the year ended June 30, 2003, the Advisor voluntarily reimbursed certain class specific expenses and administrative fees of $28,008 for Class A shares and $15,571 for Class I shares. The Company has an underwriting agreement with Thornburg Securities Corporation (the "Distributor"), which acts as the distributor of Fund shares. For the year ended June 30, 2003 the Distributor has advised the Fund that it earned commissions aggregating $4,017 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $3,156 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 Company may reimburse to the Advisor amounts not to exceed .25 of 1% per annum of the average daily net assets attributable to each class of shares of the Fund for payments made by the Advisor to securities dealers and other financial institutions to obtain various shareholder related services. The Advisor may pay out of its own resources additional expenses for distribution of the Fund's shares. The Company also has adopted a Distribution Plan pursuant to Rule 12b-1, applicable only to the Fund's Class C shares, under which the Company can 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 Fund under their respective Service and Distribution plans and Class C distribution fees waived by the Distributor for the year ended June 30, 2003 are set forth in the statement of operations. The Company has an agreement with the custodian bank to indirectly pay a portion of the custodian's fees through credits earned by the Fund's cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the statement of operations. For the year ended June 30, 2003 fees paid indirectly were $2,208. Certain officers and directors of the Company are also officers and /or directors of the Advisor and the Distributor. The compensation of unaffiliated directors is borne by the Company. NOTE 4 - SHARES OF BENEFICIAL INTEREST At June 30, 2003, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended Year Ended June 30, 2003 June 30, 2002 Shares Amount Shares Amount Class A Shares Shares sold .................... 5,242,685 $ 68,754,114 2,888,793 $ 37,226,901 Shares issued to shareholders in reinvestment of dividends ... 199,540 2,620,134 195,828 2,523,069 Shares repurchased ............. (3,028,552) (39,759,324) (1,208,763) (15,562,434) Net Increase (Decrease) ........ 2,413,673 $ 31,614,924 1,875,858 $ 24,187,536 Class C Shares Shares sold .................... 606,383 $ 7,970,447 780,669 $ 10,078,776 Shares issued to shareholders in reinvestment of dividends ... 23,883 313,949 16,362 210,986 Shares repurchased ............. (168,027) (2,201,903) (57,081) (731,885) Net Increase (Decrease) ........ 462,239 $ 6,082,493 739,950 $ 9,557,877 Class I Shares Shares sold .................... 1,157,992 $ 15,228,991 506,711 $ 6,532,257 Shares issued to shareholders in reinvestment of dividends ... 29,869 392,681 19,974 257,579 Shares repurchased ............. (411,162) (5,409,838) (176,918) (2,283,449) Net Increase (Decrease) ........ 776,699 $ 10,211,834 349,767 $ 4,506,387
NOTE 5 - SECURITIES TRANSACTIONS For the year ended June 30, 2003, the Fund had purchase and sale transactions (excluding short-term securities) of $91,153,078 and $40,791,433, respectively. NOTE 6 - INCOME TAXES At June 30, 2003, information on the tax components of capital is as follows: Cost of investments for tax purpose $ 185,795,442 Gross tax unrealized appreciation $ 8,047,781 Gross tax unrealized depreciation (79,454) Net tax unrealized appreciation (depreciation) on investments $ 7,968,327 Undistributed tax exempt income $ 136,359 At June 30, 2003, the Fund had tax basis capital losses, which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2004 $ 373,652 2008 205,990 2009 214,571 $ 794,213 The Fund utilized $57,393 of capital loss carry forwards during the year ended June 30, 2003. Unutilized tax basis capital losses may be carried forward to offset realized gains in future years. To the extent such carry forwards are used, capital gain distributions may be reduced to the extent provided by regulations. Dividends paid by the Fund for the years ended June 30, 2003 and June 30, 2002, represent exempt interest dividends, which are excludable by shareholders from gross income for Federal income tax purposes.
Year Ended June 30, 2003 2002 2001 2000 1999 Class I Shares: Per Share Performance (for a share outstanding throughout the year) Net asset value, beginning of year ................... $ 12.97 $ 12.79 $ 12.60 $ 12.75 $ 12.90 Income from investment operations: Net investment income ....................... 0.42 0.51 0.59 0.58 0.58 Net realized and unrealized gain (loss) on investments ......... 0.25 0.18 0.19 (0.15) (0.15) Total from investment operations ..................... 0.67 0.69 0.78 0.43 0.43 Less dividends from: Net investment income ....................... (0.42) (0.51) (0.59) (0.58) (0.58) Change in net asset value ............................ 0.25 0.18 0.19 (0.15) (0.15) Net asset value, end of year ......................... $ 13.22 $ 12.97 $ 12.79 $ 12.60 $ 12.75 Total return ......................................... 5.27% 5.48% 6.28% 3.50% 3.33% Ratios/Supplemental Data Ratios to average net assets: Net investment income ....................... 3.20% 3.92% 4.60% 4.60% 4.45% Expenses, after expense reductions .......... 0.65% 0.66% 0.65% 0.65% 0.65% Expenses, after expense reductions and net of custody credits ......... 0.65% 0.65% -- -- -- Expenses, before expense reductions ......... 0.75% 0.84% 0.98% 0.79% 0.78% Portfolio turnover rate .............................. 26.03% 25.16% 15.45% 21.34% 21.71% Net assets at end of year (000) ..................... $ 20,592 $ 10,133 $ 5,520 $ 5,793 $ 12,724
Schedule of investments Schedule of Investments Thornburg Limited Term Municipal Fund, Inc. - California Portfolio CUSIPS: CLASS A - 532-723-202, CLASS C - 532-723-707, CLASS I - 532-723-889 NASDAQ SYMBOLS: CLASS A - LTCAX, CLASS C - LTCCX, CLASS I - LTCIX 435,000 Abag Finance Authority, 4.75% due 10/1/2011 (California School of Mechanical Arts A3/NR $478,900 Project) 455,000 Abag Finance Authority, 4.75% due 10/1/2012 (California School of Mechanical Arts A3/NR 499,977 Project) 1,200,000 Abag Finance Authority Variable Taxable Refunding Series C, 1.15% due 10/1/2027 put NR/A1+ 1,200,000 7/1/2003 (LOC: BNP Paribus) (daily demand notes) 425,000 Alameda Certificates Participation, 4.60% due 5/1/2011 NR/A+ 463,165 295,000 Alum Rock Union Elementary School District General Obligation Refunding Bonds, 8.00% Aaa/AAA 353,487 due 9/1/2006 (Insured: FGIC) 380,000 Alum Rock Union Elementary School District General Obligation Refunding Bonds, 8.00% Aaa/AAA 470,808 due 9/1/2007 (Insured: FGIC) 550,000 Anaheim City School District, 3.25% due 8/1/2004 (Insured: FGIC) Aaa/AAA 563,497 750,000 Bay Area Government Associates Lease Series 2002, 5.00% due 7/1/2004 (Insured: AMBAC) Aaa/AAA 779,625 785,000 Bay Area Government Associates Lease Series 2002, 5.00% due 7/1/2005 (Insured: AMBAC) Aaa/AAA 842,077 765,000 Bay Area Government Associates Lease Series 2002, 4.00% due 7/1/2006 (Insured: AMBAC) Aaa/AAA 820,486 315,000 Bay Area Government Association Rapid Transit, 5.00% due 6/15/2008 (Insured: AMBAC) Aaa/AAA 315,967 7,000,000 Bay Area Government Association Rapid Transit, 4.875% due 6/15/2009 (Insured: AMBAC) Aaa/AAA 7,231,000 675,000 Bear Valley California Unified School District Series A, 4.00% due 8/1/2005 (Insured: NR/AAA 713,057 MBIA) 1,000,000 California Department Water Resources Revenue, 5.25% due 12/1/2005 (Central Valley Aa2/AA 1,030,400 Project) 160,000 California Educational Facilities Authority Revenue, 6.10% due 6/1/2008 (Keck Baa2/NR 181,240 Graduate Institute Project) 170,000 California Educational Facilities Authority Revenue, 6.10% due 6/1/2009 (Keck Baa2/NR 194,086 Graduate Institute Project) 500,000 California Educational Facilities Authority Revenue Series 1993, 5.15% due 9/1/2003 A1/NR 503,390 (Santa Clara University Project) 750,000 California Health Facilities Authority Revenue, 5.45% due 10/1/2013 (Kaiser A3/A 752,700 Permanente Project) 500,000 California Health Facilities Authority Revenue Kaiser Permanente Med, 5.45% due Aaa/AAA 503,905 10/1/2013 (Insured: AMBAC) 500,000 California Health Facilities Financing Authority Revenue Kaiser Permanente Series A, Aaa/AAA 558,005 5.25% due 6/1/2012 (Insured: FSA) 700,000 California Health Facilities Financing Revenue, 6.40% due 10/1/2005 (Sisters of Aa3/AA- 716,450 Providence Project) 670,000 California HFA Revenue Series 1985-B, 9.875% due 2/1/2017 Aa2/AA- 672,633 525,000 California Housing Finance Agency Revenue Series H, 7.00% due 8/1/2024 Aa2/AA- 526,932 1,220,000 California Infrastructure & Economic Development, 5.35% due 12/1/2009 (American NR/A 1,375,696 Center For Wine and Food Arts Project; Insured: ACA) 500,000 California Mobile Home Park Financing Series A, 4.75% due 11/15/2010 (Insured: ACA) NR/A 536,230 570,000 California Mobile Home Park Financing Series A, 5.00% due 11/15/2013 (Insured: ACA) NR/A 615,475 300,000 California Pollution Control Financing Authority Series A, 5.90% due 6/1/2014 (San A2/A 320,538 Diego Gas & Electric Project) 2,650,000 California Pollution Control Solid Waste Authority, 6.75% due 7/1/2011 (ETM)* Aaa/NR 3,046,731 1,000,000 California Pollution Control Solid Waste Authority Series B, 4.45% due 7/1/2027 put NR/BBB 1,023,140 7/1/2005 (Waste Management Inc. Project) 190,000 California Rural HMFA Single Family Mortgage Revenue, 5.25% due 6/1/2010 NR/AAA 205,681 (Collateralized: GNMA/FNMA) 85,000 California Rural HMFA Single Family Mortgage Revenue, 5.65% due 6/1/2010 NR/AAA 92,329 (Collateralized: GNMA/FNMA) 500,000 California State, 7.00% due 8/1/2003 A2/A 502,385 1,500,000 California State, 11.00% due 8/1/2003 (Insured: FGIC) Aaa/AAA 1,512,630 500,000 California State, 6.40% due 2/1/2006 (Insured: MBIA) Aaa/AAA 560,650 2,000,000 California State, 7.50% due 10/1/2007 (Insured: MBIA) Aaa/AAA 2,438,920 560,000 California State, 6.60% due 2/1/2010 (Insured: MBIA) Aaa/AAA 679,207 1,250,000 California State, 6.50% due 9/1/2010 (Insured: AMBAC) Aaa/AAA 1,528,200 1,500,000 California State, 5.50% due 3/1/2012 pre-refunded 3/1/2004 Aaa/AAA 1,563,780 2,080,000 California State Department Water Resources Power Supply Series A, 5.50% due 5/1/2008 A3/BBB+ 2,329,579 800,000 California State Department Water Resources Power Supply Series A, 5.25% due 5/1/2009 Aaa/AAA 910,504 (Insured: MBIA) 1,000,000 California State Refunding, 5.75% due 10/1/2010 (Insured: FSA) Aaa/AAA 1,179,070 3,000,000 California State Refunding, 5.25% due 2/1/2011 (Insured: FSA) Aaa/AAA 3,411,240 3,000,000 California State Veterans - Series Bh, 5.20% due 12/1/2011 (Insured: FSA) Aaa/AAA 3,308,760 1,000,000 California State Veterans Bonds, 9.50% due 2/1/2010 (Insured: MBIA) Aaa/AAA 1,380,590 320,000 California Statewide Community Development, 4.875% due 12/1/2010 (Sisters of Charity Aaa/AAA 330,992 Project; Insured: MBIA) 1,000,000 California Statewide Community Development Authority, 5.00% due 7/1/2005 (Insured: Aaa/AAA 1,072,710 FSA) 1,000,000 California Statewide Community Development Authority Insured Health Facility Revenue NR/NR 1,055,680 Series 1996-A, 6.00% due 9/1/2004 (San Gabriel Medical Center Project) (ETM)* 595,000 California Statewide Community Development Authority Revenue, 5.125% due 6/1/2008 Aaa/AAA 661,967 (Louisiana Orthopedic Hospital Foundation Project; Insured: AMBAC) 1,000,000 California Statewide Community Development Authority Series 1996-A, 6.00% due NR/NR 1,097,870 9/1/2005 (San Gabriel Medical Center Project; Insured: California Health) (ETM)* 1,000,000 California Statewide Community Development Authority Solid Waste Revenue, 4.95% due NR/BBB 1,017,710 4/1/2011 put 4/1/2004 (Waste Management Inc. Project) 2,000,000 California Statewide Community Development Series E, 4.70% due 11/1/2036 put 6/1/2009 NR/A-1 2,150,560 (Kaiser Permanente Project) 355,000 California Statewide Community Development Variable Series A, 1.20% due 1/1/2031 put Aaa/A-1 355,000 7/1/2003 (daily demand notes) 975,000 Capistrano Unified School District Number 92-1 Community Facilities District Special NR/NR 1,170,175 Tax, 7.10% due 9/1/2021 pre-refunded 9/1/2007 100,000 Castaic Lake Water Agency Refunding Water Systems Improvement Project Series A, 7.25% Aaa/AAA 125,843 due 8/1/2009 (Insured: MBIA) 780,000 Central Union High School District Imperial County Refunding, 5.00% due 8/1/2011 Aaa/AAA 885,854 (Insured: FGIC) 830,000 Central Union High School District Imperial County Refunding, 5.00% due 8/1/2012 Aaa/AAA 944,863 (Insured: FGIC) 205,000 Central Valley School Districts Financing Authority, 0% due 2/1/2007 (Insured: MBIA) Aaa/AAA 189,531 800,000 Coachella Valley California Unified School District Certificates Participation Aaa/AAA 908,848 Refunding, 5.00% due 9/1/2012 (Insured: MBIA) 2,320,000 Desert Sands California Unified School District Series F, 4.00% due 3/1/2006 (Measure Aaa/AAA 2,473,259 O Project; Insured: MBIA) 550,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2004 Aaa/AAA 583,187 (Insured: MBIA) 500,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2005 Aaa/AAA 554,470 (Insured: MBIA) 700,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2006 Aaa/AAA 807,163 (Insured: MBIA) 840,000 East Side Union High School District Santa Clara County Series B, 6.625% due 8/1/2007 Aaa/AAA 993,392 (Insured: MBIA) 2,730,000 El Monte Certificates of Participation Senior Department Public Services Facility Aaa/AAA 3,072,861 Phase II, 5.00% due 1/1/2009 (Insured: AMBAC) 500,000 Escondido Joint Powers Financing Authority Lease Revenue Refunding, 0% due 9/1/2013 Aaa/AAA 289,425 (California Center For The Arts Project; Insured: AMBAC) 3,015,000 Escondido Multi Family Housing Revenue Refunding Bond Series 1997-A, 5.40% due NR/AAA 3,230,241 1/1/2027 put 7/1/2007 (Terrace Gardens Project; Collateralized: FNMA) 2,000,000 Folsom Cordova Unified School District School Facilities Improvement District-2 Aaa/AAA 2,086,900 Series A, 4.50% due 10/1/2004 (Insured: MBIA) 200,000 Foothill De Anza Community College District Certificates of Participation, 7.35% due NR/AA- 202,150 3/1/2007 pre-refunded 9/1/2003 400,000 Fresno County Housing Authority Multi Family Revenue Refunding Series A, 4.90% due NR/AAA 428,336 11/1/2027 mandatory put 11/1/2007 (Housing Creek Park Apartments Project; Collateralized: FNMA) 575,000 Hawaiian Gardens Redevelopment Agency Refunding, 5.50% due 12/1/2008 NR/BBB+ 644,558 1,000,000 Irwindale Community Redevelopment Agency, 6.60% due 8/1/2018 pre-refunded 8/1/2005 Baa3/NR 1,127,270 420,000 Julian Union High School District, 4.875% due 11/1/2005 (Insured: MBIA) Aaa/AAA 447,649 165,000 Kern High School District, 7.00% due 8/1/2010 (ETM)* A/NR 210,634 500,000 Kern High School District Refunding Series A, 6.30% due 8/1/2011 (Insured: MBIA) Aaa/AAA 608,235 680,000 Kern High School District Series B, 9.00% due 8/1/2006 (ETM)* Aaa/AAA 835,149 250,000 Los Angeles Certificates of Participation, 0% due 9/1/2003 A2/A 249,382 1,400,000 Los Angeles Certificates of Participation, 5.00% due 2/1/2012 (Insured: MBIA) Aaa/AAA 1,579,998 835,000 Los Angeles Community Redevelopment Agency, 5.00% due 7/1/2009 (Cinerama Dome Public NR/A 897,834 Parking Project; Insured: ACA) 435,000 Los Angeles Community Redevelopment Agency, 5.75% due 7/1/2010 (Cinerama Dome Public NR/A 483,198 Parking Project; Insured: ACA) 2,125,000 Los Angeles Community Redevelopment Agency Series H, 6.50% due 12/1/2014 (Insured: Aaa/AAA 2,209,702 FSA) 5,000 Los Angeles Convention & Exhibition Center, 9.00% due 12/1/2020 pre-refunded Aaa/AAA 5,924 12/1/2005 275,000 Los Angeles Convention & Exhibition Center Authority Certificates Refunding, 0% due Aaa/AAA 266,041 8/15/2005 (Insured: AMBAC) 2,000,000 Los Angeles County Capital Asset, 5.00% due 4/1/2008 (Insured: AMBAC) Aaa/AAA 2,246,520 1,700,000 Los Angeles County Metropolitan Transportation Authority Sales Tax Revenue, 9.00% due Aaa/AAA 2,154,818 7/1/2007 (Insured: MBIA) 700,000 Los Angeles Department Airport Revenue Refunding Series A, 5.50% due 5/15/2010 Aaa/AAA 763,441 (Insured: FGIC) 40,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aaa/AA- 41,338 9.00% due 9/1/2004 pre-refunded 9/1/2003 415,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 428,691 9.00% due 9/1/2004 45,000 Los Angeles Department Water & Power Electric Plant Revenue Crossover Refunding, Aa3/AA- 46,501 9.00% due 9/1/2004 (ETM)* 3,000,000 Los Angeles Department Water & Power Revenue Series A, 5.25% due 7/1/2011 (Insured: Aaa/AAA 3,456,330 MBIA) 1,940,000 Los Angeles Multi Family Revenue, 5.85% due 12/1/2027 put 12/01/2007 (Collateralized: NR/AAA 2,094,405 FNMA) 585,000 Los Angeles Special Assessment, 3.75% due 3/1/2004 (Insured: AMBAC) Aaa/AAA 596,016 2,500,000 Los Angeles Unified School District Series E, 5.50% due 7/1/2012 (Insured: MBIA) Aaa/AAA 2,940,275 355,000 Marysville Hospital Revenue, 5.55% due 1/1/2013 (Fremont - Rideout Health Group Aaa/AAA 368,249 Project; Insured: AMBAC) 2,800,000 Metropolitan Water District Southern California Waterworks Revenue, 0.95% due VMIG1/A1+ 2,800,000 7/1/2035 put 7/1/2003 (daily demand notes) 1,000,000 Metropolitan Water District Southern California Waterworks Revenue Series C-1, 1.00% VMIG1/A1+ 1,000,000 due 7/1/2036 put 7/1/2003 (daily demand notes) 3,000,000 Modesto High School District Stanislaus County Series A, 0% due 8/1/2012 (Insured: Aaa/AAA 2,136,690 FGIC) 1,205,000 Moorpark Mobile Home Park Revenue Series A, 5.80% due 5/15/2010 (Villa Delaware NR/A 1,304,003 Arroyo Project; Insured: ACA) 2,500,000 Natomas Unified School District California Certificates, 2.50% due 2/1/2028 put Aaa/AAA 2,530,600 2/1/2005 (Natomas High School Project) 1,400,000 New Haven Unified School District Refunding, 12.00% due 8/1/2006 (Insured: FSA) Aaa/AAA 1,828,890 1,000,000 New Haven Unified School District Refunding, 12.00% due 8/1/2008 (Insured: FSA) Aaa/AAA 1,452,050 1,000,000 Norco California Special Taxes Refunding Community Facilities District Number 93-1, NR/NR 1,007,730 5.40% due 7/1/2020 360,000 Northern California Power Agency Public Power Revenue, 5.65% due 7/1/2007 (Geothermal Baa2/A- 415,102 Project 3-A) (ETM)* 340,000 Northern California Power Agency Public Power Revenue, 5.65% due 7/1/2007 Baa2/A- 382,211 65,000 Oakland Redevelopment Agency, 7.40% due 5/1/2007 (Insured: AMBAC) Aaa/AAA 65,333 1,000,000 Orange County Airport Revenue Bond, 6.00% due 7/1/2007 (Insured: MBIA) Aaa/AAA 1,142,360 4,200,000 Orange County California Apartment Development Revenue Variable Rate, 1.00% due VMIG1/NR 4,200,000 11/1/2009 put 7/1/2003 (Laguna Summit Apartments X Project; LOC: Bank of America) (daily demand notes) 510,000 Orange County Local Transportation Authority Sales Tax Revenue, 6.00% due 2/15/2006 Aa2/AA+ 568,497 600,000 Orange County Recovery Certificates Participation Series A, 6.00% due 7/1/2006 Aaa/AAA 678,798 (Insured: MBIA) 2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/2004 (Insured: MBIA) Aaa/AAA 2,100,280 2,000,000 Orange County Refunding Recovery, 6.50% due 6/1/2005 (Insured: MBIA) Aaa/AAA 2,196,100 1,000,000 Piedmont Unified School District Series B, 0% due 8/1/2013 pre-refunded 8/1/2007 Aa3/NR 636,970 3,350,000 Pittsburg California Redevelopment Agency Tax Allocation Refunding, 5.25% due Aaa/AAA 3,867,675 8/1/2012 (Los Medanos Community Development Project A; Insured: MBIA) 200,000 Pleasant Hill Multi Family Housing Refunding, 5.30% due 10/1/2020 put 10/1/2005 NR/AAA 212,928 (Ellinwood Apartments Project; Collateralized: FNMA) 1,000,000 Pleasanton Unified School District Series B, 0% due 8/1/2016 (Insured: MBIA) Aaa/AAA 497,760 580,000 Pomona Unified School District General Obligation, 5.35% due 2/1/2005 (Insured: MBIA) Aaa/AAA 617,509 340,000 Pomona Unified School District General Obligation, 5.40% due 8/1/2005 (Insured: MBIA) Aaa/AAA 368,791 320,000 Pomona Unified School District Refunding Series A, 6.10% due 2/1/2010 (Insured: MBIA) Aaa/AAA 381,194 295,000 Porterville Certificates Participation, 6.10% due 10/1/2005 (Water Systems Refunding Aaa/AAA 326,149 Project; Insured: AMBAC) 1,000,000 Puerto Rico Commonwealth Highway & Transportation Authority, 5.50% due 7/1/2009 Aaa/AAA 1,163,230 (Insured: FSA) 1,000,000 Puerto Rico Commonwealth Highway & Transportation Authority Highway Revenue Refunding Aaa/AAA 1,133,480 Series Aa, 5.00% due 7/1/2008 (Insured: FGIC) 600,000 Puerto Rico Municipal Finance Agency Series A, 6.00% due 7/1/2011 (Insured: FSA) Aaa/AAA 727,698 5,000,000 Rancho Santiago Community College District Series A, 4.00% due 9/1/2005 (Insured: Aaa/AAA 5,292,550 MBIA) 500,000 Richmond Joint Powers Financing Authority Revenue Series A, 5.20% due 5/15/2005 NR/A 533,100 500,000 Sacramento County Sanitation District Financing Authority Revenue, 4.80% due Aaa/AA 517,780 12/1/2004 (ETM)* 560,000 Sacramento County Sanitation District Financing Authority Revenue Series A, 5.75% due Aa3/AA 663,370 12/1/2009 800,000 Sacramento Municipal Utility District Electric Revenue, 5.30% due 11/15/2005 Aaa/AAA 829,080 (Insured: FSA) 330,000 Sacramento Municipal Utility District Electric Revenue Refunding Series C, 5.75% due Aaa/AAA 337,808 11/15/2007 (Insured: MBIA) (ETM)* 2,335,000 Salinas Redevelopment Agency Tax Allocation Series A, 0% due 11/1/2022 (Insured: FSA) Aaa/AAA 835,696 3,000,000 San Bernardino County Multi Family Housing Revenue Refunding Series A, 4.75% due Aaa/NR 3,235,860 12/15/2031 put 12/15/2011 (Collateralized: FNMA) 190,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 200,634 5.10% due 9/1/2011 205,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 217,093 5.20% due 9/1/2012 300,000 San Bernardino County Special Taxes Community Facilities District Number 2002-1, NR/NR 319,092 5.30% due 9/1/2013 175,000 San Bernardino County Transportation Authority Sales Tax Revenue Series A, 6.00% due Aaa/AAA 186,349 3/1/2010 (Insured: FGIC) (ETM)* 1,250,000 San Bernardino Multi Family Housing Refunding, 4.45% due 5/1/2031 mandatory put NR/AAA 1,331,575 5/1/2011 (Alberta Park Vista Apts A Project; Collateralized: FNMA) 430,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2005 Aaa/AAA 472,407 (Insured: MBIA) 455,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2006 Aaa/AAA 521,958 (Insured: MBIA) 425,000 San Diego Public Facilities Financing Authority Lease Revenue, 7.00% due 4/1/2007 Aaa/AAA 502,966 (Insured: MBIA) 500,000 San Francisco Bay Area Rapid Transit Refunding Sales Tax Revenue, 0% due 7/1/2004 Aaa/AAA 494,335 (Insured: AMBAC) 1,000,000 San Francisco Bay Area Transit Bridge Toll Notes, 5.625% due 8/1/2006 (Insured: ACA) NR/A 1,102,350 1,100,000 San Francisco International Airport Revenue Series Issue 13B, 8.00% due 5/1/2007 Aaa/AAA 1,282,215 (Insured: MBIA) 895,000 San Joaquin County Certificates of Participation, 5.90% due 9/1/2003 (General A2/A- 902,464 Hospital Project) (ETM)* 2,200,000 San Jose Evergreen Community College District Series C, 0% due 9/1/2011 (Insured: Aaa/AAA 1,593,592 AMBAC) 2,700,000 San Jose Financing Authority Lease Revenue Series D, 5.00% due 6/1/2039 mandatory put Aaa/AAA 2,962,413 6/1/2006 (Civic Center Project; Insured: AMBAC) 500,000 San Jose Redevelopment Agency Tax Allocation, 5.75% due 8/1/2011 (Merged Area A2/A 511,680 Redevelopment Project Series B) 1,900,000 San Marcos Public Facilities Authority Revenue Community Facilities District Number Aaa/NR 1,696,339 88-1, 0% due 3/1/2008 (ETM)* 2,000,000 Santa Ana Multi Family Housing Revenue Bonds Series B, 5.65% due 11/1/2021 put NR/AAA 2,043,900 11/1/2006 (Collateralized: FNMA) 1,000,000 Santa Clara County Financing Authority, 5.00% due 8/1/2005 (Measure B Transportation A2/NR 1,065,580 Improvement Program) 2,000,000 Santa Clara County Housing Authority Series B, 3.80% due 8/1/2004 (River Town A1/NR 2,002,540 Apartments Project; LOC: Union Bank Cal.) 610,000 Santa Cruz County Certificates Refunding, 4.00% due 8/1/2005 A2/NR 640,518 1,000,000 Santa Margarita/Dana Point Authority Revenue Refunding Improvement Districts 1&2 Aaa/AAA 1,047,100 Series A, 5.375% due 8/1/2004 (Insured: MBIA) 575,000 Seal Beach Redevelopment Agency Mobile Home Park Revenue Series A, 5.20% due NR/A 634,070 12/15/2013 (Insured: ACA) 1,435,000 South Orange County Public Finance Authority Special Tax Revenue, 7.00% due 9/1/2005 Aaa/AAA 1,607,171 (Insured: MBIA) 1,500,000 South Orange County Public Financing Authority Special Tax Revenue Series C, 8.00% Aaa/AAA 1,908,150 due 8/15/2008 (Foothill Area Project; Insured: FGIC) 3,250,000 Southern California Public Power Authority Revenue Refunding Series A, 5.50% due Aaa/AAA 3,315,390 7/1/2012 (Power Project; Insured: AMBAC) (ETM)* 350,000 Southern California Revenue, 5.15% due 7/1/2015 (Public Power Project; Insured: Aaa/AAA 393,764 AMBAC) 250,000 Southern California Revenue, 5.15% due 7/1/2015 (Public Power Project; Insured: Aaa/AAA 281,260 AMBAC) 2,315,000 Stanton Multi Family Housing Revenue Bond Series 1997, 5.625% due 8/1/2029 put NR/AAA 2,498,093 8/1/2009 (Continental Gardens Project; Collateralized: FNMA) 500,000 Turlock Irrigation District Revenue Refunding Series A, 5.75% due 1/1/2018 (Insured: Aaa/AAA 501,665 MBIA) 2,380,000 Ukiah Unified School District Certificates Participation, 4.00% due 9/1/2006 Aaa/AAA 2,563,998 (Insured: MBIA) 1,000,000 Ukiah Unified School District Certificates Participation, 5.00% due 9/1/2008 Aaa/AAA 1,134,670 (Insured: MBIA) 500,000 University California Revenues Refunding, 5.00% due 12/1/2006 Aaa/AAA 518,190 625,000 Upland Unified School District Convertible Capital Appreciation, 0% due 8/1/2007 Aaa/AAA 681,544 (Insured: FSA) 500,000 Ventura County Community College Series A, 5.00% due 8/1/2012 (Insured: MBIA) Aaa/AAA 569,195 160,000 Ventura Unified School District Series F, 6.75% due 8/1/2004 (Insured: FSA) Aaa/AAA 169,870 115,000 Ventura Unified School District Series F, 6.75% due 8/1/2005 (Insured: FSA) Aaa/AAA 127,824 455,000 Victorville Redevelopment Agency Tax Allocation Bear Valley Road Special Escrow Fund Aaa/AAA 484,516 A, 5.00% due 12/1/2014 (Insured: FSA) 800,000 Walnut Valley Unified School District, 9.00% due 8/1/2006 (ETM)* Aaa/AAA 982,528 1,000,000 Walnut Valley Unified School District, 8.75% due 8/1/2010 (ETM)* Aaa/AAA 1,389,970 245,000 Walnut Valley Unified School District Series A, 6.70% due 8/1/2005 (Insured: MBIA) Aaa/AAA 272,068 250,000 Walnut Valley Unified School District Series A, 6.80% due 2/1/2007 (Insured: MBIA) Aaa/AAA 292,458 250,000 Walnut Valley Unified School District Series A, 6.90% due 2/1/2008 (Insured: MBIA) Aaa/AAA 300,632 100,000 Walnut Valley Unified School District Series A, 7.00% due 8/1/2008 (Insured: MBIA) Aaa/AAA 122,635 450,000 Washington Township Health Care District Revenue, 5.00% due 7/1/2009 A2/NR 496,247 570,000 West Contra Costa Unified School District Series A, 6.50% due 8/1/2005 (Insured: Aaa/AAA 630,511 MBIA) 595,000 West Contra Costa Unified School District Series A, 7.00% due 8/1/2006 (Insured: Aaa/AAA 692,592 MBIA) 655,000 West Contra Costa Unified School District Series A, 7.00% due 8/1/2008 (Insured: Aaa/AAA 803,259 MBIA) 1,000,000 Whittier Solid Waste Revenue Refunding Series A, 5.375% due 8/1/2014 (Insured: AMBAC) Aaa/AAA 1,022,860 TOTAL INVESTMENTS (Cost $185,795,442) $ 193,763,769 +Credit ratings are unaudited. *Escrowed to maturity See notes to financial statements.
Report of independent auditors Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 To the Board of Directors and Class I Shareholders of Thornburg Limited Term Municipal Fund, Inc. - California Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Limited Term Municipal Fund, Inc.- California Portfolio (the "Fund") at June 30, 2003, 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 the Class I shares for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at June 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year ended June 30, 1999 were audited by other independent accountants whose report dated July 27, 1999 expressed an unqualified opinion on those financial highlights. PricewaterhouseCoopers LLP New York, New York July 30, 2003 Index Comparisons Thornburg Limited Term Municipal Fund, Inc. - California Portfolio June 30, 2003 Index Comparison Compares performance of Limited Term Municipal Fund - California Portfolio, the Lehman 5-Year General Obligation Bond Index and the Consumer Price Index for the periods ended June 30, 2003. On June 30, 2003, the weighted average securities ratings of both the Index and the Fund were AA and the weighted average portfolio maturities of the Index and the Fund were 4.9 years and 4.9 years, respectively. Past performance of the Index and the Fund may not be indicative of future performance. Performance data and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. Thornburg Limited Term Municipal Fund California Class I Total Returns, Since April 1, 1997, versus Lehman 5-Year General Obligation Bond Index and Consumer Price Index (C.P.I.) Lehman 5 yr. GO Index Fund I Shares CPI Class I Shares Average Annual Total Returns (Period ending 6/30/03) One year: 5.27% Five years: 4.76% Since inception (4/1/97) 5.10%
Directors and Officers Thornburg Limited Term Municipal Fund, Inc. - California Portfolio Name, Address (1) Position(s) Term of Principal Member of Other And Age Held with Office Occupation(s) Portfolios Directorships Fund (2) and During Past in Fund Held by Length of 5 Years Complex Director or Time Overseen Nominee for Served by Director Director or Nominee for Director (2) Interested Directors Garrett Thornburg, Chairman Director CEO, Chairman and Controlling Twelve None 57 of the Since Shareholder of Thornburg Board of 1984; Investment Management, Inc. Directors, (4) (investment adviser) and Thornburg Treasurer (3) Securities Corporation (securities dealer); Chairman of Trustees of Thornburg Investment Trust (registered investment company); CEO and Chairman of Thornburg Mortgage, Inc. (real estate investment trust); Chairman of Thornburg Mortgage Advisory Corporation (investment manager to Thornburg Mortgage, Inc.). Independent Directors David D. Chase, Director Director Chairman, President and CEO Twelve Trustee, 62 since 2001 of general partner of Vestor Thornburg (4) Partners, LP, Santa Fe, NM Investment Trust (private equity fund); Chairman and CEO of Vestor Holdings, Inc., Santa Fe, NM (merchant bank). Eliot R. Cutler, Director Director Partner, Akin, Gump, Strauss, Two Director of 56 since 1984 Hauer & Feld, LLP, Washington Skanska, AB (4) D.C. (law firm) since November (construction services) 2000; partner, Cutler & Stanfield, Washington, D.C. (law firm) until November 2000. James E. Monaghan, Jr., Director Director President, Monaghan & Two None 56 since 1984 Associates, Inc. and (4) Strategies West, Inc. Denver, Colorado (business consultants). A.G. Newmyer III, Director Director Private investor and management Two None 53 since 1984 consultant. (4) Advisory Director Richard M. Curry, Advisory Advisory Managing Director, McDonald Not applicable None 60 Director (6) Director (5) & Co., Cincinnati, Ohio Since (securities dealer) and District 2002 (6) President, Key Bank, Cincinnati, Ohio, since March 2000. Officers of the Fund (who are not Directors) (7) Brian J. McMahon, President President President and Managing Director Not applicable Not applicable 47 since 1997 of Thornburg Investment (4) Management, Inc.; President of Thornburg Investment Trust Dawn B. Fischer, Secretary Secretary Vice President, Secretary and Not applicable Not applicable 56 Since 1984 Managing Director of Thornburg (4) Investment Management, Inc.; Secretary and Assistant Treasurer of Thornburg Investment Trust; Secretary of Thornburg Securities Corporation; Vice President, Daily Tax Free Income Fund, Inc. (registered investment company). Steven J. Bohlin, Vice President Vice Vice President and Managing Not applicable Not applicable 44 President Director of Thornburg Investment Since 1991 Management, Inc.; Vice President (4) and Treasurer of Thornburg Investment Trust. George T. Strickland, Vice President Vice Vice President and Managing Not applicable Not applicable 40 Treasureer President Director of Thornburg Investment Since 1999; Management, Inc.; Vice President Treasurer of Thornburg Investment Trust. since 2003 Leigh Moiola, Vice President Vice Vice President, and Managing Not applicable Not applicable 36 President Director since 1998, of Since 1999 Thornburg Investment Management, (4) Inc.; Vice President of Thornburg Investment Trust since 2001. Kenneth Ziesenheim, Vice President Vice Managing Director of Thornburg Not applicable Not applicable 49 President Investment Management, Inc.; Since 1995 President of Thornburg Securities (4) Corporation; Vice President of Thornburg Investment Trust. Kerry D. Lee, Vice President Vice Associate of Thornburg Investment Not applicable Not applicable 36 President Management, Inc.; Vice President Since 1999 of Thornburg Investment Trust (4) since 1999. Dale Van Scoyk, Vice President Vice Account Manager for Thornburg Not applicable Not applicable 56 President Investment Management, Inc. Since 1999 1997-1999, and Managing Director (4) and Vice President since 1999; Vice President of Thornburg Investment Trust since 1998; National Account Manager for Heartland Funds 1993-1997. Joshua Gonze, Vice President Vice Associate and Vice President of Not applicable Not applicable 40 President Thornburg Investment Management, Since 2001 Inc. since 1999; Vice President of (4) Thornburg Investment Trust since 2001 Christopher Ihlefeld, Vice President Vice Associate and Vice President of Not applicable Not applicable 32 President Thornburg Investment Mgt, Inc.; Since 1999 Assistant Vice President of (4) Thornburg Investment Trust since 1999. (1) Each person's address is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (2) The Fund is one of two separate investment "funds" or "portfolios" of Thornburg Limited Term Municipal Fund, Inc. (the "Company"), organized as a Maryland corporation. The Company currently has two funds, which are considered for certain regulatory purposes as parts of a "fund complex" with the nine funds of Thornburg Investment Trust. Thornburg Investment Management, Inc. is the investment adviser to, and manages, the eleven funds of the Company and Thornburg Investment Trust. (3) Mr. Thornburg is considered an "interested" Director under the Investment Company Act of 1940 because he is a director and controlling shareholder of the investment adviser, Thornburg Investment Management, Inc., and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Company. (4) Thornburg Limited Term Municipal Fund, Inc.'s Amended By-Laws provide that each Director shall serve in office until the next annual meeting or the election and qualification of the Director's successor. In accordance with Maryland law, the Company does not hold an annual meeting each year; it may hold shareholder meetings as circumstances require. Officers serve at the pleasure of the Board of Directors. (5) Mr. Cutler may be considered an "interested" Director of the Company because he is associated with a partnership which receives a portion of Thornburg Investment Management, Inc.'s revenues. (6) As an Advisory Director, Mr. Curry serves at the pleasure of the Board of Directors. (7) Assistant vice presidents, assistant secretaries and assistant treasurers are not shown.
The Fund's Statement of Additional Information includes additional information about the Directors and is available, without charge and upon request by calling 1-800-847-0200 Thornburg limited term municipal fund CALIFORNIA portfolio - I shares Outperformed Tax-Exempt Money Market Funds Investors sometimes ask us to compare Limited Term Municipal Fund - California Portfolio to money market fund returns. These investments have certain differences, and investors in Limited Term Municipal Fund - California Portfolio took more risk than money market fund investors to earn their higher returns. Return from a $10,000 investment 6/30/93* through 6/30/03 Lipper California Tax-exempt Money Market Index $2,702 Thornburg Limited Term Municipal Fund - - California Portfolio (after capital gains taxes) $6,074 The chart above is for the Fund's Class I shares only. Class A and 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 for one year, three years, five years, and since inception for Class I shares of the Fund. *Prior to 4/1/97 the illustration includes actual returns of the Class A shares adjusted for the lower Institutional expenses. 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 tax-exempt money funds as quoted in "Lipper California Tax-exempt Money Market Index" for the months covered by this analysis. The increase for the Class I shares of Thornburg Limited Term Municipal Fund - California Portfolio is based upon the dividends paid for the months covered by this analysis, the beginning NAV price at $12.85 per share and the ending NAV at $13.22 per share. These investments returned the $10,000 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. The portion of the increase, if any, of Thornburg Limited Term Municipal Fund - California Portfolio representing appreciation of the share price is assumed to be taxed at a 15% 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: Generally, money market funds seek to maintain an investment portfolio with an average maturity of 90 days or less. Thornburg Limited Term Municipal Fund - California Portfolio invests in short-to-intermediate maturity municipal obligations. The net asset value of the money funds did not fluctuate. The net asset value of the Class I Shares of LTCIX did vary from time to time, and will continue to vary in the future due to the effect of changes in interest rates on the value of the investments the Fund holds. The analysis assumes that the investor received the net asset value of the shares owned, plus accrued income, at time of sale. 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. Thornburg Limited Term Municipal Fund - California Portfolio also declares dividends daily and pays them monthly. Note 5: An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such funds. Investment Manager Thornburg Investment Management, Inc. 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 Principal Underwriter Thornburg Securities Corporation 119 East Marcy Street Santa Fe, New Mexico 87501 800.847.0200 ww.thornburg.com 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 do not guarantee future results. PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION (1) Section 10.2 of Thornburg Investment Trust's Agreement and Declaration of Trust generally provides that each of the Trust's officers and Trustees will be indemnified by the Trust against liability and expenses in connection with his having been a Trustee or officer unless it is determined that the individual is liable by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, or if the individual did not act in good faith in the reasonable belief that the action was in the Trust's best interest. (2) Section 8 of the Trust's Amended Distribution Agreement generally provides that the Trust will indemnify Thornburg Securities Corporation (TSC), its officers and directors, and its controlling persons against liabilities and expenses incurred because of any alleged untrue statement of material fact contained in the Registration Statement, Prospectus or annual or interim reports to shareholders, or any alleged omission to state a material fact required to be stated therein, or necessary to make the statements therein, not misleading, except where (i) the untrue statement or omission arises from information furnished by TSC, or (ii) to the extent the prospective, indemnitee is an officer, trustee or controlling person of the Trust, the indemnification is against public policy as expressed in the 1933 Act, or (iii) the liability or expense arises from TSC's willful misfeasance, bad faith, gross negligence, reckless performance of duties, or reckless disregard of its obligations and duties under the Distribution Agreement. Further, TSC agrees to indemnify the Trust, its officers and trustees, and its controlling persons in certain circumstances. (3) The directors and officers of Thornburg Investment Management, Inc. (Thornburg) are insured, and the Trustees and officers of the Trust are also insured, under a joint directors and officers liability policy. The described individuals are referred to as the "insureds." The policy covers amounts which the insureds become legally obligated to pay by reason of the 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 Thornburg, and is proposed to cover the Registrant, 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 duties. The application of the foregoing provisions is limited by the following undertakings 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 Trustees, 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 or expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, 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 jurisdiction of such issue. ITEM 16. EXHIBITS (1) (a) Limited Term Trust, Agreement and Declaration of Trust, June 3, 1987, incorporated by reference from Registrant's Registration Statement on Form N-1A, filed June 12, 1987. (b) First Amendment and Supplement to Agreement and Declaration of Trust, August 11, 1987, incorporated by reference from Registrant's pre-effective amendment no. 1 to its Registration Statement on Form N-1A, filed October 28, 1987. (c) Second Amendment and Supplement to Agreement and Declaration of Trust, October 28, 1987, incorporated by reference from Registrant's post-effective amendment no. 1 to its Registration Statement on Form N-1A, filed March 3, 1988. (d) Third, Fourth, Fifth, Sixth and Seventh Amendments to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 13 to its Registration Statement on Form N-1A, filed December 3, 1993. (e) Amended and Restated Designation of Series, incorporated by reference from Registrant's post-effective amendment no. 17 to its Registration Statement on Form N-1A, filed July 27, 1994. (f) Ninth Amendment and Supplement to Agreement and Declaration of Trust, incorporated by reference from Registrant's post- effective amendment no. 20 to its Registration Statement on Form N-1A, filed on July 5, 1995. (g) Corrected Tenth Amendment and Supplement to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 22 to its Registration Statement on Form N-1A, filed October 2, 1995. (h) First Supplement to Amended and Restated Designation of Series, incorporated by reference from Registrant's post- effective amendment no. 26 to its Registration Statement on Form N-1A, filed May 6, 1996. (i) Eleventh and Twelfth Amendments and Supplements to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 29 to its Registration Statement on Form N-1A, filed March 14, 1997. (j) Thirteenth Amendment and Supplement to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 33 to its Registration Statement on Form N-1A, filed March 10, 1998. (k) Fourteenth Amendment and Supplement to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 43 to its Registration Statement on Form N-1A, filed October 13, 2000. (l) Fifteenth Amendment and Supplement to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 44 to its Registration Statement on Form N-1A, filed January 29, 2001. (m) Sixteenth and Seventeenth Amendments and Supplements to Agreement and Declaration of Trust, incorporated by reference from Registrant's post-effective amendment no. 51 to its Registration Statement in Form N-1A, filed October 17, 2002. (n) Second Supplement to Amended and Restated Designation of Series, incorporated by reference from Registrant's post- effective amendment no. 54 to its Registration Statement on Form N-1A, filed on June 27, 2003. (o) Eighteenth Amendment to Supplement to Agreement and Declaration of Trust, filed herewith. (2) Amended By-laws (May 20, 2003), incorporated by reference from Registrant's post-effective amendment no. 54 to its Registration Statement on Form N-1A, filed June 27, 2003. (4) Copies of Agreements and Plans of Reorganization are attached as Exhibit A to each Prospectus/Proxy Statement included in this Registration Statement. (6) Amended and Restated Investment Advisory Agreement, incorporated by reference from Registrant's post-effective amendment no. 32 to its Registration Statement on Form N-1A, filed February 17, 1998. (7) Amended Distribution Agreement, incorporated by reference from Registrant's post-effective amendment no. 42 to its Registration Statement on Form N-1A, filed August 31, 2000. (9) Form of Custodian Agreement, incorporated by reference from Registrant's post-effective amendment no. 1 to its Registration Statement on Form N-1A, filed October 28, 1987. (10) (a) Plan and Agreement of Distribution Pursuant to Rule 12b-1 (Service Plan - Classes A, C and I); incorporated by reference from Registrant's post-effective amendment no. 32 to its Registration Statement on Form N-1A, filed February 17, 1998. (b) Plan and Agreement of Distribution Pursuant to Rule 12b-1 (Distribution Plan - Class C), incorporated by reference from Registrant's post-effective amendment no. 32 to its Registration Statement on Form N-1A, filed February 17, 1998. (c) Plan for Multiple Class Distribution (as revised to May 20, 2003), incorporated by reference from Registrant's post- effective amendment no. 55 to its Registration Statement on Form N-1A, filed July 20, 2003. (11) Opinion of counsel [to be filed by amendment]. (12) Opinion of counsel (tax) [to be filed by amendment]. (14) Consent of independent accountants, filed herewith. (16) (a) Power of Attorney of David A. Ater, incorporated by reference from Registrant's post-effective amendment no. 20 to its Registration Statement on Form N-1A, filed July 5, 1995. (b) Powers of Attorney of James W. Weyhrauch and Brian J. McMahon, incorporated by reference from the Registrant's post-effective amendment no. 29 to its Registration Statement on Form N-1A, filed on March 14, 1997. (c) Powers of Attorney of Forrest S. Smith and Garrett Thornburg, incorporated by reference from the Registrant's post-effective amendment no. 7 to its Registration Statement on Form N-1A, filed April 19, 1991. (d) Power of Attorney of David D. Chase, incorporated by reference from the Registrant's post-effective amendment no. 44 to its Registration Statement on Form N-1A, filed January 29, 2001. (e) Power of Attorney of Steven J. Bohlin, incorporated by reference from the Registrant's post-effective amendment no. 53 to its Registration Statement on Form N-1A, filed May 1, 2003. ITEM 17. UNDERTAKINGS (1) The registrant shall obtain opinions of counsel that (i) the securities registered hereby, when sold, shall be legally issued, fully paid and non-assessable, and (ii) the reorganization described in each Agreement and Plan of Reorganization shall constitute a tax-free "reorganization" described in Section 368 of the Internal Revenue Code of 1986 as amended. (2) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a 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, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (3) The undersigned Registrant agrees that every prospectus that is filed as a 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 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities all that time shall be deemed to be the initial bon fide offering of them. SIGNATURES As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant in Santa Fe, New Mexico on January 29, 2004. THORNBURG INVESTMENT TRUST By: * --------------------------------- Brian J. McMahon, President and principal executive officer As required by the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated. * - --------------------------------- Brian J. McMahon, Trustee, President and principal executive officer * - --------------------------------- Steven J. Bohlin, Vice President, Treasurer and principal financial and accounting officer - --------------------------------- Garrett Thornburg, Trustee - --------------------------------- David D. Chase, Trustee - --------------------------------- David A. Ater, Trustee - --------------------------------- Forrest S. Smith, Trustee - --------------------------------- James W. Weyhrauch, Trustee * By: /s/ Charles W.N. Thompson, Jr. ------------------------------- Charles W.N. Thompson, Jr. Dated: January 29, 2004 E X H I B I T S (1)(o) Eighteen Amendment and Supplement to Declaration of Trust (14) Consent of independent accountants. Exhibit (1)(o) THORNBURG INVESTMENT TRUST EIGHTEENTH AMENDMENT AND SUPPLEMENT TO AGREEMENT AND DECLARATION OF TRUST THIS EIGHTEENTH AMENDMENT AND SUPPLEMENT is made by Garrett Thornburg, David A. Ater, David D. Chase, Brian J. McMahon, Forrest S. Smith and James W. Weyhrauch (the "Trustees"). The Trust was formed on June 3, 1987 by an Agreement and Declaration of Trust - Limited Term Trust dated June 3, 1987. Section 3.1 permits the creation of new series of shares in addition to the series established and designated in Section 3.2. Accordingly, by execution of this Amendment and Supplement, the Trustees effect the following amendments to the Agreement and Declaration of Trust. Creation of New Series The Trustees establish two new series of shares designated "Thornburg Limited Term Municipal Fund" and "Thornburg Limited Term California Municipal Fund," respectively, effective December 8, 2003. Each new series will have the relative rights and preferences described in Section 3.2 of the Agreement and Declaration of Trust. The Trustees further establish and designate five classes of shares of Thornburg Limited Term Municipal Fund and Thornburg Limited Term California Municipal Fund, each having an unlimited number of shares: the Class A Shares, the Class B Shares, the Class C Shares, the Class D Shares, and the Class I Shares respectively. Additional classes of shares of the Fund may be established and designated by the Trustees from time to time by supplement to this Amendment and Supplement. Shares of each Class so created will represent interests in the same assets of the Fund, and will be identical in all respects except as described below: (a) fees will be charged to each Class under the Class's Rule 12b-1 distribution plans, if any, to the extent that expenses are allocable to that Class; (b) a service fee will be charged to each Class based on a percentage of the average daily net asset value of that Class, which fee shall be primarily intended to reimburse the adviser for expenditures to obtain shareholder services; and a distribution fee will be charged to each of Class B Shares, Class C Shares and Class D Shares under separate distribution plans; (c) a higher transfer agency fee may be charged to Class B Shares, Class C Shares and Class D Shares, and a different transfer agency fee may be charged to Class I Shares, than is imposed on Class A Shares; (d) shareholders of each Class will have exclusive voting rights with respect to any Rule 12b-1 plans applicable to that Class of shares; (e) Class B Shares, Class C Shares, Class D Shares and Class I Shares may have conversion features providing for conversion to Class A Shares, and the terms and periods for conversion for each Class may differ, as the Trustees may from time to time specify by resolution; (f) to the extent identifiable as being attributable to a specific Class, the following expenses may be allocated to the Class: (i) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxy materials to current shareholders; (ii) blue sky fees and costs attributable to registration, qualification or exemption of the Class's shares, (iii) federal registration fees; (iv) administrative expense required to support the shareholders of a specific Class; and (v) litigation or other legal expenses relating solely to one Class of shares; (g) consistent with the foregoing, fees and expenses chargeable to a Class, and conversion and reinvestment rights of shares of the Class, shall be from time to time established by resolution of the Trustees; and (h) fees and expenses of a Class shall first be charged against the pro rata portion of the income of the Fund allocable to shares of that Class, and, to the extent necessary, fees and expenses will be charged to that portion of the net assets of the Fund allocable to that Class. Other than as specified above, the various Classes of the Fund shall have the rights and preferences as described in Article III of the Agreement and Declaration of Trust. The Trustees effect these amendments as of December 8, 2003, and direct the Trust's president to file this Amendment and Supplement in the appropriate governmental offices. ------------------------------ Garrett Thornburg ------------------------------ David A. Ater ------------------------------ David D. Chase ------------------------------ Brian J. McMahon ------------------------------ Forrest S. Smith ------------------------------ James W. Weyhrauch Exhibit (14) CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in this Registration Statement on Form N-14 of our reports dated July 30, 2003, relating to the financial statements and financial highlights of Thornburg Limited Term Municipal Fund National Portfolio and Thornburg Limited Term Municipal Fund California Portfolio, constituting Thornburg Limited Term Municipal Fund (the "Fund"), which appear in this Registration Statement on Form N-14. We also consent to the reference to us in the Statements of Additional Information in such Registration Statement. PricewaterhouseCoopers LLP New York, NY January 27, 2004 -----END PRIVACY-ENHANCED MESSAGE-----